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:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HENRY SCHEIN, INC.
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(Name of Registrant as Specified in Its Charter)
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(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement no.:
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(4) Date Filed:
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[LOGO] HENRY SCHEIN-REGISTERED TRADEMARK-
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
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Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Henry Schein, Inc. (the "Company"), to be held at 4:00 P.M., on Thursday, May
22, 1997 at the Huntington Hilton, 598 Broadhollow Road, Melville, New York.
The Annual Meeting will be held for the following purposes:
1. To elect 11 directors of the Company for terms expiring in 1998.
2. To amend the Company's Certificate of Incorporation to eliminate the
provision providing for a maximum number of directors, to provide
authority for the board to establish from time to time the number of
directors, to eliminate the provision preventing the board from amending
or repealing By-Laws adopted by the stockholders, and to eliminate
certain supermajority voting requirements.
3. To amend the Company's By-Laws to permit the directors to fill any board
vacancies that arise from time to time and to eliminate the provision
preventing the board from amending or repealing By-Laws adopted by the
stockholders.
4. To amend the Company's 1994 Stock Option Plan to increase the number of
shares issuable under the plan.
5. To ratify the selection of BDO Seidman, LLP as the Company's independent
auditors for the fiscal year ending December 27, 1997.
6. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only stockholders of record at the close of business on April 1, 1997 are
entitled to notice of and to vote at the meeting or any adjournments or
postponements thereof.
Whether or not you expect to attend the meeting in person, please complete,
date and sign the enclosed proxy exactly as your name appears thereon and
promptly return it in the envelope provided, which requires no postage if mailed
in the United States.
STANLEY M. BERGMAN
Chairman, Chief Executive Officer
and President
Melville, New York
April 18, 1997
HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
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PROXY STATEMENT
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The Board of Directors of Henry Schein, Inc. (the "Company") has fixed the
close of business on April 1, 1997 as the record date for determining the
holders of the Company's common stock, par value $.01 per share (the "Common
Stock"), entitled to notice of and to vote at the 1997 Annual Meeting of
Stockholders (the "Annual Meeting"). As of that date, there were outstanding
23,324,085 shares of Common Stock, each entitled to one vote. The Notice of
Annual Meeting, this Proxy Statement and the form of proxy are first being
mailed to stockholders of record of the Company on or about April 18, 1997. A
copy of the Company's 1996 Annual Report to Stockholders is being mailed with
this Proxy Statement but is not incorporated herein by reference.
Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders, whereas broker non-votes are not counted for purposes
of determining whether a proposal has been approved. Abstentions and broker
non-votes will have no effect on the election of directors (Proposal 1) or the
ratification of the selection of independent public accountants (Proposal 5).
Since approval of the proposed amendments to the Company's Certificate of
Incorporation (Proposal 2) requires the affirmative vote of 80% of the
outstanding shares, approval of the proposed amendment to the Company's By-Laws
(Proposal 3) requires the approval of two-thirds of the outstanding shares, and
the amendment to the Company's 1994 Stock Option Plan (Proposal 4) requires the
approval of a majority of the outstanding shares, shares abstaining and broker
non-votes will effectively be an "against" vote with respect to each such
matter.
The expense of this proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or other means by directors or employees of the Company or
its subsidiaries without additional compensation. The Company will reimburse
brokerage firms and other nominees, custodians and fiduciaries for costs
incurred by them in mailing proxy materials to the beneficial owners of shares
held of record by such persons. In addition, the Company has retained D.F. King
& Co., Inc. of New York, New York, a proxy solicitation organization, to assist
in the solicitation of proxies. The fee of such organization in connection
herewith is estimated to be $5,000, plus reasonable out-of-pocket expenses.
The enclosed proxy is solicited by the Board of Directors of the Company. It
may be revoked at any time prior to its exercise by giving written notice to the
Secretary of the Company, by executing a subsequent proxy and delivering it to
the Secretary of the Company, or by attending the meeting and voting in person.
Attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer named in the Summary Compensation Table on page 16 of
this Proxy Statement and (iv) all directors and executive officers as a group.
Unless otherwise indicated, each person in the table has sole voting and
investment power as to the shares shown.
SHARES
BENEFICIALLY OWNED
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PERCENT
NAME AND ADDRESS NUMBER OF CLASS
- ----------------------------------------------------------------------- ---------- -----------
Stanley M. Bergman (1)(2).............................................. 8,424,175 35.6%
Marvin H. Schein, Individually and as Trustee (1)(3)................... 3,717,006 15.9%
Leslie J. Levine, as Trustee (1)(4).................................... 2,968,347 12.7%
Pamela Schein (1)(5)................................................... 1,642,504 7.0%
Irving Shafran and Judith Shafran, as Trustees (1)(5).................. 1,642,504 7.0%
Marion Bergman, as Trustee (1)(6)...................................... 1,429,285 6.1%
Leslie Bergman, as Trustee (1)(7)...................................... 1,238,120 5.3%
Barry J. Alperin....................................................... 2,667 *
Gerald A. Benjamin (8)................................................. 87,023 *
James P. Breslawski (9)................................................ 195,822 *
Leonard A. David (10).................................................. 33,413 *
Pamela Joseph (11)..................................................... 355,180 1.5%
Donald J. Kabat........................................................ 2,267 *
Mark E. Mlotek (12).................................................... 45,617 *
Steven Paladino (13)................................................... 92,023 *
Directors and Executive Officers as a Group (18 persons) (14).......... 9,112,089 38.5%
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* Represents less than 1%.
(1) Unless otherwise indicated, the address for each person is c/o Henry
Schein, Inc., 135 Duryea Road, Melville, New York 11747.
(2) Includes (a) 9,900 shares which Mr. Bergman owns directly and which he has
the power to vote and the power to dispose of in accordance with the HSI
Agreement (as defined herein), (b) 2,897,020 shares which Mr. Bergman
shares the power to vote pursuant to voting trust agreements, (c) options
to purchase 367,464 shares of Common Stock exercisable within 60 days by
certain executives which shares will be subject to the Voting Trust (as
defined herein) and which Mr. Bergman will share the power to vote and (d)
an additional 5,149,791 shares held by certain stockholders of the
Company, which shares are required by the HSI Agreement to be voted for
the eight nominees for director selected by Mr. Bergman in accordance with
the HSI Agreement. The shares described in (a) through (c) must also be
voted for the nominees for director selected in accordance with the HSI
Agreement. See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(3) Includes (a) 748,659 shares which Mr. Schein owns directly and (b)
2,968,347 shares owned in trusts for the benefit of Mr. Schein and his
family members, and/or trusts for charities of which Mr. Schein and Mr.
Levine are co-trustees. Mr. Schein has the power to vote and to dispose of
such shares in accordance with the HSI Agreement. Mr. Schein has the right
to nominate one director to the Board of Directors in accordance with the
HSI Agreement. Certain stockholders of the Company (including Mr. Schein)
are required to vote for the nominees for director selected in accordance
with the HSI Agreement. See "ELECTION OF DIRECTORS--Certain Voting
Arrangements."
(4) Mr. Levine holds such shares as co-trustee of trusts for the benefit of
Marvin H. Schein and his family members, and/or trusts for charities. Mr.
Levine has the power to vote and to dispose of such
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shares in accordance with the HSI Agreement. All of such shares must be
voted for the nominees for director selected in accordance with the HSI
Agreement. See "ELECTION OF DIRECTORS - Certain Voting Arrangements."
(5) The shares are owned by a revocable trust established by Ms. Schein of
which Mr. Shafran and Ms. Shafran are co-trustees. Ms. Schein has the
power to dispose of such shares if she revokes the trust, subject to the
HSI Agreement. Mr. Shafran and Ms. Shafran have the power to dispose of
such shares in accordance with the HSI Agreement. All of such shares are
subject to the Voting Trust. Ms. Schein has the right to nominate one
director to the Board of Directors in accordance with the HSI Agreement.
Certain stockholders of the Company (including the trustees of the
revocable trust) are required to vote for the nominees for director
selected in accordance with the HSI Agreement. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
(6) Ms. Bergman holds such shares as a trustee or co-trustee of trusts
established by Stanley M. Bergman for the benefit of Stanley M. Bergman
and his family members. Ms. Bergman has the power to vote and to dispose
of such shares in accordance with the HSI Agreement. All of such shares
must be voted for the nominees for director selected in accordance with
the HSI Agreement. See "ELECTION OF DIRECTORS -Certain Voting
Arrangements."
(7) Leslie Bergman holds such shares as co-trustee of trusts established by
Stanley M. Bergman for the benefit of Stanley M. Bergman and his family
members. Leslie Bergman has the power to vote and to dispose of such
shares in accordance with the HSI Agreement. All of such shares must be
voted for the nominees for director selected in accordance with the HSI
Agreement. See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(8) Includes (a) 1,000 shares owned directly, (b) 50,490 shares subject to the
Voting Trust and (c) options to purchase 35,533 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(9) Mr. Breslawski has the power to dispose of such shares in accordance with
the HSI Agreement. All of such shares are subject to the Voting Trust and
must be voted for the nominees for director selected in accordance with
the HSI Agreement. See "ELECTION OF DIRECTORS - Certain Voting
Arrangements."
(10) Includes (a) 2,500 shares owned directly, (b) 14,850 shares subject to the
Voting Trust and (c) options to purchase 16,063 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(11) Ms. Joseph has the power to dispose of such shares in accordance with the
HSI Agreement. All of such shares are subject to the Voting Trust. Ms.
Joseph has the right to nominate one director to the Board of Directors in
accordance with the HSI Agreement. Certain stockholders of the Company
(including Ms. Joseph) are required to vote for the nominees for director
selected in accordance with the HSI Agreement. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
(12) Includes (a) 2,000 shares owned directly, (b) 14,850 shares subject to the
Voting Trust, (c) options to purchase 23,967 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise and (d) 4,800 shares which Mr. Mlotek has the power to vote as
trustee of trusts for certain third parties. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
(13) Includes (a) 3,500 shares owned directly, (b) 50,490 shares subject to the
Voting Trust and (c) options to purchase 38,033 shares of Common Stock
exercisable within 60 days which will be subject to the Voting Trust upon
exercise. Mr. Paladino has the power to dispose of such shares in
accordance with the HSI Agreement. All of such shares must be voted for
the nominees for director selected in accordance with the HSI Agreement.
See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(14) Includes (a) all shares described in the preceding notes (2) through (13),
and (b) 670,180 shares held by other executive officers which are not
subject to the Voting Trust, and 4,934 shares held by other directors
which are not subject to the Voting Trust. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
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PROPOSAL 1
ELECTION OF DIRECTORS
Eleven directors are to be elected at the Annual Meeting to serve until the
1998 Annual Meeting of Stockholders and until their successors are elected and
qualified. The Board of Directors has approved the persons named below as
nominees and, unless otherwise marked, a proxy will be voted for such persons.
Each of the nominees currently serves as a director and was elected by the
stockholders at the 1996 Annual Meeting. All nominees have consented to be named
and to serve if elected. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies may be voted in the discretion of the persons acting pursuant to the
proxy for the election of other nominees. Directors will be elected by plurality
vote. Set forth below is certain information concerning the nominees:
NAME AGE POSITION
- ---------------------------------------------------- ----- ----------------------------------------------------
Stanley M. Bergman.................................. 47 Chairman, Chief Executive Officer, President and
Director
James P. Breslawski................................. 43 Executive Vice President and Director
Gerald A. Benjamin.................................. 44 Senior Vice President--Administration and Customer
Satisfaction and Director
Leonard A. David.................................... 48 Vice President--Human Resources, Special Counsel and
Director
Mark E. Mlotek...................................... 41 Vice President, General Counsel, Secretary and
Director
Steven Paladino..................................... 40 Senior Vice President, Chief Financial Officer and
Director
Barry J. Alperin.................................... 56 Director
Pamela Joseph....................................... 54 Director
Donald J. Kabat..................................... 61 Director
Marvin H. Schein.................................... 55 Founder, Schein Dental Equipment, and Director
Irving Shafran...................................... 53 Director
STANLEY M. BERGMAN has been Chairman, Chief Executive Officer, and President
since 1989 and a director of the Company since 1982. Mr. Bergman held the
position of Executive Vice President of the Company and Schein Pharmaceutical,
Inc. from 1985 to 1989 and Vice President of Finance and Administration of the
Company from 1980 to 1985. Mr. Bergman is a certified public accountant.
JAMES P. BRESLAWSKI has been Executive Vice President of the Company since
1990, with primary responsibility for the North American Dental Group, the
Veterinary Group and corporate creative services, and a director of the Company
since 1990. Between 1980 and 1990, Mr. Breslawski held various positions with
the Company, including Chief Financial Officer, Vice President of Finance and
Administration and Controller. Mr. Breslawski is a certified public accountant.
GERALD A. BENJAMIN has been Senior Vice President of Administration and
Customer Satisfaction since January 1993, including responsibility for the
worldwide human resource function, and has been a director of the Company since
September 1994. Prior to holding his current position, Mr. Benjamin was Vice
President of Distribution Operations of the Company from 1990 to December 1992
and Director of Materials Management of the Company from 1988 to 1990. Before
joining the Company in 1988, Mr. Benjamin was employed for 13 years in various
management positions at Estee Lauder, where his last position was Director of
Materials Planning and Control.
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LEONARD A. DAVID has been Vice President of Human Resources and Special
Counsel since January 1995. Mr. David held the office of Vice President, General
Counsel and Secretary from 1990 to January 1995 and practiced corporate and
business law for eight years prior to joining the Company in 1990. Mr. David has
been a director of the Company since September 1994.
MARK E. MLOTEK joined the Company in December 1994 as Vice President,
General Counsel and Secretary and became a director of the Company in September
1995. Prior to joining the Company, Mr. Mlotek was a partner in the law firm of
Proskauer Rose Goetz & Mendelsohn LLP, specializing in mergers and acquisitions,
corporate reorganizations and tax law from 1989 until he joined the Company.
STEVEN PALADINO has been Senior Vice President and Chief Financial Officer
of the Company since April 1993 and has been a director of the Company since
December 1992. From 1990 to April 1993, Mr. Paladino served as Vice President
and Treasurer and from 1987 to 1990 served as Corporate Controller of the
Company. Before joining the Company in 1987, Mr. Paladino was employed as a
public accountant for seven years and most recently was with the international
accounting firm of BDO Seidman, LLP. Mr. Paladino is a certified public
accountant.
BARRY J. ALPERIN has been a director of the Company since May 1996. Mr.
Alperin has been a private consultant since August 1995. Mr. Alperin served as
Vice Chairman of Hasbro, Inc. from 1990 through July 1995. Mr. Alperin served as
Co-Chief Operating Officer of Hasbro, Inc. from 1989 through 1990 and as its
Senior Vice President and Executive Vice President from 1985 through 1989. Mr.
Alperin currently serves as a director for Seaman Furniture Company, Inc., a
furniture retailing company, and K'nex Industries, Inc., a wholesale toy
company.
PAMELA JOSEPH has been a director of the Company since September 1994. For
the past five years, Ms. Joseph has been a self-employed artist and is President
of Anderson Ranch Arts Center. Ms. Joseph is also a trustee of Alfred
University.
DONALD J. KABAT has been a director of the Company since May 1996. Mr. Kabat
is President of D.K. Consulting Services, Inc. and served as Chief Financial
Officer of Central Park Skaters, Inc. from September 1992 to September 1995.
From 1970 to 1992, Mr. Kabat was a partner in Andersen Consulting, an affiliate
of Arthur Andersen, LLP.
MARVIN H. SCHEIN has been a director of the Company since September 1994 and
has provided consulting services to the Company since 1982. Mr. Schein founded
Schein Dental Equipment Corp., a subsidiary of the Company, serving as its
President for the past 16 years. Prior to founding Schein Dental Equipment
Corp., Mr. Schein held various management and executive positions with the
Company.
IRVING SHAFRAN has been a director of the Company since September 1994 and
was nominated by Pamela Schein as her designee for director of the Company. Mr.
Shafran has been an attorney in private practice for the past 25 years. From
1991 through December 1995, Mr. Shafran was a partner in the law firm of
Anderson Kill Olick and Oshinsky, PC.
CERTAIN VOTING ARRANGEMENTS
The Amended and Restated HSI Agreement (the "HSI Agreement") among certain
stockholders of the Company, which was entered into in connection with the
Company's reorganization in 1994, provides that until the earlier of January 1,
1999 or the termination of the voting trust established in connection therewith
(the "Voting Trust"), Marvin H. Schein, Pamela Joseph and Pamela Schein each
have the right to select one nominee for director and Stanley M. Bergman (as
voting trustee) or his successor voting trustee has the right to select the
remaining nominees. Mr. Schein and Ms. Joseph have chosen to be nominees for
director and Ms. Schein has selected Mr. Shafran as a nominee for director. Mr.
Bergman has selected the remaining nominees for director. The parties to the HSI
Agreement, who currently have the right to vote approximately 35.1% of the
Company's outstanding Common Stock, are required to vote for all such nominees.
The HSI Agreement provides that, in general, from the earlier of January 1, 1999
or
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the termination of the Voting Trust until the earlier of (i) January 1, 2004,
(ii) the first date on which Marvin H. Schein and his family group no longer
beneficially own at least 25% of the outstanding Common Stock that they owned
immediately after the reorganization, or (iii) the date of certain changes in
the Company's management, Mr. Bergman (or his successor voting trustee) has the
right to select all of the nominees to the Board of Directors; provided, that if
Marvin H. Schein does not approve such nominations, Mr. Bergman (or his
successor trustee) and Mr. Schein will each select an equal number of nominees
(of which one will be an independent nominee) and an additional nominee will be
selected by the two independent nominees. If any director previously nominated
pursuant to the HSI Agreement ceases to hold office, the individual who
nominated such director shall have the right to nominate his or her successor.
The Voting Trust expires on December 31, 1998, unless earlier terminated.
The shares subject to the Voting Trust, which includes shares held by certain
executives and other stockholders of the Company, are voted by Mr. Bergman,
except that the participants in the Voting Trust retain the power to vote their
shares in connection with (i) a dissolution or liquidation of the Company, (ii)
a merger or consolidation of the Company or (iii) a sale, lease or other
transfer of all or substantially all the assets of the Company, whether directly
or indirectly, through a transfer of its subsidiaries or a significant business
of the Company. Approximately 13.4% of the Company's outstanding Common Stock is
held pursuant to the Voting Trust.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 28, 1996 ("fiscal 1996"), the Board of
Directors held seven meetings.
The Board of Directors has an Audit Committee which currently consists of
Messrs. Alperin and Kabat. The Audit Committee oversees the Company's financial
reporting process on behalf of the Board of Directors. In fulfilling its
responsibility, the Audit Committee recommends to the Board of Directors,
subject to stockholder approval, the selection of the Company's independent
public accountants. The Audit Committee also reviews the Company's consolidated
financial statements and the adequacy of the Company's internal controls. The
Audit Committee meets with the independent public accountants to discuss the
results of their audit of the Company, their evaluation of the Company's
internal controls and the overall quality of the Company's financial reporting.
The Audit Committee held two meetings in fiscal 1996.
The Board of Directors has a Compensation Committee which currently consists
of Messrs. Alperin and Kabat. The Compensation Committee makes recommendations
regarding the compensation and benefit policies and procedures of the Company.
The Compensation Committee held one meeting during fiscal 1996.
The Board of Directors has a Stock Option Committee which currently consists
of Messrs. Alperin and Kabat. The Stock Option Committee determines grants under
the Company's 1994 Stock Option Plan. The Stock Option Committee held one
meeting during fiscal 1996.
COMPENSATION OF DIRECTORS
In fiscal 1996, Messrs. Alperin and Kabat each received a $20,000 annual
retainer, plus an additional $500 per board meeting and $250 per committee
meeting attended, and were granted options to purchase 5,000 shares of the
Company's Common Stock. For fiscal 1997, Messrs. Alperin and Kabat each receive
a $25,000 annual retainer, plus an additional $1,000 per board meeting and $500
per committee meeting attended (or $750 if such committee meeting is held on a
day other than a day on which a board meeting is held), and were granted options
to purchase 1,000 shares of the Company's Common Stock. Directors are reimbursed
for their out-of-pocket expenses in attending board meetings and committee
meetings.
6
PROPOSAL 2
AMENDMENT OF THE CERTIFICATE
OF INCORPORATION
Article "Fifth" of the Company's amended and restated certificate of
incorporation (the "Certificate of Incorporation"), the complete text of which,
prior to amendment as proposed hereby, is included as Exhibit A to this Proxy
Statement, contains various provisions relating to the governance of the
Company. Specifically:
(a) section "A" provides that the number of directors of the Company
shall be no less than five and no more than 11 through December 31, 1998,
and thereafter the number of directors shall be nine,
(b) section "B" provides, among other things, that stockholders may
adopt any By-Law and may amend or repeal any By-Law adopted by the Board of
Directors and that the Board of Directors may not amend or repeal any By-Law
adopted by the stockholders, and
(c) section "C" requires the affirmative vote of 80% of the outstanding
shares to amend or repeal, or to adopt any provisions inconsistent with,
Article "Fifth."
See "Election of Directors--Certain Voting Arrangements" regarding certain
agreements relating to the governance of the Company.
The proposed amendment to Article "Fifth" of the Certificate of
Incorporation would (a) eliminate the limit on the maximum number of directors
of the Company, while specifying only that the number of directors shall be as
specified in the By-Laws or as fixed from time to time by resolution of the
Board of Directors, and that there shall not be fewer than five directors, (b)
eliminate the provision preventing the Board of Directors from amending or
repealing By-Laws adopted by the stockholders and (c) eliminate the 80% voting
requirement with respect to amendments of Article "Fifth."
Sections "A" and "B1" of Article "Fifth," as proposed to be amended, would
read in their entirety as follows, and section "C" of Article "Fifth" would be
deleted:
FIFTH:
A. The number of directors which shall constitute the entire Board of
Directors shall be as provided in the Corporation's By-Laws or as fixed from
time to time by resolution of the Board of Directors, but shall not be fewer
than five.
B. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To adopt, amend or repeal any By-Law (PROVIDED, HOWEVER, that any
By-Law made, amended or repealed by the Board of Directors may be amended
or repealed, and that any by-laws may be adopted, by the stockholders of
the Corporation);
The current version of section "A" of Article "Fifth" provides that the
maximum number of directors shall be 11 through December 31, 1998, which is the
number of individuals presently serving as director, and shall thereafter be
nine. The Board of Directors believes that it would be desirable to increase the
Company's flexibility to obtain the services of one or more additional
individuals as a director, by eliminating the limitation in the Certificate of
Incorporation on the maximum number of directors. The proposed amendment would
permit one or more additional directors to be added to the Board without the
need for a Board vacancy to exist as a result of the death, disability, removal
or resignation of a current director. In connection with the proposed
acquisition (the "Proposed Acquisition") by the Company of Micro Bio-Medics,
Inc. ("MBMI"), the Company has agreed with Bruce Haber, the President and Chief
Executive Officer of MBMI, pursuant to the terms of an employment agreement with
Mr. Haber (the
7
"Haber Contract") which would become effective at the time the Proposed
Acquisition is completed, to use its reasonable best efforts to cause Mr. Haber
to be nominated for election as a director of the Company during the term of
such employment agreement. Accordingly, the Company intends, following
completion of the Proposed Acquisition and assuming stockholder approval of this
Proposal and of Proposal 3, to expand the number of directors to twelve and to
fill such newly created vacancy by electing Mr. Haber to the Board.
With regard to the proposed amendment to section "B1" of Article "Fifth",
section 109 of the Delaware General Corporation Law (the "DGCL") allows a
Delaware corporation to confer on its directors the power to adopt, amend or
repeal any bylaw, provided that such right of the directors shall not divest the
stockholders of the power to adopt, amend or repeal any bylaw. Article "Fifth"
currently allows the directors to adopt, amend or repeal any By-Law other than
any By-Law adopted by the stockholders of the Company. Since all of the By-Laws
of the Company were approved by the stockholders in September 1994, Article
"Fifth" effectively prevents the directors from amending or repealing any of the
Company's By-Laws. The Board of Directors believes that it would be desirable to
increase the Company's flexibility and its ability to respond to changing
conditions by permitting the directors to adopt, amend or repeal any of the
Company's By-Laws, regardless of the manner in which such By-Laws were
originally adopted. The proposed amendment to Article "Fifth" would eliminate
any restriction on the power of the directors to adopt, amend or repeal any
By-Laws of the Company, and would continue to expressly incorporate the retained
power of the stockholders under section 109 of the DGCL to adopt, amend or
repeal any By-Law, including any By-Law adopted, amended or repealed by the
directors. Proposal 3 includes a conforming amendment of the By-laws provision
that corresponds to section "B1" of Article "Fifth" of the Certificate of
Incorporation.
Absent a provision in the Certificate of Incorporation requiring a higher
percentage vote, under section 242 of the DGCL, a simple majority of the
outstanding shares of capital stock is sufficient to authorize any amendment to
a corporation's certificate of incorporation. Section "C" of Article "Fifth"
currently requires the affirmative vote of 80% of the outstanding shares of
Common Stock to amend or repeal, or adopt any provision inconsistent with, that
Article. The Board of Directors believes that it is desirable for the Company to
have the ability to amend its Certificate of Incorporation without the
requirement of an 80% "supermajority" vote and that the 80% supermajority
requirement would be inconsistent with the other amendments being made to
Article "Fifth," which amendments the directors believe increase the Company's
flexibility and its ability to respond to changing conditions. Accordingly, the
proposed amendment to Article "Fifth" would eliminate the 80% supermajority
requirement.
On February 27, 1997, the Board of Directors unanimously adopted a
resolution approving the foregoing amendment to Article "Fifth" of the
Certificate of Incorporation and approving the submission of such amendment to
the Company's stockholders.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF 80% OF THE OUTSTANDING SHARES OF THE
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE
FOREGOING AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
8
PROPOSAL 3
AMENDMENT OF THE BY-LAWS
This proposal would effect an amendment of the Company's By-Laws in two
respects in a manner consistent with the proposed amendment of the Certificate
of Incorporation.
Article VI of the Company's By-Laws provides, in part, that the Board of
Directors may not amend or repeal any By-Laws adopted by the stockholders of the
Company. The complete text of Article VI of the Company's By-Laws, prior to
amendment as proposed hereby, is included as Exhibit B to this Proxy Statement.
Consistent with Proposal 2 concerning elimination of the corresponding section
of the Certificate of Incorporation, the Board of Directors is proposing
amendment of the By-Laws to eliminate such restriction in the By-Laws.
Article VI of the By-Laws, as proposed to be amended, would read in its
entirety as follows:
These By-Laws may be amended or repealed and any By-Laws may be adopted
at any annual meeting of the stockholders or at any special meeting thereof
if notice of the proposed amendment or repeal, or By-Law or By-Laws to be
adopted, be contained in that notice of such special meeting, by the
affirmative vote of holders of two-thirds of the shares of the stock issued
and outstanding and entitled to vote thereat (unless a greater percentage is
provided herein), or at any regular meeting of the Board of Directors, or at
any special meeting of the Board of Directors, if notice of the proposed
amendment or repeal, or By-Law or By-Laws to be adopted, be contained in the
notice of such special meeting, by the affirmative vote of two-thirds of the
Board of Directors.
Article III, Section 3 of the Company's By-Laws requires vacancies in the
Board of Directors to be filled by the affirmative vote of stockholders holding
at least 66 2/3% of the outstanding shares entitled to vote in any election of
directors. The Board of Directors believes that it is in the interest of the
Company to (i) enable the Board of Directors to fill any vacancy as and when
deemed by the Board of Directors to be necessary or desirable without the need
to call a special meeting of stockholders, and (ii) increase the Board of
Directors' flexibility in establishing the size of the Board of Directors and,
in particular, electing additional Board members from time to time to fill any
vacancy created by an increase in the size of the Board of Directors. Therefore,
consistent with the amendments proposed to Article "Fifth" of the Certificate of
Incorporation, the proposed amendment to Article III, Section 3 of the By-Laws
would eliminate the requirement that 66 2/3% of the outstanding shares entitled
to vote in any election is needed to fill any Board vacancies and would allow a
majority of the directors to fill any vacancies that may arise. See "Election of
Directors--Certain Voting Agreements" regarding certain agreements relating to
the nomination of successors to directors who cease to hold office.
The complete text of Article III, Section 3, prior to amendment as proposed
hereby, is included as Exhibit C to this Proxy Statement. As proposed to be
amended, Article III, Section 3, of the By-Laws would read in its entirety as
follows:
Section 3. VACANCIES. Newly created directorships resulting from any
increase in the number of directors and any other vacancies on the Board of
Directors, whether resulting from death, disability, resignation,
disqualification, removal or any other circumstances, shall be filled by the
affirmative vote of a majority of the directors then in office, although
less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified. Without limiting
the generality of the foregoing, a vacancy shall also be deemed to exist if
the stockholders fail at any annual meeting of stockholders at which any
director or directors are required to be elected, to elect the full
authorized number of directors to be voted for at that meeting.
9
On February 27, 1997, the Board of Directors unanimously adopted a
resolution approving the foregoing amendment to Article VI and Article III,
Section 3 of the By-Laws and approving the submission of such amendment to the
Company's stockholders.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES
OF THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE FOREGOING AMENDMENT TO THE
BY-LAWS.
PROPOSAL 4
AMENDMENT OF 1994 STOCK OPTION PLAN
The Company maintains the Henry Schein, Inc. 1994 Stock Option Plan ("Stock
Option Plan") for the benefit of certain employees of the Company and its
designated subsidiaries.
The proposed amendment to the Stock Option Plan would increase the number of
shares issuable upon the exercise of Class B Options granted under the Stock
Option Plan by approximately 7.0% of the outstanding shares, or 1,600,000
shares. The proposed amendment would not change the number of shares issuable
upon the exercise of Class A Options, the maximum number of which have been
issued.
The first sentence of Section 5(b) of the Stock Option Plan, as proposed to
be amended, would read in its entirety as follows:
Subject to adjustment as provided in this Section 5, the maximum
aggregate number of Shares that may be issued under the Plan shall be
2,279,635 shares of Common Stock of which a maximum of 237,897 of such
Shares shall be covered by Class A Options and the balance of such Shares
shall be covered by Class B Options.
The Board of Directors believes that it is desirable to increase the total
number of shares available under the Stock Option Plan in order to attract,
motivate and retain key employees or individuals that would be key employees of
the Company and its designated subsidiaries.
DESCRIPTION OF THE STOCK OPTION PLAN
The purpose of the Stock Option Plan is to enable the Company and its
designated subsidiaries to attract, retain and motivate key employees who are
important to the success and growth of the Company and to create a mutuality of
interest between the key employees and the stockholders of the Company by
granting the key employees options to purchase Common Stock. Under the Stock
Option Plan, as currently constituted, 679,635 shares of Common Stock may be
issued. The Stock Option Plan provides for two classes of options: Class A
Options, which have an exercise price of $4.21 per share, and Class B Options,
which have an exercise price of not less than the fair market value of the
Common Stock at the time of grant. Class A Options to purchase an aggregate of
221,397 shares of Common Stock are presently outstanding, and Class B Options to
purchase an aggregate of 447,400 shares of Common Stock are presently
outstanding. If options are canceled, expire or terminate unexercised, the
shares of Common Stock shall again be available for the grant of options,
provided that the number of shares covered by Class A Options shall be reduced
by the number of Class A Options that are canceled, expire or are terminated.
Both incentive stock options and non-qualified stock options may be issued under
the Stock Option Plan.
The maximum number of shares of Common Stock with respect to which options
may be granted under the Stock Option Plan to each participant could not exceed
50,000 shares in 1996, and shall not exceed 50,000 in each year thereafter. To
the extent that shares for which options are permitted to be granted to a
participant during a year are not covered by a grant of an option in such year,
such shares shall
10
automatically increase the number of shares of Common Stock available for grant
of options to the participant in the subsequent year.
The Stock Option Plan is administered by a committee appointed by the
Company's Board of Directors, consisting of two or more directors, each of whom
qualifies as a disinterested person within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
as an outside director within the meaning of Section 162(m) of the Code. The
committee has the full authority and discretion, subject to the terms of the
Stock Option Plan, to determine those individuals who are eligible to be granted
options and the amount and type of options. Terms and conditions of options are
set forth in written option agreements, consistent with the terms of the Stock
Option Plan. No option shall be granted under the Stock Option Plan on or after
September 30, 2004 (the tenth anniversary of the effective date of the Stock
Option Plan), but options granted prior to such date may extend beyond that
date.
The Stock Option Plan provides that it may be amended by the Company's Board
of Directors or the committee, except that no amendment may, without the
approval of stockholders of the Company, (i) increase the total number of shares
of Common Stock which may be acquired upon exercise of options granted under the
Stock Option Plan, (ii) change the types of employees eligible to participate in
the Stock Option Plan, (iii) effect any change that would require stockholder
approval under securities laws, (iv) effect any change that would require
stockholder approval under Section 162(m) of the Code or (v) reduce the purchase
price of an outstanding option below the fair market value of a share of Common
Stock on the date of such amendment.
The options entitle the holder to purchase a specified number of shares of
Common Stock, subject to vesting provisions, at a price set by the committee at
the time of grant, subject to certain limitations. The term of each option will
be specified by the committee upon grant, but may not exceed ten years from the
date of grant (five years in the case of incentive stock options granted to
owners of 10% or more of the Company's outstanding voting stock). The committee
will determine the time or times at which each option may be exercised. Options
may be exercisable in installments, and the exercisability of options may be
accelerated in some cases, including upon a change of control of the Company (as
defined in the Stock Option Plan).
Under the Stock Option Plan, the committee may grant incentive stock options
that qualify under Section 422 of the Code or non-qualified stock options.
Incentive stock options are subject to certain requirements under the Stock
Option Plan, as well as under the Code.
A participant may elect to exercise one or more of his or her options by
giving written notice to the committee of such election at any time. The
participant shall specify the number of options to be exercised and provide
payment in full of the aggregate purchase price for the shares of Common Stock
for which options are being exercised. Payment may be made (i) in cash or by
check, bank draft or money order, (ii) if so permitted by the committee, through
delivery of unencumbered shares of Common Stock, a promissory note or a
combination of cash and either of the foregoing, or (iii) on such other terms
and conditions as may be acceptable to the committee or as set forth in the
participant's option agreement.
There were no options granted to the Named Executive Officers under the
Stock Option Plan prior to 1995 or in 1996. In 1995, Class A Options to acquire
237,897 common shares were issued to certain executive management, including
Class A Options exercisable for 29,700 shares of Common Stock to Messrs.
Benjamin and Paladino and Class A Options to acquire 19,800 shares of Common
Stock to Mr. Mlotek, all of which are outstanding, at an exercise price of $4.21
per share. Substantially all of the Class A Options became exercisable upon the
closing of the Company's initial public offering in 1995.
On November 3, 1995, the Company issued Class B Options to acquire 413,400
shares of common stock to certain employees, including Class B Options to
acquire 17,500, 25,000 and 12,500 shares of Common Stock to Messrs. Benjamin,
Paladino and Mlotek, respectively, substantially all of which are outstanding,
at an exercise price of $16.00 per share. Since substantially all of the Class B
Options became
11
exercisable ratably over three years from the date of issuance approximately
one-third of the Class B Options have become exercisable.
The Class A Options and Class B Options granted to the Named Executive
Officers are exercisable up to the tenth anniversary of the date of issuance,
subject to acceleration upon termination of employment. As of December 28, 1996,
substantially all of such options remained unexercised.
Pursuant to the terms of the Proposed Acquisition of MBMI, the Company would
assume the currently outstanding options to purchase MBMI common stock. At the
closing of the Proposed Acquisition, such options would be converted to options
to acquire up to 1,142,454 shares of Company Common Stock and would otherwise be
governed by the terms of MBMI's stock option plans. Such options would not be
issuable under or governed by the Stock Option Plan. Additionally, pursuant to
the terms of the Haber Contract, upon completion of the Proposed Acquisition,
Mr. Haber would be issued options having a value of $1,000,000 determined by
application of the Black-Sholes formula and, thereafter, during the term of his
employment with the Company, would be issued annual options, subject to
achievement of certain performance goals. All such options would be issuable
under the Stock Option Plan.
A copy of the Stock Option Plan is available upon request from the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES The principal Federal income tax
consequences with respect to stock options granted pursuant to the Stock Option
Plan are summarized below:
INCENTIVE STOCK OPTIONS. Options granted under the Stock Option Plan may be
incentive stock options as defined in the Code, provided that such options
satisfy the requirements under the Code therefor. In general, neither the grant
nor the exercise of an incentive stock option will result in taxable income to
the optionee or a deduction to the Company. The sale of Common Stock received
pursuant to the exercise of an option which satisfied all the requirements of an
incentive stock option, as well as the holding period requirement described
below, will result in a long-term capital gain or loss to the optionee equal to
the difference between the amount realized on the sale and the option price and
will not result in a tax deduction to the Company. To receive incentive stock
option treatment, the optionee must not dispose of the Common Stock purchased
pursuant to the exercise of an option either (i) within two years after the
option is granted, or (ii) within one year after the date of exercise.
If all requirements for incentive stock option treatment other than the
holding period rules are satisfied, the recognition of income by the optionee is
deferred until disposition of the Common Stock, but, in general, any gain (in an
amount equal to the lesser of (i) the fair market value of the Common Stock on
the date of exercise (or, with respect to officers and directors, the date that
sale of such stock would not create liability ("Section 16(b) liability") under
Section 16(b) of the Exchange Act minus the option price or (ii) the amount
realized on the disposition minus the option price) is treated as ordinary
income. Any remaining gain is treated as long-term or short-term capital gain
depending on the optionee's holding period for the stock disposed of. The
Company generally will be entitled to a deduction at that time equal to the
amount of ordinary income realized by the optionee.
The Stock Option Plan provides that an optionee may, if permitted by the
committee pay for Common Stock received upon the exercise of an option
(including an incentive stock option) with other shares of Common Stock. In
general, an optionee's transfer stock acquired pursuant to the exercise of a
"statutory option," which includes an incentive stock option, to acquire other
stock in connection with the exercise of an incentive stock option may result in
ordinary income if the transferred stock has not met the minimum statutory
holding period necessary for favorable tax treatment as an incentive stock
option. For example, if an optionee exercises an incentive stock option and uses
the stock so acquired to exercise another incentive stock option with the
two-year or one-year holding periods discussed above, the optionee may realize
ordinary income under the rules summarized above.
NON-QUALIFIED STOCK OPTIONS. An optionee will realize no income at the time
he or she is granted a non-qualified stock option. Such conclusion is predicated
on the assumption that, under existing Treasury
12
Department regulations, a non-qualified stock option, at the time of its grant,
has no readily ascertainable fair market value. Ordinary income will be realized
when a non-qualified stock option is exercised. The amount of such income will
be equal to the excess of the fair market value on the exercise date of the
shares of Common Stock issued to an optionee over the option price. The
optionee's holding period with respect to the shares acquired will begin on the
date of exercise.
The tax basis of the stock acquired upon the exercise of any option will be
equal to the sum of (i) the exercise price of such option and (ii) the amount
included in income with respect to such option. Any gain or loss on a subsequent
sale of the stock will be either long-term or short-term capital gain or loss,
depending on the optionee's holding period for the stock disposed of. The
Company generally will be entitled to a deduction for Federal income tax
purposes at the same time and in the same amount as the optionee is considered
to have realized ordinary income in connection with the exercise of the option.
CERTAIN OTHER TAX ISSUES. In addition, (i) any entitlement to a tax
deduction on the part of the Company is subject to applicable Federal tax rules
(including, without limitation, Code Section 162(m) regarding the $1,000,000
limitation on deductible compensation), (ii) the exercise of an option may have
implications in the computation of alternative minimum taxable income, and (iii)
in the event that the exercisability or vesting of any option is accelerated
because of a change in control, such option (or a portion thereof), either alone
or together with certain other payments, may constitute parachute payments under
Section 280G of the Code, which excess amounts may be subject to excise taxes.
On February 27, 1997, the Board of Directors unanimously approved for
submission to the stockholders the foregoing amendment to the 1994 Stock Option
Plan.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE FOREGOING AMENDMENT TO THE
STOCK OPTION PLAN.
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning annual and long-term
compensation for the Company's Chief Executive Officer and the other four most
highly paid executive officers (collectively, the "Named Executive Officers")
for the fiscal years ended December 31, 1994, December 30, 1995 and December 28,
1996.
LONG-TERM COMPENSATION
ANNUAL COMPENSATION
----------------------------------- -------------------------
OTHER ANNUAL RESTRICTED STOCK LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)(3) ($)(4)
- -------------------------- --------- --------- --------- ------------- ------------ ----------- ------------ -------------
Stanley M. Bergman........ 1996 504,050 298,523 19,343 -- -- -- 37,023
Chairman, Chief 1995 479,050 307,034 19,343 -- -- -- 36,144
Executive Officer and 1994 469,050 260,496 258,259 -- -- 17,303,475 24,988
President
James P. Breslawski....... 1996 285,000 65,000 14,400 -- -- -- 20,970
Executive Vice President 1995 270,782 66,000 13,500 -- -- -- 21,458
1994 257,782 60,000 1,000,364 1,171,788 -- 382,618 19,184
Gerald A. Benjamin........ 1996 220,000 60,000 14,400 -- 47,200 -- 16,545
Senior Vice President of 1995 205,000 52,500 13,500 -- -- 243,825 15,064
Administration and 1994 185,000 42,500 189,714 220,761 13,722
Customer Satisfaction
Steven Paladino........... 1996 220,000 62,500 14,400 -- -- -- 16,264
Senior Vice President 1995 205,000 52,500 13,500 -- 54,700 -- 14,812
and Chief Financial 1994 185,000 42,500 189,714 220,761 -- 243,825 13,496
Officer
Mark E. Mlotek............ 1996 225,000 50,000 14,400 -- -- -- 16,566
Vice President, General 1995 212,000 45,000 13,500 -- 32,300 -- 8,729
Counsel and Secretary 1994 9,770 -- -- 92,758 -- -- --
- ------------------------
(1) The 1994 amounts shown in this column include amounts recorded for each of
Messrs. Breslawski, Benjamin and Paladino of $986,864, $175,674 and
$175,674, respectively, to pay income taxes attributable to the stock
issuances made to each of them in 1994. Mr. Bergman was given a cash bonus
of $258,259 in 1994 to pay certain additional income taxes attributable to
the certain stock issuances described below. In 1995, Mr. Mlotek received
$82,434 to pay income taxes attributable to stock issuances made to him in
1995.
(2) At the end of fiscal 1996, Messrs. Breslawski, Benjamin, Paladino and Mlotek
held 195,822, 50,490, 50,490 and 14,850 shares of restricted common stock,
respectively, with an aggregate value of $6,731,381, $1,735,594, $1,735,594
and $510,469 respectively.
(3) Mr. Bergman was issued 1,466,685 shares of Common Stock and was issued
shares of common stock of Schein Pharmaceutical, Inc. on December 24, 1992.
The value of these shares on September 30, 1994 was $17.3 million in the
aggregate. These shares when issued had a value of $6.2 million and $2.6
million, respectively, the entire amount of which was charged as deferred
compensation. The
14
issuances to Mr. Bergman are being included herein at their fair market
value on September 30, 1994 because, on that date, certain contingencies
relating to the stock were eliminated and the shares became fully vested.
Accordingly, the deferred compensation which was charged in 1992 and a mark-
to-market adjustment to fair market value on such date was recorded in 1994.
Mr. Breslawski received $382,618 in 1994 in satisfaction of his Executive
Incentive Plan balance, payable with 30,294 shares of Common Stock with an
aggregate value of $214,454 on December 31, 1994 and a $168,164 cash
payment. Each of Messrs. Benjamin and Paladino received $243,825 in 1994 in
satisfaction of their Executive Incentive Plan balance, payable with 19,305
shares of Common Stock with an aggregate value of $136,662 on December 31,
1994 and $107,163 in cash.
(4) The 1994 amounts shown in this column represent (i) profit sharing
contributions made by the Company on behalf of Mr. Bergman and Mr.
Breslawski of $9,434, on behalf of Mr. Benjamin of $7,519 and on behalf of
Mr. Paladino of $7,524, (ii) Employee Stock Ownership Plan ("ESOP")
contributions made by the Company on each executives' behalf of $4,500, and
(iii) excess life insurance and Supplemental Executive Retirement Plan
("SERP") contributions of $1,186 and $9,868 for Mr. Bergman, $950 and $4,300
for Mr. Breslawski, $653 and $1,050 for Mr. Benjamin, and $422 and $1,050
for Mr. Paladino, respectively. The 1995 amounts shown in this column
represent (i) profit sharing contributions made by the Company on behalf of
each of Messrs. Bergman, Breslawski, Benjamin and Paladino of $6,000 and on
behalf of Mr. Mlotek of $4,566, (ii) ESOP contributions made by the Company
on behalf of each of Messrs. Bergman, Breslawski, Benjamin and Paladino of
$4,500 and on behalf of Mr. Mlotek of $3,425, (iii) excess life insurance
and SERP contributions of $2,610 and $23,034 for Mr. Bergman, $1,003 and
$8,455 for Mr. Breslawski, $714 and $3,850 for Mr. Benjamin, $462 and $3,850
for Mr. Paladino, and $738 and $0 for Mr. Mlotek, respectively, and (iv) an
anniversary bonus to Mr. Breslawski of $1,500. The 1996 amounts shown in
this column represent (i) profit sharing contributions made by the Company
on each executive's behalf of $6,000, (ii) ESOP contributions made by the
Company on each executive's behalf of $4,500, and (iii) excess life
insurance and SERP contributions of $1,740 and $24,783 for Mr. Bergman,
$1,020 and $9,450 for Mr. Breslawski, $795 and $5,250 for Mr. Benjamin, $514
and $5,250 for Mr. Paladino, and $816 and $5,250 for Mr. Mlotek,
respectively.
AGGREGATED FISCAL 1996 YEAR-END OPTION VALUES
The following table summarizes the number of all shares subject to options
held by the Named Executive Officers at the end of fiscal 1996, and their value
at that date if they were in-the-money. No stock options were exercised in
fiscal 1996.
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT 12/28/96
NUMBER OF SECURITIES -----------------------------------------------
UNDERLYING UNEXERCISED
OPTIONS AT 12/28/96 EXERCISABLE UNEXERCISABLE
---------------------------------- ----------------------- ----------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) SHARES (#) TOTAL ($) SHARES (#) TOTAL ($)
- -------------------------------------- --------------- ----------------- ----------- ---------- ----------- ---------
Gerald A. Benjamin.................... 35,533 11,667 35,533 1,034,173 11,667 224,590
Steven Paladino....................... 38,033 16,667 38,033 1,082,298 16,667 320,840
Mark E. Mlotek........................ 23,966 8,334 23,966 694,787 8,334 160,430
EMPLOYMENT AND OTHER AGREEMENTS
The Company and Stanley M. Bergman entered into an employment agreement
dated as of January 1, 1992 (the "Employment Agreement"), providing for his
continued employment as Chairman of the Board, President and Chief Executive
Officer until December 31, 1999. The Employment Agreement provides Mr. Bergman
with a base salary of $519,050 for 1997, $544,050 for 1998, and $559,050 for
1999. In addition, the Employment Agreement provides for incentive compensation
to be determined by the
15
Compensation Committee of the Board of Directors (or, if there is no
Compensation Committee, the Board of Directors). Based on the range of incentive
compensation provided for in the employment agreement, it is anticipated that
incentive compensation for 1997 will be in the range of $75,000 to $445,000. The
range of incentive compensation increases to $80,000 to $465,000 in 1998, and
$85,000 to $485,000 in 1999. The Employment Agreement also provides that Mr.
Bergman will continue to participate in all benefit, welfare and perquisite
plans, policies and programs generally available to either the Company's
employees or the Company's senior executive officers. The Company provides Mr.
Bergman with the use of an automobile and expenses related thereto, and other
miscellaneous benefits. If Mr. Bergman's employment with the Company is
terminated by the Company without cause or terminated by Mr. Bergman following a
material breach by the Company of the Employment Agreement which is not cured
during the requisite period for cure of such breach, Mr. Bergman will receive
all amounts then owed to him as salary and deferred compensation and any
benefits accrued and owed to him or his beneficiaries under the then applicable
benefit plans, programs and policies of the Company. In addition, Mr. Bergman
will receive as severance pay, 100% of his then annual base salary and a payment
equal to the account balance or accrued benefit Mr. Bergman would have been
credited with under each pension plan maintained by the Company, in each case
assuming the Company would have continued contributions until the natural
expiration of the Employment Agreement, less Mr. Bergman's vested account
balance or accrued benefits under each pension plan. Unless the Employment
Agreement is terminated for cause or pursuant to Mr. Bergman's voluntary
resignation, the Company will continue the participation of Mr. Bergman and his
family in the health and medical plans, policies and programs in effect with
respect to senior executive officers of the Company and their families. Coverage
for Mr. Bergman and his spouse will continue from the end of Mr. Bergman's
employment until their respective deaths, and coverage for his children will
continue until their attainment of the age of twenty-one.
The Company has entered into agreements with the Named Executive Officers to
provide that if an executive's employment is terminated by the Company or by the
executive without cause or for good reason, respectively, and not within two
years after a change in control of the Company, the Company will pay to the
executive severance pay equal to one month's base salary for each month the
executive has been employed by the Company, with a minimum of six months and a
maximum of twelve months, subject to offset for remuneration for subsequent
employment. If the executive is terminated within two years following a change
in control of the Company which has not been approved by a supermajority of the
Board of Directors, the executive's severance pay will equal three times the
severance pay the executive would have received had no change of control
occurred, plus three times the amount of executive's incentive bonus for the
year preceding the year of termination.
In September 1994, the Company, Schein Pharmaceutical, Inc. and Marvin
Schein, a director and principal stockholder of the Company, agreed to terminate
a lifetime consulting agreement entered into in 1982 between the Company's
predecessor and Mr. Schein, and the Company and Mr. Schein agreed to continue
the consulting arrangement on the terms set forth in a new lifetime consulting
agreement (the "Consulting Agreement"). The current Consulting Agreement
modified certain of the terms of the 1982 agreement, including the elimination
of a provision limiting Mr. Schein's compensation to $100,000 per annum if the
Company's pre-tax income were less than $3.5 million for two consecutive years.
The 1982 agreement provided, and the current Consulting Agreement provides, for
Mr. Schein's consulting services to the Company with respect to the marketing of
dental supplies and equipment, from time to time. The consulting Agreement
currently provides for initial compensation of $258,000 per year, increasing
$25,000 every fifth year beginning in 1997. The Consulting Agreement also
provides that Mr. Schein will participate in all benefit, compensation, welfare
and perquisite plans, policies and programs generally available to either the
Company's employees or the Company's senior executive officers, excluding the
Company's Stock Option Plan, that Mr. Schein's spouse, and his children until
they attain the age of 21, will be covered by the Company's health plan, and
that the Company will provide Mr. Schein with the use of an automobile and
expenses related thereto. The Consulting Agreement was originally entered into
as part of a recapitalization of the Company's predecessor in 1982 among Mr.
Schein and its other stockholders, and
16
to secure for the Company the consulting services of Mr. Schein, who had served
the Company in various executive capacities for more than the prior twenty
years.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The principal focus of the Compensation Committee of the Board of Directors
has been consideration of, and recommendations to, the Board of Directors
concerning annual incentive compensation for the Named Executive Officers of the
Company in respect of fiscal 1996.
In the view of the Committee, the goal of executive compensation generally
is to help the Company attract, motivate and retain the executive talent the
Company needs to maximize stockholder value. As a key element of such program,
incentive compensation is intended to reward superior financial performance,
recognize individuals' contributions to such performance and bring an
executive's total annual cash compensation (base salary plus annual incentive
compensation) above the average for comparable positions at similar-sized
companies.
The Committee considered the financial performance of the Company in fiscal
1996, including its growth in net sales and pro forma operating income, net
income, and earnings per share, and the Company's progress in executing its five
growth strategies: increased sales to existing dental accounts; increased
penetration of medical and veterinary markets; continued international
expansion; enhanced value-added products and services; and completing strategic
acquisitions. With respect to the performance of the Named Executive Officers in
fiscal 1996, the Committee discussed with Mr. Bergman, the Chairman, Chief
Executive Officer and President of the Company, the performance of each of the
other Named Executive Officers and exchanged views about these matters with
other members of the Board of Directors. The Committee also consulted with a
recognized compensation consulting firm in connection with its determination.
On the basis of the foregoing, and other factors, the Committee recommended
to the Board of Directors the 1996 bonus awards to the Named Executive Officers
reflected in the Summary Compensation Table. In addition, with respect to Mr.
Bergman, the Committee referred to the provisions of Mr. Bergman's Employment
Agreement which provide that the Committee shall consider the range of bonuses
set forth in the Agreement.
Respectfully submitted,
BARRY J. ALPERIN
DONALD J. KABAT
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Stanley M. Bergman, James P. Breslawski, Gerald A. Benjamin, Leonard A.
David, Mark E. Mlotek and Steven Paladino are executive officers of the Company
and members of the Board of Directors which approved incentive compensation for
the Named Executive Officers for fiscal 1996 based upon the recommendations of
the Compensation Committee. None of the Named Executive Officers participated in
any deliberations of the Board of Directors with respect to their own
compensation for fiscal 1996.
CERTAIN TRANSACTIONS
In the ordinary course of its business, the Company buys products from and
sells products to Schein Pharmaceutical, Inc. in arms-length transactions. In
1996, the Company's purchases from Schein Pharmaceutical, Inc. amounted to
approximately $7.0 million. Certain of the Company's stockholders and directors,
including Stanley M. Bergman, Marvin H. Schein, Pamela Schein, and Pamela
Joseph, and related persons thereto, own approximately 70% of the outstanding
shares of common stock of Schein Pharmaceutical, Inc.
18
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on $100
invested on November 3, 1995, the date of the initial public offering of the
Company's Common Stock, through the end of fiscal 1995, and through the end of
fiscal 1996, with the cumulative total return for the same periods on the same
amount invested in the Nasdaq Stock Market (U.S. Companies) Composite Index and
an index of peer companies selected by the Company. The Peer Group Index
consists of 27 companies (including the Company) based on the same Standard
Industrial Code.*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HENRY SCHEIN, INC. SIC CODE INDEX NASDAQ MARKET INDEX
11-3-95 100.00 100.00 100.00
30-Dec-95 129.67 108.16 101.13
12-28-96 151.65 103.14 125.67
November 3, 1995 December 30, 1995 December 28, 1996
Henry Schein, Inc. 100.00 129.67 151.65
Peer Group 100.00 108.16 103.14
NASDAQ Composite 100.00 101.13 125.67
- ------------------------
* Allegiance Corporation, American Homepatient, Inc., BEC Group, Inc.,
Biodynamics International Inc., Cantel Industries, Inc., Cyberonics Inc.,
Electroscope, Inc., Elron Electronic Industries Ltd., ESC Medical Systems
Ltd., Graham-Field Health Products, Inc., Gulf South Medical Supply, Henry
Schein, Inc., Innovative Medical Services, Micro Bio-Medics, Inc., Netmed
Inc., Novoste Corporation, Owens & Minor, Inc., Patterson Dental Company,
Physician Sales & Services, Inc., Prime Capital Corporation, Pro-Dex Inc.,
Strategic Distribution, Inc., Suburban Ostomy Supply Co., Inc., Sullivan
Dental Products, Inc., Thermo-Mizer Environmental Corp., US-China Industrial
Exchange, Inc., Vallen Corporation.
19
PROPOSAL 5
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
selected BDO Seidman, LLP as independent auditors for the Company for the year
ending December 27, 1997, subject to ratification of such selection by the
stockholders at the Annual Meeting. If the stockholders do not ratify the
selection of BDO Seidman, LLP, another firm of independent public accountants
will be selected by the Board of Directors. Representatives of BDO Seidman, LLP
will be present at the Annual Meeting, will have an opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions from stockholders in attendance.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO VOTE
AT THE ANNUAL MEETING IS REQUIRED TO RATIFY THE SELECTION OF BDO SEIDMAN, LLP AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 27, 1997.
VOTING OF PROXIES AND OTHER MATTERS
The Board of Directors recommends that an affirmative vote be cast in favor
of each of the proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before
the meeting which require submission to a vote of the stockholders. If any other
matters are properly brought before the meeting, however, the persons named in
the enclosed proxy or their substitutes will vote in accordance with their best
judgment on such matters.
A complete list of stockholders entitled to vote at the Annual Meeting will
be available for inspection on May 12, 1997 at the Company's headquarters
located at 135 Duryea Road, Melville, New York 11747.
STOCKHOLDER PROPOSALS
Stockholders wishing to present proposals for action by the stockholders at
the next Annual Meeting must present such proposals at the principal offices of
the Company not later than December 19, 1997. It is suggested that any such
proposals be submitted by certified mail, return receipt requested.
BY ORDER OF THE BOARD OF DIRECTORS
STANLEY M. BERGMAN
Chairman, Chief Executive Officer
and President
Melville, New York
April 18, 1997
20
HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting of
Stockholders and the Proxy Statement, dated April 18, 1997, hereby appoints
Stanley M. Bergman and Mark E. Mlotek, as proxies (each with the power to act
alone and with the power of substitution and revocation), to represent the
undersigned and to vote, as designated below, all shares of Common Stock of
Henry Schein, Inc. held of record by the undersigned on April 1, 1997, at the
Annual Meeting of Stockholders to be held at 4:00 pm on Thursday, May 22, 1997
at the Huntington Hilton, 598 Broadhollow Road, Melville, New York and at any
adjournments or postponements thereof. The undersigned hereby revokes any
previous proxies with respect to the matters covered by this Proxy.
HENRY SCHEIN, INC.'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
FOLLOWING PROPOSALS
1. PROPOSAL TO ELECT ELEVEN DIRECTORS FOR TERMS EXPIRING AT THE 1998 ANNUAL
MEETING.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed below
Stanley M. Bergman, James P. Breslawski, Gerald A. Benjamin, Leonard A. David,
Mark E. Mlotek, Steven Paladino,
Barry J. Alperin, Pamela Joseph, Donald J. Kabat, Marvin H. Schein and Irving
Shafran
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW:
- --------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AMENDMENT OF CERTIFICATE OF INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENT OF THE BY-LAWS
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO APPROVE AMENDMENT OF THE 1994 STOCK OPTION PLAN
/ / FOR / / AGAINST / / ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 27, 1997.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON
THE PROXY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5.
Please sign exactly as names appear on this proxy. Where shares are held by
joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
person. If a partnership, please sign in partnership name by an authorized
person.
Dated: _____________________
____________________________
(Signature)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
INDEX TO EXHIBITS
Exhibit A: Article Fifth of the Company's Restated Certificate of Incorporation Prior to
the Proposed Amendment
Exhibit B: Article VI of the Company's Amended and Restated By-Laws Prior to the Proposed
Amendment
Exhibit C: Article III, Section 3 of the Company's Amended and Restated By-Laws Prior to
the Proposed Amendment
EXHIBIT A
ARTICLE FIFTH OF THE COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION PRIOR TO THE PROPOSED AMENDMENTS
FIFTH:
A. The business and affairs of the Corporation shall be managed by its Board
of Directors whose members need not be residents of the State of Delaware nor
stockholders of the Corporation. The number of directors which shall constitute
the entire Board of Directors shall be no less than five and no more than 11
through December 31, 1998; thereafter the number of directors which shall
constitute the entire Board of Directors shall be nine.
B. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
1. To adopt, amend or repeal any By-Law (PROVIDED, HOWEVER, that (a)
any By-Law made, amended or repealed by the Board of Directors may be
amended or repealed, and that any by-laws may be adopted, by the
stockholders of the Corporation and (b) the Board of Directors may not amend
or repeal any By-Law adopted by the stockholders of the Corporation);
2. To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation;
3. To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created; and
4. By resolution passed by a majority of the whole Board, to designate
one or more committees, each committee to consist of two or more of the
directors of the Corporation, which, to the extent provided in such
resolution or in the By-Laws of the Corporation, shall have and may exercise
all the powers and the authority of the Board of Directors in the management
of the business and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in
the By-Laws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
C. The affirmative vote of the holders of 80% or more of the shares entitled
to vote in the election of directors shall be required to amend or repeal, or
adopt any provisions inconsistent with, this Article FIFTH.
EXHIBIT B
ARTICLE VI OF THE COMPANY'S AMENDED AND
RESTATED BY-LAWS PRIOR TO THE PROPOSED AMENDMENT
These By-Laws may be amended or repealed and any By-Laws may be adopted at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed amendment or repeal, or By-Law or By-Laws to be adopted,
be contained in that notice of such special meeting, by the affirmative vote of
holders of two-thirds of the shares of the stock issued and outstanding and
entitled to vote thereat (unless a greater percentage is provided herein), or at
any regular meeting of the Board of Directors, or at any special meeting of the
Board of Directors, if notice of the proposed amendment or repeal, or By-Law or
By-Laws to be adopted, be contained in the notice of such special meeting, by
the affirmative vote of two-thirds of the board of Directors, provided that the
Board of Directors may not amend or repeal any By-Laws adopted by the
stockholders of the Corporation.
EXHIBIT C
ARTICLE III, SECTION 3 OF THE COMPANY'S AMENDED AND RESTATED
BY-LAWS PRIOR TO THE PROPOSED AMENDMENT
Section 3. VACANCIES. Subject to the provisions of the Corporation's
Restated Certificate of Incorporation and except as otherwise provided by law,
vacancies in the Board of Directors may be filled by the affirmative vote of
stockholders holding at least 66 2/3% of the outstanding shares entitled to vote
in any election of directors, and any director so chosen shall hold office for
the remainder of the full term of the director whose place he or she has been
elected to fill and until his or her successor shall be elected and qualified.
If there are no directors in office, then an election of directors may be held
in the manner provided by law.
Further subject to the Corporation's Restated Certificate of Incorporation,
a vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any director, or if the stockholders fail at any
annual meeting of stockholders at which any director or directors are required
to be elected, to elect the full authorized number of directors to be voted for
at that meeting, or if there are newly created directorships resulting from any
increase in the authorized number of directors.
HENRY SCHEIN, INC.
1994 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF JULY 1, 1995
TABLE OF CONTENTS
1. Purposes of the Plan.................................................... 1
2. Definitions............................................................. 1
3. Effective Date/Expiration of Plan....................................... 5
4. Administration.......................................................... 5
(a) Duties of the Committee.................................. 5
(b) Advisors................................................. 6
(c) Indemnification.......................................... 6
(d) Meetings of the Committee................................ 6
5. Shares; Adjustment Upon Certain Events.................................. 7
(a) Shares to be Delivered; Fractional Shares................ 7
(b) Number of Shares......................................... 7
(c) Individual Participant Limitations....................... 7
(d) Adjustments; Recapitalization, etc....................... 7
6. Awards and Terms of Options............................................. 9
(a) Grant.................................................... 9
(b) Exercise Price........................................... 9
(c) Number of Shares......................................... 9
(d) Exercisability........................................... 9
(e) Special Rule for Incentive Options....................... 10
(f) Acceleration of Exercisability on Change of Control...... 10
(g) Exercise of Options...................................... 12
7. Effect of Termination of Employment..................................... 13
(a) Death, Disability, Retirement, etc....................... 13
(b) Cause or Voluntary Termination........................... 13
(c) Other Termination........................................ 14
8. Nontransferability of Options........................................... 14
9. Rights as a Stockholder................................................. 14
10. Determinations.......................................................... 14
11. Termination, Amendment and Modification................................. 15
i
12. Non-Exclusivity......................................................... 16
13. Use of Proceeds......................................................... 16
14. General Provisions...................................................... 16
(a) Right to Terminate Employment............................ 16
(b) Purchase for Investment.................................. 16
(c) Trusts, etc.............................................. 16
(d) Notices.................................................. 17
(e) Severability of Provisions............................... 17
(f) Payment to Minors, Etc................................... 17
(g) Headings and Captions.................................... 17
(h) Controlling Law.......................................... 17
15. Issuance of Stock Certificates;
Legends and Payment of Expenses......................................... 17
(a) Stock Certificates....................................... 17
(b) Legends.................................................. 18
(c) Payment of Expenses...................................... 18
16. Listing of Shares and Related Matters................................... 18
17. Withholding Taxes....................................................... 18
18. Section 16(b) of the Act................................................ 19
ii
HENRY SCHEIN, INC.
1994 STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1995
1. PURPOSES OF THE PLAN
The purposes of this Henry Schein, Inc. 1994 Stock Option Plan, as
amended and restated effective July 1, 1995, are to enable Henry Schein, Inc.
and its Subsidiaries (as defined herein) to attract, retain and motivate the key
executives who are important to the success and growth of the business of HSI
and to create a long-term mutuality of interest between the Key Employees (as
defined herein) and the stockholders of HSI by granting the Key Employees
options (which may be either incentive stock options (as defined herein) or
non-qualified stock options) to purchase HSI Common Stock (as defined herein).
2. DEFINITIONS
(a) "Acquisition Event" means a merger or consolidation in which HSI
is not the surviving entity, or any transaction that results in the acquisition
of all or substantially all of HSI's outstanding Common Stock by a single person
or entity or by a group of persons and/or entities acting in concert, or the
sale or transfer of all or substantially all of HSI's assets.
(b) "Act" means the Securities Exchange Act of 1934.
(c) "Board" means the Board of Directors of HSI.
(d) "Cause" has the meaning set forth in Section 7(b).
(e) "Change of Control" has the meaning set forth in Section 6(f).
(f) "Class A Option" means an Option evidenced by a Class A Option
Agreement.
(g) "Class A Option Agreement" has the meaning set forth in Section
6(a).
(h) "Class B Option" means an Option evidenced by a Class B Option
Agreement.
(i) "Class B Option Agreement" has the meaning set forth in Section
6(a).
(j) "Code" means the Internal Revenue Code of 1986, as amended.
(k) "Committee" means such committee, if any, appointed by the Board
to administer the Plan, consisting of two or more directors as may be appointed
from time to time by the Board, each of whom shall qualify as a "disinterested
person" within the meaning of Rule 16b-3 promulgated under the Act and as an
"outside director" as defined under Section 162(m) of the Code. If the Board
does not appoint a committee for this purpose, "Committee" means the Board.
(l) "Common Stock" means the voting common stock of HSI, par value
$.01, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(m) "Company" means HSI and its Subsidiaries, any of whose employees
are Participants in the Plan.
(n) "Corporate Transaction" has the meaning set forth in Section
6(f)(i).
(o) "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion, provided that in no event
shall any disability that is not a permanent and total disability within the
meaning of Section 22(e)(3) of the Code be treated as a Disability. A
Disability shall be deemed to occur at the time of the determination by the
Committee of the Disability.
(p) "Effective Date" has the meaning set forth in Section 3.
(q) "Fair Market Value" means the value of a Share (as defined
herein) on a particular date, determined as follows:
(i) If the Common Stock is listed or admitted to trading on such
date on a national securities exchange or quoted through the National
Association of Securities Dealers' Automated Quotation ("NASDAQ") National
Market System, the closing sales price of a Share as reported on the
relevant composite transaction tape, if applicable, or on the principal
such exchange (determined by trading value in the Common Stock) or through
the National Market System, as the case may be, on such date, or in the
absence of reported sales on such day, the mean between the reported bid
and asked prices reported on such composite transaction tape or exchange or
through the National Market System, as the case may be, on such date; or
(ii) If the Common Stock is not listed or quoted as described in
the preceding clause, but bid and asked prices are quoted through NASDAQ,
the mean between the bid and asked prices as quoted by the National
Association of Securities Dealers through NASDAQ on such date; or
(iii)If the Common Stock is not listed or quoted on a national
securities exchange or through NASDAQ or, if pursuant to (i) and (ii) above
the Fair Market Value
2
is to be determined based upon the mean of the bid and asked prices and the
Committee determines that such mean does not properly reflect the Fair
Market Value, by such other method as the Committee determines to be
reasonable and consistent with applicable law; or
(iv) If the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(r) "HSI" means Henry Schein, Inc.
(s) "HSI Agreement" means the Amended and Restated HSI Agreement
dated as of February 16, 1994 among HSI and certain other parties.
(t) "HSI Closing" means the closing of the HSI Public Offering.
(u) "HSI Public Offering" means an initial public offering of shares
of HSI Common Stock at a Market Capitalization which is not less than the
Minimum Market Capitalization then in effect and as a result of which at least
20% of the common equity of HSI will be publicly held by at least 300 holders
and such shares of HSI Common Stock will be listed or admitted to trading on the
New York Stock Exchange or the American Stock Exchange or quoted on The NASDAQ
National Market or is on such terms and conditions as are approved by Marvin
Schein prior to the effective date thereof.
(v) "Incentive Stock Option" means any Option which is intended to
qualify as an "incentive stock option" as defined in Section 422 of the Code.
(w) "Incumbent Board" has the meaning set forth in Section 6(f)(ii).
(x) "Key Employee" means any person who is an executive officer or
other valuable staff, managerial, professional or technical employee of the
Company, as determined by the Committee, including those individuals described
in Section 5(d)(iv). A Key Employee may, but need not, be an officer or
director (with the exception of a non-employee director) of the Company.
(y) "Market Capitalization" means (i) the per share initial pubic
offering price, multiplied by (ii) the number of shares outstanding immediately
prior to the HSI Closing less the aggregate number of shares issued pursuant to
the Stock Purchase Agreement dated _____, 1994 between HSI and the HSI Employee
Stock Ownership Plan (the "HSI ESOP") or held by the HSI ESOP which are
outstanding on such date.
(z) "Minimum Market Capitalization" means $48,000,000 on August 15,
1992, which amount shall increase on each day thereafter as follows:
From August 15, 1992 until the 1st anniversary thereof: $15,123 per day;
3
From the 1st anniversary thereof until the 2nd anniversary thereof: $16,862
per day;
From the 2nd anniversary thereof until the 3rd anniversary thereof: $18,802
per day;
From the 3rd anniversary thereof until the 4th anniversary thereof: $20,964
per day;
From the 4th anniversary thereof until the 5th anniversary thereof: $23,375
per day;
From the 5th anniversary thereof until the 6th anniversary thereof: $26,063
per day;
From the 6th anniversary thereof until the 7th anniversary thereof: $29,060
per day; and
Thereafter: $32,402 per day.
(aa)"Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an
Incentive Stock Option or a non-qualified option.
(bb)"Option Agreement" means a Class A Option Agreement or Class B
Option Agreement.
(cc)"Outstanding HSI Voting Securities" has the meaning set forth in
section 6(f)(i).
(dd)"Person" means an individual, entity or group within the meaning
of Section 13d-3 or 14d-1 of the Act.
(ee)"Plan" means the Henry Schein, Inc. 1994 Stock Option Plan.
(ff)"Participant" means a Key Employee of the Company who is granted
Options under the Plan.
(gg)"Purchase Price" means purchase price per Share.
(hh)"Securities Act" means the Securities Act of 1933, as amended.
(ii)"Share" means a share of Common Stock.
(jj)"Subsidiary" means any "subsidiary corporation" within the meaning
of Section 424(f) of the Code. An entity shall be deemed a Subsidiary of HSI
only for such periods as the requisite ownership relationship is maintained.
(kk)"Substantial Stockholder" means any Participant who at the time of
grant owns directly or is deemed to own by reason of the attribution rules set
forth in Section 424(d) of the
4
Code, Shares possessing more than 10% of the total combined voting power of all
classes of stock of HSI.
(ll)"Termination of Employment" means termination of the relationship
with HSI and its Subsidiaries so that an individual is no longer an employee or
director of HSI or any of its Subsidiaries. In the event an entity shall cease
to be a Subsidiary of HSI, any individual who is not otherwise an employee of
HSI or another Subsidiary of HSI shall incur a Termination of Employment at the
time the entity ceases to be a Subsidiary. A Termination of Employment shall
not include a leave of absence approved for purposes of the Plan by the
Committee.
3. EFFECTIVE DATE/EXPIRATION OF PLAN
The Plan became effective as of September 30, 1994 (the "Effective
Date"), and is amended and restated in the form set forth herein effective as of
July 1, 1995. Grants of Options under the Plan may be made on and after the
Effective Date. No Option shall be granted under the Plan on or after the tenth
anniversary of the Effective Date, but Options previously granted may extend
beyond that date.
4. ADMINISTRATION
(a) DUTIES OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend, and rescind rules for carrying
out the Plan; to administer the Plan, subject to its provisions; to select
Participants in, and grant Options under, the Plan; to determine the terms,
exercise price and form of exercise payment for each Option granted under the
Plan; to determine which Options granted under the Plan shall be Incentive Stock
Options; to prescribe the form or forms of instruments evidencing Options and
any other instruments required under the Plan (which need not be uniform) and to
change such forms from time to time; and to make all other determinations and to
take all such steps in connection with the Plan and the Options as the
Committee, in its sole discretion, deems necessary or desirable; PROVIDED, that
all such determinations shall be in accordance with the express provisions, if
any, contained in the HSI Agreement or the Plan. The Committee shall not be
bound to any standards of uniformity or similarity of action, interpretation or
conduct in the discharge of its duties hereunder, regardless of the apparent
similarity of the matters coming before it. The determination, action or
conclusion of the Committee in connection with the foregoing shall be final,
binding and conclusive.
(b) ADVISORS. The Committee may designate the Secretary of HSI, other
employees of the Company or competent professional advisors to assist the
Committee in the administration of the Plan, and may grant authority to such
persons to execute Option Agreements (as defined herein) or other documents on
behalf of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
5
Plan, and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. Expenses
incurred by the Committee in the engagement of such counsel, consultant or agent
shall be paid by the Company.
(c) INDEMNIFICATION. No officer, member or former member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
HSI and to the extent not covered by insurance, each officer, member or former
member of the Committee or of the Board shall be indemnified and held harmless
by HSI against any cost or expense (including reasonable fees of counsel
reasonably acceptable to HSI) or liability (including any sum paid in settlement
of a claim with the approval of HSI), and advanced amounts necessary to pay the
foregoing at the earliest time and to the fullest extent permitted, arising out
of any act or omission to act in connection with the Plan, except to the extent
arising out of such officer's, member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the officers, members or former members may have as directors
under applicable law or under the Certificate of Incorporation or By-Laws of HSI
or any Subsidiary of HSI.
(d) MEETINGS OF THE COMMITTEE. The Committee shall select one of its
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may be removed at any time either
with or without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board. All
determinations by the Committee shall be made by the affirmative vote of a
majority of its members. Any such determination may be made at a meeting duly
called and held at which a majority of the members of the Committee were in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all of the members of the Committee shall be as
fully effective as if it had been made by a majority vote of the members at a
meeting duly called and held.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) SHARES TO BE DELIVERED; FRACTIONAL SHARES. Shares to be issued
under the Plan shall be made available at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by HSI and
held in treasury. No fractional Shares will be issued or transferred upon the
exercise of any Option. In lieu thereof, HSI shall pay a cash adjustment equal
to the same fraction of the Fair Market Value of one Share on the date of
exercise.
(b) NUMBER OF SHARES. Subject to adjustment as provided in this
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be 6,865 shares of Common Stock of which a maximum of 2,403 of such
Shares shall be covered by Class A Options and the balance of such Shares shall
be covered by Class B Options. If Options are for any reason
6
canceled, or expire or terminate unexercised, the Shares covered by such Options
shall again be available for the grant of Options, subject to the foregoing
limit, provided that the number of shares covered by Class A Options shall be
reduced by that number of Class A Options that are cancelled, expire or are
terminated.
(c) INDIVIDUAL PARTICIPANT LIMITATIONS. The maximum number of Shares
subject to any Option which may be granted under this Plan to each Participant
on or after the HSI Public Offering shall not exceed __________ Shares (subject
to any adjustment pursuant to Section 5(d)) during each fiscal year of HSI
during the entire term of the Plan. To the extent that Shares for which Options
are permitted to be granted to a Participant pursuant to Section 5(c) during a
fiscal year are not covered by a grant of an Option to a Participant issued in
such fiscal year, such Shares shall automatically increase the number of Shares
available for grant of Options to such Participant in the subsequent fiscal year
during the term of the Plan.
(d) ADJUSTMENTS; RECAPITALIZATION, ETC. The existence of the Plan
and the Options granted hereunder shall not affect in any way the right or power
of the Board or the stockholders of HSI to make or authorize any adjustment,
recapitalization, reorganization or other change in HSI's capital structure or
its business, any merger or consolidation of HSI, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of HSI or any of its Subsidiaries, or any
sale or transfer of all or part of its assets or business or any other corporate
act or proceeding. If and whenever HSI takes any such action, however, the
following provisions, to the extent applicable, shall govern:
(i) If and whenever HSI shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in HSI's Common Stock, (x) the Purchase Price (as defined herein)
per Share and the number and class of Shares and/or other securities with
respect to which outstanding Options thereafter may be exercised, and (y)
the total number and class of Shares and/or other securities that may be
issued under this Plan, shall be proportionately adjusted by the
Committee. The Committee may also make such other adjustments as it deems
necessary to take into consideration any other event (including, without
limitation, accounting changes) if the Committee determines that such
adjustment is appropriate to avoid distortion in the operation of the
Plan.
(ii) Subject to Section 5(d)(iii), if HSI merges or consolidates
with one or more corporations, then from and after the effective date of
such merger or consolidation, upon exercise of Options theretofore granted,
the Participant shall be entitled to purchase under such Options, in lieu
of the number of Shares as to which such Options shall then be exercisable
but on the same terms and conditions of exercise set forth in such Options,
the number and class of Shares and/or other securities or property
(including cash) to which the Participant would have been entitled pursuant
to the terms of the agreement of merger or consolidation if, immediately
prior to such merger or consolidation, the Participant had been the holder
of record of the total number of Shares receivable upon exercise of such
Options (whether or not then exercisable).
7
(iii)In the event of an Acquisition Event, the Committee may, in
its discretion, and without any liability to any Participant, terminate all
outstanding Options as of the consummation of the Acquisition Event by
delivering notice of termination to each Participant at least 20 days prior
to the date of consummation of the Acquisition Event; provided that, during
the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all of the Options that are then outstanding
(without regard to limitations on exercise otherwise contained in the
Options). If an Acquisition Event occurs and the Committee does not
terminate the outstanding Options pursuant to the preceding sentence, then
the provisions of Section 5(d)(ii) shall apply.
(iv) Subject to Sections 5(b) and (c), the Committee may grant
Options under the Plan in substitution for options held by employees of
another corporation who concurrently become employees of the Company as the
result of a merger or consolidation of the employing corporation with the
Company, or as the result of the acquisition by the Company of property or
stock of the employing corporation. The Company may direct that substitute
awards be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of securities so receivable
thereafter shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock set forth in this Section 5, as determined by the
Committee in its discretion.
(vi) Except as hereinbefore expressly provided, the issuance by
HSI of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number and class of Shares and/or other
securities or property subject to Options theretofore granted or the
Purchase Price per Share.
6. AWARDS AND TERMS OF OPTIONS
(a) GRANT. The Committee may grant Options, including Options
intended to be Incentive Stock Options, to Key Employees of the Company. Each
Option shall be evidenced by a Class A Option agreement ("Class A Option
Agreement") or Class B Option agreement ("Class B Option Agreement"), as
applicable, in substantially the form attached hereto as Exhibit 1 and Exhibit
2, respectively.
8
(b) EXERCISE PRICE. The Purchase Price deliverable upon the exercise
of an Option shall be determined by the Committee, subject to the following:
(i) in the case of Class A Options (A) prior to the HSI Public Offering, the
Purchase Price shall not be less than $416.67 per Share, and (B) on or after the
HSI Public Offering, the Purchase Price shall not be less than the Fair Market
Value per Share on the date the Option is granted, and (ii) in the case of Class
B Options or Incentive Stock Options, the Purchase Price shall not be less than
100% (110% for an Incentive Stock Option granted to a Substantial Stockholder)
of the Fair Market Value per Share on the date the Class B Option or Incentive
Stock Option is granted.
(c) NUMBER OF SHARES. The Option Agreement shall specify the number
of Options granted to the Participant, as determined by the Committee in its
sole discretion, subject to Section 5(c) hereof.
(d) EXERCISABILITY. At the time of grant, the Committee shall
specify when and on what terms the Options granted shall be exercisable. In the
case of Options not immediately exercisable in full, the Committee may at any
time accelerate the time at which all or any part of the Options may be
exercised and may waive any other conditions to exercise, subject to the terms
of the Option Agreement and the Plan, and PROVIDED that the Committee may not
accelerate the exercise date prior to the HSI Closing. No Option shall be
exercisable after the expiration of ten (10) years from the date of grant (five
(5) years in the case of an Incentive Stock Option granted to a Substantial
Stockholder). Each Option shall be subject to earlier termination as provided
in Section 7 below.
(e) SPECIAL RULE FOR INCENTIVE OPTIONS. If required by Section 422
of the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this
special rule shall be construed as limiting the exercisability of any Option,
unless the Committee expressly provides for such a limitation at time of grant.
(f) ACCELERATION OF EXERCISABILITY ON CHANGE OF CONTROL. Upon a
Change of Control (as defined herein) of HSI all Options theretofore granted and
not previously exercisable shall become fully exercisable. For this purpose, a
"Change of Control" shall be deemed to have occurred upon:
(i) an acquisition by any Person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 20% or more of
either (A) the then outstanding Shares or (B) the combined voting power of
the then outstanding voting securities of HSI entitled to vote generally in
the election of directors (the "Outstanding HSI Voting Securities");
excluding, however, the following: (w) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Company, (x) any acquisition by the Company, (y)
any acquisition by an employee benefit
9
plan (or related trust) sponsored or maintained by the Company or (z) any
acquisition by any corporation pursuant to a reorganization, merger,
consolidation or similar corporate transaction (in each case, a "Corporate
Transaction"), if, pursuant to such Corporate Transaction, the conditions
described in clauses (A), (B) and (C) of paragraph (iii) of this Section 6
are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Effective Date hereof, constitute the Board (the
Board as of the date hereof shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided that for purposes of this Subsection any individual
who becomes a member of the Board subsequent to the date hereof whose
election, or nomination for election by HSI's stockholders, was approved by
a vote of at least a majority of those individuals who are members of the
Board and who are also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii)the approval by the stockholders of HSI of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (A) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the outstanding Shares and Outstanding HSI Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
and the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors, in
substantially the same proportions as their ownership, immediately prior to
such Corporate Transaction, of the outstanding Shares and Outstanding HSI
Voting Securities, as the case may be, (B) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate Transaction,
directly or indirectly, 20% or more of the outstanding Shares or
Outstanding HSI Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding securities
of such corporation entitled to vote generally in the election of directors
and (C) individuals who were members of the Incumbent Board will constitute
at least a majority
10
of the members of the board of directors of the corporation resulting from
such Corporate Transaction; or
(iv)the approval of the stockholders of HSI of (A) a complete
liquidation or dissolution of HSI or (B) the sale or other disposition of
all or substantially all of the assets of HSI; excluding, however, such a
sale or other disposition to a corporation with respect to which, following
such sale or other disposition, (x) more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors will be
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the outstanding Shares and Outstanding HSI Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
HSI Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 20% or more of the
outstanding Shares or Outstanding HSI Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (z) individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the board of
directors of such corporation.
(g) EXERCISE OF OPTIONS.
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee at any time subsequent to an HSI Closing
of such election and of the number of Options such Participant has elected to
exercise, accompanied by payment in full of the aggregate Purchase Price for the
number of shares for which the Options are being exercised.
(ii) Shares purchased pursuant to the exercise of Options shall
be paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable
to the order of HSI;
(B) if so permitted by the Committee: (x) through the
delivery of unencumbered Shares (including Shares being acquired pursuant
to the Options then being exercised), provided such Shares (or such
Options) have been owned by the Participant for such period as may be
required by applicable accounting standards to avoid a charge to earnings,
(y) through a combination of Shares and cash as provided above,
11
(z) by delivery of a promissory note of the Participant to HSI, such
promissory note to be payable on such terms as are specified in the Option
Agreement (except that, in lieu of a stated rate of interest, the Option
Agreement may provide that the rate of interest on the promissory note will
be such rate as is sufficient, at the time the note is given, to avoid the
imputation of interest under the applicable provisions of the Code), or by
a combination of cash (or cash and Shares) and the Participant's promissory
note; provided, that, if the Shares delivered upon exercise of the Option
is an original issue of authorized Shares, at least so much of the exercise
price as represents the par value of such Shares shall be paid in cash or
by a combination of cash and Shares; or
(C) on such other terms and conditions as may be
acceptable to the Committee and in accordance with applicable law. Upon
receipt of payment, HSI shall deliver to the Participant as soon as
practicable a certificate or certificates for the Shares then purchased.
7. EFFECT OF TERMINATION OF EMPLOYMENT
(a) DEATH, DISABILITY, RETIREMENT, ETC. Except as otherwise provided
in the Participant's Option Agreement, upon Termination of Employment, all
outstanding Options then exercisable and not exercised by the Participant prior
to such Termination of Employment (and any Options not previously exercisable
but made exercisable by the Committee at or after the Termination of Employment)
shall remain exercisable by the Participant to the extent not theretofore
exercised for the following time periods (subject to Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the Participant's estate or by the person given
authority to exercise such Options by the Participant's will or by
operation of law) for a period of one (1) year from the date of the
Participant's death, provided that the Committee, in its discretion, may at
any time extend such time period to up to three (3) years from the date of
the Participant's death.
(ii) In the event the Participant retires at or after age 65 (or,
with the consent of the Committee or under an early retirement policy of
the Company, before age 65), or if the Participant's employment terminates
due to Disability, such Options shall remain exercisable for one (1) year
from the date of the Participant's Termination of Employment, provided that
the Committee, in its discretion, may at any time extend such time period
to up to three (3) years from the date of the Participant's Termination of
Employment.
(b) CAUSE OR VOLUNTARY TERMINATION. Upon the Termination of
Employment of a Participant for Cause (as defined herein) or by the Participant
in violation of an agreement between the Participant and HSI or any of its
Subsidiaries, or if it is discovered after such Termination of Employment that
such Participant had engaged in conduct that would have justified a Termination
of Employment for Cause, all outstanding Options shall immediately be canceled.
12
Termination of Employment shall be deemed to be for "Cause" for purposes of
this Section 7(b) if (i) the Participant shall have committed fraud or any
felony in connection with the Participant's duties as an employee of HSI or any
of its Subsidiaries, or willful misconduct or any act of disloyalty, dishonesty,
fraud or breach of trust or confidentiality as to HSI or any of its Subsidiaries
or the commission of any other act which causes or may reasonably be expected to
cause economic or reputational injury to HSI or any of its Subsidiaries or (ii)
such termination is or would be deemed to be for Cause under any employment
agreement between HSI or any of its Subsidiaries and the Participant.
(c) OTHER TERMINATION. In the event of Termination of Employment for
any reason other than as provided in Section 7(a) or in 7(b), all outstanding
Options not exercised by the Participant prior to such Termination of Employment
shall remain exercisable (to the extent exercisable by such Participant
immediately before such termination) for a period of three (3) months after such
termination, provided that the Committee in its discretion may extend such time
period to up to one (1) year from the date of the Participant's Termination of
Employment, and provided further that no Options that were not exercisable
during the period of employment shall thereafter become exercisable.
8. NONTRANSFERABILITY OF OPTIONS
No Option shall be transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution, and during the
lifetime of the Participant may be exercised only by the Participant or his or
her guardian or legal representative. In addition, no Option shall be assigned,
negotiated, pledged or hypothecated in any way (whether by operation of law or
otherwise), and no Option shall be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate
any Option, or in the event of any levy upon any Option by reason of any
execution, attachment or similar process contrary to the provisions hereof, such
Option shall immediately become null and void.
9. RIGHTS AS A STOCKHOLDER
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any Shares covered by such Participant's
Option until such Participant (or Transferee) shall have become the holder of
record of such Shares, and no adjustments shall be made for dividends in cash or
other property or distributions or other rights in respect to any such Shares,
except as otherwise specifically provided for in this Plan.
10. DETERMINATIONS
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Committee shall be final,
conclusive and binding for all purposes
13
and upon all persons, including, without limitation, the Participants, HSI and
its Subsidiaries, directors, officers and other employees of HSI and its
Subsidiaries, and the respective heirs, executors, administrators, personal
representatives and other successors in interest of each of the foregoing.
11. TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall terminate at the close of business on the tenth
anniversary of the Effective Date, unless terminated sooner as hereinafter
provided, and no Option shall be granted under the Plan on or after that date.
The termination of the Plan shall not terminate any outstanding Options which by
their terms continue beyond the termination date of the Plan. At any time prior
to the tenth anniversary of the Effective Date, the Board or the Committee may
amend or terminate the Plan or suspend the Plan in whole or in part.
Notwithstanding the foregoing, however, no such amendment may, without the
approval of the stockholders of HSI, (i) increase the total number of Shares
which may be acquired upon exercise of Options granted under the Plan; (ii)
change the types of employees eligible to be Participants under the Plan; (iii)
effect any change that would require stockholder approval under Rule 16b-3 (or
any successor provision) promulgated under the Act; (iv) effect any change that
would require stockholder approval under Section 162(m) of the Code; or (v)
reduce the Purchase Price of any outstanding Options to an amount less than 100%
of the Fair Market Value per share on the date of such amendment.
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options of
Participants, including, without limitation, the reduction of the Purchase Price
specified therein (or the granting or issuance of new Options at a lower
Purchase Price upon cancellation of outstanding Options), so long as all options
outstanding at any one time shall not call for issuance of more Shares than the
remaining number provided for under the Plan and so long as the provisions of
any amended Options would have been permissible under the Plan if such Option
had been originally granted or issued as of the date of such amendment with such
amended terms.
Notwithstanding anything to the contrary contained in this Section 11,
(i) no termination, amendment or modification of the Plan may, without the
consent of the Participant or the transferee of such Participant's Option, alter
or impair the rights and obligations arising under any then outstanding Option,
and (ii) neither the Board nor the Committee may make any determination or
interpretation or take any other action which would cause any member of the
Committee to cease to be a "disinterested person" with regard to the Plan for
purposes of Rule 16b-3 under the Act or an "outside director" with regard to the
Plan as defined under Code Section 162(m).
No Options may be granted hereunder and all outstanding Options shall
terminate on January 1, 2000 if the HSI Closing has not occurred by such date.
14
12. NON-EXCLUSIVITY
Subject to the express provisions contained in the HSI Agreement,
neither the adoption of the Plan by the Board nor the submission of the Plan to
the stockholders of HSI for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, the granting or
issuance of stock options, Shares and/or other incentives otherwise than under
the Plan, and such arrangements may be either generally applicable or limited in
application.
13. USE OF PROCEEDS
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of HSI and used for its general corporate
purposes as the Board shall determine.
14. GENERAL PROVISIONS
(a) RIGHT TO TERMINATE EMPLOYMENT. Neither the adoption of the Plan
nor the grant of Options shall impose any obligations on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to remain in the employ of the Company, subject however
to the provisions of any agreement between the Company and the Participant.
(b) PURCHASE FOR INVESTMENT. If the Board determines that the law so
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to HSI a written statement, in form
satisfactory to HSI, representing and warranting that such Participant is
purchasing or accepting the Shares then acquired for such Participant's own
account and not with a view to the resale or distribution thereof, that any
subsequent offer for sale or sale of any such Shares shall be made either
pursuant to (i) a registration statement on an appropriate form under the
Securities Act, which registration statement shall have become effective and
shall be current with respect to the Shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities Act, and
that in claiming such exemption the holder will, prior to any offer for sale or
sale of such Shares, obtain a favorable written opinion, satisfactory in form
and substance to HSI, from counsel approved by HSI as to the availability of
such exception.
(c) TRUSTS, ETC. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of any Option
thereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between HSI and any
15
Participant or the executor, administrator or other personal representative or
designated beneficiary of such Participant, or any other persons. Any reserves
that may be established by HSI in connection with the Plan shall continue to be
part of the general funds of HSI, and no individual or entity other than HSI
shall have any interest in such funds until paid to a Participant. If and to
the extent that any Participant or such Participant's executor, administrator,
or other personal representative, as the case may be, acquires a right to
receive any payment from HSI pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of HSI.
(d) NOTICES. Each Participant shall be responsible for furnishing
the Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
(e) SEVERABILITY OF PROVISIONS. If any provisions of the Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) PAYMENT TO MINORS, ETC. Any benefit payable to or for the
benefit of a minor, an incompetent person or other person incapable of
receipting therefor shall be deemed paid when paid to such person's guardian or
to the party providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Committee, the Company and
their employees, agents and representatives with respect thereto.
(g) HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) CONTROLLING LAW. The Plan shall be construed and enforced
according to the laws of the State of New York.
15. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS AND PAYMENT OF EXPENSES
(a) STOCK CERTIFICATES. Upon any exercise of an Option and payment
of the exercise price as provided in such Option, a certificate or certificates
for the Shares as to which such Option has been exercised shall be issued by HSI
in the name of the person or persons exercising such Option and shall be
delivered to or upon the order of such person or persons.
16
(b) LEGENDS. Certificates for Shares issued upon exercise of an
Option shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between HSI and the Participant
with respect to such Shares.
(c) PAYMENT OF EXPENSES. The Company shall pay all issue or transfer
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under.any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board,
17. WITHHOLDING TAXES
Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, HSI shall have the right to require the
Participant or such other person to pay to HSI the amount of any taxes which HSI
may be required to withhold before delivery to such Participant or other person
of cash or a certificate or certificates representing such Shares.
Upon the disposition of Shares acquired pursuant to the exercise of an
Incentive Stock Option, HSI shall have the right to require the payment of the
amount of any taxes which are required by law to be withheld with respect to
such disposition.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (a) securing payment in
cash or property in lieu of withholding; (b) authorizing HSI to withhold from
the Shares otherwise payable to such Participant (1) one or more of such Shares
having an aggregate Fair Market Value, determined as of the date the withholding
tax obligation arises, less than or equal to the amount of the total withholding
tax obligation or (2) cash in an amount less than or equal to the amount of the
total withholding tax obligation; or (c) delivering to HSI previously acquired
Shares (none of which Shares may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction or
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encumbrance of any nature whatsoever) having an aggregate Fair Market Value,
determined as of the date the withholding tax obligation arises, less than or
equal to the amount of the total withholding tax obligation. A Participant's
election to pay his or her withholding tax obligation (in whole or in part) by
the method described in (b)(1) above is irrevocable once it is made, may be
disapproved by the Committee and, if made by any director, officer or other
person who is subject to Section 16(b) of the Act, must be made (x) only during
the period beginning on the third business day following the date of release of
HSI's quarterly or annual summary statement of sales and earnings and ending on
the twelfth business day following the date of such release; (y) not less than
six months prior to the date such Participant's withholding tax obligation
arises; or (z) during any other period in which a withholding election may be
made under the provisions of Rule 16b-3.
18. SECTION 16(B) OF THE ACT
All elections and transactions under the Plan by persons subject to
Section 16 of the Act involving Shares are intended to comply with all exemptive
conditions under Rule 16b-3. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder.
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