AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5047 11-3136595
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
STANLEY M. BERGMAN BRUCE J. HABER
CHAIRMAN, CHIEF EXECUTIVE PRESIDENT AND CHIEF
OFFICER AND PRESIDENT EXECUTIVE OFFICER
HENRY SCHEIN, INC. MICRO BIO-MEDICS, INC.
135 DURYEA ROAD 846 PELHAM PARKWAY
MELVILLE, NEW YORK 11747 PELHAM MANOR, NEW YORK 10803
(516) 843-5500 (914) 738-8400
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone number, including area code, of
registrant's principal executive offices) agent for service)
COPIES TO:
ROBERT A. CANTONE, ESQ. MARK E. MLOTEK, ESQ. STEVEN MORSE, ESQ.
PROSKAUER ROSE LLP VICE PRESIDENT, GENERAL LAW OFFICES OF LESTER MORSE,
1585 BROADWAY COUNSEL AND SECRETARY P.C.
NEW YORK, NEW YORK 10036 HENRY SCHEIN, INC. 111 GREAT NECK ROAD
(212) 969-3000 135 DURYEA ROAD GREAT NECK, NEW YORK 11021
MELVILLE, NEW YORK 11747 (516) 487-1446
(516) 843-5500
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
Common Stock, par value $.01 per
share............................... 3,400,000 shares $30.69(2) $104,346,000(2) $31,620(4)
Warrants to Purchase Common Stock..... 6,200 --(3) --(3) --(3)
(1) The number of shares of Common Stock (the "Schein Common Stock"), par value
$.01 per share, of Henry Schein, Inc. ("Schein") being registered is based
on the approximate maximum number of shares issuable to the shareholders of
Micro Bio-Medics, Inc. ("MBM") in connection with the merger of a
wholly-owned subsidiary of Schein with and into MBM or upon the exercise of
certain warrants issued by MBM that will be assumed by Schein in connection
with the Merger, which assumed warrants are being registered hereby.
(2) Estimated solely for purposes of calculating the registration fee and based,
pursuant to Rule 457(f)(1) of the Securities Act of 1933, upon the average
of the high and low prices of the Schein Common Stock on the Nasdaq National
Market ($30.69) on June 24, 1997.
(3) Pursuant to Rule 457(g) of the Securities Act of 1933, the registration fee
for the Warrants is based on the market value of the shares issuable upon
exercise, which shares are included in the 3,400,000 shares being
registered, and no seperate value has been attributed to the Warrants for
purposes of the registration fee.
(4) Fees aggregating $18,709.75 was previously paid by MBM pursuant to Rule
14a-6 of the Securities Exchange Act of 1934 in connection with the filing
of the preliminary Proxy Statement/Prospectus on April 22, 1997 and revised
preliminary Proxy Statement/Prospectus on June 16, 1997. Pursuant to Rule
457(b) under the Securities Act of 1933, as amended, such fee is being
credited against the registration fee, and, accordingly, an additional
$13,003.75 is being paid in connection with this Registration Statement.
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MICRO BIO-MEDICS, INC.
846 PELHAM PARKWAY
PELHAM MANOR, NEW YORK 10803
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Micro Bio-Medics, Inc. ("MBM"), which will be held at 9:00 a.m. on Friday,
August 1, 1997, at the Ramada Hotel, One Ramada Plaza, New Rochelle, New York.
At the Special Meeting, holders of MBM Common Stock will be asked to
consider a proposal to approve and adopt an Agreement and Plan of Merger
providing for a merger in which MBM would become a wholly owned subsidiary of
Henry Schein, Inc. ("Schein"). Pursuant to the merger, each share of MBM Common
Stock will be converted into the right to receive 0.62 shares of Common Stock of
Schein.
The proposed merger is described in the accompanying Proxy
Statement/Prospectus, the forepart of which includes a summary of the terms of
the merger and certain other information relating to it. I urge you to review
carefully the Proxy Statement/Prospectus and the Annexes thereto.
THE BOARD OF DIRECTORS OF MBM HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF MBM AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY
APPROVED THE AGREEMENT AND PLAN OF MERGER PROVIDING FOR THE MERGER AND
RECOMMENDS THAT THE HOLDERS OF MBM COMMON STOCK VOTE IN FAVOR OF THE AGREEMENT
AND PLAN OF MERGER AT THE SPECIAL MEETING.
I hope you will attend the Special Meeting. However, whether or not you plan
to attend, please complete, sign and date the accompanying proxy card promptly
and return it in the enclosed prepaid envelope. If you are present at the
meeting you may, if you wish, withdraw your proxy and vote in person.
MBM has retained D.F. King & Co., Inc. of New York, New York, a proxy
solicitation firm, to solicit proxies in connection with the Special Meeting.
For assistance with voting please call D.F. King & Co., Inc. at 1-800-431-9642.
Bruce J. Haber
President
Pelham Manor, New York
July 2, 1997
MICRO BIO-MEDICS, INC.
846 PELHAM PARKWAY
PELHAM MANOR, NEW YORK 10803
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
AUGUST 1, 1997
------------------------
To the Shareholders of
Micro Bio-Medics, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), will be
held on Friday, August 1, 1997, at the Ramada Hotel, One Ramada Plaza, New
Rochelle, New York 10801, commencing at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 7,
1997, as revised, among Henry Schein, Inc., a Delaware corporation
("Schein"), HSI Acquisition Corp., a New York corporation and a wholly owned
subsidiary of Schein ("Merger Sub"), and MBM, providing for the merger of
Merger Sub with and into MBM (the "Merger"). Pursuant to the Merger, MBM
will become a wholly owned subsidiary of Schein, and each outstanding share
of the Common Stock, par value $0.03, of MBM (the "MBM Common Stock") will
be converted into the right to receive 0.62 shares of the Common Stock, par
value $0.01, of Schein (the "Schein Common Stock"). A copy of the Merger
Agreement is attached as Annex I to the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on Tuesday, June 24,
1997 as the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting and any adjournment or postponement
thereof.
Whether or not you plan to attend the Special Meeting, please fill in, sign,
date and return the enclosed form of proxy card promptly. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
By Order of the Board of Directors
Renee Steinberg, Secretary
Pelham Manor, New York
July 2, 1997
IMPORTANT
Your vote is important. Please take a moment to sign, date and promptly
mail your proxy in the postage paid envelope provided.
If your shares are registered in the name of a broker, only your broker
can execute a proxy and vote your shares and only after receiving your
specific instructions. Please contact the person responsible for your
account and direct him or her to execute a proxy on your behalf today. Then
mail your proxy at once in the envelope provided. If you have any questions
or need further assistance in voting, please call:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (Collect)
CALL TOLL-FREE -- 1-800-431-9642
MICRO BIO-MEDICS, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 1, 1997
---------------------
HENRY SCHEIN, INC.
PROSPECTUS
FOR UP TO
3,400,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), with HSI
Acquisition Corp., a New York corporation ("Merger Sub") and a wholly owned
subsidiary of Henry Schein, Inc., a Delaware corporation ("Schein"), pursuant to
an Agreement and Plan of Merger dated as of March 7, 1997, as revised (the
"Merger Agreement"). As a result of the Merger, MBM will become a wholly owned
subsidiary of Schein. At the effective time of the Merger (the "Effective
Time"), each outstanding share of the Common Stock, par value $0.03 per share,
of MBM ("MBM Common Stock"), other than shares held by MBM shareholders who
perfect their appraisal rights under the New York Business Corporation Law, will
be converted into the right to receive 0.62 shares of the Common Stock, par
value $0.01, of Schein ("Schein Common Stock") and each outstanding option and
warrant to purchase MBM Common Stock will be automatically assumed by Schein and
converted into an option or a warrant, as the case may be, to purchase shares of
Schein Common Stock. This Proxy Statement/Prospectus also relates to the assumed
warrants and the issuance of shares of Schein Common Stock pursuant to the
exercise of such warrants (the shares issuable upon exercise of such options
will be separately registered).
Based upon the 0.62 share exchange ratio and the closing sales price of
shares of Schein Common Stock on July 1, 1997 reported on the Nasdaq National
Market ($32 7/16 per share), each such outstanding share of MBM Common Stock
would have been converted into Schein Common Stock with a then-current market
value of approximately $20.11 had the Merger been consummated on that date, and
the aggregate then-current market value of the shares of Schein Common Stock
issued in the Merger would have been approximately $103,831,119.
MBM is soliciting proxies from its shareholders for use at the Special
Meeting of Shareholders of MBM scheduled to be held on Friday, August 1, 1997
(the "Special Meeting") to consider the approval and adoption of the Merger
Agreement. The Merger is expected to be consummated immediately after approval
of the Merger Agreement by the shareholders of MBM.
This Proxy Statement/Prospectus constitutes both the proxy statement of MBM
relating to the solicitation of proxies by its Board of Directors for use at the
Special Meeting and the prospectus of Schein with respect to the Shares of
Schein Common Stock to be issued in the Merger upon the conversion of the
outstanding shares of MBM Common Stock. This Proxy Statement/Prospectus and the
enclosed forms of proxy are first being sent to holders of MBM Common Stock on
or about July 3, 1997.
SEE "RISK FACTORS" ON PAGE 22 FOR A DESCRIPTION OF CERTAIN FACTORS
CONCERNING SCHEIN AND ITS OPERATIONS FOLLOWING THE MERGER.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is July 2, 1997.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF SCHEIN OR MBM SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
AVAILABLE INFORMATION
Schein and MBM are subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"). In accordance with the
Exchange Act, Schein and MBM file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC").
Schein has filed, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), a Registration Statement on Form S-4 (the
"Registration Statement") with the SEC under the Securities Act of 1933 (the
"Securities Act") with respect to the shares of Schein Common Stock to be issued
upon consummation of the Merger and upon the exercise of the Converted Warrants
(as defined herein). This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the SEC. Copies of the Registration Statement (including such
omitted portions) are available from the SEC upon payment of prescribed rates.
For further information, reference is made to the Registration Statement and the
exhibits filed therewith. Statements contained in this Proxy Statement/
Prospectus relating to the contents of any contract or other document referred
to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
This filed material can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Chicago Regional Office (Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661) and New York Regional Office (Seven World Trade Center,
New York, New York 10048). Copies of such material may be obtained by mail from
the Public Reference Section of the SEC, 450 Fifth Street, N.W, Washington, D.C.
20549, at prescribed rates. In addition, such material can be inspected at the
offices of the National Association of Securities Dealers, Inc. (the "NASD"),
1735 K Street, N.W., Washington, DC 20006. Material filed electronically through
EDGAR may also be accessed through the SEC's home page on the World Wide Web at
http://www.sec.gov.
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference in this Proxy
Statement/Prospectus:
(a) Schein's Annual Report on Form 10-K for the year ended December 28, 1996
(File No. 0-27028);
(b) Schein's Amended Annual Report on Form 10-K/A for the year ended
December 28, 1996;
(c) Schein's Current Report on Form 8-K dated June 24, 1997;
(d) Schein's Quarterly Report on Form 10-Q for the period ended March 29,
1997;
(e) Schein's Registration Statement on Form 8-A dated October 27, 1995;
(f) MBM's Annual Report on Form 10-K for the year ended November 30, 1996
(File No. 0-12665);
(g) MBM's Amended Annual Report on Form 10-K/A for the year ended November
30, 1996; and
(h) MBM's Quarterly Report on Form 10-Q for the period ended February 28,
1997.
All reports and definitive proxy or information statements filed by Schein
or MBM pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/ Prospectus and prior to the date
of the Special Meeting shall be deemed to be incorporated by reference into this
Proxy Statement/Prospectus from the dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated in
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus. All
information appearing in this Proxy Statement/Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated by reference herein and should
be read together with such information and documents.
All information contained in this Proxy Statement/Prospectus relating to
Schein or Merger Sub has been supplied by Schein, and all information relating
to MBM has been supplied by MBM.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS
(EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF MBM
COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON REQUEST.
WITH RESPECT TO SCHEIN'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO SCHEIN AT 135
DURYEA ROAD, MELVILLE, NEW YORK 11747, ATTN: MARK E. MLOTEK (TELEPHONE: (516)
843-5500). WITH RESPECT TO MBM'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO MBM
AT 846 PELHAM PARKWAY, PELHAM MANOR, NEW YORK 10803, ATTN: GARY BUTLER
(TELEPHONE: (914) 738-8400). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 17, 1997.
3
TABLE OF CONTENTS
PAGE
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SUMMARY.................................................................................................... 7
Special Meeting.......................................................................................... 7
Required Vote............................................................................................ 7
Proxies.................................................................................................. 8
Certain Significant Considerations....................................................................... 8
The Merger............................................................................................... 8
Option and Proxy Agreement............................................................................... 13
Regulatory Matters....................................................................................... 13
Certain Tax Consequences of the Merger................................................................... 13
Anticipated Accounting Treatment......................................................................... 14
Appraisal Rights......................................................................................... 14
Comparison of Stockholder Rights......................................................................... 14
Market Price Data........................................................................................ 14
Certain Significant Considerations....................................................................... 15
Summary Consolidated Historical Financial Information and Operating Data................................. 15
Schein Summary Consolidated Historical Financial Information and Operating Data.......................... 16
MBM Summary Consolidated Historical Financial Information................................................ 19
Summary Unaudited Pro Forma Combined Financial Information............................................... 20
Comparative Unaudited Per Share Data..................................................................... 21
RISK FACTORS............................................................................................... 22
Fixed Exchange Ratio..................................................................................... 22
Interests of Certain Persons in the Merger............................................................... 22
Option and Proxy Agreement............................................................................... 22
Difficulty of Integration of Operations Following the Merger............................................. 23
Competition.............................................................................................. 23
Expansion of Schein Through Acquisitions and Joint Ventures.............................................. 23
Minority Status of Former MBM Shareholders; Control by Insiders.......................................... 24
Fluctuations in Quarterly Earnings....................................................................... 24
Practice Management Software and Other Value Added Products.............................................. 24
Foreign Operations....................................................................................... 25
Dependence on Senior Management.......................................................................... 25
Changes in Healthcare Industry........................................................................... 25
Government Regulation.................................................................................... 25
Risk of Product Liability Claims and Insurance........................................................... 26
Cost of Shipping......................................................................................... 26
Reliance on Telephone and Computer Systems............................................................... 26
State Sales Tax Collection............................................................................... 26
Potential Volatility of Market Value of Schein Common Stock.............................................. 26
Anti-takeover Provisions; Possible Issuance of Preferred Stock........................................... 26
Shares Eligible for Future Sales......................................................................... 27
Reorganization........................................................................................... 28
THE SPECIAL MEETING........................................................................................ 29
Special Meeting.......................................................................................... 29
Record Date; Shares Entitled to Vote..................................................................... 29
Required Vote............................................................................................ 30
Proxies; Proxy Solicitation; Revocation of Proxies....................................................... 30
Miscellaneous............................................................................................ 31
4
PAGE
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THE MERGER................................................................................................. 31
Background of the Merger................................................................................. 31
Consideration and Recommendation of the Merger by the MBM Board.......................................... 34
Opinion of Houlihan Lokey................................................................................ 37
Schein's Reasons for the Merger.......................................................................... 41
Effective Time........................................................................................... 42
Exchange Ratio........................................................................................... 42
Exchange Agent; Exchange Procedures; Distributions with Respect to Unexchanged Shares; No Further
Ownership Rights in MBM Common Stock; No Fractional Shares of Schein Common Stock...................... 42
Admission for Trading on Nasdaq National Market.......................................................... 43
Cessation of Nasdaq National Market Trading and Deregistration of MBM Common Stock After the Merger...... 44
Certain Significant Considerations....................................................................... 44
Certain Tax Consequences of the Merger................................................................... 44
Anticipated Accounting Treatment......................................................................... 45
Appraisal Rights......................................................................................... 45
Option and Proxy Agreement............................................................................... 47
Interests of Certain Persons in the Merger............................................................... 49
Operations After the Merger.............................................................................. 51
Dividends................................................................................................ 51
Treatment of MBM Stock Options and Warrants.............................................................. 51
Right of the MBM Board to Withdraw Recommendation........................................................ 52
Regulatory Filings and Approvals......................................................................... 52
Resale of Schein Common Stock Received in the Merger..................................................... 53
DESCRIPTION OF SCHEIN...................................................................................... 54
General.................................................................................................. 54
Reorganization........................................................................................... 55
Management of Schein..................................................................................... 57
DESCRIPTION OF MBM......................................................................................... 59
COMPARATIVE STOCK PRICES AND DIVIDENDS..................................................................... 61
Schein Common Stock...................................................................................... 61
MBM Common Stock......................................................................................... 62
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 62
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA........................... 70
SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 73
Overview................................................................................................. 73
Recent Developments...................................................................................... 74
Results of Operations.................................................................................... 75
Inflation................................................................................................ 79
Risk Management.......................................................................................... 79
Liquidity and Capital Resources.......................................................................... 80
MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION................................................. 82
MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 84
Results of Operations.................................................................................... 84
Gross Profit/Operating Expenses.......................................................................... 84
Interest and Financing Costs (Net of Interest Income).................................................... 85
5
PAGE
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Liquidity and Capital Resources.......................................................................... 85
TERMS OF THE MERGER AGREEMENT.............................................................................. 86
The Merger; Exchange and Conversion of Shares............................................................ 86
Exchange of Share Certificates........................................................................... 87
Treatment of MBM Stock Options and Warrants.............................................................. 88
Effective Time........................................................................................... 88
Termination Rights....................................................................................... 88
Certain Fees and Expenses................................................................................ 90
Conditions to the Merger................................................................................. 90
Representations and Warranties........................................................................... 91
Indemnification; Officers' and Directors' Liability Insurance............................................ 92
Certain Covenants of MBM................................................................................. 92
Certain Covenants of Schein.............................................................................. 93
Certain Covenants of MBM and Schein...................................................................... 93
No Solicitation of Other Offers.......................................................................... 94
Amendments............................................................................................... 94
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 95
General.................................................................................................. 95
Authorized Capital Stock................................................................................. 95
Directors................................................................................................ 95
Annual and Special Meetings of Shareholders.............................................................. 96
Amendment of By-Laws..................................................................................... 97
Amendment of Certificate of Incorporation................................................................ 97
Mergers and Business Combinations; Sales of Assets....................................................... 98
Dividends, Redemptions, and Repurchases.................................................................. 99
Shareholders Lists; Inspections Rights................................................................... 99
Transactions with Interested Directors................................................................... 99
Indemnification; Limitation of Liability................................................................. 100
Appraisal Rights......................................................................................... 101
Issuance of Rights or Options to Purchase Shares to Directors, Officers and Employees.................... 102
Loans to Directors....................................................................................... 102
Anti-Greenmail........................................................................................... 102
EXPERTS.................................................................................................... 103
LEGAL MATTERS.............................................................................................. 103
ANNEX I--Agreement and Plan of Merger
ANNEX II--Opinion of Houlihan, Lokey, Howard & Zukin, Inc.
ANNEX III--Section 623 of the New York Business Corporation Law
6
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS, IN THE ATTACHED ANNEXES AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS
PROXY STATEMENT/PROSPECTUS AND THE ATTACHED ANNEXES IN THEIR ENTIRETY.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Micro Bio-Medics, Inc., a New York corporation ("MBM"), with HSI
Acquisition Corp., a New York corporation ("Merger Sub") and a wholly owned
subsidiary of Henry Schein, Inc., a Delaware corporation ("Schein"), pursuant to
an Agreement and Plan of Merger dated as of March 7, 1997, as revised (the
"Merger Agreement"). As a result of the Merger, MBM will become a wholly owned
subsidiary of Schein. At the effective time of the Merger (the "Effective
Time"), each outstanding share of Common Stock, par value $.03, of MBM (the "MBM
Common Stock"), other than Shares held by MBM shareholders who perfect their
appraisal rights under the New York Business Corporation Law (the "NYBCL"), will
be converted into the right to receive 0.62 shares of Common Stock, par value
$0.01, of Schein (the "Schein Common Stock"). The exchange ratio of 0.62 shares
of Schein Common Stock for each share of MBM Common Stock, as set forth in the
Merger Agreement, is hereinafter referred to as the "Exchange Ratio".
Based upon the 0.62 Exchange Ratio and the closing sales price of shares of
Schein Common Stock on July 1, 1997 ($32 7/16), as reported on the Nasdaq
National Market, each such outstanding share of MBM Common Stock would have been
converted into Schein Common Stock with a then-current market value of
approximately $20.11 had the Merger been consummated on that date, and the
aggregate then-current market value of the shares of Schein Common Stock issued
in the Merger would have been approximately $103,831,119.
SPECIAL MEETING
A Special Meeting of the shareholders of MBM will be held at 9:00 a.m.,
local time, on Friday, August 1, 1997 (the "Special Meeting"), at the Ramada
Hotel, One Ramada Plaza, New Rochelle, New York 10801. Only holders of record of
MBM Common Stock at the close of business on Tuesday, June 24, 1997 (the "Record
Date"), will be entitled to notice of, and to vote at, the Special Meeting. At
the Special Meeting, the holders of MBM Common Stock will be asked to consider
and vote upon the approval of the Merger Agreement, a copy of which is attached
as Annex I to this Proxy Statement/Prospectus. MBM will be the surviving
corporation in the Merger (the "Surviving Corporation") and will become a wholly
owned subsidiary of Schein. The holders of MBM Common Stock will also transact
such other business as may properly come before the Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds (66 2/3%) of the
outstanding shares of MBM Common Stock will be required for the approval of the
Merger Agreement. As an inducement for Schein to enter into the Merger
Agreement, the members of MBM's Board of Directors have entered into an Option
and Proxy Agreement with Schein pursuant to which such individuals have, among
other things, irrevocably appointed Schein their lawful agent, attorney and
proxy to vote substantially all of the shares of MBM Common Stock that they
beneficially own (approximately 10.0% of the outstanding shares) in favor of the
Merger Agreement and the Merger. See "THE MERGER--Option and Proxy Agreement"
and "THE SPECIAL MEETING--Required Vote".
The approval of Schein's stockholders is not required to effect the Merger.
7
PROXIES
MBM shareholders are requested to complete, sign, date and return promptly
the enclosed proxy card in the postage-paid envelope provided for this purpose
to ensure that their shares are voted. A holder of shares of MBM Common Stock
may revoke a proxy by submitting a later dated proxy with respect to the same
shares at any time prior to the vote on the approval of the Merger Agreement, by
delivering written notice of revocation to American Stock Transfer & Trust
Company, the Transfer Agent for the MBM Common Stock, at 40 Wall Street, New
York, New York 10005, Attention: Proxy Department, at any time prior to such
vote or by attending the Special Meeting and voting in person. Mere attendance
at the Special Meeting will not in and of itself revoke a proxy. See "SPECIAL
MEETING".
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve the Merger, the shareholders of MBM should
carefully consider the factors described under "RISK FACTORS" as well as the
fact that (i) the Exchange Ratio is fixed and will not be adjusted based upon
changes in the market price of the shares of Schein Common Stock, which at the
Effective Time may vary significantly from the most recent market price set
forth in this Proxy Statement/Prospectus or the market price on the date of the
opinion of Houlihan Lokey referred to below or on the date of the Special
Meeting and (ii) certain members of MBM's management and financial advisors have
interests in the Merger in addition to their interests as shareholders of MBM.
For certain information about these factors and the consideration given to them
by the Board of Directors of MBM, see "--Consideration and Recommendation of the
Merger by the Board of Directors of MBM" and "--Interests of Certain Persons in
the Merger" in this Summary, "RISK FACTORS--Potential Volatility of Market Value
of Schein Common Stock Prices" and "THE MERGER--Background of the Merger",
"--Consideration and Recommendation of the Merger by the MBM Board", "--Opinion
of Houlihan Lokey" and "--Interests of Certain Persons in the Merger."
THE MERGER
THE PARTIES. Schein is the largest direct marketer of healthcare products
and services to office-based healthcare practitioners in the combined North
American and European markets. Schein has operations in the United States,
Canada, the United Kingdom, The Netherlands, Belgium, Germany, France, the
Republic of Ireland and Spain. Schein sells products and services to over
230,000 customers, primarily dental practices and dental laboratories, as well
as physician practices, veterinary clinics and institutions. In 1996, Schein
sold products to over 65% of the estimated 100,000 dental practices in the
United States. Schein's principal executive offices are located at 135 Duryea
Road, Melville, New York 11747, telephone number (516) 843-5500. As used in this
Proxy Statement/Prospectus, "Schein" refers to Henry Schein, Inc., its
subsidiaries and 50% owned companies, and its predecessor, unless otherwise
indicated.
Merger Sub, a New York corporation, is a wholly owned subsidiary of Schein
formed solely for the purpose of effecting the Merger.
MBM distributes medical supplies to physicians and hospitals in the New York
metropolitan area, as well as to healthcare professionals in the sports
medicine, emergency medicine, school health, industrial safety, government and
laboratory markets nationwide. MBM's principal executive offices are located at
846 Pelham Parkway, Pelham Manor, New York 10803, telephone number (914)
738-8400. As used in this Proxy Statement/Prospectus, "MBM" refers to MBM and
its subsidiaries, unless otherwise indicated.
EXCHANGE RATIO. At the Effective Time, each outstanding share of MBM Common
Stock, other than shares as to which the holders have perfected their appraisal
rights under the NYBCL, will be converted into the right to receive 0.62 shares
of Schein Common Stock. No fractional shares of Schein Common Stock will be
issued in the Merger and the holders of shares of MBM Common Stock will be
entitled to a cash payment in lieu of any such fractional shares of Schein
Common Stock that would otherwise be issued in the Merger.
8
CONSIDERATION AND RECOMMENDATION OF THE MERGER BY THE BOARD OF DIRECTORS OF
MBM. THE BOARD OF DIRECTORS OF MBM (THE "MBM BOARD") HAS UNANIMOUSLY ADOPTED
THE MERGER AGREEMENT, DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF MBM
AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS OF MBM VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT. In reaching its decision to adopt the Merger
Agreement and recommend the Merger, the MBM Board considered a number of
factors. The favorable factors considered were the Exchange Ratio, the treatment
under the Merger Agreement of options and warrants to purchase MBM Common Stock,
the anticipated qualification of the Merger as a tax free reorganization for
Federal income tax purposes and for "pooling-of-interests" accounting, the
growth prospects for the business of MBM that could result from the Merger, the
trend toward consolidation in the industry in which MBM operates, the similar
business strategies of Schein and MBM, Schein's complementary product lines, the
potential benefits of being part of a larger and more diversified company and
the strategic alternatives to the potential Merger. The MBM Board also
recognized that the Merger could present certain disadvantages for MBM and its
shareholders and, in connection therewith, considered the potential volatility
of the market values of the Schein Common Stock, the management challenges
presented by the tasks of combining the operations of Schein and MBM and
achieving any synergistic benefits, the inability of former shareholders of MBM,
as a group, to control the management of Schein as a result of their minority
interest in Schein upon completion of the Merger and the potential business
risks associated with Schein's operations outside of the United States,
including currency exchange rate fluctuations and regulations. The MBM Board
concluded that, as a result of the Merger, the shareholders of MBM should have
increased investment liquidity, the combined companies may have greater growth
opportunities, the Merger may be an effective response to the industry trend
toward consolidation, the similar business strategies of the management of
Schein and MBM and Schein's acquisition experience may facilitate integration of
MBM and Schein and becoming part of a larger and more diversified company may
hold certain benefits for MBM. Based on the foregoing and the opinion of
Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey"), an investment banking
firm (See "THE MERGER--Opinion of Houlihan Lokey"), the MBM Board concluded
that, the consideration offered in the merger is fair and the merger is in the
best interests of the shareholders of MBM. THERE CAN BE NO ASSURANCE, HOWEVER,
THAT ANY OR ALL OF THE POTENTIAL RESULTS DESCRIBED ABOVE WILL BE ACHIEVED IF THE
MERGER IS CONSUMMATED. See "THE MERGER--Background of the Merger" and
"--Consideration and Recommendation of the Merger by the MBM Board".
OPINION OF HOULIHAN LOKEY. Houlihan Lokey delivered its opinion on March 7,
1997 to the MBM Board that the consideration to be received in the Merger by the
public holders of MBM Common Stock is fair to such holders from a financial
point of view. The full text of Houlihan Lokey's written opinion, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Annex II to this Proxy
Statement/Prospectus and is incorporated herein by reference. HOLDERS OF MBM
COMMON STOCK ARE STRONGLY URGED TO READ SUCH OPINION IN ITS ENTIRETY. See "THE
MERGER--Opinion of Houlihan Lokey".
INTERESTS OF CERTAIN PERSONS IN THE MERGER. As of the Record Date, the
directors and executive officers of MBM beneficially owned an aggregate of
419,272 shares of MBM Common Stock and options to purchase an aggregate of
1,471,332 shares of MBM Common Stock at a weighted average exercise price of
$7.28 per share. Pursuant to the Merger Agreement, MBM's directors and executive
officers will receive the same consideration for their shares of MBM Common
Stock as the other MBM shareholders, and all outstanding options to purchase MBM
Common Stock, including those owned by MBM's directors and executive officers,
will be converted into options to purchase Schein Common Stock as described
below under "TERMS OF THE MERGER--Treatment of MBM Stock Options and Warrants."
Because the Merger Agreement provides that the non-employee members of the MBM
Board will cease to serve as directors as of the Effective Time, the condition
to the exercise of certain options owned by such non-employee directors that the
optionee must be serving as a director at the time of exercise will be deleted
as of the Effective Time. Pursuant to the Merger Agreement, MBM's 1996
Directors' Retirement Plan will be terminated, effective as of the Effective
Time, and no benefits will be paid thereunder.
9
In connection with the termination of his existing employment agreement with
MBM, Bruce J. Haber, MBM's President and a member of the MBM Board, will receive
an aggregate of $3,000,000 in installments, plus interest (subject to increase
in the event of the imposition of certain future tax liabilities), in lieu of
the payments and other rights to which he would have been entitled under such
agreement. Mr. Haber has entered into a new employment agreement with Schein
(effective as of the Effective Time) pursuant to which, as revised, he will
serve as an Executive Vice President of Schein and President of Schein's medical
products group and Schein has agreed to use its reasonable best efforts to cause
Mr. Haber to be elected to Schein's Board of Directors. Mr. Haber's employment
agreement with Schein has a term of five years from the Effective Time and
provides for, among other things, base salary at an annual rate (subject to
annual increases) of $400,000 and annual incentive compensation of up to
$200,000 (subject to increase for years after 1997 ), contingent upon the
achievement of performance targets; and annual grants of Schein Common Stock
purchase options with a value of up to $170,000 (determined using the
Black-Scholes valuation method) in each year (subject to cost of living
increases), contingent upon the achievement of the same performance targets to
which the payment of incentive compensation is contingent, as well as Mr.
Haber's participation in benefit plans and programs and receipt of a car
allowance and other benefits and perquisites provided by Schein to its most
senior executives. If Mr. Haber's Employment Agreement is not extended at the
end of its five year term, Mr. Haber will be entitled to continue to receive his
base salary at the then current rate for an additional year. At the Effective
Time, Mr. Haber will receive additional options having a value (on that date) of
$1,000,000 (determined using the Black Scholes valuation method) to purchase
Schein Common Stock, which options will vest over a five year period (subject to
acceleration in certain circumstances) and will receive restricted shares of
Schein Common Stock with a fair market value of $1,000,000, which shares will
vest over a ten year period (subject to acceleration in certain circumstances).
See "THE MERGER--Interests of Certain Persons in the Merger". If Mr. Haber's
employment is terminated by him or Schein within two years after a change in
control of Schein, Mr. Haber will be entitled to receive a lump sum payment
equal to (i) the product of the aggregate amount of base salary and car
allowance paid to him during the three months preceding such termination and the
number of months which he was employed by Schein or MBM (with a maximum benefit
of 36 months' base salary and car allowance) and (ii) three times the higher of
his last annual bonus or his last bonus prior to the change in control, but only
to the extent that such payments would not, in the aggregate, constitute
"parachute payments" for United States Federal income tax purposes.
K. Deane Reade, Jr., a director of MBM, is the President and a director and
stockholder of Bangert, Dawes, Reade, Davis & Thom Incorporated ("BDRD&T"), an
investment banking firm that has acted as a financial advisor to MBM in the past
and is also acting in that capacity in connection with the Merger. BDRD&T will
receive a fee upon consummation of the Merger of $1,230,000. Inasmuch as Mr.
Reade is a director of MBM and is president, a director and stockholder of
BDRD&T, MBM retained Houlihan Lokey, a firm which had no previous relationship
with MBM or with Schein, to render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the shareholders
of MBM (other than the officers and directors of MBM) in connection with the
proposed Merger as contemplated in the Merger Agreement. See "THE
MERGER--Opinion of Houlihan Lokey".
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement, as revised (the "Option and Proxy Agreement"), pursuant to
which such directors have granted to Schein (i) an irrevocable proxy to vote all
of the shares of MBM Common Stock (excluding certain shares) that they have the
right to vote in favor of the Merger Agreement and against any other Acquisition
Transaction (as defined in the Merger Agreement) and (ii) an irrevocable option
to purchase all shares of MBM Common Stock (excluding certain shares) owned by
them in the event that MBM becomes obligated to pay the Termination Fee (as
defined below under "--Certain Fees, Expenses and Liquidated Damages"). See
"--Option and Proxy Agreement".
10
The Merger Agreement also contains certain provisions relating to
indemnification and liability insurance for officers and directors. See "THE
MERGER--Interests of Certain Persons in the Merger".
SECURITY OWNERSHIP OF CERTAIN PERSONS. As of the Record Date, there were
5,162,759 shares of MBM Common Stock outstanding, of which 549,998 shares
(approximately 10.7% of the outstanding shares of MBM Common Stock) were
beneficially owned or voted by directors and executive officers of MBM and their
affiliates. See "SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND OWNERS
OF 5% OR MORE OF MBM COMMON STOCK". All such directors and executive officers
and their affiliates have indicated to MBM that they intend to vote or direct
the vote of all such shares in favor of the approval of the Merger Agreement. In
addition, each member of the MBM Board has entered into an Option and Proxy
Agreement. See "--Option and Proxy Agreement."
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS. At the Effective Time, each
outstanding option and warrant to purchase MBM Common Stock will be
automatically assumed by Schein and converted into an option ("Converted
Option") or a warrant ("Converted Warrant"), as the case may be, to purchase
shares of Schein Common Stock in an amount and at an exercise price determined
by adjusting the original terms of the option or warrant to reflect the Exchange
Ratio.
As of the Record Date, there were outstanding options and warrants to
purchase an aggregate of approximately 1,812,134 shares of MBM Common Stock.
Assuming all such options and warrants remain outstanding at the Effective Time,
an aggregate of approximately 1,123,523 shares of Schein Common Stock would
thereafter be issuable upon the exercise of such Converted Options and Converted
Warrants.
CONDITIONS TO THE MERGER. The obligations of Schein, Merger Sub and MBM to
consummate the Merger are subject to the satisfaction or waiver of various
conditions, including, without limitation, MBM shareholder approval of the
Merger Agreement and the admission for trading (subject to official notice of
issuance) on the Nasdaq National Market of the shares of Schein Common Stock to
be issued in connection with the Merger. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger".
NO SOLICITATION. The Merger Agreement provides that neither MBM, its
subsidiaries or affiliates, nor any of their respective directors, officers,
employees, affiliates, agents or representatives shall, among other things,
directly or indirectly, solicit, initiate, facilitate or encourage (including by
way of furnishing or disclosing non-public information) any inquiries or the
making of any proposal with respect to, or which may reasonably be expected to
lead to, an Acquisition Transaction (as defined in the Merger Agreement), or
negotiate, or otherwise engage in discussions with any person, with respect to
any Acquisition Transaction, or endorse any Acquisition Transaction; provided,
however, that MBM may, in response to an unsolicited written proposal from a
third party, furnish information to and engage in discussions with such third
party, but in each case only if (i) the Board of Directors of MBM determines in
good faith by a majority vote, after consultation with MBM's financial advisor
and after reviewing the advice of outside counsel to MBM, that such action is
reasonably likely to be required by the fiduciary duties of the Board of
Directors and (ii) prior to taking such action, MBM (x) provides reasonable
notice to Schein to the effect that it is taking such action and (y) receives
from such person (and delivers to Schein) an executed confidentiality agreement
in reasonably customary form. In the Merger Agreement, MBM agrees to immediately
advise Schein in writing of any inquiries or proposals with respect to an
Acquisition Transaction, and the terms thereof, including the identity of such
third party, and to update on an ongoing basis or upon Schein's request, the
status thereof. See "TERMS OF THE MERGER AGREEMENT--No Solicitation of Other
Offers".
RIGHT OF THE MBM BOARD TO WITHDRAW RECOMMENDATION. Under the Merger
Agreement, the MBM Board may not, among other things, (i) withdraw or modify, in
a manner adverse to Schein or Merger Sub, the MBM Board's approval or
recommendation of the Merger Agreement or the Merger, (ii) approve or recommend
any Acquisition Transaction, or (iii) cause MBM to enter into any agreement with
respect to
11
any Acquisition Transaction. Notwithstanding the foregoing, if the MBM Board
determines in good faith by majority vote, after consultation with MBM's
financial advisor and after reviewing the advice of outside counsel to MBM, that
such action is reasonably likely to be required by its fiduciary duties, the MBM
Board may withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger, approve or recommend an Acquisition Transaction, or
cause MBM to enter into an agreement with respect to an Acquisition Transaction,
provided, in each case, that the MBM Board determines that the Acquisition
Transaction is more favorable to the shareholders of MBM than the Merger. The
Merger Agreement requires MBM to provide reasonable prior notice to Schein or
Merger Sub to the effect that it is taking such action. See "THE MERGER--Right
of the MBM Board to Withdraw Recommendation".
TERMINATION. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time and regardless of whether the
shareholders of MBM shall have approved the Merger Agreement and the Merger (if
applicable) (i) by mutual written consent of Schein and MBM, (ii) by either
Schein or MBM (except in certain circumstances) if the Merger shall not have
been consummated before September 30, 1997, or if any permanent injunction or
action by any Governmental Entity (as defined in the Merger Agreement) shall
have become final and nonappealable, (iii) by Schein, if (a) the Special Meeting
is canceled or otherwise not held (except in certain circumstances) prior to
August 31, 1997, (b) there has been a breach of any representations or
warranties of MBM set forth in the Merger Agreement, the effect of which,
individually or together with all other such breaches, is a material adverse
effect on the financial condition, results of operations, business, assets,
liabilities, prospects or properties of MBM and its subsidiaries, taken as a
whole, or the ability of MBM to consummate the Merger and the other transactions
contemplated by the Merger Agreement, (c) there has been a breach in any
material respect of any of the covenants or agreements set forth in the Merger
Agreement on the part of MBM, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Schein to
MBM, (d) the Board of Directors of MBM (1) withdraws or amends or modifies in a
manner materially adverse to Schein or Merger Sub its recommendation or approval
to shareholders in respect of the Merger Agreement or the Merger, (2) makes any
recommendation with respect to an Acquisition Transaction (including making no
recommendation or stating an inability to make a recommendation), other than a
recommendation to reject such Acquisition Transaction, or (3) takes any action
that violates the non-solicitation provisions of the Merger Agreement, (e)
subject to certain exceptions, any person or group ("Acquiring Person") other
than Schein, or any affiliate or subsidiary of Schein, shall have become the
beneficial owner of more than 20% of the outstanding voting equity of MBM
(either on a primary or a fully diluted basis), or (f) any other Acquisition
Transaction shall have occurred with any Acquiring Person other than Schein, or
any affiliate or subsidiary of Schein, or (iv) by MBM, if (a) there has been a
breach of any representations or warranties of Schein set forth in the Merger
Agreement the effect of which, individually or together with all other such
breaches, is a material adverse effect on the financial condition, results of
operations, business, assets, liabilities, prospects or properties of Schein and
its subsidiaries taken as a whole, or the ability of Schein to consummate the
Merger and the other transactions contemplated by the Merger Agreement, (b)
there has been a breach in any material respect of any of the covenants or
agreements set forth in the Merger Agreement on the part of Schein, which breach
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by MBM to Schein or (c) such termination is necessary to
allow MBM to enter into an Acquisition Transaction permitted under the Merger
Agreement. See "TERMS OF THE MERGER AGREEMENT--Termination Rights".
CERTAIN FEES, EXPENSES AND LIQUIDATED DAMAGES. If the Merger Agreement is
terminated as provided above (i) by Schein due to the MBM Board having withdrawn
or modified its recommendation or approval with respect to the Merger Agreement
or the Merger or having made a recommendation to shareholders with respect to an
Acquisition Transaction, or an Acquiring Person having become the owner of 20%
or more of MBM's outstanding voting equity or any other Acquisition Event
occurs, (ii) by MBM, in order to enter into an Acquisition Agreement permitted
by the Merger Agreement, (iii) by either Schein or MBM due to the Merger not
being consummated before September 30, 1997, (iv) by Schein due to the Special
12
Meeting not occurring prior to August 31, 1997, or (v) by Schein due to a
material breach or misrepresentation and, in the case of a termination described
in these clauses (iii) through (v), within one year of such termination MBM or
any of its subsidiaries shall have consummated an Acquisition Transaction or
have entered into a definitive agreement with respect thereto; then MBM shall
pay to Schein a termination fee of $5,000,000 (the "Termination Fee") plus an
amount equal to Schein's out-of-pocket expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby, including, without
limitation, legal, professional and service fees and expenses. If the Merger
Agreement terminates under the circumstances described in clauses (iv) and (v)
and an Acquisition Transaction does not occur within six months of such
termination, MBM is required to pay to Schein the amount of $3,000,000 as
liquidated damages. If MBM terminates the Merger Agreement due to a
misrepresentation or breach by Schein, then Schein is required to pay to MBM the
amount of $3,000,000 as liquidated damages.
OPTION AND PROXY AGREEMENT
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement, as revised (the "Option and Proxy Agreement"), pursuant to
which such directors have granted to Schein (i) an irrevocable proxy to vote all
of the shares of MBM Common Stock (excluding certain shares) that they have the
right to vote in favor of the Merger Agreement and against any other Acquisition
Transaction and (ii) an irrevocable option to purchase all shares of MBM Common
Stock (excluding certain shares) owned by them in the event that MBM becomes
obligated to pay the Termination Fee. Under the Option and Proxy Agreement,
Schein has the right to require the members of the MBM Board to exercise or
convert all of their respective options, warrants or other rights or securities
that are exercisable for, or convertible into, shares of MBM Common Stock. As of
the date of this Proxy Statement/ Prospectus, the members of the MBM Board
beneficially owned or had the right to vote an aggregate of 512,496 shares of
MBM Common Stock (approximately 10.0% of the outstanding shares), and owned, in
the aggregate, options to purchase an aggregate of 1,098,333 shares of MBM
Common Stock. See "THE SPECIAL MEETING--Required Vote" and "THE MERGER--Option
and Proxy Agreement".
REGULATORY MATTERS
ANTITRUST. The Merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations thereunder, which provide that certain
transactions may not be consummated until required information and material have
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC") and certain
waiting periods have expired or been terminated. MBM and Schein filed the
required information and material with the Antitrust Division and the FTC on
April 16, 1997. Early termination of the statutory waiting period under the HSR
Act was granted on April 28, 1997. See "THE MERGER--Regulatory Filings and
Approvals--Antitrust".
CERTAIN TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a "tax-free reorganization" for United
States Federal income tax purposes. Accordingly, no gain or loss will be
recognized for United States Federal income tax purposes by the MBM shareholders
as a result of the exchange of shares of MBM Common Stock for shares of Schein
Common Stock. However, cash received by MBM shareholders in lieu of fractional
shares of Schein Common Stock may give rise to taxable gain or loss.
Each shareholder of MBM is urged to consult his or her tax advisor to
determine the specific tax consequences of the Merger to such shareholder. The
obligations of both MBM and Schein to consummate the Merger are subject to the
opinion of MBM's tax counsel to the effect that the Merger will be a "tax-free
reorganization" for United States Federal income tax purposes not being
withdrawn or modified in any material respects. For a further discussion of the
tax consequences of the Merger, See "THE MERGER--Certain Tax Consequences of the
Merger".
13
ANTICIPATED ACCOUNTING TREATMENT
Schein and MBM believe that the Merger will qualify as a "pooling of
interests" for accounting and financial reporting purposes. It is a condition to
Schein's obligation to consummate the Merger that BDO Seidman, LLP, the
independent auditors for Schein, and Miller, Ellin & Company, the independent
auditors for MBM, issue their opinions that, subject to customary
qualifications, the Merger qualifies as a "pooling of interests" for financial
reporting purposes in accordance with generally accepted accounting principles.
See "THE MERGER--Anticipated Accounting Treatment".
Although Schein may waive this condition to the consummation of the Merger
and Schein or MBM may waive the tax opinion condition to the consummation of the
Merger described in "--Certain Tax Consequences of the Merger", neither Schein
nor MBM anticipates waiving these conditions, and will not do so without
resoliciting the holders of MBM Common Stock for their approval of the Merger on
the basis of such waiver or waivers.
APPRAISAL RIGHTS
Holders of MBM Common Stock may demand an appraisal by the appropriate New
York State court of the "fair value" of their shares of MBM Common Stock under
Section 623 of the NYBCL, in lieu of accepting the conversion of such shares of
Schein Common Stock at the Exchange Ratio. A shareholder of MBM Common Stock
electing to demand an appraisal must deliver to MBM before the taking of the
vote on the Merger, a written demand for appraisal of such shareholder's Shares.
A proxy or vote against the Merger or an abstention or broker non-vote will not
constitute such a demand. A vote in favor of the Merger by a shareholder will
have the effect of waiving his or her appraisal rights. Schein will not be
obligated to consummate the Merger if appraisal rights are demanded with respect
to more than 9% of the outstanding shares of MBM Common Stock. See "THE
MERGER--Appraisal Rights".
Under Section 623 of the NYBCL, a corporation must notify each of its
shareholders entitled to appraisal rights as of the record date of the meeting
that such appraisal rights are available and include in such notice a copy of
Section 623. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF
SHARES OF MBM COMMON STOCK. Holders of shares of MBM Common Stock wishing to
exercise appraisal rights are urged to review carefully the information set
forth in "THE MERGER--Appraisal Rights" and the complete text of Section 623,
which is attached as Annex III to this Proxy Statement/Prospectus.
COMPARISON OF STOCKHOLDER RIGHTS
If the Merger is consummated, shareholders of MBM will become stockholders
of Schein, a Delaware corporation, which will result in their rights as
shareholders being governed by Delaware law and Schein's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws, rather than New
York law (MBM is a New York corporation) and MBM's Certificate of Incorporation,
as amended, and By-Laws, as amended. It is not practical to describe all the
differences between Delaware law and New York law and between Schein's governing
documents and MBM's governing documents. A summary of certain of such
differences is set forth in "COMPARISON OF STOCKHOLDER RIGHTS", including,
without limitation, differences with respect to the size of the board of
directors, the calling of special meetings of stockholders, the required
stockholder vote for the approval of certain transactions, the amendment of the
governing documents, and appraisal rights.
MARKET PRICE DATA
Both the Schein Common Stock (symbol: HSIC), and the MBM Common Stock
(symbol: MBMI) are admitted for trading on the Nasdaq National Market.
The following table sets forth the high and low sales prices per share of
the Schein Common Stock and the MBM Common Stock (on a historical and equivalent
per share basis) on the Nasdaq National Market
14
on March 6, 1997, the last trading day prior to public announcement of the
signing of the Merger Agreement:
HIGH LOW
------- -------
Schein Common Stock.......................................... $28 7/8 $28
MBM Common Stock............................................. 16 3/8 15 3/4
Equivalent share basis(1).................................... 17 7/8 17 3/8
- ------------------------
(1) Equivalent share basis is determined by multiplying the applicable Schein
Common Stock price by 0.62 to reflect the terms of the Merger Agreement.
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, shareholders of MBM should carefully consider those factors
described under "RISK FACTORS" as well as the fact that the Exchange Ratio is
fixed and will not be adjusted based on changes in the price of the Schein
Common Stock. The price of the Schein Common Stock at the Effective Time may
vary from the price as of the date of the Proxy Statement/Prospectus or the date
on which shareholders of MBM vote on the Merger due to changes in the business,
operations or prospects of Schein, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions, and other factors.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA
The following tables present summary consolidated selected historical
financial information and operating data of Schein and MBM. Schein and MBM's
consolidated historical financial information and operating data for each of the
annual periods presented have been derived from their respective audited
consolidated financial statements previously filed with the SEC. Schein and
MBM's historical consolidated financial information for the three months ended
March 29, 1997 and March 30, 1996, and February 28, 1997 and February 29, 1996,
respectively, have been derived from Schein and MBM's unaudited consolidated
financial statements for such quarterly periods previously filed with the SEC.
The summary consolidated selected historical financial information and operating
data should be read in conjunction with the consolidated selected historical
financial information and operating data presented elsewhere in this Proxy
Statement/Prospectus. Schein's Selected Operating Data has not been audited. See
"SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION AND OPERATING
DATA" and "MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION."
15
SCHEIN SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION AND OPERATING DATA
(in thousands, except per share and selected operating data)
YEARS ENDED
--------------------------------------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
28, 30, 31, 25, 26,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
Gross profit............................... 253,109 195,854 145,966 122,884 106,215
Selling, general and administrative
expenses................................. 220,500 174,867 131,009 111,214 96,853
Special charges (1)........................ -- 20,797 23,603 6,057 7,510
Operating income (loss).................... 32,609 190 (8,646) 5,613 1,852
Net income (loss).......................... $ 22,523 $ (8,801) $ (10,065) $ 4,125 $ 487
PRO FORMA INCOME DATA (2):
Pro forma operating income................. $ 32,609 $ 20,987 $ 14,957
Pro forma net income....................... $ 21,326 $ 10,289 $ 7,483
Pro forma net income per common share...... $ 0.98 $ 0.71 $ 0.57
Pro forma average shares outstanding....... 21,794 14,517 13,197
SELECTED OPERATING DATA:
Number of orders shipped................... 3,079,000 2,630,000 2,275,000 2,044,000 1,824,000
Average order size......................... $ 273 $ 237 $ 216 $ 204 $ 199
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................ $ 204,575 $ 104,455 $ 76,814 $ 74,167 $ 28,066
Total assets............................... 467,450 299,364 191,373 161,437 138,043
Total debt................................. 39,746 43,049 61,138 56,712 41,526
Redeemable stock (3)....................... -- -- 14,745 -- --
Minority interest.......................... 5,289 4,547 1,823 1,051 411
Stockholders' equity....................... 292,016 143,865 40,266 43,896 39,927
THREE MONTHS ENDED
------------------------------
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 240,499 $ 187,339
Gross profit..................................................................... 71,722 56,506
Selling, general and administrative expenses..................................... 64,782 51,396
Merger costs(4).................................................................. 2,527 --
Operating income................................................................. 4,413 5,110
Net income....................................................................... $ 1,499 $ 2,716
Net income per common share...................................................... $ 0.06 $ 0.14
Average shares outstanding....................................................... 23,678 19,740
16
MARCH 29, 1997
--------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................................................... $ 201,446
Total assets...................................................................................... 438,553
Total debt........................................................................................ 38,736
Minority interest................................................................................. 5,119
Stockholders' equity.............................................................................. 293,581
- ------------------------
(1) Includes: (a) for 1995, non-cash special management compensation charges of
$17.5 million arising from final mark-to-market adjustments (reflecting an
increase in estimated market value from 1994 to the initial public offering
price of $16.00 per share of Schein Common Stock) for stock grants made to
an executive officer of Schein in 1992 and other stock issuances made to
certain other senior management of Schein (because of certain repurchase
features which expired with the initial public offering), an approximate
$2.8 million non-cash special management compensation charge (also based on
the initial public offering price of $16.00 per share) relating to
compensatory options granted in 1995, and a cash payment of $0.5 million for
additional income taxes resulting from such stock issuances; (b) for 1994
special professional fees of $2.0 million incurred by Schein in connection
with the reorganization of Schein's ownership, including various agreements
entered into in connection therewith, between 1992 and 1994, non-cash
special management compensation arising from accelerated amortization of
deferred compensation arising from the 1992 stock grants to an executive
officer of Schein of $17.3 million, which included a 1994 mark-to-market
adjustment (because of the repurchase features referred to above) of $9.1
million, due to the resolution, with the closing of such reorganization, of
certain contingencies surrounding the issuance of the stock grants, non-cash
special management compensation charges of $1.6 million (net of prior
accruals of approximately $1.9 million under an executive incentive plan)
arising from stock issuances to certain other senior management of Schein,
valued at $3.5 million, and cash payments for income taxes of approximately
$2.4 million resulting from these stock issuances and $0.3 million for
additional income taxes resulting from the 1992 stock grants; (c) for 1993,
special professional fees of $2.2 million relating to such reorganization,
special contingent consideration of $0.7 million paid in connection with an
acquisition and $2.5 million resulting from the buyout of employees' rights
to future income contained in their employment agreements, and non-cash
special management compensation charges of $0.6 million in amortization of
deferred compensation arising from the 1992 stock grants; and (d) for 1992,
special professional fees of $2.2 million relating to such reorganization,
and cash payments of $5.3 million for income taxes resulting from stock
grants made to an executive officer of Schein. See "Description of Schein"
and "Schein Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
(2) Reflects the pro forma elimination of special charges incurred in 1995 and
1994 for special management compensation of $20.8 million and $21.6 million,
respectively, and special professional fees incurred in 1994 of $2.0
million, arising from the reorganization referred to in note (1) above, and
the related tax effects of $1.2 million and $5.8 million for 1995 and 1994,
respectively, and provision for income taxes on previously untaxed earnings
of Dentrix Dental Systems, Inc. ('Dentrix') as an S Corporation of $1.2
million, $0.5 million and $0.3 million for 1996, 1995 and 1994,
respectively. See "Description of Schein" and "Schein Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview and Recent Developments."
(3) Redeemable stock includes stock issued for compensation which was subject to
repurchase by Schein at fair market value in the event of termination of
employment of the holder of such shares, as well as shares purchased by the
trust for Schein's ESOP and allocable to the ESOP participants. With the
completion of Schein's initial public offering, the stock issued for
compensation and the ESOP Common Stock were no longer subject to repurchase.
See "Description of Schein" and "Schein
17
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview and Recent Developments."
(4) During the three months ended March 29, 1997, Schein acquired all of the
common stock of Dentrix, a provider of clinically-based dental practice
management systems, with 1996 net sales of approximately $10.2 million, in
exchange for 1,070,000 shares of Schein Common Stock. The Dentrix
acquisition was accounted for as a pooling of interests, and, accordingly,
the consolidated financial statements for all periods presented have been
restated to include Dentrix. In connection with the Dentrix acquisition
Schein incurred merger costs of approximately $2.5 million, or $0.11 per
share, in the first quarter of 1997. Included in the merger costs are
investment banking, legal, accounting and advisory fees and other
nonrecurring costs associated with this acquisition.
18
MBM SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
YEARS ENDED NOVEMBER 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 150,142,529 $ 119,873,764 $ 121,604,461 $ 73,951,410 $ 61,629,435
Gross profit..................... 30,937,027 25,566,621 26,680,772 17,604,057 14,342,026
Total expenses................... 27,871,492 23,651,732 24,047,152 15,548,838 12,157,153
Net income....................... $ 1,744,835 $ 1,108,889 $ 1,621,620 $ 1,202,219 $ 1,222,873
Net income per common share...... $ 0.31 $ 0.25 $ 0.36 $ 0.30 $ 0.41
Average shares outstanding....... 5,816,469 5,121,634 4,896,518 4,734,746 3,481,415
BALANCE SHEET DATA (AT PERIOD
END):
Working capital.................. $ 28,112,222 $ 29,965,266 $ 30,141,450 $ 20,965,370 $ 15,819,417
Long-term debt (net of current
maturities).................... 8,714,567 17,270,062 19,381,239 9,584,684 9,410,079
Total assets..................... 60,443,816 51,135,712 54,461,087 32,784,234 27,934,060
Stockholders' equity............. 31,391,765 21,064,152 18,067,056 16,193,524 10,461,736
THREE MONTHS ENDED
----------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 38,004,627 $ 29,887,421
Gross profit................................................... 7,333,777 6,295,512
Total expenses................................................. 6,956,941 6,143,896
Net income..................................................... $ 218,536 $ 87,916
Net income per common share.................................... $ 0.04 $ 0.02
Average shares outstanding..................................... 6,149,343 5,499,024
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................ $ 26,382,739
Long-term debt (net of current maturities)..................... 6,966,659
Total assets................................................... 60,588,092
Stockholders' equity........................................... 31,668,076
19
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables present summary unaudited pro forma combined financial
information after giving effect to the Merger under the pooling of interests
method of accounting as if the Merger had been consummated as of the beginning
of the periods presented. The tables have been derived from, or prepared on a
basis consistent with, the unaudited pro forma combined information included in
this Proxy Statement/Prospectus. The selected pro forma combined financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the unaudited pro forma combined condensed financial statements
and the notes thereto. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS." The following data are presented for illustrative purposes only and
are not necessarily indicative of the operating results or financial position
that would have occurred or that will occur after consummation of the Merger.
MARCH 29, 1997
--------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................................... $ 219,629
Total assets.................................................................. 499,141
Total debt.................................................................... 46,136
Stockholders' equity.......................................................... 317,049
THREE MONTHS YEARS ENDED
ENDED -----------------------------------
MARCH DECEMBER DECEMBER DECEMBER
29, 28, 30, 31,
1997 1996 1995 1994
------------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 278,504 $ 990,265 $ 743,176 $ 612,438
Operating income (loss) (1)................................. 4,890 36,394 3,344 (4,969)
Net income (loss)........................................... $ 1,718 $ 24,268 $ (7,692) $ (8,444)
Net income per common share................................. $ 0.06
Weighted average common and common equivalent shares
outstanding............................................... 27,490
Pro forma operating income (2).............................. $ 36,394 $ 24,141 $ 18,634
Pro forma net income (3).................................... $ 23,071 $ 11,398 $ 9,104
Pro forma net income per common share....................... $ 0.91 $ 0.66 $ 0.57
Pro forma weighted average common and common equivalent
shares outstanding........................................ 25,401 17,693 16,233
- ------------------------
(1) Includes merger costs of $2,527 in 1997 and special charges of $20,797 in
1995 and $23,603 in 1994.
(2) Reflects the pro forma elimination of the special charges.
(3) Reflects the pro forma elimination of the special charges and relative tax
benefit and the provision for income taxes on previously untaxed earnings of
Dentrix as an S Corporation.
20
COMPARATIVE UNAUDITED PER SHARE DATA
The following table summarizes certain unaudited comparative per share data
for Schein and MBM on a pro forma combined basis, on a pro forma equivalent
basis and on a historical basis giving effect to the Merger as a "pooling of
interests" for accounting purposes. Such information is derived from and should
be read in conjunction with the Unaudited Pro Forma Combined Condensed Financial
Information, including the notes thereto, contained elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma statement presented is for
comparative purposes only and is not necessarily indicative of future combined
earnings or financial position or combined earnings or financial position that
would have been reported had the Merger been completed at the beginning of the
respective periods or as of the dates for which such unaudited pro forma
information is presented. The MBM Per Share Equivalents are calculated by
multiplying the Pro Forma Combined per share amounts by the Exchange Ratio of
0.62.
AT OR FOR THE PERIODS ENDED (1)
AT OR FOR THE -------------------------------------
THREE MONTHS DECEMBER DECEMBER DECEMBER
ENDED 28, 30, 31,
MARCH 29, 1997 1996 1995 1994
--------------- ----------- ----------- -----------
PRO FORMA COMBINED:
Net income per common share.................................... $ 0.06 $ 0.91 $ 0.66 $ 0.57
Book value per common share.................................... $ 11.92
MBM PER SHARE EQUIVALENTS:
Net income per common share.................................... $ 0.04 $ 0.56 $ 0.41 $ 0.35
Book value per common share.................................... $ 7.39
MBM -- HISTORICAL:
Net income per common share.................................... $ 0.04 $ 0.31 $ 0.25 $ 0.36
Book value per common share (2)................................ $ 5.15
SCHEIN:
Net income per common share--Historical........................ $ 0.06
Pro forma net income per common share (3)...................... $ 0.98 $ 0.71 $ 0.57
Book value per common share--Historical........................ $ 12.59
- ------------------------
(1) Combines Schein's amounts at and for the three months ended in March with
MBM's amounts at and for the three months ended in February, and the years
ended in December with MBM's amounts at and for the years ended November 30.
(2) Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method.
(3) For Schein, excludes special management compensation and related tax effects
for 1995 and 1994, and special professional fees and related tax effects for
1994, and provides for provision for income taxes on previously untaxed
earnings of Dentrix as an S Corporation.
Except for a dividend paid by Schein in 1992 and regular distributions made by
Dentrix in the years prior to its business combination with Schein, neither
Schein nor MBM has ever paid a cash dividend on their common stocks.
21
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE HOLDERS OF SHARES OF MBM
COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT.
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR"
FOR FORWARD LOOKING STATEMENTS. ANY FORWARD LOOKING STATEMENTS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THOSE RELATING TO THE
COMBINED OPERATIONS OF SCHEIN AND MBM AFTER THE MERGER, ARE SUBJECT TO, AMONG
OTHER THINGS, THE FOLLOWING FACTORS.
FIXED EXCHANGE RATIO
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, holders of shares of MBM Common Stock should carefully consider
that the Exchange Ratio is fixed and will not be adjusted based on changes in
the market price of the Schein Common Stock, and that the market price of the
Schein Common Stock at the Effective Time may vary from the price as of the date
of this Proxy Statement/Prospectus or the date on which holders of shares of MBM
Common Stock vote on the Merger due to changes in the business, operations or
prospects of Schein, market assessments of the likelihood that the Merger will
be consummated and the timing thereof, general market and economic conditions,
and other factors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Bruce J. Haber, MBM's President and one of the four members of the MBM
Board, has entered into an agreement with Schein with respect to the termination
of his existing employment agreement with MBM pursuant to which he will receive
an aggregate of $3,000,000 in installments, plus interest (subject to increase
in the event of the imposition of certain future tax liabilities) in lieu of the
payments and other rights to which he would have become entitled under such
agreement, and has also entered into a new employment agreement with Schein
which contains provisions for salary, incentive compensation, severance, certain
rights upon a change in control, and grants of Schein Common Stock purchase
options (including options with an aggregate value of $1,000,000 on the
Effective Date). Additionally, pursuant to a restricted stock agreement with
Schein, Mr. Haber will receive restricted shares of Schein Common Stock with a
fair market value of $1,000,000 on the Effective Date. These three agreements
all take effect at the Effective Time. BDRD&T, a firm of which K. Deane Reade,
Jr., a director of MBM, is president and a director and stockholder, will
receive a fee of $1,230,000 upon consummation of the Merger. The compensation to
Mr. Haber and to BDRD&T is for services rendered or to be rendered to MBM or to
the Surviving Corporation and accordingly, the holders of shares of MBM Common
Stock (including Mr. Haber and Mr. Reade, as holders of shares of MBM Common
Stock) will not receive any part of this compensation. The additional
compensation to be received by Mr. Haber and, indirectly, Mr. Reade, may be
deemed to give rise to additional and different interests of Mr. Haber and Mr.
Reade in the Merger than those of the other directors and shareholders of MBM.
Mr. Haber and Mr. Reade, as holders of shares of MBM Common Stock, will receive
the same merger consideration as all other holders of shares of MBM Common
Stock.
OPTION AND PROXY AGREEMENT
Schein and the members of the MBM Board have entered into an Option and
Proxy Agreement pursuant to which such directors have granted to Schein (i) an
irrevocable proxy to vote all of the shares of MBM Common Stock (excluding
certain shares) that they have the right to vote in favor of the Merger
Agreement and against any other Acquisition Transaction and (ii) an irrevocable
option to purchase all shares of MBM Common Stock (excluding certain shares)
owned by them in the event that MBM becomes obligated to pay the Termination
Fee. The arrangements under the Option and Proxy Agreement may be deemed to give
rise to additional and different interests of the members of the MBM Board in
the Merger
22
than those of other shareholders of MBM. In particular, the Option and Proxy
Agreement may be deemed to diminish or eliminate any economic interest that the
members of the MBM Board would otherwise have, in their individual capacities as
shareholders of MBM, in an Acquisition Transaction that was more favorable to
the MBM shareholders than the Merger. Under the terms of the Merger Agreement,
the MBM Board may terminate the Merger Agreement in order to permit MBM to enter
into an Acquisition Transaction with a third party if it determines in good
faith by majority vote, after consultation with its financial advisor, and after
reviewing the advice of outside counsel to MBM, that such Acquisition
Transaction is more favorable to the shareholders of MBM than the Merger and
that such action is required by its fiduciary duties. See "TERMS OF THE MERGER
AGREEMENT--Termination Rights."
DIFFICULTY OF INTEGRATION OF OPERATIONS FOLLOWING THE MERGER
The Board of Directors of Schein (the "Schein Board") and the MBM Board have
each given careful consideration to the Merger and believe it to be in the best
interests of their respective stockholders. However, the Merger involves the
combination of two companies that have operated independently. Accordingly,
there can be no assurance that MBM can be successfully integrated into Schein or
that Schein and its stockholders (including the shareholders of MBM who become
stockholders of Schein) will ultimately realize any benefits from the Merger.
The success of the combined company following the Merger will require the
dedication of management resources which may temporarily detract from attention
to the day to day business of Schein and MBM. There can be no assurance that
such diversion of management resources will not adversely affect revenues or
that other material adverse effects will not result from such activities.
COMPETITION
The healthcare products distribution business is intensely competitive.
Schein and MBM compete with numerous other companies, including several major
manufacturers and distributors. Some of these competitors have greater financial
and other resources than either Schein, MBM or the combined companies. Most of
Schein's and MBM's products are available from several sources, and their
customers tend to have relationships with several distributors. In addition,
such competitors could obtain rights to market particular products to the
exclusion of Schein or MBM. Manufacturers also could increase their efforts to
sell directly to end-users, thereby by-passing distributors such as Schein or
MBM. Consolidation among healthcare products distributors could result in
existing competitors increasing their market position through acquisitions or
joint ventures, which may materially adversely affect operating results. In
addition, new competitors may emerge which could materially adversely affect
Schein's or MBM's operating results. There can be no assurance the combined
companies will not face increased competition in the future.
EXPANSION OF SCHEIN THROUGH ACQUISITIONS AND JOINT VENTURES
Schein intends to expand in its domestic and international markets, in part,
through acquisitions and joint ventures. However, Schein's ability to expand
successfully through acquisitions and joint ventures will depend upon the
availability of suitable acquisition or joint venture candidates at prices
acceptable to Schein, Schein's ability to consummate such transactions and the
availability of financing on terms acceptable to Schein. There can be no
assurance that Schein will be effective in making acquisitions or joint
ventures. Such transactions involve numerous risks, including possible adverse
short-term effects on Schein's operating results or the market price of Schein's
Common Stock. Certain of Schein's acquisitions and future acquisitions may also
give rise to an obligation by Schein to make contingent payments or to satisfy
certain repurchase obligations, which payments could have an adverse financial
effect on Schein. In addition, integrating acquired businesses and joint
ventures may result in a loss of customers or product lines of the acquired
businesses or joint ventures, and also requires significant management attention
and may place significant demands on Schein's operations, information systems
and financial resources. Schein
23
completed the acquisitions of (or entered into definitive agreements to acquire)
seventeen other companies in 1996, and has acquired, or entered into definitive
agreement(s) to acquire, fourteen companies so far in 1997. The failure to
effectively integrate future acquired businesses and joint ventures with the
combined companies' operations could adversely affect the combined companies.
MINORITY STATUS OF FORMER MBM SHAREHOLDERS; CONTROL BY INSIDERS
Immediately after the consummation of the Merger, the former holders of MBM
Common Stock will hold an aggregate of approximately 11.9% of the then
outstanding shares of Schein Common Stock and will not be able to control, as a
group, the management of Schein. In addition, immediately after the Merger,
Stanley M. Bergman, Chairman of the Board, Chief Executive Officer and President
of Schein, will own, directly or indirectly, approximately 5.4% of the
outstanding shares of Schein Common Stock and, by virtue of a Voting Trust
Agreement (which expires December 31, 1998 unless terminated earlier) with
certain of Schein's current principal stockholders, will have the right to vote
up to an aggregate of approximately 30.3% of the outstanding shares of Schein
Common Stock. In addition, until December 31, 1998, under certain circumstances,
Mr. Bergman has the right to direct the nomination of a majority of the nominees
to Schein's Board and, from January 1, 1999 until December 31, 2003, Mr. Bergman
has the right to direct the nomination of all, or, under certain circumstances,
four (out of nine), of the nominees to the Schein Board, and in all such events
certain of the current principal stockholders are required to vote for such
nominees. Because of these voting arrangements, Mr. Bergman has significant
influence over matters requiring the approval of the Schein Board or
stockholders of Schein. Under certain circumstances, these voting arrangements
may terminate prior to December 31, 1998. In that event, certain of Schein's
current principal stockholders may be able to significantly influence all
matters requiring stockholder approval, including the election of directors. See
"DESCRIPTION OF SCHEIN-- Reorganization."
FLUCTUATIONS IN QUARTERLY EARNINGS
Schein's business has been subject to seasonal and other quarterly
influences. Net sales and operating profits have been generally higher in the
fourth quarter due to the timing of sales of software, year-end promotions, and
purchasing patterns of office-based healthcare practitioners and have been
generally lower in the first quarter due primarily to increased purchases in the
prior quarter. Quarterly results may also be adversely affected by a variety of
other factors, including the timing of acquisitions and related costs, the
release of software enhancements, promotions, adverse weather, and fluctuations
in exchange rates associated with international operations.
PRACTICE MANAGEMENT SOFTWARE AND OTHER VALUE ADDED PRODUCTS
During 1996, approximately $31.0 million, or 3.7%, and $21.4 million, or
8.5%, of Schein's net sales and gross profit, respectively, were derived from
sales of Schein's Easy Dental-Registered Trademark- Plus, Dentrix Dental System,
AVImark-Registered Trademark- practice management software, and other value
added products to United States dental and veterinary office-based healthcare
practitioners. Competition among companies supplying practice management
software is intense and increasing. Schein's future sales of practice management
software will depend, among other factors, upon the effectiveness of Schein's
sales and marketing programs, Schein's ability to enhance its products and the
ability to provide ongoing technical support. There can be no assurance that
Schein will be successful in introducing and marketing software enhancements or
new software, or that such software will be released on time or accepted by the
market. Schein's software products, like software products generally, may
contain undetected errors or bugs when introduced or as new versions are
released. While Schein's current products have not experienced significant
post-release software errors or bugs to date, there can be no assurance that
problems will not occur in the future. Any such defective software may result in
increased expenses related to the software and could adversely affect Schein's
relationship with the customers using such software. Schein does not have any
patents on its
24
software and relies upon copyright, trademark and trade secret laws; there can
be no assurance that such legal protections will be available or enforceable to
protect its software products. Schein's software products are generally
distributed under "shrink-wrap" licenses that are not signed by the customer and
therefore may be unenforceable in certain jurisdictions.
FOREIGN OPERATIONS
During 1996, approximately 17.5% and 18.1% of Schein's net sales and gross
profit, respectively, were derived from sales to customers located outside the
United States and Canada. Schein's international businesses are subject to a
number of inherent risks, including difficulties in opening and managing foreign
offices and distribution centers; establishing channels of distribution;
fluctuations in the value of foreign currencies; import/export duties and
quotas; and unexpected regulatory, economic and political changes in foreign
markets. There can be no assurance that these factors will not adversely affect
the combined companies' operating results.
DEPENDENCE ON SENIOR MANAGEMENT
Schein's future performance will depend, in part, upon the efforts and
abilities of certain members of its existing senior management, particularly
Stanley M. Bergman, Chairman, Chief Executive Officer and President, James P.
Breslawski, Executive Vice President, and Steven Paladino, Senior Vice President
and Chief Financial Officer, as well as (if the Merger is consummated) those of
Bruce J. Haber, who will serve as an Executive Vice President and President of
Schein's medical products group. The loss of service of one or more of these
persons could have an adverse effect on Schein's business. Schein has entered
into employment agreements with Mr. Bergman and, as of the Effective Time, Mr.
Haber. The success of certain acquisitions and joint ventures effected by Schein
may depend, in part, on Schein's ability to retain key management of the
acquired business or joint venture. MBM's future performance will depend, in
part, upon the efforts and abilities of certain members of its existing senior
management, including Mr. Haber.
CHANGES IN HEALTHCARE INDUSTRY
In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of healthcare distribution companies and collective purchasing arrangements by
office-based healthcare practitioners. Schein's or MBM's inability to react
effectively to these and other changes in the healthcare industry could
adversely affect its operating results. Schein and MBM cannot predict whether
any healthcare reform efforts will be enacted and what effect any such reforms
might have on them or their respective customers and suppliers.
GOVERNMENT REGULATION
Both Schein and MBM and their respective customers and suppliers are subject
to extensive Federal and state regulation in the United States, as well as
regulation by foreign governments, and neither Schein nor MBM can predict the
extent to which future legislative and regulatory developments concerning their
practices and products or the healthcare industry may affect them. In addition,
both Schein and MBM, as marketers, distributors and manufacturers of healthcare
products (including Schein through its 50%-owned company, HS Pharmaceutical,
Inc., which distributes and manufactures generic pharmaceuticals), are required
to obtain the approval of Federal and foreign governmental agencies, including
the Food and Drug Administration, prior to marketing, distributing and
manufacturing certain of those products, and it is possible that both Schein and
MBM may be prevented from selling new manufactured products should a competitor
receive prior approval. Further, Schein's and MBM's plants and operations are
subject to review and inspection by local, state, Federal and (in the case of
Schein) foreign governmental entities. The companies' suppliers are also subject
to similar governmental requirements.
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RISK OF PRODUCT LIABILITY CLAIMS AND INSURANCE
The sale, manufacture and distribution of healthcare products involves a
risk of product liability claims and adverse publicity. Although neither Schein
nor MBM has been subject to a significant number of such claims or incurred
significant liabilities due to such claims, there can be no assurance that this
will continue to be the case. In addition, Schein and MBM maintain product
liability insurance coverage and have certain rights to indemnification from
third parties, but there can be no assurance that claims outside of or exceeding
such coverage will not be made, that the combined companies will be able to
continue to obtain insurance coverage or that they will be successful in
obtaining indemnification from such third parties. The combined companies also
may not be able to maintain existing coverage or obtain, if they determine to do
so, insurance providing additional coverage at reasonable rates.
COST OF SHIPPING
Shipping is a significant expense in the operation of both Schein's and
MBM's business. Schein and MBM ship almost all of their orders by United Parcel
Service and other delivery services, and typically bear the cost of shipment.
Accordingly, any significant increase in shipping rates could have an adverse
effect on Schein's and MBM's operating results. Similarly, strikes or other
service interruptions by such shippers could adversely affect Schein's and MBM's
ability to deliver products on a timely basis.
RELIANCE ON TELEPHONE AND COMPUTER SYSTEMS
Both Schein and MBM believe that their success depends, in part, upon their
telesales and direct marketing efforts and their ability to provide prompt,
accurate and complete service to their customers on a price-competitive basis.
Any continuing disruption in either their computer system or their telephone
system could adversely affect their ability to receive and process customer
orders and ship products on a timely basis. Any such disruption could adversely
affect their relations with their customers.
STATE SALES TAX COLLECTION
As of June 1997, Schein collected sales tax and other similar taxes only on
sales of products to residents of 31 states, and MBM collected such taxes on
sales of products to residents of eight states. Various other states have sought
to impose on direct marketers the burden of collecting state sales taxes on the
sale of products shipped to those states' residents. A successful assertion by a
state or states that either Schein or MBM should have collected or be collecting
state sales taxes on the sale of products shipped to that state's residents
could have an adverse effect on the combined companies.
POTENTIAL VOLATILITY OF MARKET VALUE OF SCHEIN COMMON STOCK
As with the MBM Common Stock, the market prices of the Schein Common Stock
may be subject to fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by investment analysts or
changes in business or regulatory conditions affecting Schein, its customers,
its suppliers or its competitors. The stock market historically has experienced
volatility which has particularly affected the market prices of securities of
many companies in the healthcare industry and which sometimes has been unrelated
to the operating performances of such companies. These market fluctuations may
adversely affect the market price of the Schein Common Stock.
From December 31, 1996 through July 1, 1997, the closing market price of the
Schein Common Stock as reported on the Nasdaq National Market has ranged from a
high of $37 to a low of $26 7/8.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of Schein's Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws as currently in effect may make
it more difficult for a third party to acquire, or may
26
discourage acquisition bids for, Schein and could limit the price that certain
investors might be willing to pay in the future for shares of the Schein Common
Stock. These provisions, among other things, (i) require the affirmative vote of
the holders of at least 60% of the shares entitled to vote to approve a sale,
lease, transfer or exchange of all or substantially all of the assets of Schein,
(ii) require the affirmative vote of the holders of at least 66 2/3% of the
shares entitled to vote to remove a director or to fill a vacancy on the Schein
Board, (iii) require the affirmative vote of the holders of at least 80% of the
shares entitled to vote to amend or repeal certain provisions of the Amended and
Restated Certificate of Incorporation and (iv) require the affirmative vote of
at least 66 2/3% of the outstanding shares of Schein Common Stock to amend or
repeal the Amended and Restated By-Laws of Schein. In addition, the rights of
holders of Schein Common Stock will be subject to, and may be adversely affected
by, the rights of any holders of Preferred Stock that may be issued in the
future and that may be senior to the rights of the holders of Schein Common
Stock. Under certain conditions, Section 203 of the Delaware General Corporation
Law would prohibit Schein from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of
Schein's outstanding voting stock) for a period of three years. In addition,
Schein's 1994 Stock Option Plan and 1996 Non-Employee Director Stock Option Plan
provide for accelerated vesting of stock options upon a change in control of
Schein, and in certain instances, agreements between Schein and its executive
officers provide for increased severance payments if such executive officers are
terminated without cause within two years after a change in control of Schein.
At the Annual Meeting of Stockholders of Schein to be reconvened on July 15,
1997, the holders of Schein Common Stock will be asked to vote on proposed
amendments to Schein's Certificate of Incorporation and By-Laws that would
permit the Schein Board to fix the number of directors by resolution from time
to time (within certain limits), to fill vacancies and to amend By-Law
provisions adopted by stockholders, and would decrease to 66 2/3% the 80%
supermajority voting requirement with respect to future amendments of the
provisions of Schein's Certificate of Incorporation relating to the numbers and
powers of directors. See "COMPARISON OF STOCKHOLDER'S RIGHTS."
The foregoing, together with certain provisions in Schein's Amended and
Restated Certificate of Incorporation, including a provision thereof requiring
the approval of holders of 60% of the outstanding stock of Schein entitled to
vote prior to consummation of a merger or sale of substantially all the assets
of Schein, may make it more difficult for a third party to acquire, or may
discourage acquisition bids for Schein and could limit the price that certain
investors might be willing to pay in the future for shares of Schein Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALES
Future sales of substantial amounts of Common Stock (including shares issued
upon the exercise of stock options) by Schein's current stockholders (including
certain executive officers, employees and affiliates of Schein) after the
Merger, or the perception that such sales could occur, could adversely affect
the market price for the Schein Common Stock. Approximately 8,003,679 shares of
Schein Common Stock that are owned by certain of Schein's current stockholders,
constituting approximately 33.9% of the shares of Schein Common Stock
outstanding immediately prior to the Merger, may be eligible for immediate
resale in the public market pursuant to Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). In connection with the reorganization
described "--Reorganization" below, Schein entered into a Registration Rights
Agreement with certain of the current stockholders. Schein has granted certain
registration rights in connection with certain acquisitions, and may grant
additional registration rights in connection with future acquisitions.
In addition, all of the shares of Schein Common Stock received by holders of
MBM Common Stock in the Merger will have been registered under the Securities
Act and will be freely transferable, except that persons who are deemed to be
affiliated with MBM prior to the Effective Time will enter into agreements with
Schein prohibiting such persons from disposing of any of the shares of Schein
Common Stock until after the publication of operating results including the
combined operations of Schein and MBM for a
27
period of at least 30 days subsequent to the consummation of the Merger, at
which time such shares may be resold by such persons in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Schein) or as
otherwise permitted by the Securities Act. Persons who may be deemed to be
affiliates of MBM or Schein generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party. In addition, approximately 1,123,523 shares of
Schein Common Stock will be issuable upon the exercise of outstanding options
and warrants to purchase MBM Common Stock that will be assumed by Schein. Schein
intends to file a registration statement under the Securities Act covering
shares issuable upon the exercise of these options and, initially, the
Registration Statement of which this Proxy Statement/ Prospectus forms a part
registers the issuance of the assumed warrants and shares issuable upon the
exercise of such warrants. See "THE MERGER--Treatment of MBM Stock Options and
Warrants".
REORGANIZATION
In connection with the reorganization of Schein's ownership and the various
agreements entered into in connection therewith between 1992 and 1994 (the
"Reorganization"), certain stockholders of Schein made customary
representations, warranties and covenants and provided for indemnification with
respect to the structure of the transaction and for breaches of such
representations, warranties and covenants. No claims for such indemnification
have arisen to date. Applicable accounting rules provide that certain amounts
paid or assumed by such stockholders on behalf of Schein in satisfaction of
indemnity obligations may be required to be recorded by Schein for financial
reporting purposes as an expense. Accordingly, although any such payment or
assumption may not materially impact Schein's cash flow, Schein's results of
operations would be negatively impacted in the period incurred. In addition,
there can be no assurance that such stockholders will have the resources in the
future to meet their respective indemnification obligations, if any, under such
agreements.
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THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to holders of shares of
MBM Common Stock in connection with the solicitation by the MBM Board of proxies
for use at the Special Meeting to be held on Friday, August 1, 1997, at 9:00
a.m., local time, at the Ramada Hotel, One Ramada Plaza, New Rochelle, New York
10801.
At the Special Meeting, holders of MBM Common Stock will consider and vote
upon a proposal to approve the Merger Agreement. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, Merger Sub will be
merged with and into MBM and MBM will become a wholly owned subsidiary of
Schein. Each share of MBM Common Stock issued and outstanding immediately prior
to the Merger (other than shares held by shareholders who perfect their
appraisal rights under Section 623 of the NYBCL) will be converted into the
right to receive 0.62 shares of Schein Common Stock.
No certificates representing fractional shares of Schein Common Stock shall
be issued upon the surrender for exchange of MBM Certificates. Each holder of
shares of MBM Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Schein Common Stock
(after taking into account all MBM Certificates delivered by such holder) will
receive, in lieu thereof, cash (without interest) in an amount determined by
multiplying (i) the fractional interest to which such holder would otherwise be
entitled and (ii) the average of the per share closing prices for Schein Common
Stock on the Nasdaq National Market for the five trading days immediately
preceding the Effective Time. In no event shall a holder of MBM Common Stock
receive cash in lieu of fractional Shares of Schein Common Stock in an amount
greater than the value of one full share of Schein Common Stock.
THE MBM BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT, DETERMINED THAT
THE MERGER IS IN THE BEST INTERESTS OF MBM AND ITS SHAREHOLDERS, AND RECOMMENDS
THAT THE HOLDERS OF MBM COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT. SEE "THE MERGER--BACKGROUND OF THE MERGER" AND "--RECOMMENDATION OF
THE MBM BOARD AND MBM REASONS FOR THE MERGER".
The Schein Board has approved the Merger Agreement and the Merger and the
issuance of shares of Schein Common Stock in the Merger, and the Board of
Directors of Merger Sub, and Schein, as the sole stockholder of Merger Sub, have
respectively adopted and approved the Merger Agreement and the Merger. Approval
of the Merger Agreement and the Merger by Schein stockholders is not required to
effect the Merger.
RECORD DATE; SHARES ENTITLED TO VOTE
The close of business on June 24, 1997 has been fixed as the Record Date for
determining the holders of MBM Common Stock who are entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were 5,162,759 shares
of MBM Common Stock outstanding and entitled to vote, and such shares were held
by approximately 700 holders of record. The holders of record on the Record Date
of MBM Common Stock are entitled to one vote per share of MBM Common Stock on
each matter submitted to a vote at the Special Meeting. The presence in person
or by proxy of the holders of a majority of the outstanding MBM Common Stock
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Special Meeting.
Proxies relating to "street name" shares that are properly executed and
returned by brokers will be counted as shares present for purposes of
determining the presence of a quorum, but will not be treated as shares having
voted at the Special Meeting as to the Merger Agreement if authority to vote has
been withheld by the broker (a "broker non-vote"). Abstentions will be recorded
as such by the inspectors of election for the Special Meeting. In light of the
treatment of broker non-votes and abstentions and the fact that the affirmative
vote required to approve the Merger Agreement is two-thirds of the total number
of
29
outstanding shares of MBM Common Stock on the Record Date, broker non-votes and
abstentions will have the same effect as votes against approval of the Merger
Agreement.
REQUIRED VOTE
The affirmative vote of holders of two-thirds (66 2/3%) of the outstanding
shares of the MBM Common Stock is required for approval of the Merger Agreement.
As of June 24, 1997, the MBM directors and executive officers and their
affiliates as a group beneficially owned or voted shares representing
approximately 10.7% of the outstanding shares of MBM Common Stock. Each of the
directors and executive officers of MBM has advised MBM that he/she intends to
vote or direct the vote of all such shares over which he/she has voting control,
subject to and consistent with any fiduciary obligations in the case of shares
held as a fiduciary, for approval and adoption of the Merger Agreement and the
Merger. In addition, as an inducement for Schein to enter into the Merger
Agreement, the members of the MBM Board have entered into the Option and Proxy
Agreement with Schein pursuant to which such directors have granted to Schein
(i) an irrevocable proxy to vote all of the shares of MBM Common Stock
(excluding certain shares) that they have the right to vote in favor of the
Merger Agreement and against any other Acquisition Transaction and (ii) an
irrevocable option to purchase all shares of MBM Common Stock (excluding certain
shares) owned by them in the event that MBM becomes obligated to pay the
Termination Fee. Under the Option and Proxy Agreement, Schein has the right to
require the members of the MBM Board to exercise or convert all of their
respective options, warrants or other rights or securities that are exercisable
for, or convertible into, shares of MBM Common Stock. As of the date of this
Proxy Statement/Prospectus, the members of the MBM Board beneficially owned or
had the right to vote an aggregate of 512,496 shares of MBM Common Stock
(approximately 10.0% of the outstanding shares), and owned, in the aggregate,
options or warrants to purchase an aggregate of 1,098,333 shares of MBM Common
Stock. See "THE MERGER--Option and Proxy Agreement".
PROXIES; PROXY SOLICITATION; REVOCATION OF PROXIES
Shares of MBM Common Stock represented by properly executed, unrevoked
proxies received at or prior to the Special Meeting will be voted at the Special
Meeting in accordance with the instructions contained therein. Shares of MBM
Common Stock represented by properly executed, unrevoked proxies for which no
instruction is given will be voted FOR approval of the Merger Agreement. MBM
shareholders are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-paid envelope provided for this purpose to
ensure that their shares are voted. A holder of shares of MBM Common Stock may
revoke a proxy by submitting a later dated proxy with respect to the same shares
at any time prior to the vote on the approval of the Merger Agreement, by
delivering written notice of revocation to American Stock Transfer & Trust
Company, the Transfer Agent for the MBM Common Stock, at 40 Wall Street, New
York, NY 10005, Attention: Proxy Department at any time prior to such vote or by
attending the Special Meeting and voting in person. Mere attendance at the
Special Meeting will not in and of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, when the
Special Meeting is convened or reconvened, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
meeting (except for any proxies which have been effectively revoked or
withdrawn), notwithstanding that they may have been effectively voted on the
same or any other matter at a previous meeting.
The cost of the solicitation of proxies by MBM Board of Directors for use at
the Special Meeting will be borne by MBM. In addition to solicitation by mail,
directors, officers and employees of MBM may solicit proxies by telephone,
telegram or otherwise. Such directors, officers and employees of MBM will not be
additionally compensated for such solicitation but may be reimbursed by MBM for
out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of Common Stock held of record by them will be
30
reimbursed for their reasonable expenses incurred in forwarding such material.
In addition, MBM 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 payable to D.F. King & Co., Inc. for its services will be $4,000, plus
expenses, and $3.00 for each incoming telephone call received, or outgoing
telephone call made by it in connection with such solicitation.
MISCELLANEOUS
Representatives of Miller, Ellin & Company, MBM's independent auditors, are
expected to be present at the Special Meeting. Such representatives will be
afforded an opportunity to make a statement, if they desire to do so, and are
expected to be available to respond to appropriate questions.
THE MERGER
BACKGROUND OF THE MERGER
In December, 1995, Mark M. Mlotek, Vice President, General Counsel,
Secretary and a director of Schein, and Bruce J. Haber, President, Chief
Executive Officer and a director of MBM, had a telephone conference during which
Mr. Mlotek suggested to Mr. Haber that they meet. Mr. Mlotek and Mr. Haber met
on December 21, 1995, during which meeting Mr. Mlotek indicated to Mr. Haber
that, since the Reorganization (see "DESCRIPTION OF SCHEIN"), Schein's business
strategy has been to expand through acquisitions and joint ventures as well as
internal development. In connection therewith, Mr. Mlotek explained to Mr. Haber
that Schein identifies and evaluates potential acquisition or joint venture
candidates from time to time, and that MBM had been so identified. No specific
terms of a potential acquisition were discussed, but both Mr. Mlotek and Mr.
Haber indicated that their respective companies would be willing to continue
discussions at a future date.
In March, 1996, Mr. Mlotek telephoned Mr. Haber inviting him to meet with
Mr. Mlotek, Stanley M. Bergman, Chairman of the Board of Directors, Chief
Executive Officer and President of Schein, and other representatives of Schein
to discuss whether a basis existed to explore a potential transaction between
the two companies. The meeting between representatives of Schein and MBM took
place on March 21, 1996. Mr. Haber and senior executives of Schein were present,
as were representatives of Tanner & Co., Inc. ("Tanner & Co."), financial
adviser to Schein, and K. Deane Reade, Jr., a director of MBM and the President
and a director and stockholder of BDRD&T. BDRD&T is a financial advisor to MBM.
(See " -- Interests of Certain Persons in Merger.")
At the March 21, 1996 meeting, Schein's and MBM's representatives exchanged
general information regarding their respective company's businesses and their
views of the industry in which they operate. There was a general discussion of
respective growth strategies and Schein's representatives reiterated the
business strategy explained to Mr. Haber by Mr. Mlotek in the December 21, 1995
meeting. This discussion led to whether Schein and MBM had a mutual interest in
exploring an acquisition of MBM by Schein through a stock-for-stock merger. Both
Schein's and MBM's representatives indicated that any such interest would be
conditioned upon such merger qualifying for "pooling of interests" accounting
treatment. Schein's representatives advised MBM's representatives that, because
of the Reorganization, Schein could not initiate a "pooling of interests"
transaction prior to October, 1996. There was no discussion of any material
terms of any such merger at this meeting. As a result of this meeting and a
meeting between Mr. Bergman and Mr. Haber held on April 29, 1996, it was
determined that discussions should continue to determine whether a basis existed
for a merger at such time as a "pooling of interests" accounting treatment would
be available for such potential merger.
During the period from April through September, 1996, Mr. Reade and
representatives of Tanner & Co. had telephone conferences regarding the terms
and conditions of a confidentiality agreement to be
31
entered into between MBM and Schein, which agreement was executed on November 8,
1996. Additionally, on September 27, 1996, Mr. Haber and Mr. Bergman met and
generally discussed the possibility of a merger between MBM and Schein.
During this same period, MBM investigated other business strategies,
including whether potential merger opportunities with other companies might
exist as well as growth possibilities as an independent company through certain
acquisitions or by availing itself of additional funding through the capital
markets. In particular, commencing in the Spring of 1996 and continuing through
the Summer of 1996, MBM had discussions with another publicly held distributor
of medical supplies about a possible merger. These discussions terminated when
fluctuations in the respective market prices of the Common Stock of MBM and the
other entity made any such business combination economically unfeasible and
before any discussions were held regarding the pricing terms of the possible
merger. During the Autumn of 1996, MBM also explored with an underwriting firm
the feasibility of a public offering of shares of MBM Common Stock as a means of
increasing both shareholder liquidity and MBM's working capital for acquisitions
and other general corporate purposes. MBM determined not to pursue the public
offering alternative because it believed that a public offering would not have
enabled MBM to position itself in the medical supply industry, taking into
account the trend to consolidation in that industry, as beneficially from the
point of view of MBM's shareholders as would the Merger. Additionally, the
public offering would not have afforded MBM's shareholders the opportunities for
international growth, decreases in business volatility or efficiencies which,
the MBM Board believes, may result from the Merger. (See "--Considerations and
Recommendations of the Merger by the MBM Board.")
On November 6, 1996, Mr. Haber and Mr. Bergman and other representatives of
Schein had a meeting to consider further whether a potential merger was in the
mutual interest of MBM and Schein. Previously, Mr. Reade and representatives of
Tanner & Co. had exchanged certain financial information and general views
regarding such potential merger.
On November 20, 1996, Mr. Haber and Mr. Reade met with Mr. Bergman and other
representatives of Schein and further discussions were held regarding the
structure of a potential merger between MBM and Schein as well as the
responsibilities that Mr. Haber would assume if such merger were to be
consummated and the employment arrangements for Mr. Haber. Subsequently, MBM and
BDRD&T entered into an engagement agreement for investment banking services to
be rendered by BDRD&T to MBM in connection with such potential merger.
During the period from November, 1996 through January, 1997, several
discussions were held between representatives of MBM and Schein regarding the
potential merger. On January 24, 1997, the MBM Board held a meeting at which Mr.
Haber and Mr. Reade reported to the MBM Board on their discussions with Schein.
The MBM Board authorized Mr. Haber and Mr. Reade to continue discussions with
Schein to determine if a basis exists for a merger on terms and conditions that
would be in the best interests of MBM's shareholders and to proceed with due
diligence review of Schein.
Discussions regarding the potential merger, including the ratio at which
shares of Schein Common Stock would be exchanged for shares of MBM Common Stock
in such merger, the treatment of outstanding MBM options and warrants, and
various employment and compensation issues, continued between MBM and Schein and
their respective financial advisors during the period from late January, 1997
through February, 1997. During this period, Schein and MBM conducted reviews of
each other's operations and financial condition, and, in late January, 1997,
drafts of the definitive agreements were prepared by counsel to Schein and
delivered to MBM. MBM commenced its review of such agreements through its
counsel and proceeded to negotiate certain terms and conditions of such
agreements through its counsel.
The MBM Board met again on February 25, 1997 and Mr. Haber and Mr. Reade
reported on the subject matter of the discussions held to such date with Schein
and indicated to the MBM Board that there appeared to be a basis upon which MBM
and Schein could enter into definitive agreements with respect to a merger,
although further negotiations of certain material terms and conditions
(including the exchange
32
ratio) as well as additional due diligence would be required. The MBM Board
directed Mr. Haber and Mr. Reade to proceed with the discussions with Schein and
to continue their due diligence regarding Schein.
Mr. Reade and the firm of BDRD&T assisted MBM in identifying and analyzing
alternative strategies, in identifying entities with which MBM might engage in a
business combination, in analyzing the respective values of such entities,
including Schein, in structuring the terms of the transaction with Schein, in
performing due diligence of Schein and in negotiating the terms and conditions
of the proposed merger. Royce Investment Group ("Royce") assisted MBM from time
to time during the months prior to the execution and delivery of the Merger
Agreement in providing information regarding stock prices, trends and
volatility, and in evaluating the market reaction of the financial and business
community in connection with the proposed merger. However, inasmuch as Mr. Reade
was (and remains) a director of MBM and the president and a director and
shareholder of BDRD&T and BDRD&T would receive a fee for its services upon
consummation of the Merger, and Royce would also receive a fee for its services
upon consummation of the Merger, the MBM Board determined that a firm that had
no previous relationship with either MBM or Schein and whose compensation was
not dependent on the consummation of the Merger should render an opinion as to
the fairness, from a financial point of view, of the consideration to be
received by the shareholders of MBM (other than the officers and directors of
MBM) in connection with the proposed Merger as contemplated in the Merger
Agreement. Schein also insisted that MBM obtain such an opinion from an entity
which had no previous relationship with either MBM or Schein. Accordingly, on
February 26, 1997, MBM engaged Houlihan Lokey to review the potential merger and
to render such an opinion. Houlihan Lokey was only engaged for purposes of such
review and opinion and did not advise MBM regarding alternative strategies or
business combinations, nor did it consider alternative transaction structures,
terms or conditions of the proposed merger with Schein. (See "-- Opinion of
Houlihan Lokey".)
At the regular meeting of the Schein Board held on February 27, 1997, Mr.
Bergman and other senior executive officers of Schein gave a presentation to the
Schein Board regarding MBM and the potential merger, which presentation
included, among other things, financial, strategic and due diligence analyses
and reports. Tanner & Co. also made a presentation to the Schein Board in its
capacity as financial advisor. It was the consensus of the Schein Board at this
meeting that the negotiations with MBM should continue.
Subsequent to the dates of the respective meetings of the MBM Board and the
Schein Board held in February, 1997, Mr. Haber and Mr. Reade and MBM's counsel
continued discussions with Schein, its counsel and Tanner & Co. and proceeded to
continue to negotiate certain of the terms and conditions of the definitive
agreements.
On March 1, 1997 the MBM Board met again to review the status of the
negotiations with Schein, to review the due diligence with respect to Schein
presented by Mr. Haber and Mr. Reade and to review an explanation from Mr. Reade
regarding the methodology to be used by Houlihan Lokey regarding its opinion on
the fairness of the Merger from a financial point of view. The MBM Board again
authorized Mr. Haber and Mr. Reade to continue negotiations with Schein.
On March 6, 1997, Mr. Haber, Mr. Reade and legal counsel to MBM met with
Schein, Tanner & Co. and legal counsel to Schein to complete negotiations and
finalize the definitive agreements relating to the proposed merger. Late on
March 6, 1997, the parties reached tentative agreement regarding the Exchange
Ratio (see "THE MERGER--Exchange Ratio"). The Exchange Ratio was determined
after negotiations in which representatives of MBM, Schein, Tanner & Co. and
BDRD&T participated. In arriving at the Exchange Ratio, the parties' negotiating
positions were influenced by Schein's insistence that the Merger be accretive to
its earnings per share and by MBM's desire that its shareholders realize a
premium over the current market price of the MBM Common Stock in connection with
any acquisition by Schein of all of the outstanding equity interests in MBM.
Late on March 6, 1997, MBM received the oral opinion of Houlihan Lokey to the
effect that, based on the draft agreements reviewed by them, the consideration
to be received
33
by the public holders of MBM Common Stock in the Merger was fair to such holders
from a financial point of view. Houlihan Lokey confirmed its opinion in writing
on March 7, 1997 and subsequently confirmed such opinion as of that date after
reviewing the revised definitive agreements. A meeting of the MBM Board was held
on March 7, 1997 during which meeting the MBM Board reviewed the terms and
conditions of the definitive agreements, the recent due diligence regarding
Schein and the opinion of Houlihan Lokey. At such meeting, the MBM Board
approved the Merger Agreement and the Merger and the related agreements and
transactions. In a special meeting held on the same date, the Schein Board,
after further presentations by its management, Tanner & Co. and counsel to
Schein, approved the Merger Agreement and the Merger and the related agreements
and transactions. The Merger Agreement was signed by MBM and Schein on March 7,
1997. Subsequent to that date, the Merger Agreement and various related
agreements were revised to reflect certain agreements among the respective
parties thereto on March 7, 1997 that were not fully or accurately reflected in
such agreements as initially executed. None of such revisions to the Merger
Agreement were material.
Several weeks after March 7, 1997, MBM was contacted by a third party who
claims to be owed a brokerage commission in an unspecified amount in connection
with the Merger as a result of the introduction of Mr. Haber to an executive of
Schein in 1990. MBM intends vigorously to resist such claim.
CONSIDERATION AND RECOMMENDATION OF THE MERGER BY THE MBM BOARD
At the meeting of the MBM Board held on March 7, 1997, the MBM Board
determined that, based upon its deliberations and the opinion of Houlihan Lokey
regarding the fairness of the Merger to the public shareholders of MBM from a
financial point of view, the terms of the Merger are fair to, and in the best
interests of, MBM and its shareholders and adopted the Merger Agreement and
authorized and directed the appropriate officers of MBM to execute the Merger
Agreement on behalf of MBM. The MBM Board also unanimously resolved to recommend
to the shareholders of MBM that they approve the Merger.
In the meetings of the MBM Board held on January 24, February 25, March 1,
and March 7, 1997, the MBM Board as part of its deliberations and approval of
the Merger considered the following factors:
- The Exchange Ratio and the different concerns of MBM and of Schein which
led to negotiation and the establishment of the Exchange Ratio as a fixed
exchange ratio. See "THE MERGER-- Background of the Merger".
- The treatment under the Merger Agreement of options and warrants to
purchase MBM Common Stock. See "THE MERGER--Treatment of MBM Stock Options
and Warrants".
- The anticipated qualification of the Merger as a tax free reorganization
for federal income tax purposes and for "pooling-of-interests" accounting.
See "THE MERGER--Certain Tax Consequences of the Merger" and "Anticipated
Accounting Treatment".
- The growth prospects for the business of MBM that could result from MBM
becoming part of a larger company pursuant to the Merger because the
increased purchasing power of the combined entity should enable MBM to
offer products to its customers on a more desirable basis.
Furthermore, a larger company with greater capitalization should be
perceived by customers as more capable of servicing larger customers which
operate in a more broadly based geographic area. Additionally, the MBM Board
believed that, as a larger and more diversified company, MBM would be in a
better position than it would as an independent company to reduce the costs of
doing business and to reduce the market and product volatility which may result
in an ability to sustain profit margins that are superior to those of smaller
companies operating within MBM's industry.
- The trend toward consolidation in the industry in which MBM operates. In
particular, the MBM Board believed that this consolidation would result in
fewer and more expensive acquisition
34
candidates thereby decreasing acquisitions as a commercially viable method
to expand MBM's business. Ultimately, it was the opinion of the MBM Board
that consolidation would yield a smaller number of larger companies as
participants in the industry. The MBM Board considered the Merger as a
strategic response to this industry trend that would be in the best
interests of the shareholders of MBM. Specifically, the MBM Board
considered that MBM's access to debt and equity capital resources should
be substantially increased by being part of a larger company.
Additionally, the MBM Board believed that, as a larger company after
consummation of the Merger, it should be in a significantly better
position to be among the surviving companies after the conclusion of the
consolidation trend than would be the case if it were to remain an
independent company.
- The similar business strategies of Schein and MBM. Specifically, both
entities seek to expand through acquisitions and joint ventures as well as
internal development, and both entities seek to provide logistical
efficiencies which create added value for customers by using centralized
rather than localized distribution facilities.
- The other product businesses of Schein and particularly the dental
products distribution business which, combined with the medical products
distribution business of MBM, could result in economies of scale in the
distribution of product and may result in less business volatility because
of a diversified product offering.
- The strategic alternatives to the proposed merger with Schein available to
MBM. See "THE MERGER--Background of the Merger".
- The anticipated market reaction of the business and financial community to
the proposed Merger.
The MBM Board also recognized that the Merger could hold certain
disadvantages for MBM and its shareholders. Specifically, the MBM Board
considered the following:
- The potential volatility of the market values of the Schein Common Stock.
See "RISK FACTORS-- Potential Volatility of Market Value of Schein Common
Stock".
- The challenges presented to management (and consequent use of executive
time) by the task of combining the operations of Schein and MBM and
achieving potential synergistic benefits. In particular, these challenges
involve integrating the personnel of MBM and Schein, which have different
corporate cultures, and of integrating business and computer systems of
MBM and Schein involving inventory, purchasing, sales, distribution,
personnel practices and other functions. In reviewing this issue, the MBM
Board took into account the significant number of acquisitions that Schein
has consummated.
- The inability of the former shareholders of MBM, as a group, to control
the management of Schein as a result of their minority interest in Schein
upon completion of the Merger. See "RISK FACTORS--Minority Status of
Former MBM Shareholders: Control by Insiders".
- The potential business risks associated with Schein's operations outside
the United States as they may be affected by economic, political and
military conditions in foreign countries, currency exchange fluctuations
and exchange control regulations.
In its deliberations, the MBM Board did not undertake a separate analysis of
each of the above factors nor did the MBM Board reach a separate conclusion with
respect to each such factor in its determination of the fairness of the terms of
the Merger. The consideration of such factors resulted from the information
obtained with respect to such factors being added to the collective business
knowledge, experience and understanding of the MBM Board so as to enable the MBM
Board to apply such information to its deliberative processes. In view of the
above, and the variety of factors considered by the MBM Board in reaching its
conclusion as to the fairness of the Merger, the MBM Board did not find it
35
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination as to the fairness
of the terms of the Merger.
After deliberations based upon a review of the foregoing factors, the MBM
Board concluded that the following may result from the Merger. The shareholders
of MBM should have increased investment liquidity because Schein has a larger
number of shareholders, its trading volume is greater than MBM's and Schein
Common Stock is the subject of more market makers with greater capital resources
and more industry analysts than MBM Common Stock. MBM's business may have
greater growth opportunities resulting from larger capital availability and
other resources for working capital and other purposes, including acquisitions.
Additionally, the Merger might provide opportunities to grow MBM's business
internationally. The Merger may be an effective response to industry trends
which indicate consolidation of companies operating within the industry and
increasing product pricing pressure resulting in a reduction of profit margins.
It appeared to the MBM Board that the management of Schein and MBM hold similar
business strategies which may facilitate the integration of MBM and Schein after
the Merger. As part of a larger and a more diversified company, MBM's business
may be less volatile as a result of the combined companies' greater breadth of
product offerings with broader geographic coverage, domestically as well as
internationally. Additionally, such a larger and more diversified company should
present opportunities for efficiencies achievable through the elimination of
certain expenses that should be redundant as a result of the Merger. There can
be no assurance that any of the foregoing factors will, in fact, result from the
Merger and, if such factors do result from the Merger, the extent to which the
shareholders of MBM will receive any benefits therefrom.
The MBM Board evaluated the foregoing potential benefits that may result
from the Merger in relation to the foregoing potential disadvantages that the
MBM Board also recognized might result from the Merger, and concluded that, upon
balance, the potential benefits outweighed the potential disadvantages. Based
upon this conclusion and the opinion of Houlihan Lokey that the consideration to
be received by the public shareholders of MBM in connection with the Merger is
fair to such shareholders from a financial point of view, the MBM Board
considered the Merger to be in the best interests of the shareholders of MBM.
See "--Opinion of Houlihan Lokey".
During its deliberations, the MBM Board was cognizant that certain members
of the MBM Board had interests in the Merger in addition to their interests as
shareholders of MBM. Such additional interests concerned certain compensation
that such individuals would receive upon consummation of the Merger or as a
result of post-consummation services to the Surviving Corporation and Schein.
The MBM Board viewed such compensation as being earned by such individuals in
their respective capacities other than as shareholders of MBM. See "--Interests
of Certain Persons in the Merger".
Furthermore, the MBM Board recognized that the execution and delivery of the
Option and Proxy Agreement by each of the Members of the MBM Board decreased or
eliminated their individual economic interests, as shareholders of MBM, in an
Acquisition Transaction that might be more favorable to the other shareholders
of MBM than the Merger. See "RISK FACTORS - Option and Proxy Agreement". After
reviewing their fiduciary duties with outside counsel, the MBM Board determined
that, given their determination that the Merger was fair to, and in the best
interests of, MBM and its shareholders, and that Schein was requiring that each
member of the MBM Board execute and deliver the Option and Proxy Agreement as a
condition to Schein's execution and delivery of the Merger Agreement, that it
was appropriate and in the best interests of MBM and its shareholders for the
individual members of the MBM Board to enter into the Option and Proxy
Agreement. The Option and Proxy Agreement provides that none of the MBM
directors are making any agreement in their respective capacities as directors
of MBM and that they are executing and delivering the Option and Proxy Agreement
solely in their capacity as the record and beneficial owner of shares of MBM
Common Stock. Accordingly, the MBM Board does not believe that the Option and
Proxy Agreement has had or will have any effect on the ability of the MBM Board
to discharge its fiduciary obligations under applicable state law.
36
In light of the relationship of Mr. Reade to MBM and to BDRD&T, however, the
MBM Board concluded that it required an opinion from an entity that had no
previous relationship with MBM regarding the consideration to be received by the
shareholders of MBM from a financial point of view and, therefore, MBM engaged
Houlihan Lokey for the purposes of rendering such an opinion. See "-- Background
of the Merger" and "--Opinion of Houlihan Lokey". As noted above, Houlihan Lokey
has rendered its opinion to the MBM Board as of March 7, 1997. It is not
contemplated that Houlihan Lokey will render a supplemental opinion regarding
the fairness of the Merger as of any date other than March 7, 1997. Although the
MBM Board was cognizant of the possibility of changing circumstances between the
date of the opinion of Houlihan Lokey, March 7, 1997, and the consummation of
the Merger, the MBM Board concluded that, particularly inasmuch as the merger
transaction contemplated a fixed Exchange Ratio -- which the MBM Board believes
to be more favorable to the shareholders of MBM than any adjustable ratio that
would have been agreed to by Schein -- it was not practicable to obtain
supplemental opinions in respect of such possible changing circumstances. The
MBM Board viewed the conditions to the consummation of the Merger and the rights
of the parties to the Merger Agreement to terminate the Merger Agreement
(including for the purpose of effecting other transactions under certain
circumstances), which had been negotiated at arm's-length between MBM and
Schein, to be reasonable under the circumstances. See "TERMS OF THE MERGER
AGREEMENT--Termination Rights, Condition to the Merger".
The Merger Agreement also requires that MBM does not solicit any inquiries
or the making of any proposal with respect to any merger, consolidation, other
business combination or acquisition involving MBM or any subsidiary of MBM. See
"TERMS OF THE MERGER AGREEMENT--No Solicitation of Other Offers". This provision
was required by Schein as a condition for it to enter into the Merger Agreement,
and the MBM Board viewed such provision to be reasonable given the substantial
efforts that would be required by MBM and Schein to consummate the Merger and
given the view by the MBM Board that the Merger is in the best interests of the
shareholders of MBM.
Additionally, the foregoing deliberations by the MBM Board regarding the
Merger were based upon the premise that the Merger would be eligible for
"pooling-of-interests" accounting treatment. Such accounting treatment had been
a prerequisite for the commencement of substantive discussions between MBM and
Schein regarding the proposed Merger. See "--Background of the Merger".
Accounting for the Merger as a "pooling-of-interests" was considered by the MBM
Board to be beneficial to the shareholders of MBM because it would permit
Schein, subsequent to the consummation of the Merger, to account for the Merger
in a manner which would enable it to consummate the transaction on the basis of
an Exchange Ratio that is more favorable to the shareholders of MBM than would
otherwise be the case. See "-- Anticipated Accounting Treatment".
OPINION OF HOULIHAN LOKEY
In connection with the Merger, MBM has retained Houlihan Lokey, an
investment banking firm which had no prior relationship with MBM or Schein, to
render an opinion as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of MBM (other than the officers
and directors of MBM) in connection with the proposed Merger as contemplated in
the Merger Agreement. MBM has agreed to pay Houlihan Lokey a fee of $150,000 for
Houlihan Lokey's services in connection with the fairness opinion. No portion of
Houlihan Lokey's fees is contingent upon the successful completion of the Merger
or any related transactions. In connection therewith, Houlihan Lokey has
delivered to MBM its written opinion dated March 7, 1997 to the effect that,
based upon and subject to certain matters discussed therein, the consideration
to be received by the shareholders of MBM in connection with the Merger is fair
to them from a financial point of view. Said opinion was based on, among other
things, the drafts of the Merger Agreement and other agreements available to
Houlihan Lokey at that time. Subsequently, Houlihan Lokey confirmed such opinion
(as of March 7, 1997), based solely upon a review of the definitive Merger
Agreement and other agreements as revised, in a letter dated
37
April 18, 1997. This supplemental letter does not purport to consider the
fairness of the Merger at any time other than March 7, 1997 and should not be
viewed or construed as doing so; it only considered the impact of the revised
definitive agreements upon Houlihan Lokey's opinion as of March 7, 1997.
References herein to Houlihan Lokey's opinion refer to such opinion as confirmed
in such supplemental letter.
In formulating its opinion, Houlihan Lokey made such reviews, analyses, and
inquiries as it deemed necessary and appropriate under the circumstances without
placing any specific weight on any of the items listed below. Among other
things, Houlihan Lokey:
1. reviewed the MBM's annual reports to shareholders and on Form 10-K for
the five fiscal years ended 1995, draft Form 10-K for the fiscal year
ended November 30, 1996, and quarterly reports on Form 10-Q for the three
quarters ended August 31, 1996, and MBM-prepared draft financial
statements for the fiscal year ended November 30, 1996, which the MBM's
management identified as being the most current financial statements
available at such time;
2. reviewed Schein's annual reports to shareholders and on Form 10-K for
the fiscal year ended 1995, quarterly reports on form 10-Q for the three
quarters ended September 28, 1996, Prospectus dated June 21, 1996, and
draft financial statements for the fiscal year ended December 28, 1996,
which Schein's management has identified as being the most current
financial statements available;
3. reviewed copies of the following agreements:
a. Agreement and Plan of Merger;
b. Option and Proxy Agreement;
c. Form of Affiliate Agreement to be executed by affiliates of MBM, as
revised;
d. Employment Agreement between Bruce J. Haber and Schein;
e. Form of Option Agreement between Bruce J. Haber and Schein pursuant
to Schein's 1994 Stock Option Plan, as revised;
f. Agreement between Schein and Bruce J. Haber relating to the
termination of his prior employment agreement with MBM, as revised;
g. Form of Restricted Stock Agreement between Bruce J. Haber and Schein,
as revised; and
h. Form of Agreement between Bruce J. Haber and Schein with respect to
the termination of his employment under certain circumstances.
4. met with certain members of the senior management of MBM to discuss the
transaction, the operations, financial condition, future prospects and
projected operations and performance of MBM, and had discussions with
representatives of MBM's investment bankers and counsel to discuss
certain matters;
5. met with certain members of the senior management of Schein to discuss
the transaction, the operations, financial condition, future prospects
and projected operations and performance of Schein;
6. visited certain facilities and business offices of MBM and Schein;
7. reviewed forecasts and projections prepared by MBM's management with
respect to MBM for the fiscal year ending November 30, 1997;
8. reviewed forecasts and projections prepared by Schein's management with
respect to Schein for the fiscal year ending December 27, 1997;
38
9. reviewed the historical market prices and trading volume for MBM's and
Schein's publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that it deemed comparable to MBM and Schein, and publicly
available prices and premiums paid in other transactions that it
considered similar to the Merger transaction; and
11. conducted such other studies, analyses and inquiries as Houlihan Lokey
has deemed appropriate.
Houlihan Lokey's opinion is necessarily based on business, economic, market
and other conditions as they existed and could be evaluated by them at the date
of their opinion. In rendering its opinion, Houlihan Lokey assumed and relied
upon, without independent verification, that the financial results, forecasts
and projections provided to them have been reasonably prepared and reflect the
best available estimates of the historical and future financial results and
conditions of Schein and MBM. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Schein or MBM and does not assume responsibility for such information. Houlihan
Lokey did not make any physical inspection or independent appraisal of the
specific properties or assets of Schein or MBM. Houlihan Lokey was not asked to,
and did not, solicit indications of interest from other parties relating to
possible mergers with either Schein or MBM or any acquisition of assets.
Houlihan Lokey was not involved in the negotiations leading to the Merger
Agreement which ultimately determined the Exchange Ratio to be used in the
Merger. Houlihan Lokey was not asked to consider the relative merits of the
Merger as compared to any other business strategy which might exist for either
Schein or MBM. Houlihan Lokey's opinion does not address whether or not the
transaction is fair to Schein's shareholders. No other limitations were imposed
with respect to the investigation made or procedures to be followed by Houlihan
Lokey in rendering its opinion. There has been no prior relationship between
Houlihan Lokey and either Schein or MBM.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In its analysis, Houlihan Lokey made numerous assumptions with respect to
Schein, MBM, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Schein and MBM. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be more or less favorable than suggested by such analyses. Analyses relating to
the value of businesses or securities are not appraisals; accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Houlihan Lokey estimated the value of MBM's shares and Schein's shares by a
comparative market multiple analysis. In this approach, the values of MBM and
Schein were estimated by calculating capitalization rates for certain income and
cash flows of a peer group of companies and then applying selected
capitalization multiples based on a comparative financial analysis of MBM and
Schein to the peer group. Houlihan Lokey also considered the publicly traded
values of the MBM Common Stock and the Schein Common Stock. Houlihan Lokey also
considered the potential synergies of the post-Merger company.
The capitalization rate is an expression of what investors believe to be a
fair and reasonable rate of return for the particular security, given the
inherent risk of ownership. It incorporates expectations of growth and rests on
the assumption that some level of earnings will be generated by the enterprise
into perpetuity. The capitalization rates employed were selected through the
market comparison method, whereby companies having their stock traded in the
public market were selected for comparison purposes and used as a basis for
choosing reasonable capitalization rates for MBM and Schein.
The following paragraphs summarize the material analyses performed by
Houlihan Lokey in arriving at the opinion:
39
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES IN THE MEDICAL AND DENTAL
SUPPLY INDUSTRY. Using publicly available information, Houlihan Lokey reviewed
the stock prices, market multiples, and certain financial statistics and ratios
of the following companies: Allegiance Corporation, Gulf South Medical Supply,
Moore Medical, Owens & Minor, Physician Sales & Services, MBM, and Schein
(collectively, the "Medical Tier"). Houlihan Lokey believes these companies are
engaged in lines of business that are generally similar to those of MBM.
Houlihan Lokey also reviewed the stock prices, market multiples, and certain
financial statistics and ratios of the following companies: Dentsply
International, Patterson Dental, Sullivan Dental Products, Inc. and Schein
(collectively, the "Dental Tier"), which, together with the Medical Tier,
Houlihan Lokey believes are engaged in lines of business that are generally
similar to those of Schein.
Houlihan Lokey calculated the equity value (shares outstanding multiplied by
the recent public share price) and the total invested capital ("TIC", which is
the equity value determined above, plus all interest bearing liabilities at book
value) for each of the companies in the Medical Tier and the Dental Tier.
Houlihan Lokey then calculated various market multiples for the companies in the
Medical Tier and Dental Tier. For the Medical Tier, the TIC as a multiple of the
latest twelve months revenues ranged from 0.17 to 2.42 and had a median of 0.60;
the TIC as a multiple of the latest twelve months earnings before interest,
taxes, depreciation and amortization ("EBITDA") ranged from 5.4 to 20.7 and had
a median of 14.8; the TIC as a multiple of the latest twelve months earnings
before interest and taxes ("EBIT") ranged from 8.2 to 23.4 and had a median of
19.2; the price to latest twelve months earnings multiple ranged from 11.8 to
37.6 and had a median of 35.0; and the price as a multiple of latest twelve
months cash flow ranged from 6.9 to 33.2 and had a median of 22.9.
For the Dental Tier, the TIC as a multiple of the latest twelve months
revenues ranged from 0.56 to 2.37 and had a median of 1.04; the TIC to latest
twelve months EBITDA multiple ranged from 8.5 to 16.9 and had a median of 12.5;
the TIC as a multiple of the latest twelve months EBIT ranged from 9.8 to 20.7
and had a median of 14.3; the price as a multiple of latest twelve months
earnings ranged from 16.4 to 34.8 and had a median of 22.7; and the price to
latest twelve months cash flow multiple ranged from 13.0 to 24.7 and had a
median of 18.0.
Houlihan Lokey also calculated future multiples for the peer group of
companies. For the Medical Tier, the TIC as a multiple of next fiscal year
EBITDA ranged from 5.6 to 13.6 and had a median of 10.6; the TIC to next fiscal
year EBIT multiple ranged from 6.9 to 16.1 and had a median of 12.3; the price
as a multiple of next fiscal year earnings ranged from 9.0 to 27.2 and had a
median of 20.0; and the price as a multiple of next fiscal year cash flow ranged
from 5.5 to 22.2 and had a median of 15.0.
For the Dental Tier, the TIC as a multiple of next fiscal year EBITDA ranged
from 7.9 to 13.6 and had a median of 10.1; the TIC as a multiple of next fiscal
year EBIT ranged from 9.0 to 16.1 and had a median of 11.3; the price to next
fiscal year earnings multiple ranged from 15.2 to 27.2 and had a median of 18.4;
and the price to next fiscal year cash flow ranged from 12.2 to 20.7 and had a
median of 15.1.
Based upon recent public stock prices as of March 6, 1997, the implied
public multiples for MBM were as follows: the TIC as a multiple of latest twelve
months revenues was 0.60; the TIC to latest twelve month EBITDA multiple was
14.8 and TIC to latest twelve month EBIT was 19.2; MBM's price to latest twelve
month earnings multiple was 37.6 and price to latest twelve month cash flow was
22.9.
Based upon recent public stock prices as of March 6, 1997, the implied
public multiples for Schein were as follows: the TIC as a multiple of latest
twelve months revenues was 0.86; the TIC to latest twelve month EBITDA multiple
was 16.9 and TIC to latest twelve month EBIT was 20.7; Schein's price to latest
twelve month earnings multiple was 34.8 and price to latest twelve month cash
flow was 24.7.
Finally, in this comparative market multiple analysis, Houlihan Lokey
performed comparative qualitative and quantitative analyses of MBM and Schein
relative to their respective peer groups of companies. Based on these analyses,
Houlihan Lokey determined that MBM's and Schein's public stock prices as of
40
March 6, 1997 of $15.75 and $28.50, respectively, reasonably reflected the per
share fair market value of each company.
However, because the comparative market multiple analysis did not include
the benefit from any potential synergies resulting from the Merger, Houlihan
Lokey also considered the potential additional value of these synergies based on
discussions with MBM management. Houlihan Lokey capitalized estimated synergies
ranging from $2 million to $5 million at a multiple range of 5 to 15 times. This
calculation resulted in incremental value to current MBM shareholders of $0.24
to $1.79 per share.
Houlihan Lokey then compared the value of MBM Common Stock to the sum of (i)
the Exchange Ratio of 0.62 multiplied by the value of Schein Common Stock and
(ii) the incremental value of synergies to current MBM shareholders, Houlihan
Lokey concluded that the value of MBM Common Stock was less than the sum of (i)
the Exchange Ratio of 0.62 multiplied by the value of Schein Common Stock and
(ii) the incremental value of synergies. Based on these analyses, Houlihan Lokey
determined that the consideration to be received by the public shareholders of
MBM in connection with the Transaction is fair to them from a financial point of
view.
The summary of Houlihan Lokey's analyses set forth above does not purport to
be a complete description of the analyses underlying the opinion. Rather, the
summary set forth above attempts to describe the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. In arriving at its opinion, Houlihan Lokey did not attribute any
particular weight to any analysis or factor considered by it, but rather made
the qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Houlihan Lokey believes that its analyses and the
summary set forth herein must be considered as a whole, and that selecting
portions of its analyses, without considering all factors and analyses, could
create a misleading or incomplete view of the processes underlying the analyses
set forth in the Houlihan Lokey opinion.
The full text of Houlihan Lokey's opinion, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is attached hereto
as Annex II. Holders of MBM Common Stock are urged to read the opinion carefully
and in its entirety. The opinion is directed only to the fairness of the Merger
from a financial point of view, does not address any other aspect of the Merger
and does not constitute a recommendation to any shareholder as to how such
shareholder should vote at the meeting at which the proposed Merger is to be
voted upon. The summary of the opinion of Houlihan Lokey set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
SCHEIN'S REASONS FOR THE MERGER
Schein's business strategy includes continued acquisitions of companies
whose businesses are complementary to Schein's. In recent years, the healthcare
industry has undergone significant change driven by various efforts to reduce
costs, including potential national healthcare reform, trends toward managed
care, cuts in Medicare, consolidation of healthcare distribution companies and
collective purchasing arrangements by office-based healthcare practitioners.
These trends, combined with increased consolidation among distributors,
including through acquisitions or joint ventures, could adversely affect
Schein's operating results unless Schein is able to maintain or increase its
market share.
Consequently, Schein identifies and analyzes potential acquisition
candidates on an ongoing basis. MBM was identified as an attractive candidate
for a business acquisition. Schein believes that the Merger will substantially
broaden its market presence in the medical products distribution market, add
additional senior management strength and enable it to compete more effectively
in the overall healthcare products distribution market. Given that the product
lines of the two companies are largely complementary, the Merger will permit
Schein to offer a broad base of health products in the medical distribution
market and should enable Schein to compete effectively in such market.
41
EFFECTIVE TIME
The Merger will become effective at such time as a Certificate of Merger is
duly filed with the Secretary of State of the State of New York, or at such
other time as Schein and MBM agree should be specified in such certificate. The
Merger Agreement provides that Merger Sub and MBM will execute and file such
certificate or other appropriate documents as soon as practicable after the last
of the conditions to the Merger have been fulfilled. See "TERMS OF THE MERGER
AGREEMENT--Conditions to the Merger".
EXCHANGE RATIO
At the Effective Time, each share of MBM Common Stock issued and outstanding
immediately prior to the Effective Time, other than shares of MBM Common Stock
held by MBM shareholders who perfect their appraisal rights under Section 623 of
the NYBCL, will be converted into the right to receive 0.62 shares of Schein
Common Stock.
Based upon the 0.62 Exchange Ratio and the closing sales price of shares of
Schein Common Stock on July 1, 1997, as reported on the Nasdaq National Market
($32- 7/16 per share), each such outstanding share of MBM Common Stock would
have been converted into Schein Common Stock with a then-current market value of
approximately $20.11 had the Merger been consummated on that date, and the
aggregate then-current market value of the shares of Schein Common Stock issued
in the Merger would have been $103,831,119.
As of the Effective Time, all shares of MBM Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of MBM
Common Stock shall cease to have any rights with respect thereto, except the
right to receive shares of Schein Common Stock and any cash in lieu of
fractional shares of Schein Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate, in each case without interest. Any
treasury shares of MBM Common Stock will automatically be canceled and retired
and will cease to exist as of the Effective Time.
EXCHANGE AGENT; EXCHANGE PROCEDURES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED
SHARES; NO FURTHER OWNERSHIP RIGHTS IN MBM COMMON STOCK; NO FRACTIONAL SHARES OF
SCHEIN COMMON STOCK
EXCHANGE AGENT. The Merger Agreement requires Schein to deposit as of the
Effective Time, with Continental Stock Transfer & Trust Company (the "Exchange
Agent"), for the benefit of the holders of shares of MBM Common Stock, the
shares of Schein Common Stock issuable in exchange for MBM Common Stock.
EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective
Time, Schein shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of MBM Common Stock (the "MBM Certificates"),
whose shares were converted into the right to receive shares of Schein Common
Stock pursuant to the Merger, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the MBM Certificates to the Exchange Agent,
and shall be in such form and have such other provisions as Schein may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the MBM Certificates in exchange for certificates representing shares of Schein
Common Stock. Upon surrender of an MBM Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such MBM Certificate shall be entitled to receive in exchange therefor
certificates representing shares of Schein Common Stock (rounded down to the
nearest whole share) which such holder has the right to receive after taking
into account all the shares of MBM Common Stock then held by such holder under
all such MBM Certificates so surrendered, cash in lieu of fractional shares of
MBM Common Stock and any dividends or other distributions to which such holder
is entitled, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of MBM Common Stock that is not registered
in the transfer records of MBM, a certificate
42
representing shares of Schein Common Stock may be issued to a person other than
the person in whose name the MBM Certificate so surrendered is registered, if,
upon presentation to the Exchange Agent, such MBM Certificate is properly
endorsed or otherwise is in proper form for transfer and the person requesting
such payment pays any transfer or other taxes required by reason of the issuance
of shares of Schein Common Stock to a person other than the registered holder of
such MBM Certificate or establishes to the satisfaction of Schein that such tax
has been paid or is not applicable. Until so surrendered, each MBM Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender a certificate representing shares of Schein
Common Stock, cash in lieu of any fractional shares of Schein Common Stock and
any dividends or other distributions to which such holder is entitled pursuant
to the Merger Agreement. No interest will be paid or will accrue on any cash
payable pursuant to the Merger Agreement.
MBM SHAREHOLDERS SHOULD NOT FORWARD MBM CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. MBM SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to shares of Schein Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered MBM
Certificate with respect to the shares of Schein Common Stock represented
thereby and no cash payment in lieu of fractional shares of Schein Common Stock
shall be paid to any such holder until the holder of record of such MBM
Certificate shall surrender such MBM Certificate. Following surrender of any
such MBM Certificate, there shall be paid to the record holder of the shares of
Schein Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Schein Common Stock and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Schein Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time, but prior to such surrender, and a payment date subsequent
to such surrender payable with respect to such whole shares of Schein Common
Stock.
NO FURTHER OWNERSHIP RIGHTS IN MBM COMMON STOCK. All shares of Schein
Common Stock issued upon the surrender for exchange of shares of MBM Common
Stock in accordance with the terms of the Merger Agreement (including any cash
paid) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of MBM Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of MBM Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, MBM Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in the Merger Agreement.
NO FRACTIONAL SHARES OF SCHEIN COMMON STOCK. No certificates representing
fractional shares of Schein Common Stock shall be issued upon the surrender for
exchange of MBM Certificates. Each holder of shares of MBM Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Schein Common Stock (after taking into account
all MBM Certificates delivered by such holder) will receive, in lieu thereof,
cash (without interest) in an amount determined by multiplying (i) the
fractional interest to which such holder would otherwise be entitled and (ii)
the average of the per share closing sales prices for Schein Common Stock on the
Nasdaq National Market for the five trading days immediately preceding the
Effective Time. In no event shall a holder of MBM Common Stock receive cash in
lieu of fractional Shares of Schein Common Stock in an amount greater than the
value of one full share of Schein Common Stock.
ADMISSION FOR TRADING ON NASDAQ NATIONAL MARKET
The outstanding shares of Schein Common Stock are presently admitted for
trading on the Nasdaq National Market. It is a condition to each party's
obligation to effect the Merger that the shares of Schein
43
Common Stock issuable to MBM's shareholders pursuant to the Merger Agreement
shall have been admitted for trading on the Nasdaq National Market, subject to
official notice of issuance. See "TERMS OF THE MERGER AGREEMENT--Conditions to
the Merger".
CESSATION OF NASDAQ NATIONAL MARKET TRADING AND DEREGISTRATION OF MBM COMMON
STOCK AFTER THE MERGER
If the Merger is consummated, the MBM Common Stock will cease to be traded
on the Nasdaq National Market and will be deregistered under the Exchange Act.
After such delisting and deregistration, MBM will no longer be subject to any
reporting obligations under the Exchange Act.
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve and adopt the Merger Agreement providing
for the Merger, shareholders of MBM should carefully consider those factors
described under "RISK FACTORS" as well as the fact that the Exchange Ratio is
fixed and will not be adjusted based on changes in the price of the Schein
Common Stock, and the price of the shares of Schein Common Stock at the
Effective Time may vary from the price as of the date of this Proxy
Statement/Prospectus or the date on which shareholders of MBM vote on the Merger
due to changes in the business, operations or prospects of Schein, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions, and other factors.
CERTAIN TAX CONSEQUENCES OF THE MERGER
Neither MBM nor Schein has requested or will receive an advance ruling from
the Internal Revenue Service ("IRS") as to any of the federal income tax
consequences to holders of MBM Common Stock of the Merger or of any of the
federal income tax consequences to MBM or Schein of the Merger. Instead MBM will
rely upon the opinion of Cummings & Lockwood, special tax counsel to MBM, as to
all of the material federal income tax consequences of the Merger to MBM and its
shareholders in their capacities as shareholders of MBM. The opinion of Cummings
& Lockwood is based entirely upon the Internal Revenue Code of 1986, as amended
(the "Code"), regulations now in effect thereunder, current administrative
rulings and practice, and judicial authority, all of which are subject to
change, as well as various representations and certificates of officers of MBM
and Schein and of the other appropriate persons, and is subject to various
assumptions and qualifications. Unlike a ruling from the IRS, an opinion is not
binding on the IRS and there can be no assurance, and none is hereby given, that
the IRS will not take a position contrary to one or more positions reflected
herein or that the opinion will be upheld by the courts if the positions set
forth therein are challenged by the IRS.
In the opinion of Cummings & Lockwood, which opinion is based upon various
representations and subject to various assumptions and qualifications, each as
more fully set forth in such opinion letter, the following federal income tax
consequences will result from the Merger:
1. The Merger of Merger Sub with and into MBM, with MBM surviving, will
qualify as a reorganization under Section 368(a) of the Code. MBM, Schein
and Merger Sub will each be a party to a reorganization within the
meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by a shareholder of MBM upon the
exchange of their MBM Common Stock for the right to receive Schein Common
Stock and the exercise of such right by a shareholder of MBM.
3. The aggregate tax basis of the Schein Common Stock received by a
shareholder of MBM in the exchange (including any fractional shares which
the shareholder otherwise might be entitled to receive) will be the same
as the basis of the MBM stock exchanged therefor.
4. The holding period of the Schein Common Stock to be received by an MBM
shareholder will include the holding period of the MBM shares surrendered
by the shareholder in the exchange, provided the MBM stock was held as a
capital asset on the date of the exchange.
44
5. Cash received by a shareholder of MBM in lieu of a fractional share of
Schein Common Stock will be treated as if the fractional shares were
received in exchange for such fractional shares, and not as a dividend.
Any gain or loss recognized as a result of the receipt of such cash will
be capital gain or loss, if such stock was held as a capital asset at the
time of the exchange, equal to the difference between the cash received
and the shareholder's basis in MBM Common Stock for which such fractional
share interest is received.
6. MBM will recognize no gain or loss as a result of the Merger.
The opinion of Cummings & Lockwood (which Cummings & Lockwood is not
required to reissue or reconfirm at the Effective Time) is rendered solely with
respect to certain United States federal income tax consequences of the Merger
under the Code, and does not extend to the income or other potential tax
consequences of the Merger under the laws of any State or any political
subdivision of any State or any other jurisdiction nor does it extend to any tax
effects or consequences of the Merger to Schein, Merger Sub or MBM other than
those expressly stated in the opinion. Furthermore, no opinion is expressed as
to the United States federal or state tax treatment of the transaction under any
other provisions of the Code and regulations, or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that is not specifically covered by the opinion. No legal opinion as to tax
consequences of any nature has been rendered by Proskauer Rose LLP, legal
counsel to Schein, or Lester Morse P.C. or Otterbourg, Steindler, Houston &
Rosen, P.C., legal counsel to MBM. See "Legal Matters".
THE FOREGOING CONSTITUTES THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH
SHAREHOLDER OF MBM. SHAREHOLDERS OF MBM ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is designed to qualify as "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of MBM and Schein will be carried forward to Schein at
their recorded amounts; income of Schein will include income of Schein and MBM
for the entire fiscal year in which the Merger occurs; and the reported income
of the separate corporations for prior periods will be combined and restated as
income of the combined company. The obligations of Schein and Merger Sub to
consummate the Merger are subject to the receipt by Schein of the opinions of
BDO Seidman, LLP, the independent auditors of Schein and Miller, Ellin &
Company, the independent auditors of MBM (whose opinion shall be addressed to
MBM), that, subject to customary qualifications, the Merger qualifies as a
"pooling of interests" for financial reporting purposes in accordance with
generally accepted accounting principles. See "TERMS OF THE MERGER AGREEMENT--
Conditions to the Merger".
APPRAISAL RIGHTS
Pursuant to Section 910 of the NYBCL, a holder of shares of MBM Common Stock
may demand payment of the "fair value" of such holder's shares in lieu of
accepting the payment to be made pursuant to the Merger. Any holder of shares of
MBM Common Stock wishing to exercise such appraisal rights must fully comply
with Section 623 of the NYBCL. A holder may not exercise appraisal rights with
respect to less than all of the shares of MBM Common Stock owned by such holder.
The following is a summary of Section 623 and the procedures that must be
followed to perfect appraisal rights thereunder. The complete text of Section
623 is set forth as Annex III to this Proxy Statement/Prospectus. Under Section
623, a corporation must notify each of its shareholders entitled to appraisal
rights as of the record date of the meeting that such appraisal rights are
available and include in such notice a copy of Section 623.
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THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF SHARES OF MBM
COMMON STOCK. HOLDERS OF SHARES OF MBM COMMON STOCK WISHING TO EXERCISE
APPRAISAL RIGHTS ARE URGED TO REVIEW CAREFULLY THE COMPLETE TEXT OF SECTION 623.
Each holder of shares of MBM Common Stock electing to demand payment of the
"fair value" of such holder's shares of MBM Common Stock if the Merger is
consummated must deliver to MBM, before the taking of the vote on the Merger, a
written objection to the Merger with respect to such holder's shares. Such
objection must include a notice of such holder's election to dissent, the name
and residence address of the holder, the number of shares of MBM Common Stock as
to which the dissent applies and a demand for payment of the "fair value" of
such shares if the action is taken. A proxy or vote against the Merger or an
abstention will not constitute such a demand; a holder of shares of MBM Common
Stock electing to take such action must do so by a separate written demand. Such
demands should be mailed or delivered to MBM at 846 Pelham Parkway, Pelham
Manor, New York, NY 10803, Attention: Bruce J. Haber, President.
Upon consummation of the Merger, the dissenting holder shall cease to have
any of the rights of a shareholder except the right to be paid the "fair value"
of his shares of MBM Common Stock. Within ten days after the Effective Time, the
Surviving Corporation will notify each former holder of shares of MBM Common
Stock who has made a proper written demand and who has not voted in favor of or
consented to the Merger as of the Effective Time. A vote in favor of the Merger
by a holder of shares of MBM Common Stock will have the effect of waiving
shareholder's appraisal rights.
The right of appraisal may be lost if the procedural requirements of Section
623 are not followed exactly. If the right of appraisal is lost, the former
holder of shares of MBM Common Stock will be entitled to receive the merger
consideration, without interest, for each share of MBM Common Stock owned at the
Effective Time upon surrender of the MBM Certificates representing such shares.
At the time of filing the notice of election to dissent or within one month
thereafter, a holder of shares of MBM Common Stock shall submit the MBM
Certificates representing such shares to MBM or the Exchange Agent. Schein will
note conspicuously thereon that a notice of election has been filed and return
the MBM Certificates to the shareholder. Any holder of shares of MBM Common
Stock who fails to submit his MBM Certificates for such notation will, at the
Surviving Corporation's option exercised by written notice to such shareholder
within 45 days from the date of filing of such notice of election to dissent,
lose his, her or its dissenter's rights unless a court otherwise directs.
Within 15 days after the expiration of the period within which holders of
shares of MBM Common Stock may file their notices of election to dissent, or
within fifteen days after the consummation of the Merger as to which objection
has been filed, whichever is later (but in no case later than 90 days from the
Special Meeting authorization date), the Surviving Corporation must make a
written offer by registered mail to each shareholder who has filed such notice
of election to pay for his shares of MBM Common Stock at a specific price which
MBM considers to be their "fair value." Such offer must be accompanied by a
statement setting forth the aggregate number of shares with respect to which
notices of election to dissent have been received and the aggregate number of
holders of such shares. If the Merger has been consummated, such offer must also
be accompanied by (1) advance payment to each such shareholder who submitted
his, her or its MBM Certificates to MBM of an amount equal to 80% of the amount
of such offer or (2) as to each shareholder who has not yet submitted his, her
or its MBM Certificates, a statement that advance payment to such holder of an
amount equal to 80% of the amount of such offer will be made by the Surviving
Corporation promptly upon submission of his, her or its MBM Certificates. Every
advance payment or statement as to advance payment must include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the Merger has not been consummated upon
the expiration of the 90-day period after it was authorized by the holders of
MBM Common Stock, the offer may be conditioned upon the consummation of the
Merger. Such offer must be made at the same price per share of MBM Common Stock
to all dissenting shareholders of the same class. If within 30 days after the
making of such offer, MBM and any shareholder agree upon the price to be paid
for his, her or its shares, payment therefor must be made within 60 days after
the making
46
of such offer or the consummation of the corporate action to which such
shareholder objected, whichever is later, upon the surrender of the MBM
Certificates representing such shares.
A notice of election may be withdrawn by the dissenting shareholder at any
time prior to such holder's acceptance in writing of an offer made by the
Surviving Corporation, but in no case later than 60 days from the date of the
consummation of the Merger. Upon expiration of such time, withdrawal of a notice
of election will require the written consent of the Surviving Corporation. If a
notice of election is withdrawn, a shareholder will have such rights as provided
in Section 623.
The following procedures apply if MBM fails to make such offer within such
period of fifteen days, or if it makes the offer and any dissenting MBM
Shareholder fails to agree with it within the period of 30 days thereafter upon
the price to be paid for their shares of MBM Common Stock:
(1) MBM must, within 20 days after the expiration of whichever is applicable
of the two periods last mentioned, institute a special proceeding in the
appropriate New York State court to determine the rights of dissenting
holders of MBM Common Stock and to fix the "fair value" of their shares
of MBM Common Stock.
(2) If MBM fails to institute such proceeding within such period of 20 days,
any dissenting holder of MBM Common Stock may institute such proceeding
for the same purpose not later than 30 days after the expiration of such
20-day period. If such proceeding is not instituted within such 30-day
period, all dissenter's rights will be lost unless the court otherwise
directs.
(3) All dissenting shareholders, excepting those who have agreed with MBM
upon the price to be paid for their shares of MBM Common Stock, must be
made parties to such proceeding, which will have the effect of an action
QUASI IN REM against their shares. The jurisdiction of the court will be
plenary and exclusive.
(4) The court will fix the value of the shares of MBM Common Stock, which
will be the "fair value" as of the close of business on the day prior to
the date of the Special Meeting, considering the nature of the
transaction giving rise to the shareholders' right to receive payment for
shares of MBM Common Stock, and its effects on MBM and its shareholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining fair values of shares of a corporation
engaging in a similar transaction under comparable circumstances and all
other relevant factors.
Within 60 days after final determination of the proceeding, the Surviving
Corporation must pay to each dissenting shareholder the amount found to be due
such holder, upon surrender of the Certificates representing such shares. Both
the Surviving Corporation and the dissenting shareholder will, generally, bear
their respective costs and expenses in the proceeding.
The foregoing does not purport to be a complete statement of the provisions
of Section 623 and is qualified in its entirety by reference to said section,
which is reproduced in full in Annex III to this Proxy Statement/Prospectus.
ANY HOLDER OF SHARES OF MBM COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL
RIGHTS BUT WHO DOES NOT FOLLOW THE PROCEDURES PROVIDED UNDER SECTION 623 IN A
PROPER AND TIMELY MANNER WILL BE UNABLE TO PERFECT APPRAISAL RIGHTS. IN THAT
CASE, THE SHARES OF MBM COMMON STOCK OWNED BY SUCH SHAREHOLDER IMMEDIATELY PRIOR
TO THE EFFECTIVE TIME WILL BE CONVERTED INTO THE RIGHT TO RECEIVE SHARES OF
SCHEIN COMMON STOCK AT THE EXCHANGE RATIO, WITHOUT INTEREST, PURSUANT TO THE
MERGER.
OPTION AND PROXY AGREEMENT
As an inducement to Schein to enter into the Merger Agreement each of the
four members of the MBM Board, Bruce J. Haber, Marvin S. Caligor, K. Deane
Reade, Jr. and Renee Steinberg (each an "Optionor," and collectively, the
"Optionors"), entered into the Amended and Restated Option and Proxy Agreement.
Pursuant to the Option and Proxy Agreement, each Optionor has granted to Schein
an option (collectively, the "Options") to purchase all but not less than all of
that Optionor's shares of MBM Common Stock (exclusive of certain shares of MBM
Common Stock beneficially owned by one Optionor
47
that are currently held in pension plans and approximately 20,000 shares
currently held by that Optionor in margin accounts subject to the terms thereof
(the "Excluded Shares")). Except as otherwise described below, the consideration
for the purchase of each Optionor's shares of MBM Common Stock shall be the
issuance to such Optionor of the number of shares of Schein Common Stock into
which such Optionor's shares of MBM Common Stock would have been converted in
the Merger pursuant to the Exchange Ratio had the Effective Time (as defined in
the Merger Agreement) occurred at the time of the exercise of the Options. Each
of the Optionors has also agreed not to dispose of any of the shares of MBM
Common Stock owned by such Optionor prior to the termination of the Option and
Proxy Agreement.
Each Optionor has also agreed to exercise all options, warrants or other
rights to acquire any shares of MBM Common Stock, and to convert or exchange any
securities or other rights that are convertible into or exchangeable for shares
of MBM Common Stock, whether now owned or hereafter acquired by such Optionor
(collectively, "Rights"), in connection with any exercise by Schein of the
Options in order to permit the acquisition by Schein of the shares of MBM Common
Stock receivable upon such exercise, conversion or exchange (the "Additional MBM
Common Shares") pursuant to the exercise of the Options. To the extent that an
Optionor is obligated to pay any consideration in connection with the exercise,
conversion or exchange of such Optionor's Rights (the "Rights Consideration"),
such Rights Consideration shall be paid in such form as is permitted under the
Rights as Schein shall direct. If payment of the Rights Consideration is to be
made in cash, Schein shall advance such payment and credit the amount so
advanced against the purchase price of the Additional MBM Common Shares acquired
upon such exercise; if payment of an Optionor's Rights Consideration may be made
by delivery of shares of MBM Common Stock, at Schein's direction such Optionor
shall deliver that number of shares owned by him or her in payment (or partial
payment, as the case may be) of the Rights. If any Right is to be exercised by
means of a "cashless exercise," the Optionor exercising such Right shall cause
the net number of shares from such cashless exercise to be issued and delivered
to Schein. In the event that Schein funds any Rights Consideration payment on
behalf of Optionor (i) the number of shares of Schein Common Stock to be issued
by Schein in respect of the Additional Shares that were acquired pursuant to the
payment of such Rights Consideration shall be reduced by that number of shares
(rounded to the nearest whole share) as is equal to the quotient obtained by
dividing the aggregate amount of Rights Consideration so paid by Schein by the
closing sales prices of the Schein Common Stock on the last trading date prior
to the exercise of the Options; and (ii) if the funding of the Rights
Consideration payment on behalf of such Optionor subjects such Optionor to
income tax in respect of such payment, Schein shall pay to such Optionor the
amount of such income tax, provided such Optionor shall cooperate with Schein
(at Schein's expense) in disputing the imposition of such income tax; and
provided further, that if Schein determines in good faith that there is a basis
for disputing all or any amount of the income tax imposed, Schein shall be
entitled to direct any such dispute, but shall indemnify the Optionor against
any additional income tax for which he or she may become liable as a result.
Each Optionor further agrees not to acquire any Right that provides, whether
contingent or otherwise, for any reduction in the amount of the Rights
Consideration payable upon the exercise, conversion or exchange of such Right,
whether or not such reduction is contingent or fixed as to occurrence or amount,
and shall immediately decline in writing any such Right that may be granted to
him or her.
The Options may be exercised (during the exercise periods provided in the
Option and Proxy Agreement) only if the Merger Agreement terminates under the
circumstances under which MBM would be obligated to pay the Termination Fee to
Schein, including as a result of MBM's Board withdrawing its recommendation to
MBM's shareholders that the Merger be approved or the consummation, under
certain circumstances, by MBM of an Acquisition Transaction (as defined below)
with any person other than Schein or the Merger Sub. See "TERMS OF THE MERGER
AGREEMENT--Certain Fees, Expenses and Liquidation Damages".
Pursuant to the Option and Proxy Agreement, each Optionor has irrevocably
agreed to constitute and appoint Schein or any designee of Schein as the lawful
agent, attorney and proxy of such Optionor to vote all of his or her shares of
MBM Common Stock (excluding the Excluded Shares but including additional
48
shares as to which one Optionor has an irrevocable proxy to vote) at any meeting
or in connection with any written consent of MBM's shareholders (i) in favor of
the Merger, (ii) in favor of the Merger Agreement, as it may be modified or
amended from time to time, (iii) against any Acquisition Transaction (other than
the Merger) or other proposal which provides for any merger, sale of assets or
other business combination between MBM and any other person or entity or which
would make it impractical for Schein to effect a merger or other business
combination of MBM with Schein or Merger Sub, and (iv) against any other action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of MBM under the Merger Agreement
or which would result in any of MBM's obligations under the Merger Agreement not
being fulfilled. An "Acquisition Transaction" means any merger, consolidation or
other business combination involving MBM or any subsidiary of MBM (excluding
certain acquisitions by MBM expressly permitted under the Merger Agreement) or
the acquisition of all or any significant assets or capital stock of MBM and its
subsidiaries, taken as a whole.
The Option and Proxy Agreement terminates on the earlier of (i) the
Effective Time or (ii) the termination of the last period of time during which
Schein could have exercised the Options; provided, however, that the appointment
of Schein or any designee of Schein as agent, attorney and proxy automatically
terminates upon the termination of the Merger Agreement.
As of the date of this Proxy Statement/Prospectus, the Optionors own or had
the right to vote, in the aggregate, 512,496 shares of MBM Common Stock
(approximately 10.0% of the outstanding shares), and owned, in the aggregate,
options to purchase an aggregate of 1,098,333 shares of MBM Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of MBM owned an
aggregate of 419,272 shares of MBM Common Stock and options or warrants to
purchase an aggregate of 1,471,332 shares of MBM Common Stock at a weighted
average exercise price of $7.28 per share. Pursuant to the Merger Agreement,
MBM's directors and executive officers will receive the same consideration for
their shares of MBM Common Stock as the other MBM shareholders, and all
outstanding options and warrants to purchase MBM Common Stock will be converted
into options and warrants to purchase Schein Common Stock as described under
"TERMS OF THE MERGER -- Treatment of MBM Stock Options and Warrants." Pursuant
to the Merger Agreement, MBM's 1996 Directors' Retirement Plan has been
terminated, effective as of the Effective Time, and no benefits will be paid
thereunder.
Bruce J. Haber, MBM's President, has entered into a Termination of
Employment Agreement with Schein dated as of March 7, 1997, as revised (the
"Termination of Employment Agreement"), pursuant to which, among other things,
Mr. Haber's existing employment agreement will automatically terminate as of the
Effective Time and Schein will cause MBM to pay to Mr. Haber an aggregate of
$3,000,000 (the "Contract Termination Payment") in lieu of the payments and
other rights to which he would have been entitled under such agreement. Payment
of such amount will be made in equal installments of $600,000, plus interest,
with the first installment being made at the Effective Time. If Mr. Haber's
employment agreement with Schein discussed below is terminated by Schein without
cause or is terminated by Mr. Haber for breach, Mr. Haber dies or becomes
disabled, or certain events involving a potential change of control of Schein
occur, then the aggregate unpaid amount, plus accrued interest, will become due
and payable. The Contract Termination Payment is subject to increase in the
event of the imposition of certain future tax liabilities.
Mr. Haber has also entered into a new employment agreement with Schein, as
revised, (effective as of the Effective Time) pursuant to which, he will serve
as an Executive Vice President of Schein and President of Schein's medical
products group (the "New Employment Agreement"). The New Employment Agreement
has a term of five years from the Effective Time and provides for, among other
things, the grant to Mr. Haber of Schein Common Stock purchase options with a
value at the Effective Time of $1,000,000 (using the Black-Scholes valuation
method); base salary at an annual rate (subject to annual increases) of
$400,000; annual incentive compensation (subject to increase) of up to $200,000,
contingent upon the achievement of performance targets; and annual grants of
Schein Common Stock Purchase options with a
49
value at the time of grant of $170,000, determined using the Black-Scholes
valuation method, (subject to cost of living increases), in each year,
contingent upon the achievement of the same performance targets to which the
payment of incentive compensation is contingent. The options to be granted to
Bruce Haber under the New Employment Agreement at the Effective Time will vest
over a five year period from the date of the grant; each of the options, if any,
to be granted thereunder annually will vest over a three year period from the
date of grant. Both vesting periods are subject to acceleration in the
discretion of Schein's Chief Executive Officer or upon the occurrence of certain
events. The New Employment Agreement also provides for, among other things,
participation in all benefit, welfare and perquisite plans, policies and
programs as are provided from time to time to the most senior executives of
Schein, term life insurance and an automobile allowance. If Mr. Haber's
employment is terminated by Schein without cause or by Mr. Haber after a
material breach by Schein that is not cured within 30 days after notice from Mr.
Haber, Mr. Haber will be entitled to receive accrued and unpaid salary through
the date of termination, a pro rata bonus for that portion of the current year
prior to the date of termination, continuation of his base pay for the remaining
term of the New Employment Agreement (but in no event less than 18 months), and
continued participation, for a period of one year after such termination, by Mr.
Haber, his spouse and his dependent children in all health and medical plans,
benefits and policies of Schein then applicable to its most senior executive
officers. If Mr. Haber's Employment Agreement is not extended at the end of its
five year term, Mr. Haber will be entitled to continue to receive his base
salary at the then current rate for an additional year.
At the Effective Time, Mr. Haber will receive, pursuant to restricted stock
agreement between him and Schein, restricted shares of Schein Common Stock with
a fair market value of $1,000,000, which shares will vest in equal amounts and
become non-forfeitable over a ten year period contingent upon Mr. Haber's
continued employment with Schein; provided, however, that such shares will
become fully vested if (i) Mr. Haber's employment is terminated by Schein
without cause or by Mr. Haber after a material breach by Schein that is not
cured within 30 days after notice from Mr. Haber, (ii) Mr. Haber dies or becomes
disabled, (iii) Mr. Haber's employment terminates prior to the expiration of
such 10 year period as a result of Schein's failure to offer to renew any
employment agreement with Mr. Haber upon the expiration of its term, or (iv)
certain events involving a change in control of Schein occur. If Mr. Haber's
employment is terminated by him or Schein within two years after the occurrence
of certain events involving a change in control of Schein, Mr. Haber will be
entitled to receive a lump sum payment equal to (i) the product of the aggregate
amount of base salary and car allowance paid to him during the three months
preceding such termination and the number of months for which he was employed by
Schein or MBM (with a maximum benefit of 36 months' base salary and car
allowance) and (ii) three times the higher of his last annual bonus or his last
bonus prior to the change in control, but only to the extent that all such
payments would not be subject to an excise tax.
K. Deane Reade, Jr. is a director of MBM, and President and a director and
stockholder of BDRD&T. BDRD&T will receive a fee upon consummation of the Merger
of approximately $1,230,000.
Schein and the members of the MBM Board have entered into the Option and
Proxy Agreement pursuant to which such directors have granted to Schein (i) an
irrevocable proxy to vote all of the shares of MBM Common Stock (excluding
certain shares) that they have the right to vote in favor of the Merger
Agreement and against any other Acquisition Transaction and (ii) an irrevocable
option to purchase all shares of MBM Common Stock (excluding certain shares)
owned by them in the event that MBM becomes obligated to pay the Termination
Fee. Under the Option and Proxy Agreement, Schein has the right to require the
members of the MBM Board to exercise or convert all of their respective options,
warrants or other rights or securities that are exercisable or convertible into
shares of MBM Common Stock. Schein required that the MBM directors enter into
the Option and Proxy Agreement simultaneously with Schein and MBM entering into
the Merger Agreement. The Option and Proxy Agreement provides that none of the
MBM directors are making any agreement in their respective capacities as
directors of MBM and that they are executing and delivering the Option and Proxy
Agreement solely in their capacity as the record and beneficial owner of shares
of MBM Common Stock. Nonetheless, the execution and delivery of the
50
Option and Proxy Agreement by the members of MBM Board may be deemed to give
rise to additional and different interests of the members of the MBM Board in
the merger than those of other shareholders of MBM. See "--Option and Proxy
Agreement."
MBM shall also pay a fee of $500,000 to Royce Investment Group, Inc.
("Royce") for financial advice, including in connection with the Merger. Royce
held warrants to purchase an aggregate of 48,210 shares of MBM Common Stock that
it received for acting as the standby underwriter in connection with a rights
offering made by MBM to its shareholders in 1992. These warrants have been
exercised but the shares of MBM Common Stock have not yet been issued. Royce
provided financial advice to MBM regarding stock prices, trends and volatility
and the anticipated market reaction of the business and financial community to
the Merger generally. The fee to Royce represents consideration for such
advisory services in connection with the Merger.
Pursuant to the Merger Agreement, Schein has agreed, for a period of six
years after the Effective Time, to cause the Surviving Corporation to,
indemnify, defend and hold harmless the present and former directors, officers,
employees and agents of MBM and its Subsidiaries (each, an "Indemnified Party")
against any and all losses, costs, damages, claims and liabilities (including
reasonable attorneys' fees) arising out of the Indemnified Party's service or
services as a director, officer, employee or agent of MBM or, if at MBM's
request, of another corporation, partnership, joint venture, trust or other
enterprise occurring at or prior to the Effective Time (including the
transactions contemplated by or related to the Merger Agreement) to the fullest
extent permitted under New York Law and MBM's Articles of Incorporation and
Bylaws as in effect on the date hereof, including provisions relating to
advances of expenses incurred in the defense of any litigation, action, claim or
proceeding and whether or not Schein or the Surviving Corporation is insured
against any such matter. Schein also agreed to maintain in effect or cause the
Surviving Corporation to maintain in effect (for at least six years from the
Effective Time in the case of claims made policies) directors' and officers'
liability insurance policies providing coverage in an aggregate amount of at
least $10,000,000 and with a carrier(s) having a rating by A.M. Best ("Best"),
an independent nationally recognized insurance publishing and rating service, at
least equal to the Best rating of the current carrier(s) covering directors and
officers of MBM serving as of or after December 1, 1990 with respect to claims
arising from occurrences prior to or at the Effective Time (including the
transactions contemplated by or related to the Merger Agreement).
OPERATIONS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into MBM, and MBM,
as the Surviving Corporation in the Merger, will become a wholly owned
subsidiary of Schein. Schein plans to cause MBM and Medical Products Group to be
managed as a single unit under the direction of Bruce J. Haber, MBM's President,
and become part of the same consolidated tax return group.
DIVIDENDS
MBM has never paid a cash dividend on the MBM Common Stock and Schein has
not paid a cash dividend on the Schein Common Stock, except for a dividend paid
prior to its initial public offering. Schein does not anticipate paying any cash
dividends on the Schein Common Stock in the foreseeable future; it intends to
retain its earnings to finance the expansion of its business and for general
corporate purposes. Any payment of dividends will be at the discretion of
Schein's Board of Directors and will depend upon the earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to payment of dividends and other factors. Schein's revolving
credit agreement and the note issued in connection with Schein's acquisition of
a Netherlands company limit the distribution of dividends without the prior
written consent of the lenders.
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option and warrant to purchase MBM
Common Stock will be automatically assumed by Schein and converted into an
option ("Converted Option") or a warrant
51
("Converted Warrant"), as the case may be, to purchase shares of Schein Common
Stock in an amount and at an exercise price determined by adjusting the original
terms of the option or warrant to reflect the Exchange Ratio.
As of the Record Date, there were outstanding options and warrants to
purchase an aggregate of approximately 1,812,134 shares of MBM Common Stock.
Assuming all such options and warrants remain outstanding at the Effective Time,
an aggregate of approximately 1,123,523 shares of Schein Common Stock would
thereafter be issuable upon the exercise of such Converted Options and Converted
Warrants.
Except as noted above and the elimination of the requirement that options
granted to non-employee directors of MBM may be exercised only while they
continue to serve on the MBM Board, the terms and conditions of the Converted
Options and the Converted Warrants will not be modified as a result of the
Merger. Schein intends to register the issuance of shares of Schein Common Stock
pursuant to the exercise of the Converted Options on Form S-8 upon the
consummation of the Merger.
This Proxy Statement/Prospectus also relates to the issuance of the 6,200
Converted Warrants and the up to 6,200 shares of Schein Common Stock (subject to
adjustments pursuant to antidilution provisions) that are issuable upon the
exercise of the Converted Warrants. The MBM warrants with respect to which the
Converted Warrants will relate were issued in December 1993 in connection with
the acquisition of a business by MBM. Pursuant to the terms of the MBM warrants,
the Converted Warrants will be exercisable, in whole or in part, at any time
(and from time to time) prior to the close of business November 30, 2003 at a
purchase price of $12.90 per share of Schein Common Stock (subject to adjustment
pursuant to antidilution provisions) by submitting the Converted Warrant and the
completed and executed Subscription Form annexed thereto, together with payment
in full of the exercise price of the shares of Schein Common Stock being
purchased, to the Secretary of MBM at MBM's principal office.
RIGHT OF THE MBM BOARD TO WITHDRAW RECOMMENDATION
Under the Merger Agreement, the MBM Board may not, among other things, (i)
withdraw or modify, in a manner adverse to Schein or Merger Sub, the MBM Board's
approval or recommendation of the Merger Agreement or the Merger, (ii) approve
or recommend any Acquisition Transaction, or (iii) cause MBM to enter into any
agreement with respect to any Acquisition Transaction. Notwithstanding the
foregoing, if the MBM Board determines in good faith by majority vote, after
consultation with MBM's financial advisor and after reviewing the advice of
outside counsel to MBM, that such action is reasonably likely to be required by
its fiduciary duties, the MBM Board may withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger, approve or recommend an
Acquisition Transaction, or cause MBM to enter into an agreement with respect to
an Acquisition Transaction provided, in each case that the MBM Board determines
that the Acquisition Transaction is more favorable to the shareholders of MBM
than the Merger. The Merger Agreement requires MBM to provide reasonable prior
notice to Schein or Merger Sub to the effect that it is taking such action.
REGULATORY FILINGS AND APPROVALS
ANTITRUST. The Merger is subject to the requirements of the HSR Act and the
rules and regulations thereunder, which provide that certain transactions may
not be consummated until required information and materials have been furnished
to the Antitrust Division and the FTC and certain waiting periods have expired
or been terminated. Schein and MBM filed the required information and materials
with the Antitrust Division and the FTC on April 16, 1997. Early termination of
the statutory waiting period under the HSR Act was granted on April 28, 1997.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, either the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, or certain other persons could take action under the antitrust
laws, including seeking to enjoin the Merger.
52
RESALE OF SCHEIN COMMON STOCK RECEIVED IN THE MERGER
All Schein Common Stock received by holders of MBM Common Stock in the
Merger will have been registered under the Securities Act and will be freely
transferable, except that Schein Common Stock received by persons who are deemed
to be affiliated to MBM (for purposes of Rule 145 under the Securities Act or
for purposes of qualifying the Merger for "pooling of interests" accounting
treatment under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations) prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Schein) or as otherwise permitted by the Securities Act. Persons
who may be deemed to be affiliates of MBM or Schein generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The rights of affiliates
of MBM to receive Schein Common Stock in the Merger are conditioned upon the
execution by each of such affiliates of a written agreement to the effect that
such person will not offer or sell or otherwise dispose of any of the Schein
Common Stock issued to such person in the Merger either in violation of
Securities Act or the rules and regulations promulgated thereunder or at any
time during the period beginning 30 days before the Merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published. The Schein Common Stock received in the
Merger by such affiliates will bear a restrictive legend to such effect.
53
DESCRIPTION OF SCHEIN
GENERAL
Schein is the largest direct marketer of healthcare products and services to
office-based healthcare practitioners in the combined North American and
European markets. Schein has operations in the United States, Canada, the United
Kingdom, The Netherlands, Belgium, Germany, France, the Republic of Ireland and
Spain. Schein sells products and services to over 230,000 customers, primarily
dental practices and dental laboratories, as well as physician practices,
veterinary clinics and institutions. In 1996, Schein sold products to over 65%
of the estimated 100,000 dental practices in the United States. Schein believes
that there is strong awareness of the "Henry Schein" name among office-based
healthcare practitioners due to its more than 60 years of experience in
distributing healthcare products. Through its comprehensive catalogs and other
direct sales and marketing programs, Schein offers its customers a broad product
selection of both branded and private brand products which include approximately
50,000 stock keeping units ("SKUs") in North America and approximately 40,000
SKUs in Europe at published prices that Schein believes are below those of many
of its competitors. Schein also offers various value-added products and
services, such as practice management software. As of December 28, 1996, Schein
had sold over 18,000 dental practice management software systems, more than any
of its competitors. On February 28, 1997, Schein acquired all of the outstanding
common stock of Dentrix Dental Systems, Inc., a provider of clinically-based
dental practice management systems, with 1996 net sales of approximately $10.2
million and a 3,500 installed user base. This transaction has been accounted for
as a "pooling of interests".
During 1996 Schein distributed over 9.0 million pieces of direct marketing
materials (such as catalogs, flyers and order stuffers) to approximately 500,000
office-based healthcare practitioners. Schein supports its direct marketing
efforts with approximately 450 telesales representatives who facilitate order
processing and generate sales through direct and frequent contact with customers
and with over 300 field sales consultants. Schein utilizes database segmentation
techniques to more effectively market its products and services to customers. In
recent years, Schein has continued to expand its management information systems
and has established strategically located distribution centers in the United
States and Europe to enable it to better serve its customers and increase its
operating efficiency. Schein believes that these investments, coupled with its
broad product offerings, enable Schein to provide its customers with a single
source of supply for substantially all their healthcare product needs and
provide them with convenient ordering and rapid, accurate and complete order
fulfillment. Schein estimates that approximately 99% of all orders in the United
States and Canada received before 7:00 p.m. and 4:00 p.m., respectively, are
shipped on the same day the order is received and approximately 90% of orders
are received by the customer within two days of placing the order. In addition,
Schein estimates that approximately 99% of all items ordered in the United
States and Canada are shipped without back ordering.
Schein believes that there has been consolidation among healthcare products
distributors serving office-based healthcare practitioners and that this
consolidation will continue to create opportunities for Schein to expand through
acquisitions and joint ventures. In recent years, Schein has acquired or entered
into joint ventures with a number of companies engaged in businesses that are
complementary to those of Schein. Schein's acquisition and joint venture
strategies include acquiring additional sales that will be channeled through
Schein's existing infrastructure, acquiring access to additional product lines,
acquiring regional distributors with networks of field sales consultants and
international expansion. Schein entered into or completed seventeen acquisitions
during the year ended December 28, 1996. The businesses acquired included 10
dental and three medical companies, a veterinary supply distributor, and three
international dental companies with aggregate net sales in their last fiscal
year ends of approximately $104.0 million, all of which were accounted for as
purchase transactions. Of these, fifteen were for majority ownership (100% in
nine of the transactions). In 1995, Schein acquired the distribution business of
The Veratex Corporation, a national direct marketer of dental, medical and
veterinary products, and Schein
54
Dental Equipment Corp., a distributor and manufacturer of large dental
equipment. Schein also completed the majority acquisition of 11 other companies
and a 50% acquisition of one other company during 1995.
REORGANIZATION
Schein was formed on December 23, 1992 as a wholly-owned subsidiary of
Schein Holdings, Inc. ("Schein Holdings"). At that time, Schein Holdings
conducted the business in which Schein is now engaged and in addition owned 100%
of the outstanding capital stock of Schein Pharmaceutical, Inc. ("Schein
Pharmaceutical"), a company engaged in the manufacture and distribution of
multi-source pharmaceutical products.
In December 1992, Schein Holdings separated Schein's business from Schein
Pharmaceutical by transferring to Schein all of the assets and liabilities of
the healthcare distribution business now conducted by Schein including Schein
Holdings' 50% interest in HS Pharmaceutical, Inc., a manufacturer and
distributor of generic pharmaceuticals ("HS Pharmaceutical"). No other assets or
liabilities, including the assets and liabilities associated with Schein
Pharmaceutical's business, were transferred to Schein. In connection with that
transaction, Schein agreed to indemnify Schein Holdings for all of the
liabilities assumed by Schein, and Schein Holdings agreed to indemnify Schein
for the liabilities associated with Schein Pharmaceutical's business of
manufacturing and distributing generic pharmaceuticals. Other than certain
common stockholders, there is no affiliation between Schein and Schein
Pharmaceutical, and all transactions between Schein and Schein Pharmaceutical
are on an arm's-length basis.
In February 1994 Schein, Schein Holdings, Stanley M. Bergman, Marvin H.
Schein, Pamela Joseph, Pamela Schein, Steven Paladino, James P. Breslawski,
Martin Sperber (the Chief Executive Officer of Schein Pharmaceutical) and
certain other parties entered into a number of reorganization agreements. In
September 1994, pursuant to the reorganization agreements, all of the Schein
Common Stock held by Schein Holdings was distributed to certain of the current
stockholders of Schein. Marvin H. Schein, Pamela Schein and Pamela Joseph have
agreed to severally indemnify Schein against certain potential costs and claims,
if any, which might be incurred by Schein in the future from the transactions
related to the Reorganization. Schein and Schein Pharmaceutical also agreed that
after September 1994 Schein would be entitled to use the "Henry Schein" name in
activities involving non-pharmaceutical products and pharmaceuticals for dental
and veterinary purposes, which activities may include marketing, distributing,
labeling, packaging, manufacturing (such as HS Pharmaceutical's manufacturing of
generic pharmaceuticals and Schein Dental Equipment's manufacturing of large
dental equipment, which are the principal manufacturing activities currently
conducted by Schein, its subsidiaries and 50%-or-less owned entities) and
selling such products. Schein and Schein Pharmaceutical also agreed that after
September 1994, Schein Pharmaceutical would be entitled to use the "Schein
Pharmaceutical" name in similar activities involving pharmaceuticals for
non-dental human treatment. Schein Pharmaceutical is not permitted to use the
name "Henry Schein."
One of the Reorganization agreements, a Voting Trust Agreement (the "Voting
Trust"), gives Stanley M. Bergman (or his successor trustee) the right to vote
all of the shares of Schein Common Stock owned by certain stockholders of the
Company, which will be approximately 30.3% of the outstanding shares of Schein
Common Stock immediately after the consummation of the Merger. Another of the
Reorganization agreements, the Amended and Restated HSI Agreement (the "Global
Agreement"), provides that the Schein Board of Directors consist of up to 11
members, and that until the earlier of January 1, 1999 or the termination of the
Voting Trust, Mr. Bergman (or his successor trustee) has the right to nominate
all but three of the nominees to the Board of Directors. Marvin H. Schein,
Pamela Joseph and Pamela Schein have the right to serve as or nominate the
remaining three directors. In general, from the earlier of January 1, 1999 or
the termination of the Voting Trust until the earlier of January 1, 2004 or the
first date on which Marvin H. Schein and his family group no longer beneficially
own at least 25% of the outstanding Schein Common Stock that they owned
immediately after the Reorganization or the date of certain
55
changes in Schein management, Mr. Bergman (or his successor trustee) has the
right to nominate 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 nominate four nominees (of which one
will be an independent nominee) and the ninth nominee will be selected by the
two independent nominees. As a result of the foregoing, until December 31, 1998,
Mr. Bergman, as a practical matter, will be able to significantly influence all
matters requiring stockholder approval, including the election of directors, and
until January 1, 2004, Mr. Bergman will have the ability to significantly
influence the election of all or a substantial number of the directors of
Schein.
The Global Agreement also requires the parties to the Voting Trust and
Marvin H. Schein to vote in favor of the individuals so nominated until the
earlier of January 1, 1999 or the termination of the Voting Trust, and to vote
their shares in favor of the nominees of Stanley M. Bergman until January 1,
2004. The Voting Trust terminates on December 31, 1998, but is subject to
earlier termination if, among other things, Stanley M. Bergman ceases to be
employed by or serve as a director of Schein (unless certain other members of
current management are serving as senior executives of Schein) or Schein
consummates a business combination which results in Marvin H. Schein (including
his family members) owning less than 5% of the voting securities of the
surviving corporation.
As described below under "COMPARISON OF STOCKHOLDER RIGHTS--Directors",
Schein is submitting to its shareholders a proposed amendment to its Amended and
Restated Certificate of Incorporation providing for, among other things, an
expanded Schein Board (although there is no current intention to add any
individual to the Schein Board except Bruce Haber). It is anticipated that the
Voting Trust and the Global Agreement will be amended to reflect such amendment,
if adopted.
The Global Agreement affords Marvin H. Schein or his designee the right to
serve on each committee of the Board of Directors to which the Board of
Directors has delegated decision-making authority and the right to call a
special meeting of the Board of Directors. The Global Agreement also limits
Schein's ability to adopt a shareholder rights plan or "fair price amendment,"
if such plan or amendment would affect Marvin H. Schein or Pamela Schein
(including their respective family members), as long as Marvin H. Schein or
Pamela Schein own certain specified percentages of the outstanding Schein Common
Stock. The Global Agreement also limits the ability of Marvin H. Schein, Pamela
Schein and Pamela Joseph to participate in any solicitation of proxies or any
election contest.
The Global Agreement places certain restrictions on the ability of the
parties thereto to transfer any of the shares of Common Stock owned by them and
further provides that Schein may not, prior to the earlier of December 31, 2003
or the first date on which neither Marvin H. Schein nor Pamela Schein (including
their respective family members) own at least 5% of the outstanding shares of
Common Stock, (i) issue in one or more private transactions securities having
more than 20% of the total votes that can be cast in any election of directors
of Schein without first offering Marvin H. Schein and Pamela Schein (including
their respective family members) the right to purchase such securities; (ii)
issue securities in connection with a business combination having more than 20%,
or resulting in a person owning more than 20%, of the total votes that can be
cast in any election of directors without the consent of Marvin H. Schein; or
(iii) issue preferred stock having the right to cast more than 20% of the total
votes that can be cast in any election of directors of Schein. In addition,
certain members of management have agreed not to transfer their shares until
November 3, 1998, subject to acceleration in Mr. Bergman's discretion.
Restrictions on the ability of stockholders to transfer their stock may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, Schein, and could limit the price that certain investors might be willing
to pay in the future for Schein Common Stock.
The Global Agreement provides that Schein will indemnify each of the other
parties to the Reorganization agreements, and their family groups, from damages
resulting from (i) claims asserted by third parties relating to the
Reorganization agreements and (ii) any material breach of a representation,
warranty or covenant made by Schein in any of the Reorganization agreements.
Marvin H. Schein has agreed to consult with Pamela Schein prior to the exercise
of certain of his rights of approval and consent under the Reorganization
agreements.
56
MANAGEMENT OF SCHEIN
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of Schein. Mr. Haber will become an Executive Vice
President of Schein and the President of Schein's Medical Group upon the
consummation of the Merger.
NAME AGE POSITION
- ----------------------------- ----------- -----------------------------------------------------
CORPORATE
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
Diane Forrest................ 50 Senior Vice President--Information Services and Chief
Information Officer
Stephen R. LaHood............ 49 Senior Vice President--Distribution Services
Mark E. Mlotek............... 41 Vice President, General Counsel, Secretary and
Director
Steven Paladino.............. 40 Senior Vice President, Chief Financial Officer and
Director
BUSINESS UNITS
Larry M. Gibson.............. 50 President--Practice Management Technologies Division
James W. Stahly.............. 48 President--North American Dental Group
Michael Zack................. 44 Senior Vice President--International Group
OTHER DIRECTORS
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
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
STANLEY M. BERGMAN has been Chairman, Chief Executive Officer and President
since 1989, and a director of Schein since 1982. Mr. Bergman held the position
of Executive Vice President of Schein and Schein Pharmaceutical, Inc., from 1985
to 1989 and Vice President of Finance and Administration of Schein from 1980 to
1985. Mr. Bergman is a certified public accountant.
JAMES P. BRESLAWSKI has been Executive Vice President of Schein since 1990,
with primary responsibility for the North American Dental Group, the Veterinary
Group and corporate creative services, and a director of Schein since 1990.
Between 1980 and 1990, Mr. Breslawki held various positions with Schein,
57
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 1993, including responsibility for the worldwide
human resource function, and has been a director of Schein since September 1994.
Prior to holding his current position, Mr. Benjamin was Vice President of
Distribution Operations of Schein from 1990 to 1992 and Director of Materials
Management of Schein from 1988 to 1990. Before joining Schein, 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.
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 1995 and practiced corporate and business law
for eight years prior to joining Schein. Mr. David has been a director of Schein
since September 1994.
DIANE FORREST joined Schein in 1994 as Senior Vice President of Information
Services and Chief Information Officer. Prior to joining Schein, Ms. Forrest was
employed by Tambrands Inc. as Vice President of Information Services from 1987
to 1994, KPMG Peat Marwick as Senior Manager in the management consulting
division from 1982 to 1987 and Nabisco Brands, Inc. as Corporate Manager of
Manufacturing Systems from 1978 to 1982.
STEPHEN R. LAHOOD joined Schein in 1992 as Senior Vice President of
Distribution Services and also responsible for purchasing. Prior to joining
Schein, Mr. LaHood was employed by Lex/Schweber Electronics Inc. as Vice
President of Operations and Quality from 1988 to 1991. Mr. LaHood also spent ten
years at Johnson & Johnson Products, Inc., where his last position was Manager
of Corporate Business Planning and thereafter, seven years at Schering-Plough
Corporation where his last position was Senior Director of Manufacturing
Operations.
MARK E. MLOTEK joined Schein in December 1994 as Vice President, General
Counsel and Secretary, and became a director of Schein in September 1995. Prior
to joining Schein, Mr. Mlotek was a partner in the law firm of Proskauer Rose
Goetz & Mendelsohn LLP, counsel to Schein, specializing in mergers and
acquisitions, corporate reorganizations and tax law from 1989 to 1994.
STEVEN PALADINO has been Senior Vice President and Chief Financial Officer
of Schein since 1993, and has been a director of Schein since 1992. From 1990 to
1992, Mr. Paladino served as Vice President and Treasurer and from 1987 to 1990
served as Corporate Controller of Schein. Before joining Schein, 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.
LARRY M. GIBSON joined Schein as President of the Practice Management
Technologies Division on February 24, 1997 concurrent with the acquisition of
Dentrix Dental Systems, Inc. Before joining Schein, Mr. Gibson was founder,
Chairman and CEO of Dentrix, started in 1980. Prior to his employment with
Dentrix, Mr. Gibson was employed by Weidner Communication Systems from 1978.
JAMES W. STAHLY joined Schein in 1994 as President of the North American
Dental Group of Schein. Before joining Schein, Mr. Stahly was employed by Fox
Meyer Corporation for seven years where his last position was Senior Vice
President--Hospital and Alternate Care Sales. Prior to his employment with Fox
Meyer, Mr. Stahly spent 16 years at McKesson Drug Company.
MICHAEL ZACK has been responsible for the International Group of Schein
since 1989. Mr. Zack was employed by Polymer Technology (a subsidiary of Bausch
& Lomb) as Vice President of International Operations from 1984 to 1989 and by
Gruenthal GmbH as Manager of International Subsidiaries from 1975 to 1984.
BARRY J. ALPERIN has been a director of Schein since May 1996. Mr. Alperin
has also been a private consultant since August 1995. Mr. Alperin served as a
director of Hasbro, Inc. from 1986 through
58
May 1996 and 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 recently served as Chairman of the Board for Toy
Manufacturers of America, an industry trade association. Mr. Alperin currently
serves as a director for Seaman Furniture Co., Inc. and K'nex Industries, Inc.
PAMELA JOSEPH has been a director of Schein since September 1994. For the
past five years Ms. Joseph has been a self-employed artist, and is president of
MA Nose Studios, Inc. Ms. Joseph is also a trustee of Alfred University.
DONALD J. KABAT has been a director of Schein since May 1996. From 1992
until the present, Mr. Kabat has served as President of D.K. Consulting
Services, Inc. and Chief Financial Officer of Central Park Skaters, Inc. 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 Schein since September 1994 and has
provided consulting services to Schein since 1982. Mr. Schein founded Schein
Dental Equipment and had been its President for more than 15 years. Prior to
founding Schein Dental Equipment, Mr. Schein held various management and
executive positions with Schein.
IRVING SHAFRAN has been a director of Schein since September 1994 and was
nominated by Pamela Schein as her designee for director of Schein. Mr. Shafran
has been an attorney in private practice for more than twenty-five years. From
1992 through mid-1995, Mr. Shafran was a partner in the law firm of Anderson
Kill Olick and Oshinsky, PC.
BRUCE J. HABER will serve as Executive Vice President and President of
Schein's Medical Group commencing as of the Effective Time. Moreover, Schein has
agreed to use its reasonable best effort to cause Bruce Haber to be elected to
Schein's Board of Directors. Bruce Haber has been President of MBM since 1983
and a director of MBM since 1981.
Schein's Board of Directors is currently composed of eleven directors, six
of whom are employees of Schein. Directors serve until the next annual
stockholders' meeting or until their successors have been duly elected and
qualified.
DESCRIPTION OF MBM
MBM is a New York company which was incorporated in 1971. MBM distributes
medical supplies to physicians and hospitals in the New York metropolitan area,
as well as to health care professionals in the sports medicine, emergency
medicine, school health, industrial safety, government and laboratory markets
nationwide. MBM depends upon the continued supply of the products it
distributes, however, it does not depend upon any single source. MBM has neither
encountered nor does it anticipate any difficulty in obtaining the necessary
products.
CALIGOR DIVISION. MBM's Caligor division is a physician and hospital
supplier in the New York metropolitan area, serving over 12,000 physicians and
laboratories. It also serves nursing homes and industrial medical departments.
Caligor provides its physicians and hospitals with a comprehensive selection of
supplies and related logistical and software services. The division's estimated
50,000 supplies range from bandages and pharmaceuticals to sophisticated
diagnostic equipment, while the services range from equipment repair to the
complete design and installation of new offices, waiting rooms, exam rooms and
laboratories. The Caligor division's logistical and software services include
"stockless" inventory services for hospitals which allow the customer to reduce
on-hand inventory by up to ninety percent and significantly reduce operating
expenses. Over the past few years, the Caligor Division has been able to acquire
a number of smaller distributors, resulting in significant economies of scale
and improved operating efficiencies. Caligor has increased its market share in
these new territories with the same
59
combination of sales force support, direct mail, catalogs and telemarketing
sales that it uses in existing territories.
MBM DIVISION. The MBM Division distributes sports medicine supplies, school
nurse supplies, medical equipment and rehabilitation equipment to over 10,000
schools, colleges, municipalities, emergency medical units and professional
sports teams around the country, including many of the major and minor league
baseball, basketball, football and hockey teams. Revenues derived from
municipalities and school districts are derived from competitive bidding. Like
the Caligor Division, MBM Division serves its customers with a comprehensive
line of supplies and services, ranging from the delivery of athletic tape to an
NFL team on the road to the complete design, furnishing and stocking of a
training room, sports medicine clinic, or school nurse office. MBM Division
markets its product line primarily via three catalogs which it distributes to
customers and prospective customers each year. These catalogs are supported by
direct mail, telemarketing, professional journal advertising, national and local
trade show exhibitions, and an inside sales and customer service staff.
HEALER PRODUCTS DIVISION. MBM Healer Products Division is an assembler and
wholesaler of first aid kits and private label medical products. These products,
in turn, are marketed by MBM's other divisions, and sold to numerous outside
markets through a network of commissioned sales agents. The first aid and
medical kits are produced in a variety of forms and sizes, but are generally
designed for use in government, industry, schools, emergency medical
organizations, hospitals, homes and recreational facilities. The Healer Products
Division also produces specialized kits for volunteer ambulance corps, emergency
squads, corporate offices, construction operations, restaurants, retail stores,
boats, athletic activities, motor vehicles, and sales promotion purposes as well
as for specific medical problems such as burns, poisoning, insects stings,
traumatic accidents, obstetrical emergencies and eye injuries. Many of the
products contained in the kits are generic and are marketed under MBM's private
label. The use of private-label generic products permits attractive pricing for
MBM and its customers and creates a consistent, positive brand image among
customers.
60
COMPARATIVE STOCK PRICES AND DIVIDENDS
Both the Schein Common Stock (symbol: HSIC), and the MBM Common Stock
(symbol: MBMI) are admitted for trading on the Nasdaq National Market.
The following table sets forth the high and low sales prices per share of
the Schein Common Stock and the MBM Common Stock (on a historical and equivalent
per share basis) on the Nasdaq National Market on March 6, 1997, the last
trading day prior to public announcement of the signing of the Merger Agreement:
HIGH LOW
---------- ----------
Schein Common
Stock............. $ 287/8 $ 28
MBM Common Stock.... 163/8 153/4
Equivalent share
basis (1)......... 177/8 173/8
- ------------------------
(1) Equivalent share basis is determined by multiplying the applicable Schein
Common Stock price by 0.62 to reflect the terms of the Merger Agreement.
SCHEIN COMMON STOCK
The Schein Common Stock is quoted through the Nasdaq National Market Stock
Market under the symbol "HSIC." The following table sets forth for the periods
indicated the high and low reported sales prices of the Common Stock on the
Nasdaq National Market System from November 3, 1995, the date of the commencing
of Schein's initial public offering.
HIGH LOW
---------- ----------
YEAR ENDED DECEMBER
30, 1995:
Fourth Quarter (from
November 3,
1995)............. $ 291/2 $ 203/8
YEAR ENDED DECEMBER
28, 1996:
First Quarter....... 303/4 231/2
Second Quarter...... 431/2 271/2
Third Quarter....... 401/4 311/4
Fourth Quarter...... 411/4 323/4
YEAR ENDING DECEMBER
27, 1997:
First Quarter....... 39 241/2
Second Quarter
(through June 30,
1997)............. 37 267/8
On March 6, 1997, there were approximately 150 holders of record of Schein
Common Stock. On March 6, 1997, the last full trading day before the
announcement of the Merger, the last reported sales price was $28 1/2.
Schein does not anticipate paying any cash dividends on the Schein Common
Stock in the foreseeable future; it intends to retain its earnings to finance
the expansion of its business and for general corporate purposes. Any payment of
dividends will be at the discretion of the Schein Board and will depend upon the
earnings, financial condition, capital requirements, level of indebtedness, and
contractual restrictions with respect to payment of dividends and other factors.
Schein's revolving credit agreement and the note issued in connection with an
acquisition in the Netherlands limit the distributions of dividends without the
prior written consent of the lenders.
61
MBM COMMON STOCK
The MBM Common Stock is traded on the Nasdaq National Market under the
symbol "MBMI". The following table sets forth, for the periods indicated, the
high and low sales prices of the MBM Common Stock as reported on the Nasdaq
National Market.
HIGH LOW
------- -------
YEAR ENDED NOVEMBER
30, 1995:
First Quarter....... $10 $ 9 7/16
Second Quarter...... 12 5/8 9 5/16
Third Quarter....... 13 7/8 11 1/4
Fourth Quarter...... 14 12
YEAR ENDED NOVEMBER
30, 1996:
First Quarter....... 14 3/4 12 1/4
Second Quarter...... 17 13 7/8
Third Quarter....... 21 14 3/8
Fourth Quarter...... 18 1/4 16 1/8
YEAR ENDING NOVEMBER
30, 1997:
First Quarter....... 18 1/8 15 3/4
Second Quarter...... 20 14 3/4
Third Quarter
(through July 1,
1997)............. 21 1/2 18 1/4
On March 6, 1997, the last full trading day prior to the announcement of the
Merger Agreement, the last reported sales price was $15 3/4. As of March 6,
1997, there were approximately 685 record holders of MBM Common Stock. No cash
dividends have been paid by MBM on the MBM Common Stock and no such payment is
anticipated in the foreseeable future.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the "pooling of interests" method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes. These unaudited pro forma combined condensed financial statements have
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Schein and MBM, which are
incorporated by reference in this Proxy Statement/Prospectus.
The unaudited pro forma statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results or financial
position that would have occurred had the Merger been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or
financial position of the merged companies.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on March 29, 1997, combining the balance sheets of
Schein at March 29, 1997 with that of MBM as of February 28, 1997. The Unaudited
Pro Forma Combined Condensed Statements of Operations give effect to the Merger
as if it had occurred at the beginning of the earliest period presented,
combining the results of Schein for each year in the three-year period ended
December 28, 1996 and three months ended March 29, 1997 with those of MBM for
each year in the three-year period ended November 30, 1996 and the three months
ended February 28, 1997.
As a result of the Merger, the merged companies will incur certain
acquisition and transition related costs in connection with consummating the
transaction and integrating the operations of Schein and MBM. The acquisition
and transition related costs consist principally of professional and
registration fees, employment contract termination costs, systems modification
costs and other costs associated with the
62
integration of the two businesses resulting from the Merger. While the exact
timing, nature and amount of these acquisition and transition related costs are
subject to change, Schein anticipates that a one-time pretax charge of
approximately $9.0 million for direct incremental acquisition-related costs will
be recorded in the quarter in which the Merger is consummated. The estimate is
comprised of the following amounts:
(IN
THOUSANDS)
-------------
Professional services.......................................................... $ 4,000
Employment contract termination costs.......................................... 3,000
Registration and other regulatory costs........................................ 1,000
Taxes and other................................................................ 1,000
------
$ 9,000
------
------
The direct incremental acquisition-related costs have been reflected as an
increase in accounts payable and accrued expenses in the Unaudited Pro Forma
Combined Condensed Balance Sheet as of March 29, 1997. The after-tax cost of
this anticipated charge ($8.2 million) has been reflected as a reduction in
retained earnings in the Unaudited Pro Forma Combined Condensed Balance Sheet as
of March 29, 1997.
In addition to the one-time pretax charge of approximately $9.0 million for
direct incremental acquisition-related costs, Schein also expects to record
additional special costs associated with systems modifications and other
integration related charges after the Merger. Such pretax charges are currently
not estimatable, but could be in the range of $5.0 million to $10.0 million. The
ultimate amount of such costs and the periods in which they will be charged to
expense will vary depending on a number of factors, including the timing and
extent of the integration of the businesses.
The unaudited pro forma combined condensed financial statements do not
reflect the special costs associated with systems modifications and other
integration related charges described above to be incurred during the remainder
of 1997 and thereafter, or any of the anticipated recurring expense savings.
63
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 29, 1997
(IN THOUSANDS)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
SCHEIN MBM ADJUSTMENTS COMBINED
----------- ---------- ----------------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 16,911 $ 355 $-- $ 17,266
Accounts receivable, net........................ 143,353 30,694 -- 174,047
Inventories..................................... 118,760 15,355 -- 134,115
Deferred income taxes........................... 6,347 782 -- 7,129
Other........................................... 29,378 970 -- 30,348
----------- ---------- ------ ----------
Total current assets...................... 314,749 48,156 -- 362,905
Property and equipment, net..................... 38,374 3,665 -- 42,039
Goodwill and other intangibles, net............. 56,014 8,605 -- 64,619
Investments and other........................... 29,416 162 -- 29,578
----------- ---------- ------ ----------
$ 438,553 $60,588 $-- $499,141
----------- ---------- ------ ----------
----------- ---------- ------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
and accrued expenses.......................... $ 98,274 $21,340 $9,000(2b) $127,814
(800)(2c)
Bank credit lines............................... 6,826 -- -- 6,826
Current maturities of long-term debt............ 8,203 433 -- 8,636
----------- ---------- ------ ----------
Total current liabilities................. 113,303 21,773 8,200 143,276
Long-term debt.................................. 23,707 6,967 -- 30,674
Other liabilities............................... 2,843 180 -- 3,023
Minority interest............................... 5,119 -- -- 5,119
Common stock.................................... 233 152 (117)(2a) 268
Additional paid-in capital...................... 255,308 21,012 116(2a) 276,436
Retained earnings............................... 40,810 10,505 (8,200)(2b)(2c) 43,115
Treasury stock.................................. (1,156) (1) 1(2a) (1,156)
Foreign currency translation adjustment......... (1,614) -- -- (1,614)
----------- ---------- ------ ----------
Total stockholders' equity................ 293,581 31,668 (8,200) 317,049
----------- ---------- ------ ----------
$ 438,553 $60,588 $-- $499,141
----------- ---------- ------ ----------
----------- ---------- ------ ----------
64
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ----------- -----------
Net sales................................................................. $ 240,499 $ 38,005 $ 278,504
Cost of sales............................................................. 168,777 30,671 199,448
---------- ----------- -----------
Gross profit.............................................................. 71,722 7,334 79,056
Selling, general and administrative expenses.............................. 64,782 6,857 71,639
Merger costs.............................................................. 2,527 -- 2,527
---------- ----------- -----------
Operating income.......................................................... 4,413 477 4,890
Interest income (expense)--net............................................ (325) (100) (425)
Other--net................................................................ (73) -- (73)
---------- ----------- -----------
Income before taxes on income, minority interest and equity in earnings of
affiliates.............................................................. 4,015 377 4,392
Taxes on income........................................................... 2,480 158 2,638
Minority interest in net income of subsidiaries........................... (14) -- (14)
Equity in earnings of affiliates.......................................... (50) -- (50)
---------- ----------- -----------
Net income................................................................ $ 1,499 $ 219 $ 1,718
---------- ----------- -----------
---------- ----------- -----------
Net income per common share (1)........................................... $ 0.06 $ 0.04 $ 0.06
---------- ----------- -----------
---------- ----------- -----------
Weighted average common and common equivalent shares outstanding (1)...... 23,678 6,149 27,490
---------- ----------- -----------
---------- ----------- -----------
65
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
Net sales.................................................................... $ 840,122 $ 150,143 $ 990,265
Cost of sales................................................................ 587,013 119,206 706,219
---------- ---------- -----------
Gross profit................................................................. 253,109 30,937 284,046
Selling, general and administrative expenses................................. 220,500 27,152 247,652
---------- ---------- -----------
Operating income............................................................. 32,609 3,785 36,394
Interest income (expense)--net............................................... (863) (719) (1,582)
Other--net................................................................... 771 -- 771
---------- ---------- -----------
Income before taxes on income, minority interest and equity in earnings of
affiliates................................................................. 32,517 3,066 35,583
Taxes on income.............................................................. 11,343 1,321 12,664
Minority interest in net income of subsidiaries.............................. 246 -- 246
Equity in earnings of affiliates............................................. 1,595 -- 1,595
---------- ---------- -----------
Net income................................................................... $ 22,523 $ 1,745 $ 24,268
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income...................................................... $ 22,523 $ 1,745 $ 24,268
Pro forma adjustment:
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (1,197) -- (1,197)
---------- ---------- -----------
Pro forma net income......................................................... $ 21,326 $ 1,745 $ 23,071
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share (1).................................... $ 0.98 $ 0.31 $ 0.91
Pro forma weighted average common and common equivalent shares outstanding
(1)........................................................................ 21,794 5,817 25,401
---------- ---------- -----------
---------- ---------- -----------
66
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
Net sales.................................................................... $ 623,302 $ 119,874 $ 743,176
Cost of sales................................................................ 427,448 94,307 521,755
---------- ---------- -----------
Gross profit................................................................. 195,854 25,567 221,421
Selling, general and administrative expenses................................. 174,867 22,413 197,280
Special charges.............................................................. 20,797 -- 20,797
---------- ---------- -----------
Operating income............................................................. 190 3,154 3,344
Interest income (expense)--net............................................... (5,283) (1,239) (6,522)
Other--net................................................................... 390 -- 390
---------- ---------- -----------
Income (loss) before taxes on income, minority interest and equity in
earnings of affiliates..................................................... (4,703) 1,915 (2,788)
Taxes on income.............................................................. 5,126 806 5,932
Minority interest in net income of subsidiaries.............................. 509 -- 509
Equity in earnings of affiliates............................................. 1,537 -- 1,537
---------- ---------- -----------
Net income (loss)............................................................ $ (8,801) $ 1,109 $ (7,692)
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income (loss)............................................... $ (8,801) $ 1,109 $ (7,692)
Pro forma adjustments:
Special management compensation and professional fees...................... 20,797 -- 20,797
Tax effect of above........................................................ (1,174) -- (1,174)
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (533) -- (533)
Pro forma net income......................................................... $ 10,289 $ 1,109 $ 11,398
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share(1)..................................... $ 0.71 $ 0.25 $ 0.66
---------- ---------- -----------
---------- ---------- -----------
Pro forma weighted average common and common equivalent shares
outstanding(1)............................................................. 14,517 5,122 17,693
---------- ---------- -----------
---------- ---------- -----------
67
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL HISTORICAL PRO FORMA
SCHEIN MBM COMBINED
---------- ---------- -----------
Net sales.................................................................... $ 490,834 $ 121,604 $ 612,438
Cost of sales................................................................ 344,868 94,924 439,792
---------- ---------- -----------
Gross profit................................................................. 145,966 26,680 172,646
Selling, general and administrative expenses................................. 131,009 23,003 154,012
Special charges.............................................................. 23,603 -- 23,603
---------- ---------- -----------
Operating income (loss)...................................................... (8,646) 3,677 (4,969)
Interest income (expense)--net............................................... (3,524) (1,044) (4,568)
Other--net................................................................... 542 -- 542
---------- ---------- -----------
Income (loss) before taxes on income, minority interest and equity in
earnings of affiliates..................................................... (11,628) 2,633 (8,995)
Taxes on income (recovery)................................................... (1,630) 952 (678)
Minority interest in net income of subsidiaries.............................. 561 -- 561
Equity in earnings of affiliates............................................. 494 -- 494
Cumulative effect of accounting change for income taxes prior to 1994........ -- (60) (60)
---------- ---------- -----------
Net income (loss)............................................................ $ (10,065) $ 1,621 $ (8,444)
---------- ---------- -----------
---------- ---------- -----------
PRO FORMA:
Historical net income (loss)............................................... $ (10,065) $ 1,621 $ (8,444)
Pro forma adjustments:
Special management compensation and professional fees...................... 23,603 -- 23,603
Tax effect of above........................................................ (5,749) -- (5,749)
Provision for income taxes on previously untaxed earnings of an
acquisition.............................................................. (306) -- (306)
---------- ---------- -----------
Pro forma net income......................................................... $ 7,483 $ 1,621 $ 9,104
---------- ---------- -----------
---------- ---------- -----------
Pro forma net income per common share(1)..................................... $ 0.57 $ 0.36 $ 0.57
---------- ---------- -----------
---------- ---------- -----------
Pro forma weighted average common and common equivalent shares
outstanding(1)............................................................. 13,197 4,897 16,233
---------- ---------- -----------
---------- ---------- -----------
68
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--EXCHANGE RATIO
Under the Merger Agreement, each outstanding share of MBM Common Stock will
be converted into 0.62 shares of Schein Common Stock. This exchange ratio was
used in computing share and per share amounts in the accompanying unaudited pro
forma combined condensed financial statements.
The computation of earnings per share was also adjusted to reflect the
incremental net income ($59 in 1996, $191 in 1995 and $146 in 1994) resulting
from MBM's use of the modified treasury stock method.
NOTE 2--PRO FORMA ADJUSTMENTS
(a) A pro forma adjustment has been made to reflect the issuance of shares
in the exchange ratio stated in Note 1 above and the cancellation of MBM
treasury stock, in accordance with the Merger Agreement.
(b) A pro forma adjustment has been made for certain acquisition-related
costs and expenses including as described in the fourth paragraph under
"Unaudited Pro Forma Combined Condensed Financial Statements."
(c) A pro forma adjustment has been made for the estimated tax effects of
the adjustments discussed in (b) above.
69
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL
INFORMATION AND OPERATING DATA
The following consolidated selected financial data with respect to Schein's
financial position and its results of operations for each of the five years in
the period ended December 28, 1996 set forth below has been derived from
Schein's audited consolidated financial statements, which have previously been
filed with the SEC. The related financial information for the three months ended
March 29, 1997 and March 30, 1996 have been derived from the unaudited
statements of Schein and, in Schein's opinion, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information. The results for the three months ended March
29, 1997 are not necessarily indicative of the results that may be expected for
any other period. The consolidated selected financial data presented below
should be read in conjunction with such audited consolidated financial
statements and related notes and the other information set forth in this Proxy
Statement/Prospectus or incorporated by reference herein. See "SCHEIN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." The Selected Operating Data and Net Sales by Market Data presented
below have not been audited.
YEARS ENDED
-------------------------------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31, DECEMBER 25, DECEMBER 26,
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
Cost of sales.......................................... 587,013 427,448 344,868 294,954 257,262
------------- ------------- ------------- ------------- -------------
Gross profit........................................... 253,109 195,854 145,966 122,884 106,215
Selling, general and administrative expenses........... 220,500 174,867 131,009 111,214 96,853
Special management compensation(1)..................... -- 20,797 21,596 617 5,283
Special contingent consideration(2).................... -- -- -- 3,216 --
Special professional fees(3)........................... -- -- 2,007 2,224 2,227
------------- ------------- ------------- ------------- -------------
Operating income (loss)................................ 32,609 190 (8,646) 5,613 1,852
Interest income........................................ 2,558 552 251 856 1,210
Interest expense....................................... (3,421) (5,835) (3,775) (3,228) (2,971)
Other income (expense)--net............................ 771 390 542 (634) 255
------------- ------------- ------------- ------------- -------------
Income (loss) before taxes on income (recovery),
minority interest and equity in earnings of
affiliates........................................... 32,517 (4,703) (11,628) 2,607 346
Taxes on income (recovery)............................. 11,343 5,126 (1,630) 1,351 622
Minority interest in net income (loss) of
subsidiaries......................................... 246 509 561 318 (249)
Equity in earnings of affiliates....................... 1,595 1,537 494 1,296 514
------------- ------------- ------------- ------------- -------------
Income (loss) before cumulative effect of accounting
change............................................... 22,523 (8,801) (10,065) 2,234 487
Cumulative effect of accounting change................. -- -- -- 1,891 --
------------- ------------- ------------- ------------- -------------
Net income (loss)...................................... $ 22,523 $ (8,801) $ (10,065) $ 4,125 $ 487
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PRO FORMA INCOME DATA (4):
Pro forma operating income............................. $ 32,609 $ 20,987 $ 14,957
Pro forma net income................................... $ 21,326 $ 10,289 $ 7,483
Pro forma net income per common share.................. $ 0.98 $ 0.71 $ 0.57
Pro forma average shares outstanding................... 21,794 14,517 13,197
SELECTED OPERATING DATA:
Number of orders shipped............................... 3,079,000 2,630,000 2,275,000 2,044,000 1,824,000
Average order size..................................... $ 273 $ 237 $ 216 $ 204 $ 199
NET SALES BY MARKET DATA(5):
Dental(6).............................................. $ 435,643 $ 327,697 $ 274,337 $ 253,223 $ 234,655
Medical................................................ 191,186 125,565 89,789 71,021 51,923
Veterinary............................................. 35,329 29,330 27,872 24,312 19,481
Technology(7).......................................... 30,965 33,007 14,909 9,866 6,377
International(8)....................................... 146,999 107,703 83,927 59,416 51,041
------------- ------------- ------------- ------------- -------------
$ 840,122 $ 623,302 $ 490,834 $ 417,838 $ 363,477
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................ $ 204,575 $ 104,455 $ 76,814 $ 74,167 $ 28,066
Total assets........................................... 467,450 299,364 191,373 161,437 138,043
Total debt............................................. 39,746 43,049 61,138 56,712 41,526
Redeemable stock (9)................................... -- -- 14,745 -- --
Minority interest...................................... 5,289 4,547 1,823 1,051 411
Stockholders' equity................................... 292,016 143,865 40,266 43,896 39,927
70
SCHEIN CONSOLIDATED SELECTED HISTORICAL FINANCIAL
INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
------------------------------
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 240,499 $ 187,339
Gross profit..................................................................... 71,722 $ 56,506
Selling, general and administrative expenses..................................... 64,782 $ 51,396
Merger costs (10)................................................................ 2,527 --
Operating income................................................................. 4,413 $ 5,110
Net income....................................................................... $ 1,499 $ 2,716
Net income per common share...................................................... $ 0.06 $ 0.14
Average shares outstanding....................................................... 23,678 $ 19,740
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 201,446
Total assets..................................................................... 438,553
Total debt....................................................................... 38,736
Minority interest................................................................ 5,119
Stockholders' equity............................................................. 293,581
- ------------------------
(1) Includes: (a) for 1995, non-cash special management compensation charges of
$17.5 million arising from final mark-to-market adjustments (reflecting an
increase in estimated market value from 1994 to the initial public offering
price of $16.00 per share of Schein Common Stock) for stock grants made to
an executive officer of Schein in 1992 and other stock issuances made to
certain other senior management of Schein (because of certain repurchase
features which expired with Schein's initial public offering), an
approximate $2.8 million non-cash special management compensation charge
(also based on the initial public offering price of $16.00 per share)
relating to compensatory options granted in 1995, and a cash payment of $0.5
million for additional income taxes resulting from such stock issuances; (b)
for 1994, non-cash special management compensation arising from accelerated
amortization of deferred compensation arising from the 1992 stock grants to
an executive officer of Schein of $17.3 million, which included a 1994
mark-to-market adjustment (because of the repurchase features referred to
above) of $9.1 million, due to the resolution, with the closing of the
Reorganization, of certain contingencies surrounding the issuance of the
stock grants, non-cash special management compensation charges of $1.6
million (net of prior accruals of approximately $1.9 million under an
executive incentive plan) arising from stock issuances to certain other
senior management of Schein, valued at $3.5 million, and cash payments for
income taxes of approximately $2.4 million resulting from these stock
issuances and $0.3 million for additional income taxes resulting from the
1992 stock grants; (c) for 1993, non-cash special management compensation
charges of $0.6 million in amortization of deferred compensation arising
from the 1992 stock grants; and (d) for 1992, cash payments of $5.3 million
for income taxes resulting from stock grants made to an executive officer of
Schein. See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Overview".
(2) Includes $0.7 million paid in connection with an acquisition and $2.5
million resulting from the buyout of employees' rights to future income
contained in their employment agreements. See "SCHEIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Overview."
71
(3) Includes special professional fees incurred by Schein in connection with the
Reorganization. See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Overview".
(4) Reflects the pro forma elimination of special charges incurred in 1995 and
1994 for special management compensation of $20.8 million and $21.6 million,
respectively, and special professional fees incurred in 1994 of $2.0
million, arising from the Reorganization, and the related tax effects of
$1.2 million and $5.8 million for 1995 and 1994, respectively, and provision
for income taxes on previously untaxed earnings of Dentrix Dental Systems,
Inc. ("Dentrix") as an S Corporation of $1.2 million, $0.5 million and $0.3
million for 1996, 1995 and 1994, respectively. See "SCHEIN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Overview and Recent Developments."
(5) Restated to conform to 1996 presentation.
(6) Dental consists of Schein's dental business in the United States and Canada.
(7) Technology consists of Schein's practice management software business and
certain other value-added products and services.
(8) International consists of Schein's business (substantially all dental)
outside the United States and Canada, primarily Europe.
(9) Redeemable stock includes stock issued for compensation which was subject to
repurchase by Schein at fair market value in the event of termination of
employment of the holder of such shares, as well as shares purchased by the
trust for Schein's ESOP and allocable to the ESOP participants. With the
completion of Schein's initial public offering, the stock issued for
compensation and the ESOP Common Stock were no longer subject to repurchase.
See "SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-- Overview".
(10) During the three months ended March 29, 1997, Schein acquired all of the
common stock of Dentrix, a provider of clinically-based dental practice
management systems, with 1996 net sales of approximately $10.2 million, in
exchange for 1,070,000 shares of Schein Common Stock. The Dentrix
acquisition was accounted for as a pooling of interests, and, accordingly,
the consolidated financial statements for the periods presented have been
restated to include Dentrix. In connection with the Dentrix acquisition,
Schein incurred merger costs of approximately $2.5 million, or $0.11 per
share, in the first quarter of 1997. Included in the merger costs are
investment banking, legal, accounting and advisory fees and other
nonrecurring costs associated with this acquisition.
72
SCHEIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF SCHEIN'S CONSOLIDATED FINANCIAL
CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH SCHEIN'S CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS AND NOTES THERETO.
See "SCHEIN'S CONSOLIDATED SELECTED HISTORICAL FINANCIAL DATA".
OVERVIEW
Schein's results of operations in recent years have been significantly
impacted by strategies and transactions undertaken by Schein to expand its
business, both domestically and internationally, in part to address significant
changes in the healthcare industry, including potential national healthcare
reform, trends toward managed care, cuts in Medicare, consolidation of
healthcare distribution companies and collective purchasing arrangements.
Schein's results of operations in recent years have also been impacted by the
Reorganization.
From 1992 through 1994, Schein was a party to a series of transactions
leading to the Reorganization that resulted in, among other things, Schein being
separated from Schein Holdings and the distribution of shares of the Schein
Common Stock to its then current stockholders. In December 1992, an executive
officer of Schein received certain stock grants in Schein and Schein
Pharmaceutical, Inc. valued at approximately $6.2 million and $2.6 million,
respectively, and cash of approximately $5.3 million to pay income taxes on the
stock grants received. These stock grants were subject to the occurrence of
certain future events, including the fulfillment of the employment term by the
executive officer. Accordingly, these stock grants, totaling $8.8 million, were
treated as deferred compensation while the cash payments were charged to
earnings as special management compensation in the year ended December 26, 1992.
During 1993, Schein amortized the deferred compensation relating to stock grants
by Schein to the executive officer resulting in a charge to earnings of $0.6
million. In 1994, the contingencies relating to the stock granted to the
executive officer were eliminated, such that these shares became fully vested.
Accordingly, deferred compensation of $8.8 million, less the 1993 amortization
of $0.6 million, plus a mark-to-market adjustment (because of certain repurchase
features) of approximately $9.1 million, along with a $0.3 million cash payment
for income taxes relating to the 1992 stock grants, was expensed in 1994 as
special management compensation.
In addition, in connection with the Reorganization, certain senior
management of Schein were issued shares of Schein Common Stock in 1994 and 1995
to extinguish an obligation under a pre-existing long-term incentive plan and to
provide them with an ownership interest in Schein. In connection with the
issuance of the shares, a cash payment for income taxes relating to such stock
issuances of approximately $2.4 million was paid. This cash bonus, plus $3.5
million, the fair value of the related stock issued, net of amounts accrued
under the long-term incentive plan of approximately $1.9 million, resulted in an
additional special management compensation charge to Schein of approximately
$4.0 million in 1994. Charges to earnings for the year ended 1995 related to a
mark-to-market adjustment (because of certain repurchase features) for stock
grants made to an executive officer of Schein and the stock issuances of the
other senior management of approximately $17.5 million and cash payments of $0.5
million for income taxes related to the stock issuances.
Additionally, Schein has granted certain employees options for shares of
Schein Common Stock, which became exercisable upon Schein's initial public
offering on November 3, 1995, at which time substantially all such options
vested. Non-recurring special compensation charges for the options issued to
employees recorded in the fourth quarter of 1995 amounted to approximately $2.8
million. In addition, Schein recorded an approximate $1.1 million related tax
benefit.
Special charges for special management compensation and special professional
fees incurred in connection with the Reorganization aggregated $20.8 million and
$23.6 million for 1995 and 1994, respectively.
73
RECENT DEVELOPMENTS
Since December 28, 1996, Schein has acquired (i) in a pooling of interests
transaction, all of the outstanding common stock of Dentrix Dental Systems, Inc.
("Dentrix"), a provider of clinically-based dental practice management systems
with 1996 net sales of approximately $10.2 million, and (ii) a purchase
transaction, the business of Smith Holden, the longest operating dental supply
company in the United States, with 1996 net sales of approximately $14.2
million. Additionally, on March 7, 1997, Schein entered into the Merger
Agreement, and on June 27, 1997 Schein acquired Roane-Barker, Inc., a medical
and laboratory supplies and equipment distributor in the Southeast with net
sales of approximately $25.0 for the fiscal year ended May 31, 1997, in a
pooling of interests transaction.
MBM distributes medical supplies to physicians and hospitals in the New York
metropolitan area, as well as to healthcare professionals in sports medicine,
emergency medicine, school health, industrial safety, government and laboratory
markets nationwide. MBM had net sales of approximately $150.0 million and
earnings of approximately $1.7 million for its fiscal year ended November 30,
1996. Upon completion of the acquisition, Schein believes that it will become
North America's largest distributor of healthcare products to office-based
healthcare practitioners and a leading provider of healthcare products and
services to the U.S. physician market.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBM shareholder approval.
The transaction is expected to be completed by mid-1997 although no assurances
can be given in this regard. For a more complete description of the terms of the
Merger Agreement, reference is made to the Exhibits of Schein's Form 10-K.
Schein has filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission with respect to the securities to be issued in connection
with the Merger Agreement.
In connection with the Dentrix acquisition, Schein incurred merger costs of
approximately $2.5 million, or $0.11 per share, in the first quarter of 1997.
Included in the merger costs are investment banking, legal, accounting and
advisory fees and other nonrecurring costs associated with the merger.
Additional merger costs are expected to be incurred during 1997 relating to
integrating this acquisition.
Excluding the non-recurring merger costs of $2.5 million, or $0.11 per
share, for the Dentrix acquisition, pro forma net income and pro forma net
income per common share would have been $4.0 million and $0.17, respectively.
The financial statements include adjustments to give effect to the acquisition
of Dentrix, effective February 28, 1997, which was accounted for under the
pooling of interests method.
Prior to its acquisition by Schein, Dentrix elected to be treated as an S
Corporation under the Internal Revenue Code, and accordingly, its earnings were
not subject to taxation at the corporate level. Pro forma adjustments have been
made to reflect a provision for income taxes on such previously untaxed earnings
for each period presented.
74
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales by market of Schein and the percentage change in such items for the
three months ended March 29, 1997 and March 30, 1996, and for the years ended
1996, 1995 and 1994.
PERCENTAGE
INCREASE
PERCENTAGE OF NET SALES (DECREASE)
--------------------------------------------------------------------------- -----------------
THREE MONTHS
ENDED
MARCH 29,
1997 TO
THREE MONTHS ENDED YEARS ENDED THREE MONTHS
------------------------ ------------------------------------------------- ENDED
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 30, DECEMBER 31, MARCH 30,
1997 1996 1996 1995 1994 1996
----------- ----------- --------------- --------------- --------------- -----------------
NET SALES BY MARKET(1):
Dental(2)............... 52.4% 50.5% 51.8% 52.6% 55.9% 33.4%
Medical................. 23.3 21.4 22.8 20.1 18.3 39.6
Veterinary.............. 4.1 4.5 4.2 4.7 5.7 16.9
Technology(3)........... 3.3 4.2 3.7 5.3 3.0 (1.6)
International(4)........ 16.9 19.4 17.5 17.3 17.1 12.2
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0% 28.4
1996 TO 1995 TO
1995 1994
----------- -----------
NET SALES BY MARKET(1):
Dental(2)............... 32.9% 19.5%
Medical................. 52.3 39.8
Veterinary.............. 20.5 5.2
Technology(3)........... (6.2) 121.4
International(4)........ 36.5 28.3
34.8 27.0
- ------------------------
(1) Restated to conform to 1996 presentation.
(2) Dental consists of Schein's dental business in the United States and Canada.
(3) Technology consists of Schein's practice management software business and
certain other value-added products and services.
(4) International consists of Schein's business (substantially all dental)
outside the United States and Canada, primarily in Europe.
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
Net sales increased $53.2 million, or 28.4%, to $240.5 million for the three
months ended March 29, 1997 from $187.3 million for the three months ended March
30, 1996. Schein estimates that overall approximately 17.1% of the increase was
due to internal growth, while the remaining 11.3% was due to acquisitions. Of
the $53.2 million increase, approximately $31.6 million represented a 33.4%
increase in Schein's dental business, $15.9 million represented a 39.6% increase
in its medical business, $4.4 million represented a 12.2% increase in its
international business, and $1.4 million represented a 16.9% increase in
Schein's veterinary business. Technology net sales decreased $0.1 million, or
1.6%. The increase in dental net sales was primarily the result of the
continuing favorable impact of Schein's integrated sales and marketing approach
(which coordinates the efforts of its field sales consultants with its direct
marketing and telesales personnel), acquisitions, continued success in Schein's
target marketing programs and increased sales in the large dental equipment
market. The increase in medical net sales was primarily due to acquisitions,
increased net sales to renal dialysis centers and net sales to customers
enrolled in the AMA Purchase Link program. In the international market, the
increase in net sales was due equally to acquisitions and increased unit volume
growth. Unfavorable exchange rate translation adjustments resulted in a net
sales decrease of approximately $1.4 million. Had net sales for the
international market been translated at the same exchange rates in effect during
1996, net sales would have increased by an additional 4.0%. In the veterinary
market, the increase in net sales was primarily due to increased account
penetration with corporate accounts. In the technology market, sales were
essentially unchanged from the prior year's quarter.
75
Gross profit increased by $15.2 million, or 26.9%, to $71.7 million for the
three months ended March 29, 1997 from $56.5 million for the three months ended
March 30, 1996, while gross profit margin decreased to 29.8% from 30.2%. The
$15.2 million increase in gross profit was primarily due to increased sales
volume and acquisitions. The decrease in gross profit margin was primarily due
to lower technology sales as a percentage of total net sales and other sales mix
changes.
Selling, general and administrative expenses increased by $13.4 million, or
26.1%, to $64.8 million for the three months ended March 29, 1997 compared to
$51.4 million for the three months ended March 30, 1996. Selling and shipping
expenses increased by $8.2 million, or 23.8%, to $42.7 million for the three
months ended March 29, 1997 from $34.5 million for the three months ended March
30, 1996. As a percentage of net sales, selling and shipping expenses decreased
0.6% to 17.8% for the three months ended March 29, 1997 from 18.4% for the three
months ended March 30, 1996. This decrease was primarily due to leveraging of
Schein's distribution infrastructure, partially offset by an increase in selling
expenses. General and administrative expenses increased $5.2 million, or 30.8%,
to $22.1 million for the three months ended March 29, 1997 from $16.9 million
for the three months ended March 30, 1996, primarily as a result of
acquisitions. As a percentage of net sales, general and administrative expenses
increased 0.2% to 9.2% for the three months ended March 29, 1997 from 9.0% for
the three months ended March 30, 1996.
Other income (expense)-net decreased by $0.2 million, or 33.3%, to ($0.4)
million for the three months ended March 29, 1997 from ($0.6) million for the
three months ended March 30, 1996. This decrease was primarily due to a decrease
in average borrowings, which were partially paid off with proceeds from Schein's
follow-on offering in June 1996, combined with an increase in imputed interest
income arising from non-interest bearing extended payment term sales.
For the three months ended March 29, 1997, Schein's effective tax rate was
61.8%, excluding merger costs, substantially all of which are not deductible for
income tax purposes, Schein's effective tax rate would have been 37.9%. The
difference between the effective tax rate and the federal statutory rate relates
primarily to a favorable tax treatment for certain donated inventory. For the
three months ended March 30, 1996, Schein's effective rate was 43.7%, which was
higher than the federal statutory rate primarily due to state income taxes and
the non-deductible net operating losses of certain foreign subsidiaries.
1996 COMPARED TO 1995
Net sales increased $216.8 million, or 34.8%, to $840.1 million in 1996 from
$623.3 million in 1995. Of the $216.8 million increase, approximately $107.9
million represented a 32.9% increase in Schein's dental business, $65.6 million
represented a 52.3% increase in its medical business, $39.3 million represented
a 36.5% increase in its international business and $6.0 million represented a
20.5% increase in Schein's veterinary business, offset by a $2.0 million, or
6.2%, decrease in its technology business. The dental net sales increase was
primarily the result of Schein's continued emphasis on its integrated sales and
marketing approach (which coordinates the efforts of its field sales consultants
with its direct marketing and telesales personnel), expansion into the U.S.
market for large dental equipment and acquisitions. Of the approximately $65.6
million increase in medical net sales, approximately $20.9 million, or 31.9%,
represents incremental net sales to renal dialysis centers, with the effects of
acquisitions and increased outbound telesales activity primarily accounting for
the balance of the increase in medical net sales. In the international market,
the increase in net sales was due to acquisitions, primarily in France, and
increased account penetration in Germany and the United Kingdom. Unfavorable
exchange rate translation adjustments resulted in a net sales decrease of
approximately $4.4 million. Had net sales for the international market been
translated at the same exchange rates in effect during 1995, net sales would
have increased by an additional 4.1%. In the veterinary market, the increase in
net sales was due to the full year impact of new product lines introduced in the
fourth quarter of 1995, increased account penetration and continued volume
growth to customers of a veterinary-sponsored purchasing service. As
anticipated, net sales in
76
Schein's technology group was below last year's sales volume levels due to
unusually high sales volume in the fourth quarter of 1995 due to the
introductory launch, at that time, of Schein's Easy Dental-Registered Trademark-
Plus Windows-Registered Trademark- based product; offset due to increase in
sales of Dentrix software systems.
Gross profit increased by $57.2 million, or 29.2%, to $253.1 million in
1996, from $195.9 million in 1995, while gross profit margin decreased by 1.3%
to 30.1% from 31.4% for the same period. The decrease in gross profit margin was
primarily due to product mix as fewer high margin Easy
Dental-Registered Trademark- Plus for Windows-Registered Trademark- products
were sold in 1996. Excluding gross profit margin for Schein's technology group,
which was 69.0% for 1996 as compared to 79.3% for 1995, gross profit margins
were relatively unchanged at 28.6% for 1996 as compared to 28.7% for 1995.
Selling, general and administrative expenses increased by $45.6 million, or
26.1%, to $220.5 million in 1996 from $174.9 million in 1995. Selling and
shipping expenses increased by $38.2 million, or 33.6%, to $151.8 million in
1996 from $113.6 million in 1995. As a percentage of net sales, selling and
shipping expenses decreased 0.1% to 18.1% in 1996 from 18.2% in 1995. The
decrease in selling and shipping expenses as a percentage of net sales was
primarily due to reductions in sales promotions offered by Schein's technology
group in conjunction with the introductory promotion of Easy
Dental-Registered Trademark- Plus for Windows-Registered Trademark- version
which occurred during 1995. These introductory promotional expenses represented
0.6% of net sales in 1995. Excluding these expenses from 1995, selling and
shipping expenses, as a percentage of net sales, would have been 0.4% higher
than last year. This increase was due primarily to various promotional programs
and incremental field sales and marketing personnel. General and administrative
expenses increased $7.4 million, or 12.1%, to $68.7 million in 1996 from $61.3
million in 1995, primarily as a result of acquisitions. As a percentage of net
sales, general and administrative expenses decreased 1.6% to 8.2% in 1996 from
9.8% in 1995 due primarily to the relatively fixed nature of general and
administrative expenses when compared to the 34.8% increase in sales volume for
the same period.
Net interest expenses decreased $4.4 million to $0.9 million in 1996 from
$5.3 million in 1995. This decrease primarily resulted from the use of the
proceeds of Schein's follow-on offering in June 1996 to reduce debt and an
increase in interest income arising from the temporary investment of proceeds in
excess of debt and imputed interest income arising from non-interest bearing
extended payment term sales, offset in part by an increase in average interest
rates.
For 1996, Schein's provision for taxes was $11.3 million, while the pre-tax
income was $32.6 million. On a pro forma basis, adjusting for a provision for
taxes on the previously untaxed earnings of Dentrix included in 1996 results,
Schein's effective tax rate would have been 38.6%. The difference between
Schein's effective tax rate and the Federal statutory rate relates primarily to
state income taxes offset by tax-exempt interest on municipal securities. In
1995, Schein's provision for taxes was $5.1 million, while the pre-tax loss was
$4.7 million. The difference between the tax provision and the amount that would
have been recoverable by applying the statutory rate to pre-tax loss was
attributable substantially to the non-deductibility for income tax purposes of
the $17.5 million appreciation in the value of the stock issued to an executive
officer and other senior management of Schein. On a pro forma basis, excluding
special charges, and adjusting for a provision for taxes on the previously
untaxed earnings of Dentrix including in 1995 results, taxes on income for 1995
were $6.8 million, resulting in an effective tax rate of 42.5%. The difference
between the pro forma effective tax rate and the Federal statutory rate relates
primarily to state income taxes and currently non-deductible net operating
losses of certain foreign subsidiaries, primarily in France, which are not
included in Schein's consolidated tax return.
In the fourth quarter of 1996 Schein made adjustments which increased net
income by approximately $2.4 million. These adjustments, which related
predominately to estimated reserves for premium coupon redemptions, finance
charges receivable and income taxes, resulted from management's updated
evaluations of historical trends (reflecting changes in business practices and
other factors) and other assumptions underlying such estimates. The amounts of
such reserves in prior quarters were based on reasonable estimates reflecting
available facts and circumstances.
77
1995 COMPARED TO 1994
Net sales increased $132.5 million, or 27.0%, to $623.3 million in 1995 from
$490.8 million in 1994. Of the $132.5 million increase, approximately $53.4
million represented a 19.5% increase in Schein's dental business, $35.8 million
represented a 39.8% increase in its medical business, $23.8 million represented
a 28.3% increase in its international business, $18.1 million represented a
121.4% increase in its technology business and $1.4 million represented a 5.2%
increase in Schein's veterinary business. The dental net sales increase, after
taking into consideration acquisitions, was primarily due to Schein's increase
in field sales consultants and telesales personnel, database marketing programs
and promotional activities. Of the approximately $35.8 million increase in
medical net sales, approximately $17.0 million, or 47.5%, represents incremental
net sales to renal dialysis centers, with the effects of acquisitions and
increased telesales personnel accounting for the other major increase in net
sales. In the international market, the increase in net sales was due to the
full year benefit of an acquisition made in France in July 1994, acquisitions
made in 1995, increased unit volume growth and favorable exchange rate
translation adjustments. The increase in net sales for Schein's technology
market was primarily the result of an increase in unit sales due to the release
of the new Windows-Registered Trademark- version of Easy
Dental-Registered Trademark- Plus software in December 1995 and substantial
price increases. The increased pricing on the Easy Dental-Registered Trademark-
Plus software product was accompanied by substantial sales promotions and
related expense, offset by increased Dentrix software sales. In the veterinary
market, Schein now earns a commission on certain products which the manufacturer
now sells direct. Including those sales on a basis similar to 1994, sales to the
veterinary market would have increased by approximately 19.0%.
Gross profit increased by $49.9 million, or 34.2%, to $195.9 million in
1995, from $146.0 million in 1994, while gross profit margin increased by 1.7%
to 31.4% from 29.7% for the same period. Of the 1.7% increase in gross profit
margin, approximately 82.4%, or 1.4%, was primarily attributed to increased
sales volume of Schein's Easy Dental-Registered Trademark- Plus software, which
carried a higher gross profit margin than other products sold by Schein. The
higher net sales volume for Schein's technology business, up 121.4% to $33.0
million from $14.9 million for the same period last year, was primarily due to
the release of the new Windows-Registered Trademark- version of Easy
Dental-Registered Trademark- Plus software, which increased unit sales, coupled
with substantial price increases. The increased pricing on the Easy
Dental-Registered Trademark- Plus software product was accompanied with
substantial sales promotions. The balance of the change in gross profit margin
was due to changes in product mix.
Selling, general and administrative expenses increased by $43.9 million, or
33.5%, to $174.9 million in 1995 from $131.0 million in 1994. Selling and
shipping expenses increased by $35.3 million, or 45.1%, to $113.6 million in
1995 from $78.3 million in 1994. As a percentage of net sales, selling and
shipping expenses increased 2.2% to 18.2% in 1995 from 16.0% in 1994. The
increase in selling and shipping expenses as a percentage of net sales was
primarily due to substantial sales promotions offered by Schein's technology
group in conjunction with the promotion of Easy Dental-Registered Trademark-
Plus software and the new Windows-Registered Trademark- version released in
December 1995, which accounted for approximately 0.9% of the 2.2% increase in
selling and shipping expenses as a percentage of net sales. The balance of the
increase was due primarily to various promotional programs and incremental field
sales and marketing personnel. General and administrative expenses increased
$8.6 million, or 16.3%, to $61.3 million in 1995 from $52.7 million in 1994,
primarily as a result of acquisitions. As a percentage of net sales, general and
administrative expenses decreased 0.9% to 9.8% in 1995 from 10.7% in 1994 due
primarily to the relatively fixed nature of general and administrative expenses
when compared to the 27.0% increase in sales volume for the same period.
Interest expense--net increased $1.8 million, or 51.4%, to $5.3 million in
1995 from $3.5 million in 1994. This increase was due to two factors: average
interest rates rose to 8.3% in 1995 from 6.4% in 1994, and Schein's average
borrowings increased by $11.6 million in 1995 as compared to 1994 as a result of
higher working capital requirements and financing of acquisitions.
Equity in earnings of affiliates increased by $1.0 million, or 200.0%, to
$1.5 million in 1995 from $0.5 million in 1994. This increase in equity in
earnings of affiliates was primarily due to an increase in earnings
78
of one unconsolidated affiliate which was the result of increased sales volume
and the acquisition of another unconsolidated affiliate during the fourth
quarter of 1995.
In 1995, Schein's provision for taxes was $5.1 million, while the pre-tax
loss was $4.7 million. The difference between the tax provision and the amount
that would have been recoverable by applying the statutory rate to pre-tax loss
was attributable substantially to the non-deductibility for income tax purposes
of the $17.5 million appreciation in the value of the stock issued to an
executive officer and other senior management of Schein. On a pro forma basis,
to give effect to special charges, and adjusting for a provision for taxes on
the previously untaxed earnings of Dentrix included in 1995 results, taxes on
income for 1995 were $6.8 million, resulting in an effective tax rate of 42.5%.
The difference between the pro forma effective tax rate and the Federal
statutory rate relates primarily to state income taxes and currently
non-deductible net operating losses of certain foreign subsidiaries, primarily
in France, which are not included in Schein's consolidated tax return. In 1994,
the income tax recovery was $1.6 million, while the pre-tax loss was $11.6
million. The effective tax rate of Schein for 1994 differed from the Federal
statutory rate, primarily due to non-deductible special charges of approximately
$9.1 million arising from the appreciation in the value of stock issued to an
executive officer of Schein and currently non-deductible net operating losses of
certain foreign subsidiaries.
INFLATION
Schein's Management does not believe inflation had a material adverse effect
on the financial statements for the periods presented.
RISK MANAGEMENT
Schein has operations in the United States, Canada, the United Kingdom, The
Netherlands, Belgium, Germany, France, the Republic of Ireland and Spain. Each
of Schein's operations endeavors to protect its margins by using foreign
currency forward contracts to hedge the estimated foreign currency payments to
foreign vendors. The total U.S. dollar equivalent of all foreign currency
forward contracts hedging vendor payments was $5.0 million as of the 1996 fiscal
year end.
Schein considers its investment in foreign operations to be both long-term
and strategic. As a result, Schein does not hedge the long-term translation
exposure to its balance sheet. Schein experienced a negative translation
adjustment of $0.5 million in 1996 and a positive translation adjustment of $0.3
million in 1995, which adjustments were reflected in the balance sheet as an
adjustment to stockholders' equity. The cumulative translation adjustment at the
end of 1996 showed a net negative translation adjustment of $0.6 million.
Schein issues a Canadian catalog once a year with prices stated in Canadian
dollars; however, orders are shipped from Schein's United States warehouses
resulting in U.S. dollar costs for Canadian dollar sales. To minimize the
exposure to fluctuations in foreign currency exchange rates, Schein enters into
foreign currency forward contracts with major international banks and an
unconsolidated 50%--owned company to convert estimated monthly Canadian dollar
receipts into U.S. dollars. Schein usually enters into the forward contract
prior to the issuance of its Canadian catalog and for the expected life of the
catalog. As of December 28, 1996, Schein had 28 forward contracts outstanding
for the forward sale of 5.2 million Canadian dollars. The last of the contracts
expires on October 31, 1997, however, Schein anticipates entering into new
contracts in the normal course of its business.
Schein borrowed money in U.S. dollars under a term loan related to the
acquisition of Van den Braak, a Netherlands company. Schein loaned the proceeds
to Henry Schein B.V. in Netherland Guilders ("NLG") with principal and interest
payable in NLGs. To minimize the resultant exposure to fluctuations in foreign
currency exchange rates between the U.S. dollar and the Netherland Guilder,
Schein entered into a series of foreign currency forward contracts to sell NLGs
for U.S. dollars. As of December 28, 1996, Schein had 5 contracts outstanding
for the forward sale of NLG 7.1 million. The last contract expires on October
31, 1997.
79
Schein entered into two interest rate swaps with major financial
institutions to exchange variable rate interest for fixed rate interest. The net
result was to substitute a weighted average fixed interest rate of 7.81% for the
variable LIBOR rate on $13.0 million of Schein's debt. The interest rate swaps
expire in October and November of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Schein's principal capital requirements have been to fund (a) working
capital needs resulting from increased sales, extended payment terms on various
products and special inventory forward buy-in opportunities, (b) acquisitions,
and (c) capital expenditures. Since sales have been strongest during the fourth
quarter and special inventory forward buy-in opportunities are most prevalent
just before the end of the year, Schein's working capital requirements have been
generally higher from the end of the third quarter to the end of the first
quarter of the following year. Schein has financed its business primarily
through its revolving credit facilities and stock issuances.
Net cash used in operating activities for the three months ended March 29,
1997 of $17.3 million resulted primarily from a net increase in working capital
of $21.6 million offset, in part, by net income adjusted for non-cash charges
relating primarily to depreciation and amortization of approximately $4.5
million. The increase in working capital was primarily due to (i) a decrease in
accounts payable and other accrued expenses of $28.6 million resulting primarily
from payments to vendors for inventory purchased as part of Schein's year-end
inventory forward buy-in program and, (ii) a $3.0 million increase in accounts
receivable resulting from increased sales and extended payment terms, offset by,
(i) a $9.5 million decrease in inventory, and (ii) a $0.4 million decrease in
other current assets. Schein anticipates future increases in working capital as
a result of its continued sales growth.
Net cash used in operating activities for the year ended December 28, 1996
of $30.1 million resulted primarily from a net increase in working capital of
$63.0 million offset in part by net income, adjusted for non-cash charges
relating primarily to depreciation and amortization and deferred income taxes of
$30.5 million and $2.4 million, respectively. The increase in working capital
was primarily due to (i) a $43.1 million increase in accounts receivable
resulting primarily from increased net sales (80.7%) and extended payment terms
(10.9%), and a decrease in the percentage of customers who make payment with
their orders (5.7%), (ii) a $23.1 million increase in inventories primarily due
to year-end inventory buying opportunities and (iii) an $8.6 million increase in
loans and other receivables offset in part by an increase in accounts payable
and other accrued expenses of $11.8 million. Schein anticipates future increases
in working capital as a result of its continued sales growth, extended payment
terms and special inventory buying opportunities.
Net cash used in investing activities for the three months ended March 29,
1997 of $7.2 million resulted primarily from cash outlays for acquisitions of
$4.4 million and capital expenditures of $2.4 million. The increased amount of
capital expenditures over the comparable prior year period was due to the
development of new computer systems, as well as expenditures for additional
operating facilities. Schein expects that it will continue to invest in excess
of $10.0 million per year in capital projects to modernize and expand its
facilities and infrastructure systems.
Net cash used in investing activities for the year ended December 28, 1996,
of $49.4 million resulted primarily from cash used to make acquisitions of $32.5
million and capital expenditures of $11.5 million. During the past three years,
Schein has invested more than $26.3 million in the development of new computer
systems, and expenditures for new operating facilities. Schein expects that it
will continue to invest in excess of $10.0 million per year in capital projects
to modernize and expand its facilities and infrastructure systems.
Net cash used in financing activities for the three months ended March 29,
1997 of $2.3 million resulted primarily from net payments on long-term debt and
bank credit lines. A balloon payment of approximately $3.5 million is due on
October 31, 1997 under a term loan associated with a foreign acquisition.
80
Net cash provided by financing activities for the year ended December 28,
1996 of $114.4 million resulted primarily from net cash proceeds from a
follow-on offering of Schein's Common Stock, which was completed on June 21,
1996 amounting to $124.1 million, partially offset by net debt repayments of
approximately $5.6 million.
A balloon payment of approximately $3.5 million is due on October 31, 1997
under a term loan associated with a foreign acquisition. In addition, with
respect to certain acquisitions and joint ventures, holders of minority interest
in the acquired entities or ventures have the right at certain times to require
Schein to acquire their interest at either fair market value or a formula price
based on earnings of the entity.
Pursuant to a shareholders' agreement, certain minority shareholders of a
subsidiary of Schein have advised Schein of their intention to exercise their
option to sell their shares in the subsidiary to Schein. The value of the shares
which will be put to Schein under the shareholders' agreement is estimated to be
approximately $11.5 million and is expected to be payable in cash and term notes
of approximately $3.0 million and $8.5 million, respectively. It is expected
that the term notes will be payable upon demand at anytime within five years of
issue, but no more than one-half after each of the first and second
anniversaries of issue.
Schein's cash and cash equivalents as of March 29, 1997 of $16.9 million are
invested primarily in short-term tax-exempt securities rated AAA by Moodys (or
an equivalent rating). These investments have staggered maturity dates, none
greater than three months, and have a high degree of liquidity since the
securities are actively traded in public markets.
Schein entered into an amended revolving credit facility on January 31, 1997
that increased its main credit facility from $65.0 million to $100.0 million,
extended the facility termination to January 30, 2002 and reduced the interest
rate on Schein's borrowings under the facility. Borrowings under the credit
facility were $19.5 million at March 29, 1997. Certain of Schein's subsidiaries
have revolving credit facilities that total approximately $10.0 million under
which $6.8 million have been borrowed at March 29, 1997.
Since December 28, 1996, Schein has acquired (i) in a "pooling of interests"
transaction, all of the outstanding common stock of Dentrix, a provider of
clinically-based dental practice management systems, with 1996 net sales of
approximately $10.2 million, and (ii) in a purchase transaction, the business of
Smith Holden, Inc., the longest operating dental supply company in the United
States, with 1996 net sales of approximately $14.2 million. The aggregate
purchase price for acquisitions completed in the first quarter of 1997 was
approximately $32.8 million, payable $28.4 million in stock and $4.4 million in
cash. Additionally, on March 7, 1997, Schein entered into an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which Micro Bio-Medics, Inc.
("MBM") will merge into a wholly-owned subsidiary of Schein. As a result of the
transaction, which has been approved by the Boards of Directors of MBM and
Schein, each outstanding share of MBM's Common Stock will be exchanged at a
fixed rate of 0.62 of a share of Schein's Common Stock.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBM shareholder approval.
The transaction is expected to be completed by mid-1997 although no assurances
can be given in this regard.
The aggregate purchase price of the acquisitions completed during 1996 was
approximately $38.8 million, payable $32.5 million in cash, $0.9 million in
notes and $5.4 million in stock. The cash portion of the purchase price was
primarily funded by proceeds from Schein's initial public offering, completed in
November 1995, and a follow-on offering, completed in June 1996.
Schein believes that its cash and cash equivalents of $16.9 million as of
March 29, 1997, its anticipated cash flow from operations, its ability to access
public debt and equity markets and the availability of funds under its existing
credit agreements will provide it with sufficient liquidity to meet its
currently foreseeable short-term and long-term capital needs.
81
MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION
The following consolidated selected historical financial information with
respect to MBM's financial position and its results of operations for each of
the five years in the period ended November 30, 1996 set forth below has been
derived from the audited consolidated financial statements of MBM, which have
previously been filed with the SEC. The related financial information for the
three months ended February 28, 1997 and February 29, 1996 have been derived
from the unaudited statements of MBM and, in MBM's opinion, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information. The results for the three month period
ended February 28, 1997 are not necessarily indicative of the results that may
be expected for the year ending November 30, 1997. The consolidated selected
financial information presented below should be read in conjunction with such
audited consolidated historical financial statements and related notes and the
other information set forth in this Proxy Statement/Prospectus or incorporated
herein by reference. See "MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".
YEARS ENDED NOVEMBER 30,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------ ------------
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 150,142,529 $ 119,873,764 $ 121,604,461 $ 73,951,410 $ 61,629,435
Cost of goods sold................................... 119,205,502 94,307,143 94,923,689 56,347,353 47,287,409
------------- ------------- ------------- ------------ ------------
Gross profit......................................... 30,937,027 25,566,621 26,680,772 17,604,057 14,342,026
------------- ------------- ------------- ------------ ------------
Expenses:
Selling, shipping and warehouse.................... 17, 357,225 14,511,793 14,421,280 8,521,021 6,852,670
General and administrative......................... 9,795,069 7,901,052 8,581,615 6,525,488 5,015,128
Interest and financing costs -net.................. 719,198 1,238,887 1,044,257 502,329 289,355
------------- ------------- ------------- ------------ ------------
Total expenses..................................... 27,871,492 23,651,732 24,047,152 15,548,838 12,157,153
------------- ------------- ------------- ------------ ------------
Income before provision for income tax............... 3,065,535 1,914,889 2,633,620 2,055,219 2,184,873
Provision for income taxes........................... 1,320,700 806,000 952,000 853,000 962,000
------------- ------------- ------------- ------------ ------------
Income before cumulative effect of accounting
change............................................. 1,744,835 1,108,889 1,681,620 1,202,219 1,222,873
Cumulative effect of accounting change for income
taxes prior to 1994................................ -- -- (60,000) -- --
------------- ------------- ------------- ------------ ------------
Net income........................................... $ 1,744,835 $ 1,108,889 $ 1,621,620 $ 1,202,219 $ 1,222,873
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Earnings per common and common equivalent share
before cumulative effect of accounting change...... $ 0.31 $ 0.25 $ 0.37 $ 0.30 $ 0.41
Cumulative effect of accounting change for income
taxes prior to 1994................................ -- -- (0.01) -- --
------------- ------------- ------------- ------------ ------------
Earnings per common and common equivalent share...... $ 0.31 $ 0.25 $ 0.36 $ 0.30 $ 0.41
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Average number of shares used to compute earnings per
common and common equivalent share(1).............. 5,816,469 5,121,634 4,896,518 4,734,746 3,481,415
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
BALANCE SHEET DATA
(AT PERIOD END):
Dividends paid....................................... None None None None None
Working Capital...................................... $ 28,112,222 $ 29,965,266 $ 30,141,450 $ 20,965,370 $ 15,819,417
Long-Term Debt (net of current maturities)........... 8,714,567 17,270,062 19,381,239 9,584,684 9,410,079
Total Assets......................................... 60,443,816 51,135,712 54,461,087 32,784,234 27,934,060
Stockholders' Equity................................. 31,391,765 21,064,152 18,067,056 16,193,524 10,461,736
Stockholders' Equity Per Share (1)................... $ 5.40 $ 4.11 $ 3.69 $ 3.42 $ 3.01
Tangible Book Value Per Share (1).................... $ 3.98 $ 3.14 $ 2.92 $ 3.13 $ 2.72
- ------------------------
(1) Includes additional shares assuming conversion of stock options and warrants
utilizing the modified treasury stock method.
82
MBM CONSOLIDATED SELECTED HISTORICAL FINANCIAL INFORMATION
THREE MONTHS ENDED
----------------------------
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................................... $ 38,004,627 $ 29,887,421
Cost of goods sold................................................................. 30,670,850 23,591,909
------------- -------------
Gross profit....................................................................... 7,333,777 6,295,512
------------- -------------
Expenses:
Selling, shipping and warehouse.................................................. 4,501,452 3,823,293
General and administrative....................................................... 2,355,750 2,006,500
Interest and financing costs--net................................................ 99,739 314,103
------------- -------------
Total expenses................................................................... 6,956,941 6,143,896
------------- -------------
Income before provision for income tax............................................. 376,836 151,616
Provision for income taxes......................................................... 158,300 63,700
------------- -------------
Net income......................................................................... $ 218,536 $ 87,916
------------- -------------
------------- -------------
Earnings per common and common equivalent share.................................... $ 0.04 $ 0.02
------------- -------------
------------- -------------
Average number of shares used to compute earnings per common and common equivalent
share............................................................................ 6,149,343 5,499,024
------------- -------------
------------- -------------
BALANCE SHEET DATA (AT PERIOD END):
Dividends Paid..................................................................... None None
Working Capital.................................................................... $ 26,382,739
Long-term Debt (net of current maturities)......................................... 6,966,659
Total Assets....................................................................... 60,588,092
Stockholders' Equity............................................................... 31,668,076
Stockholders' Equity Per Share(1).................................................. $ 5.15
Tangible Book Value Per Share(1)................................................... $ 3.75
- ------------------------
(1) Includes additional shares assuming conversion of stock options and warrants
utilizing the treasury stock method.
83
MBM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended February 28, 1997 net sales increased 27.2% from
the three months ended February 29, 1996. The increase in net sales resulted
from MBM's increased volume to hospitals, the acquisition of Stone Medical
Supply Corporation ("Stone") and MBM's continuing effort to gain market
penetration and sales volume from its existing customer base and the addition of
new customers. For the three months ended February 28, 1997, the introduction of
new products, changing prices and inflation had no material impact on MBM's
operations.
For fiscal 1996, net sales increased 25.3%. The increase in net sales
resulted from MBM's increased volume to hospitals, the acquisition of Stone and
its continuing effort to gain market penetration and sales volume to its
existing customer base and the addition of new customers.
For fiscal 1995, net sales decreased 1.4%. The decrease in net sales for the
fiscal 1995 resulted in MBM's downsizing of unprofitable divisions acquired from
Clark Surgical Corp. ("Clark") during the prior year. During 1996, 1995 and
1994, the introduction of new products, changing prices and inflation had no
material impact on MBM's operations.
Net income for the three months ended February 28, 1997 was .6% of net
sales, versus .3% of net sales for the three months ended February 29, 1996. The
increase for the three months ended February 28, 1997 was due to increased sales
volume to hospitals, MBM's acquisition of Stone during the prior year's quarter
and lower interest expense as a result of lower interest rates charged by
financial institutions and lower debt.
Net income for fiscal 1996 was 1.2% of net sales versus .9% of net sales in
fiscal 1995. The increase for fiscal 1996 versus fiscal 1995 was due to
increased sales volume to hospitals, MBM's acquisition of Stone, lower interest
expense as a result of using the proceeds from the conversion of outstanding
warrants to decrease long-term debt and decreases in the interest rates charged
by financial institutions partially offset by a fourth quarter increase in
provisions for estimated inventory obsolescence of approximately $400,000, net
of taxes.
Net income for fiscal 1995 was .9% of net sales versus 1.3% of net sales in
fiscal 1994. Net income before the cumulative effect of accounting change in
1994 was 1.4% of net sales. The decrease for fiscal 1995 versus fiscal 1994 was
due to increased interest rates charged by financial institutions, the
downsizing of unprofitable divisions acquired from Clark during the prior year,
a decrease in the overall consolidated gross profit percentage and an increase
in the effective income tax rate for 1995.
GROSS PROFIT/OPERATING EXPENSES
Gross profit for the three months ended February 28, 1997, expressed as a
percent of net sales, decreased from 21.1% to 19.3% from the three months ended
February 29, 1996 due to increased sales to hospitals and changes in the product
mix.
Gross profit for fiscal 1996 was 20.6% of net sales versus 21.3% of net
sales in fiscal 1995. The decrease in gross profit was a result of increased
sales to hospitals and changes in MBM's product mix. Gross profit for fiscal
1995 was 21.3% of net sales versus 21.9% of net sales in fiscal 1994. The
decrease in gross profit was a result of changes in MBM's product mix.
Selling, shipping and warehouse and general and administrative expenses,
expressed as a percent of net sales, decreased 1.5% for the three months ended
February 28, 1997 when compared to the prior period.
84
Selling, shipping and warehouse and general and administrative expenses
expressed as a percent of net sales decreased .6% for fiscal 1996 as compared to
fiscal 1995. Selling, shipping and warehouse and general and administrative
expenses expressed as a percent of net sales decreased .2% for fiscal 1995 as
compared to fiscal 1994.
INTEREST AND FINANCING COSTS (NET OF INTEREST INCOME)
Interest expense net of interest income for the three months ended February
28, 1997, expressed as a percent of net sales, decreased .8% from the three
months ended February 29, 1996 as a result of using the proceeds from the
conversion of outstanding warrants to decrease long-term debt and decreases in
the interest rates charged by financial institutions.
Interest expense net of interest income expressed as a percent of net sales
decreased .6% for fiscal 1996 when compared to the prior year as a result of
using the proceeds from the conversion of outstanding warrants to decrease
long-term debt and decreases in the interest rates charged by financial
institutions. Interest expense net of interest income expressed as a percent of
net sales increased .1% for fiscal 1995 when compared to the prior year as a
result of increases in the interest rates charged by financial institutions.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years and the fiscal quarter ended February 28,
1997, MBM continued to meet its cash needs via cash flow from operations and
borrowings. During fiscal 1996, 1995 and 1994, MBM had an average of
approximately $14,800,000, $10,500,000 and $11,000,000, respectively, of unused
credit lines available each month over its normal operating requirements.
MBM's management believes that its working capital of approximately
$26,400,000 at February 28, 1996 provides sufficient liquidity for its short and
long-term requirements and that MBM's long-term liquidity is not materially
affected by any restrictive covenants contained in MBM's Revolving Credit
Agreement. Further, MBM's management believes that MBM should not experience a
problem in connection with the maintenance of such covenants and that its
$25,000,000 line of credit provides MBM with the resources it reasonably expects
to require to meet its cash commitments through fiscal 1997.
For the three months ended February 28, 1997, MBM provided cash from
operating activities. The increase in accounts payable of $2,041,623 and a
decrease in accounts receivable of $584,520 over and above an increase in
inventory of $1,866,774 contributed to MBM's cash. For the three months ended
February 29, 1996, MBM provided cash from operating activities. The increase in
accounts payable of $1,219,346 and a decrease in inventory of $310,648 over and
above an increase in accounts receivable of $505,445 contributed to MBM's cash.
During the three months ended February 28, 1997, MBM's financing activities used
cash as a result of net repayments of $2,500,000 of the bank loan under its
long-term credit agreement and $179,457 to repay other long-term debt. Cash of
$931,549 was provided by entering into a capitalized lease agreement. During the
three months ended February 29, 1996 MBM's financing activities used cash to
repay $1,500,000 of the bank loan under its long-term credit agreement and
$158,446 to repay other long-term debt. During the three months ended February
28, 1997 MBM's investing activities used cash for capital expenditures of
$182,775 and $457,910 for payments of intangible assets. During the three months
ended February 29, 1996, MBM's investing activities used cash for capital
expenditures of $138,563 and $128,791 for payments of intangible assets.
For fiscal 1996, MBM had increased sales and profitability which generated
cash from operating activities. An increase in accounts payable of $5,785,344
and $710,872 in accrued expenses over and above an increase in accounts
receivable of $4,381,287, $1,198,068 in inventory and $159,254 in prepaid
expenses contributed to MBM's generation of cash. During fiscal 1996, MBM's
financing activities used cash as a result of net repayments of $7,000,000 of
the bank loan under its long-term credit agreement and $603,532 to repay other
long-term debt. Cash was provided from the exercise of warrants of $3,586,059
and an
85
additional $371,122 was provided from the proceeds of the exercising of employee
stock options. For fiscal 1996, MBM used cash in investing activities to make
capital expenditures of $664,433 and payments of intangible assets of
$1,058,485.
For fiscal 1995, MBM had profits which generated cash from operating
activities. A decrease in inventory of $3,130,709 and accounts receivable of
$1,098,227 over and above a decrease in accounts payable of $3,462,612 and a net
increase in prepaid expenses and prepaid income taxes of $358,452 contributed to
MBM's generation of cash. During fiscal 1995, MBM's financing activities used
cash as a result of net repayments of $150,000 of the bank loan under its
long-term credit agreement and $419,952 of other long-term debt. Cash was
provided from the exercise of warrants of $300,601 and an additional $197,606
was provided from the exercise of employee stock options. For fiscal 1995, MBM
used cash in investing activities of $931,466 for certain net assets of business
acquired, $788,330 for capital expenditures and $1,488,654 for payments of
intangible assets.
For fiscal 1994, MBM had increased sales and profitability which generated
cash flow from operating activities. An increase in accounts payable of
$8,441,961 over and above increases in inventory of $2,506,516, accounts
receivable of $1,055,450 and prepaid expenses of $265,042 contributed to MBM's
generation of cash. During fiscal 1994, MBM's financing activities used cash as
a result of net repayments of $3,224,695 of the bank loan under its long-term
credit agreement and $380,085 of other long-term debt. Cash was provided from
the exercise of warrants of $126,409 and an additional $125,503 was provided
from the exercise of employee stock options. For fiscal 1994, MBM used cash in
investing activities of $2,718,009 for certain net assets of businesses
acquired, $713,484 for capital expenditures and $1,027,851 for payments of
intangible assets. Cash of $1,000,000 was provided by the receipt of a note
receivable. During 1994, MBM acquired the business and certain assets of Clark
through an increase in MBM's line-of-credit and the use of same.
TERMS OF THE MERGER AGREEMENT
THE FOLLOWING DESCRIPTION OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT IS
ONLY A SUMMARY AND DOES NOT PURPORT TO BE COMPLETE. THIS DISCUSSION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH
IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX I AND INCORPORATED BY
REFERENCE HEREIN.
THE MERGER; EXCHANGE AND CONVERSION OF SHARES
Pursuant to and subject to the terms and conditions of the Merger Agreement,
at the Effective Time Merger Sub will be merged with and into MBM. MBM will be
the surviving corporation in the Merger (the "Surviving Corporation"). Each
outstanding share of MBM Common Stock, other than shares as to which the holders
have perfected their appraisal rights, shall automatically be converted into the
right to receive 0.62 (the "Exchange Ratio") of a share of Schein Common Stock,
payable upon the surrender of the certificates formerly representing such share
of MBM Common Stock. All shares of MBM Common Stock that are held in MBM's
treasury shall be canceled and retired prior to the Effective Time and no
securities of Schein or other consideration shall be delivered in exchange
therefor.
Dissenting holders of shares of MBM Common stock who perfect their appraisal
rights under Section 623 of the NYBCL will be entitled to payment by the
Surviving Corporation of the appraised value of such shares to the extent
permitted by and in accordance with Section 623 of the NYBCL. (See "THE MERGER
- -- Appraisal Rights").
Based on the number of shares of MBM Common Stock outstanding as of the
Record Date, approximately 3,200,910 shares of Schein Common Stock will be
issued in the Merger (without taking into account the shares of Schein Common
Stock that will be issuable upon the exercise of options or warrants to purchase
shares of MBM Common Stock as described in "--Treatment of MBM Stock Options and
86
Warrants"), representing approximately 11.9% of the shares of Schein Common
Stock to be outstanding immediately after the Effective Time.
No fractional shares of Schein Common Stock will be issued in connection
with the Merger. If a holder of shares of MBM Common Stock would otherwise be
entitled at the Effective Time to a fraction of a share of Schein Common Stock,
such stockholder will be entitled to receive from the Exchange Agent an amount
in cash in lieu of such fractional share of MBM Common Stock, determined by
multiplying (i) the fractional interest to which such holder would otherwise be
entitled and (ii) the average of the per share closing prices for Schein Common
Stock on the Nasdaq National Market for the five trading days immediately
preceding the Effective Time. In no event shall a holder of MBM Common Stock
receive cash in lieu of fractional shares of Schein Common Stock in an amount
greater than the value of one full share of Schein Common Stock. The payment of
cash in lieu of fractional shares is solely for purpose of avoiding the expense
and inconvenience to Schein of issuing fractional shares and does not represent
separately bargained-for consideration.
EXCHANGE OF SHARE CERTIFICATES
At the Effective Time, certificates representing shares of MBM Common Stock
("MBM Certificates") will be deemed to represent solely the right to receive the
number of shares of Schein Common Stock, or the amount of cash in lieu of any
fractional shares of Schein Common Stock, determined as described above. Until
shares of MBM Common Stock are converted into shares of Schein Common Stock,
such shares of MBM Common Stock will have no voting rights with respect to
matters considered by Schein's stockholders.
As soon as practicable after the Effective Time, Schein will cause the
Exchange Agent to mail or make available a notice and letter of transmittal to
each holder of record of shares of MBM Common Stock at the Effective Time,
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the MBM Certificates to
the Exchange Agent, and advising such record holder of the procedures for
surrendering to the Exchange Agent any MBM Certificates for exchange.
Each holder of shares of MBM Common Stock so converted, upon surrender to
the Exchange Agent of one or more MBM Certificates for cancellation together
with a properly completed letter of transmittal, will be entitled to receive (i)
a certificate representing 0.62 of a share of Schein Common Stock with respect
to each share of MBM Common Stock and (ii) cash in lieu of any fractional shares
of Schein Common Stock, in an amount calculated as described above after giving
effect to any tax withholdings. In the event of a transfer of ownership of MBM
Common Stock which is not registered in the transfer records of MBM, a
certificate representing the proper number of shares of Schein Common Stock may
be issued to the transferee if the MBM Certificate representing such MBM Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer, and by evidence that any applicable stock
transfer taxes have been paid.
No dividends or other distributions declared on shares of Schein Common
Stock, if any, will be paid to persons entitled to receive certificates
representing shares of Schein Common Stock until such persons surrender their
MBM certificates. Upon such surrender, there shall be paid, without interest, to
the person in whose name the certificates representing such shares of Schein
Common Stock shall be issued, all dividends and other distributions payable with
respect to such securities which have a record date after the Effective Time and
shall have become payable between the Effective Time and the time of such
surrender. It is not anticipated that Schein will pay cash dividends in the
foreseeable future. See "COMPARATIVE STOCK PRICES AND DIVIDENDS."
Six months after the Effective Time, the Exchange Agent shall deliver to the
Surviving Corporation all cash, certificates and other documents in its
possession relating to the Merger, and any holders of MBM Common Stock who have
not surrendered their certificates shall look only to the Surviving Corporation
for
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any shares of Schein Common Stock, any dividends or distributions thereon, and
any cash in lieu of fractional shares to which they are entitled.
Notwithstanding the foregoing, neither the Exchange Agent nor any party to the
Merger Agreement shall be liable to a holder of MBM Common Stock for any shares
of Schein Common Stock, any dividends or distributions thereon or any cash in
lieu of fractional shares delivered to a public official pursuant to applicable
abandoned property laws.
TREATMENT OF MBM STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option and warrant to purchase MBM
Common Stock shall be assumed by Schein and converted automatically into an
option ("Converted Option") or a warrant ("Converted Warrant"), as the case may
be, to purchase shares of Schein Common Stock in an amount and at an exercise
price determined as follows: (a) The number of shares of Schein Common Stock to
be subject to such Converted Option or Warrant shall be equal to the product of
the number of shares of MBM Common Stock remaining subject to the original
option or warrant and the Exchange Ratio, provided that any fractional shares of
Schein Common Stock resulting from such multiplication shall be rounded down to
the nearest share; and (b) The exercise price per share of Schein Common Stock
under such Converted Option or Warrant shall be equal to the exercise price per
share of MBM Common Stock under the original option or warrant divided by the
Exchange Ratio, provided that such exercise price shall be rounded down to the
nearest cent.
After the Effective Time, each Converted Option and Converted Warrants shall
be exercisable and shall vest upon the same terms and conditions as were
applicable to the related MBM stock option plans immediately prior to the
Effective Time, except that all references to MBM shall be deemed to be
references to Schein. Schein shall file with the SEC a registration statement on
Form S-8 (or other appropriate form) and shall take any action required under
state securities "blue sky" laws for purposes of registering all shares of
Schein Common Stock issuable after the Effective Time upon exercise of the
Converted Options. This Proxy Statement/Prospectus also relates to up to 6,200
shares of Schein Common Stock issuable upon exercise of the Converted Warrants.
EACH VOTE BY A HOLDER OF MBM COMMON STOCK IN FAVOR OF THE MERGER SHALL BE
DEEMED TO BE A VOTE BY SUCH HOLDER IN FAVOR OF THE CONVERSION OF THE OUTSTANDING
OPTIONS TO PURCHASE MBM COMMON STOCK FOR THE PURPOSES OF ALL SHAREHOLDER CONSENT
REQUIREMENTS UNDER APPLICABLE LAW.
EFFECTIVE TIME
The Effective Time of the Merger, at which time the closing of the Merger
will occur and the conversion of the shares of MBM Common Stock will become
effective, will be the time of the filing of a Certificate of Merger with the
Secretary of State of the State of New York or at such later time as is provided
in the Certificate of Merger. This filing will occur as soon as practicable
following the approval of the Merger Agreement by the shareholders of MBM and
the satisfaction or waiver of other conditions precedent set forth in the Merger
Agreement. The Effective Time is currently expected to take place on or about
August 1, 1997. See "--Termination Rights" and "--Conditions to the Merger".
TERMINATION RIGHTS
1. The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual consent of MBM, on the one hand, and of Schein, on the other
hand, or by either Schein or MBM, if:
(a) the Merger is not consummated before September 30, 1997, or the
approval of shareholders of MBM shall not have been obtained (unless such
failure to consummate the Merger or to obtain such shareholder approval is
caused by the act or omission of the party seeking to terminate the Merger
Agreement, which act or omission constitutes a breach of the Merger
Agreement); or
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(b) there is any law or regulation of any competent authority that makes
consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree of any competent authority prohibiting
such transaction is entered and such judgment, injunction, order or decree
has become final and nonappealable (provided that the party seeking to
terminate the Merger Agreement has used all reasonable efforts to remove
such injunction or overturn such action); or
(c) there is a material breach of any covenant or a breach of any
representation or warranty in the Merger Agreement on the part of the other,
which breach of representation or warranty, individually or together with
all other such breaches, materially and adversely affects the financial
condition, results of operations, business, assets, liabilities, prospects
or properties of the breaching party; or
(d) there is a breach in any material respect of any of the covenants or
agreements set forth in the Merger Agreement which is not cured within 30
business days following receipt by the breaching party of notice of such
breach.
2. The Merger Agreement may be terminated by MBM if such termination is
necessary to allow MBM to enter into an Acquisition Transaction (as defined
below in "--No Solicitation of Other Offers") with any corporation, partnership,
person, group or entity (the "Acquiring Person"). MBM may enter into such
Acquisition Transaction only if (i) the Board of Directors of MBM determines in
good faith by a majority vote, after consultation with its financial advisor,
Houlihan Lokey, and after reviewing the advice of outside counsel to MBM, that
the Acquisition Transaction is more favorable to the shareholders of MBM than
the Merger with Schein and that such action is required by the fiduciary duties
of the Board of Directors; and, (ii) prior to taking such action, MBM provides
reasonable notice to Schein (see "No Solicitation of Other Offers").
3. The Merger Agreement may be terminated by Schein if:
(a) the Board of Directors of MBM (i) withdraws or amends or modifies in
a manner materially adverse to Schein or Merger Sub its recommendation or
approval in respect to the Merger Agreement or the Merger, (ii) makes any
recommendation with respect to an Acquisition Transaction other than a
recommendation to reject such Acquisition Transaction, or (iii) directly or
indirectly solicits, initiates, facilitates or encourages any inquiries or
the making of any proposal with respect to an Acquisition Transaction, or
enters into any agreement with respect to such Acquisition Transaction or
which would require it to abandon, terminate or fail to consummate the
Merger or any transaction contemplated by the Merger Agreement; or
(b) any Acquiring Person other than Schein or any affiliate or
subsidiary of Schein becomes the beneficial owner of more than 20% of the
outstanding voting equity of MBM (either on primary or a fully diluted
basis); provided, however that "Acquiring Person" shall not include any
corporation, partnership, person, other entity or group which beneficially
owned as of March 7, 1997 (either on a primary or fully diluted basis) more
than 20% of the outstanding voting equity of MBM and which has not after
March 7, 1997 increased such ownership percentage by more than an additional
1% of the outstanding voting equity of MBM; or
(c) any other Acquisition Transaction occurs with any Acquisition Person
other than Schein, or any affiliate or subsidiary of Schein; or
(d) the meeting of shareholders of MBM to vote upon the Merger Agreement
is canceled or is otherwise not held prior to August 31, 1997 (except as a
result of a judgment, injunction, order or decree of any competent authority
or event or circumstances beyond the reasonable control of MBM).
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4. Upon termination, the Merger Agreement shall become void and have no
effect, and there shall be no liability thereunder on the part of Schein, Merger
Sub or MBM, except as provided below:
(a) the provisions governing access and information, expenses and
recruitment shall survive any termination of the Merger Agreement;
(b) if Schein terminates the Merger Agreement under the circumstances
described in paragraph 1(c), 1(d) or 3(d) above, then MBM shall pay to
Schein as liquidated damages and not as penalty three million dollars; if
MBM terminates the Merger Agreement under the circumstances described in
paragraph 1(c) or 1(d) above, then Schein shall pay to MBM as liquidated
damages but not as a penalty three million dollars.
(c) if Schein terminates the Merger Agreement in accordance with
paragraphs 3(a), 3(b), or 3(c) above, or if either Schein or MBM terminates
the Merger Agreement under the circumstances described in paragraph 1(a)
above, or if Schein terminates under the circumstances described in
paragraph 1(c), 1(d) or 3(d) above and within one year after any termination
described in paragraph 1(a), 1(c), 1(d) or 3(d) above MBM enters into a
definitive agreement or has consummated an Acquisition Transaction, or if
MBM terminates the Merger Agreement under the circumstances described in
paragraph 2 above, then MBM shall promptly pay Schein a termination fee of
five million dollars, plus an amount equal to Schein's out-of-pocket
expenses incurred in connection with the Merger Agreement and related
transactions, including legal, professional and service fees and expenses
(the "Expenses Amount"); provided that any liquidated damage amounts
previously paid by MBM to Schein (described in paragraph 4(b) above) shall
be credited against such termination fee.
CERTAIN FEES AND EXPENSES
Except as provided in "Termination Rights" above, whether or not the Merger
is consummated, all costs and expenses incurred in connection with the Merger,
the Merger Agreement and the transactions contemplated thereby shall be paid by
the party incurring such costs and expenses, except that (i) the filing fee in
connection with filings under the HSR Act, (ii) the expenses incurred in
connection with printing the Registration Statement and the Proxy Statement and
(ii) the filing fee with the SEC relating to the Registration Statement or the
Proxy Statement will be shared equally by Schein and MBM.
CONDITIONS TO THE MERGER
The parties' obligations to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of various conditions,
including: (i) approval of the Merger Agreement by the requisite holders of the
MBM Common Stock in accordance with applicable law; (ii) any waiting period (and
any extension thereof) under the HSR Act applicable to the Merger having expired
or been terminated; (iii) no preliminary or permanent injunction or other order
having been issued by any court or by any governmental or regulatory agency,
body or authority which enjoins, restrains or prohibits the consummation of the
Merger or has the effect of making the Merger illegal and which is in effect at
the Effective Time (each party has agreed to use its best efforts to have any
such injunction or order lifted); (iv) the absence of any statute, rule,
regulation, executive order, decree or order of any kind which prohibits the
consummation of the Merger or has the effect of making the Merger illegal; (v)
the authorization of the shares of Schein Common Stock issuable to the holders
of MBM Common Stock for listing on the Nasdaq National Market; (vi) the
effectiveness of the Registration Statement and the absence of any stop order or
proceeding for a stop order; (vii) other than the filings of Merger documents in
accordance with the NYBCL, all authorizations, consents or waivers having been
obtained from any government bodies and authorities which are required in order
to consummate the Merger and the other transactions contemplated by the Merger
Agreement and the failure to obtain which would have a material adverse effect
on the condition (financial or otherwise) of Schein and its subsidiaries taken
as a whole after giving effect to the Merger; Schein shall have received all
state securities or "blue sky" permits and other authorizations
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necessary to issue the shares of Schein Common Stock; (viii) MBM having received
an opinion in form and substance satisfactory to it from Cummings & Lockwood,
special tax counsel to MBM, to the effect that the Merger will be treated for
United States Federal income tax purposes as a reorganization with the meaning
of Section 368(a) of the Code; and (ix) no general suspension or limitation of
trading having been imposed on Schein Common Stock or on securities generally on
the Nasdaq National Market;
Further conditions precedent to the obligations of Schein and Merger Sub to
effect the Merger are: (i) the aggregate effect of all inaccuracies in the
representations and warranties of MBM having no material and adverse effect on
the value of MBM and its subsidiaries taken as a whole, and the representations
and warranties of MBM that are qualified with reference to a material adverse
effect on the value of MBM or its subsidiaries being true and correct; (ii) the
performance in all material respects of all obligations of MBM contained in the
Merger Agreement to be performed by it prior to the Effective Time; (iii) all
persons who are "affiliates" of MBM for purposes of Rule 145 under the
Securities Act having delivered a written agreement in form and substance
satisfactory to Schein with respect to Rule 145 of the Securities Act and the
pooling of interests requirements; (iv) Schein having received opinions from BDO
Seidman, LLP and Miller, Ellin & Company, stating that the Merger qualifies for
"pooling of interests" treatment for financial reporting purposes in accordance
with GAAP; (v) Schein and Merger Sub having received letters of resignation
addressed to MBM from the members of MBM's board of directors other than Bruce
Haber, which resignations shall be effective as of the Effective Time; (vi) the
aggregate number of shares of MBM Common Stock as to which appraisal rights are
exercised not constituting more than 9% of the number of shares of MBM Common
Stock outstanding as of immediately prior to the Effective Time; (vii) Schein
having received opinions of Otterbourg, Steindler, Houston & Rosen, P.C. and
Lester Morse, P.C.; and (viii) MBM's 1996 Directors' Retirement Plan having been
terminated and neither MBM, Schein nor any of their respective subsidiaries
having any liability or obligation to any person arising under or in respect of
such plan.
Further conditions precedent to the obligations of MBM to effect the Merger
are: (i) the aggregate effect of all inaccuracies in the representations and
warranties of Schein having no material and adverse effect on the value of
Schein, and the representations and warranties of Schein that are qualified with
reference to a material adverse effect on the value of Schein being true and
correct; (ii) the performance in all material respects of all obligations of
Schein and Merger Sub contained in the Merger Agreement to be performed or
complied with prior to the Effective Time; and (iii) MBM having received an
opinion of Proskauer Rose LLP.
The waiver by MBM or Schein of any of the conditions to the consummation of
the Merger that may be deemed to be material to a holder of MBM Common Stock in
deciding whether to vote in favor of or against the Merger may require a
resolicitation of the shareholders of MBM for the purpose of approving the
Merger with such waiver. Neither MBM nor Schein, however, currently anticipates
waiving any material conditions to its obligation to consummate the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (i) each of MBM's and Schein's
organization, capital structure and similar corporate matters, (ii) the
financial statements of each of MBM and Schein, (iii) the authorization of the
Merger Agreement by each of MBM and Schein and related matters, (iv) the absence
of any conflicts under charters or by-laws, receipt of required consents or
approvals, and absence of violations of any instruments or law, (v) documents
filed by MBM and Schein with the SEC and the accuracy of information contained
therein, (vi) the absence of a material adverse change in the business,
properties, assets, liabilities, operations, results of operations or condition
(financial or otherwise) of MBM and its subsidiaries taken as a whole and Schein
and its subsidiaries taken as a whole, each since certain specified dates, (vii)
in the case of MBM, Employee Benefit Plans and ERISA matters, (viii) in the case
of MBM, certain environmental matters, (x) litigation, (xi) compliance with law,
(xii) in the case of MBM, the shareholders' vote required
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and (xiii) broker's or finder's fees. The representations and warranties in the
Merger Agreement (other than those relating to broker's or finder's fees) will
not survive the Effective Time.
INDEMNIFICATION; OFFICERS' AND DIRECTORS' LIABILITY INSURANCE
MBM, the surviving corporation in the Merger, for a period of six years
commencing at the Effective Time, will indemnify the directors, officers or
employees of MBM with respect to acts and omissions occurring through the
Effective Time, to the extent permitted by law and MBM's Certificate of
Incorporation or By-Laws, and regardless of whether Schein or the Surviving
Corporation is insured against any such matter. The Surviving Corporation or
Schein shall maintain directors' and officers' liability insurance policies
providing coverage of an aggregate amount of at least $10,000,000 and with a
carrier(s) having a Best rating at least equal to the Best rating of the current
carrier(s) covering directors and officers of MBM serving as of or after
December 1, 1990 with respect to acts and omissions occurring prior to the
Effective Time.
CERTAIN COVENANTS OF MBM
MBM has agreed, among other things, that during the period from the date of
the Merger Agreement until the Effective Time, MBM and its subsidiaries will
conduct their operations in all material respects in the ordinary and usual
course and will use their reasonable efforts to preserve intact their business
organizations, to keep available the services of its present officers and key
employees, and preserve the goodwill of those having business relationships with
it. MBM has also agreed that neither it nor any of its subsidiaries will during
such period (i) make any change in or amendment to its charter or by-laws; (ii)
split, combine or reclassify any shares of its outstanding capital stock; (iii)
declare, set aside or pay any dividend or other distribution in cash, stock or
property; (iv) redeem or otherwise acquire any shares of its capital stock or
shares of the capital stock of any of its subsidiaries; (v) sell any shares of,
or options, warrants or other rights to acquire or convertible into any shares
of, their capital stock, except for the issuance of shares of MBM Common Stock
upon the exercise of MBM stock options and warrants outstanding on the date of
the Merger Agreement, or amend any outstanding MBM stock option, MBM warrant or
other right, except that MBM may amend the terms of certain MBM stock options
annexed to the Merger Agreement under the heading "1987 Plan" to provide that
the holders thereof may exercise such options prior to their expiration dates
regardless of whether such holders are then serving as directors of MBM; (vi)
merge or consolidate with another entity; (vii) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization (except for such potential
acquisition, and on substantially such terms, as have been described in a letter
executed and delivered by MBM and Schein simultaneously with the execution and
delivery of the Merger Agreement and provided that MBM keeps Schein informed as
to the status of all negotiations with respect thereto (including any
termination of such negotiations) and gives Schein prior notice of the
consummation of any such acquisition and the signing of any agreement with
respect thereto) or otherwise acquire any assets outside the ordinary and usual
course of business and consistent with past practice or otherwise enter into any
material contract, commitment or transaction outside the ordinary and usual
course of business consistent with past practice; (vii) sell, lease, license,
waive, release, transfer, encumber or otherwise dispose of any of its assets
outside the ordinary and usual course of business and consistent with past
practice; (viii) incur, assume or prepay any material indebtedness or any other
material liabilities other than in the ordinary course of business and
consistent with past practice; (ix) assume, guarantee, endorse or otherwise
become liable or responsible for the obligations of any other person other than
a subsidiary of MBM or customers, in each case in the ordinary course of
business and consistent with past practice; (x) make, extend or modify in any
material respect any loans, advances or capital contributions to, or investments
in, any other person, other than to subsidiaries of MBM or loans to employees of
MBM or any of its subsidiaries, in an aggregate amount not exceeding $25,000,
for such reasons, and on such terms and conditions, as are consistent with past
practice; (xi) authorize or make capital expenditures in excess of certain
amounts; (xii) permit any insurance policy naming MBM or any of its subsidiaries
a beneficiary or a
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loss payee to be canceled or terminated other than in the ordinary course of
business; (xiii) adopt, enter into, terminate or amend (except as may be
required by applicable law) any MBM arrangement for the current or future
benefit or welfare of any director, officer or current or former employee; (xiv)
increase in any manner the compensation or fringe benefits of, or pay any bonus
to, any director, officer or employee (except for normal increases in
compensation in the ordinary course of business consistent with past practice
and accrued and unpaid bonuses in respect of MBM's fiscal year ended November
30, 1996 that are consistent with past practice and have been properly accrued
and reflected on MBM's books and records); (xv) take any action to fund or in
any other way secure, or to accelerate or otherwise remove restrictions with
respect to, the payment of compensation or benefits under any employee plan,
stock option plan, agreement, contract, or arrangement; (xvi) take any action
with respect to, or make any material change in, its accounting or tax policies
or procedures, except as required by law or to comply with GAAP; (xvii) take any
action which would jeopardize the treatment of Schein's acquisition of the MBM
as a "pooling of interests" for accounting purposes; or (xviii) take any action
which would jeopardize qualification of the Merger as a reorganization within
the meaning of Section 368(a) of the Code. In addition, MBM, acting through its
Board of Directors, shall promptly call, give notice and as soon as practicable
following the date of effectiveness of the Registration Statement of which this
Proxy Statement/ Prospectus is a part, hold a meeting of the MBM Shareholders
for the purpose of voting to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
CERTAIN COVENANTS OF SCHEIN
Schein has agreed that during the period from the date of the Merger
Agreement until the Effective Time, unless MBM shall otherwise agree in writing,
Schein shall conduct its business and the business of its subsidiaries in a
manner designed, in the good faith judgment of its Board of Directors, to
enhance the long-term value of the Schein Common Stock and the business
prospects of Schein and its subsidiaries. Schein has also agreed that neither
Schein nor any of its subsidiaries shall (i) issue or sell any shares of, or
options, warrants or other rights to acquire or convertible into any shares of,
its capital stock, except for shares of Schein Common Stock upon the exercise of
Schein stock options, warrants or other rights outstanding as of March 7, 1997
or upon the exercise of options, warrants or other rights described in the
immediately following clause; (ii) issue options, warrants or other rights
pursuant to existing employee benefit plans or arrangements other than in a
manner consistent with past practice; (iii) issue shares of Schein Common Stock
other than in connection with arms' length acquisitions with non-affiliates; and
(iv) split, combine or reclassify any shares of its outstanding capital stock,
or declare, set aside or pay any dividend or other distribution payable in cash,
stock or property, amend its charter, bylaws or other organizational documents,
or redeem or otherwise acquire any shares of its capital stock. In addition,
Schein will use its reasonable best efforts to cause the shares of Schein Common
Stock (as well as the shares of Schein Common Stock issuable afer the Effective
Time upon exercise of Schein stock options) to be listed for quotation and
trading on the Nasdaq National Market.
CERTAIN COVENANTS OF MBM AND SCHEIN
Prior to the Effective Time, each of MBM and Schein and their respective
subsidiaries have agreed that they will afford to the other and to the other's
representatives reasonable access to its properties, books and records during
normal business hours and to furnish a copy of each report or document filed or
received by it pursuant to the requirements of federal securities laws. Unless
otherwise required by law, each of MBM and Schein agrees that it (and its
respective subsidiaries and representatives) shall hold in confidence all
non-public information so acquired in accordance with the terms of the
confidentiality agreement between Schein and MBM executed in November 1996. In
addition, both MBM and Schein have agreed to cooperate in filing the
Registration Statement of which this Proxy Statement/Prospectus is a part and to
use their best efforts to procure its effectiveness.
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NO SOLICITATION OF OTHER OFFERS
Prior to the Effective Time, MBM agrees that neither it, any of its
subsidiaries or its affiliates, nor any of the respective directors, officers,
employees, affiliates, agents or representatives of the foregoing (including,
without limitation, any investment banker, attorney or accountant retained by
MBM or any of its subsidiaries) will, directly or indirectly, facilitate any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving MBM or any subsidiary of
MBM or the acquisition of all or any significant assets or capital stock of MBM
or any subsidiary of MBM taken as a whole (an "Acquisition Transaction") or
negotiate, explore or otherwise engage in discussions with any corporation,
partnership, person, other entity or group (other than Schein and its
representatives) with respect to any Acquisition Transaction, or enter into any
agreement with respect to any such Acquisition Transaction or which would
require it to fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement; provided, however, that (i) MBM may, in
response to an unsolicited written proposal from a third party, furnish
information to and engage in discussions with such third party (subject to the
following conditions), and (ii) the Board of Directors of MBM may withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger,
approve any Acquisition Transaction, or cause MBM to enter into any agreement
with respect to any Acquisition Transaction (subject to the following
conditions), in each case only if the Board of Directors of MBM determines in
good faith, after consultation with its outside counsel and financial advisor,
that such action is reasonably likely to be required by the fiduciary duties of
the Board of Directors and, prior to taking such action, MBM (x) provides
reasonable notice to Schein to the effect that it is taking such action and (y)
receives from the Acquiring Person (and delivers to Schein) a confidentiality
agreement in a customary form.
MBM agrees that it, its subsidiaries and affiliates, and respective
directors, officers, employees, agents and representatives of the foregoing,
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any third party with respect to any Acquisition
Transaction. MBM will immediately advise Schein of any terms of any inquiries
received by, proposals from, negotiations, or discussions with a third party
with respect to an Acquisition Transaction, including the identity of such third
party, and update on an ongoing basis or upon Schein's request, the status
thereof, as well as any actions taken or other developments. In no event shall
MBM (i) disclose any information received by it or any of its directors,
officers, employees, agents or representatives pursuant to the Confidentiality
Agreement or any other confidentiality or other similar agreement between MBM
and Schein to any person in violation of such agreement and (ii) be obligated to
disclose to Schein any confidential information provided to MBM by any third
party in violation of any confidentiality agreement between MBM and such third
party.
AMENDMENTS
Any provision of the Merger Agreement may be amended or waived in writing by
the appropriate parties thereto before the Effective Time (notwithstanding any
stockholder approval), provided that after any such stockholder approval, no
such amendment or waiver shall be made which by law requires further approval by
such stockholders without such further approval.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
If the Merger is consummated, shareholders of MBM will become holders of
Schein Common Stock, which will result in their rights as shareholders being
governed by the laws of the State of Delaware (rather than the law of New York
which governs their rights as shareholders of MBM) and by Schein's Amended and
Restated Certificate of Incorporation (the "Schein Certificate") and Amended and
Restated By-Laws (the "Schein By-Laws") (rather than MBM's Certificate of
Incorporation, as amended (the "MBM Certificate") and By-Laws, as amended (the
"MBM By-Laws")). It is not practical to describe all the differences between
Delaware law and New York law and between the Schein Certificate and Schein By-
Laws and the MBM Certificate and MBM By-Laws. The following is a summary of
certain differences which may affect the rights of shareholders of MBM. This
summary is qualified in its entirety by reference to the full text of such
documents. For information as to how such documents may be obtained, see
"Available Information." Holders of MBM Common Stock should also consider the
information set forth in "RISK FACTORS --Control by Insiders" in reviewing the
following.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Schein consists of 61,000,000 shares,
consisting of 60,000,000 shares of Common Stock having a par value of $.01 per
share and 1,000,000 shares of preferred stock having a par value of $.01 per
share. As of the Record Date, approximately 23,570,819 shares of Schein Common
Stock and no shares of Schein's preferred stock were outstanding. Holders of
Schein Common Stock or preferred stock do not have preemptive rights.
The authorized capital stock of MBM consists of 21,000,000 shares,
consisting of 20,000,000 shares of Common Stock having a par value of $.03 per
share, and 1,000,000 shares of preferred stock, having a par value of $1.00 per
share. As of the Record Date, 5,162,759 shares of MBM Common Stock and no shares
of MBM's preferred stock were outstanding. Holders of MBM Common Stock or
preferred stock do not have preemptive rights.
Under both the MBM Certificate and the Schein Certificate, the Board of
Directors is authorized, subject to certain limitations by law, without further
stockholder approval, to issue from time to time up to an aggregate of 1,000,000
shares of preferred stock in one or more series with such designations and such
powers, preferences and rights, and such qualifications, limitations or
restrictions as the Board may fix by resolution. Unless otherwise provided by
board resolution, the consent of holders of any class or series of Preferred
Stock shall not be required for the issuance by the Board of Directors of any
other series of Preferred Stock. The Schein Certificate provides that no
dividend may be declared on any series of Preferred Stock unless a dividend is
declared on all shares of Preferred Stock of each other series entitled to
cumulative dividend, then outstanding, which rank senior to or equally as to
dividends with the series in question, and the MBM Board may provide for such
priority in the payment of dividends in any series of preferred stock that it
may designate. Neither Schein nor MBM anticipates paying cash dividends in the
foreseeable future.
DIRECTORS
The Schein Certificate currently provides that the Schein Board will consist
of between five and eleven directors through December 31, 1998; thereafter the
number of directors will be nine. A proposed amendment to the Schein Certificate
and a conforming change to Schein's By-Laws (collectively, the "Proposed
Amendment") will be submitted for shareholder approval on July 15, 1997. The
Proposed Amendment would, among other things, provide for a Schein Board
consisting of from five to 19 directors, with the actual number of directors
being fixed from time to time by resolution of the Board of Directors, and that
there shall not be fewer than five directors. The Schein By-Laws provide that a
majority of the total number of directors constitutes a quorum for the
transaction of business. In addition, the Schein By-
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Laws provide that a vacancy among the directors occurring for any reason may 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. In addition, the Schein
By-Laws provide that any director may be removed with or without cause by the
vote of the holders of at least two-thirds of the shares entitled to vote at a
special meeting of the stockholders called for that purpose.
The MBM By-Laws provide that the MBM Board will consist of three directors,
unless otherwise determined by vote of a majority of the entire MBM Board. By
unanimous written consent, the MBM Board has determined that the number of
directors will be four. A majority of MBM's directors constitutes a quorum for
the transaction of business. A vacancy among the directors occurring between
annual meetings of the shareholders shall be filled for the unexpired term by a
majority of the vote of the remaining directors, even though less than a quorum
exists. Any directors may be removed by a vote of the shareholders at any
meeting called for such purpose.
The Proposed Amendment would give the Schein Board the flexibility to add
one or more additional qualified individuals as directors without the need for a
vacancy to exist as a result of the death, disability, removal or resignation of
a current director. If the Proposed Amendment is adopted, Schein anticipates
that this flexibility be used to appoint Bruce Haber, the President and Chief
Executive Officer of MBM, to the Schein Board pursuant to the new employment
agreement. See "THE MERGER--Interests of Certain Persons in the Merger".
ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS
Under the NYBCL and the Delaware General Corporation Law (the "DGCL"),
special meetings of shareholders may be called by the board of directors and by
such other person or persons authorized to do so by the corporation's
certificate of incorporation or by-laws. The Schein Certificate provides that
special meetings of stockholders may be called by the Chairman of the Board, the
Board of Directors or by stockholders holding more than 10% of the outstanding
shares entitled to vote. The MBM By-Laws provide that special meetings of
shareholders may be called by the Board of Directors or the President, and must
be called by the President at the request in writing by shareholders owning a
majority of the outstanding shares entitled to vote. Consequently, it is easier
for stockholders of Schein to call a special meeting than it is for the
shareholders of MBM.
The NYBCL provides that if, for a period of one month after the date fixed
by or under the by-laws for the annual meeting of shareholders, or if no date
has been fixed for a period of 13 months after the last annual meeting, there is
a failure to elect a sufficient number of directors to conduct the business of
the corporation, the board of directors shall call a special meeting for the
election for directors. If the board fails to call such meeting within 14 days
of expiration of that period of time, or if it is so called but there is a
failure to elect such directors for a period of two months after the expiration
of such period, the holders of 10% of the shares entitled to vote in an election
of directors may demand the call of a special meeting for the election of
directors. Under the DGCL, if an annual meeting is not held within 30 days of
the date designated for such a meeting, or is not held for a period of 13 months
after the last annual meeting, the Delaware Court of Chancery may summarily
order a meeting to be held upon the application of any stockholder or director.
In both New York and Delaware, the number of shares represented at such meeting
constitutes a quorum without regard to other provisions of law.
Under the NYBCL and the DGCL, unless the certificate of incorporation
provides otherwise, a majority of the shares entitled to vote constitutes a
quorum, and shareholder action is generally by majority vote, except that
directors are elected by a plurality vote and the NYBCL requires the vote of at
least 66 2/3% of the outstanding shares in connection with certain mergers,
consolidations and sales of assets (see "-- Mergers and Business Combinations;
Sales of Assets"). The Schein Certificate and Schein By-Laws provide that a
majority of the shares entitled to vote constitutes a quorum, and all action may
be authorized by the vote of the majority of shares entitled to vote, unless
otherwise provided in the Schein
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By-Laws or Schein Certificate. The Schein Certificate requires the affirmative
vote of two-thirds of all outstanding shares entitled to vote to remove
directors, 60% of all outstanding shares entitled to vote to approve certain
mergers and sales of assets, 60% of the outstanding shares entitled to vote to
amend or repeal the section of the Schein Certificate regarding mergers and
sales of assets, and 80% of all outstanding shares entitled to vote to amend or
repeal the sections of the Schein Certificate regarding (i) the number, election
and powers of directors and (ii) the number of votes to which each share of
Common Stock is entitled. The Proposed Amendment, however, would decrease the
80% supermajority vote for the amendment of the section of the Schein
Certificate regarding the number and powers of directors to 66-2/3% of the
outstanding shares entitled to vote. The MBM By-Laws provide that a majority of
the shares entitled to vote constitutes a quorum, and the vote of a majority of
shares is required for shareholder action. Because of the supermajority voting
provisions of the Schein Certificate, it may be more difficult for Schein's
stockholders to effect certain amendments to the Schein Certificate than it
would be for the shareholders of MBM to effect similar changes to the MBM
Certificate. See also "-- Amendment of By-Laws" and "-- Amendment of Certificate
of Incorporation."
Under the DGCL, unless otherwise provided by a corporation's certificate of
incorporation, any action which is to be taken by stockholders may be taken
without a meeting if such action is authorized by written consent signed by
stockholders having not less than the minimum number of votes necessary to take
such action at a meeting at which all shares were present and voting. The Schein
Certificate does not otherwise provide. Under the NYBCL, any required or
permitted action taken by shareholders may be taken without a meeting with the
written consent of all outstanding shares entitled to vote, unless the
certificate of incorporation otherwise provides for a lesser number. The MBM
Certificate does not otherwise provide.
AMENDMENT OF BY-LAWS
The DGCL reserves the power to amend, repeal, or adopt by-laws exclusively
to the stockholders, unless the certificate of incorporation also confers such
power upon the board of directors. The Schein Certificate currently confers such
powers upon the Schein Board of Directors, provided, however, that (a) any
by-law made, amended or repealed by the Board of Directors may be amended or
repealed by the stockholders of Schein, and (b) the Board of Directors may not
amend or repeal any by-law adopted by the stockholders of Schein and all of the
current by-laws were adopted by Schein's stockholders. However, the Proposed
Amendment would allow the Board of Directors to amend or repeal By-Laws that
were adopted by the stockholders of Schein prior to the 1997 Annual Meeting of
Stockholders. Under the Schein By-Laws, by-laws may be adopted, repealed or
amended by a vote of two-thirds of the outstanding shares entitled to vote, or
by a vote of two-thirds of the Board of Directors.
Under the NYBCL, by-laws may be adopted, amended or repealed by vote of the
holders of the shares at the time entitled to vote in the election of any
directors. When so provided in the certificate of incorporation or a by-law
adopted by the shareholders, by-laws may also be adopted, amended or repealed by
the board by such vote as therein specified, but any by-law adopted by the board
may be amended or repealed by the shareholders entitled to vote thereon. The MBM
By-Laws provide that the By-Laws may be amended, repealed or adopted by vote of
the holders of the shares at the time entitled to vote in the election of any
directors. The MBM By-Laws may also be amended, repealed or adopted by the MBM
Board but any by-law adopted by the MBM Board may be amended by the shareholders
entitled to vote.
Consequently, the Schein Board is and will be more restricted in its ability
to amend Schein's By-laws than the MBM Board is in amending MBM's By-Laws even
if the Proposed Amendment is adopted.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under the DGCL, amendments to certificates of incorporation generally
require the authorization of the board of directors and the approval of
stockholders holding a majority of the outstanding shares
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entitled to vote on such amendment, unless a greater proportion is specified in
the certificate of incorporation. In addition, amendments which make changes
relating to the capital stock by increasing its par value or aggregate number of
authorized shares, or otherwise adversely affecting the rights of a class, must
be approved by the majority vote of each class or series of stock affected, even
if such stock would not otherwise have voting rights. The Schein Certificate
generally provides that the Schein Certificate may be amended upon the approval
of a majority of Schein's stockholders holding a majority of the outstanding
shares entitled to vote on such amendment; however, the Schein Certificate
currently requires 60% of all outstanding shares entitled to vote to amend or
repeal the section of the Schein Certificate regarding mergers and sales of
assets, and 80% of all outstanding shares entitled to vote to amend or repeal
the sections of the Schein Certificate regarding (i) the number and powers of
directors and (ii) the number of votes to which each share of Common Stock is
entitled. The Proposed Amendment would decrease the 80% "supermajority" voting
requirement for the amendment of the section of the Schein Certificate regarding
the number and powers of directors to 66 2/3% of the outstanding shares entitled
to vote.
Under the NYBCL, except for certain specified matters, an amendment to the
certificate of incorporation requires the authorization of the board of
directors and the approval of the holders of a majority of all outstanding
shares entitled to vote unless the certificate of incorporation specifies a
supermajority vote (which the MBM Certificate does not). In addition, certain
specified amendments affecting the rights of a class of securities must be
approved by vote of a majority of all outstanding shares of such class entitled
to vote, even though they ordinarily would not have voting rights. Under the
NYBCL, certain specified amendments to the certificate of incorporation may be
made by the board of directors without shareholder approval.
The supermajority approval requirements for amending certain provisions of
the Schein Certificate may prevent the holders of a majority of the outstanding
shares of Schein Common Stock from adopting an amendment to the Schein
Certificate, whereas the vote of a majority of the outstanding shares of MBM
Common Stock is (subject to any applicable class voting requirement) sufficient
to adopt any amendment to the MBM Certificate that is presented to its
shareholders for approval under the NYCBL.
MERGERS AND BUSINESS COMBINATIONS; SALES OF ASSETS
Under the DGCL, when stockholder approval is required for a merger, or
consolidation or a sale, lease or exchange of all or substantially all of a
corporation's assets, such transaction must be approved by a majority of
outstanding shares entitled to vote, unless a greater proportion is specified in
the certificate of incorporation. The Schein Certificate provides that the vote
of 60% or more of the outstanding stock entitled to vote is required to approve
such action. Under the NYBCL, whenever shareholder approval is required for a
merger or consolidation or sale, lease, exchange or disposition of all or
substantially all of a corporation's assets, such transaction must be approved
by two-thirds of the outstanding shares entitled to vote.
Under the DGCL, unless required by a corporation's certificate of
incorporation (the Schein Certificate does not contain such requirement), no
vote of stockholders of the surviving corporation in a merger is required if (i)
the agreement of merger does not amend the certificate of incorporation of the
surviving corporation, (ii) each share of stock of such surviving corporation
outstanding immediately prior to the effective date of the merger will be an
identical outstanding or treasury share of the surviving corporation after such
effective date, (iii) either no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such stock
are to be issued or delivered under the plan of merger, or the authorized
unissued shares or treasury shares of common stock of the surviving corporation
to be issued or delivered under the plan of merger plus those initially issuable
upon conversion of any other securities or obligations to be issued or delivered
under such plan, do not exceed 20% of the issuer's common shares outstanding
immediately prior to the merger and (iv) certain other requirements are
satisfied. The DGCL also provides that a Delaware corporation which is the
record holder of at least 90%
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of each class of outstanding shares of a Delaware subsidiary may merge such
subsidiary into such parent without approval of such subsidiary's stockholders
or board of directors.
Under the NYBCL, the vote of at least 66 2/3% of the outstanding shares of
stock of each New York corporation that is a party to the merger is required to
approve such merger. A New York corporation owning at least 90% of each class of
outstanding shares of another New York corporation may merge such other
corporation into itself without authorization of the shareholders of any such
corporation.
Under the DGCL, a "business combination" with an "interested stockholder"
(as defined in the DGCL) of a publicly held Delaware corporation is subject to a
three-year moratorium unless specified conditions are met. Under the NYBCL,
certain types of a "business combination" with an "interested shareholder" (as
defined in the NYBCL) of a New York corporation are subject to a five-year
moratorium unless specified conditions are met.
DIVIDENDS, REDEMPTIONS, AND REPURCHASES
Under the NYBCL and the DGCL, a corporation may generally pay dividends out
of surplus. New York requires a board of directors to make certain disclosures
when paying dividends out of any account other than earned surplus. The DGCL
also permits a corporation, unless otherwise provided in its certificate of
incorporation (which the Schein Certificate does not), to pay dividends, if
there is no surplus, out of net profits for the fiscal year in which the
dividends are declared and/or for the preceding fiscal year. Dividends out of
net profits may not be paid when the capital of the corporation amounts to less
than the aggregate amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets.
SHAREHOLDERS LISTS; INSPECTIONS RIGHTS
Under the DGCL and the Schein By-laws, stockholders have a right during
regular business hours and for at least ten days prior to any stockholders
meeting and during such meeting to examine a list of stockholders of Schein for
any purpose germane to such meeting. Additionally, under the DGCL, any
stockholder, following a written request, also has the right to inspect the
corporation's books and records, including the stockholder list, during normal
business hours for a proper purpose.
Under the NYBCL, a person who has been a shareholder for at least six months
preceding his or her demand, or any person holding, or authorized in writing by
the holders of, at least 5% of any class of outstanding shares, upon at least
five days' prior written demand, has the right to examine, during normal
business hours, minutes of shareholder meetings and the record of shareholders
unless such inspection is for a purpose which is in the interest of a business
other than the corporation's and such shareholder has within five years sold or
offered for sale any list of shareholders of any corporation.
TRANSACTIONS WITH INTERESTED DIRECTORS
Generally, under the NYBCL and the DGCL, no contract or transaction between
a corporation and one or more of its directors or between a corporation and
another entity in which one or more of its directors are directors or officers
or in which one or more of its directors have a material financial interest is
void or voidable because of such relationship or interest, if (i) the material
facts of the transaction and the director's interest are disclosed or known to
the board of directors or a committee of the board of directors which
authorizes, approves or ratifies the transaction by the vote of a majority of
directors who have no direct or indirect interest in the transaction; (ii) the
material facts of the transaction and the director's interest are disclosed or
known to shareholders entitled to vote and they authorize, approve or ratify the
transaction; or (iii) the transaction is fair to the corporation.
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INDEMNIFICATION; LIMITATION OF LIABILITY
Both Delaware and New York allow broad indemnification by a corporation of
its officers, directors, employees and other agents and permit, with certain
exceptions, corporations to provide in their certificate of incorporation or
by-laws (which Schein and MBM have done) for elimination of liability of
directors to the corporation or its shareholders for monetary damages for breach
of such directors' fiduciary duty of care.
The DGCL authorizes a Delaware corporation to indemnify any person who was,
is, or is threatened to be made, a party in any civil, criminal, administrative
or investigative pending or completed action, suit or proceeding (other than an
action by or in the right of a corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity, for expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed action, suit or
proceeding. With respect to actions by or in the right of a corporation, the
DGCL authorizes indemnification of such person for expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit. To be entitled to indemnification,
a person must have acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe such conduct was unlawful with respect to actions taken by or in the
right of the corporation. With respect to actions by or in the right of the
corporation, court approval is required for indemnification relating to any
claim as to which a person has been adjudged liable to the corporation.
The DGCL requires indemnification for expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the DGCL. A director or officer must undertake to repay
such expenses if it is ultimately determined that he or she is not entitled to
indemnification. The disinterested members of the board (or independent legal
counsel or stockholders) must determine, in each instance where indemnification
is not required by the DGCL, that such director, officer, employee or agent is
entitled to indemnification. The DGCL provides that the statutory
indemnification is not exclusive.
The Schein Certificate provides that Schein will indemnify to the fullest
extent permitted by the DGCL each director and officer made, or threatened to be
made, a party to or who is involved in any action (civil, criminal or otherwise)
by reason of the fact that he or she, or the person of whom he or she is the
legal representative, is or was a director or officer of Schein or is or was
serving at the request of Schein as a director or officer of another entity. The
Schein Certificate also provides that a director will not have personal
liability to Schein or any stockholder for monetary damages for breach of
fiduciary duty as a director, but such provision does not eliminate or limit the
liability of a director (i) for any breach of duty of loyalty to Schein or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under certain
provisions of the DGCL regarding unlawful dividends, stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit.
Under the NYBCL, a corporation may indemnify any person made, or threatened
to be made, a party to any action or proceeding except for shareholder
derivative suits, by reason of the fact that he or she was a director or officer
of the corporation, provided such director or officer acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
corporation and, in criminal proceedings, in addition, had no reasonable cause
to believe his or her conduct was unlawful. In the case of shareholder
derivative suits, the corporation may indemnify any person who was a director or
officer of the corporation if he or she acted in good faith for a purpose which
he or she reasonably believed to be in the
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best interests of the corporation, except that no indemnification may be made
for (i) a threatened action, or a pending action which is settled or otherwise
disposed of, or (ii) any claim, issue or matter as to which such person has been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all
circumstances, the person is fairly and reasonably entitled to an indemnity for
such portion of the settlement amount and expenses as the court deems proper.
Indemnification under the NYBCL is not exclusive of other indemnification
rights to which a director or officer may be entitled, whether contained in the
certificate of incorporation or by-laws, or when authorized by (i) such
certificate of incorporation or by-laws, (ii) a resolution of shareholders or
directors or (iii) an agreement providing for such indemnification, provided
that no indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained a financial profit or other
advantage to which he or she was not legally entitled.
Under the NYBCL, any person to whom such provisions regarding
indemnification apply who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding is entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, indemnification under the NYBCL pursuant to the
above paragraphs may be made only if authorized in the specific case and after a
finding that the director or officer met the requisite standard of conduct (i)
by the board acting by a quorum of disinterested directors or (ii) if such
quorum is not available, if so directed by either (A) the board upon the written
opinion of counsel or (B) by shareholders.
The MBM By-Laws provide that MBM will indemnify to the maximum extent
possible under the NYBCL, each officer and director made, or threatened to be
made, a party to any action (civil, criminal or otherwise) for liability arising
out of his or her action in such capacity, provided that the Board of Directors
has determined that such person acted in good faith, or in the case of a
criminal action, that such person had no reasonable cause to believe that his
action was unlawful. The MBM Certificate also provides that a director will not
have personal liability to MBM or its shareholders for breach of fiduciary duty,
but such provision does not eliminate or limit the liability of a director for
acts or omissions made in bad faith which involve intentional violation of the
law, or which violate certain provisions of the NYBCL concerning, among other
things, unlawful dividends, redemptions, and loans.
APPRAISAL RIGHTS
Under the DGCL, a stockholder of a corporation who does not vote in favor of
certain mergers or consolidations and demands appraisal of his or her shares,
under varying circumstances, may be entitled to dissenters' rights pursuant to
which such stockholder may receive cash for the "fair value" of his or her
shares (as determined by a Delaware court) in lieu of the consideration
otherwise receivable in the transaction. Unless the corporation's certificate of
incorporation provides otherwise (the Schein Certificate does not), such
dissenters' rights are not available in certain circumstances, including (a) the
sale of all or substantially all of the assets of a corporation, (b) the merger
or consolidation by a corporation the shares of which are either listed on a
national securities exchange (or designated as a national market security by the
National Association of Securities Dealers, Inc.) or held of record by more than
2,000 holders, if a stockholder receives only shares of the surviving
corporation or of any other corporation which are either listed on a national
securities exchange (or so designated as stated above) or held of record by more
than 2,000 holders, or cash in lieu of fractional shares or any combination of
the foregoing or (c) to shareholders of a corporation surviving a merger if no
vote of shareholders of the surviving corporation is required to approve the
merger because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is to be an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does
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not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger, and certain other conditions are met.
Under the NYBCL, holders of shares have the right, in certain circumstances,
to dissent from certain mergers, consolidations, sales and other dispositions of
assets requiring shareholder approval and share exchanges and to demand payment
in cash for their shares equal to the "fair value" of such shares in an action
timely brought by the dissenters. For a description of the NYBCL regarding
dissenters' rights, see "THE MERGER--Appraisal Rights."
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
The DGCL does not contain any provision requiring the issuance of rights or
options to officers, directors and employees to be approved by a stockholder
vote. The NYBCL requires that the issuance to officers, directors or employees
of rights or options to purchase shares must be authorized by a majority of all
outstanding shares entitled to vote thereon. Consequently, stockholders of
Schein have no right under state law to approve the grant of options and other
rights to purchase shares of Schein Common Stock to Schein's officers and
directors, although stockholder approval may be required by Nasdaq National
Market rules or for tax law or other purposes.
LOANS TO DIRECTORS
The DGCL allows loans to and guarantees of obligations of officers and
directors without any stockholder approval. The NYBCL requires that any loan
made by the corporation to any director must be authorized by a vote of the
shareholders. For the purposes of this authorization, the shares held by the
director who would be the borrower in the transaction are not entitled to vote.
Consequently, Schein may make loans to its officers and directors without
stockholder approval.
ANTI-GREENMAIL
The DGCL does not contain any provisions prohibiting the selective
repurchase by a corporation of its stock at a premium over market price
("greenmail"). Delaware courts have permitted the repurchase of shares at a
premium in certain cases.
Section 513 of the NYBCL provides that no domestic corporation may purchase
more than 10% of its stock from a shareholder who has held the shares for less
than two years at any price which is higher than the market price unless such
transaction is approved by both the corporation's board of directors and a
majority of the shares entitled to vote or the corporation offers to purchase
shares from all shareholders on the same terms. Consequently, there is no
statutory prohibition against the payment of greenmail by Schein, as there is in
the case of MBM.
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EXPERTS
The consolidated financial statements and schedule included in Schein's
Annual Report on Form 10-K, Amended Annual Report on Form 10-K/A and Form 8-K
dated June 24, 1997 for the year ended December 28, 1996, which are incorporated
by reference in this Proxy Statement/Prospectus, have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods indicated in their reports with respect thereto and are incorporated
herein in reliance upon such reports given the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements and schedule included in MBM's Annual
Report on Form 10-K and Amended Annual Report on Form 10-K/A for the year ended
November 30, 1996 have been audited by Miller, Ellin & Company, independent
certified public accountants, to the extent and for the periods indicated in
their report with respect thereto and are incorporated herein in reliance upon
such report given the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Schein Common Stock to be issued pursuant to
this Proxy Statement/ Prospectus will be passed upon for Schein by Proskauer
Rose LLP, counsel to Schein. Certain U.S. tax matters will be passed upon for
MBM by Cummings & Lockwood, special tax counsel to MBM.
Shareholders wishing to present proposals for action by the shareholders at
the next Annual Meeting of MBM's Shareholders (assuming that the Merger is not
consummated prior thereto) must present such proposals at the principal offices
of MBM not later than December 24, 1997. It is suggested that any such proposals
be submitted by certified mail, return receipt requested.
103
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HENRY SCHEIN, INC.,
HSI ACQUISITION CORP.
AND
MICRO BIO-MEDICS, INC.
DATED MARCH 7, 1997
AS REVISED
I-1
TABLE OF CONTENTS
ARTICLE I THE MERGER................................................................... I-7
Section 1.1 The Merger......................................................... I-7
Section 1.2 Effective Time of the Merger....................................... I-7
Section 1.3 Closing............................................................ I-7
ARTICLE II THE SURVIVING CORPORATION................................................... I-8
Section 2.1 Certificate of Incorporation....................................... I-8
Section 2.2 By-Laws............................................................ I-8
Section 2.3 Directors and Officers of Surviving Corporation.................... I-8
ARTICLE III CONVERSION OF SHARES....................................................... I-8
Section 3.1 Exchange Ratio..................................................... I-8
Section 3.2 Exchange of Company Common Stock; Procedures....................... I-9
Section 3.3 Dividends; Transfer Taxes; Escheat................................. I-9
Section 3.4 No Fractional Securities........................................... I-10
Section 3.5 Closing of Company Transfer Books.................................. I-10
Section 3.6 Further Assurances................................................. I-10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... I-10
Section 4.1 Organization....................................................... I-10
Section 4.2 Capitalization..................................................... I-11
Section 4.3 Company Subsidiaries............................................... I-11
Section 4.4 Authority Relative to this Agreement............................... I-12
Section 4.5 Consents and Approvals; No Violations.............................. I-12
Section 4.6 Reports and Financial Statements................................... I-12
Section 4.7 Absence of Certain Changes or Events; Material Contracts........... I-13
Section 4.8 Litigation......................................................... I-13
Section 4.9 Absence of Undisclosed Liabilities................................. I-13
Section 4.10 No Default......................................................... I-13
Section 4.11 Taxes.............................................................. I-13
Section 4.12 Title to Properties; Encumbrances.................................. I-14
Section 4.13 Intellectual Property.............................................. I-15
Section 4.14 Compliance with Applicable Law..................................... I-15
Section 4.15 Information in Disclosure Documents and Registration Statement..... I-16
Section 4.16 Employee Benefit Plans; ERISA...................................... I-16
Section 4.17 Environmental Laws and Regulations................................. I-17
Section 4.18 Vote Required...................................................... I-17
Section 4.19 Opinion of Financial Advisor....................................... I-18
Section 4.20 Accounting Matters................................................. I-18
Section 4.21 NYBCL Section 912.................................................. I-18
Section 4.22 Labor Matters...................................................... I-18
Section 4.23 Affiliate Transactions............................................. I-18
Section 4.24 Brokers............................................................ I-18
Section 4.25 Tax Matters........................................................ I-18
Section 4.26 Accounts Receivable................................................ I-18
Section 4.27 Inventory.......................................................... I-19
I-2
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT..................................... I-19
Section 5.1 Organization....................................................... I-19
Section 5.2 Capitalization..................................................... I-19
Section 5.3 Authority Relative to this Agreement............................... I-20
Section 5.4 Consents and Approvals No Violations............................... I-20
Section 5.5 Reports and Financial Statements................................... I-20
Section 5.6 Absence of Certain Changes or Events; Material Contracts........... I-20
Section 5.7 Information in Disclosure Documents and Registration Statement..... I-21
Section 5.8 Absence of Undisclosed Liabilities................................. I-21
Section 5.9 Compliance with Applicable Law..................................... I-21
Section 5.10 Litigation......................................................... I-21
Section 5.11 Opinion of Financial Advisor....................................... I-21
Section 5.12 Accounting Matters................................................. I-21
Section 5.13 Tax Matters........................................................ I-22
Section 5.14 Brokers............................................................ I-22
Section 5.15 No Default......................................................... I-22
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................................... I-22
Section 6.1 Conduct of Business by the Company Pending the Merger.............. I-22
Section 6.2 Conduct of Business by Parent Pending the Merger................... I-23
Section 6.3 Conduct of Business of Sub......................................... I-24
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... I-24
Section 7.1 Access and Information............................................. I-24
Section 7.2 No Solicitation.................................................... I-24
Section 7.3 Registration Statement............................................. I-25
Section 7.4 Proxy Statements; Stockholder Approval............................. I-26
Section 7.5 Compliance with the Securities Act................................. I-26
Section 7.6 Reasonable Best Efforts............................................ I-26
Section 7.7 Proxy and Option Agreement......................................... I-27
Section 7.8 Company Stock Options.............................................. I-27
Section 7.9 Public Announcements............................................... I-28
Section 7.10 Expenses........................................................... I-28
Section 7.11 Listing Application................................................ I-28
Section 7.12 Supplemental Disclosure............................................ I-28
Section 7.13 Letters of Accountants............................................. I-28
Section 7.14 Recruitment........................................................ I-28
Section 7.15 Indemnification.................................................... I-29
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER.................................. I-29
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger......... I-29
Section 8.2 Conditions to Obligations of Parent and Sub to Effect the Merger... I-30
Section 8.3 Conditions to Obligation of the Company to Effect the Merger....... I-31
ARTICLE IX TERMINATION................................................................. I-32
Section 9.1 Termination........................................................ I-32
Section 9.2 Effect of Termination.............................................. I-33
I-3
ARTICLE X GENERAL PROVISIONS........................................................... I-34
Section 10.1 Amendment and Modification......................................... I-34
Section 10.2 Waiver............................................................. I-34
Section 10.3 Survivability; Investigations...................................... I-34
Section 10.4 Notices............................................................ I-34
Section 10.5 Descriptive Headings; Interpretation............................... I-35
Section 10.6 Entire Agreement; Assignment....................................... I-35
Section 10.7 Governing Law...................................................... I-35
Section 10.8 Severability....................................................... I-35
Section 10.9 Counterparts....................................................... I-35
I-4
SCHEDULE
Schedule 4.2(b) Rights to Acquire Capital Stock
Schedule 4.2(c) Vesting and Modification of Company Stock Options
Schedule 4.3 Subsidiaries of the Company
Schedule 4.5 No Violations
Schedule 4.6 Accounting Changes
Schedule 4.7 Absence of Certain Changes
Schedule 4.9 Undisclosed Liabilities
Schedule 4.10 No Defaults
Schedule 4.11 Taxes
Schedule 4.12 Liens
Schedule 4.13(a) Intellectual Property
Schedule 4.14 Compliance with applicable Laws
Schedule 4.16. Employee Benefit Plans
Schedule 4.17(a) Compliance with Environmental Laws and Regulations
Schedule 4.17(b) Asbestos; Underground Storage, Etc.
Schedule 4.17(c) Certain Communications and Requests for Information; Remediation
Schedule 4.23 Affiliate Transactions
Schedule 5.1 Subsidiaries of Parent
Schedule 5.4 Violations (Parent)
Schedule 5.5 Accounting Changes (Parent)
Schedule 5.8 Undisclosed Liabilities (Parent)
Schedule 5.9 Compliance with Applicable Laws (Parent)
Schedule 6.1 Conduct of Business
Schedule 6.2(d) Changes to Parent's Capitalization
Schedule 8.2(h) Required Governmental Approvals
I-5
EXHIBITS
Exhibit A Proxy and Option Agreement
Exhibit B Affiliate Agreement
Exhibit C Opinion of Otterbourg, Steindler, Houston & Rosen, P.C.
Exhibit D Opinion of Proskauer Rose LLP
[Exhibits Omitted]
I-6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated March 7, 1997, by and among Henry Schein,
Inc., a Delaware corporation ("Parent"), HSI Acquisition Corp., a New York
corporation and wholly-owned subsidiary of Parent ("Sub"), and Micro Bio-Medics,
Inc., a New York corporation (the "Company"), as revised.
The Boards of Directors of Parent and Sub and the Company deem it advisable
and in the best interests of their respective stockholders that Parent acquire
the Company pursuant to the terms and conditions of this Agreement, and, in
furtherance of such acquisition, such Boards of Directors have unanimously
approved the merger of Sub with and into the Company in accordance with the
terms of this Agreement and the New York Business Corporation Law (the "NYBCL").
Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain holders of shares of the Common Stock, par value $.03 per share, of the
Company (the "Company Common Stock") are entering into an agreement with Parent
and Sub in the form attached hereto as Exhibit A (the "Proxy and Option
Agreement") granting Parent the right to vote such shares of the Company Common
Stock and granting Parent an option to purchase such shares of the Company
Common Stock in accordance with the terms set forth in the Proxy and Option
Agreement.
For federal income tax purposes, it is intended that the Merger (as defined
in Section 1.1) shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
For accounting purposes, it is intended that the Merger shall be accounted
for as a pooling of interests.
In consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties hereto agree
as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER. In accordance with the provisions of this Agreement
and the NYBCL, at the Effective Time (as defined in Section 1.2), Sub shall be
merged with and into the Company (the "Merger"), the separate existence of Sub
shall thereupon cease, and the Company shall be the surviving corporation in the
Merger (sometimes hereinafter called the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of New York. The
Merger shall have the effects set forth in Section 906 of the NYBCL.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at the time of filing of, or at such later time specified in, a properly
executed Certificate of Merger, in the form required by and executed in
accordance with the NYBCL, filed with the Secretary of State of the State of New
York in accordance with the provisions of Section 904 of the NYBCL. Such filing
shall be made as soon as practicable after the Closing (as defined in Section
1.3). When used in this Agreement, the term "Effective Time" shall mean the date
and time at which the Merger shall become effective.
SECTION 1.3. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Proskauer Rose
Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York, at 10:00 a.m., on the
day on which all of the conditions set forth in Article VIII are satisfied or
waived or on such other date and at such other time and place as Parent and the
Company shall agree (such date, the "Closing Date").
I-7
ARTICLE II.
THE SURVIVING CORPORATION
SECTION 2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Sub in effect at the Effective Time shall be the Certificate of Incorporation
of the Surviving Corporation until amended in accordance with applicable law,
except that the name of the Surviving Corporation shall be "Micro Bio-Medics,
Inc.".
SECTION 2.2 BY-LAWS. The By-Laws of Sub as in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation until amended in accordance
with applicable law.
SECTION 2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation or By-Laws
of the Surviving Corporation or as otherwise provided by law.
(b) The officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation or By-Laws
of the Surviving Corporation, or as otherwise provided by law.
ARTICLE III.
CONVERSION OF SHARES
SECTION 3.1 EXCHANGE RATIO. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled in
accordance with Section 3.1(b) and other than shares of Company Common Stock
as to which appraisal rights shall have been duly demanded under the NYBCL
("Dissenting Shares")) shall be converted into the right to receive 0.62
(the "Exchange Ratio") of a share of the Common Stock, par value $.01 per
share, of Parent (the "Parent Common Stock"), payable upon the surrender of
the certificate formerly representing such share of Company Common Stock.
(b) All shares of Company Common Stock that are held by the Company as
treasury shares shall be canceled and retired and cease to exist, and no
securities of Parent or other consideration shall be delivered in exchange
therefor.
(c) Each share of Common Stock, par value $.01 per share, of Sub ("Sub
Common Stock") issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable
share of Common Stock, par value $.03 per share, of the Surviving
Corporation.
(d) Each outstanding option to purchase Company Common Stock set forth
on Schedule 4.2(b) (each, a "Company Stock Option") and each warrant to
purchase Company Common Stock set forth on Schedule 4.2(b) (each, a "Company
Warrant") shall be assumed by Parent as more specifically provided in
Section 7.8.
(e) The holders of Dissenting Shares, if any, shall be entitled to
payment by the Surviving Corporation of the appraised value of such shares
to the extent permitted by and in accordance with the provisions of Section
623 of the NYBCL; provided, however, that (i) if any holder of the
Dissenting Shares shall, under the circumstances permitted by the NYBCL,
subsequently deliver a
I-8
written withdrawal of such holder's demand for appraisal of such shares, or
(ii) if any holder fails to establish such holder's entitlement to rights to
payment as provided in such Section 623, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition
demanding a determination of the value of all Dissenting Shares within the
time provided in such Section 623, such holder or holders (as the case may
be) shall forfeit such right to payment for such shares and such shares
shall thereupon be deemed to have been converted into Parent Common Stock
pursuant to Section 3.1(a) as of the Effective Time. The Surviving
Corporation shall be solely responsible for, and shall pay out of its own
funds, any amounts which become due and payable to holders of Dissenting
Shares, and such amounts shall not be paid directly or indirectly by Parent.
SECTION 3.2 EXCHANGE OF COMPANY COMMON STOCK; PROCEDURES.
(a) Prior to the Closing Date, Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as Exchange Agent hereunder
(the "Exchange Agent"). As soon as practicable after the Effective Time, Parent
shall deposit with or for the account of the Exchange Agent stock certificates
representing the number of shares of Parent Common Stock issuable pursuant to
Section 3.1 in exchange for outstanding shares of Company Common Stock, which
shares of Parent Common Stock shall be deemed to have been issued at the
Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") that were converted pursuant to
Section 3.1 into the right to receive shares of Parent Common Stock (i) a form
of letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and (ii) instructions for use in surrendering
such Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Parent Common Stock
which such holder has the right to receive pursuant to the provisions of this
Article III and (y) cash in lieu of any fractional shares of Parent Common Stock
to which such holder is entitled pursuant to Section 3.4, after giving effect to
any required tax withholdings, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer, and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
3.2(b), each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a certificate
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Article III.
SECTION 3.3 DIVIDENDS; TRANSFER TAXES; ESCHEAT. No dividends or
distributions that are declared on shares of Parent Common Stock will be paid to
persons entitled to receive certificates representing shares of Parent Common
Stock until such persons surrender their Certificates. Upon such surrender,
there shall be paid, to the person in whose name the certificates representing
such shares of Parent Common Stock shall be issued, any dividends or
distributions with respect to such shares of Parent Common Stock which have a
record date after the Effective Time and shall have become payable between the
Effective Time and the time of such surrender. In no event shall the person
entitled to receive such dividends or distributions be entitled to receive
interest thereon. Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to the Surviving Corporation
all cash, certificates and other documents in its possession relating to the
transactions described in this Agreement, and any holders of Company Common
Stock who have not theretofore complied with this Article III shall look
thereafter only to the Surviving Corporation for the shares of Parent Common
Stock, any dividends or distributions
I-9
thereon, and any cash in lieu of fractional shares thereof to which they are
entitled pursuant to this Article III. Notwithstanding the foregoing, neither
the Exchange Agent nor any party hereto shall be liable to a holder of Company
Common Stock for any shares of Parent Common Stock, any dividends or
distributions thereon or any cash in lieu of fractional shares thereof delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws upon the lapse of the applicable time periods provided for therein.
SECTION 3.4 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu of any such
fractional securities, each holder of Company Common Stock who would otherwise
have been entitled to a fraction of a share of Parent Common Stock upon
surrender of such holder's Certificates will be entitled to receive, and Parent
will timely provide (or cause to be provided) to the Exchange Agent sufficient
funds to make, a cash payment (without interest) determined by multiplying (i)
the fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock then held of record by
such holder) and (ii) the average of the per share closing prices for Parent
Common Stock on the Nasdaq National Market ("Nasdaq") for the five trading days
immediately preceding the Effective Time. It is understood (i) that the payment
of cash in lieu of fractional shares of Parent Common Stock is solely for the
purpose of avoiding the expense and inconvenience to Parent of issuing
fractional shares and does not represent separately bargained-for consideration
and (ii) that no holder of Company Common Stock will receive cash in lieu of
fractional shares of Parent Common Stock in an amount greater than the value of
one full share of Parent Common Stock.
SECTION 3.5 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on such stock transfer books. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this Article
III.
SECTION 3.6 FURTHER ASSURANCES. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of Sub or the Company acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of Sub and the Company or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in such names and on such
behalf or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
SECTION 4.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. The Company is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not have a material adverse effect,
individually or in the aggregate, on the financial condition, results of
operations, business, assets, liabilities, prospects or
I-10
properties of the Company and its Subsidiaries (as defined below) taken as a
whole, or the ability of the Company to consummate the Merger and the other
transactions contemplated by this Agreement (a "Company Material Adverse
Effect"). As used in this Agreement, the term "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (x) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (y) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party and/or one or more of its
Subsidiaries.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 1,000,000 shares of Preferred Stock, par
value $1.00 per share, of the Company (the "Company Preferred Stock"). As of the
date hereof, (i) 5,072,848 shares of Company Common Stock are issued and
outstanding, (ii) no shares of Company Preferred Stock are issued and
outstanding, (iii) Company Stock Options to acquire 1,842,668 shares of Company
Common Stock are outstanding under all stock option plans of the Company or
otherwise, (iv) Company Warrants to acquire 106,420 shares of Company Common
Stock are outstanding, and (v) 2,524,090 shares of Company Common Stock are
reserved for issuance pursuant to the Company Stock Options, the Company
Warrants and all other Rights (as hereinafter defined) to purchase or otherwise
receive capital stock or other securities of the Company. All of the issued and
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable.
(b) Except as set forth on Schedule 4.2(b), (i) there is no outstanding
right, subscription, warrant, call, option or other agreement or arrangement
(including, without limitation, pursuant to any employee benefit plan) of any
kind (collectively, "Rights") to purchase or otherwise to receive from the
Company or any of its Subsidiaries, any of the outstanding authorized but
unissued or treasury shares of the capital stock or any other security of the
Company or any of its Subsidiaries or to require the Company or any of its
Subsidiaries to purchase any such security, (ii) there is no outstanding
security of any kind convertible into or exchangeable for such capital stock,
and (iii) there is no voting trust or other agreement or understanding to which
the Company or any of its Subsidiaries is a party or is bound with respect to
the voting of the capital stock of the Company or any of its Subsidiaries. The
conversion of the Company Stock Options provided for in Section 7.8 of this
Agreement is in accordance with the respective terms of the Company Stock
Options and the plans under which they were issued.
(c) Since December 1, 1995, except as set forth on Schedule 4.2(c), the
Company has not in any manner accelerated or provided for the acceleration of
the vesting or exercisability of, or otherwise modified the terms and conditions
applicable to, any of the Company Stock Options, whether set forth in the
governing stock option plans of the Company, a stock option grant, award or
other agreement or otherwise. Except as set forth on Schedule 4.2(c), none of
the awards, grants or other agreements pursuant to which Company Stock Options
were issued have provisions which accelerate the vesting or right to exercise
such options upon the execution of this Agreement (including the documents
attached as Exhibits hereto), the consummation of the transactions contemplated
hereby (or thereby) or any other "change of control" events.
SECTION 4.3 COMPANY SUBSIDIARIES. Schedule 4.3 contains a complete and
accurate list of all Subsidiaries of the Company. Each Subsidiary of the Company
that is a corporation is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each
Subsidiary of the Company that is a partnership is duly formed and validly
existing under the laws of its jurisdiction of formation. Each Subsidiary of the
Company has the corporate power or the partnership power, as the case may be, to
carry on its business as it is now being conducted or presently proposed to be
I-11
conducted. Each Subsidiary of the Company is duly qualified as a foreign
corporation or a foreign partnership, as the case may be, authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified will
not have a Company Material Adverse Effect. All of the outstanding shares of
capital stock of the Subsidiaries of the Company that are corporations are
validly issued, fully paid and nonassessable, except to the extent provided in
Section 630 of the NYBCL. All of the outstanding shares of capital stock of, or
other ownership interests in, each Subsidiary of the Company are owned by the
Company or a Subsidiary of the Company, in each case, except as set forth in the
Company SEC Reports (as hereinafter defined), free and clear of any liens,
pledges, security interests, claims, charges or other encumbrances of any kind
whatsoever ("Liens").
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated on its part hereby have been duly authorized by
the Company's Board of Directors and, except for the approval of its
stockholders to be sought at the stockholders meeting contemplated by Section
7.4(a) with respect to this Agreement, no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or for the Company
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
SECTION 4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution,
delivery and performance of this Agreement by the Company, nor the consummation
by the Company of the transactions contemplated hereby, will (i) conflict with
or result in any breach of any provisions of the charter, by-laws or other
organizational documents of the Company or any of its Subsidiaries, (ii) require
a filing with, or a permit, authorization, consent or approval of, any federal,
state, local or foreign court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or administrative
agency or commission (a "Governmental Entity"), except in connection with or in
order to comply with the applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), state securities or "blue sky" laws, the
By-Laws of the National Association of Securities Dealers (the "NASD"), the
filing and recordation of a Certificate of Merger as required by the NYBCL, and
filing with the New York Board of Pharmacy and with the New York State
Department of Social Services (as required by 18 NYCRR Section 502.5(b), (iii)
except as set forth on Schedule 4.5, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of a Lien on any property or asset of the Company or any
of its Subsidiaries pursuant to, any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation (each, a "Contract") to which the Company or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iv) violate any material law, order, writ,
injunction, decree, statute, rule or regulation of any Governmental Entity
applicable to the Company, any of its Subsidiaries or any of their properties or
assets.
SECTION 4.6 REPORTS AND FINANCIAL STATEMENTS. The Company has timely filed
all reports required to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Exchange Act or the Securities Act since December 1,
1993 (collectively, the "Company SEC Reports"), and has previously made
available to Parent true and complete copies of all such Company SEC Reports.
Such Company SEC Reports, as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and none of such Company SEC Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were
I-12
made, not misleading. The financial statements of the Company included in the
Company SEC Reports have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated (except as otherwise noted therein) and fairly present the
consolidated financial position of the Company and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of operations and cash
flows of the Company and its consolidated Subsidiaries for each of the periods
then ended, except that in the case of the unaudited consolidated financial
statements included in any Form 10-Q, the presentation and disclosures conform
with the applicable rules of the Exchange Act, but include all adjustments
necessary to conform to GAAP requirements with respect to interim financial
statements. Except as set forth on Schedule 4.6, since December 1, 1993, there
has been no change in any of the significant accounting (including tax
accounting) policies, practices or procedures of the Company or any of its
consolidated Subsidiaries.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL CONTRACTS. Except
as set forth on Schedule 4.7 or in the Company SEC Reports, since December 1,
1995, (i) neither the Company nor any of its Subsidiaries has conducted its
business and operations other than in the ordinary course of business and
consistent with past practices or taken any actions that, if it had been in
effect, would have violated or been inconsistent with the provisions of Section
6.1 and (ii) there has not been any fact, event, circumstance or change
affecting or relating to the Company or any of its Subsidiaries which has had or
is reasonably likely to have a Company Material Adverse Effect. Except as set
forth on Schedule 4.7, the transactions contemplated by this Agreement will not
constitute a change of control under or require the consent from or the giving
of notice to a third party pursuant to the terms, conditions or provisions of
any material Contract to which Parent or any of its Subsidiaries is a party, or
require any payment to be made under any Contract to which the Parent or any of
its Subsidiaries is a party.
SECTION 4.8 LITIGATION. Except for litigation disclosed in the notes to the
financial statements included in the Company's Annual Report to Stockholders for
the year ended November 30, 1995 or in the Company SEC Reports filed subsequent
thereto, there is no suit, action, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the outcome of which, in the reasonable judgment of the
Company, is likely to have a Company Material Adverse Effect; nor is there any
judgment, decree, injunction, ruling or order of any Governmental Entity
outstanding against the Company or any of its Subsidiaries having, or which is
reasonably likely to have, a Company Material Adverse Effect.
SECTION 4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in the Company's financial
statements (or reflected in the notes thereto) included in the Company SEC
Reports or which were incurred after August 31, 1996 in the ordinary course of
business and consistent with past practice, and except as set forth on Schedule
4.9, none of the Company and its Subsidiaries has any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of a nature required by
GAAP to be reflected in a consolidated balance sheet (or reflected in the notes
thereto) or which would reasonably be expected to have a Company Material
Adverse Effect.
SECTION 4.10 NO DEFAULT. Except as set forth on Schedule 4.10, neither the
Company nor any Subsidiary of the Company is in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its charter, by-laws or comparable organizational documents, (ii) any material
Contract to which the Company or any of its Subsidiaries is a party or by which
they or any of their properties or assets may be bound, or (iii) any material
order, writ, injunction or decree, or any material statute, rule or regulation,
of any Governmental Entity applicable to the Company or any of its Subsidiaries.
SECTION 4.11 TAXES.
(a) The Company has heretofore delivered or made available to Parent true,
correct and complete copies of the consolidated federal, state, local and
foreign income, franchise sales and other Tax Returns
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(as hereinafter defined) filed by the Company and the Company Subsidiaries for
each of the Company's years ended November 30, 1995, 1994, 1993, 1992 and 1991
inclusive. Except as set forth on Schedule 4.11, the Company has duly filed, and
each Subsidiary has duly filed, all material federal, state, local and foreign
income, franchise, sales and other Tax Returns required to be filed by the
Company or any of its Subsidiaries. All such Tax Returns are true, correct and
complete, in all material respects, and the Company and its Subsidiaries have
paid all Taxes (as hereinafter defined) shown on such Tax Returns and have made
adequate provision for payment of all accrued but unpaid material Taxes
anticipated in respect of all periods since the periods covered by such Tax
Returns. Except as set forth on Schedule 4.11, all material deficiencies
assessed as a result of any examination of Tax Returns of the Company or any of
its Subsidiaries by federal, state, local or foreign tax authorities have been
paid or reserved on the financial statements of the Company in accordance with
GAAP consistently applied, and true, correct and complete copies of all revenue
agent's reports, "30-day letters," or "90-day letters" or similar written
statements proposing or asserting any Tax deficiency against the Company or any
of its Subsidiaries for any open year have been heretofore delivered to Parent.
The Company has heretofore delivered or will make available to Parent true,
correct and complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreement or arrangements to which the
Company or any of its Subsidiaries is a party. Except as set forth in Schedule
4.11, no material issue has been raised during the past five years by any
federal, state, local or foreign taxing authority which, if raised with regard
to any subsequent period, could reasonably be expected to result in a proposed
material deficiency for any such subsequent period. Except as disclosed in
Schedule 4.11 hereof, neither the Company nor any of its Subsidiaries has
granted any extension or waiver of the statutory period of limitations
applicable to any claim for any material Taxes. Schedule 4.11 lists the
consolidated federal income tax returns of the Company and its Subsidiaries that
have been examined by and settled with the Internal Revenue Service (the
"Service"). Except as set forth in Schedule 4.11, (i) no consent has been filed
under Section 341(f) of the Code with respect to any of the Company or the
Subsidiaries of the Company; (ii) neither the Company nor any of the
Subsidiaries of the Company has participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code; and (iii)
neither the Company nor any of the Subsidiaries of the Company has issued or
assumed any corporate acquisition indebtedness, as defined in Section 279(b) of
the Code. The Company and each Subsidiary of the Company have complied (and
until the Effective Time will comply) in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign laws)
and have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies, duties, imposts or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, use, transfer,
gains, license, payroll, withholding, capital stock and franchise taxes, imposed
by the United States, or any state, local or foreign government or subdivision
or agency thereof, including any interest, penalties or additions thereto. For
purposes of this Agreement, the term "Tax Return" shall mean any report, return
or other information or document required to be supplied to a taxing authority
in connection with Taxes.
SECTION 4.12 TITLE TO PROPERTIES; ENCUMBRANCES. Except as described in the
following sentence, each of the Company and its Subsidiaries has good, valid and
marketable title to, or a valid leasehold interest in, all of its material
properties and assets (real, personal and mixed, tangible and intangible),
including, without limitation, all the properties and assets reflected in the
consolidated balance sheet of the Company and its Subsidiaries as of August 31,
1996 included in the Company's Quarterly Report on Form 10-Q for the period
ended on such date (except for properties and assets disposed of in the ordinary
course of business and consistent with past practices since August 31, 1996).
None of such properties or assets are subject to any Liens (whether absolute,
accrued, contingent or otherwise), except (i) as specifically set forth in the
Company SEC Reports; (ii) Liens for taxes, assessments or other governmental
charges not
I-14
delinquent or being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by the Company or its
Subsidiaries and have been duly reflected on their books and records and, with
respect to reserves taken on or prior to August 31, 1996, the financial
statements of the Company ("Proper Reserves"); (iii) deposits or pledges to
secure obligations under workmen's compensation, social security or similar
laws, or under unemployment insurance as to which the Company and its
Subsidiaries are not in default; (iv) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of business of the Company or its
Subsidiaries; (v) judgment Liens listed on Schedule 4.12 that have been stayed
or bonded and mechanics', workmen's, materialmen's or other like liens with
respect to obligations which are not due or which are being contested in good
faith by the Company or its Subsidiaries and as to which they have taken Proper
Reserves; and (vi) minor imperfections of title and encumbrances, if any, which
are not substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not materially impair the operations
of any of the Company and its Subsidiaries.
SECTION 4.13 INTELLECTUAL PROPERTY.
(a) Except as set forth on Schedule 4.13(a), the Company and its
Subsidiaries are the sole and exclusive owners of all material patents, patent
applications, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks and registrations for and applications
for registration of trademarks, service marks and copyrights, and are the sole
and exclusive owners of, or have an irrevocable, royalty free right to use, all
material technology and know-how, trade secrets, rights in computer software and
other proprietary rights and information and all technical and user manuals and
documentation made or used in connection with any of the foregoing, in each case
used or held for use in connection with the businesses of the Company or any of
its Subsidiaries as currently conducted (collectively, the "Intellectual
Property"), free and clear of all Liens except as set forth on Schedule 4.13(a)
and except minor imperfections of title and encumbrances, if any, which are not
substantial in amount, do not materially detract from the value of the
Intellectual Property subject thereto and do not impair in any material respect
the operations of any of the Company and its Subsidiaries.
(b) All outstanding registrations and applications for Intellectual Property
(i) are valid, subsisting, in proper form and enforceable, and have been duly
maintained, including the submission of all necessary filings and fees in
accordance with the legal and administrative requirements of the appropriate
jurisdictions and (ii) have not lapsed, expired or been abandoned, and no
application or registration therefor is the subject of any pending, or, to the
knowledge of the Company, threatened legal or governmental proceeding before any
registration authority in any jurisdiction.
(c) To the knowledge of the Company, there are no conflicts with or
infringements of any Intellectual Property by any third party. The conduct of
the businesses of the Company and its Subsidiaries as currently conducted
(collectively, the "Business") does not conflict with or infringe in any way any
proprietary right of any third party, which conflict or infringement would have
a Company Material Adverse Effect, and there is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries (i) alleging any such conflict or
infringement with any third party's proprietary rights, or (ii) challenging the
ownership, use, validity or enforceability of the Intellectual Property.
SECTION 4.14 COMPLIANCE WITH APPLICABLE LAW. Except as set forth on Schedule
4.14 or as disclosed in the Company SEC Reports, (i) the Company and its
Subsidiaries hold, and are in compliance with the terms of, all material
permits, licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the current and presently proposed conduct of their respective
businesses ("Company Permits"), (ii) no fact exists or event has occurred, and
no action or proceeding is pending or, to the Company's knowledge, threatened,
that has a reasonable possibility of resulting in a revocation, nonrenewal,
termination, suspension or other material impairment of any material Company
Permits, (iii) the
I-15
businesses of the Company and its Subsidiaries are not being conducted in
violation, in any material respect, of any material applicable law, ordinance,
regulation, judgment, decree or order of any Governmental Entity ("Applicable
Law"), and (iv) to the knowledge of the Company, (x) no investigation or review
by any Governmental Entity with respect to the Company or its Subsidiaries is
pending or threatened or has been undertaken within the past six years, and (y)
no Governmental Entity has indicated an intention to conduct the same.
SECTION 4.15 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information to be supplied by the Company for inclusion
in (i) the Registration Statement to be filed with the SEC by Parent on Form S-4
under the Securities Act for the purpose of registering the shares of Parent
Common Stock to be issued in connection with the Merger (the "Registration
Statement") or (ii) the proxy statement to be distributed in connection with the
Company's meeting of stockholders to vote upon this Agreement (the "Proxy
Statement") will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the meeting of stockholders of the Company to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the applicable provisions of the Exchange Act, and the rules and
regulations promulgated thereunder, except that no representation is made by the
Company with respect to statements made therein based on information supplied by
Parent or its representatives for inclusion in the Proxy Statement or with
respect to information concerning Parent or any of its Subsidiaries incorporated
by reference in the Proxy Statement.
SECTION 4.16 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 4.16 hereto sets forth a true and complete list of each
material employee benefit plan, arrangement or agreement that is maintained, or
was maintained at any time during the five (5) calendar years preceding the date
of this Agreement (the "Company Plans"), by the Company or by any trade or
business, whether or not incorporated (a "Company ERISA Affiliate"), which
together with the Company would be deemed a "single employer" within the meaning
of Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b) Each of the Company Plans that is subject to ERISA is and has been in
compliance with ERISA and the Code in all material respects; each of the Company
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified; no Company Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 of the Code; neither the Company
nor any Company ERISA Affiliate has incurred, directly or indirectly, any
material liability (including any material contingent liability) to or on
account of a Company Plan pursuant to Title IV of ERISA; no proceedings have
been instituted to terminate any Company Plan that is subject to Title IV of
ERISA; no "reportable event," as such term is defined in Section 4043(b) of
ERISA, has occurred with respect to any Company Plan; and no condition exists
that presents a material risk to the Company or any Company ERISA Affiliate of
incurring a liability to or on account of a Company Plan pursuant to Title IV of
ERISA.
(c) The current value of the assets of each of the Company Plans that are
subject to Title IV of ERISA, based upon the actuarial assumptions (to the
extent reasonable) presently used by the Company Plans, exceeds the present
value of the accrued benefits under each such Company Plan; no Company Plan is a
multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) and no
Company Plan is a multiple employer plan as defined in Section 413 of the Code;
and all material contributions or other amounts payable by the Company as of the
Effective Time with respect to each Company Plan in respect of current or prior
plan years have been either paid or accrued on the balance sheet of the Company.
To the knowledge of the Company, there are no material pending, threatened or
anticipated claims (other than
I-16
routine claims for benefits) by, on behalf of or against any of the Company
Plans or any trusts related thereto.
(d) Neither the Company nor any Company ERISA Affiliate, nor any Company
Plan, nor any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company or any Company
ERISA Affiliate, any Company Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Company Plan or any such
trust could be subject to either a material civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code. No Company Plan provides death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company or any Company ERISA Affiliate beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law or
(ii) death benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA).
SECTION 4.17 ENVIRONMENTAL LAWS AND REGULATIONS.
a. Except as set forth on Schedule 4.17(a): (i) the Company and its
Subsidiaries are and have been, in all material respects, in compliance with,
and there are no outstanding allegations by any person or entity that the
Company or its Subsidiaries has not been in compliance with, all material
applicable laws, rules, regulations, common law, ordinances, decrees, orders or
other binding legal requirements relating to pollution (including the treatment,
storage and disposal of wastes and the remediation of releases and threatened
releases of materials), the preservation of the environment, and the exposure to
materials in the environment or work place ("Environmental Laws") and (ii) the
Company and its Subsidiaries currently hold all material permits, licenses,
registrations and other governmental authorizations (including exemptions,
waivers, and the like) and financial assurance required under Environmental Laws
for the Company and its Subsidiaries to operate their businesses as currently
conducted.
(b) Except as set forth on Schedule 4.17(b), to the knowledge of the Company
(and without special investigation for purposes hereof) (i) there is no friable
asbestos-containing material in or on any real property currently owned, leased
or operated by the Company or its Subsidiaries and (ii) there are and have been
no underground storage tanks (whether or not required to be registered under any
applicable law), dumps, landfills, lagoons, surface impoundments, injection
wells or other land disposal units in or on any property currently owned, leased
or operated by the Company or its Subsidiaries.
(c) Except as set forth on Schedule 4.17(c), (i) neither the Company nor its
Subsidiaries has received (x) any written communication from any person stating
or alleging that any of them may be a potentially responsible party under any
Environmental Law (including, without limitation, the Federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended)
with respect to any actual or alleged environmental contamination or (y) any
request for information under any Environmental Law from any Governmental Entity
with respect to any actual or alleged material environmental contamination; and
(ii) none of the Company, its Subsidiaries or any Governmental Entity is
conducting or has conducted (or, to the knowledge of the Company, is threatening
to conduct) any environmental remediation or investigation.
SECTION 4.18 VOTE REQUIRED. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Company Common Stock are the only
votes of the holders of any class or series of the Company's capital stock
necessary to approve the Merger. The Board of Directors of the Company, at a
meeting duly called and held on March 7, 1997, unanimously (i) approved this
Agreement and the Proxy and Option Agreement, (ii) determined that the
transactions contemplated hereby and thereby are fair to and in the best
interests of the holders of Company Common Stock and (iii) determined to
recommend this Agreement, the Merger and the other transactions contemplated
hereby to such holders for approval and adoption. The resolutions of the
Company's Board of Directors taking the actions described in the preceding
sentence have not been rescinded, withdrawn, amended or otherwise modified,
remain in full
I-17
force and effect, and constitute the only action of such Board of Directors with
respect to the Merger or the other transactions contemplated by this Agreement.
SECTION 4.19 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Houlihan, Lokey, Howard & Zukin, Inc., dated March 7, 1997,
substantially to the effect that the consideration to be received in the Merger
by the holders of Company Common Stock is fair to such holders from a financial
point of view, a copy of which opinion has been delivered to Parent.
SECTION 4.20 ACCOUNTING MATTERS. None of the Company, any of its
Subsidiaries or any of their respective directors, officers or stockholders has
taken any action which would prevent the accounting for the Merger as a pooling
of interests in accordance with Accounting Principles Board Opinion No. 16, the
interpretative releases pursuant thereto and the pronouncements of the SEC.
SECTION 4.21 NYBCL SECTION 912. Prior to the date hereof, the Board of
Directors of the Company has approved this Agreement and the Proxy and Option
Agreement, and the Merger and the other transactions contemplated hereby and
thereby, and such approval is sufficient to render inapplicable to the Merger
and any of such other transactions the provisions of Section 912 of the NYBCL.
SECTION 4.22 LABOR MATTERS. Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any collective bargaining agreement, contract or
other understanding with a labor union or labor organization and, to the
knowledge of the Company, there is no activity involving any employees of the
Company or its Subsidiaries seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
SECTION 4.23 AFFILIATE TRANSACTIONS. Except as set forth in Schedule 4.23 or
as disclosed in the Company SEC Reports, there are no Contracts or other
transactions between the Company or any of its Subsidiaries, on the one hand,
and any (i) officer or director of the Company or any of its Subsidiaries, (ii)
record or beneficial owner of five percent or more of the voting securities of
the Company or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand.
SECTION 4.24 BROKERS. Except for its financial advisors, Houlihan, Lokey,
Howard & Zukin, Inc., Bangert, Dawes, Reade, Davis & Thom, Incorporated, and
Royce Investment Group, Inc., no broker, finder or financial advisor is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company, and the Company has delivered
to the Parent true, complete and correct copies of (or, in the case of any oral
agreement or arrangement, a true, complete and correct summary of) each
agreement or arrangement pursuant to which any of such advisors is entitled to
any such fee or commission.
SECTION 4.25 TAX MATTERS. The Company knows of no fact or circumstance which
is reasonably likely to cause the Merger to be treated other than as a tax-free
reorganization under Section 368(a) of the Code.
SECTION 4.26 ACCOUNTS RECEIVABLE. All of the accounts and notes receivable
of the Company and its Subsidiaries set forth on the books and records of the
Company or to be incurred after the date hereof (in each case net of the
applicable reserves reflected or, with respect to future accounts and notes
receivable, to be reflected on the books and records of the Company and in the
financial statements included in the Company's SEC reports): (i) represent or
will represent sales actually made or to be made in the ordinary course of
business for goods or services delivered or rendered to unaffiliated customers
in bona fide arm's length transactions, (ii) constitute or will constitute valid
claims, and (iii) are, or upon incurrence will be, good and collectible, in each
case at the aggregate recorded amounts thereof without right of recourse,
defense, deduction, return of goods, counterclaim, or offset and have been or
will be collected in the ordinary course of business and consistent with past
experience.
I-18
SECTION 4.27 INVENTORY. All inventory of the Company and its Subsidiaries is
(net of the applicable reserves reflected on the books and records of the
Company and in the financial statements included in the Company's SEC reports)
of merchantable quality, free of defects in workmanship or design and is usable
and salable at normal profit margins and in accordance with historical sales
practices in the ordinary course of the business of the Company and its
Subsidiaries. The Inventory (net of such reserves) does not include any items
which are obsolete, damaged, excessive, below standard quality or slow moving
(I.E., items that are for discontinued or expected to be discontinued product
lines, or items that have not been used or sold within 12 months prior to the
date hereof).
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 5.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted or
presently proposed to be conducted. Parent is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified will not have a material adverse effect individually or in the
aggregate, on the financial condition, results of operations, business, assets,
liabilities, prospects or properties of Parent and its Subsidiaries taken as a
whole or on the ability of Parent to consummate the Merger and the other
transactions contemplated by this Agreement (a "Parent Material Adverse
Effect"). Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Sub has not engaged in any
business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation. Schedule 5.1 contains
a complete and accurate list of all Subsidiaries of Parent.
SECTION 5.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 60,000,000 shares of
Parent Common Stock and 1,000,000 shares of Preferred Stock, par value $.01 per
share, of Parent ("Parent Preferred Stock"). As of the date hereof, (i)
approximated 23,282,000 shares of Parent Common Stock are issued and
outstanding, (ii) no shares of Parent Preferred Stock are issued and
outstanding, (iii) options to acquire approximately 800,000 shares of Parent
Common Stock (the "Parent Stock Options") are outstanding under all stock option
plans of Parent, and (iv) approximately 800,000 shares of Parent Common Stock
are reserved for issuance pursuant to the Parent Stock Options and all other
Rights to purchase or otherwise receive capital stock or other securities of
Parent. All of the outstanding shares of capital stock of Parent are, and the
shares of Parent Common Stock issuable in exchange for shares of Company Common
Stock at the Effective Time in accordance with this Agreement will be, when so
issued, duly authorized, validly issued, fully paid and nonassessable.
(b) The authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock, of which 1,000 shares, as of the date hereof, were issued and
outstanding. All of such outstanding shares are owned by Parent, and are validly
issued, fully paid and nonassessable.
(c) Except as disclosed in Schedule 5.2, (i) there are no outstanding Rights
to purchase or otherwise to receive from Parent or Sub any of the outstanding
authorized but unissued or treasury shares of the capital stock or any other
security of Parent or Sub, (ii) there is no outstanding security of any kind
convertible into or exchangeable for such capital stock, and (iii) there is no
voting trust or other agreement or understanding to which Parent or Sub is a
party or is bound with respect to the voting of the capital stock of Parent or
Sub.
I-19
(d) Parent and its subsidiaries do not beneficially own any shares of the
Company's voting stock and, to Parent's knowledge, none of its affiliates or
associates (as such terms are defined in Section 912 of the NYBCL) beneficially
own any shares of the Company's voting stock.
SECTION 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Sub has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated on its part hereby have been
duly authorized by their respective Boards of Directors, and by Parent as the
sole stockholder of Sub, and no other corporate proceedings on the part of
Parent or Sub are necessary to authorize this Agreement or for Parent and Sub to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Sub and constitutes a
valid and binding agreement of each of Parent and Sub, enforceable against
Parent and Sub in accordance with its terms.
SECTION 5.4 CONSENTS AND APPROVALS NO VIOLATIONS. Neither the execution,
delivery and performance of this Agreement by Parent or Sub, nor the
consummation by Parent or Sub of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provisions of the Certificate of
Incorporation or By-Laws of Parent or of Sub, (ii) require a filing with, or a
permit, authorization, consent or approval of, any Governmental Entity except in
connection with or in order to comply with the applicable provisions of the HSR
Act, the Securities Act, the Exchange Act, state securities or "blue sky" laws,
the By-Laws of the NASD, and the filing and recordation of a Certificate of
Merger as required by the NYBCL, (iii) except as set forth on Schedule 5.4
hereto, result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of a
Lien on any property or asset of Parent or any of its Subsidiaries pursuant to,
any of the terms, conditions or provisions of any material Contract to which
Parent or Sub is a party or by which either of them or any of their properties
or assets may be bound or (iv) violate any material law, order, writ,
injunction, decree, statute, rule or regulation of any Governmental Entity
applicable to Parent, Sub or any of their properties or assets.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act since November 3, 1995 (collectively, the "Parent SEC Reports"),
and has previously made available to the Company true and complete copies of all
such Parent SEC Reports. Such Parent SEC Reports, as of their respective dates,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent SEC
Reports have been prepared in accordance with GAAP consistently applied
throughout the periods indicated (except as otherwise noted therein) and fairly
present the consolidated financial position of Parent and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of operations
and cash flows of Parent and its consolidated Subsidiaries for each of the
periods then ended, except that in the case of the unaudited consolidated
financial statements included in any Form 10-Q, the presentation and disclosures
conform with the applicable rules of the Exchange Act, but include all
adjustments necessary to conform to GAAP requirements with respect to interim
financial statements. Since December 31, 1995, there has been no change in any
of the significant accounting (including tax accounting) policies, practices or
procedures of the Parent or, except as set forth on Schedule 5.5, any of its
consolidated Subsidiaries.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS; MATERIAL CONTRACTS. Except
as set forth in the Parent SEC Reports, since September 29, 1996, (i) Parent has
not conducted its business and operations other than in the ordinary course of
business and consistent with past practices or taken any of the actions set
forth in Section 6.2(b) and (ii) there has not been any fact, event,
circumstance or change affecting or
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relating to Parent and its Subsidiaries which has had or is reasonably likely to
have a Parent Material Adverse Effect.
SECTION 5.7 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information to be supplied by Parent or Sub for inclusion
in (i) the Registration Statement or (ii) the Proxy Statement will in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, or, in the case of the Proxy Statement or any amendments thereof
or supplements thereto, at the time of the mailing of the Proxy Statement and
any amendments or supplements thereto, and at the time of the meeting of
stockholders of the Company to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act, and the rules and regulations promulgated thereunder, except that no
representation is made by Parent with respect to statements made therein based
on information supplied by the Company or its respective representatives for
inclusion in the Registration Statement or the Proxy Statement or with respect
to information concerning the Company or any of its Subsidiaries incorporated by
reference in the Registration Statement or the Proxy Statement.
SECTION 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities or
obligations which are accrued or reserved against in Parent's consolidated
financial statements (or reflected in the notes thereto) included in the Company
SEC Reports or which were incurred after September 30, 1996 in the ordinary
course of business and consistent with past practice, and except as set forth on
Schedule 5.8, none of Parent and its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated balance sheet (or reflected
in the notes thereto) or which would have a Parent Material Adverse Effect.
SECTION 5.9 COMPLIANCE WITH APPLICABLE LAW. Except as set forth on Schedule
5.9 or as disclosed in the Parent SEC Reports, (i) the Parent and its
Subsidiaries hold, and are in compliance with the terms of, all material
permits, licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the current and presently proposed conduct of their respective
businesses ("Parent Permits"), (ii) no fact exists or event has occurred, and no
action or proceeding is pending or, to Parent's knowledge, threatened, that has
a reasonable possibility of resulting in a revocation, nonrenewal, termination,
suspension or other material impairment of any material Parent Permits, (iii)
the businesses of Parent and its Subsidiaries are not being conducted in
violation of Applicable Law, and (iv) to the knowledge of Parent, (x) no
investigation or review by any Governmental Entity with respect to Parent or its
Subsidiaries is pending or threatened and (y) no Governmental Entity has
indicated an intention to conduct the same.
SECTION 5.10 LITIGATION. Except for litigation disclosed in the notes to the
financial statements included in Parent's Annual Report to Stockholders for the
year ended December 31, 1995 or in Parent SEC Reports filed subsequent thereto,
there is no suit, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries, the outcome of which, in the reasonable judgment of Parent, is
likely to have a Parent Material Adverse Effect; nor is there any judgment,
decree, injunction, ruling or order of any Governmental Entity outstanding
against Parent or any of its Subsidiaries having, or which is reasonably likely
to have, a Parent Material Adverse Effect.
SECTION 5.11 OPINION OF FINANCIAL ADVISOR. Parent has received the opinion
of Tanner & Co., Inc., dated March 7, 1997, substantially to the effect that the
consideration to be received in the Merger by the holders of Company Common
Stock is fair to the holders of Parent Common Stock from a financial point of
view, a copy of which opinion has been delivered to the Company.
SECTION 5.12 ACCOUNTING MATTERS. None of the Parent, any of its Subsidiaries
or any of their respective directors, officers or stockholders has taken any
action which would prevent the accounting for
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the Merger as a pooling of interests in accordance with Accounting Principles
Board Opinion No. 16, the interpretative releases pursuant thereto and the
pronouncements of the SEC.
SECTION 5.13 TAX MATTERS. Parent knows of no fact or circumstance which is
reasonably likely to cause the Merger to be treated other than as a tax-free
reorganization under Section 368(a) of the Code.
SECTION 5.14 BROKERS. Except for its financial advisor, Tanner & Co., Inc.,
no broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.15 NO DEFAULT. Neither Parent nor any Subsidiary of Parent is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its charter, by-laws or comparable organizational documents,
(ii) any material Contract to which Parent or any of its Subsidiaries is a party
or by which they or any of their properties or assets may be bound, or (iii) any
material order, writ, injunction or decree, or any material statute, rule or
regulation, of any Governmental Entity applicable to Parent or any of its
Subsidiaries.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, unless Parent shall otherwise agree in writing,
or as otherwise expressly contemplated by this Agreement:
(a) the Company shall conduct, and cause each of its Subsidiaries to
conduct, its business only in the ordinary and usual course consistent with
past practice, and the Company shall use, and cause each of its Subsidiaries
to use, its reasonable efforts to preserve intact the present business
organization, keep available the services of its present officers and key
employees, and preserve the goodwill of those having business relationships
with it;
(b) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) amend its charter, bylaws or other organizational documents, (ii)
split, combine or reclassify any shares of its outstanding capital stock,
(iii) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property, or (iv) directly or indirectly redeem or
otherwise acquire any shares of its capital stock or shares of the capital
stock of any of its Subsidiaries;
(c) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) authorize for issuance, issue or sell or agree to issue or sell any
shares of, or Rights to acquire or convertible into any shares of, its
capital stock or shares of the capital stock of any of its Subsidiaries
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except for the issuance of
shares of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement, or amend any outstanding Company
Stock Option, Company Warrant or other Right, except that the Company may
amend the terms of the Company Stock Options set forth on Schedule 4.2(b)
under the heading "1987 Plan" to provide that the holders thereof may
exercise such options prior to their expiration dates regardless of whether
such holders are then serving as directors of the Company; (ii) merge or
consolidate with another entity; (iii) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization (except for such potential
acquisitions, and on substantially such terms, as have been described in a
letter executed and delivered by the Company and Parent simultaneously with
the execution and delivery of this Agreement and provided that the Company
keeps Parent informed as to the status of all negotiations with respect
thereto
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(including any termination of such negotiations) and gives Parent prior
notice of the consummation of any such acquisition and the signing of any
agreement with respect thereto) or otherwise acquire any assets outside the
ordinary and usual course of business and consistent with past practice or
otherwise enter into any material contract, commitment or transaction
outside the ordinary and usual course of business consistent with past
practice; (iv) sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its assets outside the ordinary and usual course
of business and consistent with past practice; (v) incur, assume or prepay
any material indebtedness or any other material liabilities other than in
the ordinary course of business and consistent with past practice; (vi)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person other than a Subsidiary of the Company or customers, in each
case in the ordinary course of business and consistent with past practice;
(vii) make, extend or modify in any material respect any loans, advances or
capital contributions to, or investments in, any other person, other than to
Subsidiaries of the Company or loans to employees of the Company or any of
its Subsidiaries, in an aggregate amount not exceeding $25,000, for such
reasons, and on such terms and conditions, as are consistent with past
practice; (viii) authorize or make capital expenditures in excess of the
respective amounts set forth on Schedule 6.1 hereto; (ix) permit any
insurance policy naming the Company or any Subsidiary of the Company as a
beneficiary or a loss payee to be canceled or terminated other than in the
ordinary course of business; or (x) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) the Company shall not, nor shall it permit its Subsidiaries to, (i)
adopt, enter into, terminate or amend (except as may be required by
Applicable Law) any Company Plan or other arrangement for the current or
future benefit or welfare of any director, officer or current or former
employee, (ii) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except for
normal increases in compensation in the ordinary course of business
consistent with past practice and accrued and unpaid bonuses in respect of
the Company's fiscal year ended November 30, 1996 that are consistent with
past practice and have been properly accrued and reflected on the Company's
books and records, or (iii) take any action to fund or in any other way
secure, or to accelerate or otherwise remove restrictions with respect to,
the payment of compensation or benefits under any employee plan, agreement,
contract, arrangement or other Company Plan (including the Company Stock
Options);
(e) the Company shall not, nor shall it permit its Subsidiaries to, take
any action with respect to, or make any material change in, its accounting
or tax policies or procedures, except as required by law or to comply with
GAAP; and
(f) the Company shall not (i) take any action or allow any action to be
taken by any of its Subsidiaries or affiliates which would jeopardize the
treatment of Parent's acquisition of the Company as a pooling of interests
for accounting purposes; or (ii) take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
SECTION 6.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. From the date
of this Agreement until the earlier of the Effective Time or the termination of
this Agreement, unless the Company shall otherwise agree in writing, or as
otherwise expressly contemplated by this Agreement:
(a) Parent shall conduct its business and the business of its
Subsidiaries in a manner designed, in the good faith judgment of its Board
of Directors, to enhance the long-term value of the Parent Common Stock and
the business prospects of Parent and its Subsidiaries;
(b) Parent shall not (i) split, combine or reclassify any shares of its
outstanding capital stock; or (ii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property;
(c) Parent shall not authorize for issuance, issue or sell or agree to
issue or sell any shares of, or Rights to acquire or convertible into any
shares of, its capital stock, except for (i) the issuance of
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shares of Parent Common Stock (x) upon the exercise of Parent Stock Options
or other Rights outstanding on the date of this Agreement or (y) upon the
exercise of Rights described in the immediately following clause (ii), (ii)
the issuance of Rights pursuant to existing employee benefit plans or
arrangements in a manner consistent with past practice, and (iii) the
issuance of shares of Parent Common Stock in connection with arms' length
acquisitions with non-affiliates; and
(d) Except as described on Schedule 6.2(d), Parent shall not, nor shall
it permit any of its Subsidiaries to, (i) amend its charter, bylaws or other
organizational documents, (ii) split, combine or reclassify any shares of
its outstanding capital stock, or (iii) directly or indirectly redeem or
otherwise acquire any shares of its capital stock or shares of the capital
stock of any of its Subsidiaries.
SECTION 6.3 CONDUCT OF BUSINESS OF SUB. During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement. It is
understood that Sub was formed by Parent solely for the purpose of effecting the
Merger, and that Sub will have no material assets and no material liabilities
prior to the Merger. Parent shall cause Sub to perform its obligations under
this Agreement.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS AND INFORMATION. Each of the Company and Parent shall
(and shall cause its Subsidiaries and its and their respective officers,
directors, employees, auditors and agents to) afford to the other and to the
other's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives reasonable access, during normal business
hours throughout the period from the date hereof until the earlier of the
Effective Time and the termination of this Agreement, to all of its books and
records and its properties, plants and personnel and, during such period, each
shall furnish promptly to the other a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal
securities laws, provided that no investigation pursuant to this Section 7.1
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective parties to consummate the Merger. Unless
otherwise required by law, each of Parent and the Company agrees that it (and
its respective Subsidiaries and its and their respective representatives) shall
hold in confidence all non-public information so acquired in accordance with the
terms of the confidentiality agreement between Parent and the Company executed
in November 1996 (the "Confidentiality Agreement").
SECTION 7.2 NO SOLICITATION.
(a) Prior to the Effective Time, the Company agrees that neither it, any of
its Subsidiaries or its affiliates, nor any of the respective directors,
officers, employees, affiliates, agents or representatives of the foregoing
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) will, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to or which may reasonably be expected to lead to, any
merger, consolidation or other business combination involving the Company or any
Subsidiary of the Company (other than any acquisition by the Company permitted
under Section 6.1(c)) or the acquisition of all or any significant assets or
capital stock of the Company or any Subsidiary of the Company taken as a whole
(an "Acquisition Transaction") or negotiate, explore or otherwise engage in
discussions with any corporation, partnership, person, other entity or group (as
defined in Section 13(d)(2) of the Exchange Act) (other than Parent and its
representatives) in furtherance of such inquiries or with respect to any
Acquisition Transaction, or endorse any Acquisition Transaction, or enter into
any agreement, arrangement or understanding with respect to any such Acquisition
Transaction or which would require it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this Agreement;
provided, however, that the Company may, in response to an unsolicited written
proposal from a third party, furnish
I-24
information to and engage in discussions with such third party, in each case
only if the Board of Directors of the Company determines in good faith by a
majority vote, after consultation with its financial advisor, Houlihan, Lokey,
Howard & Zukin, Inc., and after reviewing the advice of outside counsel to the
Company, that such action is reasonably likely to be required by the fiduciary
duties of the Board of Directors and, prior to taking such action, the Company
(i) provides reasonable notice to Parent to the effect that it is taking such
action and (ii) receives from such corporation, partnership, person or other
entity or group (and delivers to Parent) an executed confidentiality agreement
in reasonably customary form. The Company agrees that as of the date hereof, it,
its Subsidiaries and affiliates, and the respective directors, officers,
employees, agents and representatives of the foregoing, shall immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any person (other than Parent and its representatives) conducted heretofore
with respect to any Acquisition Transaction. The Company agrees to immediately
advise Parent in writing of any inquiries or proposals (or desire to make a
proposal) received by (or indicated to), any such information requested from, or
any such negotiations or discussions sought to be initiated or continued with,
any of it, its Subsidiaries or affiliates, or any of the respective directors,
officers, employees, agents or representatives of the foregoing, in each case
from a corporation, partnership, person or other entity or group (other than
Parent and its representatives) with respect to an Acquisition Transaction, and
the terms thereof, including the identity of such third party, and to update on
an ongoing basis or upon Parent's request, the status thereof, as well as any
actions taken or other developments pursuant to this Section 7.2(a).
Notwithstanding anything in the foregoing provisions of the Section 7.2(a) to
the contrary: (i) the Company shall not disclose any information received by it
or any of its directors, officers, employees, agents or representatives pursuant
to the Confidentiality Agreement or any other confidentiality or other similar
agreement between the Company and Parent to any person in violation of such
agreement and (ii) the Company shall not be obligated to disclose to Parent any
confidential information provided to the Company by any third party in violation
of any confidentiality agreement between the Company and such third party
provided for in this Section 7.2.
(b) Except as set forth in this Section 7.2(b), the Board of Directors of
the Company shall not (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to the Parent or the Sub, the approval or recommendation by
the Board of Directors of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Transaction or
(iii) cause the Company to enter into any agreement with respect to any
Acquisition Transaction. Notwithstanding the foregoing, in the event that prior
to the Effective Time the Board of Directors of the Company determines in good
faith by a majority vote, after consultation with its financial advisor,
Houlihan, Lokey, Howard & Zukin, Inc., and after reviewing the advice of outside
counsel to the Company, that such action is reasonably likely to be required by
the fiduciary duties of the Board of Directors, the Board of Directors of the
Company may withdraw or modify its approval or recommendation of this Agreement
and the Merger, approve or recommend an Acquisition Transaction or cause the
Company to enter into an agreement with respect to an Acquisition Transaction,
provided, in each case, that such Board determines in its good faith reasonable
judgment, by a majority vote after consultation with its financial advisor and
after reviewing the advice of outside counsel to the Company, that the
Acquisition Transaction is more favorable to the stockholders of the Company
than the Merger. The Company shall provide reasonable prior notice to the Parent
or the Sub to the effect that it is taking such action.
SECTION 7.3 REGISTRATION STATEMENT. As promptly as practicable, Parent and
the Company shall in consultation with each other prepare and file with the SEC
the Proxy Statement and Parent in consultation with the Company shall prepare
and file with the SEC the Registration Statement. Each of Parent and the Company
shall use its reasonable best efforts to have the Registration Statement
declared effective as soon as practicable. Parent shall also use its reasonable
best efforts to take any action required to be taken under state securities or
"blue sky" laws in connection with the issuance of the shares of Parent Common
Stock pursuant to this Agreement in the Merger. The Company shall furnish Parent
with all information concerning the Company and the holders of its capital stock
and shall take such other action as Parent may reasonably request in connection
with the Registration Statement and the issuance of shares of Parent
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Common Stock, and Parent shall furnish the Company with all information
concerning Parent and the holders of its capital stock and shall take such other
action as the Company may reasonably request in connection with the Proxy
Statement. If at any time prior to the Effective Time any event or circumstance
relating to Parent, any Subsidiary of Parent, the Company, any Subsidiary of the
Company, or their respective officers or directors, should be discovered by such
party which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, such party shall promptly inform the
other thereof and take appropriate action in respect thereof.
SECTION 7.4 PROXY STATEMENTS; STOCKHOLDER APPROVAL.
(a) The Company, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation and
By-Laws, promptly and duly call, give notice of and, as soon as practicable
following the date upon which the Registration Statement becomes effective, hold
a meeting of the holders of Company Common Stock for the purpose of voting to
approve and adopt this Agreement and the transactions contemplated hereby, and,
except as otherwise provided in Section 7.2(b), (i) recommend approval and
adoption of this Agreement and the transactions contemplated hereby, by the
stockholders of the Company and include in the Proxy Statement such
recommendation and (ii) take all reasonable and lawful action to solicit and
obtain such approval.
(b) The Company, as promptly as practicable, shall cause the definitive
Proxy Statement to be mailed to its stockholders.
(c) At or prior to the Closing, the Company shall deliver to Parent a
certificate of its Secretary setting forth the voting results from its
stockholder meeting.
SECTION 7.5 COMPLIANCE WITH THE SECURITIES ACT.
(a) At least 10 days prior to the Effective Time, the Company shall cause to
be delivered to Parent a list identifying all persons who were at the record
date for its stockholders' meeting convened in accordance with Section 7.4
hereof, "affiliates" of the Company, as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act (the "Affiliates").
(b) The Company shall use its reasonable best efforts to cause each person
who is identified as one of its Affiliates in its list referred to in Section
7.5(a) above to deliver to Parent (with a copy to the Company), at least 10 days
prior to the Effective Time, a written agreement, in the form attached hereto as
Exhibit B (the "Affiliate Agreement").
(c) If any Affiliate of the Company refuses to provide an Affiliate
Agreement, Parent may place appropriate legends on the certificates evidencing
the shares of Parent Common Stock to be received by such Affiliate pursuant to
the terms of this Agreement and may issue appropriate stop transfer instructions
to the transfer agent for shares of Parent Common Stock to the effect that the
shares of Parent Common Stock received by such Affiliate pursuant to this
Agreement only may be sold, transferred or otherwise conveyed (i) pursuant to an
effective registration statement under the Securities Act, (ii) in compliance
with Rule 145 promulgated under the Securities Act, or (iii) pursuant to another
exemption under the Securities Act.
SECTION 7.6 REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, the obtaining of all necessary
waivers, consents and approvals and the effecting of all necessary registrations
and filings. Without limiting the generality of the foregoing, as promptly as
practicable, the Company, Parent and Sub shall make all filings and submissions
under the HSR Act as may be reasonably required to be made in connection with
this Agreement and the transactions contemplated hereby. Subject to the
Confidentiality Agreement, the Company will furnish to Parent and Sub, and
Parent and Sub will
I-26
furnish to the Company, such information and assistance as the other may
reasonably request in connection with the preparation of any such filings or
submissions. Subject to the Confidentiality Agreement, the Company will provide
Parent and Sub, and Parent and Sub will provide the Company, with copies of all
material written correspondence, filings and communications (or memoranda
setting forth the substance thereof) between such party or any of its
representatives and any Governmental Entity, with respect to the obtaining of
any waivers, consent or approvals and the making of any registrations or
filings, in each case that is necessary to consummate the Merger and the other
transactions contemplated hereby. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of Parent and the Surviving
Corporation shall take all such necessary action.
SECTION 7.7 PROXY AND OPTION AGREEMENT. Concurrently herewith, and as an
essential inducement for Parent's entering into this Agreement, Parent and Sub
are entering into the Proxy and Option Agreement with certain holders of Company
Common Stock with respect to all such shares of Company Common Stock held by
such holders, except for the Excluded Reade Shares (as described in the Option
and Proxy Agreement).
Section 7.8 COMPANY STOCK OPTIONS. To the extent permitted by the respective
terms of the Company Stock Options and the plans under which they were issued
and the respective terms of the Company Stock Warrants, at the Effective Time,
each of the Company Stock Options (and, solely with respect to such options, the
applicable option plans pursuant to which such options were issued) and each of
the Company Warrants which is outstanding immediately prior to the Effective
Time and listed on Schedule 4.2(b) shall be assumed by Parent on the terms set
forth herein and converted automatically into an option or a warrant, as the
case may be, to purchase shares of Parent Common Stock (each, a "Converted
Option" or a "Converted Warrant", as the case may be) in an amount and at an
exercise price determined as provided below:
(a) The number of shares of Parent Common Stock to be subject to a
Converted Option or a Converted Warrant shall be equal to the product of the
number of shares of Company Common Stock remaining subject (as of
immediately prior to the Effective Time) to the original option or warrant
and the Exchange Ratio, provided that any fractional shares of Parent Common
Stock resulting from such multiplication shall be rounded down to the
nearest share; and
(b) The exercise price per share of Parent Common Stock under a
Converted Option or a Converted Warrant shall be equal to the exercise price
per share of Company Common Stock under the original option or warrant
divided by the Exchange Ratio, provided that such exercise price shall be
rounded down to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
modified to the extent required to comply with Section 424(a) of the Code and
the applicable Treasury Regulations. After the Effective Time, each Converted
Option shall be exercisable and shall vest upon the same terms and conditions as
were applicable to the related Company Stock Option immediately prior to the
Effective Time, except that all references to the Company shall be deemed to be
references to Parent. Parent shall file with the SEC a registration statement on
Form S-8 (or other appropriate form) and shall take any action required to be
taken under state securities "blue sky" laws for purposes of registering all
shares of Parent Common Stock issuable after the Effective Time upon exercise of
the Converted Options, and use all reasonable efforts to have such registration
statement (or a successor or replacement registration statement) become
effective with respect thereto as promptly as practicable after the Effective
Time and to remain in effect while any of the Converted Options remain
exercisable. Parent shall reserve for issuance in connection with the exercise
of Converted Options and Converted Warrants such number of shares of Parent
Common Stock as shall be required to be issued upon such exercise.
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SECTION 7.9 PUBLIC ANNOUNCEMENTS. Each of Parent, Sub and the Company agrees
that it will not issue any press release or otherwise make any public statement
with respect to this Agreement (including the Exhibits hereto) or the
transactions contemplated hereby (or thereby) without the prior consent of the
other party, which consent shall not be unreasonably withheld or delayed;
provided, however, that such disclosure can be made without obtaining such prior
consent if (i) the disclosure is required by law or by obligations imposed
pursuant to any listing agreement with any national securities exchange or
quotation system and (ii) the party making such disclosure has first used its
reasonable best efforts to consult with (but not obtain the consent of) the
other party about the form and substance of such disclosure.
SECTION 7.10 EXPENSES. Except as otherwise set forth in Section 9.2(b),
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement (including the Exhibits hereto) and the
transactions contemplated hereby (and thereby) shall be paid by the party
incurring such expenses, except that (i) the filing fee in connection with
filings under the HSR Act, (ii) the expenses incurred in connection with
printing the Registration Statement and the Proxy Statement and (iii) the filing
fee with the SEC relating to the Registration Statement or the Proxy Statement
will be shared equally by Parent and the Company.
SECTION 7.11 LISTING APPLICATION. Parent will use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued pursuant to this
Agreement in the Merger (as well as the shares of Parent Common Stock issuable
after the Effective Time upon exercise of the Parent Options) to be listed for
quotation and trading on the Nasdaq National Market.
SECTION 7.12 SUPPLEMENTAL DISCLOSURE. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (x) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied and
(ii) any failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.12 shall not have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VIII of this Agreement or
otherwise limit or affect the remedies available hereunder to any party.
SECTION 7.13 LETTERS OF ACCOUNTANTS.
(a) Parent shall use all reasonable efforts to cause to be delivered to the
Company a letter of BDO Seidman, LLP, Parent's independent auditors, dated a
date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement, which letter
shall be brought down to a date within two business days prior to the Effective
Time.
(b) The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Miller, Ellin & Company, the Company's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement,
which letter shall be brought down to a date within two business days prior to
the Effective Time.
SECTION 7.14 RECRUITMENT. Prior to the Effective Time, and, if this
Agreement is terminated by the Company pursuant to Section 9.1(e)(i) or
9.1(e)(ii), prior to the first anniversary of the date of such termination,
neither Parent nor any of its Subsidiaries shall hire or solicit the employment
of any employee of the Company or any of its Subsidiaries. Prior to the
Effective Time and, if this Agreement is terminated
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by Parent pursuant to Section 9.1(d)(i) or 9.1(d)(ii) prior to the first
anniversary of such termination, neither the Company nor any of its Subsidiaries
shall hire or solicit the employment of any employee of Parent or any of its
Subsidiaries. If this Agreement terminates without the Merger being consummated
except as provided in the preceding sentences of this Section 7.14, neither
Parent nor its Subsidiaries, on the one hand, nor the Company nor its
Subsidiaries, on the other, will hire or solicit the employment of any employee
of any of the others, for a period of six months from the date of such
termination.
SECTION 7.15 INDEMNIFICATION.
(a) For a period of six years after the Effective Time, Parent shall, and
shall cause the Surviving Corporation to, indemnify, defend and hold harmless
the present and former directors, officers, employees and agents of the Company
and its Subsidiaries (each, an "Indemnified Party") against any and all losses,
costs, damages, claims and liabilities (including reasonable attorneys' fees)
arising out of the Indemnified Party's service or services as a director,
officer, employee or agent of the Company or, if at the Company's request, of
another corporation, partnership, joint venture, trust or other enterprise
occurring at or prior to the Effective Time (including the transactions
contemplated by or related to this Agreement) to the fullest extent permitted
under New York Law and the Company's Articles of Incorporation and Bylaws as in
effect on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any litigation, action, claim or proceeding and
whether or not Parent or Surviving Corporation is insured against any such
matter. Without limiting the foregoing, in any case in which approval by the
Surviving Corporation is required to effectuate any indemnification and subject
to the applicable requirements of the NYBCL, the Surviving Corporation shall
direct, at the election of the Indemnified Party, that the determination of any
such approval shall be made by independent counsel selected by the Surviving
Corporation and reasonably acceptable to the Indemnified Party.
(b) The Surviving Corporation or the Parent shall maintain in effect (for at
least six years from the Effective Time in the case of claims made policies)
directors' and officers' liability insurance policies providing coverage in an
aggregate amount of at least $10,000,000 and with a carrier(s) having a Best
rating at least equal to the Best rating of the current carrier(s) covering
directors and officers of the Company serving as of or after December 1, 1990
with respect to claims arising from occurrences prior to or at the Effective
Time (including the transactions contemplated by or related to this Agreement).
(c) If Parent or the Surviving Corporation or any successors or assigns
shall transfer all or substantially all of its assets to any person or entity,
then and in each case, proper provision shall be made so that the assigns of
Parent or the Surviving Corporation shall assume the obligations set forth in
this Section 7.15.
(d) The provisions of this Section 7.15 are intended to be for the benefit
of and shall be enforceable by, each Indemnified Party and his or her respective
heirs and representatives.
ARTICLE VIII.
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) HSR APPROVAL. Any waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) STOCKHOLDER APPROVALS. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
vote (as described in Section 4.18) of the stockholders of the Company, in
accordance with applicable law.
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(c) NASDAQ LISTING. The shares of Parent Common Stock issuable to the
holders of Company Common Stock pursuant to this Agreement in the Merger
shall have been authorized for listing on the Nasdaq National Market, upon
official notice of issuance.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceeding by the SEC seeking a stop order.
(e) NO ORDER. No Governmental Entity (including a federal or state
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Merger or any transaction contemplated by this
Agreement; provided, however, that the parties shall use their reasonable
best efforts to cause any such decree, judgment, injunction or other order
to be vacated or lifted.
(f) APPROVALS. Other than the filing of Merger documents in accordance
with the NYBCL, all authorizations, consents, waivers, orders or approvals
of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity the failure of which to obtain, make or
occur would, individually or in the aggregate, have a material adverse
effect at or after the Effective Time on Parent and its Subsidiaries
including the Surviving Corporation and its Subsidiaries, shall have been
obtained, been filed or have occurred. Parent shall have received all state
securities or "blue sky" permits and other authorizations necessary to issue
the shares of Parent Common Stock pursuant to this Agreement in the Merger.
(g) LITIGATION. No preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory
agency, body or authority which enjoins, restrains or prohibits the
transactions contemplated hereby, including the consummation of the Merger
or has the effect of making the Merger illegal and which is in effect at the
Effective Time (each party agreeing to use its best efforts to have any such
injunction or order lifted).
(h) STATUTES. No statute, rule, regulation, executive order, decree or
order of any kind shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the consummation of
the Merger or has the effect of making the Merger illegal.
(i) MARKET EVENTS. There shall not have occurred and be continuing any
general suspension or limitation of trading in Parent Common Stock
(exclusive, however, of any temporary suspension pending an ensuing public
announcement) or in securities generally on Nasdaq.
(j) TAX OPINION. The Company shall have received the opinion of
Cummings & Lockwood, counsel to the Company, which opinion shall be
reasonably satisfactory to Parent, to the effect that the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, which opinion shall be
dated on or about the date that is two business days prior to the date the
Proxy Statement is first mailed to stockholders of the Company and shall
have not have been withdrawn or modified in any material respect. Such
opinion may be based, as to the matters of fact set forth in such
certificates, on certificates of officers of the Company and Parent and of
other appropriate persons that are provided to Parent.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by Parent:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Company set forth
in this Agreement does not and would not reasonably be expected to have a
Company Material Adverse Effect and (ii) the representations and warranties
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of the Company that are qualified with reference to a Company Material
Adverse Effect or materiality shall, subject to such qualification, be true
and correct and the representations and warranties that are not so qualified
shall be true and correct in all material respects, in each case as of the
date hereof, and, except to the extent such representations and warranties
speak as of an earlier date, as of the Effective Time as though made at and
as of the Effective Time, and Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. Each of the Company and
its Subsidiaries shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Time, and Parent shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(c) AFFILIATE AGREEMENTS. Parent shall have received the Affiliate
Agreements from each of the Affiliates of the Company, as contemplated in
Section 7.5.
(d) "POOLING LETTER." Parent shall have received from BDO Seidman, LLP
a letter, dated the Closing Date and addressed to Parent, to the effect
that, subject to customary qualifications, the Merger qualifies for pooling
of interests treatment for financial reporting purposes in accordance with
GAAP, and Parent shall have received from the Company, with the consent of
Miller, Ellin & Company, a copy of a letter, dated the Closing Date, of
Miller, Ellin & Company addressed to the Company to the effect that, subject
to customary qualifications, the Merger qualifies for pooling of interests
for financial reporting purposes in accordance with GAAP.
(e) LETTERS OF RESIGNATION. Parent and Sub shall have received letters
of resignation addressed to the Company from the members of the Company's
board of directors, which resignations shall be effective as of the
Effective Time.
(f) DISSENTING SHARES. The aggregate number of shares of Company
Common Stock into which all Dissenting Shares are convertible shall not
constitute more than 9% of the number of shares of Company Common Stock
outstanding as of immediately prior to the Effective Time (calculated
assuming no dilution).
(g) LEGAL OPINION. Parent shall have received opinions, dated the
Closing Date, of Otterbourg, Steindler, Houston & Rosen, P.C. and Lester
Morse, P.C. which together are substantially to the effect set forth in
Exhibit C hereto, subject to assumptions, qualifications and limitations
reasonably satisfactory to Parent, which opinions shall be reasonably
satisfactory to Parent.
(h) 1996 DIRECTORS' RETIREMENT PLAN. The Company's 1996 Directors'
Retirement Plan shall have terminated and neither the Company, Parent nor
any of their respective Subsidiaries shall have any liability or obligation
to any person arising under or in respect of such plan.
SECTION 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of Parent set forth in
this Agreement does not and will not have a Parent Material Adverse Effect
and (ii) the representations and warranties of Parent contained in this
Agreement that are qualified with reference to a Parent Material Adverse
Effect or materiality shall be true and correct and the representations and
warranties that are not so qualified shall be true and correct in all
material respects as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the
Effective Time as though made on and as of the
I-31
Effective Time, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer or the chief financial
officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Each of Parent and
Sub shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer or the chief financial officer of
Parent to such effect.
(c) LEGAL OPINION. The Company shall have received an opinion, dated
the Closing Date, of Proskauer Rose Goetz & Mendelsohn LLP, reasonably
satisfactory to the Company, substantially to the effect set forth in
Exhibit D hereto.
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
the Company:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if (i) the Merger shall not have
been consummated before September 30, 1997, or (ii) the approval of the
stockholders of the Company required by Section 4.18 shall not have been
obtained at a meeting duly convened therefor or any adjournment thereof
(unless, in the case of any such termination pursuant to this Section
9.1(b), the failure to so consummate the Merger by such date or to obtain
such stockholder approval shall have been caused by the action or failure to
act of the party (or its Subsidiaries) seeking to terminate this Agreement,
which action or failure to act constitutes a breach of this Agreement);
(c) by either Parent or the Company, if any permanent injunction or
action by any Governmental Entity of competent jurisdiction preventing the
consummation of the Merger shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement
pursuant to this Section 9.1(c) shall have used all reasonable efforts to
remove such injunction or overturn such action;
(d) by Parent, if (i) there has been a breach of any representations or
warranties of the Company set forth herein the effect of which, individually
or together with all other such breaches, is a Company Material Adverse
Effect, (ii) there has been a breach in any material respect of any of the
covenants or agreements set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Parent to the Company,
(iii) the Board of Directors of the Company (x) withdraws or amends or
modifies in a manner materially adverse to Parent or Sub its recommendation
or approval in respect of this Agreement or the Merger, (y) makes any
recommendation with respect to an Acquisition Transaction (including making
no recommendation or stating an inability to make a recommendation), other
than a recommendation to reject such Acquisition Transaction, or (z) takes
any action that would be prohibited by Section 7.2, (iv) any corporation,
partnership, person or other entity or group ("Acquiring Person") other than
Parent, or any affiliate or Subsidiary of Parent, shall have become the
beneficial owner of more than 20% of the outstanding voting equity of the
Company (either on a primary or a fully diluted basis); provided, however
that "Acquiring Person" shall not include any corporation, partnership,
person, other entity or group which beneficially owns as of the date hereof
(either on a primary or a fully diluted basis) more than 20% of the
outstanding voting equity of the Company (either on a primary or a fully
diluted basis) and which has not after the date hereof increased such
ownership percentage by more than an additional 1% of the outstanding voting
equity of the Company (either on a primary or a fully diluted basis), or (v)
any other Acquisition Transaction
I-32
shall have occurred with any Acquiring Person other than Parent, or any
affiliate or Subsidiary of Parent;
(e) by the Company, if (i) there has been a breach of any
representations or warranties of Parent set forth herein the effect of
which, individually or together with all other such breaches, is a Parent
Material Adverse Effect, (ii) there has been a breach in any material
respect of any of the covenants or agreements set forth in this Agreement on
the part of Parent, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by the Company
to Parent or (iii) such termination is necessary to allow the Company to
enter into an Acquisition Transaction in accordance with Section 7.2(b); and
(f) by Parent, if the meeting of stockholders of the Company to vote
upon this Agreement is canceled or is otherwise not held prior to August 31,
1997 except as a result of a judgment, injunction, order or decree of any
competent authority or events or circumstances beyond the reasonable control
of the Company.
SECTION 9.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement pursuant to this Article
IX, the Merger shall be deemed abandoned and this Agreement shall forthwith
become void, without liability on the part of any party hereto, except as
provided in this Section 9.2, Section 7.1, Section 7.10 and Section 7.14.
(b) If (x) Parent shall have terminated this Agreement pursuant to Sections
9.1(d)(iii), 9.1(d)(iv) or 9.1(d)(v) or (y) either (1) Parent or the Company
shall have terminated this Agreement pursuant to Section 9.1(b) or (2) Parent
shall have terminated this Agreement pursuant to Section 9.1(d)(i), 9.1(d)(ii)
or 9.1(f) and, prior to or within one (1) year after any termination described
in this clause (y), the Company (or any of its Subsidiaries) shall have directly
or indirectly entered into a definitive agreement for, or shall have
consummated, an Acquisition Transaction or (z) the Company shall have terminated
this Agreement pursuant to Section 9.1(e)(iii), then, in any of such cases, the
Company shall pay Parent (A) a termination fee of five million dollars
($5,000,000), plus (B) an amount equal to Parent's actual, documented
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, legal,
professional and service fees and expenses; provided, however, that any
liquidated damage amounts previously paid by the Company to Parent pursuant to
Section 9.2(c) shall be credited against the termination fee payable under this
Section 9.2(b). Any fees or amounts payable under this Section 9.2(b) shall be
paid in same day funds no later than: (i) two business days after a termination
described in clause (x) of this Section 9.2(b); (ii) concurrently with or prior
to the entering into of the definitive agreement for, or the consummation of,
such Acquisition Transaction, in the case of a termination described in clause
(y) of this Section 9.2(b); or (iii) concurrently with or prior to a termination
described in clause (z) of this Section 9.2(b).
(c) If Parent shall have terminated this Agreement pursuant to Sections
9.1(d)(i), 9.1(d)(ii) or 9.1(f), then, in any of such cases, the Company shall
pay to Parent as liquidated damages and not as a penalty, three million dollars
($3,000,000). Such liquidated damage amount shall be payable no later than two
business days after such termination.
(d) If the Company shall have terminated this Agreement pursuant to Section
9.1(e)(i) or 9.1(e)(ii), then, in either such case, Parent shall pay to the
Company as liquidated damages and not as a penalty, three million dollars
($3,000,000). Such liquidated damage amount shall be payable no later than two
business days after such termination.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 AMENDMENT AND MODIFICATION. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Parent, Sub and the
Company with respect to any of the terms contained herein; provided, however,
that after any approval and adoption of this Agreement by the stockholders of
the Company, no such amendment, modification or supplementation shall be made
which under applicable law requires the approval of such stockholders, without
the further approval of such stockholders.
SECTION 10.2 WAIVER. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any documents delivered pursuant hereto and (iii) waive
compliance by the other with any of the agreements or conditions contained
herein which may legally be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing specifically referring to this
Agreement and signed on behalf of such party.
SECTION 10.3 SURVIVABILITY; INVESTIGATIONS. The respective representations
and warranties of Parent and the Company contained herein or in any certificates
or other documents delivered prior to or as of the Effective Time (i) shall not
be deemed waived or otherwise affected by any investigation made by any party
hereto and (ii) shall not survive beyond the Effective Time. The covenants and
agreements of the parties hereto (including the Surviving Corporation after the
Merger) shall survive the Effective Time without limitation (except for those
which, by their terms, contemplate a shorter survival period).
SECTION 10.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof. Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
(a) If to Parent or Sub, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Fax: (516) 843-5675
Attention: Mark E. Mlotek, Esq.
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Fax: (212) 969-2900
Attention: Robert A. Cantone
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(b) if to the Company, to:
Micro Bio-Medics, Inc.
864 Pelham Parkway
Pelham Manor, New York 10803
Fax: (914) 738-9538
Attention: Bruce J. Haber, Esq.
with a copy to:
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, New York 10169
Fax: (212) 682-6104
Attention: Donald N. Gellert, Esq.
SECTION 10.5 DESCRIPTIVE HEADINGS; INTERPRETATION. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. References in this Agreement to
Sections, Schedules, Exhibits or Articles mean a Section, Schedule, Exhibit or
Article of this Agreement unless otherwise indicated. The term "person" shall
mean and include an individual, a partnership, a joint venture, a limited
liability company, a corporation, a trust, a Governmental Entity or an
unincorporated organization.
SECTION 10.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Schedules and other documents and instruments referred to herein), together with
the Proxy and Option Agreement and the Confidentiality Agreement, constitute the
entire agreement, and supersede all other prior agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement is not intended to confer upon any person
not a party hereto any rights or remedies hereunder. This Agreement shall not be
assigned by operation of law or otherwise; provided that Parent or Sub may
assign its rights and obligations hereunder to a direct or indirect subsidiary
of Parent, but no such assignment shall relieve Parent or Sub, as the case may
be, of its obligations hereunder.
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of law, except to the
extent relating to matters governed by the General Corporation Law of the State
of Delaware.
SECTION 10.8 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
SECTION 10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
HENRY SCHEIN, INC.
By:___________________________________
Name:
Title:
MICRO BIO-MEDICS, INC.
By:___________________________________
Name:
Title:
HSI ACQUISITION CORP.
By:___________________________________
Name:
Title:
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ANNEX II
OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
March 7, 1997
The Board of Directors
Micro Bio-Medics, Inc.
846 Pelham Parkway
Pelham Manor, NY 10803
Gentlemen:
We understand that Henry Schein, Inc. ("HSI"), HSI Acquisition Corp.
("HSIAC") and Micro Bio-Medics, Inc. (the "Company") are considering entering
into a transaction whereby HSIAC, a wholly-owned subsidiary of HSI, would be
merged (the "Merger") with and into the Company and the Company would be the
surviving corporation. We further understand that each share of Company common
stock issued and outstanding immediately prior to date and time at which the
Merger becomes effective would be converted into the right to receive 0.62 of a
share of the common stock of HSI. Such transaction and all related transactions
are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matter set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. Additionally, you have advised us that the Company
has indicated that it has no intention of engaging in any alternative to the
Transaction. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form
10-K for the five fiscal years ended 1995, draft Form 10-K for the fiscal
year ended 1996, and quarterly reports on Form 10-Q for the three quarters
ended August 31, 1996, and Company-prepared interim financial statements for
the fiscal year ended 1996, which the Company's management has identified as
being the most current financial statements available;
2. reviewed HSI's annual reports to shareholders and on Form 10-K for
the fiscal year ended 1995, quarterly reports on form 10-Q for the three
quarters ended September 28, 1996, prospectus dated June 21, 1996, and the
draft financial statements for the fiscal year ended December 28, 1996,
which HSI's management has identified as being the most current financial
statements available;
3. reviewed copies of the following agreements:
a. February 26, 1997 draft of Agreement and Plan of Merger by and
among Henry Schein, Inc., HSI Acquisition Corp. and the Company;
b. January 27, 1997 draft of Option and Proxy Agreement;
c. January 27, 1997 draft of Affiliate Agreement;
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d. February 26, 1997 draft of Employment Agreement;
e. February 5, 1997 draft of Henry Schein, Inc. Class B Option
Agreement Pursuant to the 1994 Stock Option Plan; and
f. February 5, 1997 draft of Agreement among Henry Schein, Inc. and
Bruce Haber;
4. met with certain members of the senior management of the Company to
discuss the Transaction, the operations, financial condition, future
prospects and projected operations and performance of the Company, and had
discussions with representatives of the Company's investment bankers and
counsel to discuss certain matters;
5. met with certain members of the senior management of HSI to discuss
the Transaction, the operations, financial condition, future prospects and
projected operations and performance of HSI;
6. visited certain facilities and business offices of the Company and
HSI;
7. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the fiscal year ending November
30, 1997;
8. reviewed forecasts and projections prepared by HSI's management with
respect to HSI for the fiscal year ending December 27, 1997;
9. reviewed the historical market prices and trading volume for the
Company's and HSI's publicly traded securities;
10. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and HSI, and publicly
available prices and premiums paid in other transactions that we considered
similar to the Transaction; and
11. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company an HSI, and that there has been no material
change in the assets, financial condition, business or prospects of the Company
and HSI since the date of the most recent financial statements made available to
us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and HSI and do not assume
any responsibility with respect to it. We have not made any physical inspection
or independent appraisal of any of the properties or assets of the Company or
HSI. Our opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the public stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
April 18, 1997
The Board of Directors
Micro Bio-Medics, Inc.
846 Pelham Parkway
Pelham Manor, NY 10803
Gentlemen:
On March 7, 1997 (the "Opinion Date"), we issued a written opinion (the
"Opinion") regarding a transaction involving Henry Schein, Inc., HSI Acquisition
Corp., and Micro Bio-Medics, Inc. (the "Company"). The Opinion contains detailed
documentation of the premises, analyses, and logic upon which our conclusions
were founded and should be read in conjunction with this letter. In rendering
the Opinion, we reviewed among other things, copies of the following agreements:
a. February 26, 1997 draft of Agreement and Plan of Merger by and among
Henry Schein, Inc., HSI Acquisition Corp. and the Company;
b. January 27, 1997 draft of Option and Proxy Agreement;
c. January 27, 1997 draft of Affiliate Agreement;
d. February 26, 1997 draft of Employment Agreement;
e. February 5, 1997 draft of Henry Schein, Inc. Class B Option
Agreement Pursuant to the 1994 Stock Option Plan; and
f. February 5, 1997 draft of Agreement among Henry Schein, Inc. and
Bruce Haber.
The above agreements were the most recent drafts available to us as of the
Opinion Date.
At your request, we have subsequently reviewed the following agreements:
a. Agreement and Plan of Merger dated as of March 7, 1997, as revised,
by and among Henry Schein, Inc., HSI Acquisition Corp. and the
Company;
b. Option and Proxy Agreement dated as of March 7, 1997, as revised, by
and among Henry Schein, Inc. and the persons listed on Schedule A
thereto;
c. Form of Affiliate Agreement to be executed by affiliates of MBM, as
revised;
d. Employment Agreement dated as of March 7, 1997 between Bruce J.
Haber and Henry Schein, Inc.;
e. Form of Option Agreement between Bruce J. Haber and Henry Schein,
Inc. pursuant to Henry Schein Inc.'s 1994 Stock Option Plan, as
revised;
f. Agreement dated as of March 7, 1997, as revised, between Henry
Schein, Inc. and Bruce J. Haber relating to the termination of his
prior employment agreement with MBM;
g. Restricted Stock Agreement dated as of March 7, 1997, as revised,
between Bruce J. Haber and Henry Schein, Inc.; and
h. Form of Agreement between Bruce J. Haber and Schein with respect to
termination of his employment under certain circumstances.
(collectively referred to as the "Agreements").
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You have asked us whether if, had we reviewed the Agreements on or before
the Opinion Date, the conclusions reached in the Opinion would have been
different. After our review of the Agreements (and only the Agreements), we have
concluded that the conclusions reached in the Opinion would not have been
different as of March 7, 1997 if we had reviewed the Agreements on or before the
Opinion Date.
We have not conducted any investigations, analyses, or inquiries regarding
the Transaction (as defined in the Opinion) since the Opinion Date other than
the review of the Agreements. This letter does not purport to consider the
fairness of the Transaction at any time other than March 7, 1997 and should not
be viewed or construed as doing so. This letter only considers the impact of the
Agreement upon our Opinion as of the Opinion Date. Unanticipated events and
circumstances may have occurred and actual results may have varied from those
assumed since the Opinion Date, we have not considered the impact of any such
events, circumstances or results in this letter.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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ANNEX III
SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW
(a) A Shareholder intending to enforce his right under a section of this
chapter to receive payment for his right under a section of this chapter to
receive payment for his shares if the proposed corporate action referred to
therein is taken shall file with the corporation, before the meeting of
shareholders at which the action is submitted to a vote, or at such meeting but
before the vote, written objection to the action. The objection shall include a
notice of his election to dissent, his name and residence address, the number
and classes of shares to which he dissents and a demand for payment of the fair
value of his shares if the action is taken. Such objection is not required from
any shareholder to whom the corporation did not give notice of such meeting in
accordance with this chapter or where the proposed action is authorized by
written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of Section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenters' rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other
III-1
than in cash has been completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by the board as of the
time of such expiration or completion, but without prejudice otherwise to any
corporate proceeding that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case if a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
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(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation, whose
shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, except those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law
for the service of a summons, and upon each nonresident dissenting
shareholder either by registered mail and publication, or in such other
manner as is permitted by law. The jurisdiction of the court shall be
plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a
jury and without referral to an appraiser or referee. Upon application by
the corporation or by any shareholder who is a party to the proceeding, the
court may, in its discretion, permit pretrial disclosure, including, but not
limited to, disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the proceeding
and notwithstanding subdivision (d) of section 3101 of the civil practice
laws and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the
pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment of his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
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(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to the
proceeding against the corporation if the court finds any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or required
advance payment was made by corporation; (C) that the corporation failed to
institute the special proceeding within the period specific therefor; or (D)
that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair
value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to dissenting shareholder under this section at
a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option as provided, the corporation shall
exercise the option by written notice given to him within twenty days after
the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e) (2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by L. 1986, Ch 117, Section3.)
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article TENTH of the Company's Amended and Restated Certificate of
Incorporation provides that the Company shall indemnify and hold harmless, to
the fullest extent authorized by the Delaware General Corporation Law, its
officers and directors against all expenses, liability and loss actually and
reasonably incurred in connection with any civil, criminal, administrative or
investigative action, suit or proceeding. The Amended and Restated Certificate
of Incorporation also extends indemnification to those serving at the request of
the Company as directors, officers, employees or agents of other enterprises.
In addition, Article NINTH of the Company's Amended and Restated Certificate
of Incorporation provides that no director shall be personally liable for any
breach of fiduciary duty. Article NINTH does not eliminate a director's
liability (i) for a breach of his or her duty of loyalty to the Company or its
stockholders, (ii) for acts of intentional misconduct, (iii) under Section 174
of the Delaware General Corporation Law for unlawful declarations of dividends
or unlawful stock purchases or redemptions, or (iv) for any transactions from
which the director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify its directors and officers against expenses (including attorney's
fees), judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties, if such directors or officers acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or suit, and only with
respect to a matter as to which they shall have acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made if such person
shall have been adjudged liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall determine
upon application that the defendant officers or directors are reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
corporation may eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
(A) EXHIBITS
The exhibits required by Item 601 of Regulation S-K and filed herewith are
listed in the Exhibit Index immediately preceding the exhibits.
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(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is presented in the
consolidated financial statements or related notes incorporated by reference in
the Proxy Statement/Prospectus or are not applicable.
(C) REPORTS, OPINIONS OR APPRAISALS
Opinion of Houlihan, Lokey, Howard & Zukin, Inc. (filed as Annex II to the
Proxy Statement/ Prospectus constituting part of this Registration Statement and
incorporated herein by reference).
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1) (i) and (1) (ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
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(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the undersigned registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Melville, State of New
York on July 2, 1997.
HENRY SCHEIN, INC.
By: /s/ STANLEY M. BERGMAN
-----------------------------------------
Stanley M. Bergman
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stanley M. Bergman and Steven Paladino, and each
of them, such person's true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for such persons and in such person's
name, place and stead, in any and all capacities, to sign any and all Amendments
(including pre-effective and post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the United States Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, and both of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents, or either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
II-4
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Chairman, Chief Executive
/s/ STANLEY M. BERGMAN Officer, President and
- ------------------------------ Director (principal July 2, 1997
Stanley M. Bergman executive officer)
Senior Vice President,
/s/ STEVEN PALADINO Chief Financial
- ------------------------------ Officer and Director July 2, 1997
Steven Paladino (principal financial
and accounting officer)
/s/ JAMES P. BRESLAWSKI
- ------------------------------ Director July 2, 1997
James P. Breslawski
/s/ GERALD A. BENJAMIN
- ------------------------------ Director July 2, 1997
Gerald A. Benjamin
/s/ LEONARD A. DAVID
- ------------------------------ Director July 2, 1997
Leonard A. David
/s/ MARK E. MLOTEK
- ------------------------------ Director July 2, 1997
Mark E. Mlotek
/s/ PAMELA JOSEPH
- ------------------------------ Director July 2, 1997
Pamela Joseph
/s/ MARVIN H. SCHEIN
- ------------------------------ Director July 2, 1997
Marvin H. Schein
/s/ IRVING SHAFRAN
- ------------------------------ Director July 2, 1997
Irving Shafran
II-5
EXHIBIT INDEX
Unless otherwise indicated, exhibits are incorporated by reference to the
correspondingly numbered exhibits in the Henry Schein, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-96528).
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
2.1 Agreement and Plan of Merger, dated as of March 7, 1997, as revised, by and among Henry
Schein, Inc., HSI Acquisition Corp and Micro Bio-Medics, Inc. (filed as Annex I to the
Proxy Statement/Prospectus included in this Registration Statement)
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Bylaws
5.1 Opinion of Proskauer Rose LLP regarding legality (filed herewith)
5.2 Opinion of Cummings & Lockwood regarding certain tax matters (filed herewith)
9.1 Voting Trust Agreement dated September 30, 1994, as amended, among Henry Schein, Inc., the
Estate of Jacob M. Schein, the Trusts under Articles Third and Fourth of the Will of Jacob
M. Schein, the Trust established by Pamela Joseph under Trust Agreement dated February 9,
1994, the Trust established by Martin Sperber under Trust Agreement dated September 19,
1994, management stockholders and Stanley M. Bergman, as voting trustee
9.2 Agreements dated December 27, 1994 among Henry Schein, Inc., various executive officers and
Stanley M. Bergman, as voting trustee
9.3 Agreements dated as of May 1, 1995 among Henry Schein, Inc., various executive officers and
Stanley M. Bergman, as voting trustee
10.1 Amended and Restated Schein Agreement (the "Schein Agreement"), effective as of February
16, 1994, among Henry Schein, Inc., Marvin H. Schein, the Trust established by Marvin H.
Schein under Trust Agreement dated September 9, 1994, the Charitable Trust established by
Marvin H. Schein under Trust Agreement dated September 12, 1994, the Estate of Jacob M.
Schein, the Trusts established by Articles Third and Fourth of the Will of Jacob M. Schein,
the Trust established by Pamela Joseph under Trust Agreement dated February 9, 1994, the
Trust established by Martin Sperber under Trust Agreement dated September 19, 1994, the
Trust established by Stanley M. Bergman under Trust Agreement dated September 15, 1994,
Pamela Schein, Pamela Joseph, Martin Sperber, Stanley M. Bergman, Steven Paladino and James
P. Breslawski (collectively, the "Schein Parties")
10.2 Schein Registration Rights Agreement dated September 30, 1994, among Henry Schein, Inc.,
Pamela Schein, the Trust established by Pamela Joseph under Trust Agreement dated February
9, 1994, Marvin H. Schein, the Trust established by Marvin H. Schein under Trust Agreement
dated December 31, 1993, the Trust established by Marvin H. Schein under Trust Agreement
dated September 19, 1994, the Charitable Trust established by Marvin H. Schein under Trust
Agreement dated September 12, 1994, Martin Sperber, the Trust established by Martin Sperber
under Trust Agreement dated September 19, 1994, Stanley M. Bergman and the Trust
established by Stanley M. Bergman under Trust Agreement dated September 15, 1994
II-6
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.3 Letter Agreement dated September 30, 1994 to Henry Schein, Inc. from Marvin H. Schein,
Pamela Joseph and Pamela Schein
10.4 Release to the Schein Agreement dated September 30, 1994
10.5 Separation Agreement dated as of September 30, 1994 by and between Henry Schein, Inc.,
Schein Pharmaceutical, Inc. and Schein, Schein Holdings
10.6 Restructuring Agreement dated September 30, 1994 among Schein, Schein Holdings, Henry
Schein, Inc., the Estate of Jacob M. Schein, Marvin H. Schein, the Trust established by
Marvin H. Schein under Trust Agreement dated December 31, 1993, the Trust established by
Marvin H. Schein under Trust Agreement dated September 9, 1994, the Charitable Trust
established by Marvin H. Schein under Trust Agreement dated September 12, 1994, Pamela
Schein, Pamela Joseph, the Trust established by Pamela Joseph under Trust Agreement dated
February 9, 1994; the Trusts under Articles Third and Fourth of the Will of Jacob M.
Schein; Stanley M. Bergman, the Trust established by Stanley M. Bergman under Trust
Agreement dated September 15, 1994, Martin Sperber, the Trust established by Martin Sperber
under Trust Agreement dated December 31, 1993, and the Trust established by Martin Sperber
under Trust Agreement dated September 19, 1994
10.7 Agreement and Plan of Corporate Separation and Reorganization dated as of September 30,
1994 among Schein, Schein Holdings, Henry Schein, Inc., the Estate of Jacob M. Schein,
Marvin H. Schein, the Trust established by Marvin H. Schein under Trust Agreement dated
December 31, 1993, the Trust established by Marvin H. Schein under Trust Agreement dated
September 9, 1994, the Charitable Trust established by Marvin H. Schein under Trust
Agreement dated September 12, 1994, Pamela Schein, the Trust established by Article Fourth
of the Will of Jacob M. Schein for the benefit of Pamela Schein and her issue under Trust
Agreement dated September 29, 1994, Pamela Joseph, the Trust established by Pamela Joseph
under Trust Agreement dated February 9, 1994, the Trust established by Pamela Joseph under
Trust Agreement dated September 28, 1994 and the Trusts under Articles Third and Fourth of
the Will of Jacob M. Schein
10.8 Henry Schein, Inc. 1994 Stock Option Plan, as amended and restated effective as of July 1,
1995**
10.9 Henry Schein, Inc. Amendment and Restatement of the Supplemental Executive Retirement
Plan**
10.10 Henry Schein, Inc. Summary Executive Incentive Plan**
10.11 Consulting Agreement dated September 30, 1994 between Henry Schein, Inc. and Marvin H.
Schein**
10.12 Employment Agreement dated as of January 1, 1992 between Henry Schein, Inc. and Stanley M.
Bergman**
10.13 Amended and Restated Stock Issuance Agreement dated as of December 24, 1992 between Henry
Schein, Inc. and Stanley M. Bergman**
10.14 Stock Issuance Agreements dated December 27, 1994 between Henry Schein, Inc. and various
executive officers**
10.15 Agreement and Plan of Merger dated as of September 1, 1995, among Henry Schein, Inc.,
Schein Dental Equipment Corp., Marvin Schein and others
II-7
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.16 Stock Purchase Agreement dated August 25, 1995, by Henry Schein, Inc., PRN Medical, Inc.
and its shareholders, and Florida Doctor Supply, Inc. and its shareholders
10.17 Restated Standard Indemnity Agreement dated February 8, 1993, as amended January 25, 1993,
by and between Showa Dekko America, Inc. and Henry Schein, Inc.
10.18 Guaranty Agreement by and between Showa Dekko K.K. and Henry Schein, Inc., relating to the
Restated Standard Indemnity Agreement dated February 8, 1993, as amended January 25, 1993,
by and between Showa Denko America, Inc. and Henry Schein, Inc.
10.19 Stock Issuance Agreements dated as of May 1, 1995 between Henry Schein, Inc. and executive
officers
10.20 Agreement of Purchase and Sale of Assets dated February 28, 1996 by and among Henry Schein,
Inc., Benton Dental, Inc. and Modern Dental Concepts, Inc. (incorporated by reference to
Exhibit 10.20 of the registrant's Form 10-K for the fiscal year ended December 28, 1996)
10.21 Credit Agreement dated as of December 8, 1994 between Henry Schein, Inc. and The Chase
Manhattan Bank, N.A.
10.22 Loan Agreement dated May 5, 1995 by and between Henry Schein, Inc. and New York State Urban
Development Corporation
10.23 Term Loan Agreement dated as of November 15, 1993 between Henry Schein Europe, Inc. and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
10.24 Corporate Guarantee dated November 15, 1993 by Henry Schein, Inc., Zahn Dental Co., Inc.
Zahn Dental (Florida), Inc., Zahn Dental (Mass), Inc., Tri-State Medical Supply, Inc. and
Zahn Schein Holdings with respect to the Term Loan dated as of November 15, 1993 between
Henry Schein Europe, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A.
10.25 Joint and Several Guarantee dated February 7, 1995 by Henry Schein, Inc. in favor of Banque
Nationale de Paris
10.26 Joint and Several Guarantee dated February 7, 1995 by Henry Schein, Inc. in favor of Banque
Francaise du Commerce Exterieur
10.27 Guarantee dated March 1, 1996 by Henry Schein, Inc. in favor of Deutsche Bank AG
(incorporated by reference to Exhibit 10.27 of the registrant's Form 10-K for the fiscal
year ended December 28, 1996)
10.28 Lease Agreement dated December 22, 1995 by and between Dugan Realty, L.L.C. and Henry
Schein, Inc. (incorporated by reference to Exhibit 10.28 of the registrant's Form 10-K for
the fiscal year ended December 28, 1996)
10.29 Commercial Guaranty dated August 1, 1994 by Henry Schein, Inc. in favor of the Mid-City
National Bank
10.30 Discretionary Line of Credit dated August 18, 1995 between PNC Bank, Delaware and one of
Henry Schein, Inc.'s 50% owned companies
II-8
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.31 Discretionary Line of Credit Demand Note dated August 18, 1995 in favor of one of Henry
Schein, Inc.'s 50% owned companies
10.32 Loan Agreement dated March 30, 1992 between the Royal Bank of Scotland plc, Henry Schein
U.K. Schein Holdings Limited and BDG U.K. Schein Holdings Limited
10.33 Loan Agreement dated January 28, 1994 between the Royal Bank of Scotland plc, Henry Schein
U.K. Schein Holdings Limited and Dental Express (Supplies) Limited
10.34 Credit Agreement dated June 5, 1995 among Canadian Imperial Bank of Commerce and one of
Henry Schein, Inc.'s 50% owned companies
10.35 Master Lease Agreement dated as of February 28, 1991 between General Electric Capital
Corporation and Henry Schein, Inc.
10.36 Master Lease Agreement dated December 2, 1994 between Chase Equipment Leasing, Inc. and
Henry Schein, Inc.
10.37 Software License Agreement dated as of June 20, 1995 between Henry Schein, Inc. and
XcelleNet, Inc.
10.38 Software License Agreement dated as of October 31, 1994, as amended, between J.D. Edwards &
Henry Schein, Inc.
10.39 Software Update Agreement dated as of October 31, 1994, as amended, between J.D. Edwards &
Company and Henry Schein, Inc.
10.40 Software Services Agreement dated as of October 31, 1994, as amended, between J.D. Edwards
& Company and Henry Schein, Inc.
10.41 Lease dated December 3, 1990 between WRC Properties, Inc. and Henry Schein, Inc.
10.42 Lease dated March 2, 1992 between Vista Distribution Center, Inc. and Henry Schein, Inc.
10.43 Lease dated as of September 30, 1993, as amended October 14, 1993 and May 23, 1995, by and
between Broad Hollow Realty Co. and Henry Schein, Inc.
10.44 Lease dated April 27, 1995 by Lyndean Investments Limited to Kent Dental Limited and Henry
Schein U.K. Schein Holdings Limited
10.45 Lease dated October 23, 1994 between Georg and Pia Netzhammer and Henry-Schein Dentina GmbH
(English translation and original version)
10.46 Lease dated January 11, 1995 between Lyndean Investments Limited, Kent Dental Limited and
Henry Schein U.K. Schein Holdings Limited
10.47 Stock Purchase Agreement dated as of August 18, 1995 among Henry Schein, Inc., the Mark
Family Partnership and others
10.48 Group Purchasing Program Agreement dated March 31, 1994, as amended June 26, 1995, by and
between AMA Resources, Inc. and Henry Schein, Inc.
10.49 Hospital Supply Purchase Agreement dated as of November 10, 1994 between Veterinary Centers
of America, Inc. and Henry Schein, Inc.
II-9
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.50 Award of Contract to Henry Schein, Inc. dated April 14, 1995 by Department of the Army
10.51 Sales Agent Agreement dated March 1, 1995 by and between Merck & Co., Inc. and Henry
Schein, Inc.
10.52 Supply Agreement dated March 20, 1991
10.53 Shareholders' Agreement dated March 20, 1991
10.54 Non-Negotiable Promissory Note dated March 20, 1991 from Henry Schein, Inc. to N-Tech
10.55 Guaranty dated March 20, 1991 by Henry Schein, Inc. and others in favor of N-Tech, Inc.
10.56 Demand Debenture dated December 20, 1988 from one of Henry Schein, Inc.'s 50% owned
companies to Canadian Imperial Bank of Commerce
10.57 Pledge Agreement dated December 20, 1988 of one of Henry Schein, Inc.'s 50% owned companies
to Canadian Imperial Bank of Commerce
10.58 Shareholders' Agreement dated as of December 1, 1990 by and among the shareholders of Henry
Schein Espana, S.A.
10.59 Shareholders' Agreement dated as of April 1, 1991 between the shareholders of
Schein-Dentina, B.V. (English translation)
10.60 Put and Call Option Agreement dated August 29, 1991 between Schein International (Europe)
Inc. and the shareholders of Henry Schein U.K. Schein Holdings Limited
10.61 Deed of Guarantee dated August 29, 1991 between Henry Schein, Inc. and the shareholders of
Henry Schein U.K. Schein Holdings Limited
10.62 Stock Purchase Agreement dated November 1, 1992 among SSN Healthcare Supply, Inc., Henry
Schein, Inc., Tri-State Medical Supply, Inc. and a shareholder
10.63 Stock Purchase and Shareholders' Agreement dated March 19, 1993 by and among S.A.
Hospithera and Henry Schein Europe, Inc.
10.64 Agreement dated March 19, 1993 by and among S.A. Hospithera N.V., Henry Schein Europe Inc.,
and S.A. Henry Schein Hospithera N.V.
10.65 Supply Agreement dated as of March 15, 1993 between Henry Schein B.V. and S.A. Henry Schein
Hospithera N.V.
10.66 Put and Call Option Agreement dated July 1, 1993 between P.W. White Schein Holdings Limited
and Henry Schein Europe Inc.
10.67 Shareholders' Agreement dated July 1, 1993 between the shareholders of Henry Schein UK
Schein Holdings Ltd.
10.68 Consortium Agreement dated July 1, 1993 between the shareholders of Henry Schein UK Schein
Holdings Ltd.
10.69 Guarantee dated July 1, 1993 between Henry Schein, Inc. and P.W. White Schein Holdings
Limited
II-10
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.70 Restructuring Agreement dated July 30, 1993 by and among Henry Schein, Inc., Dental Plan,
Inc., and certain of its employees
10.71 Share Purchase Agreement dated as of November 17, 1993 by and among Henry Schein B.V. and
Johannes Cornelis van den Braak
10.72 Asset Purchase and Business Development Agreement dated May 23, 1994 among Henry Schein,
Inc., Chicago Medical Equipment Company, and its principal stockholder, Universal Footcare
Schein Holdings Corp., Universal Footcare Products, Inc. and Universal Footcare Sales Co.,
L.L.C.
10.73 Sales Service Agreement dated as of August 1, 1994 between Universal Footcare Products,
Inc. and Universal Footcare Sales Co., L.L.C.
10.74 Unanimous Shareholders Agreement dated August 4, 1994 among Henry Schein Canada Inc., Henry
Schein, Inc., 972704 Ontario Inc. and its shareholders, and Consolidated Dental Ltd.
10.75 Share Purchase Agreement dated June 27, 1994 by and between the shareholders of Henry
Schein France S.A.
10.76 Shareholders Agreement dated January 1, 1995 among SSN Healthcare Supply, Inc., South
Jersey Medical Supply Co., Inc., South Jersey Surgical Supply Co., Inc., and its
shareholders
10.77 Shareholders Agreement dated as of January 24, 1995 by and among the shareholders of
Dentisoft, Inc.
10.78 Purchase Agreement dated as of June 14, 1995 among The Veratex Corporation, Henry Schein,
Inc. and Schein Michigan Corp.
10.79 Form of Henry Schein, Inc. Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 10.79 of the registrant's Form 10-K for the fiscal year ended December
28, 1996)**
10.80 Supply Agreement made as of July 7, 1995 between Tidi Products, Inc. and Henry Schein, Inc.
10.81 Agreement Subject to Conditions Precedent dated July 21, 1995 between Henry Schein Europe
Inc., Henry Schein France S.A., Gerard Ifker, Didier Cochet, Frederic Ladet, Jean-Hugues
Lelievre and Christophe Morales (English Translation)
10.82 Put and Call Option Agreement dated June 9, 1995 between William Roger Killiner and Henry
Schein U.K. Schein Holdings Limited
10.83 Put and Call Option Agreement dated June 9, 1995 between Anthony Alan Anderson and Henry
Schein U.K. Schein Holdings Limited
10.84 Agreement of Purchase and Sale of Assets dated as of July 1, 1995 by and among Precision
Dental Specialties, Inc. and its shareholders, PDS Acquisition Corp., and Henry Schein,
Inc.
10.85 Shareholders Agreement dated as of July 1, 1995 by and among Precision Dental Specialties,
Inc. and its shareholders, PDS Acquisition Corp., and Henry Schein, Inc.
10.86 Agreement dated January 1, 1995 between Henry Schein (UK) Holdings Ltd. and The Royal Bank
of Scotland plc
II-11
EXHIBIT NO. DESCRIPTION PAGE NO.
- ------------- ------------------------------------------------------------------------------------------- -----------
10.87 Agreement dated March 4, 1993 between Henry Schein (UK) Holdings Ltd. and The Royal Bank of
Scotland plc
10.88 Loan Agreement dated November 16, 1993 between Henry Schein B.V. and others and
Crediet-en-Effectenbank N.V. (English translation and original version)
10.89 Multicurrency Credit Policy between Henry Schein Espana, S.A. and others and Banco Popular
Espanol, S.A. (English translation and original version)
10.90 Revolving Credit Agreement (the "Credit Agreement") dated as of January 31, 1997 among
Henry Schein, Inc., The Chase Manhattan Bank, Fleet Bank, N.A., Cooperatieve Centrale
Raiffeisen Boerenleenbank, B.A. "Rabobank Nederland", New York Branch and European American
Bank (filed herewith)
10.91 Option and Proxy Agreement, dated as of March 7, 1997, as revised, by and among Henry
Schein, Inc. and the persons listed on Schedule A thereto, each a shareholder of Micro
Bio-Medics, Inc. (filed herewith)
10.92 Employment Agreement, dated March 7, 1997, between Bruce J. Haber and the registrant (filed
herewith)**
10.93 Termination of Employment Agreement, dated March 7, 1997, as revised, between Bruce J.
Haber and the registrant (filed herewith)**
10.94 Agreement and Plan of Merger among Henry Schein, Inc., HS Acquisition, Inc., Roane-Barker,
Inc. and Ralph L. Falls, Jr. dated as of May 23, 1997, as amended by letters dated June 24,
1997 and June 25, 1997 (filed herewith)
11.1 Statements regarding computation of per share income (filed as part of Henry Schein, Inc.'s
Current Report on Form 8-K dated June 24, 1997 and incorporated by reference in the Proxy
Statement/Prospectus included in this Registration Statement)
21.1 List of Subsidiaries Henry Schein, Inc.
23.1 Consent of BDO Seidman, LLP* (filed herewith)
23.2 Consent of Miller, Ellin & Company (filed herewith)
23.3 Consent of Proskauer Rose LLP (included in Exhibit 5.1)
23.4 Consent of Cummings & Lockwood (included in Exhibit 5.2)
23.5 Consent of Houlihan, Lokey, Howard & Zukin, Inc. (filed herewith)
24.1 Powers of Attorney (included in Part II of the Registration Statement)
- ------------------------
** Indicates management contract or compensatory plan or arrangement.
II-12
EXHIBIT 5.1
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NY 10036-8299
July 2, 1997
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Re: Registration Statement on Form S-4 covering a Maximum of 3,400,000 Shares of
Common Stock and 6,200 Warrants to Purchase Common Stock
Ladies and Gentlemen:
We are delivering this opinion in connection with the Registration Statement on
Form S-4 (the "Registration Statement") filed by Henry Schein, Inc. (the
"Company") on July 2, 1997 with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to (i) the up to 3,400,000
shares (the "Shares") of common stock, par value $.01, of the Company (the
"Common Stock") to be issued in connection with the merger of Micro Bio-Medics,
Inc. ("MBM") with and into a subsidiary of the Company ("Merger Sub") pursuant
to the Agreement and Plan of Merger, dated March 7, 1997, among the Company, MBM
and Merger Sub, as revised (the "Merger Agreement"), or issuable pursuant to the
exercise of the Warrants (as defined below) and (ii) the 6,200 warrants to
purchase shares of Common Stock to be issued by the Company pursuant to the
Merger Agreement (the "Warrants").
As counsel for the Company, we have reviewed the Amended and Restated
Certificate of Incorporation of the Company, resolutions by the Company's board
of directors, the Registration Statement and such corporate records and
documents as we have deemed relevant and necessary as the basis for this
opinion, and have made such investigation of law as we deemed necessary in order
to render the opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that the Shares and Warrants will,
upon their issuance and sale in accordance with the Registration Statement, be
duly authorized and validly issued, fully paid and non-assessable under the New
York Business Corporation Law as in effect on this date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our Firm under the heading "Legal
Matters" in the Proxy Statement/Prospectus included in the Registration
Statement. In giving this consent, we do not hereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
PROSKAUER ROSE LLP
LETTERHEAD OF CUMMINGS & LOCKWOOD
July 2, 1997
Micro Bio-Medics, Inc.
846 Pelham Parkway
Pelham Manor, New York 10803
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences to Micro Bio-Medics, Inc., a New York corporation ("Micro"), Henry
Schein, Inc., a Delaware corporation ("Schein"), and the shareholders of Micro,
resulting from the consummation of the merger (the "Merger") of HSI Acquisition
Corp., a New York corporation and a wholly-owned subsidiary of Schein (the
"Sub"), with and into Micro pursuant to the Agreement and Plan of Merger dated
as of March 7, 1997, as revised (the "Merger Agreement"), among Micro, Schein
and the Sub.
Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Merger Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
Pursuant to the Merger Agreement, (i) the Sub will be merged with and
into Micro, (ii) all shares of Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into shares of common
stock, par value $.03 per share, of Micro, the surviving corporation, (iii) each
share of Company Common Stock (hereinafter referred to as "Micro Common Stock")
issued and outstanding immediately prior to the Effective Time (other than any
shares of Micro Common Stock (a) held in the treasury of Micro, or (b) which are
Dissenting Shares) will be converted into the right to receive 0.62 shares of
Parent Common Stock (hereinafter referred to as "Schein Common Stock") and (iv)
the shareholders of Micro will receive cash in lieu of fractional interests in
the Schein Common Stock to which they would otherwise be entitled.
Such description of the transaction set forth above, and our opinion
as stated herein, are based upon and subject to (i) the Merger and related
transactions being effected in the manner described in the Form of Proxy
Statement / Prospectus forming a part of
Micro Bio-Medics, Inc. -2- July 2, 1997
Schein's Registration Statement on Form S-4 dated July 2, 1997 (the "Proxy
Statement / Prospectus") and in accordance with the provisions of the Merger
Agreement, (ii) the accuracy of the representations made to us by Schein and
the Sub and Micro in their respective officer's certificates dated June 30,
1997 and June 27, 1997 and delivered to us for purposes of this opinion (the
"Officer's Certificates"), which representations shall, by the terms of such
Officer's Certificates, be true and correct at all times through the
Effective Time of the Merger, (iii) the accuracy of the representations made
to us by Bruce J. Haber, the owner of five percent (5%) or more of the Micro
Common Stock in his Certificate dated as of June 26, 1997, which
representations shall, be true and correct at all times through the Effective
Time of the Merger, (iv) the accuracy of the representations and compliance
with the covenants contained in the Merger Agreement made by the respective
parties thereto, insofar as they relate to or affect the tax treatment of the
transactions contemplated in the Merger Agreement, which representations
and/or covenants shall be satisfied and/or true and correct, as the case may
be, at all times through and/or after the Effective Time of the Merger, (v)
the accuracy of the statements set forth in the Proxy Statement / Prospectus
as to the purposes of the parties for consummating the Merger, (vi) the
aggregate of (A) Dissenting shares for which cash is paid and (B) shares of
Micro Common Stock for which cash is paid in lieu of fractional shares will
not exceed twenty percent (20%) of the shares of Micro Common Stock
outstanding immediately prior to the Merger, no holder of Micro Common Stock
(other than holders of Dissenting shares for which cash is paid and holders
of shares of Micro Common Stock for which cash is paid in lieu of fractional
shares) will receive for such stock any consideration other than Schein
Common Stock and the holders of Micro Common Stock will receive and retain a
meaningful continuing equity ownership in Micro that is sufficient to satisfy
the continuity of interest requirement as specified in Treasury Regulation
Section 1.368-1(b) and as interpreted in certain Internal Revenue Service
rulings and federal judicial decisions, (vii) Schein will acquire and retain
control of Micro within the meaning of Section 368(c) of the Code, (viii)
after the Merger, Micro will hold "substantially all" of its properties and
the properties of the Sub within the meaning of Section 368(a)(2)(E) of the
Code and the regulations promulgated thereunder, and (ix) none of the
compensation to be received by any holder of Micro Common Stock who is an
employee of Micro pursuant to any employment agreement or any covenants not
to compete or other arrangement will be separate consideration for any of
such holder's shares of Micro Common Stock.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury Regulations, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant as of the date of this opinion, and any subsequent change
therein may adversely affect the conclusions reached in this opinion and such
opinion may not then be relied upon.
Based on our examination of the foregoing items and subject to the
limitations set forth herein, we are of the opinion that for federal income tax
purposes:
Micro Bio-Medics, Inc. -3- July 2, 1997
1. The Merger of Sub with and into Micro, with Micro surviving, will
qualify as a reorganization under Section 368(a) of the Code. Micro, Schein and
Sub will each be a party to the reorganization within the meaning of Section
368(b) of the Code.
2. Pursuant to Section 354 of the Code, no gain or loss will be
recognized by a shareholder of Micro upon the exchange of their Micro Common
Stock for the right to receive Schein Common Stock and the exercise of such
right by a shareholder of Micro.
3. Cash received by a shareholder of Micro in lieu of a fractional
share of Schein Common Stock will be treated as if the fractional shares were
received in exchange of such fractional shares pursuant to Section 302(a) of the
Code, and not as a dividend under Section 301 of the Code. Any gain or loss
recognized as a result of the receipt of such cash will be capital gain or loss
under Section 1222 of the Code, if such stock was held as a capital asset at the
time of the exchange, equal to the difference between the cash received and the
shareholder's basis in the Micro Common Stock for which such fractional share
interest is received.
4. Pursuant to Section 358 of the Code, the aggregate tax basis of
the Schein Common Stock received by a shareholder of Micro in the exchange
(including any fractional shares which the Micro shareholder otherwise might be
entitled to receive) will be the same as the basis of the Micro Common Stock
exchanged therefor.
5. Pursuant to Section 1223(1) of the Code, the holding period of
the Schein Common Stock to be received by a Micro shareholder will include the
holding period of the Micro shares surrendered by the shareholder in the
exchange, provided the Micro Common was held as a capital asset on the date of
the exchange.
6. Pursuant to Sections 368 and 361 of the Code, Micro will
recognize no gain or loss as a result of the Merger.
This opinion is rendered solely with respect to certain United States
federal income tax consequences of the Merger under the Code as specifically set
forth herein, and does not extend to the income or other potential tax
consequences of the Merger under the laws of any State or any political
subdivision of any State or any other jurisdiction nor does it extend to any tax
effects or consequences of the Merger to Schein, Sub or Micro other than those
expressly stated in this opinion. Furthermore, no opinion is expressed as to
the United States federal or state tax treatment of the transaction under any
other provisions of the Code and regulations, or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that is not specifically covered by this opinion. In addition, this opinion may
not be relied upon except with respect to the consequences specifically
discussed herein. This opinion is being furnished only to Micro and the
shareholders of Micro in connection with the Merger in accordance with Section
8.1(j) of
Micro Bio-Medics, Inc. -4- July 2, 1997
the Merger Agreement and solely for their benefit in connection therewith and
may not be used or relied upon for any other purpose and may not be
circulated, quoted or otherwise referred to for any other purpose without our
prior express written consent except that this opinion may be included as an
exhibit to Schein's Registration Statement on Form S-4 dated July 2, 1997.
Additionally we hereby consent to the references to our Firm in the Proxy
Statement/Prospectus included in the Registration Statement. In giving this
consent, we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
CUMMINGS & LOCKWOOD
C&LDOC:
Exhibit 10.90
REVOLVING CREDIT AGREEMENT
dated as of January 31, 1997
among
HENRY SCHEIN, INC.
and
THE CHASE MANHATTAN BANK,
FLEET BANK, NATIONAL ASSOCIATION,
COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK, B.A.
"RABOBANK NEDERLAND", NEW YORK BRANCH AND
EUROPEAN AMERICAN BANK
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS ................................... 1
Section 1.1. Definitions ................................................ 1
Section 1.2. Accounting Terms ............................................ 14
ARTICLE 2. REVOLVING CREDIT FACILITY ....................................... 15
Section 2.1. Revolving Credit Loans ...................................... 15
Section 2.2. The Revolving Credit Notes .................................. 15
Section 2.3. Use of Proceeds ............................................. 16
Section 2.4. Borrowing Procedure for Revolving Credit Loans .............. 16
Section 2.5. Minimum Amounts of Revolving Credit Loans ................... 17
Section 2.6. Interest Period Elections for Borrowings .................... 17
Section 2.7. Letters of Credit and Documentary Banker's Acceptances ...... 18
Section 2.8. Interest on Loans ........................................... 21
Section 2.9. Existing Letters of Credit and Documentary Banker's
Acceptances ............................................... 22
Section 2.10. Changes of Commitments ..................................... 22
ARTICLE 3. GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS .................... 23
Section 3.1. Certain Notices ............................................. 23
Section 3.2. Prepayments ................................................. 23
Section 3.3. Commitment Fee .............................................. 23
Section 3.4. Usage Fee ................................................... 24
Section 3.5. Up Front Fee ................................................ 24
Section 3.6. Letter of Credit and Documentary Banker's Acceptance Fees ... 25
Section 3.7. Payments Generally .......................................... 26
Section 3.8. Judgment Currency ........................................... 27
Section 3.9. Foreign Exchange Indemnity .................................. 27
ARTICLE 4. YIELD PROTECTION, ETC ........................................... 28
Section 4.1. Certain Compensation ........................................ 28
Section 4.2. Additional Costs ............................................ 29
Section 4.3. Limitations on Types of Loans ............................... 30
i
Section 4.4. Illegality .................................................. 30
Section 4.5. Certain LIBOR Loans Pursuant to Section 4.2, 4.3 and 4.4. 31
Section 4.6. Change of Lending Office .................................... 31
Section 4.7. Replacement of Banks ........................................ 31
Section 4.8. Survival .................................................... 32
ARTICLE 5. CONDITIONS PRECEDENT ............................................ 32
Section 5.1. Documentary Conditions Precedent ............................ 32
Section 5.2. Additional Conditions Precedent ............................. 34
Section 5.3. Deemed Representations ...................................... 34
ARTICLE 6. REPRESENTATIONS AND WARRANTIES .................................. 35
Section 6.1. Incorporation, Good Standing and Due Qualifications;
Compliance with Law ...................................................... 35
Section 6.2. Power and Authority; No Conflicts ........................... 35
Section 6.3. Legally Enforceable Agreements .............................. 36
Section 6.4. Litigation .................................................. 36
Section 6.5. Financial Statements; Other Liabilities ..................... 36
Section 6.6. Ownership and Liens ......................................... 37
Section 6.7. Taxes ....................................................... 37
Section 6.8. ERISA ....................................................... 37
Section 6.9. Subsidiaries and Ownership of Stock ......................... 38
Section 6.10. Credit Arrangements ........................................ 38
Section 6.11. Operation of Business ...................................... 38
Section 6.12. Hazardous Substances ....................................... 38
Section 6.13. No Default on Outstanding Judgments or Orders ............. 39
Section 6.14. Material Contracts ......................................... 39
Section 6.15. Labor Disputes and Acts of God ............................. 40
Section 6.16. Governmental Regulation .................................... 40
Section 6.17. Partnerships ............................................... 40
Section 6.18. No Forfeiture Proceeding ................................... 40
Section 6.19. No Default or Event of Default ............................. 40
Section 6.20. Solvency ................................................... 40
Section 6.21. Material Adverse Change .................................... 40
ii
Section 6.22. Name and Location........................................... 41
ARTICLE 7. AFFIRMATIVE COVENANTS............................................ 41
Section 7.1. Maintenance of Existence..................................... 41
Section 7.2. Conduct of Business.......................................... 41
Section 7.3. Maintenance of Properties.................................... 41
Section 7.4. Maintenance of Records....................................... 42
Section 7.5. Maintenance of Insurance..................................... 42
Section 7.6. Compliance with Laws......................................... 42
Section 7.7. Right of Inspection.......................................... 42
Section 7.8. Reporting Requirements....................................... 42
Section 7.9. Payment of Obligations....................................... 45
Section 7.10. Subsidiaries................................................ 46
ARTICLE 8. NEGATIVE COVENANTS............................................... 46
Section 8.1. Debt......................................................... 46
Section 8.2. Guarantees................................................... 47
Section 8.3. Liens........................................................ 47
Section 8.4. Investments................................................. 49
Section 8.5. Sale of Assets.............................................. 50
Section 8.6. Transactions with Affiliates................................. 50
Section 8.7. Mergers, Etc................................................. 51
Section 8.8. Acquisitions................................................ 51
Section 8.9. No Activities Leading to Forfeiture ......................... 52
Section 8.10. Corporate Documents; Fiscal Year ........................... 52
Section 8.11. Hazardous Substances; Use of Real Property ................. 52
Section 8.12. Dividends, etc ............................................. 52
Section 8.13. Material Change in Ownership ............................... 53
Section 8.14. Other Material Adverse Change .............................. 53
ARTICLE 9. FINANCIAL COVENANTS ............................................. 53
Section 9.1. Minimum Consolidated Net Worth .............................. 53
Section 9.2. Consolidated Maximum Capital Expenditures ................... 54
Section 9.3. Minimum Consolidated Cash Flow Coverage ..................... 54
Section 9.4. Consolidated Minimum Interest Coverage ...................... 55
iii
Section 9.5. Maximum Ratio of Consolidated Funded Debt to EBITDA.......... 55
ARTICLE 10. EVENTS OF DEFAULT .............................................. 55
Section 10.1. Events of Default .......................................... 55
Section 10.2. Remedies ................................................... 57
ARTICLE 11. THE AGENT; RELATIONS AMONG BANKS AND BORROWER .................. 58
Section 11.1. Appointment, Powers and Immunities of Agent ................ 58
Section 11.2. Reliance by Agent .......................................... 59
Section 11.3. Defaults ................................................... 59
Section 11.4. Rights of Agent as a Bank .................................. 59
Section 11.5. Indemnification of Agent ................................... 60
Section 11.6. Documents .................................................. 60
Section 11.7. Non-Reliance on Agent and Other Banks ...................... 60
Section 11.8. Failure of Agent to Act .................................... 61
Section 11.9. Resignation or Removal of Agent ............................ 61
Section 11.10. Amendments Concerning Agency Function ..................... 62
Section 11.11. Liability of Agent ........................................ 62
Section 11.12. Transfer of Agency Function ............................... 62
Section 11.13. Non-Receipt of Funds by the Agent ......................... 62
Section 11.14. Withholding Taxes ......................................... 62
Section 11.15. Several Obligations and Rights of Banks ................... 63
Section 11.16. Pro Rata Treatment of Loans, Etc .......................... 63
Section 11.17. Sharing of Payments Among Banks ........................... 63
ARTICLE 12. MISCELLANEOUS .................................................. 64
Section 12.1. Amendments and Waivers ..................................... 64
Section 12.2. Usury ...................................................... 64
Section 12.3. Expenses ................................................... 65
Section 12.4. Survival ................................................... 65
Section 12.5. Assignment; Participation .................................. 65
Section 12.6. Notices .................................................... 66
Section 12.7. Setoff ..................................................... 66
Section 12.8. Jurisdiction; Immunities ................................... 67
Section 12.9. Table of Contents; Headings ................................ 68
iv
Section 12.10. Severability .............................................. 68
Section 12.11. Counterparts .............................................. 68
Section 12.12. Integration ............................................... 68
Section 12.13. Governing Law ............................................. 68
Section 12.14. Confidentiality ........................................... 69
v
REVOLVING CREDIT AGREEMENT (the "Agreement") dated as of January 31,
1997 among HENRY SCHEIN, INC., a corporation organized under the laws of the
State of Delaware (the "Borrower"), THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), FLEET BANK, NATIONAL ASSOCIATION, a national banking
association organized under the laws of the United States of America ("Fleet"),
COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK, N.A. "RABOBANK NEDERLAND",
NEW YORK BRANCH, a corporation organized under the laws of the Netherlands
("Rabobank Nederland"), and EUROPEAN AMERICAN BANK, a New York banking
corporation ("EAB") (each of Chase, Fleet, Rabobank Nederland and EAB are,
individually, a "Bank", and collectively, the "Banks"), and Chase, as Agent for
the Banks.
WHEREAS, the Borrower has requested the Banks to extend credit to
the Borrower from time to time and the Banks are willing to extend such credit
in accordance with the terms of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
1. DEFINITIONS; ACCOUNTING TERMS
Section 1.1. Definitions.
As used in this Agreement the following terms have the following
meanings (terms defined in the singular to have a correlative meaning when used
in the plural and vice versa):
"Acquired Person" shall have the meaning given to such term in
Section 8.8 hereof.
"Acquisition" means any transaction pursuant to which the Borrower
or any of its Subsidiaries (a) acquires equity securities (or warrants, options
or other rights to acquire such securities) of any Person other than any Person
which is a Subsidiary of the Borrower, pursuant to a solicitation of tenders
therefor, or in one or more negotiated block, market or other transactions not
involving a tender offer, or a combination of any of the foregoing, or (b) makes
any Person a Subsidiary of the Borrower, or causes any such Person to be merged
into the Borrower or any of its respective Subsidiaries, in any case pursuant to
a merger, purchase of assets or any reorganization providing for the delivery or
issuance to the holders of such Person's then-outstanding securities, in
exchange for such securities, of cash or securities of the Borrower or any of
its Subsidiaries, or a combination thereof, or (c) purchases all or
substantially all of the business or assets of any Person.
"Additional Costs" shall have the meaning given to such term in
Article 4 hereof.
"Affiliate" means any Person: (a) which directly or indirectly
controls, or is controlled by, or is under common control with, the Borrower;
(b) which directly or indirectly beneficially owns or holds 25% or more of any
class of voting stock of the Borrower; (c) 25% or
1
more of the voting stock or other voting interests of which is directly or
indirectly beneficially owned or held by Borrower; or (d) which is a partnership
in which the Borrower is a general partner. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Agent" means The Chase Manhattan Bank, or its successors or
assigns.
"Aggregate Banker's Acceptance Outstandings" means, at a particular
time, the aggregate principal balance of outstanding Documentary Banker's
Acceptances created by the Agent on behalf of or for the benefit of the Borrower
pursuant hereto.
"Aggregate Letters of Credit Outstandings" means, at a particular
time, the sum of (a) the aggregate maximum amount at such time which is
available or available in the future to be drawn under all outstanding Letters
of Credit under this Agreement plus (b) the aggregate amount of any payments
made by the Agent on behalf of the Banks under any Letter of Credit under this
Agreement that has not been reimbursed by the Borrower or with respect to which
there has not been a conversion to Documentary Banker's Acceptances at such
time.
"Aggregate Outstandings" means, at a particular time, the sum of (a)
the Aggregate Letters of Credit Outstandings at such time plus (b) the Aggregate
Banker's Acceptance Outstandings, at such time plus (c) the Dollar Equivalent of
the aggregate outstanding principal amount of all Revolving Credit Loans.
"Agreement" means this Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the like
refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement, unless otherwise indicated.
"Alternate Base Rate" means the rate of interest determined by the
Agent to be the higher of (i) the Federal Funds Rate plus 1/4 of 1% per annum or
(ii) the Prime Rate.
"Amortization" means amortization as determined in accordance with
GAAP.
"Applicable Currency" means, as to any particular payment or Loan,
the Approved Currency in which it is denominated or is payable.
"Applicable Currency Equivalent" means, with respect to an amount
denominated in Dollars which is to be converted to any other Applicable
Currency, the amount of such Applicable Currency required to purchase such
amount of Dollars at the Relevant Exchange Rate.
"Approved Currencies" means Dollars, Canadian Dollars, Australian
Dollars, British Pounds Sterling, Italian Lire, Deutsche Marks, Dutch Guilders,
French Francs, Belgian Francs, Swiss Francs, Japanese Yen, and, with the consent
of each of the Banks, any other currencies which are freely transferable and
convertible into Dollars and in which dealings in deposits are carried out in
the London interbank market.
2
"Banking Day" means, as it relates to any payment, determination,
funding or notice to be made or given in connection with any Loan, or otherwise
to be made or given to or from the Agent with respect to such Loan, any day (a)
on which dealings in deposits in the Applicable Currency for such Loan are
carried out in the London interbank market, and (b) on which commercial banks
and foreign exchange markets are open for business in London, New York and the
principal financial center for such Applicable Currency.
"Banks" means Chase, Fleet, Rabobank Nederland and EAB, and any of
their permitted assigns pursuant to Section 12.5 hereof.
"Base Rate Loan" means any Revolving Credit Loan when and to the
extent the interest rate therefor is determined on the basis of the Alternate
Base Rate.
"Capital Expenditures" means the sum of (a) expenditures for any
fixed assets or improvements, replacements, substitutions, or additions thereto
which would be treated as capital expenditures in accordance with GAAP and (b)
the portion of all payments with respect to Capital Leases which are required to
be capitalized on the balance sheet of the lessee in accordance with GAAP.
"Capital Lease" means any lease which is required to be capitalized
on the balance sheet of the lessee in accordance with GAAP.
"Cash Collateral" means a Dollar deposit by the Borrower made in
immediately available funds to savings, checking or time deposit accounts at the
Banks (on a pro-rata basis in accordance with their respective Commitment
Proportions) for the purchase by the Borrower of certificates of deposit issued
by the Banks (on a pro-rata basis in accordance with their respective Commitment
Proportions) and the execution of all documents and the taking of all steps
required to give the Banks a perfected security interest in such deposits or
certificates of deposit.
"Closing Date" means the date this Agreement has been executed by
the Borrower and each of the Banks.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment Fee" means the fees payable by the Borrower to the Banks
pursuant to Section 3.3 hereof.
"Commitment Proportion" means, with respect to each Bank at the time
of determination, that proportion that its Revolving Credit Commitment bears to
the Total Revolving Credit Commitment.
"Consolidated EBITDA" means, for any fiscal period, Consolidated Net
Income of the Borrower and its Subsidiaries less to the extent included in
determining Consolidated Net Income, all extraordinary gains plus to the extent
included in determining Consolidated Net Income in the same fiscal year as any
extraordinary gains are subtracted from the calculation of
3
Consolidated Net Income (and, only to the extent of such extraordinary gains),
extraordinary losses, plus Consolidated Interest Expense, plus to the extent
deducted in determining Consolidated Net Income, provisions for federal, state,
local and foreign income taxes, whether paid or deferred, plus to the extent
deducted in determining Consolidated Net Income, Depreciation and Amortization,
on a consolidated basis, of the Borrower and its Subsidiaries, plus to the
extent deducted in determining Consolidated Net Income, the aggregate amount of
(x) accretion expense with respect to options or rights to acquire the
Borrower's common stock and (y) any write-off of expenses arising in connection
with the Loans, plus the aggregate amount of non-cash expense associated with
the closure and post-closure reserves of a plant or facility owned by a Borrower
or a Subsidiary of the Borrower, plus the aggregate amount of all other Non-Cash
Charges not specifically listed above, plus stock contributions made by the
Borrower to the ESOP on a consolidated basis, all as determined in accordance
with GAAP.
"Consolidated Funded Debt" means, at a particular date, on a
consolidated basis, all Debt (including indebtedness incurred in connection with
Letters of Credit, Subordinated Debt, and all other Debt) of the Borrower and
its Subsidiaries having an original maturity of one year or more, including the
current portion of such Debt, other than guarantees by (x) the Borrower or (y)
any Subsidiary of the Debt of any Subsidiary reflected on the Borrower's
consolidated financial statements for such period.
"Consolidated Interest Expense" means, for a particular period, the
consolidated interest expense of the Borrower and its Subsidiaries as reflected
in the Borrower's consolidated financial statements for such period and
calculated in accordance with GAAP.
"Consolidated Net Income" means, for a particular period, the
consolidated net income of the Borrower and its Subsidiaries for such period,
determined in accordance with GAAP.
"Consolidated Net Profit" means, with respect to a particular
period, the net profit of the Borrower and its Subsidiaries on a consolidated
basis for such period, as reflected on the consolidated financial statements of
the Borrower and its Subsidiaries, and determined or calculated in accordance
with GAAP.
"Consolidated Net Worth" means, at any particular date, the amount
included under stockholders' equity, in accordance with GAAP, on the
consolidated balance sheet of the Borrower and its Subsidiaries as at such date,
but without giving any effect to any one-time change (positive or negative) in
Consolidated Net Worth attributable to changes in accounting principles
generally made applicable by the Financial Accounting Standards Board to
publicly traded domestic corporations.
"Consolidated Taxes" means, at a particular date, all amounts which
would, in conformity with GAAP, be included as Taxes on a consolidated balance
sheet of the Borrower and its Subsidiaries as at such date.
4
"Consolidated Total Assets" means, at a particular date, all amounts
which would, in conformity with GAAP, be included as assets on a consolidated
balance sheet of the Borrower and its Subsidiaries as at such date.
"Consolidated Total Liabilities" means, at a particular date, all
amounts which would, in conformity with GAAP, be included as liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries as at such date.
"Continuing Directors" means the directors of the Borrower on the
Closing Date, and each other director if such director's nomination for election
to the Board of Directors is recommended by a majority of the then-Continuing
Directors.
"Corporate Guarantors" means each of the Borrower's domestic
subsidiaries listed on the signature pages hereto.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of July 5, 1995, among the Borrower and the Banks, as such
agreement has been amended through the date hereof.
"Current Portion of Long-Term Debt" means, at any time, the portion
of any Debt which is classified as the current portion of long-term debt on the
consolidated financial statements of the Borrower and its Subsidiaries, and, in
the last year of the term of this Agreement, Current Portion of Long-Term Debt
shall include, but not be limited to, the Borrower's payment obligations with
regard to this Agreement.
"Debt" means with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price of
property or services; (c) Unfunded Vested Liabilities of such Person; (d) the
face amount of any outstanding letters of credit issued for the account of such
Person; (e) obligations arising under acceptance facilities; (f) guaranties,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations to purchase, to provide funds for payment, to
supply funds to invest in any Person, or otherwise to assure a creditor against
monetary loss; (g) obligations secured by any Lien on property of such Person;
(h) obligations of such Person as lessee under Capital Leases; and (i)
indebtedness of such Person evidenced by a note, bond, indenture or similar
instrument; provided, however, that for purposes of Article 9 hereof, (i) Debt
incurred in connection with off-balance sheet operating leases and (ii) Debt
secured by the Permitted Liens described in Sections 8.3 (a), 8.3 (b), 8.3 (c),
8.3 (d), and 8.3 (f), shall be excluded from the subject calculations.
"Default" means any event which with the giving of notice or lapse
of time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal to 2% above the rate of
interest otherwise (assuming no Event of Default has occurred and is continuing)
applicable to the relevant Loan.
5
"Depreciation" means depreciation as determined or calculated in
accordance with GAAP.
"Dividends" means, for any period, dividends paid by the applicable
Person.
"Documentary Banker's Acceptances" means banker's acceptances
created by the Agent accepting a draft drawn on the Agent in connection with or
in conjunction with Time Letters of Credit and which satisfy eligibility
requirements established by the Board of Governors of the Federal Reserve System
and the Agent's internal requirements as in effect from time to time.
"Dollar Equivalent" means (a) in relation to any amount denominated
in Dollars, such amount and (b) in relation to an amount denominated in any
Applicable Currency other than Dollars, the amount of Dollars which when
converted at the Exchange Rate would equal the principal amount of the Loan or
applicable payment in the Applicable Currency.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Domestic Subsidiaries" means Subsidiaries formed, incorporated or
existing under the laws of, or which conduct substantially all of their business
in, the United States of America or any of its states.
"Election Date" has the meaning specified in Section 2.6(a).
"Eligible Transferee" shall mean a commercial bank, financial
institution or other institutional "accredited investor" (as defined in
Regulation D of the Securities Act of 1933, as amended); provided that the
short-term commercial paper rating from S&P of any such Person is at least A-1
or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
6
"ESOP" means the existing employee stock ownership plan
formed/maintained by the Borrower and its employees.
"Event of Default" shall have the meaning given such term in Section
10.1 hereof.
"Exchange Rate" means, in relation to the purchase of one currency
(the "first currency") with another currency (the "second currency"), the most
recent spot rate of exchange as published in the Exchange Rates Table of The
Wall Street Journal dated the date of such determination for the purchase of the
first currency with the second currency. If the relevant spot rate of exchange
is not available from The Wall Street Journal, then the relevant spot rate of
exchange shall be reasonably determined by the Agent and such determination
shall be conclusive absent manifest error.
"Eurocurrency Reserve Requirements" means, with respect to each
Interest Period for each LIBOR Loan (for purposes of determining Eurocurrency
Reserve Requirements with respect to any LIBOR Loan having a 7-day or a 14-day
Interest Period, such LIBOR Loan shall be deemed to have a one month Interest
Period), the aggregate (without duplication) of the maximum rates (expressed as
a percentage and rounded upward, if necessary, to the nearest 1/100 of 1%) of
reserve requirements current on the date two Banking Days prior to the beginning
of such Interest Period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto), as now and/or from time to time hereafter in
effect, dealing with reserve requirements prescribed for eurocurrency funding
maintained by any Bank.
"Facility Documents" means this Agreement, the Notes, the
Guarantees, and all other agreements, documents and instruments executed in
connection herewith or therewith including, but not limited to, all documents
and instruments executed by the Borrower or any Guarantor in favor of any Bank
in connection with this Agreement and the Loans made hereunder.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Banking Day, for the next
preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate
is not so announced or published for any day which is a Banking Day, the Federal
Funds Rate for the last day on which such rate was announced or published.
"Forfeiture Proceeding" means the commencement of any action or
proceeding affecting the Borrower or any of the Guarantors before any court,
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would result in the seizure or forfeiture of any of
their property which would cause a material adverse effect upon the operations,
business, properties or financial condition of the Borrower or any such
Guarantor.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied with
respect to the financial statements
7
of the Borrower, its Subsidiaries, and Affiliates or any Guarantor which are the
subject of Section 6.5 hereof.
"Guarantees" means the guarantees to be delivered on the Closing
Date to the Banks by each of the Guarantors and the guarantees to be delivered
to the Banks from time to time hereafter by Persons that become Guarantors
subsequent to the Closing Date, all in the form(s) attached hereto as Exhibit C.
"Guarantors" means the Corporate Guarantors and the Post-Closing
Guarantors.
"Hazardous Substance" or "Hazardous Substances" means any material,
including, without limitation, raw, processed or waste by-product materials,
which in itself or as found or used, is toxic, noxious or harmful to the health
or safety of human or animal life or vegetation, regardless of whether such
material be found on or below the surface of the ground, in any surface or
underground water, or airborne in ambient air or in the air inside of any
structure built or located upon or below the surface of the ground, or in any
machinery, equipment or inventory located or used in any such structure,
including, but in no event limited to, all hazardous materials, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined or classified as such under any Environmental Law,
regardless of the quantity found, used, manufactured or removed from a given
location.
"Interest Period" means the period commencing on the date of making,
renewal or conversion of a Loan to a LIBOR Loan and expiring 7 days, 14 days or
one, two, three or six months thereafter, as designated by the Borrower in the
notice given to the Agent under Section 2.4 hereof; provided that,
(a) the initial Interest Period for any LIBOR Loan shall commence on
the date of the making of such Loan (including the date of any conversion from a
Base Rate Loan) and each Interest Period occurring thereafter in respect of such
Loan shall commence on the date on which the next preceding Interest Period
expires;
(b) if any Interest Period would otherwise expire on a day which is
not a Banking Day, such Interest Period shall expire on the next succeeding
Banking Day, provided, however, that if any Interest Period would otherwise
expire on a day which is not a Banking Day but is a day of a calendar month
after which no further Banking Day occurs (in such month), such Interest Period
shall expire on the next preceding Banking Day;
(c) no Loan shall be continued as or converted to a LIBOR Loan if at
the time of any such continuation or conversion a Default or an Event of Default
exists; and
(d) no Interest Period shall extend beyond the Revolving Credit
Termination Date.
"Lending Office" means, for each Bank and for each type of Loan, the
lending office of such Bank (or of an affiliate of such Bank) designated as such
for such type of Loan on its
8
signature page hereof or such other office of such Bank (or of an affiliate of
such Bank) as such Bank may from time to time specify to the Agent as the office
by which its Loans are to be made and maintained.
"Letter of Credit" means any Sight Letter of Credit, Time Letter of
Credit or Standby Letter of Credit issued by the Agent for the account of the
Borrower pursuant to the terms of this Agreement.
"LIBOR" means, for any LIBOR Loan, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted at approximately 11:00
a.m. London time by the principal London branch of the Agent two Banking Days
prior to the first day of the Interest Period for such Loan for the offering to
leading or prime banks in the London interbank market of Dollar deposits in
immediately available funds, for a period (which period, in the case of a LIBOR
Loan having a 7-day or a 14-day Interest Period, shall be deemed to be a one
month Interest Period), and in an amount, comparable to such Interest Period
(which Interest Period, in the case of a LIBOR Loan having a 7-day or a 14-day
Interest Period, shall be deemed to be a one month Interest Period) and
principal amount of the LIBOR Loan which shall be made by the Banks hereunder
and outstanding during such Interest Period.
"LIBOR Loan" means any Revolving Credit Loan when and to the extent
the interest rate therefor is determined on the basis of Reserve Adjusted LIBOR
Rate.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, Capital Lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan" means a Revolving Credit Loan or a Letter of Credit or a
Documentary Banker's Acceptance.
"Margin" means for LIBOR Loans, the following:
9
Ratio of Consolidated Funded Debt
to Consolidated EBITDA Margin
---------------------- ------
Equal to or greater than 3.00:1.0 1%
Equal to or greater than 2.50:1.00 but less than 0.75%
3.00:1.00
Equal to or greater than 2.00:1.00 but less than 0.625%
2.50:1.00
Equal to or greater than 1.50:1.00 but less than 0.50%
2.00:1.00
Less than 1.50:1.00 0.375%
The Margin will be set on the day which is 10 Banking Days following the receipt
by the Agent of the financial statements referenced in Section 7.8(a) or Section
7.8(b), as the case may be, and shall apply to all LIBOR Loans (i.e., new or
additional Loans, or Loans which are continuations or conversions) to be made on
or after such date until, but not including, the next date on which the Margin
is reset in accordance with the provisions hereof; provided, however, that if
any financial statements are not received by the Agent within the time period
relating to such financial statements as provided in Section 7.8(a) or Section
7.8(b) hereof, as the case may be, the Margin on all LIBOR Loans to be made on
or after the date the Margin should have been reset in accordance with the
foregoing provisions (i.e., assuming timely delivery of the requisite financial
statements), until the day which is 10 Banking Days following the receipt by the
Agent of such financial statements, will be 1%; and further provided, however,
that the Banks shall not in any way be deemed to have waived any Event of
Default or any of their remedies hereunder (including, without limitations,
remedies provided in Article 10 hereof) in connection with the provisions of the
foregoing proviso.
"Multiemployer Plan" means a Plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Non-Cash Charges" means all charges and expenses reflected on the
consolidated income statement of the Borrower and its Subsidiaries and
determined or calculated in accordance with GAAP which do not require a payment
of cash.
"Notes" means the Revolving Credit Notes.
10
"Obligations" means all of the obligations of the Borrower or any
Guarantor to the Banks under or in relation to this Agreement, the Notes, any
Letters of Credit, the Guarantees or any of the other Facility Documents, as
such agreements, documents and instruments are originally executed or as
modified, amended, restated, supplemented or extended from time to time, and all
obligations of the Borrower or any Guarantor to the Banks arising out of any
extension, refinancing or refunding of any of the foregoing obligations, whether
such obligations are now existing or hereafter acquired or arising, direct or
indirect, joint or several, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising by contract, operation
of law or otherwise.
"Operating Income" means, with respect to a particular Person for a
particular period, such Person's operating income for such period determined or
calculated in accordance with GAAP as reflected on such Person's financial
statements.
"Payment Office" means, with respect to the Agent for payments in
any Applicable Currency, such account at such bank or office in the principal
financial center in the country of the Applicable Currency as the Agent shall
designate by notice to the Person required to make the relevant payment and,
with respect to the Agent for payments in Dollars, such account at such bank or
office in New York City as the Agent shall designate by notice to the Person
required to make the relevant payment.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" shall have the meaning given to such term in
Section 8.8 hereof.
"Permitted Liens" means those certain Liens defined in Section 8.3
hereof.
"Person" means an individual, partnership, corporation, limited
liability company or partnership, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies, provided that such term shall not include plans
terminated prior to the date hereof.
"Post-Closing Guarantors" means (a) any wholly owned Subsidiary or
other entity, formed or acquired by the Borrower, Zahn Holdings, Inc. or any
subsidiary of the Borrower or Zahn Holdings, Inc. after the Closing Date with
Total Assets located in the United States of $10,000,000 or greater, and (b) any
Subsidiary or entity formed or acquired after the Closing Date in which the
Borrower or any Corporate Guarantor has a 66.67% or greater but less than 100%
ownership interest which becomes or is a Subsidiary which must have its
financial operations and results consolidated with Borrower under GAAP, if such
subsidiary or entity, after giving effect to the
11
acquisition, has Total Assets located in the United States that exceed 5% of the
Consolidated Total Assets of the Borrower and its Subsidiaries, taken as a
whole, valued as of the closing of such acquisition or as of the last day of any
fiscal year thereafter; providing such partially owned subsidiary or entity is
not a party to an agreement prohibiting it from becoming a Guarantor hereunder.
"Prime Rate" means that rate of interest from time to time announced
by the Agent at the Principal Office as its prime commercial lending rate.
"Principal Office" means the principal office of the Agent,
presently located at 270 Park Avenue, New York, New York.
"Reference Rate" means that rate charged by the Agent with regard to
Documentary Banker's Acceptances.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change
after the Closing Date in United States federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including such Bank under any United States, federal, state, municipal or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Relevant Exchange Rate" means, with respect to any LIBOR Loan
denominated in any Approved Currency other than Dollars, the Exchange Rate for
the purchase of Dollars with such Approved Currency in effect on the date which
is two Banking Days before the later of (a) the date on which the Loan was first
made or (b) the last Election Date (if any) applicable to such Loan.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event.
"Required Banks" means, at any time, with respect to any decisions
to be made by the Banks hereunder, Banks having at least 75% of the aggregate of
the Commitment Proportions hereunder.
"Reserve Adjusted LIBOR Rate" means, with respect to the Interest
Period (which Interest Period, in the case of a LIBOR Loan having a 7-day or a
14-day Interest Period, shall be deemed to be a one month Interest Period) for
each LIBOR Loan, the rate per annum (rounded upwards to the nearest whole
multiple of 1/100th of one percent) equal to the following:
LIBOR
--------------------
1.00 - Eurocurrency Reserve Requirements.
12
"Revolving Credit Commitment" means, with respect to each Bank, the
obligation of such Bank to extend credit to the Borrower hereunder and, subject
to the terms hereof, in the following aggregate amounts:
Chase $35,000,000
Fleet $25,000,000
Rabobank Nederland $25,000,000
EAB $15,000,000
"Revolving Credit Facility" means the aggregate of all extensions of
credit to be made available to the Borrower by the Banks, all as provided for
pursuant to Article 2 hereof.
"Revolving Credit Loans" means any extension of credit made by a
Bank pursuant to Section 2.1.
"Revolving Credit Note" means a promissory note of the Borrower in
the form of Exhibit A hereto evidencing the Revolving Credit Loans made by a
Bank hereunder.
"Revolving Credit Termination Date" means the earlier to occur of
(a) the date on which the Revolving Credit Commitment shall terminate hereunder
and (b) January 30, 2002.
"Sight Letter of Credit" means a sight letter of credit as defined
in the International Chamber of Commerce Uniform Customs and Practice for
Documentary Credits, 1993 Revisions, ICC Publication No. 500 or any successor
publication thereof.
"Solvent" means when used with respect to any Person on a particular
date, that on such date: (a) the fair saleable value of its assets is in excess
of the total amount of its liabilities, including, without limitation, the
reasonably expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its Debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur Debts or liabilities beyond such Person's ability to pay as such Debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction for which such Person's property would constitute an unreasonably
small capital.
"Standby Letter of Credit" means a standby letter of credit as
defined in the International Chamber of Commerce Uniform Customs and Practice
for Documentary Credits, 1993 Revision, ICC Publication No. 500 or any successor
publication thereof.
"Subordinated Debt" means unsecured Debt of the Borrower that is
subordinated, (with such immaterial changes as the Required Banks may reasonably
require from time to time), to the Borrower's obligations to the Banks under
this Agreement on terms satisfactory to the Banks, and which Debt provides for
payment of principal only after the Revolving Credit Termination Date and for
the payment of simple interest at an annual rate not greater than the Base Rate
plus seven
13
percent and with respect to which Debt the Borrower shall provide the Agent with
all information reasonably requested by the Agent, including, without
limitation, an amortization schedule.
"Subsidiary", with respect to any Person, means any corporation or
other entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are, at the
relevant time, owned directly or indirectly by such Person.
"Taxes" means any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any governmental
or taxing authority of any jurisdiction, excluding, in the case of each Bank,
income taxes and franchise taxes (imposed in lieu of income taxes) imposed on
such Bank as a result of a present or former connection between the jurisdiction
of the government or the taxing authority imposing such tax and such Bank
(excluding a connection arising solely from such Bank having executed,
delivered, or performed its obligations or received a payment under, or
enforced, this Agreement, the Notes or the other Facility Documents) or any
political subdivision or taxing authority thereof or therein.
"Time Letter of Credit" means a Letter of Credit that provides for
payment on a specific maturity date(s) determined in accordance with the
stipulations of such Letter of Credit.
"Total Revolving Credit Commitments" means, at any time, the
aggregate of the Revolving Credit Commitments in effect at such time.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
"Up Front Fee" shall have the meaning given to such term in Section
3.5 hereof.
"Usage Fee" means the usage fee payable by the Borrower to the Banks
pursuant to Section 3.4 hereof.
Section 1.2. Accounting Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP.
14
ARTICLE 2.
REVOLVING CREDIT FACILITY
Section 2.1. Revolving Credit Loans.
(a) Subject to the terms and conditions of this Agreement, each of
the Banks severally agrees, upon request by the Borrower, to make LIBOR Loans in
any of the Approved Currencies and Base Rate Loans in Dollars to the Borrower
(each such Loan being a "Revolving Credit Loan") from time to time on any
Business Day during the period from the date hereof to but excluding the
Revolving Credit Termination Date; provided, however, that no Revolving Credit
Loan shall be made if, after giving effect to such Loan, the Aggregate
Outstandings at the time of such Loan would exceed the Total Revolving Credit
Commitments in effect on such date. All Revolving Credit Loans shall be made by
the Banks, on a pro rata basis, in accordance with their respective Commitment
Proportions. Subject to the foregoing limits, the Borrower may borrow, repay and
reborrow all or a portion of the Revolving Credit Commitments hereunder. Any
amount of any Revolving Credit Loan not paid when due (at maturity, or
acceleration or otherwise) shall bear interest thereafter until paid at the
Default Rate. Notwithstanding the foregoing, in no event shall the Dollar
Equivalent of the aggregate principal balance (determined at the Relevant
Exchange Rate) of Revolving Credit Loans denominated in Approved Currencies
other than Dollars exceed $15,000,000 at any time.
(b) The Borrower and the Banks hereby agree that from and after the
date hereof, subject to the satisfaction of the conditions precedent to the
initial Loan hereunder, the LIBOR Loans existing prior to the date hereof
pursuant to the Credit Agreement and listed and described on Schedule 2.2
attached hereto shall be deemed to be evidenced by the Revolving Credit Notes
and shall be LIBOR Loans for all purposes of this Agreement, other than with
respect to the Commitment Proportion of the Banks in such existing LIBOR Loans,
which shall be determined in accordance with the applicable provisions of the
Credit Agreement as the same existed immediately prior to the Closing Date.
Section 2.2. The Revolving Credit Notes.
The Revolving Credit Loans of each Bank shall be evidenced by a
single promissory note in favor of such Bank with appropriate insertions duly
executed by the Borrower. Each Bank is hereby authorized to record the date and
amount of each Revolving Credit Loan, the date and amount of each payment of
principal thereof, the principal amount subject thereto, the interest rate with
respect thereto and the Applicable Currency thereof in such Bank's records or on
schedules annexed to and constituting a part of its Revolving Credit Note, and
absent manifest error, any such recordation shall constitute conclusive evidence
of the information so recorded; provided that the failure to make such
recordation shall not in any way affect the obligation of the Borrower to repay
the Revolving Credit Loans. Each Revolving Credit Note (a) shall be dated the
date hereof, (b) shall be stated to mature on the Revolving Credit Termination
Date and (c) shall bear interest on the unpaid principal amount thereof from
time to time as provided herein.
15
Section 2.3. Use of Proceeds.
The Borrower shall use the proceeds of the Revolving Credit
Loans to (a) pay and satisfy in full all "Revolving Credit Loans" under the
Credit Agreement, all accrued interest thereon, and all accrued commissions and
fees under the Credit Agreement, (b) for general corporate and working capital
purposes and (c) for Permitted Acquisitions. No part of the proceeds of any of
the Loans will be used for any purpose which violates the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System
as in effect on the date of making such Loans.
Section 2.4. Borrowing Procedure for Revolving Credit Loans.
(a) Each Revolving Credit Loan shall be, at the option of the
Borrower, either a Base Rate Loan or a LIBOR Loan, provided, however, that all
Loans in Approved Currencies other than Dollars shall be LIBOR Loans. The
Borrower shall give the Agent (i) at least four Banking Days irrevocable
telephonic notice of each LIBOR Loan denominated in any Approved Currency other
than Dollars (whether representing an additional borrowing hereunder, a
conversion of a borrowing hereunder from a Base Rate Loan to a LIBOR Loan, or a
continuation of such Loan as such a LIBOR Loan for an additional Interest
Period) prior to 11:30 a.m., New York, New York time on the day any such notice
is given (the "Eurocurrency LIBOR Notice"), (ii) at least three Banking Days
irrevocable telephonic notice of each LIBOR Loan denominated in Dollars (whether
representing an additional borrowing hereunder, a conversion of a borrowing
hereunder from a Base Rate Loan to such a LIBOR Loan, or a continuation of such
Loan as such a LIBOR Loan for an additional Interest Period) prior to 12:00
p.m., New York, New York time on the day any such notice is given (the "Dollar
LIBOR Notice"), and (iii) irrevocable telephonic notice of each Base Rate Loan
(whether representing an additional borrowing hereunder or the conversion of an
existing LIBOR Loan to a Base Rate Loan at the end of the Interest Period with
respect to such LIBOR Loan) prior to 12:00 p.m., New York, New York time on the
day of the proposed Base Rate Loan (the "Base Rate Loan Notice"). Each such
notification, which shall be effective only upon receipt thereof by the Agent,
shall specify the amount of the borrowing, the type of Revolving Credit Loan
(i.e., Base Rate Loan or LIBOR Loan), the date of the proposed borrowing,
whether any such Loan represents an additional borrowing, a conversion or a
continuation as referenced above, and, in the case of a LIBOR Loan, the Interest
Period to be used in the computation of interest with respect thereto and the
proposed currency thereof which shall be an Approved Currency. The Borrower
shall provide the Agent with written confirmation of each such telephonic notice
on the same day by telefacsimile transmission in such form as such notice has
been given under the Credit Agreement or such other form as shall be reasonably
acceptable to the Agent. Notice of receipt of any such notice by the Agent shall
be provided by the Agent to each Bank by telephone with reasonable promptness
but, assuming receipt by the Agent of any such notice prior to 12:00 p.m., New
York, New York time on a Banking Day, by no later than 2:00 p.m., New York, New
York time on the same day as the Agent's receipt of any such notice.
(b) Each Bank will make its share of each Borrowing available to the
Agent at the Payment Office for the Applicable Currency by 2:00 p.m. (local time
at the place of payment), or such other time as may be required by law or
practice for the settlement of foreign exchange
16
transactions in the place of payment, on the date for such Borrowing by payment
in the Applicable Currency and in immediately available funds. Unless any
applicable condition specified in Article 5 has not been satisfied, the amounts
so received by the Agent will be made available to the Borrower at such Payment
Office by crediting the account of such Borrower with such amounts and in like
funds as received by the Agent; provided, however, that if the proceeds of any
Borrowing or any portion thereof are to be used to prepay outstanding Loans,
then the Agent shall apply such proceeds for such purpose to the extent
necessary and credit the balance, if any, to the Borrower's account.
(c) Notwithstanding anything to the contrary herein, after giving
effect to any Borrowing, unless consented to by the Agent in its sole
discretion, (i) there shall not be more than ten (10) different Interest Periods
in effect in respect of all Revolving Credit Loans then outstanding, and (ii)
there shall not be more than four (4) different Applicable Currencies in respect
of all Revolving Credit Loans then outstanding.
Section 2.5. Minimum Amounts of Revolving Credit Loans.
Except for borrowings which involve or utilize the full
remaining amount of the Revolving Credit Commitments and payments which result
in the prepayment of all Base Rate Loans, each borrowing and payment of Base
Rate Loans shall be in an amount at least equal to $500,000 and, if greater,
integral multiples of $100,000 in excess thereof. Each borrowing of LIBOR Loans
denominated in Dollars shall be in an amount at least equal to $2,000,000 and,
if greater, in integral multiples of $100,000 in excess thereof and each
borrowing of LIBOR Loans denominated in an Approved Currency other than Dollars
shall be in an amount at least equal to the Applicable Currency Equivalent of
$1,500,000 and, if greater, in integral multiples of the Applicable Currency
Equivalent of $100,000 in excess thereof.
Section 2.6. Interest Period Elections for Borrowings.
(a) The Borrower with respect to any outstanding Borrowing
consisting of LIBOR Loans may, upon notice to the Agent in accordance with
Section 2.6(b), elect to specify a new Interest Period for such Borrowing, which
Interest Period will commence on the last day of any Interest Period applicable
thereto (an "Election Date").
(b) If a Borrower elects to specify a new Interest Period for any
Borrowing pursuant to Section 2.6(a), it shall give the Agent notice thereof in
the form of a Notice of Interest Period Election to be received by the Agent not
later than 12:00 p.m. (New York City time) at least four Banking Days prior to
the Election Date in respect of any Borrowing to be denominated in any currency
other than Dollars or three Banking Days prior to the Election Date in respect
of any Borrowing to be denominated in Dollars, as the case may be, specifying:
(i) the Borrowing to which such notice relates;
(ii) the Election Date; and
17
(iii) the duration of the requested Interest Period.
(c) If by the time set forth in Section 2. 6 (b), (i) the Borrower
has failed to give a timely Notice of Interest Period Election for a Borrowing
consisting of LIBOR Loans in Approved Currencies other than Dollars, the
Borrower shall be deemed to have specified an Interest Period of one month or
(ii) the Borrower has failed to give timely Notice of Interest Period Election
for a Borrowing consisting of a LIBOR Loan in Dollars, such Loan shall
automatically convert to a Base Rate Loan at the end of the Applicable Interest
Period.
(d) The Agent will promptly notify each Bank of the duration of each
new Interest Period applicable to each Borrowing consisting of LIBOR Loans.
Section 2.7.
Letters of Credit and Documentary Banker's Acceptances.
(a) Generally. Subject to the terms and conditions set forth in this
Agreement, upon written request of the Borrower to the Agent in accordance
herewith, the Agent shall issue Letters of Credit and, upon or with respect to a
drawing under Time Letters of Credit, create Documentary Banker's Acceptances,
with pro rata participation by all of the Banks in accordance with their
respective Commitment Proportions, at any time between the date hereof and the
Revolving Credit Termination Date. Notwithstanding the foregoing, at no time
shall the sum of Aggregate Letters of Credit Outstandings plus Aggregate
Banker's Acceptance Outstandings exceed $5,000,000 and no Letter of Credit or
Documentary Banker's Acceptance shall be issued or created if after giving
effect to such Loan the Aggregate Outstandings at the time of such Loan would
exceed the Total Revolving Credit Commitments in effect on such date.
Furthermore, notwithstanding anything contained herein to the contrary, neither
the Agent nor any of the Banks shall be under any obligation to issue a Letter
of Credit or create a Documentary Banker's Acceptance if any order, judgment or
decree of any court, arbitrator or governmental authority shall purport by its
terms to enjoin, restrict or restrain the Agent or any of the Banks in any
respect relating to the issuance of such Letter of Credit or creation of such
Documentary Banker's Acceptance or a similar letter of credit or banker's
acceptance, or any law, rule, regulation, policy, guideline or directive
(whether or not having the force of law) from any governmental authority with
jurisdiction over the Agent or any of the Banks shall prohibit or direct the
Agent or any of the Banks in any respect relating to the issuance of such Letter
of Credit or a similar letter of credit, or the creation of such Documentary
Banker's Acceptance or similar banker's acceptance, or shall impose upon the
Agent or any of the Banks with respect to any Letter of Credit or any
Documentary Banker's Acceptance, any restrictions, any reserve or capital
requirement or any loss, cost or expense not reimbursed by the Borrower to the
Agent or any of the Banks. Each request for issuance of a Letter of Credit shall
be in writing and shall be received by the Agent by no later than 12:00 p.m. on
the day which is at least two Banking Days prior to the proposed date of
issuance. Such issuance shall occur by no later than 5:00 p.m. on the proposed
date of issuance (assuming proper prior notice as aforesaid). Subject to the
terms and conditions contained herein, the type of Letter of Credit (i.e., Sight
Letter of Credit, Time Letter of Credit or Standby Letter of Credit), the expiry
dates, amounts and beneficiaries of the Letters of Credit will be as designated
by the Borrower. The Agent shall promptly notify the Banks of the amounts of all
Letters of Credit issued hereunder and of any
18
extension, reduction, termination or amendment of any Letter of Credit. Each
Letter of Credit issued by the Agent hereunder shall identify: (i) the dates of
issuance and expiry of such Letter of Credit, (ii) the amount of such Letter of
Credit (which shall be a sum certain), (iii) the beneficiary and account party
of such Letter of Credit, (iv) the drafts and other documents necessary to be
presented to the Agent upon drawing thereunder, and (v) with respect to Time
Letters of Credit, the maturity date of any Documentary Banker's Acceptance
created upon or with respect to a drawing under such Time Letter of Credit. No
Sight or Time Letter of Credit issued hereunder shall expire more than 180 days
from its date of issuance, no Documentary Banker's Acceptance shall mature more
than 180 days from the date of the creation of such Documentary Banker's
Acceptance and no Standby Letter of Credit shall expire more than one year after
its issuance, and in no event shall any Letter of Credit expire or any
Documentary Banker's Acceptance mature after the Banking Day which is
immediately prior to the Revolving Credit Termination Date. The Borrower agrees
to execute and deliver to the Agent such further documents and instruments in
connection with any Letter of Credit issued or Documentary Banker's Acceptance
created hereunder as the Agent in accordance with its customary practices may
request.
(b) Drawings Under Letters of Credit and Payments of Documentary
Banker's Acceptance. The Borrower hereby absolutely and unconditionally promises
to (i) pay the Agent as soon as possible but in any event within one Banking Day
after any drawing under a Letter of Credit (except under a Time Letter of
Credit) or the maturity of a Documentary Banker's Acceptance, in immediately
available funds from its accounts, the amount of such drawing under such Letter
of Credit or Documentary Banker's Acceptance, plus interest thereon from the
date of such drawing until repaid in full, or (ii), by 12:30 p.m., New York, New
York time, on the Banking Day immediately following the day of any such drawing,
give a Base Rate Loan Notice. The Borrower shall pay to the Agent interest on
any amounts with respect to any such Letters of Credit or Documentary Banker's
Acceptance not paid when due (i.e., the amount of any drawing which is not paid
or converted to a Base Rate Loan within one Banking Day after any such drawing
or upon the maturity of any such Documentary Banker's Acceptance pursuant to the
provisions of this Agreement) until paid at a rate per annum equal to the
Default Rate which would be applicable to a Base Rate Loan in an amount equal to
such past due amount. If the Borrower so requests in accordance with the terms
hereof and if each of the conditions precedent to the making of a Loan set forth
in Article 5 of this Agreement has been satisfied on the Banking Day following a
drawing under a Letter of Credit or maturity of a Documentary Banker's
Acceptance, the amount of such drawing, plus interest thereon, or the amount of
such Documentary Banker's Acceptance, for which the Agent has not been
reimbursed by the Borrower shall become a Base Rate Loan made by the Banks to
the Borrower on such day as the Agent shall give written notice (which written
notice shall be by facsimile transmission or telex) to the Borrower and the
Banks of such circumstances. The Agent agrees to forward notice of the amount of
each drawing under a Letter of Credit and each matured Documentary Banker's
Acceptance promptly upon the occurrence thereof. Each Bank agrees that on the
first Banking Day after any such drawing or maturity, such Bank will immediately
make available by no later than 12:00 p.m. to the Agent at its office located at
the Agent's Principal Office, in Federal or other immediately available funds,
its ratable share (i.e., in accordance with its respective Commitment
Proportion) of any such drawing or payment or maturity, plus any interest which
shall have accrued thereon, provided that each Bank's obligation shall be
reduced by its pro rata share (i.e., in accordance with its respective
Commitment
19
Proportion) of any reimbursement by the Borrower in respect of any such drawing
or payment pursuant to this Section.
(c) Letter of Credit and Documentary Banker's Acceptance Obligations
Absolute. (i) The obligation of the Borrower to reimburse the Agent as provided
hereunder in respect of drawings or payments under Letters of Credit and
Documentary Banker's Acceptances shall rank pari passu with the obligation of
the Borrower to repay the Loans hereunder, shall be absolute and unconditional
under any and all circumstances. Without limiting the generality of the
foregoing, the obligation of the Borrower to reimburse the Agent in respect of
drawings under Letters of Credit and upon the maturity of Documentary Banker's
Acceptances shall not be subject to any defense based on the non-application or
misapplication by the beneficiary of the proceeds of any such payment or the
legality, validity, regularity or enforceability of the Letters of Credit or
Documentary Banker's Acceptances or any related document or any dispute between
or among the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit or Documentary Banker's
Acceptance may be transferred. The Agent may accept or pay any draft presented
to it under any Letter of Credit regardless of when drawn or made and whether or
not negotiated, if such draft, accompanying certificate or documents and any
transmittal advice are presented or negotiated on or before the expiry date of
the Letter of Credit or any renewal or extension thereof then in effect, and
conforms to the terms and conditions of such Letter of Credit. Furthermore,
neither the Agent nor any of its correspondents shall be responsible, as to any
document presented under a Letter of Credit which appears to be regular on its
face, and appears on its face to conform to the terms of the Letter of Credit,
for the validity or sufficiency of any signature or endorsement, for delay in
giving any notice or failure of any instrument to bear adequate reference to the
Letter of Credit, or for failure of any person to note the amount of any draft
on the reverse of the Letter of Credit.
(ii) Any action, inaction or omission on the part of the Agent
or any of its correspondents under or in connection with any Letter of Credit or
the related instruments, documents or property, if in good faith and in
conformity with such laws, regulations or customs as are applicable, shall be
binding upon the Borrower and shall not place the Agent or any of its
correspondents under any liability to the Borrower, in the absence of (x) gross
negligence or willful misconduct by the Agent or its correspondents or (y) the
failure by the Agent to pay under a Letter of Credit after presentation of a
draft and documents strictly complying with such Letter of Credit. The Agent's
rights, powers, privileges and immunities specified in or arising under this
Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract. All Letters
of Credit issued hereunder will, except to the extent otherwise expressly
provided hereunder, be governed by the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500, and any subsequent revisions thereof.
(d) Obligations of Banks in Respect of Letters of Credit and
Documentary Banker's Acceptances. Each Bank acknowledges that each Letter of
Credit or Documentary Banker's Acceptance issued by the Agent pursuant to this
Agreement is issued by the Agent on behalf of and with the ratable participation
of all of the Banks (i.e., in accordance with their respective Commitment
Proportions), and each Bank agrees to make the payments required by subsection
(b)
20
hereof and agrees to be responsible for its pro rata share of all liabilities
incurred by the Agent in respect of each Letter of Credit issued, established,
opened or extended and each Documentary Banker's Acceptance created by the Agent
hereunder for the account of the Borrower. Each Bank agrees with the Agent and
the other Banks that its obligation to make the payments required by subsection
(b) hereof shall not be affected in any way by any circumstances (other than the
gross negligence or willful misconduct of the Agent) occurring before or after
the making of any payment by the Agent pursuant to any Letter of Credit or
Documentary Banker's Acceptance, including, without limitation:
(i) any modification or amendment of, or any consent, waiver,
release or forbearance with respect to, any of the terms of this Agreement or
any other instrument or document referred to herein;
(ii) the existence of any Default or Event of Default; or
(iii) any change of any kind whatsoever in the financial
position or credit worthiness of the Borrower.
(e) Use of Proceeds. The Borrower shall utilize Letters of Credit
and Documentary Banker's Acceptances hereunder for general corporate purposes
only. No part of the proceeds of any Letter of Credit or Documentary Letter of
Credit will be used for any purpose which violates the provisions of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System as in
effect on the date of issuance, drawing, creation or maturity with respect to
any such Letter of Credit or Documentary Banker's Acceptance.
Section 2.8. Interest on Loans.
(a) Base Rate Loans. The Borrower shall pay interest on the
outstanding and unpaid principal amount of each Base Rate Loan made under this
Agreement at a fluctuating rate per annum equal to the Alternate Base Rate from
time to time in effect. Each change in the interest rate shall take effect
simultaneously with the corresponding change in the Base Rate. Interest shall be
calculated on the basis of the actual number of days elapsed divided by a year
of three hundred sixty (360) days and shall be paid to the Agent for the
accounts of the Banks in arrears on the first day of each month commencing
February 1, 1997, and on the Revolving Credit Termination Date.
(b) LIBOR Loans. The Borrower shall pay interest on the outstanding
and unpaid principal amount of each LIBOR Loan made under this Agreement at a
rate per annum equal to the Reserve Adjusted LIBOR Rate in effect with respect
thereto, plus the applicable Margin. Interest shall be calculated on the basis
of the actual number of days elapsed divided by a year of three hundred sixty
(360) days, except in the case of LIBOR Loans denominated in British Pounds
Sterling, which shall be calculated on the basis of the actual number of days
elapsed divided by a year of 365 or 366 days, and shall be paid to the Agent for
the accounts of the Banks in arrears on the last day of the Interest Period
applicable to such LIBOR Loan; provided, however, that if such Interest Period
is longer than three months, interest shall be paid on the last day of each
three-month period following the commencement of such Interest Period and on the
last day of such Interest
21
Period. Interest with respect to any LIBOR Loan shall be paid in the applicable
Approved Currency at the relevant Payment Office for Loans in such Approved
Currency.
Section 2.9. Existing Letters of Credit and Documentary
Banker's Acceptances.
The Borrower and the Banks hereby agree that from and after the date
hereof, subject to the satisfaction of the conditions precedent to the initial
Loan hereunder or the issuance of the initial Letter of Credit hereunder as set
forth in Article 5 hereof, the letters of credit issued and banker's acceptances
created by the Agent for the account of the Borrower prior to the date hereof
and listed and described on Schedule 2.9 attached hereto shall be Letters of
Credit and Documentary Banker's Acceptances for all purposes of this Agreement
(other than with respect to opening or transaction fees and the payment
commissions made or accrued prior to the date hereof, which fees and commissions
shall be for the sole accounts of Chase, as "Agent", and Chase, Rabobank
Nederland, Fleet and EAB, as the "Banks", in accordance with the applicable
provisions of the Credit Agreement as the same existed immediately prior to the
Closing Date), and the Banks hereby affirm their pro rata participation (i.e.,
in accordance with their respective Commitment Proportions) in such Letters of
Credit and Documentary Banker's Acceptances. The Borrower represents and
warrants that the undrawn or outstanding amounts with respect to all such
outstanding Letters of Credit and Documentary Banker's Acceptances on the date
hereof is set forth on Schedule 2.9.
Section 2.10. Changes of Commitments.
(a) The Borrower shall have the right to reduce or terminate the
amount of unused Revolving Credit Commitments at any time or from time to time
prior to the Revolving Credit Termination Date, provided that: (i) the Borrower
shall give thirty (30) days prior written notice of each such reduction or
termination to the Agent; and (ii) each partial reduction shall be in an
aggregate amount at least equal to $5,000,000 or, if greater, in integral
multiples of $1,000,000 in excess thereof.
(b) The Revolving Credit Commitments once reduced or terminated may
not be reinstated.
22
ARTICLE 3.
GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS
Section 3.1. Certain Notices.
Notices by the Borrower to the Agent of each borrowing pursuant to
Section 2.4, each prepayment pursuant to Section 3.2 and each reduction or
termination of Revolving Credit Commitments pursuant to Section 2.10 shall be
irrevocable and shall be effective on the date of receipt only if received by
the Agent not later than 12:00 p.m., New York City time, on or prior to the date
notice with respect thereto is required to be given hereunder. Each such notice
relating to the borrowing, continuation, conversion or prepayment of a Loan, as
the case may be, shall specify the Loans to be borrowed, converted, continued or
prepaid, and the amount and type of the Loans to be borrowed or prepaid, the
Interest Period with respect to any LIBOR Loan, the Applicable Currency thereof
and the date of borrowing, conversion, continuation or prepayment (which shall
be a Banking Day). Each such notice of reduction or termination of Revolving
Credit Commitments shall specify the amount of the Revolving Credit Commitments
to be reduced or terminated. The Agent shall notify the Banks of the contents of
each such notice promptly after the Agent's receipt thereof.
Section 3.2. Prepayments.
(a) Voluntary Prepayments of Base Rate Loans. The Borrower shall
have the right at any time and from time to time to prepay without premium or
penalty Base Rate Loans, in whole or in part, upon telephonic notice to the
Agent; provided, however, that any such partial prepayment shall be in a minimum
aggregate principal amount of $500,000 or, if greater, in amounts which are
integral multiples of $100,000 in excess thereof.
(b) Voluntary Prepayments of LIBOR Loans. the Borrower shall have
the right at any time and from time to time to prepay LIBOR Loans, in whole or
in part, on at least three Banking Days' prior written notice to the Agent,
subject to the provisions of Article 4 hereof; provided, however, that any such
partial prepayment shall be in a minimum aggregate principal amount of
$1,000,000 or, if greater, in amounts which are integral multiples of $100,000
in excess thereof.
(c) Accrued Interest. All prepayments made pursuant to Section 3.2
(b) shall be accompanied by the payment of all accrued interest on the amount so
prepaid.
Section 3.3. Commitment Fee.
The Borrower shall pay to the Agent on behalf and for the ratable
benefit of each Bank a Commitment Fee for the period from and including the date
hereof to and excluding the Revolving Credit Termination Date equal to such
Bank's Commitment Proportion of an amount equal to the product of (a) the
applicable percentage per annum, as set forth below, during the
23
applicable period multiplied by (b) the average daily unused portion of the
Total Revolving Credit Commitment during the applicable period.
Ratio of Consolidated Funded Debt
to EBITDA, on a Consolidated Basis Percentage Per Annum
---------------------------------- --------------------
Equal to or greater than 3.00:1.00 0.30%
Equal to or grater than 2.50:1.00 but 0.25%
less than 3.00:1.00
Equal to or greater than 2.00:1.00 but 0.1875%
less than 2.50:1.00
Equal to or greater than 1.50:1.00 but 0.15%
less than 2.00:1.00
Less than 1.50:1.00 0.10%
The Commitment Fee shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. The Commitment Fee shall be due and payable
quarterly in arrears on the first day of each calendar quarter and on the
Revolving Credit Termination Date. For purposes of determining the unused
portion of the Total Revolving Credit Commitment only, the Dollar Equivalent of
each LIBOR Loan made in an Approved Currency other than Dollars as of the date
of making such Loan shall be the amount of the Total Revolving Credit Commitment
used in connection with such Loan, and no further adjustments shall be made with
respect to the unused portion of the Total Revolving Credit Commitment based
upon fluctuations thereafter in the Dollar Equivalent of such Loan.
Section 3.4. Usage Fee.
If (a) the Borrower's ratio of Consolidated Funded Debt to
Consolidated EBITDA, on a consolidated basis, is less than 1.50:1.00 at any
time, and (b) the Total Revolving Credit Commitment is more than 25% utilized at
such time, the Borrower shall pay to the Agent for the benefit of the Banks a
Usage Fee of 0.025% per annum on the average daily unused portion of the Total
Revolving Credit Commitment.
Section 3.5. Up Front Fee.
The Borrower shall pay to the Agent on or before the Closing Date on
behalf and for the ratable benefit of the Banks in accordance with their
respective "Commitment Proportions" a non-refundable advisory fee of $70,000.
The payments under this Section 3.5 shall be due and payable on the Closing Date
in accordance with the provisions of Section 5.1 hereof.
24
Section 3.6. Letter of Credit and Documentary Banker's
Acceptance Fees.
(a) Letters of Credit. The Borrower shall pay to the Agent, for its
sole account, customary fees in an amount or amounts which are normally charged
by the Agent to comparable customers. The Borrower shall pay to the Agent on
behalf and for the ratable benefit of each of the Banks the following additional
fees:
(i) A percentage amount per annum equal to the applicable
Margin for LIBOR Loans (i.e., at the time of issuance of the relevant Time
Letter of Credit) on the face amount of Time Letters of Credit, payable at the
creation of the Documentary Bankers Acceptance; and
(ii) A percentage amount per annum equal to the applicable
Margin for LIBOR Loans (i.e., at the time of issuance of the relevant Sight
Letter of Credit) on the amounts drawn under any Sight Letters of Credit,
subject to the Agent's minimum fee from time to time (i.e, customarily charged
to comparable customers with respect to Sight Letters of Credit), payable at the
time of any such drawing; and
(iii) A percentage amount per annum equal to the applicable
Margin for LIBOR Loans (i.e., at the time of issuance of the relevant Standby
Letter of Credit) on the face amount of each Standby Letter of Credit, subject
to the Agent's minimum fee from time to time (i.e, customarily charged to
comparable customers with respect to Standby Letters of Credit), payable at the
end of each calendar quarter, in arrears, on the last Banking Day of each such
calendar quarter for the period from and including the first day of such
calendar quarter to and including the last day of such calendar quarter.
The commissions and fees referenced in this subsection (a) shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Notwithstanding anything herein to the contrary, all Letters of Credit
fees shall be paid to the Agent; payment commissions on Letters of Credit shall
be shared pro-rata by the Banks, provided that if the actual payment commission
with respect to a Letter of Credit (based on the foregoing percentage amounts)
is less than any such minimum fee, the portion of such minimum fee paid by the
Borrower which is equal to such actual payment commission shall be shared
pro-rata by the Banks, while the portion of such minimum fee paid by the
Borrower which is in excess of such actual payment commission shall be retained
by the Agent for its sole account.
(b) Banker's Acceptances. The Borrower shall pay to the Agent, for
its sole account, fees in an amount or amounts which are normally charged by the
Agent to comparable customers respecting documentary banker's acceptances. The
Borrower shall pay to the Agent on behalf and for the ratable benefit of each of
the Banks a payment commission equal to a percentage amount per annum equal to
the Agent's "reference rate" with respect to Documentary Banker's Acceptances,
plus the applicable Margin for LIBOR Loans, on the face amount of Documentary
Banker's Acceptances, payable upon the creation of such Documentary Banker's
Acceptances. The commissions and fees referenced in this subsection (b) shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Notwithstanding anything herein to the contrary, all Documentary
Banker's Acceptance fees shall be paid to the Agent; payment commissions on
25
Documentary Banker's Acceptances shall be shared pro-rata by the Banks, provided
that if the actual payment commission with respect to a Documentary Banker's
Acceptance (based on the foregoing percentage amounts) is less than any such
minimum fee, the portion of such minimum fee paid by the Borrower which is equal
to such actual payment commission shall be shared pro-rata by the Banks, while
the portion of such minimum fee paid by the Borrower which is in excess of such
actual payment commission shall be retained by the Agent for its sole account.
Section 3.7. Payments Generally.
(a) All payments under this Agreement on the Notes shall be made in
the Applicable Currency of the relevant Borrowing in immediately available funds
to the Agent for the ratable benefit of the Banks, in accordance with their
respective Commitment Proportions, not later than 1:00 p.m. local time in the
place of payment on the relevant dates specified above (each such payment made
after such time on such date is to be deemed to have been made on the next
succeeding Banking Day), to the Agent at its Payment Office for the Applicable
Currency. The Borrower will notify the Agent of any payment pursuant to the
provisions of this Section at the same time it makes any such payment. The Agent
may (but shall not be obligated to) debit the amount of any such payment which
is not made by such time to any ordinary deposit account of the Borrower with
the Agent; provided, however, that the Agent shall not be permitted to debit any
funds which are not available to the Borrower other than on an overdraft basis.
The Borrower shall, at the time of making each payment under this Agreement or
the Notes, specify to the Agent the principal or other amount payable by the
Borrower under this Agreement or the Notes to which such payment is to be
applied; provided, however, that in the event that the Borrower fails to so
specify, or if a Default or an Event of Default has occurred and is continuing,
the Agent and the Banks shall apply such payment as they may elect in their sole
discretion. If the due date of any payment under this Agreement or the Notes
would otherwise fall on a day which is not a Banking Day, such date shall be
extended to the next succeeding Banking Day and interest shall be payable for
any principal so extended for the period of such extension.
(b) All payments made by the Borrower under this Agreement, the
Notes or the other Facility Documents shall be made free and clear of, and
without deduction or withholding for or on account of, Taxes. If any Taxes are
withheld from any amounts payable to any Bank hereunder or under the Facility
Documents, the amounts so payable to such Bank shall be increased to the extent
necessary to yield to such Bank (after payment of all Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, the Notes and the other Facility Documents. Whenever any Taxes
are payable by the Borrower, as promptly as possible thereafter, the Borrower
shall send to such Bank a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Taxes when due to the appropriate taxing authority or fails to remit to the
Banks the required receipts or other required documentary evidence, the Borrower
shall indemnify the Banks for any incremental taxes, interest or penalties that
may become payable by any Bank as a result of any such failure. The agreements
in this subsection shall survive the termination of this Agreement and the
Facility Documents and the payment of the Notes and all other amounts payable
hereunder or thereunder.
Section 3.8. Judgment Currency.
26
The currency in which each Loan made hereunder is denominated and
the place of payment designated therefor is of the essence. The payment
obligation of the Borrower hereunder in any Approved Currency and designated
place of payment shall not be discharged by an amount paid in another currency
or in another place, whether pursuant to a judgment or otherwise, to the extent
that the amount so paid on prompt conversion to the currency in which such Loan
is denominated and transferred to the designated place of payment under normal
banking procedures does not yield the amount owing hereunder at the designated
place of payment. In the event that any payment by the Borrower, whether
pursuant to a judgment or otherwise, upon such conversion and transfer does not
result in payment of such amount in the Approved Currency at the designated
place of payment, the Agent shall be entitled to demand immediate payment of,
and shall have a separate cause of action against the Borrower for, the
additional amount necessary to yield the amount of such currency owing
hereunder.
Section 3.9. Foreign Exchange Indemnity.
If any sum due from the Borrower or any Guarantor under this
Agreement or any order or judgment given or made in relation hereto has to be
converted from the currency (the "first currency") in which the same is payable
hereunder or under such order or judgment into another currency (the "second
currency") for the purpose of (a) making or filing a claim or proof against the
Borrower or any Guarantor with any court, or tribunal, regulatory body,
arbitration panel, or other body having jurisdiction over the claim or proof, or
(b) enforcing any order or judgment given or made in relation hereto, the
Borrower or any Guarantor, as the case may be, shall indemnify and hold harmless
each of the Persons to whom such sum is due from and against any loss actually
suffered as a result of any discrepancy between (i) the rate of exchange used to
convert the amount in question from the first currency into the second currency
and (ii) the rate or rates of exchange at which such Person, acting in good
faith, purchased the first currency with the second currency after receipt of a
sum paid to it in the second currency in satisfaction, in whole or in part, of
any such order, judgment, claim or proof. The foregoing indemnity shall
constitute a separate obligation of the Borrower and the Guarantors distinct
from its other obligations hereunder and shall survive the giving or making of
any judgment or order in relation to all or any of such other obligations.
27
ARTICLE 4.
YIELD PROTECTION, ETC.
Section 4.1. Certain Compensation.
(a) The Borrower hereby agrees to indemnify the Banks against any
actual loss or expense which the Banks or any one of them may sustain or incur
as a consequence of any of the following:
(i) the receipt or recovery by the Bank, whether by voluntary
prepayment, acceleration or otherwise, of all or any part of a LIBOR Loan prior
to the last day of an Interest Period applicable thereto;
(ii) the conversion, prior to the last day of an applicable
Interest Period, of a LIBOR Loan into a Base Rate Loan;
(iii) the failure by the Borrower to borrow any LIBOR Loan,
convert any Base Rate Loan to a LIBOR Loan or continue any LIBOR Loan on the
date of borrowing, conversion or continuation by the Borrower pursuant to the
provisions hereof; or
(iv) the failure by the Borrower to pay, punctually on the due
date thereof, any amount payable by the Borrower with respect to or on account
of any LIBOR Loan.
Without limiting the effect of the foregoing, the amount to be paid
by the Borrower to the Agent on behalf of any Bank in order to so indemnify such
Bank for any actual loss occasioned by any of the events described in the
preceding paragraph, whether existing or prospective, and as liquidated damages
therefor, shall be equal to the excess, discounted to its present value as of
the date paid to the Agent, of (x) the amount of interest which otherwise would
have accrued on the principal amount so received, recovered, converted or not
borrowed during the period (the "Indemnity Period") commencing with the date of
such receipt, recovery, conversion, or failure to borrow to the last day of the
applicable Interest Period for such LIBOR Loan at the rate of interest
applicable to such LIBOR Loan (or the rate of interest agreed to in the case of
a failure to borrow) provided for herein (prior to default) over (y) the amount
of interest which would be earned by such Bank during the Indemnity Period if it
invested the principal amount so received, recovered, converted or not borrowed
at the rate per annum approximately equal to LIBOR, on an amount approximately
equal to such principal amount for a period of time comparable to such Indemnity
Period.
(b) A certificate as to any additional amounts payable pursuant to
this Section 4.1 setting forth the basis and method of determining such amounts
shall be conclusive, absent demonstrable error, as to the determination by each
Bank set forth therein if made reasonably and in good faith. The Borrower shall
pay to the Agent any amounts so certified to the Agent by a Bank within 10 days
of receipt of any such certificate. For purposes of this Section 4.1, all
references to the "Bank" shall be deemed to include any participant in this
Agreement and/or the Loans.
28
Section 4.2. Additional Costs.
(a) The Borrower shall pay to the Agent on behalf of any Bank, from
time to time, within two days of the demand of any such Bank, such amounts as
such Bank may reasonably determine to be necessary to compensate it for any
costs which such Bank reasonably determines are attributable to its obligation
to make any Loan hereunder, or any reduction in any amount receivable by such
Bank hereunder in respect of any such Loans or such obligation (such increases
in costs and reductions in amounts receivable being herein called "Additional
Costs"), resulting from any Regulatory Change which: (i) changes the basis of
taxation of any amounts payable to such Bank under this Agreement or its Note or
any Letter of Credit or any Documentary Banker's Acceptance in respect of any of
such Loans or obligations (other than taxes imposed on the overall net income or
franchise of such Bank or of its Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Lending
Office); or (ii) imposes or modifies any reserve, special deposit, deposit
insurance or assessment, minimum capital, capital ratio or similar requirements
relating to any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Bank (including any of such Loans or any deposits
referred to in the definitions of "LIBOR Loans" or "Letters of Credit" or
"Documentary Banker's Acceptances" in Section 1.1); or (iii) imposes any other
condition affecting this Agreement, or its Note (or any of such extensions of
credit or liabilities) or any Letter of Credit or any Documentary Banker's
Acceptance and such Bank's obligations with respect thereto. Each Bank will
notify the Agent, and the Agent shall notify the Borrower of any event occurring
after the date of this Agreement which will entitle such Bank to compensation
pursuant to this Section 4.2(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation, which notice
shall set forth the basis of the calculation of such additional compensation.
The determination by any Bank of such amount, if done in good faith on the basis
of any reasonable method, shall, in the absence of any demonstrable error, be
conclusive.
(b) Without limiting the effect of the foregoing provisions of this
Section 4.2, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes LIBOR Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by notice
to the Agent, the obligation of such Bank to make LIBOR Loans hereunder shall be
suspended until the date such Regulatory Change ceases to be in effect (in which
case the provisions of Section 4.5 shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 4.2 (but without duplication), the Borrower shall pay to the Agent, and
the Agent shall pay to any Bank from time to time on request such amounts as
such Bank may reasonably determine to be necessary to compensate such Bank for
any costs which it reasonably determines are attributable to the maintenance by
it or any of its Affiliates pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not having
the force of law and whether in effect on
29
the date of this Agreement or thereafter) of any court or governmental or
monetary authority, of capital in respect of its Loans or other obligations
hereunder (such compensation to include, without limitation, an amount equal to
any reduction in return on assets or equity of such Bank to a level below that
which it could have achieved but for such law, regulation, interpretation,
directive or request). Each Bank will notify the Agent, and the Agent will
notify the Borrower if it is entitled to compensation pursuant to this Section
4.2(c) as promptly as practicable after it determines to request such
compensation, which notice shall set forth the basis of the calculation of such
additional compensation. The determination by any Bank of such amount, if done
in good faith on the basis of any reasonable method, shall, in the absence of
any demonstrable error, be conclusive.
(d) Determinations and allocations by a Bank for purposes of this
Section 4.2 of the effect of any Regulatory Change pursuant to subsections (a)
or (b), or of the effect of capital maintained pursuant to subsection (c), on
its costs of making or maintaining Loans or its obligation to make Loans, or on
amounts receivable by, or the rate of return to, it in respect of Loans, and of
the additional amounts required to compensate such Bank under this Section 4.2,
shall be conclusive absent manifest error.
Section 4.3. Limitations on Types of Loans.
Anything herein to the contrary notwithstanding, if:
(a) any Bank determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in the
definition of "LIBOR Loans" in Section 1.1 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for any LIBOR Loans as provided in this Agreement; or
(b) any Bank determines (which determination shall be conclusive)
and notifies the Agent, and the Agent notifies the Borrower that the relevant
rates of interest referred to in the definition of "LIBOR Loans" in Section 1.1
upon the basis of which the rate of interest for any type of LIBOR Loans is to
be determined do not adequately cover the cost to such Bank of making or
maintaining such Loans, then, and so long as such condition remains in effect,
such Bank shall be under no obligation to make LIBOR Loans.
Section 4.4. Illegality.
Notwithstanding any other provision in this Agreement, in the event
that it becomes unlawful for any Bank or its Lending Office to honor its
obligation to make or maintain LIBOR Loans hereunder, then such Bank shall
promptly notify the Agent, and the Agent shall notify the Borrower thereof and
such Bank's obligation to make or maintain LIBOR Loans hereunder shall be
suspended until such time as such Bank may again make and maintain such affected
Loans (in which case the provisions of Section 4.5 shall be applicable).
Section 4.5. Certain LIBOR Loans Pursuant to Section 4.2, 4.3
and 4.4.
30
If an event referred to in Section 4.2, 4.3 or 4.4 has occurred, the
affected Bank shall be required to make Base Rate Loans in accordance with this
Agreement, and all LIBOR Loans of such Bank then outstanding shall be
automatically converted into Base Rate Loans on the date specified by such Bank
in such notice, and, to the extent that LIBOR Loans are so made as (or converted
into) Base Rate Loans, all payments of principal which would otherwise be
applied to such Bank's LIBOR Loans shall be applied instead to its Base Rate
Loans. In the event of any conversion of any LIBOR Loan to a Base Rate Loan
pursuant to this Section 4.5 prior to the maturity date with respect to such
LIBOR Loan, the Borrower shall pay to the Agent for the account of the relevant
Bank all amounts required to be paid pursuant to Section 4.1 hereof.
Section 4.6. Change of Lending Office.
Each Bank agrees that, upon the occurrence of any event giving rise
to the operation of Sections 4.2, 4.3 or 4.4 with respect to such Bank, it will,
if requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event; provided that such designation is
made on such terms that, in the good faith judgment of such Bank, such Bank and
its lending office suffer no economic, legal or regulatory disadvantage, with
the object of avoiding the consequences of the event giving rise to the
operation of any such Section.
Section 4.7. Replacement of Banks.
Upon the occurrence of any event giving rise to the operation of
Section 4.2, 4.3 or 4.4 with respect to any Bank which results in such Bank
charging to the Borrower increased costs, the Borrower shall have the right, if
no Event of Default then exists or would exist after giving effect to such
replacement, to replace such Bank (the "Replaced Bank") with one or more other
Eligible Transferee or Transferees, each of which shall be reasonably acceptable
to the Agent (collectively, the "Replacement Bank"); provided that (a) at the
time of any replacement pursuant to this Section 4.7, the Replacement Bank shall
enter into one or more assignment and assumption agreements pursuant to Section
12.5 pursuant to which the Replacement Bank shall acquire the Revolving Credit
Commitment and outstanding Revolving Credit Loans of, and in each case
participations in Letters of Credit by, the Replaced Bank and, in connection
therewith, shall pay to (i) the Replaced Bank in respect thereof an amount equal
to the sum of (x) an amount equal to the principal of, and all accrued interest
on, all outstanding Revolving Credit Loans of the Replaced Bank, (y) an amount
equal to all unpaid drawings under outstanding Letters of Credit that have been
funded by (and not reimbursed to) such Replaced Bank, together with all then
unpaid interest with respect thereto at such time and (z) an amount equal to all
accrued, but theretofore unpaid, fees hereunder owing to the Replaced Bank
pursuant to Article III hereof, and (ii) the Agent as issuer of Letters of
Credit hereunder an amount equal to such Replaced Bank's pro rata share of any
unpaid drawing relating to outstanding Letters of Credit issued by the Agent
(which at such time remains an unpaid drawing) to the extent such amount was not
therefore funded by such Replaced Bank, and (b) all obligations of the Borrower
then owing to the Replaced Bank (other than those specifically described in
clause (a) above in respect of which the purchase price has been, or is
concurrently being, paid, but including all amounts, if any, owing under
Sections 4.2, 4.3 or 4.4) shall be paid in full to such Replaced Bank
concurrently with such replacement. Upon the execution of the
31
respective assignment and assumption agreements referred to above, the payment
of amounts referred to in clauses (a) and (b) above, the Replacement Bank shall
become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank
hereunder, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Bank.
Section 4.8. Survival.
The indemnities and other obligations set forth in this Article 4
shall survive payment in full of all Loans or extensions of credit made pursuant
to this Agreement and the Revolving Credit Termination Date.
ARTICLE 5.
CONDITIONS PRECEDENT
Section 5.1. Documentary Conditions Precedent.
The obligations of the Banks to make the Loans (including, without
limitation, issuing Letters of Credit) on or after the date hereof are subject
to the conditions precedent that:
(a) each Bank shall have received on or before the date hereof each
of the following, in form and substance reasonably satisfactory to such Bank and
its counsel:
(i) this Agreement and the Revolving Credit Notes duly
executed by the Borrower;
(ii) a certificate of the Secretary of the Borrower and each
of the Guarantors, dated the Closing Date, attesting to all corporate action
taken by such entity, including resolutions of its Board of Directors
authorizing the execution, delivery and performance of the Facility Documents
and each other document to be delivered pursuant to this Agreement, together
with certified copies of the certificate or articles of incorporation and the
by-laws of the Borrower and each of the Guarantors; and, such certificate shall
state that the resolutions and corporate documents thereby certified have not
been amended, modified, revoked or rescinded as of the date of such certificate;
(iii) a certificate of the Secretary of the Borrower and each
of the Guarantors, dated the Closing Date, certifying the names and true
signatures of the officers of such entity authorized to sign the Facility
Documents and the other documents to be delivered by such entity under this
Agreement;
(iv) a certificate of a duly authorized officer of the
Borrower, dated the Closing Date, stating that the representations and
warranties in Article 6 are true and correct on such date as though made on and
as of such date and that no event has occurred and is continuing which
constitutes a Default or Event of Default;
32
(v) Guarantees, duly executed by each Guarantor;
(vi) a favorable opinion of counsel for the Borrower and
Guarantors, dated the Closing Date, in substantially the form of Exhibit E;
(vii) satisfactory evidence that the Borrower and the
Guarantors are duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation and each other
jurisdiction where qualification is necessary;
(viii) audited consolidated and consolidating balance sheets
of the Borrower and its Subsidiaries as at December 30, 1995, and consolidated
and consolidating income statements and statements of cash flows of the Borrower
and its Subsidiaries for the fiscal year then ended, all prepared in accordance
with GAAP, together with the unqualified opinion thereon of BDO Seidman,
independent certified public accountants, and unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at September
28, 1996, together with income statements and statements of cash flows of the
Borrower and its Subsidiaries for the fiscal quarter ended September 28, 1996
and for the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, each prepared by or under the supervision of the
chief financial officer of the Borrower in accordance with GAAP;
(ix) such other documents, instruments, approvals, opinions
and evidence as the Banks may reasonably require;
(b) the Borrower shall have paid or caused to be paid to the Banks
in full the Up Front Fee and all other fees required to be paid hereunder or in
connection herewith, and to the Agent in full all accrued fees and expenses of
the Agent in connection with the preparation, execution and delivery of this
Agreement and the other Facility Documents and the consummation of the
transactions contemplated thereby; and the Borrower shall have paid or caused to
be paid to the "Banks" and the "Agent" under the "Credit Agreement" all
outstanding "Revolving Credit Loans" thereunder and all accrued interest
thereon, and all accrued commissions and fees under such Credit Agreement;
(c) the Borrower and the Guarantors shall have obtained all
consents, permits and approvals required in connection with the execution,
delivery and performance by the Borrower and the Guarantors of their obligations
hereunder and such consents, permits and approvals shall continue in full force
and effect;
(d) all legal matters in connection with this financing shall be
reasonably satisfactory to the Banks and their counsel; and
(e) the Borrower shall provide reasonably satisfactory evidence that
neither it nor any Guarantor is in default with respect to any contractual
obligations to which it is a party, the effect of which could reasonably be
expected to be material and adverse to the Borrower or any Guarantor, or to the
ability of the Borrower or any Guarantor to perform its obligations hereunder or
under the other Facility Documents.
33
Section 5.2. Additional Conditions Precedent.
The obligations of the Banks to make any Loan (including, without
limitation, issuing Letters of Credit or creating Documentary Banker's
Acceptances) shall be subject to the further conditions precedent (which shall
be in addition to, and shall not be deemed to limit or modify, any of the other
terms and conditions hereunder) that on the date of such Loan the following
statements shall be true:
(a) (i) with respect to any Loan made to the Borrower on the date
hereof, the representations and warranties contained in Article 6 hereof are
true and correct on and as of the date hereof, and (ii) with respect to any Loan
made after the date hereof, the representations and warranties contained in
Article 6 hereof, which for purposes of this Section, shall be deemed to relate
to the Borrower and to each Guarantor as if each such Person were the subject of
each such representation and warranty, are true and correct in all material
respects on and as of the date of such Loan as though made on and as of such
date (except when such representation or warranty by its terms relates to the
date hereof or another specific date);
(b) no Default or Event of Default has occurred and is continuing or
would result from any such Loan; and
(c) no material adverse change shall have occurred in the business,
properties, financial condition or operations of the Borrower or any Guarantor
or in the ability of the Borrower or any Guarantor to perform any of its
obligations under this Agreement or under any of the Facility Documents with
respect to any Loan since the date of the then most recent (i.e., most recent to
the date of the relevant Loan) financial statements of the Borrower delivered or
required to be delivered to the Banks hereunder or in connection herewith.
Section 5.3. Deemed Representations.
Each notice of a Loan or submission to the Agent of a Letter of
Credit application, and the acceptance by the Borrower of the proceeds thereof
or the issuance of such Letter of Credit shall constitute a representation and
warranty that the statements contained in Section 5.2 are true and correct as of
the date of such Loan or the issuance of such Letter of Credit.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
The Borrower and, where applicable, each Guarantor, hereby
represents and warrants that:
Section 6.1. Incorporation, Good Standing and Due
Qualifications; Compliance with Law.
34
Except as set forth in Schedule 6.1, each of the Borrower and its
Subsidiaries and the Guarantors is duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
has the requisite power and authority to own its assets and to transact the
business in which it is now engaged or presently proposes to be engaged, and is
duly qualified as foreign corporations and in good standing under the laws of
each other jurisdiction in which such qualification is required except where the
failure to so qualify and/or be in good standing would not in any case or in the
aggregate, have a material adverse effect on the operations, business, property
or financial condition of the Borrower and its Subsidiaries and the Guarantors
taken as a whole or on the ability of the Borrower or any Guarantor, as the case
may be, to perform its obligations hereunder or under the Facility Documents. In
addition, the Borrower and each of its Subsidiaries and each Guarantor is in
compliance with all laws, treaties, rules or regulations, and determinations or
orders of or with respect to all arbitrations, courts or other governmental
authorities, in each case applicable to or binding upon it or any of its
material property or to which it or any of its material property is subject,
except to the extent that the failure to so comply would not, in any case or in
the aggregate, have a material adverse effect on the operations, business,
property or financial condition of the Borrower and its Subsidiaries taken as a
whole or on the ability of the Borrower or any Guarantor to perform its
obligations hereunder.
Section 6.2. Power and Authority; No Conflicts.
The execution, delivery and performance by the Borrower and the
Guarantors of each of the Facility Documents to which it is a party have been
duly authorized by all necessary corporate or partnership action and do not and
will not: (a) require any consent or approval of the stockholders or partners of
the Borrower or any of its Subsidiaries or any of the Guarantors; (b) contravene
the charter or by-laws of the Borrower or any of its Subsidiaries or any of the
Guarantors; (c) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation (including, without
limitation, the provisions of Regulation G, T, U or X of the Board of Governors
of the Federal Reserve system as in effect from time to time), order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to the Borrower or any of its Subsidiaries or any of the
Guarantors; (d) result in a breach of or constitute a default or require any
consent under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower or any of its Subsidiaries or any of
the Guarantors is a party or by which properties of the Borrower or any of its
Subsidiaries or any of the Guarantors may be bound or affected; (e) result in or
require the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower or any of its
Subsidiaries or any of the Guarantors; or (f) cause the Borrower or any of its
Subsidiaries or any of the Guarantors to be in default under any such rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any such indenture, agreement, lease or instrument, except, in the case of
clauses (c), (d), and (f) above, where such violation, failure to satisfy such
requirement, breach, default or failure to obtain consent as the case may be,
would not, in any case or in the aggregate, have a material adverse effect upon
the operations, business, property or financial condition of the Borrower and
its Subsidiaries taken as a whole or on the ability of the Borrower or any
Guarantor to perform its obligations hereunder.
Section 6.3. Legally Enforceable Agreements.
35
Each Facility Document is, or when delivered under this Agreement
will be, a legal, valid and binding obligation of the Borrower and each
Guarantor (if such entity or Person is a party thereto) enforceable against such
entities or Person in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally or by the effect of general
principles of equity which may limit the availability of equitable remedies
(whether in a proceeding at law or in equity).
Section 6.4. Litigation.
There are no actions, suits or proceedings pending or, to the
knowledge of the Borrower or its Subsidiaries or the Guarantors, threatened,
against or affecting the Borrower or any of its Subsidiaries or any of the
Guarantors before any court, governmental agency or arbitrator, which would, in
any one case or in the aggregate, materially adversely affect the financial
condition, operations, properties or business of the Borrower and its
Subsidiaries taken as a whole, or the ability of the Borrower or any Guarantor
to perform its obligations hereunder.
Section 6.5. Financial Statements; Other Liabilities.
(a) The consolidated and consolidating balance sheet of the Borrower
and its Subsidiaries as at December 30, 1995, and the related income statements
and statements of cash flow of the Borrower and its Subsidiaries for the fiscal
year then ended, and the accompanying notes, together with the opinion thereon
of BDO Seidman, independent certified public accountants, and the interim
financial statements of the Borrower and its Subsidiaries as at and as of (as
the case may be) September 28, 1996, copies of which have been furnished to each
of the Banks, fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of the operations of the Borrower
for the periods covered by such statements, all in accordance with GAAP
consistently applied (subject, in the case of interim financial statements, to
year-end adjustments and except, in the case of such interim financial
statements, for the absence of GAAP notes thereto).
(b) As of the date hereof, there are no material liabilities or
obligations of the Borrower or any of its Subsidiaries, whether direct or
indirect, absolute or contingent, or matured or unmatured, other than (i) as
disclosed or provided for in the financial statements and notes thereto which
are referred to above, or (ii) which are disclosed elsewhere in this Agreement
or in the Schedules hereto or which are not required to be so disclosed
(including contracts (as such term is used in Section 6.14) of the Borrower, its
Subsidiaries and the Guarantors which are not required to be disclosed pursuant
to Section 6.14), or (iii) arising in the ordinary course of business since
September 28, 1996 or (iv) created by this Agreement. The written information,
exhibits and reports furnished by the Borrower to the Banks in connection with
the negotiation of this Agreement, taken as a whole, are complete and correct in
all material respects.
Section 6.6. Ownership and Liens.
The Borrower and its Subsidiaries and each of the Guarantors has
title to, or valid
36
leasehold interests in, all of its properties and assets, real and personal,
including the properties and assets, and leasehold interests reflected in the
financial statements referred to in Section 6.5, and none of the properties and
assets owned by the Borrower and each of the Guarantors, and none of their
leasehold interests is subject to any Lien, except for Permitted Liens or as
disclosed in Schedule 6.6.
Section 6.7. Taxes.
The Borrower and each of its Subsidiaries and each of the Guarantors
has filed all tax returns (foreign, federal, state and local) required to be
filed (including, without limitation, with respect to payroll and sales taxes),
except where the failure to file would not, in any case, or in the aggregate,
have a material adverse effect upon the operations, business, property or
financial condition of the Borrower and its Subsidiaries taken as a whole or on
the ability of the Borrower or any Guarantor to perform its obligations
hereunder, and the Borrower and each of its Subsidiaries and each of the
Guarantors have paid all Taxes, other than Taxes being contested in good faith
by appropriate proceedings and with respect to which adequate reserves in
conformity with GAAP shall have been provided on the books of the Borrower and
its Subsidiaries and the Guarantors.
Section 6.8. ERISA.
As of the date hereof, the Borrower and its ERISA Affiliates are in
compliance in all material respects with all applicable provisions of ERISA, to
the extent that any failure to comply in all material respects is not reasonably
likely to have a material adverse impact on the operations, business, properties
or financial condition of the Borrower and its Subsidiaries taken as a whole. No
Reportable Event has occurred with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstance exists which constitutes grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any such proceedings; neither
the Borrower, nor any ERISA Affiliate has completely or partially withdrawn
under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower and
each of its ERISA Affiliates have met their minimum funding requirements under
ERISA with respect to all of their Plans, there are no Unfunded Vested
Liabilities, and neither the Borrower nor any ERISA Affiliate has incurred any
material liability to the PBGC under ERISA.
Section 6.9. Subsidiaries and Ownership of Stock.
As of the date hereof, Schedule 6.9 is a complete and correct list
of all Subsidiaries of the Borrower.
Section 6.10. Credit Arrangements.
Schedule 6.10 is a complete and correct list of all credit
agreements, indentures, purchase agreements, guaranties, Capital Leases and
other investments, agreements and arrangements in effect on the date of this
Agreement providing for or relating to extensions of credit to the Borrower or
any of the Guarantors for borrowed money (including agreements and
37
arrangements for the issuance of letters of credit or for acceptance financing)
in respect of which the Borrower or any of the Guarantors is in any manner
directly or contingently obligated; and the maximum principal or face amounts of
the credit in question, outstanding and which can be outstanding, are correctly
stated, and all Liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
Section 6.11. Operation of Business.
The Borrower and its Subsidiaries and the Guarantors possess all
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
or rights thereto, to conduct their respective businesses substantially as now
conducted and as presently proposed to be conducted, except where the failure to
do so would not, in any case, have a material adverse effect upon the
operations, business, property or financial condition of the Borrower and its
Subsidiaries taken as a whole or on the ability of the Borrower or any Guarantor
to perform its obligations hereunder.
Section 6.12. Hazardous Substances.
The Borrower and its Subsidiaries and the Guarantors are in material
compliance with all applicable Environmental Laws, and have obtained all
necessary licenses and permits required to be issued pursuant to any applicable
Environmental Law, except where the failure to so comply or to obtain such
licenses or permits would not in any case or in the aggregate have a material
adverse effect on the business, property or financial condition of the Borrower
and its Subsidiaries or on the ability of the Borrower or any Guarantor to
perform its obligations hereunder. As of the date hereof, neither the Borrower
nor any of its Subsidiaries nor any of the Guarantors has received any notice or
communication from any governmental agency with respect to (i) any Hazardous
Substance relative to its operations, property or acts or (ii) any
investigation, demand or request pursuant to or enforcing any applicable
Environmental Law relating to it or its operations, in each case, except where
the subject matter thereof would not have a material adverse effect upon the
operations, business, property or financial condition of the Borrower and its
Subsidiaries taken as a whole or on the ability of the Borrower or any Guarantor
to perform its obligations hereunder, and no such investigation is pending, or
to the best knowledge of the Borrower, its Subsidiaries, or any Guarantor,
threatened.
Section 6.13. No Default on Outstanding Judgments or Orders.
Each of the Borrower and its Subsidiaries and the Guarantors has
satisfied all judgments and neither the Borrower nor any of its Subsidiaries is
in default with respect to any judgment, writ, injunction, decree, rule or
regulation of any court, arbitrator or federal, state, municipal or other
governmental authority, commission, board, bureau, agency or instrumentality,
domestic or foreign, except to the extent that such defaults would not, in any
case or in the aggregate, have a material adverse effect on the operations,
business, property or financial condition of the Borrower and its Subsidiaries
taken as a whole or on the ability of the Borrower or any Guarantor to perform
its obligations hereunder.
Section 6.14. Material Contracts.
38
As of the date hereof, Schedule 6.14 sets forth a true and correct
list of all contracts of the Borrower or any of its Subsidiaries and the
Guarantors which (i) with respect to leases of real property, involve the
payment per year of more than $1,000,000, (ii) with respect to contracts (other
than leases of real property), could reasonably be expected to involve the
payment during the remainder of their term of more than $2,000,000 (other than
purchase and sales contracts entered into in the ordinary course of business) or
(iii) are guarantees listed on Schedule 6.10 to this Agreement (each, a
"Material Contract"). As of the date hereof, none of the Borrower, any of its
Subsidiaries or any of the Guarantors, or to the Borrower's, its Subsidiaries'
or any of the Guarantors' knowledge, any other party to any Material Contract,
has breached or is in default under the terms of, or has caused or permitted to
exist any event that with or without due notice or lapse of time or both would
constitute a default or event of default under, any such Material Contract, and
which breach or default, individually or in the aggregate, would have a material
adverse effect on the business, financial condition or operations of the
Borrower and its Subsidiaries taken as a whole or on the ability of the Borrower
or any Guarantor to perform its obligations hereunder. As of the date hereof,
all such Material Contracts are valid, binding and in full force and effect with
respect to the Borrower, its Subsidiaries or the Guarantors, as the case may be,
and to the Borrower's knowledge, all such contracts are enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, reorganization or similar laws, or by general principles
of equity which may limit the availability of equitable remedies (whether at any
proceeding at law or in equity), except to the extent that breaches or
violations of the foregoing provisions of this sentence would not, individually
or in the aggregate, have a material adverse effect on the operations, business,
property or financial condition of the Borrower and its Subsidiaries taken as a
whole or on the ability of the Borrower or any Guarantor to perform its
obligations hereunder. As used in this Section 6.14, the word "contract" means
and includes every indenture, loan or credit agreement, lease, mortgage, deed of
trust and other instrument, agency agreement or other agreement or understanding
of any kind, written or oral, whether or not legally enforceable.
39
Section 6.15. Labor Disputes and Acts of God.
As of the date hereof, neither the business nor the properties of
the Borrower or any of its Subsidiaries or any of the Guarantors are affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), materially and adversely
affecting such business or properties or the operations of the Borrower and its
Subsidiaries taken as a whole, or the ability of the Borrower or any Guarantor
to perform its obligations hereunder (in each case, after giving effect to
insurance).
Section 6.16. Governmental Regulation.
Neither the Borrower nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Investment
Company Act of 1940 or any other statute or regulation limiting its ability to
incur indebtedness for money borrowed as contemplated hereby.
Section 6.17. Partnerships.
As of the date hereof, except as disclosed on Schedule 6.17 hereto,
neither the Borrower nor any Guarantor is a partner in any partnership.
Section 6.18. No Forfeiture Proceeding.
Neither the Borrower nor any of its Subsidiaries is engaged in or
proposes to be engaged in the conduct of any business or activity which is
likely to result in a Forfeiture Proceeding, and no Forfeiture Proceeding
against any of them is pending or, to the best knowledge of the Borrower and its
Subsidiaries as of the date hereof, threatened.
Section 6.19. No Default or Event of Default.
No Default or Event of Default has occurred and is continuing under
this Agreement, and immediately prior to the Closing Date, no "Default" or
"Event of Default" under the Credit Agreement shall have occurred which was at
such time continuing.
Section 6.20. Solvency.
Each of the Borrower and the Guarantors is Solvent.
Section 6.21. Material Adverse Change.
No event or series of events has occurred since September 28, 1996
which would, individually or in the aggregate, materially adversely affect, and
there has been no material adverse change since December 30, 1995 in, the
operations, business, properties or financial condition of
40
the Borrower and its Subsidiaries taken as a whole or the ability of the
Borrower or any Guarantor to perform its obligations hereunder.
Section 6.22. Name and Location.
To the best of the Borrower's knowledge, during the five years prior
to the making of this Agreement, neither the Borrower nor any Guarantor has been
known under, or transacted business using, any name or trade style except for
the name set forth above such entity's signature on this Agreement or as
described on Schedule 6.22. All locations at which the Borrower and any
Guarantor transacts business are described in Schedule 6.22. This representation
and warranty shall not survive the date hereof.
ARTICLE 7.
AFFIRMATIVE COVENANTS
So long as any of the Notes or any other Obligations shall remain
unpaid or any Bank shall have any Revolving Credit Commitment hereunder, the
Borrower shall, and the Borrower shall cause each of the Guarantors and each of
the Subsidiaries of the Borrower to:
Section 7.1. Maintenance of Existence.
Except as otherwise provided in this Agreement, preserve and
maintain its corporate existence and remain in good standing in the jurisdiction
of its organization, and qualify and remain qualified, as a foreign corporation
in each jurisdiction in which such qualification is required, except where the
failure to do so would not in any case have a material adverse effect on the
operations, business, property or financial condition of the Borrower or any of
the Guarantors, or on the ability of the Borrower or any such Guarantor to
perform its obligations hereunder.
Section 7.2. Conduct of Business.
Continue to engage principally in the principal businesses conducted
by it on the date hereof.
Section 7.3. Maintenance of Properties.
Maintain, keep and preserve, all of its properties (tangible and
intangible) necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, except where the
failure to do so would not in any case have a material adverse effect on the
operations, business, property or financial condition of the Borrower or any of
the Guarantors, or on the ability of the Borrower or any such Guarantor to
perform its obligations hereunder.
41
Section 7.4. Maintenance of Records.
Keep adequate records and books of account, in which complete
entries, reflecting all financial transactions of such Person, will be made.
Section 7.5. Maintenance of Insurance.
Maintain insurance covering its assets and its business with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks (including, without limitation, products
liability) as are usually carried by companies engaged in the same or a similar
business and similarly situated as and when due. The Borrower shall provide the
Agent notice that such policies have been paid in full and shall deliver
certified copies of the policy or policies of such insurance or certificates of
insurance to the Agent if the Agent so requests.
Section 7.6. Compliance with Laws.
Comply with all applicable laws, rules, regulations and orders
("Laws"), except to the extent that the failure to so comply would not have a
material adverse effect on the operations, business, property or financial
condition of the Borrower or any of the Guarantors or on the ability of the
Borrower or any such Guarantor to perform its obligations hereunder.
Section 7.7. Right of Inspection.
At any reasonable time upon reasonable notice during normal business
hours and from time to time, permit the Agent or any Bank or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, such Person and to
discuss the affairs, finances and accounts of such Person with any of its
officers and directors and such entity's independent accountants at the sole
cost and expense of the Banks; provided, however, that notwithstanding the
foregoing to the contrary, upon the occurrence and during the continuance of any
Default or Event of Default, such costs and expenses shall be borne by the
Borrower.
Section 7.8. Reporting Requirements.
Furnish directly to each of the Banks:
(a) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, consolidating and audited
consolidated financial statements of the Borrower and its Subsidiaries
(including, without limitation, the Guarantors), which shall include
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries (including, without limitation, the Guarantors) as of the end of
such fiscal year, together with consolidated and consolidating income statements
and statements of cash flows of the Borrower and its Subsidiaries (including,
without limitation, the Guarantors) for such fiscal year and as of the end of
and for the prior fiscal year, and including a "break-out" of each Guarantor on
a separate schedule, all prepared in accordance with GAAP and accompanied by an
unqualified opinion thereon by independent
42
certified public accountants reasonably acceptable to the Required Banks
together with an executive summary of the management letter prepared by such
independent certified public accountants; provided, however, that if a Default
or Event of Default has occurred and is continuing, the full text of such
management letter shall be provided to the Agent;
(b) as soon as available and in any event within forty-five (45)
days after the end of each of the first, second and third quarters of each
fiscal year of the Borrower, unaudited consolidated and consolidating financial
statements of the Borrower and its Subsidiaries (including, without limitation,
the Guarantors), which shall include unaudited consolidated and consolidating
balance sheets of the Borrower and the Subsidiaries (including, without
limitation, the Guarantors) as of the end of each such quarter, together with
consolidated and consolidating income statements and statements of cash flows of
the Borrower and its Subsidiaries (including, without limitation, the
Guarantors) for each such quarterly period and for the period commencing at the
end of the previous fiscal year and ending with the end of such quarter, and
including a "break-out" of each Guarantor on a separate schedule, all in
reasonable detail and stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and all prepared by or
under the supervision of the chief financial officer of the Borrower in
accordance with GAAP (subject to year-end adjustments and except for the absence
of GAAP notes thereto);
(c) simultaneously with the delivery of the financial reporting
statements referred to in (a) and (b) above, a certificate of the chief
financial officer of the Borrower, certifying that to the best of his knowledge
(i) no Default or Event of Default has occurred and is continuing or, if a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action which is proposed to be taken with respect
thereto, with computations demonstrating compliance (or non-compliance, as the
case may be) with the covenants contained in Article 9, and (ii) such financial
statements have been prepared in accordance with GAAP; (subject in the case of
(b) above to year-end adjustments and except for the absence of GAAP notes
thereto);
(d) promptly, and in any event within five (5) Banking Days after
the sending or filing thereof, copies of all proxy statements, financial
statements and reports which the Borrower or any of its Subsidiaries sends to
its stockholders, and copies of all regular, periodic and special reports and
all registration statements which the Borrower or any such Subsidiary files with
the Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange or state
securities administration;
(e) simultaneously with the delivery of the annual financial
statements referred to in Section 7.8(a), a certificate of the independent
public accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
43
(f) within forty-five (45) days after the end of each fiscal year (a
"Prior Year") of the Borrower, the annual budget of the Borrower and its
Subsidiaries for the fiscal year immediately following the applicable Prior Year
in the form previously delivered pursuant to the Credit Agreement and in
substance satisfactory to the Banks, and copies of any updates, amendments or
modifications to the Borrower's "Corporate Strategic Plan" from time to time,
within five Banking days after the occurrence and completion of the same;
(g) promptly after the Borrower or any Guarantor becomes aware of
the commencement thereof, notice of all actions, suits, and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any Guarantor,
including, without limitation, any such proceeding relating to any alleged
violation of any Environmental Law, which, if determined adversely to the
Borrower or any such Guarantor would have a material adverse effect on the
financial condition, properties, or operations of the Borrower and its
Subsidiaries taken as a whole or any such Guarantor or on the ability of the
Borrower and its Subsidiaries taken as a whole or any Guarantor to perform its
obligations hereunder;
(h) as soon as possible and in any event within five days after any
Default or Event of Default has occurred, a written notice setting forth the
details of such Default or Event of Default and the action which is proposed to
be taken by the Borrower or Guarantor with respect thereto;
(i) as soon as possible and in any event within five Banking Days
after the Borrower knows that any of the events or conditions specified below
with respect to any Plan or Multiemployer Plan have occurred or exist, a
statement signed by a senior financial officer of the Borrower setting forth
details respecting such event or condition and the action, if any, which the
Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by the
Borrower or an ERISA Affiliate with respect to such event or condition):
(i) any Reportable Event;
(ii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been taken by PBGC with
respect to such Multiemployer Plan;
(iv) receipt by the Borrower or ERISA Affiliate of notice from
a Multiemployer Plan of the complete or partial withdrawal by the Borrower or
any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer
Plan imposing withdrawal liability (as of the date of such notification)
exceeding $1,000,000 or requiring payments exceeding $1,000,000 per annum;
44
(v) or the receipt by the Borrower or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA if the aggregate annual contributions of
the Borrower and all ERISA Affiliates to all Multiemployer Plans which are then
in reorganization or being terminated have been increased by over amounts
contributed to such Multiemployer Plans for the plan year immediately preceding
the plan year in which the reorganization or termination occurs by an amount
exceeding $1,000,000; and
(vi) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA for delinquent contributions in excess of $100,000 which
proceeding is not dismissed within thirty (30) days;
(j) promptly after the furnishing thereof, copies of any reports or
records required to be filed with or furnished to any insurance carriers or
governmental authorities relating to Hazardous Substances located on any of real
properties owned or occupied by the Borrower or any Guarantor;
(k) promptly after the Borrower or any Guarantor knows of the
commencement or threat thereof, notice of any Forfeiture Proceeding;
(l) simultaneously with the delivery of the financial statements
referred to in Sections 7.8(a) and (b) above, quarterly reports in form and
substance satisfactory to the Agent, describing all Acquisitions consummated by
the Borrower and its Subsidiaries during the preceding fiscal quarter, which
reports shall include, without limitation, pro forma calculations demonstrating
that after giving effect to all such Acquisitions, no Default or Event of
Default is occurring hereunder; and
(m) such other information respecting the condition or operations,
financial or otherwise of the Borrower or any of its Subsidiaries or ERISA
Affiliates as the Agent may from time to time reasonably request.
Section 7.9. Payment of Obligations.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, all material Debt and other material
obligations of whatever nature (including any obligation for taxes or wages),
except for any Debt or other material obligation which is being contested in
good faith and with respect to which, on a consolidated basis, adequate reserves
in conformity with GAAP shall have been provided on the books of the Borrower.
Section 7.10. Subsidiaries.
Simultaneously with their creation, the Borrower shall cause all of
the Domestic Subsidiaries of Zahn Holdings, Inc., which qualify as Post-Closing
Guarantors in accordance with the definition of that term, to become Guarantors
hereunder.
45
ARTICLE 8.
NEGATIVE COVENANTS.
So long as any of the Notes or other Obligations shall remain unpaid
or any Bank shall have any Revolving Credit Commitment hereunder, the Borrower
shall not, and the Borrower shall cause all Domestic Subsidiaries not to:
Section 8.1. Debt.
Create, incur, assume or suffer to exist, any Debt, except:
(a) Debt of the Borrower under this Agreement or the Notes;
(b) Debt described in Schedule 6.10 (including any renewals,
refinancings or extensions thereof);
(c) Subordinated Debt that shall commence the amortization of
principal after the Revolving Credit Termination Date;
(d) Debt of the Borrower to any Subsidiary, or of any Subsidiary to
the Borrower or to another Subsidiary;
(e) Debt incurred in connection with operating leases entered into
by the Borrower or any of its Subsidiaries consistent with past practices or in
the ordinary course of business;
(f) Notwithstanding anything contained in this Section 8.1 to the
contrary and in addition to any of the Debt described in any of Sections 8.1
(a)-(k) hereof (other than this Section 8.1 (f)), Debt incurred after the date
of this Agreement in an aggregate principal amount not to exceed $50,000,000 at
any time outstanding as to all such Persons; provided that such additional Debt
other than Debt secured by Liens permitted pursuant to Section 8.3 shall rank
pari passu with indebtedness arising under this Agreement;
(g) Debt of the Borrower or any Subsidiary secured by purchase money
Liens permitted by Section 8.3(g);
(h) Debt incurred as a result of bid bonds or performance bonds
incurred by the Borrower or any Subsidiary in the ordinary course of its
business consistent with past practices;
(i) Debt consisting of guarantees permitted under Section 8.2;
(j) Debt of a Subsidiary acquired pursuant to a Permitted
Acquisition (or Debt assumed at the time of a Permitted Acquisition relating to
an asset securing such Debt); provided that (i)
46
such Debt was not incurred in connection with, or in anticipation of, such
Permitted Acquisition and (ii) no Default or Event of Default otherwise exists
or would result therefrom; and
(k) Debt incurred in connection with Capital Leases permitted
hereunder.
Section 8.2. Guarantees.
(a) Create, incur, assume or suffer to exist any guarantees of the
obligations of Subsidiaries, Affiliates or any other related or unrelated
Persons, including Acquired Persons, except (without duplication) for (i)
guarantees of Debt of their respective Subsidiaries and/or Affiliates in an
aggregate amount not to exceed $10,000,000 (in addition to amounts guaranteed
under the guarantees listed as such on Schedule 6.10 hereto (including any
renewals, extensions or refinancings thereof)) at any time outstanding, (ii) the
guarantees by the Borrower and the Guarantors of Debt of Henry Schein Europe,
Inc. to Rabobank Nederland in an aggregate amount not to exceed at any time
outstanding the Dollar Equivalent of Netherlands Guilders 10,000,000 as
referenced in Section 8.3 (i) hereof (including any renewals, extensions or
refinancings thereof), and (iii) guarantees by the Borrower or any of the
Guarantors of Debt of any of the Guarantors or the Borrower.
(b) Notwithstanding Section 8.2 (a) (i) above, the Borrower, the
Guarantors, and/or the above-referenced Subsidiaries may suffer to exist any
guaranties of an Acquired Person which may exist on the closing date of the
subject Permitted Acquisition, for so long as (i) such guaranties are of the
obligations of an entity which will become a Subsidiary, Affiliate and/or
Guarantor of the Borrower or any Guarantor after the closing date of the
Permitted Acquisition, and (ii) neither the Borrower nor any Guarantor shall
assume such guaranties on or after such closing date.
Section 8.3. Liens.
Create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, except the
following ("Permitted Liens"):
(a) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained in conformity with GAAP;
(b) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days, or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves in
accordance with GAAP have been established, including, without limitation, any
Landlord's Lien which is being contested in good faith by appropriate
proceedings and for which appropriate reserves in accordance with GAAP have been
established;
(c) Liens under workers' compensation unemployment insurance, social
security or similar legislation (other than ERISA);
47
(d) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary course
of business;
(e) judgment and other similar Liens arising in connection with
court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(f) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the
property or assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto;
(g) (i) purchase money Liens on any property heretofore or hereafter
acquired or the assumption of any Lien on any property existing at the time of
such acquisition, (ii) purchase money Liens on any property or assets acquired
in any Permitted Acquisition, whether existing at the time of such Permitted
Acquisition or arising after the time of such Permitted Acquisition by virtue of
such Permitted Acquisition, or the assumption of any Lien on any property or
assets acquired in such Permitted Acquisition existing at the time of such
Permitted Acquisition, provided that no such Lien (i.e., arising in conjunction
with any such Permitted Acquisition) shall at any time encumber any of the
property of the Borrower or any other Subsidiary of the Borrower, or (iii) a
Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided, that in the case of any of (i)-(iii)
above, the creation or incurrence of any such Lien shall not otherwise result in
a Default or Event of Default with respect to any of the other provisions of
this Agreement;
(h) mortgage Liens or deeds of trust on real property owned and
occupied by the Borrower or its Subsidiaries;
(i) Liens existing on the date hereof which are described in Section
7 of Schedule 6.10 hereto; or
(j) Liens granted by any Subsidiary of the Borrower in favor of the
Borrower.
Section 8.4. Investments.
Make any loan or advance to any Person or purchase or otherwise
acquire, any capital stock, obligations or other securities of, make any capital
contribution to, or otherwise invest in, or acquire any interest in any Person
(each of the foregoing, an "Investment"). Notwithstanding the foregoing, the
Borrower shall be entitled to make the following Investments: (i) obligations
issued or guaranteed by states or municipalities within the United States of
America; (ii) obligations issued or guaranteed by the United States of America
or any agency or subdivision thereof; (iii) certificates of deposit, time
deposits, Eurodollar certificates of deposit, bankers acceptances and other
"money market instruments" issued by any bank, trust company or financial
institution
48
organized under the laws of the United States of America or any state thereof
(or, in the case of Eurodollar certificates of deposit, a branch of any such
bank, trust company or financial institution) having capital and surplus in an
aggregate amount not less than $200,000,000, or money market accounts or funds
which invest only in the types of Investments described in this subparagraph
(iii); (iv) commercial paper rated at least Prime-1 by Moody's Investor
Services, or A-1 by Standard & Poors, or money market accounts or funds which
invest only in the type of Investment described in this subparagraph (iv); (v)
repurchase agreements entered into with any bank, trust company or financial
institution organized under the laws of the United States of America or any
state thereof having capital and surplus in an aggregate amount not less than
$200,000,000, and relating to any of the Investments referred to in any of
clauses (i), (ii) and (iii) above, maturing or being due or payable in full not
more than one year after the relevant investor's acquisition thereof; (vi)
closed-end, over-collateralized, diversified investment funds rated at least AAA
by Standard & Poors; (vii) Investments in Affiliates (other than Subsidiaries)
or non-domestic Subsidiaries in an aggregate amount not to exceed $25,000,000 at
any time outstanding (in addition to such Investments made prior to the Closing
Date which are listed on Schedule 8.4) (for purposes of this subsection, the
phrase "Investment" shall mean only (x) loans which are recorded as debt in
accordance with GAAP, and advances made on behalf of Affiliates or non-domestic
Subsidiaries which are not repaid within 120 days of the date of such advance,
(y) purchase price of the interest purchased (at the time of purchase) or (z)
the amount of cash or the value of assets contributed (at the time of
contribution)), provided that the sum of all investments classified under
clauses (y) and (z) of the preceding parenthetical phrase shall in no event
exceed $7,000,000; (viii) Investments in Guarantors; (ix) Loans to employees, in
an aggregate amount not to exceed $1,000,000 (inclusive of principal and all
interest accrued in accordance with GAAP under the terms of such loans) at any
time outstanding; and (x) Loans to third parties (provided that any such Loans
are reasonably intended to benefit, directly or indirectly, the business or
financial condition of the Borrower) from time to time hereafter in an aggregate
amount not to exceed $5,000,000 (inclusive of principal and all interest accrued
in accordance with GAAP under the terms of such loans) at any time outstanding,
exclusive of the loan to SF Dental Company described in Schedule 8.4 and such
other loans, if any, that may be excluded from this calculation from time to
time by the Banks in their sole and absolute discretion; (xi) Permitted
Acquisitions; and (xii) Investments required to be taken in connection with the
bankruptcy or reorganization of suppliers and customers, and in settlement of
delinquent obligations of, and other disputes with customers and supplies
arising in the ordinary course of business; provided that as a result of and
after giving effect to any such Investment (i.e., any Investment referred to in
any of subsections (i)-(xi) above), no default or Event of Default shall have
occurred.
Section 8.5. Sale of Assets.
Sell, lease, assign, transfer or otherwise dispose of any of its now
owned or hereafter acquired assets (except to the Borrower), except for: (a)
assets disposed of in the ordinary course of business; or (b) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
(c) the sale or other disposition of assets which are substantially
contemporaneously replaced with new assets of similar value and type; (d) sales
or dispositions which, individually or in the aggregate, in any one year period
ending on the anniversary date of the Closing Date or any succeeding anniversary
date thereof, do not exceed at any particular date during any such period,
49
ten (10%) percent, and for the period from the date hereof to (but not
including) the Revolving Credit Termination Date, do not exceed at any
particular date during such period, twenty (20%) percent, of the amount or value
of the assets, determined at the fair market value thereof determined in good
faith and after all necessary due diligence by the Board of Directors of the
Borrower, and its Subsidiaries taken as a whole, determined as at the date of
sale or disposition respecting any such sale or disposition, in arm's length
transactions for fair value, provided that, after giving effect to any such sale
or disposition, no Default or Event of Default shall have occurred; or (e) the
maintenance of the ESOP. Notwithstanding anything to the contrary in this
Agreement, in the event of the permitted sale or other disposition of all or
substantially all the business of a Guarantor which is permitted in accordance
with clause (d) above, such Person's Guarantee shall terminate and be of no
further force or effect, and the parties hereto shall execute and deliver such
documents to the Borrower as the Borrower reasonably requests to evidence that
fact.
Section 8.6. Transactions with Affiliates.
Enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliate, except (a) for transactions between the Borrower and any Guarantor or
any Guarantor with any other Guarantor, (b) for the maintenance of the ESOP, (c)
in the ordinary course of and pursuant to the reasonable requirements of the
relevant Person's business and upon fair and reasonable terms no less favorable
to the relevant Person than would obtain in a comparable arm's length
transaction with a Person not an Affiliate; and (d) for transactions between the
Borrower and any non-Guarantor Subsidiary of the Borrower which conducts
substantially all of its business outside the United States for the purchase of
inventory from the Borrower for a purchase price which is not less than the
Borrower's cost with respect thereto; provided that, after giving effect to any
such transaction (i.e., any of the transactions referred to in any of (a)-(d)
above), no Default or Event of Default shall have occurred.
50
Section 8.7. Mergers, Etc.
Merge or consolidate with, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to,
any Person, or acquire, all or substantially all of the assets or the business
of any Person, except to the extent permitted (x) under Section 8.5 hereof or
(y) under Section 8.8 hereof, and only, in the case of any merger or
consolidation, if the Borrower is the surviving entity, provided that, after
giving effect to any such transaction, no Default or Event of Default shall have
occurred.
Section 8.8. Acquisitions.
Make an Acquisition, except that the Borrower or any Subsidiary of
the Borrower may engage in any Acquisition with any Person whose line or lines
of business are in the medical, dental, veterinary, hospital, or health care
technology fields and are substantially similar to the line or lines of business
in such fields of the Borrower or any Subsidiary, as the case may be, at the
time of such Acquisition, provided that:
(a) after giving effect to any such Acquisition, no Default or Event
of Default shall exist at the time of any such Acquisition or at the time or as
a result of the consummation of the transactions contemplated thereby;
(b) the Borrower shall notify the Banks of the consummation of any
such Acquisition with respect to which the aggregate cash amount paid or payable
exceeds $15,000,000, within 15 Banking Days of the consummation thereof, and
provide the Banks with evidence reasonably satisfactory to the Banks (which
evidence shall include pro forma financial statements) that after giving effect
to such Acquisition, no Default or Event of Default shall have existed at the
time of any such Acquisition or at the time or as a result of the consummation
of the transactions contemplated thereby;
(c) the aggregate cash amounts paid or payable with respect to any
one Acquisition from and after the date hereof to and including the Revolving
Credit Termination Date shall not exceed $25,000,000 without the prior written
consent of the Required Banks;
(d) such Acquisition has been either (1) approved by the board of
directors of the corporation which is the subject of such Acquisition or (2)
recommended for approval by such board to the shareholders of such corporation
and subsequently approved by the shareholders of such corporation as required
under applicable law or by the by-laws and the certificate of incorporation of
such corporation;
(e) if, upon the closing of the transactions contemplated by an
Acquisition, the aggregate amount or value of the assets (i.e., amounts which
would, in conformity with GAAP, be included as assets on a Person's balance
sheet) directly or indirectly acquired in such Acquisition after the Closing
Date which are located in the United States (e.g., in the case of receivables,
51
receivables for which records are maintained at a location in the United States
or with respect to which the principal business and assets of the relevant
account debtor are located in the United States) ("Acquired Assets"; and the
Person holding or owning such Acquired Assets shall be referred to as an
"Acquired Person") would cause such Acquired Person to become a Post-Closing
Guarantor, then such Acquired Person and each of its Subsidiaries that is not at
such time a party to an agreement which prohibits such Acquired Person or
Subsidiary, as the case may be, from becoming a Guarantor hereunder, shall,
immediately upon the consummation of any such transaction become a Guarantor of
the present and future obligations of the Borrower hereunder on terms and
conditions no less favorable to the Banks than those set forth in the
Guarantees;
(f) notwithstanding anything contained herein to the contrary, no
"hostile takeover" (i.e., an Acquisition opposed by the board of directors of
the selling Person or the Person party to such Acquisition) shall be permitted.
(g) Any Acquisition meeting or satisfying the provisions of this
Section 8.8 shall be referred to as a "Permitted Acquisition".
Section 8.9. No Activities Leading to Forfeiture.
Engage in the conduct of any business or activity which would be
likely to result in a Forfeiture Proceeding.
Section 8.10. Corporate Documents; Fiscal Year.
Amend, modify or supplement its certificate or articles of
incorporation or by-laws or, in the case of any partnership, its partnership
agreement, in any way which would materially adversely affect the ability of the
Borrower or any Guarantor to perform its obligations hereunder or change its
fiscal year (other than a change of fiscal year to a year ending December 31).
Section 8.11. Hazardous Substances; Use of Real Property.
Use, or permit the use of, the owned or leased real properties for
conducting any manufacturing, industrial, commercial or retail business which
involves in any way the introduction, manufacture, generation, processing or
storage of any Hazardous Substance in violation, in any material respect, of any
applicable Environmental Law.
Section 8.12. Dividends, etc.
(a) Pay or accrue (i.e., to pay in the future) any cash dividends
(other than to the Borrower), except that the Borrower may pay cash dividends in
any year of up to 40% of the Borrower's Consolidated Net Income for such year in
any fiscal year; or
(b) redeem, repurchase or acquire any stock or securities of the
Borrower for an aggregate purchase price respecting all such transactions in
excess of $5,000,000 per fiscal year; or
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(c) make any capital distribution in cash or other property (other
than stock dividends); or
(d) take any action which would have an effect equivalent to any of
the foregoing.
Section 8.13. Material Change in Ownership.
(a) Permit any change in the ownership of the Borrower, which
results in any Person or related group of Persons other than the Persons who are
executive officers or directors of the Borrower, or the ESOP, owning
beneficially 30% or more of the outstanding shares of common stock of the
Borrower.
(b) Permit any change in control of the Borrower's Board of
Directors, whereby the Continuing Directors shall cease to constitute a majority
of the Borrower's Board of Directors.
Section 8.14. Other Material Adverse Change.
Suffer or permit any other material adverse change in the operations
of the Borrower and its Subsidiaries taken as a whole.
ARTICLE 9.
FINANCIAL COVENANTS
So long as any of the Notes or other Obligations shall remain
unpaid, or any Bank shall have any Revolving Credit Commitment under this
Agreement, the Borrower shall:
Section 9.1. Minimum Consolidated Net Worth.
Maintain at all times during each of the periods set forth below, a
Consolidated Net Worth of not less than the amounts set forth below opposite the
applicable period:
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Period Amounts
------ -------
Fiscal Year 1996 Actual Consolidated Net Worth at
12/31/95 plus the net proceeds of the
1996 offering of securities by the
Borrower plus 50% of positive
Consolidated Net Income for the
current fiscal year to date
Any Fiscal Year thereafter Prior year-end Actual Consolidated
Net Worth plus the net proceeds of any
offering of securities by the Borrower
plus 50% of positive Consolidated Net
Income for the current fiscal year to date
Section 9.2. Consolidated Maximum Capital Expenditures.
Not be permitted to make aggregate Capital Expenditures on a
consolidated basis with its Subsidiaries (the term Subsidiaries, for all
purposes contained in this Article 9, shall mean all Subsidiaries of the
Borrower whose results are required in accordance with GAAP to be consolidated
with the results of the Borrower) in excess of $15,000,000 in any fiscal year or
$55,000,000 during the term of the Revolving Credit Facility.
Section 9.3. Minimum Consolidated Cash Flow Coverage.
Maintain at all times on a rolling four-quarter basis, a ratio of
(A) Consolidated Net Profit of the Borrower and its Subsidiaries after
Consolidated Taxes of the Borrower and its Subsidiaries plus consolidated
Depreciation of the Borrower and its Subsidiaries plus consolidated Amortization
of the Borrower and its Subsidiaries plus consolidated Non-Cash Charges of the
Borrower and its Subsidiaries (other than consolidated Depreciation of the
Borrower and its Subsidiaries and consolidated Amortization of the Borrower and
its Subsidiaries) plus Consolidated Interest Expense plus the aggregate amount
of net cash proceeds from the issuance of capital stock of the Borrower and its
Subsidiaries on a consolidated basis (as determined in accordance with GAAP), to
(B) Consolidated Interest Expense plus the Current Portion of Long-Term Debt
less the Debt resulting from the Van Den Braak Acquisition, provided same shall
be repaid with a portion of the Loans made hereunder prior to its October, 1997
maturity (as determined in accordance with GAAP) plus consolidated Capital Lease
payments of the Borrower and its Subsidiaries plus consolidated Dividends of the
Borrower and its Subsidiaries plus consolidated Capital Expenditures of the
Borrower and its Subsidiaries (net of indebtedness incurred for the purpose of
financing such Capital Expenditures) (as determined in accordance with GAAP)
plus the aggregate amount of cash payments made by the Borrower and its
Subsidiaries on a consolidated basis (as determined in
54
accordance with GAAP) to purchase or redeem capital stock of the Borrower and
its Subsidiaries on a consolidated basis (as determined in accordance with
GAAP), of not less than 1.10:1.00.
Section 9.4. Consolidated Minimum Interest Coverage.
Maintain at all times on a rolling four-quarter basis a ratio of
consolidated Operating Income of the Borrower and its Subsidiaries (before
special charges) before Consolidated Interest Expense and Consolidated Taxes
plus consolidated Depreciation of the Borrower and its Subsidiaries plus
consolidated Amortization of the Borrower and its Subsidiaries to Consolidated
Interest Expense of the Borrower and its Subsidiaries (as determined in
accordance with GAAP) of not less than 3.00:1.00.
Section 9.5. Maximum Ratio of Consolidated Funded Debt to
EBITDA.
Maintain at all times a ratio of Consolidated Funded Debt as of the
last day of the preceding fiscal quarter to Consolidated EBITDA of not more than
3.0:1.0.
Compliance with all of the financial covenants contained in this
Article 9 may be determined by reference to consolidated financial statements of
the Borrower and its Subsidiaries delivered to the Agent in accordance with
Section 7.8 hereof. The Borrower and its Subsidiaries must be in compliance with
all such covenants at all times during the relevant period. All financial
covenants may be tested more frequently, but shall not be tested less
frequently, than quarterly, at the discretion of the Banks.
ARTICLE 10.
EVENTS OF DEFAULT
Section 10.1. Events of Default.
Any of the following events shall be an "Event of Default":
(a) The Borrower shall: (i) fail to pay the principal of any Note as
and when due and payable; (ii) fail to pay interest on any Note within two
Banking Days of the date any such payment is due and payable or any other
Obligation as and when due and payable; or (iii) fail to pay any Bank any amount
when due and payable in connection with any Letter of Credit or Documentary
Banker's Acceptance;
(b) Any representation or warranty made or deemed made by the
Borrower in this Agreement or in any other Facility Document or which is
contained in any certificate, document, opinion or financial or other statement
furnished at any time under or in connection with any Facility Document shall
prove to have been incorrect, if made or deemed made on or as of the date
hereof, in any respect or, if made or deemed made on or as of any date
subsequent to the date hereof, in any material respect;
55
(c) The Borrower shall: (i) fail to perform or observe any term,
covenant or agreement contained in any of (A) Section 2.3, Section 2.7(e),
Article 8, Article 9, or Section 12.3 hereof; (B) Section 7.8, and such failure
shall continue for ten (10) consecutive days after written notice; or (C) any
Facility Document other than this Agreement (except to the extent of obligations
specifically referred to in Section 10.1(a) hereof, after the expiration of any
applicable grace period provided in any such Facility Document); or (ii) fail to
perform or observe any term, covenant or agreement on its part to be performed
or observed (other than the obligations specifically referred to in any of
Section 10.1(a), Section 10.1(b), Section 10.1(c)(i) or any of Sections
10.1(d)-(j) hereof) in this Agreement and (in the case of this Section
10.1(c)(ii) only) such failure shall continue for thirty (30) consecutive days
after written notice;
(d) The Borrower or any Guarantor shall: (i) fail to pay any Debt or
Debts for borrowed money (other than the payment obligations described in (a)
above) in the aggregate amount of $2,000,000 or more, as the case may be, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) after giving effect to any
applicable grace periods; or (ii) fail to perform or observe any term, covenant
or condition on its part to be performed or observed, including the obligation
to make payment, under any agreement or instrument relating to any other Debt or
Debts (other than the payment obligations described in (a) above or the Debt or
Debts described in (d)(i) above) in the aggregate amount of $2,000,000, when
required to be performed or observed, if the effect of such failure to perform
or observe is to accelerate or permit the acceleration of the maturity of such
Debt, after giving effect to any applicable grace period; provided, however,
that notwithstanding anything in the foregoing to the contrary, with respect to
that certain Debt owing to New York State Urban Development Corp. as set forth
in Section 1 of Schedule 6.10 hereof (the "Urban Development Loan"), no effect
will be given to a default or acceleration of or with respect to the Urban
Development Loan if and for so long as the full amount of such Urban Development
Loan is secured by other Debt of the Borrower;
(e) The Borrower or any Guarantor (i) shall generally not, or be
unable to, or shall admit in writing its or their inability to, pay its or their
debts as such debts become due; or (ii) shall make an assignment for the benefit
of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it or them, in which an adjudication or appointment is made
or order for relief is entered which petition, application or proceeding remains
unstayed and in effect for a period of thirty (30) days or more; or (v) by any
act or omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any substantial part
of its property; (vi) shall suffer any such custodianship, receivership or
trusteeship (as referenced in (v) above, exclusive of any of the matters
referenced in any of (i) - (iv) hereof) to continue undischarged for a period of
forty-five (45) days or more; or (vii) the Borrower shall cease to be Solvent;
56
(f) One or more judgments, decrees or orders for the payment of
money in excess of $1,000,000 in the aggregate shall be rendered against the
Borrower any Guarantor and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days without
being vacated, discharged, satisfied or stayed or bonded pending appeal;
(g) An event or condition specified in Section 6.8 hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Borrower, any Guarantor or any ERISA Affiliate shall incur a liability to a
Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing)
which is, in the determination of the Required Banks, material in relation to
the financial condition, operations, business or prospects of the Borrower;
(h) Any Forfeiture Proceeding shall have been commenced against the
Borrower or any Guarantor unless, immediately upon the commencement of any such
proceeding, such Borrower or Guarantor, contests any such proceeding in good
faith by appropriate proceedings and such proceeding is unstayed and in effect
for a period of thirty (30) days or more after the commencement thereof;
provided, however, that until such proceeding is dismissed as aforesaid, and
notwithstanding anything contained in this Agreement to the contrary, the Banks
will be under no obligation to make Revolving Credit Loans available to the
Borrower after the commencement of any such proceeding unless and until such
time as any such proceeding shall have been dismissed pursuant to the foregoing
provisions; or
(i) Any of the Guarantees shall at any time after their execution
and delivery and for any reason cease to be in full force and effect or shall be
declared null and void, or the validity of enforceability thereof shall be
contested by the Borrower or any Guarantor (or any assignee or transferee of the
Borrower or any Guarantor), or the Borrower or any Guarantor (or any assignee or
transferee of the Borrower) shall deny that it has any further liability or
obligation under any Guarantees to which it is a party, or the Borrower or any
Guarantor (or any assignee or transferee of any such Borrower or any Guarantor)
shall fail to perform any of its obligations under the Guarantees to which it is
a party.
Section 10.2. Remedies.
Upon the occurrence of any Event of Default hereunder, the Required
Banks may, by notice to the Borrower, (a) declare the Revolving Credit
Commitments to be terminated, whereupon the same shall forthwith terminate, and
(b) declare the outstanding principal of the Notes, all interest thereon and all
other Obligations to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided that, in the case of an
Event of Default referred to in Section 10.1(f) or Section 10.1(i) above, the
Revolving Credit Commitments shall be immediately terminated, and the Notes, all
interest thereon and all other amounts payable under this Agreement or the Notes
shall be immediately due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower. With respect to all Letters of Credit that shall not
have matured or with respect to which presentment for
57
honor shall not have occurred, the Borrower shall deposit in a cash collateral
account opened by the Agent an amount equal to the aggregate undrawn amount of
Letters of Credit, and the unused portion thereof, if any, shall be returned to
the Borrower after the respective expiration dates of the Letters of Credit and
after all Obligations are paid in full. Furthermore, if an Event of Default has
occurred and the Required Banks have exercised the remedies set forth in (a) and
(b) above, interest and fees payable hereunder in connection with the Loans
shall automatically be increased to the Default Rate (with respect to Letters of
Credit, the fees payable with respect thereto shall be automatically increased
to a rate per annum equal to the Default Rate which would be applicable to a
Base Rate Loan, in an amount equal to the aggregate of the past due amounts with
respect to all outstandings Letters of Credit).
ARTICLE 11.
THE AGENT;
RELATIONS AMONG BANKS AND BORROWER
Section 11.1. Appointment, Powers and Immunities of Agent
Each Bank hereby irrevocably (but subject to removal by the Required
Banks pursuant to Section 11.9) appoints and authorizes Chase to act as its
agent hereunder and under any other Facility Document with such powers as are
specifically delegated to the Agent by the terms of this Agreement and any other
Facility Document, together with such other powers as are reasonably incidental
thereto. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and any other Facility Document, and shall
not by reason of this Agreement be a trustee for any Bank. The Agent shall not
be responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrower, any of the Guarantors, or any of the Acquired
Entities, or any officer or official of the Borrower, any of the Guarantors, or
any of the Acquired Entities, or any other Person contained in this Agreement or
any other Facility Document, or in any certificate or other document or
instrument referred to or provided for in, or received by any of them under,
this Agreement or any other Facility Document, or for the value, legality,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Facility Document or any other document or instrument
referred to or provided for herein or therein, or for any failure by the
Borrower, any of the Guarantors, or any of the Acquired Entities to perform any
of their or its respective obligations hereunder or thereunder. The Agent may
take all necessary actions by itself and/or it may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of
itself or its employees or of any such agents or attorneys-in-fact, if such
agents or attorneys-in-fact are selected by it with reasonable care. Neither the
Agent nor any of its directors, officers, employees or agents shall be liable or
responsible for any action taken or omitted to be taken by it or them hereunder
or under any other Facility Document or in connection herewith or therewith,
except for its or their own gross negligence or willful misconduct. The Borrower
shall pay any fee agreed to by the Borrower and the Agent with respect to the
Agent's services hereunder.
Section 11.2. Reliance by Agent.
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The Agent shall be entitled to rely upon any certification, notice
or other communication (including any thereof by telephone, telex, telegram or
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Agent. The Agent may deem and treat each Bank as the holder of the Loans made by
it for all purposes hereof unless and until a notice of the assignment or
transfer thereof satisfactory to the Agent signed by such Bank shall have been
furnished to the Agent, but the Agent shall not be required to deal with any
Person who has acquired a participation in any Loan from a Bank. As to any
matters not expressly provided for by this Agreement or any other Facility
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks and any
other holder of all or any portion of any Loan.
Section 11.3. Defaults.
The Agent shall not be deemed to have knowledge of the occurrence of
a Default or Event of Default (other than the non-payment of principal of or
interest on the Loans to the extent the same is required to be paid to the Agent
for the account of the Banks) unless the Agent has received notice from a Bank
or the Borrower specifying such Default or Event of Default and stating that
such notice is a "Notice of Default." In the event that the Agent receives such
a notice of the occurrence of a Default or Event of Default, the Agent shall
give prompt notice thereof to the Banks (and shall give each Bank prompt notice
of each such non-payment). The Agent shall (subject to Section 12.8) take such
action with respect to such Default or Event of Default which is continuing as
shall be directed by the Required Banks; provided that, unless and until the
Agent shall have received such directions, the Agent may take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Banks; and
provided further that the Agent shall not be required to take any such action
which it determines to be contrary to law.
Section 11.4. Rights of Agent as a Bank.
With respect to its Revolving Credit Commitment and the Loans made
by it, the Agent, in its capacity as a Bank hereunder, shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its capacity as a
Bank. The Agent or any Bank and their respective Affiliates may (without having
to account therefor to any other Bank) accept deposits from, lend money to (on a
secured or unsecured basis), and generally engage in any kind of banking, trust
or other business with, the Borrower, the Guarantors, or the Acquired Entities
or any of them (and any of their Affiliates). In the case of the Agent, it may
do so as if it were not acting as the Agent, and the Agent may accept fees and
other consideration from the Borrower, the Guarantors, or the Acquired Entities
or any of them for services in connection with this Agreement or otherwise
without having to account for the same to the Banks. Although the Agent or a
Bank or their respective Affiliates may in the course of such
59
relationships and relationships with other Persons acquire information about the
Borrower, the Guarantors and their respective Affiliates, neither the Agent nor
such Bank shall have any duty to disclose such information to the other Banks.
Section 11.5. Indemnification of Agent.
The Banks agree to indemnify the Agent (to the extent not reimbursed
under Section 12.3 or under the applicable provisions of any other Facility
Document, but without limiting the obligations of the Borrower under Section
12.3 or such provisions), ratably in accordance with the aggregate unpaid
principal amount of the Loans made by the Banks (without giving effect to any
participation, in all or any portion of such Loans, sold by them to any other
Person) or, if no Loans are at the time outstanding, ratably in accordance with
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any other Facility Document or any other documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Borrower is
obligated to pay under Section 12.3 or under the applicable provisions of any
other Facility Document but excluding, unless a Default or Event of Default has
occurred, normal administrative costs and expenses incidental to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents or instruments; provided that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
Section 11.6. Documents.
The Agent will forward to each Bank, promptly after the Agent's
receipt thereof, a copy of each report, notice or other document required by
this Agreement or any other Facility Document to be delivered to the Agent for
such Bank.
Section 11.7. Non-Reliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Borrower and the
Guarantors and the decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or any other Facility Document. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Borrower or the Guarantors of this Agreement or any other Facility Document, or
any other document referred to or provided for herein or therein, or to inspect
the properties or books of the Borrower or the Guarantors. Except for notices,
reports and other documents and information expressly required to be furnished
to the Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or the
60
Guarantors which may come into the possession of the Agent or of its Affiliates.
The Agent shall not be required to file this Agreement, any other Facility
Document or any document or instrument referred to herein or therein, for record
or give notice of this Agreement, any other Facility Document or any document or
instrument referred to herein or therein, to anyone.
Section 11.8. Failure of Agent to Act.
Except for action expressly required of the Agent hereunder, the
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
cash collateral) of the indemnification obligations of the Banks under Section
11.5 in respect of any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action.
Section 11.9. Resignation or Removal of Agent.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving written notice
thereof to the Banks and the Borrower, and the Agent may be removed at any time
with or without cause by the Required Banks; provided that the Borrower and the
other Banks shall be promptly notified thereof. Chase shall be deemed removed as
Agent by the Required Banks at such time as the aggregate of the Commitment
Proportions of Chase and its Affiliates is less than 35% of the aggregate
Commitment Proportions of the Banks hereunder; provided, however, that such
removal shall only be deemed effective upon the appointment of a successor
Agent. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Banks and shall have accepted such appointment within
thirty (30) days after the retiring Agent's giving of notice of resignation or
the Required Banks' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall be a bank which
has an office in New York, New York. The appointment of any bank which is not
then a party hereto shall be subject to the approval of the Borrower, which
shall not be unreasonably withheld or from among the Banks which are parties
hereto. The Required Banks or the retiring Agent, as the case may be, shall upon
the appointment of a Successor Agent promptly so notify the Borrower and the
other Banks. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
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Section 11.10. Amendments Concerning Agency Function.
The Agent shall not be bound by any waiver, amendment, supplement or
modification of this Agreement or any other Facility Document which affects its
duties hereunder or thereunder unless it shall have given its prior consent
thereto.
Section 11.11. Liability of Agent.
The Agent shall not have any liabilities or responsibilities to the
Borrower on account of the failure of any Bank to perform its obligations
hereunder or to any Bank on account of the failure of the Borrower to perform
its obligations hereunder or under any other Facility Document.
Section 11.12. Transfer of Agency Function.
Without the consent of the Borrower or any Bank, the Agent may at
any time or from time to time transfer its functions as Agent hereunder to any
of its offices wherever located, provided that the Agent shall promptly notify
the Borrower and the Banks thereof.
Section 11.13. Non-Receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Bank or the Borrower
(either one as appropriate being the "Payor") prior to the date on which such
Bank is to make payment hereunder to the Agent of the proceeds of a Loan or the
Borrower is to make payment to the Agent, as the case may be (either such
payment being a "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, repay to the Agent the amount made available to it
together with interest thereon for the period from the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the average daily Federal Funds Rate for such period.
Section 11.14. Withholding Taxes.
Each Bank represents that it is entitled to receive any payments to
be made to it hereunder without the withholding of any tax and will furnish to
the Agent such forms, certifications, statements and other documents as the
Agent may request from time to time to evidence such Bank's exemption from the
withholding of any tax imposed by any jurisdiction or to enable the Agent to
comply with any applicable laws or regulations relating thereto. Without
limiting the effect of the foregoing, if any Bank is not created or organized
under the laws of the United States of America or any state thereof, in the
event that the payment of interest by the Borrower is treated for U.S. income
tax purposes as derived in whole or in part from sources from
62
within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of
the Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. The Agent shall
not be obligated to make any payments hereunder to such Bank in respect of any
Loan or such Bank's Commitment until such Bank shall have furnished to the Agent
the requested form, certification, statement or document.
Section 11.15. Several Obligations and Rights of Banks.
The failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of its obligation to
make its Loan on such date, but no Bank shall be responsible for the failure of
any other Bank to make a Loan to be made by such other Bank. The amounts payable
at any time hereunder to each Bank shall be a separate and independent debt, and
each Bank shall be entitled to protect and enforce its rights arising out of
this Agreement, and it shall not be necessary for any other Bank to be joined as
an additional party in any proceeding for such purpose.
Section 11.16. Pro Rata Treatment of Loans, Etc.
Except to the extent otherwise provided in this Agreement: (a) each
borrowing under Section 2.4 or issuance of Letters of Credit or Documentary
Banker's Acceptances under Section 2.7 shall be made from or for the benefit of
the Banks, each payment of the Commitment Fee accruing under Section 3.3, the
Usage Fee accruing under Section 3.4, and the Up Front Fee accruing under
Section 3.5, and each conversion of a Loan from one type of Loan to another
pursuant to Section 2.4, shall be made for the account of the Banks, pro rata in
accordance with their respective Commitment Proportions; (b) each prepayment and
payment of principal of or interest on Loans of a particular type and a
particular Interest Period shall be made to the Agent for the account of the
Banks holding Loans of such type and Interest Period pro rata in accordance with
the respective unpaid principal amounts of such Loans of such Interest Period
held by such Banks.
Section 11.17. Sharing of Payments Among Banks.
If a Bank shall obtain payment of any principal of or interest on
any Loan made by it through the exercise of any right of setoff, banker's lien,
counterclaim, or by any other means, it shall promptly purchase from the other
Banks participation in (or, if and to the extent specified by such Bank, direct
interests in) the Loans made by the other Banks in such amounts, and make such
other adjustments from time to time as shall be equitable to the end that all
the Banks shall share the benefit of such payment (net of any expenses which may
be incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with the unpaid principal and interest on the Loans held by each of
them. To such end, the Banks shall make appropriate adjustments among themselves
(by the resale of participation sold or otherwise) if such payment is rescinded
or must otherwise be restored. The Borrower agrees that any Bank so purchasing a
participation (or direct interest) in the Loans made by other Banks may exercise
all rights of setoff, banker's lien, counterclaim or similar rights with respect
to such participation (or direct interest). Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
63
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness of the Borrower.
ARTICLE 12.
MISCELLANEOUS
Section 12.1. Amendments and Waivers.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended or modified only by an instrument in
writing signed by the Borrower and the Required Banks, and any provision of this
Agreement may be waived by the Borrower and by an instrument signed by the
Required Banks (if such provision requires performance by the Borrower, or any
of them), including, but not limited to, any Event of Default; provided that no
amendment, modification or waiver shall, unless by an instrument signed by all
of the Banks: (a) increase or extend the term, or extend the time or waive any
requirement for the reduction or termination of the Revolving Credit Commitment,
(b) extend the date fixed for the payment of principal of or interest on any
Loan, (c) reduce the amount of any payment of principal thereof or the rate at
which interest is payable thereon or any fee payable hereunder, (d) alter the
terms of Sections 12.1 through 12.8 and Section 12.13, (e) change the Revolving
Credit Commitment of any Bank or the fees payable to any Bank, except as
expressly otherwise provided herein, (f) permit the Borrower, or any of the
Guarantors, to transfer or assign any of its obligations hereunder or under the
Facility Documents, or (g) change the definition of the term "Required Banks".
No failure on the part of any Bank to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof or preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 12.2. Usury.
Anything herein to the contrary notwithstanding, the Obligations
shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to a Bank limiting rates of interest which may be charged or
collected by such Bank. If any of the above-referenced payments of interest,
together with any other charges or fees deemed in the nature of interest, exceed
the maximum legal rate, then the Banks shall have the right to make such
adjustments as are necessary to reduce any such aggregate interest rate (based
on the foregoing aggregate amount) to the maximum legal rate, and if any Bank
ever receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Borrower. The Borrower waives any
right to prior notice of such adjustment and further agrees that any such
adjustment may be made by the Banks subsequent to notification from the Borrower
that such aggregate interest charged exceeds the maximum legal rate.
Section 12.3. Expenses.
64
The Borrower shall reimburse each of the Banks on demand for all
reasonable costs, expenses and charges (including, without limitation,
reasonable fees and charges of such Banks' special counsel, Rivkin, Radler &
Kremer, plus disbursements, but excluding the fees and charges of any other
counsel for or to any of the Banks (including, without limitation, any in-house
counsel) incurred in connection with or relation to the documentation,
negotiation and closing of the transactions contemplated hereby, and their
respective disbursements) incurred by such Bank in connection with the
preparation, review, execution and delivery of this Agreement and the Facility
Documents (including, without limitation, with respect to that certain letter
dated December 24, 1996, executed by the Borrower and the Banks). In addition,
the Borrower shall reimburse each Bank for all of its reasonable costs and
expenses in connection with the protection, enforcement or preservation of any
rights under this Agreement, the Notes or the other Facility Documents. The
Borrower agrees to indemnify each Bank and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by the Borrower or any of its Affiliates
of the proceeds of the Loans, or to the failure of the Borrower to perform or
observe any of the terms, covenants or conditions on its part to be performed or
observed under this Agreement or under any of the Facility Documents including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, willful misconduct or bad faith of the Person to
be indemnified).
Section 12.4. Survival.
The obligations of the Borrower under Section 2.3, Section 2.7(e),
Section 3.3, Section 3.4, Article 4 and Section 12.3 shall survive the repayment
of the Loans and the Revolving Credit Termination Date for a period
corresponding to the maximum applicable statute of limitations in effect in the
State of New York from time to time.
Section 12.5. Assignment; Participation.
This Agreement shall be binding upon, and shall inure to the benefit
of Borrower, the Banks and their respective successors and assigns, except that
the Borrower may not assign or transfer its rights or obligations hereunder.
Each Bank may, only with the prior written consent of the Borrower and the
Agent, which consent shall not be unreasonably withheld, assign, or sell
participation in, all or any part of any Loan to another bank or other entity,
in which event (a) in the case of an assignment, upon notice thereof by the Bank
to the Borrower and the Agent and subject to the Borrower's and Agent's consent
(as referenced above), the assignee shall have, to the extent of such assignment
(unless otherwise provided therein), the same rights, benefits and obligations
(including, without limitation, a ratable assumption of the assigning Bank's
Commitment and Commitment Proportion hereunder) as it would have if it were a
Bank hereunder; provided, however, that no assignment shall be made of or with
respect to a principal amount which is less than $15,000,000 of the Commitment
of the resigning Bank (e.g., in outstanding Loans and in the obligation to make
future Loans) and no assignment can be made until the assigning Bank offers,
65
upon reasonable prior written notice, the other Banks a right of first refusal
to purchase such assigning Bank's interest on the same terms and conditions as
are being offered by the assignee; and (b) in the case of a participation, the
participant shall have no rights under the Facility Documents and all amounts
payable by the Borrower under Articles 2 and 3 shall be determined as if such
Bank had not sold such participation. Such Bank may furnish any information
concerning the Borrower in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants);
provided that such Bank shall require any such prospective assignee or such
participant (prospective or otherwise) to agree in writing to maintain the
confidentiality of such information in accordance with Section 12.14 hereof.
There shall be no limit on the number of assignments or participations that may
be granted by any Bank. Notwithstanding anything contained herein to the
contrary each Bank shall be permitted, without the prior consent of the Borrower
and without being subject to the above-referenced right of first refusal, to
assign all or part of its Revolving Credit Commitment hereunder to any Federal
Reserve Bank in connection with any collateral assignment thereto in the
ordinary course of any such Bank's business or assign or participate all or part
of its Revolving Credit Commitment hereunder to any Affiliate of such Bank.
Section 12.6. Notices.
Unless the party to be notified otherwise notifies the other party
in writing as provided in this Section, and except as otherwise provided in this
Agreement, notices shall be given to the Borrower by certified or registered
mail or by recognized overnight delivery services to such party at its address
on the signature page of this Agreement, and in any such case, any such notice
shall be accompanied by notice by telecopy. Initially, notice shall be delivered
to each party hereto at the addresses set forth on the signature page hereof.
Notices shall be effective: (a) if given by registered or certified mail, 72
hours after deposit in the mails with postage prepaid, addressed as aforesaid;
or (b) if given by recognized overnight delivery service, on the Banking Day
following deposit with such service addressed as aforesaid; or (c) if given by
telecopy, when the telecopy is transmitted to the telecopy number as aforesaid
and confirmed with a confirmation receipt.
Section 12.7. Setoff.
The Borrower agrees that, in addition to (and without limitation of)
any right of setoff, banker's lien or counterclaim a Bank may otherwise have,
each Bank shall be entitled, at its option without any prior notice to the
Borrower (any such notice being expressly waived by the Borrower to the extent
permitted by applicable law), to offset balances (general or special, time or
demand, provisional or final) held by it for the account of the Borrower at any
of such Bank's offices, in Dollars or in any other currency, against any amount
payable by the Borrower to such Bank under this Agreement or such Bank's Note
which is not paid when due (regardless of whether such balances are then due to
the Borrower), in which case it shall promptly notify the Borrower thereof;
provided that such Bank's failure to give such notice shall not affect the
validity thereof. Payments by the Borrower thereof hereunder shall be made
without setoff or counterclaim. Each Bank agrees that if it shall, through the
exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain
any payments from the Borrower or any of the Guarantors, all such payments shall
first be applied to the repayment of the outstanding Obligations, and such Bank
will (a) be
66
deemed to have simultaneously purchased from the other Banks a share in the
Obligations held by such Banks so that the amount of the Obligations held by
each of the Banks shall be on a pro rata basis (provided, however, that for
purposes of this Section, the term "pro-rata" will be determined with respect to
each Bank's Commitment Proportion of outstanding Obligations after subtraction
in each case of amounts, if any, by which any such Bank has not funded an amount
equal to its Commitment Proportion of outstanding Obligations) and (b) make such
disposition and arrangements with the other Banks with respect to such payments,
either by way of distribution, pro tanto assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in respect of such payments its
Commitment Proportion thereof as contemplated hereby. If all or any portion of
any of the payments referenced above is thereafter recovered from the Bank which
received the same, the purchase provided in this Section shall be rescinded to
the extent of such recovery, without interest. The Borrower and the Guarantors
expressly consent to the foregoing arrangements and agree that each Bank so
purchasing a portion of the other Banks' Obligations may exercise all rights of
payment with respect to such portion as fully as if such Bank were the direct
holder of such portion.
Section 12.8. Jurisdiction; Immunities.
(A) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK OR SUFFOLK
COUNTIES OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
(BY CERTIFIED OR REGISTERED MAIL) OF COPIES OF SUCH PROCESS TO THE BORROWER AT
THE ADDRESS SPECIFIED IN SECTION 12.6. THE BORROWER AGREES THAT A FINAL JUDGMENT
(INCLUDING ANY APPLICABLE APPEALS) IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION
TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH
STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWER FURTHER AGREES THAT ANY
ACTION OR PROCEEDING BROUGHT AGAINST ANY BANK SHALL BE BROUGHT ONLY IN NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK OR SUFFOLK COUNTIES.
EACH OF THE BANKS AND THE BORROWER WAIVE ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH RESPECT TO THIS AGREEMENT AND THE OTHER FACILITY DOCUMENTS.
(B) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF ANY BANK
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
OF ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER, OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
67
(C) TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER FROM
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE NOTES.
Section 12.9. Table of Contents; Headings.
Any table of contents and the headings and captions hereunder are
for convenience only and shall not affect the interpretation or construction of
this Agreement.
Section 12.10. Severability.
The provisions of this Agreement are intended to be severable. If
for any reason any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
Section 12.11. Counterparts.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Agreement by signing any such counterpart.
Section 12.12. Integration.
The Facility Documents set forth the entire agreement among the
parties hereto relating to the transactions contemplated thereby and supersede
any prior oral or written statements or agreements with respect to such
transactions.
Section 12.13. Governing Law.
This Agreement shall be governed by, and interpreted and construed
in accordance with, the law of the State of New York.
Section 12.14. Confidentiality.
Each of the Banks agrees that it will use all reasonable best
efforts not to disclose without the prior consent of the Borrower (other than to
affiliates of such Banks and their respective directors, employees, auditors,
counsel or other professional advisors) any confidential information with
respect to the Borrower or any of its Subsidiaries which is furnished by the
Borrower;
68
provided that upon notice to the Borrower any Bank may disclose any such
information (a) that is or has become generally available to the public; (b) as
may be required or appropriate (x) in any report, statement or testimony
submitted to any municipal, state or Federal or other governmental regulatory
body having or claiming to have jurisdiction over such Bank or to the Federal
Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors or
(y) in connection with any request or requirement of any such regulatory body;
(c) as may be required or appropriate in response to any summons or subpoena or
in connection with any litigation; (d) to comply with any law, order, regulation
or ruling applicable to such Bank; and (e) to any prospective transferee in
connection with any contemplated transfer of any of the Notes or any interest
therein by such Bank; provided that such prospective transferee agrees to be
bound by this Section 12.14 to the same extent as such Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
HENRY SCHEIN, INC.
By:____________________________
Name: H. Bradley Seidensticker
Title:Treasurer
Address for Notice 135 Duryea Road
Melville, New York 11747
Attn: Chairman of the Board
cc: General Counsel and Chief Financial Officer
Telephone No.: (516) 843-5963
Telefax No.: (516) 843-5784
69
AGENT:
THE CHASE MANHATTAN BANK
By:
-----------------------------
Name: Emelia K. Teige
Title: Vice President
Lending Office and Address for Notices:
The Chase Manhattan Bank
Agent Bank Services
140 E. 45th Street, 29th Floor
New York, New York 10017
Attn.: Sandra Miklave
Vice President
Telephone No.: (212) 622-0005
Telefax No.: (212) 622-0002
Letters of Credit
Issuing Agent
The Chase Manhattan Bank
55 Water Street, 17th Floor
New York, New York 10041
Attention: Indirah Toovey
Telephone: (212) 638-1842
Telefax: (212) 638-8200
BANKS:
THE CHASE MANHATTAN BANK
By:
-----------------------------
Name: Emelia Teige
Title: Vice President
Telephone: (516) 755-5046
Telefax: (516) 755-5103
70
Lending Office and Address for Notices:
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Emelia Teige
Vice President
Telephone No.: (516) 755-5046
Telefax No.: (516) 755-5103
FLEET BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Name: Thomas J. Dionian, Esq.
Title: Vice President
Lending Office and Address for Notices:
Fleet Bank, National Association
300 Broad Hollow Road
Melville, New York 11747
Attention: Thomas J. Dionian, Esq.
Vice President
Telephone No.: (516) 547-7770
Telefax No.: (516) 547-7815
71
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK, B.A. "RABOBANK NEDERLAND",
NEW YORK BRANCH
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
Lending Office and Address for Notices
Cooperatieve Centrale Raiffeisen-
Boerenleenbank, B.A. "Rabobank Nederland",
New York Branch
245 Park Avenue
16th Floor
New York, NY 10167
Attention: Christina Debler
Vice President
Telephone No.: (212) 916-7967
Telefax No.: (212) 916-7837
EUROPEAN AMERICAN BANK
By:
----------------------------
Name: Gerard Baccaglini
Title: Vice President
Lending Office and Address for Notices:
European American Bank
EAB Plaza
Uniondale, New York 11555
Attention: Gerard Baccaglini
Vice President
Telephone No.: (516) 296-5546
Telefax No.:(516) 295-5550
72
FOR THE PURPOSES OF THE REPRESENTATIONS SET FORTH IN ARTICLE 6:
ZAHN HOLDINGS, INC.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
ZAHN DENTAL CO., INC.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
ZAHN DENTAL (FLORIDA), INC.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
TRI-STATE MEDICAL SUPPLY, INC.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
SCHEIN DENTAL EQUIPMENT CORP.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
73
SSN HEALTHCARE SUPPLY, INC.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
ROCKFORD DENTAL MFG. CO.
By:
-----------------------------
Name: H. Bradley Seidensticker
Title: Treasurer
Exhibit 10.91
OPTION AND PROXY AGREEMENT
OPTION AND PROXY AGREEMENT dated as of March 7, 1997, by and among
Henry Schein, Inc., a Delaware corporation ("Parent"), and the persons listed on
Schedule A hereto (collectively, the "Shareholders" and each a "Shareholder"),
each a shareholder of Micro Bio-Medics, Inc. a New York corporation (the
"Company"), as revised.
Contemporaneously with the execution of this Agreement, the Company,
Parent and HSI Acquisition Corp., a New York corporation and wholly-owned
subsidiary of Parent ("Sub"), are entering into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which it is contemplated that Sub will be
merged with and into the Company (the "Merger") and the holders of the Company's
Common Stock, par value $.03 per share (the "Company Common Stock"), will be
entitled to receive shares of Parent's Common Stock, par value $.01 per share
("Parent Common Stock"), for such shares of Company Common Stock.
Parent, as a condition to its willingness to enter into the Merger
Agreement, has required the Shareholders to grant Parent an option and an
irrevocable proxy with respect to all of the shares of Company Common Stock
owned by the Shareholders (except as expressly noted below), together with any
additional shares of Company Common Stock hereafter acquired by the Shareholders
(pursuant to Section 10, by exercise of options or warrants, by conversion of
debentures or otherwise and including any Additional Shares (as defined below)
acquired by such Shareholder) (such specified number of shares, and any
additional shares when and if acquired, being referred to as the "Shares") on
the terms and conditions hereinafter set forth.
The parties hereto agree as follows:
1. Grant of Option.
(a) Each Shareholder hereby grants to Parent an option
(collectively, the "Options") to purchase all but not less than all of that
Shareholder's Shares (exclusive of those Shares beneficially owned by Deane
Reade that are currently held in pension plans and approximately 20,000 shares
currently held in Deane Reade margin accounts subject to the terms thereof (the
"Excluded Reade Shares"). Except as otherwise provided in Section 1(b), the
consideration for the purchase of such Shareholder's Shares shall be the
issuance to such Shareholder of the number of shares of Parent Common Stock that
such Shareholder would have been entitled to receive by virtue of the Merger had
the Effective Time (as defined in the Merger Agreement) occurred at the time of
the exercise of the Options.
(b) Each Shareholder hereby agrees to exercise all options,
warrants or other rights to acquire any Shares, and to convert or exchange any
securities or other rights that are convertible into or exchangeable for Shares,
whether now owned or hereafter acquired by
such Shareholder (collectively, "Rights"), in connection with any exercise by
Parent of the Options in order to permit the acquisition by Parent of the Shares
receivable upon such exercise, conversion or exchange (the "Additional Shares")
pursuant to the exercise of the Options. To the extent that a Shareholder is
obligated to pay any consideration in connection with the exercise, conversion
or exchange of such Shareholder's Rights (the "Rights Consideration"), such
Rights Consideration shall be paid in such form as is permitted under the Rights
as Parent shall direct. If payment of the Rights Consideration is to be made in
cash, Parent shall fund such payment; if payment of a Shareholder's Rights
Consideration may be made by delivery of shares of Company Common Stock, at
Parent's direction such Shareholder shall deliver that number of shares owned by
him or her in payment (or partial payment, as the case may be) of the Rights. If
any Right is to be exercised by means of a "cashless exercise," the Shareholder
exercising such Right shall cause the net number of shares from such cashless
exercise to be issued and delivered to Parent. In the event that Parent funds
any Rights Consideration payment on behalf of any Shareholder (i) the number of
shares of Parent Common Stock to be issued by Parent in respect of the
Additional Shares that were acquired pursuant to the payment of such Rights
Consideration shall be reduced by that number of shares (rounded to the nearest
whole share) as is equal to the quotient obtained by dividing the aggregate
amount of Rights Consideration so paid by Parent by the closing sales price of
the Parent Common Stock on the last trading date prior to the exercise of the
Options; and (ii) if the funding of the Rights Consideration payment on behalf
of such Shareholder subjects such Shareholder to income tax in respect of such
payment, the Parent shall pay to such Shareholder the amount of such income tax,
provided such Shareholder shall cooperate with Parent (at Parent's expense) in
disputing the imposition of such income tax; and provided further, that if
Parent determines in good faith that there is a basis for disputing all or any
amount of the income tax imposed, Parent shall be entitled to direct any such
dispute, but shall indemnify the Executive against any additional income tax for
which he or she may become liable as a result.
(c) Each Shareholder agrees not to acquire any Right that
provides, whether contingent or otherwise, for any reduction in the amount of
the Rights Consideration payable upon the exercise, conversion or exchange of
such Right, whether or not such reduction is contingent or fixed as to
occurrence or amount, and shall immediately decline in writing any such Right
that may be granted to him or her.
2. Exercise of Option. The Options, in each case, shall be
exercisable, in whole, but not in part, by Parent as follows:
(a) If the Merger Agreement is terminated by Parent pursuant
to Sections 9.1(d)(iii), 9.1(d)(iv) or 9.1(d)(v) of the Merger Agreement, or by
the Company pursuant to Section 9.1(e)(iii) of the Merger Agreement, then Parent
may exercise the Options at any time during the six month period beginning on
the date of such termination, provided, however, that if the Company is the
terminating party, Parent's right to exercise the Options shall commence on the
earlier of Parent's receipt of notice of such termination and such time as
knowledge of such termination becomes publicly available.
-2-
(b) If (i) the Merger Agreement is terminated by Parent
pursuant to Sections 9.1(d)(i), 9.1(d)(ii) or 9.1(f) of the Merger Agreement, or
by either Parent or the Company pursuant to Section 9.1(b), and the Company (or
any of its Subsidiaries shall have, directly or indirectly, entered into a
definitive agreement for, or shall have consummated, an Acquisition Transaction,
as that term is defined in the Merger Agreement, within one year of such
termination, then Parent may exercise the Options during the period beginning on
the earlier of the date on which Parent first receives notice of the occurrence
of the event triggering HSI's right to exercise the Options and the date on
which such event becomes publicly known and (except as otherwise provided below)
ending on the date three business days after the date that the Acquisition
Transaction (or any successive Acquisition Transaction or any other Acquisition
Transaction made in response thereto) occurs.
At any time when Parent wishes to exercise the Options, Parent shall give
written notice (the "Notice") to the Shareholders specifying a place and a date
not less than two nor more than 20 business days from the date of the Notice for
the closing of such purchase (the "Closing"); provided, however, that such date
may be extended to the extent necessary to comply with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and applicable
regulations thereunder. The date on which the Parent gives the Notice shall be
deemed to be the date on which the Options are exercised. Each Shareholder
agrees to the use his or her reasonable best efforts (subject to any applicable
fiduciary duties) to give Parent at least five business days prior written
notice of the occurrence of any event triggering Parent's right to exercise the
Options.
3. Payment and delivery of Certificate(s). At the Closing hereunder:
(a) Parent will deliver to the Shareholders the shares of
Parent Common Stock to be issued in consideration for the Shares being purchased
upon exercise of the Options as provided in Section 1; and
(b) the Shareholders will deliver to Parent against receipt of
the shares of Parent Common Stock as provided in Section 3(a), a certificate or
certificates representing the number of Shares so purchased by Parent duly
endorsed or with executed blank stock powers attached, in either event with
signature guaranteed such that registered ownership of the Shares may be
registered for transfer on the books of the Company.
4. Irrevocable Proxy. Each Shareholder hereby irrevocably
constitutes and appoints Parent or any designee of Parent the lawful agent,
attorney and proxy of such Shareholder during the term of this Agreement, to
vote all of his, her or its Shares (excluding the Excluded Reade Shares") and
Additional Shares and, in the case of Bruce Haber, all shares of Company Common
Stock owned by Andrew D. Stone that he has an irrevocable proxy to vote (the
"Stone Shares") at any meeting or in connection with any written consent of the
Company's shareholders (a) in favor of the Merger, (b) in favor of the Merger
Agreement, as such may be modified or amended from time to time, (c) against any
Acquisition Transaction (other than the Merger) or other merger, sale, or other
business combination between the Company and any
-3-
other person or entity or any other action which would make it impractical for
Parent to effect a merger or other business combination of the Company with
Parent or Sub, and (d) against any other action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement or which would result in
any of the Company's obligations under the Merger Agreement not being fulfilled.
This proxy shall not authorize Parent to vote the Shares or the Stone Shares on
any matters other than those specified above which may be presented to the
Company's shareholders at any meeting or in connection with any written consent
of the Company's shareholders. This power of attorney is irrevocable, is granted
in consideration of Parent entering into the Merger Agreement and is coupled
with an interest sufficient in law to support an irrevocable power. This
appointment shall revoke all prior attorneys and proxies appointed by any
Shareholder at any time with respect to the Shares or the Stone Shares and the
matters set forth in clauses (a) through (d) above and no subsequent attorneys
or proxies will be appointed by such Shareholder, or be effective, with respect
thereto.
5. Representations and Warranties of the Shareholders. Each
Shareholder represents and warrants to Parent as follows:
(a) Ownership of Shares and Rights. That Shareholder is the
sole beneficial owner of the number of Rights set forth as being granted to that
Shareholder on Schedule A. The Rights set forth opposite that Shareholder's name
on Schedule A constitute all the Rights owned beneficially or of record by that
Shareholder. The Shares owned by that Shareholder are validly issued, fully paid
and nonassessable and such Shares (excluding the Excluded Reade Shares) and/or
the Rights set forth opposite that Shareholder's name on Schedule A, are held by
that Shareholder, or by a nominee or custodian for the benefit of that
Shareholder, free and clear of all liens, claims, security interests, agreements
and other encumbrances, except for encumbrances arising under this Agreement.
(b) Power; Binding Agreement. That Shareholder has the legal
capacity to enter into and perform all of that Shareholder's obligations under
this Agreement. The execution, delivery and performance of this Agreement by
that Shareholder will not violate any other agreement to which that Shareholder
is a party, including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by that Shareholder and constitutes a valid and binding obligation of
that Shareholder, enforceable against that Shareholder in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject to
general principles of equity. If that Shareholder is married and that
Shareholder's Shares constitute community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
obligation of, that Shareholder's spouse, enforceable against that spouse in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject to general principles of equity.
-4-
(c) Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by that Shareholder nor the
consummation of the transactions contemplated by this Agreement will: (i)
require any consent, approval, authorization or permit of, or filing with or
notification to, any person or entity or any governmental or regulatory
authority, except in connection with the HSR Act or pursuant to the Securities
Exchange Act of 1934; (ii) conflict with, result in a breach of, or result in a
default (or give rise to a right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which that Shareholder is a party or by
which that Shareholder or any of that Shareholder's assets may be bound; or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to that Shareholder or by which any of that Shareholder's assets are
bound.
(d) Brokers. No broker, finder or other investment banker is
entitled to any broker's, finder's or other similar fee or commission in
connection with this Agreement or the transactions contemplated by this
Agreement based upon agreements made by or on behalf of that Shareholder.
6. Representations and Warranties of Parent. Parent represents and
warrants to each Shareholder that:
(a) Power; Binding Agreement. Parent has the corporate power
and authority to enter into and perform all its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Parent
will not violate any other agreement to which Parent is a party. This Agreement
has been duly and validly authorized, executed and delivered by Parent and
constitutes a valid and binding obligation of Parent, enforceable against Parent
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject to general principles of equity.
(b) Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by Parent nor the consummation by
Parent of the transactions contemplated by this Agreement will: (i) require any
consent, approval, authorization or permit of, or filing with or notification
to, any person or entity or any governmental or regulatory authority, except in
connection with the HSR Act or pursuant to the Securities Exchange Act of 1934;
(ii) conflict with, result in a breach of, or result in a default (or give rise
to a right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument or
obligation to which Parent is a party or by which Parent or any of its assets
may be bound; or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or by which any of its assets are bound.
(c) Brokers. No broker, finder or other investment banker is
entitled to any broker's, finder's or other similar fee or commission in
connection with this Agreement or the transactions contemplated by this
Agreement based upon agreements made by or on behalf of Parent.
-5-
7. Additional Covenants of the Shareholders. Each Shareholder hereby
covenants and agrees that:
(a) that Shareholder will not enter into any transaction, take
any action, or by inaction permit any event to occur that would (i) result in
any of the representations or warranties of such Shareholder herein contained
not being true and correct at and as of the time immediately after the
occurrence of such transaction, action or event; or (ii) have the effect of
preventing or disabling that Shareholder from performing that Shareholder's
obligations under this Agreement;
(b) that Shareholder will not grant any proxies or powers of
attorney with respect to any Shares, deposit any Shares into a voting trust or
enter into a voting agreement with respect to such Shares; provided, however,
that the Shareholders may grant proxies to third parties provided that such
proxies are expressly made subject to the terms of this Agreement;
(c) until the termination of this Agreement, such Shareholder
will at all times use his, her or its best efforts in his, her or its capacity
as a shareholder of the Company to prevent the Company from taking any action in
violation of the Merger Agreement;
(d) from and after the date hereof until the termination of
this Agreement, other than under the circumstances contemplated by Section 10
hereof, the Shares will not be sold, transferred, pledged, hypothecated,
transferred by gift, or otherwise disposed of in any manner whatsoever without
notifying Parent in advance and obtaining and delivering to Parent any evidence
that Parent may reasonably request to evidence the transferee's agreement to be
bound by this Agreement; provided, however, that in the event of such
Shareholder's death during the term of this Agreement, the Shares and Rights may
be transferred in accordance with the Shareholder's last will and testament, or
if none, in accordance with the applicable laws of intestate succession, in
either of which cases, the Shares shall remain subject in all respects to the
terms of this Agreement; and
(e) the Shareholder will execute and deliver any additional
documents reasonably necessary or desirable, in the opinion of Parent's or the
Company's counsel, to evidence the irrevocable proxy granted in Section 4 with
respect to the Shares or otherwise implement and effect the provisions of this
Agreement.
8. No Solicitation. No Shareholder shall, in that Shareholder's
capacity as such, directly or indirectly, (a) solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing non-public information)
any inquiries or the making of any proposal with respect to any Acquisition
Transaction, (b) negotiate, explore or otherwise engage in discussion with any
person (other than Parent and its representatives) with respect to any
Acquisition Transaction, (c) agree to or endorse an Acquisition Transaction with
any person (other than Parent or Sub) or any agreement, arrangement or
understanding with respect to any such Acquisition Transaction or which would
require the Company to abandon, terminate or fail to consummate the Merger or
any other transaction contemplated by this Agreement, or (d)
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authorize or permit any person or entity acting on behalf of that Shareholder to
do any of the foregoing. If any Shareholder receives any inquiry or proposal
regarding any Acquisition Transaction, that Shareholder shall promptly inform
Parent of that inquiry or proposal.
9. Legending of Certificates; Nominee Shares. Each Shareholder
agrees to submit to Parent contemporaneously with or promptly following
execution of this Agreement (or promptly following receipt of any additional
certificates representing any additional Shares) all certificates representing
the Shares so that Parent may note thereon a legend referring to the option and
proxy granted to it by this Agreement. If any of the Shares beneficially owned
by a Shareholder are held of record by a brokerage firm in "street name" or in
the name of any other nominee (a "Nominee," and, as to such Shares, "Nominee
Shares"), the Shareholder agrees that, upon written notice by Parent requesting
it, such Shareholder will within five days of the giving of such notice execute
and deliver to Parent a limited power of attorney in such form as shall be
reasonably satisfactory to Parent enabling Parent to require the Nominee to
grant to Parent an option and irrevocable proxy to the same effect as Sections
1, 2 and 4 hereof with respect to the Nominee Shares held by such Nominee and to
submit to Parent the certificates representing such Nominee Shares for notation
of the above-referenced legend thereon.
10. Adjustments to Prevent Dilution, Etc. In the event of a stock
dividend or distribution, or any change in Company Common Stock by reason of any
stock dividend, split-up, recapitalization, combination, exchange of shares or
the like, the term "Shares" shall be deemed to refer to and include the Shares
as well as all such stock dividends and distributions and any shares into which
or for which any or all of the Shares may be changed or exchanged.
11. Shareholder Capacity. No person executing this Agreement who is
or becomes during the term of this Agreement a director of the Company makes any
agreement in his or her capacity as a director. Each Shareholder is executing
and delivering this Agreement solely in that Shareholder's capacity as the
record and beneficial owner of that Shareholder's Shares. Notwithstanding
anything to the contrary in this Agreement, no action or inaction by a
Shareholder in his capacity as a director, officer, or employee of the Company
shall be deemed to contravene Section 8, as long as the action or inaction does
not contravene Section 7.2 of the Merger Agreement.
12. Termination. This Agreement shall terminate on the earlier of
(i) the Effective Time of the Merger, (ii) the termination of the last period of
time during which Parent could have exercised the Options pursuant to Section 2;
provided, however, that the appointment of Parent or any designee of Parent as
agent, attorney and proxy pursuant to Section 4 hereof, and any proxy or other
instrument executed pursuant thereto, shall in any event automatically terminate
upon the termination of the Merger Agreement. Notwithstanding the foregoing, in
the event that Parent is at any time prohibited from exercising the Options as a
result of any actions by the Federal Trade Commission or the Department of
Justice in connection with the HSR Act, then this Agreement shall not terminate
until (i) the earlier of 30 days from the date such prohibition is removed by
the Federal Trade Commission or the Department of Justice, or (ii) six months
after the date Parent's right to exercise the Options would otherwise have
terminated.
-7-
13. Miscellaneous.
(a) No Waiver. The failure of any party to exercise any right,
power or remedy under this Agreement or otherwise available in respect of this
Agreement at law or in equity, or to insist upon compliance by any other party
with that party's obligations under this Agreement, shall not constitute a
waiver of any right to exercise any such or other right, power or remedy or to
demand such compliance.
(b) Notices. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
(i) If to Parent, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attn: Mark E. Mlotek, Esq.
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
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(ii) if to a Shareholder, to:
c/o Bruce J. Haber
Micro Bio-Medics, Inc.
846 Pelham Manor
New York, NY 10803
with a copy to:
Otterbourg, Steindler, Houston & Rosen
230 Park Avenue
New York, New York 10169
Fax: (212) 682-6104
Attention: Donald N. Gellert, Esq.
(c) Descriptive Headings; Interpretation. The headings
contained in this Agreement are for reference purposes only and shall not affect
in way the meaning or interpretation of this Agreement. References in this
Agreement to Sections and Schedules mean a Section or Schedule of this Agreement
unless otherwise indicated. The terms "beneficially own" and "beneficial owner"
with respect to any securities shall have the same meaning as in, and shall be
determined in accordance with, Rule 13d-3 under the Securities Exchange Act of
1934.
(d) Entire Agreement; Assignment. This Agreement (including
the schedule and other documents and instruments referred to herein), together
with the Merger Agreement, constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them, with respect to the subject matter hereof. Except as
otherwise expressly provided herein, this Agreement is not intended to confer
upon any person not a party hereto any rights or remedies hereunder. Except as
otherwise expressly provided herein, this Agreement shall not be assigned by
operation of law or otherwise; provided that Parent or Sub may assign its rights
and obligations hereunder to a direct or indirect subsidiary of Parent, but no
such assignment shall relieve Parent or Sub, as the case may be, of its
obligations hereunder.
(e) Liability After Transfer. Each Shareholder agrees that,
notwithstanding any transfer of that Shareholder's Shares in accordance with
Section 7(d), that Shareholder shall remain liable for his or her performance of
all obligations under this Agreement.
(f) Injunctive Relief; Remedies Cumulative.
(i) Parent, on the one hand, and the Shareholders, on
the other hand, acknowledge that the other party will be irreparably harmed and
that there will be no
-9-
adequate remedy at law for a violation of any of the covenants or agreements of
such party that are contained in this Agreement. It is accordingly agreed that,
in addition to any other remedies that may be available to the non-breaching
party upon the breach by any other party of such covenants and agreements, the
non-breaching party shall have the right to obtain injunctive relief to restrain
any breach or threatened breach of such covenants or agreements or otherwise to
obtain specific performance of any of such covenants or agreements.
(ii) No remedy conferred upon or reserved to any party
herein is intended to be exclusive of any other remedy and every remedy shall be
cumulative and in addition to every other remedy herein or now or hereafter
existing at law, in equity or by statute.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of laws.
(h) Effect of Partial Invalidity. Whenever possible, each
provision of this Agreement shall be construed in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement or
the application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition without invalidating the remainder of such provision or any
other provisions of this Agreement or the application of such provision to the
other party or other circumstances.
(i) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
as of the date first above written.
THE SHAREHOLDERS:
-----------------------------
BRUCE J. HABER
-----------------------------
MARVIN S. CALIGOR
-----------------------------
RENEE STEINBERG
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-----------------------------
K. DEANE READE, Jr.
HENRY SCHEIN, INC.
By:
------------------------------
Authorized Officer
-11-
Exhibit 10.92
EMPLOYMENT AGREEMENT
AGREEMENT dated March 7, 1997, between BRUCE J. HABER (the
"Executive") and HENRY SCHEIN, INC., a Delaware corporation (the "Company").
The Executive is presently the President and Chief Executive Officer
of Micro Bio- Medics, Inc. ("MBM").
The Company and MBM are parties to an Agreement and Plan of Merger
dated the date hereof (the "Merger Agreement"), pursuant to which it is
contemplated that HSI Acquisition Corp., a wholly-owned subsidiary of the
Company, will be merged with and into MBM.
The Company desires to employ the Executive, and the Executive
desires to be employed by the Company, at the Effective Time, as that term is
defined in the Merger Agreement. Accordingly, the parties hereto are entering
into this Agreement to set forth and confirm their respective rights and
obligations with respect to the Executive's employment by the Company commencing
as of the Effective Time.
The parties agree as follows:
1. Employment. The Company shall employ the Executive, as of the
Effective Time, as Executive Vice President of the Company and President of the
Company's medical products group and the Executive shall accept such employment
and serve as such, subject to and upon the terms and conditions set forth in
this Agreement; provided, however, that this Agreement shall terminate and be of
no further force or effect if the Executive shall have died or, in the
reasonable judgment of the Company, become disabled (as that term is used in
Section 7(a)(i)(A) hereof), or his employment by MBM shall have been terminated
for cause (as that term is defined in Section 7(a)(i)(B) hereof), in any such
case, prior to the Effective Time. At the Effective Time, the Executive's
Employment Agreement with MBM dated February 11, 1992 (the "MBM Agreement"), as
amended, shall terminate and be of no further force or effect.
2. Duties and Authority.
(a) At all times during his employment with the Company, the
Executive shall, subject to the direction and control of the Boards of Directors
of the Company and MBM and the Chief Executive Officer of the Company, perform
such executive duties and functions as he may be called upon by such Boards or
such Chief Executive Officer to perform, consistent with his employment
hereunder as Executive Vice President of the Company and President of the
Company's medical products group. As President of the Company's medical products
group, the Executive shall have the authority customarily vested in the chief
executive officer of an operating division, including with respect to such
division, day to day authority with respect to, among other matters, purchasing,
pricing, sales and the hiring, compensating and discharging of employees, all
subject
to the overall authority of the Boards of Directors of the Company and MBM and
the Chief Executive Officer of the Company.
(b) The Executive shall devote his full business time and effort to
the performance of his duties hereunder; and, to the extent requested by the
Board of Directors of the Company or MBM or the Chief Executive Officer of the
Company, render such executive services for any other subsidiary or affiliated
business of the Company, provided such other subsidiaries or affiliated
businesses are engaged principally in sales of medical supplies and equipment;
and provided, further, that nothing herein contained shall prevent the Executive
from managing his personal investments and participating in charitable and civic
endeavors so long as such activities do not materially interfere with the
Employee's performance of his duties hereunder.
3. Compensation.
(a) The Company shall pay to the Executive for all services to be
rendered by him pursuant to this Agreement a base salary at the annual rate of
Four Hundred Thousand Dollars ($400,000), payable in accordance with the
Company's practices (which, for purposes of this Agreement, means the practices
of the Company with respect to its most senior executives as in effect from time
to time). Such salary shall be increased each year by an amount determined in
good faith by the Board of Directors of the Company, which amount shall be no
less than the percentage increase in the cost of living over the preceding year,
as determined in accordance with the Company's practices.
(b) The Executive shall be entitled to a bonus in respect of each
fiscal year of the Company during which he is employed hereunder, payable no
later than 90 days after the end of each year for which such bonus is payable,
in an amount determined in accordance with Exhibit A; provided however, that if
the Effective Time occurs after November 30, 1997, in lieu of a bonus calculated
pursuant to Exhibit A, the bonus payable hereunder with respect to HSI's fiscal
1997 shall be the amount that would have been payable to the Executive pursuant
to Section III(B) of the MBM Agreement with respect to the twelve months ended
November 30, 1997.
(c) At the Effective Time, the Executive shall be granted (i)
options to purchase shares of common stock, par value $.01 per share ("Common
Stock"), of the Company in accordance with the stock option agreement attached
hereto as Exhibit B (the "Option Agreement"); and (ii) restricted Common Stock
pursuant to the terms of a Restricted Stock Agreement to be executed and
delivered by the Company and the Executive in the form attached hereto as
Exhibit D.
(d) If the performance targets set forth in Exhibit A hereto are met
in respect of a fiscal year of the Company during which he is employed
hereunder, the Executive shall be entitled to additional grants of options to
purchase Common Stock as set forth and in accordance with the form of Option
Agreement, such options to be issuable no later than 90 days after the end of
each year from which such options are issuable.
2
4. Working Conditions and Benefits. While employed by the Company
hereunder:
(a) The Executive shall be entitled to four (4) weeks of paid
vacation per year, sick leave, and personal time, all in accordance with the
Company's practices.
(b) The Executive shall be authorized to incur reasonable and
necessary expenses for promoting the business of the Company, including expenses
for entertainment, travel and similar items, all in accordance with the
Company's practices. The Company shall reimburse the Executive for all such
expenses, promptly upon presentation by the Executive of an itemized account of
such authorized expenditures in accordance with the Company's practices with
respect to expense reimbursement.
(c) The Executive shall be employed by the Company at such executive
offices of the Company in New York City, Long Island and Westchester County, as
may be determined by the Company from time to time and at no other location
without the consent of the Executive, such consent not to be unreasonably
withheld. The Executive shall travel on the Company's behalf within and outside
such area to the extent necessary to perform his duties hereunder.
(d) The Company shall provide to the Executive a car allowance
sufficient to provide the Executive with a Mercedes 400S model automobile, or
comparable automobile, for business use, and shall pay for all other expenses
incurred in connection with such use in accordance with the Company's practices
with respect to car expense reimbursement.
(e) The Company shall provide the Executive with term life insurance
in an amount equal to twice his annual rate of salary from time to time, payable
to the Executive's designee as beneficiary. The Executive hereby represents and
warrants to the Company that he is not aware of any reason he would be denied
life insurance coverage at prevailing rates for healthy non-smokers of the
Executive's age. The Executive shall submit to such medical examinations and
take such other actions as shall be reasonably necessary for the Company to
provide such life insurance coverage.
(f) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's state of incorporation and the
Company's Certificate of Incorporation and Bylaws, indemnification for any claim
or lawsuit which may be asserted against the Executive when acting in such
capacity for the Company and/or any subsidiary or affiliated business of a type
referred to in Section 2 hereof, provided that said indemnification is not in
violation of any Federal or state law, rule or regulation. The Company shall use
reasonable best efforts to include the executive as an insured under all
applicable directors' and officers liability insurance policies maintained by
the Company, and any other subsidiary or affiliated business of a type referred
to in Section 2 hereof and shall include him to the same extent as other senior
executives of the Company are included.
3
5. Other Benefits. While employed by the Company hereunder:
(a) The Executive shall be entitled to participate in all benefit,
welfare and perquisite plans, policies and programs, in accordance with the
terms thereof, as are generally provided from time to time by the Company for
its senior executive officers and for which the Executive is eligible pursuant
to the terms of such plans, policies and programs, including, without
limitation, the plans and programs listed on Exhibit C.
(b) The Company shall use its reasonable best efforts to cause the
Executive to be nominated for election to the Company's and MBM's Board of
Directors.
6. Term. The Executive's employment hereunder shall commence at the
Effective Time and shall continue until the earlier of (a) the fifth anniversary
of the Effective Time, (b) his death, or (c) termination of employment pursuant
to Section 7 hereof.
7. Termination; Non-Renewal.
(a) Notwithstanding anything to the contrary herein contained, the
Executive's employment shall terminate prior to the fifth anniversary of the
Effective Time upon the occurrence of any of the following events:
(i) by notice given by the Company to the Executive, to
terminate the Executive's employment as of a date (not earlier than 10 days from
such notice) to be specified in such notice if (A) the Executive shall be
physically or mentally incapacitated or disabled or otherwise unable fully to
discharge his duties hereunder for a period of 180 days, whether or not
continuous, in any period of 12 months, or (B) the Executive shall have given
the Company cause therefor. For purposes of this Agreement, "cause" shall be
limited to (x) action by the Executive involving willful malfeasance having a
material adverse effect on the Company, (y) the Executive being convicted of a
felony involving theft, fraud or moral turpitude (other than resulting from a
traffic violation or like event), or (z) any other action by the Executive
constituting a material breach of this Agreement which is not cured within 30
days after notice from the Company thereof;
(ii) by notice given by the Executive to the Company to
terminate the Executive's employment as of a date (not earlier than 10 days from
such notice) to be specified in such notice if the Company shall have given the
Executive good reason therefor. For purposes of this Agreement, "good reason"
shall be limited to a material breach by the Company of this Agreement, which
breach is not cured within 30 days after notice from the Executive thereof.
(b) Upon the Executive's death or termination of the Executive's
employment pursuant to Section 7(a)(i)(A), the Executive (or his estate, as the
case may be) shall be entitled to receive only (i) his unpaid salary at the rate
provided in Section 3(a) to the date of termination, (ii) any unpaid bonus
pursuant to Section 3(b) in respect of the fiscal year of the Company ended
prior to the year in which such termination occurs, and (iii) an amount equal to
such bonus in respect of such prior fiscal year multiplied by a fraction the
numerator of which shall be the number of days
4
that shall have elapsed from the first day of the fiscal year in which such
termination occurs to the date of such termination and the denominator of which
shall be 365 (the aggregate amounts referred to in (i), (ii) and (iii) being
hereinafter referred to as the "Accrued Obligations"). The Accrued Obligations
shall be paid within 30 days of the termination of the Executive's employment.
(c) Upon termination of the Executive's employment hereunder
pursuant to Section 7(a)(ii) hereof or by the Company other than pursuant to
Section 7(a)(i) hereof, the Executive shall be entitled to receive only (i) the
Accrued Obligations, (ii) continuation of the Executive's base salary for a
period after the date of such termination equal to the unexpired term of this
Agreement but in no event less than eighteen months at the rate in effect at
such date of termination, and (iii) during the one-year period following such
termination, continuation of the participation of the Executive and his spouse
and dependent children, if any, in all health and medical benefit plans,
policies and programs in effect from time to time with respect to the most
senior executive officers of the Company and their families generally (at the
same levels and at the same cost, if any, as provided to such officers
generally). Notwithstanding anything to the contrary contained in the preceding
clause (iii), if the continued participation of the Executive and such family
members thereunder is not possible under the general terms and provisions
thereof, the Company shall provide such benefits at such levels to the Executive
and such family members either by obtaining other insurance or by self-insuring
such amounts, net of any reimbursement any of them shall receive with respect to
health and medical costs from insurance other than pursuant to such clause
(iii); provided, however, that prior to receiving benefits hereunder from the
Company, the Executive and such family members shall first endeavor to obtain
reimbursement with respect to health and medical costs from other insurance the
Executive and such family members may own, if any, provided that such
reimbursement can be obtained without unreasonable effort or expense on the part
of the Executive and such family members. The Executive is hereby expressly not
required to mitigate damages or seek any other employment; provided, however,
that any amounts that the Executive may receive from any other employment or
consulting engagement during the one-year period following such termination
shall reduce in equal amounts the amounts that the Company otherwise is
obligated to pay to the Executive pursuant to clause (ii) of this Section 7(c).
(d) Upon termination of the Executive's employment hereunder
pursuant to Section 7(a)(i)(B) hereof or by the Executive other than pursuant to
Section 7(a)(ii) hereof, the Executive shall be entitled to receive only (i) his
salary at the rate provided in Section 3(a) to the date of such termination, and
(ii) any unpaid bonus pursuant to Section 3(b) in respect of the fiscal year of
the Company ended prior to the year in which such termination occurs.
(e) If the Company does not offer to extend the term of this
Agreement from and after the fifth anniversary of the Effective Time, and the
Executive is employed by the Company at such date, the Executive shall be
entitled to receive continuation of the Executive's base salary for a period of
one year after such fifth anniversary at the rate in effect at such anniversary.
8. Confidentiality and Non-Competition. In view of the unique and
valuable services it is expected the Executive will render to the Company, the
Executive's knowledge of the customers, trade secrets, and other proprietary
information relating to the business of the Company
5
and its customers and suppliers, and in consideration of the compensation to be
received hereunder, the Executive agrees that he will not, during his employment
with the Company and (x) for three years thereafter in the case of a termination
pursuant to Section 7(a)(i) of this Agreement, (y) for one-half of the unexpired
term of this Agreement but not less than one year in case of a termination
pursuant to Section 7(a)(ii) of this Agreement or a termination by the Company
other than pursuant to Section 7(a)(i) of this Agreement, and (z) for two years
in case of a non-renewal pursuant to Section 7(e) of this Agreement: (a)
directly or indirectly engage or be interested (whether as owner, partner,
lender, consultant, employee, agent, supplier, distributor or otherwise) in any
business, activity or enterprise which competes with any aspect of the business
conducted by the Company or any of the Company's affiliates (including MBM) at
any time prior to termination of his employment with the Company; (b) except on
behalf of the Company, directly or indirectly employ or otherwise engage, or
offer to employ or otherwise engage, any person who is then (or was at any time
within one year prior to the time of such employment, engagement or offer
thereof) an employee or sales representative of the Company or any of the
Company's affiliates (including MBM); or (c) except on behalf of the Company,
solicit any business from any person or entity that has been a customer of the
Company or any of the Company's affiliates (including MBM) or directly or
indirectly induce or influence any customer, supplier or other person that has a
business relationship with the Company or any of the Company's affiliates
(including MBM) to discontinue or reduce the extent of such relationship with
the Company or any of the Company's affiliates (including MBM); and provided
further, that nothing herein contained shall preclude the Executive (i) from
holding not more than two (2%) percent of the total outstanding stock of a
publicly held company, and (ii) at any time after termination of his employment
hereunder, soliciting any business from any person or entity that has been a
customer of the Company or any of the Company's affiliates (including MBM),
provided such solicitation does not involve the offer of products or services
comparable to, or that could be reasonably deemed in substitution for, products
or services theretofore offered by the Company or any of the Company's
affiliates (including MBM) and (iii) investing in (provided he owns no more than
5% of the outstanding equity) and serving on the board of directors of an entity
currently developing software to enable manufacturers of medical products to
track rebates. In addition, the Executive shall never use or divulge any trade
secrets, customer or supplier lists, pricing information, marketing arrangements
or strategies, business plans, internal performance statistics, training manuals
or other information concerning the Company or its affil iates that is
competitively sensitive or confidential, except on behalf of the Company, and
shall not conduct himself in a manner that would reasonably be expected to
adversely affect the Company in any material respect, including but not limited
to making knowingly false, misleading or negative statements, either orally or
in writing, about the Company or its affiliates, or their respective directors,
officers or employees; provided, however, that this sentence shall not apply to
the following: (i) information which is already in the public domain at the time
of its disclosure to the Executive; (ii) information which, after its disclosure
to the Executive, becomes part of the public domain by publication or otherwise
other than through the Executive's act; (iii) information which was in the
Executive's possession before it was disclosed to him by the Company as shall be
evidenced by written documents dated prior to the time of disclosure; (iv)
information which the Executive received from a third party having the right to
make such disclosure without restriction on disclosure or use thereof; or (v)
information which the Executive is legally compelled to disclose. Because the
breach or attempted or threatened breach of this restrictive covenant will
result in
6
immediate and irreparable injury to the Company for which the Company will not
have an adequate remedy at law, the Company shall be entitled, in addition to
all other remedies, to a decree of specific performance of this covenant and to
a temporary and permanent injunction enjoining such breach, without posting bond
or furnishing similar security. The provisions of this Section 8 are in addition
to and independent of any agreements or covenants contained in any consulting or
other agreement between the Company and the Executive. If any restriction
contained in this Section 8 shall be deemed to be invalid, illegal, or
unenforceable by reason of the extent, duration, or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
9. Representations and Warranties.
(a) The Company represents and warrants to the Executive that the
Company has the full legal corporate power to execute and deliver this Agreement
and the agreements referred to herein. The execution, delivery and performance
of this Agreement and such other agreements have been duly authorized by the
Company's board of directors and do not conflict with or result in a breach of
any provision of (i) the Certificate of Incorporation or Bylaws of the Company,
(ii) any material agreement, commitment or other instrument to which the Company
is a party or by which it is bound or (iii) any order, judgment or decree of any
court or arbitrator.
(b) The Executive represents and warrants to the Company that the
execution and delivery of this Agreement and the performance of his obligations
pursuant hereto do not conflict with or result in a breach of any provisions of
any (i) material agreement, commitment, or other instrument to which the
Executive is a party or by which the Executive is bound or (ii) order, judgment
or decree of any court or arbitrator.
10. Amendment and Modification; Waiver. This Agreement may be
amended, modified or supplemented only by written agreement (referring
specifically to this Agreement) of the parties.The waiver by either party of any
breach or violation of any provision of this agreement shall not operate or be
construed as a waiver of any subsequent breach.
11. Notice. All notices required to be given under the terms of this
agreement shall be in writing and shall be deemed to have been duly given if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, as follows:
If to the Company, addressed to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attention: Mark E. Mlotek, Esq.
7
With a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
If to the Executive, addressed to:
Bruce J. Haber
989 Marcel Road
Baldwin Harbor, NY 11510
With a copy to:
Otterbourg, Steindler, Houston & Rosen P.C.
230 Park Avenue
New York, New York 10169
Attention: Donald N. Gellert, Esq.
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
12. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. Entire Agreement; Benefit. This Agreement constitutes the entire
agreement and supersede all other prior agreements and understandings, both
written and oral, between the parties, with respect to the subject matter
hereof. This agreement shall inure to and shall be binding upon the parties
hereto, the successors and assigns of the Company and the heirs and personal
representatives of the Executive.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the provisions thereof relating to conflicts of law.
15. Attorney's Fees. If the Executive shall engage counsel to bring
suit against HSI and/or MBM to enforce his rights hereunder, the Executive shall
be entitled to be reimbursed by HSI for the reasonable fees and expenses of such
counsel incurred in connection with such suit if the Executive is the prevailing
party in such suit.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
8
IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the day and year first above written.
------------------------------------
BRUCE J. HABER
HENRY SCHEIN, INC.
By:
---------------------------------
Authorized Officer
9
EXHIBIT A
Fiscal 1997
If Adjusted Pre-Tax Earnings (as defined below) is greater than $6 million an
amount equal to $65,000, plus, if Adjusted Pre-Tax Earnings is $7,000,000 or
more an additional amount equal to $135,000 multiplied by a fraction, the
numerator of which is the excess of such Adjusted Pre-Tax Earnings over $7
million (such excess not to exceed $1 million) and the denominator of which is
1,000,000. In determining whether any adjustment with respect to the foregoing
is necessary or desirable, the Compensation Committee of the Board of Directors
shall take into account synergies achieved with, and contribution to, the
Company's medical products division.
For purposes of the preceding paragraph, "Adjusted Pre-Tax Earnings"
shall mean, net income of MBM for the twelve-month period ending in December,
1997, less the base salary and cost of benefits payable or provided pursuant to
this agreement with respect to such period, before income taxes, as determined
in accordance with generally accepted accounting principles consistently applied
(but with charges for corporate overhead and for inter-corporate borrowing costs
in a manner consistent with charges to other divisions of the Company and in no
event in a proportion greater than the percentage which the division sales bear
to total Company sales) adjusted as follows: pre-tax earnings will be after all
bonuses paid to MBM employees, will include financing costs for all payments and
expenses related to the Merger and associated transactions.
Fiscal 1998-2001
An amount, not less than $200,000, determined by the Compensation Committee of
the Company's Board of Directors upon achievement by the executive of
performance targets to be set by such Committee in consultation with the
Executive. Among the matters to be taken into account by the Compensation
Committee in connection with its determination shall be synergies achieved with,
and contribution to, the Company's medical products division.
EXHIBIT B
(as revised)
HENRY SCHEIN, INC.
CLASS B OPTION AGREEMENT
PURSUANT TO THE
1994 STOCK OPTION PLAN
AGREEMENT dated _____________, 1997, between Henry Schein, Inc. (the
"Corporation") and Bruce J. Haber (the "Participant").
Preliminary Statement
The Stock Option Committee of the Board of Directors of the
Corporation (the "Committee"), pursuant to the Corporation's 1994 Stock Option
Plan, as amended (the "Plan"), has authorized the granting to the Participant,
as a Key Employee, of a nonqualified stock option (the "Option") to purchase the
number of shares of the Corporation's Common Stock, par value $.01 per share,
set forth below. The parties hereto desire to enter into this Agreement in order
to set forth the terms of the Option. Capitalized terms used but not defined
herein shall have the same meanings as set forth in the Plan.
Accordingly, the parties hereto agree as follows:
A. Tax Matters. No part of the Option granted hereby is intended to
qualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended.
B. Grant of Option. Subject in all respects to the Plan and the
terms and conditions set forth herein, the Participant is hereby granted the
Option to purchase from the
Corporation up to 1 shares (the "Shares"), at a price per Share of $ 2 (the
"Option Price"). Subject to Sections D and E hereof, the Option may be exercised
by the Participant, in whole or in part, at any time or from time to time prior
to the expiration of the Option as provided herein.
C. Restriction on Transfer. The Option granted hereby is not
transferable otherwise than by will or under the applicable laws of descent and
distribution and during the lifetime of the Participant may be exercised only by
the Participant or his guardian or legal representative, provided, however,
that, from and after the date that the Plan is amended to provide for such
transfers, the Options may be transferred by the Participant to his wife or
daughter or to trusts the sole beneficiaries of which are the Participant's wife
or daughter. Except as provided in
- ----------
1/ At the Effective Time, pursuant to Section 3(c) of the Participant's
employment agreement with the Corporation, the Participant will be issued
options ("Closing Options") to purchase shares of the Corporation's Common
Stock having a value of $1,000,000 determined by application of the
Block-Scholes formula in the same manner in which it is applied in
granting options to the Corporation's other most senior executives. In
addition, and subject to the satisfaction of the performance targets set
forth in Exhibit A thereto, pursuant to Section 3(d) of the Participant's
employment agreement with the Corporation, the Participant will be issued
options ("Annual Option") to purchase shares of the Corporation's Common
Stock in respect of each fiscal year of the Corporation during which he is
employed under the employment agreement, issuable no later than 90 days
after the end of each year for which such options are issuable, such
number of Annual Options to have a value of $170,000 determined by
application of the Block-Scholes formula in the same manner in which it is
applied in granting options to the Corporation's other most senior
executives:
The value of options to be granted after the Effective Time shall be
increased or decreased, as the case may be, to reflect the cumulative
change in the cost of living between the date of the Effective Time and
the date of grant, using as the basis of such computation the Consumer
Price Index - Urban Wage Earners (1982-1984 = 100) (the "Index") or, in
the event such Index is no longer published, such other index as is
determined to be comparable by the Committee.
2/ In all cases, the fair market value on the date of grant.
the preceding sentence, the Option shall not be assigned, negotiated, pledged or
hypothecated in any way (whether by operation of law or otherwise), and the
Option shall not be subject to execution, attachment or similar process. Upon
any attempt to transfer, assign, negotiate, pledge or hypothecate the Option not
expressly permitted hereby, or in the event of any levy upon the Option by
reason of any execution, attachment or similar process contrary to the
provisions hereof, the Option shall immediately become null and void.
D. Term of Option. Unless terminated as provided below or otherwise
pursuant to the Plan, the Option shall expire on the tenth anniversary of the
date of grant.
E. Exercise of Option.
1. No Options may be exercised unless and until such Options
shall have become vested. 3 of the Options granted hereunder shall automatically
and immediately vest on each of the 4 anniversaries of the date hereof, provided
that the Participant is employed by the Corporation on such anniversary dates.
The Chief Executive Officer of the Corporation shall have the right to
accelerate the vesting of any such Options in his sole discretion.
2. The Option may be exercised by the Participant by delivering
notice to the Committee of the election to exercise the Option and of the number
of Shares with respect to
- ----------
3/ "One-fifth (1/5)" in the case of Closing Options; and "One-third (1/3)" in
the case of Annual Options.
4/ "first, second, third, fourth and fifth" in the case of Closing Options;
and "first, second and third" in the case of Annual Options.
which the Option is being exercised, which notice shall be accompanied by
payment in full for the Shares. Payment for such Shares may be made as follows:
(a) In cash or by certified check, bank draft or money
order payable to the order of the Corporation;
(b) Through the delivery of unencumbered Shares
(including Shares to be acquired under the Options then being exercised)
provided such Shares (or such Option) have been owned by the Participant for at
least six months, or such longer period as required by applicable accounting
standards to avoid a charge to earnings;
(c) If so permitted by the Committee (i) through a
combination of Shares and cash as provided above, (ii) by delivery of a
promissory note of the Participant to the Corporation, or (iii) 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
(d) On such terms and conditions as may be acceptable to
the Committee and in accordance with applicable law.
3. Upon receipt of payment and satisfaction of the
requirements, if any, as to withholding of taxes set forth in the Plan, the
Corporation shall deliver to the Participant as soon as practicable a
certificate or certificates for the Shares then purchased.
4. The exercise of any Option after termination of employment
shall be subject to satisfaction of the conditions precedent that the
Participant be in compliance with Section
8 of his employment agreement with the Corporation (as amended, revised or
replaced from time to time, the "Employment Agreement"). If the Participant
exercises his Options and the Corporation determines that the Participant
subsequently (within a year following termination of employment) engages in
conduct which would have breached such Section 8 had it taken place prior to
exercise of the Options, then the Participant hereby agrees to immediately
return to the Corporation any financial benefit he received from the Options
upon request of the Corporation.
5. Upon a change in control (as defined in the Plan), the
Options shall immediately become vested, unless two-thirds of members of the
Board of Directors have approved the change of control, in which event, there
shall be no accelerated vesting of the Options.
F. Termination of Employment.
1. Death, Disability, Retirement. Subject to Section E hereof,
upon termination of employment by reason of death or normal retirement on or
after the Company's normal retirement age, or pursuant to Section 7(a)(i) of the
Employment Agreement, all outstanding Options then exercisable and not exercised
by the Participant prior to such termination of employment shall remain
exercisable by the Participant (to the extent exercisable by such Participant
immediately prior to such termination) for a period of one (1) year from the
date of termination of employment. All Options not yet exercisable on the date
of termination of employment because of vesting provisions or otherwise shall be
canceled.
2. Cause or Voluntary Termination. Upon termination of
employment of a Participant under the Employment Agreement for Cause (as defined
therein) or by the
Participant under the Employment Agreement without Good Reason (as defined
therein) or any other written agreement between the Participant and the Company,
all outstanding Options shall immediately be canceled.
3. Other Termination. In the event of termination of
employment for any reason other than as provided in Sections F(1) or F(2), all
outstanding Options not exercised by the Participant prior to such termination
of employment shall, subject to Section E hereof, remain exercisable (to the
extent exercisable by such Participant immediately before such termination) for
a period of three (3) months after such termination. All Options not yet
exercisable on the date of termination of employment because of vesting
provisions or otherwise shall be canceled. Notwithstanding the foregoing, if the
Participant terminates his employment for Good Reason, as defined therein, or
the Company terminates the Participant's employment with the Company without
Cause (as defined in the Employment Agreement), all options shall thereafter
automatically vest and be exercisable in accordance with the provisions of this
Agreement for a period of three months from the date of such termination. 5
G. Rights as a Stockholder. Participant shall have no rights as a
stockholder with respect to any Shares covered by the Option until Participant
shall have become the holder of record of the Shares, and no adjustments shall
be made for dividends in cash or other property, distributions or other rights
in respect of any such Shares except as otherwise specifically provided for in
the Plan.
- ----------
5/ The treatment of termination for Cause or without Good Reason shall apply
only to the Options granted at the Effective Time.
H. Provisions of Plan Control. This Agreement is subject to all of
the terms, conditions and provisions of the Plan and to such rules, regulations
and interpretations relating to the Plan as may be adopted by the Committee and
as may be in effect from time to time. A copy of the Plan is available to you at
the offices of the Corporation, and the terms thereof are incorporated herein by
reference. If and to the extent that this Agreement conflicts or is inconsistent
with the terms, conditions and provisions of the Plan, the Plan shall control,
and this Agreement shall be deemed to be modified accordingly.
I. Notices. Any notice or communication given hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, or
by United States mail, to the appropriate party at the address set forth below
(or such other address as the party shall from time to time specify):
If to the Corporation, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attention: Corporate Secretary
If to the Participant, to:
the address indicated on the signature page at the end of this
Agreement.
J. Rights of Employer. This Agreement does not guarantee that the
Corporation will employ the Participant for any specific time period, nor does
it modify in any respect the Corporation's right to terminate or modify the
Participant's employment or compensation.
K. Withholding. The Corporation shall be entitled to withhold (or,
in its discretion, secure payment from the Participant in cash or other property
in lieu of withholding) the amount of any Federal, state or local taxes required
by law to be withheld by the Corporation for any Shares deliverable under this
Agreement, and the Corporation may defer such delivery unless such withholding
requirement is satisfied.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
HENRY SCHEIN, INC.
By:__________________________
Authorized Officer
------------------------------
BRUCE J. HABER
Address: 989 Marcel Road
Baldwin Harbor, NY 11510
EXHIBIT C
1. Participation in the Company's SERP and profit sharing program.
2. A "golden parachute" equal to 2.99 times "average annual base
compensation". See form of agreement attached.
(as revised)
AGREEMENT dated [CLOSING DATE], among HENRY SCHEIN, INC., a Delaware
corporation (the "Company"), and BRUCE J. HABER (the "Executive").
The Company and the Executive are parties to an Employment Agreement
dated March 7, 1997 (the "Employment Agreement"). Each capitalized term used
herein and not otherwise defined shall have the meaning given such term in the
Employment Agreement.
The parties agree as follows:
1. If the Executive's employment with the Company terminates for any
reason other than (i) the Executive's death, (ii) the Executive's termination of
his employment without good reason (as that term is used in Section 7(a)(ii) of
the Employment Agreement), or (iii) by the Company pursuant to Section 7(a)(i)
of the Employment Agreement, within two years after a Significant Date, the
Company will pay, within 30 days after the date of such termination, the
Executive (the "Termination Payment"), in full satisfaction of all its
obligations hereunder, severance equal to (x) the product of (A) the base salary
and automobile allowance paid to the Executive during the three months
immediately preceding the date of termination (not including incentive
compensation or any non-cash compensation) and (B) the number of full months the
Executive had been employed by the Company prior to the termination, with a
minimum severance pay equal to eighteen months' base salary (plus eighteen
months' automobile allowance) and a maximum severance pay equal to thirty-six
months' base salary (plus thirty-six months' automobile allowance), plus (y)
three times the amount of bonus, if any, paid to the Executive for the full
fiscal year preceding the termination; provided, however, that the maximum
amount payable under this Section 1 shall be limited to the amount which when
added to all other payments (or the value of all other benefits) that are
received by the Executive from the Company and which are "contingent upon a
change in control" as such term is defined in the Internal Revenue Code of 1986
(the "Code") would not constitute a "parachute payment" (as such term is defined
on the date hereof by the Code, i.e. the aggregate present value of the payments
in the nature of compensation to such individual which are contingent on such
change would be less than three (3) times the "base amount" as such term is
defined on the date hereof by the Code); and provided further, however, that the
Termination Payment shall be reduced to the extent that the Executive is
entitled to cash and/or benefits as a result of the termination of employment
(other than cash and/or benefits accrued to the date of termination). The term
that the Executive has been employed by the Company for purposes of this
Agreement shall include the term of his employment by Micro Bio-Medics, Inc.
("MBM") prior to the Effective Time (as defined in the Agreement and Plan of
Merger by and among the Company, MBM and HSI Acquisition Corp. dated as of March
7, 1997).
The Termination Payment payable pursuant to this Section 1 will not
be subject to offset on account of any remuneration paid or payable to the
Executive for any subsequent employment the Executive may obtain, whether during
or after the period during which the
Termination Payment is made and the Executive shall have no obligation
whatsoever to seek any subsequent employment.
2. In all events, the Termination Payment will be subject to any
applicable payroll or other taxes required to be withheld.
3. The Company will reimburse the Executive for reasonable
attorneys' fees and expenses incurred by the Executive if the Executive is
employed hereunder and prevails against the Company with respect to a claim
hereunder.
4. This Agreement shall be binding upon and inure to the benefit of
the Executive and his legal representatives and the Company and any assignee or
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company.
5. This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof, may not be modified or terminated
orally, and shall be construed and governed in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
HENRY SCHEIN, INC.
By:______________________________
Authorized Officer
---------------------------------
BRUCE J. HABER
SCHEDULE A
A "Significant Date" shall be deemed to have occurred if after the
date hereof: (i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding (A) the Company, (B) any "Subsidiary"
thereof, (C) any employee benefit plan sponsored or maintained by the Company,
or any Subsidiary thereof (including any trustee of any such plan acting in his
or her capacity as trustee) and (D) any person who (or group which includes a
person who) is the beneficial owner (as defined in Rule 13(d)-3 under the
Exchange Act) as of January 1, 1995 of at least fifteen percent (15%) of the
common stock of the Company, becomes the beneficial owner (as defined in Rule
13(d)-3 under the Exchange Act) of shares of the Company having at least thirty
percent (30%) of the total number of votes that may be cast for the election of
directors of the Company; (ii) the shareholders of the Company shall approve any
merger or other business combination of the Company, sale of all or
substantially all of the Company's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction involving only the
Company and one or more of its Subsidiaries, or a Transaction immediately
following which the shareholders of the Company immediately prior to the
Transaction continue to have a majority of the voting power in the resulting
entity (excluding for this purpose any shareholder owning directly or indirectly
more than ten percent (10%) of the shares of the other company involved in the
Transaction if such shareholder is not as of January 1, 1994, the beneficial
owner (as defined in Rule 13(d)-3 under the Exchange Act) of at least fifteen
percent (15%) of the common stock of the Company); (iii) within any twenty-four
(24) month period beginning on or after the date hereof, the persons who were
directors of the Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death) to
constitute at least a majority of the board of directors of the Company or the
board of directors of any successor to the Company (the "Board"), provided that,
any director who was not a director as of the date hereof shall be deemed to be
an Incumbent Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval was the result
of an actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor
provision); or (iv) a Voting Trust Termination Date, as such term is defined in
the Voting Trust Agreement dated as of September 30, 1994 among the Company,
Stanley Bergman, as voting trustee and others. Notwithstanding the foregoing, no
Significant Date shall be deemed to have occurred for purposes of this Agreement
by reason of any Transaction which shall have been approved by at least
two-thirds of the Incumbent Directors.
EXHIBIT D
(as revised)
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made this _____ day of __________, 1997, by and
between HENRY SCHEIN, INC., a Delaware corporation (the "Company"), and BRUCE J.
HABER, (the "Executive").
WHEREAS, in consideration of his agreement not to compete with the
Company, the Company has agreed to issue the Executive _________________* shares
of its Common Stock, par value $.01, per share.
WHEREAS, such shares are to be subject to certain restrictions.
NOW, THEREFORE, the company and the Executive agree as follows:
1. Grant of Shares
The Company is issuing to the Employee _________6 shares of Common
Stock of the Company, par value $.01 (the "Shares"). Pursuant to Section 3
hereof, the Shares are subject to certain restrictions, which restrictions shall
expire at various times with regard to portions of the Shares. While such
restrictions are in effect, the Shares subject to such restrictions shall
sometimes be referred to herein as "Restricted Stock".
- ----------
6/ A number of shares equal to the quotient of $1 million divided by the
average of the closing sales prices of Company Common Stock as reported by
NASDAQ for the 20 trading days preceding the date upon which the Effective
Time occurs.
2. Restrictions on Transfer.
The Employee shall not sell, transfer, pledge, hypothecate, assign
or otherwise dispose of the Shares, except as set forth in this Agreement. Any
attempted sale, transfer, pledge, hypothecation, assignment or other disposition
of the Shares in violation of this Agreement shall be void and of no effect and
the Company shall have the right to disregard the same on its books and records
and to issue "stop transfer" instructions to its transfer agent.
3. Restricted Stock.
3.1 Deposit of Certificates. The Executive will deposit with
and deliver to the Company the stock certificates representing the Restricted
Stock, each duly endorsed in blank or accompanied by stock powers duly executed
in blank. In the event the Executive receives a stock dividend on the Restricted
Stock or the Restricted Stock is split or the Executive receives any other
shares, securities, moneys or property representing a dividend on the Restricted
Stock (other than regular cash dividends on and after the date of this
Agreement) or representing a distribution or return of capital upon or in
respect of the Restricted Stock or any part thereof, or resulting from a
split-up, reclassification or other like changes of the Restricted Stock, or
otherwise received in exchange therefor, and any warrants, rights or options
issued to the Executive in respect of the Restricted Stock (collectively "RS
Property"), the Executive will also immediately deposit with and deliver to the
Company any of such RS Property, including any certificates representing shares
duly endorsed in blank or accompanied by stock powers duly executed in blank,
and such RS Property shall be subject to the same restrictions, including that
of this Section 3.1, as the Restricted Stock with regard to which they are
issued and shall herein be encompassed within the term "Restricted Stock."
3.2 Rights with Regard to Restricted Stock. The Executive will
have the right to vote the Restricted Stock, to receive and retain all regular
cash dividends payable to holders of Common Stock of record on and after the
issuance of the Restricted Stock (although such dividends shall be treated, to
the extent required by law, as additional compensation for tax purposes if paid
on Restricted Stock), and to exercise all other rights, powers and privileges of
a holder of Common Stock with respect to the Restricted Stock, with the
exceptions that (i) the Executive will not be entitled to delivery of the stock
certificate or certificates representing the Restricted Stock until the
restriction period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled, (ii) the Company will retain
custody of the stock certificate or certificates representing the Restricted
Stock and the other RS Property during the restriction period, (iii) no RS
Property shall bear interest or be segregated in separate accounts during the
restriction period and (iv) the Executive may not sell, assign, transfer,
pledge, exchange, encumber or dispose of the Restricted Stock during the
restricted period.
3.3 Vesting. The Restricted Stock shall become vested and
cease to be Restricted Stock (but still subject to the other terms of this
Agreement) as to one-tenth of the Shares on each anniversary of the date hereof
if the Executive has been continuously employed by the Company or its
subsidiaries within the meaning of Section 424 of the Internal Revenue Code (the
"Control Group") until such date.
There shall be no proportionate or partial vesting in the
periods prior to each such anniversary and all vesting shall occur only on such
anniversary provided that, if the (a) the Executive dies, (b) Executive's
employment is terminated by the Company without cause as such term is used in
the Executive's Employment Agreement with the Company dated the date hereof (the
"Employment Agreement"), (c) his employment is terminated by him for good
reason, as such term is used in the Employment Agreement, (d) his employment is
terminated pursuant to Section 7(a)(i)(A) of the Employment Agreement, (e) a
Significant Date shall have occurred as that term is defined in Schedule A to
Exhibit C to the Employment Agreement, or (f) the Executive's employment
terminates prior to the tenth anniversary of the date hereof as a result of the
Company's failure to offer to renew, upon substantially the same terms (other
than term), any employment between the Company and the Executive upon the
expiration of its term, he shall also vest at such time in the Restricted Stock
that would otherwise have vested on each succeeding anniversary of the date
hereof. When any Restricted Stock becomes vested, the Company shall promptly
issue and deliver to the Executive a new stock certificate registered in the
name of the Executive for such Shares without the legend set forth in Section
4(a) hereof and deliver to the Executive any related other RS Property.
3.4 Forfeiture. In the event that the employment of the
Executive with the Company terminates, or is terminated, for any reason
whatsoever, other than those described in the second paragraph of Section 3.3,
the Executive shall forfeit to the Company, without compensation, all unvested
Restricted Stock (but no vested portion of the Shares); provided that, in the
event of death or disability of the Executive, the Compensation Committee of the
Board of
Directors of the Company may, in its sole discretion, but shall not be obligated
to, fully vest and not forfeit all or any portion of the Executive's Restricted
Stock.
3.5 Adjustments. In the event of any stock dividend, split up,
split-off, spin-off, distribution, recapitalization, combination or exchange of
shares, merger, consolidation, reorganization or liquidation or the like, the
Restricted Stock shall, where appropriate in the sole discretion of the
Compensation Committee of the Board of Directors of the Company, receive the
same distributions as other shares of Common Stock or be adjusted either on the
same basis as other shares of Common Stock or on some other basis as determined
by the Compensation Committee of the Board of Directors. In any such event, the
Compensation Committee of the board of Directors may, in its sole discretion,
determine to award additional Restricted Stock in lieu of the distribution or
adjustment being made with respect to other shares of Common Stock. In any such
event, the determination made by the Compensation Committee of the Board of
Directors shall be conclusive. The Compensation Committee of the Board of
Directors may, in its sole discretion, at any time fully vest and not forfeit
all or any portion of the Executive's Restricted Stock.
3.6 Withholding. The Employee agrees that, subject to
subsection 3.7 below,
(a) No later than the date on which any Restricted
Stock shall have become vested, the Executive will pay to the
Company, or make arrangements satisfactory to the Company
regarding payment of, any
federal, state or local taxes of any kind required by law to
be withheld with respect to any Restricted Stock which shall
have become so vested;
(b) The Company shall, to the extent permitted by law,
have the right to deduct from any payment of any kind
otherwise due to the Executive any federal, state or local
taxes of any kind required by law to be withheld with respect
to any Restricted Stock which shall have become so vested; and
(c) In the event the Executive does not satisfy (a)
above on a timely basis, the Company may, but shall not be
required to, pay such required withholding and treat such
amount as a demand loan to the Employee at the maximum rate
permitted by law, with such loan, at the Company's sole
discretion and provided the Company so notifies the Employee
within thirty (30) days of the making of the loan, secured by
the Shares and any failure by the Executive to pay the loan
upon demand shall entitle the Company to all of the rights at
law of a creditor secured by the Shares. The Company may hold
as security any certificates representing any Shares and, upon
demand of the Company, the Executive shall deliver to the
Company any certificates in his possession representing Shares
together with a stock power duly endorsed in blank.
3.7 Section 83(b). If the Executive properly elects (as
required by Section 83(b) of the Internal Revenue Code) within thirty (30) days
after the issuance of the
Restricted Stock to include in gross income for federal income tax purposes in
the year of issuance the fair market value of such Restricted Stock, the
Executive shall pay to the Company or make arrangements satisfactory to the
Company to pay to the Company upon such election, any federal, state or local
taxes required to be withheld with respect to such Restricted Stock. If the
Executive shall fail to make such payment, the Company shall, to the extent
permitted by law, have the right to deduct from any payment of any kind
otherwise due to the Executive any federal, state or local taxes of any kind
required by law to be withheld with respect to such Restricted Stock, as well as
the rights set forth in Section 3.6(c) hereof. The Executive acknowledges that
it is his sole responsibility, and not the Company's, to file timely the
election under Section 83(b) of the Internal Revenue Code and any corresponding
provisions of state tax laws if he elects to utilize such election.
3.8 Special Incentive Compensation. The Executive agrees that
the award of the Restricted Stock hereunder is special incentive compensation
and that it, any dividends paid thereon (even if treated as compensation for tax
purposes) and any other RS Property will not be taken into account as "salary"
or "compensation" or "bonus" in determining the amount of any payment under any
pension, retirement or profit-sharing plan of the Company or any life insurance,
disability or other benefit plan of the Company.
3.9 Delivery Delay. The delivery of any certificate
representing Restricted Stock or other RS Property may be postponed by the
Company for such period as may be required for it to comply with any applicable
federal or state securities law, or any national securities exchange listing
requirements and the Company is not obligated to issue or deliver any
securities if, in the opinion of counsel for the Company, the issuance of such
Shares shall constitute a violation by the Executive or the Company of any
provisions of any law or of any regulations of any governmental authority or any
national securities exchange.
4. All certificates representing the Shares shall have endorsed
thereon the following legends:
(a) If Restricted Stock, "THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING A
VESTING SCHEDULE AND FORFEITURE PROVISION AND RESTRICTIONS AGAINST
TRANSFER) CONTAINED IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION.
(b) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Any legend required to be placed thereon by
applicable blue sky laws of any state.
5. Securities Representations.
The Shares are being issued to the Executive and this Agreement is
being made by the Company in reliance upon the following express representations
and warranties of the Employee.
The Employee acknowledges, represents and warrants that:
(a) the Shares are being acquired for his own account
and not with a view to, or for sale in connection with, the
distribution thereof, nor with any present intention of distributing
or selling any of such Shares;
(b) he has been advised that the Shares have not been
registered under the Securities Act of 1933 (the "Act") on the
ground that no distribution or public offering of the Shares is to
be effected, and in this connection the Company is relying in part
on his representations set forth in this Section;
(c) in the event that the Employee is permitted to sell,
transfer, pledge, hypothecate, assign or otherwise dispose of the
Shares, the Employee may only do so pursuant to a registration
statement under the Act and qualification under applicable state
securities laws or pursuant to an opinion of counsel satisfactory to
the Company that such registration and qualification are not
required, and that the transaction (if it involves a sale in the
over-the-counter market or on a securities exchange) does not
violate the provisions of Rule 144 under the Act. A stop-transfer
order will be placed on the books of the Company
respecting the certificates evidencing the Shares, and such
certificates shall bear, until such time as the Shares evidenced by
such certificates shall have been registered under the Act or shall
have been transferred in accordance with an opinion of counsel for
the Company that such registration is not required, the legends set
forth in Section 4 hereof;
(c) the transfer of the Shares has not been registered
under the Act, and the Shares must be held indefinitely unless
subsequently registered under the Act or an exemption from such
registration is available and the Company is under no obligation to
register the Shares;
(e) he understands that the Shares are restricted
securities within the meaning of Rule 144 promulgated under the Act;
that the exemption form registration under Rule 144 will not be
available unless (i) a public trading market then exists for the
common stock of the Company, (ii) adequate information concerning
the Company is then available to the public, and (iii) other terms
and conditions of Rule 144 or any exemption therefrom are complied
with; and that any sale of the Shares may be made only in limited
amounts in accordance with such terms and conditions.
6. Not an Employment Agreement.
The issuance of the Shares hereunder does not constitute an
agreement by the Company to continue to employ the Executive during the entire,
or any portion of the, term of this Agreement, including but not limited to any
period during which Restricted Stock is outstanding.
7. Power of Attorney. The Company, its successors and assigns, is
hereby appointed the attorney-in-fact, with full power of substitution, of the
Executive for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments which such attorney-in-fact may
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. The Company, as
attorney-in-fact for the Executive, may in the name and stead of the Executive,
make and execute all conveyances, assignments and transfers of the Restricted
Stock, Shares and property provided for herein, and the Executive hereby
ratifies and confirms all that the Company, as said attorney-in-fact, shall do
by virtue hereof. Nevertheless, the Executive shall, if so requested by the
Company, execute and deliver to the Company all such instruments as may, in the
judgment of the Company, be advisable for the purpose.
8. Miscellaneous.
8.1 This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, legal
representatives, successors and assigns.
8.2 This Agreement constitutes the entire agreement between
the parties and cannot be changed or terminated orally. No modification or
waiver of any of the provision
hereof shall be effective unless in writing and signed by the party against whom
it is sought to be enforced.
8.3 This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one contract.
8.4 The failure of any party hereto at any time to require
performance by another party of any provision of this Agreement shall not affect
the right of such party to require performance of that provision, and any waiver
by any party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right under this Agreement.
8.5 The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
8.6 All notices, consents, requests, approvals, instructions
and other communications provided for herein shall be in writing and validly
given or made when delivered, or on the second succeeding business day after
being mailed by registered or certified mail, whichever is earlier, to the
persons entitled or required to receive the same, at the addresses set forth
below or to such other address as either party may designate by like notice.
If to the Company:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attention: Mark E. Mlotek, Esq.
With a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
If to the Executive:
Bruce J. Haber
989 Marcel Road
Baldwin Harbor, NY 11510
With a copy to:
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, NY 10169
Attention: Donald N. Gellert, Esq.
8.7 This Agreement shall be governed and construed and the
legal relationships of the parties determined in accordance with the internal
laws of the State of New York.
8.8 Notwithstanding anything to the contrary contained in this
Agreement, the Restricted Stock may be transferred by the Executive to any
member of his immediate family or any trust for the benefit of any such family
member, provided such transferee agrees to be bound by the terms of this
Agreement to the same extent as the Executive.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HENRY SCHEIN, INC.
By:
-----------------------------------
Authorized Officer
-----------------------------------
Executive
ACKNOWLEDGEMENT
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this day of____________ , 19__ before me personally appeared
_________________________ to me known to be the person described in and who
executed the foregoing agreement, and acknowledged that he executed the same as
his or her free act and deed.
--------------------------------
Notary Public
Exhibit 10.94
AGREEMENT AND PLAN OF MERGER
by and among
HENRY SCHEIN, INC.
HS ACQUISITION, INC.
ROANE-BARKER, INC.
and
RALPH L. FALLS, JR.
Dated as of May 23, 1997
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May 23, 1997, among HENRY
SCHEIN, INC., a Delaware corporation ("Parent"), HS ACQUISITION, INC., a South
Carolina corporation and wholly-owned subsidiary of Parent ("Sub"),
ROANE-BARKER, INC., a South Carolina corporation ("RBI"), and RALPH L. FALLS,
JR.(the "Stockholder"), the sole stockholder of RBI.
The Parent, the Sub, RBI and the Stockholder desire that Parent
acquire RBI pursuant to the merger of Sub with and into RBI in accordance with
the terms of this Agreement, and the South Carolina Business Corporation Act
(the "SCBCA").
Contemporaneously with the execution of this Agreement, the Parent
and the Stockholder are executing an employment agreement, which provides for,
among other things, the Stockholder being employed by RBI for a term of five
years from and after the Effective Time, as that term is defined herein, and the
issuance to the Stockholder, as compensation for such services, of options to
purchase shares of Parent Common Stock, as hereinafter defined.
For federal income tax purposes, it is intended that the Merger, as
defined herein, shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
The parties hereto agree as follows:
ARTICLE I
THE MERGER; THE SURVIVING CORPORATION
Section 1.1 The Merger. In accordance with the provisions of this
Agreement and the SCBCA at the Effective Time, as defined in Section 1.2 hereof,
Sub shall be merged with and into RBI (the "Merger"), the separate existence of
Sub shall thereupon cease, and RBI shall be the surviving corporation in the
Merger (the "Surviving Corporation") and shall continue its corporate existence
under the laws of the SCBCA. The Merger shall have the effects set forth in the
applicable sections of the SCBCA.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective at the time of filing of or at such later time specified in, a
properly executed Certificate of Merger, in the form required by and executed in
accordance with the SCBCA, filed with the Secretary of State of the State of
South Carolina, in accordance with the applicable provisions of the SCBCA. Such
filing
1
shall be made as soon as practicable after the Closing (as defined in Section
1.3). When used in this Agreement, the term "Effective Time" shall mean the date
and time at which the Merger shall become effective.
Section 1.3 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Proskauer Rose
Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York, at 10:00 a.m., local
time, on the fifth business day after the day on which all of the conditions set
forth in Article VII are satisfied or waived or on such other date and at such
other time and place as Parent and RBI shall agree (the "Closing Date").
Section 1.4 Certificate of Incorporation. The Articles of
Incorporation of RBI in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law.
Section 1.5 By-Laws. The By-Laws of RBI as in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until amended
in accordance with applicable law.
Section 1.6 Directors and Officers of Surviving Corporation.
(a) The directors of Sub at the Effective Time shall be the
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Articles of Incorporation or By-Laws of
the Surviving Corporation or as otherwise provided by law.
(b) The officers of Sub at the Effective Time shall be the officers
of the Surviving Corporation and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Articles of Incorporation or ByLaws of the Surviving
Corporation, or as otherwise provided by law.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Exchange Ratio. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each share of common stock, par value $10.00 per share, of RBI
(the "RBI Common Stock"), issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
2.1(b) hereof) shall be converted into the right to receive the sum of (x)
890.237 (the "Exchange Ratio") shares of the Common Stock, par value $.01 per
share, of Parent (the "Parent Common Stock"), and (y) 28.268 shares of Parent
Common Stock, payable upon the surrender of the certificate formerly
representing such share of RBI Common Stock; provided, however, that if the
Closing Value, as defined in Section 2.3 hereof, is more than
2
$30.8488, the Exchange Ratio shall be reduced to an amount (computed to the
nearest tenthousandth) equal to (i) the Exchange Ratio multiplied by (ii) the
quotient obtained by dividing $30.8488 by the Closing Value; and provided,
further, that if the Closing Value is less than $22.8013, the Exchange Ratio
shall be increased to an amount (computed to the nearest ten thousandth) equal
to (i) the Exchange Ratio multiplied by (ii) the quotient obtained by dividing
$22.8013 by the Closing Value.
(b) All shares of RBI Common Stock that are held by RBI as treasury shares
shall be canceled and retired and cease to exist, and no securities of Parent or
other consideration shall be delivered in exchange therefor.
(c) Each share of Common Stock, no par value, of Sub ("Sub Common Stock")
issued and outstanding immediately prior to the Effective Time, shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $10.00 per share, of the Surviving Corporation.
Section 2.2 Exchange of RBI Stock. Promptly after the Effective
Time, the holders of RBI Common Stock shall present to the Parent for
cancellation a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of RBI Common Stock (the
"Certificates") that were converted pursuant to Section 2.1 into the right to
receive shares of Parent Common Stock, and the Parent shall thereupon deliver to
such holder in exchange therefor (x) a certificate representing that number of
whole shares of Parent Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II and (y) cash in lieu of any
fractional shares of Parent Common Stock to which such Stockholder is entitled
pursuant to Section 2.3, after giving effect to any required tax withholdings.
The shares of Parent Common Stock shall be deemed to have been issued at the
Effective Time.
Section 2.3 No Fractional Securities. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional interests shall not
entitle the holder thereof to vote or to any rights of a security holder. In
lieu of any such fractional securities, each holder of RBI Common Stock who
would otherwise have been entitled to a fraction of a share of Parent Common
Stock upon surrender of such holder's Certificates will be entitled to receive,
and Parent will promptly after the Effective Time make a cash payment (without
interest) determined by multiplying (i) the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of RBI
Common Stock then held of record by such holder) and (ii) the average of the per
share closing prices for Parent Common Stock on NASDAQ for the ten consecutive
trading days immediately preceding the Closing (the "Closing Value").
3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RBI AND THE STOCKHOLDER
RBI and the Stockholder, jointly and severally, represent and
warrant to Parent and Sub as follows:
Section 3.1 Organization. RBI is a corporation duly organized,
validly existing and in good standing under the laws of the State of South
Carolina and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. RBI is duly qualified as a
foreign corporation to do business, and is in good standing in the jurisdictions
listed on Schedule 3.1 hereto and is not required to be so qualified and in good
standing in any other jurisdiction where the character of its properties owned
or held under lease or the nature of its activities would make such
qualification necessary, except where the failure to so qualify would not have,
individually or in the aggregate, a material adverse effect on the financial
condition, results of operations, business, assets, liabilities or properties of
RBI, or the ability of RBI to consummate the Merger and the other transactions
contemplated by this Agreement (a "RBI Material Adverse Effect").
Section 3.2 Capitalization.
(a) The authorized capital stock of RBI consists of 50,000 shares of
RBI Common Stock. There are 670 shares of RBI Common Stock issued and
outstanding, and the Stockholder is the sole record and beneficial holder of
such shares. Such shares are owned by the Stockholder free and clear of any and
all liens, claims or encumbrances of any nature whatsoever (whether absolute,
accrued, contingent or otherwise) ("Liens"). All of the issued and outstanding
shares of RBI Common Stock are validly issued, fully paid and nonassessable.
Schedule 3.2(a) hereto lists the individuals and entities, other than the
Stockholder, who were at any time after April 1, 1977, holders of record or
beneficially of (i) securities issued by RBI or (ii) Rights, as hereinafter
defined.
(b) (i) There is no outstanding right, subscription, warrant, call,
option or other agreement or arrangement of any kind (collectively, "Rights") to
purchase or otherwise to receive from RBI any of the outstanding, authorized but
unissued or treasury shares of the capital stock or any other security of RBI,
(ii) there is no outstanding security of any kind convertible into or
exchangeable for such capital stock and (iii) there is no voting trust or other
agreement or understanding to which RBI is a party or is bound with respect to
the voting of the capital stock of RBI.
Section 3.3 No RBI Subsidiaries; Affiliates. RBI has no
Subsidiaries, as hereinafter defined, and has conducted the Business, as
hereinafter defined, solely through RBI at all times since April 1977. Except as
set forth on Schedule 3.3(a), all assets, properties and rights relating to the
Business are held by, and all agreements, obligations and transactions relating
to the Business have been entered into, incurred and conducted by, RBI rather
than any of its Affiliates or any of the Stockholder's Affiliates. As used in
this Agreement, (i) the term "Subsidiary" means, with respect
4
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (x) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (y) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party and/or one or more of its
Subsidiaries and (ii) the term "Business" means the business as conducted by RBI
as of the date of this Agreement and as of the Closing Date (except to the
extent that the reference to the "Business" herein speaks as of any other date)
including without limitation, the distribution of medical and laboratory
supplies and equipment to hospitals and the alternate care market, including
without limitation, physicians, physician groups, home health care agencies,
agricultural cooperatives, ambulatory surgery centers, ambulance companies,
clinics, health departments, medical schools and nursing homes. Schedule 3.3(b)
contains a complete and accurate list of all Affiliates of RBI. For purposes of
this Agreement, the term "Affiliate" means, with respect to any party, an
individual or entity controlled by, in control of, or under common control with,
such party.
Section 3.4 Authority Relative to this Agreement. RBI has the
requisite corporate power and authority, and the Stockholder has the capacity,
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by RBI and the
consummation by RBI of the transactions contemplated on its part hereby have
been duly authorized by RBI's Board of Directors and the Stockholder, and no
other corporate proceedings on the part of RBI are necessary to authorize this
Agreement or for RBI to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by RBI and the
Stockholder and constitutes the valid and binding agreement of RBI and the
Stockholder, enforceable against each of them in accordance with its terms,
subject to applicable bankruptcy, insolvency and other similar laws affecting
the enforceability of creditors' rights generally, general equitable principles
and the discretion of courts in granting equitable remedies.
Section 3.5 Certificate of Incorporation and By-laws. RBI has
heretofore furnished to Parent a complete and correct copy of the certificate of
incorporation and by-laws, as amended to date, of RBI. Such certificate of
incorporation and by-laws are in full force and effect. RBI is not in violation
of any of the provisions of its certificate of incorporation or by-laws.
Section 3.6 Consents and Approvals; No Violations. Neither the
execution, delivery and performance of this Agreement by RBI and the
Stockholder, nor the consummation by RBI and the Stockholder of the transactions
contemplated hereby, will (i) conflict with or result in any breach of any
provisions of the charter, by-laws or other organizational documents of RBI,
(ii) require a filing with, or a permit, authorization, consent or approval of,
any federal, state, local or foreign court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory authority or
administrative agency or commission (a "Governmental Entity"), except in
connection with or in order to comply with the applicable provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the filing and recordation of a Certificate of Merger as required by the
SCBCA and certain municipal business licenses,(iii) result
5
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of a Lien on any
property or asset of RBI pursuant to, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation (each, a "Contract") to which RBI is a party or by
which RBI or any of its properties or assets may be bound or (iv) violate any
law, order, writ, injunction, decree, statute, rule or regulation of any
Governmental Entity applicable to RBI, or any of its properties or assets.
Section 3.7 Financial Statements. RBI has delivered to the Parent
(a) the financial statements of RBI as of May 31, 1994, 1995 and 1996, and for
each of the fiscal years then ended, in each case, accompanied by the audit
opinion of KPMG Peat Marwick LLP, RBI's independent auditors (the "Year-End
Financial Statements"), (b) the unaudited financial statements of RBI as of
March 31, 1997 and for the ten months then ended (the "Interim Financial
Statements," and together with the Year-End Financial Statements, the "Financial
Statements"). The Year-End Financial Statements (including any related notes and
schedules) have been prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied throughout the periods indicated. The
Interim Financial Statements (including any related notes and schedules) were
prepared in accordance with GAAP applied on a consistent basis, subject to
year-end closing adjustments and the lack of full footnote presentations. The
Financial Statements are set forth on Schedule 3.7 hereto and fairly present in
all material respects the consolidated financial position of RBI as at the dates
thereof and the results of operations and cash flows of RBI for the periods then
ended. Since May 31,1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of RBI.
With respect to each of the Financial Statements, there were no audit
adjustments in excess of $25,000 proposed by KPMG Peat Marwick LLP which were
not accepted by RBI and appropriately reflected thereon.
Section 3.8 Absence of Certain Changes or Events; Contracts. Except
as set forth on Schedule 3.8, since May 31, 1996, (i) RBI has not conducted its
business and operations other than in the ordinary course of business and
consistent with past practices, or taken any actions of a type prohibited by the
provisions of Section 5.1 hereof and (ii) there has not been any fact, event,
circumstance or change affecting or relating to RBI which has had or is
reasonably likely to have a RBI Material Adverse Effect. Except as set forth on
Schedule 3.8, the transactions contemplated by this Agreement will not
constitute a change of control under or require the consent from or the giving
of notice to any party pursuant to the terms, conditions or provisions of any
Contract to which RBI is a party.
Section 3.9 Litigation. Except as set forth on Schedule 3.9, there
is no suit, action, proceeding or investigation that relates to RBI pending or
threatened against or affecting RBI, any of its Affiliates or the Stockholder.
There is no judgment, decree, injunction, ruling or order of any Governmental
Entity outstanding against RBI, any of its Affiliates or the Stockholder that
relates to RBI or the Business as conducted by RBI at any time.
Section 3.10 Absence of Undisclosed Liabilities. Except for
liabilities or obligations which are accrued or reserved against on the
Financial Statements (including the financial statement
6
notes thereto) or which were incurred after March 31, in the ordinary course of
business and consistent with past practice, RBI has no liabilities or
obligations (whether absolute, accrued, contingent or otherwise) other than
obligations (excluding obligations arising out of any default in the performance
by any party to such Contracts) under Contracts entered into in the ordinary
course of business and consistent with past practice and which are disclosed on
Schedule 3.32.
Section 3.11 No Default. RBI is not in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its charter or by-laws, (ii) any order, writ, injunction, decree, of any
Governmental Entity applicable to RBI, or (iii) any material statute, rule or
regulation of any Governmental Entity applicable to RBI.
Section 3.12 Taxes.
(a) RBI has heretofore delivered or hereafter will make available to
Parent true, correct and complete copies of the federal, state, local and
foreign income, franchise sales and other Tax Returns, as hereinafter defined,
filed by RBI for each of RBI's fiscal years ended May 31, 1992, 1993, 1994, 1995
and 1996; none of those Tax Returns has been the subject of an audit or
examination by any tax authority or, to the knowledge of RBI or the Stockholder,
has been noticed for such audit or examination. RBI has duly filed all material
federal, state, local and foreign income, franchise, sales and other Tax Returns
required to be filed by it. RBI has not received written notice from a taxing
authority in a jurisdiction where RBI does not file Tax Returns that RBI is or
may be subject to taxation by that jurisdiction. All such Tax Returns are true,
correct and complete in all material respects, and RBI has duly paid, all Taxes,
as hereinafter defined, shown on such Tax Returns and has paid or made adequate
provision for payment of all accrued but unpaid Taxes anticipated in respect of
all periods since the periods covered by such Tax Returns. All deficiencies
assessed as a result of any examination of Tax Returns of RBI by federal, state,
local or foreign tax authorities have been paid or reserved on the financial
statements of RBI in accordance with GAAP consistently applied. RBI has not
received written notice of any current audit or examination of any RBI Tax
Return or tax liability and there are no proposed tax assessments, suits,
actions, claims, investigations or inquiries by any tax authority with respect
to RBI. RBI has heretofore delivered or will make available to Parent true,
correct and complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreements or arrangements to which RBI is a
party. No issue has been raised in any written communication to RBI during the
past five years by any federal, state, local or foreign taxing authority which,
if raised with regard to any other period not so examined, could reasonably be
expected to result in a proposed deficiency for any other period not so
examined. RBI has not granted any extension or waiver of the statutory period of
limitations applicable to any claim for any Taxes. (i) RBI is not a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code; (ii) no consent has been filed under Section 341(f)
of the Code with respect to RBI; (iii) RBI has not participated in, or
cooperated with, an international boycott within the meaning of Section 999 of
the Code; (iv) RBI has not issued or assumed any corporate acquisition
indebtedness, as defined in Section 279(b) of the Code, (v) RBI has not been a
party to any tax allocation or tax sharing agreement or a member
7
of an affiliated group filing a consolidated federal income Tax Return or
consolidated or combined state or local return and does not have any liability
for the taxes of any person under Treas. Reg. ss. 1.1502-6 or any similar
provision of state, local or foreign law, or as a transferee or successor, by
contract, or otherwise; (vi) there has not been a change in a method of
accounting within the meaning of Code section 481 by RBI since 1988; (vii) all
items which could give rise to a substantial understatement of federal income
tax (within the meaning of Code section 6662(d)) were adequately disclosed on
RBI's Tax Returns in accordance with Code section 6662(d)(2)(B); (viii) RBI is
not a party to a closing agreement or other agreement with a taxing authority
that could affect its future liability for taxes; and (ix) RBI does not hold an
evidence of indebtedness of a purchaser that is subject to the installment
method of gain reporting under section 453 of the Code. RBI filed an election to
be treated as an S corporation prior to January 1, 1987, and has been an S
corporation for all taxable years since the effective date of such election, and
has been an S corporation in every state or other jurisdiction where it has been
subject to income taxation and S corporation treatment has been available. RBI
has complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code
or similar provisions under any foreign laws) and has, within the time and in
the manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under all applicable laws.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies, duties, imposts or other assessments, including,
without limitation, income, gross receipts, excise, property, sales, use,
transfer, gains, license, payroll, withholding, capital stock and franchise
taxes, imposed by the United States, or any state, local or foreign government
or subdivision or agency thereof, including any interest, penalties or additions
thereto. For purposes of this Agreement, the term "Tax Return" shall mean any
report, return or other information or document required to be supplied to a
taxing authority in connection with Taxes.
Section 3.13 Title to Properties; Encumbrances. RBI has good, valid
and marketable title to, or a valid leasehold interest in, all of its properties
and assets (real, personal and mixed, tangible and intangible), including,
without limitation, all the properties and assets reflected in the balance sheet
of RBI as of March 31, 1997 (except for properties and assets disposed of in the
ordinary course of business and consistent with past practices since March 31,
1997). RBI's interests in such properties or assets are not subject to any
Liens.
Section 3.14 Intellectual Property.
(a) RBI is the sole and exclusive owner of all patents, patent
applications, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets, registrations for and
applications for registration of trademarks, service marks and copyrights,
technology and know-how, rights in computer software and other proprietary
rights and information and all technical and user manuals and documentation made
or used in connection with any of the foregoing, used or held for use in
connection with the Business (collectively, the "Intellectual Property"), free
and clear of all Liens.
8
(b) All grants, registrations and applications for the Intellectual
Property that are used in the conduct of the Business (i) are valid, subsisting,
in proper form and enforceable, and have been duly maintained, including the
submission of all necessary filings and fees in accordance with the legal and
administrative requirements of the appropriate jurisdictions and (ii) have not
lapsed, expired or been abandoned, and no application or registration therefor
is the subject of any legal or governmental proceeding before any registration
authority in any jurisdiction.
(c) RBI owns or has the right to use all of the Intellectual
Property used by it or held for use by it in connection with the Business. RBI
and the Stockholder have no notice that any third party is engaging in conduct
which conflicts with or infringes in any way any Intellectual Property. The
conduct of the Business as currently conducted does not conflict with or
infringe in any way any proprietary right of any third party, and there is no
claim, suit, action or proceeding pending or threatened against RBI (i) alleging
any such conflict or infringement with any third party's proprietary rights, or
(ii) challenging the ownership, use, validity or enforceability of the
Intellectual Property.
Section 3.15 Compliance with Applicable Law. (i) RBI holds, and is
in compliance in all material respects with the terms of, all material permits,
licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the current and proposed conduct of the Business ("RBI Permits"),
(ii) no fact exists or event has occurred, and no action or proceeding is
pending or threatened, that has a reasonable possibility of resulting in a
revocation, non-renewal, termination, suspension or other impairment of any RBI
Permits, (iii) the Business is not being conducted in violation in any material
respect of any applicable law, ordinance, regulation, judgment, decree or order
of any Governmental Entity ("Applicable Law"), and (iv) (a) no investiga tion or
review by any Governmental Entity with respect to RBI is pending or threatened
and (b) no Governmental Entity has indicated to RBI or the Stockholder an
intention to conduct the same.
Section 3.16 Employee Benefit Plans; ERISA.
(a) Schedule 3.16(a) contains a list of all "employee benefit
plans," within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any other bonus, profit sharing,
compensation, pension, severance, deferred compensation, fringe benefit,
insurance, welfare, post-retirement, health, life, stock option, stock purchase,
restricted stock, tuition refund, service award, company car, scholarship,
relocation, disability, accident, sick, vacation, holiday, termination,
unemployment, individual employment, consulting, executive compensation,
incentive, commission, payroll practices, retention, change in control,
noncompetition, or other plan, agreement, policy, trust fund, or arrangement
(whether written or unwritten, insured or self-insured) (i) established,
maintained, sponsored, or contributed to (or with respect to which any
obligation to contribute has been undertaken) within the last six years by RBI
or any entity that would be deemed a "single employer" with RBI under Section
414(b), (c), (MBM Division), or (o) of the Code or Section 4001 of ERISA (an
"ERISA Affiliate") on behalf of any employee, director, shareholder, or
beneficiary of RBI (whether current, former, or retired) or their beneficiaries
or (ii) with respect to which RBI or any ERISA Affiliate has or has had any
obligation on behalf of any such employee, director, shareholder, or beneficiary
(each a
9
"Plan" and, collectively, the "Plans"). With respect to each Plan, true and
complete copies, if applicable, of the documents embodying or relating to the
Plan, including, without limitation, each communication received by or furnished
to RBI or any ERISA Affiliate from the Internal Revenue Service ("IRS"), the
Pension Benefit Guaranty Corporation ("PBGC"), U.S. Department of Labor ("DOL"),
or any other governmental authority including, without limitation, the most
recent application for determination letter submitted to the IRS and the most
recent determination letter received from the IRS, have been delivered to
Parent.
(b) Neither RBI, any ERISA Affiliate, nor any of their respective
predecessors has ever contributed to, contributes to, has ever been required to
contribute to, or otherwise participated in or participates in or in any way,
directly or indirectly, has any liability with respect to any plan subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA, including,
without limitation any, "multiemployer plan" (within the meaning of Sections
(3)(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code), or any single
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA).
(c) RBI, each ERISA Affiliate, each Plan, and each "plan sponsor"
(within the meaning of Section 3(16) of ERISA) of each "welfare benefit plan"
(within the meaning of Section 3(1) of ERISA) has complied in all respects with
the requirements of Section 4980B of the Code and Title I, Subtitle B, Part 6 of
ERISA.
(d) With respect to each of the Plans on Schedule 3.16(a):
(i) each Plan intended to qualify under Section 401(a) of the
Code has been qualified since its inception and has received a determination
letter under Revenue Procedure 93-39 from the IRS to the effect that the Plan is
qualified under Section 401 of the Code and any trust maintained pursuant
thereto is exempt from federal income taxation under Section 501 of the Code and
nothing has occurred or is expected to occur through the date of the Closing
that caused or could cause the loss of such qualification or exemption or the
imposition of any penalty or tax liability;
(ii) all payments required by any Plan, any collective
bargaining agreement or other agreement, or by law (including, without
limitation, all contributions, insurance premiums, or intercompany charges) with
respect to all periods through the date of the Closing shall have been made
prior to the Closing (on a pro rata basis where such payments are otherwise
discretionary at year end) or provided for by RBI as applicable, by full
accruals as if all targets required by such Plan had been or will be met at
maximum levels) on its financial statements;
(iii) no claim, lawsuit, arbitration or other action has been
threatened, asserted, instituted, or anticipated against the Plans (other than
non-material routine claims for benefits, and appeals of such claims), any
trustee or fiduciaries thereof, RBI, any ERISA Affiliate, any director, officer,
or employee thereof, or any of the assets of any trust of the Plans;
10
(iv) the Plan complies and has been maintained and operated in
accordance with its terms and applicable law, including, without limitation,
ERISA and the Code;
(v) no "prohibited transaction," within the meaning of Section
4975 of the Code and Section 406 of ERISA, has occurred or is expected to occur
with respect to the Plan (and the consummation of the transactions contemplated
by this Agreement will not constitute or directly or indirectly result in such a
"prohibited transaction");
(vi) no Plan is or expected to be under audit or investigation
by the IRS, DOL, or any other governmental authority and no such completed
audit, if any, has resulted in the imposition of any tax or penalty;
(vii) each Plan intended to meet requirements for tax-favored
treatment under any provision of the Code, including, without limitation,
Sections 79, 105, 106, 117, 120, 125, 127, 129, 132, 162(m), 404, 404A, 419,
419A, or 501(c)(9) of the Code satisfies the applicable requirements under the
Code; and
(viii) with respect to each Plan that is funded mostly or
partially through an insurance policy, neither RBI nor any ERISA Affiliate has
any liability in the nature of retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring on or before the Closing.
(e) Except as set forth in the deferred compensation plan described
in note 12 to the Year-End Financial Statements, the consummation of the
transactions contemplated by this Agreement will not give rise to any liability,
including, without limitation, liability for severance pay, unemployment
compensation, termination pay, or withdrawal liability, or accelerate the time
of payment or vesting or increase the amount of compensation or benefits due to
any employee, director, shareholder, or beneficiary of RBI (whether current,
former, or retired) or their beneficiaries solely by reason of such
transactions. No amounts payable under any Plan will fail to be deductible for
federal income tax purposes by virtue of Sections 280G or 162(m) of the Code.
(f) Neither RBI nor any ERISA Affiliate maintains, contributes to,
or in any way provides for any benefits of any kind whatsoever (other than under
Section 4980B of the Code, the Federal Social Security Act, or a plan qualified
under Section 401(a) of the Code) to any current or future retiree or terminee.
(g) Neither RBI, any ERISA Affiliate, nor any officer or employee
thereof, has made any promises or commitments, whether legally binding or not,
to create any additional plan, agreement, or arrangement, or to modify or change
any existing Plan.
(h) No event, condition, or circumstance exists that could result in
an increase of the benefits provided under any Plan or the expense of
maintaining any Plan from the level of benefits or expense incurred for the most
recent fiscal year ended before the Closing.
11
(i) Neither RBI nor any ERISA Affiliate has any unfunded liabilities
pursuant to any Plan that is not intended to be qualified under Section 401(a)
of the Code.
(j) No event, condition, or circumstance exists that would prevent
the amendment or termination of any Plan.
Section 3.17 Labor Matters; Employment Matters. (i) There are no
controversies pending or threatened between RBI and any of its employees
regarding RBI's compliance with applicable wage and hour, equal employment,
safety and other similar legal requirements relating to its employees, (ii) RBI
is not a party to, or bound by, any collective bargaining agreement, contract or
other understanding with a labor union or labor organization and there is to
RBI's and the Stockholder's knowledge no activity involving any employees of RBI
seeking to certify a collective bargaining unit or engaging in any other
organizational activity; and (iii) there are no strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any group of
employees of RBI. Each of the salespersons employed by RBI are listed on
Schedule 3.17(a) hereto and each such salesperson has executed and delivered to
RBI a non-competition agreement in the form set forth on Schedule 3.17(b)
hereto. Schedule 3.17(c) contains a list of the names, office locations,
compensation and years of credited service for severance, vacation and pension
plan purposes of all full- and part-time employees of RBI as at May 1, 1997. No
executive employee of RBI has indicated to RBI that he or she is considering
terminating his or her employment. RBI has complied in all material respects
with applicable wage and hour, equal employment, safety and other legal
requirements relating to its employees.
Section 3.18 Environmental Laws and Regulations.
(a) All references in this Section 3.18 to RBI shall include its
predecessors, and any person or entity the liabilities of which, pursuant to
applicable federal, state, local or common law, rule, regulation, ordinance,
code, order or judgment (including any judicial or administrative
interpretations, guidances, directives, policy statements or opinions) relating
to the injury to, or the pollution or protection of human health and safety or
the Environment ("Environmental Laws"), contractually, by common law, by
operation of law or otherwise, RBI may have succeeded to.
(b) Except as set forth on Schedule 3.18(b), all of the current and
past operations of RBI and the real property formerly or presently owned, leased
or otherwise used by RBI, including any operations at or from any real property
presently or formerly owned, used, leased, occupied, managed or operated by RBI,
(collectively, the "Real Property"), comply and have at all times complied in
all material respects with all applicable Environmental Laws. RBI has not
engaged in, authorized, allowed or suffered any operations or activities upon
any of the Real Property for the purpose of or in any way involving the
handling, manufacture, treatment, processing, storage, use, generation, release,
discharge, spilling, emission, dumping or disposal of any petroleum, petroleum
products, petroleum-derived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos
or any materials containing asbestos, and any materials or substances regulated
or defined as or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous constituents," "toxic
12
substances," "pollutants," "contaminants" or any similar denomination intended
to classify or regulate substances by reason of toxicity, carcinogenicity,
ignitability, corrosivity or reactivity under any Environmental Law ("Hazardous
Substances") at, on, under or from the Real Property, except in full compliance
in all material respects with all applicable Environmental Laws.
(c) Neither RBI's assets nor the Real Property contain any Hazardous
Substances in, on, over, under or at it, in concentrations which would presently
violate in any material respect any applicable Environmental Laws or would be
reasonably likely to result in the imposition of liability or obligations on the
present or former owner, manager, or operator of the Real Property under any
applicable Environmental Laws, including any liability or obligations for the
investigation, corrective action, remediation or monitoring of Hazardous
Substances in, on, over, under or at the Real Property.
(d) None of the Real Property is listed or proposed for listing on
the National Priorities List pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss. 9601 et seq.,
or any similar inventory of sites requiring investigation or remediation
maintained by any state or locality. RBI has not received any notice, whether
oral or written, from any governmental entity or third party of any actual or
threatened claims, judgments, damages (including punitive damages), losses,
penalties, fines, liabilities, encumbrances, liens, violations, costs and
expenses (including attorneys' and consultants' fees) of investigation,
remediation, monitoring or defense of any matter relating to human health,
safety or any surface or subsurface physical medium or natural resource,
including, air, land, soil, surface waters, ground waters, stream and river
sediments, biota and any indoor area, surface or physical medium (the
"Environment") of whatever kind or nature by any party, entity or authority, (i)
which have been incurred as a result of (x) the existence of Hazardous
Substances in, on, under, at or emanating from any Real Property, (y) the
offsite transportation, treatment, storage or disposal of Hazardous Substances
generated by RBI or (z) the violation of any Environmental Laws or (ii) which
arise under the Environmental Laws ("Environmental Liabilities") with respect to
the Business as conducted by RBI at any time, RBI's assets or Real Property.
(e) Except as set forth on Schedule 3.18(e), there are no
underground storage tanks, asbestos or asbestos containing materials,
polychlorinated biphenyls, urea formaldehyde, or other Hazardous Substances
(other than small quantities of Hazardous Substances for use in the ordinary
course of the business of RBI, which are stored and maintained in accordance and
in full compliance with all applicable Environmental Laws) in, on, over, under
or at any Real Property.
(f) There are no conditions existing at any Real Property or with
respect to the assets or the Business, that require, or which with the giving of
notice or the passage of time or both will reasonably likely require remedial or
corrective action, removal, monitoring or closure pursuant to the Environmental
Laws.
(g) RBI has all the permits, licenses, authorizations and approvals
necessary for the conduct of the Business and for the operations on, in or at
the Real Property (the "Environmental Permits"), which are required under
applicable Environmental Laws. RBI is in full compliance with
13
the terms and conditions of all such Environmental Permits, and no reason exists
why Parent would not be capable of continued operation of the Business in full
compliance with the Environmental Permits and the applicable Environmental Laws.
(h) RBI has provided to Parent all environmental reports,
assessments, audits, studies, investigations, data, Environmental Permits and
other written environmental information in its custody, possession or control
concerning RBI's assets, the Business as conducted by RBI at any time and the
Real Property.
(i) RBI has not contractually, by operation of law, by the
Environmental Laws, by common law or otherwise assumed or succeeded to any
Environmental Liabilities of any predecessors or any other person or entity.
Section 3.19 Restrictions on Business Activities. Except for this
Agreement, there is no agreement, judgment, injunction, order or decree binding
upon RBI or the Stockholder which has or could reasonably be expected to have
(after giving effect to the consummation of the Merger) the effect of
prohibiting or impairing the business practices of RBI as currently practiced,
the acquisition of property by RBI or the conduct of the Business as currently
conducted by RBI.
Section 3.20 Accounting Matters. Neither RBI, any of its directors
or officers nor the Stockholder, has taken any action which would prevent the
accounting for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16, the interpretative releases pursuant
thereto and the pronouncements of the SEC.
Section 3.21 Affiliate Transactions. Except as set forth in Schedule
3.21, there are no Contracts or other transactions between RBI on the one hand,
and any (i) officer or director of RBI or the Stockholder or (ii) Affiliate of
any such officer, director or stockholder, on the other hand.
Section 3.22 Brokers. Except for Lloyd & Company (a financial
advisor to RBI whose fee for services rendered in connection with the Merger
shall be as set forth in the Engagement Letter entered into by and between such
financial advisor and RBI dated April 7, 1997), no broker, finder or financial
advisor is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of RBI.
Section 3.23 Certain Tax Matters. Neither RBI, any of its directors
or officers nor the Stockholder has taken any action which would be reasonably
likely to cause the Merger to be treated other than as a tax-free reorganization
under Section 368(a) of the Code.
Section 3.24 Accounts Receivable. Schedule 3.24(a) hereto is a
complete and accurate summary aging of all of the accounts and notes receivable
of RBI set forth on the books and records of RBI as of April 30, 1997, and
Schedule 3.24(b) hereto is a complete and accurate aging of all such accounts
and notes receivable, on a line item basis, with respect to the 50 largest
accounts.
14
All such accounts and notes receivable of RBI: (i) represent sales actually made
in the ordinary course of business for goods or services delivered or rendered
to unaffiliated customers in bona fide arm's length transactions, (ii)
constitute valid claims, (iii) are good and collectible in full within 90 days
of the date they were created, in each case at the aggregate recorded amounts
thereof (but reduced by (a) the reserve therefor reflected on the Interim
Financial Statements and (b) recoveries since the date of the Interim Financial
Statements of previously written-off accounts) without right of recourse,
defense, deduction, return of goods, counterclaim or offset and (iv) have not
been extended or rolled over in order to make them current.
Section 3.25 Inventory. Except to the extent of the reserve therefor
reflected on the Interim Financial Statements, plus 5% of such reserve, (i) all
inventory of RBI is of merchantable quality and is usable and salable at normal
profit margins for RBI and in accordance with RBI's historical sales practices
in the ordinary course of the business of RBI; and (ii) such inventory does not
include any items which are obsolete, damaged, excessive (i.e., more than a
six-month supply), below standard quality or slow moving (i.e., items that are
for discontinued or expected to be discontinued product lines, or items that
have not been used or sold within 6 months prior to the date hereof).
Section 3.26 Real and Personal Property. Schedule 3.26(a) contains a
complete and correct list of all real property (including buildings and
structures) owned or leased by RBI and all interests therein (including a brief
description of the property, the record title holder, the location and the
improvements thereon). RBI has delivered to Parent, to the extent available,
current title reports on or owner's title policies to all owned real property.
All such real property, buildings and struc tures, and the equipment therein,
and the operations and maintenance thereof, comply with any applicable
agreements and restrictive covenants and conform in all material respects to all
applicable legal requirements including those relating to health and safety,
land use and zoning, and all work required by law to be done by RBI or the
Stockholder as landlord or tenant has been duly performed. No condemnation or
other proceeding is pending or, to the knowledge of RBI or the Stockholder,
threatened which would affect the use of any such property by RBI. Schedule
3.26(b) contains a complete and correct list and brief description of all
equipment, machinery, computers, furniture, leasehold improvements, vehicles and
other personal property owned or leased by RBI with a net book value of over
$5,000 and all interests therein. RBI's buildings and other structures,
equipment and other physical assets (whether leased or owned) are in good
operating condition and repair, subject to ordinary wear and tear; provided that
no such representation is made with respect to RBI's building in Laurel,
Maryland.
Section 3.27 Insurance. Schedule 3.27 contains a complete and
correct list of all policies of insurance of any kind or nature covering RBI,
including, without limitation, policies of life, fire, theft, casualty, product
liability, workmen's compensation, business interruption, employee fidelity and
other casualty and liability insurance, indicating the type of coverage, name of
insured, the insurer, the premium, the expiration date of each policy and the
amount of coverage. All such policies (i) are with insurance companies
financially sound and reputable and are in full force and effect; (ii) are
sufficient for compliance with all requirements of law and of all applicable RBI
agreements; (iii) are valid, outstanding and enforceable policies; and (iv)
provide adequate insurance
15
coverage for the assets and operations of RBI for all risks normally insured
against by persons carrying on the same business as RBI. Complete and correct
copies of such policies have been fur nished to Parent. Since June 1, 1995, RBI
has not been denied any insurance coverage which it has requested or made any
material reduction in the scope or change in the nature of its insurance
coverage. The products liability and personal injury insurance maintained by RBI
has been on an "occurrence" basis since at least June 1, 1992.
Section 3.28 Books and Records. The books and records of RBI are
complete and correct in all material respects and have been maintained in
accordance with good business practices and the requirements of Section 13(b)(2)
of the Securities Exchange Act of 1934, as amended (notwithstanding the fact
that RBI is not subject to that Section). The minute books of RBI contain
complete and accurate records of all meetings and accurately reflect all other
corporate action of the shareholders and board of directors of RBI.
Section 3.29 Illegal Payments. RBI and its officers and agents have
not made any illegal payments to, or provided any illegal benefit or inducement
for, any governmental official, supplier, customer or other person, in an
attempt to influence any such person to take or to refrain from taking any
action relating to RBI.
Section 3.30 Officers and Directors; Bank Accounts, etc. Schedule
3.30 lists: (i) all officers, directors and fiduciaries of RBI; (ii) all bank
accounts and safe deposit boxes maintained by RBI and all authorized signatories
therefor, specifying their respective authority; and (iii) all credit cards
under which employees of RBI may incur liability, and the persons holding such
cards. No person or entity holds any general or special power of attorney from
RBI.
Section 3.31 Customers and Suppliers. (a) Schedule 3.31(a) hereto
sets forth a list of RBI's 50 largest customers (including the addresses, phone
numbers and names of contact persons at such customers) in order of dollar
volume of sales for each of its last two fiscal years and for the period from
the end of the last fiscal year through April 30, 1997, showing the approximate
total sales in dollars by RBI to each such customer each such period.
(b) Schedule 3.31(b) hereto sets forth a list of the 25
largest suppliers of RBI in order of dollar volume of purchases for each of its
last two fiscal years and for the period from the end of the last fiscal year
through April 30, 1997, showing the approximate total purchases in dollars by
RBI from each such supplier during each such period.
(c) Except as set forth on Schedule 3.31(c), RBI is not
engaged in any disputes with customers or suppliers except for minor returns,
bill adjustments and similar disputes in the ordinary course of business not
exceeding $2,000 with respect to any single return, bill adjustment or similar
dispute and which individually or in the aggregate do not result in a RBI
Material Adverse Effect, and there has not been any adverse change, and there
are no facts known to RBI or the Stockholder which may reasonably be expected to
indicate that (and with respect to the transactions contemplated by this
Agreement, to the best knowledge of RBI and the Stockholder that) any adverse
change may occur, in the business relationship of RBI with any customer or
16
supplier named on Schedule 3.31(a) or Schedule 3.31(b). To the best knowledge of
RBI and the Stockholder, none of the customers or suppliers named on Schedule
3.31(a) or Schedule 3.31(b) is considering termination, non-renewal or any
adverse modification of its arrangements with RBI, and the transactions
contemplated by this Agreement will not, to the best knowledge of RBI and the
Stockholder, have any adverse effect on RBI's relationship with any of such
suppliers or customers.
(d) Schedule 3.31(d) hereto sets forth a complete and accurate
summary aging of all accounts payable over $500 of RBI as of April 30, 1997.
Section 3.32 Contracts and Commitments. (a) The contracts listed on
Schedule 3.32 hereto are all of the Contracts, written or oral, to which RBI is
a party or as to which it or its properties are bound or which otherwise relate
to the Business (excluding any Contract that involves a commitment by RBI of
less than $5,000 over the next 12 months and less than $25,000 over the balance
of the term of such Contract).
(b) RBI is not in breach or default, nor is there any basis for any
valid claim of breach or default by RBI, under any Contract. Except as set forth
on Schedule 3.32, all Contracts are valid and in full force and effect, and
consummation of the transactions contemplated by this Agreement will not cause
any Contract to cease to be valid and in full force and effect. Accurate and
complete copies of all Contracts, including all amendments thereto, have been
heretofore delivered to Parent.
Section 3.33 Disclosure. No representation or warranty by RBI and
the Stockholder in this Agreement contains an untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained herein not misleading. Neither RBI nor the Stockholder is aware of any
matter that could reasonably be expected to have a RBI Material Adverse Effect
that has not been disclosed in writing to Parent.
Section 3.34 Stockholder's Investment Intent.
(a) The Stockholder is acquiring shares of Parent Common Stock
pursuant hereto for the Stockholder's own account for investment and not with a
view to the resale or distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Securities Act");
(b)) The Stockholder understands that the shares of Parent Common
Stock to be received by him hereunder have not been registered under the
Securities Act and, therefore, cannot be resold unless they are registered under
the Securities Act or unless an exemption from registration is available;
(c) The Stockholder has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of an
investment in the shares of Parent Common Stock to be received by him hereunder;
and
17
(d) Parent has made available to the Stockholder at a reasonable
time prior to the execution of this Agreement the opportunity to ask questions
and receive answers concerning the terms and conditions of this Agreement and to
obtain any additional information concerning Parent which Parent possesses or
can acquire without unreasonable effort or expense.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to RBI as follows:
Section 4.1 Organization. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
South Carolina. Sub has not engaged in any business (other than in connection
with this Agreement and the transactions contemplated hereby) since the date of
its incorporation.
Section 4.2 Capitalization. The authorized capital stock of Parent
consists of 60,000,000 shares of Parent Common Stock. As of May 13, 1997, (i)
23,324,084 shares of Parent Common Stock were issued and outstanding and (ii)
options to acquire 1,089,077 shares of Parent Common Stock (the "Parent Stock
Options") are outstanding. The shares of Parent Common Stock issuable in
exchange for shares of RBI Common Stock at the Effective Time in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid and nonassessable and free of pre-emptive rights. The shares of Parent
Common issuable upon exercise of certain options granted to RBI Executives, as
hereinafter defined in Section 7.2(e), in connection with the Merger have been
duly authorized, and when issued against the payment therefor, will be validly
issued, fully paid, nonassessable and free from pre-emptive rights. The
authorized capital stock of Sub consists of 2,000 shares of Sub Common Stock, of
which 100 shares, as of the date hereof, were issued and outstanding. All of
such outstanding shares are owned directly by Parent, and are validly issued,
fully paid and nonassessable.
Section 4.3 Authority Relative to this Agreement. Each of Parent and
Sub has the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated on its part hereby have been
duly authorized by their respective Boards of Directors, and no other corporate
proceedings on the part of Parent or Sub are necessary to authorize this
Agreement or for Parent and Sub to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by each
of Parent and Sub and constitutes a valid and binding agreement of each of
Parent and Sub, enforceable against Parent and Sub in accordance with its terms,
subject to applicable bankruptcy, insolvency and other similar laws affecting
the
18
enforceability of creditors' rights generally, general equitable principles and
the discretion of courts in granting equitable remedies.
Section 4.4 Consents and Approvals; No Violations. Neither the
execution, delivery and performance of this Agreement by Parent or Sub, nor the
consummation by Parent or Sub of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provisions of the Certificate of
Incorporation or By-Laws of Parent or of Sub, (ii) require a filing with, or a
permit, authorization, consent or approval of, any Governmental Entity except in
connection with or in order to comply with the applicable provisions of the HSR
Act, the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities or "blue sky" laws, the By-Laws of the
National Association of Securities Dealers (the "NASD"), and the filing and
recordation of a Certificate of Merger as required by the SCBCA, or (iii)
violate any law, order, writ, injunction, decree, statute, rule or regulation of
any Governmental Entity applicable to Parent, Sub or any of their properties or
assets.
Section 4.5 Reports and Financial Statements. Parent has timely
filed all reports required to be filed with the SEC pursuant to the Exchange Act
or the Securities Act since November 3, 1995 (collectively, the "Parent SEC
Reports"), and has previously made available to RBI true and complete copies of
all such Parent SEC Reports. Such Parent SEC Reports, as of their respective
dates, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the audited consolidated financial statements of Parent
(including any related notes and schedules) included (incorporated by reference)
in its Annual Report on Form 10-K for the fiscal year ended December 28, 1996,
and the unaudited consolidated financial statements of Parent (including any
related notes and schedules) included (incorporated by reference) in any Form
10-Q's filed by Parent subsequent to the filing of such Form 10-K, (a) have been
prepared in accordance with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto) subject, in the case of the unaudited
consolidated financial statements, to year-end closing adjustments and the lack
of full footnote presentations and except that the presentation and disclosures
in such statements conform with the applicable rules of the Exchange Act but
include all adjustments necessary to conform to GAAP requirements with respect
to interim financial statements, and (b) fairly present, in all material
respects, the consolidated financial position of Parent and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and their cash flows for the periods then ended.
Section 4.6 Brokers. No broker, finder or financial advisor is
entitled to any brokerage finder's or other fee or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
Section 4.7 Certain Tax Matters. Neither Parent, Sub nor any of
their officers or directors has taken any action which would be reasonably
likely to cause the Merger to be treated other than as a tax-free reorganization
under Section 368(a) of the Code.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by RBI Pending the Merger. Prior to
the Effective Time, unless Parent shall otherwise agree in writing, or as
otherwise expressly contemplated by this Agreement:
(a) RBI shall conduct its business only in the ordinary and usual
course consistent with past practice, and RBI shall use its reasonable efforts
to preserve intact the present business organization, keep available the
services of its present officers and key employees, and preserve the goodwill of
those having business relationships with it;
(b) RBI shall not (i) amend its charter or bylaws, (ii) split,
combine or reclassify any shares of its outstanding capital stock, (iii)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property (except for dividends consistent with RBI's past practice,
provided, however, that such dividend would not prevent the accounting for the
Merger as a pooling of interests for financial reporting purposes), or (iv)
directly or indirectly redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock;
(c) RBI shall not (i) authorize for issuance, issue or sell or agree
to issue or sell any shares of, or Rights to acquire or convertible into any
shares of, its capital stock (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise),
(ii) merge or consolidate with another entity, (iii) acquire or purchase an
equity interest in or a substantial portion of the assets of another
corporation, partnership or other business organization or otherwise acquire any
assets outside the ordinary and usual course of business and consistent with
past practice or otherwise enter into any contract, commitment or transaction
outside the ordinary and usual course of business consistent with past practice,
(iv) sell, lease, license, waive, release, transfer, encumber or otherwise
dispose of any of its assets outside the ordinary and usual course of business
and consistent with past practice, (v) incur, assume or prepay any indebtedness
or any other liabilities other than in the ordinary course of business and
consistent with past practice, (vi) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person, (vii) make any loans, advances or capital
contributions to, or investments in, any other person, (viii) authorize or make
capital expenditures in excess of the amounts currently budgeted therefor, (ix)
permit any insurance policy naming RBI as a beneficiary or a loss payee to be
canceled or terminated other than in the ordinary course of business, or (x)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(d) RBI shall not (i) adopt, enter into, terminate or amend (except
as may be required by Applicable Law) any Plan or other arrangement for the
current or future benefit or welfare of any director, officer or current or
former employee, (ii) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except
20
for normal increases in salaried compensation in the ordinary course of business
consistent with past practice), or (iii) take any action to fund or in any other
way secure, or to accelerate or otherwise remove restrictions with respect to,
the payment of compensation or benefits under any employee plan, agreement,
contract, arrangement or other Plan;
(e) RBI shall not take any action with respect to, or make any
change in, its accounting or tax policies or procedures, except as required by
law or to comply with GAAP;
(f) RBI shall not (i) take or allow to be taken any action which
would jeopardize the treatment of Parent's acquisition of RBI as a pooling of
interests for accounting purposes; or (ii) take any action which would
jeopardize qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 5.2 Conduct of Business by Parent Pending the Merger. Prior
to the Effective Time, unless RBI shall otherwise agree in writing, or as
otherwise expressly contemplated by this Agreement, neither Parent nor Sub shall
take any action which would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 5.3 Certain Assets. Notwithstanding anything to the contrary
contained in Section 5.1 hereof, (a) the Stockholder may, at his election, at
any time prior to the Effective Time, cause RBI to transfer, convey and assign
to him as a dividend in kind in respect of the RBI Common Stock owned by him the
stock of ABCO Dealers, Inc. and (b) as soon as practicable after the Effective
Time, RBI shall sell to the Stockholder the real estate described on Schedule
5.3 hereto (the "Raleigh Property") for a purchase price of $320,000; provided,
however, that such dividend and sale would not, in the reasonable judgment of
Parent, after consultation with its advisors, adversely affect the qualification
of the Merger as a pooling of interests for financial reporting purposes, or
adversely affect the treatment of the Merger as a reorganization, for federal
income tax purposes, within the meaning of Section 368(a) of the Code; and
provided further, that at or prior to such sale of the Raleigh Property, RBI and
the Stockholder shall have entered into a lease with respect thereto
substantially in the form of the Greenville, South Carolina lease, as amended
substantially in accordance with Exhibit 7.2(j) hereto. In the event that any of
the transactions set forth above shall adversely affect the qualification of the
Merger as a pooling of interests or as a reorganization within the meaning of
Section 368(a) of the Code, then the parties hereto shall endeavor in good faith
to modify the terms and conditions of such transactions in each case so that the
transactions will not adversely affect the Merger as a pooling of interests for
financial reporting purposes or as a reorganization within the meaning of
Section 368(a) of the Code.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access and Information. Each of RBI and Parent shall
(and shall cause its officers, directors, employees, auditors and agents to)
afford to the other and to the other's
21
officers, employees, financial advisors, legal counsel, accountants, consultants
and other representatives reasonable access during normal business hours
throughout the period prior to the Effective Time to all of its books and
records (other than privileged documents) and its properties, plants and
personnel and, during such period, each shall furnish promptly to the other a
copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal securities laws, provided that no
investigation pursuant to this Section 6.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger; and provided further, however, that Parent
shall not be afforded access to RBI's non-executive personnel, customers or
suppliers. Unless otherwise required by law, each party agrees that it (and its
representatives) shall hold in confidence all non-public information so
acquired.
Section 6.2 No Solicitation. Prior to the Effective Time, RBI agrees
that neither it, any of its Affiliates, nor any of the respective directors,
officers, employees, agents or representatives of the foregoing will, directly
or indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to any merger, consolidation or other business
combination involving RBI or the acquisition of all or any significant assets or
capital stock of RBI taken as a whole (an "Acquisition Transaction") or
negotiate, explore or otherwise engage in discussions with any person (other
than Parent and its representatives) with respect to any Acquisition Transaction
or enter into any agreement, arrangement or understanding with respect to any
such Acquisition Transaction or which would require it to abandon, terminate or
fail to consummate the Merger or any other transaction contemplated by this
Agreement. RBI agrees that as of the date hereof, it, its Affiliates, and the
respective directors, officers, employees, agents and representatives of the
foregoing, shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person (other than Parent and
its representatives) conducted heretofore with respect to any Acquisition
Transaction. RBI agrees to promptly advise Parent in writing of any inquiries or
proposals (or desire to make a proposal) received by (or indicated to), any such
information requested from, or any such negotiations or discussions sought to be
initiated or continued with, any of its Affiliates, or any of the respective
directors, officers, employees, agents or representatives of the foregoing, in
each case from a person (other than Parent and its representatives) with respect
to an Acquisition Transaction, and the terms thereof, including the identity of
such third party, and to update on an ongoing basis or upon Parent's request,
the status thereof, as well as any actions taken or other developments pursuant
to this Section 6.2.
Section 6.3 Reasonable Best Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, the management by
RBI of its cash to assure that at the Effective Time RBI will have cash on hand
sufficient to satisfy the condition set forth in Section 7.2(f) hereof, and the
obtaining of all necessary waivers, consents and approvals and the effecting of
all necessary registrations and filings. Without limiting the generality of the
foregoing, as promptly as practicable, RBI, Parent and Sub shall make all
filings and submissions under the
22
HSR Act as may be reasonably required to be made in connection with this
Agreement and the transactions contemplated hereby. RBI will furnish to Parent
and Sub, and Parent and Sub will furnish to RBI, such information and assistance
as the other may reasonably request in connection with the preparation of any
such filings or submissions. Notwithstanding anything to the contrary contained
in this Agreement, in order to assure, with respect to its securities portfolio,
the satisfaction of the condition set forth in Section 7.2(f) hereof, RBI shall
refrain from engaging in any securities trading activities at all times prior to
the Effective Time.
Section 6.4 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement (including the
Exhibits hereto) and the transactions contemplated hereby (and thereby) shall be
paid by the party incurring such expenses (except that the filing fee in
connection with Parent's and Sub's filings under the HSR Act will be paid by
Parent and the filing fee in connection with the Stockholder's filing under the
HSR Act will be paid by RBI).
Section 6.5 Public Announcements. RBI and the Stockholder agree that
it and he will not issue any press release or otherwise make any public
statement with respect to this Agreement (including the Exhibits hereto) or the
transactions contemplated hereby (or thereby) without the prior consent of
Parent, which consent shall not be unreasonably withheld or delayed; provided,
however, that such disclosure can be made without obtaining such prior consent
if (i) the disclosure is required by law and (ii) the party making such
disclosure has first used its reasonable best efforts to consult with (but not
obtain the consent of) the Parent about the form and substance of such
disclosure.
Section 6.6 Supplemental Disclosure. RBI shall give prompt notice to
Parent, and Parent shall give prompt notice to RBI, of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which would
be likely to cause (x) any representation or warranty contained in this
Agreement to be untrue or inaccurate or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied and (ii) any
failure of RBI or Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.6 shall not have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VII of this Agreement or
otherwise limit or affect the remedies available hereunder to any party.
Section 6.7 Filing of RBI's Income Tax Returns. The Stockholder
shall cause KPMG Peat Marwick, LLP to prepare the federal and state income tax
returns required to be filed by RBI for its taxable year ended May 31, 1997, and
its taxable year beginning June 1, 1997 and ending on the Closing Date
(individually, a "RBI Return" and collectively the "RBI Returns"). Each RBI
Return shall be prepared using accounting methods and other practices that are
consistent with those used by RBI in its prior returns. All reasonable fees and
expenses of KPMG Peat Marwick, LLP in preparing the RBI Returns shall be paid by
RBI. Parent agrees to make available to KPMG Peat Marwick, LLP all books and
records of RBI needed for the preparation of the RBI Returns. The Stockholder
shall cause KPMG Peat Marwick, LLP to deliver a draft of each RBI Return to
Parent
23
not less than sixty (60) days before the due date for filing such returns
(taking applicable extensions into account), and Parent shall provide to KPMG
Peat Marwick, LLP its comments on and any proposed changes to the draft of each
RBI Return not later than forty-five (45) days before such due date. If any
aspect of any RBI Return remains in dispute within thirty (30) days before the
due date for filing such return, the matters in dispute shall be submitted to an
independent accounting firm (the "Independent Firm") selected by KPMG Peat
Marwick, LLP and BDO Seidman, LLP for resolution. The decision of the
Independent Firm concerning any disputed item shall be final and binding on the
parties, and the fees and expenses of the Independent Firm shall be paid
one-half by the Stockholder and one-half by Parent. After each RBI Return has
been prepared, reviewed and approved (and any disputes concerning any items on
such return have been resolved by the Independent Firm, if necessary), Parent
will cause the appropriate officers of RBI then serving to sign and file the
applicable RBI Return with the applicable taxing authority. After the Closing
Date, RBI will not amend in any material respect, or consent to any material
adjustment to, any RBI Return (or any other federal or state income tax return
for any taxable year ended on or before the Closing Date) in a manner that would
increase the tax liability of the Stockholder without the Stockholder's written
consent, which shall not be unreasonably withheld.
Section 6.8 Listing of Parent Common Stock. If required pursuant to
law or the by-laws of the NASD, Parent shall use its best efforts to cause the
Parent Common Stock to be issued pursuant to the Merger to be approved for
listing on the Nasdaq Stock Market, subject only to official notice of issuance
by Parent.
Section 6.9 Refund of Required Payment. Within 60 business days
after the Closing, RBI will file a Form 8752 with the Internal Revenue Service
to claim a refund of the net amount of the "required payments" made by RBI prior
to the Closing pursuant to Section 7519 of the Code. RBI will pay such refund to
the Stockholder promptly upon RBI's receipt of the refund from the Internal
Revenue Service. RBI shall not be required to pay to the Stockholder any portion
of such refund attributable to "required payments" made by RBI after the Closing
pursuant to Section 7519 of the Code. Notwithstanding the foregoing, in the
event that any payment by RBI to the Stockholder of such refund shall adversely
affect the qualification of the Merger as a pooling of interests, then the
parties hereto shall endeavor in good faith to modify the obligations of RBI in
this Section 6.9 so that any payments made by RBI to the Stockholder pursuant
hereto will not adversely affect the Merger as a pooling of interests for
financial reporting purposes.
Section 6.10 Greenville Mortgage. Promptly after the execution and
delivery of this Agreement, the Stockholder shall use commercially reasonable
efforts to obtain on or prior to the Effective Time the release and termination
of the guarantee and any related security agreements of RBI in favor of the
mortgagee of RBI's Greenville, S.C. facility (the "Greenville Mortgage
Guarantee"). Without limiting the generality of the foregoing, the Stockholder
shall offer the Stockholder's personal guarantee in the place and stead of RBI's
guarantee and/or provide collateral security therefor.
24
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) HSR Approval. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) No Order. No Governmental Entity (including a federal or state
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which materially restricts, prevents or prohibits consummation of
the Merger or any transaction contemplated by this Agreement; provided, however,
that the parties shall use their reasonable best efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted.
Section 7.2 Conditions to Obligations of Parent and Sub to Effect
the Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by Parent:
(a) Representations and Warranties. (i) The representations and
warranties of RBI and the Stockholder set forth in this Agreement shall be true
and correct in all material respects, as of the date hereof, and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Effective Time as though made at and as of the Effective Time, and Parent
shall have received a certificate signed by the Stockholder and, on behalf of
RBI, by the chief executive officer or the chief financial officer of RBI, to
such effect.
(b) Performance of Obligations of RBI and the Stockholder. Each of
RBI and the Stockholder shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Effective Time, and Parent shall have received a certificate signed by the
Stockholder and, on behalf of RBI, by the chief executive officer or the chief
financial officer of RBI, to such effect.
(c) Letters of Resignation. Parent and Sub shall have received
letters of resignation addressed to RBI from the members of RBI's board of
directors and the Stockholder in any capacity as an officer of RBI, which
resignations shall be effective as of the Effective Time.
25
(d) Pooling Letter. Parent shall have received from BDO Seidman, LLP
a letter, dated the Closing Date and addressed to Parent, to the effect that,
subject to customary qualifications, the Merger qualifies for pooling of
interests treatment for financial reporting purposes in accordance with GAAP,
and Parent shall have received from RBI, with the consent of KPMG Peat Marwick
LLP, a copy of a letter, dated the Closing Date, of such firm addressed to RBI
to the effect that, based upon inquiries and their examination of the financial
statements of RBI, they are not aware of any conditions relating to RBI that
would preclude the use of pooling of interests treatment for financial reporting
purposes in accordance with GAAP in connection with the Merger.
(e) Employment Agreements. Each of Messrs. Bradford C. Connett and
John E. Cook, III (the "RBI Executives") shall have entered into Employment
Agreements with RBI substantially in the form of Exhibit 7.2(e) hereto.
(f) Certain Liquid Assets. RBI shall have cash on hand of not less
than $3.3 million before payment of expenses incurred by RBI in the Merger (not
to exceed $300,000) and, in addition, shall have no unrealized losses in its
securities portfolio.
(g) Environmental Due Diligence. Parent shall have completed a Phase
I environmental site and compliance assessment and determined that the results
of such review do not reflect a breach of Section 3.18 hereof.
(h) Counsel Opinion. Parent shall have received from RBI's counsel,
King & Spalding, an opinion in form and substance reasonably satisfactory to
Parent.
(i) Greenville Mortgage. Parent shall have received evidence
satisfactory to Parent of the termination of the Greenville Mortgage Guarantee
or the written undertaking of Robark Properties, a South Carolina limited
partnership, not to incur any indebtedness that is covered by the Greenville
Mortgage Guarantee or that is secured by RBI's Greenville Facility, which
indebtedness is in excess of the outstanding balance of such indebtedness as of
the date of this Agreement and as subsequently reduced.
(j) Greenville, S.C. Lease Amendments. RBI, as lessee, and Robark
Properties, a South Carolina limited partnership, as lessor, under the lease
relating to that certain property located at Congaree Road, Greenville, South
Carolina 29607 dated September 26, 1980, as amended, shall have executed and
delivered a further amendment to such lease substantially in accordance with the
terms set forth on Exhibit 7.2(j) hereto.
(k) Dewey (D.C.) Slatton. Parent shall have received evidence
reasonably satisfactory to Parent of the termination of all rights that Dewey
(D.C.) Slatton may have to receive any shares of RBI Common Stock pursuant to
his employment agreement dated June 1, 1964 with RBI or any other written or
verbal arrangement with RBI.
(l) 1995 Deferred Compensation Plan. The Roane-Barker, Inc. Deferred
Compensation Plan for Key Managers, effective August 1, 1995 and including only
John E. Cook,
26
III and Bradford C. Connett as "Participants" thereunder (the "Deferred
Compensation Plan"), shall have been amended to provide for the payments to such
Participants as set forth in Sections 5(b) and 7 of their form of employment
agreements to be entered into with RBI attached hereto as Exhibit 7.2(e) in lieu
of any benefits payable to them under the Deferred Compensation Plan.
Section 7.3 Conditions to Obligation of RBI to Effect the Merger.
The obligation of RBI to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of the following additional conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Parent set forth in this Agreement shall be true and correct in
all material respects, as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the Effective
Time as though made on and as of the Effective Time, and RBI shall have received
a certificate signed on behalf of Parent by the chief executive officer or the
chief financial officer of Parent, to such effect.
(b) Performance of Obligations of Parent and Sub. Each of Parent and
Sub shall have performed in all material respects, all obligations required to
be performed by it under this Agreement at or prior to the Effective Time, and
RBI shall have received a certificate signed on behalf of Parent by the chief
executive officer or the chief financial officer of Parent, to such effect.
(c) Counsel Opinion. RBI and the Stockholder shall have received
from Parent and Sub's counsel, Proskauer Rose Goetz & Mendelsohn LLP, an opinion
in form and substance reasonably satisfactory to RBI and the Stockholder.
(d) Executive Agreements. Mr. Bradford C. Connett and Mr. John E.
Cook, III shall each have been offered by Parent the opportunity to enter into
an employment agreement with RBI substantially in the form of Exhibit 7.2(e)
hereto.
(e) Employment Agreement. Stockholder shall have executed and
delivered an Employment Agreement with Parent substantially in the form of
Exhibit 7.3(e) hereto.
(f) Registration Rights. Parent and the Stockholder shall have
entered into a Registration Rights Agreement in form and substance reasonably
satisfactory to Parent and the Stockholder providing for, among other things,
(i) the Stockholder's right to request in writing commencing immediately upon
expiration of the holding period required with respect to the shares of Parent
Common Stock to be received by him in the Merger in order for the Merger to
qualify as a pooling of interests for financial reporting purposes and ending
nine months after the Effective Time, that Parent effect one registration on
Form S-3 of a number of such shares of Parent Common Stock as designated by the
Stockholder not to exceed the number of shares received by him in the Merger,
(ii) that the Parent shall use its reasonable best efforts to keep such
registration statement effective for a period of 90 days and shall contain
customary provisions for indemnification and "market stand-off" and (iii) that
no "piggyback" registration rights shall be included in such Registration Rights
Agreement.
27
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
Stockholder:
(a) by mutual consent of Parent and RBI;
(b) by either Parent or RBI, if the Merger shall not have been
consummated before June 30, 1997 (unless, in the case of any such termination
pursuant to this Section 8.1(b), the failure to so consummate the Merger by such
date shall have been caused by the action or failure to act of the party seeking
to terminate this Agreement, which action or failure to act constitutes a breach
of this Agreement);
(c) by Parent, if (i) there has been a breach in any material
respect of any representations or warranties of RBI or (ii) there has been a
breach in any material respect of any of the covenants or agreements set forth
in this Agreement on the part of RBI, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by Parent to RBI;
(d) by RBI, if (i) there has been a breach in any material respect
of any representations or warranties of Parent or (ii) there has been a breach
in any material respect of any of the covenants or agreements set forth in this
Agreement on the part of Parent, which breach is not curable or, if curable, is
not cured within 30 days after written notice of such breach is given by RBI to
Parent; and
(e) by either Parent or RBI if the average of the per share closing
prices for Parent Common Stock on NASDAQ for any ten consecutive trading days
occurring after the date of this Agreement is less than $20.00.
Section 8.2 Effect of TerminaIn the event of termination of this
Agreement pursuant to this Article VIII, the Merger shall be deemed abandoned
and this Agreement shall forthwith become void, without liability on the part of
any party hereto, except as provided in Section 6.1 and Section 6.4 hereof, and
except that nothing herein shall relieve any party from liability for any breach
of this Agreement.
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ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival of Representations and Warranties. All
representations and warranties contained in Articles III and IV of this
Agreement shall survive the Closing until the first anniversary of the Closing
Date.
Section 9.2 Indemnification by Stockholder. From and after the
Closing, the Stockholder shall indemnify and save Parent, Sub and their
respective Affiliates, directors, officers, employees, agents and
representatives and all of their successors and assigns (collectively "Parent
Claimants" and individually "Parent Claimant") harmless from and defend each of
them from and against any and all demands, claims, actions, liabilities, losses,
costs, damages or expenses whatsoever (including any reasonable attorneys' fees)
(collectively, "Parent Losses") imposed upon or incurred by the Parent Claimants
resulting from or arising out of (a) any inaccuracy or breach of any
representation or warranty of the Stockholder or RBI contained herein or (b) any
breach of any covenant or obligation of the Stockholder or RBI contained herein.
Without limiting the generality of the foregoing and subject to the Stockholder
Maximum Indemnity (as hereinafter defined), the Stockholder shall pay any Parent
Claimant asserting any claim (a "Parent Claim") for indemnification hereunder,
an amount sufficient to put the Parent Claimant in the same position it would
have been in had such representation or warranty been accurate or had such
covenant or obligation not been breached, as the case may be, net of any tax
benefit received by the Parent Claimant due to such Parent Losses.
Section 9.3 Indemnification by Parent. From and after the Closing,
Parent shall indemnify and save Stockholder and each of his Affiliates, heirs,
executors, successors and assigns (collectively, the "Stockholder Claimants" and
individually, a "Stockholder Claimant") harmless from and defend each of them
from and against any and all demands, claims, actions, liabilities, losses,
costs, damages or expenses (including any reasonable attorneys' fees)
(collectively, "Stockholder Losses") imposed upon or incurred by the Stockholder
Claimants resulting from or arising out of (a) any inaccuracy or breach of any
representation or warranty of the Parent or Sub contained herein or (b) any
breach of any covenant or obligation of the Parent or Sub contained herein.
Without limiting the generality of the foregoing and subject to the Parent
Maximum Indemnity (as hereinafter defined), the Parent shall pay any Stockholder
Claimant asserting any claim (a "Stockholder Claim") for indemnification
hereunder, an amount sufficient to put the Stockholder Claimant in the same
position it would have been in had such representation or warranty been accurate
or had such covenant or obligation not been breached, as the case may be, net of
any tax benefit received by the Stockholder Claimant due to such Stockholder
Losses.
Section 9.4 Limitations on Indemnification.
(a) The Parent Claimants will not be entitled to seek
indemnification under Section 9.2 for Parent Losses unless and until the
aggregate of all Parent Losses incurred by the Parent Claimants exceeds $166,250
(the "Stockholder Basket Amount"). In the event that the
29
aggregate of all Parent Losses exceeds the Stockholder Basket Amount, the Parent
Claimants will only be entitled to seek indemnification in respect of Parent
Losses in excess of the Stockholder Basket Amount, but in no event will the
Stockholder's obligations for Parent Losses be greater than $16,625,000 (the
"Stockholder Maximum Indemnity"); provided, however, that the Stockholder Basket
Amount and the Stockholder Maximum Indemnity shall not apply with respect to
Parent Losses arising under (i) Section 9.2(a) with respect to any breach or
inaccuracy of any representation or warranty made by RBI or the Stockholder in
Sections 3.1, 3.2, 3.3, 3.4, 3.5 or 3.6, hereof or (ii) Section 9.5(c) hereof.
Notwithstanding any other provision herein, the Stockholder Claimants shall not
in any event indemnify a Parent Claimant for any claims, liabilities,
obligations, losses, costs, expenses, penalties, fines and damages relating to
any breach or inaccuracy of clause (iii) of the representation and warranty made
by RBI and the Stockholder in Section 3.24 hereof ("Accounts Receivable")
occurring solely as a result of RBI failing to collect after the Effective Time
an account or note receivable within 90 days after the date it was created,
provided that such failure to collect was due solely to RBI's failure to use its
reasonably diligent efforts to collect such account or note receivable on terms
and in the manner consistent with RBI's past practice.
(b) The Stockholder Claimants will not be entitled to seek
indemnification under Section 9.3 for Stockholder Losses unless and until the
aggregate amount of all Stockholder Losses incurred by the Stockholder Claimants
exceeds $166,250 (the "Parent Basket Amount"). In the event that the aggregate
of all Stockholders Losses exceeds the Parent Basket Amount, the Stockholder
Claimants will only be entitled to seek indemnification in respect of
Stockholder Losses in excess of the Parent Basket Amount, but in no event will
Parent's obligation for Stockholder Losses be greater than $16,625,000 (the
"Parent Maximum Indemnity"); provided, however, that the Parent Basket Amount
and the Parent Maximum Indemnity shall not apply with respect to Stockholder
Losses arising under (i) Section 9.3(a) with respect to any breach or inaccuracy
of any representation or warranty made by Parent and Sub in Sections 4.1, 4.2,
4.3 or 4.4 hereof or (ii) Section 9.5(c) hereof.
Section 9.5 Indemnification Procedures.
(a) The rights and obligations of each party asserting a claim for
indemnification hereunder ("Indemnitee") from the other party ("Indemnitor")
shall be governed by the following rules:
(i) The Indemnitee shall give prompt written notice to the
Indemnitor of any state of facts which the Indemnitee determines will give rise
to a claim by it against the Indemnitor based on the indemnity agreement
contained herein, stating the nature and basis of said claims and the amount
thereof, to the extent known. No failure to give such notice shall affect the
indemnification obligations of the Indemnitor hereunder, except to the extent
such failure materially prejudices the Indemnitor's ability successfully to
defend the matter giving rise to the indemnification claim. Notwithstanding the
foregoing, the Indemnitee shall not be entitled to indemnification hereunder
unless it shall have given written notice to the Indemnitor, setting forth its
claim for indemnification within the earlier of (x) one year after the Closing
Date and (y) with respect to those matters for which claims for indemnification
must be asserted not later than the date
30
that the first combined annual audited financial statements of Parent and RBI
are issued (the "Financial Statements Date") in order to account for the Merger
as a pooling of interests, the Financial Statements Date (the earlier of (x) and
(y), the "Indemnification Termination Date").
(ii) In the event any action, suit or proceeding is brought
against the Indemnitee, with respect to which the Indemnitor may have liability
under the indemnity agreement contained herein, then upon the written
acknowledgment by the Indemnitor within thirty days of the bringing of such
action, suit or proceeding that it is undertaking and will prosecute the defense
of the claim under such indemnity agreements and confirming that the claim is
one with respect to which the Indemnitor is obligated to indemnify and that it
will be able to pay the full amount of potential liability in connection with
any such claim, the action, suit or proceeding (including all proceedings on
appeal or for review which counsel for the Indemnitee shall deem appropriate)
may be defended by the Indemnitor. However, in the event the Indemnitor shall
not offer reasonable assurances as to its financial capacity to satisfy any
final judgment or settlement, the Indemnitee may assume the defense and dispose
of the claim, after 30 days' prior written notice to the Indemnitor. The
Indemnitee shall have the right to employ its own counsel in any such case, but
the fees and expenses of such counsel shall be at the Indemnitee's own expense
unless (a) the employment of such counsel and the payment of such fees and
expenses both shall have been specifically authorized by the Indemnitor in
connection with the defense of such action, suit or proceeding or (b) the
Indemnitee shall have reasonably concluded and specifically notified the
Indemnitor that there may be specific defenses available to it which are
different from or additional to those available to the Indemnitor, or that such
action, suit or proceeding involves or could have an effect upon matters beyond
the scope of the indemnity agreement contained herein.
(iii) In addition, in any event specified in clause (b) of the
second sentence of subparagraph (ii) above, the Indemnitor, to the extent made
necessary by such different or additional defenses, shall not have the right to
direct the defense of such action, suit or proceeding on behalf of the
Indemnitee. If the Indemnitor and Indemnitee cannot agree on a mechanism to
separate the defense of matters extending beyond the scope of indemnification,
such matters shall be defended on the basis of joint consultation.
(iv) The Indemnitee shall be kept fully informed by the
Indemnitor of such action, suit or proceeding at all stages thereof, whether or
not it is represented by counsel. The Indemnitor shall, at the Indemnitor's
expense, make available to the Indemnitee and its attorneys and accountants all
books and records of the Indemnitor relating to such proceedings or litigation,
and the parties hereto agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper and adequate
defense of any such action, suit or proceeding.
(b) The Indemnitor shall make no settlement of any claims which the
Indemnitor has undertaken to defend, without the Indemnitee's consent, unless
the Indemnitor fully indemnifies the Indemnitee for all losses, there is no
finding or admission of violation of law by, or effect on any other claims that
may be made against, the Indemnitee, and the relief granted in connection
therewith requires no action on the part of and has no effect on the Indemnitee.
31
(c) Within ten business days of the final determination of the
merits and amount of any claim for indemnification hereunder, the Indemnitor
shall deliver to the Indemnitee an amount of cash in immediately available
funds, or at the sole option of the Indemnitor, an amount of Parent Common
Stock, valued as of the Closing Date, in either case, in an amount sufficient to
satisfy and discharge in full such claim as determined under this Agreement.
(d) Arbitration. Any dispute, disagreement or controversy arising
under, related to or in connection with an indemnification claim brought
pursuant to this Agreement and not resolved by the Indemnification Termination
Date shall promptly be submitted to the Garden City, New York Regional Office of
the American Arbitration Association (the "AAA") to be resolved by binding
arbitration in accordance with the arbitration rules of the AAA. The place of
arbitration shall be in Garden City, New York. The arbitral tribunal shall be
composed of three arbitrators, one of which shall be appointed by Parent within
10 business days of the Indemnification Termination Date, one of which shall be
appointed by the Stockholder within 10 business days of the Indemnification
Termination Date and one of which shall be appointed by the arbitrators
appointed by Parent and the Stockholder within 15 business days of the
Indemnification Termination Date. The arbitrators will be directed to resolve
such dispute, disagreement or controversy as soon as practicable (and, in any
event, within two months of the Indemnification Termination Date).
ARTICLE X
RESTRICTIVE COVENANTS
Section 10.1 Non-Competition. Neither the Stockholder nor any of his
Affiliates shall, for a period of five years after the Effective Time, directly
or indirectly, engage, anywhere in the United States, in any business, activity
or enterprise which competes with any aspect of the Business or any aspect of
the business conducted by Parent or any of its Subsidiaries as of the Effective
Time.
Section 10.2 Non-Solicitation of Employees. Neither the Stockholder
nor any of his Affiliates shall, directly or indirectly, for himself or itself
or on behalf of any other individual or entity, hire any employee of Parent or
any of its Subsidiaries, including, without limitation, any employees of RBI, or
induce nor attempt to induce any such employee to leave his or her employment
with Parent or any of its Subsidiaries (including without limitation, RBI), , at
any time within five years from the Effective Time.
Section 10.3 Non-Solicitation or Interference with Customers and
Suppliers. The Stockholder nor any of his Affiliates shall, directly or
indirectly, for himself or itself or on behalf of any other individual or
entity, solicit, divert, take away or attempt to take away any of Parent's or
any of its Subsidiaries' (including without limitation, RBI's) customers or
suppliers or the business or patronage of any such customers or suppliers or in
any way interfere with, disrupt or attempt to disrupt any then existing
relationships between Parent or any of its Subsidiaries (including without
limitation, RBI) and any of their respective customers or suppliers or other
individuals or
32
entities with whom they deal, or contact or enter into any business transaction
with any such customers or suppliers or other individuals or entities for any
purpose at any time within five years from the Effective Time.
Section 10.4 Acknowledgments. The Stockholder acknowledges that, in
view of the nature of RBI's business and the business objectives of Parent in
acquiring RBI, and the consideration paid in the Merger to the Stockholder
therefor, the restrictions contained in this Article X are reasonably necessary
to protect the legitimate business interests of Parent and that any violation of
such restrictions will result in irreparable injury to Parent and the business
Parent has acquired hereunder for which damages will not be an adequate remedy.
The Stockholder therefore acknowledges that, if any such restrictions are
violated, Parent shall be entitled to preliminary and injunctive relief as well
as to an equitable accounting of earnings, profits and other benefits arising
from such violation.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Amendment and Modification. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only by
written agreement (referring specifically to this Agreement) of Parent, Sub, RBI
and Stockholder with respect to any of the terms contained herein.
Section 11.2 Waiver. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and RBI and Stockholder, on the other hand, may (i)
extend the time for the performance of any of the obligations or other acts of
the other, (ii) waive any inaccuracies in the representations and warranties of
the other contained herein or in any documents delivered pursuant hereto and
(iii) waive compliance by the other with any of the agreements or conditions
contained herein which may legally be waived. Any such extension or waiver shall
be valid only if set forth in an instrument in writing specifically referring to
this Agreement and signed on behalf of such party.
Section 11.3 Investigations. The respective representations and
warranties of Parent, RBI and Stockholder contained herein or in any
certificates or other documents delivered prior to or as of the Effective Time
shall not be deemed waived or otherwise affected by any investigation made by
any party hereto.
Section 11.4 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
33
(a) If to Parent or Sub, to:
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Attention: Mark E. Mlotek, Esq.
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Robert A. Cantone, Esq.
(b) if to RBI, to:
Roane-Barker, Inc.
c/o Ralph L. Falls, Jr.
1103 Cowper Drive
Raleigh, North Carolina 27608
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Robert W. Miller, Esq.
Section 11.5 Descriptive Headings; Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Schedules, Exhibits or Articles mean a Section, Schedule,
Exhibit or Article of this Agreement unless otherwise indicated. References to
this Agreement shall be deemed to include the Exhibits and Schedules hereto,
unless the context otherwise requires. The term "person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, a
Governmental Entity or an unincorporated organization.
Section 11.6 Entire Agreement; Assignment. This Agreement (including the
Exhibits, Schedules and other documents and instruments referred to herein)
constitutes the
34
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them, with respect to the
subject matter hereof. This Agreement is not intended to confer upon any person
not a party hereto any rights or remedies hereunder. This Agreement shall not be
assigned by operation of law or otherwise; provided that Parent or Sub may
assign its rights and obligations hereunder to a direct or indirect subsidiary
of Parent, but no such assignment shall relieve Parent or Sub, as the case may
be, of its obligations hereunder.
Section 11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the provisions thereof relating to conflicts of law.
Section 11.8 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
Section 11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
35
IN WITNESS WHEREOF, each of Parent, Sub, RBI and the Stockholder has
caused this Agreement to be executed on its behalf by its officers thereunto
duly authorized, all as of the date first above written.
HENRY SCHEIN, INC.
By:
------------------------------
Name:
Title:
HS ACQUISITION, INC.
By:
------------------------------
Name:
Title:
ROANE-BARKER, INC.
By:
------------------------------
Name:
Title:
---------------------------------
Ralph L. Falls, Jr.
36
HENRY SCHEIN, INC.
135 Duryea Road
Melville, New York 11747
June 24, 1997
Ralph L. Falls, Jr.
Roane-Barker, Inc.
516 N. West Street
Raleigh, North Carolina 27611
Gentlemen:
Reference is made to the Agreement and Plan of Merger among Roane-Barker,
Inc., Ralph L. Falls, Jr., Henry Schein, Inc. and HS Acquisition, Inc. dated May
23, 1997 (the "Agreement"). This is to advise you that Henry Schein, Inc. and HS
Acquisition, Inc. agree to amend Section 7(f) of the Merger Agreement to change
the dollar amount therein from $3.3 million to $2.0 million.
Very truly yours,
HENRY SCHEIN, INC.
HS ACQUISITION, INC.
By:
------------------------------
Mark E. Mlotek
AGREED:
ROANE-BARKER, INC.
By:
-------------------------------
Ralph L. Falls
-------------------------------
Ralph L. Falls
37
Amendment to Agreement and Plan of Merger
WHEREAS, Henry Schein, Inc., a Delaware corporation ("Parent"), HS
Acquisition, Inc., a South Carolina corporation and wholly-owned subsidiary of
Parent ("Sub"), Roane-Barker, Inc., a South Carolina corporation ("RBI"), and
Ralph L. Falls, Jr., the sole stockholder of RBI (the "Stockholder") are parties
to an Agreement and Plan of Merger, dated as of May 23, 1997, as amended June
24, 1997, among Parent, Sub, RBI and the Stockholder (the "Agreement") ; and
WHEREAS, certain conditions to the obligations of the parties to the
Agreement have not yet been satisfied, including without limitation, the
completion of documentation with respect to the transfer and leaseback of the
Raleigh property, and the expiration or termination of the waiting period
applicable to the consummation of the Merger under the HSR Act; and
WHEREAS, in recognition that satisfaction of such conditions may not
occur prior to June 30, 1997 which is a date providing each party a right to
terminate the Agreement (subject to certain conditions) if the Merger shall have
not been consummated by such date, the parties to the Agreement wish to extend
such date to August 11, 1997; and
WHEREAS, the parties to the Agreement agree that in consideration of
extending such date of the Closing, certain other amendments to the Agreement
are necessary in order to account for the possible delay of the Closing to such
later date and they also agree that such amendments (except for the amendment in
paragraph 1 below) shall be effective only if the Merger shall not have been
consummated on or prior to June 30, 1997.
NOW THEREFORE, in furtherance of the foregoing, the parties to this
Amendment agree to amend the Agreement pursuant to Section 11.1 thereof as
follows:
XII Clause (y) of Section 2.1(a) of the Agreement is amended by
deleting the reference to "28.268" therein and replacing it in
its entirety by "32.112".
XIII Clause (ii) of Section 2.3 of the Agreement is amended by
adding "the lesser of (x) the closing price for Parent Common
Stock on NASDAQ on the date on which the condition set forth
in Section 7.1(a) hereof is satisfied and (y)" at the
beginning of such clause.
XIV Clause (ii) of Section 3.8 of the Agreement is amended by
adding "until the date on which the condition set forth in
Section 7.1(a) hereof is satisfied" at the beginning of such
clause.
38
XV Paragraph (b) of Section 8.1 of the Agreement is amended by
deleting the reference to "June 30, 1997" therein and
replacing it in its entirety by "August 11, 1997".
XVI Section 8.2 of the Agreement is amended by adding the
following paragraph at the end thereof: "Notwithstanding the
foregoing sentence, if (i) RBI shall have properly terminated
this Agreement pursuant to Section 8.1(b) hereof prior to
August 15, 1997, (ii) there has not been a breach in any
material respect of any representations or warranties of RBI
or the Stockholder set forth in this Agreement, (iii) there
has not been a breach in any material respect of any of the
covenants or agreements set forth in this Agreement on the
part of RBI or the Stockholder, (iv) all of the conditions to
the obligations of Parent and Sub to effect the Merger shall
have been satisfied on or prior to August 4, 1997 (unless the
failure of such conditions to be so satisfied shall have been
caused by the action or failure to act on the part of Parent
or Sub, which action or failure to act constitutes a material
breach of Section 6.3 of this Agreement), and (v) the Merger
shall in fact not have been consummated before August 11, 1997
and the failure to consummate the Merger by such date shall
have been caused solely by the action or failure to act on the
part of Parent or Sub, which action or failure to act
constitutes a material breach of Section 6.3 of this
Agreement, then and only then in the case of the satisfaction
of all of the conditions set forth in clauses (i) through (v)
above, Parent shall pay to RBI as liquidated damages and not
as a penalty, three million dollars ($3,000,000) (the
"Liquidated Damages Amount"). Such Liquidated Damages Amount
shall be delivered to a mutually agreed upon entity as escrow
agent pursuant to an escrow agreement in a form and substance
reasonably satisfactory to Parent, RBI and the escrow agent at
a date no later than June 30, 1997 (the "Escrow Agreement"),
and shall be paid to RBI only if payable to RBI pursuant to
the preceding sentence or shall be returned to Parent, in each
case, in accordance with the terms and conditions of the
Escrow Agreement. In the event Parent shall have paid the
Liquidated Damages
39
Amount as provided herein, Parent and Sub shall have no
further liability of any kind whatsoever to RBI or the
Stockholder for damages or any other relief available at law
or in equity under this Agreement and applicable law
(including any liability of Parent or Sub for any breach of
this Agreement)."
The foregoing amendments to the Agreement (except the amendment set
forth in paragraph 1 above) shall be effective if and only if the Merger shall
not have been consummated on or prior to June 30, 1997. If the Merger shall have
been consummated on or prior to such date, then all of the foregoing amendments
(except the amendment set forth in paragraph 1 above) shall be null and void.
Terms used but not otherwise defined herein shall have their meaning
set forth in the Agreement.
IN WITNESS WHEREOF, the parties to the Agreement have executed this
Amendment to the Agreement effective as of June 25, 1997.
HENRY SCHEIN, INC.
By:
----------------------------------
Name:
Title:
HS ACQUISITION, INC.
By:
----------------------------------
Name:
Title:
ROANE-BARKER, INC.
By:
----------------------------------
Name:
Title:
----------------------------------
Ralph L. Falls, Jr.
40
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Henry Schein, Inc.
Melville, New York
We hereby consent to the incorporation by reference in this Proxy
Statement/Prospectus constituting a part of this Registration Statement of our
reports dated March 7, 1997 relating to the consolidated financial statements
and schedule of Henry Schein, Inc. (the "Company") and of our report dated
February 5, 1997 relating to the financial statements of HS Pharmaceutical, Inc.
appearing in the Company's Annual Report on Form 10-K and 10-K/A for the year
ended December 28, 1996 and Form 8-K dated June 24, 1997.
We also consent to the reference to us under the caption "Experts" in the
Proxy Statement/ Prospectus.
/s/ BDO Seidman, LLP
New York, New York
June 30, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Proxy
Statement/Prospectus constituting a part of this Registration Statement of our
report dated February 12, 1997, except for Notes 8 and 12 which are dated March
7, 1997 relating to the consolidated financial statements and schedule of Micro
Bio-Medics, Inc. ("Company") appearing in the Company's Annual Report on Form
10-K and 10-K/A-1 for the year ended November 30, 1996.
We also consent to the reference to us under the caption "Experts" in the
Proxy Statement/ Prospectus.
/s/ MILLER, ELLIN & COMPANY
New York, New York
June 25, 1997
Exhibit 23.5
July 2, 1997
Board of Directors
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
Re: Registration Statement of Henry Schein, Inc. on Form S-4 dated July 2, 1997
We hereby consent to the reference to the opinion of our Firm under the caption
"THE MERGER-- Opinion of Houlihan Lokey" and to the inclusion of our opinion
referred to therein in the Proxy Statement/Prospectus included in the
above-mentioned Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
