UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the period ended June 28, 2003
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number: 0-27078
HENRY SCHEIN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3136595
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
135 DURYEA ROAD
MELVILLE, NEW YORK
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
11747
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 843-5500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
-- --
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes X No
-- --
As of August 05, 2003 there were 43,473,339 shares of the registrant's common
stock outstanding.
HENRY SCHEIN, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
Balance Sheets as of June 28, 2003 and December 28, 2002 ........ 3
Statements of Income and Comprehensive Income for the three and
six months ended June 28, 2003 and June 29, 2002 .............. 4
Statements of Cash Flows for the six months ended
June 28, 2003 and June 29, 2002 ............................... 5
Notes to Consolidated Financial Statements ...................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ........ 22
ITEM 4. Controls and Procedures ........................................... 22
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................. 23
ITEM 4. Submission of Matters to a Vote of Security Holders ............... 25
ITEM 6. Exhibits and Reports on Form 8-K .................................. 26
Signature ......................................................... 26
2
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 28, December 28,
2003 2002
------------ ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 121,161 $ 200,651
Marketable securities .................................................... 16,151 31,209
Accounts receivable, less reserves of $40,789 and $36,200, respectively .. 418,470 368,263
Inventories .............................................................. 343,745 323,080
Deferred income taxes .................................................... 27,936 29,919
Prepaid expenses and other ............................................... 73,216 74,407
----------- -----------
Total current assets ................................................... 1,000,679 1,027,529
Property and equipment, net of accumulated depreciation and amortization
of $114,098 and $101,519, respectively ................................... 150,437 142,532
Goodwill ..................................................................... 353,746 302,687
Other intangibles, net of accumulated amortization
of $6,537 and $4,151, respectively ....................................... 23,748 7,661
Investments and other ........................................................ 85,186 77,643
----------- -----------
$ 1,613,796 $ 1,558,052
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 228,467 $ 243,166
Bank credit lines .......................................................... 4,764 4,790
Accruals:
Salaries and related expenses ............................................ 54,949 53,954
Merger, integration, and restructuring costs ............................. 2,568 3,044
Acquisition earnout payments ............................................. -- 1,460
Taxes and other expenses ................................................. 128,233 114,254
Current maturities of long-term debt ....................................... 4,816 2,662
----------- -----------
Total current liabilities ................................................ 423,797 423,330
Long-term debt ............................................................... 247,179 242,561
Other liabilities ............................................................ 26,339 24,196
----------- -----------
Total liabilities ........................................................ 697,315 690,087
----------- -----------
Minority interest ............................................................ 9,466 6,748
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000,
issued and outstanding: 0 and 0, respectively ............................ -- --
Common stock, $.01 par value, authorized 120,000,000,
issued: 43,470,989 and 44,041,591, respectively .......................... 435 440
Additional paid-in capital ................................................. 431,117 436,554
Retained earnings .......................................................... 463,519 430,389
Treasury stock, at cost, 0 and 62,479 shares, respectively ................. -- (1,156)
Accumulated comprehensive income (loss) .................................... 12,098 (4,794)
Deferred compensation ...................................................... (154) (216)
----------- -----------
Total stockholders' equity ............................................... 907,015 861,217
----------- -----------
$ 1,613,796 $ 1,558,052
=========== ===========
See accompanying notes to consolidated financial statements.
3
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
----------------------------- ----------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales ............................................. $ 776,166 $ 671,432 $ 1,514,163 $ 1,318,525
Cost of sales ......................................... 555,637 479,036 1,092,217 947,739
----------- ----------- ----------- -----------
Gross profit ........................................ 220,529 192,396 421,946 370,786
Operating expenses:
Selling, general and administrative ................. 164,499 145,407 323,711 288,599
----------- ----------- ----------- -----------
Operating income .................................. 56,030 46,989 98,235 82,187
Other income (expense):
Interest income ..................................... 1,921 2,481 4,313 4,920
Interest expense .................................... (4,595) (4,367) (9,328) (9,195)
Other - net ......................................... 242 706 927 140
----------- ----------- ----------- -----------
Income before taxes on income, minority interest
and equity in earnings of affiliates ............ 53,598 45,809 94,147 78,052
Taxes on income ....................................... 20,207 16,996 35,413 29,060
Minority interest in net income of subsidiaries ....... 874 932 1,611 1,501
Equity in earnings of affiliates ...................... 338 185 498 305
----------- ----------- ----------- -----------
Net income ............................................ $ 32,855 $ 28,066 $ 57,621 $ 47,796
=========== =========== =========== ===========
Comprehensive income:
Net income .......................................... $ 32,855 $ 28,066 $ 57,621 $ 47,796
Foreign currency translation adjustments .......... 12,528 14,699 16,867 13,382
Other ............................................. 167 118 25 57
----------- ----------- ----------- -----------
Comprehensive income .................................. $ 45,550 $ 42,883 $ 74,513 $ 61,235
=========== =========== =========== ===========
Net income per common share:
Basic ............................................. $ 0.76 $ 0.65 $ 1.32 $ 1.11
=========== =========== =========== ===========
Diluted ........................................... $ 0.74 $ 0.63 $ 1.29 $ 1.07
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic ............................................. 43,500 43,389 43,754 43,090
=========== =========== =========== ===========
Diluted ........................................... 44,549 44,747 44,780 44,559
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
----------------------
June 28, June 29,
2003 2002
--------- ---------
Cash flows from operating activities:
Net income ....................................................... $ 57,621 $ 47,796
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 17,115 13,009
Provision for losses and allowances on trade receivables ..... 4,490 1,219
Provision (benefit) for deferred income taxes ................ 3,893 (293)
Undistributed earnings of affiliates ......................... (498) (305)
Minority interest in net income of subsidiaries .............. 1,611 1,501
Other ........................................................ (246) (123)
Changes in operating assets and liabilities (net of acquisitions):
(Increase) decrease in accounts receivable ...................... (34,248) 4,071
Decrease (increase) in inventories ............................. 4,481 (17,760)
Decrease (increase) in other current assets .................... 12,527 (4,707)
Decrease in accounts payable and accruals ...................... (25,715) (31,027)
--------- ---------
Net cash provided by operating activities .......................... 41,031 13,381
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................................. (21,321) (28,120)
Business acquisitions, net of cash acquired ...................... (66,754) (34,887)
Purchase of marketable securities with
maturities of more than three months ........................... (21,195) (20,639)
Maturities of marketable securities with
maturities of more than three months ........................... 28,530 --
Other ............................................................ 1,861 (574)
--------- ---------
Net cash used in investing activities .............................. (78,879) (84,220)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt ............................. (4,954) (13,604)
Proceeds from issuance of stock upon exercise of stock
options by employees ........................................... 11,329 26,490
Payments for repurchases of common stock ......................... (46,152) --
Net payments on borrowings from banks ............................ (940) (435)
Other ............................................................ (93) (426)
--------- ---------
Net cash (used in) provided by financing activities ................ (40,810) 12,025
--------- ---------
Net decrease in cash and cash equivalents .......................... (78,658) (58,814)
Effect of exchange rate changes on cash and cash equivalents ....... (832) (2,045)
Cash and cash equivalents, beginning of period ..................... 200,651 193,367
--------- ---------
Cash and cash equivalents, end of period ........................... $ 121,161 $ 132,508
========= =========
See accompanying notes to consolidated financial statements.
5
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Henry Schein,
Inc. and its wholly-owned and majority-owned subsidiaries (collectively, the
"Company").
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the information set
forth therein. These consolidated financial statements are condensed and
therefore do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. The consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and
supplementary data included in the Company's Annual Report on Form 10-K for the
year ended December 28, 2002. The Company follows the same accounting policies
in preparation of interim financial statements.
The results of operations and cash flows for the six months ended June 28,
2003 are not necessarily indicative of the results to be expected for the fiscal
year ending December 27, 2003 or any other period.
Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
NOTE 2. SEGMENT DATA
The Company has two reportable segments: healthcare distribution and
technology.
The healthcare distribution segment, which is comprised of the Company's
dental, medical, and international business groups, distributes healthcare
products (primarily consumable) and services to office-based healthcare
practitioners and professionals in the combined United States, Canada, and
international markets. Products, which are similar for each business group, are
maintained and distributed from strategically located distribution centers.
The technology segment consists primarily of the Company's practice
management software business and certain other value-added products and services
that are distributed primarily to healthcare professionals in the United States
and Canada.
The Company's reportable segments are strategic business units that offer
different products and services to the same customer base. Most of the
technology business was acquired as a unit, and the management at the time of
acquisition was retained.
6
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
The following tables present information about the Company's business
segments:
Three Months Ended Six Months Ended
----------------------- -----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Sales:
Healthcare distribution (1):
Dental (2) ........................ $ 331,953 $ 306,287 $ 645,909 $ 601,568
Medical (3) ....................... 284,305 242,683 561,445 474,105
International (4) ................. 141,170 106,779 270,770 212,617
---------- ---------- ---------- ----------
Total healthcare distribution ... 757,428 655,749 1,478,124 1,288,290
Technology (5) ...................... 18,738 15,683 36,039 30,235
---------- ---------- ---------- ----------
$ 776,166 $ 671,432 $1,514,163 $1,318,525
========== ========== ========== ==========
- ----------
(1) Consists of consumable products, small equipment, laboratory products,
large dental equipment, branded and generic pharmaceuticals, surgical
products, diagnostic tests, infection control products and vitamins.
(2) Consists of products sold in the United States and Canada.
(3) Consists of products sold to the United States Medical and Veterinary
markets.
(4) Consists of products sold to the Dental, Medical and Veterinary markets,
primarily in Europe.
(5) Consists of practice management software and other value-added products and
services, which are distributed primarily to healthcare professionals in
the United States and Canada.
Three Months Ended Six Months Ended
----------------------- --------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ------------ ------------
Operating Income:
Healthcare distribution ............. $ 48,259 $ 40,237 $ 83,422 $ 70,093
Technology .......................... 7,771 6,752 14,813 12,094
---------- ---------- ------------ ------------
Total ............................. $ 56,030 $ 46,989 $ 98,235 $ 82,187
========== ========== ============ ============
June 28, June 29,
2003 2002
------------ ------------
Total Assets:
Healthcare distribution ..................................... $ 1,591,157 $ 1,385,447
Technology .................................................. 123,555 101,160
----------- -----------
Total assets for reportable segments ...................... 1,714,712 1,486,607
Receivables due from healthcare distribution segment ........ (99,851) (74,880)
Receivables due from technology segment ..................... (1,065) (1,570)
----------- -----------
Consolidated total assets ................................. $ 1,613,796 $ 1,410,157
=========== ===========
7
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
NOTE 3. STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
is recorded as long as the exercise price is equal to or greater than the quoted
market price of the stock at the date of the grant.
Pro forma information regarding net income and earnings per share has been
determined as if the Company and its acquired subsidiaries had accounted for
their employee stock options under the fair value method of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
(FAS 123).
The weighted average fair value of options granted during the three months
ended June 28, 2003 and June 29, 2002 was $24.21 and $29.24, respectively. The
weighted average fair value of options granted during the six months ended June
28, 2003 and June 29, 2002 was $21.16 and $25.03, respectively. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for the
three and six months ended June 28, 2003 and June 29, 2002: risk-free interest
rates of 3.8% and 5.1%, respectively; volatility factor of the expected market
price of the Company's Common Stock of 43.7% and 49.6%, respectively, assumed
dividend yield of 0%, and a weighted-average expected life of the option of 10
years.
Under the accounting provisions of FAS 123, the Company's net income and
net income per common share would have been adjusted to the pro forma amounts
indicated below:
Three Months Ended Six Months Ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income as reported ................... $ 32,855 $ 28,066 $ 57,621 $ 47,796
Deduct: Stock-based employee
compensation expense determined under
fair value method, net of related taxes .. (3,255) (2,284) (5,753) (4,568)
---------- ---------- ---------- ----------
Pro forma net income ..................... $ 29,600 $ 25,782 $ 51,868 $ 43,228
========== ========== ========== ==========
Net income per common share - as reported:
Basic .................................... $ 0.76 $ 0.65 $ 1.32 $ 1.11
========== ========== ========== ==========
Diluted .................................. $ 0.74 $ 0.63 $ 1.29 $ 1.07
========== ========== ========== ==========
Net income per common share - pro forma:
Basic .................................... $ 0.68 $ 0.59 $ 1.19 $ 1.00
========== ========== ========== ==========
Diluted .................................. $ 0.66 $ 0.58 $ 1.16 $ 0.97
========== ========== ========== ==========
8
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
Note 4. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six months ended
June 28, 2003 were as follows:
Healthcare
Distribution Technology Total
------------ ---------- --------
Balance as of December 28, 2002 ................ $302,352 $ 335 $302,687
Adjustments to goodwill:
Acquisition costs incurred during the six
months ended June 28, 2003 ............ 44,448 89 44,537
Foreign currency translation .............. 6,522 -- 6,522
-------- -------- --------
Balance as of June 28, 2003 .................... $353,322 $ 424 $353,746
======== ======== ========
The acquisition costs incurred during the six months ended June 28, 2003
primarily related to the acquisitions of Hager Dental GmbH (Hager) and Colonial
Surgical Supply, Inc. (Colonial), and the purchase of additional equity
interests in two subsidiaries.
Other intangible assets as of June 28, 2003 and December 28, 2002 were as
follows:
June 28, 2003 December 28, 2002 (1)
---------------------- ----------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
------- ------------ ------- ------------
Other intangible assets:
Non-compete agreements ........ $15,176 $(4,375) $10,826 $(3,549)
Trademarks and trade names .... 7,969 (29) 89 (18)
Customer relationships ........ 4,071 -- -- --
Other ......................... 3,069 (2,133) 897 (584)
------- ------- ------- -------
Total ............................ $30,285 $(6,537) $11,812 $(4,151)
======= ======= ======= =======
- ----------
(1) Reclassified to conform to current period presentation.
Amortization of other intangible assets for the six months ended June 28,
2003 and June 29, 2002 was approximately $865 and $563, respectively. The annual
amortization expense expected for the years 2003 through 2007 is $2,482, $2,607,
$1,617, $1,185, and $1,035, respectively.
9
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
NOTE 5. CONTINUING OBLIGATIONS
In connection with acquisitions made in prior years and the Company's plan
of restructuring announced on August 1, 2000, the Company incurred certain
merger and integration and restructuring costs.
The following table shows amounts paid against the accruals for these costs
during the six months ended June 28, 2003:
Balance at Balance at
December 28, June 28,
2002 Payments 2003
----------- -------- ----------
Facility closing costs (1) ...................... $ 2,150 $ (282) $ 1,868
Severance and other direct costs (2) ............ 558 (147) 411
Direct transaction, professional and
consulting fees and other integration costs ... 336 (47) 289
------- ------- -------
$ 3,044 $ (476) $ 2,568
======= ======= =======
- ----------
(1) Represents costs associated with the closing of certain equipment branches
(primarily lease termination costs) and property and equipment write-offs.
(2) Represents salaries and related benefits for employees separated from the
Company. For the six months ended June 28, 2003, two employees received
severance payments and were still owed severance pay and benefits at June
28, 2003.
10
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT EMPLOYEE AND SHARE DATA)
(unaudited)
NOTE 6. BUSINESS ACQUISITIONS
During the six months ended June 28, 2003, the Company acquired two
healthcare businesses and purchased additional equity interests in two
subsidiaries. On May 28, 2003, the Company acquired all of the outstanding
common stock of Hager Dental GmbH, a dental distributor of consumable supplies
and equipment located in Germany. On June 2, 2003, the Company acquired the
assets of Colonial Surgical Supply, Inc., a United States dental distributor of
consumable supplies, primarily examination gloves. None of these transactions
were considered material on an individual or aggregate basis. The transactions
were accounted for under the purchase method of accounting and have been
included in the consolidated financial statements from their respective
acquisition dates.
Hager reported 2002 net sales of approximately $50,000. Colonial reported
2002 net sales of more than $40,000.
The Company recorded goodwill of approximately $17,600 and $13,700, and
other intangibles of approximately $1,100 and $12,400 in conjunction with the
Hager and Colonial acquisitions, respectively. The acquisition agreement for
Colonial requires the Company to pay additional cash consideration of up to
$10,000, if certain profitability targets are met.
NOTE 7. EARNINGS PER SHARE
A reconciliation of shares used in calculating basic and diluted earnings
per common share follows:
Three Months Ended Six Months Ended
------------------------- -------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic ............................. 43,500,099 43,388,518 43,754,062 43,089,815
Effect of assumed conversion of
employee stock options .......... 1,048,483 1,358,275 1,025,911 1,468,753
---------- ---------- ---------- ----------
Diluted ........................... 44,548,582 44,746,793 44,779,973 44,558,568
========== ========== ========== ==========
Options to purchase approximately 37,319 and 6,440 shares of common stock
at prices ranging from $48.25 to $54.00 and $48.25 to $49.85 per share that were
outstanding during the three months ended June 28, 2003 and June 29, 2002,
respectively, were excluded from the computation of diluted earnings per common
share. Options to purchase approximately 74,294 and 15,558 shares of common
stock at prices ranging from $44.90 to $54.00 and $45.96 to $49.85 per share
that were outstanding during the six months ended June 28, 2003 and June 29,
2002, respectively, were excluded from the computation of diluted earnings per
common share. In each of the respective periods, the options' exercise prices
exceeded the fair market value of the Company's common stock.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that we "expect",
"estimate", "anticipate", or "believe", and all other statements concerning
future financial results, product or service offerings or other events that have
not yet occurred) are forward-looking statements that are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Forward-looking statements involve
known and unknown factors, risks and uncertainties which may cause our actual
results in future periods to differ materially from those expressed in any
forward-looking statements. Those factors, risks and uncertainties include, but
are not limited to, the factors described under "Risk Factors" below.
OVERVIEW
We are the largest distributor of healthcare products and services to
office-based healthcare practitioners in the combined North American and
European markets with operations in the United States, Canada, the United
Kingdom, the Netherlands, Belgium, Germany, France, Austria, Spain, Ireland,
Portugal, Australia and New Zealand.
We sell products and services to over 400,000 customers, primarily dental
practices and dental laboratories, as well as physician practices, veterinary
clinics and institutions. Through our comprehensive catalogs and other direct
sales and marketing programs, we offer customers a broad product selection of
both branded and private brand products.
We conduct our business through two segments: healthcare distribution and
technology. These operations offer different products and services to the same
customer base.
The healthcare distribution segment consists of our dental, medical
(including veterinary), and international groups. The international group is
comprised of our healthcare distribution business units located primarily in
Europe, and offers products and services to dental and medical (including
veterinary) customers located in their respective geographic regions.
The technology segment consists of our practice management software
business and certain other value-added products and services which are
distributed primarily to healthcare professionals in the United States and
Canada.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Securities Exchange Commission Financial Reporting Release No. 60 requires
all companies to include a discussion of critical accounting policies or methods
used in the preparation of financial statements.
12
We believe that the following critical accounting policies affect the
significant judgments and estimates used in the preparation of our financial
statements:
Management's Estimates
The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate estimates, including those related
to sales allowance provisions, as described below, volume purchase rebates,
income taxes, inventory and bad debt reserves, and contingencies. We base our
estimates on historical data, when available, experience, industry and market
trends, and on various other assumptions that are believed to be reasonable
under the circumstances, the combined results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates.
Revenue Recognition
Sales are recorded when products are shipped or services are rendered to
customers, as we generally have no significant post delivery obligations, the
product price is fixed and determinable, collection of the resulting receivable
is probable and product returns are reasonably estimable. Revenues derived from
post contract customer support for practice management software are deferred and
recognized ratably over the period in which the support is to be provided,
generally one year. Revenues from freight charged to customers are recognized
when products are shipped. Provisions for discounts, rebates to customers,
customer returns and other adjustments are provided for in the period the
related sales are recorded based upon historical data.
Accounts Receivable and Credit Policies
The carrying amount of accounts receivable is reduced by a valuation
allowance that reflects our best estimate of the amounts that will not be
collected. In addition to reviewing delinquent accounts receivable, we consider
many factors in estimating our general allowance, including historical data,
experience, customer types, credit worthiness, and economic trends. From time to
time, we may adjust our assumptions for anticipated changes in any of those or
other factors expected to affect collectability.
Allowances for accounts receivable, comprised primarily of the allowance
for doubtful accounts and the allowance for sales returns, were $40.8 million
and $36.2 million at June 28, 2003 and December 28, 2002, respectively.
Long-Lived Assets
Long-lived assets, other than goodwill, are evaluated for impairment when
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets are written down to fair value.
Other intangible assets are amortized over their estimated useful lives. We
13
have reassessed the estimated useful lives of our intangible assets, which
primarily consist of non-compete agreements, trademarks and trade names, and
customer relationships, and no changes were deemed necessary.
Goodwill
In accordance with Statements of Financial Accounting Standards No. 141,
"Business Combinations" (FAS 141), and No. 142, "Goodwill and Other Intangible
Assets" (FAS 142), goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but are subject to annual impairment tests.
At June 28, 2003, we had recorded approximately $377.5 million in goodwill
and other intangible assets, net of accumulated amortization, primarily related
to acquisitions made in current as well as prior years. The goodwill is
substantially related to our healthcare distribution segment.
We estimated the fair value of our reporting units in accordance with the
new standard and compared these valuations with the respective book values for
each of the reporting units to determine whether any goodwill impairment
existed. In determining the fair value, we consider past, present and future
expectations of performance. We completed our annual test as of the first day of
the fourth quarter of 2002 and determined that there was no impairment of
goodwill.
As required by FAS 142, we complete goodwill impairment tests at least
annually. On a quarterly basis, we review changes in market conditions, among
other factors, that could have a material impact on our estimates of fair value
in order to reassess the carrying value of our goodwill. As of June 28, 2003, no
charges were deemed necessary.
Stock-Based Compensation
We account for stock option awards to employees under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Under this method,
no compensation expense is recorded as long as the exercise price is equal to or
greater than the quoted market price of the stock at the date of grant.
We make pro forma disclosures of net income and earnings per share as if
the fair value-based method of accounting (the alternative method of accounting
for stock-based compensation) had been applied as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123).
Had we elected to use FAS 123 to account for stock-based compensation under
the fair value method, we would have been required to record compensation
expense, and as a result, diluted earnings per common share for the six months
ended June 28, 2003 and June 29, 2002 would have been lower by $0.13 and $0.10,
respectively.
14
THREE MONTHS ENDED JUNE 28, 2003 COMPARED TO THREE MONTHS ENDED JUNE 29, 2002
For the three months ended June 28, 2003, our net sales increased $104.8
million, or 15.6%, to $776.2 million, from $671.4 million for the three months
ended June 29, 2002.
Of the $104.8 million increase in net sales, approximately $101.7 million,
or 97.0%, represented a 15.5% increase in our healthcare distribution business.
As part of this increase, approximately $41.6 million represented a 17.2%
increase in our medical business, $34.4 million represented a 32.2% increase in
our international business, and $25.7 million represented an 8.4% increase in
our dental business. The increase in medical net sales was primarily
attributable to increased sales to physicians' office and alternate care
markets. In the international market, the increase in net sales was primarily
due to favorable exchange rates to the U.S. dollar, an acquisition, and
increased account penetration in France and Spain. Excluding the impact of the
exchange rates and the acquisition, net sales for the international market
increased by 5.9%. In the dental market, the increase in net sales was primarily
due to increased dental equipment sales and services, an acquisition, and
increased account penetration to existing customers driven primarily by our
Privileges loyalty program. Net sales of dental consumable merchandise increased
by 6.0%, while net sales of dental equipment increased by 18.9%.
The remaining increase in second quarter 2003 net sales was due to our
technology business, which increased $3.1 million, or 19.5%. The increase in
technology and value-added product net sales was primarily due to increased
sales of software products and related services. As part of a new marketing
initiative, MarketOne, certain technology and equipment products were sold
directly to end-user customers beginning with the third quarter of 2002, rather
than through resellers, which resulted in increased net sales for the technology
business. Had MarketOne been in effect for the three months ended June 29, 2002,
we estimate that the increase in our technology business net sales for the three
months ended June 28, 2003 would have been 11.0%.
Gross profit increased by $28.1 million, or 14.6%, to $220.5 million for
the three months ended June 28, 2003, from $192.4 million for the three months
ended June 29, 2002. Gross profit margin decreased by 0.3% to 28.4%, from 28.7%
for the same period last year.
Healthcare distribution gross profit increased $25.4 million, or 14.1%, to
$205.9 million for the three months ended June 28, 2003, from $180.5 million for
the three months ended June 29, 2002. Healthcare distribution gross profit
margin decreased by 0.3% to 27.2% for the three months ended June 28, 2003, from
27.5% for the three months ended June 29, 2002, primarily due to changes in
sales mix in our medical business.
Technology gross profit increased by $2.7 million, or 22.7%, to $14.6
million for the three months ended June 28, 2003, from $11.9 million for the
three months ended June 29, 2002. Technology gross profit margins increased by
2.1% to 77.7% for the three months ended June 28, 2003, from 75.6% for the three
months ended June 29, 2002.
Selling, general and administrative expenses increased by $19.1 million, or
13.1%, to $164.5 million for the three months ended June 28, 2003, from $145.4
million for the three months ended June 29, 2002.
Selling and shipping expenses increased by $12.7 million, or 14.0%, to
15
$103.3 million for the three months ended June 28, 2003, from $90.6 million for
the three months ended June 29, 2002. As a percentage of net sales, selling and
shipping expenses decreased 0.2% to 13.3% for the three months ended June 28,
2003, from 13.5% for the three months ended June 29, 2002.
General and administrative expenses increased $6.4 million, or 11.7%, to
$61.2 million for the three months ended June 28, 2003, from $54.8 million for
the three months ended June 29, 2002. As a percentage of net sales, general and
administrative expenses decreased 0.3% to 7.9% for the three months ended June
28, 2003, from 8.2% for the three months ended June 29, 2002. The decrease was
primarily attributable to leveraging of our infrastructure with increased sales
volume.
Other income (expense) - net increased by $(1.2) million to $(2.4) million
for the three months ended June 28, 2003, from $(1.2) million for the three
months ended June 29, 2002. The net increase was due primarily to lower interest
income, lower foreign currency gains, and higher interest expense.
Equity in earnings of affiliates increased by $0.1 million, to $0.3 million
for the three months ended June 28, 2003, from $0.2 million for the three months
ended June 29, 2002.
For the three months ended June 28, 2003, our effective tax rate was 37.7%.
For the three months ended June 29, 2002, our effective tax rate was 37.1%. The
difference between our effective tax rates and the Federal statutory rates for
both periods relate primarily to state income taxes.
SIX MONTHS ENDED JUNE 28, 2003 COMPARED TO SIX MONTHS ENDED JUNE 29, 2002
For the six months ended June 28, 2003, our net sales increased $195.7
million, or 14.8%, to $1,514.2 million, from $1,318.5 million for the six months
ended June 29, 2002.
Of the $195.7 million increase in net sales, approximately $189.9 million,
or 97.0%, represented a 14.7% increase in our healthcare distribution business.
As part of this increase, approximately $87.4 million represented an 18.4%
increase in our medical business, $58.2 million represented a 27.4% increase in
our international business, and $44.3 million represented a 7.4% increase in our
dental business. The increase in medical net sales was primarily attributable to
increased sales to physicians' office and alternate care markets. In the
international market, the increase in net sales was primarily due to favorable
exchange rates to the U.S. dollar, increased account penetration in France,
Spain, and Australia, and the acquisition of Hager Dental GmbH in the second
quarter of 2003. Excluding the impact of the exchange rates and the acquisition,
net sales for the international market increased by 4.7%. In the dental market,
the increase in net sales was primarily due to increased dental equipment sales
and services, the acquisition of Colonial Surgical Supply, Inc., and increased
account penetration to existing customers driven primarily by our Privileges
loyalty program. Net sales of dental consumable merchandise increased by 5.4%,
while net sales of dental equipment increased by 16.1%.
The remaining increase in net sales for the six months ended June 28, 2003
was due to our technology business, which increased $5.8 million, or 19.2%. The
increase in technology and value-added product net sales was primarily due to
increased sales of software products and related services. As part of a new
marketing initiative, MarketOne, certain technology and equipment products were
sold directly to end-user customers beginning with the third quarter of 2002,
16
rather than through resellers, which resulted in increased net sales for the
technology business. Had MarketOne been in effect for the six months ended June
29, 2002, we estimate that the increase in our technology business net sales for
the six months ended June 28, 2003 would have been 11.7%.
Gross profit increased by $51.1 million, or 13.8%, to $421.9 million for
the six months ended June 28, 2003, from $370.8 million for the six months ended
June 29, 2002. Gross profit margin decreased by 0.2% to 27.9%, from 28.1% for
the same period last year.
Healthcare distribution gross profit increased $46.0 million, or 13.2%, to
$394.0 million for the six months ended June 28, 2003, from $348.0 million for
the six months ended June 29, 2002. Healthcare distribution gross profit margin
decreased by 0.3% to 26.7% for the six months ended June 28, 2003, from 27.0%
for the six months ended June 29, 2002, primarily due to changes in sales mix in
our medical business.
Technology gross profit increased by $5.1 million, or 22.4%, to $27.9
million for the six months ended June 28, 2003, from $22.8 million for the six
months ended June 29, 2002. Technology gross profit margins increased by 2.0% to
77.4% for the six months ended June 28, 2003, from 75.4% for the six months
ended June 29, 2002.
Selling, general and administrative expenses increased by $35.1 million, or
12.2%, to $323.7 million for the six months ended June 28, 2003, from $288.6
million for the six months ended June 29, 2002.
Selling and shipping expenses increased by $23.8 million, or 13.3%, to
$202.5 million for the six months ended June 28, 2003, from $178.7 million for
the six months ended June 29, 2002. As a percentage of net sales, selling and
shipping expenses decreased 0.2% to 13.4% for the six months ended June 28,
2003, from 13.6% for the six months ended June 29, 2002.
General and administrative expenses increased $11.3 million, or 10.3%, to
$121.2 million for the six months ended June 28, 2003, from $109.9 million for
the six months ended June 29, 2002. As a percentage of net sales, general and
administrative expenses decreased 0.3% to 8.0% for the six months ended June 28,
2003, from 8.3% for the six months ended June 29, 2002. The decrease was
primarily attributable to leveraging of our infrastructure with increased sales
volume.
Other income (expense) - net was substantially unchanged from the prior
period.
Equity in earnings of affiliates increased by $0.2 million, to $0.5 million
for the six months ended June 28, 2003, from $0.3 million for the six months
ended June 29, 2002.
For the six months ended June 28, 2003, our effective tax rate was 37.6%.
For the six months ended June 29, 2002, our effective tax rate was 37.2%. The
difference between our effective tax rates and the Federal statutory rates for
both periods relate primarily to state income taxes.
17
SEASONALITY
Our business is subject to seasonal and other quarterly influences. Net
sales and operating profits are generally higher in the fourth quarter due to
timing of sales of software and equipment, year end promotions and purchasing
patterns of office-based healthcare practitioners and are generally lower in the
first quarter due primarily to the increased purchases in the prior quarter.
Quarterly results also may be materially affected by a variety of other
factors, including the timing of acquisitions and related costs, timing of
purchases and/or sales, special promotional campaigns, seasonal products,
fluctuations in exchange rates associated with international operations and
adverse weather conditions.
E-COMMERCE
Traditional healthcare supply and distribution relationships are being
impacted by electronic on-line commerce solutions. Our distribution business is
characterized by rapid technological developments and is highly competitive. The
rapid evolution of on-line commerce will require us to provide continuous
improvement in performance, features and reliability of Internet content and
technology, particularly in response to competitive offerings.
Through our proprietary technologically-based suite of products, we offer
customers a variety of competitive alternatives. We believe that our tradition
of reliable service coupled with our name recognition and large customer base
built on solid customer relationships makes us well situated to participate in
this growing aspect of the distribution business. We are exploring ways and
means of improving and expanding our Internet presence and will continue to do
so.
INFLATION
Management does not believe inflation had a material effect on the
financial statements for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (a) acquisitions, (b)
repurchases of common stock, (c) working capital needs resulting from increased
sales and special inventory forward buy-in opportunities, and (d) capital
expenditures. Since sales tend to be strongest during the fourth quarter and
special inventory forward buy-in opportunities are most prevalent just before
the end of the year, our working capital requirements have generally been higher
from the end of the third quarter to the end of the first quarter of the
following year. We have financed our business primarily through operations, our
revolving credit facilities, private placement loans and stock issuances.
Net cash provided by operating activities for the six months ended June 28,
2003 of $41.0 million resulted primarily from net income of $57.6 million and
non-cash expenses of approximately $26.4 million, offset by a net increase in
the use of working capital of approximately $43.0 million. The increase in the
use of working capital was due to a $34.3 million increase in accounts
receivable combined with a decrease in accounts payable and accruals of $25.7
18
million, primarily due to payments made to vendors for year end inventory
buy-ins, offset by a $12.5 million decrease in other current assets and a $4.5
million decrease in inventories. For the six months ended June 28, 2003, the
increase in our accounts receivable was primarily due to increased sales volume.
Our accounts receivable days sales outstanding ratio improved to 46.9 days for
the six months ended June 28, 2003, from 50.0 days for the six months ended June
29, 2002, primarily due to continued focus in this area. Our inventory turns
improved to 6.5 turns for the six months ended June 28, 2003, from 6.3 turns for
the six months ended June 29, 2002. We anticipate future increases in our
working capital requirements as a result of continued sales growth and special
inventory forward buy-in opportunities.
Net cash used in investing activities for the six months ended June 28,
2003 of $78.9 million resulted primarily from business acquisitions of $66.8
million, capital expenditures of $21.3 million, and purchases of United States
government and government agency bonds, corporate bonds and commercial paper
with maturities of more than three months of $21.2 million, offset by maturities
of United States government and government agency bonds, municipal bonds and
corporate bonds of $28.5 million. Our investments in corporate bonds consist of
debt securities rated AAA by Moody's (or an equivalent rating) and investments
in commercial paper consist of debt securities rated P-1 by Moody's (or an
equivalent rating). The fair values of our investments are determined by quoted
market prices. We expect to invest more than $35.0 million during the year
ending December 27, 2003 in capital projects to modernize and expand our
facilities, to enhance our computer infrastructure systems and to integrate
operations.
Net cash used in financing activities for the six months ended June 28,
2003 of $40.8 million resulted primarily from our repurchases of common stock of
$46.2 million and debt repayments of $5.9 million, offset primarily by proceeds
from the issuance of stock upon exercise of stock options of $11.3 million. On
March 12, 2003, we announced that our Board of Directors had authorized the
repurchase of up to two million shares of our common stock, which represented
approximately 4.5% of shares outstanding on the announcement date. During the
six months ended June 28, 2003, we repurchased and retired 1,071,500 shares at
an average price of $43.07 per share.
Some holders of minority interests in entities we have acquired have the
right at certain times to require us to acquire their interest at a price that
approximates fair value pursuant to a formula based on earnings of the entity.
Additionally, some prior owners of acquired businesses are eligible to receive
additional purchase price cash consideration if certain profitability targets
are met.
Our cash and cash equivalents as of June 28, 2003 of $121.2 million consist
of bank balances and investments in money market funds. These investments have
staggered maturity dates, none of which exceed three months, and have a high
degree of liquidity since the securities are traded in public markets.
We have a revolving credit facility of $200.0 million that is a four year
committed line scheduled to terminate in May 2006. We also have one uncommitted
bank line of $15.0 million. There were no borrowings under either credit
facility at June 28, 2003. As of June 28, 2003, certain subsidiaries of ours had
revolving credit facilities with approximately $36.3 million available for
borrowing. At June 28, 2003, $4.8 million had been borrowed.
On June 30, 1999 and September 25, 1998, we completed private placement
19
transactions under which we issued $130.0 million and $100.0 million,
respectively, in Senior Notes. The $130.0 million notes come due on June 30,
2009 and bear interest at a rate of 6.94% per annum. Principal payments totaling
$20.0 million are due annually starting September 25, 2006 on the $100.0 million
notes and bear interest at a rate of 6.66% per annum. Interest on both notes is
payable semi-annually.
We believe that our cash and cash equivalents of $121.2 million, our
investment in short-term marketable securities of $16.2 million as of June 28,
2003, our ability to access public and private debt and equity markets, and the
availability of funds under our existing credit agreements will provide us with
sufficient liquidity to meet our currently foreseeable short-term and long-term
capital needs.
RISK FACTORS
Stockholders and investors should carefully consider the risks described
below and other information in this quarterly report. Our business, financial
condition and operating results, and the trading price of our common stock could
be adversely affected if any of these risks materialize.
o The healthcare products distribution industry is highly competitive, and we
compete with numerous companies, including major manufacturers and
distributors that have greater financial and other resources than us.
Competitors could obtain exclusive rights to market particular products or
manufacturers could increase their efforts to sell directly to end-users,
thereby bypassing distributors like us. Consolidation among healthcare
products distributors could result in existing competitors increasing their
market position. In addition, unavailability of products, whether due to
our inability to gain access to products or interruptions in supply of
products from manufacturers, could adversely affect our operating results.
o In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including the reduction of
spending budgets by government and private insurance programs, such as
Medicare, Medicaid and corporate health insurance plans; trends toward
managed care; consolidation of healthcare distribution companies;
electronic commerce; and collective purchasing arrangements among
office-based healthcare practitioners. If we are unable to react
effectively to these and other changes in the healthcare industry, our
operating results could be adversely affected.
o Our technology segment, which primarily sells practice management software
and other value-added products, depends upon continued product development,
technical support and marketing. Failures in these and related areas could
adversely affect our results of operations.
o Our business is subject to requirements under various local, state, Federal
and foreign governmental laws and regulations applicable to the manufacture
and distribution of pharmaceuticals and medical devices, including the
Federal Food, Drug, and Cosmetic Act, the Prescription Drug Marketing Act
of 1987 and the Controlled Substances Act. There is no assurance that
current or future government regulations will not adversely affect our
business.
o Our business involves a risk of product liability and other claims in the
ordinary course of business, and from time to time we are named as a
20
defendant in cases as a result of our distribution of pharmaceutical and
other healthcare products. We have insurance policies, including product
liability insurance, and in many cases we have indemnification rights from
manufacturers with respect to the products we distribute. There is no
assurance that insurance coverage or manufacturers' indemnity will be
available in all of the pending or any future cases brought against us, or
that an unfavorable result in any such case will not adversely affect our
financial condition or results of operations.
o Our business is dependent upon our ability to hire and retain qualified
sales representatives, service specialists and other sales agents. Due to
the relationships developed between our field sales representatives and
their customers, upon the departure of a sales representative we face the
risk of losing the representative's customers, especially if the
representative becomes an employee of one of our competitors.
o Our business has been subject to seasonal and other quarterly fluctuations.
Net sales and operating profits generally have been higher in the fourth
quarter due to purchasing patterns of office-based healthcare practitioners
and year end promotions. Net sales and operating profits generally have
been lower in the first quarter, primarily due to increased purchases in
the prior quarter.
o Our international operations are subject to inherent risks, which could
adversely affect our operating results. These risks include difficulties in
opening and managing foreign offices and distribution centers; difficulties
in establishing channels of distribution; fluctuations in the value of
foreign currencies; longer payment cycles of foreign customers and
difficulty of collecting receivables in foreign jurisdictions;
import/export duties and quotas; and unexpected regulatory, economic and
political changes in foreign markets.
o Our expansion through acquisitions and/or joint ventures could result in a
loss of customers, diversion of management attention and increased demands
on our operations, information systems and financial resources.
o We rely on third parties to ship products to our customers. Increases in
shipping rates or interruptions of service could adversely affect our
operating results.
o Changes in e-commerce could affect our business relationships and could
require significant resources. The development of on-line commerce,
including business-to-business exchanges, will require us to continuously
improve the performance, security, features and reliability of Internet
content and technology.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the disclosures made in our Annual Report
on Form 10-K for the year ended December 28, 2002, on this matter.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's principal
executive officer and principal financial officer, has carried out an evaluation
of the effectiveness of the Company's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by
this report. Based on such evaluation, the Company's principal executive officer
and principal financial officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures were effective in
recording, processing, summarizing and reporting, on a timely basis, the
information required to be disclosed by the Company in this report.
Changes in Internal Controls
There have not been any changes in the Company's internal controls over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our business involves a risk of product liability claims and other claims
in the ordinary course of business, and from time to time we are named as a
defendant in cases as a result of our distribution of pharmaceutical and other
healthcare products.
As of June 28, 2003, we were named a defendant in approximately 46 product
liability cases. Of these claims, 42 involve claims made by healthcare workers
who claim allergic reaction relating to exposure to latex gloves. In each of
these cases, we acted as a distributor of both brand name and "Henry Schein"
private brand latex gloves, which were manufactured by third parties. To date,
discovery in these cases has generally been limited to product identification
issues. The manufacturers in these cases have withheld indemnification of the
Company pending product identification; however, we have impleaded or filed
cross claims against those manufacturers, subject to jurisdiction, in each case
in which we are a defendant.
On January 27, 1998, in District Court in Travis County, Texas, we and one
of our subsidiaries were named as defendants in a matter entitled "Shelly E.
Stromboe and Jeanne Taylor, on Behalf of Themselves and all others Similarly
Situated vs. Henry Schein, Inc., Easy Dental Systems, Inc. and Dentisoft, Inc.",
Case No. 98-00886. The Petition alleges, among other things, negligence, breach
of contract, fraud, and violations of certain Texas commercial statutes
involving the sale of certain practice management software products sold prior
to 1998 under the Easy Dental(R) name. In October 1999, the trial court, on
motion, certified both a Windows(R) sub-class and a DOS sub-class to proceed as
a class action pursuant to Tex. R. Civ. P. 42. It is estimated that 5,000
Windows(R) customers and 10,000 DOS customers were covered by the class action
that was certified by the trial court. In November of 1999, we filed an
interlocutory appeal of the trial court's determination to the Texas Court of
Appeals on the issue of whether this case was properly certified as a class
action. On September 14, 2000, the Court of Appeals affirmed the trial court's
certification order. On January 5, 2001, we filed a Petition for Review in the
Texas Supreme Court asking the Court to find that it had "conflicts
jurisdiction" to permit review of the trial court's certification order. The
Texas Supreme Court heard oral argument on February 6, 2002. On October 31,
2002, the Texas Supreme Court issued an opinion in the case holding that it had
conflicts jurisdiction to review the decision of the Court of Appeals and
finding that the trial court's certification of the case as a class action was
improper. The Supreme Court further held that the judgment of the court of
appeals, which affirmed the class certification order, must be reversed in its
entirety. Upon reversal of the class certification order, the Supreme Court
remanded the case to the trial court for further proceedings consistent with its
opinion. On January 31, 2003, counsel for the class filed a Motion for Rehearing
with the Texas Supreme Court seeking a reversal for the Supreme Court's earlier
opinion reversing the class certification order. On May 8, 2003, the Supreme
Court denied the Motion for Rehearing, letting stand its opinion dated October
31, 2002, which decertified both sub-classes in their entirety. While no papers
have been filed at this time, counsel for the class has indicated orally that
they intend to file an amended motion for class certification wherein they will
seek to have the trial court certify another class purportedly consistent with
the opinion of the Texas Supreme Court handed down on October 31, 2002. At this
time, however, it is not possible to determine whether the trial court will
certify a different class upon motion, if any, or the possible range of damages
or other relief sought by the plaintiffs in the trial court.
23
In February 2002, we were served with a summons and complaint in an action
commenced in the Superior Court of New Jersey, Law Division, Morris County,
entitled "West Morris Pediatrics, P.A. and Avenel-Iselin Medical Group, P.A. vs.
Henry Schein, Inc., doing business as Caligor", Case No. MRS-L-421-02. The
plaintiffs' complaint purports to be on behalf of a nationwide class, but there
has been no court determination that the case may proceed as a class action.
Plaintiffs seek to represent a class of all physicians, hospitals and other
healthcare providers throughout New Jersey and across the United States. This
complaint, as amended in August 2002, alleges, among other things, breach of
oral contract, breach of implied covenant of good faith and fair dealing,
violation of the New Jersey Consumer Fraud Act, unjust enrichment, conversion,
and promissory estoppel relating to sales of a vaccine product in the year 2001.
We filed an answer in October 2002. Because damages have not been specified by
the plaintiffs, it is not possible to determine the range of damages or other
relief sought by the plaintiffs. We intend to vigorously defend ourselves
against this claim, as well as all other claims, suits and complaints.
We have various insurance policies, including product liability insurance,
covering risks and in amounts we consider adequate. In many cases in which we
have been sued in connection with products manufactured by others, we are
provided indemnification by the manufacturer. There can be no assurance that the
coverage we maintain is sufficient or will be available in adequate amounts or
at a reasonable cost, or that indemnification agreements will provide adequate
protection for the Company. In the opinion of the Company, all pending matters
are covered by insurance or will not otherwise seriously harm the Company's
financial condition.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 18, 2003, the
stockholders of the Company took the following actions:
(i) Re-elected the following individuals to the Company's Board of Directors:
Stanley M. Bergman (37,407,835 shares voting for, 279,501 shares withheld)
Barry J. Alperin (37,373,102 shares voting for, 314,234 shares withheld)
Gerald A. Benjamin (37,403,680 shares voting for, 283,656 shares withheld)
James P. Breslawski (37,404,806 shares voting for, 282,530 shares withheld)
Pamela Joseph (37,351,899 shares voting for, 335,437 shares withheld)
Donald J. Kabat (37,367,735 shares voting for, 319,601 shares withheld)
Philip A. Laskawy (37,297,102 shares voting for, 390,234 shares withheld)
Norman S. Matthews (37,325,693 shares voting for, 361,643 shares withheld)
Mark E. Mlotek (37,405,369 shares voting for, 281,967 shares withheld)
Steven Paladino (37,404,156 shares voting for, 283,180 shares withheld)
Marvin H. Schein (36,966,974 shares voting for, 720,362 shares withheld)
Irving Shafran (37,413,225 shares voting for, 274,111 shares withheld)
Dr. Louis W. Sullivan (37,309,189 shares voting for, 378,147 shares withheld)
(ii) Approved the Company's Amended and Restated 1994 Stock Option Plan
(31,153,380 shares voting for; 6,392,891 shares voting against; 141,065
shares abstaining).
(iii) Approved the Company's Amended and Restated 1996 Non-Employee Director
Stock Option Plan (34,644,261 shares voting for; 2,907,115 shares voting
against; 135,960 shares abstaining).
(iv) Ratified the selection of BDO Seidman, LLP as the Company's independent
auditors for the year ending December 27, 2003 (36,207,591 shares voting
for; 1,371,393 shares voting against; 108,352 shares abstaining).
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Henry Schein, Inc. 1994 Stock Option Plan, as amended and restated
effective as of June 18, 2003.
10.2 Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan, as
amended and restated effective as of June 18, 2003.
10.3 Amendment No. 1 to Credit Agreement, dated as of May 1, 2003, among
the Company, the several Guarantors from time to time parties thereto,
JP Morgan Chase Bank, as administrative agent, issuing lender, sole
lead arranger, and sole book runner, Fleet National Bank, as
syndication agent, and the several lenders from time to time parties
thereto.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Steven Paladino
------------------------------------
Steven Paladino
Executive Vice President,
Chief Financial Officer and Director
(principal financial officer and
accounting officer)
Dated: August 11, 2003
26
HENRY SCHEIN, INC.
1994 STOCK OPTION PLAN
---------------------
AS AMENDED AND RESTATED EFFECTIVE AS OF APRIL 1, 2003
Table of Contents
1. Purposes of the Plan.................................................. 1
2. Definitions........................................................... 1
3. Effective Date/Expiration of Plan..................................... 5
4. Administration........................................................ 5
(a) Duties of the Committee...................................... 5
(b) Advisors..................................................... 6
(c) Indemnification.............................................. 6
(d) Meetings of the Committee.................................... 6
5. Shares; Adjustment upon Certain Events................................ 7
(a) Shares to be Delivered; Fractional Shares.................... 7
(b) Number of Shares............................................. 7
(c) Individual Participant Limitations........................... 7
(d) Adjustments; Recapitalization, etc........................... 7
6. Awards and Terms of Options........................................... 9
(a) Grant........................................................ 9
(b) Exercise Price............................................... 9
(c) Number of Shares............................................. 9
(d) Exercisability............................................... 9
(e) Special Rule for Incentive Options........................... 10
(f) Acceleration of Exercisability on Change of Control.......... 10
(g) Exercise of Options.......................................... 12
7. Effect of Termination of Employment or Termination of Consultancy..... 12
(a) Death, Disability; Retirement, etc........................... 12
(b) Cause or Voluntary Termination............................... 13
(c) Other Termination............................................ 13
8. Nontransferability of Options......................................... 14
9. Rights as a Stockholder............................................... 14
10. Determinations........................................................ 14
11. Termination, Amendment and Modification............................... 15
12. Non-Exclusivity....................................................... 15
13. Use of Proceeds....................................................... 16
14. General Provisions.................................................... 16
(a) Right to Terminate Employment or Consultancy................. 16
i
(b) Purchase for Investment...................................... 16
(c) Trusts, etc.................................................. 16
(d) Notices...................................................... 16
(e) Severability of Provisions................................... 17
(f) Payment to Minors, Etc....................................... 17
(g) Headings and Captions........................................ 17
(h) Controlling Law.............................................. 17
15. Issuance of Stock Certificates; Legends and Payment of Expenses....... 17
(a) Stock Certificates........................................... 17
(b) Legends...................................................... 17
(c) Payment of Expenses.......................................... 17
16. Listing of Shares and Related Matters................................. 17
17. Withholding Taxes..................................................... 18
18. Section 16(b) of the Act.............................................. 18
ii
HENRY SCHEIN, INC.
1994 STOCK OPTION PLAN
----------------
AS AMENDED AND RESTATED EFFECTIVE AS OF APRIL 1, 2003
-----------------------------------------------------
1. PURPOSES OF THE PLAN
The purposes of this Henry Schein, Inc. 1994 Stock Option Plan, as
amended and restated effective as of April 1, 2003, are to enable HSI and its
Subsidiaries (each as defined herein) to attract, retain and motivate the Key
Employees and Consultants (each as defined herein) who are important to the
success and growth of the business of HSI and to create a long-term mutuality of
interest between the Key Employees and Consultants and the stockholders of HSI
by granting the Key Employees and Consultants options (which, in the case of Key
Employees, may be either incentive stock options (as defined herein) or
non-qualified stock options and, in the case of Consultants, shall be
non-qualified options) to purchase HSI Common Stock (as defined herein).
2. DEFINITIONS
(a) "Acquisition Event" means a merger or consolidation in which HSI
is not the surviving entity, or any transaction that results in the acquisition
of all or substantially all of HSI's outstanding Common Stock by a single person
or entity or by a group of persons and/or entities acting in concert, or the
sale or transfer of all or substantially all of HSI's assets.
(b) "Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated thereunder.
(c) "Board" means the Board of Directors of HSI.
(d) "Cause" has the meaning set forth in Section 7(b).
(e) "Change of Control" has the meaning set forth in Section 6(f).
(f) "Class A Option" means an Option evidenced by a Class A Option
Agreement.
(g) "Class A Option Agreement" has the meaning set forth in Section
6(a).
(h) "Class B Option" means an Option evidenced by a Class B Option
Agreement.
(i) "Class B Option Agreement" has the meaning set forth in Section
6(a).
(j) "Code" means the Internal Revenue Code of 1986, as amended.
(k) "Committee" means such committee (or subcommittee), if any,
appointed by the Board to administer the Plan, consisting of two or more
directors as may be appointed from time to time by the Board, each of whom shall
qualify as a "non-employee director" within the meaning of Rule 16b-3
promulgated under the Act and as an "outside director" as defined under Section
162(m) of the Code. If the Board does not appoint a committee for this purpose,
"Committee" means the Board.
(l) "Common Stock" means the voting common stock of HSI, par value
$.0l, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.
(m) "Company" means HSI and its Subsidiaries, any of whose Key
Employees or Consultants are Participants in the Plan.
(n) "Consultant" means any individual (or any wholly-owned corporate
alter ego of any individual) who provides key bona fide consulting or advisory
services to the Company, as determined by the Committee, which services are not
in connection with the offer and sale of securities in a capital-raising
transaction.
(o) "Corporate Transaction" has the meaning set forth in Section
6(f)(i).
(p) "Disability" means a permanent and total disability, as
determined by the Committee in its sole discretion, provided that in no event
shall any disability that is not a permanent and total disability within the
meaning of Section 22(e)(3) of the Code be treated as a Disability. A Disability
shall be deemed to occur at the time of the determination by the Committee of
the Disability.
(q) "Effective Date" has the meaning set forth in Section 3.
(r) "Fair Market Value" means the value of a Share (as defined
herein) on a particular date, determined as follows:
(i) If the Common Stock is listed or admitted to trading on such
date on a national securities exchange or quoted through NASDAQ Stock
Market, Inc. ("NASDAQ"), the closing sales price of a Share as reported on
the relevant composite transaction tape, if applicable, or on the principal
such exchange (determined by trading value in the Common Stock) or through
NASDAQ, as the case may be, on such date, or in the absence of reported
sales on such day, the mean between the reported bid and asked prices
reported on such composite transaction tape or exchange or through NASDAQ,
as the case may be, on such date; or
(ii) If the Common Stock is not listed or quoted as described in
the preceding clause, but bid and asked prices are quoted through NASDAQ,
the mean between the bid and asked prices as quoted by NASDAQ on such date;
or
(iii) If the Common Stock is not listed or quoted on a national
securities exchange or through NASDAQ or, if pursuant to (i) and (ii) above
the Fair Market Value is to be determined based upon the mean of the bid
and asked prices and the Committee determines that such mean does not
properly reflect the Fair Market Value, by such other method as the
2
Committee determines to be reasonable and consistent with applicable law;
or
(iv) If the Common Stock is not publicly traded, such amount as
is set by the Committee in good faith.
(s) "Family Member" means, with respect to any Participant, any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships, trusts for the exclusive
benefit of such individuals, and any other entity owned solely by such
individuals.
(t) "HSI" means Henry Schein, Inc.
(u) "HSI Agreement" means the Amended and Restated HSI Agreement
dated as of February 16, 1994 among HSI and certain other parties.
(v) "HSI Closing" means the closing of the HSI Public Offering.
(w) "HSI Public Offering" means an initial public offering of shares
of HSI Common Stock at a Market Capitalization which is not less than the
Minimum Market Capitalization then in effect and as a result of which at least
20% of the common equity of HSI will be publicly held by at least 300 holders
and such shares of HSI Common Stock will be listed or admitted to trading on the
New York Stock Exchange or the American Stock Exchange or quoted on NASDAQ or is
on such terms and conditions as are approved by Marvin Schein prior to the
effective date thereof.
(x) "Incentive Stock Option" means any Option which is intended to
qualify as an "incentive stock option" as defined in Section 422 of the Code.
(y) "Incumbent Board" has the meaning set forth in Section 6(f)(ii).
(z) "Key Employee" means any person who is an executive officer or
other valuable staff, managerial, professional or technical employee of the
Company, as determined by the Committee, including those individuals described
in Section 5(d)(iv). A Key Employee may, but need not, be an officer or director
(with the exception of a non-employee director) of the Company.
(aa) "Market Capitalization" means (i) the per share initial pubic
offering price, multiplied by (ii) the number of shares outstanding immediately
prior to the HSI Closing less the aggregate number of shares issued pursuant to
the 1994 Stock Purchase Agreement between HSI and the HSI Employee Stock
Ownership Plan (the "HSI ESOP") or held by the HSI ESOP which are outstanding on
such date.
(bb) "Minimum Market Capitalization" means $48,000,000 on August 15,
1992, which amount shall increase on each day thereafter as follows:
3
From August 15, 1992 until the 1st anniversary thereof: $15,123 per day;
From the 1st anniversary thereof until the 2nd anniversary thereof: $16,862
per day;
From the 2nd anniversary thereof until the 3rd anniversary thereof: $18,802
per day;
From the 3rd anniversary thereof until the 4th anniversary thereof: $20,964
per day;
From the 4th anniversary thereof until the 5th anniversary thereof: $23,375
per day;
From the 5th anniversary thereof until the 6th anniversary thereof: $26,063
per day;
From the 6th anniversary thereof until the 7th anniversary thereof: $29,060
per day; and
Thereafter: $32,402 per day.
(cc) "Option" means the right to purchase one Share at a prescribed
Purchase Price on the terms specified in the Plan and the Option Agreement. An
Option may be an Incentive Stock Option or a non-qualified option.
(dd) "Option Agreement" means a Class A Option Agreement or Class B
Option Agreement.
(ee) "Outstanding HSI Voting Securities" has the meaning set forth in
section 6(f)(i).
(ff) "Participant" means a Key Employee or Consultant of the Company
who is granted Options under the Plan.
(gg) "Person" means an individual, entity or group within the meaning
of Section 13d-3 or 14d-1 of the Act.
(hh) "Plan" means the Henry Schein, Inc. 1994 Stock Option Plan, as
amended from time to time.
(ii) "Purchase Price" means purchase price per Share.
(jj) "Securities Act" means the Securities Act of 1933, as amended.
(kk) "Share" means a share of Common Stock.
(ll) "Subsidiary" means any "subsidiary corporation" within the
meaning of Section 424(f) of the Code. An entity shall be deemed a Subsidiary of
HSI only for such periods as the requisite ownership relationship is maintained.
(mm) "Substantial Stockholder" means any Participant who at the time
of grant owns directly or is deemed to own by reason of the attribution rules
set forth in Section 424(d) of the Code, Shares possessing more than 10% of the
total combined voting power of all classes of stock of HSI.
4
(nn) "Termination of Employment" means termination of the relationship
with HSI and its Subsidiaries so that an individual is no longer an employee or
director of HSI or any of its Subsidiaries. In the event an entity shall cease
to be a Subsidiary of HSI, any individual who is not otherwise an employee of
HSI or another Subsidiary of HSI shall incur a Termination of Employment at the
time the entity ceases to be a Subsidiary. A Termination of Employment shall not
include a leave of absence approved for purposes of the Plan by the Committee.
(oo) "Termination of Consultancy" means termination of the
relationship with HSI and its Subsidiaries so that an individual is no longer a
Consultant of HSI or any of its Subsidiaries. In the event an entity shall cease
to be a Subsidiary of HSI, any individual who is not otherwise a Consultant of
HSI or another Subsidiary of HSI shall incur a Termination of Consultancy at the
time the entity ceases to be a Subsidiary; provided, that if a Consultant
becomes a Key Employee upon his Termination of Consultancy, the Committee, in
its sole discretion, may determine that no Termination of Consultancy shall be
deemed to occur until such later time as such Consultant ceases to be either a
Key Employee or a Consultant. A Termination of Consultancy shall not include a
leave of absence approved for purposes of the Plan by the Committee.
3. EFFECTIVE DATE/EXPIRATION OF PLAN
The Plan became as originally adopted effective as of September 30,
1994 (the "Effective Date"), and was amended and restated effective as of June
6, 2001. The Plan was subsequently amended and restated in the form set forth
herein effective as of April 1, 2003, subject to stockholder approval by a
majority of the total votes cast in person or by proxy (the "Restated Effective
Date"). Grants of Options under the Plan may be made on and after the Effective
Date and the Restated Effective Date. No Option shall be granted under the Plan
on or after September 30, 2009, but Options previously granted may extend beyond
that date.
4. ADMINISTRATION
(a) Duties of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full authority to interpret the Plan and to
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend, and rescind rules for carrying
out the Plan; to administer the Plan, subject to its provisions; to select
Participants in, and grant Options under, the Plan; to determine the terms,
exercise price and form of exercise payment for each Option granted under the
Plan; to determine which Options granted under the Plan to Key Employees shall
be Incentive Stock Options; to prescribe the form or forms of instruments
evidencing Options and any other instruments required under the Plan (which need
not be uniform) and to change such forms from time to time; and to make all
other determinations and to take all such steps in connection with the Plan and
the Options as the Committee, in its sole discretion, deems necessary or
desirable; provided, that all such determinations shall be in accordance with
the express provisions, if any, contained in the HSI Agreement, Option Agreement
and the Plan. The Committee shall not be bound to any standards of uniformity or
similarity of action, interpretation or conduct in the discharge of its duties
hereunder, regardless of the apparent similarity of the matters coming before
it. The determination, action or conclusion of the Committee in connection with
the foregoing shall be final, binding and conclusive.
5
(b) Advisors. The Committee may designate the Secretary of HSI, other
employees of the Company or competent professional advisors to assist the
Committee in the administration of the Plan, and may grant authority to such
persons (other than professional advisors) to execute Option Agreements (as
defined herein) or other documents on behalf of the Committee; provided, that no
Participant may execute any Option Agreement granting Options to such
Participant. The Committee may employ such legal counsel, consultants and agents
as it may deem desirable for the administration of the Plan, and may rely upon
any opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company.
(c) Indemnification. No officer, member or former member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
HSI and to the extent not covered by insurance, each officer, member or former
member of the Committee or of the Board shall be indemnified and held harmless
by HSI against any cost or expense (including reasonable fees of counsel
reasonably acceptable to HSI) or liability (including any sum paid in settlement
of a claim with the approval of HSI), and advanced amounts necessary to pay the
foregoing at the earliest time and to the fullest extent permitted, arising out
of any act or omission to act in connection with the Plan, except to the extent
arising out of such officer's, member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the officers, members or former members may have as directors
under applicable law or under the Certificate of Incorporation or By-Laws of HSI
or any Subsidiary of HSI.
(d) Meetings of the Committee. The Committee shall select one of its
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may be removed at any time either with
or without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board. All
determinations by the Committee shall be made by the affirmative vote of a
majority of its members. Any such determination may be made at a meeting duly
called and held at which a majority of the members of the Committee were in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all of the members of the Committee shall be as
fully effective as if it had been made by a majority vote of the members at a
meeting duly called and held.
6
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) Shares to be Delivered; Fractional Shares. Shares to be issued
under the Plan shall be made available at the discretion of the Board, either
from authorized but unissued Shares or from issued Shares reacquired by HSI and
held in treasury. No fractional Shares will be issued or transferred upon the
exercise of any Option. In lieu thereof, HSI shall pay a cash adjustment equal
to the same fraction of the Fair Market Value of one Share on the date of
exercise.
(b) Number of Shares. Subject to adjustment as provided in this
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be 8,579,635 Shares of Common Stock of which a maximum of 237,897 of
such Shares shall be covered by Class A Options and the balance of such Shares
shall be covered by Class B Options. If Options are for any reason canceled, or
expire or terminate unexercised, the Shares covered by such Options shall again
be available for the grant of Options, subject to the foregoing limit, provided
that the number of Shares covered by Class A Options shall be reduced by that
number of Class A Options that are cancelled, expire or are terminated. In
addition, if Common Stock has been exchanged by a Participant as full or partial
payment to HSI of the Purchase Price or for required withholding, or if the
number of shares of Common Stock otherwise deliverable has been reduced for full
or partial payment to HSI of the Purchase Price or for required withholding, the
number of shares of Common Stock exchanged or reduced shall again be available
under the Plan.
(c) Individual Participant Limitations. The maximum number of Shares
subject to any Option which may be granted under this Plan to each Participant
on or after the HSI Public Offering shall not exceed 100,000 Shares (subject to
any adjustment pursuant to Section 5(d)) during each fiscal year of HSI during
the entire term of the Plan. To the extent that Shares for which Options are
permitted to be granted to a Participant pursuant to Section 5(c) during a
fiscal year are not covered by a grant of an Option to a Participant issued in
such fiscal year, such Shares shall automatically increase the number of Shares
available for grant of Options to such Participant in the subsequent fiscal year
during the term of the Plan.
(d) Adjustments; Recapitalization, etc. The existence of the Plan and
the Options granted hereunder shall not affect in any way the right or power of
the Board or the stockholders of HSI to make or authorize any adjustment,
recapitalization, reorganization or other change in HSI's capital structure or
its business, any merger or consolidation of HSI, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of HSI or any of its Subsidiaries, or any
sale or transfer of all or part of its assets or business or any other corporate
act or proceeding. If and whenever HSI takes any such action, however, the
following provisions, to the extent applicable, shall govern:
(i) If and whenever HSI shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in HSI's Common Stock, (x) the Purchase Price (as defined herein)
per Share and the number and class of Shares and/or other securities with
respect to which outstanding Options thereafter may be exercised, and (y)
the total number and class of Shares and/or other securities that may be
issued under this Plan, shall be proportionately adjusted by the Committee.
The
7
Committee may also make such other adjustments as it deems necessary to
take into consideration any other event (including, without limitation,
accounting changes) if the Committee determines that such adjustment is
appropriate to avoid distortion in the operation of the Plan.
(ii) Subject to Section 5(d)(iii), if HSI merges or consolidates
with one or more corporations, then from and after the effective date of
such merger or consolidation, upon exercise of Options theretofore granted,
the Participant shall be entitled to purchase under such Options, in lieu
of the number of Shares as to which such Options shall then be exercisable
but on the same terms and conditions of exercise set forth in such Options,
the number and class of Shares and/or other securities or property
(including cash) to which the Participant would have been entitled pursuant
to the terms of the agreement of merger or consolidation if, immediately
prior to such merger or consolidation, the Participant had been the holder
of record of the total number of Shares receivable upon exercise of such
Options (whether or not then exercisable).
(iii) In the event of an Acquisition Event, the Committee may, in
its discretion, and without any liability to any Participant, terminate all
outstanding Options as of the consummation of the Acquisition Event by
delivering notice of termination to each Participant at least 20 days prior
to the date of consummation of the Acquisition Event; provided that, during
the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have
the right to exercise in full all of the Options that are then outstanding
(without regard to limitations on exercise otherwise contained in the
Options). If an Acquisition Event occurs and the Committee does not
terminate the outstanding Options pursuant to the preceding sentence, then
the provisions of Section 5(d)(ii) shall apply.
(iv) Subject to Sections 5(b) and (c), the Committee may grant
Options under the Plan in substitution for options held by employees or
consultants of another corporation who concurrently become employees or
consultants of the Company as the result of a merger or consolidation of
the employing or engaging corporation with the Company, or as the result of
the acquisition by the Company of property or stock of the employing or
engaging corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Committee considers appropriate
in the circumstances.
(v) If, as a result of any adjustment made pursuant to the
preceding paragraphs of this Section 5, any Participant shall become
entitled upon exercise of an Option to receive any securities other than
Common Stock, then the number and class of securities so receivable
thereafter shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock set forth in this Section 5, as determined by the
Committee in its discretion.
8
(vi) Except as hereinbefore expressly provided, the issuance by
HSI of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number and class of Shares and/or other
securities or property subject to Options theretofore granted or the
Purchase Price per Share.
6. AWARDS AND TERMS OF OPTIONS
(a) Grant. The Committee may grant Options, including, in the case of
grants to Key Employees, Options intended to be Incentive Stock Options, to Key
Employees and Consultants of the Company. Each Option shall be evidenced by a
Class A Option agreement ("Class A Option Agreement") or Class B Option
agreement ("Class B Option Agreement"), as applicable.
(b) Exercise Price. The Purchase Price deliverable upon the exercise
of an Option shall be determined by the Committee, subject to the following: (i)
in the case of Class A Options (A) prior to the HSI Public Offering, the
Purchase Price shall not be less than $416.67 per Share, and (B) on or after the
HSI Public Offering, the Purchase Price shall not be less than the Fair Market
Value per Share on the date the Option is granted, and (ii) in the case of Class
B Options or Incentive Stock Options, the Purchase Price shall not be less than
100% (110% for an Incentive Stock Option granted to a Substantial Stockholder)
of the Fair Market Value per Share on the date the Class B Option or Incentive
Stock Option is granted.
(c) Number of Shares. The Option Agreement shall specify the number
of Options granted to the Participant, as determined by the Committee in its
sole discretion, subject to Section 5(c) hereof.
(d) Exercisability. At the time of grant, the Committee shall specify
when and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the Option
Agreement and the Plan, and provided that the Committee may not accelerate the
exercise date prior to the HSI Closing. No Option shall be exercisable after the
expiration of ten (10) years from the date of grant (five (5) years in the case
of an Incentive Stock Option granted to a Substantial Stockholder). Each Option
shall be subject to earlier termination as provided in Section 7 below.
9
(e) Special Rule for Incentive Options. If required by Section 422 of
the Code, to the extent the aggregate Fair Market Value of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by a
Key Employee during any calendar year (under all plans of his or her employer
corporation and its parent and subsidiary corporations) exceeds $100,000, such
Options shall not be treated as Incentive Stock Options. Nothing in this special
rule shall be construed as limiting the exercisability of any Option, unless the
Committee expressly provides for such a limitation at time of grant.
(f) Acceleration of Exercisability on Change of Control. Upon a Change
of Control (as defined herein) of HSI all Options theretofore granted and not
previously exercisable shall become fully exercisable. For this purpose, a
"Change of Control" shall be deemed to have occurred upon:
(i) an acquisition by any Person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 33% (20% with
respect to Options granted prior to the Restated Effective Date) or more of
either (A) the then outstanding Shares or (B) the combined voting power of
the then outstanding voting securities of HSI entitled to vote generally in
the election of directors (the "Outstanding HSI Voting Securities");
excluding, however, the following: (w) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Company, (x) any acquisition by the Company, (y)
any acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or (z) any acquisition by any corporation
pursuant to a reorganization, merger, consolidation or similar corporate
transaction (in each case, a "Corporate Transaction"), if, pursuant to such
Corporate Transaction, the conditions described in clauses (A), (B) and (C)
of paragraph (iii) of this Section 6 are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Restated Effective Date, constitute the Board
(the Board as of the date hereof shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided that for purposes of this Subsection any individual
who becomes a member of the Board subsequent to the date hereof whose
election, or nomination for election by HSI's stockholders, was approved by
a vote of at least a majority of those individuals who are members of the
Board and who are also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) the approval by the stockholders of HSI of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
10
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Corporate Transaction pursuant to which (A) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the outstanding Shares and Outstanding HSI Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
and the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors, in
substantially the same proportions as their ownership, immediately prior to
such Corporate Transaction, of the outstanding Shares and Outstanding HSI
Voting Securities, as the case may be, (B) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate Transaction,
directly or indirectly, 33% (20% with respect to Options granted prior to
the Restated Effective Date) or more of the outstanding Shares or
Outstanding HSI Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 33% (20% with respect to Options granted prior
to the Restated Effective Date) or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding securities
of such corporation entitled to vote generally in the election of directors
and (C) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) the approval of the stockholders of HSI of (A) a complete
liquidation or dissolution of HSI or (B) the sale or other disposition of
all or substantially all of the assets of HSI; excluding, however, such a
sale or other disposition to a corporation with respect to which, following
such sale or other disposition, (x) more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors will be
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the outstanding Shares and Outstanding HSI Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the outstanding Shares and Outstanding
HSI Voting Securities, as the case may be, (y) no Person (other than the
Company and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 33% (20% with
respect to Options granted prior to the Restated Effective Date) or more of
the outstanding Shares or Outstanding HSI Voting Securities, as the case
may be) will beneficially own, directly or indirectly, 33% (20% with
respect to Options granted prior to the Restated Effective Date) or more
of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (z) individuals who were members of the Incumbent Board
11
will constitute at least a majority of the members of the board of
directors of such corporation.
(g) Exercise of Options.
(i) A Participant may elect to exercise one or more Options by
giving written notice to the Committee at any time subsequent to an HSI Closing
of such election and of the number of Options such Participant has elected to
exercise, accompanied by payment in full of the aggregate Purchase Price for the
number of shares for which the Options are being exercised.
(ii) Shares purchased pursuant to the exercise of Options shall
be paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable
to the order of HSI;
(B) if so permitted by the Committee: (x) through the
delivery of unencumbered Shares (including Shares being acquired pursuant
to the Options then being exercised), provided such Shares (or such
Options) have been owned by the Participant for such period as may be
required by applicable accounting standards to avoid a charge to earnings,
(y) through a combination of Shares and cash as provided above, (z) to the
extent permitted by applicable law, by delivery of a promissory note of the
Participant to HSI, such promissory note to be payable on such terms as are
specified in the Option Agreement (except that, in lieu of a stated rate of
interest, the Option Agreement may provide that the rate of interest on the
promissory note will be such rate as is sufficient, at the time the note is
given, to avoid the imputation of interest under the applicable provisions
of the Code), or by a combination of cash (or cash and Shares) and the
Participant's promissory note; provided, that, if the Shares delivered upon
exercise of the Option is an original issue of authorized Shares, at least
so much of the exercise price as represents the par value of such Shares
shall be paid in cash or by a combination of cash and Shares; or
(C) on such other terms and conditions as may be acceptable
to the Committee and in accordance with applicable law. Except as provided
in subsection (h) below, upon receipt of payment, HSI shall deliver to the
Participant as soon as practicable a certificate or certificates for the
Shares then purchased.
(h) Deferred Delivery of Common Stock. The Committee may, in its
discretion, permit Participants to defer delivery of Common Stock acquired
pursuant to a Participant's exercise of an Option in accordance with the terms
and conditions established by the Committee.
7. EFFECT OF TERMINATION OF EMPLOYMENT OR TERMINATION OF CONSULTANCY
(a) Death, Disability; Retirement, etc. Except as otherwise provided
in the Participant's Option Agreement, upon Termination of Employment or
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Termination of Consultancy, all outstanding Options then exercisable and not
exercised by the Participant prior to such Termination of Employment or
Termination of Consultancy (and any Options not previously exercisable but made
exercisable by the Committee at or after the Termination of Employment or
Termination of Consultancy) shall remain exercisable by the Participant to the
extent not theretofore exercised for the following time periods (subject to
Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the Participant's estate or by the person given
authority to exercise such Options by the Participant's will or by
operation of law) for a period of one (1) year from the date of the
Participant's death, provided that the Committee, in its discretion, may at
any time extend such time period to up to three (3) years from the date of
the Participant's death.
(ii) In the event the Participant retires at or after age 65 (or,
with the consent of the Committee or under an early retirement policy of
the Company, before age 65), or if the Participant's employment terminates
due to Disability, such Options shall remain exercisable for one (1) year
from the date of the Participant's Termination of Employment, provided that
the Committee, in its discretion, may at any time extend such time period
to up to three (3) years from the date of the Participant's Termination of
Employment or Termination of Consultancy.
(b) Cause or Voluntary Termination. Upon the Termination of
Employment or Termination of Consultancy of a Participant for Cause (as defined
herein) or by the Participant in violation of an agreement between the
Participant and HSI or any of its Subsidiaries, or if it is discovered after
such Termination of Employment or Termination of Consultancy that such
Participant had engaged in conduct that would have justified a Termination of
Employment or Termination of Consultancy for Cause, all outstanding Options
shall immediately be canceled, provided that with respect to Options granted on
or after the Restated Effective Date, upon any such termination the Committee
may, in its discretion, require the Participant to promptly pay to the Company
(and the Company shall have the right to recover) any gain the Participant
realized as a result of the exercise of any Option that occurred within one (1)
year prior to such Termination of Employment or Termination of Consultancy or
the discovery of conduct that would have justified a Termination of Employment
or Termination of Consultancy for Cause. Termination of Employment or
Termination of Consultancy shall be deemed to be for "Cause" for purposes of
this Section 7(b) if (i) the Participant shall have committed fraud or any
felony in connection with the Participant's duties as an employee or consultant
(as applicable) of HSI or any of its Subsidiaries, or willful misconduct or any
act of disloyalty, dishonesty, fraud or breach of trust or confidentiality as to
HSI or any of its Subsidiaries or the commission of any other act which causes
or may reasonably be expected to cause economic or reputational injury to HSI or
any of its Subsidiaries or (ii) such termination is or would be deemed to be for
Cause under any employment or consulting agreement between HSI or any of its
Subsidiaries and the Participant.
(c) Other Termination. In the event of Termination of Employment or
Termination of Consultancy for any reason other than as provided in Section 7(a)
or in 7(b), all outstanding Options not exercised by the Participant prior to
such Termination of Employment or Termination of Consultancy shall remain
exercisable (to the extent exercisable by such Participant immediately before
13
such termination) for a period of three (3) months after such termination,
provided that the Committee in its discretion may extend such time period to up
to one (1) year from the date of the Participant's Termination of Employment or
Termination of Consultancy, and provided further that unless otherwise
determined by the Committee at grant, no Options that were not exercisable
during the period of employment shall thereafter become exercisable.
8. NONTRANSFERABILITY OF OPTIONS
(a) Except as provided in Section 8(b), no Option shall be
transferable by the Participant otherwise than by will or under applicable laws
of descent and distribution, and during the lifetime of the Participant may be
exercised only by the Participant or his or her guardian or legal
representative. In addition, no Option shall be assigned, negotiated, pledged or
hypothecated in any way (whether by operation of law or otherwise), and no
Option shall be subject to execution, attachment or similar process. Upon any
attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in
the event of any levy upon any Option by reason of any execution, attachment or
similar process contrary to the provisions hereof, such Option shall immediately
become null and void.
(b) Notwithstanding the foregoing or any prohibition on transfer
contained in any Option Agreement issued before May 26, 1999, a non-qualified
Option may be transferred, in whole or in part, to a Family Member of the
Participant by gift or domestic relations order unless, with respect to Options
granted on or after May 26, 1999, the Participant's Option Agreement expressly
limits or eliminates such transferability. Effective on the Restated Effective
Date Options are not transferable as provided in Section 8(a), except that the
Committee may determine at the time of grant or thereafter that a non-qualified
Option that is not otherwise transferable pursuant to this Section is
transferable to a Family Member in whole or in part and in such circumstances,
and under such conditions, as specified by the Committee. Any Option so
transferred may thereafter be transferred by the transferee to any other Family
Member of the Participant, and may be exercised by any permitted transferee at
such times and to such extent that such Option would have been exercisable by
the Participant if no transfer had occurred.
9. RIGHTS AS A STOCKHOLDER
A Participant (or a permitted transferee of an Option pursuant to
Section 8(b)) shall have no rights as a stockholder with respect to any Shares
covered by such Participant's Option until such Participant (or a permitted
transferee of an Option pursuant to Section 8(b)) shall have become the holder
of record of such Shares, and no adjustments shall be made for dividends in cash
or other property or distributions or other rights in respect to any such
Shares, except as otherwise specifically provided for in this Plan.
10. DETERMINATIONS
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Committee shall be final,
conclusive and binding for all purposes and upon all persons, including, without
limitation, the Participants, HSI and its Subsidiaries, directors, officers and
14
other employees of HSI and its Subsidiaries, and the respective heirs,
executors, administrators, personal representatives and other successors in
interest of each of the foregoing.
11. TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall terminate at the close of business on September 30,
2009, unless terminated sooner as hereinafter provided, and no Option shall be
granted under the Plan on or after that date. The termination of the Plan shall
not terminate any outstanding Options which by their terms continue beyond the
termination date of the Plan. At any time prior to September 30, 2009, the Board
or the Committee may amend or terminate the Plan or suspend the Plan in whole or
in part. Notwithstanding the foregoing, however, no such amendment may, without
the approval of the stockholders of HSI, (i) increase the total number of Shares
which may be acquired upon exercise of Options granted under the Plan; (ii)
change the types of employees, consultants or other advisors eligible to be
Participants under the Plan; (iii) effect any change that would require
stockholder approval under Section 162(m) of the Code; or (iv) reduce the
Purchase Price of any outstanding Options (except pursuant to Section 5(d)).
Nothing contained in this Section 11 shall be deemed to prevent the
Board or the Committee from authorizing amendments of outstanding Options, so
long as all Options outstanding at any one time shall not call for issuance of
more Shares than the remaining number provided for under the Plan and so long as
the provisions of any amended Options would have been permissible under the Plan
if such Option had been originally granted or issued as of the date of such
amendment with such amended terms; provided, however, that no outstanding Option
may be amended to reduce the Purchase Price specified therein or canceled in
consideration for an award having a lower exercise price without the approval of
the stockholders of HSI; provided further, however, that the foregoing proviso
shall not be deemed to prohibit adjustments related to stock splits, stock
dividends, mergers, recapitalizations or other changes in the capital structure
or business of HSI pursuant to Section 5(d).
Notwithstanding anything to the contrary contained in this Section 11,
no termination, amendment or modification of the Plan may, without the consent
of the Participant or the transferee of such Participant's Option, alter or
impair the rights and obligations arising under any then outstanding Option.
12. NON-EXCLUSIVITY
Subject to the express provisions contained in the HSI Agreement,
neither the adoption of the Plan by the Board nor the submission of the Plan to
the stockholders of HSI for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, the granting or
issuance of stock options, Shares and/or other incentives otherwise than under
the Plan, and such arrangements may be either generally applicable or limited in
application.
15
13. USE OF PROCEEDS
The proceeds of the sale of Shares subject to Options under the Plan
are to be added to the general funds of HSI and used for its general corporate
purposes as the Board shall determine.
14. GENERAL PROVISIONS
(a) Right to Terminate Employment or Consultancy. Neither the
adoption of the Plan nor the grant of Options shall impose any obligations on
the Company to continue the employment or engagement as a consultant of any
Participant, nor shall it impose any obligation on the part of any Participant
to remain in the employ of the Company, subject however to the provisions of any
agreement between the Company and the Participant.
(b) Purchase for Investment. If the Board determines that the law so
requires, the holder of an Option granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to HSI a written statement, in form
satisfactory to HSI, representing and warranting that such Participant is
purchasing or accepting the Shares then acquired for such Participant's own
account and not with a view to the resale or distribution thereof, that any
subsequent offer for sale or sale of any such Shares shall be made either
pursuant to (i) a registration statement on an appropriate form under the
Securities Act, which registration statement shall have become effective and
shall be current with respect to the Shares being offered and sold, or (ii) a
specific exemption from the registration requirements of the Securities Act, and
that in claiming such exemption the holder will, prior to any offer for sale or
sale of such Shares, obtain a favorable written opinion, satisfactory in form
and substance to HSI, from counsel approved by HSI as to the availability of
such exception.
(c) Trusts, etc. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of any Option
thereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between HSI and any Participant or the executor,
administrator or other personal representative or designated beneficiary of such
Participant, or any other persons. Any reserves that may be established by HSI
in connection with the Plan shall continue to be part of the general funds of
HSI, and no individual or entity other than HSI shall have any interest in such
funds until paid to a Participant. If and to the extent that any Participant or
such Participant's executor, administrator, or other personal representative, as
the case may be, acquires a right to receive any payment from HSI pursuant to
the Plan, such right shall be no greater than the right of an unsecured general
creditor of HSI.
(d) Notices. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
16
(e) Severability of Provisions. If any provisions of the Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the benefit
of a minor, an incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's guardian or to the
party providing or reasonably appearing to provide for the care of such person,
and such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(g) Headings and Captions. The headings and captions herein are
provided for reference and convenience only. They shall not be considered part
of the Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced
according to the laws of the State of New York.
15. ISSUANCE OF STOCK CERTIFICATES;
LEGENDS AND PAYMENT OF EXPENSES
-------------------------------
(a) Stock Certificates. Upon any exercise of an Option and payment of
the exercise price as provided in such Option, a certificate or certificates for
the Shares as to which such Option has been exercised shall be issued by HSI in
the name of the person or persons exercising such Option and shall be delivered
to or upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an
Option shall bear such legend or legends as the Committee, in its discretion,
determines to be necessary or appropriate to prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
or to implement the provisions of any agreements between HSI and the Participant
with respect to such Shares.
(c) Payment of Expenses. The Company shall pay all issue or transfer
taxes with respect to the issuance or transfer of Shares, as well as all fees
and expenses necessarily incurred by the Company in connection with such
issuance or transfer and with the administration of the Plan.
16. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board shall determine in its sole discretion that
the listing, registration or qualification of the Shares covered by the Plan
upon any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
17
17. WITHHOLDING TAXES
Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, HSI shall have the right to require the
Participant or such other person to pay to HSI the amount of any taxes which HSI
may be required to withhold before delivery to such Participant or other person
of cash or a certificate or certificates representing such Shares.
Upon the disposition of Shares acquired pursuant to the exercise of an
Incentive Stock Option, HSI shall have the right to require the payment of the
amount of any taxes which are required by law to be withheld with respect to
such disposition.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any statutorily required withholding tax obligation by
any of the following methods, or by a combination of such methods: (a) securing
payment in cash or property in lieu of withholding; (b) authorizing HSI to
withhold from the Shares otherwise payable to such Participant (1) one or more
of such Shares having an aggregate Fair Market Value, determined as of the date
the withholding tax obligation arises, less than or equal to the amount of the
total withholding tax obligation or (2) cash in an amount less than or equal to
the amount of the total withholding tax obligation; or (c) delivering to HSI
previously acquired Shares (none of which Shares may be subject to any claim,
lien, security interest, community property right or other right of spouses or
present or former family members, pledge, option, voting agreement or other
restriction or encumbrance of any nature whatsoever) having an aggregate Fair
Market Value, determined as of the date the withholding tax obligation arises,
less than or equal to the amount of the total withholding tax obligation.
18. SECTION 16(B) OF THE ACT
All elections and transactions under the Plan by persons subject to
Section 16 of the Act involving Shares are intended to comply with all exemptive
conditions under Rule 16b-3. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Act, as it may deem necessary or proper for the administration and
operation of the Plan and the transaction of business thereunder.
18
HENRY SCHEIN, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
As Amended and Restated Effective as of April 1, 2003
1. PURPOSE OF THE PLAN
The purposes of this Henry Schein, Inc. 1996 Non-Employee Director Stock
Incentive Plan, as amended and restated effective as of April 1, 2003, are to
enable Henry Schein, Inc. (the "Company") to attract, retain and motivate
directors of the Company who are not employees of the Company or its
subsidiaries ("Non-Employee Directors") and who are important to the success of
the Company and to create a mutuality of interest between the Non-Employee
Directors and the stockholders of the Company by granting such directors options
to purchase Common Stock (as defined herein) of the Company and Other
Stock-Based Awards (as defined herein).
2. DEFINITIONS
(a) "Acquisition Event" means a merger or consolidation in which the
Company is not the surviving entity, or any transaction that results in the
acquisition of all or substantially all of the Company's outstanding Common
Stock by a single person or entity or by a group of persons and/or entities in
concert, or the sale or transfer of all or substantially all of the Company's
assets.
(b) "Act" means the Securities Exchange Act of 1934, as amended and the
rules and regulations promulgated thereunder.
(c) "Board" means the board of directors of the Company.
(d) "Cause" has the meaning set forth in Section 8(b).
(e) "Change of Control" has the meaning set for in Section 6(e).
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means such committee (or subcommittee), if any, appointed
by the Board to administer the Plan consisting of two or more directors as may
be appointed from time to time by the Board, each of whom shall qualify as a
"non-employee director" within the meaning of Rule 16b-3 promulgated under the
Act. If the Board does not appoint a committee for this purpose or the Board
removes the Committee for any reason, "Committee" means the Board.
(h) "Common Stock" means the voting common stock of the Company, par value
$.01, any common stock into which the common stock may be converted and any
common stock resulting from any reclassification of the common stock.
(i) "Company" means Henry Schein, Inc., a Delaware corporation.
1
(j) "Corporate Transaction" has the meaning set forth in Section 6(e)(i)
(k) "Disability" means a permanent and total disability, as determined by
the Committee in its sole discretion, provided that in no event shall any
disability that is not permanent and total disability within the meaning of
Section 22(e)(3) of the Code be treated as a Disability. A Disability shall be
deemed to occur at the time of the determination by the Committee of the
Disability.
(l) "Effective Date' has the meaning set forth in Section 3.
(m) "Fair Market Value" means the value of a Share (as defined herein) on
a particular date, determined as follows:
(i) If the Common Stock is listed or admitted to trading on such date
on a national securities exchange or quoted through the NASDAQ Stock Market,
Inc. ("'NASDAQ"), the closing sales price of a Share as reported on the relevant
composite transaction tape, if applicable, or on such principal exchange
(determined by trading value in the Common Stock) or through NASDAQ, as the case
may be, on such date, or in the absence of reported sales on such day, the mean
between the reported bid and asked prices reported on such composite transaction
tape or exchange or through NASDAQ, as the case may be, on such date; or
(ii) If the Common Stock is not listed or quoted as described in the
preceding clause, but bid and asked prices are quoted through NASDAQ, the mean
between the bid and asked prices as quoted by NASDAQ on such date; or
(iii) If the Common Stock is not listed or quoted on a national
securities exchange or through NASDAQ or, if pursuant to (i) and (ii) above the
Fair Market Value is to be determined based upon the mean of the bid and asked
prices and the Committee determines that such mean does not properly reflect the
Fair Market Value, by such other method as the Committee determines to be
reasonable and consistent with applicable law; or
(iv) If the Common Stock is not publicly traded, such amount as is set
by the Committee in good faith.
(n) "Family Member" means, with respect to any Participant, any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships, trusts for the exclusive
benefit of such individuals, and any other entity owned solely by such
individuals.
(o) "HSI Agreement" means the Amended and Restated HSI Agreement dated as
of February 16, 1994 among the Company and certain other parties.
(p) "Incumbent Board" has the moaning set forth in Section 6(e)(ii).
(q) "Non-Employee Directors" means directors of the Company who are not
employees of the Company or its subsidiaries.
(r) "Other Stock-Based Award" shall mean an award of Common Stock and
2
other awards made pursuant to Section 7 that are valued in whole or in part by
reference to, or are payable in or otherwise based on, Common Stock.
(s) "Option" means the right to purchase one Share at a prescribed
Purchase Price on the terms specified in the Plan and the Option agreement. An
Option granted under the Plan may only be a non-qualified stock Option, and no
Option is intended to qualify as an "incentive stock option" under Section 422
of the Code.
(t) "Outstanding HSI Voting Securities" has the meaning set forth in
Section 6(e)(i).
(u) "Participant" means a Non-Employee Director who is granted Options
under the Plan.
(v) "Person" means an individual, entity or group within the meaning of
Section l3d-3 or 14d-1 of the Act.
(w) "Plan" means the Henry Schein, Inc. 1996 Non-Employee Director Stock
Incentive Plan, as amended from time to time.
(x) "Purchase Price' means purchase price per Share.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Share" means a share of Common Stock.
(aa) "Termination of Services" means termination of the relationship with
the Company so that an individual is no longer a director of the Company.
3. EFFECTIVE DATE/EXPIRATION OF PLAN
This Plan shall become effective as of March 22, 1996 (the "Effective
Date"), and was amended on March 4, 2002, subject to its approval not later than
the date of the Company's 2002 Annual Meeting of Stockholders by the holders of
a majority of the outstanding shares of Common Stock entitled to vote thereon.
The Plan was subsequently amended and restated effective as of April 1, 2003,
subject to stockholder approval by a majority of the total votes cast in person
or by proxy (the "Restated Effective Date"). Grants of Options under the Plan
may be made on and after the Effective Date and the Restated Effective Date, and
Other Stock-Based Awards may be granted after the Restated Effective Date,
provided that, if this Plan is not approved in accordance with the preceding
sentence on or before such annual meeting, all Options and Other Stock-Based
Awards granted pursuant to the Plan shall be null and void. Options may not be
exercised prior to such approval. No Option or Other Stock-Based Award shall be
granted under the Plan on or after the tenth anniversary of the Effective Date,
but Options or Other Stock-Based Awards previously granted may extend beyond
that date.
4. ADMINISTRATION
(a) Duties of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full authority to interpret the Plan and to
3
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan; to establish, amend, and rescind rules for carrying
out the Plan, to administer the Plan, subject to its provisions; to select
Participants in, and grant Options and/or Other Stock-Based Awards under, the
Plan; to determine the terms, exercise price and form of exercise payment for
each Option or Other Stock-Based Award granted under the Plan; to prescribe the
form or forms of instruments evidencing Options and Other Stock-Based Awards and
any other instruments required under the Plan (which need not be uniform) and to
change such forms from time to time; and to make all other determinations and to
take all such steps in connection with the Plan and the Options and Other
Stock-Based Awards as the Committee, in its sole discretion, deems necessary or
desirable; provided, that all such determinations shall be in accordance with
the express provisions, if any, contained in the HSI Agreement, Option
agreement, award agreement and the Plan. The Committee shall not be bound to any
standards of uniformity or similarity of action, interpretation or conduct in
the discharge of its duties hereunder, regardless of the apparent similarity of
the matters coming before it. The determination, action or conclusion of the
Committee in connection with the foregoing shall be final, binding and
conclusive.
(b) Advisors. The Committee may designate the Secretary of the Company,
other employees of the Company or competent professional advisors to assist the
Committee in the administration of the Plan, and may grant authority to such
persons (other than professional advisors) to execute Option agreements (or
other award agreement) or other documents on behalf of the Committee; PROVIDED,
that no Participant may execute any Option agreement (or other award agreement)
granting Options or Other Stock-Based Awards to such Participant. The Committee
may employ such legal counsel, consultants and agents as it may deem desirable
for the administration of the Plan, and may rely upon any opinion received from
any such counsel or consultant and any computation received from any such
consultant or agent. Expenses incurred by the Committee in the engagement of
such counsel, consultant or agent shall be paid by the Company.
(c) Indemnification. To the maximum extent permitted by law, no officer,
member or former officer or member of the Committee or the Board shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option or Other Stock-Based Awards granted under it. To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
the Company and to the extent not covered by insurance, each officer, member or
former officer or member of the Committee or of the Board shall be indemnified
and held harmless by the Company against any cost or expense (including
reasonable fees of counsel reasonably acceptable to the Company) or liability
(including any sum paid in settlement of a claim with the approval of the
Company), and advanced amounts necessary to pay the foregoing at the earliest
time and to the fullest extent permitted, arising out of any act or omission to
act in connection with the Plan, except to the extent arising out of such
officer's, member's or former officer's or member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
officers, members or former officers or members may have as directors under
applicable law or under the Certificate of Incorporation or By-Laws of the
Company or otherwise.
(d) Meetings of the Committee. The Committee shall select one of its
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may be removed at any time either with
4
or without cause by resolution adopted by the Board, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board. All
determinations by the Committee shall be made by the affirmative vote of a
majority of its members. Any such determination may be made at a meeting duly
called and held at which a majority of the members of the Committee were in
attendance in person or through telephonic communication. Any determination set
forth in writing and signed by all of the members of the Committee shall be as
fully effective as if it had been made by a vote of such members at a meeting
duly called and held.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) Shares to be Delivered; Fractional Shares. Shares to be issued under
the Plan shall be made available at the discretion of the Board, either from
authorized but unissued Shares or from issued Shares reacquired by the Company
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option or as a result of the conversion of any Other
Stock-Based Awards. In lieu thereof, the Company shall pay a cash adjustment
equal to the same fraction of the Fair Market Value of one Share on the date of
exercise.
(b) Number of Shares. Subject to adjustment as provided in this Section 5,
the maximum aggregate number of Shares that may be issued under the Plan shall
be 200,000 Shares of Common Stock. If Options or Other Stock-Based Awards are
for any reason canceled, or expire or terminate unexercised (as applicable), the
Shares covered by such Options and such Other Stock-Based Awards shall again be
available for grant, subject to the foregoing limit. In addition, if Common
Stock has been exchanged by a Participant as full or partial payment to the
Company of the Purchase Price or for required withholding, or if the number of
shares of Common Stock otherwise deliverable has been reduced for full or
partial payment to the Company of the Purchase Price or for required
withholding, the number of shares of Common Stock exchanged or reduced shall
again be available under the Plan.
(c) Adjustments; Recapitalization, etc. The existence of the Plan and the
Options and Other Stock-Based Awards granted hereunder shall not affect in any
way the right or power of the Board or the stockholders of the Company to make
or authorize any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any merger or consolidation of
the Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting Common Stock, the dissolution or liquidation of the
Company or any sale or transfer of all or part of its assets or business or any
other corporate act or proceeding. If and whenever the Company takes any such
action, however, the following provisions, to the extent applicable, shall
govern:
(i) If and whenever the Company shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other
changes in the Company's Common Stock, (x) the Purchase Price (as defined
herein) per Share and the number and class of Shares and/or other securities
with respect to which outstanding Options thereafter may be exercised or Other
Stock-Based Awards converted, and (y) the total number and class of Shares
and/or other securities that may be issued under this Plan, shall be
proportionately adjusted by the Committee. The Committee may also make such
other adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes) if the Committee
5
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
(ii) Subject to Section 5(c)(iii), if the Company merges or
consolidates with one or more corporations, then from and after the effective
date of such merger or consolidation, upon exercise of Options theretofore
granted or conversion of Other Stock-Based Awards, the Participant shall be
entitled to purchase under such Options and receive under such Other Stock-Based
Awards, in lieu of the number of Shares as to which such Options shall then be
exercisable, or Other Stock-Based Awards be converted, but on the same terms and
conditions set forth in the applicable award agreement, the number and class of
Shares and/or other securities or property (including cash) to which the
Participant would have been entitled pursuant to the terms of the agreement of
merger or consolidation if, immediately prior to such merger or consolidation,
the Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable) or
upon conversion of such Other Stock-Based Awards.
(iii) In the event of an Acquisition Event, the Committee may, in its
discretion, and without any liability to any Participant, terminate all
outstanding Options or Other Stock-Based Award (solely to the extent such award
gives a Participant an exercise right) as of the consummation of the Acquisition
Event by delivering notice of termination to each Participant at least 20 days
prior to the date of consummation of the Acquisition Event; provided that,
during the period from the date on which such notice of termination is delivered
to the consummation of the Acquisition Event, each Participant shall have the
right to exercise in full all of the Options or such Other Stock-Based Awards
described in this subsection (iii) that are then outstanding (without regard to
limitations on exercise otherwise contained in the Options). If an Acquisition
Event occurs and the Committee does not terminate the outstanding Options or
Other Stock-Based Award described in this subsection (iii) pursuant to the
preceding sentence, then the provisions of Section 5(c)(ii) shall apply.
(iv) If, as a result of any adjustment made pursuant to the preceding
paragraphs of this Section 5, any Participant shall become entitled upon
exercise of an Option or conversion of Other Stock-Based Awards to receive any
securities other than Common Stock, then the number and class of securities so
receivable thereafter shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock set forth in this Section 5, as determined by the
Committee in its discretion.
(v) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or other securities, and in any case whether or not for
fair value, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number and class of Shares and/or other securities or
property subject to Other Stock-Based Awards and Options theretofore granted of
the Purchase Price per Share.
6
6. AWARDS AND TERMS OF OPTIONS;
(a) Grant. The Committee may grant Options to Non-Employee Directors.
(b) Exercise Price. The Purchase Price deliverable upon the exercise of an
Option shall equal 100% of the Fair Market Value on the date of grant.
(c) Number of Shares. The Option agreement shall specify the number of
Options granted to the Participant, as determined by the Committee in its sole
discretion.
(d) Exercisability. At the time of grant, the Committee shall specify when
and on what terms the Options granted shall be exercisable. In the case of
Options not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Options may be exercised and
may waive any other conditions to exercise, subject to the terms of the option
agreement and the Plan. No Option shall be exercisable after the expiration of
ten (10) year from the date of grant. Each Option shall be subject to earlier
termination as provided in Section 8 below.
(e) Acceleration of Exercisability on Change of Control. All Options
granted and not previously exercisable shall become exercisable immediately upon
the later of a Change of Control (as defined herein) or approval of this Plan in
accordance with Section 3. For this purpose, a "Change of Control" shall be
deemed to have occurred upon:
(i) an acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of 33% (20% with respect
to Options granted prior to the Restated Effective Date) or more of either
(A) the then outstanding Shares or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding HSI Voting
Securities"); excluding, however, the following: (w) any acquisition
directly from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (x) any acquisition by the
Company, (y) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or (z) any acquisition by any
corporation pursuant to a reorganization, merger, consolidation or similar
corporate transaction (in each case, a "Corporate Transaction"), if,
pursuant to such Corporate Transaction, the conditions described in clauses
(A), (B) and (C) of paragraph (iii) of this Section 6 are satisfied; or
(ii) a change in the composition of the Board such that the
individuals who, as of the Restated Effective Date hereof, constitute the
Board (the Board as of the date hereof shall be hereinafter referred to as
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that for purposes of this Subsection any
individual who becomes a member of the Board subsequent to the date hereof
whose election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of those individuals who are
members of this proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a result of either
7
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) the approval by the stockholders of the Company of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation), excluding, however, such
Corporate Transaction pursuant to which (A) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of
the outstanding Shares and Outstanding HSI Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction
and the combined voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of directors, in
substantially the same proportions as their ownership immediately prior to
such Corporate Transaction, of the outstanding Shares and Outstanding HSI
Voting Securities, as the case may be, (B) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or the
corporation resulting from such Corporate Transaction and any Person
beneficially owning, immediately prior to such Corporate Transaction,
directly or indirectly, 33% (20% with respect to Options granted prior to
the Restated Effective Date) or more of the outstanding Shares or
Outstanding HSI Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 33% (20% with respect to Options granted prior
to the Restated Effective Date) or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding securities
of such corporation entitled to vote generally in the election of directors
and (C) individuals who were members of the incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction, notwithstanding the
foregoing, no Change of Control will occur if the Incumbent Board approves
the Corporate Transaction; or
(iv) the approval of the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company;
excluding, however, such sale or other disposition to a corporation with
respect to which, following such sale or other disposition, (x) more than
60% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors will be then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Shares and Outstanding
HSI Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior
to such sale or other disposition, of the outstanding Shares and
Outstanding HSI Voting Securities, as the case may be, (y) no Person (other
than the Company and any employee benefit plan (or related trust) of the
8
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 33% (20%
with respect to Options granted prior to the Restated Effective Date) or
more of the outstanding Shares or Outstanding HSI Voting Securities, as the
case may be) will beneficially own, directly or indirectly, 33% (20% with
respect to Options granted prior to the Restated Effective Date) or more
of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (z) individuals who were members of the incumbent Board
will constitute at least a majority of the members of the board of
directors of such corporation.
(f) Exercise of Options.
(i) A Participant may elect to exercise one or more Options by giving
written notice to the Committee of such election and of the number of Options
such Participant has elected to exercise, accompanied by payment in full of the
aggregate Purchase Price for the number of shares for which the Options are
being exercised.
(ii) Shares purchased pursuant to the exercise of Options shall be
paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order payable to the
order of the Company;
(B) if so permitted by the Committee: (x) through the delivery of
unencumbered Shares (including Shares being acquired pursuant to the
Options then being exercised), provided such Shares (or such Options) have
been owned by the Participant for such period as may be required by
applicable accounting standards to avoid a charge to earnings or (y)
through a combination of Shares and cash as provided above, provided, that,
if the Shares delivered upon exercise of the Option is an original issue of
authorized Shares, at least so much of the exercise price as represents the
par value of such Shares shall be paid in cash or by a combination of cash
and Shares; or
(C) on such other terms and conditions as may be acceptable to the
Committee and in accordance with applicable law. Upon receipt of payment,
the Company shall deliver to the Participant as soon as practicable a
certificate or certificates for the Shares then purchased.
7. AWARDS OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards, including, without limitation, stock appreciation
rights, performance shares, deferred shares, shares of Common Stock and
restricted stock units, may be granted either alone, or in addition to, or in
tandem with, Options. The Company may, in its discretion, permit Non-Employee
Directors to defer a portion of their cash compensation in the form of Other
Stock-Based Awards granted under this Plan, subject to the terms and conditions
of any deferred compensation arrangement established by the Company.
9
Subject to the provisions of this Plan, the Committee shall have authority
to determine the Non-Employee Directors to whom and the time or times at which
such Other Stock-Based Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such Other Stock-Based Awards, and all other
conditions of the Other Stock-Based Awards.
(a) Other Stock-Based Awards made pursuant to this Section shall be
subject to the following terms and conditions:
(i) Dividends. Unless otherwise determined by the Committee at
the time of grant, subject to the provisions of the award agreement and this
Plan, the recipient of an Other Stock-Based Award shall be entitled to receive,
currently or on a deferred basis, dividends or dividend equivalents with respect
to the number of shares of Common Stock covered by the Other Stock-Based Award,
as determined at the time of grant by the Committee, in its sole discretion.
(ii) Vesting. Other Stock-Based Awards and any Common Stock
covered by any such Other Stock-Based Award shall vest or be forfeited to the
extent so provided in the award agreement, as determined by the Committee, in
its sole discretion.
(iii) Waiver of Limitation. The Committee may, in its sole
discretion, waive in whole or in part any or all of the limitations imposed
hereunder (if any) with respect to any or all of an Other Stock-Based Award
granted under this Plan.
(iv) Price. Common Stock or Other Stock-Based Awards purchased
pursuant to a purchase right awarded under this Plan shall be priced as
determined by the Committee.
8. EFFECT OF TERMINATION OF SERVICES ON OPTIONS AND OTHER STOCK-BASED AWARDS
(a) Death, Disability, Retirement, etc. Except as otherwise provided in
the Participant's option agreement or in this Plan, upon Termination of
Services, all outstanding Options then exercisable and not exercised by the
Participant prior to such Termination of Services (and any Options not
previously exercisable but made exercisable by the Committee at or after the
Termination of Services) shall remain exercisable by the Participant to the
extent not theretofore exercised for the following time periods (subject to
Section 6(d)):
(i) In the event of the Participant's death, such Options shall
remain exercisable (by the Participant's estate or by the person given
authority to exercise such Options by the Participant's will or by
operation of law) for a period of one (1) year from the date of the
Participant's death, provided that the Committee. In its discretion, may at
any time extend such time period to up to three (3) years from the date of
the Participant's death.
(ii) In the event the Participant retires at or after age 65 (or, with
the consent of the Committee, before age 65), or if the Participant's
services terminate due to Disability, such Options shall remain exercisable
for one (1) year from the date of the Participant's Termination of
Services, provided that the Committee, in its discretion, may at any time
extend such time period to up to three (3) years from the date of the
10
Participant's Termination of Services.
(b) Cause or Voluntary Termination. Upon the Termination of Services of a
Participant for cause (as defined herein) or if it is discovered after such
Termination of Services that such Participant had engaged in conduct that would
have justified a Termination of Services for Cause, all outstanding Options
shall immediately be canceled, provided that with respect to Options granted on
or after the Restated Effective Date, upon any such termination the Committee
may, in its discretion, require the Participant to promptly pay to the Company
(and the Company shall have the right to recover) any gain the Participant
realized as a result of the exercise of any Option that occurred within one (1)
year prior to such Termination of Services or the discovery of conduct that
would have justified a Termination of Services for Cause. Termination of
Services shall be deemed to be for "Cause" for purposes of this Section 8(b) if
the Participant shall have committed fraud or any felony in connection with the
Participant's duties as a director of the Company or willful misconduct or any
act of disloyalty, dishonesty, fraud or breach of trust, confidentiality or
fiduciary duties as to the Company or the commission of any other act which
causes or may reasonably be expected to cause economic or reputational injury to
the Company.
(c) Other Termination. In the event of Termination of Services for any
reason other than as provided in Section 8(a) and 8(b), all outstanding Options
then exercisable and not exercised by the Participant prior to such Termination
of Services shall remain exercisable (to the extent exercisable by such
Participant immediately before such termination) for a period of three (3)
months after such termination, provided that the Committee in its discretion may
extend such time period to up to one (1) year from the date of the Participant's
Termination of Services.
(d) Rules Applicable to Other Stock-Based Awards. Subject to the award
agreement and this Plan, upon a Participant's Termination of Service for any
reason during any period or restriction as may be applicable for an Other
Stock-Based Award, the Other Stock-Based Awards in question shall vest or be
forfeited in accordance with the terms and conditions established by the
Committee at the time of grant or thereafter.
9. NONTRANSFERABILITY OF OPTIONS AND OTHER STOCK-BASED AWARDS
Except as otherwise provided below, no Option or Other Stock-Based Award
shall be transferable by the Participant otherwise than by will or under
applicable laws of descent and distribution, and during the lifetime of the
holder may be exercised only by the holder or his or her guardian or legal
representative. In addition, no Option or Other Stock-Based Award shall be
assigned, negotiated, pledged or hypothecated in any way (whether by operation
of law or otherwise), and no Option or Other Stock-Based Award shall be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, negotiate, pledge or hypothecate any Option or Other Stock-Based Award,
or in the event of any levy upon any Option or Other Stock-Based Award by reason
of any execution, attachment or similar process contrary to the provisions
hereof, such Option or Other Stock-Based Award shall immediately be cancelled.
Notwithstanding the foregoing, the Committee may determine at the time of
grant or thereafter that an Option or Other Stock-Based Award that is not
otherwise transferable pursuant to this Section is transferable to a Family
Member in whole or in part and in such circumstances, and under such conditions,
as specified by the Committee. Any Option or Other Stock-Based Award so
11
transferred may thereafter be transferred by the transferee to any other Family
Member of the Participant, and any Option or Other Stock-Based Award (solely to
the extent such award gives a Participant an exercise right) may be exercised by
any permitted transferee at such times and to such extent that such Option or
such Other Stock-Based Award would have been exercisable by the Participant if
no transfer had occurred.
10. RIGHTS AS A STOCKHOLDER
A holder of an Option or Other Stock-Based Award shall have no rights as a
stockholder with respect to any Shares covered by such holder's Option or Other
Stock-Based Award until such holder shall have become the holder of record of
such Shares, and no adjustments shall be made for dividends in cash or other
property or distributions or other rights in respect to any such Shares, except
as otherwise specifically provided for in this Plan.
11. DETERMINATIONS
Each determination, interpretation or other action made or taken pursuant
to the provisions of this Plan by the Committee shall be final, conclusive and
binding for all purposes and upon all persons, including, without limitation,
the holders of any Options or Other Stock-Based Awards and Non-Employee
Directors and their respective heirs, executors, administrators, personal
representatives and other successors in interest.
12. TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall terminate at the close of business on the tenth anniversary
of the Effective Date, unless terminated sooner as hereinafter provided, and no
Option or Other Stock-Based Award shall be granted under the Plan on or after
that date. The termination of the Plan shall not terminate any outstanding
Options or Other Stock-Based Awards which by their terms continue beyond the
termination date of the Plan. At any time prior to the tenth anniversary of the
Effective Date, the Board or the Committee may amend or terminate the Plan or
suspend the Plan in whole or in part. Notwithstanding the foregoing, however, no
such amendment may, without the, approval of the stockholders of the Company,
(i) increase the total number of Shares which may be subject to Options or Other
Stock-Based Award granted under the Plan; or (ii) change the requirements for
eligibility for participation in the Plan.
Subject to the provisions of this Section 12, nothing contained in this
Section 12 (except as provided in the next paragraph) shall be deemed to prevent
the Board or the Committee from authorizing amendments of outstanding Options or
Other Stock-Based Awards of Participants, including, without limitation, the
reduction of the Purchase Price specified therein (or the granting or issuance
of new Options at a lower Purchase Price upon cancellation of outstanding
Options), so long as (i) all Options outstanding at any one time shall not call
for issuance of more Shares than the remaining number provided for under the
Plan, (ii) the provisions of any amended Options would have been permissible
under the Plan if such Option had been originally granted or issued as of the
date of such amendment with such amended terms and (iii) the provisions
regarding stockholder approval set forth below in this Section 12 are complied
with.
Notwithstanding anything to the contrary contained in this Section 12,
without the approval of the stockholders of the Company, no outstanding Option
12
may be modified to reduce the Purchase Price thereof nor may a new Option at a
lower price be substituted for a simultaneously surrendered Option, provided
that the foregoing shall not apply to adjustments or substitutions in accordance
with Section 5.
Notwithstanding anything to the contrary contained in this Section 12, no
termination, amendment or modification of the Plan may, without the consent of
the Participant or the transferee of such Participant's Option or Other
Stock-Based Award, alter or impair the rights and obligations arising under any
then outstanding Option or Other Stock-Based Award.
13. NON-EXCLUSIVITY
Subject to the express provisions contained in the HSI Agreement, neither
the adoption of the Plan by the Board nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, the granting or
issuance of stock options, Shares and/or other incentives otherwise than under
the Plan, and such arrangements may be either generally applicable or limited in
application.
14. USE OF PROCEEDS
The proceeds of the sale of Shares subject to Options or Other Stock-Based
Awards under the Plan are to be added to the general funds of the Company and
used for its general corporate purposes as the Board shall determine.
15. GENERAL PROVISIONS
(a) Right to Terminate Services. Neither the adoption of the Plan nor the
grant of Options or Other Stock-Based Awards shall impose any obligations on the
Company to retain any Participant as a director nor shall it impose any
obligation on the part of any Participant to remain a director.
(b) Purchase for Investment. If the Board determines that the law so
requires, the holder of an Option or Other Stock-Based Award granted hereunder
shall, upon any exercise or conversion thereof, execute and deliver to the
Company a written statement, in form satisfactory to the Company, representing
and warranting that such Participant is purchasing or accepting the Shares then
acquired for such Participant's own account and not with a view to the resale or
distribution thereof, that any subsequent offer for sale or sale of any such
Shares shall be made either pursuant to (i) a registration statement on in
appropriate form under the Securities Act, which registration statement shall
have become effective and shall be current with respect to the Shares being
offered and sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, and that in claiming such exemption the
holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion, satisfactory in form and substance to the Company,
from counsel approved by the Company as to the availability of such exception.
(c) Trusts, etc. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of any Option or
Other Stock-Based Award thereunder) shall create or be construed to create a
trust of any kind, or a fiduciary relationship, between the Company and any
Participant or the executor, administrator or other personal representative or
13
designated beneficiary of such Participant, or any other persons. Any reserves
that may be established by the Company in connection with the Plan shall
continue to be part of the general funds of the Company, and no individual or
entity other than the Company shall have any interest in such funds until paid
to a Participant. If and to the extent that any Participant or such
Participant's executor, administrator, or other personal representative, as the
case may be, acquires a right to receive any payment from the Company pursuant
to the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company.
(d) Notices. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing to such
Participant of notices and the delivery to such Participant of agreements,
Shares and payments. Any notices required or permitted to be given shall be
deemed given if directed to the person to whom addressed at such address and
mailed by regular United States mail, first class and prepaid. If any item
mailed to such address is returned as undeliverable to the addressee, mailing
will be suspended until the Participant furnishes the proper address.
(e) Severability of Provisions. If any provisions of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, Etc. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
(g) Readings and Captions. The headings and captions herein are provided
for reference and convenience only. They shall not be considered part of the
Plan and shall not be employed in the construction of the Plan.
16. ISSUANCE OF STOCK CERTIFICATES; LEGENDS AND PAYMENT OF EXPENSES
(a) Stock Certificates. Upon any exercise of an Option and payment of the
exercise price as provided in such Option, or upon conversion of an Other
Stock-Based Award, a certificate or certificates for the Shares as to which such
Option has been exercised or Other Stock-Based Award has been converted, shall
be issued by the Company in the name of the person or persons exercising such
Option or converting such Other Stock-Based Award and shall be delivered to or
upon the order of such person or persons.
(b) Legends. Certificates for Shares issued upon exercise of an Option or
conversion of an Other Stock-Based Award shall bear such legend or legends as
the Committee, in its discretion, determines to be necessary or appropriate to
prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act, or to implement the provisions of any
agreements between the Company and the Participant with respect to such Shares.
(c) Payment of Expenses. The Company shall pay all issue or transfer taxes
with respect to the issuance or transfer of Shares, as well as all fees and
14
expenses necessarily incurred by the Company in connection with such issuance or
transfer and with the administration of the Plan.
17. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board shall determine in its sole discretion that the
listing, registration or qualification of the Shares covered by the Plan upon
any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
18. WITHHOLDING TAXES
Where a Participant or other person is entitled to receive Shares pursuant
to the exercise of an Option or the conversion of an Other Stock-Based Award,
the Company shall have the right to require the Participant or such other person
to pay to the Company the amount of any taxes which the Company may be required
to withhold before delivery to such Participant or other person of cash or a
certificate or certificates representing such Shares.
15
AMENDMENT
AMENDMENT No. 1 (this "Amendment"), effective as of March 1, 2003 (the
"Amendment Effective Date"), to that certain Credit Agreement (the "Credit
Agreement"), dated as of May 2, 2002, among (i) Henry Schein, Inc., a Delaware
corporation (the "Borrower"), (ii) the several Guarantors from time to time
parties thereto (the "Guarantors"), (iii) JPMorgan Chase Bank ("JPMCB"), as Sole
Lead Arranger (in such capacity, the "Sole Lead Arranger"), Sole Bookrunner (in
such capacity, the "Sole Bookrunner"), Swingline Lender (in such capacity, the
"Swingline Lender"), Issuing Lender (in such capacity, the "Issuing Lender"),
and Administrative Agent for the Lenders thereunder (in such capacity, the
"Administrative Agent"), (iv) Fleet National Bank (in such capacity, the
"Syndication Agent") and (v) the several Lenders and other financial
institutions or entities from time to time parties thereto (the "Lenders").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make
certain extensions of credit to the Borrower; and
WHEREAS, the Borrower and Lenders have agreed that certain provisions of
the Credit Agreement will be amended in the manner provided for in this
Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
I. AMENDMENTS TO CREDIT AGREEMENT.
(a) Subsection 8.14 of the Credit Agreement is hereby amended by
deleting clause (d) thereof and inserting in lieu thereof, the following: "(d)
the Borrower may declare or pay cash dividends in any fiscal year to its
stockholders and purchase, redeem or otherwise acquire shares of its Equity
Interests or warrants, rights or options to acquire any such shares for cash;
provided that no such cash payments (1) in any fiscal quarter of the Borrower
(other than any such payments which are specified in clause (2) below) shall
exceed (x) the greater of (A) $25,000,000 and (B) 40 percent of the consolidated
net income of the Borrower and its Subsidiaries for the period of the four prior
consecutive fiscal quarters of the Borrower (determined on a consolidated basis
and as calculated consistent with the manner disclosed by the Borrower in its
Quarterly Reports on Form 10-Q and its Annual Reports on Form 10-K as filed by
the Borrower from time to time with the Securities and Exchange Commission),
less (y) any such cash payments previously made during such four fiscal quarter
period, or (2) may be made by the Borrower, in an aggregate amount exceeding
$120,000,000, to repurchase shares of the Company's common stock, $.01 par value
per share, from holders thereof pursuant to the Borrower's stock repurchase
program, as authorized by the Board of Directors of the Borrower on or about
March 3, 2003; provided further that not more than 2,000,000 of such shares may
be repurchased by the Borrower pursuant to such program. For the avoidance of
doubt, no cash payments made pursuant to the foregoing clause (2) shall reduce
cash payments made by the Borrower solely in reliance on the foregoing clause
(1).
1
II. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of the date (the "Amendment
Effective Date") at the time when the Borrower, the Guarantors, the
Administrative Agent and the Majority Lenders shall have executed and delivered
to the Administrative Agent this Amendment.
III. GENERAL.
1. Representation and Warranties. To induce the Administrative Agent and
the Lenders party hereto to enter into this Amendment, the Borrower hereby
represents and warrants to the Administrative Agent and all of the Lenders that
as of the Amendment Effective Date:
(a) Corporate Power; Authorization; Enforceable Obligations.
(1) Each of the Borrower and each Guarantor has the requisite
corporate power and authority, and the legal right, to make, deliver and perform
this Amendment and to perform the Loan Documents, as amended by this Amendment,
to which it is a party, and each such Person has taken all necessary corporate
action to authorize the execution, delivery and performance of this Amendment
and the performance of the Loan Documents, as so amended, to which it is a
party.
(2) No consent or authorization of, approval by, notice to,
filing with or other act by or in respect of, any Governmental Authority or any
other Person is required with respect to the Borrower or any of its Subsidiaries
in connection with the execution and delivery of this Amendment or with the
performance, validity or enforceability of the Loan Documents, as amended by
this Amendment.
(3) This Amendment and each Loan Document, as amended by this
Amendment, constitutes a legal, valid and binding obligation of each of the
Borrower and each Guarantor, as the case may be, enforceable against each such
Person in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting the enforcement of creditors' rights generally,
general equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(b) Representations and Warranties. Each of the representations and
warranties made by the Borrower or any Guarantor in or pursuant to the Loan
Documents is true and correct in all material respects on and as of the date
hereof as if made on and as of the date hereof (or, if such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
2. Payment of Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
2
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect.
4. Governing Law; Counterparts. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties
hereto on any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of copies of this Amendment signed
by all of the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed and delivered by their respective proper and duly authorized officers
as of the day and year first above written.
BORROWER:
HENRY SCHEIN, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
GUARANTORS:
ROANE BARKER, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
DENTRIX DENTAL SYSTEMS, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
3
HSI SERVICE CORP.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
MICRO BIO-MEDICS, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
GIV HOLDINGS, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
LENDERS:
JPMORGAN CHASE BANK,
as Administrative Agent, Issuing Lender, Swingline Lender
and as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
FLEET NATIONAL BANK, as Syndication Agent and as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
CITIBANK N.A., as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
HSBC BANK USA, as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
4
Title:
-----------------------------------------------
MELLON BANK, N.A., as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
THE BANK OF NEW YORK, as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
ISRAEL DISCOUNT BANK OF NEW YORK, as a Lender
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
5
CERTIFICATION
I, Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry
Schein, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Henry Schein, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 11, 2003 /s/ Stanley M. Bergman
_________________________________
Stanley M. Bergman
Chairman, Chief Executive Officer
and President
CERTIFICATION
I, Steven Paladino, Executive Vice President and Chief Financial Officer of
Henry Schein, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Henry Schein, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 11, 2003 /s/ Steven Paladino
_________________________________
Steven Paladino
Executive Vice President and
Chief Financial Officer
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350, as
adopted), Stanley M. Bergman, the Chairman, Chief Executive Officer and
President of Henry Schein, Inc. a Delaware corporation (the "Company"), and
Steven Paladino, Executive Vice President and Chief Financial Officer of the
Company, each does hereby certify to the best of such officer's knowledge and
belief that:
(1) the quarterly report of the Company on Form 10-Q for the quarter ended June
28, 2003 (the "Periodic Report") fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Periodic Report fairly presents, in all
material respects, the financial condition of the Company at the end of the
periods covered by the Periodic Report and the results of operations of the
Company for the periods covered by the Periodic Report.
Dated August 11, 2003 /s/ Stanley M. Bergman
________________________________
Stanley M. Bergman
Chairman, Chief Executive Officer
and President
Dated August 11, 2003 /s/ Steven Paladino
________________________________
Steven Paladino
Executive Vice President and
Chief Financial Officer