EXHIBIT 10.31
CONTINUING SHAREHOLDERS AGREEMENT
Dated September 30, 1994
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The parties to this agreement are Schein Holdings, Inc., a New York
corporation (the "Company"), and each of the shareholders listed on schedule A
(collectively, the "Shareholders").
Each Shareholder owns the number of shares and options to purchase the
number of shares of the Company's common stock set forth beside that
Shareholder's name on schedule A. The shares of common stock now owned by a
Shareholder or a Shareholder's Permitted Transferees (as defined in section
1.2(d)) or hereafter acquired by a Shareholder or a Shareholder's Permitted
Transferees from other Shareholders or Permitted Transferees, or by way of
dividend, stock split, recapitalization, reorganization, merger, consolidation
or other change or adjustment in respect of such shares, or upon exercise of
options, are referred to as the "Shares".
The Company, the Shareholders and Miles Inc. ("Miles") also are parties to
another shareholders agreement dated this date (the "General Shareholders
Agreement").
The parties agree as follows:
1. Restrictions on Transfer Generally.
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1.1 Transfers to be Made Only as Permitted or Required by This
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Agreement. Until the Termination Date (as defined in section 1.3), the
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Shareholders may not, directly or indirectly, sell, assign, transfer, pledge or
otherwise encumber or dispose of (collectively, "transfer") any Shares (or
options to acquire Shares), except as specifically permitted or required by this
agreement, the General Shareholders Agreement, the voting trust agreement (the
"Voting Trust Agreement") dated this date among the Company, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
the trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under trust agreement dated December
31, 1993 ("Marvin's 1993 Trust"), the trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
under trust agreement dated September 9, 1994 ("Marvin's 1994 Trust"), ▇▇▇▇▇▇
▇▇▇▇▇▇, the trust established by Trustee under Article Fourth of the Will of
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ for the benefit of ▇▇▇▇▇▇ ▇▇▇▇▇▇ and her issue under trust
agreement dated September 29, 1994 ("▇▇▇ ▇▇▇▇▇▇'▇ Trust"), ▇▇▇▇▇▇ ▇▇▇▇▇▇, the
trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇ under trust agreement dated September 28,
1994 ("▇▇▇ ▇▇▇▇▇▇'▇ Trust"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, as voting trustee (the
"Trustee"), or section 7 of the option agreement dated this date between the
Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Any other purported transfer shall be void and of no
effect.
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1.2 Permitted Transfers.
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(a) Any Shareholder may, at any time (and without the consent of
the Trustee (as defined in the Voting Trust Agreement) or any other party to
this agreement), (i) pledge some or all of that Shareholder's Shares to a
financial institution as security for loans or other forebearances or extensions
of credit, (ii) transfer some or all of that Shareholder's Shares to another
Shareholder or members of that Shareholder's or another Shareholder's Family
Group (as defined in section 1.2(d)) or (iii) transfer some or all of that
Shareholder's Shares (A) in a Wide Distribution (as defined in section 1.2(d))
pursuant to section 3, (B) pursuant to a sale under Rule 144 under the
Securities Act of 1933 (the "1933 Act") in an amount up to the Rule 144 Amount
(as defined in section 1.2(d)(iii)), (C) to a financial institution in
connection with the financial institution's exercise of its rights as a pledgee,
(D) in any sale of Shares by a Family Shareholder (as defined in section 1.2(a))
that is expressly permitted by section 4 of the General Shareholders Agreement
(it being understood that nothing in this clause (D) is intended to or shall
have the effect of eliminating or otherwise affecting any requirement that the
Trustee's consent to a transfer under section 4.4 of the General Shareholders
Agreement be obtained prior to the transfer, which requirement would be
applicable in the absence of this clause (D)), (E) pursuant to an exemption from
registration under the 1933 Act to any buyer who (1) together with such buyer's
affiliates (as
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defined in section 6.1) and Family Group members owns fewer than 1% of the
number of outstanding shares of common stock of the Company immediately prior to
such transfer and (2) is neither an affiliate nor Family Group member of such
Shareholder, provided that (I) such Shareholder shall not transfer any Shares
pursuant to this section 1.2(a)(iii)(E), if the number of shares that would be
transferred, when aggregated with the number of shares previously transferred by
such Shareholder pursuant to this section 1.2(a)(iii)(E) during the 12-month
period ending on the date of the proposed transfer, exceeds 4% of the number
of shares of common stock of the Company then outstanding, (II) such Shareholder
shall not transfer more than 1% of the number of shares of common stock of the
Company outstanding to such buyer (or such buyer's affiliates or Family Group
members) in any three-month period, and (III) prior to such transfer, such
Shareholder shall provide the Company with an opinion of counsel, in form and
substance reasonably satisfactory to the Company, that an exemption from
registration under the 1933 Act applies to such transfer, (F) pursuant to a
merger or a consolidation that has been approved by the board of directors of
the Company and shareholders owning the number of shares of common stock of the
Company required to approve that transaction under the Company's certificate of
incorporation and applicable law, (G) in a tender offer in which ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(or any member of his Family Group who acquired Shares from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
sells Shares (provided that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ agrees that he shall give notice to
each of the other Shareholders of his intention so to sell Shares at
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least three days prior to tendering his Shares) and (H) in a tender offer by a
bidder not affiliated with ▇▇▇▇▇ ▇▇ or any direct or indirect majority-owned
subsidiaries of ▇▇▇▇▇ ▇▇ (including Miles and all direct and indirect majority-
owned subsidiaries of Miles) (all such subsidiaries of ▇▇▇▇▇ ▇▇ being
collectively called "Bayer's Controlled Subsidiaries"), in which the bidder
shall not be permitted to accept any tendered securities, unless (1) immediately
after the tender offer, it beneficially owns a majority of the shares of common
stock of the Company outstanding on a fully diluted basis, and (2) ▇▇▇▇▇ ▇▇ and
all Bayer's Controlled Subsidiaries shall have failed to pursue a tender offer
or other acquisition permitted by section 5.5A of the General Shareholders
Agreement within 15 days after the commencement of the unaffiliated third
party's tender offer (or having pursued such a tender offer or other
acquisition, shall have ceased to pursue that transaction). No transfer to a
Permitted Transferee shall be effective, however, unless the Permitted
Transferee agrees to be bound by all the terms of this agreement and, in the
case of ▇▇▇▇▇▇ ▇▇▇▇▇▇, Marvin's 1993 Trust, Marvin's 1994 Trust, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇'▇ Trust, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇'▇ Trust (collectively, the
"Family Shareholders") and their respective Permitted Transferees, the Voting
Trust Agreement, as if the Permitted Transferee were the transferring
Shareholder.
(b) Notwithstanding anything to the contrary in this agreement, the
General Shareholders Agreement or the Voting
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Trust Agreement, in no event shall ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, or any of
their respective Permitted Transferees, transfer any of their Shares to ▇▇▇▇▇ ▇▇
or Bayer's Controlled Subsidiaries, other than (i) after the Qualified Public
Offering Date (as defined in section 1.3), in an open market transaction
(excluding block trades and transfers pursuant to a tender offer or merger
otherwise permitted by section 1.2(a)) and (ii) sales of shares that were first
offered to be purchased by ▇▇▇▇▇ ▇▇ or ▇▇▇▇▇'▇ Controlled Subsidiaries (not
otherwise in contravention of the General Shareholders Agreement) pursuant to a
written offer to each Family Shareholder (which offer sets forth the material
terms and conditions of the offer), where the Family Shareholders (in such
proportions as the Family Shareholders shall have mutually agreed) shall have
failed to agree in writing to sell to ▇▇▇▇▇ ▇▇ or Bayer's Controlled
Subsidiaries all the shares ▇▇▇▇▇ ▇▇ or ▇▇▇▇▇'▇ Controlled Subsidiaries shall
have offered to purchase within 20 days after ▇▇▇▇▇ ▇▇ or Bayer's Controlled
Subsidiaries shall have furnished the written offer to each Family Shareholder,
such sales of shares to be on the same terms and conditions as those offered
each Family Shareholder by ▇▇▇▇▇ ▇▇ or ▇▇▇▇▇'▇ Controlled Subsidiaries. In no
event shall the Company or any of its subsidiaries transfer any shares of its
capital stock to ▇▇▇▇▇ ▇▇ or Bayer's Controlled Subsidiaries, except as
expressly permitted by the General Shareholders Agreement.
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(c) In addition to the transactions contemplated by section 1.2(a)
and subject to section 2, the Family Shareholders and their respective Family
Group members may, at any time, transfer some or all of their Shares with the
consent of the Trustee, which consent may be withheld in the absolute discretion
of the Trustee. Prior to delivering any such consent pursuant to this section
1.2(c), the Trustee shall notify the Continuing Shareholder Designee (as defined
in the General Shareholders Agreement), who shall promptly send a copy of such
notice to the remaining Family Shareholders and their Family Group members then
holding Shares, of the Trustee's intention to consent to a transfer of Shares by
a Family Shareholder, which notice (a "Consent Notice") shall specify the
maximum number of Shares which the Trustee will then consent to be transferred
pursuant to this section 1.2(c). If, within three days of receiving such notice
from the Continuing Shareholder Designee, Family Shareholders (including the
Family Shareholder who first gave notice) and their Family Group members then
holding Shares shall have notified the Trustee of their desire to transfer a
number of Shares pursuant to section 1.2(c) that, in the aggregate, is equal to
or less than the number of Shares specified in the Trustee's Consent Notice, the
Trustee shall consent to the transfer by such Family Shareholders and Family
Group members of the number of Shares that each such Family Shareholder and
Family Group member shall so have elected to transfer. If Family Shareholders
and their Family Group members then holding Shares elect to transfer a number of
Shares pursuant
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to section 1.2(c) that, in the aggregate, is greater than the number of Shares
specified in the Consent Notice, each such Family Shareholder and Family Group
member may sell its proportionate number of the number of Shares specified in
the Consent Notice (in the proportion that the number of Shares each such Family
Shareholder and Family Group member elected to transfer bears to the total
number of Shares all the Family Shareholders and Family Group member shall have
so elected to transfer). Notwithstanding anything contained in this section
1.2(c), in no event shall the Trustee be liable for any loss, claim, damage or
liability arising out of or related to the failure of the Continuing Shareholder
Designee, any Family Shareholder or any Family Group member to receive any
notice pursuant to this section 1.2(c).
(d) As used in this agreement, (1) the term "Permitted
Transferee" means any transferee under clause (i), (ii), (iii)(C) or (iii)(E) of
the first sentence of section 1.2(a), (ii) the term "Family Group" (A) of an
individual means (I) the spouse (or former spouse), parents, children,
grandchildren or direct lineal descendants of such individual, (II) any estate
of any of the individuals referred to in clause (I), (III) any executor,
guardian, committee or other fiduciary acting in such capacity (and the estates
and trusts for which they so act) solely on behalf or for the benefit of such
individual, any of the individuals referred to in clause (I) and any individuals
having the relationships referred to in clause
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(I) to any individual Family Shareholder (it being understood that, after the
Qualified Public Offering Date, such fiduciary may be acting also on behalf of
or for the benefit of a charity), (IV) an entity owned exclusively by such
individual or the individuals or entities referred to in clause (I), (II) or
(III) and (V) with respect to ▇▇▇▇▇▇ ▇▇▇▇▇▇, in addition to the individuals and
entities referred to in clauses (I), (II), (III) and (IV), ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
members of his Family Group, and (B) of a trust means any individual who is a
beneficiary of the trust and (iii) the term "Wide Distribution" means a sale of
a number of Shares that exceeds the number specified in paragraph (e)(1) of
Rule 144 (regardless of whether the seller is an affiliate of the Company or
paragraph (k) of Rule 144 is applicable) (the "Rule 144 Amount") in connection
with which the seller or the underwriter confirms to the Company that the seller
or the underwriter, as the case may be, intends that no direct or indirect
purchaser in that distribution will acquire more than the Rule 144 Amount of
shares of common stock in that distribution.
1.3 Termination of Restrictions. The provisions of section 1.1 shall
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terminate on the earlier of (x) the fifth anniversary of the Qualified Public
Offering Date and (y) March 1, 2000 (such earlier date, the "Termination Date");
thereafter the Shares shall be free of all restrictions imposed by section 1 and
all transfer restrictions imposed on Shareholders under the Voting Trust
Agreement and the General Shareholders Agreement
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(except as otherwise provided in section 8 of the General Shareholders
Agreement). As used in this agreement, the term "Qualified Public Offering
Date" means the first date immediately following the last closing of an
underwritten sale of shares of the Company's common stock to the public
registered under the 1933 Act on which the aggregate market value of the
outstanding common stock (computed by use of the closing sale price of the stock
on whichever of the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System the common stock is then primarily traded) held by
more than 300 parties who are neither Shareholders, nor Permitted Transferees
nor employees of the Company or its subsidiaries nor affiliates of the Company
exceeds $100,000,000.
1.4 Legend. As long as any provision of this agreement (other than
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the provisions of section 4) remains in effect, each certificate representing
Shares owned by a Shareholder or a Permitted Transferee shall bear a legend
substantially as follows:
"The shares represented by this certificate are subject to a
continuing shareholders agreement dated September 30, 1994,
and a general shareholders agreement dated September 30,
1994, copies of which are on file at the office of the
Company."
2. Company's Right of First Refusal.
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2.1 Right of First Refusal. If, at any time prior to the Termination
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Date, any Family Shareholder or any members of
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the Family Group of that Family Shareholder (an "Offeree") receives from a non-
affiliated third party a bona fide written offer the Offeree wishes to accept to
purchase some or all of the Offeree's Shares (other than under section 1.2(a)),
and the Trustee consents to the transfer in accordance with section 1.2(c), the
Offeree shall promptly deliver a written notice (an "Offer Notice") of the offer
to the Company (setting forth the identity of the offeror, the proposed purchase
price, the payment terms and all other material terms and conditions of the
offer) and the Company, or any one or more of its wholly-owned subsidiaries or
any employee stock ownership plan established by it (collectively, its
"Designee(s)") shall have the option (exercisable by notice (an "Acceptance
Notice") to the Offeree given within 40 days after the Offer Notice is given) to
purchase all, but not fewer than all, the Shares subject to the Offer Notice at
the same price and on the same terms specified in the Offer Notice. If the offer
provides, in whole or in part, for consideration other than cash and the Company
or its Designee(s) exercises the right granted in this section, the Company or
its Designee(s) shall make a payment in cash to the Offeree that reflects a
value attributable to the non-cash consideration determined in accordance with
section 2.2. If an Acceptance Notice is given within that 40-day period, the
Offeree and the Company or its Designee(s) shall consummate the transaction
within 75 days after the Offer Notice is given (or within 10 days of such later
date as the value of the non-cash consideration is determined under section
2.2). If an Acceptance Notice is not
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given within that 40-day period, the Offeree may sell all, but not fewer than
all, the Shares specified in the Offer Notice at a price equal to or greater
than the price set forth in the Offer Notice and on the terms set forth in the
Offer Notice. If a sale is not consummated within 75 days following the
expiration of the 40-day period referred to above, the Shares specified in the
Offer Notice shall again be subject to this section 2.1. Notwithstanding
anything to the contrary in this agreement, (a) the rights of the parties under
this section 2 shall be subject to the rights of Miles under the General
Shareholders Agreement; and (b) if an Acceptance Notice is timely given pursuant
to this section 2.1 but the closing specified in this section does not occur
within the period specified in this section (the "First Refusal Expiration"),
and the failure to close results from any default by the Company or any
Designee, this section 2.1 shall thereafter be of no further force and effect
and the Offeree shall be permitted, subject to the rights, if any, of Miles
assigned by the Company under section 4.4 of the General Shareholders Agreement
and subject to the provisions of section 4.7 of the General Shareholders
Agreement, within 75 days following the First Refusal Expiration to transfer the
Offeree's Shares to the original offeror at the same purchase price, and on
substantially the same terms and other material terms and conditions, as in the
Offer Notice.
2.2 Non-Cash Consideration. The value attributable to the non-cash
----------------------
consideration referred to in section 2.1 shall be an
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amount agreed to by the Offeree and the Company or its Designee(s), or, if
they do not agree within 10 business days after the Offer Notice is given, the
value attributable to the non-cash consideration shall be determined (a) in the
case of a security listed on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market System, on the basis of the average of
the closing sale prices of the security comprising the non-cash consideration
during the five trading days immediately preceding the date the Offer Notice is
given, or (b) in each other case, by an arbitrator selected by the American
Arbitration Association, whose determination shall be final, conclusive and
binding on the parties.
3. Registration Rights.
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3.1 Demand Registration. At any time after the earlier of the first
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anniversary of the Qualified Public Offering Date and the third anniversary of
this agreement, and upon receipt of a written request (the "Demand Request")
from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (or his designee), ▇▇▇▇▇▇ ▇▇▇▇▇▇ (or her designee) or
▇▇▇▇▇▇ ▇▇▇▇▇▇ (or her designee) (each, a "Demand Rights Holder"), the Company
promptly shall file a registration statement to register under the 1933 Act for
sale to the public all, and not fewer than all, the Shares (which may include
Shares owned by the Demand Rights Holder's Family Group members) specified in
the Demand Request and thereafter shall file such amendment or amendments to
such registration statement as may be necessary to cause it to become effective
(a "Demand Registration"). The
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Demand Request shall specify the plan of distribution of the Shares. If the
plan of distribution involves an underwritten offering, the Demand Rights Holder
shall be entitled to select a co-managing underwriter for the offering; however,
if the Qualified Public Offering Date shall not have occurred prior to the third
anniversary of this agreement, the underwriter so selected may, at the Demand
Rights Holder's option, be the lead managing underwriter. The Company shall be
obligated to effect a total of four Demand Registrations under this section 3.1;
however, ▇▇▇▇▇▇ ▇▇▇▇▇▇ (or her designee) shall not be entitled to make more than
one Demand Request hereunder; and notwithstanding anything to the contrary in
this agreement, if, for any reason (other than the fault of a Family
Shareholder), the registration fails to become effective and provide for the
distribution of all the Shares specified in the Demand Request, or the
effectiveness is not maintained for at least 60 days in accordance with section
3.4(e) or the Company fails to perform its obligations under this section 3.1
with respect to that registration, that Demand Registration shall not reduce
the number of Demand Registrations the Company was required to effect (or a
Demand Rights Holder was entitled to request) under this section 3.1 prior to
that Demand Registration. The Company's obligations under this section 3.1
shall terminate on the tenth anniversary of the Qualified Public Offering Date,
and the Company shall not be obligated to effect more than one Demand
Registration in any period of 365 days or effect a Demand Registration unless
the amount of Shares specified in the Demand Request (when aggregated with the
amount
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of Shares that all other Demand Rights Holders elect to register in connection
with such Demand Request) has a value (determined in accordance with section
2.2(a)) in excess of $25,000,000.
3.2 Piggyback Registration. If at any time the Company determines or
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is requested or receives a demand from any person or entity to register under
the 1933 Act for sale to the public any of the Company's securities (other than
in connection with any sale of the Company's securities that may result from a
demand request by Miles, if at the time of Miles' request there shall not have
been an initial public offering by the Company of its shares of common stock),
on a form that also would permit the registration under the 1933 Act for sale to
the public of any of the Shares held by the Shareholders and their Family Group
members, the Company shall, each such time, promptly give each Shareholder
written notice of its intent to effect a registration and, subject to sections
3.5 and 3.7, shall include in the registration all Shares held by any
Shareholder (other than ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and their respective
Permitted Transferees, in the case of a Demand Registration referred to in
section 3.1) and any such Shareholder's Family Group members with respect to
which the Company has received a written request from that Shareholder (a
"Piggyback Request") specifying the number of Shares to be included within 15
days after the Shareholder has been given notice from the Company. The Company's
obligations under this section 3.2 shall terminate on the fifth anniversary of
the Qualified Public Offering Date.
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3.3 Obligation of the Shareholders. Any Demand Request or Piggyback
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Request (a "Request") shall express the requesting Shareholder's and the
requesting Shareholder's Family Group members' present intent to offer for sale
to the public the number of each such requesting party's Shares to be included
in the registration statement and contain an undertaking to provide all such
information and materials and to take all such action as may be required to
permit the Company to comply with all applicable requirements of the Securities
and Exchange Commission (the "SEC") and to obtain acceleration of the effective
date of the registration statement.
3.4 Obligations of the Company. With respect to any registration
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statement referred to in section 3.1 or 3.2, the Company shall:
(a) use all reasonable efforts to have the registration
statement declared effective as promptly as practicable, and shall promptly
notify each Shareholder selling Shares under the registration statement (a
"Participating Shareholder"), and such other persons as the Participating
Shareholder designates, if any, and confirm such advice in writing, (i) when the
registration statement becomes effective, (ii) when any post-effective amendment
to the registration statement becomes effective and (iii) of any request by the
SEC for any amendment or supplement to the registration statement or any
prospectus relating to the registration statement or for additional information;
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(b) make available for inspection by any underwriters
participating in any planned disposition of Shares and any attorney, accountant
or other agent retained by a Participating Shareholder or the underwriters, all
financial and other records reasonably necessary to permit them to demonstrate
that they have conducted a reasonable investigation of matters described in the
registration statement and cause the appropriate Company officers to supply all
such information reasonably requested by a Participating Shareholder, the
underwriters or their agents;
(c) use all reasonable efforts to qualify, not later than the
effective date of the registration statement, the Shares under such "blue sky"
or other state securities laws as a Participating Shareholder may reasonably
request (it being understood, however, that the obligation under this section
3.4(c) shall not be construed to obligate the Company to qualify as a foreign
corporation or as a dealer in securities or to execute or file any general
consent to service of process under the law of any such jurisdiction where it is
not otherwise so subject);
(d) furnish to each Participating Shareholder such number of
copies of the registration statement, each amendment to the registration
statement, the prospectus included in each such registration statement and each
amendment to each registration statement, each amendment or supplement to any
prospectus and such other documents as a Participating
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Shareholder may reasonably request to facilitate the disposition of the Shares;
(e) for a period of at least 60 days from the effective date of
the registration statement, use all reasonable efforts to keep the registration
statement in effect and current and from time to time to amend or supplement the
registration statement or the prospectus to the extent necessary to permit the
completion within that period, in compliance with the 1933 Act, of the sale or
distribution of the Shares. If at any time the SEC institutes or threatens to
institute any proceedings for the purpose of issuing a stop order suspending the
effectiveness of any such registration statement, the Company shall promptly
notify each Participating Shareholder and use all reasonable efforts to prevent
the issuance of any such stop order or to obtain its withdrawal as soon as
possible. The Company shall promptly advise each Participating Shareholder of
any order or communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any of the Shares for
sale in any jurisdiction; and
(f) insofar as the methods of distribution proposed to be used
are not reflected in the last prospectus filed by the Company as part of the
registration statement or pursuant to Rule 424 under the 1933 Act, the
Participating Shareholder shall promptly provide the Company with a description
of the method or methods of distribution of the Shares from time to time
contemplated by the Participating Shareholder and the
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Participating Shareholder's Family Group members and the Company shall file any
and all amendments and supplements necessary to include that description in the
registration statement.
3.5 Conditions to the Obligations of the Company. The Company may
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postpone, for up to 90 days, the filing of any registration statement otherwise
required to be prepared and filed by it under this agreement, if, at the time it
receives a Request, the Company would be required to prepare any financial
statements other than those it customarily prepares or the Company determines in
its reasonable judgment that the registration and offering would interfere with
any material financing, acquisition, corporate reorganization or other material
corporate transaction or development involving the Company that is pending or
imminent at the time and promptly gives each Participating Shareholder written
notice of that determination (it being understood, however, that, in any such
event, the Company shall use all reasonable efforts to minimize the length of
the postponement). If the Company shall so postpone the filing of a registration
statement, each Participating Shareholder shall be deemed to have withdrawn the
Request and the Request shall be deemed not to have been made.
3.6 Expenses of Registration. All expenses (other than fees and
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disbursements of counsel for the Shareholders and underwriting or brokerage
commissions attributable to the Shares to be sold) incurred in connection with
all registrations under this agreement and the "blue sky" qualifications
referred to in
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section 3.4(c), including, without limitation, all registration and
qualification fees, printers' and accounting fees and fees and disbursements of
counsel for the Company, shall be borne by the Company.
3.7 Underwriting Requirements. In connection with any offering
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pursuant to a Piggyback Request, the Company shall not be required to register
any Shares held by a Shareholder or the Shareholder's Family Group members,
unless the Shareholder and the Shareholder's Family Group members accept the
terms of the underwriting applicable to Participating Shareholders generally and
then only in such quantity as will not, in the written opinion of the
underwriters, exceed the maximum number of shares that can be marketed without
materially and adversely affecting the offering. If, as a consequence of the
provisions of the preceding sentence, the number of a Shareholder's and the
Shareholder's Family Group members' Shares is reduced, the percentage of the
reduction shall not be more than the percentage of reduction applicable to any
other selling shareholder in the offering.
3.8 Other Registration Rights. Except for the registration rights in
-------------------------
this agreement and in the General Shareholders Agreement, the Company is not a
party or subject to any agreement entitling any person or entity to registration
rights. The Company shall not enter into any other agreement entitling any
person or entity to registration rights that would materially and adversely
affect the rights of the Shareholders
20
and their Family Group members under this agreement (it being understood that
any registration rights other than those in the General Shareholders Agreement
that would have the effect of reducing the number of Shares that would otherwise
be included in a registration statement shall be deemed materially and adversely
to affect the rights of the Shareholders and their Family Group members under
this agreement).
3.9 Indemnification. In the event any Shares are included in a
---------------
registration statement under this section 3, to the extent permitted by law, the
Company shall indemnify and hold harmless the Participating Shareholders and
their Family Group members, any underwriter for the Company or acting on behalf
of any Participating Shareholder and the Participating Shareholder's Family
Group members, and each person, if any, who is a director, officer, agent,
partner or shareholder of, or who controls, any Participating Shareholder and
the Participating Shareholder's Family Group members or such underwriter,
against losses, claims, damages or liabilities customarily indemnified against
in underwritten secondary offerings. Such indemnification shall include
contribution in the manner and to the extent customarily provided.
4. Certain Tax Matters.
-------------------
4.1 Indemnification. Each individual listed on schedule 4.1 (an
---------------
"Indemnifying Shareholder") shall severally (and not jointly), in the proportion
set forth beside that
21
Indemnifying Shareholder's name on schedule 4.1, indemnify and hold the Company
harmless from and against any tax liability (including taxes imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof, and any interest, penalties or additions attributable to such
taxes, but excluding costs and expenses, including attorneys' fees, incurred by
the Company in contesting such taxes) ("Taxes") resulting solely from the
distribution (the "Distribution") of all the shares of ▇▇▇▇▇ ▇▇▇▇▇▇, Inc. in
accordance with the agreement and plan of corporate separation and
reorganization of even date herewith among the Company and all its shareholders,
excluding the Taxes attributable to the acceleration of any deferred
intercompany gains from a deferred intercompany transaction (as defined in
Treasury Regulation (S)l.1502-13) that have been realized by the Company through
the day before the Distribution (a "Tax Claim").
4.2 Participation in Contest. If a Tax Claim, including the
------------------------
assertion of any such claim during the audit process, is asserted against the
Company, the Company shall give each Indemnifying Shareholder prompt notice of
the claim (setting forth in reasonable detail the nature, basis and amount of
the claim) (a "Tax Notice") and, provided an Indemnifying Shareholder
acknowledges in writing the Indemnifying Shareholder's obligation to indemnify
the Company in accordance with this section 4 (an "Acknowledging Indemnifying
Shareholder"), that Acknowledging Indemnifying Shareholder shall be entitled, at
the Acknowledging
22
Indemnifying Shareholder's own expense, to participate in the defense of the
claim (it being understood that, subject to section 4.3, control of the defense
will remain with the Company, but the Company may not agree to any settlement or
compromise of the claim without the written consent of Acknowledging
Indemnifying Shareholders liable for at least one-half of the indemnification
liability under this section 4, which consent may not be unreasonably withheld).
4.3 Control of Defense. If any Tax Claim is asserted, the
------------------
Indemnifying Shareholders may, by written notice given by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or
his designee to the Company within 15 days after receiving a Tax Notice (which
notice from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or his designee shall be deemed without further
action by any Indemnifying Shareholders to confirm the irrevocable agreement of
each of the Indemnifying Shareholders to indemnify the Company in respect of all
Taxes relating to the Tax Claim in accordance with this section 4), assume the
defense of the Tax Claim (the "Tax Proceeding") with counsel reasonably
satisfactory to the Company (it being understood that Willkie, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
is reasonably satisfactory to the Company), provided that the Company shall
continue to have the right to participate at its own expense in the Tax
Proceeding, and provided that, prior to so assuming that defense, the
Indemnifying Shareholders shall deposit with an escrow agent under an escrow
arrangement reasonably satisfactory to the Company an amount sufficient to pay
all Taxes that counsel to the Indemnifying Shareholders advises the Company is
the
23
highest probable amount that will be payable in respect of the Tax Claim, which
escrow shall be held until the Tax Claim shall have been resolved as set forth
below, at which time the amount remaining in the escrow, if any, shall be
returned to the Indemnifying Shareholders. The Indemnifying Shareholders shall
instruct the Company how the amounts deposited in the escrow arrangement are to
be invested; however, such investments shall be limited to short-term bonds, the
interest on which is tax free to a New York State recipient, which bonds shall
be rated AAA by Standard & Poors or ▇▇▇▇▇'▇ rating services. The Company agrees
to provide counsel to the Indemnifying Shareholders with (a) such cooperation as
may be reasonably requested in connection with that counsel's defense of the Tax
Claim and (b) such information as such counsel reasonably requests in connection
with that counsel's defense of such Tax Claim. Notwithstanding anything to the
contrary in this agreement, the Company shall control the defense of any Tax
Proceeding to the extent that such Tax Proceeding involves criminal charges
against the Company or any of its affiliates. After the above-described notice,
if any, from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or his designee to the Company of the election to
assume the defense, the Indemnifying Shareholders shall not be liable to the
Company for any legal or other expenses incurred by the Company (other than the
indemnity obligation provided in section 4.1) in connection with the Tax Claim.
No Indemnifying Party shall, without the prior written consent of the Company,
which consent shall not be unreasonably withheld, effect any settlement of any
pending or threatened Tax
24
Claim asserted against the Company for which indemnity has been sought under
this agreement by the Company, unless (a) the Indemnifying Shareholders affirm
their obligation under this agreement to indemnify the Company for other Tax
Claims that may be asserted or obtain a closing agreement from applicable taxing
authorities with respect to such Tax Claims and (b) the settlement does not
involve a payment in respect of a Tax Claim on the part of the Company, other
than the payment of such sums of money as are actually paid or reimbursed by the
Indemnifying Shareholders.
5. Shareholder Rights.
------------------
5.1 Charter and By-Laws Amendments; Written Consent. Until the
-----------------------------------------------
Termination Date, the Company shall not, and shall not permit any of its
subsidiaries to, and no officer, employee or other agent of the Company or any
of its subsidiaries shall have the authority, in the name or on behalf of the
Company or any of its subsidiaries, to, without the prior written consent of the
Family Shareholders, (a) amend or restate the Company's certificate of
incorporation or by-laws in any respect that would materially and adversely
affect the Family Shareholders or their Permitted Transferees differently from
any other holders of the Company's common stock or to provide for action by
shareholders by written consent without a meeting, or (b) by amendment to the
Company's certificate of incorporation or by-laws or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the
25
observance or performance of any of the covenants or agreements to be performed
under this agreement by the Company.
5.2 Visitation; Advice. Prior to the Termination Date, the Family
------------------
Shareholders and their representatives may, from time to time, visit and inspect
the properties of the Company and its subsidiaries, examine their books of
account and discuss their affairs, finances and accounts with the Company's
senior management and independent accountants, all at such reasonable times as
the Family Shareholders may wish and in a manner that does not interfere with or
disrupt the business in any material respect and subject to appropriate
confidentiality agreements. Prior to the Termination Date, the Company shall
advise the Family Shareholders at least five business days before effecting any
acquisition of a Significant Subsidiary (as defined in Rule 1-02 of Regulation
S-X) or any amendment of the Company's certificate of incorporation or by-laws.
5.3 Financial Statements. Prior to the earlier of the Qualified
--------------------
Public Offering Date and the Termination Date, the Company shall furnish the
Family Shareholders (a) not later than 60 days after the end of each of the
first three fiscal quarters of each fiscal year, an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of that fiscal
quarter, together with the related unaudited consolidated statements of income,
retained earnings and cash flows for that fiscal quarter and the year to date,
prepared in accordance with generally accepted accounting principles ("GAAP")
and setting
26
forth in comparative form the information for the corresponding periods of the
previous fiscal year, and (b) not later than 120 days after the end of each
fiscal year, an audited consolidated balance sheet of the Company and its
subsidiaries as of the end of that fiscal year, together with the related
audited consolidated statements of income, retained earnings and cash flow for
that fiscal year, prepared in accordance with GAAP and setting forth in
comparative form the information for the preceding fiscal year, together with
the related audit report of the Company's independent accountants.
6. Miscellaneous.
-------------
6.1 Definition. As used in this agreement, the term "affiliate" has
----------
the meaning given it in Rule 405 under the 1933 Act.
6.2 Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the law of the state of New York applicable to agreements
made and to be performed wholly in New York.
6.3 Notices. Any notice or other communication under this agreement
-------
shall be in writing and shall be considered given when delivered personally or
mailed by registered mail, return receipt requested, at the following addresses
(or at such other address as a party may designate by notice to the others):
27
if to the Company, to it at:
Schein Holdings, Inc.
c/o Schein Pharmaceutical, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
with a copy to:
Proskauer ▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
if to any Shareholder, to each of the Shareholders at
the addresses set forth on schedule A.
6.4 Counterparts. This agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
6.5 Equitable Relief. The parties acknowledge that the remedy at law
----------------
for breach of this agreement would be inadequate and that, in addition to any
other remedy a party may have for a breach of this agreement, that party shall
be entitled to an injunction restraining any such breach or threatened breach,
or a decree of specific performance, without posting any bond or security. The
remedy provided in this section 6.5 is in addition to, and not in lieu of, any
other rights or remedies a party may have.
6.6 Separability. If any provision of this agreement is invalid or
------------
unenforceable, the balance of this agreement shall remain in effect, and if any
provision is inapplicable to any
28
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
6.7 Entire Agreement. This agreement contains a complete statement of
----------------
all the arrangements among the parties with respect to its subject matter,
supersedes all existing agreements among them with respect to that subject
matter and may not be changed or terminated orally. Any amendment or
modification must be approved in writing by Miles and must be in writing and
signed by the Company and Shareholders then beneficially owning a majority of
the Shares, provided that no such amendment or modification may adversely effect
the rights or obligations of any Shareholder without that Shareholder's prior
written consent.
6.8 Termination. This agreement (other than the provisions of section
-----------
4) shall terminate on the effective date of a Terminating Merger (as defined in
the Voting Trust Agreement). The provisions of section 4 shall survive any
termination of this agreement.
SCHEIN HOLDINGS, INC.
/s/
By:---------------------------------
Authorized Officer
THE SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
29
Trust estab1ished by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under
trust agreement dated September 9, 1994
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee
Trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under
trust agreement dated December 31, 1993
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust established by Trustee under Article
Fourth of the Will of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ for
the benefit of ▇▇▇▇▇▇ ▇▇▇▇▇▇ and her
issue under trust agreement dated September
29, 1994
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as attorney in fact
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
30
By:_______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee
Trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
under trust agreement dated December
31, 1993
By:_______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
By:_______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, Trustee
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust established by Trustee under
Article Fourth of the Will of ▇▇▇▇▇
▇. ▇▇▇▇▇▇ for the benefit of ▇▇▇▇▇▇
▇▇▇▇▇▇ and her issue under trust
agreement dated Sept 29, 1994
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Trustee
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇
under trust agreement dated _______,
1994
By:_______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
31
Trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇
under trust agreement dated September
28, 1994
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
under trust agreement dated December
31, 1993
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,Trustee
32
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Trust established by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ under trust agreement dated
December 31, 1993
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Trustee
33
SCHEDULE A
----------
SHAREHOLDERS
------------
# of Shares
# of Shares Issuable Upon the
Shareholder Owned* Exercise Of Options
----------- ----------- -------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇ -▇-
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 25,277.5 -0-
under trust agreement dated Sept 9, 1994
c/o ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ under 64,642.5 -0-
trust agreement dated December 31, 1993
c/o ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ 63,202 -0-
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust established by Trustee under Article Fourth 4,840 -0-
of the Will of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ for the benefit of
▇▇▇▇▇▇ ▇▇▇▇▇▇ and her issue under trust
agreement dated Sept 29, 1994
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ 25,535 -0-
▇▇#▇, ▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇ under trust 993 -0-
agreement dated Sept. 28, 1994
c/o ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Schnader, Harrison, ▇▇▇▇▇ & ▇▇▇▇▇
1O8 ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 3,461 4,795
▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Trust established by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ under trust 2,437 -0-
agreement dated December 31, 1993
c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,204 -0-
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust established by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ under 1,959 -0-
trust agreement dated December 31, 1993
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
________________
* Immediately after the closing under the stock purchase agreement.
SCHEDULE 4.1
------------
INDEMNIFYING SHAREHOLDERS
-------------------------
Proportion of
Shareholder Indemnification
----------- ---------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 50%
▇▇▇▇▇▇ ▇▇▇▇▇▇ 35.75%
▇▇▇▇▇▇ ▇▇▇▇▇▇ 14.25%