SCHEDULE 14A
(RULE 14A-101)(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/|X|
Filed by a Party other than the Registrant / /|_|
Check the appropriate box:
/X/|X| Preliminary Proxy Statement / /|_| Confidential, For Use of the CommissionCom-
mission Only (as permitted by
Rule 14a-6(e)(2))
/ /|_| Definitive Proxy Statement
/ /|_| Definitive Additional Materials
/ /|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HENRY SCHEIN, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant
Payment of Filing Fee (Check the appropriate box):
/X/|X| No fee required.
/ /|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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/ /|_| Fee paid previously with preliminary materials:
/ /|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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[LOGO] HENRY SCHEIN-REGISTERED TRADEMARK-SCHEIN(R)
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997
------------------------27, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Henry Schein, Inc. (the "Company"), to be held at 4:10:00 P.M.a.m.,
on Thursday,Wednesday, May 22, 199727, 1998 at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York.
The Annual Meeting will be held for the following purposes:
1. To elect 1113 directors of the Company for terms expiring in
1998.1999.
2. To amend the Company's Certificate of Incorporation to
eliminate the
provision providing for a maximum number of directors, to provide
authority for the board to establish from time to timeincrease the number of directors,shares of common stock that the
Company is authorized to eliminate the provision preventing the board from amending
or repealing By-Laws adopted by the stockholders, and to eliminate
certain supermajority voting requirements.issue.
3. To amend the Company's By-Laws to permit the directors to fill any board
vacancies that arise from time to time and to eliminate the provision
preventing the board from amending or repealing By-Laws adopted by the
stockholders.
4. To amend the Company's 1994 Stock Option Plan to increase
the number of shares issuable under the plan.
5.Plan.
4. To ratify the selection of BDO Seidman, LLP as the Company's
independent auditors for the fiscal year ending December 27, 1997.
6.26,
1998.
5. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on April 1, 199713,
1998 are entitled to notice of and to vote at the meeting or any adjournments
or postponements thereof.
Whether or not you expect to attend the meeting in person, please
complete, date and sign the enclosed proxy exactly as your name appears
thereon and promptly return it in the envelope provided, which requires no
postage if mailed in the United States.
STANLEY M. BERGMAN
Chairman, Chief Executive Officer
and President
Melville, New York
April 18, 1997__, 1998
HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
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PROXY STATEMENT
-----------------------------------------
The Board of Directors of Henry Schein, Inc. (the "Company") has
fixed the close of business on April 1, 199713, 1998 as the record date for
determining the holders of the Company's common stock, par value $.01 per
share (the "Common Stock"), entitled to notice of and to vote at the 19971998
Annual Meeting of Stockholders (the "Annual Meeting"). As of that
date, there were outstanding
23,324,085____________ shares of Common Stock were outstanding, each entitled to
one vote. The Notice of Annual Meeting, this Proxy Statement and the form of
proxy are first being mailed to stockholders of record of the Company on or
about April 18, 1997.20, 1998. A copy of the Company's 19961997 Annual Report to
Stockholders is being mailed with this Proxy Statement but is not incorporated
herein by reference.
Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders, whereas broker non-votes are not counted for
purposes of determining whether a proposal has been approved. Abstentions and
broker non-votes will have no effect on the election of directors (Proposal
1) or, which is by plurality vote, but abstentions will, in effect, be votes
against the approval of the proposed amendment to the Company's 1994 Stock
Option Plan (Proposal 3) and the ratification of the selection of independent
public accountants (Proposal 5).4), as these items require the affirmative vote
of the shares present and eligible to vote on such matters. Since approval of
the proposed amendmentsamendment to the Company's Certificate of Incorporation (Proposal
2) requires the affirmative vote of 80% of the
outstanding shares, approval of the proposed amendment to the Company's By-Laws
(Proposal 3) requires the approval of two-thirds of the outstanding shares, and
the amendment to the Company's 1994 Stock Option Plan (Proposal 4) requires the
approval of a majority of the outstanding shares, shares abstainingboth
abstentions and broker non-votes will, effectivelyin effect, be an "against" vote with respect to eachvotes against such
matter.
The expense of this proxy solicitation will be borne by the Company.
In addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or other means by directors or employees of the Company
or its subsidiaries without additional compensation. The Company will
reimburse brokerage firms and other nominees, custodians and fiduciaries for
costs incurred by them in mailing proxy materials to the beneficial owners of
shares held of record by such persons. In addition, the Company has retained
D.F. KingGeorgeson & Co.,Company, Inc. of New York, New York, a proxy solicitation
organization, to assist in the solicitation of proxies. The fee of such
organization in connection herewith is estimated to be $5,000,$8,500, plus reasonable
out-of-pocket expenses.
The enclosed proxy is solicited by the Board of Directors of the
Company. It may be revoked at any time prior to its exercise by giving written
notice to the Secretary of the Company, by executing a subsequent proxy and
delivering it to the Secretary of the Company, or by attending the meeting and
voting in person. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997April 8, 1998 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer named in the Summary Compensation Table on page 1614 of
this Proxy Statement and (iv) all directors and executive officers as a group.
Unless otherwise indicated, each person in the table has sole voting and
investment power as to the shares shown.
SHARES
BENEFICIALLY OWNED
-----------------------
PERCENT
NAME AND ADDRESS NUMBER OF CLASS
- ----------------------------------------------------------------------- ---------- -----------Shares
Beneficially Owned
--------------------------------------------
Percent
Name and Address (1) Number of Class
Stanley M. Bergman (1)(2).............................................. 8,424,175 35.6%................................... 8,046,907 22.7%
Marvin H. Schein, Individually and as
Trustee (1)(3)................... 3,717,006 15.9%..................................... 3,498,538 9.9%
Leslie J. Levine, as Trustee (1)(4).................................... 2,968,347 12.7%......................... 2,809,879 7.9%
Pamela Schein (1)(5)................................................... 1,642,504 7.0%........................................ 1,617,504 4.6%
Irving Shafran and Judith Shafran, as
Trustees (1)(5).................. 1,642,504 7.0%.................................... 1,617,504 4.6%
Marion Bergman, as Trustee (1)(6)...................................... 1,429,285 6.1%........................... 1,153,137 3.3%
Leslie Bergman, as Trustee (1)(7)...................................... 1,238,120 5.3%........................... 995,679 2.8%
Barry J. Alperin....................................................... 2,667Alperin......................................... 4,633 *
Gerald A. Benjamin (8)................................................. 87,023................................... 80,790 *
James P. Breslawski (9)................................................ 195,822.................................. 163,722 *
Leonard A. David (10).................................................. 33,413.................................... 33,633 *
Bruce Haber (11)......................................... 541,491 1.5%
Pamela Joseph (11)..................................................... 355,180 1.5%(12)....................................... 340,180 1.0%
Donald J. Kabat........................................................ 2,267Kabat.......................................... 4,433 *
Mark E. Mlotek (12).................................................... 45,617(13)...................................... 46,562 *
Steven Paladino (13)................................................... 92,023(14)..................................... 89,230 *
Robert J. Sullivan (15).................................. 777,446 2.1%
AMVESCAP PLC (16)........................................ 1,826,620 5.2%
Marsh & McLennan Companies, Inc.(17)..................... 3,632,047 10.3%
Directors and Executive Officers as a
Group (18 persons) (14).......... 9,112,089 38.5%(18)......................... 9,865,000 27.9%
- ------------
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* Represents less than 1%.
(1) Unless otherwise indicated, the address for each person is c/o Henry
Schein, Inc., 135 Duryea Road, Melville, New York 11747.
(2) Includes (a) 9,90020,367 shares which Mr. Bergman owns directly and which
he has the power to vote and the power to dispose of in accordance
with the HSI Agreement (as defined herein), (b) 2,897,0202,690,278 shares
which Mr. Bergman shares the power to vote pursuant to voting trust
agreements, (c) options to purchase 367,464681,087 shares of Common Stock
exercisable within 60 days by certain executives which shares will be
subject to the Voting Trust (as defined herein) and which Mr. Bergman
will share the power to vote and (d) an additional 5,149,7914,655,175 shares
held by certain stockholders of the Company, which shares are
required by the HSI Agreement to be voted for the eight nominees for
director selected by Mr. Bergman in accordance with the
- 2 -
HSI Agreement. The shares described in (a) through (c) must also be
voted for the nominees for director selected in accordance with the
HSI Agreement. See "ELECTION OF DIRECTORS--CertainDIRECTORS -- Certain Voting
Arrangements."
(3) Includes (a) 748,659688,659 shares which Mr. Schein owns directly and (b)
2,968,3472,809,879 shares owned in trusts for the benefit of Mr. Schein and
his family members, and/or trusts for charities of which Mr. Schein
and Mr. Levine are co-trustees. Mr. Schein has the power to vote and
to dispose of such shares in accordance with the HSI Agreement. Mr.
Schein has the right to nominate one director to the Board of
Directors in accordance with the HSI Agreement. Certain stockholders
of the Company (including Mr. Schein) are required to vote for the
nominees for director selected in accordance with the HSI Agreement.
See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(4) Mr. Levine holds such shares as co-trustee of trusts for the benefit
of Marvin H. Schein and his family members, and/or trusts for
charities. Mr. Levine has the power to vote and to dispose of such
2
shares in accordance with the HSI Agreement. All of such shares must
be voted for the nominees for director selected in accordance with
the HSI Agreement. See "ELECTION OF DIRECTORS - CertainDIRECTORS--Certain Voting
Arrangements."
(5) The shares are owned by a revocable trust established by Ms. Schein
of which Mr. Shafran and Ms. Shafran are co-trustees. Ms. Schein has
the power to dispose of such shares if she revokes the trust, subject
to the HSI Agreement. Mr. Shafran and Ms. Shafran have the power to
dispose of such shares in accordance with the HSI Agreement. All of
such shares are subject to the Voting Trust. Ms. Schein has the right
to nominate one director to the Board of Directors in accordance with
the HSI Agreement. Certain stockholders of the Company (including the
trustees of the revocable trust) are required to vote for the
nominees for director selected in accordance with the HSI Agreement.
See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(6) Ms. Bergman holds such shares as a trustee or co-trustee of trusts
established by Stanley M. Bergman for the benefit of Stanley M.
Bergman and his family members. Ms. Bergman has the power to vote and
to dispose of such shares in accordance with the HSI Agreement. All
of such shares must be voted for the nominees for director selected
in accordance with the HSI Agreement. See "ELECTION OF
DIRECTORS -CertainDIRECTORS--Certain Voting Arrangements."
(7) Leslie Bergman holds such shares as co-trustee of trusts established
by Stanley M. Bergman for the benefit of Stanley M. Bergman and his
family members. Leslie Bergman has the power to vote and to dispose
of such shares in accordance with the HSI Agreement. All of such
shares must be voted for the nominees for director selected in
accordance with the HSI Agreement. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
(8) Includes (a) 1,000 shares owned directly, (b) 50,49034,290 shares subject
to the Voting Trust and (c) options to purchase 35,53345,500 shares of
Common Stock exercisable within 60 days which will be subject to the
Voting Trust upon exercise. See "ELECTION OF DIRECTORS--Certain
Voting Arrangements."
(9) Includes (a) 158,622 shares subject to the Voting Trust, which Mr.
Breslawski has the power to dispose of such shares in accordance with the HSI
Agreement. All of such shares are subject to the Voting TrustAgreement and must be voted for the nominees for director selected in
accordance with the HSI Agreement. See "ELECTION OF DIRECTORS - Certain Voting
Arrangements."
(10) Includes (a) 2,500 shares owned directly, (b) 14,850 shares subject to the
Voting Trust and (c)In addition, Mr. Breslawski has
options to purchase 16,0635,100 shares of Common Stock exercisable within
60 days, which shares will be subject to the Voting Trust upon
exercise.
See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(10) Includes (a) 2,500 shares owned directly, (b) 9,560 shares subject to
the Voting Trust and (c) options to purchase 21,573 shares of Common
Stock exercisable within 60 days, which shares will be subject to the
Voting Trust upon exercise. See "ELECTION OF DIRECTORS--Certain
Voting Arrangements."
(11) Includes (a) 76,360 shares owned directly, including 27,183 shares
subject to a Restricted Stock Agreement, and (b) options to purchase
465,131 shares of Common Stock exercisable within 60 days.
(12) Ms. Joseph has the power to dispose of such shares in accordance with
the HSI Agreement. All of such shares are subject to the Voting
Trust. Ms. Joseph has the right to nominate one director to the Board
of
- 3 -
Directors in accordance with the HSI Agreement. Certain stockholders
of the Company (including Ms. Joseph) are required to vote for the
nominees for director selected in accordance with the HSI Agreement.
See "ELECTION OF DIRECTORS--Certain Voting Arrangements."
(12)(13) Includes (a) 2,000 shares owned directly, (b) 14,8508,312 shares subject to
the Voting Trust, (c) options to purchase 23,96731,450 shares of Common
Stock exercisable within 60 days, which shares will be subject to the
Voting Trust upon exercise and (d) 4,800 shares which Mr. Mlotek has
the power to vote as trustee of trusts for certain third parties. See
"ELECTION OF DIRECTORS--Certain Voting Arrangements."
(13)(14) Includes (a) 3,500 shares owned directly, (b) 50,49033,470 shares subject
to the Voting Trust and (c) options to purchase 38,03350,960 shares of
Common Stock exercisable within 60 days, which shares will be subject
to the Voting Trust upon exercise. Mr. Paladino has the power to
dispose of such shares in accordance with the HSI Agreement. All of
such shares must be voted for the nominees for director selected in
accordance with the HSI Agreement. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
(14)(15) Includes (a) 656,170 shares of Common Stock and (b) options to
purchase 121,276 shares of Common Stock exercisable within 60 days.
In addition, the Robert J. Sullivan Family Foundation, Ltd. owns
106,500 shares of Common Stock, beneficial ownership of which is
disclaimed by Mr. Sullivan.
(16) The address of AMVESCAP PLC is 11 Devonshire Square, London EC2M 4YR,
England. Information regarding the AMVESCAP PLC is based on Schedule
13G filed by such person with the Securities & Exchange Commission as
of February 9, 1998. AMVESCAP PLC filed its Schedule 13G jointly on
behalf of itself, AVZ, Inc., AIM Management Group Inc., AMVESCAP Group
Services, Inc., INVESCO, Inc., INVESCO North American Holdings, Inc.,
INVESCO Capital Management, Inc., INVESCO Funds Group, Inc. INVESCO
Management & Research, Inc. and INVESCO Realty Advisors, Inc.
(17) The address of Marsh & McLennan Companies, Inc. is 1166 Avenue of the
Americas, New York, New York 10036. Information regarding the Marsh &
McLennan Companies, Inc. is based on Schedule 13G filed by such person
with the Securities & Exchange Commission as of January 16, 1998. Marsh
& McLennan Companies, Inc. filed its Schedule 13G jointly on behalf of
itself, Putnam Investments, Inc., Putnam Investment Management, Inc.
and The Putnam Advisory Company, Inc.
(18) Includes (a) all shares described in the preceding notes (2) through
(13), and (b) 670,180496,766 shares held by other executive officers which
are not subject to the Voting Trust, and 4,9341,800 shares held by other
directors which are not subject to the Voting Trust. See "ELECTION OF
DIRECTORS--Certain Voting Arrangements."
3- 4 -
PROPOSAL 1
ELECTION OF DIRECTORS
ElevenThirteen directors are to be elected at the Annual Meeting to serve
until the 19981999 Annual Meeting of Stockholders and until their successors are
elected and qualified. The Board of Directors has approved the persons named
below as nominees and, unless otherwise marked, a proxy will be voted for such
persons. Each of the nominees currently serves as a director and was elected
by the stockholders at the 19961997 Annual Meeting.Meeting, except that Robert J. Sullivan
and Bruce J. Haber were appointed as directors by the Board of Directors in
November 1997 upon stockholder approval of an amendment to the Company's
Amended and Restated Certificate of Incorporation (as amended, the
"Certificate of Incorporation") permitting the Board to increase the number of
directors. All of the nominees have consented to be named and, if elected, to
serve if elected.serve. In the event that any nominee of the Company is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies may be
voted in the discretion of the persons acting pursuant to the proxy for the
election of other nominees. Directors will be elected by plurality vote. Set
forth below is certain information concerning the nominees:
NAME AGE POSITION
- ---------------------------------------------------- ----- -------------------------------------------------------- --- --------
Stanley M. Bergman.................................. 47Bergman.................................... 48 Chairman, Chief Executive Officer,
President and Director
Robert J. Sullivan.................................... 67 Vice Chairman and Director
James P. Breslawski................................. 43Breslawski................................... 44 Executive Vice President and Director
Bruce J. Haber........................................ 45 Executive Vice President, President of the
Medical Group and Director
Gerald A. Benjamin.................................. 44Benjamin.................................... 45 Senior Vice President--Administration and
Customer Satisfaction and Director
Leonard A. David.................................... 48David...................................... 49 Vice President--Human Resources, Special
Counsel and Director
Mark E. Mlotek...................................... 41Mlotek........................................ 42 Vice President, General Counsel,
Secretary and Director
Steven Paladino..................................... 40Paladino....................................... 41 Senior Vice President, Chief Financial
Officer and Director
Barry J. Alperin.................................... 56Alperin...................................... 57 Director
Pamela Joseph....................................... 54Joseph......................................... 55 Director
Donald J. Kabat..................................... 61Kabat....................................... 62 Director
Marvin H. Schein.................................... 55 Founder, Schein Dental Equipment, andSchein...................................... 56 Director
Irving Shafran...................................... 53Shafran........................................ 54 Director
STANLEY M. BERGMAN has been Chairman, Chief Executive Officer, and
President since 1989 and a director of the Company since 1982. Mr. Bergman
held the position of Executive Vice President of the Company and Schein
Pharmaceutical, Inc. from 1985 to 1989 and Vice President of Finance and
Administration of the Company from 1980 to 1985. Mr. Bergman is a certified
public accountant.
ROBERT J. SULLIVAN became Vice Chairman and a Director of the Company
in November 1997 in connection with its acquisition of Sullivan Dental
Products, Inc. ("Sullivan Dental"). Mr. Sullivan, one of the founders of
Sullivan Dental, had been Chairman of that company since 1990 and was its
Chief Executive Officer from 1985 to 1992. He had been a director of Sullivan
Dental since 1980.
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JAMES P. BRESLAWSKI has been an Executive Vice President of the
Company since 1990, with primary responsibility for the North American Dental
Group, the Veterinary Group and corporate creative services, and a director of
the Company since 1990. Between 1980 and 1990, Mr. Breslawski held various
positions with the Company, including Chief Financial Officer, Vice President
of Finance and Administration and Controller. Mr. Breslawski is a certified
public accountant.
BRUCE J. HABER became an Executive Vice President of the Company and
President of the Medical Group in August 1997 in connection with its
acquisition of Micro Bio-Medics, Inc. ("MBM"), and became a director of the
Company in November 1997. He had been the President of MBM since 1983 and a
director of MBM since 1981.
GERALD A. BENJAMIN has been Senior Vice President of Administration
and Customer Satisfaction since January 1993, including responsibility for the
worldwide human resource function, and has been a director of the Company
since September 1994. Prior to holding his current position, Mr. Benjamin was
Vice President of Distribution Operations of the Company from 1990 to December
1992 and Director of Materials Management of the Company from 1988 to 1990.
Before joining the Company in 1988, Mr. Benjamin was employed for 13 years in
various management positions at Estee Lauder, where his last position was
Director of Materials Planning and Control.
4
LEONARD A. DAVID has been Vice President of Human Resources and
Special Counsel since January 1995. Mr. David held the office of Vice
President, General Counsel and Secretary from 1990 to January 1995 and
practiced corporate and business law for eight years prior to joining the
Company in 1990. Mr. David has been a director of the Company since September
1994.
MARK E. MLOTEK joined the Company in December 1994 as Vice President,
General Counsel and Secretary and became a director of the Company in
September 1995. Prior to joining the Company, Mr. Mlotek was a partner in the
law firm of Proskauer Rose Goetz & Mendelsohn LLP, specializing in mergers and acquisitions,
corporate reorganizations and tax law from 1989 until he joined the Company.
STEVEN PALADINO has been Senior Vice President and Chief Financial
Officer of the Company since April 1993 and has been a director of the Company
since December 1992. From 1990 to April 1993, Mr. Paladino served as Vice
President and Treasurer and from 1987 to 1990 served as Corporate Controller
of the Company. Before joining the Company in 1987, Mr. Paladino was employed
as a public accountant for seven years and most recently was with the
international accounting firm of BDO Seidman, LLP. Mr. Paladino is a certified
public accountant.
BARRY J. ALPERIN has been a director of the Company since May 1996.
Mr. Alperin has been a private consultant since August 1995. Mr. Alperin
served as Vice Chairman of Hasbro, Inc. from 1990 through July 1995. Mr.
Alperin served as Co-Chief Operating Officer of Hasbro, Inc. from 1989 through
1990 and as its Senior Vice President and Executive Vice President from 1985
through 1989. Mr. Alperin currently serves as a director for Seaman Furniture
Company, Inc., a furniture retailing company, and K'nex Industries, Inc., a
wholesale toy company.
PAMELA JOSEPH has been a director of the Company since September
1994. For the past five years, Ms. Joseph has been a self-employed artist and
is President of Anderson Ranch Arts Center. Ms. Joseph is also a trustee of
Alfred University.
DONALD J. KABAT has been a director of the Company since May 1996.
Mr. Kabat is President of D.K. Consulting Services, Inc. and served as Chief
Financial Officer of Central Park Skaters, Inc. from September 1992 to
September 1995. From 1970 to 1992, Mr. Kabat was a partner in Andersen
Consulting, an affiliate of Arthur Andersen, LLP.
- 6 -
MARVIN H. SCHEIN has been a director of the Company since September
1994 and has provided consulting services to the Company since 1982. Mr.
Schein founded Schein Dental Equipment Corp., a subsidiary of the Company, servingand
served as its President for the past 16 years. Prior to founding Schein Dental
Equipment Corp., Mr. Schein held various management and executive positions
with the Company.
IRVING SHAFRAN has been a director of the Company since September
1994 and was nominated by Pamela Schein as her designee for director of the
Company. Mr. Shafran has been an attorney in private practice for the past 25
years. From 1991 through December 1995, Mr. Shafran was a partner in the law
firm of Anderson Kill Olick and Oshinsky, PC.
CERTAIN VOTING ARRANGEMENTSCertain Voting Arrangements
The Amended and Restated HSI Agreement, as amended (the "HSI
Agreement"), among certain stockholders of the Company, which was entered into
in connection with the Company's reorganization in 1994, provides that until
the earlier of January 1, 1999 or the termination of the voting trust
established in connection therewith (the "Voting Trust"), Marvin H. Schein,
Pamela Joseph and Pamela Schein each have the right to select one nominee for
director and Stanley M. Bergman, (asas voting trustee) ortrustee (or his successor voting
trusteetrustee), has the right to select the remaining nominees. Mr. Schein and Ms.
Joseph have chosen to be nominees for director and Ms. Schein has selected Mr.
Shafran as a nominee for director. Mr. Bergman has selected the remaining
nominees for director. The parties to the HSI Agreement, who currently have
the right to vote approximately 35.1%20.7% of the Company's outstanding Common
Stock, are required to vote for all such nominees. The HSI Agreement provides
that, in general, from the earlier of January 1, 1999 or
5
the termination of
the Voting Trust until the earlier of (i) January 1, 2004, (ii) the first date
on which Marvin H. Schein and his family group no longer beneficially own at
least 25% of the outstanding Common Stock that they owned immediately after
the reorganization, or (iii) the date of certain changes in the Company's
management, Mr. Bergman (or his successor voting trustee) has the right to select all of the nominees to the
Board of Directors; provided, that if Marvin H. Schein does not approve such
nominations, Mr. Bergman (or his
successor trustee) and Mr. Schein will each select an equalthat number of
nominees equal to one-half of the entire Board, rounded down to the nearest
whole number (of which one will be an independent nominee), and the remaining
nominee (if this is an additional nomineeodd number of directors) will be selectedelected by the two
independent nominees. If any director previously nominated pursuant to the HSI
Agreement ceases to hold office, the individual who nominated such director
shall have the right to nominate his or her successor.
The Voting Trust expires on December 31, 1998, unless earlier
terminated. The shares subject to the Voting Trust, which includes shares held
by certain executives and other stockholders of the Company, are voted by Mr.
Bergman, except that the participants in the Voting Trust retain the power to
vote their shares in connection with (i) a dissolution or liquidation of the
Company, (ii) a merger or consolidation of the Company or (iii) a sale, lease
or other transfer of all or substantially all the assets of the Company,
whether directly or indirectly, through a transfer of its subsidiaries or a
significant business of the Company. Approximately 13.4%7.5% of the Company's
outstanding Common Stock is held pursuant to the Voting Trust.
BOARD MEETINGS AND COMMITTEESBoard Meetings and Committees
During the fiscal year ended December 28, 199627, 1997 ("fiscal 1996"1997"), the
Board of Directors held seven11 meetings.
The Board of Directors has an Audit Committee which currently
consists of Messrs. Alperin and Kabat. The Audit Committee oversees the
Company's financial reporting process on behalf of the Board of Directors. In
fulfilling its responsibility, the Audit Committee recommends to the Board of
Directors, subject to stockholder approval, the selection of the Company's
independent public accountants. The Audit Committee also reviews the Company's
consolidated financial statements and the adequacy of the Company's internal
controls. The Audit Committee meets with the independent public accountants to
discuss the results of their audit of the Company, their evaluation of the
Company's internal controls and the overall quality of the Company's financial
reporting. The Audit Committee held two meetings in fiscal 1996.1997.
- 7 -
The Board of Directors has a Compensation Committee which currently
consists of Messrs. Alperin and Kabat. The Compensation Committee makes
recommendations regarding the compensation and benefit policies and procedures
of the Company. The Compensation Committee held one meetingfour meetings during fiscal
1996.1997.
The Board of Directors has a Stock Option Committee which currently
consists of Messrs. Alperin and Kabat. The Stock Option Committee determines
grants under the Company's 1994 Stock Option Plan. The Stock Option Committee
held one
meetingtwo meetings during fiscal 1996.
COMPENSATION OF DIRECTORS1997.
Compensation of Directors
In fiscal 1996,1997, Messrs. Alperin and Kabat each received a $20,000$25,000
annual retainer plusand an additional $500$1,000 per board meeting and $250$500 per
committee meeting attended (or $750 if such committee meeting was held on a
day other than a day on which a board meeting was held), and were granted
options to purchase 5,0001,000 shares of the Company's Common Stock. Directors are
reimbursed for their out-of-pocket expenses in attending board meetings and
committee meetings. For fiscal 1997,1998, Messrs. Alperin and Kabat will each
receive a $25,000 annual retainer plusand an additional $1,000 per board meeting
and $500 per committee meeting attended (or $750 if such committee meeting is
held on a day other than a day on which a board meeting is held),was held and were
granted options to purchase 1,0001,500 shares of the Company's Common Stock.
Directors are reimbursed
for their out-of-pocket expenses in attending board meetings and committee
meetings.
6- 8 -
PROPOSAL 2
AMENDMENT OF THE CERTIFICATE OF
INCORPORATION
Article "Fifth" of the Company's amended and restated certificate of
incorporation (the "Certificate of Incorporation"), the complete text of which,
prior to amendment as proposed hereby, is included as Exhibit A to this Proxy
Statement, contains various provisions relating to the governance of the
Company. Specifically:
(a) section "A" provides that the number of directors of the Company
shall be no less than five and no more than 11 through December 31,On March 17, 1998,
and thereafter the number of directors shall be nine,
(b) section "B" provides, among other things, that stockholders may
adopt any By-Law and may amend or repeal any By-Law adopted by the Board of
Directors and that the Board of Directors may not amend or repeal any By-Law
adopted by the stockholders, and
(c) section "C" requires the affirmative vote of 80% of the outstanding
shares to amend or repeal, or to adopt any provisions inconsistent with,
Article "Fifth."
See "Election of Directors--Certain Voting Arrangements" regarding certain
agreements relating to the governance of the Company.
The proposed amendment to Article "Fifth" of the Certificate of
Incorporation would (a) eliminate the limit on the maximum number of directors
of the Company, while specifying only that the number of directors shall be as
specified in the By-Laws or as fixed from time to time by resolution of the
Board of Directors, and that there shall not be fewer than five directors, (b)
eliminate the provision preventing the Board of Directors from amending or
repealing By-Laws adopted by the stockholders and (c) eliminate the 80% voting
requirement with respect to amendments of Article "Fifth."
Sections "A" and "B1" of Article "Fifth," as proposed to be amended, would
read in their entirety as follows, and section "C" of Article "Fifth" would be
deleted:
FIFTH:
A. The number of directors which shall constitute the entire Board of
Directors shall be as provided in the Corporation's By-Laws or as fixed from
time to time by resolution of the Board of Directors, but shall not be fewer
than five.
B. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To adopt, amend or repeal any By-Law (PROVIDED, HOWEVER, that any
By-Law made, amended or repealed by the Board of Directors may be amended
or repealed, and that any by-laws may be adopted, by the stockholders of
the Corporation);
The current version of section "A" of Article "Fifth" provides that the
maximum number of directors shall be 11 through December 31, 1998, which is the
number of individuals presently serving as director, and shall thereafter be
nine. The Board of Directors believes that it would be desirable to increase the
Company's flexibility to obtain the services of one or more additional
individuals as a director, by eliminating the limitation in the Certificate of
Incorporation on the maximum number of directors. The proposed amendment would
permit one or more additional directors to be added to the Board without the
need for a Board vacancy to exist as a result of the death, disability, removal
or resignation of a current director. In connection with the proposed
acquisition (the "Proposed Acquisition") by the Company of Micro Bio-Medics,
Inc. ("MBMI"), the Company has agreed with Bruce Haber, the President and Chief
Executive Officer of MBMI, pursuant to the terms of an employment agreement with
Mr. Haber (the
7
"Haber Contract") which would become effective at the time the Proposed
Acquisition is completed, to use its reasonable best efforts to cause Mr. Haber
to be nominated for election as a director of the Company during the term of
such employment agreement. Accordingly, the Company intends, following
completion of the Proposed Acquisition and assuming stockholder approval of this
Proposal and of Proposal 3, to expand the number of directors to twelve and to
fill such newly created vacancy by electing Mr. Haber to the Board.
With regard to the proposed amendment to section "B1" of Article "Fifth",
section 109 of the Delaware General Corporation Law (the "DGCL") allows a
Delaware corporation to confer on its directors the power to adopt, amend or
repeal any bylaw, provided that such right of the directors shall not divest the
stockholders of the power to adopt, amend or repeal any bylaw. Article "Fifth"
currently allows the directors to adopt, amend or repeal any By-Law other than
any By-Law adopted by the stockholders of the Company. Since all of the By-Laws
of the Company were approved by the stockholders in September 1994, Article
"Fifth" effectively prevents the directors from amending or repealing any of the
Company's By-Laws. The Board of Directors believes that it would be desirable to
increase the Company's flexibility and its ability to respond to changing
conditions by permitting the directors to adopt, amend or repeal any of the
Company's By-Laws, regardless of the manner in which such By-Laws were
originally adopted. The proposed amendment to Article "Fifth" would eliminate
any restriction on the power of the directors to adopt, amend or repeal any
By-Laws of the Company, and would continue to expressly incorporate the retained
power of the stockholders under section 109 of the DGCL to adopt, amend or
repeal any By-Law, including any By-Law adopted, amended or repealed by the
directors. Proposal 3 includes a conforming amendment of the By-laws provision
that corresponds to section "B1" of Article "Fifth" of the Certificate of
Incorporation.
Absent a provision in the Certificate of Incorporation requiring a higher
percentage vote, under section 242 of the DGCL, a simple majority of the
outstanding shares of capital stock is sufficient to authorize any amendment to
a corporation's certificate of incorporation. Section "C" of Article "Fifth"
currently requires the affirmative vote of 80% of the outstanding shares of
Common Stock to amend or repeal, or adopt any provision inconsistent with, that
Article. The Board of Directors believes that it is desirable for the Company to
have the ability to amend its Certificate of Incorporation without the
requirement of an 80% "supermajority" vote and that the 80% supermajority
requirement would be inconsistent with the other amendments being made to
Article "Fifth," which amendments the directors believe increase the Company's
flexibility and its ability to respond to changing conditions. Accordingly, the
proposed amendment to Article "Fifth" would eliminate the 80% supermajority
requirement.
On February 27, 1997, the Board of Directors unanimously adopted a
resolution approving the foregoing amendment to Article "Fifth" of the
Certificate of Incorporation and approving the submission of suchapproved an
amendment to the Company's Amended Certificate of Incorporation, as amended,
that would increase the number of authorized shares of Common Stock from
60,000,000 to 120,000,000, and directed the submission of the amendment for
approval at the Annual Meeting of Stockholders.
As of April 8, 1998, 35,084,413 shares were issued and outstanding,
2,233,721 shares were reserved for issuance under the Company's 1994 Stock
Option Plan, and 1,962,415 shares were reserved for issuance pursuant to stock
options assumed by the Company in connection with certain acquisitions
accounted for as poolings-of-interests ("Assumed Options").
The Board of Directors considers the proposed increase in the number
of authorized shares of Common Stock desirable because it would give the Board
the flexibility to issue Common Stock, if it determined to do so, in
connection with stock dividends and splits, future acquisitions, financings,
employee benefits and other appropriate corporate purposes without the delay
and expense that could arise if there were insufficient authorized shares for
a proposed issuance, thereby requiring stockholder approval before such
issuance could proceed. The Company's business strategy includes the
acquisition of companies whose businesses and business strategies are
complementary to Schein's, and the Company's largest acquisitions to date have
been made primarily with stock rather than cash. Consequently, an adequate
supply of authorized common stock, after taking into account other potentially
desirable corporate actions such as stock dividends and splits, is very
important to the Company's success and development.
Except pursuant to the Company's 1994 Stock Option Plan, the Company
has no present plans, agreements or understandings for the issuance of
additional shares of Common Stock that are probable of occurrence as of the
date of this Proxy Statement, but the Company reviews and evaluates potential
acquisitions and other corporate actions on an on-going basis to determine if
such actions would be in the best interest of the Company and its
stockholders. Depending on the nature and size of any future issuance of
Common Stock, further stockholder authorization may be required under Delaware
law or the rules of the Nasdaq Stock Market or any stock exchange on which the
Common Stock may then be listed.
If the proposed amendment to the Company's Certificate of
Incorporation is approved by the Company's stockholders, it would become
effective upon the filing of a Certificate of Amendment with the Delaware
Secretary of State, which filing would occur promptly after the Annual
Meeting.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF 80%A MAJORITY OF THE OUTSTANDING
SHARES OF THE COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING IS REQUIRED TO
APPROVE THE FOREGOING AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
8- 9 -
PROPOSAL 3
AMENDMENT OF THE BY-LAWS
This proposal would effect an amendment of the Company's By-Laws in two
respects in a manner consistent with the proposed amendment of the Certificate
of Incorporation.
Article VI of the Company's By-Laws provides, in part, that the Board of
Directors may not amend or repeal any By-Laws adopted by the stockholders of the
Company. The complete text of Article VI of the Company's By-Laws, prior to
amendment as proposed hereby, is included as Exhibit B to this Proxy Statement.
Consistent with Proposal 2 concerning elimination of the corresponding section
of the Certificate of Incorporation, the Board of Directors is proposing
amendment of the By-Laws to eliminate such restriction in the By-Laws.
Article VI of the By-Laws, as proposed to be amended, would read in its
entirety as follows:
These By-Laws may be amended or repealed and any By-Laws may be adopted
at any annual meeting of the stockholders or at any special meeting thereof
if notice of the proposed amendment or repeal, or By-Law or By-Laws to be
adopted, be contained in that notice of such special meeting, by the
affirmative vote of holders of two-thirds of the shares of the stock issued
and outstanding and entitled to vote thereat (unless a greater percentage is
provided herein), or at any regular meeting of the Board of Directors, or at
any special meeting of the Board of Directors, if notice of the proposed
amendment or repeal, or By-Law or By-Laws to be adopted, be contained in the
notice of such special meeting, by the affirmative vote of two-thirds of the
Board of Directors.
Article III, Section 3 of the Company's By-Laws requires vacancies in the
Board of Directors to be filled by the affirmative vote of stockholders holding
at least 66 2/3% of the outstanding shares entitled to vote in any election of
directors. The Board of Directors believes that it is in the interest of the
Company to (i) enable the Board of Directors to fill any vacancy as and when
deemed by the Board of Directors to be necessary or desirable without the need
to call a special meeting of stockholders, and (ii) increase the Board of
Directors' flexibility in establishing the size of the Board of Directors and,
in particular, electing additional Board members from time to time to fill any
vacancy created by an increase in the size of the Board of Directors. Therefore,
consistent with the amendments proposed to Article "Fifth" of the Certificate of
Incorporation, the proposed amendment to Article III, Section 3 of the By-Laws
would eliminate the requirement that 66 2/3% of the outstanding shares entitled
to vote in any election is needed to fill any Board vacancies and would allow a
majority of the directors to fill any vacancies that may arise. See "Election of
Directors--Certain Voting Agreements" regarding certain agreements relating to
the nomination of successors to directors who cease to hold office.
The complete text of Article III, Section 3, prior to amendment as proposed
hereby, is included as Exhibit C to this Proxy Statement. As proposed to be
amended, Article III, Section 3, of the By-Laws would read in its entirety as
follows:
Section 3. VACANCIES. Newly created directorships resulting from any
increase in the number of directors and any other vacancies on the Board of
Directors, whether resulting from death, disability, resignation,
disqualification, removal or any other circumstances, shall be filled by the
affirmative vote of a majority of the directors then in office, although
less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified. Without limiting
the generality of the foregoing, a vacancy shall also be deemed to exist if
the stockholders fail at any annual meeting of stockholders at which any
director or directors are required to be elected, to elect the full
authorized number of directors to be voted for at that meeting.
9
On February 27, 1997, the Board of Directors unanimously adopted a
resolution approving the foregoing amendment to Article VI and Article III,
Section 3 of the By-Laws and approving the submission of such amendment to the
Company's stockholders.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES
OF THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE FOREGOING AMENDMENT TO THE
BY-LAWS.
PROPOSAL 4
AMENDMENT OF 1994 STOCK OPTION PLAN
The Company maintains the Henry Schein, Inc. 1994 Stock Option Plan,
as amended ("Stock Option Plan"), for the benefit of certainkey employees of the
Company and its designated subsidiaries. The proposed amendment to the Stock
Option Plan would increase the number of shares of Common Stock issuable upon
the exercise of Class B Options granted under the Stock Option Plan by
approximately 7.0%4.7% of the outstanding shares of Common Stock, or 1,600,0001,650,000
shares. The proposed amendment would not change the number of shares of Common
Stock issuable upon the exercise of Class A Options, the maximum number of
which have been issued.
The first sentence of Section 5(b) of the Stock Option Plan, as
proposed to be amended, would read in its entirety as follows:
Subject to adjustment as provided in this Section
5, the maximum aggregate number of Shares that may be issued
under the Plan shall be 2,279,6353,929,635 shares of Common Stock, of
which a maximum of 237,897 of such Shares shall be covered
by Class A Options and the balance of such Shares shall be
covered by Class B Options.
The Board of Directors believes that it is desirable to increase the
total number of shares available under the Stock Option Plan in order to
attract, motivate and retain key employees or individuals that would be key employees of the Company and its designated
subsidiaries. DESCRIPTION OF THE STOCK OPTION PLANThe Stock Option Plan was amended at the 1997 Annual Meeting of
Stockholders among other things, to increase the aggregate number of shares
that may be issued under the Stock Option Plan by approximately 7% of the then
outstanding shares of Common Stock, or 1,600,000 shares, and options have been
granted with respect to all of such shares. Of this amount, approximately
374,000 options were granted in connection with the Company's 1997
compensation program, 557,000 options were granted in connection with the
Sullivan acquisition, and approximately another 150,000 options were granted
in connection with various other acquisitions, including MBM, during the 1997.
The Stock Option Committee of the Company has granted additional options, a
number of which are subject to shareholder approval of this amendment, to
purchase approximately 595,000 shares of Common Stock, thereby exhausting the
number of options available under the Stock Option Plan. Of the options to
purchase an aggregate of 4,196,136 shares of Common Stock that were
outstanding as of April 8, 1998, options to purchase 2,669,415 shares were
issued by the Company pursuant to its assumption of the Assumed Options in
accordance with their terms and in order to retain field personnel and key
executives. The remaining 1,526,721 options have been granted under the Stock
Option Plan.
Description of the Stock Option Plan
The purpose of the Stock Option Plan is to enable the Company and its
designated subsidiaries to attract, retain and motivate key employees who are
important to the success and growth of the Company and to create a mutuality
of interest between the key employees and the stockholders of the Company by
granting thesuch key employees options to purchase Common Stock. Under the Stock
Option Plan, as currently constituted, 679,6352,279,635 shares of Common Stock may be
issued. The Stock Option Plan provides for two classes of options: Class A
Options, which have an exercise price of $4.21 per share, and Class B Options,
which have an exercise priceprices of not less than the fair market value of the
Common Stock at the time of grant. Class A Options to purchase an aggregate of
221,397211,597 shares of Common Stock are presentlywere outstanding as of April 8, 1998, and Class
B Options to purchase an aggregate of 447,4002,022,124 shares of Common Stock are presently
outstanding.were
outstanding as of such date. If options are canceled, expire or terminate
unexercised, the shares of Common Stock shallcovered by such options are again be
available for the grant of options, providedexcept that the number of shares covered bythat may
be issued pursuant to the exercise of Class A Options shall beis reduced by the number
of Class
- 10 -
A Options that are canceled, expire or are terminated. Both incentive stock
options and non-qualified stock options may be issued under the Stock Option
Plan.
The maximum number of shares of Common Stock with respect to which
options may be granted under the Stock Option Plan to eachany participant could notin any
fiscal year cannot exceed 50,000 shares in 1996, and shall not exceed 50,000 in each year thereafter.100,000 shares. To the extent that shares for which
options are permitted to be granted to a participant during a year are not
covered by a grant of an option in such year, such shares shall 10
automatically
increase the number of shares of Common Stock available for grant of options
to thesuch participant in the subsequent year.
The Stock Option Plan is to be administered by a committee appointed by the Company's Board of
Directors consistingor by a committee of two or more directors appointed by the Board
(the "Committee"), each of whom qualifies as a disinterested personnon-employee director within
the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of
1934 as amended (the "Exchange Act"), and as an outside director within the meaning of
Section 162(m) of the Code.Internal Revenue Code of 1986 (the "Code"). The Stock
Option Plan is currently administered by the Stock Option Committee of the
Board of Directors. The committee has the full authority and discretion,
subject to the terms of the Stock Option Plan, to determine those individuals
who are eligible to be granted options and the amount and type of options.
Terms and conditions of options are set forth in written option agreements,
consistent with the terms of the Stock Option Plan. No option shall be granted
under the Stock Option Plan on or after September 30, 2004 (the tenth
anniversary of the effective date of the Stock Option Plan), but options
granted prior to such date may extend beyond that date.
The Stock Option Plan provides that it may be amended by the
Company's Board of Directors or the committee,Committee, except that no amendment may,
without the approval of stockholders of the Company, (i) increase the total
number of shares of Common Stock which may be acquired upon exercise of
options granted under the Stock Option Plan, (ii) change the types of
employees eligible to participate in the Stock Option Plan, (iii) effect any
change that would require stockholder approval under securities laws, (iv)
effect any change that would require stockholder approval under Section 162(m)
of the Code or (v) reduce the purchase price of an outstanding option below
the fair market value of a share of Common Stock on the date of such
amendment.
The options entitle the holder to purchase a specified number of
shares of Common Stock, subject to vesting provisions, at a price set by the
committeeCommittee at the time of grant, subject to certain limitations. The term of
each option will be specified by the committeeCommittee upon grant, but may not exceed
ten years from the date of grant (five years in the case of incentive stock
options granted to owners of 10% or more of the Company's outstanding voting
stock). The committeeCommittee will determine the time or times at which each option
may be exercised. Options may be exercisable in installments, and the
exercisability of options may be accelerated in some cases, including upon a
change of control of the Company (as defined in the Stock Option Plan).
Under the Stock Option Plan, the committeeCommittee may grant incentive stock
options that qualify under Section 422 of the Code or non-qualified stock
options. Incentive stock options are subject to certain requirements under the
Stock Option Plan, as well as under the Code.
A participant may elect to exercise one or more of his or her options
by giving written notice to the committeeCommittee of such election at any time. The
participant shall specify the number of options to be exercised and provide
payment in full of the aggregate purchase price for the shares of Common Stock
for which options are being exercised. Payment may be made (i) in cash or by
check, bank draft or money order, (ii) if so permitted by the committee,Committee,
through delivery of unencumbered shares of Common Stock, a promissory note or
a combination of cash and either of the foregoing, or (iii) on such other
terms and conditions as may be acceptable to the committeeCommittee or as set forth in
the participant's option agreement.
There were no- 11 -
Under the Stock Option Plan, the following options have been granted
to each of the Named Executive Officers, under the
Stock Option Plan prior to 1995 or in 1996. In 1995, Class A Options to acquire
237,897 common shares were issued to certainall current executive management, including
Class A Options exercisable for 29,700 shares of Common Stock to Messrs.
Benjaminofficers as a
group, and Paladino and Class A Options to acquire 19,800 shares of Common
Stock to Mr. Mlotek, all of which are outstanding, at an exercise price of $4.21
per share. Substantially all of the Class A Options became exercisable upon the
closing of the Company's initial public offering in 1995.
On November 3, 1995, the Company issued Class B Options to acquire 413,400
shares of common stock to certain employees, including Class B Options to
acquire 17,500, 25,000 and 12,500 shares of Common Stock to Messrs. Benjamin,
Paladino and Mlotek, respectively, substantially all of which are outstanding,
at an exercise price of $16.00 per share. Since substantially all of the Class B
Options became
11
exercisable ratably over three years from the date of issuance approximately
one-third of the Class B Options have become exercisable.
The Class A Options and Class B Options granted to the Named Executive
Officers are exercisable up to the tenth anniversary of the date of issuance,
subject to acceleration upon termination of employment. As of December 28, 1996,
substantially all of such options remained unexercised.
Pursuant to the terms of the Proposed Acquisition of MBMI, the Company would
assume the currently outstanding options to purchase MBMI common stock. At the
closing of the Proposed Acquisition, such options would be converted to options
to acquire up to 1,142,454 shares of Company Common Stock and would otherwise be
governed by the terms of MBMI's stock option plans. Such options would not be
issuable under or governed by the Stock Option Plan. Additionally, pursuant to
the terms of the Haber Contract, upon completion of the Proposed Acquisition,
Mr. Haber would be issued options having a value of $1,000,000 determined by
application of the Black-Sholes formula and, thereafter, during the term of his
employment with the Company, would be issued annual options, subject to
achievement of certain performance goals. All such options would be issuable
under the Stock Option Plan.other employees:
Name Number of Shares Weighted Average Exercise Price
---- ---------------- -------------------------------
Stanley M. Bergman 0 --
James Breslawski 15,000 24.52
Gerald Benjamin 74,700 17.54
Steven Paladino 85,200 17.92
Mark Mlotek 54,800 18.74
Executive Officers as a Group
(___ people)
All Other Employees
A copy of the Stock Option Plan is available upon request from the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCESCertain Federal Income Tax Consequences. The principal Federal income tax
consequences with respect to stock options granted pursuant to the Stock
Option Plan are summarized below:
INCENTIVE STOCK OPTIONS.Incentive Stock Options. Options granted under the Stock Option Plan may be
incentive stock options as defined in the Code, provided that such options
satisfy the requirements under the Code therefor. In general, neither the
grant nor the exercise of an incentive stock option will result in taxable
income to the optionee or a deduction to the Company. The sale of Common Stock
received pursuant to the exercise of an option which satisfied all the
requirements of an incentive stock option, as well as the holding period
requirement described below, will result in a long-term capital gain or loss
to the optionee equal to the difference between the amount realized on the
sale and the option price and will not result in a tax deduction to the
Company. To receive incentive stock option treatment, the optionee must not
dispose of the Common Stock purchased pursuant to the exercise of an option
either (i) within two years after the option is granted, or (ii) within one
year after the date of exercise. In addition, if the Common Stock is held for
more than 18 months after the date of exercise, the optionee will be taxed at
the lowest rate applicable to capital gains for such optionee.
If all requirements for incentive stock option treatment other than the
holding period rules are satisfied, the recognition of income by the optionee
is deferred until disposition of the Common Stock, but, in general, any gain
(in an amount equal to the lesser of (i) the fair market value of the Common
Stock on the date of exercise (or, with respect to officers and directors, the
date that sale of such stock would not create liability ("Section 16(b)
liability") under Section 16(b) of the Exchange Act minus the option price or
(ii) the amount realized on the disposition minus the option price) is treated
as ordinary income. Any remaining gain is treated as long-term or short-term
capital gain, at the applicable rate depending on the optionee's holding
period for the stock disposed of. The Company generally will be entitled to a
deduction at that time equal to the amount of ordinary income realized by the
optionee.
The Stock Option Plan provides that an optionee may, if permitted by the
committeeCommittee pay for Common Stock received upon the exercise of an option
(including an incentive stock option) with other shares of Common Stock. In
general, an optionee's transfer stock acquired pursuant to the exercise of a
"statutory option," which includes an
incentive stock option, to acquire other stock in connection with the exercise
of an incentive stock option may result in ordinary income if the transferred
stock has not met the minimum statutory holding period necessary for favorable
tax treatment as an incentive stock option. For example, if an optionee
exercises an incentive stock option and uses the stock so acquired to exercise
another
- 12 -
incentive stock option with the two-year or one-year holding periods discussed
above, the optionee may realize ordinary income under the rules summarized
above.
NON-QUALIFIED STOCK OPTIONS.Non-Qualified Stock Options. An optionee will realize no income at the time
he or she is granted a non-qualified stock option. Such conclusion is
predicated on the assumption that, under existing Treasury
12
Department
regulations, a non-qualified stock option, at the time of its grant, has no
readily ascertainable fair market value. Ordinary income will be realized when
a non-qualified stock option is exercised. The amount of such income will be
equal to the excess of the fair market value on the exercise date of the
shares of Common Stock issued to an optionee over the option price. The
optionee's holding period with respect to the shares acquired will begin on
the date of exercise.
The tax basis of the stock acquired upon the exercise of any option will be
equal to the sum of (i) the exercise price of such option and (ii) the amount
included in income with respect to such option. Any gain or loss on a
subsequent sale of the stock will be either long-term or short-term capital
gain or loss and subject to taxation at the applicable rate, depending on the
optionee's holding period for the stock disposed of. The Company generally
will be entitled to a deduction for Federal income tax purposes at the same
time and in the same amount as the optionee is considered to have realized
ordinary income in connection with the exercise of the option.
CERTAIN OTHER TAX ISSUES.Certain Other Tax Issues. In addition, (i) any entitlement to a tax
deduction on the part of the Company is subject to applicable Federal tax
rules (including, without limitation, Code Section 162(m) regarding the
$1,000,000 limitation on deductible compensation), (ii) the exercise of an
option may have implications in the computation of alternative minimum taxable
income, and (iii) in the event that the exercisability or vesting of any
option is accelerated because of a change in control, such option (or a
portion thereof), either alone or together with certain other payments, may
constitute parachute payments under Section 280G of the Code, which excess
amounts may be subject to excise taxes.
On February 27, 1997,March 17, 1998, the Board of Directors unanimously approved for
submission to the stockholders the foregoing amendment to the 1994 Stock
Option Plan.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE FOREGOING AMENDMENT TO
THE STOCK OPTION PLAN.
- 13 -
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning annual and long-term
compensation for the Company's Chief Executive Officer and the other four most
highly paid executive officers (collectively, the "Named Executive Officers")
for the fiscal years ended December 31, 1994, December 30, 1995, December 28, 1996 and December
28,
1996.27, 1997.
LONG-TERM COMPENSATION
ANNUAL COMPENSATION
----------------------------------- -------------------------
OTHER ANNUAL RESTRICTED STOCKAnnual Compensation Long-Term Compensation
----------------------------------------- ---------------------------------------------------
Other Annual Restricted Stock LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAROther
Salary Bonus Compensation Stock Awards Options Payouts Compensation
Name and Principal Position Year ($) ($) ($)(1) ($)(2) (#) ($) ($)(3)
($)(4)
- -------------------------- --------- --------- --------- ------------- ------------ ----------- ------------ ---------------------------------------- ---- ----- ----- -------- ------- ----- ----- -------
Stanley M. Bergman........Bergman........... 1997 519,050 358,230 19,343 -- -- -- 37,057
Chairman, Chief Executive 1996 504,050 298,523 19,343 -- -- -- 37,023
Chairman, ChiefOfficer and President 1995 479,050 307,034 19,343 -- -- -- 36,144
Executive Officer and 1994 469,050 260,496 258,259James P. Breslawski.......... 1997 296,400 87,500 14,400 -- -- 17,303,475 24,988-- 21,156
Executive Vice President
James P. Breslawski....... 1996 285,000 65,000 14,400 -- -- -- 20,970
Executive Vice President 1995 270,782 66,000 13,500 -- -- -- 21,458
1994 257,782 60,000 1,000,364 1,171,788 -- 382,618 19,184
Gerald A. Benjamin........Benjamin........... 1997 233,200 72,500 14,400 -- -- -- 17,020
Senior Vice President of 1996 220,000 60,000 14,400 -- 47,200-- -- 16,545
Senior Vice President ofAdministration and 1995 205,000 52,500 13,500 -- 47,200 -- 243,825 15,064
Administration and 1994 185,000 42,500 189,714 220,761 13,722
Customer Satisfaction
Steven Paladino...........Paladino.............. 1997 233,200 80,000 14,400 -- -- -- 16,732
Senior Vice President and 1996 220,000 62,500 14,400 -- -- -- 16,264
Senior Vice PresidentChief Financial Officer 1995 205,000 52,500 13,500 -- 54,700 -- 14,812
and Chief Financial 1994 185,000 42,500 189,714 220,761 -- 243,825 13,496
Officer
Mark E. Mlotek............Mlotek............... 1997 237,500 65,000 14,400 -- -- -- 16,732
Vice President, General 1996 225,000 50,000 14,400 -- -- -- 16,566
Vice President, General 1995 212,000 45,000 13,500 -- 32,300 -- 8,729
Counsel and Secretary 1994 9,7701995 212,000 45,000 13,500 -- 32,300 -- 92,758 -- -- --8,729
- ------------------------
(1) The 1994 amounts1995 amount shown in this column include amounts recorded for each of
Messrs. Breslawski, Benjamin and Paladino of $986,864, $175,674 and
$175,674, respectively, to pay income taxes attributable to the stock
issuances made to each of them in 1994. Mr. Bergman was given a cash bonus
of $258,259 in 1994 to pay certain additional income taxes attributable to
the certain stock issuances described below. In 1995, Mr. Mlotek received
$82,434comprised
of an amount recorded to pay income taxes attributable
to stock issuances made to him in 1995.
(2) At the end of fiscal 1996,1997, Messrs. Breslawski, Benjamin,
Paladino and Mlotek held 195,822, 50,490, 50,490176,242, 41,845, 41,610 and 14,85010,990
shares of restricted common stock,Common Stock, respectively, with an
aggregate value of $6,731,381, $1,735,594, $1,735,594$5,926,137, $1,407,038, $1,399,136 and
$510,469$369,539 respectively.
(3) Mr. Bergman was issued 1,466,685 shares of Common Stock and was issued
shares of common stock of Schein Pharmaceutical, Inc. on December 24, 1992.
The value of these shares on September 30, 1994 was $17.3 million in the
aggregate. These shares when issued had a value of $6.2 million and $2.6
million, respectively, the entire amount of which was charged as deferred
compensation. The
14
issuances to Mr. Bergman are being included herein at their fair market
value on September 30, 1994 because, on that date, certain contingencies
relating to the stock were eliminated and the shares became fully vested.
Accordingly, the deferred compensation which was charged in 1992 and a mark-
to-market adjustment to fair market value on such date was recorded in 1994.
Mr. Breslawski received $382,618 in 1994 in satisfaction of his Executive
Incentive Plan balance, payable with 30,294 shares of Common Stock with an
aggregate value of $214,454 on December 31, 1994 and a $168,164 cash
payment. Each of Messrs. Benjamin and Paladino received $243,825 in 1994 in
satisfaction of their Executive Incentive Plan balance, payable with 19,305
shares of Common Stock with an aggregate value of $136,662 on December 31,
1994 and $107,163 in cash.
(4) The 1994 amounts shown in this column represent (i) profit sharing
contributions made by the Company on behalf of Mr. Bergman and Mr.
Breslawski of $9,434, on behalf of Mr. Benjamin of $7,519 and on behalf of
Mr. Paladino of $7,524, (ii) Employee Stock Ownership Plan ("ESOP")
contributions made by the Company on each executives' behalf of $4,500, and
(iii) excess life insurance and Supplemental Executive Retirement Plan
("SERP") contributions of $1,186 and $9,868 for Mr. Bergman, $950 and $4,300
for Mr. Breslawski, $653 and $1,050 for Mr. Benjamin, and $422 and $1,050
for Mr. Paladino, respectively. The 1995 amounts shown in this column represent (i) profit
sharing contributions made by the Company on behalf of each
of Messrs. Bergman, Breslawski, Benjamin and Paladino of
$6,000 and on behalf of Mr. Mlotek of $4,566, (ii) ESOPEmployee
Stock Ownership Plan ("ESOP") contributions made by the
Company on behalf of each of Messrs. Bergman, Breslawski,
Benjamin and Paladino of $4,500 and on behalf of Mr. Mlotek
of $3,425, (iii) excess life insurance and SERPSupplemental
Executive Retirement Plan ("SERP") contributions of $2,610
and $23,034 for Mr. Bergman, $1,003 and $8,455 for Mr.
Breslawski, $714 and $3,850 for Mr. Benjamin, $462 and
$3,850 for Mr. Paladino, and $738 and $0 for Mr. Mlotek,
respectively, and (iv) an anniversary bonus to Mr.
Breslawski of $1,500. The 1996 amounts shown in this column
represent (i) profit sharing contributions made by the
Company on each executive's behalf of $6,000, (ii) ESOP
contributions made by the Company on each executive's behalf
of $4,500, and (iii) excess life insurance and SERP
contributions of $1,740 and $24,783 for Mr. Bergman, $1,020
and $9,450 for Mr. Breslawski, $795 and $5,250 for Mr.
Benjamin, $514 and $5,250 for Mr. Paladino, and $816 and
$5,250 for Mr. Mlotek, respectively. AGGREGATED FISCAL 1996 YEAR-END OPTION VALUESThe 1997 amounts shown
in this column represent (i) profit sharing contributions
made by the Company on each executive's behalf of $6,400,
(ii) ESOP contributions made by the Company on each
executive's behalf of $4,800, and (iii) excess life
insurance and SERP contributions of $723 and $25,134 for Mr.
Bergman, $408 and $9,548 for Mr. Breslawski, $696 and $5,124
for Mr. Benjamin, $408 and $5,124 for Mr. Paladino, and $408
and $5,124 for Mr. Mlotek, respectively.
- 14 -
Aggregated Fiscal 1997 Year-End Option Values
The following table summarizes the number of all shares subject to options
held by the Named Executive Officers at the end of fiscal 1996,1997, and their
value at that date if they were in-the-money. No stock options were exercised
in fiscal 1996.1997.
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS ATValue of Unexercised
Number of Securities In-The-Money Options at 12/28/96
NUMBER OF SECURITIES -----------------------------------------------
UNDERLYING UNEXERCISED
OPTIONS AT27/97
Underlying Unexercised ------------------------------------------------------------
Options at 12/28/96 EXERCISABLE UNEXERCISABLE
----------------------------------27/97 Exercisable Unexercisable
------------------------------- ----------------------- ----------------------
NAME EXERCISABLE-------------------------------
Exercisable Unexercisable Shares Shares
----------- ------------- ------ ------
Name (#) UNEXERCISABLE (#) SHARES (#) TOTALTotal ($) SHARES (#) TOTALTotal ($)
- -------------------------------------- --------------- ----------------- ----------- ---------- --------------- --- --- --- --------- --- ---------
James P. Breslawski 0 15,000 0 0 15,000 135,975
Gerald A. Benjamin.................... 35,533 11,667 35,533 1,034,173 11,667 224,590Benjamin 41,250 18,450 41,250 1,077,194 18,450 218,181
Steven Paladino....................... 38,033 16,667 38,033 1,082,298 16,667 320,840Paladino 46,200 22,500 64,200 1,164,438 22,500 276,723
Mark E. Mlotek........................ 23,966 8,334 23,966 694,787 8,334 160,430Mlotek 28,020 14,250 28,050 727,823 14,250 165,556
EMPLOYMENT AND OTHER AGREEMENTSEmployment and Other Agreements
The Company and Stanley M. Bergman entered into an employment agreement
dated as of January 1, 1992 (the "Employment Agreement"), providing for his
continued employment as Chairman of the Board, President and Chief Executive
Officer until December 31, 1999. The Employment Agreement provides Mr. Bergman
with a base salary of $519,050 for 1997, $544,050 for 1998 and $559,050 for 1999. In addition,
the Employment Agreement provides for incentive compensation to be determined
by the 15
Compensation Committee of the Board of Directors (or, if there is no
Compensation Committee, the Board of Directors). The Compensation Committee
awarded incentive compensation of $358,230 to Mr. Bergman for 1997. Based on
the range of incentive compensation provided for in the employment agreement,
it is anticipated that incentive compensation for 1997 will be in the range of $75,000 to $445,000. The
range of incentive compensation increases to $80,000
to $465,000 in 1998 and $85,000 to $485,000 in 1999. The Employment Agreement
also provides that Mr. Bergman will continue to participate in all benefit,
welfare and perquisite plans, policies and programs generally available to
either the Company's employees or the Company's senior executive officers. The
Company provides Mr. Bergman with the use of an automobile and expenses
related thereto, and other miscellaneous benefits. If Mr. Bergman's employment
with the Company is terminated by the Company without cause or terminated by
Mr. Bergman following a material breach by the Company of the Employment
Agreement which is not cured during the requisite period for cure of such
breach, Mr. Bergman will receive all amounts then owed to him as salary and
deferred compensation and any benefits accrued and owed to him or his
beneficiaries under the then applicable benefit plans, programs and policies
of the Company. In addition, Mr. Bergman will receive as severance pay, 100%
of his then annual base salary and a payment equal to the account balance or
accrued benefit Mr. Bergman would have been credited with under each pension
plan maintained by the Company, in each case assuming the Company would have
continued contributions until the natural expiration of the Employment
Agreement, less Mr. Bergman's vested account balance or accrued benefits under
each pension plan. Unless the Employment Agreement is terminated for cause or
pursuant to Mr. Bergman's voluntary resignation, the Company will continue the
participation of Mr. Bergman and his family in the health and medical plans,
policies and programs in effect with respect to senior executive officers of
the Company and their families. Coverage for Mr. Bergman and his spouse will
continue from the end of Mr. Bergman's employment until their respective
deaths, and coverage for his children will continue until their attainment of
the age of twenty-one.
The Company has entered into agreements with the Named Executive Officers
to provide that if an executive's employment is terminated by the Company or
by the executive without cause or for good reason, respectively, and not
within two years after a change in control of the Company, the Company will
pay to the executive severance pay
- 15 -
equal to one month's base salary for each month the executive has been
employed by the Company, with a minimum of six months and a maximum of twelve
months, subject to offset for remuneration for subsequent employment. If the
executive is terminated within two years following a change in control of the
Company which has not been approved by a supermajority of the Board of
Directors, the executive's severance pay will equal three times the severance
pay the executive would have received had no change of control occurred, plus
three times the amount of executive's incentive bonus for the year preceding
the year of termination.
In September 1994, the Company, Schein Pharmaceutical, Inc. and Marvin
Schein, a director and principal stockholder of the Company, agreed to
terminate a lifetime consulting agreement entered into in 1982 between the
Company's predecessor and Mr. Schein, and the Company and Mr. Schein agreed to
continue the consulting arrangement on the terms set forth in a new lifetime
consulting agreement (the "Consulting Agreement"). The current Consulting
Agreement modified certain of the terms of the 1982 agreement, including the
elimination of a provision limiting Mr. Schein's compensation to $100,000 per
annum if the Company's pre-tax income were less than $3.5 million for two
consecutive years. The 1982 agreement provided, and the current Consulting
Agreement provides, for Mr. Schein's consulting services to the Company with
respect to the marketing of dental supplies and equipment, from time to time.
The consulting Agreement currently provides for initial compensation of
$258,000$283,200 per year, increasing $25,000 every fifth year beginning in 1997.2003. The
Consulting Agreement also provides that Mr. Schein will participate in all
benefit, compensation, welfare and perquisite plans, policies and programs
generally available to either the Company's employees or the Company's senior
executive officers, excluding the Company's Stock Option Plan, that Mr.
Schein's spouse, and his children until they attain the age of 21, will be
covered by the Company's health plan, and that the Company will provide Mr.
Schein with the use of an automobile and expenses related thereto. The
Consulting Agreement was originally entered into as part of a recapitalization
of the Company's predecessor in 1982 among Mr. Schein and its other
stockholders, and 16
to secure for the Company the consulting services of Mr.
Schein, who had served the Company in various executive capacities for more
than the prior twenty years.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The principal focusReport of the Compensation Committee of the Board of Directors
The Committee, which also serves as the Stock Option Committee, has
been considerationresponsibility for the philosophy, competitive strategy, design, and
administration of the Company's compensation program for its executive
officers (including the Named Executive Officers). The Committee seeks to
ensure that the executive officer compensation program is competitive in level
and recommendationsstructure with the programs of comparably-sized businesses and that it is
supportive of the Company's financial and operating objectives and aligned
with the financial interests of the Company's stockholders. The Company and
the Compensation Committee have retained the services of an indepen dent
executive compensation consulting firm for advice regarding the competitive
structure and administration of the officer compensation program.
Philosophy and Program Components
The Company's executive officer compensation program is structured to
enable the Company to attract and retain the caliber of officers needed to
ensure the Company's continued growth and profitability and to competitively
compensate them based on their and the Company's performance and on the
longer-term value they create for the Company's stockholders. The components
of the officer compensation program consist of base salary, annual bonuses
paid under the Company's annual Performance Incentive Plan, and periodic
grants of stock options.
The Company measures the competitiveness of its compensation program
relative to the Boardpractices of Directors
concerningother companies with annual revenues comparable
to those of the Company. The Committee has adopted a philosophy which would
seek to set salaries so as to be competitive within the 50th to 75th
percentiles of practices at companies with annual revenues comparable to those
of the Company. The philosophy also aims to structure Annual Performance
Incentive Plan award opportunities so that an officer's salary plus annual
bonus will fall within the 50th to 75th percentiles of competitive practices,
assuming the Company's achievement of annual financial performance targets
established by the Committee at the start of the year, and the achievements of
the individual officer, evaluated
- 16 -
against pre-established goals and objectives, Stock option grants would
similarly be administered with reference to the 50th and 75th percentiles of
option granting practices for companies of comparable revenue size.
Base Salary
The Company annually reviews officer salaries and makes adjustments as
warranted based on competitive practices and the individual's performance.
Salary increases are generally approved during the first quarter of the
calendar year retroactive to January 1 of the year. The 1997 salaries of the
Named Executive Officers, excluding Mr. Bergman, the Company's Chief Executive
Officer, were increased by an average of 5.4%. The Committee was advised by
its consultant that such officers' average 1997 salaries approximated the 50th
percentile of competitive practices. Mr. Bergman's 1997 salary was increased
pursuant to the terms of his employment agreement.
Annual Incentive Compensation
Annual incentive compensation for executive officers, other than Mr.
Bergman, are paid under the Company's Performance Incentive Plan (PIP) which
is designed to reward the achievement of pre-established corporate, business
unit and individual performance goals so as to compensate them for both their
individual performance and team financial results. The Chief Executive Officer
annually determines those who will participate in the PIP and they are
notified of their participation at the beginning of each year. The Chief
Executive Officer determines the PIP performance goals for officers who report
directly to him and determines goals for other participants in consultation
with their supervisors. Performance goals are reviewed at mid-year to ensure
their continued relevance.
During the first quarter of the year, the Chief Executive Officer reviews
financial and individual performance relative to PIP performance measures,
standards and award payment opportunities established early in the prior year,
and determines PIP award payments. The Chief Executive Officer reviews the
performance achievements of the Company, its business units, and the executive
officers, and the proposed PIP awards for executive officers, with the
Compensation Committee which must approve the payment of these awards. PIP
payments for 1997 performance for the Named Executive Officers, other than Mr.
Bergman, were based on (1) the Company's 1997 earnings per share measured
against the consensus expectations of analysts who follow the Company's stock,
(2) overhead expense measured against budgeted amounts, (3) achievement of
customer service commitment goals, and (4) Team Schein's goals reflecting the
professional growth and development of staff members and the promotion and
support of the Company in respect of fiscal 1996.Company's cultural values. In addition, Mr. Breslawski's bonus
reflected the viewsales and pretax income performance of the Committee,business units he
manages.
PIP payments for 1997 for the goalNamed Executive Officers other than Mr.
Bergman ranged from 27% to 34% of salary and averaged 31%. The Committee's
compensation consultant has advised it that the average 1997 salary plus 1997
bonus for these four executive compensation generally
is to helpofficers fell below the Company attract, motivate and retain the executive talent the
Company needs to maximize stockholder value. As a key element25th percentile of such program,
incentive compensation is intended to reward superior financial performance,
recognize individuals' contributions to such performance and bring an
executive's total
annual cash compensation (baseat businesses of comparable size.
Stock Options
The Company and the Committee believe that stock options directly align the
long-term financial interests of the Company's officers and stockholders and
intend to make grants on an annual basis. The Committee's compensation
consultant provides it with competitive 50th and 75th percentile option
granting guidelines, reflecting option granting practices of companies of
comparable size, which are used in determining the size of the Company's stock
option grants. In March 1998, the Committee granted options for a total of
approximately 575,000 shares, including options to the following Named
Executive Officers, at an exercise price of $39.875 per share: James
Breslawski, 17,500 shares, Gerald Benjamin, 15,000 shares, Steven Paladino,
16,500 shares, and Mark Mlotek, 12,500 shares.
- 17 -
The Chief Executive Officer
Mr. Bergman's 1997 salary plus annual incentive
compensation) aboveof $519,050 was set in accordance with the average for comparable positions at similar-sized
companies.terms
of his employment contract and was 3% higher than his 1996 salary. The
contract also provides that Mr. Bergman's bonus be within a specified range
based on the Company's performance as determined by the Committee. The
Committee consideredawarded Mr. Bergman an annual bonus of $358,230 with respect to 1997
performance. In making its bonus determination, the financial performance ofCommittee evaluated the
Company in fiscal
1996, including its growth in net sales and pro forma operating income, net
income, andCompany's 1997 earnings per share measured in relation to the consensus
expectations of analysts who follow the Company's stock and the Company's
progresssuccessful acquisitions of MBM and Sullivan.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting annual compensation in executing its five
growth strategies: increased salesexcess of $1 million paid to existing dental accounts; increased
penetration of medical and veterinary markets; continued international
expansion; enhanced value-added products and services; and completing strategic
acquisitions. With respect to the performanceany of the Named
Executive Officers, in
fiscal 1996,unless such compensation is performance-based and paid
pursuant to criteria approved by the Committee discussed with Mr. Bergman,stockholders. Since the Chairman, Chief
Executive Officer and President of the Company, the performance of1997 compensation
paid to each of the
other Named Executive Officers and exchanged views about these matters with
other members of the Board of Directors. The Committee also consulted with a
recognized compensation consulting firm in connection with its determination.
On the basis of the foregoing, and other factors, the Committee recommended
to the Board of Directors the 1996 bonus awards to the Named Executive Officers reflecteddoes not exceed $1 million, all of
these payments will be tax deductible by the Company. The Committee will
continue to consider 162(m) in making its compensation decisions so as to ensure
the Summary Compensation Table. In addition, with respectdeductibility of future compensation paid to Mr.
Bergman, the Committee referred to the provisions of Mr. Bergman's Employment
Agreement which provide that the Committee shall consider the range of bonuses
set forth in the Agreement.
Respectfully submitted,
BARRY J. ALPERIN
DONALD J. KABAT
17
Named Executive Officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Stanley M. Bergman, James P. Breslawski, Gerald A. Benjamin, Leonard
A. David, Mark E. Mlotek, and Steven Paladino and Bruce Haber are executive
officers of the Company and members of the Board of Directors which approved
incentive compensation for the Named Executive Officers for fiscal 19961997 based
upon the recommendations of the Compensation Committee. None of the Named
Executive Officers participated in any deliberations of the Board of Directors
with respect to their own compensation for fiscal 1996.1997.
CERTAIN TRANSACTIONS
In the ordinary course of its business, the Company buys products from and
sells products to Schein Pharmaceutical, Inc. in arms-length transactions. In
1996,1997, the Company's purchases from Schein Pharmaceutical, Inc. amounted to
approximately $7.0 million. Certain of the Company's stockholders and
directors, including Stanley M. Bergman, Marvin H. Schein, Pamela Schein, and
Pamela Joseph, and related persons thereto, own approximately 70% of the
outstanding shares of common stock of Schein Pharmaceutical, Inc.
- 18 -
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on $100
invested on November 3, 1995, the date of the initial public offering of the
Company's Common Stock, through the end of fiscal 1995, and through the end of
fiscal 1996 and fiscal
1997 with the cumulative total return for the same periods on the same amount
invested in the Nasdaq Stock Market (U.S. Companies) Composite Index and an indextwo
indexes of peer companies selected by the Company. The companies in the
Original Peer Group* were selected because they had the same SIC code as the
Company. Upon further analysis of the size and business operations of these
companies in comparison with the Company, and upon discussions with a number
of investment analysts who follow the Common Stock and are familiar with the
Company's business, the Revised Peer Group** was selected for future total
shareholder return comparison purposes. Two of the companies that were in the
Original Peer Group Index
consists of 27 companies (includingand would have been in the Company) based onRevised Peer Group (Sullivan
Dental and MBM) were acquired by HSI during 1997. In addition, the same Standard
Industrial Code.*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHICCompany is
included in the Original Peer Group but is not included in the Revised Peer
Group, as the Company has decided that its exclusion provided more useful
comparative data.
HENRY SCHEIN, INC. SIC CODE INDEX NASDAQ MARKET INDEX
11-3-95 100.00 100.00 100.00
30-Dec-95 129.67 108.16 101.13
12-28-96 151.65 103.14 125.67
November 3, 1995 December 30, 1995 December 28, 1996 December 27, 1997
Henry Schein, Inc. 100.00 129.67 151.65 147.80
Original Peer 100.00 120.83 108.35 131.30
Group
Revised Peer Group 100.00 108.16 103.14111.01 124.41 119.94
NASDAQ Composite 100.00 101.13 125.67101.80 125.21 153.65
Composite
- --------------------------------
* Allegiance Corporation, American Homepatient,Home Patient, Inc., BEC Group, Inc.,
Biodynamics International Inc., Cantel Industries, Inc., Cyberonics Inc.,
Electroscope, Inc., Elron Electronic Industries Ltd., ESC Medical Systems
Ltd., Graham-Field Health Products, Inc., Gulf South Medical Supply,
Henry Schein, Inc., Innovative Medical Services, Micro Bio-Medics, Inc.,
Netmed Inc., Novoste Corporation, Owens & Minor, Inc., Patterson Dental
Company, Physician Sales & Services, Inc., Prime Capital Corporation,
Pro-Dex Inc., Strategic Distribution, Inc., Suburban Ostomy Supply Co.,
Inc., Sullivan Dental Products, Inc., Thermo-Mizer Environmental Corp.,
US-China Industrial Exchange, Inc., Vallen Corporation.
** Allegiance Corporation, Global DirectMail Corp., Graham Field Health
Products, Gulf South Medical Supply, Inc., Owens & Minor, Inc., Patterson
Dental Company, Physician Sales & Service, Inc., U.S. Office Products
Co., Vallen Corporation, Viking Office Products, Inc. and VWR Scientific
Products Corp.
- 19 -
PROPOSAL 54
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
selected BDO Seidman, LLP as independent auditors for the Company for the year
ending December 27, 1997,26, 1998, subject to ratification of such selection by the
stockholders at the Annual Meeting. If the stockholders do not ratify the
selection of BDO Seidman, LLP, another firm of independent public accountants
will be selected by the Board of Directors. Representatives of BDO Seidman,
LLP will be present at the Annual Meeting, will have an opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions from stockholders in attendance.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
THE COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO
VOTE AT THE ANNUAL MEETING IS REQUIRED TO RATIFY THE SELECTION OF BDO SEIDMAN,
LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 27, 1997.26,
1998.
VOTING OF PROXIES AND OTHER MATTERS
The Board of Directors recommends that an affirmative vote be cast in favor
of each of the proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought before
the meeting which require submission to a vote of the stockholders. If any
other matters are properly brought before the meeting, however, the persons
named in the enclosed proxy or their substitutes will vote in accordance with
their best judgment on such matters.
A complete list of stockholders entitled to vote at the Annual Meeting will
be available for inspection on May 12, 1997__, 1998 at the Company's headquarters
located at 135 Duryea Road, Melville, New York 11747.
STOCKHOLDER PROPOSALS
Stockholders wishing to present proposals for action by the stockholders at
the next Annual Meeting must present such proposals at the principal offices
of the Company not later than December 19, 1997.__, 1998. It is suggested that any such
proposals be submitted by certified mail, return receipt requested.
BY ORDER OF THE BOARD OF DIRECTORS
STANLEY M. BERGMAN
Chairman, Chief Executive Officer
and President
Melville, New York
April 18, 1997__, 1998
- 20 -
HENRY SCHEIN, INC.
135 DURYEA ROAD
MELVILLE, NEW YORK 11747
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting of
Stockholders and the Proxy Statement, dated April 18, 1997,__, 1998, hereby appoints
Stanley M. Bergman and Mark E. Mlotek, as proxies (each with the power to act
alone and with the power of substitution and revocation), to represent the
undersigned and to vote, as designated below, all shares of Common Stock of
Henry Schein, Inc. held of record by the undersigned on April 1, 1997,13, 1998, at the
Annual Meeting of Stockholders to be held at 4:10:00 pma.m. on Thursday,Wednesday, May 22, 199727,
1998 at the Huntington Hilton, 598 Broadhollow Road, Melville, New York and at
any adjournments or postponements thereof. The undersigned hereby revokes anyand
previous proxies with respect to the matters covered by this Proxy.
HENRY SCHEIN, INC.'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
FOLLOWING PROPOSALS
1. PROPOSAL TO ELECT ELEVEN DIRECTORS FOR TERMS EXPIRING AT THE 19981999 ANNUAL
MEETING.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed
below
Stanley M. Bergman, Robert J. Sullivan, James P. Breslawski, Bruce J. Haber,
Gerald A. Benjamin, Leonard A. David, Mark E. Mlotek, Steven Paladino, Barry J.
Alperin, Pamela Joseph, Donald J. Kabat, Marvin H. Schein and Irving Shafran
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW:
- --------------------------------------------------------------------------------BELOW.
--------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AMENDMENT OF CERTIFICATE OF INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENT OF THE BY-LAWS
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO APPROVE AMENDMENT OF THE 19941991 STOCK OPTION PLAN
/ / FOR / / AGAINST / / ABSTAIN
5.4. PROPOSAL TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 27, 1997.26, 1998
/ / FOR / / AGAINST / / ABSTAIN
6.5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1 AND FOR
PROPOSALS 2 3, 4 AND 5.3.
Please sign exactly as names appear on
this proxy. Where shares are held by
joint tenants, both should sign. If
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized person. If a partnership,
please sign in partnership name by
an authorized person.
Dated: _____________________
____________________________Dated
---------------------------------
---------------------------------
(Signature)
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
INDEX TO EXHIBITS
Exhibit A: Article Fifth of the Company's Restated Certificate of Incorporation Prior to
the Proposed Amendment
Exhibit B: Article VI of the Company's Amended and Restated By-Laws Prior to the Proposed
Amendment
Exhibit C: Article III, Section 3 of the Company's Amended and Restated By-Laws Prior to
the Proposed Amendment
EXHIBIT A
ARTICLE FIFTH OF THE COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION PRIOR TO THE PROPOSED AMENDMENTS
FIFTH:
A. The business and affairs of the Corporation shall be managed by its Board
of Directors whose members need not be residents of the State of Delaware nor
stockholders of the Corporation. The number of directors which shall constitute
the entire Board of Directors shall be no less than five and no more than 11
through December 31, 1998; thereafter the number of directors which shall
constitute the entire Board of Directors shall be nine.
B. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
1. To adopt, amend or repeal any By-Law (PROVIDED, HOWEVER, that (a)
any By-Law made, amended or repealed by the Board of Directors may be
amended or repealed, and that any by-laws may be adopted, by the
stockholders of the Corporation and (b) the Board of Directors may not amend
or repeal any By-Law adopted by the stockholders of the Corporation);
2. To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation;
3. To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created; and
4. By resolution passed by a majority of the whole Board, to designate
one or more committees, each committee to consist of two or more of the
directors of the Corporation, which, to the extent provided in such
resolution or in the By-Laws of the Corporation, shall have and may exercise
all the powers and the authority of the Board of Directors in the management
of the business and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in
the By-Laws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
C. The affirmative vote of the holders of 80% or more of the shares entitled
to vote in the election of directors shall be required to amend or repeal, or
adopt any provisions inconsistent with, this Article FIFTH.
EXHIBIT B
ARTICLE VI OF THE COMPANY'S AMENDED AND
RESTATED BY-LAWS PRIOR TO THE PROPOSED AMENDMENT
These By-Laws may be amended or repealed and any By-Laws may be adopted at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed amendment or repeal, or By-Law or By-Laws to be adopted,
be contained in that notice of such special meeting, by the affirmative vote of
holders of two-thirds of the shares of the stock issued and outstanding and
entitled to vote thereat (unless a greater percentage is provided herein), or at
any regular meeting of the Board of Directors, or at any special meeting of the
Board of Directors, if notice of the proposed amendment or repeal, or By-Law or
By-Laws to be adopted, be contained in the notice of such special meeting, by
the affirmative vote of two-thirds of the board of Directors, provided that the
Board of Directors may not amend or repeal any By-Laws adopted by the
stockholders of the Corporation.
EXHIBIT C
ARTICLE III, SECTION 3 OF THE COMPANY'S AMENDED AND RESTATED
BY-LAWS PRIOR TO THE PROPOSED AMENDMENT
Section 3. VACANCIES. Subject to the provisions of the Corporation's
Restated Certificate of Incorporation and except as otherwise provided by law,
vacancies in the Board of Directors may be filled by the affirmative vote of
stockholders holding at least 66 2/3% of the outstanding shares entitled to vote
in any election of directors, and any director so chosen shall hold office for
the remainder of the full term of the director whose place he or she has been
elected to fill and until his or her successor shall be elected and qualified.
If there are no directors in office, then an election of directors may be held
in the manner provided by law.
Further subject to the Corporation's Restated Certificate of Incorporation,
a vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any director, or if the stockholders fail at any
annual meeting of stockholders at which any director or directors are required
to be elected, to elect the full authorized number of directors to be voted for
at that meeting, or if there are newly created directorships resulting from any
increase in the authorized number of directors.