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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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SUBURBAN OSTOMY SUPPLY CO., INC.
(NAME OF SUBJECT COMPANY)
COMMON STOCK, NO PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
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864471 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DONALD H. BENOVITZ
PRESIDENT
75 OCTOBER HILL ROAD
HOLLISTON, MASSACHUSETTS 01746
(508) 429-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
JAMES WESTRA, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Suburban Ostomy Supply Co., Inc., a
Massachusetts corporation (the "Company"), and the address of the principal
executive offices of the Company is 75 October Hill Road, Holliston,
Massachusetts 01746. The title of the class of equity securities to which this
statement relates is the common stock, no par value per share, of the Company
(the "Company Common Stock").
ITEM 2. TENDER OFFER OF PURCHASER.
This statement relates to a cash tender offer by Inva Acquisition Corp., a
Massachusetts corporation ("Purchaser") and a wholly owned subsidiary of
Invacare Corporation, an Ohio corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), dated December 22,
1997, to purchase all of the outstanding shares of Company Common Stock (the
"Shares") at a price of $11.75 per share (such amount, or any greater amount per
share paid pursuant to the Offer, being hereafter referred to as the "Per Share
Amount"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated December 22, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 17, 1997, (the "Merger Agreement"), by and among Parent,
Purchaser and the Company. The Merger Agreement provides that, among other
things, as soon as practicable after the consummation of the Offer and
satisfaction or waiver of certain conditions, a merger will be effected under
the terms of which either: (i) in the event that Purchaser acquires less than
90% of the outstanding Shares pursuant to the Offer, Purchaser will be merged
with and into the Company, with the Company surviving the merger, or (ii) in the
event that Purchaser acquires 90% or more of the outstanding Shares pursuant to
the Offer, and Purchaser determines, in its sole discretion to use the "short
form" merger procedure described below, the Company will be merged with and into
Purchaser, with Purchaser surviving the merger (the entity surviving either of
the transactions described in clauses (i) and (ii) of this statement being
hereinafter referred to as the "Surviving Corporation"). Irrespective of how the
merger is structured, the Surviving Corporation will be a wholly owned
subsidiary of Parent ( the "Merger"). A copy of the Merger Agreement is filed
herewith as Exhibit 1, and is incorporated herein by reference.
Based on the information in the Offer to Purchase, the principal executive
offices of Parent and Purchaser are located at One Invacare Way, Elyria, Ohio
44036.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth below, none of the officers or directors of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including without limitation any
material contract, agreement, arrangement or understanding (i) providing for the
furnishing of services to or by, (ii) providing for rental of real or personal
property to or from, or (iii) otherwise requiring payments to or from, any
officer or director, any member of the family of any officer or director or any
corporation, partnership, trust or other entity in which any officer or director
has a substantial interest or is an officer, director, trustee or partner.
Stock Options. Pursuant to the terms of the 1995 Stock Option Plan as
currently in effect (the "Option Plan"), all outstanding stock options (the
"Company Stock Options") under the Option Plan, whether or not such Company
Stock Options would otherwise then be exercisable, shall become immediately
exercisable upon a Change in Control of the Company (as defined in the Option
Plan), which would occur upon completion of the Offer. As a result, all
outstanding Company Stock Options will be exchanged for, and the holder of each
such Company Stock Option will be entitled to receive upon surrender of such
Company Stock Option for cancellation, cash equal to the product of (x) the
difference between the Per Share Amount and the exercise price of each such
Company Stock Option multiplied by (y) the number of Shares covered by
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such Company Stock Option. As of December 17, 1997, there were Company Stock
Options covering 795,895 Shares outstanding at exercise prices ranging from
approximately $.81 to $11.00. Upon the acceleration of the Company Stock
Options, certain executive officers and directors of the Company will
respectively receive, in exchange for cancellation of previously vested Company
Stock Options and Company Stock Options accelerated as a result of the Merger,
the following amounts, representing the Per Share Amount less the exercise price
of the Company Stock Options: Herbert P. Gray will receive $2,035,500; Donald H.
Benovitz will receive $1,357,000; Stephen N. Aschettino will receive $1,696,250
and John G. Manos will receive $1,332,377.
Employment Agreements
Effective July 3, 1995, the Company entered into five (5) year employment
agreements with each of Messrs. Gray, Benovitz, Aschettino, Bohan and Manos. Mr.
Gray's agreement provides for his employment as Chairman of the Board of
Directors and Chief Executive Officer at an initial base annual salary of
$150,000. Mr. Benovitz' agreement provides for his employment as President and
Chief Operating Officer of the Company at a base annual salary of $195,000. Mr.
Aschettino's agreement provides for his employment as Vice President, Chief
Financial Officer, Treasurer and Clerk of the Company at an initial base annual
salary of $115,000. Mr. Bohan's agreement provides for his employment as Vice
President of Sales and Marketing of the Company at an initial base annual salary
of $130,000. Mr. Manos' agreement provides for his employment as Vice President
of MIS of the Company at an initial annual base salary of $100,000. Each of the
foregoing agreements provides for annual salary increases (i) to reflect
increases in the applicable consumer price index and (ii) in such other amounts,
if any, as determined by the Company's Compensation Committee. In addition,
Messrs. Gray, Benovitz, Aschettino, Bohan and Manos are eligible to receive
bonuses upon the achievement by the Company of certain financial targets
determined by the Company's Compensation Committee. Each of the employment
agreements extends until July 1, 2000, with annual renewals thereafter unless
terminated prior thereto in accordance with their respective terms.
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
Indemnification of Officers and Directors. The Company's Restated Articles
of Organization, as amended ("Articles of Organization"), contain a provision
which limits directors' and officers' liability to the fullest extent permitted
by the Massachusetts Business Corporation Law (the "MBCL"). Another provision
requires the Corporation to indemnify its current and former directors and
officers against any and all liabilities and expenses incurred in connection
with their service in such capacities to the maximum extent permitted by the
MBCL. The provision allows for the advancement of expenses to the fullest extent
permitted by MBCL to the persons mentioned above. In addition, the Company's
By-Laws provide that the Company must indemnify directors and officers against
liabilities incurred in their capacities as such to the fullest extent permitted
by MBCL, as in effect from time to time.
The Company has entered into separate indemnification agreements with
certain of its directors and its officers. These agreements require the Company,
among other things, to indemnify the directors and officers of the Company
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from actions not taken
in good faith or in a manner the indemnitee believed to be opposed to the best
interests of the Company or arising from certain other actions taken by the
indemnitee), to advance their expenses incurred as a result of any proceedings
against them as to which they could be indemnified and to obtain directors'
insurance if available on reasonable terms. These indemnification agreements
will be terminated on or before the Effective Time (as such term is defined
herein) of the Merger.
The Merger Agreement provides that for a period of six (6) years following
the Effective Time, Parent will cause the Surviving Corporation to indemnify and
hold harmless the present and former officers and directors of the Company
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent as would have been permitted in their respective
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articles of organization or by-laws consistent with applicable law, to the
extent such Costs have not been paid for by insurance and shall, in connection
with defending against any action for which indemnification is available
hereunder, reimburse such officers and directors, from time to time upon receipt
of sufficient supporting documentation, for any reasonable costs and expenses
reasonably incurred by such officers and directors; provided that such
reimbursement shall be conditioned upon such officer's or director's agreement
promptly to return such amounts to the Company if a court of competent
jurisdiction shall ultimately determine that indemnification of such officer or
director is prohibited by applicable law. The Company will maintain for a period
of not less than six (6) years from the Effective Time, the Company's current
directors' and officers' insurance and indemnification policy (or a policy
providing substantially similar coverage) to the extent that it provides
coverage for events occurring prior to the Effective Time (the "D&O Insurance")
for all persons who are directors and officers of the Company on the date of the
Merger Agreement; provided that the Company shall not be required to spend as an
annual premium for such D&O Insurance an amount in excess of 150% of the annual
premium paid for directors' and officers' insurance in effect prior to the date
of the Merger Agreement; and provided further that the Company shall
nevertheless be obligated to provide such coverage as may be obtained for such
amount.
Affiliated Leases
The Company leases a distribution center in Atlanta, Georgia from the
Suburban Grayson Atlanta Partnership, a Georgia general partnership in which
Messrs. Gray and Melvin Aronson each has a 50.0% interest. In May 1995, the
Company exercised an option to renew the lease covering this property through
August 4, 2006. The annual rent during each of fiscal years 1996 and 1997 was
$160,000.
The Company leases its distribution center in Holliston, Massachusetts from
GBA Realty Trust, a Massachusetts realty trust in which Messrs. Gray, Aronson
and Benovitz have a 40%, 40% and 20% interest, respectively. This lease, which
expires in December 31, 2006, provides for monthly rental payments equal to 110%
of the amounts due and payable each month under a promissory note between GBA
Realty Trust and United of Omaha Life Insurance, provided that the minimum
annual rent is $329,037. The rent paid to GBA Realty Trust was $330,000 during
fiscal year 1996 and $333,000 during fiscal year 1997. Such promissory note is
the obligation solely of GBA Realty Trust and is not guaranteed by, or otherwise
an obligation of, the Company.
In addition, the Company leases its South Bend, Indiana distribution center
from GBA Realty Corp., an Indiana corporation in which Messrs. Gray, Aronson,
Benovitz, Aschettino and Bohan and Mr. Doug Gray own 20%, 30%, 20%, 10%, 10% and
10%, respectively, of the outstanding capital stock. The lease, which expires on
July 31, 2003, provides for an annual rent of $108,000, subject to periodic
adjustments, at the option of GBA Realty Corp.
Other Related Party Arrangements
The Company provides general business insurance to GBA Realty Corp., GBA
Realty Trust and Suburban Grayson Atlanta Partnership under its umbrella policy.
Life Insurance Policies
On June 30, 1995, life insurance policies in the amount of $2.5 million for
each of Messrs. Gray and Aronson, which had previously been carried by the
Company were transferred to each of them. In the event of either individual's
death, the proceeds of this insurance were to be used to repurchase the
individual's stock in the Company at book value. In return for the transfer of
the insurance, the executives exchanged certain notes payable to them from the
Company and issued notes payable to the Company of $129,520, an amount equal to
the difference between the old notes payable and the cash surrender value of the
insurance, plus prepaid insurance premiums at the date of transfer.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which is filed herewith as
Exhibit 1.
The Offer. The Merger Agreement provides for the making of the Offer. The
obligation of Purchaser to accept for payment or pay for Shares is subject,
among other things, to the satisfaction of the condition that there shall be
validly tendered in accordance with the terms of the Offer prior to the
expiration date of the Offer and not withdrawn a number of Shares which,
together with the Shares then owned by Parent and Purchaser represents at least
two-thirds of the total number of outstanding shares of the Company, assuming
the exercise of all outstanding options, rights and convertible securities (if
any), and the issuance of all shares of the Company that the Company is
obligated to issue and certain other conditions that are set forth on Annex 1 to
the Merger Agreement (the "Minimum Condition"). Pursuant to the terms of the
Merger Agreement, Parent and Purchaser expressly reserve the right to waive any
of the conditions to the Offer (including the Minimum Condition). The expiration
date of the Offer is January 22, 1998. If by Midnight, New York City time, on
Thursday, January 22, 1998, (or any other date or time then set as the
expiration date) all conditions to the Offer have not been satisfied or waived,
and if Purchaser determines that all such conditions are reasonably capable of
being satisfied and subject to the rules of the Securities and Exchange
Commission (the "Commission") with respect to extension of time periods, the
Merger Agreement provides that the Offer will be extended from time to time
until such conditions are satisfied or waived, provided, however, that the
Merger Agreement does not obligate Purchaser to extend the Offer beyond January
31, 1998.
Certain Conditions of the Offer. Notwithstanding any other provision of
the Offer or the Merger Agreement, and subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) relating to Purchaser's
obligation to pay for or return tendered shares after termination of the Offer,
Purchaser shall not be required to accept for payment or pay for any shares of
Company Common Stock tendered pursuant to the Offer and may terminate the Offer
at any time after January 31, 1998, if (i) the Minimum Condition has not been
satisfied; (ii) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, (the "HSR Act") has not expired
or terminated; or (iii) at any time after the date of the Merger Agreement, and
before acceptance for payment of any shares of Company Common Stock, any of the
following events shall occur and be continuing: (a) there shall be instituted or
pending by any Federal, state or local government or any court, administrative
agency or commission or other governmental authority, foreign or domestic (a
"Governmental Entity"), any suit, action or proceeding (i) challenging the
acquisition by Parent or Purchaser of any shares of Company Common Stock under
the Offer or seeking to restrain or prohibit the making or consummation of the
Offer or the Merger, (ii) seeking to prohibit or materially limit the ownership
or operation by the Company, Parent or any of Parent's subsidiaries of a
material portion of the business or assets of the Company or Parent and its
subsidiaries, taken as a whole, or to compel the Company or Parent to dispose of
or hold separate any material portion of the business or assets of the Company
or Parent and its subsidiaries, taken as a whole, in each case as a result of
the Offer or the Merger or (iii) seeking to impose material limitations on the
ability of Parent or Purchaser to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock to be accepted for payment
pursuant to the Offer including, without limitation, the right to vote such
shares of Company Common Stock on all matters properly presented to the
stockholders of the Company or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect any material
portion of the business or operations of the Company; (b) there shall be any
statute, rule, regulation, judgment, order or injunction enacted, entered,
enforced, promulgated or deemed applicable to the Offer or the Merger, by any
Governmental Entity or court, other than the application to the Offer or the
Merger of applicable waiting periods under the HSR Act, that would result in any
of the consequences referred to in clauses (i) through (iv) of paragraph (a)
above; (c) any of the representations and warranties of the Company and its
subsidiaries contained in the Merger Agreement shall not be true and correct at
and as of the date of consummation of the Offer (except to the extent such
representations and warranties speak to an earlier date), in each case except as
contemplated or permitted by the Merger Agreement, and except, in the case of
any such breach when such breach would not have, individually or in the
aggregate, a Material
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Adverse Effect (as defined in the Merger Agreement) with respect to the Company
or materially affect the ability of the Company to consummate the Merger or
Purchaser to accept for payment or pay for shares of Company Common Stock
pursuant to the Offer; (d) the Company shall have failed to perform the
obligations required to be performed by it under the Merger Agreement at or
prior to the date of expiration of the Offer, including but not limited to its
obligations under "Transaction Proposals" below (except for such failures to
perform as have not had or would not individually or in the aggregate, have a
Material Adverse Effect with respect to the Company or materially adversely
affect the ability of the Company to consummate the Merger or Purchaser to
accept for payment or pay for shares of Company Common Stock pursuant to the
Offer); (e) the Board of Directors of the Company or any committee thereof shall
have (i) withdrawn, modified or amended in any respect adverse to Parent or
Purchaser its approval or recommendation of the Offer or the Merger, (ii)
recommended or approved any Transaction Proposal from a person other than
Parent, Purchaser or any of their respective affiliates, (iii) failed to
publicly announce, within ten (10) business days after the occurrence of a
Transaction Proposal, its opposition to such Transaction Proposal, or amended,
modified or withdrawn its opposition to any Transaction Proposal in any manner
adverse to Parent or Purchaser or (iv) resolved to do any of the foregoing; (f)
the Merger Agreement shall have been terminated in accordance with its terms; or
which, in the good faith judgment of Parent or Purchaser, in its sole
discretion, make it inadvisable to proceed with such acceptance of shares of
Company Common Stock for payment or the payment therefor.
Board of Directors. The Merger Agreement provides that effective upon the
acceptance for payment by Purchaser of Shares pursuant to the Offer such that
the Parent or Purchaser shall own at least a majority of the Shares on a fully
diluted basis, the Parent will be entitled to designate the number of Directors,
rounded up to the next whole number, on the Company's Board of Directors that
equals the product of (i) the total number of directors on the Company's Board
of Directors (giving effect to the election of any additional directors pursuant
to this provision of the Merger Agreement) and (ii) the percentage that the
number of Shares owned by Purchaser or the Parent (including shares of Company
Common Stock accepted for payment) bears to the total number of shares of
Company Common Stock outstanding, and the Company will take all necessary action
to cause the Parent's designees to be elected or appointed to the Company's
Board of Directors. The Merger Agreement also provides that the Company will use
its best efforts to cause individuals designated by the Parent to constitute the
same percentage as such individuals represent on the Company's Board of
Directors of each committee of the Board (other than committees established to
take action under the Merger Agreement), each board of directors of each
subsidiary of the Company and each committee of each such board. The Company's
obligations to appoint designees to the Board of Directors are subject to
Section 14(f) of the Exchange Act. The Company has agreed to take all action
required pursuant to Section 14(f) and Rule 14(f)-1 in order to fulfill its
obligations to appoint such directors, including mailing to its stockholders the
Information Statement containing the information required by Section 14(f) of
the Exchange Act and Rule 14(f)-1 promulgated thereunder, which Information
Statement is attached hereto as Annex 1. The Merger Agreement further provides
that in the event that Purchaser's designees are elected to the Board of
Directors of the Company, until the Effective Time the Board of Directors of the
Company will have at least two (2) directors who are directors on the date of
the Merger Agreement and who are not officers of the Company or any of its
subsidiaries.
Vote Required to Approve Merger. The MBCL requires, among other things,
that the adoption of any plan of merger or consolidation of the Company must be
approved by the Board of Directors of the Company and, if the "short form"
merger procedure described below is not available, by the holders of two-thirds
of the Company's outstanding Shares. The Board of Directors of the Company has
approved the Offer, the Merger and the Merger Agreement; consequently, the only
additional action of the Company that may be necessary to effect the Merger is
approval by such stockholders if the "short-form" merger procedure described
below is not available. Under the MBCL, the affirmative vote of holders of
two-thirds of the outstanding Shares (including any Shares owned by Purchaser),
is generally required to approve the Merger. If Purchaser acquires, through the
Offer or otherwise, voting power with respect to at least two-thirds of the
outstanding Shares (which would be the case if the Minimum Condition was
satisfied and Purchaser was to accept for payment Shares tendered pursuant to
the Offer), it would have sufficient voting power to effect a merger of the
Company with and into Purchaser without the vote of any other stockholders of
the Company. However,
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the MBCL also provides that if a parent company owns at least 90% of each class
of stock of a subsidiary, the parent company can effect a short-form merger with
that subsidiary merging into the parent without the action of the other
stockholders of the subsidiary. Accordingly, if, as a result of the Offer or
otherwise, Purchaser acquires or controls the voting power of at least 90% of
the outstanding Shares, Purchaser could effect a merger of the Company into
Purchaser using the "short-form" merger procedures without prior notice to, or
any action by, any other stockholder of the Company. In such an event,
stockholders of the Company shall not be adversely affected thereby (other than
the right to receive a proxy statement, attend a meeting of the stockholders and
vote on the Merger, which shall no longer be applicable).
Conditions to the Merger. The Merger Agreement provides that the Merger is
subject to the satisfaction of certain conditions, including the following: (1)
if required by applicable law, the Merger Agreement having been approved and
adopted by the affirmative vote of holders of two-thirds of the outstanding
Shares, (2) the expiration or termination of the applicable waiting period under
the HSR Act; and (3) no temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Entity or other legal
restraint or prohibition preventing or prohibiting the acceptance for payment of
or payment for Shares pursuant to the Offer or the consummation of the Merger
being in effect; provided, however, that each of the parties shall have used
their best efforts to have any such injunction, order, restraint or prohibition
or other order vacated.
Termination of the Merger Agreement The Merger Agreement may be terminated
at any time prior to the effective time of the Merger (the "Effective Time"),
whether before or after approval by the stockholders of the Company (1) by
mutual written consent of Purchaser and the Company; (2) by either Purchaser or
the Company if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the acceptance for payment of, or payment for, Shares pursuant to
the Offer or the Merger and such order, decree or ruling or other action has
become final and nonappealable or if any other legal restraint or prohibition
preventing or prohibiting the acceptance for payment of, or payment for, Shares
pursuant to the Offer or Merger shall be in effect and shall have become final
and non-appealable: (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations thereunder required to
be performed at or prior to the Effective Time); (3) by the Company if Purchaser
has not (a) commenced the Offer within five (5) business days after the initial
public announcement of Parent's intention to commence the Offer or (b) accepted
for payment any Shares pursuant to the Offer prior to March 31, 1998 (other than
due to the failure of the Company to perform its obligations thereunder); (4) by
Purchaser in the event of a material breach or failure to perform in any
material respect by the Company of any representation, warranty, covenant or
other agreement contained in the Merger Agreement which cannot be or has not
been cured within twenty (20) days after the giving of written notice to the
Company; (5) by the Company upon its execution, prior to the Parent or
Purchaser's purchase of Shares pursuant to the Offer, of a binding agreement
with a third party with respect to a Transaction Proposal (as defined below in
"Transaction Proposals"), provided that it has complied with all provisions of
the Agreement, including the notice provisions described in "Transaction
Proposals" below, and that it pays the Termination Fee (as defined below) as
provided in the terms of the Merger Agreement described below in "Fees and
Expenses;" (6) by the Company in the event of a material breach or failure to
perform in any material respect by Purchaser or Parent of any representation,
warranty, covenant or other agreement contained in the Merger Agreement which
cannot be or has not been cured within twenty (20) days after the giving of
written notice to the Parent and Purchaser; or (7) by Purchaser if Purchaser
terminates the Offer as a result of the occurrence of any event set forth under
"Certain Conditions of the Offer."
Transaction Proposals. The Merger Agreement provides that neither the
Company nor any of its subsidiaries, nor any of their respective officers,
directors, employees, representatives, agents or affiliates (including, without
limitation, any investment banker, attorney or accountant retained by the
Company or any of its subsidiaries) will directly or indirectly initiate,
solicit or knowingly encourage (including by way of furnishing non-public
information or assistance), or take any other action to facilitate, knowingly,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to any Transaction Proposal (as defined below) or enter into
or maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Transaction Proposal or agree to or
endorse any Transaction Proposal or authorize or permit any of its officers,
directors, or employees of any of its subsidiaries
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or any investment banker, financial advisor, attorney, accountant or other
representative retained by any of its subsidiaries to take any such action;
provided, however, that if, at any time prior to the acceptance for payment of
Shares pursuant to the Offer, the Board of Directors of the Company determines
in good faith, after consultation with their financial advisors and after
consultation with and based upon the advice of independent legal counsel (who
may be the Company's regularly engaged independent legal counsel), that it is
necessary to do so in order to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company may, subject to compliance with
the notification provisions discussed below and the receipt of a confidentiality
agreement containing terms and provisions substantially similar to those
contained in the confidentiality agreement executed by the Company and Parent,
(a) furnish information to or enter into discussions or negotiations with any
person or entity that makes an unsolicited written, bona fide proposal, to
acquire the Company and/or its subsidiaries pursuant to a merger, consolidation,
share exchange, business combination, tender or exchange offer or other similar
transaction in respect of which such person or entity has the necessary funds or
commitments therefor. The Merger Agreement defines "Transaction Proposal" as any
of the following (other than the transactions between the Company and Purchaser
contemplated by the Offer and the Merger Agreement) involving the Company or any
of its subsidiaries: (i) any merger, consolidation, share exchange,
recapitalization, business combination, or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or
more of the assets of the Company and its subsidiaries, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for, or the acquisition (or right to acquire) of beneficial ownership by
any person, group or entity, other than a person, group or entity which has
signed the Stockholders Agreement (as such term is defined herein), of 20% or
more of the outstanding shares of capital stock of the Company or the filing of
a registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. The Merger
Agreement provides further that if a Transaction Proposal exists and the Board
of Directors of the Company, after consultation with their financial advisors
and after consultation with and based upon advice of independent legal counsel
(who may be the Company's regularly engaged independent legal counsel)
determines in good faith that such action is necessary for the Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law in connection with such Transaction Proposal, the Board of Directors of the
Company may, at any time prior to the acceptance for payment of Shares pursuant
to the Offer and subject to the notification requirements described below: (i)
withdraw or modify its recommendation of the Offer, the Merger or the Merger
Agreement and (ii) make to the Company's stockholders any recommendation and
related filing with the Commission as required by Rule 14e-2 and 14d-9 under the
Exchange Act with respect to any tender offer, or take any other legally
required action with respect to such tender offer (including, without
limitation, the making of public disclosures as may be necessary or reasonably
advisable under applicable securities laws).
The Merger Agreement obligates the Company to promptly advise Purchaser
orally and in writing of any request for nonpublic information from, or
discussions or negotiations with, any person or entity or of any Transaction
Proposal known to it, the material terms and conditions of such request or
Transaction Proposal and the identity of the person or entity making such
request or Transaction Proposal, and to promptly inform Purchaser of any
material change in the details of such request, the contents of any discussions
or negotiations or any material change in such Transaction Proposal. In
addition, neither the Board of Directors nor any committee thereof may take any
action with respect to the matters set forth in clauses (i) or (ii) of the last
sentence of the preceding paragraph until a time that is after the later of the
fourth business day following Purchaser's receipt of written notice advising it
that the Board of Directors of the Company has received a Transaction Proposal,
specifying the material terms thereof and identifying the person making the same
and, in the event of any amendment to the price or any material term of a
Transaction Proposal, two (2) business days following Purchaser's receipt of
written notice containing the material terms of such amendment, including any
change in price (it being understood that each further amendment to the price or
any material terms of a Transaction Proposal will necessitate an additional
written notice to Parent and an additional two (2) business day period prior to
which the Company can take the actions set forth in the last sentence of the
preceding paragraph).
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Fees and Expenses. The Merger Agreement provides that except as provided
below, all fees and expenses incurred in connection with the Offer, the Merger,
the Merger Agreement and the transactions contemplated by the Merger Agreement
will be paid by the party incurring such fees or expenses, whether or not the
Offer or the Merger is consummated. The Merger Agreement further provides that,
subject to the last sentence of this paragraph, the Company will pay to
Purchaser the amount equal to 4.25% of the aggregate consideration to be paid
pursuant to the Merger Agreement (the "Termination Fee") if any person (other
than Purchaser or any of its affiliates) has made, proposed, communicated or
disclosed a Transaction Proposal in a manner which is or otherwise becomes
public and the Merger Agreement is terminated: (1) by the Company in accordance
with the provisions described above in clause 5 of "Termination of the Merger
Agreement" or in accordance with the provisions described above in clause 3 of
"Termination of the Merger Agreement" if Purchaser's failure to accept Shares
for payment results from the failure of the Minimum Condition to be satisfied or
the occurrence of any of the events set forth in subparagraphs (c), (d) or (e)
of "Certain Conditions of the Offer" or (2) by Purchaser in accordance with the
provisions described above in clause 4 of "Termination of the Merger Agreement"
or in accordance with the provisions described above in clause 7 of "Termination
of the Merger Agreement" if Purchaser's failure to accept Shares for payment
results from the failure of the Minimum Condition to be satisfied or the
occurrence of any of the events set forth in subparagraphs (c), (d) or (e) of
"Certain Conditions of the Offer." Notwithstanding the foregoing, the Merger
Agreement provides that no Termination Fee will be payable if such termination
is based upon the Company's breach of certain representations and warranties
relating to the absence of a Material Adverse Change (as defined below) in its
business and the absence of any condition, event or occurrence which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect (as defined below) on the Company or give rise to a
Material Adverse Change with respect to the Company.
The Merger Agreement defines the terms Material Adverse Change or Material
Adverse Effect to mean, when used in connection with the Company, any change or
effect that either individually or in the aggregate with all such other changes
or effects is materially adverse to the business, financial condition, prospects
or results of operations of the Company and its subsidiaries taken as a whole;
provided, however, that no Material Adverse Change or Material Adverse Effect
will be deemed to have occurred as a result solely of any one or more of: (i)
those matters described in a separate writing dated the date of the Merger
Agreement and specifically referencing the pertinent section of the Merger
Agreement delivered by the Company to Parent, (ii) general economic conditions
affecting generally the industry in which the Company competes and general
market conditions in the United States, or (iii) changes after the date of the
Merger Agreement in the relationship between the Company and any customer or
supplier, so long as any such change is not attributable to or does not arise
from a breach by the Company of any of its representations, warranties or
covenants contained in the Merger Agreement.
In addition, in connection with any termination of the Merger Agreement
under any circumstance in which the Termination Fee would be payable, the Merger
Agreement provides that the Company will also be obligated, simultaneously with
such termination, to reimburse Purchaser for all out-of-pocket expenses and fees
in an aggregate amount not to exceed $1.5 million.
Conduct of Business by the Company. The Merger Agreement provides that
until the earlier of the Effective Time and consummation of the Offer, the
Company will, and will cause its subsidiaries to, act and carry on their
respective businesses in the usual, regular and ordinary course of business
consistent with past practice and, to the extent consistent therewith, use their
respective reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having business dealings with
them and to preserve goodwill. Without limiting the generality of the foregoing,
during the period from the date of the Merger Agreement until the earlier of the
Effective Time and consummation of the Offer, the Company will not, and will not
permit any of its subsidiaries to, without Purchaser's prior written consent:
(a) declare, set aside or pay any dividends on, or make any other distributions
in respect of, any of its capital stock, (b) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock (c)
purchase, redeem or otherwise acquire any shares of capital stock of the Company
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or
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other securities, except for the acquisition of shares of Company Common Stock
from holders of Company Stock Options in full or partial payment of the exercise
price payable by such holder upon exercise of Company Stock Options outstanding
on the date of the Merger Agreement; (d) authorize for issuance, issue, deliver,
sell, pledge or otherwise encumber any shares of its capital stock or the
capital stock of any of its subsidiaries, any other voting securities or any
securities convertible into, any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities or any other securities
or equity equivalents (including without limitation stock appreciation rights,
other than an increase in the number of shares subject to the Stock Option Plan
pursuant to existing contractual obligations and the issuance of Company Common
Stock upon the exercise of Company Stock Options outstanding on the date of the
Merger Agreement and in accordance with their present terms); (e) in the case
where the Company, amends its Articles of Organization, by-laws or other
comparable charter or organizational documents; (f) acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof material to the Company; (g) other than as specifically
permitted by the Merger Agreement, sell, lease, license, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any of its properties or
assets other than any such properties or assets the value of which do not exceed
$1.0 million individually and $3.0 million in the aggregate, except sales of
inventory, in the ordinary course of business consistent with past practice; (h)
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its subsidiaries, guarantee
any debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for short-term borrowings and for lease obligations, in each case
incurred in the ordinary course of business consistent with past practice; (i)
make any loans, advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect wholly owned
subsidiary of the Company, other than loans to employees in the ordinary course
of business not to exceed $1,000 in any one case or 25,000 in the aggregate; (j)
pay, discharge or satisfy any claims (including claims of stockholders),
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), except for the payment, discharge or satisfaction, (i)
of liabilities or obligations in the ordinary course of business consistent with
past practice or in accordance with their terms as in effect on the date hereof
or (ii) claims settled or compromised to the extent permitted under clause (n)
below, or waive, release, grant, or transfer any rights of material value or
modify or change in any material respect any existing license, lease, permit,
contract or other document, other than in the ordinary course of business
consistent with past practice; (k) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization; (l) enter into any new collective bargaining agreement; (m)
change any material accounting principle used by it; (n) settle or compromise
any litigation (whether or not commenced prior to the date of the Merger
Agreement) other than settlements or compromises of litigation where the amount
paid (after giving effect to insurance proceeds actually received) in settlement
or compromise is not material to the Company; or (o) authorize any of, or commit
or agree to take any of, the foregoing actions.
Stock Options and Bank Warrant. The Merger Agreement provides that as soon
as practicable following the date of the Merger Agreement, the Board of
Directors of the Company (or, if appropriate, any committee administering the
Company's Stock Option Plan) will adopt such resolutions or take such other
actions if any, as may be reasonably required to: (1) adjust the terms of all
outstanding Company Stock Options to purchase the Company Common Stock granted
under the Stock Option Plan, whether vested or unvested, as necessary to provide
that, at the Effective Time, each Company Stock Option outstanding immediately
prior to the Effective Time will vest as a consequence of the Merger and be
canceled in exchange for a payment from the Company after the Merger (subject to
any applicable withholding taxes) equal to the product of (a) the total number
of shares of Company Common Stock subject to such Company Stock Option and (b)
the excess of $11.75 over the exercise price per share of Company Common Stock
subject to such Company Stock Option and applicable withholding taxes, payable
in cash immediately following the Effective Time of the Merger; (2) cause the
cancellation of an outstanding warrant to purchase 86,180 shares of
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Company Common Stock (the "Bank Warrant") by causing a "Redemption Event" (as
defined in the Bank Warrant) to occur and taking such other steps as may be
necessary to cause such cancellation, including making all payments required to
be made in connection therewith.
Reasonable Best Efforts. Upon the terms and subject to the conditions set
forth in the Merger Agreement, each of the parties has agreed to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Offer, the Merger and
the other transactions contemplated by the Merger Agreement. Parent, Purchaser
and the Company will use their reasonable best efforts and cooperate with one
another (i) in promptly determining whether any filings are required to be made
or consents, approvals, waivers, licenses, permits or authorizations are
required to be obtained (or, which if not obtained, would result in a breach or
violation, or an event of default, termination or acceleration of any agreement
or any put right under any agreement) under any applicable law or regulation or
from any governmental authorities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by the Merger Agreement, including the Offer and the Merger and
(ii) in promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations. Notwithstanding the foregoing, or any
other covenant contained in the Merger Agreement, in connection with the receipt
of any necessary approvals under the HSR Act, neither the Company nor any of its
subsidiaries will be entitled to divest or hold separate or otherwise take or
commit to take any action that limits its freedom of action with respect to, or
its ability to retain, the Company or any of its subsidiaries or any material
portions thereof or any of the businesses, product lines, properties or assets
of the Company or any of its subsidiaries, without Purchaser's prior written
consent. The Merger Agreement requires the Company to make, subject to the
condition that the transactions contemplated by the Merger Agreement actually
occur, any undertakings (including undertakings to make divestitures, provided,
in any case, that such divestitures need not themselves be effective or made
until after the transactions contemplated hereby actually occur) required in
order to comply with the antitrust requirements or laws of any Governmental
Entity, including the HSR Act, in connection with the transactions contemplated
by the Merger Agreement; provided that no such divestiture or undertaking may be
made unless acceptable to Purchaser. Each of the parties has also agreed to
cooperate with each other in taking, or causing to be taken, all actions
necessary to delist the Company Common Stock from The Nasdaq National Market
("Nasdaq"), provided that such delisting shall not be effective until after the
Effective Time of the Merger. The Merger Agreement also contains an
acknowledgment by the parties that it is Purchaser's intent that the Shares
following the Offer and the Merger will not be quoted on Nasdaq or listed on any
national securities exchange.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties, including representations from the
Company to the Parent and Purchaser with respect to, among other things, its
organization, subsidiaries, capitalization, authorization and validity of the
Merger Agreement, consents and approvals, public filings and financial
statements, undisclosed liabilities, conduct of business and absence of certain
adverse changes or events, labor matters, compliance with laws, employee benefit
plans, tax matters, litigation, employee benefit plans, environmental matters,
material contracts, brokers and finders and opinion of financial advisor,
recommendation of the Board of Directors, state takeover statutes, intellectual
property, related party transactions, permits, insurance policies, business
practices, relationships with suppliers and customers and product warranties.
Procedure for Termination, Amendment, Extension or Waiver. The Merger
Agreement provides that the affirmative vote of the majority of the Directors of
the Company, who were Directors on the date of the Merger Agreement and who are
not officers of the Company or any of its subsidiaries, will be required to \(i)
amend or otherwise modify the Company's Articles of Organization, (ii) approve
any amendment, modification or waiver by the Company of any provisions of the
Merger Agreement or (iii) approve any other action by the Company that
materially and adversely affects the interests of the stockholders of the
Company (other than Purchaser and Parent) with respect to the transactions
contemplated hereby, including without limitation any actions which would
constitute a breach by the Company of its representations, warranties or
covenants contained in the Merger Agreement.
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Appraisal Rights. Under the MBCL, stockholders of the Company will not be
entitled to appraisal rights as a result of the Offer. However, if the Merger is
consummated, the Company's stockholders will be entitled to appraisal rights,
pursuant to the provisions of Chapter 156B of the MBCL. If the Merger is
approved by the stockholders of the Company at a meeting of stockholders and the
Merger is effected by the Company, then any stockholder (1) who files with the
Company before the taking of the vote on the Merger, written objection to the
proposed action stating that such stockholder intends to demand payment for such
stockholder's Shares if the action is taken and (2) whose Shares are not voted
in favor of such action has or may have the right to demand in writing from the
Company, within twenty (20) days after the date of mailing to such stockholder
of notice in writing that the corporate action has become effective, payment for
such stockholder's Shares and an appraisal of the value thereof. The Company and
any such stockholder shall in such case have the rights and duties and shall
follow the procedures set forth in sections 86 to 98, inclusive, of the MBCL.
Failure to vote against the Merger will constitute a waiver of such rights set
forth in Exhibit 2 filed herewith. Except as set forth herein, stockholders of
the Company will not be entitled to appraisal rights in connection with the
Merger.
Within ten (10) days after the date on which the Merger becomes effective,
the Company must notify each stockholder who, in compliance with the
requirements described above, filed a written objection and did not vote any
Shares in favor or such action, that the action approved at the meeting of the
stockholders of the Company has become effective. If within twenty (20) days
after the date of mailing of this notice, any stockholder to whom the Company is
required to give such notice demands in writing from the Company payments for
such stockholder's Shares, the Company will pay to such stockholder the fair
value of the Shares within thirty (30) days after the expiration of the period
during which such demand may be made. If during this thirty (30) day period, the
Company and any such objecting stockholder fail to agree as to the value of such
Shares, the Company or any such stockholder, may within four (4) months after
the expiration of such thirty (30) day period demand a determination of the
value of the Shares of all such objecting stockholders by a bill in equity filed
in the superior court in the county where the Company's principal offices are
located in Massachusetts.
If Parent acquires 90% or more of the Company's Common Stock and elects to
use a short form merger in which a vote of stockholders is not required for
approval of the Merger, then within ten (10) days after the Effective Time,
Parent must send a written notice to each stockholder of the Company. Such
notice must set forth the date of filing of the articles of merger and the
effective date of the Merger, the terms and conditions of the Merger and the
right of any stockholder who objects to the Merger to demand in writing from
Parent payment for his, her or its Shares and appraisal thereof. If any
stockholder demands in writing from Parent within twenty (20) days after the
mailing of such notice payment for his, her or its Shares and an appraisal
thereof, such stockholder and Parent shall in such case have the rights and
duties and follow the procedures set forth in Sections 89 to 98, inclusive, of
the MBCL.
The foregoing is only a partial summary of sections 86 and 98, inclusive,
of the MBCL and is qualified in its entirety by reference to the provisions
thereof, the full text of which is filed herewith as Exhibit 2 and is
incorporated herein by reference.
STOCKHOLDERS AGREEMENT
Simultaneously with the execution of the Merger Agreement, Herbert P. Gray,
Donald H. Benovitz, Summit Ventures III, L.P., Summit Investors II, L.P. and
Summit Subordinated Debt Fund, L.P. (collectively, the "Selling Stockholders")
entered into a Stockholders Agreement with Parent and Purchaser (the
"Stockholders Agreement"). The following is a summary of the material terms of
the Stockholders Agreement. This summary is not a complete description of the
terms and conditions thereof and is qualified in its entirety by reference to
the full text thereof which is incorporated herein by reference and a copy of
which is filed herewith as Exhibit 3.
Tender of Shares. In connection with the execution of the Merger
Agreement, Parent and Purchaser entered into a separate Stockholders Agreement
with each of the Selling Stockholders. Upon the terms and subject to the
conditions of the Stockholders Agreement, each of the Selling Stockholders has
agreed to
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validly tender (and not withdraw) pursuant to and in accordance with the terms
of the Offer, no later than the fifteenth business day after commencement of the
Offer, the number of Shares owned beneficially by such Selling Stockholder. The
Selling Stockholders beneficially own an aggregate of 4,867,465 Shares directly
and Messrs. Gray and Benovitz hold Company Stock Options to purchase an
aggregate of 310,000 additional Shares (which aggregate number of Shares
represent approximately 45% of the Company's outstanding Shares on a fully
diluted basis).
Provisions Concerning the Shares. The Selling Stockholders have agreed
that during the period commencing on the date of the Stockholders Agreement and
continuing until the first to occur of the Effective Time or the termination of
the Merger Agreement in accordance with its terms, at any meeting of the
Company's stockholders or in connection with any written consent of the
Company's stockholders, the Selling Stockholders will vote (or cause to be
voted) the Shares held of record or beneficially owned by each of such Selling
Stockholders: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement, and the Stockholders
Agreement and any actions required in furtherance thereof; and (ii) against any
Transaction Proposal and against any action or agreement that would impede,
frustrate, prevent or nullify the Stockholders Agreement or result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which would
result in any of the conditions to the Offer or to the Merger not being
fulfilled. In addition, each of the Selling Stockholders has appointed
representatives of Parent and certain officers of Parent as proxies to vote such
Selling Stockholder's Shares or grant a consent or approval in respect of such
Shares in favor of the various transactions contemplated by the Merger Agreement
and against any Transaction Proposal. Each of the Selling Stockholders also has
agreed not to transfer such Selling Stockholder's Shares (other than to certain
permitted transferees who would be required, as a condition to any such
transfer, to sign a similar Stockholders Agreement) and not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any Transaction Proposal.
Other Covenants, Representations and Warranties. In connection with the
Stockholders Agreement, each of the Selling Stockholders made certain customary
representations and warranties, including with respect to (i) ownership of the
Shares, (ii) the Selling Stockholder's authority to enter into and perform its
or his obligations under the Stockholders Agreement, (iii) the absence of
conflicts and requisite governmental consents and approvals, and (iv) the
absence of encumbrances on and in respect of the Selling Stockholder's Shares.
Parent and Purchaser have made certain representations and warranties with
respect to Parent and Purchaser's authority to enter into the Stockholders
Agreement and the absence of conflicts and requisite governmental consents and
approvals.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby and determined that each of the Offer and
the Merger is fair to, and in the best interests of, the stockholders of the
Company. The Board of Directors recommends that all holders of Shares accept the
Offer and tender their Shares pursuant to the Offer.
(b) BACKGROUND; REASONS FOR THE RECOMMENDATION.
Background. In July, 1997, the Board of Directors of the Company
determined that, in light of (i) increasing consolidation among distributors of
home health care supplies, (ii) increasing consolidation among the Company's
customer base and (iii) the fact that certain manufacturers of disposable home
health care supplies had broadened the distribution of their products, which had
increased competition from larger, national distributors of medical products
with substantial sales forces and greater capital resources, it would be in the
best interest of the stockholders of the Company to consider the potential sale
of the Company. On July 15, 1997, the Company engaged Bear, Stearns & Co. Inc.
("Bear Stearns") to serve as its financial
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advisor to explore strategic alternatives to enhance stockholder value,
including a potential sale of the Company.
In August, 1997, Bear Stearns contacted a competitor of the Company in the
medical supply distribution industry to determine whether it had an interest in
acquiring the Company and the Company entered into an agreement with the
competitor pursuant to which the competitor would have until August 19, 1997 to
negotiate mutually acceptable terms with the Company. Following two (2) meetings
with the competitor, during which the competitor conducted due diligence and
discussed the terms of a potential transaction, the competitor made a
preliminary oral offer to purchase the Company in a stock-for-stock transaction,
subject to further due diligence. The Company declined the offer and the Board
of Directors directed Bear Stearns to solicit interest from other potential
acquirors.
In late August, 1997, Thomas R. Miklich, Parent's Chief Financial Officer,
General Counsel, Treasurer and Secretary, contacted Donald H. Benovitz, the
Company's President and Chief Operating Officer, and informed him of Parent's
interest in acquiring the Company. Shortly thereafter, Mr. Miklich was contacted
by a representative of Bear Stearns who indicated that Bear Stearns had been
retained by the Company to explore strategic alternatives to enhance stockholder
value. The Bear Stearns representative indicated that among the alternatives to
be explored was the potential sale of the Company.
A Confidential Information Memorandum describing the Company was prepared
in September, 1997. Bear Stearns contacted twelve (12) potential strategic
buyers (excluding the competitor who had been approached in the first instance,
and including Parent) who were deemed to be viable candidates to acquire the
Company. Of the twelve (12) potential strategic buyers, seven (7) signed a
Confidentiality Agreement and received the Confidential Information Memorandum.
On September 5, 1997, Parent executed a Confidentiality Agreement with the
Company. On September 11, 1997, at the Company's executive offices in Holliston,
Massachusetts, A. Malachi Mixon, III, Parent's Chairman and Chief Executive
Officer, Mr. Miklich, Thomas J. Buckley, then Parent's Group Vice-
President -- Standard Products and Louis F. J. Slangen, Parent's Senior Vice
President -- Sales and Marketing, met with Herbert P. Gray, the Company's
Chairman and Chief Executive Officer, Mr. Benovitz, Steven N. Aschettino, the
Company's Vice President and Chief Financial Officer, Patrick Bohan, the
Company's Vice President of Sales and Marketing, and John Manos, the Company's
Vice President of MIS, and discussed the benefits of a close relationship
between the two (2) companies. The parties discussed the possibility of Parent
becoming a supplier to the Company as well as the potential benefits of a merger
between Parent and the Company.
Following this meeting, Parent was provided with additional information
concerning the Company. On October 3, 1997, Parent sent Bear Stearns a letter
outlining its preliminary interest in acquiring the Company. The letter included
a discussion of Parent's preliminary views of the consideration involved in such
a transaction and identified further steps that would be required to finalize
the terms and conditions of a formal acquisition proposal.
Of the seven (7) potential strategic buyers to whom a copy of the
Confidential Information Memorandum was sent, one (1) such party in addition to
Parent made a preliminary bid to acquire the Company.
On October 20, 1997, the Company and its financial advisors met with the
other bidder and its financial advisors and discussed at length the Company's
operations and financial results, fiscal 1998 financial projections and
potential merger synergies.
On October 29, 1997, Messrs. Buckley, Miklich and Slangen met with Messrs.
Gray, Benovitz, Bohan, Aschettino and a representative of Bear Stearns in
Boston. At that meeting, the parties reviewed the Company's financial results
for fiscal 1997 and fiscal 1998 financial projections. A detailed discussion
took place regarding the strategies behind the Company's recent acquisitions,
and the parties also discussed the potential synergies associated with an
acquisition of the Company by Parent.
On November 4, 1997, Bear Stearns sent a letter to Parent and the other
bidder requesting final bids by November 10, 1997 and enclosing for comment a
preliminary draft of the Merger Agreement. On
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November 10, 1997, the other bidder submitted a written offer to acquire the
Company in a stock-for-stock transaction, subject to certain parameters with
respect to the trading price of the bidder's stock, and confirmation of pre-tax
synergies and operating income for the calendar year 1998. On November 10, 1997,
Parent advised Bear Stearns that it declined to extend an offer, indicating that
the price suggested by Bear Stearns would be excessive. Bear Stearns and certain
members of the Company's Board of Directors continued discussions with the other
bidder for several days regarding the consideration offered and other financial
conditions of its offer.
On November 18, 1997, Mr. Miklich received a telephone call from a Bear
Stearns representative indicating that a proposal within a range of values
acceptable to Parent might be acceptable to the Company. Parent's Board of
Directors was meeting that day, and Parent reviewed its financial analysis of
the Company with its Board. Management recommended, and Parent's Board of
Directors approved in principle, an offer to acquire the Company for a cash
purchase price of $11.75 per share. Parent's Board of Directors' decision was
communicated to Bear Stearns and confirmed in a letter dated November 20, 1997.
Bear Stearns provided an opportunity for the other potential bidders with
whom it had negotiated previously to submit final offers to purchase the
Company. One potential bidder submitted a final offer to purchase the Company in
a stock-for-stock transaction in a range of prices which, at the higher end of
the range, was potentially higher than the final offer submitted by Parent,
subject to extensive financial and legal due diligence, and confirmation of
merger synergies. The other bidder submitted a final offer to purchase the
Company in a stock-for-stock transaction for a lower price than the final offer
from Parent, subject to extensive due diligence and confirmation of merger
synergies. The Company determined that it was in the best interests of the
stockholders of the Company to pursue a transaction with Parent, given that its
offer was in cash, was not subject to a financing contingency or other
significant conditions, and was likely to be able to close more quickly than a
transaction with one of the other bidders.
On November 24, 1997, Parent and the Company executed a letter agreement
providing that, until December 15, 1997, the Company would negotiate exclusively
with Parent concerning a proposed sale of the Company. From time to time during
the course of the next several weeks, representatives of Parent and
representatives of the Company discussed valuation parameters of the Company and
continued to discuss generally the terms and conditions of a possible
transaction.
On December 1, 1997, Messrs. Mixon, Buckley, Miklich, Slangen and Gerald B.
Blouch, President and Chief Operating Officer of Parent, met with Messrs.
Benovitz, Bohan, Gray, Aschettino and representatives of Bear Stearns in Boston
to conduct further due diligence. Beginning with that meeting, and continuing
through the date of the Merger Agreement, representatives of Parent, together
with Parent's legal counsel and environmental consultants, conducted a due
diligence review at the offices of the Company's legal counsel and at the
Company's regional distribution facilities. During the same period, Parent's
legal counsel and the Company's legal counsel discussed structural issues
regarding the proposed acquisition, including Parent's requirement that there be
agreements along the lines of the Stockholders Agreement and that there be
certain other provisions in the event of a termination of the Merger Agreement
(including the payment of a termination fee to Parent) by the Company in
connection with a competing transaction.
On December 8, 1997, Parent delivered a draft Merger Agreement to the
Company's legal counsel, and on December 11, 1997, Parent delivered a draft of
the Stockholders Agreement to the Company's legal counsel. Negotiations between
Parent and the Company continued through December 16, 1997, and the Merger
Agreement and the Stockholders Agreement were executed as of December 17, 1997.
Reasons for the Transaction; Factors Considered by the Board.
The Board of Directors and the Company's senior management have reviewed
the Company's strategic position in the medical supply distribution industry,
the near and longer term prospects for that industry, the consolidation trends
within that industry, and the Company's potential position in the industry and
the strategic alternatives available to the Company, all with a view to
maximizing stockholder value. In conducting its review, the Board considered the
Company's results of operations, including those for the quarter ended November
30, 1997. In light of the Board's review of the Company's competitive position
and
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recent operating results, anticipated trends in the industry, and the prospects
for the Company as an independent entity, the Board determined that it would be
in the best interests of the Company's stockholders to approve the Merger
Agreement. In approving the Merger Agreement and the transactions contemplated
thereby and recommending that all holders of shares of Company Common Stock
tender their shares pursuant to the Offer, the Board of Directors considered a
number of factors, including:
(i) The terms of the Merger Agreement and the Stockholders Agreement
executed by certain stockholders in connection therewith;
(ii) Presentations by senior management of the Company at meetings of
the Board of Directors held December 2, 11 and 16, 1997;
(iii) The trading price of shares of the Company since its initial
public offering on October 10, 1996, including recent trends;
(iv) The Company's competitive position and current trends in the home
health care supply distribution industry;
(v) The results of the process undertaken by Bear Stearns to identify
and solicit indications of interest from a number of potential purchasers
with respect to a purchase of the Company;
(vi) The presentations by Bear Stearns at the December 2, 11 and 16,
1997 meetings of the Board of Directors and the oral opinion of Bear
Stearns delivered to the Board at the December 16th meeting (which was
subsequently confirmed in writing) to the effect that, as of such date and
based upon the assumptions and the other matters to be set forth in its
written opinion, the $11.75 per share cash consideration to be received by
the holders of the shares in the Offer and the Merger is fair to such
holders from a financial point of view. A copy of the opinion of Bear
Stearns, which sets forth the assumptions made, the matters considered and
the limitations of the review undertaken by Bear Stearns, is attached
hereto as Exhibit 4. STOCKHOLDERS ARE URGED TO READ THE OPINION OF BEAR
STEARNS CAREFULLY IN ITS ENTIRETY;
(vii) The fact that the holders of approximately 45% of the Shares
were prepared to endorse the Merger Agreement;
(viii) The fact that the Offer and the Merger are not conditioned on
the availability of financing; and
(ix) The availability of dissenters' rights of appraisal in the
Merger.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations are being based on the
totality of the information presented to and considered by it.
Opinion of Financial Advisor. The Board of Directors of the Company
retained Bear Stearns to act as its financial advisor and to render an opinion
to the Board of Directors of the Company as to the fairness from a financial
point of view of the Merger Consideration to be received in the Offer and the
Merger by the stockholders of the Company. Bear Stearns acted as investment
adviser to the Company's founders in connection with the recapitalization of the
Company effected in July, 1995, served as a managing underwriter of the
Company's initial public offering in October, 1996, and as of the date hereof,
holds 112,667 shares of Company Common Stock. On December 16, 1997, Bear Stearns
delivered its oral opinion to the Board of Directors of the Company, and on
December 22, 1997, Bear Stearns delivered its written opinion to the Board of
Directors of the Company to the effect that, as of such date, and based upon the
assumptions and other matters set forth therein, the consideration to be
received by the Company stockholders in the Offer and the Merger was fair, from
a financial point of view, to the stockholders of the Company (the "Bear Stearns
Opinion"). No restrictions were imposed by the Company's Board of Directors upon
Bear Stearns with respect to investigations made or procedures followed by Bear
Stearns in rendering its opinion.
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THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED HERETO AS EXHIBIT 4.
THE COMPANY STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE BEAR STEARNS OPINION
CAREFULLY IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF
THE REVIEW BY BEAR STEARNS.
The Bear Stearns Opinion addresses only the fairness from a financial point
of view of the Merger Consideration to be received in the Merger by the
stockholders of the Company and does not constitute a recommendation to any
stockholder of the Company as to whether such stockholder should tender his, her
or its Shares pursuant to the Offer or to vote such Shares in favor of the
Merger. The Bear Stearns Opinion also does not address the Company's underlying
business decision to pursue the Merger. The summary of the Bear Stearns Opinion
set forth below is qualified in its entirety by reference to the full text of
such opinion.
Although Bear Stearns evaluated the financial terms of the Merger and
participated in discussions concerning the consideration to be paid, Bear
Stearns did not recommend the specific consideration to be paid in the Offer and
the Merger. The consideration to be received by the Company's stockholders as a
result of the Offer and the Merger was determined by negotiations between the
Company and Parent after consultation by each of such parties with their
respective financial advisors. In connection with rendering its opinion, Bear
Stearns, among other things: (i) reviewed the Merger Agreement; (ii) reviewed
the Offer to Purchase, and the Schedule 14D-9 in substantially the forms to be
distributed to the Company's stockholders; (iii) reviewed the Company's Annual
Reports to Stockholders and Annual Reports on Form 10-K for the fiscal years
ended August 31, 1996 and August 30, 1997; (iv) reviewed certain operating and
financial information, including projections, provided to Bear Stearns by
management relating to the Company's business and prospects; (v) met with
certain members of the Company's management to discuss its operations,
historical financial statements and future prospects; (vi) reviewed the
historical prices and trading volume of the common shares of the Company; (vii)
reviewed publicly available financial data and stock market performance data of
companies which it deemed generally comparable to the Company; (viii) reviewed
the terms of recent acquisitions of companies which it deemed generally
comparable to the Company; and (ix) conducted such other studies, analyses,
inquiries and investigations as it deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed without
independent verification (i) the accuracy and completeness of all of the
financial and other information provided to it by the Company for purposes of
its opinion and (ii) the reasonableness of the assumptions made by the
management of the Company with respect to its projected financial results. Bear
Stearns further relied upon the assurances of the management of the Company that
they are unaware of any facts that would make the information provided to Bear
Stearns incomplete or misleading. In addition, Bear Stearns did not make or seek
to obtain appraisals of the Company's assets or liabilities in rendering its
opinion. The Bear Stearns Opinion is also necessarily based upon the market,
economic and other conditions as in effect, and the information made available
to it, as of the date thereof.
The following is a summary of certain of the financial analyses used by
Bear Stearns in connection with providing its opinion to the Board of Directors
of the Company.
Comparable Company Analysis. Bear Stearns reviewed and compared the
financial and market performance of the Company to the financial and market
performance of ten publicly-traded companies engaged in the medical distribution
industry that Bear Stearns believed were comparable in certain respects to the
Company (the "Comparable Companies"). The Comparable Companies included: Henry
Schein, Inc. ("Schein"); Physician Sales & Service, Inc.; Patterson Dental
Company; Gulf South Medical Supply, Inc.; Graham-Field Health Products, Inc.;
Cardinal Health, Inc.; McKesson Corporation ("McKesson"); Allegiance
Corporation; Bindley Western Industries and Owens & Minor, Inc. The Comparable
Companies were chosen by Bear Stearns as companies that, based on publicly
available data, possess general business, operating and financial
characteristics representative of companies in the industry in which the Company
operates, although Bear Stearns recognizes that each of the Comparable Companies
is distinguishable from the Company in certain respects. For each of the
Comparable Companies, Bear Stearns examined certain publicly available financial
data including, net revenue, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings before interest and taxes ("EBIT"), net
income, earnings per share and profit margins. Bear Stearns examined balance
sheet items, published earnings forecasts and the trading
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18
performance of the common stock of each of the Comparable Companies. In
addition, Bear Stearns calculated the ratio of the closing price (as of December
15, 1997) of the stock of each of the Comparable Companies' stock in relation to
each company's earnings per share and the ratio of the "Enterprise Value" (the
total market value of the common stock outstanding plus the par value of total
debt less cash and investments) of each of the Comparable Companies in relation
to each company's net revenue, EBITDA and EBIT for the latest twelve months.
Bear Stearns then compared those ratios to the ratios being paid for the Company
in the Offer and the Merger based upon the price offered by Parent for the
Company's Common Stock of $11.75 per share. Based on a price for the Company of
$11.75 per share, the implied purchase price for the equity of the Company was
approximately $130.8 million, and (ii) the implied "Transaction Value" (defined
as the total purchase price of the common stock plus the par value of total debt
less cash and investments) for the Company was approximately $132.2 million.
The ratios of the stock prices of the Comparable Companies to projected
calendar 1997 earnings per share ranged from 20.1x to 37.4x and had a harmonic
mean of 27.3x and a median of 30.9x. These ratios compare to a purchase price
per share to be paid in the Offer and the Merger to the Company's projected
calendar 1997 earnings per share provided by the Company management of 26.8x.
The ratios of the stock prices of the Comparable Companies to projected calendar
1998 earnings per share ranged from 17.9x to 26.9x and had a harmonic mean of
21.4x and a median of 21.7x. These ratios compare to a purchase price per share
to be paid in the Offer and the Merger to the Company's projected calendar 1998
earnings per share provided by the Company management of 19.9x.
The ratios of the Enterprise Value to latest twelve months ("LTM") net
sales of the Comparable Companies ranged from 0.1x to 2.2x and had a harmonic
mean of 0.4x and a median of 0.8x. These ratios compared to a Transaction Value
to the Company's LTM net revenue of 1.4x. The ratios of the Enterprise Value to
LTM EBITDA of the Comparable Companies ranged from 7.8x to 24.4x and had a
harmonic mean of 14.2x and a median of 17.1x. These ratios compare to a
Transaction Value to the Company's LTM EBITDA of 13.9x. The ratios of the
Enterprise Value to LTM EBIT of the Comparable Companies ranged from 11.8x to
34.0x and had a harmonic mean of 17.8x and a median of 18.3x. These ratios
compare to a Transaction Value to the Company's LTM EBIT of 15.5x.
Bear Stearns noted that, based upon these ratios, (i) the ratio of the
Company's Transaction Value to LTM net revenue was greater than the harmonic
mean and median and within the range of the LTM net revenue ratios for the
Comparable Companies, (ii) the ratio of the Company's Transaction Value to LTM
EBITDA was approximately the same as the harmonic mean, less than the median and
within the range of the LTM EBITDA ratios for the Comparable Companies, (iii)
the ratio of the Company's Transaction Value to LTM EBIT was less than the
harmonic mean and median and within the range of the LTM EBIT ratios for the
Comparable Companies and (iv) the ratios of the Company's purchase price per
share to projected 1997 and 1998 earnings per share were less than the harmonic
mean and median and within the range of the comparable ratios for the Comparable
Companies.
Precedent Transaction Analysis. Bear Stearns reviewed certain financial
data and the purchase prices paid in the following twenty-one (21) selected
prior merger and acquisition transactions completed in the medical distribution
industry (target company/acquiring company): Gulf South Medical Supply,
Inc./Physician Sales & Service, Inc. (pending); AmeriSource Health
Corporation/McKesson Corporation (pending); Bergen Brunswig Corporation/Cardinal
Health, Inc. (pending); Sullivan Dental Products, Inc./Henry Schein, Inc.;
Thompco Medical, Inc./Physician Sales & Service, Inc.; Micro Bio-Medics,
Inc./Henry Schein, Inc.; General Medical, Inc./McKesson Corporation; Walker Drug
Company/AmeriSource Health Corporation; Owen Healthcare, Inc./Cardinal Health,
Inc.; Gateway Healthcare Corporation/Gulf South Medical Supply, Inc.; X-Ray
Corporation/Physician Sales & Service, Inc.; Chesapeake X-Ray
Corporation/Physician Sales & Service, Inc.; FoxMeyer Drug Company/McKesson
Corporation; PCI Services, Inc./Cardinal Health, Inc.; Crocker-Fels
Company/Physician Sales & Service, Inc.; Automated Healthcare, Inc./McKesson
Corporation; Pyxis Corporation/Cardinal Health, Inc.; Taylor Medical,
Inc./Physician Sales & Service, Inc.; Randolph Medical, Inc./General Medical,
Inc.; F.D. Titus & Son, Inc./General Medical, Inc.; and Stuart Medical,
Inc./Owens & Minor, Inc. In its review of these transactions, Bear Stearns
focused specifically upon two (2) transactions, which were deemed to be most
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comparable to the Merger: Sullivan Dental/Schein and General Medical/McKesson
(the "Comparable Transactions").
For each of the target companies involved in the Comparable Transactions,
Bear Stearns examined certain publicly available financial data, including net
revenue, EBITDA, EBIT, net income, earnings per share and profit margins. Bear
Stearns examined the balance sheet items and published earnings forecasts (when
available) of the common stock of each of the target companies involved in the
Comparable Transactions. In addition, Bear Stearns calculated (i) the ratios of
the purchase price of the target company in relation to the target company's
projected net income (for the next fiscal year based on research analysts'
estimates immediately prior to the announcement of such transactions) and (ii)
the ratios of the Transaction Value of each target company to its LTM net sales,
LTM EBITDA and LTM EBIT. Bear Stearns then compared those ratios to the ratios
being paid for the Company in the Offer and the Merger based upon the price
offered by Parent for the Company's Common Stock of $11.75 per share.
The ratios of the purchase price of the equity to projected net income of
the target company in Sullivan Dental/Schein was 24.2x (the ratio of the
purchase price to projected net income of the General Medical in General
Medical/McKesson was not available). This ratio compared to a ratio of purchase
price per share to the Company's projected fiscal 1998 net income of 20.6x. The
ratios of the Transaction Value to LTM net sales of the target companies in the
Comparable Transactions were 0.5x and 1.1x and had a harmonic mean of 0.7x.
These ratios compared to a Transaction Value to the Company's LTM net sales of
1.4x. The ratios of the Transaction Value to LTM EBITDA of the target companies
in the Comparable Transactions were 12.8x and 16.0x and had a harmonic mean of
14.2x. These ratios compared to a Transaction Value to the Company's LTM EBITDA
of 13.9x. The ratios of the Transaction Value to LTM EBIT of the target
companies in the Comparable Transactions were 13.7x and 18.6x and had a harmonic
mean of 15.8x. These ratios compared to a Transaction Value to the Company's LTM
EBIT of 15.5x.
Bear Stearns noted that, based upon these ratios, (i) the ratio of
Transaction Value to the Company's LTM net sales was greater than the harmonic
mean of the LTM net sales ratios for the target companies in the Comparable
Transactions, (ii) the ratio of Transaction Value to the Company's LTM EBITDA
was approximately the same as the harmonic mean of the LTM EBITDA ratios for the
target companies in the Comparable Transactions, (iii) the ratio of Transaction
Value to the Company's LTM EBIT was approximately the same as the harmonic mean
of the LTM EBIT ratios for the target companies in the Comparable Transactions
and (iv) the ratio of purchase price to the Company's projected 1998 net income
was less than the Sullivan Dental/Schein purchase price to projected fiscal net
income ratio for Sullivan Dental in the Sullivan Dental/Schein transaction.
Discounted Cash Flow Analysis. A discounted cash flow analysis is a
traditional valuation methodology used to derive a valuation of a corporate
entity based on its future expected cash flows discounted back to the present.
Bear Stearns performed a discounted cash flow analysis of the Company based upon
a set of financial projections for the years 1998 through 2002 which were
provided by management.
The discounted cash flow analysis was conducted using a range of estimates
of the Company's after-tax cost of capital of 11.5% to 13.5%, which was
calculated based upon the equity betas of Comparable Companies. Using this
estimate of after-tax cost of capital, Bear Stearns calculated the present value
of free cash flows for each of the fiscal years ended August 31, 1998 through
2002 and the present value of the terminal value (the calculated value of the
Company at the end of the projection period). Bear Stearns calculated the
terminal value in year 2002 based upon a perpetual growth rate methodology using
growth rates ranging from 3.0% to 6.0%. The range of growth rates were selected
by Bear Stearns and were chosen to reflect the anticipated growth prospects and
relative risk of both the Company and the medical distribution industry in the
terminal year. Bear Stearns calculated the equity value of the Company by
subtracting total debt minus cash of the Company from the sum of the present
value of cash flows and the present value of the terminal value. Based on this
analysis, Bear Stearns calculated equity values of the Company ranging from
$5.63 to $9.81 per share with a mean value of $7.43 per share. The values were
calculated without giving effect to any expense savings or revenue enhancement
opportunities that may result from the Merger. Bear Stearns compared the range
of equity values calculated using the discounted cash flow methodology to $11.75
per
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share, the value being paid for the Company in the Offer and the Merger, and
noted the purchase price was higher than the indicated range of discounted cash
flow values.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Bear Stearns Opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness from a financial point
of view of the consideration to be received by the stockholders of the Company
in the Offer and the Merger and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, Bear Stearns' opinion and
presentation to the Board of Directors of the Company was one of many factors
taken into consideration by the Board of Directors of the Company in making its
determination to approve the Merger. The foregoing summary does not purport to
be a complete description of the analyses performed by Bear Stearns.
As part of its engagement, Bear Stearns assisted the Company in identifying
and contacting a number of knowledgeable and qualified buyers which were given
the opportunity to make a thorough evaluation of the Company in preparation for
the submission of a proposal to acquire the Company. As a result of these
efforts, the Company received various indications of interest regarding possible
business transactions involving the Company, which Bear Stearns assessed and
reviewed with the senior management and the Board of Directors of the Company.
In the ordinary course of its business as a full-service securities firm,
Bear Stearns and its affiliates may actively trade the debt and equity
securities of Parent and the Company for their own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities, as may The Bear Stearns Companies, Inc., the parent company of
Bear Stearns. See Item 5. below for a description of the fees to be paid to Bear
Stearns.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
For its services in connection with the Merger, the Company shall pay Bear
Stearns a total transaction fee of approximately $1,537,000 (the "Transaction
Fee"). Of the Transaction Fee, $200,000 became payable upon delivery of Bear
Stearns' oral opinion of December 16, 1997 (the "Opinion Fee") and approximately
$1,337,000 becomes payable upon consummation of the Merger. The Company also has
agreed to reimburse Bear Stearns for its out-of-pocket expenses, including the
fees and expenses of legal counsel and other advisors, and to indemnify Bear
Stearns and certain related persons or entities against certain liabilities,
including liabilities under the federal securities laws, relating to or arising
out of its engagement.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past sixty
(60) days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Parent pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other
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acquisition of securities by or of the Company; or (iv) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors' resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7 (a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached hereto as Annex I is being furnished
pursuant to Rule 14f-1 under the Exchange Act in connection with the possible
designation by Parent and Purchaser, pursuant to the Merger Agreement, of
certain persons to be appointed to the Board of Directors other than at a
meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NO.
- ----------
Exhibit-1 Agreement and Plan of Merger, dated as of December 17, 1997, by and among
Invacare Corporation, Inva Acquisition, Corp. and Suburban Ostomy Supply Co.,
Inc.
Exhibit-2 Chapter 156B, Sections 86 to 98, of the Massachusetts Business Corporation Law.
Exhibit-3 Stockholders Agreement, dated as of December 17, 1997, by and among Invacare
Corporation, Inva Acquisition Corp. and the stockholders of Suburban Ostomy
Supply Co., Inc. named therein.
Exhibit-4 Opinion of Bear Stearns & Co., Inc.*
Exhibit-5 Text of Press Release issued by Suburban Ostomy Supply Co., Inc. and Invacare
Corporation, dated December 17, 1997.
Exhibit-6 Letter to Stockholders of Suburban Ostomy Supply Co., Inc.*
- ---------------
* Included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: December 22, 1997
SUBURBAN OSTOMY SUPPLY CO., INC.
By: /s/ DONALD H. BENOVITZ
------------------------------------
Donald H. Benovitz
President
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ANNEX I
SUBURBAN OSTOMY SUPPLY CO., INC.
75 OCTOBER HILL ROAD
HOLLISTON, MA 01746
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 22, 1997,
as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of the Common Stock of Suburban Ostomy Supply Co.,
Inc (the "Company"). Capitalized terms used and not otherwise defined herein
shall have the meaning set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of persons (the
"Parent Designees") designated by Invacare Corporation ("Parent") to a majority
of the seats on the Board of Directors of the Company.
Pursuant to the Merger Agreement, on December 22, 1997, Inva Acquisition
Corp. ("Purchaser") commenced the Offer. The Offer is scheduled to expire at
12:00 Midnight on January 22, 1998, unless otherwise extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, Purchaser and the
Parent Designees has been furnished to the Company by Parent and Purchaser, and
the Company assumes no responsibility for the accuracy or completeness of any
such information.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Company's common stock, no par value per share ("Company Common
Stock"), is the only class of voting securities of the Company outstanding. Each
share of Company Common Stock has one vote. As of December 16, 1997, there were
10,538,622 shares of Company Common Stock outstanding. The Company does not have
any treasury shares. The Board of Directors of the Company currently consists of
seven (7) members, and there are currently no vacancies on the Board. The Board
of Directors has three (3) classes and each director serves a term of three (3)
years until his successor is duly elected and qualified or until his earlier
death, resignation or removal.
PARENT DESIGNEES
The Agreement and Plan of Merger (the "Merger Agreement") by and among
Parent, Purchaser and the Company, dated December 17, 1997, provides that at the
Effective Time of Merger (as defined in the Merger Agreement), the directors of
Purchaser shall become the directors of the Company following the Merger. In
addition, effective upon Purchaser's acceptance for payment of share of Company
Common Stock pursuant to the Offer representing at least a majority of the
outstanding shares on a fully diluted basis, the Purchaser will be able to
designate the number of directors, rounded up to the next whole number, that
equals the product of (i) the total number of directors on the Company's Board
and (ii) the percentage that the number of shares of Company Common Stock owned
by Purchaser bears to the total number of shares outstanding.
Prior to the Effective Time, the current Company directors will resign,
subject to the Merger Agreement's requirements that, until the Effective Time,
the Company shall have at least two (2) directors, who were directors on the
date of the Merger Agreement and who are not officers of the Company or any of
its subsidiaries.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
The names of the current directors, their ages as of December 18, 1997 and
certain other information about them are set forth below. As indicated above,
some of the current directors will resign effective immediately following the
purchase of shares by Purchaser pursuant to the Offer.
POSITION WITH THE COMPANY OR
YEAR FIRST PRINCIPAL
ELECTED A OCCUPATION DURING THE PAST FIVE
NAME OF DIRECTOR AGE DIRECTOR YEARS
- ------------------------------------ --- ---------- ------------------------------------
Serving for a term ending in 2000
Joseph F. Trustey................... 35 1995 General Partner of Summit Partners,
a venture capital firm, since
January 1996. Vice President of
Summit Partners from December 1994
until January 1996. Prior to that,
strategy consultant with Bain & Co.,
Inc.
Barry D. Derman..................... 51 1997 President of Peiser's, Inc.
(formerly known as Peiser's Medical
Supplies and Services Inc.) since
1970.
Serving for a term ending in 1999
Herbert P. Gray..................... 63 1977 Chairman of the Board of Directors
and Chief Executive Officer of the
Company since 1979.
Martin J. Mannion................... 38 1995 General partner of Summit Partners
since 1987. Director of numerous
private companies.
Richard F. Belloff.................. 48 1997 Chairman of the Board, Chief
Executive Officer and President of
Private Healthcare Systems, Inc.
since 1996. Managing Partner at
Longfellow Consultancy, a health
care consulting firm, from 1995
until 1996. President and Chief
Executive Officer of Health New
England, Inc. from 1986 to 1995.
Serving for a term ending in 1998
Donald H. Benovitz.................. 56 1987 President and Chief Operating
Officer of the Company since 1987.
William S. Green.................... 38 1997 Chairman, President, and Chief
Executive Officer of Wilmar
Industries, Inc. since 1986.
Herbert P. Gray is the brother-in-law of Donald H. Benovitz.
INFORMATION CONCERNING THE BOARD OF DIRECTORS OF THE COMPANY
During fiscal 1997, there were three (3) meetings of the Board of Directors
of the Company and the Board acted by written consent four (4) times. All of the
directors attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors during which they served as director and (ii)
the total number of meetings held by committees of the Board of Directors on
which they served. The Board of Directors does not have a Nominating Committee.
The Audit Committee of the Board of Directors reviews, with the Company's
independent auditors, the scope of the audit for the year, the results of the
audit when completed, and the independent auditors' fees for services performed.
The Audit Committee also recommends independent auditors to the Board of
Directors and reviews, with management, various matters related to its internal
accounting controls. The present members of the Audit Committee are Martin J.
Mannion and Joseph F. Trustey, both of whom became
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members of the Audit Committee in June 1996. The Audit Committee was formed in
1996 in anticipation of the Company's initial public offering.
EXECUTIVE OFFICERS OF THE COMPANY
Information required by Item 7(b) of Schedule 14A with respect to executive
officers of the Company is set forth below. The executive officers of the
Company are elected annually by the Board of Directors and hold office until
their successors are elected and qualified, or until their earlier removal or
resignation.
Herbert P. Gray, 63, has been the Chairman of the Board and Chief Executive
Officer of the Company since 1979.
Donald H. Benovitz, 56, has been the President and Chief Operating Officer
of the Company since 1987. Prior to his employment with the Company, Mr.
Benovitz worked for Medi-Mart Drug Stores, a regional drug store chain, serving
in various capacities, including Vice President of Corporate Pharmacy Operations
and President.
Stephen N. Aschettino, 48, has been the Vice President and Chief Financial
Officer of the Company since 1991 and Treasurer and Clerk since 1992. Prior to
that time he served as Vice President and General Manager for Woodcraft Supply
Company, a national direct marketer and distributor of specialty woodworking
tools and equipment.
Patrick Bohan, 41, joined the Company as Vice President of Sales and
Marketing in 1990. Prior to that time, he was Vice President of Sales and
Marketing for H.L. Moore, a national direct marketing wholesaler of
pharmaceuticals, over-the-counter and home health care products.
John Manos, 41, has been the Vice President of MIS of the Company since
1992. Prior to that time, Mr. Manos served as Director of Management Information
Systems at National Medical Care, a division of W.R. Grace.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
GENERAL
Messrs. Gray, Benovitz, Mannion and Trustey served as members of the Board
of Directors during all of fiscal 1997 and participated in Board of Directors'
deliberations on executive compensation. Mr. Gray served as Chief Executive
Officer and Chairman of the Board of the Company during fiscal 1997. Neither Mr.
Mannion nor Mr. Trustey was an officer or employee of the Company or any of its
subsidiaries during fiscal 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Employment Agreements
Effective July 3, 1995, the Company entered into five (5) year employment
agreements with each of Messrs. Gray, Benovitz, Aschettino, Bohan and Manos. Mr.
Gray's agreement provides for his employment as Chairman of the Board of
Directors and Chief Executive Officer at an initial base annual salary of
$150,000. Mr. Benovitz' agreement provides for his employment as President and
Chief Operating Officer of the Company at an initial base annual salary of
$195,000. Mr. Aschettino's agreement provides for his employment as Vice
President, Chief Financial Officer, Treasurer and Clerk of the Company at a base
annual salary of $115,000. Mr. Bohan's agreement provides for his employment as
Vice President of Sales and Marketing of the Company at an initial base annual
salary of $130,000. Mr. Manos' agreement provides for his employment as Vice
President of MIS of the Company at an initial annual base salary of $100,000.
Each of the foregoing agreements provides for annual salary increases (i) to
reflect increases in the applicable consumer price index and (ii) in such other
amounts, if any, as determined by the Company's Compensation Committee. In
addition, Messrs. Gray, Benovitz, Aschettino, Bohan and Manos are eligible to
receive bonuses upon the achievement by the Company of certain financial targets
determined by the Company's Compensa-
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26
tion Committee. Each of the employment agreements extends until July 1, 2000,
with annual renewals thereafter unless terminated prior thereto in accordance
with their respective terms.
Affiliated Leases
The Company leases a distribution center in Atlanta, Georgia from the
Suburban Grayson Atlanta Partnership, a Georgia general partnership in which
Messrs. Gray and Melvin Aronson each has a 50.0% interest. In May 1995, the
Company exercised an option to renew the lease covering this property through
August 4, 2006. The annual rent during each of fiscal years 1996 and 1997 was
$160,000.
The Company leases its distribution center in Holliston, Massachusetts from
GBA Realty Trust, a Massachusetts realty trust in which Messrs. Gray, Aronson
and Benovitz have a 40%, 40% and 20% interest, respectively. This lease, which
expires in December 31, 2006, provides for monthly rental payments equal to 110%
of the amounts due and payable each month under a promissory note between GBA
Realty Trust and United of Omaha Life Insurance, provided that the minimum
annual rent is $329,037. The rent paid to GBA Realty Trust was $330,000 during
fiscal year 1996 and $333,000 during fiscal year 1997. Such promissory note is
the obligation solely of GBA Realty Trust and is not guaranteed by, or otherwise
an obligation of, the Company.
In addition, the Company leases its South Bend, Indiana distribution center
from GBA Realty Corp., an Indiana corporation in which Messrs. Gray, Aronson,
Benovitz, Aschettino and Bohan and Mr. Doug Gray own 20%, 30%, 20%, 10%, 10% and
10%, respectively, of the outstanding capital stock. The lease, which expires on
July 31, 2003, provides for an annual rent of $108,000 subject to periodic
adjustments, at the option of GBA Realty Corp.
Other Related Party Arrangements
The Company provides general business insurance to GBA Realty Corp., GBA
Realty Trust and Suburban Grayson Atlanta Partnership under its umbrella policy.
Life Insurance Policies
On June 30, 1995, life insurance policies in the amount of $2.5 million for
each of Messrs. Gray and Aronson, which had previously been carried by the
Company were transferred to each of them. In the event of either individual's
death, the proceeds of this insurance were to be used to repurchase the
individual's stock in the Company at book value. In return for the transfer of
the insurance, the executives exchanged certain notes payable to them from the
Company and issued notes payable to the Company of $129,520, an amount equal to
the difference between the old notes payable and the cash surrender value of the
insurance, plus prepaid insurance premiums at the date of transfer.
BOARD OF DIRECTORS
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation is supervised by the Board of
Directors. Compensation paid to the Company's executive officers is intended to
reflect the responsibility associated with each executive's position, the past
performance of the specific executive, the goals of management, and the
profitability of the Company.
Executive compensation is designed to be competitive within the wholesale
distribution industry and other companies of comparable size and in order to
attract and retain talented and motivated individuals in key positions.
Compensation in any particular case may vary from any industry average on the
basis of annual and long-term Company performance, as well as individual
performance. The Board of Directors will exercise its discretion to set
compensation where, in its judgment, external or individual circumstances
warrant it. The compensation of Mr. Gray, Chief Executive Officer of the
Company, was based upon an employment agreement between the Company and Mr.
Gray. Although Mr. Gray's compensation is not directly tied to any particular
measurement of the financial performance of the Company during the Company's
fiscal year, the
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27
Board of Directors does exercise discretion in assessing the Company's
performance and adjusting the compensation of the Chief Executive Officer
accordingly.
The Company utilizes a compensation system comprised of base salaries,
annual bonuses, and stock option awards.
The Board of Directors reviews executive officer compensation annually.
Executive officers are eligible to receive annual cash bonuses upon
achievement of predetermined performance targets.
The Board of Directors may award stock options under the Company's 1995
Stock Option Plan (the "1995 Plan") to directors, executive officers or
employees of the Company. Stock options under the 1995 Plan are designed to
provide incentive to the Company's employees to increase the market value of the
Company's stock, thus linking corporate performance and stockholder value to
executive compensation.
1995 Stock Option Plan. The 1995 Plan provides for the granting of
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and non-qualified stock options, each in
such amounts, on such terms, and to such officers and other employees of the
Company as the administrators of the 1995 Plan, in accordance with the terms of
the 1995 Plan, may select. The 1995 Plan is administered by the Board of
Directors. A total of 909,652 shares of Company Common Stock are reserved for
issuance pursuant to the 1995 Plan. As of December 18, 1997, options to purchase
an aggregate of 620,000 shares of Company Common Stock have been granted to four
executive officers of the Company, two of whom are directors of the Company, at
an exercise price of $.81 per share. Options to purchase an aggregate amount of
110,000 shares of Company Common Stock, at an exercise price ranging between
$9.00 and $11.00 per share was granted to Messrs. Derman (90,000 shares), Green
(10,000 shares) and Belloff (10,000 shares). Since the adoption of the 1995
Plan, options to purchase an aggregate of 106,630 shares of Company Common Stock
have been granted to a number of employees of the Company, none of whom are
directors or executive officers of the Company, at exercise prices ranging from
$1.62 per share to $11.00 per share. These options vest over time periods
ranging from three to (6) six years.
The 1995 Plan will terminate on July 3, 2005, but the Board of Directors
may, at any time, terminate, modify, or amend the 1995 Plan; provided, however,
that the Board of Directors may not, without the approval of the Stockholders of
the Company, increase the maximum number of shares for which options may be
granted, change the designation of the class of persons eligible to receive
options under the 1995 Plan, or make any other change in the 1995 Plan which
requires stockholder approval under applicable law or regulations.
BOARD OF DIRECTORS
Herbert P. Gray Barry D. Derman
Donald H. Benovitz William S. Green
Martin J. Mannion Richard F. Belloff
Joseph F. Trustey
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28
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's four (4)
most highly compensated executive officers (other than the Chief Executive
Officer) whose total annual salary and bonus exceeded $100,000 for all services
rendered in all capacities to the Company and its subsidiaries for the Company's
fiscal year ended August 30, 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME YEAR SALARY($) BONUS COMPENSATION($) OPTIONS(#) ($)(1)
- -------------------------- ----- ------- ------- --------------- ------------ ------------
Herbert P. Gray........... 1997 162,127(2) 49,788 3,252 -- --
1996 150,000(2) 60,000 2,393 -- --
1995 324,722(2) -- 186,000
Donald H. Benovitz........ 1997 208,101(2) 38,649 1,355 -- --
1996 195,000(2) 78,000 1,081 -- --
1995 192,907(2) -- 124,000 --
Stephen N. Aschettino..... 1997 129,547 24,404 238 -- --
1996 155,000 71,000 -- -- --
1995 115,000 -- 155,000 --
Patrick Bohan............. 1997 138,575 24,832 171 -- --
1996 130,000 52,000 -- -- --
1995 130,000 --
John G. Manos............. 1997 108,519 19,775 106 -- --
1996 100,000 50,000 -- -- --
1995 100,000 300,000(3) 155,000
- ---------------
(1) Does not include other benefits that did not exceed in the aggregate $50,000
or 10% of total annual salary and bonus reported for the named executive
officer.
(2) Does not include compensation paid to the spouses of Messrs. Gray and
Benovitz, each of whom is an employee of the Company.
(3) Bonus paid by the Company to Mr. Manos at the time of the Company's July 3,
1995 Recapitalization with proceeds from capital contributions from certain
stockholders.
OPTION GRANTS IN LAST FISCAL YEAR
The Company granted no options to purchase Company Common Stock to any of
its executive officers during fiscal year 1997. John Manos exercised an option
to purchase 10,000 shares of Company Common Stock in fiscal year 1997.
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29
SUBURBAN OSTOMY PERFORMANCE GRAPH
The graph set forth below compares the change in the Company's cumulative
total stockholder return on its Company Common Stock (as measured by dividing
(i) the sum of (A) the cumulative amount of dividends for the period indicated,
assuming dividend reinvestment, and (B) the difference between the Company's
share price at the end of the period and October 9, 1996, the date the Company's
Common Stock commenced trading on the Nasdaq National Market; by (ii) the share
price at August 30, 1997 with the cumulative total return of the Nasdaq Stock
Market (U.S.) Index and the cumulative total return of SIC Group number 504
(assuming the investment of $100 in the Company's Common Stock, the Nasdaq Stock
Market (U.S.) Index and the Nasdaq Non-Financial Stocks Index on October 9,
1997, and reinvestment of all dividends). During fiscal 1997, the Company paid
no dividends.
NASDAQ Stocks
(SIC 5040-5049 US
Companies)|Professional
Nasdaq Stock and Commercial
Measurement Period Suburban Ostomy Market (US Equipment and
(Fiscal Year Covered) Co. Companies) Supplies
8/28/92 44.230 58.967
9/30/92 45.839 68.365
10/30/92 47.644 72.795
11/30/92 51.435 78.760
12/30/92 52.916 79.594
1/29/93 54.847 88.041
2/26/93 52.801 83.733
3/30/93 54.005 85.862
4/30/93 52.011 75.433
5/28/93 55.118 83.200
6/30/93 55.373 80.851
7/30/93 55.438 84.731
8/30/93 57.844 87.174
9/30/93 60.010 90.611
10/29/93 61.389 93.481
11/30/93 59.559 91.082
12/30/93 60.752 98.783
1/28/94 62.752 98.275
2/28/94 62.489 99.325
3/30/94 58.739 88.085
4/29/94 57.886 84.422
5/27/94 57.859 85.606
6/30/94 55.905 68.855
7/29/94 57.051 69.810
8/30/94 60.745 72.189
9/30/94 60.533 74.898
10/28/94 61.597 74.669
11/30/94 59.675 71.000
12/30/94 59.843 67.316
1/30/95 59.918 67.722
2/28/95 63.361 67.149
3/30/95 65.200 69.831
4/28/95 67.294 71.784
5/30/95 68.544 76.307
6/30/95 74.624 84.566
7/28/95 80.435 88.983
8/30/95 81.117 88.314
9/29/95 83.613 90.162
10/30/95 83.482 85.443
11/30/95 85.086 87.646
12/29/95 84.633 92.446
1/30/96 84.353 90.062
2/29/96 88.287 91.755
3/29/96 88.580 88.744
4/30/96 95.929 101.289
5/30/96 99.521 107.754
6/28/96 95.811 98.192
7/30/96 86.584 86.222
8/30/96 92.168 85.201
9/30/96 99.218 100.171
10/10/96 100.000 100.000 100.000
10/30/96 88.182 96.871 92.461
11/29/96 82.727 104.187 96.792
12/30/96 96.136 103.833 92.569
1/30/97 100.000 110.649 95.219
2/28/97 82.727 105.329 82.386
3/27/97 69.091 100.734 75.634
4/30/97 65.455 101.531 71.713
5/30/97 68.182 113.043 83.599
6/30/97 68.182 116.500 87.643
7/30/97 70.909 128.283 95.521
8/29/97 70.909 128.600 96.192
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30
SECURITY OWNERSHIP OF
PRINCIPAL HOLDERS OF VOTING SECURITIES,
DIRECTORS AND OFFICERS
The following information is furnished as of December 18, 1997 with respect
to Common Stock of the Company beneficially owned, within the meaning of Rule
13d-3, by any person who is known by the Company to be the beneficial owner of
more than five percent (5%) of any class of voting securities of the Company, by
all Directors of the Company and nominees, by all executive officers of the
Company and by all Directors and executive officers of the Company as a group.
Unless otherwise indicated, the named individuals held sole voting and
investment power over the shares listed below.
NAME AND ADDRESS OF BENEFICIAL OWNER AND NAME OF TITLE OF AMOUNT AND NATURE OF PERCENT
DIRECTOR(9)(10) CLASS BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------------------- ------------- -------------------- --------
Herbert P. Gray(1).................................. Common Stock 742,914 7.0%
Donald H. Benovitz(2)............................... Common Stock 338,520 3.2%
Stephen N. Aschettino(3)............................ Common Stock 120,900 1.1%
Patrick Bohan(4).................................... Common Stock 211,837 2.0%
John Manos(5)....................................... Common Stock 91,366 *
Martin J. Mannion(6)................................ Common Stock 3,937,831 37.4%
Joseph F. Trustey(6)................................ Common Stock 3,937,831 37.4%
Richard F. Belloff(7)............................... Common Stock 2,500 *
William S. Green(7)................................. Common Stock 2,500 *
Barry D. Derman..................................... Common Stock 111,111 1.1%
All Directors and Officers as a group (10
persons).......................................... Common Stock 5,539,479(8) 51.3%
- ---------------
* Less than 1.0%
(1) Includes options currently exercisable to purchase 89,280 shares of Company
Common Stock and 33,634 shares as to which the beneficial owner has voting
power as trustee for two separate trusts.
(2) Includes options currently exercisable to purchase 59,520 shares of Company
Common Stock and 33,634 shares as to which the beneficial owner has
investment power as trustee for two separate trusts.
(3) Includes options currently exercisable to purchase 74,400 shares of Company
Common Stock.
(4) Includes options currently exercisable to purchase 165,337 shares of
Company Common Stock.
(5) Includes options currently exercisable to purchase 38,050 shares of Company
Common Stock.
(6) Reflects the shares held by Summit Ventures III, L.P., Summit Investors II,
L.P. and Summit Subordinated Debt Fund, L.P., in each of which this
beneficial owner is a general partner. The beneficial owner disclaims
beneficial ownership of these shares, except to the extent of his direct
pecuniary interest.
(7) Consists of options currently exercisable to purchase 2,500 shares of
Company Common Stock.
(8) Included in this figure are 255,250 shares purchasable by certain officers
and Directors under options presently exercisable.
(9) The address of each beneficial owner is Suburban Ostomy Supply Co., Inc.,
75 October Hill Road, Holliston, MA 01746.
(10) Purchaser and Parent are the beneficial owners of 5,177,465 shares of
Company Common Stock, pursuant to the terms and conditions of that certain
Stockholders Agreement, dated as of December 17, 1997, by and among Parent,
Purchaser, Herbert P. Gray, Donald H. Benovitz, Summit Ventures III, L.P.,
Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P.
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31
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons owning more than 10% of the outstanding
Company Common Stock of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("Commission"). Officers,
Directors and owners of greater than 10% holders of Company Common Stock are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no Forms 5 were required, the Company believes that
through the date hereof, all Section 16(a) filing requirements applicable to its
officers, Directors and owners of greater than 10% of its Company Common Stock
were complied with.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
As of the date of this Information Statement, the Parent has determined who
will be Parent Designees.
Set forth below is the name, business address, principal occupation or
employment and five (5) year employment history of the persons who will be
Parent Designees. Unless otherwise indicated, each such person has held the
occupation listed opposite his name for at least the past five (5) years and
each occupation refers to employment with the Parent. All persons listed below
are citizens of the United States. None of the persons listed below owns any
Shares.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR
NAME AND BUSINESS ADDRESS EMPLOYMENT HELD DURING THE LAST FIVE YEARS
- ---------------------------------- ----------------------------------------------------------
1. A. Malachi Mixon, III........ A. Malachi Mixon, III, has been Chief Executive Officer
and a Director of Parent since 1979 and Chairman of the
Board since 1983. Mr. Mixon also served as President from
1979 until November of 1996. Mr. Mixon also serves as a
Director of The Lamson & Sessions Co., Cleveland, Ohio, a
New York Stock Exchange listed company and a supplier of
engineered thermoplastic products, The Sherwin-Williams
Company, Cleveland, Ohio, a New York Stock Exchange listed
company and a manufacturer and distributor of coatings and
related products, NCS HealthCare, Inc., a Nasdaq listed
company and a provider of pharmacy services to long term
care institutions and PRIMUS, a Cleveland-based venture
capital company. Mr. Mixon also serves as Chairman of the
Board of The Cleveland Clinic Foundation, Cleveland, Ohio,
one of the world's leading teaching and health care
institutions.
2. Gerald B. Blouch............. Gerald B. Blouch was named President in November 1996 and
has been Chief Operating Officer since December 1994 and
Chairman -- Invacare International since December 1993.
Previously, Mr. Blouch was President -- Home Care Division
from March 1994 to December 1994 and Senior Vice
President -- Home Care Division from September 1992 to
March 1994. Mr. Blouch served as Chief Financial Officer
from May 1990 to May 1993 and Treasurer from March 1991 to
May 1993.
3. Thomas R. Miklich............ Thomas R. Miklich has been Chief Financial Officer,
General Counsel and Treasurer since May 1993 and in
September 1993 was named Secretary. Previously, Mr.
Miklich was Executive Vice President and Chief Financial
Officer of Van Dorn Company from 1991 to 1993, and Chief
Financial Officer of The Sherwin-Williams Company from
1986 to 1991.
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32
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
MATERIAL OCCUPATIONS, POSITIONS, OFFICES OR
NAME AND BUSINESS ADDRESS EMPLOYMENT HELD DURING THE LAST FIVE YEARS
- ---------------------------------- ----------------------------------------------------------
4. Thomas J. Buckley............ Thomas J. Buckley was named Senior Vice President,
Continuing Care & Distributed Products Group in November
1997. Mr. Buckley was previously Vice
President -- Standard Products from August 1995 to
November 1997, and General Manager of Manual Wheelchairs
from December 1994 to August 1995. From November 1993 to
December 1994 Mr. Buckley was the Business Unit Leader of
the Bed Products and Pressure Relief Business Units.
Before this period, Mr. Buckley served as Director of
Distribution.
5. Joseph B. Richey, II......... Joseph B. Richey, II has been a Director since 1980. In
1992 he was named President -- Invacare Technologies and
Senior Vice President -- Total Quality Management. From
1989 to 1992, he was Senior Vice President and General
Manager -- North American Operations and was Senior Vice
President and General Manager -- Rehabilitation and
Laboratory Division from 1984 to 1989. Mr. Richey also
serves as a Director of Steris Corporation, Cleveland,
Ohio, a Nasdaq listed manufacturer and distributor of
medical sterilizing equipment, a Director of Royal
Appliance Manufacturing Co., Cleveland, Ohio, a New York
Stock Exchange listed manufacturer of vacuum cleaners, and
a Director of Unique Mobility Inc., Golden, Colorado, an
American Stock Exchange listed engineering concern and
manufacturer of high efficiency permanent magnet motors
and electronic controls.
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