S-4/A 1 d609285ds4a.htm S-4/A S-4/A
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As filed with the Securities and Exchange Commission on January 8, 2019

Registration No. 333-229026

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

HS SPINCO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   2834   83-1448706
(State or other jurisdiction of incorporation)  

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

 

135 Duryea Road

Melville, New York 11747

Tel: (631) 843-5500

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Walter Siegel, Esq.

Assistant Secretary

HS Spinco, Inc.

135 Duryea Road

Melville, New York 11747

Tel: (631) 843-5500

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With a copy to:

 

Julie M. Allen, Esq.

Michael E. Ellis, Esq.

Proskauer Rose LLP

Eleven Times Square

New York, NY 10036

(212) 969-3000

 

Paul J. Shim, Esq.

Kimberly R. Spoerri, Esq.

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, NY 10006

(212) 225-2000

 

Mark B. Stein, Esq.

Gitte J. Blanchet, Esq.

Morgan, Lewis & Bockius LLP

One Federal Street

Boston, MA 02110

(617) 341-7700

 

 


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Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable following the effective date of this registration statement and the date on which all other conditions to the transactions described herein (including the spin-off and the merger described herein) have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer   
Non-accelerated filer      Smaller reporting company   
     Emerging growth company   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

 


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The information in this prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 8, 2019

PRELIMINARY PROSPECTUS

HS Spinco, Inc.

101,897,354 Shares of Common Stock

 

 

The 101,897,354 shares of Spinco common stock being registered pursuant to this registration statement include up to (i) 59,679,023 shares to be distributed to stockholders of Henry Schein pursuant to the Spin-off transaction described herein and (ii) 42,218,331 shares to be issued to Vets First Choice stockholders pursuant to the Merger described herein (including the Escrowed Shares).

Henry Schein has entered into the Contribution and Distribution Agreement and the Merger Agreement with Spinco and Vets First Choice as part of a “Reverse Morris Trust” transaction pursuant to which, subject to the terms and conditions set forth in the Transaction Agreements, Henry Schein will contribute the Henry Schein Animal Health Business to Spinco and distribute all the shares of Spinco common stock held by Henry Schein (after giving effect to the Share Sale) to its stockholders and, following the Distribution, Merger Sub will merge with and into Vets First Choice, with Vets First Choice surviving the Merger as a wholly owned subsidiary of Spinco. In connection with the Transactions, Spinco will change its name to Covetrus, Inc.

The principal transactions described in this prospectus are the following:

 

   

Reorganization—Henry Schein will engage in a series of transactions in order to separate the Henry Schein Animal Health Business from Henry Schein’s other businesses pursuant to which, among other things, it will (i) use reasonable best efforts to purchase from certain minority holders their ownership interests in the applicable operating companies of the Henry Schein Animal Health Business in exchange for cash and (ii) contribute, assign and transfer to Spinco certain applicable assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health Business (collectively, the “Reorganization”).

 

   

Initial Spinco Debt Financing—Henry Schein, Spinco and Vets First Choice will use their reasonable best efforts to arrange and consummate the Initial Spinco Debt Financing, which is expected to fund the Special Dividend, the Additional Special Dividend, if applicable, and the Certain Debt Repayment. Spinco will then pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and effectuate the Certain Debt Repayment.

 

   

Share Sale—Spinco will subsequently issue shares of Spinco common stock representing in the aggregate up to 9.9% of the issued and outstanding shares of Spinco common stock, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in the Share Sale, a transaction that will be exempt from registration under the Securities Act. The proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein.

 

   

Distribution—Henry Schein will subsequently distribute on a pro rata basis all of the shares of Spinco common stock held by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders as of the record date of the Distribution.

 

   

Merger—Immediately after the Distribution, Merger Sub will merge with and into Vets First Choice, the separate corporate existence of Merger Sub will cease and Vets First Choice will continue as the Surviving Company and a wholly owned subsidiary of Spinco.

In order to complete the Merger, Vets First Choice must obtain the requisite approval of its stockholders. The Vets First Choice Board has determined that the terms of the Merger Agreement and the Merger are advisable and in the best interests of Vets First Choice and its stockholders, has approved the Merger Agreement and the Merger and has unanimously recommended the adoption by the Vets First Choice stockholders of the Merger Agreement and their approval of the Merger. Vets First Choice stockholders holding approximately 73.2% of the issued and outstanding common stock on an as-converted basis, including approximately 79.5% of the issued and outstanding


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preferred stock, as of December 31, 2018, have executed and delivered a voting and support agreement pursuant to which they have agreed to vote or execute written consents in favor of the Merger Agreement and the Merger.

At the Effective Time, each outstanding share of Vets First Choice capital stock (other than any dissenting shares or shares of Vets First Choice capital stock held in Spinco’s or Merger Sub’s treasury or owned by (i) Spinco or any other member of the Spinco Group, (ii) Henry Schein or any other member of the Henry Schein Group or (iii) Vets First Choice or any wholly owned subsidiary of Vets First Choice (collectively, the “Excluded Shares”), which, in each case, will be cancelled) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. The Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration payable to holders of shares of Vets First Choice capital stock is not known at this time as the actual values of the Special Dividend, the Certain Debt Repayment, the JV Minority Equity Value and the Conversion Factor, each of which is required to calculate the Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration, will not be known with certainty until the Closing Date. We will disclose our estimates of such amounts, including the Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration, prior to the Closing Date in a press release or a Current Report on Form 8-K. See “The Merger Agreement — Merger Consideration,” “The Merger Agreement — Escrowed Shares” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Immediately after the Transactions, Spinco, renamed Covetrus, Inc., will be an independent, publicly traded company that will own and operate the combined businesses of the Henry Schein Animal Health Business and Vets First Choice.

We have applied to list our common stock on Nasdaq under the symbol “CVET.” There is currently no trading market for our common stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, for our common stock will develop promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown), and that “regular-way” trading of our common stock will begin the first trading day after the completion of the Distribution and Merger.

You are urged to read this prospectus carefully, which includes important information about the Transactions. Please pay particular attention to the section entitled “Risk Factors” beginning on page 42 of this prospectus for a discussion of factors that should be considered by recipients of our common stock.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

 

 

The date of this prospectus is        , 2019.


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LOGO


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TABLE OF CONTENTS

 

     Page  

Definitions

     1  

Questions and Answers About the Transactions

     6  

Prospectus Summary

     18  

Summary Historical Financial Data of the Henry Schein Animal Health Business

     36  

Summary Historical Financial Data of Vets First Choice

     38  

Summary Unaudited Pro Forma Financial Data of the Combined Company

     39  

Per Share Data and Market Price Data

     40  

Risk Factors

     42  

Cautionary Note Regarding Forward-Looking Statements

     63  

The Transactions

     65  

The Contribution and Distribution Agreement

     77  

The Merger Agreement

     89  

Ancillary Agreements

     108  

Dividend Policy

     113  

Capitalization

     114  

Selected Historical Financial Data of the Henry Schein Animal Health Business

     115  

Selected Historical Financial Data of Vets First Choice

     117  

Unaudited Pro Forma Condensed Combined Financial Statements of the Combined Company and Related Notes

     118  

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business

     131  

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice

     155  

The Henry Schein Animal Health Business

     173  

Business of Vets First Choice

     181  

Management Before and After the Consummation of the Transactions

     187  

Compensation of Directors

     197  

Executive Compensation

     198  

Security Ownership of Certain Beneficial Owners and Management

     212  

Certain Relationships and Related-Party Transactions

     214  

Description of Capital Stock

     216  

Comparison of the Rights of Stockholders Before and After the Transactions

     223  

Description of Material Indebtedness

     261  

Legal Matters

     263  

Experts

     264  

Where You Can Find More Information

     265  

Index to Financial Statements

     F-1  

 

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This prospectus forms a part of a registration statement on Form S-4/S-1 filed by Spinco with the SEC. Spinco has not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses it has prepared. Spinco takes no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. If anyone provides you with different or inconsistent information, you should not rely on it. The information contained in this prospectus is accurate only as of the date of this prospectus unless it specifically indicates that another date applies. Except to the extent required by law, Spinco undertakes no obligation to update or revise the information.

Henry Schein and Spinco have provided all information contained herein with respect to Henry Schein and the Henry Schein Animal Health Business. Vets First Choice has provided all information contained herein with respect to Vets First Choice and its business. Henry Schein, Spinco and Vets First Choice have each contributed information relating to Covetrus, Inc. and its business and the Transactions.

 

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DEFINITIONS

Please see “Where You Can Find More Information—Defined Term Index” for the locations of definitions of certain capitalized terms used in this prospectus. Additionally, in this prospectus:

“Active Therapy under Management” means a prescription on the Vets First Choice platform. Vets First Choice considers a prescription to be an active therapy under management from the date it is written until the earlier of (i) 180 days thereafter, if never filled, and (ii) 90 days after the date on which the supply would otherwise be exhausted, if filled, assuming the client follows the dosage recommendations.

“Additional Financing” means the revolving credit facility in the aggregate principal amount of up to $300,000,000, to be entered into by Spinco at or around the Effective Time on terms mutually acceptable to Spinco, Henry Schein and Vets First Choice.

“Additional Special Dividend” means in certain specified circumstances, the payment by Spinco to Henry Schein prior to the Distribution of a cash dividend in an amount up to $50,000,000.

“Certain Debt Repayment” means the repayment of certain intercompany debt related to the Henry Schein Animal Health Business.

“Client” means a person, typically the owner of a pet, horse or large animal, purchasing products or services from a Customer.

“Closing Date” means the date of the closing of the Merger.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“Combined Company” means Covetrus, Inc. (f/k/a Spinco) and its subsidiaries following and after giving effect to the completion of the Transactions.

“Contribution” means the contribution by Henry Schein of the capital stock of, or equity or other ownership interests in, the Spinco subsidiaries not held by another Spinco subsidiary to Spinco pursuant to the terms of the Contribution and Distribution Agreement.

“Contribution and Distribution Agreement” means the Contribution and Distribution Agreement, dated as of April 20, 2018, by and among Henry Schein, Spinco, Vets First Choice and the Vets First Choice Stockholders’ Representative, solely in its capacity as the representative of the Vets First Choice stockholders and for the purposes of certain articles set forth therein, as amended from time to time.

“Covetrus” means Covetrus, Inc., a Delaware corporation.

“Covetrus Board” or “our Board” means the board of directors of Covetrus following the Effective Time.

“Customer” means a person purchasing products or services from the Henry Schein Animal Health Business, Vets First Choice or the Combined Company, depending on the context.

“DEA” means the U.S. Drug Enforcement Administration.

“DGCL” means the General Corporation Law of the State of Delaware.

“Distribution” or “Spin-off” means the pro rata distribution of shares of Spinco common stock owned by Henry Schein (after giving effect to the Share Sale) to the Henry Schein stockholders, as of the record date, on the distribution date pursuant to the terms of the Contribution and Distribution Agreement.

 

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“Distribution Agent” means Continental Stock Transfer & Trust Company, the distribution agent in connection with the Distribution.

“Distribution Date” means February 4, 2019, the expected date of the Distribution.

“Employee Matters Agreement” means the Employee Matters Agreement, dated as of April 20, 2018, by and among Henry Schein, Spinco and Vets First Choice, as amended from time to time.

“Escrow Agent” means Continental Stock Transfer & Trust Company, the escrow agent in connection with the Merger.

“Escrow Agreement” means the escrow agreement to be entered into by Henry Schein, Spinco, Vets First Choice, the Vets First Choice Stockholders’ Representative and the Escrow Agent on or prior to the Closing Date.

“Escrowed Shares” means a number of shares of Spinco common stock equal to 1.84% of the shares of Spinco common stock issued and outstanding on a fully diluted basis after giving effect to the Merger, to be deposited by Spinco into the Escrow Account on or prior to the Effective Time pursuant to the terms of the Merger Agreement and the Escrow Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Agent” means Continental Stock Transfer & Trust Company, the exchange agent in connection with the Merger.

“FDA” means the U.S. Food and Drug Administration.

“FTC” means the U.S. Federal Trade Commission.

“GAAP” means generally accepted accounting principles in the United States.

“Henry Schein” means Henry Schein, Inc., a Delaware corporation.

“Henry Schein Board” means the board of directors of Henry Schein.

“Henry Schein Group” means Henry Schein or any of its subsidiaries other than any subsidiary that is a member of the Spinco Group.

“Henry Schein Marks” means any trademark or domain name (or any variations or translations of such trademark or domain name) that includes the Henry Schein “S” logo, the names HENRY SCHEIN, SCHEIN and/or HS or any trademark or domain name that contains or is confusingly similar to such logo or names.

“Henry Schein Animal Health Business” means the assets, liabilities and entities comprising Henry Schein’s animal health business.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“Initial Spinco Debt Financing” means the term loan A debt financing to be incurred by Spinco at or around the Effective Time on terms mutually acceptable to Spinco, Henry Schein and Vets First Choice in an aggregate principal amount of up to $1,200,000,000.

“IRS” means the U.S. Internal Revenue Service.

 

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“LTIP” means Henry Schein’s Long-Term Incentive Program under its 2013 Stock Incentive Plan.

“Merger” means the merger of Merger Sub with and into Vets First Choice, with Vets First Choice continuing as the Surviving Company and a wholly owned subsidiary of Spinco, pursuant to the terms of the Merger Agreement.

“Merger Agreement” means the Agreement and Plan of Merger, dated as of April 20, 2018, by and among Henry Schein, Spinco, Merger Sub, Vets First Choice and the Vets First Choice Stockholders’ Representative, solely in its capacity as the representative of the Vets First Choice stockholders, as amended from time to time.

“Merger Sub” means HS Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Spinco.

“Nasdaq” means the Nasdaq Global Select Market.

“Pet Owner” means the owner of a companion animal or a horse.

“SAB 118” means Staff Accounting Bulletin No. 118.

“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.

“SEC” means the U.S. Securities and Exchange Commission.

“Section 262” means Section 262 of the DGCL.

“Securities Act” means the Securities Act of 1933, as amended.

“Separation” means the Reorganization and the Distribution.

“Series A Original Issue Price” means $0.43 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series A Preferred Stock of Vets First Choice.

“Series B Original Issue Price” means $0.86 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series B Preferred Stock of Vets First Choice.

“Series C Original Issue Price” means $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series C Preferred Stock of Vets First Choice.

“Series D Original Issue Price” means $1.12 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series D Preferred Stock of Vets First Choice.

“Series E Original Issue Price” means $3.09 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series E Preferred Stock of Vets First Choice.

“Series F Original Issue Price” means $6.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, with respect to the Series F Preferred Stock of Vets First Choice.

 

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“Series Preferred Issue Price” means the Series A Original Issue Price, the Series B Original Issue Price, the Series C Original Issue Price, the Series D Original Issue Price, the Series E Original Issue Price and the Series F Original Issue Price.

“Special Dividend” means the payment by Spinco to Henry Schein prior to the Distribution of an amount as determined by Henry Schein in its reasonable discretion, provided, however, that the sum of the special dividend and the Certain Debt Repayment will be $1,120,000,000.

“Spinco” means HS Spinco, Inc., a Delaware corporation and, until immediately prior to the Distribution, a subsidiary of Henry Schein.

“Spinco Board” means the board of directors of Spinco prior to the Effective Time.

“Spinco Group” means Spinco and each subsidiary of Spinco immediately prior to the Distribution, after giving effect to the Contribution.

“Spinco subsidiaries” means the subsidiaries of Henry Schein that will be contributed, directly or indirectly, to Spinco in connection with the Contribution and the Reorganization.

“Spin-off Tax Opinion” means an opinion of Cleary Gottlieb Steen & Hamilton LLP, dated as of the Closing Date, to the effect that the contribution of the Henry Schein Animal Health Business, the Distribution and certain related transactions will qualify as tax free to Henry Schein and the Henry Schein stockholders for U.S. federal income tax purposes.

“Surviving Company” means Vets First Choice as the surviving company in the Merger and a wholly owned subsidiary of Covetrus (f/k/a Spinco).

“Tax Act” means H.R.1, formerly known as the Tax Cuts and Jobs Act of 2017.

“Tax Matters Agreement” means the Tax Matters Agreement, dated as of January 7, 2019, by and among Henry Schein, Spinco, Vets First Choice and the Vets First Choice Stockholders’ Representative (as it may be amended and/or restated from time to time).

“Transaction Agreements” means the Contribution and Distribution Agreement, the Merger Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement and the other agreements entered into, or to be entered into, by Henry Schein, Spinco, Vets First Choice and their respective affiliates in connection with the Transactions.

“Transactions” means the transactions contemplated by the Contribution and Distribution Agreement and the Merger Agreement, including the Reorganization, the Initial Spinco Debt Financing, the Additional Financing, the Share Sale, the Distribution and the Merger.

“Transition Services Agreement” means the Transition Services Agreement, to be entered into as of the Closing Date, by and between Henry Schein and Spinco.

“Vets First Choice” means Direct Vet Marketing, Inc. (d/b/a Vets First Choice), a Delaware corporation.

“Vets First Choice Board” means the board of directors of Vets First Choice.

“Vets First Choice capital stock” means Vets First Choice common stock and Vets First Choice preferred stock.

“Vets First Choice Stockholders’ Representative” means Shareholder Representative Services LLC, a Colorado limited liability company.

 

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“we,” “us” and “our” refers to Spinco and the Spinco subsidiaries for periods prior to the completion of the Transactions, and to Covetrus and its subsidiaries after the completion of the Transactions, unless the context otherwise requires or indicates.

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

The following are some of the questions that Henry Schein stockholders and Vets First Choice stockholders may have regarding the Transactions and brief answers to those questions. For more detailed information about the matters discussed in these questions and answers, see the sections entitled “The Transactions,” “The Merger Agreement,” “The Contribution and Distribution Agreement” and “Ancillary Agreements” in this prospectus. These questions and answers are not meant to be a substitute for the information contained in the remainder of this prospectus, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this prospectus. Henry Schein stockholders and Vets First Choice stockholders are urged to carefully read this prospectus in its entirety.

Q: What are the Transactions?

A: The Transactions are the following:

 

   

Reorganization—Henry Schein will engage in a series of transactions in order to separate the Henry Schein Animal Health Business from Henry Schein’s other businesses pursuant to which, among other things, it will (i) use reasonable best efforts to purchase from certain minority holders their ownership interests in the applicable operating companies of the Henry Schein Animal Health Business in exchange for cash and (ii) contribute, assign and transfer to Spinco certain applicable assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health Business.

 

   

Initial Spinco Debt Financing—Henry Schein, Spinco and Vets First Choice will use their reasonable best efforts to arrange and consummate the Initial Spinco Debt Financing, which is expected to fund the Special Dividend, the Additional Special Dividend, if applicable, and the Certain Debt Repayment. Spinco will then pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and effectuate the Certain Debt Repayment.

 

   

Share Sale—Spinco will subsequently issue shares of Spinco common stock representing in the aggregate up to 9.9% of the issued and outstanding shares of Spinco common stock, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in the Share Sale, a transaction that will be exempt from registration under the Securities Act. The proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein.

 

   

Distribution—Henry Schein will subsequently distribute on a pro rata basis all of the shares of Spinco common stock held by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders as of the record date of the Distribution. In connection with the Transactions, Spinco will change its name to Covetrus, Inc.

 

   

Merger—Immediately after the Distribution, Merger Sub will merge with and into Vets First Choice, the separate corporate existence of Merger Sub will cease and Vets First Choice will continue as the Surviving Company and a wholly owned subsidiary of Spinco.

Immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. After the Distribution, Henry Schein will not own any shares of Spinco.

 

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Q: What is a “Reverse Morris Trust” transaction?

A: A Reverse Morris Trust transaction allows a parent company (in this case, Henry Schein) to divest a subsidiary (in this case, Spinco) in a tax-efficient manner. In general, the first step of such a transaction is a distribution of the subsidiary’s stock to the parent company stockholders. The spun-off subsidiary generally then merges with or acquires a third party (in this case, Vets First Choice). Such a transaction can qualify as generally tax free for U.S. federal income tax purposes for the parent company and its stockholders under Section 355 of the Code and the stockholders of the acquired third party under Section 368 of the Code if the transaction meets all applicable requirements, including that the parent company stockholders own more than 50% of the stock of the combined entity immediately after the merger. For information about the material tax risks of the Distribution and Merger to Henry Schein stockholders, Vets First Choice stockholders and Henry Schein, respectively, see “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions.” For information about the material risks that the Distribution, the Merger or both could be taxable to Henry Schein stockholders, the Merger could be taxable to Vets First Choice stockholders or the Distribution could be taxable to Henry Schein, see “Risk Factors—Risks Relating to the Transactions—If the Distribution does not qualify as a tax-free spin-off under Section 355 of the Code, including as a result of subsequent acquisitions of stock of Henry Schein or Spinco, then Henry Schein and/or the Henry Schein stockholders may be required to pay substantial U.S. federal income taxes” and “Risk Factors—Risks Relating to the Transactions—If the Merger does not qualify as a tax-free reorganization under Section 368(a) of the Code, then the stockholders of Vets First Choice may be required to pay substantial U.S. federal income taxes.”

Q: What is Spinco?

A: Spinco was formed as a Delaware corporation and a wholly owned subsidiary of Henry Schein in order to effect the Transactions, including the Distribution and the Merger. Following the Reorganization, Spinco will own the Henry Schein Animal Health Business. In connection with the Transactions, Spinco will change its name to Covetrus, Inc. and it will become an independent, publicly traded company that will own and operate the combined businesses of the Henry Schein Animal Health Business and Vets First Choice.

Q: What are Henry Schein’s reasons for the Transactions?

A: Henry Schein determined that the Transactions would be in the best interests of Henry Schein and its stockholders because the Transactions would provide a number of key benefits, including primarily: (i) allowing greater strategic focus of resources and management’s efforts for each of Henry Schein and the Combined Company in their respective industries and affording each of Henry Schein’s and the Combined Company’s management teams an ability to more quickly respond to the opportunities and challenges of each industry; (ii) facilitating the Merger and the creation of the Combined Company as a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure dedicated to supporting the companion, equine and large animal veterinary markets; (iii) the complementary fit of the Henry Schein Animal Health Business and Vets First Choice, and the strategic benefits of their combination (including expected revenue growth and operational synergies for the Combined Company); (iv) the funds to be received by the Henry Schein Group in connection with the payment of the Special Dividend and the Additional Special Dividend, if applicable, and the effectuation of the Certain Debt Repayment; and (v) increased value to Henry Schein’s stockholders, in particular the Combined Company’s anticipated value on a stand alone basis.

In assessing and approving the Transactions, Henry Schein considered the lack of alternative transactions that would produce similar or better results for Henry Schein and its stockholders. Henry Schein concluded that the Transactions were the most desirable way to facilitate the strategic combination of the Henry Schein Animal Health Business and the business of Vets First Choice and to accomplish the desired business objectives. See “The Transactions—Henry Schein’s Reasons for the Transactions.”

 

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Q: Why did Henry Schein decide not to separate the Henry Schein Animal Health Business into a stand alone public company and instead to combine it with Vets First Choice?

A: Henry Schein decided to combine the Henry Schein Animal Health Business with the business of Vets First Choice rather than separate it into a stand alone public company because it expected the business prospects to be enhanced by the Merger, and therefore, the expected value to Henry Schein and its stockholders from pursuing the Transactions would be greater than the value to Henry Schein and its stockholders of a stand alone spin-off or split-off of the Henry Schein Animal Health Business. A principal factor considered by Henry Schein in reaching this decision, in addition to the factors noted above, was the business and prospects of Vets First Choice, after giving effect to the Merger, including expected revenue growth and operational synergies to be realized as a result of the Merger.

The principal countervailing factors considered by Henry Schein concerning the Transactions were:

 

   

the fact that the Transactions involved another party and therefore presented execution risk that would not be present in a single-party transaction like a spin-off or split-off;

 

   

the possibility that the Combined Company would not perform in the anticipated manner;

 

   

the possibility that the Transactions would be delayed; and

 

   

risks relating to integrating the Henry Schein Animal Health Business with the current operations of Vets First Choice and the related costs.

After consideration of the above factors, particularly in respect of revenue growth and operational synergies that the Combined Company is expected to realize as a result of the Transactions, and the terms of the Transaction Agreements, Henry Schein concluded that the expected value to Henry Schein and its stockholders from pursuing the Transactions was greater than the value to Henry Schein and its stockholders of a stand alone spin-off or split-off of the Henry Schein Animal Health Business. See “The Transactions.”

Q: What are Vets First Choice’s reasons for the Transactions?

A: Vets First Choice determined that the Transactions would be in the best interests of Vets First Choice and its stockholders because the Transactions would provide a number of key benefits, including primarily: (i) the complementary fit of Vets First Choice and the Henry Schein Animal Health Business, and the strategic benefits of a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure supporting the companion, equine and large animal veterinary markets; (ii) the ability to leverage the global scale and logistical infrastructure of the Henry Schein Animal Health Business to accelerate the adoption of the Vets First Choice platform and introduce new and enhanced services and technology to veterinary practices; (iii) the opportunity to drive additional practice insights to enhance medication and service compliance through the combination of the Henry Schein Animal Health Business’ leading practice management software portfolio with the Vets First Choice analytics and client engagement capabilities; and (iv) enhancing relationships with global manufacturers as the Combined Company leverages technology and insight to drive category growth.

In assessing and approving the Transactions, Vets First Choice considered an initial public offering as an alternative transaction, but came to the conclusion that the Transactions would produce similar or better results for Vets First Choice and its stockholders. See “The Transactions—Vets First Choice’s Reasons for the Transactions.”

Q: What will Henry Schein stockholders receive in the Transactions?

A: Each issued and outstanding share of Henry Schein common stock as of the record date for the Distribution (excluding any shares of Henry Schein common stock otherwise held by a member of the Henry Schein Group) will entitle its holder to receive a pro rata portion of the aggregate shares of Spinco common stock held by Henry Schein as of the time of the Distribution (after giving effect to the Share Sale).

 

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Based on the number of shares of Henry Schein common stock outstanding as of December 31, 2018, we expect the distribution ratio to be approximately 0.4 of a share of Spinco common stock for each share of Henry Schein common stock. Although the number of shares of Henry Schein common stock outstanding may increase or decrease prior to the record date and as a result this distribution ratio may change, it will nonetheless result in (i) approximately 63% of the shares of Spinco common stock immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (a) being owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) underlying certain equity awards expected to be held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions), and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (a) being owned by the stockholders of Vets First Choice immediately prior to the Merger and (b) underlying certain equity awards expected to be held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. Henry Schein stockholders will not receive any new shares of Spinco common stock in the Merger and will continue to hold the shares of Spinco common stock they received in the Distribution.

Q: What will happen to holders of minority interests in the operating companies of the Henry Schein Animal Health Business in connection with the Transactions?

A: Certain third parties own minority interests in certain operating companies of the Henry Schein Animal Health Business. The Contribution and Distribution Agreement provides that, prior to the Distribution, Henry Schein will use its reasonable best efforts to purchase from certain minority holders their ownership interests in the applicable operating companies of the Henry Schein Animal Health Business. If Henry Schein does not acquire any such interests, they will remain outstanding and those persons owning such interests will remain as minority owners of the applicable Spinco subsidiaries after the Distribution. Following the Distribution, such minority holders will continue to have the rights and obligations they currently have under the existing organizational documents of the applicable operating companies, including, in certain instances, the right to cause Spinco to purchase their interests for cash at the times and upon the terms and conditions contained therein.

Q: What will the Share Sale Investors receive in the Transactions?

A: The Share Sale Investors will not receive any new shares of Spinco common stock in the Distribution or the Merger and will continue to hold the shares of Spinco common stock they received prior to the Distribution and the Merger pursuant to the Share Sale.

Q: What will Vets First Choice stockholders receive in the Transactions?

A: At the Effective Time, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed

 

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Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. The Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration payable to holders of shares of Vets First Choice capital stock is not known at this time as the actual values of the Special Dividend, the Certain Debt Repayment, the JV Minority Equity Value and the Conversion Factor, each of which is required to calculate the Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration, will not be known with certainty until the Closing Date. We will disclose our estimates of such amounts, including the Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration, prior to the Closing Date in a press release or a Current Report on Form 8-K. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Q: Are any Henry Schein stockholder or Spinco stockholder approvals required in connection with the Transactions?

A: No. Neither Henry Schein stockholder nor Spinco stockholder approvals are required in connection with the Transactions. Henry Schein, as the sole stockholder of Spinco at the time the Merger Agreement was executed, and Spinco, as the sole stockholder of Merger Sub, have already approved the Merger and the Distribution. Henry Schein stockholders are not required to take any action to approve the Transactions, including the Distribution or the Merger. Spinco stockholders who acquire their shares in connection with the Share Sale are not required to take any additional action to approve the Transactions, including the Distribution or the Merger.

Q: Are any Vets First Choice stockholder approvals required in connection with the Transactions?

A: Yes. The stockholders of Vets First Choice must approve the Merger by written consent, or at a duly held meeting of the stockholders, by an affirmative vote of (i) a majority of the issued and outstanding shares of common stock and preferred stock of Vets First Choice, voting together as a single class on an as-converted basis, and (ii) at least 60% of the issued and outstanding preferred stock of Vets First Choice, voting as a single class. Vets First Choice stockholders holding approximately 73.2% of the issued and outstanding common stock on an as-converted basis, including approximately 79.5% of the issued and outstanding preferred stock, as of December 31, 2018, have executed and delivered a voting and support agreement pursuant to which they have agreed to execute written consents or vote in favor of the Merger Agreement and the Merger. Vets First Choice will solicit written consents for approval of the Merger no later than five business days after the effectiveness of the registration statement of which this prospectus forms a part.

Q: Can Henry Schein stockholders demand appraisal of their shares?

A: No. Henry Schein stockholders will have no appraisal rights in connection with the Transactions.

Q: Can Vets First Choice stockholders demand appraisal of their shares?

A: Yes. Vets First Choice stockholders will have appraisal rights pursuant to Section 262. At the same time that Vets First Choice solicits written consents, with such solicitation, Vets First Choice will send its stockholders a notice informing them of the appraisal rights available for their shares of Vets First Choice capital stock. Vets First Choice stockholders who do not consent to the Merger and who otherwise properly exercise and perfect their appraisal rights in accordance with Section 262 will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of Vets First Choice capital stock, in lieu of receiving the merger consideration. A proxy or vote against the Merger or a failure to provide written consent will not in and of itself constitute such a demand. The “fair value” could be higher or lower than, or the same as, the merger consideration.

 

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Q: Will Spinco issue certificated shares of Spinco common stock?

A: No. Shares of Spinco common stock issued in the Transactions will be in book-entry form.

Q: What is the record date for the Distribution?

A: Record ownership for purposes of the Distribution will be determined as of 5:00 p.m., New York City time, on January 17, 2019, which is referred to in this prospectus as the record date.

Q: Will Spinco shares trade prior to the Distribution Date?

A: It is anticipated that, promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown), and through the Distribution Date, there will be a “when-issued” market in Spinco’s stock under the symbol “CVETV.” When-issued trading refers to a sale or purchase of securities made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for Spinco common stock that will be distributed to holders of Henry Schein common stock on the Distribution Date. If you own shares of Henry Schein common stock as of 5:00 p.m., New York City time on the record date, you will be entitled to Spinco common stock distributed pursuant to the Spin-off. You may trade this entitlement to Spinco common stock without the shares of Henry Schein common stock you own on the when-issued market. On the first trading day following the Distribution Date, Spinco expects when-issued trading with respect to Spinco common stock will end and regular-way trading will begin. When-issued trading is expected to begin promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown) and when-issued trades are expected to settle within three days of the Distribution Date.

Q: When will the Transactions occur?

A: The Share Sale and the Initial Spinco Debt Financing will occur prior to the Distribution. The date of the Distribution is expected to be on or about February 4, 2019. The Merger will occur immediately following the Distribution.

Q: Are there any conditions to the consummation of the Distribution and the Merger?

A: Yes. The Distribution is subject to the satisfaction or Henry Schein’s waiver of certain conditions, including, among others: (i) the consummation of the Reorganization; (ii) Spinco’s payment of the Special Dividend and, if applicable, the Additional Special Dividend to Henry Schein, and the effectuation of the Certain Debt Repayment; (iii) the procurement by Spinco of all material licenses, permits, registrations, authorizations or certificates necessary to operate the Henry Schein Animal Health Business following the Effective Time, the failure of which to be obtained would cause a condition to Vets First Choice’s obligation to consummate the Merger not to be satisfied (if and to the extent such condition is not waived by Vets First Choice); (iv) receipt by Henry Schein and Spinco of the Spin-off Tax Opinion; and (v) the satisfaction or waiver of the conditions contained in the Merger Agreement.

The Merger is subject to the satisfaction or waiver of certain additional conditions, including, among others: (i) the consummation of the Separation in accordance with, and subject to, the Contribution and Distribution Agreement; (ii) Spinco’s payment of the Special Dividend and, if applicable, the Additional Special Dividend, to Henry Schein and the effectuation of the Certain Debt Repayment; (iii) approval of the Merger by the requisite consent or vote of Vets First Choice’s stockholders; (iv) the receipt by the Henry Schein Board of a solvency and surplus opinion of a nationally recognized investment banking or appraisal firm; (v) no material adverse effect having occurred with respect to Vets First Choice or the Henry Schein Animal Health Business; (vi) the expiration or termination of the applicable waiting period under the HSR Act (which has already occurred); (vii)

 

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the effectiveness of the registration statement of which this prospectus forms a part and the approval of the listing on Nasdaq of the Spinco common stock to be issued in the Distribution and the Merger and such other shares to be reserved for issuance in connection with the Transactions, subject to official notice of issuance; (viii) the accuracy of each party’s representations and warranties, subject to certain qualifications, and each party’s compliance in all material respects with covenants; and (ix) the receipt of customary tax opinions from each of Henry Schein’s and Vets First Choice’s counsel.

This prospectus describes these conditions in more detail in “The Contribution and Distribution Agreement—Conditions to the Distribution” and “The Merger Agreement—Conditions to Consummation of the Merger.”

Q: What will happen to the listing of the Henry Schein common stock?

A: Nothing. Henry Schein common stock will continue to be traded on Nasdaq under the symbol “HSIC.”

Q: Will the Spin-off affect the trading price of the Henry Schein common stock?

A: Until the market has fully analyzed the value of Henry Schein without the Henry Schein Animal Health Business, the price of Henry Schein common stock may fluctuate. In addition, it is anticipated that shortly before the record date and through the Distribution Date, there will be two markets in Henry Schein common stock: a “regular-way” market and an “ex-distribution” market. Henry Schein common stock that will trade on the regular-way market will trade with an entitlement to Spinco common stock distributed pursuant to the Distribution. Stock that trades on the ex-distribution market will trade without an entitlement to Spinco common stock distributed pursuant to the Distribution. See “The Transactions—Listing and Trading of Spinco’s Common Stock.”

Q: What if I want to sell my Henry Schein common stock before the Distribution?

A: You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Henry Schein nor Spinco makes any recommendations on the purchase, retention or sale of Henry Schein common stock or the Spinco common stock to be distributed in the Distribution. If you hold shares of Henry Schein common stock as of the record date and you decide to sell any stock before the Distribution, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Henry Schein common stock or the Spinco common stock you will receive in the Distribution or both. If you sell your Henry Schein common stock in the “regular-way” market up to and including the Distribution Date, you will be selling your right to receive Spinco common stock in the Distribution. However, if you own Henry Schein common stock as of 5:00 p.m., New York City time, on the record date and sell those shares in the “ex-distribution” market up to and including the Distribution Date, you will still receive the Spinco common stock that you would be entitled to receive in respect of the Henry Schein common stock you owned as of 5:00 p.m., New York City time, on the record date. See “The Transactions—Listing and Trading of Spinco’s Common Stock.”

Q: How will fractional shares be treated in the Distribution and the Merger?

A: Any fractional shares of Spinco common stock (other than the Escrowed Shares) that would otherwise be distributed to a Henry Schein stockholder in the Distribution or issued to a Vets First Choice stockholder in the Merger, as applicable, will be aggregated, and each such Henry Schein stockholder or Vets First Choice stockholder, as applicable, will be issued in respect of all such fractional shares a number of shares of Spinco common stock equal to such aggregate number, rounded to the nearest whole number. See “The Transactions—Manner of Effecting the Transactions.” Any fractional shares of Spinco common stock that are Escrowed Shares that would otherwise be distributed to Spinco or Vets First Choice stockholders pursuant to the terms of the Merger Agreement and the Escrow Agreement, as applicable, will be treated in the manner provided under the Escrow Agreement.

 

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Q: Who will serve on the Covetrus Board?

A: The initial Covetrus Board will be comprised of 11 directors. Six directors will be designated by Henry Schein, including two directors who may be affiliated with Henry Schein, and four independent directors unaffiliated with Henry Schein. Five directors will be designated by Vets First Choice, including two directors who may be affiliated with Vets First Choice, and three independent directors unaffiliated with Vets First Choice. David Shaw, Chairman of the Vets First Choice Board and Co-Founder of Vets First Choice, will serve as chairman of our Board. Henry Schein has the right to designate the lead independent director of the Covetrus Board, who will also serve as the chair of the Nominating and Governance Committee, and has designated Philip Laskaway to serve in that capacity. Benjamin Shaw, Chief Executive Officer and Co-Founder of Vets First Choice, will serve as the Chief Executive Officer and a director on our Board. See “Management Before and After the Consummation of the Transactions—Board of Directors and Executive Officers of Covetrus.”

Q: Who will manage the business of Covetrus following the Merger?

A: Following the Merger, Benjamin Shaw, the Chief Executive Officer and Co-Founder of Vets First Choice, will become the Chief Executive Officer of Covetrus. The senior management team of Covetrus will be comprised of members of senior management of the Henry Schein Animal Health Business and Vets First Choice. See “Management Before and After the Consummation of the Transactions—Board of Directors and Executive Officers of Covetrus.”

Q: What will be the indebtedness of the Combined Company following completion of the Transactions?

A: In connection with the Transactions, Spinco and its subsidiaries will consummate the Initial Spinco Debt Financing and the Additional Financing. The Initial Spinco Debt Financing will be used to fund the payment of the Special Dividend, the Additional Special Dividend, if applicable, and the Certain Debt Repayment. Spinco expects that, immediately following the Merger, it will have approximately $1,175 million in total indebtedness, after giving effect to the Initial Spinco Debt Financing and the Additional Financing (net of debt issuance costs of $25 million). The Initial Spinco Debt Financing is expected to consist of $1,200 million of 5% term notes due in 2024 and the Additional Spinco Financing is expected to consist of a $300 million five-year revolving credit facility. See “Capitalization” and “Description of Material Indebtedness.”

Q: How will the rights of stockholders of Henry Schein and Spinco change after the Merger?

A: Following the Merger, Henry Schein stockholders will continue to own all of their shares of Henry Schein common stock. Their rights as Henry Schein stockholders will not change, except that their shares of Henry Schein common stock will represent an interest in Henry Schein that no longer includes the ownership and operation of the Henry Schein Animal Health Business. Henry Schein stockholders as of the record date will also separately receive shares of Spinco common stock, which will include the Henry Schein Animal Health Business and business of Vets First Choice after the consummation of the Merger. The rights of stockholders of Spinco immediately prior to the Merger will not change as a result of the Merger. See “Comparison of the Rights of Stockholders Before and After the Transactions.”

Q: How will the rights of stockholders of Vets First Choice change after the Merger?

A: Stockholders of Vets First Choice will receive shares of Spinco common stock in exchange for their shares of Vets First Choice capital stock in connection with the Merger and will no longer be stockholders of Vets First Choice following the Merger. A share of Spinco common stock will represent an interest in the combined Henry Schein Animal Health Business and business of Vets First Choice. See “Comparison of the Rights of Stockholders Before and After the Transactions.”

 

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Q: Will the Transactions affect employees and former employees of Henry Schein who hold Henry Schein equity as part of Henry Schein’s LTIP?

A: Henry Schein employees who remain at Henry Schein and have unvested Henry Schein equity as part of a previous LTIP award will not receive any Spinco shares with respect to such unvested equity. Instead, subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, Henry Schein intends to adjust such unvested LTIP awards to provide additional Henry Schein restricted stock units and/or restricted stock awards with substantially equivalent economic value as the Spinco shares that would have otherwise been received in the Merger.

For Henry Schein employees who transfer to Spinco and have unvested Henry Schein equity as part of a previous LTIP award, subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, the unvested Henry Schein equity will be converted to new Spinco equity awards such that the total value of such unvested LTIP award post Spin-off will be substantially economically equivalent to the value of the unvested LTIP award prior to the Spin-off.

Q: Will the Transactions affect employees and former employees of Henry Schein who invest in the Henry Schein Stock Fund through the Henry Schein, Inc. 401(k) Savings Plan?

A: The Henry Schein Stock Fund holds shares of Henry Schein common stock, and Henry Schein employees invested in the Henry Schein Stock Fund through the Henry Schein 401(k) plan have units of the Henry Schein Stock Fund. Like Henry Schein common stockholders, as a result of the Transactions, the Henry Schein 401(k) plan will receive shares of Spinco common stock on a pro rata basis with respect to shares of Henry Schein common stock held in the Henry Schein Stock Fund. These shares will be set aside under a separate Spinco Stock Fund and Henry Schein employees invested in the Henry Schein Stock Fund will receive corresponding units in the Spinco Stock Fund. This new fund will be frozen to new investments; however, participants in the Spinco Stock Fund can transfer the investments out this fund to another fund at any time. If Henry Schein employees and former employees do nothing with respect to the Spinco Stock Fund, the balance in the Spinco Stock Fund is expected to be transferred to an age-appropriate target date fund and no action would be required on their part. Investments in the Spinco Stock Fund are expected to be transferred to other available funds under the Henry Schein 401(k) plan by approximately December 31, 2019.

Q: Will the Transactions affect stock options held by employees of Vets First Choice?

A: Subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, Vets First Choice stock options held by Vets First Choice employees will be converted to Spinco stock options, such that the total value of Spinco stock options held by each Vets First Choice employee post-Merger will be substantially economically equivalent to the value of such Vets First Choice stock options prior to the Merger.

Q: Will the Transactions affect currently outstanding warrants to purchase shares of Vets First Choice capital stock?

A: Yes. Subject to the terms and conditions of the applicable warrant documents, all outstanding warrants to purchase shares of Vets First Choice capital stock are or will become exercisable prior to the Effective Time in connection with the Merger. At the Effective Time, all outstanding unexercised warrants to purchase Vets First Choice capital stock will be cancelled in accordance with the terms and conditions of the applicable warrant documents.

Q: Will there be any payments by Spinco to Henry Schein in connection with the Transactions?

A: Yes. Pursuant to the Contribution and Distribution Agreement, Spinco is required to pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and to effectuate the Certain Debt

 

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Repayment. In addition, the proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein. See “The Contribution and Distribution Agreement—Preliminary Transactions.”

Q: Will there be post-closing adjustments in connection with the Distribution and the Merger?

A: Yes, there are post-closing adjustments in connection with the Distribution and the Merger.

Pursuant to the Contribution and Distribution Agreement, after the Distribution, Spinco and Henry Schein will determine the actual amount of Spinco working capital and net indebtedness as of the Distribution Date and compare such amounts to certain corresponding target amounts. If such actual amounts differ from the target amounts, a corresponding cash payment may be made following the Closing Date by Spinco to Henry Schein or by Henry Schein to Spinco, as applicable. In either case, the amount payable will be capped at $150,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Henry Schein pursuant to the Tax Matters Agreement). See “The Contribution and Distribution Agreement—Working Capital and Net Indebtedness Adjustments.”

Pursuant to the Merger Agreement, after the Merger, Spinco and the Vets First Choice Stockholders’ Representative will determine the actual amount of the Vets First Choice working capital, net indebtedness and transaction expenses and if such actual amounts differ from certain target amounts, following the Closing Date, (i) a corresponding cash payment may be made by Spinco to the Vets First Choice stockholders in an amount equal to the lesser of (a) $100,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Vets First Choice pursuant to the Tax Matters Agreement) and (b) the adjustment amount, as finally determined by Spinco and the Vets First Choice Stockholders’ Representative, or (ii) a number of shares of Spinco common stock having a value (determined in accordance with the Escrow Agreement) equal to the adjustment amount, as finally determined by Spinco and the Vets First Choice Stockholders’ Representative, may be transferred from the Escrow Account to Spinco. Any shares of Spinco common stock transferred to Spinco pursuant to clause (ii) of the immediately preceding sentence will thereafter be cancelled by Spinco and will no longer be outstanding. See “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Q: Does Vets First Choice have to pay anything to Henry Schein if the Merger Agreement is not approved by the stockholders of Vets First Choice or if the Merger Agreement is otherwise terminated? Does Henry Schein have to pay anything to Vets First Choice if the Merger Agreement is terminated?

A: The Merger Agreement does not provide for the payment of a termination fee by any party if the Merger Agreement is not approved by the stockholders of Vets First Choice or if the Merger Agreement is otherwise terminated. However, if the Merger is not consummated, certain shared expenses will be split evenly between Henry Schein and Vets First Choice (except for the expenses incurred in connection with the Initial Spinco Debt Financing and the Additional Financing, which will be paid 60% by Henry Schein and 40% by Vets First Choice). See “The Merger Agreement—Fees and Expenses.”

Q: What are the U.S. federal income tax consequences to Henry Schein stockholders of the Distribution?

A: The completion of the Transactions is conditioned upon the receipt by Henry Schein of the Spin-off Tax Opinion to the effect that the transactions that comprise the Distribution will qualify as a reorganization under Section 368(a)(1)(D) of the Code and the Distribution will qualify as a tax-free distribution under Section 355 of the Code. Assuming the Distribution so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by U.S. Holders (as defined on page 70) of Henry Schein common stock upon the receipt of Spinco common stock pursuant to the Distribution. See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions.”

See also “Risk Factors—Risks Relating to the Transactions—If the Distribution does not qualify as a tax-free spin-off under Section 355 of the Code, including as a result of subsequent acquisitions of stock of

 

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Henry Schein or Spinco, then Henry Schein and/or the Henry Schein stockholders may be required to pay substantial U.S. federal income taxes.”

Each Henry Schein stockholder is urged to consult its own tax advisor as to the specific tax consequences of the Distribution to such stockholder, including the effect of any state, local, estate or gift or non-U.S. tax laws and of changes in applicable tax laws.

Q: How will a Henry Schein stockholder determine the tax basis it will have in the Spinco shares of common stock it receives in the Distribution for U.S. federal income tax purposes?

A: The aggregate tax basis of the Spinco common stock and Henry Schein common stock held by a U.S. Holder (as defined on page 70) immediately after the Distribution will, for U.S. federal income tax purposes, be the same as the aggregate tax basis of the Henry Schein common stock held by such U.S. Holder immediately before the Distribution, allocated between the U.S. Holder’s Spinco common stock and Henry Schein common stock in proportion to their relative fair market values on the date of the Distribution (subject to certain adjustments).

If a U.S. Holder has acquired different blocks of Henry Schein common stock at different times or at different prices, the U.S. Holder should consult its tax advisor regarding the allocation of its aggregate tax basis in, and the holding period of, the Spinco common stock distributed with respect to such blocks of Henry Schein common stock for U.S. federal income tax purposes.

See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions.”

Q: What are the U.S. federal income tax consequences to Vets First Choice stockholders of the Merger?

A: The Merger is conditioned upon receipt of customary opinions from tax counsel to Henry Schein and Vets First Choice, respectively, to the effect that the Merger will qualify as a reorganization under Section 368(a)(2)(E) of the Code. Assuming the Merger so qualifies, for U.S. federal income tax purposes, a U.S. Holder (as defined on page 72) of Vets First Choice common or preferred stock is generally expected to recognize gain (but not loss) for U.S. federal income tax purposes in an amount equal to the lesser of (i) the amount of gain realized by such U.S. Holder (i.e., the excess, if any, of the sum of the amount of cash and the fair market value, as of the Effective Time, of the Spinco common stock received in the Merger over the U.S. Holder’s adjusted tax basis in its Vets First Choice stock surrendered) and (ii) the amount of cash (if any) received in the Merger.

See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions” and “Risk Factors—Risks Relating to the Transactions—If the Merger does not qualify as a tax-free reorganization under Section 368(a) of the Code, then the stockholders of Vets First Choice may be required to pay substantial U.S. federal income taxes.”

Q: How will a Vets First Choice stockholder determine for U.S. federal income tax purposes the tax basis it will have in the shares of Spinco common stock it receives in the Merger?

A: A U.S. Holder (as defined on page 72) of Vets First Choice common or preferred stock is generally expected to have an aggregate tax basis in the shares of Spinco common stock received in the Merger, for U.S. federal income tax purposes, equal to the U.S. Holder’s aggregate tax basis in the Vets First Choice stock surrendered in exchange for such shares of Spinco common stock, reduced by the amount of any cash received on the exchange plus the amount of any gain recognized upon the exchange.

A U.S. Holder that has acquired different blocks of Vets First Choice preferred or common stock at different times or at different prices should consult its tax advisor regarding the allocation of its aggregate tax basis in, and

 

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the holding period of, the Spinco common stock received in exchange for such blocks of Vets First Choice preferred or common stock. See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions.”

Q: Does Spinco intend to pay cash dividends?

A: No, Spinco does not currently expect to declare or pay dividends on its common stock for the foreseeable future. See “Dividend Policy.”

Q: Where will Spinco shares trade?

A: Currently, there is no public market for the Spinco common stock. Spinco has applied to list its common stock on Nasdaq under the symbol “CVET.” See “The Transactions—Listing and Trading of Spinco’s Common Stock.”

Q: Who will be the transfer agent for Spinco shares?

A: Upon the completion of the Transactions, Continental Stock Transfer & Trust Company will be the transfer agent for the Spinco common stock.

Q: Are there risks associated with owning Spinco common stock upon consummation of the Transactions?

A: The Combined Company is subject to both general and specific risks and uncertainties. The Combined Company is also subject to risks relating to the Transactions. Accordingly, you should carefully read the information set forth in the section entitled “Risk Factors” in this prospectus.

Q: Where can I get more information?

A: If you have any questions relating to the mechanics of the Distribution or the Merger, you should contact the Distribution Agent and the Exchange Agent at:

Continental Stock Transfer & Trust Company

Attn: Ernest Wilson, Vice President – Manager, Reorganization Operations

One State Street – 30th Floor

New York, NY 10004

Tel: (212) 845-3272

Before the Distribution and the Merger, if you have any questions relating to the Transactions, you may contact Henry Schein at:

Henry Schein, Inc.

Investor Relations

Attn: Carolynne Borders

135 Duryea Road

Melville, NY 11747

Tel: (631) 390-8105

If you have any questions relating to the Merger, you may also contact Vets First Choice at:

Vets First Choice

Investor Relations

Attn: Nicholas Jansen

7 Custom House Street

Portland, ME 04101

Tel: (888) 280-2221

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus relating to the Transactions and the Combined Company. You should read this entire prospectus carefully including the risk factors, management’s discussion and analysis of financial condition and results of operations of the Henry Schein Animal Health Business and Vets First Choice, the historical financial statements of the Henry Schein Animal Health Business and Vets First Choice and the respective notes thereto, and the unaudited pro forma condensed combined financial statements of the Combined Company and the notes thereto. The Henry Schein Animal Health Business’ historical financial data have been prepared on a “carve-out” basis to reflect the operations, financial condition and cash flows specifically allocable to the Henry Schein Animal Health Business during all periods shown. The unaudited pro forma financial data adjust the historical financial data of the Henry Schein Animal Health Business and Vets First Choice to give effect to the Transactions as of the dates indicated and the anticipated post-Transactions capital structure. Except as otherwise indicated or the context otherwise requires, the information included in this prospectus assumes the completion of the Transactions.

Overview

On April 20, 2018, Henry Schein, Vets First Choice and Spinco entered into the Contribution and Distribution Agreement and the Merger Agreement, which provide for a series of transactions described in this prospectus pursuant to which Henry Schein will contribute the Henry Schein Animal Health Business to Spinco and distribute all of the shares of Spinco common stock that are then owned by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders and, following the Distribution, Merger Sub will merge with and into Vets First Choice, with Vets First Choice surviving the Merger as a wholly owned subsidiary of Spinco.

The Combined Company, to be renamed Covetrus, Inc., will be a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure dedicated to supporting the companion, equine and large animal veterinary markets. We will combine the complementary capabilities of the Henry Schein Animal Health Business and Vets First Choice, bringing together leading practice management software and supply chain businesses with a platform approach based on technology-driven insights, designed to promote connectivity between veterinarians and their Clients. Linking the power of insight and analytics, client engagement, practice management software and supply chain expertise into a multi-channel platform, we believe our innovative approach will support the delivery of improved veterinary care while driving increased demand for our products and services.

We will have a talented team of over 5,000 employees positioned to support veterinarians’ evolving practice needs with an expanded offering that we believe will enhance the Client experience and improve medical and service compliance. In addition, we will seek to improve veterinary practice economics by helping veterinarians identify and manage gaps in care through proactive prescription management, inventory management and supply chain expertise, specialty pharmacy services, innovative solutions to chronic care disease management, veterinary practice management software and client communication tools. Further, as a global company focused solely on animal health with a multi-channel strategy, we will seek to leverage our decades-long experience within the veterinary channel with a differentiated value proposition by increasing innovation, providing a more comprehensive set of integrated services, improving the customer and client experience and engagement and driving cost-effectiveness through efficient delivery of next-generation solutions.

The Combined Company had approximately $3.7 billion in pro forma combined net sales in the fiscal year ended December 30, 2017. By bringing the Henry Schein Animal Health Business and Vets First Choice together into one company, we expect to enhance our growth opportunities with our large base of established Customers and Clients and secure new business. We believe the combination of our capabilities will serve as a foundation for incremental revenue growth and operational synergies.



 

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The Animal Health Market

The global animal health market, which includes pharmaceuticals, supplies and services, and veterinary and other healthcare, is a growing industry. Based on industry analysts’ estimates, the global animal health market was in excess of $150 billion in 2017, including approximately $30 billion of pharmaceuticals sold by manufacturers. Pharmaceuticals represented more than 50% of our pro forma net sales in fiscal 2017. Based on domestic industry estimates, overall pet spending in the United States increased approximately 4%, to approximately $70 billion, from 2016 to 2017, with food representing approximately 42%, veterinary care representing approximately 25% and pet supplies and medications representing approximately 22%.

Industry growth is expected to be driven by a number of factors, including economic development and related increases in disposable income, increasing companion animal ownership globally, companion animals living longer, the strengthening bond between humans and companion animals and the increasing range and complexity of medical diagnostics, therapies and procedures for animals. Additionally, we believe improving medical compliance can be an important source of future industry revenue growth. We believe that our technology and supply chain platform, which provides a range of products and value-added services to veterinary and large animal Customers’ practices, helps our Customers grow their revenue and positions us well as we capitalize on the underlying market drivers of the industry.

While the animal health industry continues to grow, we believe veterinarians today still face pressure tied to the growth of e-commerce and retail competition. We believe there is a significant opportunity to address these challenges through a platform that turns data into insight, insight into actionable information and actionable information into demand for technology, integrated pharmacy and in-clinic services. As consumers become accustomed to on-demand services, we believe they will increasingly embrace technology solutions to address their needs. The emergence and subsequent adoption of technologies such as insight and analytics, e-commerce solutions and mobile applications represents a significant opportunity for innovation in the animal health industry. We believe the confluence of consumer empowerment, innovative technology solutions and focus on providing improved care creates an opportunity for our platform to transform the way veterinarians practice medicine and the way Clients interact with their veterinarians.

Our Strategy

Our strategy is comprised of the following elements:

 

   

Leverage the scale, reach and infrastructure of the Henry Schein Animal Health Business network to accelerate the adoption of the Vets First Choice platform. We plan to use our combined sales and account management organization of over 1,200 sales professionals to drive adoption of the Vets First Choice platform by Customers of the Henry Schein Animal Health Business.

 

   

Increase sales to our existing Customers. We will focus on our Customers’ needs and seek to provide differentiated offerings and coordinated approaches. Further, we plan to cross-sell the products and services offered by the Henry Schein Animal Health Business and Vets First Choice to increase net sales.

 

   

Drive category growth. We expect to expand the existing served market by leveraging our medical compliance insights and innovation. We plan to deploy our comprehensive platform to help identify and narrow gaps in care through proactive prescription management.

 

   

Develop advanced insight and analytics and software. We believe that by positioning ourselves as the veterinary practice digital partner of choice, we can deliver insight and analytics that help veterinarians leverage technology in their practices and address changing Client expectations. We plan to continue developing a cohesive, cloud-enabled IT infrastructure and practice management solutions.



 

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Enhance Customer and Client relationships. We plan to strengthen our value proposition offered to independent veterinary and corporate accounts in a consolidating industry landscape by leveraging our supply-chain expertise, proprietary technology-enabled solutions and innovation pipeline.

Our Key Capabilities

In pursuing our strategy, we plan to capitalize on our key strengths:

 

   

insight and analytics that help veterinarians identify and manage gaps in care;

 

   

multi-channel Client engagement that drives in-clinic service activity and online purchases;

 

   

proactive prescription management and pharmacy services that drive medication compliance, increase revenues and improve the Customer and Client experience;

 

   

inventory management and supply chain services and technology that help improve practice efficiency and economics;

 

   

specialty pharmacy services and proprietary brand products, which include innovative solutions and chronic care disease management; and

 

   

veterinary practice management software that improves workflow, manages animal health records and supports office administration.

Our Customers

Our combined customer base is comprised principally of animal health practices and clinics in the companion animal and equine markets in North America, Europe and Australasia. These veterinary practices consist of both small, privately owned businesses and an increasing number of consolidated, corporate-owned practices. We also serve animal health providers and producers in the large animal market.

In our major markets, our combined Customers include:

 

   

supply chain Customers in North America, Europe and Australasia (including more than 90% of the approximately 30,000 veterinary practices in the United States, more than 45,000 Customers in Europe (of which a large majority are in veterinary practices) and a significant number of veterinary practices in Australia), which are currently served by the Henry Schein Animal Health Business;

 

   

practice management solutions Customers in the United States, the United Kingdom, Australia, New Zealand and certain other countries (including more than 50% of the veterinary practices in the United States), which are currently served by the Henry Schein Animal Health Business; and

 

   

prescription management and pharmacy services Customers, including the approximately 7,500 veterinary practices in the United States utilizing the Vets First Choice platform.

We see opportunity to accelerate the adoption of the Vets First Choice platform by leveraging the existing Henry Schein Animal Health Business Customer base.

Our Competitors

The market for providing products, services and technology to the global animal health industry is highly competitive and fragmented. Our principal competitors include:

 

   

Animal Health Divisions of Traditional Distribution Companies: the MWI Animal Health division of AmerisourceBergen and the Patterson Veterinary division of Patterson Companies, Inc.;



 

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Animal Health Focused Companies: national, regional, local and online distributors and technology vendors, as well as manufacturers of animal health products that sell directly to veterinary practices and retailers; and

 

   

Practice Management Service Providers: IDEXX Laboratories, Inc. and a number of regional and local competitors.

Additionally, online and brick-and-mortar retailers offer certain animal health products and services directly to Clients, which impacts our Customers and in turn our business.

We believe we are well suited to compete in this market. We expect that our global scale, comprehensive and integrated capabilities and expertise will allow us to win business and access additional revenue opportunities while addressing our fragmented Customer base’s evolving needs.

The Transactions

Overview

The principal transactions described in this prospectus are the following:

 

   

Reorganization—Henry Schein will engage in a series of transactions in order to separate the Henry Schein Animal Health Business from Henry Schein’s other businesses pursuant to which, among other things, it will (i) use reasonable best efforts to purchase from certain minority holders their ownership interests in the applicable operating companies of the Henry Schein Animal Health Business in exchange for cash and (ii) contribute, assign and transfer to Spinco certain applicable assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health Business.

 

   

Initial Spinco Debt Financing—Henry Schein, Spinco and Vets First Choice will use their reasonable best efforts to arrange and consummate the Initial Spinco Debt Financing, which is expected to fund the Special Dividend, the Additional Special Dividend, if applicable, and the Certain Debt Repayment. We will then pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and effectuate the Certain Debt Repayment.

 

   

Share Sale—We will subsequently issue shares of our common stock representing in the aggregate up to 9.9% of the issued and outstanding shares of our common stock, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in the Share Sale, a transaction that will be exempt from registration under the Securities Act. The proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein.

 

   

Distribution—Henry Schein will subsequently distribute on a pro rata basis all of the shares of Spinco common stock held by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders as of the record date of the Distribution. In connection with the Transactions, we will change our name to “Covetrus, Inc.”

 

   

Merger—Immediately after the Distribution, Merger Sub will merge with and into Vets First Choice, the separate corporate existence of Merger Sub will cease and Vets First Choice will continue as the Surviving Company and our wholly owned subsidiary.

In order to complete the Merger, Vets First Choice must obtain the requisite approval of its stockholders. The Vets First Choice Board has determined that the terms of the Merger Agreement and the Merger are advisable and in the best interests of Vets First Choice and its stockholders, has approved the Merger Agreement and the Merger and has unanimously recommended the adoption by the Vets First Choice stockholders of the Merger Agreement and their approval of the Merger. Vets First Choice stockholders holding approximately



 

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73.2% of the issued and outstanding common stock on an as-converted basis, including approximately 79.5% of the issued and outstanding preferred stock, as of December 31, 2018, have executed and delivered a voting and support agreement pursuant to which they have agreed to vote or execute written consents in favor of the Merger Agreement and the Merger.

Vets First Choice will solicit written consents to vote upon the Merger no later than five business days after the effectiveness of the registration statement of which this prospectus forms a part. No vote of Henry Schein stockholders is required in connection with the Transactions. Henry Schein, as the sole stockholder of Spinco at the time the Merger Agreement was signed, and Spinco, as the sole stockholder of Merger Sub, each approved the Merger promptly after the Merger Agreement was signed.

At the Effective Time, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares, which will be cancelled) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Immediately after the Transactions, we will be an independent, publicly traded company that will own and operate the combined businesses of the Henry Schein Animal Health Business and Vets First Choice.

You are encouraged to carefully read the sections titled “The Contribution and Distribution Agreement” and “The Merger Agreement” because they set forth the terms of the Distribution and the Merger, respectively.

Benefits of the Transactions

The Henry Schein Board and the Vets First Choice Board considered the following potential benefits in deciding to pursue the Distribution and the Merger:

 

   

Focus and Flexibility. Following the Transactions, Henry Schein and the Combined Company will each have a more focused business and will be better able to dedicate financial resources and human capital to pursue appropriate growth opportunities and execute strategic plans best suited to their respective businesses. The Transactions will also provide each of Henry Schein and the Combined Company greater strategic flexibility to respond to industry dynamics. In the veterinary market, technology demands are increasing, and Customers and Clients seek service providers with technology-enabled solutions and innovation. By combining with the Henry Schein Animal Health Business, the Vets First Choice business is expected to have the scale to accelerate its reach to meet these customer needs.

 

   

Combined Expertise. The Transactions will create a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure dedicated to



 

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supporting the companion, equine and large animal veterinary markets. With more than 5,000 employees across approximately 25 countries, the Combined Company is expected to offer comprehensive solutions designed to drive improved financial and clinical outcomes for approximately 100,000 Customers, by offering veterinarians new capabilities to deliver high-quality care to their Clients and their animals and improve the economics and workflow of their businesses.

 

   

Strategic Positioning in Consolidating Industry. The combination of the Henry Schein Animal Health Business and Vets First Choice is a strategic move to position the Combined Company for success as the global animal health market consolidates. The combination of the Henry Schein Animal Health Business and Vets First Choice is expected to provide opportunities to leverage enhanced capabilities and global scale to capitalize on future growth opportunities.

 

   

Optimized Investments. The Combined Company will be able to focus on and invest in innovation and projects that optimize returns and support its global strategies and industry focus.

 

   

Revenue Growth and Operational Synergies. The Combined Company expects that by the end of the third year following the consummation of the Transactions, its incremental operating income will be in excess of $100 million on an annualized basis, driven largely by accelerated revenue growth from the adoption of the Vets First Choice platform across the Henry Schein Animal Health Business Customer base and significant opportunities to capture operational synergies.

The Companies

Henry Schein Animal Health Business

The Henry Schein Animal Health Business is one of the world’s largest veterinary supply chain, technology and software providers to the animal health market, with leading positions in North America, Europe and Australasia and growing businesses in South America and Asia. The Henry Schein Animal Health Business utilizes a multi-channel approach centered primarily on promoting veterinarians as the source of clinical expertise that benefits animals and the people that care for them. The Henry Schein Animal Health Business serves animal health practitioners, providers and producers through the distribution of pharmaceuticals, vaccines, supplies and equipment and by the development, sale and distribution of veterinary practice management software and related solutions and services. The Henry Schein Animal Health Business served approximately 100,000 Customers in over 100 countries and had net sales of approximately of $3.6 billion for the fiscal year ended December 30, 2017.

Vets First Choice

Vets First Choice is an innovator in technology-enabled services that empower veterinarians with insights that are designed to increase Customer engagement and veterinary practice health. Vets First Choice’s platform, which is built into the veterinary practice management software workflow, leverages insight and analytics, Client engagement services and integrated pharmacy services, and is designed to improve medical compliance via proactive prescription management. By working directly with veterinary practices to manage gaps in care, Vets First Choice seeks to enable its veterinarian Customers to create new revenue opportunities, adapt to changing Pet Owner purchasing behaviors, enhance their Client relationships and improve the quality of care they provide. Vets First Choice’s prescription management platform had approximately 7,500 veterinary practice Customers with approximately 980,000 Active Therapies under Management as of December 31, 2018.

Risk Factors

We face numerous risks relating to, among other things, our business operations, including integrating Vets First Choice and the Henry Schein Animal Health Business, our strategies, general economic conditions,



 

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competitive dynamics of the industry, our level of indebtedness, the legal and regulatory environment in which we operate, and our status as an independent public company following the Transactions. These risks are set forth in detail under the heading “Risk Factors.” If any of these risks should materialize, they could have a material adverse effect on our business, financial condition, results of operations and cash flows. We encourage you to review these risk factors carefully. Furthermore, this prospectus contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”



 

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The Distribution

 

Distributing company

Henry Schein. After the Distribution, Henry Schein will not own any shares of Spinco.

 

Distributed company

Spinco.

 

Record date

Record ownership will be determined as of 5:00 p.m., New York City time, on January 17, 2019.

 

Distribution date

The Distribution Date is expected to be on or about February 4, 2019.

 

Distribution ratio

Each issued and outstanding share of Henry Schein common stock as of the record date for the Distribution (excluding any shares of Henry Schein common stock otherwise held by a member of the Henry Schein Group) will entitle its holder to receive a pro rata portion of the aggregate shares of our common stock held by Henry Schein as of the time of the Distribution (after giving effect to the Share Sale). Based on the number of shares of Henry Schein common stock outstanding as of December 31, 2018, we expect the distribution ratio to be approximately 0.4 of a share of our common stock for each share of Henry Schein common stock. Although the number of shares of Henry Schein common stock outstanding may increase or decrease prior to the record date and as a result this distribution ratio may change, it will nonetheless result in (i) approximately 63% of our common stock immediately following the Merger, on a fully diluted basis and subject to certain adjustments, (a) being owned by our stockholders who held shares of our common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) underlying certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of our common stock (including the Escrowed Shares) immediately following the Merger, on a fully diluted basis and subject to certain adjustments, (a) being owned by the stockholders of Vets First Choice immediately prior to the Merger and (b) underlying certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. Shares of our common stock owned by the Share Sale Investors will not be distributed to Henry Schein stockholders. The Share Sale Investors will not receive any new shares of our common stock in the Distribution or the Merger and will continue to hold the shares of our common stock they received in the Share Sale.

 

The Distribution

On the Distribution Date, Henry Schein will cause the Distribution Agent to distribute the shares of our common stock held by Henry Schein (after



 

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giving effect to the Share Sale) to the Henry Schein stockholders as of the record date. The distribution of shares of our common stock will be made in book-entry form. Henry Schein stockholders will not be required to make any payment, surrender or exchange their shares of Henry Schein common stock or take any other action to receive our common stock.

 

Fractional shares

Any fractional shares of our common stock that would otherwise be distributed to a Henry Schein stockholder in the Distribution will be aggregated, and each such Henry Schein stockholder will be issued in respect of all such fractional shares a number of shares of our common stock equal to such aggregate number, rounded to the nearest whole number. See “The Transactions—Manner of Effecting the Transactions.”

 

Conditions to the Distribution

The Distribution is subject to the satisfaction or Henry Schein’s waiver of certain conditions, including: (i) the consummation of the transfer of assets, liabilities and capital stock or other equity interest relating to the Henry Schein Animal Health Business from Henry Schein to us as described in the Contribution and Distribution Agreement; (ii) our payment of the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein, and the effectuation of the Certain Debt Repayment; (iii) the procurement by us of all material licenses, permits, registrations, authorizations or certificates necessary to operate the Henry Schein Animal Health Business following the Effective Time, the failure of which to be obtained would cause a condition to Vets First Choice’s obligation to consummate the Merger not to be satisfied (if and to the extent such condition is not waived by Vets First Choice); (iv) receipt by Henry Schein and us of the Spin-off Tax Opinion; and (v) the satisfaction or waiver of the conditions contained in the Merger Agreement. See “The Contribution and Distribution Agreement—Conditions to the Distribution.”

 

Special Dividend; the Certain Debt Repayment

Pursuant to the Contribution and Distribution Agreement, we are required to pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and to effectuate the Certain Debt Repayment. See “The Contribution and Distribution Agreement—Preliminary Transactions.”

 

Post-Closing adjustment

Pursuant to the Contribution and Distribution Agreement, after the Distribution, we and Henry Schein will determine the actual amount of our working capital and net indebtedness as of the Distribution Date and compare such amounts to certain corresponding target amounts. If such actual amounts differ from the target amounts, a corresponding cash payment may be made following closing by us to Henry Schein or by Henry Schein to us, as applicable. In either case, the amount payable will be capped at $150,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Henry Schein pursuant to the Tax Matters Agreement). See “The



 

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Contribution and Distribution Agreement—Working Capital and Net Indebtedness Adjustments.”

 

Trading market and symbol

We have applied to list our common stock on Nasdaq under the ticker symbol “CVET.” See “The Transactions—Listing and Trading of Spinco’s Common Stock.”

 

Dividend policy

We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. See “Dividend Policy.”

 

Tax consequences of the Distribution to Henry Schein stockholders

The completion of the Transactions is conditioned upon the receipt by Henry Schein of the Spin-off Tax Opinion to the effect that the transactions that comprise the Distribution will qualify as a reorganization for U.S. federal income tax purposes and that the Distribution will qualify as a tax-free distribution for U.S. federal income tax purposes. The Spin-off Tax Opinion will rely on certain facts and assumptions, and certain representations and undertakings, provided by Henry Schein, Vets First Choice, Spinco and the Share Sale Investors regarding the conduct of our respective businesses and other matters.

 

  Assuming that the Distribution so qualifies, for U.S. federal income tax purposes, no gain or loss will be recognized by a U.S. Holder of Henry Schein common stock upon the receipt by such U.S. Holder of our common stock pursuant to the Distribution. Each Henry Schein stockholder is urged to consult its own tax advisor as to the specific tax consequences of the Distribution to that stockholder, including the effect of any state, local, estate or gift or non-U.S. tax laws and of changes in applicable tax laws.

 

Relationship with Henry Schein after the Spin-off

In connection with the Transactions, we expect to enter into other agreements with Henry Schein that will govern our post-Closing relationship. We will enter into a Transition Services Agreement, pursuant to which Henry Schein will provide certain services to us, and we will provide certain services to Henry Schein, that are, in each case, transitional in nature, for a specified period of time following the Distribution. Further, we have entered into the Tax Matters Agreement with Henry Schein that will govern the respective rights, responsibilities and obligations of us and Henry Schein after the consummation of the Transactions with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, tax contests, preservation of the intended tax treatment of the Transactions and certain other tax matters. We have also entered into the Employee Matters Agreement, which will govern the allocation of assets and liabilities with respect to certain employee compensation and benefit plans and programs, and responsibilities relating to other employment matters related to the Transactions. We describe these and related arrangements in greater detail under “Ancillary



 

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Agreements” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Transactions.”

 

Distribution Agent

Continental Stock Transfer & Trust Company.

The Merger

 

Structure of the Merger

Merger Sub will merge with and into Vets First Choice, with Vets First Choice continuing as the Surviving Company and our wholly owned subsidiary. We expect the Merger to be consummated immediately following the Distribution and on the terms and subject to the other conditions of the Merger Agreement.

 

Consideration for the Merger

Henry Schein and Spinco stockholders will not receive any consideration in the Merger.

 

At the Effective Time, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares, which will be cancelled) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

 

Fractional shares

Any fractional shares (other than the Escrowed Shares) of our common stock that would otherwise be issued to a Vets First Choice stockholder in the Merger will be aggregated, and each such Vets First Choice stockholder will be issued in respect of all such fractional shares a number of shares of our common stock equal to such aggregate number, rounded to the nearest whole number. See “The Transactions—Manner of Effecting the Transactions.”


 

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Escrowed Shares

On or prior to the Closing Date, Spinco, Henry Schein, Vets First Choice and the Vets First Choice Stockholders’ Representative will enter into the Escrow Agreement with the Escrow Agent. Spinco will deposit the Escrowed Shares in an escrow account (the “Escrow Account”) on or prior to the Effective Time, which shares will be held in escrow pursuant to the terms of the Merger Agreement and the Escrow Agreement.

 

  Pursuant to the Merger Agreement, if the Merger Adjustment Amount is negative and/or if Vets First Choice owes a Pre-Closing Tax Indemnity Payment, the Escrow Agent will distribute an amount of Escrowed Shares with a value equal to the absolute value of the Merger Adjustment Amount and/or the Pre-Closing Tax Indemnity Payment (with the value of such Escrowed Shares determined in accordance with the terms of the Escrow Agreement), as applicable, to us, and any such shares of our common stock will thereafter be cancelled by us. Any Escrowed Shares remaining in escrow upon the later to occur of (i) the first anniversary of the Closing Date and (ii) the date on which the final outstanding claim relating to tax-related losses is resolved, will be distributed to each Vets First Choice stockholder based on such stockholder’s percentage ownership of Vets First Choice capital stock on a fully diluted basis as of the Effective Time. See “The Transactions—Manner of Effecting the Transactions.” Any fractional shares of our common stock that are Escrowed Shares that would otherwise be distributed to Spinco or Vets First Choice stockholders pursuant to the Merger Agreement and the Escrow Agreement, as applicable, will be treated in the manner provided under the Escrow Agreement.

 

Approval of the Merger

No vote by Henry Schein or Spinco stockholders is required or is being sought in connection with the Transactions. Henry Schein, as our sole stockholder at the time the Merger Agreement was approved, and we, as the sole stockholder of Merger Sub, have each already approved the Merger.

 

 

The stockholders of Vets First Choice must approve the Merger by written consent, or at a duly held meeting of the stockholders, by an affirmative vote of (i) a majority of the issued and outstanding shares of common stock and preferred stock of Vets First Choice, voting together as a single class on an as-converted basis and (ii) at least 60% of the issued and outstanding preferred stock of Vets First Choice, voting as a single class. Vets First Choice stockholders holding approximately 73.2% of the issued and outstanding common stock on an as-converted basis, including approximately 79.5% of the issued and outstanding preferred stock, as of December 31, 2018, have executed and delivered a voting and support agreement pursuant to which they have agreed to vote or execute written consents in favor of the Merger Agreement and the Merger. Vets First Choice will solicit written consents to approve the Merger no later than five



 

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business days after the effectiveness of the registration statement of which this prospectus forms a part.

 

  As of December 31, 2018, Vets First Choice’s directors, executive officers and their affiliates are entitled to vote approximately 62.9% of the outstanding shares of Vets First Choice capital stock, on an as-converted basis.

 

Conditions to the Merger

The obligation of each party to the Merger Agreement to consummate the Merger is subject to the satisfaction or waiver (to the extent permitted by applicable law) of certain conditions, including:

 

   

the consummation of the Separation in accordance with, and subject to, the Contribution and Distribution Agreement;

 

   

our payment of the Special Dividend and, if applicable, the Additional Special Dividend, to Henry Schein, and the effectuation of the Certain Debt Repayment;

 

   

receipt of the Merger Sub Stockholder Approval, which has already been obtained;

 

   

approval of the Merger by the requisite consent of Vets First Choice’s stockholders;

 

   

the receipt by the Henry Schein Board of a solvency and surplus opinion of a nationally recognized investment banking or appraisal firm;

 

   

the expiration or termination of the applicable waiting period under the HSR Act, which has already occurred;

 

   

the effectiveness of the registration statement of which this prospectus forms a part and the approval of the listing on Nasdaq of our common stock to be issued in the Distribution and the Merger and such other shares to be reserved for issuance in connection with the Transactions, subject to official notice of issuance; and

 

   

the absence of any order issued by any governmental authority of competent jurisdiction or other legal impediment preventing or making illegal the consummation of the Transactions (other than the Share Sale).

 

  In addition, Henry Schein and our obligations to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following additional conditions, among others:

 

   

the accuracy of the representations and warranties of Vets First Choice, subject to certain qualifications;

 

   

the covenants and agreements of Vets First Choice being performed and complied with in all material respects at or prior to the Effective Time;



 

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no material adverse effect (as defined in the Merger Agreement) having occurred with respect to Vets First Choice since April 20, 2018; and

 

   

the receipt of the Spin-off Tax Opinion and Merger Tax Opinion by Henry Schein and Spinco from their counsel.

 

  Furthermore, Vets First Choice’s obligations to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following additional conditions, among others:

 

   

the accuracy of the representations and warranties of us and Henry Schein, subject to certain qualifications;

 

   

the covenants and agreements of us and Henry Schein being performed and complied with by us and Henry Schein and in all material respects at or prior to the Effective Time;

 

   

no material adverse effect (as defined in the Merger Agreement) having occurred with respect to the Henry Schein Animal Health Business, since April 20, 2018; and

 

   

the receipt of the Merger Tax Opinion by Vets First Choice from its counsel.

 

  See “The Merger Agreement—Conditions to Consummation of the Merger.”

 

  Furthermore, the effective date of the registration statement of which this prospectus forms a part will be no earlier than the date on which we would be reasonably able to meet our obligations and requirements as a public company with securities listed on Nasdaq and are otherwise reasonably prepared to operate as a stand alone entity taking into account all resources available to us under the Transaction Agreements and on commercially reasonable terms from third parties.

 

Termination of the Merger Agreement

The Merger Agreement may be terminated by:

 

   

the mutual written consent of Henry Schein and Vets First Choice;

 

   

either of Henry Schein or Vets First Choice if the Effective Time has not occurred on or before July 20, 2019, being the date that is 15 months after April 20, 2018, unless the failure to effect the Merger by that date is due to the failure of the party seeking to terminate the Merger Agreement to perform its obligations set forth in the Merger Agreement;

 

   

Vets First Choice, if there has been a breach by Henry Schein or us of any of our representations, warranties, covenants or agreements contained in the Merger Agreement such that the closing condition relating thereto would be incapable of being



 

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satisfied, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach (so long as Vets First Choice is not then in breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement, which breach would cause the closing conditions of Henry Schein or us not to be satisfied if the closing were to occur at the time of termination);

 

   

Henry Schein, if there has been a breach by Vets First Choice of any of its representations, warranties, covenants or agreements contained in the Merger Agreement such that the closing condition relating thereto would be incapable of being satisfied, and such breach or inaccuracy has not been cured within 30 business days following notice of such breach (so long as Henry Schein is not then in breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement, which breach would cause the closing conditions of Vets First Choice not to be satisfied if the closing were to occur at the time of termination); or

 

   

either of Henry Schein or Vets First Choice if any law or order of any governmental authority preventing or prohibiting the completion of the Transactions (other than the Share Sale) has become final and nonappealable.

 

  See “The Merger Agreement—Termination of the Merger.”

 

Post-Closing adjustment

Pursuant to the Merger Agreement, after the Merger, we and the Vets First Choice Stockholders’ Representative will determine the actual amount of Vets First Choice’s working capital, net indebtedness and transaction expenses as of the Closing Date and compare such amounts to certain corresponding target amounts. If such actual amounts exceed the corresponding target amounts, following the Closing, a corresponding cash payment may be made by us to the Vets First Choice stockholders in an amount equal to the lesser of (i) $100,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Vets First Choice pursuant to the Tax Matters Agreement) and (ii) the adjustment amount, as finally determined by us and the Vets First Choice Stockholders’ Representative. If such actual amounts are less than the corresponding target amounts, following the Closing, a number of shares of our common stock having a value (determined in accordance with the Escrow Agreement) equal to the adjustment amount, as finally determined by us and the Vets First Choice Stockholders’ Representative, may be transferred from the Escrow Account to us. Any shares of our common stock transferred to us pursuant to the immediately preceding sentence will thereafter be cancelled by us and will no longer be outstanding. See “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”


 

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Tax consequences of the Merger to Vets First Choice stockholders

A U.S. Holder of Vets First Choice common or preferred stock is generally expected to recognize gain (but not loss) for U.S. federal income tax purposes in an amount equal to the lesser of (i) the amount of gain realized by such U.S. Holder (i.e., the excess, if any, of the sum of the amount of cash and the fair market value, as of the Effective Time, of the Spinco common stock received in the Merger over the U.S. Holder’s adjusted tax basis in its Vets First Choice stock surrendered) and (ii) the amount of any cash received in the Merger.

 

  See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions.”

The Transactions

 

Primary purposes of the Transactions

Henry Schein determined that the Transactions would be in the best interests of Henry Schein and its stockholders because the Transactions would provide a number of key benefits, including primarily: (i) allowing greater strategic focus of resources and management’s efforts for each of Henry Schein and the Combined Company in their respective industries and affording each of Henry Schein’s and the Combined Company’s management teams an ability to more quickly respond to the opportunities and challenges of each industry; (ii) facilitating the Merger and the creation of the Combined Company as a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure dedicated to supporting the companion, equine and large animal veterinary markets; (iii) the complementary fit of the Henry Schein Animal Health Business and Vets First Choice, and the strategic benefits of their combination (including expected revenue growth and operational synergies for the Combined Company); (iv) the funds to be received by the Henry Schein Group in connection with the payment of the Special Dividend and the Additional Special Dividend, if applicable, and the effectuation of the Certain Debt Repayment; and (v) increased value to Henry Schein’s stockholders, in particular the Combined Company’s anticipated value on a stand alone basis.

 

  In assessing and approving the Transactions, Henry Schein considered the lack of alternative transactions that would produce similar or better results for Henry Schein and its stockholders. Henry Schein concluded that the Transactions were the only practical tax-free way to facilitate the strategic combination of the Henry Schein Animal Health Business and the business of Vets First Choice and to accomplish the desired business objectives. See “The Transactions—Henry Schein’s Reasons for the Transactions.”

 

 

Vets First Choice determined that the Transactions would be in the best interests of Vets First Choice and its stockholders because the



 

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Transactions would provide a number of key benefits, including primarily: (i) the complementary fit of Vets First Choice and the Henry Schein Animal Health Business, and the strategic benefits of a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure supporting the companion, equine and large animal veterinary markets; (ii) the ability to leverage the global scale and logistical infrastructure of the Henry Schein Animal Health Business to accelerate the adoption of the Vets First Choice platform and introduce new and enhanced services and technology to veterinary practices; (iii) the opportunity to drive additional practice insights to enhance medication and service compliance through the combination of the Henry Schein Animal Health Business’ leading practice management software portfolio with the Vets First Choice analytics and client engagement capabilities; and (iv) enhancing relationships with global manufacturers as the Combined Company leverages technology and insight to drive category growth.

 

  In assessing and approving the Transactions, Vets First Choice considered an initial public offering as an alternative transaction, but came to the conclusion that the Transactions would produce similar or better results for Vets First Choice and its stockholders. See “The Transactions—Vets First Choice’s Reasons for the Transactions.”

 

  See “The Transactions—Henry Schein’s Reasons for the Transactions” and “The Transactions—Vets First Choice’s Reasons for the Transactions.”

 

Accounting treatment of the Merger

We will be the accounting acquiror in the Merger. Accordingly, we will apply acquisition accounting to the assets acquired and liabilities assumed of Vets First Choice upon consummation of the Merger. See “The Transactions—Accounting Treatment and Considerations.”

 

Dissenting shares

Shares of Vets First Choice capital stock outstanding immediately prior to the Effective Time and held by a Vets First Choice stockholder who does not vote or execute a consent in favor of the Merger and is entitled to demand and has properly demanded appraisal for such shares in accordance with Section 262 will not be converted into the right to receive the Per Share Merger Consideration and will instead represent the right to receive payment of the fair value of such dissenting shares under the DGCL. A proxy or vote against the Merger or a failure to deliver a written consent will not in and of itself constitute such a demand. See “The Merger Agreement—Dissenting Shares.”

 

Share Sale

Following the Initial Spinco Debt Financing and prior to the Distribution, we will issue shares of our common stock representing in the aggregate up to 9.9% of the issued and outstanding shares, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in the Share Sale. The proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein.


 

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Rights of Stockholders

See “Comparison of the Rights of Stockholders before and after the Transactions” for information on how the Distribution and the Merger will impact the rights of the stockholders of Henry Schein, Vets First Choice and Covetrus.

Market and Industry Data

This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports by market research firms and our own estimates based on our management’s knowledge of and experience in the market sectors in which we compete.

Regulatory Approval

The parties to the Merger Agreement agreed to use reasonable best efforts to make the required filings pursuant to the HSR Act within 20 business days of the signing of the Merger Agreement. Such filings were made within such time frame and the applicable waiting period under the HSR Act was terminated. All material regulatory approvals expected by the parties to be required in connection with the consummation of the Transactions have been obtained.

Trademarks

We, Henry Schein and Vets First Choice own or have rights to various trademarks, service marks, logos and brand names that we each use in connection with the operation of our businesses. Solely for convenience, certain trademarks, service marks, logos and brand names referred to in this prospectus may be listed without the ™ and ® symbols, but such references to do not constitute a waiver of any rights that might be associated with the trademarks, service marks, logos and brand names included or referred to in this prospectus. This prospectus also refers to the trademarks, service marks, logos and brand names of other companies. All trademarks, service marks, logos and brand names cited in this prospectus are the property of their respective holders.

* * * * *

Spinco is a Delaware corporation. Prior to the Transactions, our principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone number at that address is (631) 843-5500. Vets First Choice is a Delaware corporation. Prior to the Transactions, the principal executive offices of Vets First Choice are located at 7 Custom House Street, Portland, Maine 04101, and its telephone number at that address is (888) 280-2221. Following the Transactions, we expect our principal executive offices will be located in Portland, Maine. Our website will be www.covetrus.com. Information on, and which can be accessed through, our website is not incorporated in, and does not form a part of, this prospectus.



 

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SUMMARY HISTORICAL FINANCIAL DATA OF THE HENRY SCHEIN ANIMAL HEALTH BUSINESS

The summary historical condensed combined statements of operations data of the Henry Schein Animal Health Business for the years ended December 30, 2017, December 31, 2016 and December 26, 2015 and the related summary historical condensed combined balance sheet data as of December 30, 2017 and December 31, 2016 have been derived from the audited combined financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus. The summary historical condensed combined balance sheet data of the Henry Schein Animal Health Business as of December 26, 2015 have been derived from the audited combined financial statements of the Henry Schein Animal Health Business not included in this prospectus. The summary historical condensed combined statements of operations data for the Henry Schein Animal Health Business for the nine months ended September 29, 2018 and September 30, 2017 and the related summary historical condensed combined balance sheet data as of September 29, 2018 have been derived from the unaudited condensed combined financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.

The summary historical financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 29, 2018 are not necessarily indicative of the results for the full fiscal year. Management of the Henry Schein Animal Health Business believes that the unaudited condensed combined financial statements reflect all normal and recurring adjustments necessary for a fair statement of the results as of and for the interim periods presented. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and the financial statements of the Henry Schein Animal Health Business and the notes thereto included elsewhere in this prospectus.

 

     Nine Months Ended      Years Ended  

Dollars in thousands

   September 29,
2018
    September 30,
2017
     December 30,
2017
    December 31,
2016
     December 26,
2015
 

Results of Operations Data:

            

Net sales

   $  2,883,123     $ 2,663,805      $ 3,579,795     $ 3,353,160      $ 2,978,328  

Gross profit

     525,232       482,439        652,025       619,913        530,018  

Restructuring costs

     7,788       —          —         7,269        8,344  

Operating income

     104,082       99,474        135,322       123,828        103,807  

Income taxes

     33,272 (2)       19,167        48,019 (1)        27,938        24,269  

Net income

     75,001       84,290        92,044       100,264        84,988  

Net income attributable to the Henry Schein Animal Health Business

     67,408       62,749        64,354       70,298        60,324  

 

     As of  

Dollars in thousands

   September 29,
2018
     December 30,
2017
     December 31,
2016
     December 26,
2015
 

Balance Sheet Data:

           

Cash and cash equivalents

   $ 21,804      $ 16,656      $ 19,714      $ 19,019  

Total assets

     2,154,516        2,167,970        1,944,987        1,809,702  

Total liabilities

     549,609        588,476        544,156        525,149  

Redeemable noncontrolling interests

     91,637        366,554        322,070        275,759  

Total equity

     1,513,270        1,212,940        1,078,761        1,008,794  

 

(1)

Includes a one-time tax expense of approximately $20.3 million relating to modifications in connection with the impact of the Tax Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and Notes 1 and 11 to the audited financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.



 

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(2)

Includes additional provisional expense of approximately $8.1 million relating to transition tax on deemed repatriation of foreign earnings and $2.4 million related to global intangible low-taxed income (“GILTI”) tax. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and Notes 1 and 11 to the audited financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.



 

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SUMMARY HISTORICAL FINANCIAL DATA OF VETS FIRST CHOICE

The summary historical condensed consolidated statements of operations data of Vets First Choice for the years ended December 31, 2017, December 31, 2016 and January 2, 2016 and the related summary historical condensed consolidated balance sheet data as of December 31, 2017 and December 31, 2016 have been derived from the audited consolidated financial statements of Vets First Choice included elsewhere in this prospectus. The summary historical condensed consolidated balance sheet data of Vets First Choice as of January 2, 2016 have been derived from the audited consolidated financial statements of Vets First Choice not included in this prospectus. The summary historical condensed consolidated statements of operations data for Vets First Choice for the nine months ended September 30, 2018 and September 30, 2017 and the related summary historical condensed consolidated balance sheet data as of September 30, 2018 have been derived from the unaudited condensed consolidated financial statements of Vets First Choice included elsewhere in this prospectus.

The summary historical financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 30, 2018 are not necessarily indicative of the results for the full fiscal year. Management of Vets First Choice believes that the unaudited condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the results as of and for the interim periods presented. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice” and the financial statements of Vets First Choice and the notes thereto included elsewhere in this prospectus.

 

     Nine Months Ended     Years Ended  

Dollars in thousands

   September 30,
2018
    September 30,
2017
    December 31,
2017
    December 31,
2016
    January 2,
2016
 

Results of Operations Data:

          

Revenues, net

   $ 149,273     $ 89,188     $ 129,595     $ 83,285     $ 49,799  

Gross profit

     65,778       36,360       55,548       32,705       18,755  

Transaction costs in connection with Merger

     6,736       —         —         —         —    

Loss from operations

     (26,552     (14,045     (20,397     (14,218     (8,334

Income tax (benefit) expense

     (3,657     (18,767     (22,445 )(1)      158       159  

Net income (loss)

     (27,219     3,637       807       (15,571     (10,797

 

     As of  

Dollars in thousands

   September 30,
2018
    December 31,
2017
    December 31,
2016
    January 2,
2016
 

Balance Sheet Data:

        

Cash and cash equivalents

   $ 16,891     $ 30,196     $ 12,307     $ 30,770  

Total assets

     204,363       214,248       50,573       61,417  

Long-term debt, net

     14,410       9,719       —         —    

Total liabilities

     52,362       38,676       16,636       12,311  

Total redeemable convertible preferred stock

     285,102       284,805       75,277       75,215  

Total stockholders’ deficit

     (133,101     (109,233     (41,340     (26,109

 

(1)

Includes a one-time tax benefit of approximately $1.8 million relating to modifications in connection with the impact of the Tax Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice” and Notes 2 and 10 to the audited financial statements of Vets First Choice included elsewhere in this prospectus.



 

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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMBINED COMPANY

The following sets forth summary unaudited pro forma financial data of the Combined Company, which combine historical combined financial information of the Henry Schein Animal Health Business and historical consolidated financial information of Vets First Choice as of and for the nine months ended September 29, 2018 and for the year ended December 30, 2017 after giving effect to the Transactions, assuming the Transactions occurred on January 1, 2017 for purposes of the unaudited condensed combined pro forma statement of operations and on September 29, 2018 for purposes of the unaudited condensed combined pro forma balance sheet data. The summary unaudited pro forma financial data are derived from the unaudited pro forma condensed combined financial statements of the Combined Company that are included elsewhere in this prospectus. The summary unaudited pro forma financial data are provided for illustrative purposes only and do not purport to represent what the actual results of operations or the financial position of the Combined Company would have been had the Transactions occurred on the dates assumed, nor are they indicative of future results of operations or financial position of the Combined Company.

This information is only a summary and should be read in conjunction with the “Unaudited Pro Forma Condensed Combined Financial Statements of the Combined Company and Related Notes,” “Selected Historical Financial Data of the Henry Schein Animal Health Business,” “Selected Historical Financial Data of Vets First Choice,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice,” and the historical financial statements of the Henry Schein Animal Health Business and Vets First Choice and the respective notes thereto included elsewhere in this prospectus.

 

Dollars in thousands, except per share amounts

   Nine Months Ended
September 29, 2018
    Year Ended
December 30, 2017
 

Pro Forma Condensed Combined Results of Operations Data:

    

Net sales

   $ 3,032,396     $ 3,709,390  

Gross profit

     587,635       703,073  

Restructuring costs

     7,788       —    

Operating income (loss)

     10,716       10,202  

Income tax (expense) benefit

     1,640       40,706  

Net income (loss)

     (35,725     (11,255

Net income (loss) attributable to the Combined Company

     (36,622     (18,316

Earnings per common share

    

Basic

     (0.33     (0.16

Diluted

     (0.33     (0.16

Weighted average common shares outstanding

    

Basic

     111,024,554       111,024,554  

Diluted

     111,024,554       111,024,554  

Dollars in thousands

         As of
September 29, 2018
 

Pro Forma Condensed Combined Balance Sheet Data:

    

Cash and cash equivalents

     $ 59,641  

Total assets

       3,778,771  

Long-term debt and capital leases

       1,175,432  

Total liabilities

       1,869,722  

Redeemable noncontrolling interests

       91,637  

Total equity

       1,817,412  


 

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PER SHARE DATA AND MARKET PRICE DATA

Comparative Historical and Pro Forma Per Share Data

The following tables set forth certain historical and pro forma per share data for the Henry Schein Animal Health Business and historical and equivalent pro forma per share data for Vets First Choice.

The historical per share data for the Henry Schein Animal Health Business have been derived from and should be read together with the historical financial statements and related notes of the Henry Schein Animal Health Business included elsewhere in this prospectus. The assumed basic common stock outstanding of the Henry Schein Animal Health Business is calculated based on the number of shares of Spinco common stock expected to be owned by Henry Schein immediately prior to the Distribution and the number of shares of Spinco common stock expected to be owned by the Share Sale Investors following the Share Sale. The assumed diluted common stock outstanding of the Henry Schein Animal Health Business is calculated from the assumed basic common stock outstanding and includes the potential issuance of common stock to Henry Schein Animal Health Business employees that participate in its equity plans.

The pro forma per share data for the Henry Schein Animal Health Business have been derived from the unaudited pro forma condensed combined financial statements of the Combined Company. See “Unaudited Pro Forma Condensed Combined Financial Statements of the Combined Company and Related Notes.”

The historical per share data for Vets First Choice have been derived from and should be read together with the historical financial statements and related notes of Vets First Choice included elsewhere in this prospectus. The equivalent pro forma basic per share data for Vets First Choice are based on the expected exchange ratio in the Merger. The equivalent pro forma diluted per share data include potential issuances of common stock to Vets First Choice employees that participate in its equity plans.



 

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This comparative historical and pro forma per share data are being provided for illustrative purposes only. The Henry Schein Animal Health Business and Vets First Choice may have performed differently had the Transactions occurred prior to the periods presented. You should not rely on the pro forma per share data presented as being indicative of the results that would have been achieved had the Henry Schein Animal Health Business and Vets First Choice been combined during the periods presented or of the future results or financial condition of the Henry Schein Animal Health Business or Vets First Choice to be achieved following the Transactions.

 

     As of and for the
Nine Months Ended
September 29, 2018
    As of and for the
Year Ended
December 30, 2017
 
     Historical      Pro
Forma
    Historical      Pro
Forma
 

The Henry Schein Animal Health Business

          

Basic earnings (loss) per share

   $ 0.95      $ (0.33   $ 0.91      $ (0.16

Diluted earnings (loss) per share

   $ 0.95      $ (0.33   $ 0.91      $ (0.16

Weighted average common shares outstanding—Basic

     70,670,454        111,024,554       70,670,454        111,024,554  

Weighted average common shares outstanding—Diluted

     71,192,580        111,024,554       70,997,404        111,024,554  

Book value per share

   $ 21.41      $ 16.37     $ N/A      $ N/A  

Cash dividends declared per share

   $ —        $ —       $ —        $ —    

 

     As of and for the
Nine Months Ended
September 30, 2018
     As of and for the
Year Ended
December 31, 2017
 
     Historical      Equivalent
Pro
Forma
     Historical      Equivalent
Pro
Forma
 

Vets First Choice

           

Basic earnings (loss) per share

   $ (3.36    $ (0.67    $ (7.70    $ 0.02  

Diluted earnings (loss) per share

   $ (3.36    $ (0.67    $ (7.70    $ 0.02  

Weighted average common shares outstanding—Basic

     8,191,477        40,354,100        7,086,382        40,354,100  

Weighted average common shares outstanding—Diluted

     83,707,349        40,354,100        83,029,205        42,279,023  

Book value per share

   $ (14.84    $ (3.30    $ (18.03    $ N/A  

Cash dividends declared per share

   $ —        $ —        $ —        $ —    

N/A—Not applicable

Historical Common Stock Market Price

Historical market price data for Spinco common stock has not been presented, as the Henry Schein Animal Health Business is currently operated by Henry Schein, and there is no established trading market in Spinco common stock. Shares of Spinco common stock do not trade separately from shares of Henry Schein common stock.

Historical market price data for Vets First Choice common stock has not been presented, as there is no established trading market in Vets First Choice common stock.



 

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RISK FACTORS

You should carefully consider the following risk factors, together with information contained in this prospectus, in evaluating the Combined Company and our common stock. The risks described below are material risks, although not the only risks, relating to the Transactions, our business and our common stock. If any of the following risks and uncertainties develop into actual events, these events could have a material adverse effect on our business, financial condition, results of operations and cash flows after the completion of the Transactions.

Risks Relating to the Transactions

We may not realize the anticipated revenue growth opportunities and operational synergies from the Transactions.

The benefits that we expect to achieve as a result of the Transactions will depend, in part, on our ability to realize anticipated revenue growth opportunities and operational synergies. Our success in realizing these revenue growth opportunities and operational synergies, and the timing of their realization, depends on the successful integration of the Henry Schein Animal Health Business and the business of Vets First Choice. Even if we are able to integrate the businesses successfully, this integration may not result in the realization of the revenue growth and operational synergies that we currently expect within the anticipated time frame or at all. For example, we may not be able to accelerate the adoption of the Vets First Choice platform by the Henry Schein Animal Health Business’ customers. Moreover, we may incur substantial expenses in connection with the integration of the two businesses. Such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the Transactions may be offset by costs or delays incurred in integrating the businesses.

The integration of the Henry Schein Animal Health Business and Vets First Choice following the Transactions will present significant challenges.

There is a significant degree of difficulty and management distraction inherent in the process of integrating the Henry Schein Animal Health Business and the Vets First Choice business. These difficulties include, among others:

 

   

the challenge of integrating the businesses while carrying on the ongoing operations of each business;

 

   

the challenge of integrating the cultures of each business;

 

   

the challenge of integrating the information technology systems of each business; and

 

   

the potential difficulty in retaining key employees and sales personnel of each business.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of the businesses and may require us to incur substantial costs. Members of our senior management may be required to devote considerable time and attention to this integration process, which will decrease the time and attention they will have to manage our operations, service existing Customers, attract new customers and develop new products, services or strategies. If senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer. We cannot assure you that we will successfully or cost-effectively integrate the Henry Schein Animal Health Business and Vets First Choice business. The failure to do so could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We expect that we will incur significant one-time costs associated with the Transactions that could affect our period-to-period operating results following the completion of the Transactions.

We anticipate that we will incur significant one-time costs over the next several years as a result of the Transactions. We may not be able to quantify the exact amount of these costs or the period in which they will be

 

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incurred. Some of the factors affecting the costs associated with the Transactions include the timing of the completion of the Transactions, the resources required in integrating the Henry Schein Animal Health Business and the Vets First Choice business and the length of time during which transition services are provided to us by Henry Schein. The amount and timing of these charges, including those related to information technology infrastructure and systems integration and planning, could adversely affect our period-to-period operating results, which could result in a reduction in the market price of shares of our common stock. Moreover, delays in completing the integration may reduce the growth opportunities and operational synergies and other benefits expected from the Transactions and such reduction may be material.

We may be unable to access equivalent financial resources that historically have been provided by Henry Schein to the Henry Schein Animal Health Business.

The Henry Schein Animal Health Business has been able to receive benefits and services from Henry Schein and has been able to benefit from Henry Schein’s financial strength and extensive business relationships. After the consummation of the Transactions, we will no longer benefit from Henry Schein’s resources, other than pursuant to the Transition Services Agreement while that agreement is in effect. While Henry Schein will provide certain services to us for a specified period of time following the consummation of the Transactions under the Transition Services Agreement, those services will be transitional in nature and it cannot be assured that we will be able to adequately replace all of the resources currently provided by Henry Schein or replace them at the same cost. If we are not able to replace the resources provided by Henry Schein, are unable to replace them at the same cost or are delayed in replacing the resources provided by Henry Schein, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

The Henry Schein Animal Health Business’ and Vets First Choice’s historical and pro forma combined financial data are not necessarily representative of the results we would have achieved and may not be a reliable indicator of our future results.

The Henry Schein Animal Health Business’ and Vets First Choice’s historical and pro forma financial data included in this prospectus may not reflect the results of operations and financial condition that would have been achieved had we been a combined company during the periods presented, or what our results of operations and financial condition will be in the future. Among other factors, this is because:

 

   

Prior to the Transactions, Henry Schein operated the Henry Schein Animal Health Business as part of its broader corporate organization and Henry Schein, or one of its affiliates, performed certain corporate functions for the Henry Schein Animal Health Business, including tax and treasury administration and certain governance functions, including internal audit and external reporting. Historical and pro forma financial statements for the Henry Schein Animal Health Business reflect allocations of corporate expenses from Henry Schein for these and similar functions and may not reflect the costs that we will incur for similar services in the future.

 

   

The working capital and other capital required for the general corporate purposes of the Henry Schein Animal Health Business, including acquisitions and capital expenditures, historically have been satisfied as part of the company-wide cash management practices of Henry Schein. Following the completion of the Transactions, we will need to generate our own funds to finance working capital or other cash requirements and may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities or other arrangements.

 

   

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a combined company.

The pro forma financial data we have included in this prospectus are for illustrative purposes only and are based in part upon a number of estimates and assumptions. These estimates and assumptions may prove to be inaccurate, and accordingly, our pro forma financial data should not be assumed to be indicative of what our financial condition or results of operations actually would have been as a combined company and may not be a reliable indicator of what our financial condition or results of operations actually may be in the future.

 

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The pendency of the Transactions could have a material adverse effect on the business, financial condition, results of operations and cash flows of the Henry Schein Animal Health Business and Vets First Choice.

In connection with the pending Transactions, some Customers and/or suppliers of each of the Henry Schein Animal Health Business and Vets First Choice may delay or defer decisions or may end or scale back their relationships with the relevant company, which could negatively affect the revenues and cash flows of the Henry Schein Animal Health Business and the business of Vets First Choice, regardless of whether the Transactions are completed. Similarly, it is possible that the Henry Schein Animal Health Business’ and Vets First Choice’s current and prospective employees could experience uncertainty about their future roles with us, which could materially adversely affect our ability to attract and retain key personnel during the pendency and upon consummation of the Transactions.

The performance of the Henry Schein Animal Health Business or the performance of the business of Vets First Choice may fluctuate and the market value of our common stock that Henry Schein stockholders receive in the Distribution and Vets First Choice stockholders receive in the Merger may not fully reflect the performance of the individual companies at the time of the Distribution or the Merger.

The number of shares of our common stock that Henry Schein stockholders will receive in the Distribution and Vets First Choice stockholders will receive in the Merger is not subject to adjustment based on the performance of the Henry Schein Animal Health Business or the performance of the business of Vets First Choice. Accordingly, because this performance may fluctuate, the market value of our common stock that Henry Schein stockholders receive in the Distribution and Vets First Choice stockholders receive in the Merger may not fully reflect the performance of the individual companies at the time of the Distribution or the Merger.

Henry Schein and Vets First Choice’s failure to obtain required third-party consents for certain contracts could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Certain contracts that are required by the Contribution and Distribution Agreement to be transferred or assigned to us by Henry Schein may contain provisions that require the consent of a third party to effect such transfer or assignment. Similarly, certain of Vets First Choice’s existing contracts contain provisions that require the consent of a third party to the transfer or assignment as a result of the Merger. If we, Henry Schein and Vets First Choice are unable to obtain these consents on commercially reasonable and satisfactory terms or at all, our ability to obtain the benefit of such contracts in the future may be impaired.

We may be affected by significant restrictions following the Transactions in order to avoid significant tax-related liabilities.

The Tax Matters Agreement generally will prohibit us from taking certain actions that could cause the Distribution and the Merger to fail to qualify as tax-free transactions. In particular, for a two-year period following the date of the Distribution, we may not (among other limitations):

 

   

cease, or permit certain of our wholly owned subsidiaries to cease, the active conduct of a business that was conducted immediately prior to the Distribution or from holding certain assets held at the time of the Distribution;

 

   

dissolve, liquidate, take any action that is a liquidation for federal income tax purposes, merge or consolidate with any other person (other than pursuant to the Merger), or permit certain of our wholly owned subsidiaries to do any of the foregoing;

 

   

approve or allow an extraordinary contribution to us by our stockholders in exchange for stock, redeem or otherwise repurchase (directly or indirectly) any of our stock, or amend our certificate of incorporation or other organizational documents, or take any other action, if such amendment or other action would affect the relative voting rights of our capital stock or would be inconsistent with the representations and statements made by us in connection with the Spin-off Tax Opinion;

 

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redeem or repurchase any of its stock; or

 

   

enter into any transaction or series of transactions as a result of which one or more persons would acquire (directly or indirectly) an amount of stock of Spinco (taking into account the stock of Spinco acquired pursuant to the Merger and Share Sale) that would reasonably be expected to cause the failure of the tax-free status of the Distribution, the Merger and certain related transactions.

In addition, we may not amend our certificate of incorporation or take any other action that would render ineffective the application of the Ownership Limitation, and in certain circumstances this restriction may prevent us from taking certain actions even following the second anniversary of the Distribution. The Tax Matters Agreement also imposes additional obligations and restrictions on us related to the Ownership Limitation, including a requirement that we diligently enforce the provisions of the Ownership Limitation against any purported transfers in violation of its terms, and we may have an obligation to indemnify Henry Schein if we breach or otherwise fail to comply with these restrictions.

Due to these and other restrictions and indemnification obligations under the Tax Matters Agreement, we may be limited in our ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in our best interests. Also, our potential indemnity obligations to Henry Schein might discourage, delay or prevent a change of control during this two-year period that our stockholders may consider favorable.

If the Distribution does not qualify as a tax-free spin-off under Section 355 of the Code, including as a result of subsequent acquisitions of stock of Henry Schein or us, then Henry Schein and/or the Henry Schein stockholders may be required to pay substantial U.S. federal income taxes, for which we have certain indemnification obligations.

The Transactions are conditioned upon Henry Schein’s and our receipt of the Spin-off Tax Opinion. The parties do not currently anticipate obtaining a private letter ruling from the IRS with respect to the Transactions, and instead intend to rely solely on the Spin-off Tax Opinion for comfort that the Spin-off and certain related transactions qualify for tax-free treatment for U.S. federal income tax purposes under the Code.

The Spin-off Tax Opinion will be based on, among other things, certain representations and assumptions as to factual matters, as well as certain undertakings, made by us, Henry Schein and Vets First Choice and the Share Sale Investors, including an assumption regarding the completion of the Distribution, Merger and certain related transactions. The failure of any factual representation or assumption to be true, correct and complete in all material respects, or any undertaking to be fully complied with, could affect the validity of the Spin-off Tax Opinion. An opinion of counsel represents counsel’s best legal judgment, is not binding on the IRS or the courts, and the IRS or the courts may not agree with the conclusions set forth in the Spin-off Tax Opinion. In addition, the Spin-off Tax Opinion will be based on current law, and cannot be relied upon if current law changes with retroactive effect.

If the Distribution does not qualify as a tax-free spin-off under Section 355 of the Code, then the Distribution would be taxable to the Henry Schein stockholders, Henry Schein would recognize a substantial gain on the Distribution, and we may be required to indemnify Henry Schein for the tax on such gain pursuant to the Tax Matters Agreement.

Even if the Distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, the Distribution would be taxable to Henry Schein (but not to Henry Schein stockholders) pursuant to Section 355(e) of the Code if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of us or Henry Schein, directly or indirectly (including through acquisitions of our stock after the completion of the Transactions), as part of a plan or series of related transactions that includes the Distribution. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature and subject to a comprehensive analysis of the facts and circumstances of the particular case. For purposes of this

 

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test, the Merger will be treated as part of a plan (and the Share Sale may be treated as part of the same plan), but because the Henry Schein stockholders will collectively own more than 50% of our common stock following the Transactions, the Merger and the Share Sale alone will not cause the Distribution to be taxable to Henry Schein under Section 355(e) of the Code. However, Section 355(e) of the Code might apply if other acquisitions of stock of Henry Schein before or after the Merger or of our stock after the Merger, are considered to be part of a plan or series of related transactions that include the Spin-off. In addition, for purposes of this test, while acquisitions of publicly traded stock effected on an exchange are generally not considered to be part of a plan or a series of related transactions, acquisitions by ten-percent stockholders (or a coordinating group of persons treated as ten-percent stockholders under Section 355 of the Code), even if done on an exchange, could be so treated. If Section 355(e) of the Code applied, then Henry Schein might recognize a substantial amount of taxable gain, and we may be required to indemnify Henry Schein for the tax on such gain pursuant to the Tax Matters Agreement.

In the event we are required to indemnify Henry Schein for taxes incurred in connection with the Transactions, the indemnification obligation could have a material adverse effect on our business, financial condition, results of operations and cash flows. For a detailed description of the Tax Matters Agreement, see “Ancillary Agreements—Tax Matters Agreement.”

Our amended and restated certificate of incorporation will include a share ownership limitation that, for a two-year period following the Distribution, may prevent certain transfers of our shares.

In order to minimize the likelihood that an acquisition of our capital stock by one or more persons (or coordinating groups of persons) after the Distribution could be part of a plan or series of related transactions that includes the Distribution, our amended and restated certificate of incorporation will generally prohibit, for the two-year period following the Distribution, direct or indirect beneficial ownership (taking into account applicable ownership provisions of the Code) – and any agreement, understanding, or substantial negotiations to acquire beneficial ownership – by any person or persons of more than 9.8% of our outstanding common stock (or any other class or series of outstanding stock) or, in the case of certain grandfathered holders (including the Share Sale Investors) of more than the requisite percentage of such stock held by such investor (collectively, the “Ownership Limitation”). Any attempted transfer of our stock which, if effective, would result in a violation of the relevant Ownership Limitation will be null and void ab initio, and will cause the shares in excess of such Ownership Limitation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee would not acquire any rights in the shares. A transfer for this purpose will include not only direct transfers, but also other direct and indirect changes in beneficial ownership. The trustee of the trust will receive all distributions on, and will exercise all voting rights in respect of, the shares-in-trust for the exclusive benefit of the charitable beneficiary. In addition, the trustee would be empowered to sell the shares in trust to a qualified person selected by the trustee, under procedures set out in our amended and restated certificate of incorporation, with all of the net profit being received by the trustee for the exclusive benefit of the charitable beneficiary. In the event that the shares in trust shall have been sold by the purported transferee in an open market transaction, such sale would be deemed to have been made on behalf of the trustee and all of the net profit, if any, from such sale shall be paid by the purported transferee to the trustee for the exclusive benefit of the charitable beneficiary. The purported transferee of the shares in trust would have no right to share in any profit that may be realized in respect of such shares.

Our Board will have the power to waive the relevant Ownership Limitation for specific transfers after following procedures set out in our amended and restated certificate of incorporation. However, other than in respect of certain transfers that meet certain requirements described in our amended and restated certificate of incorporation, our Board will not be obligated to grant a waiver. In addition, our ability to modify the relevant restrictions set forth in our amended and restated certificate of incorporation is limited by the Tax Matters Agreement.

The Ownership Limitation is intended to help preserve the tax-free treatment of the Distribution under Section 355 of the Code, but it is possible the restriction could depress the price of shares of our common stock,

 

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and, in certain circumstances while the Ownership Limitation is in effect, could inhibit proxy contests to change our Board or delay, defer or prevent a transaction or a change in control of us that might involve a premium price for holders of our common stock or that might otherwise be in the best interest of our stockholders. See “Description of Capital Stock—Anti-Takeover Effects of our Certificate of Incorporation and By-laws—Ownership Limitation.”

If the Merger does not qualify as a tax-free reorganization under Section 368(a) of the Code, then the stockholders of Vets First Choice may be required to pay substantial U.S. federal income taxes.

Our and Henry Schein’s obligations to complete the Merger are conditioned upon the receipt of customary tax opinions from each of Vets First Choice’s and Henry Schein’s counsel, respectively, to the effect that the Merger will qualify as a tax-free reorganization under Section 368(a)(2)(E) of the Code (the “Merger Tax Opinions”).

The Merger Tax Opinions will be based on, among other things, certain representations and assumptions as to factual matters, as well as certain undertakings, made by us, Henry Schein and Vets First Choice. The failure of any factual representation or assumption to be true, correct and complete in all material respects, or any undertaking to be fully complied with, could affect the validity of the Merger Tax Opinions. An opinion of counsel represents counsel’s best legal judgment, is not binding on the IRS or the courts, and the IRS or the courts may not agree with the conclusions set forth in the Merger Tax Opinions. In addition, the Merger Tax Opinions will be based on current law, and cannot be relied upon if current law changes with retroactive effect.

If the Merger does not qualify as a reorganization under Section 368(a) of the Code, then the Merger would be taxable to the Vets First Choice stockholders (but not to Spinco or Vets First Choice), and Vets First Choice stockholders would be treated as selling their Vets First Choice shares in a taxable transaction in exchange for Spinco common stock and cash (if any) received in the Merger, and could as a result recognize substantial taxable income in the Merger. See “The Transactions—Material U.S. Federal Income Tax Consequences of the Transactions—Treatment of the Merger.”

Due to the Merger, our ability to use net operating losses to offset future taxable income may be restricted and these net operating losses could expire or otherwise be unavailable.

Due to the Merger, our ability to use net operating losses to offset future taxable income will be further restricted and these net operating losses (“NOLs”) could expire or otherwise be unavailable. As of December 31, 2017, Vets First Choice had U.S. federal and state NOLs of $50.1 million and $29.2 million, respectively, which begin to expire in 2030 and 2020, respectively. In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Prior to the Merger, some of Vets First Choice’s existing NOLs were subject to limitations. Following the Merger, Vets First Choice’s existing NOLs may be subject to further limitations and we may not be able to fully use these NOLs to offset future taxable income. In addition, if we undergo any subsequent ownership change, our ability to utilize NOLs could be further limited. There is also a risk that, due to regulatory changes or for other unforeseen reasons, existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.

Additionally, the Tax Act resulted in a reduction in the economic benefit of the NOLs and other deferred tax assets available to us. Under the Tax Act, U.S. federal NOLs generated after December 31, 2017 will not be subject to expiration.

 

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Risks Relating to Our Business

We may not successfully implement our business strategies.

We are pursuing, and will continue to pursue, strategic initiatives that management considers critical to our long-term success, including: leveraging the scale, reach and infrastructure of the Henry Schein Animal Health Business network to accelerate the adoption of the Vets First Choice platform; increasing sales to our Customers; driving category growth; developing advanced insight and analytics and software; and enhancing Customer and Client relationships. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control. Accordingly, we cannot predict whether we will succeed in implementing these strategic initiatives. It could take several years to realize the anticipated benefits from these initiatives, if any benefits are achieved at all. Additionally, our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

Since Customers may be hesitant to migrate or integrate their critical business systems and procedures to those provided by us, the market and the sales cycle for our technology and services may develop more slowly than we expect.

Our success depends, in part, on the willingness of Customers to adopt new technology and services. Many veterinary practices have invested substantial effort and financial resources into the information systems and procedures that support their businesses and may be reluctant or unwilling to migrate or integrate these systems with online or cloud-based, on-demand services. Other factors that may affect market acceptance of our services include:

 

   

the security capabilities, reliability and availability of on-demand services;

 

   

concerns with entrusting a third party to maintain and manage data, especially confidential or sensitive data;

 

   

our ability to minimize the time and resources required to implement our services;

 

   

our ability to maintain high levels of Customer satisfaction;

 

   

our ability to implement upgrades and other changes to our software without disrupting services we provide;

 

   

the level of customization or configuration we offer;

 

   

the ability to provide rapid response time during periods of intense activity on Customer websites; and

 

   

the price, performance and availability of competing products and services.

The market for these services may develop more slowly than we expect, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

The animal health market is highly competitive and if we do not compete effectively, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The animal health market is highly competitive and rapidly changing, and we expect competition to intensify in the future. Our competitors include the animal health businesses of large pharmaceutical companies, specialty animal health businesses, animal health divisions of large distribution companies, animal health focused businesses and practice management service providers and may, in the future, include new market entrants. These competitors may have access to greater financial, marketing, technical and other resources. As a result, they may be able to devote more resources to developing, marketing and selling their products and services, initiating or withstanding substantial price competition or more readily taking advantage of acquisitions or other opportunities.

 

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To the extent that any of our competitors are more successful with respect to any key competitive factor or we are forced to reduce, or are unable to raise, the price of any of our products or services in order to remain competitive, there could be a material adverse effect on our business, financial condition, results of operations and cash flows. Competitive pressure could arise from, among other things, limited demand growth or a significant number of additional competitive products or services being introduced into a particular market, price reductions by competitors, the ability of competitors to capitalize on their economies of scale, the ability of competitors to produce or otherwise procure animal health products at lower costs than us and the ability of competitors to access more or newer technology than us.

Changes in manufacturer sales channels for companion animal products could negatively impact our market share, margins and distribution of our products.

In most markets, companion animal owners typically purchase their animal health products directly from veterinarians. Companion animal owners increasingly have the option to purchase animal health products from sources other than veterinarians, such as online retailers, “big-box” retail stores or other over-the-counter distribution channels. This trend has been demonstrated by the significant shift away from the veterinarian distribution channel in the sale of flea and tick products in recent years. Companion animal owners also could decrease their reliance on, and visits to, veterinarians as they rely more on online animal health information. Because we market our companion animal prescription products through the veterinarian channel, both in-office and through our online platform, any decrease in reliance on and visits to veterinarians by companion animal owners could reduce our market share for such products and have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, companion animal owners may substitute human health products for animal health products if human health products are deemed to be lower-cost alternatives.

Because substantially all of the products that we distribute and sell are not manufactured by us, we are dependent upon third parties for the manufacture and supply of substantially all of our products.

We obtain substantially all of our products from third parties. Generally, we do not have long-term contracts with our suppliers committing them to supply products to us. Therefore, suppliers may not provide the products we need in the quantities we request or at all. Additionally, certain key suppliers, in the aggregate, supply a significant portion of the products we sell. In addition, we currently purchase many products and materials from single sources. Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily or easily replaced by alternative sources. These products include branded and patented products from major pharmaceutical manufacturers, including Bayer AG, Boehringer Ingelheim International GmbH (Boehringer Ingelheim), Elanco Animal Health Incorporated, Merck & Co., Inc. and Zoetis, Inc., among others. If we are unable to obtain adequate quantities of products in the future from single-source suppliers, we may be unable to supply the market, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Additionally, because we generally do not control the actual production of the products we sell, we may be subject to delays caused by interruption in production based on conditions outside of our control, including the manufacturers’ failure to comply with applicable government requirements. The failure of manufacturers of products regulated by the FDA, the DEA or other governmental agencies to meet these requirements could result in product recall, cessation of sales or other market disruptions. In the event that any of our third-party suppliers were to become unable or unwilling to continue to provide the products in our required volumes, we would need to identify and obtain acceptable replacement sources on a timely basis. There is no guarantee that we would be able to obtain such alternative sources of supply on a timely basis, if at all. An extended interruption in the supply of our products, especially any high sales volume product, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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Our substantial indebtedness, which would have been approximately $1.175 billion on a pro forma basis as of September 30, 2018 after giving effect to the Initial Spinco Debt Financing and the Additional Spinco Financing, could adversely affect our financial condition and impair our ability to operate our business. We may incur substantial additional indebtedness, including in connection with the Transactions, which could further exacerbate the risks to our financial condition.

Based on outstanding indebtedness of Vets First Choice and the Henry Schein Animal Health Business as of September 30, 2018, and after giving effect to the Initial Spinco Debt Financing and the Additional Spinco Financing, we expect that we will have approximately $1.175 billion in total indebtedness outstanding upon consummation of the Transactions, net of debt issuance costs of $25 million. See “Capitalization” and “Description of Material Indebtedness.”

We may incur significant additional indebtedness in the future, including secured indebtedness. Although the agreements governing the Initial Spinco Debt Financing and the Additional Spinco Financing are expected to contain restrictions on the incurrence of additional indebtedness, these restrictions are expected to be subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial.

Our current level of pro forma indebtedness, and any additional indebtedness, could have a material adverse effect on our business, financial condition, results of operations and cash flows, including the following:

 

   

limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

 

   

requiring that a substantial portion of our cash flows from operations be dedicated to payments on our indebtedness instead of other purposes, including working capital, capital expenditures and future business opportunities;

 

   

making it more difficult for us to make payments on our indebtedness or satisfy other obligations;

 

   

limiting our ability to make the expenditures necessary to complete the integration of the Henry Schein Animal Health Business and Vets First Choice;

 

   

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors that have less debt; and

 

   

increasing our vulnerability to a downturn in general economic conditions or in our business, and making us unable to carry out capital spending that is important to our growth.

The agreements governing our indebtedness are expected to contain restrictive covenants, which will restrict our operational flexibility.

The agreements governing the Initial Spinco Debt Financing, the Additional Financing and any additional indebtedness are expected to contain restrictions and limitations on our ability to engage in activities that may be in our long-term best interests, including financial and other restrictive covenants that will limit our ability to:

 

   

incur additional indebtedness or guarantees, or issue certain preferred shares;

 

   

pay dividends, redeem stock or make other distributions;

 

   

repurchase, prepay or redeem subordinated indebtedness;

 

   

make investments or acquisitions;

 

   

create liens;

 

   

make negative pledges;

 

   

consolidate or merge with another company;

 

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sell or otherwise dispose of all or substantially all of our assets;

 

   

enter into certain transactions with affiliates; and

 

   

change the nature of our business.

The agreements governing the Initial Spinco Debt Financing and the Additional Financing are expected to also contain other restrictions customary for facilities of this nature.

Our ability to borrow additional amounts under the agreements governing the Initial Spinco Debt Financing and the Additional Financing will depend upon satisfaction of these covenants. Events beyond our control could affect our ability to meet these covenants. Our failure to comply with obligations under the agreements governing the Initial Spinco Debt Financing, the Additional Financing and any additional indebtedness, may result in an event of default under those agreements. A default, if not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. This could have a material adverse effect on our business, financial condition, results of operations and cash flows and could cause us to become bankrupt or insolvent.

Many of our Customers and their Clients are price sensitive, and if the prices for our products and services are unacceptable to them, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Many of our Customers and their Clients are price sensitive. As the market for our services matures, or as new competitors introduce new products or services that compete with us, we may be unable to retain our existing Customers or attract new customers on the basis of the same price pricing model as previously used. As a result, it is possible that competitive dynamics in our market may require us to change our pricing model or reduce our prices, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may lose Customers and have difficulty attracting new customers if we have defects or disruptions in our service or if we provide poor service.

Because we deliver online and cloud-based applications as a service, errors or defects in the software applications underlying the service, or a failure of our hosting infrastructure, may render the service unavailable to Customers. Since our Customers will use our platform to manage critical aspects of their businesses, any errors, defects, disruptions in service or other performance problems with the platform, whether in connection with the day-to-day operation of the platform, upgrades or otherwise, could damage the Customers’ businesses. If we experience any errors, defects, disruptions in service or other performance problems with our online and cloud-based services, Customers could delay or withhold payment or stop doing business with us, and our business, results of operations and reputation could be harmed.

If our information systems (or third-party systems we rely on) are interrupted, damaged by unforeseen events, are subject to cyberattacks or fail for any extended period of time or unauthorized access is obtained to a Customer’s or their Client’s data, we may incur significant liabilities, our service may be perceived as not being secure, Customers may curtail or stop using our products or services and our results of operations could be materially adversely affected.

The services we offer involve the maintenance of our Customers’ and their Client’s sensitive information. In addition, we rely on information systems (“IS”) in our business to obtain, rapidly process, analyze, manage and store data to, among other things:

 

   

maintain and manage systems to facilitate the purchase and distribution of thousands of inventory items from numerous distribution centers;

 

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receive, process and ship orders on a timely basis;

 

   

manage the accurate billing and collections for thousands of Customers; and

 

   

process payments to suppliers.

Information security risks have generally increased in recent years, and a third-party action, employee error, malfeasance or other event that bypasses our IS security systems causing an IS security breach may lead to a material disruption of our IS business systems and/or the loss of business, customer or client information resulting in a material adverse effect on our business. Because techniques used to obtain unauthorized access to, or to sabotage, IS security systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures.

In addition, we develop products and provide services to our Customers that are technology-based, and a cyberattack that bypasses the IS security systems of our products or services causing a security breach and/or perceived security vulnerabilities in our products or services could also cause significant reputational harm, and actual or perceived vulnerabilities may lead to claims against us by our Customers, their clients and/or governmental agencies. Perceived or actual security vulnerabilities in our products or services, or the perceived or actual failure by us or our Customers who use our products to comply with applicable legal requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our Customers, their clients and/or governmental agencies and involve fines and penalties, costs for remediation, and substantial defense and settlement expenses.

Additionally, legislative or regulatory action related to cybersecurity may increase our costs to develop or implement new technology-based products and services.

Risks associated with these and other actual or perceived IS security breaches may include, among other things:

 

   

the theft, destruction, loss, misappropriation or release of confidential data or intellectual property;

 

   

operational or business delays resulting from the disruption of information systems and subsequent clean-up and mitigation activities;

 

   

the need to continually evolve procedures and safeguards to meet new IS challenges, and enhancing protections, and conducting investigations and remediation, may impose additional costs on us;

 

   

claims, fines and penalties, and costs for remediation, or substantial defense and settlement expenses; and

 

   

negative publicity resulting in reputation or brand damage with our Customers or their Clients, suppliers or industry peers or the loss of sales or Customers.

We store, process and use information collected from or about our Customers and their Clients that subjects us to legislative and regulatory burdens and may expose us to liability and/or potential objections from such Customers and Clients, and our actual or perceived failure to adequately protect or appropriately use data could harm our brand, our reputation in the marketplace and our business.

Because we collect, store, process and use data, some of which contain personal information, we are subject to complex and evolving laws and regulations relating to privacy, data protection and other matters related to personal information. Failure to abide by these laws, regulations and standards could expose us to breach of contract claims, investigations, substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our reputation. Our Customers and their Clients may also object to or opt out of the collection and use of their data, which may harm our business.

Certain states in which we operate, including California, and countries outside of the United States have adopted or may in the future adopt new regulations governing handling, storage, use and protection of personal

 

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information. Both in the United States and abroad, these laws and regulations continue to evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. If we fail to comply with such laws and regulations, we could be required to make significant changes to our products or services, or incur substantial fines, penalties or other liabilities. For example, if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our products and services or privacy practices, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. The costs of compliance with, and the other burdens imposed by, new or existing laws or regulatory actions may prevent us from selling our products or services, or increase the costs of doing so, and may affect our ability to invest in or develop products or services. In addition, a determination by a court or government agency that any of our practices do not meet these standards could result in liability or negative publicity, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, the European Parliament and the Council of the European Union have adopted the EU General Data Protection Regulation (the “GDPR”), effective from May 25, 2018, which increases privacy rights for individuals in Europe, extends the scope or responsibilities for data controllers and data processors and imposes increased requirements and potential penalties on companies offering goods or services to individuals who are located in Europe (“Data Subjects”) or monitoring the behavior of such individuals (including by companies based outside of Europe). Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of total company revenues. Individual member states may impose additional requirements and penalties as they relate to certain things such as employee personal data. Among other things, the GDPR requires, with respect to personal data concerning Data Subjects, company accountability, consents from Data Subjects or other acceptable legal basis needed to process the personal data, prompt breach notifications within 72 hours, fairness and transparency in how the personal data is stored, used or otherwise processed, and data integrity and security, and provides rights to Data Subjects relating to modification, erasure and transporting of the personal data. Our efforts to implement programs and controls that comply with the GDPR are likely to impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in our products or services in response to new requirements or interpretations of the requirements, will be accepted as compliant by applicable regulatory authorities.

Successful claims for misappropriation or release of confidential or personal data brought against us or fines or other penalties assessed or any claim that results in significant adverse publicity against us could have a material adverse effect on our business and reputation.

We may launch branding or rebranding initiatives that may involve substantial costs and may not be favorably received by Customers.

We will operate under the name “Covetrus, Inc.” Following this name change, we may incur substantial costs in rebranding our products and services, and we may not be able to achieve or maintain brand name recognition or status under the new brand that is comparable to the recognition and status previously enjoyed by the Henry Schein Animal Health Business and Vets First Choice separately. The failure of any such rebranding initiative could adversely affect our ability to attract and retain customers, which could cause us not to realize some or all of the benefits contemplated by us to result from the Merger.

Many of our Customers are small and medium-sized businesses, which can be challenging to cost-effectively reach, acquire and retain.

We market and sell many of our services to veterinary practices and clinics, which are typically small or medium-sized business (“SMBs”). To grow our business, we must develop new customers, sell additional

 

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services to existing Customers and encourage existing Customers to remain on our platform. However, selling to and retaining SMBs can be more difficult than selling to and retaining large enterprises because SMB customers:

 

   

are more price sensitive;

 

   

are more difficult to reach with broad marketing campaigns; and

 

   

often require higher sales, marketing and support expenditures by vendors that sell to them per revenue dollar generated for those vendors.

If we are unable to cost-effectively market and sell our services to our target customers, our ability to grow our business will be harmed.

Our business is subject to risk based on global economic conditions.

Macroeconomic, business and financial disruptions could have a material adverse effect on our business, financial condition, results of operations and cash flows. Certain of our Customers, their Clients and our suppliers could be affected directly by an economic downturn and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies and other financial hardships that could decrease the demand for our products or hinder our ability to collect amounts due from Customers. If one or more of our large Customers discontinue their relationship with us as a result of economic conditions or otherwise, our operating results and financial condition may be materially adversely affected. Furthermore, our exposure to credit and collectability risk is higher in certain international markets and our ability to mitigate such risks may be limited. While we have procedures to monitor and limit exposure to credit and collectability risk, there can be no assurances such procedures will effectively limit such risk and avoid losses. In addition, economic concerns may cause some Pet Owners to forgo or defer visits to veterinary practices or could reduce their willingness to treat pet health conditions or even to continue to own a pet.

A significant portion of our operations is conducted in foreign jurisdictions and is subject to the economic, political, legal and business environments of the countries in which we do business. Risks associated with such international operations could negatively affect our business, financial condition, results of operations and cash flows.

We have significant operations outside of the United States. We expect that we will continue to expand our international operations in the future. International operations inherently subject us to a number of risks and uncertainties, including:

 

   

compliance with governmental controls, trade restrictions, restrictions on direct investments, quotas, embargoes, import and export restrictions, tariffs, duties, and regulatory and licensing requirements by domestic or foreign entities, including restrictions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury;

 

   

difficulties in building, staffing and managing foreign operations (including a geographically dispersed workforce) and maintaining compliance with foreign labor laws;

 

   

burdens to comply with, and different levels of protection offered by, multiple and potentially conflicting foreign laws and regulations, including those relating to environmental, health and safety requirements and intellectual property;

 

   

changes in laws, regulations, government controls or enforcement practices with respect to our business and the businesses of our Customers;

 

   

political and social instability, including crime, civil disturbance, terrorist activities, armed conflicts and natural and other disasters;

 

   

ongoing instability or changes in a country’s or region’s regulatory, economic or political conditions, including as a result of the United Kingdom’s June 2016 vote and formal notice in March 2017 to leave

 

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the European Union (generally referred to as Brexit) and any other similar referenda or actions by other European Union member countries;

 

   

local business and cultural factors that differ from our normal standards and practices, including business practices prohibited by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;

 

   

longer payment cycles and increased exposure to counterparty risk;

 

   

disruptions in transportation of our products or our supply chain; and

 

   

the differing product and service needs of foreign Customers.

The multinational nature of our business subjects us to potential risks that various taxing authorities may challenge the pricing of our cross-border arrangements and subject us to additional tax, adversely impacting our effective tax rate and our tax liability.

In addition, international transactions may involve increased financial and legal risks due to differing legal systems and customs. Compliance with these requirements may prohibit the import or export of certain products and technologies or may require us to obtain a license before importing or exporting certain products or technology. A failure to comply with any of these laws, regulations or requirements could result in civil or criminal legal proceedings, monetary or non-monetary penalties, or both, disruptions to our business, limitations on our ability to import and export products and services, and damage to our reputation.

While the impact of these factors is difficult to predict, any of them could have a material adverse effect on our business, financial condition, results of operations and cash flows. Changes in any of these laws, regulations or requirements, or the political environment in a particular country, may affect our ability to engage in business transactions in certain markets, including investment, procurement and repatriation of earnings.

Our business is exposed to domestic and foreign currency fluctuations that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Approximately 46% of our pro forma net sales in fiscal 2017 was to Customers outside the United States. Changes in non-U.S. currencies relative to the U.S. dollar impact our sales, profits, assets and liabilities. In addition, the weakening or strengthening of the U.S. dollar may result in significant favorable or unfavorable translation effects when the operating results of our non-U.S. business activity are translated into U.S. dollars and could cause our results of operations to differ from our expectations and the expectations of our investors. For our international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products and services less competitive in international markets. Alternately, a weakening of the currencies in which sales are generated relative to the currencies in which costs are denominated would decrease operating profits and cash flow. Changes in currency exchange rates may also affect the relative prices at which we purchase materials and services in foreign markets. In addition, the impact of currency devaluations in countries experiencing high inflation rates or significant currency exchange fluctuations could negatively impact our operating results. While we may use financial instruments to mitigate the impact of fluctuations in currency exchange rates on our cash flows, unhedged exposures would continue to be subject to currency fluctuations.

Our business is subject to substantial regulation.

Our pharmacy and supply chain businesses are impacted by federal and state laws and regulations governing, among other things: the purchase, distribution, management, compounding, dispensing, marketing and labeling of prescription drugs and related services; DEA and/or state regulation affecting the sale and distribution of controlled substances; and statutes and regulations related to the sale and marketing of animal drugs, pet food, insecticides and devices. Our failure to comply with any of these laws and regulations could

 

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severely limit or curtail our pharmacy and supply chain operations, which would materially harm our business and prospects. Further, our business could be affected by changes in these or any newly enacted laws and regulations, as well as federal and state agency interpretations of such statutes and regulations. Such statutory or regulatory changes could require that we make changes to our business model and operations and/or could require that we incur significantly increased costs in order to comply with such regulations.

The status of compounded animal drugs is uncertain. Currently, the FDA exercises enforcement discretion for unapproved compounded animal drugs. In 2015, the FDA revoked its Compliance Policy Guide regarding animal drug compounding and published a draft guidance proposing to strictly limit the circumstances under which the FDA would permit compounding of veterinary drug products. The FDA withdrew this draft guidance in November 2017. It has stated that it will issue a new draft guidance in the future. These and other restrictions on the activities of compounding pharmacies may limit the available market for compounded formulations from bulk substances for animal use, as compared to the market available for the FDA-approved animal drugs.

The marketing and sale of compounded formulations is subject to and must comply with state statutes and regulations governing compounding pharmacies. These statutes and regulations include, among other things, restrictions on compounding in advance of receiving an animal-specific prescription, restrictions on compounding drugs that are essentially copies of FDA-approved drugs, restrictions on compounding drug products for office use, and restrictions on wholesaling. These and other restrictions on the activities of compounding pharmacies may significantly limit the market available for compounded formulations, as compared to the market available for FDA-approved drugs.

Legislation may be proposed in the United States or other jurisdictions in the future, that could impact the distribution channels for our companion animal products. For example, such legislation may require veterinarians to provide Pet Owners with written prescriptions and disclosure that the Pet Owner may fill prescriptions through a third party, which may further reduce the number of Pet Owners who purchase their animal health products directly from veterinarians. Such requirements may lead to increased use of generic alternatives to our products or the increased substitution of our products with other animal health products or human health products if such other products are deemed to be lower-cost alternatives. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The sale and distribution of our products is also regulated in most or all jurisdictions outside the United States where our business operates. Local regulations on sale and distribution may be tightened, for example regarding labelling or quality of transportation, which may increase our costs of doing business. In particular, in the European Union, a revision of the current legislation on veterinary medicinal products is under way, proposing a new EU regulation on veterinary medicinal products that would be uniformly applicable throughout the European Union. The current draft legislation proposes to limit the use of antibiotics, to tighten importation rules, and to impose stricter pharmacovigilance standards. If adopted as proposed, the new regulation may have a material adverse effect on the sale of our products in the European Union; it furthermore may increase the compliance requirements for our business in the European Union with resulting costs. In addition, the uncertainty over Brexit and the question whether our business will continue to be able to freely sell and distribute between the United Kingdom and the European Union may affect our business in Europe.

If a compounded drug formulation provided through our compounding pharmacy services leads to injury or death or results in a product recall, we may be exposed to liabilities or reputational harm.

The success of our compounding pharmacy services is dependent upon perceptions of us and the safety and quality of our products and services. We could be adversely affected if we or any other compounding pharmacies or our formulations and technologies are subject to negative publicity. We could also be adversely affected if any of our formulations or technologies, any similar products sold by other companies, or any products sold by other veterinary compounding pharmacies prove to be, or are asserted to be, harmful. For instance, to the extent any of the components of approved drugs or other ingredients used to produce our compounded formulations have

 

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quality or other problems that adversely affect the finished compounded preparations, our business could be adversely affected. Also, because of our dependence upon veterinarian and client perceptions, any adverse publicity associated with illness or other adverse effects resulting from the use or misuse of our products, any similar products sold by other companies or any products sold by veterinary compounding pharmacies could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Assertions by a third party that we are infringing its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses.

The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. The preparation or sale of our products may infringe on the patent rights of others. As we face increasing competition, the possibility of intellectual property rights claims against us may grow. Our technology may not be able to withstand any third-party claims or rights against their use. Additionally, although we have licensed from other parties proprietary technology covered by patents, it cannot be certain that any such patents will not be challenged, invalidated or circumvented. These types of claims could harm our relationships with our Customers, may deter future Customers from using our services or could expose us to litigation for such claims.

Any intellectual property rights claims against us, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management attention and financial resources. An adverse determination also could prevent us from offering our services to Customers and may require the procurement or development of substitute services that do not infringe.

As a result of intellectual property rights claims against us, we may have to pay damages or stop using technology or formulation found to be in violation of a third party’s rights. We may have to seek a license for the intellectual property, which may not be available on reasonable terms, if at all, may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense.

In addition, we use open source software in our platform and will use open source software in the future. From time to time, we may face claims from companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the source code, the open source software, or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional product, technology, and development resources to change our platform or services, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

Loss of our executive officers or other key personnel could disrupt our operations and our inability to attract and retain qualified personnel could harm our business.

Our success will depend on the efforts of our executive officers and certain key personnel. Any unplanned turnover or our failure to develop an adequate succession plan for one or more of our executive officer or other key positions could deplete our institutional knowledge base and erode our competitive advantage. The loss or limited availability of the services of one or more of our executive officers or other key personnel, or our inability to recruit and retain qualified executive officers or other key personnel in the future, could, at least temporarily, have a material adverse effect on our business, financial condition, results of operations and cash flows. Our future success also depends on our ability to attract, retain and motivate talented technical, managerial, sales, marketing and service and support personnel. Competition for sales, marketing and technology development personnel is particularly intense in the software and technology industries. As a result, we may be

 

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unable to successfully attract or retain qualified personnel, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Tax legislation could materially adversely affect our financial results.

We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could materially adversely affect our tax positions. There can be no assurance that our effective tax rate will not be materially adversely affected by legislation resulting from these initiatives.

On December 22, 2017, the Tax Act was enacted in the United States, which among other things, reduced the corporate tax rate from a top marginal rate of 35% to a flat rate of 21% and limited the ability to deduct net interest expense to 30% of adjusted earnings, in addition to making other significant changes to corporate and international tax provisions. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be materially adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law.

Risks Relating to Our Common Stock

There is currently no public market for our common stock and we cannot be certain that an active trading market will develop or be sustained after the Transactions, and our stock price may fluctuate significantly.

There is currently no public market for our common stock. It is anticipated that, promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown), trading of our common stock will begin on a “when-issued” basis and such trading will continue through the Distribution Date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the Transactions or be sustained in the future. The lack of an active market may make it more difficult for you to sell your shares of our common stock and could lead to the price of our common stock being depressed or more volatile. We cannot predict the prices at which our common stock may trade after the Transactions. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

   

our business profile and market capitalization may not fit the investment objectives of some stockholders and, as a result, these stockholders may sell their shares after the Transactions are completed;

 

   

actual or anticipated fluctuations in our operating results due to factors related to our business;

 

   

success or failure of our strategy;

 

   

our quarterly or annual earnings, or those of other companies in our industry;

 

   

our ability to obtain third-party financing as needed;

 

   

announcements by us or our competitors of significant acquisitions or dispositions;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

the failure of securities analysts to cover our common stock after the Transactions;

 

   

changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

   

the operating and stock price performance of other comparable companies;

 

   

investor perception of us;

 

   

overall market fluctuations;

 

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results from any material litigation or government investigation;

 

   

changes in laws and regulations affecting us or any of the principal products we sell; and

 

   

general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock. Until an orderly market develops, the trading prices for our common stock may fluctuate significantly.

If securities or industry analysts do not publish research or publish unfavorable research about us, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research reports that securities or industry analysts publish about us and our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of us by securities or industry analysts, the trading price for our stock could be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of these analysts downgrades the stock or publishes unfavorable research about us, the stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause the stock price or trading volume to decline.

Fluctuations in our quarterly or annual operating results may cause our stock price to decline.

Our quarterly and annual operating results may fluctuate significantly in the future, due to a number of factors, including: seasonality of certain product lines; changes in foreign currency exchange rates; changes in our accounting estimates; timing of operating expenditures; and timing of regulatory approvals and licenses, which could adversely impact the value of our common stock. Furthermore, our results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on past results as an indication of our future performance. This variability and unpredictability could also result in our failure to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if any forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.

Our accounting, management and financial reporting systems may not be prepared to comply with public company reporting, disclosure controls and internal control over financial reporting requirements.

The financial results of the Henry Schein Animal Health Business previously were included within the consolidated results of Henry Schein, and neither we nor Vets First Choice have been subject to the reporting and other requirements of the Exchange Act. As a result of the Transactions, we will become an independent, publicly traded company and will be subject to reporting and other obligations under the Exchange Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Following the Transactions, we will be responsible for ensuring that all aspects of our business comply with the Sarbanes-Oxley Act. Under the Sarbanes-Oxley Act, we will be required to maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, our management will be required to: (i) assess the effectiveness of our internal control over financial reporting; (ii) certify that the

 

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quarterly and annual financial reports fully comply with Exchange Act requirements and the information contained in the reports fairly presents, in all material respects, the financial conditions and results of operations of our business; and (iii) obtain a report by an independent registered public accounting firm attesting our management’s assessments of internal control over financial reporting, subject to applicable phase-in periods.

To comply with these requirements, we may need to upgrade and implement additional internal controls, reporting systems, information technology systems and procedures, and hire additional accounting, legal and finance staff. We expect to incur additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to upgrade our internal controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act and the Sarbanes-Oxley Act could be impaired. Any failure to achieve and maintain effective internal controls and disclosure controls and procedures could have a material adverse effect on the market for our common stock.

After the completion of the Transactions, sales of our common stock may negatively affect its market price.

The shares of our common stock that (i) Henry Schein distributes to Henry Schein stockholders in the Distribution or (ii) are issued to Vets First Choice stockholders as consideration in the Merger generally may be sold immediately in the public market. It is likely that some stockholders may sell our common stock received in the Transactions for various reasons such as if our business profile or market capitalization as a combined company following the Transactions does not fit their investment objectives. The sales of significant amounts of our common stock or the perception in the market that this will occur may result in a decrease in the market price of our common stock.

Certain former stockholders of Vets First Choice holding approximately 17.6% of our common stock will be subject to a six-month lock-up period following the Closing Date with respect to the shares of our common stock they receive in the Merger pursuant to a voting and support agreement. These shares will be not be restricted securities within the meaning of Rule 144 under the Securities Act after the expiration of the lock-up period and, unless held by our affiliates, may subsequently be sold into the public market without restriction. If some or all of these shares are sold, or if it is perceived that they will be sold, in the public market, the price of our common stock could decline substantially.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the value of shares received in connection with the Transactions. In addition, Delaware law or the agreements governing our indebtedness may impose requirements that may restrict our ability to pay dividends to holders of our common stock.

Under our amended and restated certificate of incorporation, our non-employee directors will generally have no obligation to offer us corporate opportunities.

Our amended and restated certificate of incorporation will address potential conflicts of interest with respect to corporate opportunities and transactions that are presented to, or which otherwise come into the possession of, any of our directors who is not also one of our employees or an employee of any of our subsidiaries. Under our amended and restated certificate of incorporation, we will renounce any interest or expectancy in such corporate

 

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opportunities unless they were presented to a non-employee director expressly and solely in such person’s capacity as one of our directors.

Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws could discourage, delay or prevent a change of control and may affect the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated by-laws include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, the amended and restated certificate of incorporation and amended and restated by-laws, collectively:

 

   

authorize the issuance of “blank check” preferred stock that could be issued by our Board without approval of stockholders;

 

   

for the first three years following the Merger until the 2022 annual meeting of stockholders, divide our Board into three classes, serving staggered terms of one, two and three years, respectively;

 

   

limit the ability of stockholders to remove directors by requiring the affirmative vote of holders of at least two-thirds of the outstanding shares of our capital stock then entitled to vote for removal and, until the 2022 annual meeting of stockholders, permitting directors to be removed only with cause;

 

   

provide that vacancies on our Board may be filled only by a majority vote of directors then in office;

 

   

prohibit stockholders from calling special meetings of stockholders;

 

   

prohibit stockholder action by written consent;

 

   

establish advance notice requirements for stockholder nominations of candidates for election as directors before an annual or special meeting of our stockholders or to bring other business before an annual meeting of our stockholders;

 

   

subject us to Section 203 of the DGCL, which will prohibit us from engaging in business combinations with certain “interested stockholders” for three years following the date such stockholder became interested unless certain criteria are met; and

 

   

require the approval of holders of at least two-thirds of the outstanding shares of our capital stock then entitled to vote to amend the amended and restated certificate of incorporation and the amended and restated by-laws.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of the common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of the common stock if the provisions are viewed as discouraging takeover attempts in the future. The amended and restated by-laws also make it difficult for stockholders to replace or remove management by giving our Board the sole ability to elect and remove officers. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of the stockholders.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware, or if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware (each such court, as applicable, the “Selected Forum”), as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated certificate of incorporation provides that the Selected Forum will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a

 

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claim of breach of a fiduciary duty owed to us or our stockholders by any of our current or former directors, officers, employees or stockholders, (iii) any action asserting a claim against us arising under the DGCL, our amended and restated certificate of incorporation or our amended and restated by-laws or as to which the DGCL confers jurisdiction on a Selected Forum, (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, (v) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated by-laws, or (vi) any other action asserting an “internal corporate claim” under Section 115 of the DGCL. If a stockholder files any of the preceding actions in a court other than a court located within the State of Delaware (a “Foreign Action”), such stockholder shall be deemed to have consented to (x) the personal jurisdiction of the Selected Forum in connection with any action brought in such court to enforce the choice of forum provision and (y) having service of process made upon such stockholder in any such enforcement action by service upon the stockholder’s counsel (as such stockholder’s agent) in the foreign action. By becoming a holder of our common stock, a person will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice,” “Henry Schein Animal Health Business” and “Business of Vets First Choice.” These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, anticipated revenue growth and operational synergies from the Transactions and the timeline for achieving them. When used in this prospectus, the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this prospectus.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include those set forth under “Risk Factors,” as well as, among others, risks and uncertainties relating to:

 

   

our ability to realize the anticipated revenue growth opportunities and operational synergies from the Transactions;

 

   

our ability to successfully integrate the Henry Schein Animal Health Business with Vets First Choice following the Transactions;

 

   

our incurrence of significant one-time costs associated with the Transactions;

 

   

our ability to access equivalent financial strength and resources that historically have been provided by Henry Schein;

 

   

the pendency of the Transactions materially adversely affecting the business, financial condition, results of operations and cash flows of the Henry Schein Animal Health Business and Vets First Choice;

 

   

our ability to successfully implement our business strategies;

 

   

the competitiveness of our industry;

 

   

changes in manufacturer sales channels for our products;

 

   

our substantial indebtedness;

 

   

restricted operational flexibility due to restrictive covenants in our indebtedness agreements;

 

   

changes in global economic conditions;

 

   

the impact of changes in the economic, political, legal and business environments of the countries in which we do business;

 

   

the impact of domestic and foreign currency fluctuations;

 

   

the impact of regulation on our business;

 

   

our ability to attract and retain qualified employees and other key personnel;

 

   

fluctuations in our quarterly results; and

 

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our ability to comply with public company reporting, disclosure controls and internal control over financial reporting requirements.

Any of the foregoing risks and uncertainties could cause the actual events, results and outcomes to vary materially from the forward-looking statements included in this prospectus. You should consider these important factors, as well as the risk factors set forth in this prospectus, in evaluating any statement made in this prospectus. See “Risk Factors.” For the foregoing reasons, you are cautioned against relying on any forward-looking statements. We do not undertake any obligation to update or revise these forward-looking statements, except as required by law.

 

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THE TRANSACTIONS

Background of the Transactions

Each of the Henry Schein Board and the Vets First Choice Board, together with their respective senior management teams, regularly review and assess their businesses, strategies and objectives and regularly evaluate various strategic and financial options, in each case with the goal of enhancing stockholder value.

As part of these ongoing efforts, during November and December 2017, the Henry Schein Board reviewed and discussed a number of potential strategic options for the Henry Schein Animal Health Business, including (i) retaining the Henry Schein Animal Health Business, (ii) separating the Henry Schein Animal Health Business into a stand alone public company, (iii) selling the Henry Schein Animal Health Business and (iv) separating the Henry Schein Animal Health Business through a Reverse Morris Trust transaction.

In December 2017, representatives of Henry Schein contacted representatives of Clayton, Dubilier & Rice, LLC (“CD&R”), a private equity fund and significant stockholder of Vets First Choice, to discuss a potential transaction for a business combination involving Vets First Choice and the Henry Schein Animal Health Business.

On December 21, 2017, representatives of Henry Schein met with representatives of Vets First Choice and CD&R to further discuss the potential for a business combination transaction involving Vets First Choice and the Henry Schein Animal Health Business.

During the remainder of December 2017 and throughout January 2018, representatives of Henry Schein, representatives of Vets First Choice and representatives of CD&R continued discussions regarding the respective businesses of Vets First Choice and the Henry Schein Animal Health Business and the benefits of a possible business combination transaction.

In January 2018, representatives of J.P. Morgan, Vets First Choice’s financial advisor, shared with Henry Schein’s representatives its initial perspective on the value of the pro forma Combined Company and the potential strategic and financial merits of a combination.

In early February 2018, representatives of J.P. Morgan shared Vets First Choice’s preliminary views on potential valuation ranges of each of the Henry Schein Animal Health Business and Vets First Choice, which resulted in an implied Henry Schein stockholder ownership percentage of the Combined Company ranging from 53%-68% based on scenarios in which the Special Dividend was between $780 million and $1.2 billion with $25 million of cash contributed by Vets First Choice. Following the receipt of Vets First Choice’s preliminary views on potential valuation ranges, in early February 2018, representatives of Centerview Partners Holdings LLC, Henry Schein’s financial advisor, shared Henry Schein’s preliminary views on potential valuation ranges of the Henry Schein Animal Health Business and Vets First Choice, which resulted in an implied Henry Schein stockholder ownership percentage of the Combined Company ranging from 60%-70% based on the scenarios described above.

Following the exchange of these preliminary views on potential valuation ranges of the Henry Schein Animal Health Business and Vets First Choice, representatives of Henry Schein and Vets First Choice agreed that, given the contemplated preliminary implied ownership ranges proposed by Henry Schein and Vets First Choice and the potential strategic and financial merits of a business combination transaction, further examination of a potential combination of the businesses was warranted, and that the implied ownership percentages of the Combined Company would be revisited by the parties at a later date. During February, March and April of 2018, Henry Schein, Vets First Choice and their respective legal and financial advisors continued their ongoing due diligence reviews and began preparation and negotiation of definitive transaction documents, including the Contribution and Distribution Agreement and the Merger Agreement.

 

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On April 19, 2018, the parties agreed to the general terms of the Transactions, including the implied respective ownership percentages described in this prospectus. For information about the ownership percentages of current Henry Schein and Vets First Choice stockholders following the Transactions, see “Questions and Answers About the Transactions—What will Henry Schein stockholders receive in the Transactions?,” “Questions and Answers About the Transactions—What will Vets First Choice stockholders receive in the Transactions?” and “The Transactions—Manner of Effecting the Transactions.”

On April 20, 2018, Henry Schein, Vets First Choice and Spinco entered into the Contribution and Distribution Agreement and the Merger Agreement, which provide for a series of transactions described below pursuant to which Henry Schein will contribute the Henry Schein Animal Health Business to Spinco and distribute all the shares of Spinco common stock that are then owned by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders and, following the Distribution, Merger Sub will merge with and into Vets First Choice, with Vets First Choice surviving the Merger as a wholly owned subsidiary of Spinco.

The principal transactions are the following:

 

   

Reorganization—Henry Schein will engage in a series of transactions in order to separate the Henry Schein Animal Health Business from Henry Schein’s other businesses pursuant to which, among other things, it will (i) use reasonable best efforts to purchase from certain minority holders their equity or other ownership interests in the applicable operating companies of the Henry Schein Animal Health Business in exchange for cash and (ii) contribute, assign and transfer to Spinco certain applicable assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health Business.

 

   

Initial Spinco Debt Financing—Henry Schein, Spinco and Vets First Choice will use their reasonable best efforts to arrange and consummate the Initial Spinco Debt Financing, which is expected to fund the Special Dividend, the Additional Special Dividend, if applicable, and the Certain Debt Repayment. Spinco will then pay the Special Dividend and the Additional Special Dividend, if applicable, to Henry Schein and effectuate the Certain Debt Repayment.

 

   

Share Sale—Spinco will subsequently issue shares of Spinco common stock representing in the aggregate up to 9.9% of the issued and outstanding shares of Spinco common stock, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in a transaction that will be exempt from registration under the Securities Act. The proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein.

 

   

Distribution—Henry Schein will subsequently distribute on a pro rata basis all of the shares of Spinco common stock held by Henry Schein (after giving effect to the Share Sale) to Henry Schein stockholders as of the record date of the Distribution. In connection with the Transactions, Spinco will change its name to Covetrus, Inc.

 

   

Merger—Immediately after the Distribution, Merger Sub will merge with and into Vets First Choice, the separate corporate existence of Merger Sub will cease and Vets First Choice will continue as the Surviving Company and a wholly owned subsidiary of Spinco.

In order to complete the Merger, Vets First Choice must obtain the requisite approval of its stockholders. The Vets First Choice Board has determined that the terms of the Merger Agreement and the Merger are advisable and in the best interests of Vets First Choice and its stockholders, has approved the Merger Agreement and the Merger and has unanimously recommended the adoption by the Vets First Choice stockholders of the Merger Agreement and their approval of the Merger. Vets First Choice stockholders holding approximately 73.2% of the issued and outstanding common stock on an as-converted basis, including approximately 79.5% of the issued and outstanding preferred stock, as of December 31, 2018, have executed and delivered a voting and support agreement pursuant to which they have agreed to vote or execute written consents in favor of the Merger Agreement and the Merger.

Vets First Choice will solicit written consents, or convene and hold a special meeting of its stockholders, to vote upon the Merger no later than five business days after the effectiveness of the registration statement of

 

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which this prospectus forms a part. No vote of Henry Schein stockholders is required in connection with the Transactions. Henry Schein, as the sole stockholder of Spinco at the time the Merger Agreement was approved, and Spinco, as the sole stockholder of Merger Sub, each approved the Merger promptly after the Merger Agreement was signed. No directors, executive officers or affiliates of Henry Schein or Spinco will have voting rights in connection with the Transactions with respect to their ownership of any Henry Schein or Spinco common stock.

At the Effective Time, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares, which will be cancelled) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Immediately after the Transactions, Spinco will be an independent, publicly traded company that will own and operate the combined businesses of the Henry Schein Animal Health Business and Vets First Choice.

You are encouraged to carefully read the sections titled “The Contribution and Distribution Agreement,” and “The Merger Agreement” because they set forth the terms of the Distribution and the Merger, respectively.

Henry Schein’s Reasons for the Transactions

Henry Schein determined that the Transactions would be in the best interests of Henry Schein and its stockholders because the Transactions would provide a number of key benefits, including primarily: (i) allowing greater strategic focus of resources and management’s efforts for each of Henry Schein and the Combined Company in their respective industries and affording each of Henry Schein’s and the Combined Company’s management teams an ability to more quickly respond to the opportunities and challenges of each industry; (ii) facilitating the Merger and the creation of the Combined Company as a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure dedicated to supporting the companion, equine and large animal veterinary markets; (iii) the complementary fit of the Henry Schein Animal Health Business and Vets First Choice, and the strategic benefits of their combination (including expected revenue growth and operational synergies for the Combined Company); (iv) the funds to be received by the Henry Schein Group in connection with the payment of the Special Dividend and the Additional Special Dividend, if applicable, and the effectuation of the Certain Debt Repayment; and (v) increased value to Henry Schein’s stockholders, in particular the combined company’s anticipated value on a stand alone basis.

In assessing and approving the Transactions, Henry Schein considered the lack of alternative transactions that would produce similar or better results for Henry Schein and its stockholders. Henry Schein concluded that the Transactions were the only practical tax-free way to facilitate the strategic combination of the Henry Schein Animal Health Business and the business of Vets First Choice and to accomplish the desired business objectives.

 

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Vets First Choice’s Reasons for the Transactions

Vets First Choice determined that the Transactions would be in the best interests of Vets First Choice and its stockholders because the Transactions would provide a number of key benefits, including primarily: (i) the complementary fit of Vets First Choice and the Henry Schein Animal Health Business, and the strategic benefits of a global, technology-enabled animal health business with a comprehensive service and technology platform and supply chain infrastructure supporting the companion, equine and large animal veterinary markets; (ii) the ability to leverage the global scale and logistical infrastructure of the Henry Schein Animal Health Business to accelerate the adoption of the Vets First Choice platform and introduce new and enhanced services and technology to veterinary practices; (iii) the opportunity to drive additional practice insights to enhance medication and service compliance through the combination of the Henry Schein Animal Health Business’ leading practice management software portfolio with the Vets First Choice analytics and client engagement capabilities; and (iv) enhancing relationships with global manufacturers as the Combined Company leverages technology and insight to drive category growth.

In assessing and approving the Transactions, Vets First Choice considered an initial public offering as an alternative transaction, but came to the conclusion that the Transactions would produce similar or better results for Vets First Choice and its stockholders.

Manner of Effecting the Transactions

Each issued and outstanding share of Henry Schein common stock as of the record date of the Distribution (excluding any shares of Henry Schein common stock otherwise held by a member of the Henry Schein Group) will entitle its holder to receive a pro rata portion of the aggregate shares of Spinco common stock held by Henry Schein as of the time of the Distribution (after giving effect to the Share Sale). Henry Schein stockholders will not be required to pay any cash or other consideration, or to surrender or exchange shares of Henry Schein common stock, for shares of Spinco common stock received in the Distribution.

At the Effective Time, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares, which will be cancelled) will be converted into the right to receive, on a pro rata basis, a certain number of shares of Spinco common stock, such that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions). See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Escrowed Shares” for sample calculations and more information on the expected ranges of the respective ownership percentages. In addition, each outstanding share of Vets First Choice capital stock (other than the Excluded Shares) will entitle the holder thereof to a non-transferrable contingent right to a potential cash payment from Spinco in connection with certain post-Closing adjustments. See “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments.”

Spinco common stock to be distributed to Henry Schein stockholders in the Spin-off, issued in the Share Sale and issued to Vets First Choice stockholders in the Merger will be issued as uncertificated shares. This means that we will not issue physical stock certificates. Spinco common stock will be issued electronically in book-entry form. Registration in book-entry form refers to a method of recording stock ownership when no physical stock certificates are issued to stockholders.

 

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Any fractional shares of Spinco common stock (other than the Escrowed Shares) that would otherwise be distributed to a Henry Schein stockholder in the Distribution or issued to a Vets First Choice stockholder in the Merger, as applicable, will be aggregated, and each such Henry Schein stockholder or Vets First Choice stockholder, as applicable, will be issued in respect of all such fractional shares a number of shares of Spinco common stock equal to such aggregate number, rounded to the nearest whole number. See “The Transactions—Manner of Effecting the Transactions.” Any fractional shares of our common stock that are Escrowed Shares that would otherwise be distributed to Spinco or Vets First Choice stockholders pursuant to the Merger Agreement and the Escrow Agreement, as applicable, will be treated in the manner provided under the Escrow Agreement.

Effects of the Transactions on Henry Schein Stock-Based Awards

Henry Schein employees who will remain at Henry Schein and have unvested Henry Schein equity as part of a previous LTIP award will not receive any Spinco shares like other Henry Schein stockholders with respect to such unvested equity. Instead, subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, Henry Schein intends to adjust the unvested LTIP awards to provide additional Henry Schein restricted stock units and/or restricted stock awards with substantially equivalent economic value as the Spinco shares that would have otherwise been received.

For Henry Schein employees who will transfer to Spinco and have unvested Henry Schein equity as part of a previous LTIP award, subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, Henry Schein intends that the unvested Henry Schein equity will be converted to new Spinco equity awards such that the total value of the unvested LTIP award immediately post Spin-off will be substantially economically equivalent to the value of the unvested LTIP award prior to the Spin-off.

Effects of the Transactions on Vets First Choice Stock Options

Subject to the terms and conditions of the applicable plan documents, award agreements and the Transaction Agreements, Vets First Choice stock options held by Vets First Choice employees will be converted to Spinco stock options such that the total value of Spinco stock options held by each Vets First Choice employee immediately post-Merger will be substantially economically equivalent to the value of such Vets First Choice stock options prior to the Merger.

Material U.S. Federal Income Tax Consequences of the Transactions

The following is a summary of the material U.S. federal income tax consequences of the Distribution and Merger. This summary is limited to U.S. Holders who hold common stock of Henry Schein as a capital asset, or who hold common or preferred stock of Vets First Choice as a capital asset (as applicable). This discussion does not cover all aspects of U.S. federal taxation that may be relevant to the Transactions. In particular, this discussion does not address all of the tax considerations that may be relevant to stockholders in special tax situations, including banks, insurance companies or other financial institutions, dealers in securities, certain former citizens or residents of the United States, a person that is a “controlled foreign corporation,” a person that is a “passive foreign investment company,” a person holding shares of as part of a hedge, straddle, conversion or other integrated financial transaction, entities or arrangements that are treated as partnerships for U.S. federal income tax purposes (or partners therein), or a person who acquired their shares upon the exercise of options, warrants, or similar derivative securities or as compensation, a person that holds their shares in a tax-deferred account (such as an individual retirement account or a plan qualifying under Section 401(k) of the Code), or a person that is otherwise subject to special treatment under the Code. This summary does not address the treatment of any person who exercises appraisal rights. In addition, this summary does not address any other U.S. federal tax considerations (such as estate or gift taxes, or the Medicare tax on net investment income) or any state, local or non-U.S. tax considerations.

Henry Schein’s and Vets First Choice’s stockholders should consult their own tax advisors about the tax consequences of the Transactions in light of their own particular circumstances, including the tax consequences

 

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under state, local, foreign, estate and gift and other tax laws and the possible effects of any changes in applicable tax laws.

This discussion is based on the tax laws of the United States, including the Code, existing and proposed regulations, and administrative and judicial interpretations, all as currently in effect. Such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax or estate tax consequences different from those discussed below.

Tax Opinions

The consummation of the Distribution, the Merger and certain related transactions are conditioned upon (i) Henry Schein’s and Spinco’s receipt from Cleary Gottlieb Steen & Hamilton LLP of the Spin-off Tax Opinion to the effect that the transactions that comprise the Distribution will qualify as a “reorganization” under Section 368(a)(1)(D) of the Code and that the Distribution will qualify as a tax-free distribution under Section 355 of the Code and (ii) receipt by Henry Schein and Vets First Choice of the Merger Tax Opinion from their respective counsel (Cleary Gottlieb Steen & Hamilton LLP and Morgan, Lewis & Bockius LLP, respectively) to the effect that the Merger will qualify as a “reorganization” under Section 368(a)(2)(E) of the Code.

The Spin-off Tax Opinion and Merger Tax Opinions (collectively, the “Tax Opinions”) will be based on, among other things, certain representations and assumptions as to factual matters, as well as certain undertakings, made by Henry Schein, Spinco, Vets First Choice and (in the case of the Spin-Off Tax Opinion) the Share Sale Investors, including an assumption regarding the completion of the Distribution, Merger and certain related transactions. In addition, tax counsels’ ability to provide the Tax Opinions will depend on the absence of changes in existing facts or law between the date of the registration statement of which this prospectus forms a part and the Closing Date. The failure of any factual representation or assumption to be true, correct and complete in all material respects, or any undertaking to be fully complied with, could result in tax counsel being unable to deliver the Tax Opinions or could affect the validity of the Tax Opinions, and the tax consequences of the Distribution and Merger could differ from those described below.

An opinion of counsel represents counsel’s best legal judgment, is not binding on the IRS or the courts, and the IRS or the courts may not agree with the conclusions set forth in the Tax Opinions. The parties to the Merger Agreement do not currently anticipate obtaining a private letter ruling from the IRS with respect to the Distribution or the Merger.

In addition, Henry Schein’s obligations to effect the Distribution (and Henry Schein and Spinco’s obligations to consummate the Merger) are subject to the satisfaction or, to the extent permitted by law, waiver by Henry Schein of receipt by Henry Schein and Spinco of the Spin-off Tax Opinion and Merger Tax Opinion, respectively. Vets First Choice’s obligations to consummate the Merger are similarly subject to the satisfaction or, to the extent permitted by law, waiver by Vets First Choice of its receipt of the Merger Tax Opinion. It is not currently anticipated that the condition to obtain the Spin-off Tax Opinion or Merger Tax Opinion will be waived. In the event that the condition to obtain either the Spin-off Tax Opinion or Merger Tax Opinion is waived and there is a material change in the U.S. federal income tax consequences of the Contribution, Distribution or Merger, Spinco will update its public disclosure.

The Distribution

For purposes of this discussion regarding the Distribution, a “U.S. Holder” means a beneficial owner of shares of Henry Schein’s common stock that is an individual citizen or resident of the United States, a domestic corporation or otherwise subject to U.S. federal income tax on a net basis with respect to income from Henry Schein common stock.

 

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On the basis that the Distribution, together with certain related transactions, will qualify as a “reorganization” within the meaning of
Section 368(a)(1)(D) of the Code and that the Distribution will qualify as a tax-free distribution within the meaning of Section 355 of the Code, in general, for U.S. federal income tax purposes:

 

   

The Distribution will not result in the recognition of income, gain or loss to Henry Schein or Spinco (except for income, gain or loss that may arise as a result of certain internal restructuring transactions undertaken prior to or in anticipation of the Distribution and except in respect of any distributions of cash or property in excess of tax basis, and except in respect of any provisions under the Code providing for recapture or acceleration of any income or gain or reversal of loss or deduction without regard to the qualification of the Distribution under Section 355 of the Code).

 

   

U.S. Holders of Henry Schein common stock will not recognize income, gain or loss on the receipt of Spinco common stock in the Distribution.

 

   

A U.S. Holder’s aggregate tax basis in its shares of Henry Schein common stock and Spinco common stock immediately after the Distribution will be the same as the aggregate tax basis of the shares of Henry Schein common stock held by the U.S. Holder immediately before the Distribution, allocated between such shares of Henry Schein common stock and Spinco common stock in proportion to their relative fair market values.

 

   

A U.S. Holder’s holding period in the Spinco common stock received in the Distribution will include the holding period of the Henry Schein common stock with respect to which such Spinco common stock was received. A U.S. Holder that has acquired different blocks of Henry Schein common stock at different times or at different prices should consult its tax advisor regarding the allocation of its aggregate tax basis in, and the holding period of, the Spinco common stock distributed with respect to such blocks of Henry Schein common stock.

If, however, the Distribution and certain related transactions do not qualify as a “reorganization” within the meaning of Section 368(a)(1)(D) and the Distribution does not qualify as a tax-free distribution under Section 355 of the Code, then, in general, for U.S. federal income tax purposes:

 

   

Henry Schein would generally be subject to tax as if it sold the Spinco common stock in a taxable transaction, and would recognize taxable gain in an amount equal to the excess of (i) the total fair market value of the shares of Spinco common stock distributed in the Distribution over (ii) Henry Schein’s aggregate tax basis in such shares of Spinco common stock (and Spinco may be required to indemnify Henry Schein for the tax on such gain pursuant to the Tax Matters Agreement, which may be substantial).

 

   

Each U.S. Holder who receives Spinco common stock in the Distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the Spinco common stock received by the U.S. Holder in the Distribution. In general, such distribution would be taxable as a dividend to the extent of Henry Schein’s current and accumulated earnings and profits (as determined for U.S. federal income tax purposes). To the extent the distribution exceeds such earnings and profits, the distribution would generally constitute a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in its shares of Henry Schein common stock, with any remaining amount of the distribution taxed as capital gain.

 

   

A U.S. Holder would have a tax basis in its shares of Spinco common stock equal to their fair market value. Certain U.S. Holders may be subject to special rules governing taxable distributions, such as those that relate to the dividends received deduction and extraordinary dividends.

Moreover, even if the Distribution and certain related transactions otherwise qualify for tax-free treatment under Section 368(a)(1)(D) and the Distribution qualifies as tax free under Section 355 of the Code, the Distribution would be taxable to Henry Schein (but not to Henry Schein stockholders) pursuant to Section 355(e)

 

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of the Code if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of Henry Schein or Spinco, directly or indirectly (including through acquisitions of the Combined Company’s stock after the completion of the Transactions), as part of a plan or series of related transactions that includes the Distribution. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature, and subject to a comprehensive analysis of the facts and circumstances of the particular case. In general, any acquisitions of Henry Schein or Spinco common stock within the period beginning two years before the Distribution and ending two years after the Distribution are presumed to be part of such a plan, although Henry Schein may be able to rebut that presumption. For purposes of this test, while acquisitions of publicly traded stock effected on an exchange are generally not considered to be part of a plan or a series of related transactions, acquisitions by ten-percent stockholders (or a coordinating group of persons treated as ten-percent stockholders under Section 355 of the Code), even if done on an exchange, could be so treated. In addition, for purposes of this test, the Merger will be treated as part of a plan (and the Share Sale may be treated as part of the same plan), but because Henry Schein stockholders will collectively own more than 50% of our common stock following the Transactions, the Merger and the Share Sale alone will not cause the Distribution to be taxable to Henry Schein under Section 355(e) of the Code. Nevertheless, if the IRS were to determine that other acquisitions of Henry Schein common stock or Spinco common stock (including subsequent acquisitions by the Share Sale Investors), either before or after the Distribution, were part of a plan or series of related transactions that included the Distribution, such determination could result in the recognition of a material amount of taxable gain by Henry Schein under Section 355(e) of the Code, and we may be required to indemnify Henry Schein for the tax on such gain pursuant to the Tax Matters Agreement. In connection with the Spin-off Tax Opinion, Henry Schein and Spinco will each represent that the Distribution is not part of any such plan or series of related transactions (other than the Merger and Share Sale).

The Merger

For purposes of this discussion regarding Treatment of the Merger, a “U.S. Holder” means a beneficial owner of shares of Vets First Choice common or preferred stock that is an individual citizen or resident of the United States, a domestic corporation or is otherwise subject to U.S. federal income tax on a net basis with respect to income from Vets First Choice common or preferred stock.

On the basis that the Merger will qualify as a “reorganization” within the meaning of Section 368(a)(2)(E) of the Code, in general, for U.S. federal income tax purposes:

 

   

Vets First Choice will not recognize income, gain or loss in the Merger.

 

   

A U.S. Holder of Vets First Choice common or preferred stock is expected to recognize capital gain (but not loss) for U.S. federal income tax purposes in an amount equal to the lesser of (i) the amount of gain realized (i.e., the excess, if any, of the sum of the amount of cash and the fair market value, as of the Effective Time, of the Spinco common stock received in the Merger over the U.S. Holder’s adjusted tax basis in its Vets First Choice stock surrendered) and (ii) the amount of cash received in the Merger, if any. Any such capital gain generally will be long-term capital gain if the holding period for the Vets First Choice common or preferred stock exchange for cash is more than one year as of the date of the Merger. A U.S. Holder of Vets First Choice preferred stock that received its stock in a tax-free transaction or with a transferred basis prior to the date of the Merger generally may be required to recognize ordinary income, rather than capital gain, to the extent of any cash received in the Merger. U.S. Holders are urged to consult with their own tax advisors regarding the application of these rules in light of their own particular circumstances.

 

   

A U.S. Holder of Vets First Choice common or preferred stock is expected to have an aggregate tax basis in the shares of Spinco common stock received in the Merger equal to the U.S. Holder’s aggregate tax basis in the Vets First Choice stock surrendered in exchange therefor, reduced by the amount of any cash received on the exchange plus the amount of any gain recognized upon the exchange. A U.S. Holder’s holding period in the Spinco common stock received in the Merger will generally include the holding period of the Vets First Choice stock surrendered in the Merger. A U.S.

 

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Holder that has acquired different blocks of Vets First Choice stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate tax basis in, and the holding period of, the Spinco common stock received in exchange for such Vets First Choice stock.

 

   

A U.S. Holder of Vets First Choice common or preferred stock who receives cash in lieu of a fractional share of Spinco common stock (as a result of any fractional Escrowed Shares being repurchased by Spinco for cash, with a pro rata share of such cash amount being then released to such U.S. Holder pursuant to the terms of the Merger Agreement and the Escrow Agreement) is expected to recognize capital gain or loss equal to the difference between the cash received in lieu of such fractional shares and the portion of its adjusted tax basis allocable to such taxable shares. Any such capital gain is generally expected to be long-term capital gain if a U.S. Holder’s holding period for such fractional share is more than one year. In some cases, such gain could be treated as having the effect of the distribution of a dividend, in which case such gain would instead be treated as dividend income. In addition, a U.S. Holder of Vets First Choice preferred stock that received its stock in a tax-free transaction or with a transferred basis prior to the date of the Merger may be required to recognize ordinary income, rather than capital gain, in respect of cash received for fractional shares of its preferred stock. These rules are complex and depend upon specific factual circumstances particular to each U.S. Holder. Each U.S. Holder is urged to consult its own tax advisor as to the application of these rules in light of their own particular circumstances.

If, however, the Merger were to fail to qualify as a “reorganization” and were determined to be taxable, then:

 

   

Vets First Choice would not recognize income, gain or loss in the Merger; and

 

   

a U.S. Holder of Vets First Choice stock would be considered to have made a taxable disposition of their Vets First Choice stock to Spinco, and would generally recognize taxable gain or loss on their receipt of Spinco common stock and any cash in an amount equal to the difference between (i) the fair market value of the Spinco common stock and any cash received and (ii) the U.S. Holder’s aggregate tax basis in the shares of Vets First Choice stock surrendered.

Information Reporting and Backup Withholding

U.S. Treasury regulations require certain U.S. Holders who are “significant distributees” (generally, a U.S. Holder of Henry Schein common stock that owns at least 5% of the outstanding Henry Schein common stock immediately before the Distribution) and who receive Spinco common stock pursuant to the Distribution to attach to their U.S. federal income tax returns for the taxable year in which the Distribution occurs a statement setting forth certain information with respect to the transaction. U.S. Holders of Henry Schein common stock should consult their tax advisors to determine whether they are significant distributees required to provide the foregoing statement.

In addition, payments of cash to a U.S. Holder of Vets First Choice common or preferred stock in the Merger (including cash paid in lieu of fractional Escrowed Shares) may be subject to information reporting, unless the U.S. Holder provides the withholding agent with proof of an applicable exemption. Payments that are subject to information reporting may also be subject to backup withholding, unless such U.S. Holder provides the withholding agent with a correct taxpayer identification number and otherwise complies with the requirements of the backup withholding rules. Backup withholding does not constitute an additional tax, but merely an advance payment, which may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, provided the required information is timely supplied to the IRS.

FATCA

If the Merger closes after December 31, 2018 then, under the U.S. tax rules known as the Foreign Account Tax Compliance Act (“FATCA”), a U.S. Holder of Vets First Choice common or preferred stock could generally be subject to a 30% U.S. withholding tax on gross proceeds from its exchange of stock for cash received (if any)

 

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pursuant to the Merger (including in respect of fractional Escrowed Shares) if it holds its stock through a foreign financial institution that has not entered into an agreement with the U.S. government to report, on an annual basis, certain information regarding accounts with or interests in the institution held by certain United States persons and by certain non-U.S. entities that are wholly or partially owned by United States persons, or that has been designated as a “nonparticipating foreign financial institution” if it is subject to an intergovernmental agreement between the United States and a foreign country, or if other conditions are met. The adoption of, or implementation of, an intergovernmental agreement between the United States and an applicable foreign country, or future U.S. Treasury regulations, may modify these requirements. The IRS has issued proposed regulations, on which taxpayers may rely, that excludes gross proceeds from the sale or disposition of stock from the application of withholding tax under FATCA and related administrative guidance. Holders of Vets First Choice common or preferred stock should consult their own tax advisors on how these rules may apply to cash payments (if any) made in exchange for their stock (including in respect of fractional Escrowed Shares) pursuant to the Merger in light of their own individual circumstances.

Regulatory Approvals

The Merger Agreement provides that each of the parties to the Merger Agreement will use reasonable best efforts to obtain all necessary exemptions, rulings, consents, authorizations, approvals and waivers from any governmental authority, and to take all actions as may be necessary to consummate the Transactions (other than the Share Sale) in a manner consistent with applicable law, including making the required filings pursuant to the HSR Act within 20 business days of the signing of the Merger Agreement (such filings were made within such time frame and the waiting period under the HSR Act was terminated) except that the parties will not be required to sell or divest, or agree to make any material changes or restrictions on, any assets or other interests or litigate against any governmental authority or other party seeking to enjoin the transactions contemplated by the Merger Agreement. As of the date hereof, all material regulatory approvals expected by the parties to be required prior to the consummation of the Transactions have been obtained.

Accounting Treatment and Considerations

Accounting Standards Codification (“ASC”) 805, Business Combinations, requires the use of the acquisition method of accounting for business combinations. In applying the acquisition method, it is necessary to identify both the accounting acquiree and the accounting acquiror. In a business combination effected through an exchange of equity interests, such as the Merger, the entity that issues the interests (Spinco in this case) is generally the acquiring entity. In identifying the acquiring entity in a combination effected through an exchange of equity interests, however, all pertinent facts and circumstances must be considered, including the following:

 

   

The relative voting interests of Spinco after the Transactions. In this case, stockholders of Spinco immediately prior to the Merger will receive more than 50% of the equity ownership and associated voting rights in Spinco after the Transactions.

 

   

The composition of the governing body of Spinco after the Transactions. In this case, the Covetrus Board will consist of 11 directors, six of whom will be appointed by Henry Schein and five of whom will be appointed by Vets First Choice. The Chairman of the Covetrus Board will be David Shaw, who currently serves as the Chairman of the Vets First Choice Board and Co-Founder of Vets First Choice. Philip Laskawy will serve as lead independent director of the Covetrus Board.

 

   

The composition of the senior management of Spinco after the Transactions. In this case, Benjamin Shaw, the Chief Executive Officer and Co-Founder of Vets First Choice, will become the Chief Executive Officer of Covetrus. The senior management team of Covetrus will be comprised of members of senior management of the Henry Schein Animal Health Business and Vets First Choice.

Spinco’s management has determined that Spinco will be the accounting acquiror in the Merger based on the facts and circumstances outlined above and the detailed analysis of the relevant GAAP guidance. Consequently, Spinco will apply acquisition accounting to the assets acquired and liabilities assumed of Vets First Choice upon consummation of the Merger.

 

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Listing and Trading of Spinco’s Common Stock

Currently, there is no public market for the Spinco common stock. Spinco has applied to list the Spinco common stock on Nasdaq under the symbol “CVET.” However, a “when-issued” market in Spinco common stock may develop prior to the Distribution. Following the Transactions, Henry Schein’s common stock will continue to trade on Nasdaq under the symbol “HSIC.”

Neither Henry Schein nor Spinco can assure you as to the trading price of Henry Schein common stock or Spinco common stock after the Transactions, or as to whether the combined trading prices of Spinco’s common stock and Henry Schein’s common stock after the Transactions will be less than, equal to or greater than the trading prices of Henry Schein common stock prior to the Transactions. The trading price of Spinco’s common stock may fluctuate significantly following the Transactions. See “Risk Factors—Risks Relating to our Common Stock.” Spinco cannot be certain that an active trading market will develop or be sustained after the Transactions, and following the Transactions Spinco’s stock price may fluctuate significantly.

Trading Prior to the Distribution Date

It is anticipated that, promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown) and through the Distribution Date, there will be a “when-issued” market in Spinco’s stock under the symbol “CVETV.” When-issued trading refers to a sale or purchase of securities made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for Spinco common stock that will be distributed to holders of Henry Schein common stock on the Distribution Date. If you own shares of Henry Schein common stock as of 5:00 p.m., New York City time on the record date, you will be entitled to Spinco common stock distributed pursuant to the Spin-off. You may trade this entitlement to Spinco common stock without the shares of Henry Schein common stock you own on the when-issued market. On the first trading day following the Distribution Date, Spinco expects when-issued trading with respect to Spinco common stock will end and regular-way trading will begin. When-issued trading is expected to begin promptly after effectiveness of the registration statement of which this prospectus forms a part, which is expected to occur no later than January 28, 2019 (assuming a continuation of the U.S. federal government shutdown) and when-issued trades are expected to settle within three days of the Distribution Date.

It is also anticipated that shortly before the record date and through the Distribution Date, there will be two markets in Henry Schein common stock: a “regular-way” market and an “ex-distribution” market (which will trade under the symbol “HSICV”). Henry Schein common stock that trades on the regular-way market will trade with an entitlement to Spinco common stock distributed pursuant to the Distribution. Shares that trade on the ex-distribution market will trade without an entitlement to Spinco common stock distributed pursuant to the Distribution.

Therefore, if you hold shares of Henry Schein common stock as of 5:00 p.m., New York City time, on the record date and you sell shares of Henry Schein common stock in the regular-way market up to and including the Distribution Date, you will be selling your right to receive Spinco common stock in the Distribution. However, if you own shares of Henry Schein common stock as of 5:00 p.m., New York City time, on the record date and sell those shares on the ex-distribution market up to and including the Distribution Date, you will still receive the Spinco common stock that you would otherwise be entitled to receive pursuant to your ownership of shares of Henry Schein common stock because you owned these shares of common stock as of 5:00 p.m., New York City time, on the record date. Ex-distribution trading is expected to begin two days before the record date and ex-distribution trades are expected to settle within three days of the Distribution Date.

Rights of Stockholders

See “Comparison of the Rights of Stockholders before and after the Transactions” for information on how the Merger will impact the rights of the stockholders of Henry Schein, Vets First Choice and Covetrus.

 

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Share Sale

On December 25, 2018, Spinco and Henry Schein entered into a Stock Subscription and Purchase Agreement (the “Share Sale Agreement”) with certain institutional accredited investors (together, the “Share Sale Investors”) whereby Spinco will, subject to the terms and conditions of the Share Sale Agreement and prior to the Distribution, issue shares of Spinco common stock representing in the aggregate up to 9.9% of the issued and outstanding shares of Spinco common stock, after giving effect to the Transactions, including the Merger, to the Share Sale Investors in a transaction that will be exempt from registration under the Securities Act (the “Share Sale”). The consummation of the Share Sale is subject to the satisfaction or waiver of certain customary closing conditions and the proceeds of the Share Sale will be paid to Spinco and distributed to Henry Schein. In connection with the Share Sale, Spinco entered into a registration rights agreement (the “Registration Rights Agreement”) whereby, pursuant to the terms of the Registration Rights Agreement, it has agreed to register the shares being purchased by the Share Sale Investors, and in connection therewith, Henry Schein has agreed to reimburse Vets First Choice and Spinco for certain costs they incur and to indemnify Vets First Choice and Spinco for certain losses they may incur, each in connection with any resale registration statement filed by Spinco as a consequence thereof. The foregoing descriptions of the Share Sale Agreement and the Registration Rights Agreement are qualified in their entirety by reference to the full texts of such agreements, which are filed as exhibits to the registration statement of which this prospectus forms a part.

 

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THE CONTRIBUTION AND DISTRIBUTION AGREEMENT

The following is a summary of material provisions of the Contribution and Distribution Agreement, which we entered into on April 20, 2018. This summary is qualified in its entirety by reference to the full text of the Contribution and Distribution Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

General

The Contribution and Distribution Agreement among Henry Schein, Spinco, Vets First Choice and the Vets First Choice Stockholders’ Representative provides for, among other matters, the principal corporate transactions required to effect the proposed contribution of the Henry Schein Animal Health Business to Spinco and distribution of Spinco common stock to Henry Schein stockholders and certain other terms governing the relationship between Henry Schein and Spinco with respect to or as a result of the Contribution, the Reorganization and the Distribution.

Preliminary Transactions

Transfer of Assets; Assumption of Liabilities

Pursuant to the Contribution and Distribution Agreement, and subject to certain exceptions, prior to the Distribution:

 

   

Henry Schein will, or will cause its subsidiaries to, transfer to Spinco or Spinco’s subsidiaries all of the right, title and interest of Henry Schein and its affiliates in assets related to the Henry Schein Animal Health Business and Spinco or its subsidiaries will assume all of the liabilities related to the Henry Schein Animal Health Business;

 

   

Spinco and its subsidiaries will transfer to Henry Schein assets to be excluded from the Henry Schein Animal Health Business, and Henry Schein or its subsidiaries will assume all of the liabilities to be excluded from the Henry Schein Animal Health Business; and

 

   

Henry Schein or its subsidiaries that are not Spinco subsidiaries, as applicable, will retain assets and liabilities that are not transferred to, or assumed by, Spinco or a Spinco subsidiary in the Reorganization.

The Henry Schein Animal Health Business (defined in the Merger Agreement as the “Spinco Business”), consists of the business of purchasing, marketing, promoting, advertising, selling, licensing, manufacturing, contract manufacturing and distributing veterinary practice management software, services and tools and veterinary supply services and products, including diagnostics, biologicals, pharmaceuticals, vaccines, parasiticides, instruments, equipment and supplies used for the maintenance, treatment and prevention of ailments of and diseases in animals, including companion animals, equine and large animals, to veterinary practitioners, animal health clinics, animal shelters, veterinary industry service providers, resellers and animal- or equine-related practitioners, as conducted and operated by Henry Schein and its subsidiaries at any time during the 12-month period prior to the Closing.

The assets to be transferred or assigned to Spinco (the “Spinco Assets”) include, among other things and subject to certain exceptions, all of the right, title and interest of Henry Schein and its affiliates as of immediately prior to the Distribution in:

 

   

the capital stock of, or equity or other ownership interest in, each subsidiary of Henry Schein that will be owned (directly or indirectly) by Spinco immediately prior to the Distribution;

 

   

all intellectual property (excluding trademarks and domain names) owned by Henry Schein or its subsidiaries and primarily used or held for use in the Henry Schein Animal Health Business and all trademarks and domain names (excluding any Henry Schein Marks) owned by Henry Schein or its subsidiaries and exclusively used or held for use in the Henry Schein Animal Health Business;

 

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all contracts pursuant to which any member of the Henry Schein Group receives from a third party a license to intellectual property that is exclusively used or exclusively held for use in the conduct of the Henry Schein Animal Health Business;

 

   

all other assets, properties, goodwill and rights of any member of the Henry Schein Group or the Spinco Group reflected in the unaudited, combined balance sheet of the Henry Schein Animal Health Business as of December 30, 2017, and any assets acquired after the date of such balance sheet that are primarily used or held for use in the operation of the Henry Schein Animal Health Business;

 

   

all assets listed in a schedule to the Contribution and Distribution Agreement;

 

   

cash and cash equivalents included in the calculation of the Spinco Net Debt Adjustment (as defined below);

 

   

certain owned and leased real property used in the Henry Schein Animal Health Business (the “Transferred Real Property”);

 

   

all products, supplies, parts and other inventories (other than certain inventory of certain members of the Henry Schein Group located in Germany, Spain and Hong Kong (the “Excluded Inventory”)) primarily used or held for use in the operation of the Henry Schein Animal Health Business or produced by the Henry Schein Animal Health Business that, immediately prior to the Contribution, are located on the Transferred Real Property;

 

   

all personal property and interests therein (including all leasehold improvements, trade fixtures, computers and related software, machinery, equipment, furniture, tools, supplies, vehicles and other tangible property of any kind) primarily used or held for use in the operation the Henry Schein Animal Health Business that, immediately prior to the Contribution, are located on the Transferred Real Property;

 

   

contracts (other than certain shared contracts and certain licenses to intellectual property that will not be transferred) that are used primarily in or related primarily to or arise primarily from the Henry Schein Animal Health Business;

 

   

rights in shared contracts that are allocated to Spinco pursuant to the Contribution and Distribution Agreement;

 

   

licenses, permits, registrations, authorizations and certificates or other rights issued or granted by any governmental authority and all pending applications therefor that are, in each case, used primarily in, or held primarily for the benefit of or arising primarily from, the Henry Schein Animal Health Business;

 

   

trade accounts and notes receivable and other amounts receivable to the extent arising from the sale or other disposition of goods, or the performance of services, by the Henry Schein Animal Health Business;

 

   

all other assets of the Spinco Group specifically assigned to any member of the Spinco Group pursuant to any other Transaction Agreement;

 

   

all claims, causes of action, refunds, credits or rights of any kind to the extent related to or arising from any other Spinco Asset or Spinco Liability (as defined below);

 

   

all books, records and other documents (including all books of account, ledgers, general, financial, accounting and personnel records, files, invoices, customers’ and suppliers’ lists, other distribution lists, operating, production and other manuals, manufacturing and quality control records and procedures, billing records, sales and promotional literature) used or held for use primarily in, or that relate primarily to or arise primarily out of, the operation of the Henry Schein Animal Health Business;

 

   

all rights of Spinco or any other member of the Spinco Group under the Contribution and Distribution Agreement or any other Transaction Agreement;

 

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all rights and interests in and to bank accounts used or held for use exclusively in the Henry Schein Animal Health Business;

 

   

insurance policies in the name of a Spinco Group member and used or held for use primarily in the operation of the Henry Schein Animal Health Business;

 

   

all intercompany receivables owed by a member of the Henry Schein Group to a member of the Spinco Group; and

 

   

all other assets that are primarily used or held for use in, or that primarily arise from, the operation or conduct of the Henry Schein Animal Health Business or that are produced by the Henry Schein Animal Health Business for use in or sale by the Henry Schein Animal Health Business that are not otherwise Excluded Assets.

The assets to be transferred or assigned to the Spinco Group will not in any event include, among other things and subject to certain other exceptions, any of the following assets (“Excluded Assets”):

 

   

all contracts to be retained by Henry Schein listed in a schedule to the Contribution and Distribution Agreement;

 

   

all rights in the shared contracts that are allocated to Henry Schein pursuant to the Contribution and Distribution Agreement;

 

   

cash and cash equivalents (other than the amount included in the calculation of the Spinco Net Debt Adjustment);

 

   

the capital stock of, or equity or other ownership interest in, each member of the Henry Schein Group;

 

   

all defenses and counterclaims relating to any Excluded Liability (as defined below) and all claims, causes of action and rights of any kind to the extent related to or arising from any other Excluded Asset or Excluded Liability;

 

   

insurance policies with respect to which a member of the Spinco Group is not the policy holder;

 

   

all rights of any member of the Henry Schein Group under the Transaction Agreements;

 

   

any ownership interests in certain shared real property;

 

   

all intercompany receivables owed by a member of the Spinco Group to a member of the Henry Schein Group that are effective or outstanding as of the Distribution, after giving effect to any settlement and payment prior to or as of the Distribution;

 

   

all other assets specifically assigned to or agreed to be retained by any member of the Henry Schein Group pursuant to the Contribution and Distribution Agreement or any other Transaction Agreement;

 

   

any other assets set forth in a schedule to the Contribution and Distribution Agreement;

 

   

Henry Schein’s interest as tenant under each lease relating to each applicable leased property subleased from Henry Schein to Spinco (until such time as such sublease is terminated and such lease is assigned from Henry Schein to Spinco pursuant to the Contribution and Distribution Agreement);

 

   

any assets, properties and rights used for the purpose of providing overhead and shared services and, other than as contemplated in the Transition Services Agreement, any rights of the Henry Schein Animal Health Business to receive from Henry Schein or any of its Affiliates any overhead and shared services; and

 

   

all intellectual property other than the intellectual property included in the Spinco Assets and the goodwill associated with or symbolized by the trademarks included in such excluded intellectual property.

 

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The liabilities that are to be assumed by Spinco (the “Spinco Liabilities”) include, among other things and subject to certain exceptions, the following liabilities:

 

   

all liabilities to the extent relating to or arising from the Henry Schein Animal Health Business or the operation thereof, as conducted at any time before, at or after the distribution time and the liabilities of or allocated to Spinco or any member of the Spinco Group under the Transaction Agreements;

 

   

all Spinco current liabilities;

 

   

all liabilities to the extent relating to the operation of any business conducted by a member of the Spinco Group at any time after the Distribution;

 

   

all liabilities (other than Spinco current liabilities) reflected as liabilities or obligations in the unaudited, combined balance sheet of the Henry Schein Animal Health Business as of December 30, 2017 (including, for the avoidance of doubt, all deferred revenue reflected therein) outstanding at the distribution time and all liabilities assumed after the date of such balance sheet which would have been reflected on such balance sheet had they been assumed on or before such date and retained as of such date;

 

   

all liabilities arising out of or resulting from the Initial Spinco Debt Financing and the Additional Financing and any other indebtedness of the Spinco Group;

 

   

all liabilities relating to or arising from any Spinco Assets (that are not Excluded Liabilities);

 

   

those liabilities under contracts that are Spinco Assets and shared contracts to the extent allocated to Spinco pursuant to the Contribution and Distribution Agreement;

 

   

all intercompany payables owed by a member of the Spinco Group to a member of the Henry Schein Group that are in respect of goods or services sold by a member of the Henry Schein Group to a member of the Spinco Group and are effective or outstanding as of the Distribution, after giving effect to any settlement and payment prior to or as of the Distribution;

 

   

all liabilities to the extent relating to or arising from a member of the Henry Schein Group’s guarantee obligations with respect to any Spinco Liabilities;

 

   

all liabilities related to employee benefits with respect to each Spinco Group Employee and former Spinco Employee arising at, prior to or following the Closing;

 

   

all liabilities with respect to Spinco benefit plans;

 

   

all liabilities set forth in a schedule to the Contribution and Distribution Agreement; and

 

   

all other agreements, obligations and liabilities of the Spinco Group under the Contribution and Distribution Agreement or any of the other Transaction Agreements.

The liabilities that are to be assumed by the Spinco Group will not in any event include, among other things and subject to certain other exceptions, any of the following liabilities (“Excluded Liabilities):

 

   

all liabilities of Henry Schein or its subsidiaries (including any liabilities of the Spinco Group) not expressly constituting Spinco Liabilities, including those relating to or arising from Henry Schein’s business other than the Henry Schein Animal Health Business and the liabilities of or allocated to the Henry Schein Group under the Transaction Agreements;

 

   

all liabilities relating to or arising from the shared contracts except to the extent assumed by Spinco pursuant to the Contribution and Distribution Agreement;

 

   

all liabilities relating to or arising from certain contracts retained by Henry Schein listed in a schedule to the Contribution and Distribution Agreement;

 

   

all liabilities relating to or arising from a member of the Spinco Group’s guarantee obligations with respect to Excluded Liabilities;

 

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all liabilities relating to or arising from any Excluded Asset, other than liabilities relating to shared locations for which a member of the Spinco Group has agreed to be responsible pursuant to the Transition Services Agreement or an applicable lease, delayed transfer assets or the provision by the Henry Schein Group of the benefit of any other Excluded Assets that the parties have agreed will be provided to Spinco after the Closing Date pursuant to an applicable agreement between the parties, in each case solely to the extent relating to or arising directly from the Henry Schein Animal Health Business;

 

   

encumbrances relating to or arising from any Excluded Liability; and

 

   

indebtedness for borrowed money (other than indebtedness reflected in the calculation of the Spinco Net Debt Adjustment and the liabilities set forth in the fourth bullet of the definition of Spinco Liabilities with respect to liabilities on the unaudited, combined balance sheet of the Henry Schein Animal Health Business as of December 30, 2017).

Henry Schein may effect the Reorganization in any form or manner that it deems necessary or desirable, so long as (i) immediately prior to the Distribution, all of the Spinco Assets and Spinco Liabilities, and no other assets or liabilities, are held by a member of the Spinco Group (other than assets and liabilities subject to the receipt of applicable consents, waivers and approvals that were not obtained on or prior to the Distribution) and (ii) any such change by Henry Schein would not be inconsistent with the intended fax-free status of the Distribution and Merger contemplated by the Transaction Agreements, compromise the ability to obtain the Spin-off Tax Opinion or cause any member of the Spinco Group to own or otherwise incur liability in respect of any Excluded Liability (other than taxes), unless Henry Schein agrees to fully indemnify such member for such liability. In addition, Henry Schein will consult in good faith with Vets First Choice regarding the material aspects of the structure of the Contribution and the form and manner of the Reorganization.

Misallocated Assets and Liabilities

In the event that at any time during the 18-month period following the Distribution, a member of the Henry Schein Group becomes aware that it possesses any assets or liabilities that should have been transferred to the Spinco Group as part of the Reorganization, Henry Schein will cause the prompt transfer of such assets or liabilities to Spinco or a member of the Spinco Group. In the event that at any time, a member of the Spinco Group becomes aware that it possesses any assets or liabilities that should not have been transferred to or remained with Spinco, the Spinco Group will cause the prompt transfer of such assets or liabilities to Henry Schein or a member of the Henry Schein Group.

Minority Interests

Prior to the Distribution, Henry Schein will use its reasonable best efforts to purchase from certain minority holders their ownership interests in the applicable operating companies of the Henry Schein Animal Health Business in exchange for cash. If Henry Schein does not acquire any such interests, they will remain outstanding and those persons owning such interests will remain as minority owners of the applicable Spinco subsidiaries after the Distribution.

Concurrently with the execution of the Contribution and Distribution Agreement, Henry Schein also entered into an Amendment to the Put Rights Agreements, dated as of April 20, 2018 (the “Put Rights Amendment”), pursuant to which Henry Schein agreed to purchase all of the equity interests of Butler Animal Health Holding Company, LLC owned by Darby Group Companies, Inc. and the equity interests of Butler Animal Health Holding Company, LLC owned indirectly by the other sellers party to the Put Rights Amendment no later than 90 days after the date of the Merger Agreement and the Contribution and Distribution Agreement, for an aggregate purchase price of $365,000,000, which transaction was consummated on May 21, 2018.

 

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Consents and Approvals

Transfers of assets and liabilities may be subject to the receipt of applicable consents, waivers and approvals. Henry Schein and Spinco are required to use their respective reasonable best efforts to obtain any third-party approval, authorization, clearance, consent, ratification, permission, exemption or waiver (each, a “Consent”) or approval of a governmental authority that is required in connection with the Contribution or any other transactions contemplated by the Contribution and Distribution Agreement; provided, that in connection with obtaining any such third-party Consent or approval of a governmental authority, neither Henry Schein nor Spinco will enter into or otherwise agree to modify any terms of any contract that is required to effect the transactions contemplated by the Contribution and Distribution Agreement that would adversely affect Spinco or any other member of the Spinco Group (including due to an increase in payment or other incremental cost) in any material respect without the prior written consent of Vets First Choice, which consent will not be unreasonably withheld, delayed or conditioned. If any such third-party Consent or approval of a governmental authority is not obtained on or prior to the Distribution, Henry Schein and Spinco are required to cooperate and use reasonable best efforts to establish arrangements, at no charge to Spinco, under which the Spinco Group or the Henry Schein Group will receive the economic benefit and assume the economic burden with respect to such assets and liabilities as closely as possible to that which would have been applicable to such group had the Consent or approval been obtained and the asset or liability transferred. For a period of 24 months following the Distribution, each party is required to use reasonable best efforts to obtain any such consents and/or approvals that were not obtained prior to the Distribution as promptly as practicable.

Consideration

Prior to the Distribution, in consideration for the Contribution, Spinco will issue to Henry Schein shares of Spinco common stock, provided that Henry Schein will in no event own less than 80% of the shares of Spinco common stock at the time of the Distribution.

Special Dividend; Additional Special Dividend; Certain Debt Repayment

Immediately prior to the Distribution, Henry Schein is required to cause Spinco to use (i) reasonable best efforts to enter into the Initial Spinco Debt Financing and the Additional Spinco Financing, and (ii) the proceeds from the Initial Spinco Debt Financing (a) to pay to Henry Schein the Special Dividend and the Additional Special Dividend, if applicable, and (b) to effect the Certain Debt Repayment. If, despite reasonable best efforts by the parties, the Initial Spinco Debt Financing cannot be completed fully, the amount of the Initial Spinco Debt Financing will be reduced to the level at which it can be so completed (but may not be reduced to an amount less than $900,000,000 without the prior written consent of Vets First Choice). In the event that (i) the Initial Spinco Debt Financing, as so reduced, cannot be completed fully and (ii) Henry Schein elects, in its sole discretion, to receive notes or debt securities for all or part of the Special Dividend, Spinco will issue either notes or debt securities to Henry Schein in an aggregate principal amount equal to the amount of the financing shortfall, in a manner that is not reasonably expected to result in the Spin-off and certain related transactions failing to qualify for their intended tax treatment, as determined by Henry Schein in its reasonable discretion.

The financing associated with these transactions is described further in “The Merger Agreement—Covenants—Financing” and “Description of Material Indebtedness.”

Certain Reimbursements

On the 90th day following the Closing, Spinco will pay Henry Schein an additional amount, currently expected to be approximately $7 million, to reimburse Henry Schein for certain costs incurred by Henry Schein prior to the Closing in connection with the Henry Schein Animal Health Business.

 

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Certain Additional Contributions

On or prior to Closing, Henry Schein will, or will cause its subsidiaries to, transfer to Spinco or Spinco’s subsidiaries all of the right, title and interest of Henry Schein and its affiliates in certain assets comprised in the business of certain subsidiaries of Henry Schein that will not be transferred as part of the Contribution, and Spinco or Spinco’s subsidiaries will accept and assume all of the liabilities relating to or arising from such businesses. In consideration for the transfer of such additional assets, Spinco will pay Henry Schein $14,036,935 on the 90th day following the Closing.

The Distribution

Following the Contribution, the Reorganization, the payment of the Special Dividend and the Additional Special Dividend, if applicable, the effectuation of the Certain Debt Repayment and the consummation of the Share Sale, subject to the satisfaction or, to the extent permitted by law, waiver of the conditions to the Distribution described below, Henry Schein will declare and effect the Distribution to each holder of issued and outstanding shares of Henry Schein common stock as of the record date for the Distribution (excluding any shares of Henry Schein common stock otherwise held by a member of the Henry Schein Group), such that each such holder will receive a pro-rata share of the aggregate shares of Spinco common stock held by Henry Schein as of the time of the Distribution (after giving effect to the Share Sale). Any fractional shares of Spinco common stock that would otherwise be issuable to a Henry Schein stockholder will be aggregated and each such Henry Schein stockholder will be issued in respect of all such fractional shares a number of shares of Spinco common stock equal to such aggregate number, rounded to the nearest whole number. The Distribution will occur on the same date that the Merger is consummated.

Conditions to the Distribution

Henry Schein’s obligations to effect the Distribution are subject to the satisfaction or, to the extent permitted by law, waiver by Henry Schein of each of the following conditions: (i) the consummation of the Reorganization; (ii) the payment of the Special Dividend and the Additional Special Dividend, if applicable, and the effectuation of the Certain Debt Repayment; (iii) the procurement by Spinco of all material licenses, permits, registrations, authorizations or certificates necessary to operate the Henry Schein Animal Health Business following the Effective Time, the failure of which to be obtained would cause a condition to Vets First Choice’s obligation to consummate the Merger not to be satisfied, if and to the extent such condition is not waived by Vets First Choice; (iv) receipt by Henry Schein and Spinco of the Spin-off Tax Opinion; and (v) the satisfaction or waiver of the conditions contained in the Merger Agreement.

Working Capital and Net Indebtedness Adjustments

The Contribution and Distribution Agreement provides that within 90 days after the Distribution, Spinco will cause to be prepared and delivered to Henry Schein a certificate signed by an executive officer of Spinco certifying a statement setting forth Spinco’s good faith calculations of:

 

   

the amount (positive or negative) equal to (i) the difference between the current assets (which assets will take into account, among other things, an amount equal to the net book value of Excluded Inventory) and current liabilities (which liabilities will exclude, among other things, any shared expenses borne by Spinco) of Spinco (defined in the Contribution and Distribution Agreement as the “Spinco Working Capital”) as of 11:59 p.m., New York time, on the Distribution Date (the “Calculation Time”) minus (ii) the sum of $598,000,000 plus an amount equal to certain reimbursements made by Spinco to Henry Schein at Closing, not to exceed $1,312,500 (defined in the Contribution and Distribution Agreement as the “Spinco Target Working Capital”); provided that an adjustment will only be used in calculating the Spin-off Adjustment Amount (as defined below) to the

 

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extent that the Spinco Working Capital as of the Calculation Time is greater or less than the Spinco Target Working Capital by more than $30,000,000 (the “Spinco Working Capital Adjustment”), and

 

   

the amount (positive or negative) equal to the difference between (i) the amount (positive or negative) determined as of the Calculation Time and without giving effect to the consummation of the Transactions equal to (a) the indebtedness of the Spinco Group (including all indebtedness represented by the Initial Spinco Debt Financing but excluding all intercompany indebtedness owed from a member of the Spinco Group to a member of the Henry Schein Group to the extent such intercompany indebtedness has been repaid or equitized or the receivable in respect thereof has been transferred to a member of the Spinco Group, in each case prior to the Distribution) minus (b) the amount equal to the cash and cash equivalents of the Spinco Group (which amount shall include all amounts drawn from the Initial Spinco Debt Financing that are not used to fund the payment of the Special Dividend and the Certain Debt Repayment and shall exclude all cash and cash equivalents of the Spinco Group used to pay the Special Dividend, the Additional Special Dividend if applicable, and the Certain Debt Repayment) and (ii) the sum of the Special Dividend, the Additional Special Dividend and the amount of the Certain Debt Repayment (the “Spinco Net Debt Adjustment”).

Henry Schein may, within 45 days of its receipt of such statement, notify Spinco of any proposed adjustments to any of the items set forth in the statement. If Spinco has not received such a notice within such 45-day period, the calculation of the Spinco Adjustment Amount sent forth in the statement delivered by Spinco will be deemed to be final. Alternatively, if Henry Schein sends a notice with proposed adjustments within such 45-day period, the parties will have up to 60 days (including 30 days of negotiation between the parties and, upon failure to agree, 30 days of negotiation to be conducted by experienced business representatives of each party) to resolve any disputes they may have over the statement and agree upon a final, conclusive calculation of such amounts, and if they are unable to resolve such disputes, they will retain an accounting firm to make a final and binding determination of the amounts within 30 days of the appointment of such accounting firm.

After the amounts are finally determined, if the Spin-off Adjustment Amount (as defined below) is positive, Spinco is required to pay Henry Schein an amount equal to the lesser of (i) $150,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Henry Schein pursuant to the Tax Matters Agreement) and (ii) the Spin-off Adjustment Amount, and if the Spin-off Adjustment Amount is negative, Henry Schein is required pay to Spinco an amount equal to the lesser of (a) $150,000,000 (less all amounts paid or payable in respect of certain pre-closing taxes attributable to Henry Schein pursuant to the Tax Matters Agreement) and (b) the absolute value of the Spin-off Adjustment Amount.

The “Spin-off Adjustment Amount” is an amount (positive or negative) equal to (i) the Spinco Working Capital Adjustment, plus (ii) $37,500,000 for transaction expenses allocated to Henry Schein, minus (iii) the Spinco Net Debt Adjustment, minus (iv) an amount equal to the net book value of the Excluded Inventory.

Covenants

Each of Henry Schein and Spinco has agreed to take certain actions after the execution of the Contribution and Distribution Agreement.

These actions include, among other things, the following:

 

   

termination of certain intercompany agreements between any member of the Henry Schein Group, on the one hand, and any member of the Spinco Group, on the other hand, on the day prior to the Distribution (other than commercial arrangements that will be terminable by Henry Schein or Spinco at any time after the Distribution on reasonable prior written notice);

 

   

to the extent necessary, the assignment to a member of the Spinco Group of agreements with certain employees that contain restrictive covenants related to confidentiality, ownership of intellectual property, non-competition or non-solicitation;

 

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using reasonable best efforts to separate certain contracts under which Henry Schein or any of its affiliates is a party pursuant to which the counterparty to such contract provides products or services to, or licenses intellectual property for use in, both the Henry Schein Animal Health Business and Henry Schein’s other businesses, into separate contracts, such obligation to use reasonable best efforts to last for a period of 24 months following the Distribution;

 

   

amending contracts governing bank and brokerage accounts so that all accounts owned by the Spinco Group are de-linked from accounts owned by the Henry Schein Group and all accounts owned by the Henry Schein Group are de-linked from accounts owned by the Spinco Group;

 

   

except as otherwise agreed between Henry Schein and Vets First Choice, Henry Schein causing each employee and director of Henry Schein and its subsidiaries who will not, from and after the Effective Time, be an officer or director of Spinco, to resign from their respective positions at Spinco and causing each employee and director of Spinco and its subsidiaries who will not be employed by Henry Schein or its subsidiaries after the Distribution to resign from their respective positions at Henry Schein; and

 

   

cooperating in seeking to release the Henry Schein Group, on the one hand, and the Spinco Group, on the other hand, from guarantee obligations that either group may have entered into with respect to the other group’s business and providing indemnification with respect to any losses in connection with such guarantees.

Covetrus Board of Directors

Following the Effective Time, the members of the Covetrus Board and of the committees thereof will be determined in accordance with a schedule to the Contribution and Distribution Agreement. The schedule provides that the Covetrus Board will initially be comprised of 11 directors. Six directors will be designated by Henry Schein, including two directors who may be affiliated with Henry Schein, and four independent directors unaffiliated with Henry Schein. Henry Schein has designated Deborah Ellinger, Sandra Helton, Philip Laskawy, Mark Manoff, Steven Paladino and Benjamin Wolin. Five directors will be designated by Vets First Choice, including two directors who may be affiliated with Vets First Choice, and three independent directors unaffiliated with Vets First Choice. Vets First Choice has designated Betsy Atkins, Ted McNamara, Ravi Sachdev, Benjamin Shaw and David Shaw. Each of Messrs. Laskawy, Manoff, McNamara, Sachdev and Wolin and Mmes. Atkins, Ellinger and Helton will be independent directors. David Shaw, Chairman of the Vets First Choice Board and Co-Founder of Vets First Choice, will serve as Chairman of the Covetrus Board. Henry Schein has the right to designate the lead independent director of the Covetrus Board, who will also serve as the chair of the Nominating and Governance Committee, and has designated Philip Laskaway to serve in that capacity.

For the first three years following the Merger until the 2022 annual meeting of stockholders, the Covetrus Board will be divided into three classes, serving staggered terms of one, two and three years, respectively. Each of Messrs. D. Shaw and Wolin and Ms. Helton will serve for an initial term until the 2020 annual meeting of stockholders. Each of Messrs. Manoff, McNamara and Paladino and Ms. Atkins will serve for an initial term until the 2021 annual meeting of stockholders. Each of Messrs. Laskawy, Sachdev and B. Shaw and Ms. Ellinger will serve for an initial term until the 2022 annual meeting of stockholders. Any vacancies or newly created directorships will be filled only by the affirmative vote of a majority of our directors then in office, even if less than a quorum, or by a sole remaining director. Each director will hold office until his or her successor has been duly elected and qualified or until his or her earlier death, resignation or removal. Commencing with the 2022 annual meeting of stockholders, each director will be elected annually and will hold office for a one year term until the next annual meeting of stockholders.

Covetrus Executive Officers

The Contribution and Distribution Agreement provides that Henry Schein and Vets First Choice will mutually select the executive officers (other than the Chief Executive Officer) of Covetrus. Benjamin Shaw,

 

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Chief Executive Officer and Co-Founder of Vets First Choice, will serve as the Chief Executive Officer of Covetrus. The senior management team of Covetrus will be comprised of members of senior management of the Henry Schein Animal Health Business and Vets First Choice.

Mutual Release; Survival and Indemnification

Spinco and Henry Schein have each agreed, on behalf of itself and each of its subsidiaries, to release the other party and the other party’s respective subsidiaries, and its and their respective officers, directors, agents, security holders, advisors and representatives, from any and all liabilities that it has or ever had or ever will have against the other party that exist, arise out of or relate to events, circumstances or actions taken by the other party occurring or failing to occur or any conditions existing at or prior to the Effective Time, including in connection with the Distribution and the other Transactions contemplated by the Transaction Agreements. The mutual release is subject to specified exceptions set forth in the Contribution and Distribution Agreement. The specified exceptions include:

 

   

any intercompany agreements not terminated by the date of the Distribution pursuant to the terms of the Contribution and Distribution Agreement (or any amounts due and owing prior to the applicable termination date under any intercompany agreements that are terminated by the date of the Distribution);

 

   

any liability, loss or other obligation assumed, transferred, assigned or allocated to Spinco or to Henry Schein in accordance with, or any liability, loss or other obligation of either of them arising under the Contribution and Distribution Agreement, any other Transaction Agreements or any of the contracts contemplated thereby; and

 

   

the ability of any person to enforce its rights under the Contribution and Distribution Agreement, any other Transaction Agreement or any of the contracts contemplated thereby.

The covenants, obligations and agreements contained in the Contribution and Distribution Agreement to be performed (i) prior to the Effective Time will survive for 15 months following the Effective Time and (ii) following the Effective Time will survive in accordance with their respective terms, if specified, and otherwise, indefinitely. However, no claim may be asserted by Spinco or its subsidiaries or related parties arising from any failure to transfer any Spinco Asset to Spinco unless such claim is asserted prior to the date that is 18 months from the date of the Distribution. Furthermore, any breach of the representation contained in the Merger Agreement that the information supplied by each of Henry Schein, Spinco or Vets First Choice for inclusion in this prospectus does not contain an untrue statement of a material fact or omission of a material fact will survive for two years following the Effective Time.

Spinco and Vets First Choice have agreed, on a joint and several basis, to indemnify, defend and hold harmless the Henry Schein Group and certain other related parties from and against all indemnifiable losses relating to or arising from (i) the Spinco Liabilities, (ii) any breach by Vets First Choice or its subsidiaries of any obligation, covenant or agreement pursuant to the Merger Agreement to be performed by them from and after the Effective Time and/or pursuant to the other Transaction Agreements prior or subsequent to the Effective Time, (iii) any breach by any member of the Spinco Group of any obligation, covenant or agreement pursuant to the Transaction Agreements to be performed by them subsequent to the Effective Time (in the case of each of clauses (ii) and (iii), in accordance with the applicable survival period(s) set forth therein), and (iv) any breach of the representation contained in the Merger Agreement that the information supplied by Vets First Choice for inclusion in this prospectus does not contain an untrue statement of a material fact or omission of a material fact; provided that a claim may only be brought with respect to any breach thereof during the two-year period following the Effective Time.

Henry Schein has agreed to indemnify, defend and hold harmless Spinco and its subsidiaries and certain other related parties from and against all indemnifiable losses relating to or arising from (i) the Excluded

 

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Liabilities, (ii) any breach by any member of the Henry Schein Group of any obligation, covenant or agreement pursuant to the Merger Agreement to be performed by them from and after the Effective Time and/or pursuant to the other Transaction Agreements prior or subsequent to the Effective Time, (iii) any breach by any member of the Spinco Group of any obligation, covenant or agreement pursuant to the Transaction Agreements (other than the Merger Agreement) to be performed by them prior to the Effective Time (in the case of each of clauses (ii) and (iii), in accordance with the applicable survival period(s) set forth therein) and (iv) any breach of the representations contained in the Merger Agreement that the information supplied by Henry Schein or Spinco for inclusion in this prospectus does not contain an untrue statement of a material fact or omission of a material fact; provided that a claim may only be brought with respect to any breach thereof during the two-year period following the Effective Time.

Spinco has also agreed to indemnify Henry Schein, its affiliates and certain other related parties from and against all indemnifiable losses arising from the use of any Henry Schein Marks by Spinco or any of its subsidiaries in violation of or outside the scope permitted by the Contribution and Distribution Agreement. See “Contribution and Distribution Agreement—Intellectual Property Matters.”

Expenses

All fees and expenses incurred by the parties in connection with the transactions contemplated by the Transaction Agreements will be paid as provided for in the Merger Agreement, provided that Spinco will reimburse Henry Schein for, and indemnify Henry Schein against, all financial printer costs in connection with the preparation of any registration statement and all mailing costs associated with delivery to Henry Schein stockholders of such registration statement. See “The Merger Agreement—Fees and Expenses.”

Additional Post-Closing Covenants

The Contribution and Distribution Agreement contains additional post-closing covenants of Henry Schein, including:

 

   

settling and paying all intercompany receivables, payables or loans (other than those specifically provided for under, or created or required by, the Transaction Agreements), if any, in respect of commercial transactions that exist as of the Closing Date;

 

   

using reasonable best efforts to assert claims of Spinco under occurrence-based insurance policies with respect to incidents occurring prior to the Distribution and to assist Spinco in pursuing and settling claims reported under claims-made insurance policies prior to the Distribution (subject to cost reimbursement); and

 

   

providing access to certain books and records relating to the Henry Schein Animal Health Business following the Distribution.

The Contribution and Distribution Agreement contains additional post-closing covenants of Spinco, including:

 

   

settling and paying all intercompany receivables, payables or loans (other than those specifically provided for under, or created or required by, the Transaction Agreements), if any, in respect of commercial transactions that exist as of the Closing Date; and

 

   

changing the name of each member of the Spinco Group to another name that excludes all Henry Schein Marks.

Intellectual Property Matters

Pursuant to the terms of the Contribution and Distribution Agreement, Spinco acknowledges that all right, title and interest in, to and under the Henry Schein Marks are owned by Henry Schein. To provide for an orderly

 

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phase-out of the Henry Schein Marks, the Contribution and Distribution Agreement also provides that Spinco may use the Henry Schein Marks to advertise and sell certain existing products and certain other products, supplies, parts and inventory that are identical to the existing products and purchased by Spinco during the 30-day period following the Effective Time.

Effective as of the Closing Date, pursuant to the terms of the Contribution and Distribution Agreement, Henry Schein will grant Spinco a non-exclusive, royalty-free license under certain retained intellectual property (excluding trademarks and domain names) owned by Henry Schein and necessary to the Henry Schein Animal Health Business and Spinco will grant Henry Schein a non-exclusive, royalty-free license under intellectual property (excluding trademarks and domain names) included in the Spinco Assets or owned by Spinco and its subsidiaries and necessary to the operation of Henry Schein’s retained businesses.

Amendment; Waiver

The Contribution and Distribution Agreement may be amended only by a written instrument signed by each of the parties, and any right may be waived only in a written instrument signed by the party against whom the waiver is to be effective. No failure or delay by any party to the Contribution and Distribution Agreement to exercise a right operates as a waiver thereof.

Termination

In the event of a termination of the Merger Agreement prior to the Effective Time, the Contribution and Distribution Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution by and in the sole discretion of Henry Schein; provided that if Henry Schein chooses not to terminate the Contribution and Distribution Agreement, Vets First Choice and its affiliates will have no liability or obligations with respect to the Contribution and Distribution Agreement and the Contribution and Distribution Agreement will be of no further force and effect with respect to Vets First Choice and its affiliates.

 

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THE MERGER AGREEMENT

The following is a summary of material provisions of the Merger Agreement, which Spinco entered into on April 20, 2018. This summary is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Under the Merger Agreement and in accordance with the DGCL, at the effective time of the Merger (the “Effective Time”), Merger Sub will be merged with and into Vets First Choice.

As a result of the Merger, the separate corporate existence of Merger Sub will cease and Vets First Choice will continue as the Surviving Company and a direct, wholly owned subsidiary of Spinco and will succeed to and assume all the rights, powers and privileges and franchises, and be subject to all of the obligations of Merger Sub in accordance with the DGCL and upon the terms set forth in the Merger Agreement. The certificate of incorporation and by-laws of Merger Sub, as in effect immediately prior to the Effective Time and in a form mutually agreed by the parties, will be the certificate of incorporation and by-laws of the Surviving Company from and after the Effective Time until amended in accordance with applicable law and such certificate of incorporation and by-laws (except that the name of the Surviving Company will be “Direct Vet Marketing, Inc.”). The certificate of incorporation and by-laws of Spinco will be amended prior to the Effective Time to be the certificate of incorporation and by-laws of Covetrus from and after the Effective Time until amended in accordance with applicable law and such certificate of incorporation and by-laws and will be in forms mutually satisfactory to the parties and incorporate provisions embodying the features set forth in a schedule to the Contribution and Distribution Agreement. See “Description of Capital Stock” and “Comparison of Rights of Stockholders Before and After the Transactions” for summaries of the expected provisions of the amended and restated certificate of incorporation and amended and restated by-laws of Spinco.

Under the terms of the Merger Agreement, and subject to applicable law, Spinco, Merger Sub and Vets First Choice will take all such action as may be necessary to cause such individuals as may be mutually agreed by the parties to be the directors and officers of the Surviving Company from and after the Effective Time, to hold office until their successors are duly elected and qualified, or their earlier death, resignation or removal.

Closing and Effective Time

Under the terms of the Merger Agreement, unless the transactions contemplated under the Merger Agreement have been abandoned and the Merger Agreement has been terminated, the closing of the Merger (the “Closing”) will take place at 10:00 a.m., New York time, on (i) the earliest date that is (a) the last business day of a calendar month and (b) no earlier than the fifth business day following the first date on which the satisfaction or, to the extent permitted by applicable law, waiver of the conditions precedent to the Merger occurs or (ii) such other date as is agreed to in writing by the parties.

On the Closing Date, Merger Sub and Vets First Choice will execute and file with the office of the Secretary of State of the State of Delaware a certificate of merger executed in accordance with the DGCL. The Merger will become effective at the time of filing of the certificate of merger, or at such later time as is agreed upon by the parties and set forth in the certificate of merger. We cannot assure you on what date we will consummate the Merger.

Merger Consideration

The Merger Agreement provides that, as of the Effective Time, and without any action on the part of any of Henry Schein, Spinco, Merger Sub or Vets First Choice, or any holder of capital stock of Henry Schein, Spinco, Merger Sub or Vets First Choice, each share of Merger Sub common stock issued and outstanding immediately prior to the Effective Time will be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Company. Each share of Vets First Choice

 

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capital stock issued and outstanding immediately prior to the Effective Time (other than the Excluded Shares, which will be cancelled) will be converted into (i) the right to receive, on a pro rata basis, a number of shares of Spinco common stock equal to the quotient obtained by dividing (a) the Aggregate Closing Merger Consideration (as defined below) by (b) the number of shares (vested or unvested) of Vets First Choice capital stock issued and outstanding on a fully diluted basis as of the Effective Time calculated using the treasury stock method (the “Vets First Choice Fully Diluted Share Number,” and clause (i), the “Closing Per Share Merger Consideration”), and (ii) a non-transferable contingent right to any cash and the Escrowed Shares attributable to such share of Vets First Choice capital stock pursuant to the Merger Agreement and the Escrow Agreement (the “Additional Per Share Merger Consideration, and clauses (i) and (ii) collectively, the “Per Share Merger Consideration”).

 

   

The “Aggregate Closing Merger Consideration” is (i) a number of shares of Spinco common stock obtained by dividing (a) the Admiral Fully Diluted Share Number (as defined below) by (b) the Conversion Factor (as defined below), minus (ii) the number of Escrowed Shares.

 

   

The “Admiral Fully Diluted Share Number” is a number of shares of Spinco common stock equal to the sum, without duplication, of (i) the aggregate number of shares of Spinco common stock distributed to holders of Henry Schein common stock pursuant to the Distribution, (ii) the aggregate number of shares of Spinco common stock issued to the Share Sale Investors, and (iii) the aggregate number of shares of Spinco common stock underlying Spinco RSU Awards and Spinco Restricted Stock issued to Spinco Group Employees (each as defined in the Transaction Agreements).

 

   

The “Conversion Factor” is the excess of 2.24633739049641 over the product of (i) the sum of the amount of (a) the Special Dividend, (b) the Certain Debt Repayment and (c) the JV Minority Equity Value (as defined below) and (ii) 0.000000000485673.

 

   

The “JV Minority Equity Value” means, with respect to certain Spinco subsidiaries, as of the Effective Time, the product of (i) the equity value attributable to such Spinco subsidiary and (ii) a fraction, of which (a) the numerator is the outstanding equity or other ownership interest in such Spinco subsidiary owned by minority holders in such Spinco subsidiary and (b) the denominator is the total number of outstanding equity or other ownership interest in such Spinco subsidiary, in each case, as of immediately following the Distribution.

The Contribution and Distribution Agreement provides that the sum of the Special Dividend and Certain Debt Repayment will be $1,120,000,000. However, the actual value of the JV Minority Equity Value required to determine the Conversion Factor will not be known with certainty until immediately prior to the Effective Time. The JV Minority Equity Value will depend upon whether minority equity interests in certain joint ventures held by the minority holders are repurchased for cash or remain outstanding. The JV Minority Equity Value is currently expected to range from $0 to approximately $150,467,528.

Based on the Conversion Factor formula, a greater aggregate amount of the Special Dividend, the Certain Debt Repayment and/or the JV Minority Equity Value will result in a lower Conversion Factor, and will therefore result in a greater number of shares of Spinco common stock comprising the Aggregate Closing Merger Consideration that will be distributed to Vets First Choice stockholders and, a greater number of shares of Spinco common stock comprising the Closing Per Share Merger Consideration payable with respect to each share of Vets First Choice capital stock pursuant to the Merger. Conversely, a lower amount of the Special Dividend, the Certain Debt Repayment and/or the JV Minority Equity Value will result in a higher Conversion Factor, and will therefore result in a lower number of shares of Spinco common stock comprising the Aggregate Closing Merger Consideration that will be distributed to Vets First Choice stockholders and, as a result, fewer shares of Spinco common stock comprising the Closing Per Share Merger Consideration payable with respect to each share of Vets First Choice capital stock pursuant to the Merger.

Set forth below are sample calculations of the Conversion Factor and the Per Share Merger Consideration assuming (i) all Escrowed Shares are released to the Vets First Choice stockholders, (ii) the sum of the Special Dividend and Certain Debt Repayment equaling $1,120,000,000, (iii) the minimum and maximum amounts of

 

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the JV Minority Equity Value, (iv) an Admiral Fully Diluted Share Number of 71,421,000, which represents the Admiral Fully Diluted Share Number if determined based on current assumptions, and (v) a Vets First Choice Fully Diluted Share Number of 87,525,120, which represents the Vets First Choice Fully Diluted Share Number if determined based on current assumptions. The sample calculations demonstrate the calculation of the highest and lowest anticipated potential Conversion Factors of 1.70238363 and 1.62930561, which correspond to the lowest and highest currently anticipated potential Per Share Merger Consideration of approximately 0.47933129 shares of Spinco common stock and 0.50083037 shares of Spinco common stock, respectively.

Example 1: Scenario assuming the minimum JV Minority Equity Value ($0):

 

   

Highest anticipated Conversion Factor = 1.70238363

   

Lowest currently anticipated Aggregate Closing Merger Consideration = approximately 41,953,528 shares of Spinco common stock

   

Lowest currently anticipated Per Share Merger Consideration = approximately 0.47933129 shares of Spinco common stock

   

Minimum anticipated percentage of shares of Spinco common stock allocated to Vets First Choice stockholders = approximately 37.0%

   

Maximum anticipated percentage of shares of Spinco common stock represented by the Admiral Fully Diluted Share Number = approximately 63.0%

Example 2: Scenario assuming the maximum JV Minority Equity Value ($150,467,528):

 

   

Lowest anticipated Conversion Factor = 1.62930561

   

Highest currently anticipated Aggregate Closing Merger Consideration = approximately 43,835,238 shares of Spinco common stock

   

Highest currently anticipated Per Share Merger Consideration = approximately 0.50083037 shares of Spinco common stock

   

Maximum anticipated percentage of shares of Spinco common stock allocated to Vets First Choice stockholders = approximately 38.0%

   

Minimum anticipated percentage of shares of Spinco common stock represented by the Admiral Fully Diluted Share Number = approximately 62.0%

The final amount of the Per Share Merger Consideration will be determined after the Effective Time, based on the number of Escrowed Shares (if any) released to Vets First Choice stockholders and any cash attributable to each share of Vets First Choice capital stock as part of the Additional Per Share Merger Consideration pursuant to the Merger Agreement and the Escrow Agreement.

Prior to the Closing Date, we will disclose our estimates of (i) the JV Minority Equity Value and the Conversion Factor, (ii) the Admiral Fully Diluted Share Number and Vets First Choice Fully Diluted Share Number, and (iii) the Aggregate Closing Merger Consideration and the Closing Per Share Merger Consideration. Although we will not be able to provide the final definitive amount of the Closing Per Share Merger Consideration until the Closing Date and the final definitive amount of the Per Share Merger Consideration until after the Effective Time upon determination of the Additional Per Share Merger Consideration, it is expected that, immediately after the consummation of the Merger, on a fully diluted basis and subject to certain adjustments, (i) approximately 63% of the shares of Spinco common stock are (a) expected to be owned by Spinco stockholders who held shares of Spinco common stock following the Distribution and immediately prior to the Merger, including the Share Sale Investors, and (b) expected to underlie certain equity awards held by certain employees of the Henry Schein Animal Health Business (who will be employees of the Combined Company after completion of the Transactions) and (ii) approximately 37% of the shares of Spinco common stock (including the Escrowed Shares) are (a) expected to be owned by stockholders of Vets First Choice immediately prior to the Merger and (b) expected to underlie certain equity awards held by certain employees of Vets First Choice (who will be employees of the Combined Company after completion of the Transactions).

If the Series Preferred Issue Price of any share of Vets First Choice preferred stock, plus any dividends declared but unpaid thereon, is greater than the Closing Per Share Merger Consideration, the provisions of the

 

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Merger Agreement allocating the Closing Per Share Merger Consideration among the Vets First Choice stockholders will be deemed to be amended and restated to give effect to the applicable provisions of the Vets First Choice certificate of incorporation.

Any fractional shares of Spinco common stock that would otherwise be issuable to a Vets First Choice stockholder will be aggregated and each such Vets First Choice stockholder will be issued in respect of all such fractional shares a number of shares of Spinco common stock equal to such aggregate number, rounded to the nearest whole number. Following the Effective Time, all shares of Vets First Choice capital stock will be automatically cancelled and cease to exist.

Exchange of Per Share Merger Consideration

At or prior to the Effective Time, Spinco will deposit with the Exchange Agent evidence of Spinco common stock in book-entry form representing the aggregate Closing Per Share Merger Consideration issuable to Vets First Choice stockholders as of the Effective Time.

Promptly before the Effective Time, Spinco will cause the Exchange Agent to mail to each Vets First Choice stockholder a letter of transmittal and instructions for surrendering certificates of Vets First Choice capital stock in exchange for payment of the Closing Per Share Merger Consideration. Then, promptly after the Effective Time, Spinco will cause the Exchange Agent to distribute to each Vets First Choice stockholder that delivers to the Exchange Agent such stockholder’s certificate(s) of Vets First Choice capital stock (or affidavits of loss in lieu thereof), a duly completed and validly executed letter of transmittal and such other documents as may be required pursuant to mailed instructions, the number of shares of Spinco common stock (in book-entry form) representing the Closing Per Share Merger Consideration with respect to the shares of Vets First Choice capital stock held by such Vets First Choice stockholder as of immediately prior to the Effective Time and, promptly following the final determination of the Merger Adjustment Amount (defined below), any amount payable in respect of the Additional Per Share Merger Consideration.

Dissenting Shares

Shares of Vets First Choice capital stock outstanding immediately prior to the Effective Time and held by a Vets First Choice stockholder who does not vote or execute a consent in favor of the Merger and is entitled to demand and has properly demanded appraisal for such shares in accordance with Section 262 of the DGCL will not be converted into the right to receive the Per Share Merger Consideration and will instead represent the right to receive payment of the fair value of such dissenting shares under the DGCL. A proxy or vote against the Merger or a failure to deliver a consent will not in and of itself constitute such a demand.

Escrowed Shares

On or prior to the Closing Date, Henry Schein, Spinco, Vets First Choice, the Vets First Choice Stockholders’ Representative and the Escrow Agent will enter into the Escrow Agreement, pursuant to which Spinco will deposit in the Escrow Account, on or prior to the Effective Time, the Escrowed Shares, which shares will be held in escrow by the Escrow Agent pursuant to the terms of the Merger Agreement and the Escrow Agreement. The Escrowed Shares will be held in escrow to secure assets for the potential payment of the post-closing adjustment and/or to satisfy the potential obligation of the Vets First Choice stockholders to make a Pre-Closing Tax Indemnity Payment, each as contemplated in the Merger Agreement.

Pursuant to the Merger Agreement, (i) if, upon the final determination of the final closing statement pursuant to the Merger Agreement, the Merger Adjustment Amount is negative and/or (ii) upon any determination that Spinco or its affiliates is entitled to a Pre-Closing Tax Indemnity Payment from Vets First Choice stockholders, the Escrow Agent will distribute an amount of Escrowed Shares with a value equal to the absolute value of the Merger Adjustment Amount and/or the Pre-Closing Tax Indemnity Payment (in each case assuming a price per share of Spinco common

 

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stock determined in accordance with the terms of the Escrow Agreement), as applicable, to Spinco, and any such shares of Spinco common stock will thereafter be cancelled by Spinco and no longer be outstanding. Upon the later to occur of (i) the first anniversary of the Closing Date and (ii) the date on which the final outstanding indemnification claim relating to the Pre-Closing Tax Indemnity Payment is resolved (and following the release of any post-closing adjustment related payments or Pre-Closing Tax Indemnity Payments made by the Escrow Agent to Spinco), any Escrowed Shares remaining in the Escrow Account will be distributed to each Vets First Choice stockholder in such proportion as is represented by a fraction, (a) the numerator of which is the number of shares of Vets First Choice capital stock held by each such Vets First Choice stockholder as of immediately prior to the Effective Time and (b) the denominator of which is the Vets First Choice Fully Diluted Share Number.

This summary of the treatment of the Escrowed Shares is qualified in its entirety by reference to the Merger Agreement and the form of Escrow Agreement, each of which is included as an exhibit to the registration statement of which this prospectus forms a part.

Post-Closing Working Capital, Net Indebtedness and Transaction Expenses Adjustments

The Merger Agreement provides that within 90 days following the Distribution, Spinco will cause to be prepared and delivered to the Vets First Choice Stockholders’ Representative a certificate signed by an executive officer of Spinco certifying a statement setting forth Spinco’s good faith calculation of:

 

   

the amount of transaction expenses allocated to or borne by Vets First Choice or its subsidiaries in excess of $25,000,000 (defined in the Merger Agreement as the “Voyager Transaction Expenses Amount”);

 

   

the amount (positive or negative) equal to (i) the difference between the current assets and current liabilities of Vets First Choice (defined in the Merger Agreement as the “Voyager Working Capital”) as of the Calculation Time minus (ii) $2,500,000 (defined in the Merger Agreement as the “Voyager Target Working Capital”); provided that such adjustment will only be used in calculating the Merger Adjustment Amount (as defined below) to the extent the Voyager Working Capital at the Calculation Time is greater or less than the Voyager Target Working Capital by more than $1,500,000 (defined in the Merger Agreement as the “Voyager Working Capital Adjustment”);

 

   

the amount (positive or negative) equal to the difference between (i) the indebtedness of Vets First Choice and its subsidiaries minus the amount equal to the sum of (a) the cash and cash equivalents of Vets First Choice and its subsidiaries and (b) all cash and cash equivalents of Vets First Choice and its subsidiaries used by Vets First Choice to pay Vets First Choice transaction expenses or shared expenses prior to the Calculation Time, in each case, determined as of the Calculation Time, minus (ii) negative $25,000,000 (as defined in the Merger Agreement as the “Voyager Net Debt Adjustment”); and

 

   

the amount (positive or negative) equal to the Voyager Working Capital Adjustment minus the Voyager Net Debt Adjustment minus the Voyager Transaction Expenses Amount (the “Merger Adjustment Amount”).

The Vets First Choice Stockholders’ Representative may, within 45 days of its receipt of such statement, notify Spinco of any proposed adjustments to any of the items set forth in the statement. If Spinco has not received such a notice within such 45-day period, the calculation of the Merger Adjustment Amount sent forth in the statement delivered by Spinco will be deemed to be final. Alternatively, if the Vets First Choice Stockholders’ Representative sends a notice with proposed adjustments within such 45-day period, the parties will have up to 60 days (including 30 days of negotiation between the parties and, upon failure to agree, 30 days of negotiation to be conducted by experienced business representatives of each party) to resolve any disputes they may have over the calculations and agree upon a final, conclusive calculation of such amounts, and if they are unable to resolve such disputes, they will retain an accounting firm to make a final and binding determination of such amounts within 30 days of the appointment of such accounting firm.

 

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If the Merger Adjustment Amount is positive, Spinco will pay to the Exchange Agent the lesser of (i) $100,000,000 and (ii) the Merger Adjustment Amount, which amount will be distributed to each Vets First Choice stockholder in such proportion as is represented by a fraction, (a) the numerator of which is the number of shares of Vets First Choice capital stock held by each such Vets First Choice stockholder as of immediately prior to the Effective Time and (b) the denominator of which is the Vets First Choice Fully Diluted Share Number.

If the Merger Adjustment Amount is negative, the Escrow Agent will transfer to Spinco from the Escrow Account a number of shares of Spinco common stock with a value (determined in accordance with the terms of the Escrow Agreement) equal to the absolute value of the Merger Adjustment Amount, and any such shares of Spinco common stock will thereafter be cancelled by Spinco.

No distribution of Escrowed Shares or other post-Closing purchase price adjustment pursuant to the Merger Agreement will be made to the extent the effect of such distribution or adjustment would reasonably be expected to result in Henry Schein stockholders owning 50% or less of Spinco common stock (as measured for purposes of Section 355(e) of the Code) on or after the Effective Time or otherwise cause the failure of any of the Transactions to qualify for Tax-Free Status (as defined in the Tax Matters Agreement).

Conditions to Consummation of the Merger

The obligations of each party to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the closing conditions that are contained in the Merger Agreement, including:

 

   

the Separation having occurred pursuant to the terms of the Distribution Agreement;

 

   

the Special Dividend and the Additional Special Dividend (if applicable) having been paid and the Certain Debt Repayment having been effected;

 

   

the receipt of (i) the approval of the sole stockholder of Merger Sub (the “Merger Sub Stockholder Approval”) (which Merger Sub Stockholder Approval was received following the execution of the Merger Agreement) and (ii) the approval of the holders of at least a majority of the common stock of Vets First Choice and the holders at least a majority of the preferred stock of Vets First Choice (collectively, the “Vets First Choice Stockholder Approval”);

 

   

the receipt by the Henry Schein Board of a customary solvency and surplus opinion of a nationally recognized investment banking or appraisal firm;

 

   

the expiration or termination of any required waiting period under the HSR Act (which has already occurred);

 

   

the effectiveness of the registration statement of which this prospectus forms a part, and the approval of the listing on Nasdaq, subject to official notice of the issuance, of the Spinco common stock to be issued in the Distribution and the Merger and such other shares to be reserved for issuance in connection with the Transactions, subject to official notice of issuance; and

 

   

the absence of any order issued by any governmental authority of competent jurisdiction or other legal impediment preventing or making illegal the consummation of the Transactions (other than the Share Sale).

In addition, Henry Schein and Spinco’s obligations to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

   

the representations and warranties of Vets First Choice contained in the Merger Agreement, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects in each case as of the Effective Time as if made as of Effective Time (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date),

 

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except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to have a Vets First Choice Material Adverse Effect (as defined below) (other than certain representations and warranties that must be true and correct in all respects);

 

   

the covenants and agreements to be performed by or complied with by Vets First Choice being performed and complied with by Vets First Choice in all material respects at or prior to the Effective Time;

 

   

the delivery by Vets First Choice of an officer’s certificate certifying the satisfaction of the two immediately preceding conditions;

 

   

the delivery by Vets First Choice of evidence of the Vets First Choice Stockholder Approval;

 

   

the absence of a Vets First Choice Material Adverse Effect since the date of the Merger Agreement;

 

   

the receipt by Henry Schein and Spinco of the Spin-off Tax Opinion and Merger Tax Opinion of Cleary Gottlieb Steen & Hamilton LLP;

 

   

the entrance into and delivery of the applicable Transaction Agreements by Vets First Choice, which are in full force and effect; and

 

   

the delivery by Vets First Choice to Spinco of a certification that no interest in Vets First Choice is a “United States real property interest” under the Foreign Investment in Real Property Tax Act of 1980.

Furthermore, Vets First Choice’s obligation to consummate the Merger is subject to the satisfaction or waiver (to the extent permitted by applicable law) of the following conditions:

 

   

the representations and warranties of Henry Schein, Spinco and Merger Sub contained in the Merger Agreement, disregarding all materiality or material adverse effect qualifications, being true and correct in all respects, in each case as of the Effective Time as if made as of the Effective Time (except to the extent such representations and warranties address matters as of a particular date, in which case as of such date), except where the failure to be true and correct has not had or would not, individually or in the aggregate, reasonably be expected to have a Spinco Material Adverse Effect (as defined below) (other than certain representations and warranties that must be true and correct in all respects);

 

   

the covenants and agreements to be performed by or complied with by Henry Schein and Spinco being performed and complied with by Henry Schein and Spinco in all material respects at or prior to the Effective Time;

 

   

the delivery by each of Henry Schein and Spinco of an officer’s certificate certifying the satisfaction of the two immediately preceding conditions;

 

   

the absence of any Spinco Material Adverse Effect since the date of the Merger Agreement;

 

   

the receipt by Vets First Choice of the Merger Tax Opinion of Morgan, Lewis & Bockius LLP; and

 

   

the entrance into and delivery of the applicable Transaction Agreements by Henry Schein and its subsidiaries and Spinco, which are in full force and effect.

To the extent permitted by applicable law, each party to the Merger Agreement may waive, at its sole discretion, any of the conditions to its respective obligations to complete the Merger.

Regulatory Approvals

Under the HSR Act, and the rules promulgated under the HSR Act by the FTC, the parties must file notification and report forms with the FTC and the Antitrust Division of the Department of Justice and observe specified waiting period requirements before consummating the Merger. These filings were made on May 10, 2018 and the applicable waiting period under the HSR Act was terminated on June 19, 2018.

 

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Representations and Warranties

The Merger Agreement contains substantially reciprocal customary representations and warranties that Henry Schein, Spinco and Merger Sub, on the one hand, and Vets First Choice, on the other hand, made to each other as of specific dates.

The representations and warranties by each of Henry Schein, Spinco, Merger Sub and Vets First Choice in the Merger Agreement relate to, among other things:

 

   

due organization, good standing, corporate power and subsidiaries;

 

   

authority to enter into the Merger Agreement (and the other Transaction Agreements) and no conflicts with or violations of organizational documents, other obligations or laws;

 

   

capitalization;

 

   

affiliate transactions;

 

   

financial statements and absence of undisclosed liabilities;

 

   

compliance with SEC requirements of the information supplied for inclusion in this prospectus;

 

   

ownership of assets and interest in or title to real property;

 

   

absence of certain changes or events, including any Spinco Material Adverse Effect and Vets First Choice Material Adverse Effect, as the case may be;

 

   

litigation and similar actions;

 

   

operations in conformity with applicable laws and ownership of certain licenses;

 

   

environmental matters;

 

   

tax matters;

 

   

employee benefit matters;

 

   

labor and employment matters;

 

   

intellectual property matters;

 

   

existence and enforceability of material contracts;

 

   

payment of fees to brokers or finders in connection with the Merger Agreement and other Transaction Agreements;

 

   

transaction bonuses;

 

   

controlled substances; and

 

   

compliance with foreign anti-corruption laws and export, embargo and similar restrictions.

In addition, Henry Schein, Spinco and Merger Sub made representations and warranties that relate to:

 

   

status of the new Spinco common stock;

 

   

insurance of the Henry Schein Animal Health Business;

 

   

due organization, good standing and corporate power of Spinco subsidiaries and absence of ownership of other interests;

 

   

sufficiency of transferred assets to operate the Henry Schein Animal Health Business as currently conducted after the Spin-off; and

 

   

operations of Spinco and Merger Sub.

 

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Furthermore, Vets First Choice made representations and warranties that relate to the absence of dividends since December 31, 2017.

Many of the representations and warranties contained in the Merger Agreement are subject to a “material adverse effect” limitation, and, except for the representations and warranties related to information supplied for inclusion in this prospectus (which survive for two years after the Effective Time pursuant to the terms of the Contribution and Distribution Agreement), the representations and warranties contained in the Merger Agreement do not survive the Closing.

Under the Merger Agreement, “Spinco Material Adverse Effect” means any effect, change or circumstance, individually or in the aggregate, that is, or would reasonably be expected to be, materially adverse to (i) the Henry Schein Animal Health Business or the Spinco Group, or the financial condition or results of operations of the Henry Schein Animal Health Business, taken as a whole, or (ii) the ability of Henry Schein, Spinco or Merger Sub to consummate the Transactions (other than the Share Sale) and to perform their respective obligations under the Merger Agreement and the other Transaction Agreements. However, any adverse effect, change or circumstance, individually or in the aggregate, arising from or relating to the following will not be deemed either to constitute, or be taken into account in determining whether there has occurred, a Spinco Material Adverse Effect (but only if, in the case of the first six bullets below, the Henry Schein Animal Health Business, the Spinco Group, Henry Schein or any of Henry Schein’s subsidiaries with respect to the Henry Schein Animal Health Business are not disproportionately affected thereby compared to other participants operating comparable businesses in the industries in which the Henry Schein Animal Health Business is operated):

 

   

general business or economic conditions, including any such conditions as they relate to the Henry Schein Animal Health Business and matters generally affecting the industries in which the Henry Schein Animal Health Business operates;

 

   

national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States;

 

   

changes in financial, banking or securities markets, including changes in interest or exchange rates, in each case, in the United States or elsewhere in the world;

 

   

changes in GAAP (or interpretations thereof);

 

   

changes in any laws (or interpretations thereof);

 

   

any hurricane, flood, tornado, earthquake or other natural disaster; and

 

   

except with respect to Henry Schein’s and Spinco’s representations and warranties relating to no conflicts with or violations of governing documents, other obligations or laws, the negotiation or execution of the Merger Agreement or any other Transaction Agreement, any actions that are required to be taken or not to be taken (other than pursuant to the covenants relating to the conduct of the Henry Schein Animal Health Business pending the Merger under the Merger Agreement) by the Merger Agreement or the other Transaction Agreements or the pendency or announcement of the Transactions.

In addition, “Vets First Choice Material Adverse Effect” means any effect, change or circumstance, individually or in the aggregate, that is, or would reasonably be expected to be, materially adverse to (i) Vets First Choice, its subsidiaries or the financial condition or results of operations of Vets First Choice, taken as a whole, or (ii) the ability of Vets First Choice to consummate the Transactions (other than the Share Sale) and to perform its obligations under the Merger Agreement and the other Transaction Agreements. However, any adverse effect, change or circumstance, individually or in the aggregate, arising from or relating to the following will not be deemed either to constitute, or be taken into account in determining whether there has occurred a Vets

 

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First Choice Material Adverse Effect (but only if, in the case of the first six bullets below, Vets First Choice and its subsidiaries are not disproportionately affected thereby compared to other participants operating comparable businesses in the industries in which Vets First Choice’s business is operated):

 

   

general business or economic conditions, including any such conditions as they relate to Vets First Choice, and matters generally affecting the industries in which Vets First Choice operates;

 

   

national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States;

 

   

changes in financial, banking or securities markets, including changes in interest or exchange rates, in each case, in the United States or elsewhere in the world;

 

   

changes in GAAP (or interpretations thereof);

 

   

changes in any laws (or interpretations thereof);

 

   

any hurricane, flood, tornado, earthquake or other natural disaster; and

 

   

except with respect to Vets First Choice’s representations and warranties relating to no conflicts with or violations of governing documents, other obligations or laws, the negotiation or execution of the Merger Agreement or any other Transaction Agreement, any actions that are required to be taken or not to be taken (other than pursuant to the covenants relating to the conduct of the Vets First Choice business pending the Merger under the Merger Agreement) by the Merger Agreement or the Transaction Agreements or the pendency or announcement of the Transactions.

Covenants

In the Merger Agreement, each of Henry Schein and Spinco made certain covenants relating to its conduct and their respective subsidiaries’ conduct in respect of the Henry Schein Animal Health Business, and Vets First Choice made certain covenants relating to its conduct and its subsidiaries’ conduct of the Vets First Choice business. Some of these covenants are not easily summarized. You are urged to carefully read the sections of the Merger Agreement entitled “Conduct of the Henry Schein Animal Health Business Pending the Merger” and “Conduct of the Vets First Choice Business Pending the Merger.” The following summarizes the more significant of these covenants:

Conduct of Business Pending the Merger

Each of Henry Schein and Spinco, with respect to the Henry Schein Animal Health Business, and Vets First Choice, with respect to its business, is required to carry on its respective business in the ordinary course consistent with past practice and to use reasonable best efforts to preserve intact its respective current business organization, maintain material rights and licenses, keep available the services of current officers and key employees and preserve relationships with Customers and suppliers and others having business dealings with it in such a manner that its goodwill and ongoing businesses are not impaired in any material respect as of the Effective Time.

Without the prior written consent of the other parties to the Merger Agreement, except as contemplated or permitted by the Transaction Agreements or as may be required by applicable law and subject to certain other exceptions in the Merger Agreement and items disclosed in the schedules to the Merger Agreement, none of Henry Schein (with respect to the Henry Schein Animal Health Business or Spinco subsidiaries), Spinco, Vets First Choice or any of their respective subsidiaries may take any of the following actions or authorize, commit or agree to take any of the following actions:

 

   

split, combine or reclassify any of its capital stock or issue or propose to issue any other securities;

 

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amend the terms of, purchase, repurchase, redeem or otherwise acquire any of its securities or any securities of any of their respective subsidiaries or propose to do any of the foregoing;

 

   

with respect to Vets First Choice and its subsidiaries, declare, set aside or pay dividends on or make other distributions in respect of any shares of its or their capital stock or partnership or equity interests;

 

   

issue, sell, pledge, dispose of or encumber any shares of capital stock of any class or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest; or accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any existing benefit, stock option compensation plan or arrangement;

 

   

amend or propose to amend or otherwise change the certificate of incorporation or by-laws or similar governance documents (except as provided under the Merger Agreement);

 

   

acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof;

 

   

sell, lease, pledge, encumber, transfer, license or otherwise dispose of any of its assets, excluding the disposition in the ordinary course of business of assets having a fair market value not exceeding $1,000,000 in the aggregate;

 

   

incur any indebtedness for borrowed money or guarantee or otherwise become contingently liable for any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any of its debt securities or guarantee any debt securities of others in an aggregate amount in excess of $1,000,000 in the case of Spinco (except for the incurrence of the Initial Spinco Debt Financing, the Additional Financing and any refinancing of certain indebtedness owed by Spinco to Henry Schein) and $500,000 in the case of Vets First Choice or enter into any material leases other than in connection with operating leases in the ordinary course of business;

 

   

issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person for borrowed money or otherwise;

 

   

make any loans, advances, capital contributions to or investments in any other person;

 

   

authorize material capital expenditures or purchases of fixed assets other than from third parties in the ordinary course of business;

 

   

create or incur an encumbrance on its tangible or intangible assets other than in the ordinary course of business;

 

   

grant any material increases in the compensation (including bonus and incentive compensation) or fringe benefits of any Spinco Group Employees, except in the ordinary course of business consistent with past practice;

 

   

pay or agree to pay to any Spinco Group Employees any material pension, retirement allowance, transaction or retention bonus, severance benefit or other material employee benefit not required by any of the existing Spinco benefit plans as in effect on the date of the Merger Agreement, except in the ordinary course of business consistent with past practice;

 

   

enter into any new, or terminate or materially amend any existing collective bargaining agreement or relationship, employment, compensation, equity, incentive, compensation, severance or termination contract or other arrangement with any Spinco Group Employees or his or her representative, except in the ordinary course of business consistent with past practice;

 

   

establish or become obligated under any new, or amend any existing, pension plan, welfare plan, employee benefit plan, severance plan, benefit arrangement or similar plan or arrangement;

 

   

grant any equity-based compensation to any employee or director or independent contractor in respect of its stock, except in the ordinary course of business consistent with past practice;

 

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make any offer for the employment or engagement of any employee providing for annual compensation in excess of $250,000;

 

   

implement any distribution center, facility, warehouse or business unit closing or mass layoff that could implicate the Worker Adjustment and Retraining Notification Act of 1988, as amended;

 

   

make any loan to any director, officer or member of senior management or, except in the ordinary course of business and in compliance with applicable law, to any other employee;

 

   

adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization or any other transaction that would preclude or be inconsistent in any material respect with, or hinder or delay in any material respect, the Transactions;

 

   

make any material change in the methods of accounting or procedures in effect as of the date of the Merger Agreement;

 

   

make, change or rescind any material tax election, settle, compromise or abandon any material action or controversy primarily relating to taxes, amend any material tax returns, adopt or change any material method of tax accounting or change any annual tax accounting period or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment, in filing tax returns;

 

   

enter into or amend in any material respect any contract or arrangement with subsidiaries, except as contemplated by the Transaction Agreements or for arms’-length commercial arrangements entered into in the ordinary course of business and subject to certain limitations;

 

   

modify, amend, terminate or enter into any material contract with a third party, or waive, release or assign any material rights or claims;

 

   

pay discharge, satisfy or settle any action, if such payment would (i) require any payment in excess of $1,000,000 individually or $5,000,000 in the aggregate prior to or following the Effective Time or (ii) restrict operations in any material respect or require the taking of action that would, or would reasonably be expected to, materially and adversely affect the operation of business following the Effective Time;

 

   

enter into any contract or arrangement that limits or restricts the entity from engaging in its business in any material respect;

 

   

sell, transfer, grant a license under, abandon, let lapse, encumber or otherwise dispose of certain material intellectual property, except, in each case, for any non-exclusive licenses of, or grants of non-exclusive rights to, intellectual property entered into in the ordinary course of business; or

 

   

deviate in any material respect from historical practices relating to the purchase, storage and movement of inventory and personal property.

Competition Approvals; Tax Opinions

Each party to the Merger Agreement agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate and make effective the Transactions (other than the Share Sale), including providing information and using their reasonable best efforts to obtain all necessary exemptions, rulings, consents, authorizations, approvals and waivers to effect all necessary registrations and filings, as promptly as practicable, and to take all other actions necessary to consummate such Transactions in a manner consistent with applicable law, including making the required filings pursuant to the HSR Act within 20 business days of the date of the Merger Agreement (such filings having been made on May 10, 2018). Any filing fees required to be paid by the parties in connection with any filings with any governmental authority will be borne by Spinco if the Merger is consummated and one-half by Henry Schein and one-half by Vets First Choice if the Merger is not consummated. Notwithstanding the foregoing, none of Vets First Choice, Henry Schein, Spinco or any of their

 

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respective affiliates will be required to offer or agree to sell, divest, lease, license, transfer, dispose of or otherwise encumber before or after the Effective Time any assets, licenses, operations, rights, product lines, businesses or interest therein of Vets First Choice, Henry Schein, Spinco or any of their respective affiliates or agree to make any material changes or restriction on, or other impairment of Vets First Choice’s, Henry Schein’s, Spinco’s or either of their respective affiliates’ ability to own, operate or exercise rights in respect of such assets, licenses, operations, rights, product lines, business or interests therein. None of Henry Schein, Vets First Choice or the stockholders of Vets First Choice will have an obligation to litigate against any governmental authority or private party seeking to enjoin the Closing. Until any applicable waiting period under the HSR Act relating to the Transactions has expired or terminated (which has already occurred), Vets First Choice, Henry Schein, Spinco and their respective affiliates agreed not to acquire or agree to acquire by any manner any business or any corporation, partnership or other business organization or division thereof that would reasonably be expected to prevent or materially delay any filing or approval with or from any governmental authority to consummate the Transactions (other than the Share Sale) or the consummation of such Transactions or to result in the failure to satisfy any condition to consummation of such Transactions.

Henry Schein and Spinco agreed to use their reasonable best efforts to seek, as promptly as practicable, the Spin-off Tax Opinion. Vets First Choice agreed to cooperate and use reasonable best efforts to assist in obtaining the Spin-off Tax Opinion. In addition, each of Henry Schein and Vets First Choice agreed to use their respective reasonable best efforts obtain an opinion of their respective tax counsel regarding certain United States federal income tax matters related to the Merger. In addition, each party to the Merger Agreement has agreed that it will not take any action that is inconsistent with such opinions (including the Spin-off Tax Opinion) or that is reasonably expected to cause the Transactions to fail to qualify for their intended tax treatment for U.S. federal income tax purposes.

Directors and Officers of Covetrus

The directors and officers of Covetrus as of the Effective Time will be determined as provided in the Contribution and Distribution Agreement.

Directors and Officers Indemnification; Insurance

The Merger Agreement provides that Spinco and its subsidiaries will (i) maintain for a period of at least six years after the Effective Time provisions in each of their respective organizational documents concerning indemnification and exculpation (including provisions relating to the advancement of expenses) for each of the past and present directors or officers of Henry Schein, Spinco and Vets First Choice and their respective subsidiaries and each individual who prior to the Effective Time becomes a director or officer of Henry Schein, Spinco or Vets First Choice or their respective subsidiaries that are no less favorable to such persons than the provisions of the organizational documents of Henry Schein, Spinco and Vets First Choice and their respective subsidiaries, as applicable, as of the date of the Merger Agreement and (ii) not amend any such provisions in a manner that would adversely affect such person’s rights. The Merger Agreement also provides that, for a period of at least six years following the Merger, Spinco will maintain in effect for the benefit of such individuals directors’ and officers’ liability and fiduciary liability insurance policies that are no less advantageous than the current directors’ and officers’ liability insurance policies maintained for such persons by Henry Schein or Vets First Choice, as applicable.

No Solicitation of Acquisition Proposals

Each of Vets First Choice, on the one hand, and Henry Schein and Spinco, on the other hand with respect to Spinco and the Henry Schein Animal Health Business, agreed that, except in certain circumstances, or where the failure to take such action would be, in the judgment of the applicable party’s board of directors, after obtaining the advice of legal counsel, reasonably likely to be inconsistent with the fiduciary duties of the directors or

 

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applicable law, Vets First Choice, Henry Schein and Spinco and their respective subsidiaries will not, and will cause their respective agents and representatives not to:

 

   

directly or indirectly, solicit, initiate or encourage any inquiry or proposal that constitutes or could reasonably be expected to lead to an acquisition proposal (as defined below);

 

   

provide any non-public information or data to any person relating to or in connection with an acquisition proposal;

 

   

waive, amend or modify any standstill or confidentiality agreement to which it or any of its subsidiaries is a party in connection with an acquisition proposal;

 

   

enter into, maintain or continue any discussions or negotiations concerning an acquisition proposal; or

 

   

otherwise cooperate with, participate in or facilitate any effort to attempt to make or implement, or approve, agree to, recommend or accept, or execute or enter into, any letter of intent, agreement in principle, merger agreement, acquisition agreement, option agreement or other similar agreement related to any acquisition proposal.

Each party agreed to notify the other parties within 48 hours of the receipt of any acquisition proposal or any inquiry, proposal, offer or request for information with respect to, or that could reasonably be expected to result in, an acquisition proposal, and thereafter to keep the other parties informed in reasonable detail of the status and terms of any such acquisition proposal, inquiry, offer, proposal or request, including any material developments or modifications to the terms thereof, within 48 hours of such development.

Other than in connection with the Transactions or as specifically contemplated by the Merger Agreement and the Contribution and Distribution Agreement, an “acquisition proposal” includes, with respect to Spinco, any proposal relating to:

 

   

any merger, consolidation, share exchange, business combination, recapitalization or other similar transaction or series of related transactions with respect to the Henry Schein Animal Health Business;

 

   

any sale, lease, exchange transfer or other disposition, in a single transaction or a series of related transactions, of the assets of the Henry Schein Animal Health Business or Spinco and its subsidiaries constituting 5% or more of the consolidated assets of the Henry Schein Animal Health Business or accounting for 5% or more of the consolidated revenues of the Henry Schein Animal Health Business;

 

   

the acquisition by any person (or the stockholders of any person) of 5% or more of the outstanding capital stock, other equity securities or voting power of Spinco and its subsidiaries; or

 

   

any other similar transaction that would reasonably be expected to prevent or materially impair or delay the consummation of the Transactions.

An acquisition of Henry Schein excluding the Henry Schein Animal Health Business will not constitute an “acquisition proposal.”

Other than in connection with the Transactions or as specifically contemplated by the Merger Agreement, an “acquisition proposal” includes, with respect to Vets First Choice, any proposal relating to:

 

   

any merger, consolidation, share exchange, business combination, recapitalization or other similar transaction or series of related transactions with respect to Vets First Choice or its subsidiaries;

 

   

any sale, lease, exchange, transfer or other disposition, in a single transaction or a series of related transactions, of the assets of Vets First Choice or any of its subsidiaries constituting 5% or more of the consolidated assets of Vets First Choice or accounting for 5% or more of the consolidated revenues of Vets First Choice;

 

   

the acquisition by any person (or the stockholders of any person) of 5% or more of the outstanding capital stock, other equity securities or voting power of Vets First Choice; or

 

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any other similar transaction that would reasonably be expected to prevent or materially impair or delay the consummation of the Transactions.

Financing

Henry Schein, Spinco and Vets First Choice agreed to use their respective reasonable best efforts to consummate the Initial Spinco Debt Financing and the Additional Financing as contemplated by the commitment letter, dated as of December 5, 2018, by and among Henry Schein, Spinco and the arrangers party thereto or on such other terms and conditions reasonably acceptable to Henry Schein, Spinco and Vets First Choice, and to use their respective reasonable best efforts to cooperate in all aspects necessary or reasonably requested by Henry Schein or Vets First Choice in connection with the arrangement and consummation of the Initial Spinco Debt Financing and the Additional Financing.

Non-Solicitation of Employees

Subject to certain exceptions set forth in the Merger Agreement, Henry Schein, Vets First Choice and Spinco each agreed that for a period of 18 months from and after the Closing Date, each party would not and would cause its respective subsidiaries not to, without the prior written consent of the other parties, directly or indirectly through another person, approach, solicit, induce or attempt to induce certain restricted employees from leaving the employ of Spinco or Henry Schein (as applicable) or be involved in the hiring, or hire, employ or enter into a consulting agreement with certain restricted employees unless such employee ceased to be an employee six months prior to, or his or her employment was involuntarily terminated at any time prior to, such action.

Non-Competition

For a period of three years from and after the Closing Date, Henry Schein agreed that it and its subsidiaries would not, without the prior written consent of Spinco, directly or indirectly, own or acquire any interest in, operate, manage, control or engage in the Restricted Business (as defined below); provided that the foregoing will not prohibit Henry Schein or its subsidiaries from:

 

   

engaging in, owning any interest in, or controlling, managing or operating any person engaging in, any business other than the Restricted Business;

 

   

acquiring the stock, business or assets of any person that at the time of such acquisition is engaged in, or owns any interest in or controls, manages or operates any person that is engaged in the Restricted Business (an “Acquired Competing Business”) so long as (i) the annual net revenues of such Acquired Competing Business do not exceed the lesser of (a) $10,000,000 or (b) twenty five percent (25%) of the annual net revenues of the combined businesses being acquired or (ii) if such threshold is exceeded, (a) the annual net revenues of such Acquired Competing Business do not exceed 40% of the annual net revenues of the combined business being acquired and (b) Henry Schein divests or terminates the portion of such Acquired Competing Business that generates net revenues in excess of the such threshold within 18 months of the consummation of such acquisition;

 

   

engaging in, owning any interest in or controlling, managing or operating any person engaging in, any Acquired Competing Business in a manner consistent with the conduct of such business immediately prior to the acquisition of such business, subject to the same revenue thresholds and divestment requirements in the preceding clause;

 

   

owning as a passive, noncontrolling investor (without any membership on the board of directors or similar governing body of such entity) up to an aggregate of 10% of the outstanding capital stock or other equity interests of any entity that is listed on a national stock exchange or 5% of the outstanding capital stock of other equity interest of any other entity; or

 

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engaging in, owning any equity interest in, or participating in the management of, any person or entity in which Henry Schein or its subsidiaries owns an equity interest as of the date of the Merger Agreement and which is not a consolidated entity of Henry Schein for purposes of its financial reporting.

“Restricted Business” means the business of (i)(a) selling pharmaceuticals, vaccines and parasiticides (including private label and generic) marketed specifically for the treatment and prevention of ailments of and diseases in animals (including companion animals), (b) selling pet insurance or pet wellness plans and (c) providing data, marketing, pharmacy, inventory management, compliance services or credit card processing services through veterinary practice management software, in each case, to veterinary practitioners, animal health clinics and similar animal-related providers and (ii) selling veterinary practice management software related thereto.

Other Covenants and Agreements

The Merger Agreement contains certain other covenants and agreements, including covenants relating to:

 

   

cooperation among the parties relating to promptly preparing and filing the registration statement of which this prospectus forms a part, having such registration statement declared effective by the SEC as promptly as practicable and advisable following filing and keeping such registration statement effective as long as is necessary to consummate the Distribution and the issuance of Spinco common stock to Vets First Choice stockholders pursuant to the Merger; provided, that the effective date of such registration statement will be no earlier than the date on which Spinco would be reasonably able to meet its obligations and requirements as a public company with securities listed on Nasdaq and is otherwise reasonably prepared to operate as a stand alone entity taking into account all resources available to it under the Transaction Agreements and on commercially reasonable terms from third parties;

 

   

prior to the Effective Time, cooperation among the parties relating to preparing, filing and obtaining the approval of the application for the listing on Nasdaq of the Spinco common stock issued pursuant to the Transactions;

 

   

Spinco’s actions as may be required under state securities or blue sky laws in connection with the issuance of shares of Spinco common stock pursuant to the Transactions;

 

   

assistance as any party may reasonably request and as may be reasonably necessary or appropriate in effectuating the provisions of the Merger Agreement;

 

   

seeking the cooperation of any third parties necessary for each party to fulfill its obligations under the Merger Agreement, any other Transaction Agreement or any Support Agreement (as defined below);

 

   

Vets First Choice’s obligation to circulate a written consent or hold a meeting of Vets First Choice stockholders to approve the Merger Agreement and the Merger no later than five business days after the registration statement of which this prospectus forms a part is declared effective, to deliver this prospectus to its stockholders and to use commercially reasonable efforts to secure the execution and delivery of the voting and support agreements of all of the Vets First Choice Stockholders in a form reasonably acceptable to Henry Schein (the “Support Agreements”);

 

   

confidentiality, reasonable access with respect to certain information relating to the parties and the preservation of records following the Effective Time;

 

   

the making of public announcements or press releases with respect to the Merger or the Transactions;

 

   

defense of litigation and other actions attempting to challenge, enjoin, restrain or prohibit the consummation of the Transactions;

 

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the notification of certain communications alleging that certain consents may be required in connection with the Transactions or received from any governmental authority in connection with the Transactions;

 

   

the notification of the occurrence or nonoccurrence of any event that has caused or would reasonably be expected to cause a Vets First Choice Material Adverse Effect or a Spinco Material Adverse Effect or that could result in a closing condition to the Merger Agreement being incapable of being fulfilled;

 

   

the delivery of payoff letters with respect to certain indebtedness and invoices with respect to those expenses that the parties to the Merger Agreement have agreed to share;

 

   

the delivery of audited and unaudited financial statements between the signing of the Merger Agreement and the Closing;

 

   

good faith cooperation and negotiation with respect to an amendment to the Transaction Agreements reasonably requested by a party in order to enable its counsel to deliver the applicable tax opinion(s);

 

   

the development of a system of internal controls over financial reporting and integration of the financial reporting systems of Spinco and Vets First Choice;

 

   

cooperation among the parties to ensure that any transfer of data in connection with the Transactions is in compliance with applicable data privacy laws;

 

   

the guaranty by Henry Schein of Spinco’s obligations under the Merger Agreement until Closing or termination of the Merger Agreement;

 

   

the power and authority of the Vets First Choice Stockholders’ Representative;

 

   

the release by Vets First Choice of certain encumbrances;

 

   

consultation by Henry Schein with Vets First Choice regarding the preparation and implementation of the Reorganization Step Plan (as defined in “Ancillary Agreements—Tax Matters Agreement”);

 

   

Vets First Choice’s undertaking to incur no more than a certain amount of Vets First Choice transaction expenses and shared expenses that are outstanding as of the Closing and which are to be paid at the Closing, and Spinco shall cause any amounts incurred in excess of such amount to be paid no earlier than 3 business days following the Closing Date; and

 

   

Henry Schein and Spinco’s undertaking to use commercially reasonable best efforts to cause two wholly-owned limited liability company intermediate holding companies to be interposed between Spinco and the other members of the Spinco Group (including Merger Sub) prior to the Closing.

Vets First Choice Pre-Closing Tax Indemnity

Subject to certain exceptions set forth in the Merger Agreement, the Vets First Choice stockholders agreed to indemnify Spinco and its affiliates against tax-related losses sustained by Spinco or any entity that is a subsidiary of Spinco following the Distribution in respect of any Vets First Choice pre-closing taxes, up to an amount not to exceed $10,000,000 in the aggregate (the “Pre-Closing Tax Indemnity Payment”). The Pre-Closing Tax Indemnity Payment will be made by the Escrow Agent by distributing an amount of Escrowed Shares with a value equal to the Pre-Closing Tax Indemnity Payment (such value being determined in accordance with the terms of the Escrow Agreement) to Spinco, and any such shares of Spinco common stock will thereafter be cancelled by Spinco. The Escrowed Shares will be the exclusive remedy for such tax-related losses. Such indemnification rights of Spinco apply only with respect to claims made no later than the first anniversary of the Effective Time.

Upon the later to occur of (i) the date occurring on the first anniversary of the Closing Date and (ii) the date on which the final outstanding claim relating to tax-related losses is resolved, following the release of any Pre-Closing Tax Indemnity Payments made by the Escrow Agent to Spinco, any Escrowed Shares then

 

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remaining in the Escrow Account will be distributed to each Vets First Choice stockholder in such proportion as is represented by a fraction, (a) the numerator of which is the number of shares of Vets First Choice capital stock held by each such Vets First Choice stockholder as of immediately prior to the Effective Time and (b) the denominator of which is the Vets First Choice Fully Diluted Share Number.

Amendment; Extension; Waiver

The Merger Agreement may be amended by the parties at any time, provided that after the receipt of the Merger Sub Stockholder Approval or Vets First Choice Stockholder Approval, any amendment that by law requires the further approval of the holder of Merger Sub common stock or the Vets First Choice stockholders will not be made without such approvals. The Merger Agreement may only be amended by an instrument in writing signed on behalf of the parties, and the amendment of certain provisions set forth in the Merger Agreement in a manner adverse to the agents, arrangers, lenders or other entities that may commit to provide or arrange the Initial Spinco Debt Financing or the Additional Financing (the “Lenders”) requires the prior written consent of the Lenders. Prior to the Effective Time, the parties may extend the time for the performance of any of the obligations or other acts of the parties or waive any inaccuracies in the representations and warranties or compliance with any of the agreements or conditions contained in the Merger Agreement.

Termination of the Merger

The Merger Agreement may be terminated at any time prior to the Effective Time by the mutual written consent of Henry Schein and Vets First Choice. It may also be terminated by either Henry Schein or Vets First Choice prior to the Effective Time if:

 

   

the Effective Time has not occurred on or before the date occurring 15 months after the date of the Merger Agreement, unless the failure to effect the Merger by that date is due to the failure of the party seeking to terminate the Merger Agreement to perform its obligations set forth in the Merger Agreement; or

 

   

if any law or order of any governmental authority preventing or prohibiting the completion of the Transactions (other than the Share Sale) has become final and non-appealable.

The Merger Agreement may also be terminated prior to the Effective Time by:

 

   

Vets First Choice if there has been a breach by Henry Schein or Spinco of any of its representations, warranties or covenants or agreements contained in the Merger Agreement such that certain conditions to Vets First Choice’s obligation to consummate the transactions under the Merger Agreement would be incapable of being satisfied, and such breach has not been cured within 30 business days following notice of such breach (so long as at the time of termination Vets First Choice is not in breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement, which breach would cause the closing conditions of Henry Schein or Spinco not to be satisfied if the closing were to occur at the time of termination); or

 

   

Henry Schein if there has been a breach by Vets First Choice of any of its representations, warranties or covenants or agreements contained in the Merger Agreement such that certain conditions to Henry Schein’s and Spinco’s obligation to consummate the transactions under the Merger Agreement would be incapable of being satisfied, and such breach has not been cured within 30 business days following notice of such breach (so long as Henry Schein is not in breach of any covenant, representation or warranty or other agreement contained in the Merger Agreement, which breach would cause the closing conditions of Vets First Choice not to be satisfied if the closing were to occur at the time of termination). Furthermore, Henry Schein would have had the right to terminate the Merger Agreement if Support Agreements with Vets First Choice stockholders sufficient to effect the Vets First Choice Stockholder Approval were not executed and delivered to Henry Schein within 72 hours following the execution and delivery of the Merger Agreement. A Support Agreement with Vets First Choice

 

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stockholders sufficient to effect the Vets First Choice Stockholder Approval was executed and delivered to Henry Schein in the required timeframe.

Fees and Expenses

Generally, all fees and expenses incurred in connection with the Transactions (including fees and expenses of legal counsel, accountants, investment bankers and other representatives and consultants, if any), whether or not paid prior to Closing, are to be paid by the party incurring such fees or expenses. Any fees and expenses incurred by Spinco or any of its subsidiaries on or prior to the Effective Time will be deemed to have been incurred by Henry Schein.

Expenses incurred in connection with the Initial Spinco Debt Financing and the Additional Financing, any filing fees required to be paid in connection with filings with any governmental agency and certain other agreed shared fees and expenses as set forth in the Merger Agreement will be borne (i) by Spinco if the Merger is consummated or (ii) one-half by Henry Schein and one-half by Vets First Choice, other than with respect to the Initial Spinco Debt Financing and the Additional Financing, which shall be borne 60% by Henry Schein and 40% by Vets First Choice, if the Merger is not consummated. Henry Schein will bear all severance obligations, transaction bonus obligations and retention bonuses relating to Spinco employees that become due and payable prior to, or as a direct result of, the consummation of the Transactions, and Vets First Choice will bear all severance obligations, transaction bonus obligations and retention bonuses relating to Vets First Choice employees that become due and payable prior to, or as a direct result of, the consummation of the Transactions.

Specific Performance

Each of the parties has the right to specific performance and injunctive or other equitable relief in respect of its rights under the Merger Agreement and the other Transaction Agreements, in addition to all other rights and remedies at law or in equity.

 

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ANCILLARY AGREEMENTS

Employee Matters Agreement

The following is a summary of material provisions of the Employee Matters Agreement, which Spinco entered into on April 20, 2018. This summary is qualified in its entirety by reference to the full text of the Employee Matters Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

The Employee Matters Agreement governs the allocation of assets and liabilities with respect to certain employee compensation and benefit plans and programs, and responsibilities relating to other employment matters related to the Transactions. The Employee Matters Agreement provides that active Henry Schein employees who serve in a role that is primarily or exclusively dedicated to supporting the Henry Schein Animal Health Business (“Spinco Employees”) will to the extent necessary, be transferred to Spinco or its subsidiaries effective as of the Distribution (or, with respect to Spinco Employees located outside of the United States, subject to applicable law, as soon as commercially reasonable thereafter).

The Employee Matters Agreement provides that:

 

   

Spinco and its subsidiaries generally will be responsible for liabilities associated with Spinco Employees as well as former employees of Spinco and its subsidiaries.

 

   

Henry Schein and its subsidiaries generally will retain liabilities incurred under any and all benefit plans sponsored, maintained or contributed to by Henry Schein or its subsidiaries immediately prior to the Distribution with respect to (i) active and former employees of Henry Schein and its subsidiaries other than Spinco Employees and (ii) a small number of employees of Henry Schein who will be transferred to Spinco (but solely with respect to the time period prior to the Distribution).

 

   

Henry Schein equity awards granted to Spinco Employees pursuant to the Henry Schein 2013 Stock Incentive Plan, as amended from time to time, that are scheduled to vest after the Closing will be assumed by Spinco and converted into awards relating to Spinco common stock. The converted awards will have substantially equivalent value and contain the same terms, conditions and features (other than performance criteria, which will be adjusted to reflect the Combined Company’s business) as the Henry Schein equity awards held by Spinco Employees as of immediately prior to the Closing, with any performance-based awards vesting with respect to the period prior to the Closing based on actual performance through the Closing, subject to time-vesting requirements.

 

   

Vets First Choice stock options held by Vets First Choice employees will be converted to Spinco stock options such that the total value of Spinco stock options held by each Vets First Choice employee immediately following the Merger will be substantially economically equivalent to the value of such Spinco stock options prior to the Merger.

 

   

For nine months following the Closing Date, Spinco will provide (i) each Spinco Employee with an annual base salary and target annual cash incentive compensation opportunity that are no less favorable than the annual base salary and target annual cash incentive compensation opportunity in effect on April 20, 2018, and (ii) Spinco Employees with qualified defined contribution plan or similar benefits, health and welfare plan benefits, severance benefits and target incentive equity opportunities that are substantially comparable in the aggregate to those in effect on April 20, 2018.

Tax Matters Agreement

The following is a summary of material provisions of the Tax Matters Agreement that Spinco expects to enter into with Henry Schein, Vets First Choice and the Vets First Choice Stockholders’ Representative (solely in its capacity as the representative of the Vets First Choice stockholders) in connection with the consummation of the Transactions. This summary is qualified in its entirety by reference to the form of Tax Matters Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

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The Tax Matters Agreement will govern the parties’ respective rights, responsibilities and obligations with respect to taxes, including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of the failure of the Transactions to qualify for their intended tax treatment. The Tax Matters Agreement will generally address federal, state, local and non-U.S. tax matters, and sets forth the respective obligations of the parties with respect to the filing of tax returns, tax indemnification obligations, warranties and covenants with respect to the intended tax-free treatment of the Transactions, the administration of tax contests and assistance and cooperation on tax matters.

In general, the Tax Matters Agreement will govern the rights and obligations of Henry Schein, on the one hand, and Spinco and Vets First Choice, on the other hand, after the Distribution with respect to taxes for both pre-Distribution and post-Distribution periods. Under the Tax Matters Agreement, Henry Schein will generally be responsible for pre-Distribution taxes relating to both its retained business and certain pre-Distribution taxes of the Henry Schein Animal Health Business, as well as certain transaction taxes of or attributable to entities transferred to Spinco in the Reorganization. In certain circumstances and subject to certain conditions, Henry Schein’s responsibility for taxes extends to taxes arising in either pre- or post-Distribution periods directly attributable to Henry Schein’s settlement or compromise or abandonment of a material tax action or controversy primarily relating to taxes of the Henry Schein Animal Health Business or the adoption or change of a material method of tax accounting or the change of an annual tax accounting period of the Henry Schein Animal Health Business. Spinco will generally be responsible for post-Distribution taxes attributable to the Henry Schein Animal Health Business. In addition, in certain circumstances and subject to certain conditions, each party will be responsible for taxes imposed on Henry Schein that arise from the failure of the Distribution, the Merger and certain related transactions to qualify as tax-free transactions to the extent such failure to qualify is attributable to certain actions taken by such party (or, in certain circumstances, is attributable to actions taken by other persons).

Pursuant to the Tax Matters Agreement, Spinco generally is expected to indemnify Henry Schein for (i) all taxes for which Spinco is responsible, as described above, and (ii) all taxes incurred by reason of certain actions or events, or by reason of any breach by Spinco, Vets First Choice or any of their respective subsidiaries of any of their respective representations, warranties or covenants under the Tax Matters Agreement that, in each case, affect the intended tax-free treatment of the Transactions.

Pursuant to the Tax Matters Agreement, Henry Schein is expected to (i) indemnify Spinco for the taxes for which Henry Schein is responsible, as described above (in the case of taxes of certain entities transferred to Spinco and taxes due to certain actions taken by Henry Schein (described above) with respect to material tax actions or controversies or accounting periods or methods, subject to a cap of $10,000,000) and (ii) be responsible for the income taxes attributable to a failure of the Transactions to qualify as tax free, to the extent not specifically apportioned to Spinco pursuant to the Tax Matters Agreement.

The Tax Matters Agreement will prohibit Spinco and Henry Schein from taking actions (or refraining from taking actions) that could reasonably be expected to cause the Transactions to be taxable or to jeopardize the conclusions of the Spin-off Tax Opinion. In particular, for two years after the Distribution, Spinco may not, among other things,:

 

   

cease, or permit certain of its wholly owned subsidiaries to cease, the active conduct of a business that was conducted immediately prior to the Distribution or from holding certain assets held at the time of the Distribution;

 

   

dissolve, liquidate, take any action that is a liquidation for federal income tax purposes, merge or consolidate with any other person (other than pursuant to the Merger), or permit certain of its wholly owned subsidiaries from doing any of the foregoing;

 

   

approve or allow an extraordinary contribution to Spinco by its stockholders in exchange for stock, redeem or otherwise repurchase (directly or indirectly) any of Spinco’s stock, or amend its certificate of incorporation or other organizational documents, or take any other action, if such amendment or other action would affect the relative voting rights of its capital stock;

 

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redeem or repurchase any of its stock; or

 

   

enter into any transaction or series of transactions as a result of which one or more persons would acquire (directly or indirectly) an amount of stock of Spinco (taking into account the stock of Spinco acquired pursuant to the Merger and Share Sale) that would reasonably be expected to cause the failure of the tax-free status of the Distribution, the Merger and certain related transactions.

Nevertheless, Spinco will be permitted to take any of the actions described above during the two-year period following the Distribution if Henry Schein obtains a IRS private letter ruling (or, in certain circumstances, Spinco shall have provided to Harbor an opinion of counsel that is reasonably acceptable to Henry Schein) to the effect that the action will not affect the tax-free status of the Distribution or the Merger. Notwithstanding the above, under the Tax Matters Agreement, Spinco may make certain stock issuances that meet certain safe harbors provided in Section 1.355-7(d) of the Treasury Regulations so long as such issuances are not inconsistent with formal or informal written guidance provided by the IRS in connection any private letter ruling or any assumptions, representations and warranties, undertakings or certificates relied upon in the Spin-off Tax Opinion.

In addition, Spinco may not amend its certificate of incorporation or take any other action that would render ineffective the application of the Ownership Limitation, and in certain circumstances this restriction may prevent Spinco from taking certain actions even following the second anniversary of the Distribution. The Tax Matters Agreement also imposes additional obligations and restrictions on Spinco related to the Ownership Limitation, including a requirement that Spinco diligently enforce the provisions of the Ownership Limitation against any purported transfers in violation of its terms, and Spinco may have an obligation to indemnify Henry Schein if Spinco breaches or otherwise fail to comply with these restrictions.

The Tax Matters Agreement will be binding on and inure to the benefit of any permitted assignees and any successor to any of the parties of the Tax Matters Agreement. The Tax Matters Agreement may be amended only by a written instrument signed by each of the parties, and any right may be waived only in a written instrument signed by the party against whom the waiver is to be effective. No failure or delay by any party to the Tax Matters Agreement to exercise a right operates as a waiver thereof.

Transition Services Agreement

The following is a summary of material provisions of the Transition Services Agreement that Spinco expects to enter into in connection with the consummation of the Transactions. This summary is qualified in its entirety by reference to the form of Transition Services Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

The Transition Services Agreement, to be dated as of the Closing Date, sets forth the terms and conditions for the provision by each of Henry Schein and Spinco of services to the other, from and following the date of the Distribution. A party providing a service is referred to in this summary as the “provider,” and a party receiving a service is referred to in this summary as the “recipient.”

While the term of the individual services to be provided under the Transition Services Agreement varies, in no event will services be provided thereunder for a period of longer than two years following the date of the Distribution. Subject to certain notice requirements, the recipient has the one-time right to extend the term of any service (other than certain specified services which may not be extended), subject to certain fee increases and obtaining any necessary third party consents, so long as any such extension period would not extend the term of such service beyond the date that is two years following the date of the Distribution. In the event of an early termination of a service by the recipient, the recipient will be required to pay the provider the amount of service fees that would otherwise be payable to the provider for the remainder of the term of such service and the provider will be required to use commercially reasonable efforts to mitigate any residual costs applicable to such service and reimburse the recipient an amount equal to any reduction in such residual costs achieved or received by the

 

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provider. In the event the recipient delivers an early termination notice with respect to a service and the provider reasonably determines that such early terminated service is interdependent with other services provided by the provider pursuant to the Transition Services Agreement, the recipient will have the opportunity to withdraw its early termination notice, and if any such early termination notice is not so withdrawn, such early termination notice will result in the concurrent automatic termination of each interdependent service identified by the provider.

The services expected to be performed by Henry Schein generally relate to the following areas, among others:

 

   

warehousing services and office space;

 

   

information technology services;

 

   

licensing of certain Henry Schein intellectual property currently used and shared among the Combined Company’s business and Henry Schein’s other businesses and not covered by the license granted pursuant to the terms of the Contribution and Distribution Agreement;

 

   

sourcing private-label products from Henry Schein and selling these products;

 

   

human resource services;

 

   

distribution and logistics services;

 

   

security, accounts receivable and accounts payable services; and

 

   

inventory and supply chain services.

The categories of services to be provided by Spinco to Henry Schein generally relate to the following areas, among others:

 

   

warehousing services in certain specified countries;

 

   

information technology services in certain specified countries; and

 

   

inventory and supply chain services in certain specified countries.

In certain circumstances and subject to certain conditions, additional services may be provided to the recipient at the recipient’s written request, subject to the procedures set out in the Transition Services Agreement.

However, the parties have agreed that in no event will the provider be required to provide legal, compliance, regulatory, internal audit, tax, treasury, or certain other services that the recipient has advised the provider that it does not want to receive after the date of the Distribution (collectively, the “Excluded Services”).

The provider is required to provide each of the services under the Transition Services Agreement to the recipient in at least substantially the same manner, scope and nature, at substantially the same level of professionalism, workmanship and quality, with substantially equal priority and treatment, as each such service was provided, or caused to be provided by the provider to the applicable business during the 12-month period prior to the date of the Distribution.

Within 90 days after the date of the Distribution, the parties will consult regarding the status of a plan for the service migration. Spinco is required to deliver to Henry Schein a detailed written work plan describing its progress with respect to the migration of services and how Spinco intends to operate as a standalone business without Henry Schein’s provision of such services within the time periods set forth in the Transition Services Agreement.

The Transition Services Agreement may be amended only by a written instrument signed by each of the parties, and any right may be waived only in a written instrument signed by the party against whom the waiver is to be effective. No failure or delay by any party to the Transition Services Agreement to exercise a right operates as a waiver thereof.

 

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Escrow Agreement

The following is a summary of material provisions of the Escrow Agreement that Spinco expects to enter into in connection with the consummation of the Transactions. This summary is qualified in its entirety by reference to the form of Escrow Agreement, which is included as an exhibit to the registration statement of which this prospectus forms a part.

Spinco will deposit the Escrowed Shares in the Escrow Account on or prior to the Effective Time. If the Merger Adjustment Amount is negative and/or if Vets First Choice owes a Pre-Closing Tax Indemnity Payment, the Escrow Agreement provides that, upon receipt of a joint instruction from Henry Schein, Spinco and the Vets First Choice Stockholders’ Representative, the Escrow Agent will distribute an amount of Escrowed Shares with a value equal to the absolute value of the Merger Adjustment Amount and/or the Pre-Closing Tax Indemnity Payment (as determined in accordance with the terms of the Escrow Agreement), as applicable, to Spinco. Upon the later to occur of (i) the first anniversary of the Closing Date and (ii) the date on which the final outstanding claim relating to tax-related losses is resolved, the Escrow Agent will distribute any Escrowed Shares remaining in escrow to each Vets First Choice stockholder on a pro rata basis, upon receipt of a joint instruction from Henry Schein, Spinco and the Vets First Choice Stockholders’ Representative.

 

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DIVIDEND POLICY

We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain earnings to finance the growth and development of our business and for working capital and general corporate purposes. Any future payment of dividends will be at the discretion of our Board and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that our Board may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 29, 2018 on a historical and pro forma combined basis giving effect to the Transactions, assuming they were consummated on September 29, 2018.

You should read this table in conjunction with the sections of this prospectus entitled “Selected Historical Financial Data of the Henry Schein Animal Health Business,” “Selected Historical Financial Data of Vets First Choice,” “Management’s Discussion and Analysis of Financial Condition and Results of Operation of the Henry Schein Animal Health Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operation of Vets First Choice,” “Description of Material Indebtedness,” “Unaudited Pro Forma Condensed Combined Financial Statements of the Combined Company and Related Notes” and the Henry Schein Animal Health Business’ and Vets First Choice’s financial statements and the respective notes thereto included elsewhere in this prospectus.

 

     As of September 29, 2018  
     Historical              

Dollars in thousands

   Henry Schein Animal
Health Business
     Vets First Choice     Pro Forma
Adjustments
    Pro Forma
Combined
 

Cash and cash equivalents(a)

   $ 21,804      $ 17,247     $ 20,590     $ 59,641  
  

 

 

    

 

 

   

 

 

   

 

 

 

Indebtedness:

         

Initial Spinco Debt Financing(b)

          1,175,000       1,175,000  

Other debt*(c)

     23,000        14,410       (37,410      
  

 

 

    

 

 

   

 

 

   

 

 

 

Total indebtedness

     23,000        14,410       1,137,590       1,175, 000  

Total equity

     1,513,270        (133,100     437,242       1,817,412  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 1,536,270      $ (118,690   $ 1,574,832     $ 2,992,412  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

*

Other debt excludes capital lease obligations.

(a)

Represents pro forma amount of cash expected to remain on Spinco’s balance sheet following the Transactions.

(b)

Represents pro forma amount as a result of the planned incurrence of $1,200.0 million of indebtedness through the five-year term loan, net of estimated debt issuance costs of $25.0 million.

(c)

Represents the extinguishment of Vets First Choice’s long-term debt of $14.4 million as a result of the incurrence of $1,200.0 million of indebtedness. Prior to the Transactions, Henry Schein Animal Health Business’ long-term debt of $23.0 million is also expected to be repaid.

 

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SELECTED HISTORICAL FINANCIAL DATA OF THE HENRY SCHEIN ANIMAL HEALTH BUSINESS

The selected historical condensed combined statements of operations data for the years ended December 30, 2017, December 31, 2016 and December 26, 2015 and the related selected historical condensed combined balance sheet data as of December 30, 2017 and December 31, 2016 have been derived from the Henry Schein Animal Health Business’ audited financial statements and notes thereto included elsewhere in this prospectus. The selected historical condensed combined balance sheet data of the Henry Schein Animal Health Business as of December 26, 2015 have been derived from the audited combined financial statements of the Henry Schein Animal Health Business not included in this prospectus. The selected historical financial data for the years ended, and as of, December 27, 2014 and December 28, 2013 have been derived from the Henry Schein Animal Health Business’ unaudited financial statements and notes thereto not included in this prospectus. The selected historical condensed combined statements of operations data for the nine months ended September 29, 2018 and September 30, 2017 and the related selected historical condensed combined balance sheet data as of September 29, 2018 have been derived from the unaudited historical financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.

The Henry Schein Animal Health Business’ historical financial statements have been “carved-out” from Henry Schein’s consolidated financial statements and reflect assumptions and allocations made by Henry Schein. The Henry Schein Animal Health Business historical combined financial statements include all revenues, costs, assets and liabilities that are directly attributable to the Henry Schein Animal Health Business. In addition, certain expenses reflected in the Henry Schein Animal Health Business’ combined financial statements are an allocation of corporate expenses from Henry Schein. Such expenses include (i) certain corporate functions historically provided by Henry Schein, including finance, accounting, legal, information services, planning, compliance, investor relations, administration and communication, and similar costs, (ii) employee benefits and incentives and (iii) stock-based compensation. These expenses have been allocated to the Henry Schein Animal Health Business on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of net sales, headcount or other measures of the Henry Schein Animal Health Business and Henry Schein. The Henry Schein Animal Health Business believes the bases on which the expenses have been allocated are a reasonable reflection of the utilization of services provided to or the benefit received by the Henry Schein Animal Health Business during the periods presented. Nevertheless, such allocations may not represent the actual expenses that the Henry Schein Animal Health Business may have incurred if the Henry Schein Animal Health Business had been a stand alone company during the periods or at the dates presented. As such, the Henry Schein Animal Health Business’ combined financial statements do not necessarily reflect what the Henry Schein Animal Health Business’ financial condition and results of operations would have been had the Henry Schein Animal Health Business operated as a stand alone company during the periods or at the dates presented.

 

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The selected historical financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 29, 2018 are not necessarily indicative of the results for the full fiscal year. See “Risk Factors—The Henry Schein Animal Health Business’ and Vets First Choice’s historical and pro forma combined financial data are not necessarily representative of the results we would have achieved and may not be a reliable indicator of our future results.” The summary historical financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 29, 2018 are not necessarily indicative of the results for the full fiscal year. Management of the Henry Schein Animal Health Business believes that the unaudited condensed combined financial statements reflect all normal and recurring adjustments necessary for a fair statement of the results as of and for the interim periods presented. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and the financial statements of the Henry Schein Animal Health Business and the notes thereto included elsewhere in this prospectus.

 

    Nine Months Ended     Years Ended  

Dollars in thousands

  September 29,
2018
    September 30,
2017
    December 30,
2017
    December 31,
2016
    December 26,
2015
    December 27,
2014
    December 28,
2013
 

Results of Operations Data:

             

Net sales

  $  2,883,123     $  2,663,805     $ 3,579,795     $ 3,353,160     $ 2,978,328     $ 2,951,694     $ 2,646,700  

Gross profit

    525,232       482,439       652,025       619,913       530,018       476,926       430,455  

Restructuring costs

    7,788       —         —         7,269       8,344       —         —    

Operating income

    104,082       99,474       135,322       123,828       103,807       100,348       95,726  

Income taxes

    33,272 (2)       19,167       48,019 (1)        27,938       24,269       23,733       18,960  

Net income

    75,001       84,290       92,044       100,264       84,988       84,472       67,591  

Net income attributable to the Henry Schein Animal Health Business

    67,408       62,749       64,354       70,298       60,324       59,827       43,423  

 

    As of  

Dollars in thousands

  September 29,
2018
    December 30,
2017
    December 31,
2016
    December 26,
2015
    December 27,
2014
    December 28,
2013
 

Balance Sheet Data:

           

Cash and cash equivalents

  $ 21,804     $ 16,656     $ 19,714     $ 19,019     $ 10,815     $ 38,594  

Total assets

    2,154,516       2,167,970       1,944,987       1,809,702       1,655,016       1,473,870  

Long-term debt, net

    23,389       23,529       25,831       23,922       27,604       23,671  

Total liabilities

    549,609       588,476       544,156       525,149       471,562       425,314  

Redeemable noncontrolling interest

    91,637       366,554       322,070       275,759       309,540       246,497  

Total equity

    1,513,270       1,212,940       1,078,761       1,008,794       873,914       802,059  

 

(1)

Includes a one-time tax expense of approximately $20.3 million relating to modifications in connection with the impact of the Tax Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and Notes 1 and 11 to the audited financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.

(2)

Includes additional provisional expense of approximately $8.1 million relating to transition tax on deemed repatriation of foreign earnings and $2.4 million related to global intangible low-taxed income “GILTI” tax. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Henry Schein Animal Health Business” and Notes 1 and 11 to the audited financial statements of the Henry Schein Animal Health Business included elsewhere in this prospectus.

 

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SELECTED HISTORICAL FINANCIAL DATA OF VETS FIRST CHOICE

The selected historical condensed consolidated statements of operations data for the years ended December 31, 2017, December 31, 2016 and January 2, 2016 and the related selected historical condensed consolidated balance sheet data as of December 31, 2017 and December 31, 2016 have been derived from Vets First Choice’s audited financial statements and notes thereto included elsewhere in this prospectus. The historical condensed consolidated balance sheet data as of January 2, 2016 have been derived from Vets First Choice’s audited financial statements and notes thereto not included in this prospectus. The selected historical consolidated financial data for the years ended, and as of, January 3, 2015 and January 4, 2014 have been derived from Vets First Choice’s audited financial statements and notes thereto not included in this prospectus. The selected historical condensed consolidated statements of operations data for the nine months ended September 30, 2018 and September 30, 2017 and the related selected historical condensed consolidated balance sheet data as of September 30, 2018 have been derived from the unaudited historical financial statements of Vets First Choice included elsewhere in this prospectus.

The selected historical financial data below are not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date, and the results for the interim period ended September 30, 2018 are not necessarily indicative of the results for the full fiscal year. Management of Vets First Choice believes that the unaudited condensed combined financial statements reflect all normal and recurring adjustments necessary for a fair statement of the results as of and for the interim periods presented. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice” and the financial statements of Vets First Choice and the notes thereto included elsewhere in this prospectus.

 

    Nine Months Ended     Years Ended  

Dollars in thousands

  September 30,
2018
    September 30,
2017
    December 31,
2017
    December 31,
2016
    January 2,
2016
    January 3,
2015(1)
    January 4,
2014(1)
 

Results of Operations Data:

             

Revenues, net

  $ 149,273     $ 89,188     $ 129,595     $ 83,285     $ 49,799     $ 33,395     $ 17,432  

Gross profit

    65,778       36,360       55,548       32,705       18,755       10,528       5,641  

Transaction costs in connection with Merger

    6,736       —               —         —         —         —    

Loss from operations

    (26,552     (14,045     (20,397     (14,218     (8,334     (4,630     (4,356

Income tax (benefit) expense

    (3,657     (18,767     (22,445 )(2)      158       159       (1,119     —    

Net income (loss)

    (27,219     3,637       807       (15,571     (10,797     (3,607     (4,436

 

    As of  

Dollars in thousands

  September 30,
2018
    December 31,
2017
    December 31,
2016
    January 2,
2016
    January 3,
2015(1)
    January 4,
2014(1)
 

Balance Sheet Data:

           

Cash and cash equivalents

  $ 16,891     $ 30,196     $ 12,307     $ 30,770     $ 3,273     $ 5,088  

Total assets

    204,363       214,248       50,573       61,417       25,283       17,290  

Long-term debt, net

    14,410       9,719       —         —         9,819       1,274  

Total liabilities

    52,362       38,676       16,636       12,311       17,425       5,911  

Total redeemable convertible preferred stock

    285,102       284,805       75,277       75,215       22,962       22,953  

Total stockholders’ deficit

    (133,101     (109,233     (41,340     (26,109     (15,104     (11,573

 

(1)

Certain adjustments have been made to the January 3, 2015 and January 4, 2014 consolidated financial statements to conform with the removal of previously recorded goodwill amortization in connection with the previous adoption of the private accounting alternative Accounting Standards Update (ASU) No. 2014-02, “Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill,” along with other immaterial reclassifications.

(2)

Includes a one-time tax benefit of approximately $1.8 million relating to modifications in connection with the impact of the Tax Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Vets First Choice” and Notes 2 and 10 to the audited financial statements of Vets First Choice included elsewhere in this prospectus.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF

THE COMBINED COMPANY AND RELATED NOTES

The following unaudited pro forma condensed combined statements of operations for the nine months ended September 29, 2018 and for the fiscal year ended December 30, 2017 and the unaudited pro forma condensed combined balance sheet as of September 29, 2018 are based on the historical financial statements of the Henry Schein Animal Health Business and Vets First Choice after giving effect to the Transactions. The unaudited pro forma condensed combined financial statements are based on the assumptions, adjustments and eliminations described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 29, 2018 and for the fiscal year ended December 30, 2017 combine the historical condensed combined statements of operations of the Henry Schein Animal Health Business and the historical consolidated statements of operations of Vets First Choice, giving effect to the Transactions as if they had occurred at January 1, 2017. The unaudited pro forma condensed combined balance sheet as of September 29, 2018 combines the historical condensed combined balance sheet of the Henry Schein Animal Health Business as of September 29, 2018 and the historical condensed consolidated balance sheet of Vets First Choice as of September 30, 2018, giving effect to the Transactions as if they had occurred on September 29, 2018.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting, with the Henry Schein Animal Health Business considered the accounting acquirer of Vets First Choice. Under the acquisition method of accounting, the preliminary purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess purchase price allocated to goodwill. The pro forma purchase price allocation was based on an estimate of the fair market values of the tangible and intangible assets and liabilities related to Vets First Choice. The Henry Schein Animal Health Business considered multiple factors in arriving at the estimated fair market values, which were based on a preliminary and limited review of the assets and liabilities related to Vets First Choice to be acquired. Following the consummation of the Transactions, we expect to complete the purchase price allocation after considering Vets First Choice’s assets and liabilities at the level of detail necessary to finalize the required purchase price allocation under the acquisition method of accounting. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.

The unaudited pro forma condensed combined financial statements contain only adjustments that are factually supportable and directly attributable to the Transactions and do not reflect the costs of any integration activities or benefits that may result from realization of future revenue growth or operational synergies expected to result from the Transactions.

The Henry Schein Animal Health Business has a fiscal year ending on the last Saturday of December, which was December 30 for fiscal year 2017. Vets First Choice reports its results of operations on a calendar year basis. The differences in the periods were not significant to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial information set forth below give effect to the Transactions and the application of the acquisition method of accounting in connection with the Merger.

The unaudited pro forma condensed combined financial statements should be read in conjunction with:

 

   

the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

   

the Henry Schein Animal Health Business’ audited historical combined financial statements and related notes for the year ended December 30, 2017, which are included elsewhere in this prospectus;

 

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the Henry Schein Animal Health Business’ unaudited condensed combined financial statements and related notes as of and for the nine months ended September 29, 2018, which are included elsewhere in this prospectus; and

 

   

Vets First Choice’s audited and unaudited historical consolidated financial statements and related notes for the fiscal year ended December 31, 2017 and as of and for the nine months ended September 30, 2018, which are included elsewhere in this prospectus.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or financial position of the Combined Company would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position of the Combined Company on a stand alone basis.

 

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Table of Contents

Unaudited Pro Forma Condensed Combined Statements of Operations

for the Nine Months Ended September 29, 2018

 

    Historical     Spin-Off
and Other
Pro Forma
Adjustments
(Note 3)
    Purchase Price
and Related
Pro Forma
Adjustments
(Note 4)
    Pro Forma
Condensed
Combined
 
Dollars in thousands, except per share amounts   Henry Schein
Animal Health
Business
    Vets First Choice
(Note 2)
 

Net sales

  $ 2,883,123     $ 149,273     $ —       $ —       $ 3,032,396  

Cost of sales

    2,357,891       83,495       —         3,375     M      2,444,761  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    525,232       65,778       —         (3,375     587,635  

Operating expenses:

         

Selling, general and administrative

    413,362       85,594       —         59,076     M      569,131  
          11,099     N   

Restructuring costs

    7,788       —         —         —         7,788  

Transaction costs

    —         6,736       (6,736 )  D      —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    104,082       (26,552     6,736       (73,550     10,716  

Interest expense

    (1,897     (501     (47,948 )  C      —         (50,346

Interest income

    4,323       259       —         —         4,582  

Other income (expense)

    972       (4,082     —         —         (3,110
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes and equity in earnings of affiliates

    107,480       (30,876     (41,212     (73,550     (38,158

Income tax (expense) benefit

    (33,272     3,657       12,323   F      18,932     J      1,640  

Equity in earnings of affiliates

    793       —         —         —         793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    75,001       (27,219     (28,889     (54,618     (35,725

Less: Net income attributable to noncontrolling interests

    (7,593     —         6,696   A      —         (897

Net income (loss) attributable to the
company

  $ 67,408     $ (27,219   $ (22,193   $ (54,618   $ (36,622
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma earnings per common share

         

Basic (a)

          $ (0.33

Diluted (b)

            (0.33

Pro forma weighted average common shares outstanding

         

Basic (a)

            111,024,554  

Diluted (b)

            111,024,554  

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

(a)

Pro forma basic earnings per share and pro forma weighted average basic shares outstanding for the nine months ended September 29, 2018 reflect the number of shares of our common stock that will be outstanding upon completion of the Transactions.

(b)

Pro forma diluted earnings per share and pro forma weighted average diluted shares outstanding reflect the estimated number of shares of our common stock that will be outstanding upon completion of the Transactions and reflect the potential issuance of shares of our common stock under our equity plans in which our employees will participate, based on the distribution ratio. In connection with the Transactions, stock options and unvested restricted stock awards held by certain Henry Schein Animal Health Business and Vets First Choice employees will be converted to our stock awards such that the total value of our stock awards post-Merger will be substantially economically equivalent to the value of such awards prior to the Merger. Due to the pro forma condensed combined net loss for the nine months ended September 29, 2018, dilutive common share-equivalents were excluded from diluted weighted average common shares outstanding as they would have been anti-dilutive.

 

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Table of Contents

Unaudited Pro Forma Condensed Combined Statements of Operations

for the Fiscal Year Ended December 30, 2017

 

    Historical     Spin-Off
and Other
Pro Forma
Adjustments
(Note 3)
    Purchase Price
and Related
Pro Forma
Adjustments
(Note 4)
    Pro Forma
Condensed
Combined
 
Dollars in thousands, except per share amounts   Henry Schein
Animal Health
Business
    Vets First Choice
(Note 2)
 

Net sales

  $ 3,579,795     $ 129,595     $ —       $ —       $ 3,709,390  

Cost of sales

    2,927,770       74,047       —         4,500    M      3,006,317  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    652,025       55,548       —         (4,500     703,073  

Operating expenses: