<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------------
COMMISSION FILE NUMBER 1-8350
FRESENIUS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2550576
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2637 SHADELANDS DRIVE
WALNUT CREEK, CALIFORNIA 94598
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(510) 295-0200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the most recent
practicable date:
21,644,791 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE,
WERE ISSUED AND OUTSTANDING AT MAY 6, 1996.
<PAGE> 2
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Assets March 31, December 31,
------ 1996 1995
-------- -----------
<S> <C> <C>
Current assets:
Cash $ 2,352 2,330
Trade accounts receivable, net 52,306 57,052
Inventories 67,282 65,706
Prepaid expenses and other
current assets 6,522 3,258
Deferred income taxes 5,611 4,594
-------- -------
Total current assets 134,073 132,940
Property, plant, and equipment, net 48,985 48,492
Intangible assets 36,175 36,863
Other assets 7,573 6,626
-------- -------
Total assets $226,806 224,921
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,668 16,276
Accounts payable to affiliates,net 40,581 41,229
Accrued expenses 13,650 13,577
Short term borrowings 35,949 33,149
Short term borrowings-Fresenius AG 3,102 3,650
Current portion long-term debt
and capital lease obligations 11,788 11,703
Income taxes payable 832 365
-------- -------
Total current liabilities 120,570 119,949
Long-term payable, less current portion 1,275 1,275
Note payable to Fresenius North America 274 274
Long-term debt and capital lease
obligations, less current portion 19,895 24,821
-------- -------
Total liabilities 142,014 146,319
Stockholders' equity:
Series F preferred stock,
$1.00 par value 200 200
Common stock, $.01 par value 216 215
Capital in excess of par value 141,986 141,136
Currency translation adjustment (87) (80)
Accumulated deficit (57,523) (62,869)
-------- -------
Total stockholders' equity 84,792 78,602
-------- -------
$226,806 224,921
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Net sales $81,062 68,176
Cost of sales 55,566 47,040
------- ------
Gross profit 25,496 21,136
Operating expenses:
Selling, general, administrative,
and research and development 18,949 17,048
------- ------
Operating income 6,547 4,088
Other expense (income):
Interest income (17) (7)
Interest expense 1,418 1,281
Other, net 62 25
------- ------
Income before income taxes 5,084 2,789
Income tax benefit (262) (529)
------- ------
Net income $ 5,346 3,318
======= ======
Net income per common and common
equivalent share:
Primary $ .19 .13
======= ======
Fully diluted $ .19 .13
======= ======
Weighted average number of shares
of common stock and common stock
equivalents used to compute net
income per common and common
equivalent share:
Primary 27,884 25,717
======= ======
Fully diluted 27,936 25,872
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FRESENIUS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by (used in)
operating activities $ 5,523 (4,659)
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,760) (9,297)
Proceeds from sales/leaseback of
property, plant and equipment -- 11,768
Validation cost expenditures (1,347) --
------- --------
Net cash provided by (used in)
investing activities (3,107) 2,471
Cash flows from financing activities:
Principal payments under debt and
capital lease obligations (8,994) (8,458)
Proceeds from capital lease
financing arrangement 4,153 4,000
Change in accounts payable to
affiliates, net (648) 5,524
Proceeds from short-term borrowings 10,000 18,280
Change in short-term borrowings
- Fresenius AG (548) 70
Repayment of short-term borrowings (7,200) (16,880)
Proceeds from issuance of common
stock, net 851 276
------- --------
Net cash provided (used in) by
financing activities (2,386) 2,812
Effect of exchange rates on cash (8) 2
------- --------
Net increase in cash
and cash equivalents 22 626
Cash and cash equivalents at
beginning of period 2,330 2,315
------- --------
Cash and cash equivalents at
end of period $ 2,352 2,941
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
(1) Description of Business
Fresenius USA, Inc. and subsidiaries (the Company) is a manufacturer and
distributor of medical products and systems for sale primarily in the United
States and Canada for the treatment of kidney failure by hemodialysis and by
peritoneal dialysis. The Company is one of only two companies in the United
States offering a full line of both hemodialysis and peritoneal dialysis
machines and disposable products. These machines and products are used to
cleanse a patient's blood of waste products and fluids normally eliminated by
properly functioning kidneys. The Company also sells cell separation products
designed for the therapeutic removal of diseased blood components as well as
collection of donor blood components for transfusion.
(2) Inventories
Inventories are stated at the lower of cost (determined by using first-in,
first-out method) or market value, and consist of the following as of March 31,
1996 and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- -----------
<S> <C> <C>
Raw Materials $32,870 32,192
Work in process 9,733 10,504
Finished goods 27,835 25,707
------- ------
70,438 68,403
Reserves (3,156) (2,697)
------- ------
Inventories, net $67,282 65,706
======= ======
</TABLE>
5
<PAGE> 6
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
(3) Other Assets
In 1995, the Company completed construction of a dialyzer plant addition to
its manufacturing facility in Ogden, Utah. At March 31, 1996, included in other
assets are $7,989 of validation costs, net of accumulated amortization of $557,
incurred to qualify the products and the associated manufacturing processes for
approval by the U.S. Food and Drug Administration. Such costs are being
amortized on a straight-line basis over an estimated useful life of 3 years upon
commencement of manufacturing.
(4) Income taxes
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $38.4 million for federal income tax reporting purposes. The net
operating losses expire in varying amounts beginning in 1998 through 2006. The
ability of the Company to use carryforwards to offset taxes on its future income
is also subject to certain annual cumulative limitations. The Company believes
that it has sufficient net loss carryforwards to offset any 1996 net income for
federal income tax reporting purposes.
(5) Net Income Per Common and Common Equivalent Share
Net income per common share was computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period based on the treasury stock method or the
modified treasury stock method. Stock options, common stock warrants, and the
Series F preferred stock are considered to be common stock equivalents.
The application of the treasury stock method is modified when the
outstanding number of the common shares which would be issued if all outstanding
number of common shares which would be issued if all outstanding options and
warrants and their equivalents were exercised exceeds 20% of the number of
common shares outstanding at the end of the period. When this 20% test is met,
the treasury stock method is first applied to purchase no more than 20% of the
number of common shares outstanding at the end of the period. The balance of any
proceeds remaining is then applied to reduce debt with appropriate recognition
given for any interest expense savings net of income tax expense. These
calculations are aggregated to determine whether the effect on net income per
common share is dilutive or antidilutive. When dilutive, all of the calculations
are utilized when computing net income per common share.
6
<PAGE> 7
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
(5) Net Income Per Common and Common Equivalent Share
(Continued)
The computation of fully diluted income per share would also include the
effect of converting other outstanding securities, when the effect is dilutive,
and the additional dilution related to stock options when the market price at
the end of the period is higher than the average price for the period.
(6) Recent Development
On February 4, 1996, W. R. Grace & Co. ("Grace") and Fresenius AG entered
into a definitive agreement (the "Reorganization Agreement") to combine Grace's
National Medical Care, Inc. ("NMC") with Fresenius AG's worldwide dialysis
business, including the Company (the "Reorganization"). The Reorganization
Agreement provides that an aggregate of 55.2% of the shares of the combined
company, to be called Fresenius Medical Care AG, will be issued to Fresenius AG
and the Company's public shareholders provided that Fresenius AG must retain at
least 51% of the shares of the combined company and that Grace shareholders will
acquire the remaining 44.8%. Fresenius AG agreed with Grace that a wholly-owned
subsidiary of Fresenius Medical Care AG would be merged with and into the
Company, with the Company the surviving Corporation (the "Company Merger"), as a
result of which the Company would become a wholly-owned subsidiary of Fresenius
Medical Care AG and that, when the economic terms of the participation of the
Company's minority shareholders in the transaction have been established,
Fresenius AG will vote its shares of the Company in favor of the transaction.
On May 8, 1996, Fresenius AG and the Company jointly announced that an
agreement had been reached between Fresenius AG and a committee of independent
directors of the Company (the "Independent Committee") on the terms on which the
public stockholders of the Company will participate in the Reorganization and
the Company Merger. The Reorganization and the Company Merger were approved by
the Board of Directors of the Company on May 8, 1996.
7
<PAGE> 8
FRESENIUS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
(6) Recent Development (continued)
Under the terms of the agreement with the Independent Committee, the public
shareholders of the Company were to receive the equivalent of 1.15 ordinary
Shares of Fresenius Medical Care AG, based on the assumption that Fresenius
Medical Care AG would have 217,170,000 shares outstanding. It is currently
intended that Fresenius Medical Care AG will have an aggregate of 70,000,000
ordinary shares outstanding (instead of 217,170,000 as originally proposed) and
that U.S. stockholders will receive American Depository Shares (ADSs) each
evidencing one-third of an ordinary share of Fresenius Medical Care AG. Thus,
the public shareholders of the Company will receive, on a fully diluted basis,
approximately 1.112 ADSs of Fresenius Medical Care AG for each share of Company
Common Stock. The agreement with the Independent Committee also assumes that the
Company will reacquire outstanding stock options or other equity securities,
such that Fresenius AG's fully diluted interest in Fresenius Medical Care AG is
not reduced below 50.3%. Accordingly, the public stockholders of the Company, on
a fully diluted basis, will receive 4.9% of Fresenius Medical Care AG's shares
outstanding after the closing.
(7) Management Representation
The accompanying unaudited consolidated condensed financial statements have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the results for the
interim periods presented. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the year.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to such rules and regulations. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
contained in the Company's Form 10-K for the year ended December 31, 1995.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996 AND 1995
(UNAUDITED)
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
NET SALES. Net sales were $81.1 million for the first quarter 1996, an
increase of $12.9 million or 18.9% compared with net sales of $68.2 million for
the first quarter 1995. The increase in sales for the first quarter of 1996 is
the result of continued higher unit sales volumes for both hemodialysis and
peritoneal dialysis products.
GROSS PROFIT. Gross profit was $25.5 million for the first quarter 1996, an
increase of $4.4 million or 20.6% compared with gross profit of $21.1 million
for the first quarter 1995. Gross profit margin increased from 31.0% for the
first quarter 1995 to 31.5% for the first quarter 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AND RESEARCH AND DEVELOPMENT
EXPENSE. Selling, general and administrative expense and research and
development expense were $18.9 million for the first quarter 1996, an increase
of $1.9 million or 11.2% compared with $17.0 million for the first quarter 1995.
These expenses as a percentage of net sales were 23.4% for the first quarter
1996 compared to 25.0% for the first quarter of 1995.
INTEREST EXPENSE (NET). Interest expense (net) was $1.4 million for the
first quarter 1996 compared to $1.3 million for the same period of 1995.
INCOME TAX EXPENSE (BENEFIT). Income tax benefit in the first quarter of
1996 was $262,000 compared to income tax benefit of $529,000 for the same period
in 1995. During the first quarter of 1996, the Company recognized a tax benefit
of approximately $1.0 million compared with $849,000 during the first quarter of
1995 related to the Company's net operating loss carryforwards from previous
years.
NET INCOME. Net income was $5.3 million for the first quarter 1996, an
increase of $2.0 million or 61.1% compared to net income of $3.3 million for the
first quarter 1995. Net income for the first quarters 1996 and 1995 included the
above tax benefit which resulted from recognition of a portion of the Company's
deferred tax asset related to the Company's net operating loss carryforwards
from previous years.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, working capital and
capital expenditures through bank borrowings obtained with credit support from
Fresenius AG, private placements of Preferred Stock and Common Stock to
Fresenius AG and internally generated funds. During 1995, the Company entered
into a sale leaseback arrangement with a bank without support from Fresenius AG.
In addition, during 1994, the Company successfully completed a public offering
of 3,450,000 shares of its Common Stock, realizing proceeds, after payment of
expenses, of approximately $16.2 million. Since 1990, the Company has realized
$19.5 million in net proceeds from private placements of Preferred and Common
Stock to Fresenius AG, all of which was utilized to reduce outstanding
obligations to Fresenius AG and affiliated companies.
In 1995, the Company completed construction of a 104,000 square foot
addition to its manufacturing facility in Ogden, Utah for the manufacture of
polysulfone dialyzers. The Company expended $39.5 million for the construction
and equipping of the expanded facility as of March 31, 1996. During 1995, the
Company entered into a sale leaseback arrangement with a bank which covers the
sale by the Company of approximately $27.0 million of certain new equipment of
the Company's dialyzer facility at its Ogden, Utah plant to the bank and the
leaseback of the equipment under a four year operating lease that has renewal
options and a purchase option at fair market value. Although the rent payments
on the lease are variable based on the three-month London Interbank Offered Rate
(LIBOR), the Company has effectively fixed its rent expense through the use of
interest rate swap agreements. If the Company elects not to purchase the
equipment or renew the lease at the end of the lease term, the Company will be
obligated to pay a termination fee of up to $20,250 to be offset by the sales
proceeds from the Company remarketing the equipment.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
As of March 31, 1996, the Company had outstanding short-term borrowings of
$35.9 million under lines of credit with six commercial banks. In March 1995,
the Company replaced a $15.0 million line of credit supported by Fresenius AG
with a $20.0 million line of credit secured by the Company's accounts
receivable. As of March 31, 1996, the Company had borrowed $10.3 million under
this $20.0 line of credit. The Company's lines of credit provide for a total
credit availability of $47.0 million. Fresenius AG has provided credit support
to enable the Company to obtain various term loans and short-term lines of
credit. In addition, at March 31, 1996, the Company had fully drawn the amount
available under a $3.1 million short-term line of credit with Fresenius AG, the
terms of which are similar to those of the lines of credit with the six
commercial banks described above.
At March 31, 1996, the Company had outstanding two interest rate swap
agreements with a commercial bank for an aggregate of $25.0 million. These
agreements effectively change the Company's rent expense on its variable payment
operating lease to fixed rates based on 8.02% and 5.60%, respectively.
The Company believes that its committed and possible future bank or other
commercial financing, combined with internally generated funds and the sale of
additional debt or equity securities, will be sufficient to fund the Company's
working capital requirements and other obligations in the foreseeable future.
On May 8, 1996, the Company entered into a letter agreement among the
Company, Fresenius AG and with W.R. Grace & Co. to which the Company will merge
with Fresenius Medical Care AG, a German corporation. The terms of the
agreement are more fully described in Part II, Item 5 hereof.
11
<PAGE> 12
PART II
Item 5. Other Information
On February 4, 1996, W. R. Grace & Co. ("Grace") and Fresenius AG entered
into a definitive agreement (the "Reorganization Agreement") to combine Grace's
National Medical Care, Inc. ("NMC") with Fresenius AG's worldwide dialysis
business, including the Company (the "Reorganization"). The Reorganization
Agreement provides that an aggregate of 55.2% of the shares of the combined
company, to be called Fresenius Medical Care AG, will be issued to Fresenius AG
and the Company's public shareholders provided that Fresenius AG must retain at
least 51% of the shares of the combined company and that Grace shareholders will
acquire the remaining 44.8%. Fresenius AG agreed with Grace that a wholly-owned
subsidiary of Fresenius Medical Care AG would be merged with and into the
Company, with the Company the surviving Corporation (the "Company Merger"), as a
result of which the Company would become a wholly-owned subsidiary of Fresenius
Medical Care AG and that, when the economic terms of the participation of the
Company's minority shareholders in the transaction have been established,
Fresenius AG will vote its shares of the Company in favor of the transaction.
On May 8, 1996, Fresenius AG and the Company jointly announced that an
agreement had been reached between Fresenius AG and a committee of independent
directors of the Company (the "Independent Committee") on the terms on which the
public stockholders of the Company will participate in the Reorganization and
the Company Merger. The Reorganization and the Company Merger were approved by
the Board of Directors of the Company on May 8, 1996.
Under the terms of the agreement with the Independent Committee, the
public shareholders of the Company were to receive the equivalent of 1.15
ordinary Shares of Fresenius Medical Care AG, based on the assumption that
Fresenius Medical Care AG would have 217,170,000 shares outstanding. It is
currently intended that Fresenius Medical Care AG will have an aggregate of
70,000,000 ordinary shares outstanding (instead of 217,170,000 as originally
proposed) and that U.S. stockholders will receive American Depository Shares
(ADSs) each evidencing one-third of an ordinary share of Fresenius Medical
Care AG. Thus, the public shareholders of the Company will receive, on a fully
diluted basis, approximately 1.112 ADSs of Fresenius Medical Care AG for each
share of Company Common Stock. The agreement with the Independent Committee
also assumes that the Company will reacquire outstanding stock options or
other equity securities, such that Fresenius AG's fully diluted interest in
Fresenius Medical Care AG is not reduced below 50.3%. Accordingly, the public
stockholders of the Company, on a fully diluted basis, will receive 4.9% of
Fresenius Medical Care AG's shares outstanding after the closing.
12
<PAGE> 13
PART II (CONTINUED)
Item 5. Other Information (continued)
At the time the Company's Board of Directors approved the Reorganization
and the Company Merger, the Company entered into two agreements. Pursuant to a
letter agreement among Fresenius AG, the Company and Grace (the "Joinder
Agreement"), the Company undertook the obligations of a party to the
Reorganization Agreement and, for itself, made directly to Grace certain
representations and warranties, including the representations and warranties in
the Reorganization Agreement with respect to the Company. Under the Joinder
Agreement, the Company's undertaking and its representations and warranties made
therein shall be null and void if, immediately prior to the effective time of
the Company Merger, the number of Company "Common Share Equivalents" (i.e., the
aggregate number of shares of Company Common Stock (i) outstanding and (ii)
underlying options, warrants and convertible securities of the Company) exceeds
9,253,331. The Joinder Agreement also reduced the percentage of Fresenius
Medical Care AG ordinary shares required to be held by Fresenius AG upon
consummation of the Reorganization from 51% to 50.3%.
Pursuant to a separate agreement between the Company and Fresenius AG (the
"Supplemental Agreement"), the Company and Fresenius AG agreed that $75 million
in liquidated damages payable to Fresenius AG under the Reorganization Agreement
upon termination of that agreement for certain specified causes would be payable
$49.5 million to Fresenius AG and $25.5 million to the Company and that, if the
Reorganization is not consummated, Fresenius AG and the Company will bear 66%
and 34%, respectively, of their aggregate fees and expenses. The Supplemental
Agreement also confirms certain understandings of Fresenius AG and the Company
relating to the exchange ratio of Fresenius Medical Care AG ordinary shares for
Company Common Stock, including the Company's intention to repurchase sufficient
vested and unvested stock purchase options held by Company employees and other
equity securities of the Company so that, immediately prior to the Company
Merger, there shall be no more that 9,253,331 Company Common Share Equivalents.
Such sharing arrangements and understandings will also be null and void if
immediately prior to the effective time of the Company merger, the number of
Company Common Share equivalents exceeds 9,253,331.
The summaries of the Joinder Agreement and the Supplemental Agreement set
forth above are qualified in their entirety by reference to such agreements,
which are filed as Exhibits to this Quarterly Report.
13
<PAGE> 14
PART II (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit 10.22 - Agreement and Plan of Reorganization dated
February 4, 1996 between Fresenius AG and W.R.
Grace & Co. (incorporated by reference to Exhibit
No. 15 to Amendment No. 13 to the Schedule 13D
filed by Fresenius AG and Fresenius Securities
Inc. on February 8, 1996)
Exhibit 10.23 - Letter agreement dated May 8, 1996 among
Fresenius AG, Fresenius USA, Inc. and W.R. Grace &
Co.
Exhibit 10.24 - Agreement dated May 8, 1996 between Fresenius AG
and Fresenius USA, Inc.
Exhibit 11 Statement of Computation of Net Income Per Common
Share.
Exhibit 99.1 - Joint Press Release of Fresenius AG and Fresenius
USA, Inc.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the registrant during the
period covered by this report.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fresenius USA, Inc.
May 13, 1995 /s/ Heinz Schmidt
--------------------------------
Corporate Group
Vice President Finance
(Principal Financial
Officer)
/s/ Robert E. Farrell
---------------------------------
Corporate Group
Vice President
Administration and
General Counsel
15
<PAGE> 16
Exhibit Index
Exhibit 10.22 - Agreement and Plan of Reorganization dated
February 4, 1996 between Fresenius AG and W.R.
Grace & Co. (incorporated by reference to Exhibit
No. 15 to Amendment No. 13 to the Schedule 13D
filed by Fresenius AG and Fresenius Securities
Inc. on February 8, 1996)
Exhibit 10.23 - Letter agreement dated May 8, 1996 among
Fresenius AG, Fresenius USA, Inc. and W.R. Grace &
Co.
Exhibit 10.24 - Agreement dated May 8, 1996 between Fresenius AG
and Fresenius USA, Inc.
Exhibit 11 Statement of Computation of Net Income Per Common
Share.
Exhibit 99.1 - Joint Press Release of Fresenius AG and Fresenius
USA, Inc.
16
<PAGE> 1
Exhibit 10.23
FRESENIUS AG
FRESENIUS USA, INC.
May 8, 1996
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486-1010
Ladies and Gentlemen:
We refer to the Agreement and Plan of Reorganization dated as of February
4, 1996 (the "Agreement") by and between W. R. Grace & Co. ("Grace") and
Fresenius AG ("Fresenius AG") and confirm our agreement as follows:
1. In each of (a) clause (iii) of the proviso to paragraph (e) of
Section 4.2 of the Agreement and (b) the second sentence of section 2.3(a)
of Exhibit D to the Agreement, the figure "50.3%" shall be substituted for
the figure "51%."
2. Subject to the terms of paragraph 6 hereof, and on the condition
that no more than 70 million Newco Ordinary Shares are outstanding
immediately following consummation of the Reorganization, in accordance
with Section 4.2(e) of the Agreement, Fresenius AG hereby notifies Grace
that the Fresenius USA Consideration Per Share shall be equal to 0.37067735
Newco Ordinary Shares.
3. Subject to the terms of paragraph 6 hereof and Section 9.1 of the
Agreement, in accordance with Section 9.13 of the Agreement, Fresenius USA
hereby undertakes the obligations contained therein as a party and, for
itself, makes directly to Grace the representations and warranties
contained in the Agreement with respect to itself.
4. Subject to the terms of Section 9.1 of the Agreement, Fresenius USA
hereby represents and warrants to Grace that subject only to the receipt of
the requisite approval of its shareholders, Fresenius USA has the requisite
corporate power and authority and has taken all corporate action necessary
in order to execute, deliver and perform each Transaction Agreement to
which it is a party and to consummate the transactions contemplated by the
Agreement and the Transaction Agreements including, without limitation, the
approval of the Board of Directors of Fresenius USA and the resolution of
the Board of Directors of Fresenius USA to recommend the transactions
contemplated by the Agreement and the Transaction Agreements for approval
by Fresenius USA shareholders, subject to their fiduciary duties.
5. All notices, requests, claims, demands and other communications to
Fresenius USA under the Agreement shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery in
the manner set forth in the Agreement, addressed as follows:
Fresenius USA, Inc.
2637 Shadelands Drive
Walnut Creek, CA 94598
Attn: Dr. Ben Lipps
Fax: (510) 988-1941
with copies to:
Ropes & Gray
One International Place
Boston, MA 02110-2624
Attn: Winthrop G. Minot, Esq.
Fax: (617) 951-7051
17
<PAGE> 2
Exhibit 10.23
W. R. Grace & Co.
May 8, 1996
Page 2
and
O'Melveny & Myers
Citicorp Center
153 East 53rd Street
New York, NY 10022-4611
Attn: Dr. Ulrich Wagner
Fax: (212) 326-2061
6. If there shall be in excess of 9,253,331 Fresenius USA Common Share
Equivalents outstanding immediately prior to the effective time of the
Fresenius USA Merger, the terms of paragraphs 2, 3 and 4 hereof shall be
automatically void and of no further force or effect, without any action on
the part of any party hereto.
7. Terms capitalized but not defined in this letter shall have the
meanings ascribed to them in the Agreement.
8. This letter agreement may be executed in several counterparts, each
of which shall be an original and all of which shall be deemed to be one
and the same Agreement.
9. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18
<PAGE> 3
Exhibit 10.23
Please confirm your agreement to the foregoing by executing duplicate
copies of this letter and returning one executed copy to each of Fresenius AG
and Fresenius USA.
Very truly yours,
FRESENIUS AG
By: /s/ GERD KRICK
------------------------------------
Name: Gerd Krick
Title: Chief Executive Officer
By: /s/ MATHIAS KLINGLER
------------------------------------
Name: Mathias Klingler
Title: President and Chief
Operating
Officer -- Dialysis Systems
Division
FRESENIUS USA, INC. (with
respect only to paragraphs 3
through 9, inclusive)
By: /s/ BEN LIPPS
------------------------------------
Name: Ben Lipps
Title: President
AGREED
W. R. Grace & Co.
By: /s/ Paul McMahon
----------------------------------
Name: Paul McMahon
Title: Vice President
19
<PAGE> 1
Exhibit 10.24
AGREEMENT
Agreement dated as of May 8, 1996, between Fresenius AG, an
Aktiengesellschaft organized under the laws of the Federal Republic of Germany
("Fresenius AG"), and Fresenius USA, Inc., a Massachusetts corporation
("Fresenius USA").
RECITALS
WHEREAS, Fresenius AG and W. R. Grace & Co., a New York Corporation
("Grace") have entered into an Agreement and Plan of Reorganization, dated as of
February 4, 1996 (as amended, the "Reorganization Agreement"); and
WHEREAS, the Reorganization Agreement contemplates that Fresenius USA will
join in the Reorganization Agreement as a party and agree to be bound by the
terms of the Reorganization Agreement; and
WHEREAS, the board of directors of Fresenius USA and a special committee of
independent directors of Fresenius USA approved and ratified the Reorganization
Agreement and the other Transaction Agreements (as such term is defined in the
Reorganization Agreement) and, by letter agreement of even date herewith,
Fresenius USA has undertaken the obligations contained therein as a party and
desires to submit the Reorganization, including the Fresenius USA Merger (as
such terms are defined in the Reorganization Agreement) to a vote of its
stockholders; and
WHEREAS, Fresenius AG and Fresenius USA desire to set forth their agreement
with respect to certain matters under the Reorganization Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Any liquidated damages payable pursuant to Section 6.13 of the
Reorganization Agreement shall be payable $49.5 million to Fresenius AG and
$25.5 million to Fresenius USA. Fresenius AG and Fresenius USA agree that
if the Reorganization is not consummated, Fresenius AG and Fresenius USA
shall bear 66% and 34%, respectively, of the aggregate costs and expenses
of the Fresenius Parties, and shall make such payments between themselves
as may be necessary to effect such allocation.
2. (a) It is currently anticipated that 70,000,000 Newco Ordinary
Shares (the "Actual Anticipated Number of Outstanding Newco Shares") will
be outstanding immediately following the consummation of the
Reorganization, and it was previously anticipated that there would be
217,170,000 such shares (the "Previously Anticipated Number of Outstanding
Newco Shares") so outstanding, each on a fully diluted basis. The
Independent Committee of the Board of Directors of Fresenius USA (the
"Fresenius USA Independent Committee"), based on the Previously Anticipated
Number of Outstanding Newco Shares, acting upon advice from their advisors,
approved Fresenius USA Consideration Per Share equal to 1.15 Newco Ordinary
Shares as being fair to the holders (other than Fresenius AG, Grace and
their subsidiaries) of the common stock of Fresenius USA. Based on the
Actual Anticipated Number of Outstanding Newco Shares, the equivalent
Fresenius USA Consideration Per Share to be allocated among holders of
Fresenius USA Common Share Equivalents is equal to 0.37067735 Newco
Ordinary Shares, which shall also be the maximum number of Newco Ordinary
Shares issuable in respect of each Fresenius USA Common Share underlying
Fresenius USA Options assumed by or otherwise rolled over into Newco.
(b) Fresenius AG and Fresenius USA confirm that, prior to the
Fresenius USA Merger, Fresenius USA intends to repurchase (the
"Repurchase") certain vested and nonvested options held by employees of
Fresenius USA and certain other securities of Fresenius USA so that,
immediately prior to the Fresenius USA Merger, there shall be outstanding
no more than 9,253,331 Fresenius USA Common Share Equivalents (the
"Specified Maximum Number of Fresenius USA Common Share Equivalents"), and
that such repurchase shall be for a combination of cash and promissory
notes of Fresenius USA.
20
<PAGE> 2
Exhibit 10.24
(c) If the Specified Maximum Number of Fresenius USA Common Share
Equivalents were to be outstanding at the time of the Fresenius USA Merger,
the Aggregate Fresenius USA Common Share Consideration would be 4.9% of the
Newco Shares that will be outstanding immediately following the
consummation of the Reorganization on a fully diluted basis.
3. If there shall be in excess of the Specified Maximum Number of
Fresenius USA Common Share Equivalents outstanding immediately prior to the
effective time of the Fresenius USA Merger, the terms of paragraphs 1 and 2
hereof shall be automatically void and of no further force or effect,
without any action on the part of any party hereto.
4. Terms capitalized but not defined in this Agreement shall have the
meanings ascribed to them in the Reorganization Agreement.
5. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
6. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person, by cable,
telegram, telex or other standard form of telecommunications, or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Fresenius AG:
As provided in the Reorganization Agreement; and
If to Fresenius USA:
Fresenius USA, Inc.
2637 Shadelands Drive
Walnut Creek, CA 94598
Attn.: Dr. Ben Lipps
Fax: (510) 988-1941
with copies to:
Ropes & Gray
One International Place
Boston, MA 02110-2624
Attn.: Winthrop G. Minot, Esq.
Fax: (617) 951-7050
7. This Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall be deemed to be one and
the same agreement.
8. Nothing in this Agreement, expressed or implied, is intended to
confer upon any person or entity other than the parties hereto, any
benefit, right or remedies.
21
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FRESENIUS AG
By: /s/ GERD KRICK
------------------------------------
Name: Gerd Krick
Title: Chief Executive Officer
/s/ MATHIAS KLINGLER
------------------------------------
Name: Mathias Klingler
Title: President and Chief
Operating Officer --Dialysis
Systems Division
FRESENIUS USA, INC.
By: /s/ BEN LIPPS
------------------------------------
Name: Ben Lipps
Title: President
22
<PAGE> 1
EXHIBIT 11
FRESENIUS USA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
--------- --------
<S> <C> <C>
Net income $ 5,346 $ 3,318
======= =======
Primary net income per common
and common equivalent share $ .19 $ .13
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute
primary net income per common
and common equivalent share 27,884 25,717
======= =======
Fully diluted net income per
common and common equivalent
share $ .19 $ .13
======= =======
Weighted average number of shares
of common stock and common stock
equivalents used to compute fully
diluted net income per common
and common equivalent share 27,936 25,872
======= =======
</TABLE>
23
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
For Additional Information Contact:
Bob Farrell
David Allan
Corporate Group Vice President Robinson Lerer Sawyer
Miller
and General Counsel
(212) 484-7780
Fresenius USA, Inc.
(510) 295-0200
FRESENIUS USA TO PARTICIPATE IN FORMATION
OF FRESENIUS MEDICAL CARE
INDEPENDENT DIRECTORS APPROVE EXCHANGE RATIO
WALNUT CREEK, CALIFORNIA AND BAD HOMBURG, V.D.H., GERMANY, MAY 8, 1996
- - Fresenius USA, Inc. (ASE: FRN) and Fresenius AG (Frankfurt Stock Exchange:
FRE) today jointly announced that an agreement has been reached between
Fresenius AG and the Independent Committee of Directors of Fresenius USA on the
terms on which the public stockholders of Fresenius USA will participate in the
previously-announced combination of National Medical Care, Inc. and the
worldwide dialysis business of Fresenius AG. That combination, to be called
"Fresenius Medical Care AG", will create the world's largest integrated dialysis
company.
Under the terms of the agreement with the Independent Committee
announced today, the public shareholders of Fresenius USA will receive
approximately 1.112 American Depositary Shares ("ADSs") of Fresenius Medical
Care AG for each share of Fresenius USA. Each ADS will evidence one-third of an
ordinary share of Fresenius Medical Care AG. This exchange ratio is based on the
current intent that 70,000,000 ordinary shares of Fresenius Medical Care AG will
be outstanding.
Fresenius AG and Fresenius USA also noted that it was previously
anticipated that Fresenius Medical Care AG would have approximately 217,170,000
ordinary shares outstanding on a fully diluted basis. The agreement announced
today is equivalent to an exchange of one share of Fresenius USA for 1.15
ordinary shares of Fresenius Medical Care AG under this original assumption.
The agreement announced today also assumes that Fresenius USA will
reacquire outstanding stock options or other equity
24
<PAGE> 2
securities, such that Fresenius AG's fully diluted interest in Fresenius Medical
Care AG is not reduced below 50.3%. Accordingly, the public stockholders of
Fresenius USA, on a fully diluted basis, will receive 4.9% of Fresenius Medical
Care AG shares outstanding after the closing. As previously announced, holders
of common shares of W.R. Grace & Co. (NYSE: GRA) will receive the remaining
44.8% of the equity of Fresenius Medical Care AG.
Dr. Gerd Krick, Chief Executive Officer of Fresenius AG, said that he
was "pleased with this step in the orderly process of moving the overall
transaction to a successful conclusion." He added that this increased exchange
ratio for the public stockholders of Fresenius USA over the original offer
"fully reflects the 10 years of growth of Fresenius USA under the majority
ownership of Fresenius AG from a small struggling dialysis company to a
profitable business that is a significant competitor in all aspects of the
dialysis market in North America."
Robert Ehrlich, Chairman of the Independent Committee, said that "we
are gratified at the outcome of these negotiations, which resulted in an
exchange ratio that both the Independent Committee and Salomon Brothers, our
financial advisors, believe is fair to the public stockholders of Fresenius
USA."
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT IN FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,352
<SECURITIES> 0
<RECEIVABLES> 53,630
<ALLOWANCES> 1,324
<INVENTORY> 52,306
<CURRENT-ASSETS> 134,073
<PP&E> 82,512
<DEPRECIATION> 33,527
<TOTAL-ASSETS> 226,806
<CURRENT-LIABILITIES> 120,570
<BONDS> 0
<COMMON> 216
0
200
<OTHER-SE> 84,376
<TOTAL-LIABILITY-AND-EQUITY> 226,806
<SALES> 81,062
<TOTAL-REVENUES> 81,062
<CGS> 55,566
<TOTAL-COSTS> 55,566
<OTHER-EXPENSES> 19,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,401
<INCOME-PRETAX> 5,084
<INCOME-TAX> (262)
<INCOME-CONTINUING> 5,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,346
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
