FISHER SCIENTIFIC INTERNATIONAL INC. Liberty Lane
Hampton, N.H. 03842
(603) 926-5911
December 22, 1997
Dear Fellow Stockholders:
You are invited to attend a special meeting of stockholders of Fisher
Scientific International Inc. ("Fisher") to consider a transaction pursuant to
which an investor group led by Thomas H. Lee Company ("THL"), a financial
investment firm, will make an investment in Fisher and vote on the merger (the
"Merger") of FSI Merger Corp. ("FSI"), a Delaware corporation organized by THL,
with and into Fisher. Details of the transaction are discussed in the enclosed
Fisher Scientific International Inc. Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus").
At the special meeting, Fisher stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Second Amended and Restated
Agreement and Plan of Merger, dated as of November 14, 1997 (the "Merger
Agreement"), by and between Fisher and FSI. Transactions of the Company which
are contemplated by the Merger Agreement which will occur following the special
meeting include (i) actions to cause the Merger to become effective, (ii) the
treatment of shares of the Company and FSI in the Merger (see "THE
TRANSACTION--Transaction Consideration; Election Procedures" and "--FSI Stock
and Fisher Common Stock Ownership Following the Transaction"), (iii) the
treatment of options to purchase shares of Fisher Common Stock held by
employees in the Transaction (see "THE TRANSACTION--Effect on Employee Stock
Options and Employee Benefit Matters" and "--Interests of Certain Persons in
the Transaction"), (iv) recapitalization of certain of the Company's
indebtedness (see "THE TRANSACTION--Transaction Financing"), (v) certain
agreements relating to certain employee benefit arrangements (see "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Employee Benefit Arrangements"), and (vi)
certain matters relating to director and officer indemnification and insurance
(see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification; Directors'
and Officers' Insurance") (clauses (i) through (vi), along with the Merger, to
be referred to herein as the "Transaction"). Stockholders are only being asked
to vote upon the approval of the Merger Agreement as it relates to the Merger
and are not being asked to consider and vote upon the other aspects of the
Transaction, including the recapitalization of the Company's existing
indebtedness. As a result of the Transaction, the capital stock of FSI, all of
which will be owned by THL and the investor group immediately prior to the
Merger, will be converted into between 6,196,891 and 6,507,772 shares of Fisher
Common Stock, $0.01 par value per share ("Fisher Common Stock"). Consummation
of the Transaction is conditioned upon the consummation of the Merger.
Pursuant to the Transaction, each holder of shares of Fisher Common Stock
will be entitled, with respect to each share of Fisher Common Stock, at the
election of such holder and subject to the terms described in the attached
Proxy Statement/ Prospectus, either (a) to receive in an exchange $48.25 in
cash or (b) to retain one share of Fisher Common Stock provided, however, that
(i) shares of Fisher Common Stock held by Fisher or any wholly owned subsidiary
thereof will be cancelled and returned, and (ii) shares of Fisher Common Stock
with respect to which appraisal rights have been perfected will be treated in
accordance with applicable law. The Merger Agreement provides that existing
stockholders (including employees of the Company) must retain exactly 746,114
shares of Fisher Common Stock (the "Standard Pool") in the Transaction. The
Merger Agreement also provides that, in addition to participating in the
Standard Pool, certain eligible employees are entitled to retain up to an
additional 310,881 shares of Fisher Common Stock (the "Eligible Employee Pool")
in the Merger and exchange outstanding options for up to 909,392 shares of
Fisher Common Stock in the Merger. Although existing stockholders and eligible
employees will be entitled to make an election pursuant to the terms of the
Merger Agreement to either receive cash or retain shares, existing stockholders
(including eligible employees) with respect to the Standard Pool, and eligible
employees with respect to the Eligible Employee Pool, will be subject to having
a portion of their shares not treated in accordance with their election. As
described more fully under "THE TRANSACTION--Transaction Consideration;
Election Procedures" in the accompanying Proxy Statement/Prospectus, all
elections to either receive cash or retain shares may be subject to a proration
procedure based on the elections made by other existing stockholders or
eligible employees. Such section also describes situations in which, as a
result of the Eligible Employee Pool, either (i) the existing stockholders of
the Company, other than the Eligible Employees, may be required to retain
either more shares of Fisher Common Stock than they would have been required to
retain in the absence of the Eligible Employee Pool or (ii) the Eligible
Employees would be entitled to retain more shares of Fisher Common Stock than
they would have retained in the absence of the Eligible Employee Pool. For
additional information concerning the impact of the treatment of Eligible
Employees upon the Company's stockholders generally, see "RISK FACTORS--Stock
Election and Proration into Cash" and "THE TRANSACTION--Recommendation of the
Board; Reasons for the Merger." A copy of the Merger Agreement (including
<PAGE>
the principal exhibits thereto) is attached as Annex I to the enclosed Proxy
Statement/Prospectus. As a result of the Merger, the Company shall be
controlled by an investor group led by THL.
The Board of Directors has unanimously determined the consideration to be
received by stockholders taken as a whole pursuant to the Merger Agreement to
be fair to and in the best interests of Fisher and its stockholders. The Board
of Directors has approved the Merger Agreement in its entirety and unanimously
recommends its approval and adoption by stockholders as it relates to the
Merger. In making its determination, the Board of Directors considered the
effects of the treatment of Eligible Employees under the Merger Agreement as
discussed above. See "THE TRANSACTION--Recommendation of the Board; Reasons for
The Merger."
Each of Lazard Freres & Co. LLC and Salomon Brothers Inc, Fisher's
investment bankers in connection with the Transaction, has rendered an opinion
to the effect that the consideration to be received by stockholders taken as a
whole pursuant to the Merger Agreement is fair to such stockholders from a
financial point of view.
For information concerning certain risks relating to the Transaction,
including risks under applicable fraudulent conveyance statutes, see "RISK
FACTORS" in the accompanying Proxy Statement/Prospectus.
Pursuant to Delaware law, the Merger Agreement, as it relates to the
Merger, must be approved by the affirmative vote of a majority of shares of
Fisher's common stock outstanding and entitled to vote. Holders of Fisher
Common Stock will be entitled to appraisal rights under Delaware law in
connection with the Merger as described in the accompanying Proxy
Statement/Prospectus.
The special meeting will be held at the Mellon Bank Building, 8 Loockerman
Street, Dover, Delaware, on January 16, 1998, beginning at 9:00 a.m., Eastern
Standard Time.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE
REPRESENTED AT THE SPECIAL MEETING.
Very truly yours,
/s/ Paul M. Montrone
Paul M. Montrone
President and Chief Executive Officer
2
<PAGE>
NOTICE OF SPECIAL MEETING TO BE HELD ON JANUARY 16, 1998
To the Stockholders of Fisher Scientific International Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (including
any adjournments or postponements thereof, the "Special Meeting") of Fisher
Scientific International Inc. ("Fisher"), a Delaware corporation. The meeting
is being held to consider a transaction, pursuant to which an investor group
led by Thomas H. Lee Company ("THL"), a financial investment firm, will make an
investment in Fisher and vote on the merger (the "Merger") of FSI Merger Corp.
("FSI"), a Delaware corporation organized by THL, with and into Fisher. The
Special Meeting will be held at the Mellon Bank Building, 8 Loockerman Street,
Dover, Delaware on January 16, 1998, beginning at 9:00 a.m., Eastern Standard
Time, for the following purposes, which are more fully described in the
accompanying Proxy Statement/Prospectus (the "Proxy Statement/Prospectus"):
1. To consider and vote upon a proposal to approve and adopt the Second
Amended and Restated Agreement and Plan of Merger, dated as of November
14, 1997 (the "Merger Agreement"), by and between Fisher and FSI.
Transactions of the Company which are contemplated by the Merger
Agreement which will occur following the Stockholder Meeting include (i)
actions to cause the Merger to become effective, (ii) the treatment of
shares of the Company and FSI in the Merger (see "THE
TRANSACTION--Transaction Consideration; Election Procedures" and "--FSI
Stock and Fisher Common Stock Ownership Following the Transaction"),
(iii) the treatment of options to purchase shares of Fisher Common Stock
held by employees in the Transaction (see "THE TRANSACTION--Effect on
Employee Stock Options and Employee Benefit Matters" and "--Interests of
Certain Persons in the Transaction"), (iv) recapitalization of certain of
the Company's indebtedness (see "THE TRANSACTION--Transaction
Financing"), (v) certain agreements relating to certain employee benefit
arrangements (see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Employee
Benefit Arrangements"), and (vi) certain matters relating to director and
officer indemnification and insurance (see "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Indemnification; Directors' and Officers' Insurance")
(clauses (i) through (vi), along with the Merger, to be referred to
herein as the "Transaction"). As a result of the Transaction, the capital
stock of FSI, all of which will be owned by THL and the investor group
immediately prior to the Merger, will be converted into between 6,196,891
and 6,507,772 shares of Fisher Common Stock, $0.01 par value per share
("Fisher Common Stock"). Consummation of the Transaction is conditioned
upon the consummation of the Merger. Shareholders are only being asked to
vote upon the approval of the Merger Agreement as it relates to the
Merger and are not being asked to consider and vote upon the other
aspects of the Transaction, including the recapitalization of the
Company's existing indebtedness. However, as the other aspects of the
Transaction are relevant to a shareholder's voting and investment
decision, shareholders are encouraged to read this entire document
carefully, including the portions relating to other aspects of the
Transaction. Pursuant to the Transaction, each holder of shares of Fisher
Common Stock will be entitled, with respect to each share of Fisher
Common Stock, at the election of such holder and subject to the terms
described in the attached Proxy Statement/Prospectus, either (a) to
receive in an exchange $48.25 in cash or (b) to retain one share of
Fisher Common Stock provided, however, that (i) shares of Fisher Common
Stock held by Fisher or any wholly owned subsidiary thereof will be
cancelled and retired, and (ii) shares of Fisher Common Stock with
respect to which appraisal rights have been perfected will be treated in
accordance with applicable law. The Merger Agreement provides that
existing stockholders (including employees of the Company) must retain
exactly 746,114 shares of Fisher Common Stock (the "Standard Pool") in
the Transaction. The Merger Agreement also provides that, in addition to
participating in the Standard Pool, certain eligible employees are
entitled to retain up to an additional 310,881 shares of Fisher Common
Stock (the "Eligible Employee Pool") in the Transaction and exchange
outstanding options for up to 909,392 shares of Fisher Common Stock in
the Transaction. Although existing stockholders and eligible employees
will be entitled to make an election pursuant to the terms of the Merger
Agreement to either receive cash or retain shares, existing stockholders
(including eligible employees) with respect to the Standard Pool, and
eligible employees with respect to the Eligible Employee Pool, will be
subject to having a portion of their shares not treated in accordance
with their election. As described more fully under "THE
TRANSACTION--Transaction Consideration; Election Procedures" in the
accompanying Proxy Statement/Prospectus, all elections to either receive
cash or retain shares may be subject to a proration procedure based on
the elections made by other existing stockholders or eligible employees.
shares may be subject to a proration procedure based on the elections
made by other existing stockholders or eligible employees. Such section
also describes situations in which, as a result of the Eligible Employee
Pool, either (i) the existing stockholders of the Company, other than the
Eligible
<PAGE>
Employees, may be required to retain either more shares of Fisher Common
Stock than they would have been required to retain in the absence of the
Eligible Employee Pool or (ii) the Eligible Employees would be entitled
to retain more shares of Fisher Common Stock than they would have
retained in the absence of the Eligible Employee Pool. For additional
information concerning the impact of the treatment of Eligible Employees
upon the Company's stockholders generally, see "RISK FACTORS--Stock
Election and Proration into Cash" and "THE TRANSACTION--Recommendation of
the Board; Reasons for the Merger." A copy of the Merger Agreement
(including the principal exhibits thereto) is attached as Annex I to the
Proxy Statement/Prospectus. As a result of the Merger, the Company shall
be controlled by an investor group led by THL. A copy of the Merger
Agreement (including the principal exhibits thereto) is attached as Annex
I to the Proxy Statement/Prospectus. As a result of the Merger, the
Company shall be controlled by an investor group led by THL.
2. To transact such other and further business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
The affirmative vote of a majority of the shares of Fisher Common Stock
outstanding and entitled to vote is required to approve and adopt the Merger
Agreement as it relates to the Merger.
Under certain circumstances, if the Merger Agreement is terminated and the
Merger is not consummated, Fisher must pay fees and expenses aggregating up to
$37 million to FSI.
The record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting, and any adjournments or postponements
thereof, is November 21, 1997 (the "Record Date"). Only holders of record of
shares of Fisher Common Stock at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting. A list of Fisher
stockholders entitled to vote at the Special Meeting will be available for
examination by any holder of Fisher Common Stock, for proper purposes, during
normal business hours, at Fisher's corporate offices, Liberty Lane, Hampton,
New Hampshire 03842, commencing two business days after the date of this Notice
of Special Meeting and continuing through the date of the Special Meeting.
Holders of Fisher Common Stock have a right to dissent from the Merger,
and, if the Merger is consummated, to receive "fair value" for their shares in
cash by complying with the provisions of Delaware law, including Section 262 of
the Delaware General Corporation Law. The full text of Section 262 of the
Delaware General Corporation Law relating to the rights of stockholders to
dissent from the Merger is attached as Annex III to the accompanying Proxy
Statement/Prospectus.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF FISHER COMMON
STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE PERSONALLY ON THE
MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
TODD M. DUCHENE
Vice President--General Counsel and Secretary
December 22, 1997
----------------
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE
----------------
STOCKHOLDERS ELECTING TO RETAIN FISHER COMMON STOCK SHOULD RETURN THE
ENCLOSED FORM OF ELECTION TOGETHER WITH DULY ENDORSED FISHER STOCK CERTIFICATES
AS INSTRUCTED IN THE PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS SHOULD NOT SEND
THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.
STOCKHOLDERS NOT ELECTING TO RETAIN SHARES OF FISHER COMMON STOCK SHOULD
KEEP THEIR STOCK CERTIFICATES UNTIL LETTERS OF TRANSMITTAL ARE RECEIVED AFTER
THE EFFECTIVE TIME OF THE MERGER.
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to stockholders of Fisher Scientific International Inc., a
Delaware corporation ("Fisher" or the "Company"), in connection with
solicitations of proxies by the Board of Directors of the Company for use at
the Special Meeting of Stockholders of the Company, including any adjournments
or postponements thereof, scheduled to be held on January 16, 1998 at 9:00
a.m., Eastern Standard Time, at the Mellon Bank Building, 8 Loockerman Street,
Dover, Delaware (the "Special Meeting"). The Special Meeting is being held to
consider a transaction, pursuant to which an investor group led by Thomas H.
Lee Company ("THL"), a financial investment firm, will make an investment in
Fisher, and vote on the merger (the "Merger") of FSI Merger Corp. ("FSI"), a
Delaware corporation organized by THL, with and into Fisher. This Proxy
Statement/ Prospectus relates to the proposed Merger of FSI with and into the
Company whereupon the separate corporate existence of FSI shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") pursuant to the Second Amended and Restated Agreement and Plan of
Merger, dated as of November 14, 1997 (the "Merger Agreement"), by and between
FSI and the Company, and the transactions contemplated thereby. Transactions of
the Company which are contemplated by the Merger Agreement which will occur
following the Special Meeting include (i) actions to cause the Merger to become
effective, (ii) the treatment of shares of the Company and FSI in the Merger
(see "THE TRANSACTION--Transaction Consideration; Election Procedures" and
"--FSI Stock and Fisher Common Stock Ownership Following the Transaction"),
(iii) the treatment of options to purchase shares of Fisher Common Stock held
by employees in the Transaction (see "THE TRANSACTION--Effect on Employee Stock
Options and Employee Benefit Matters" and "--Interests of Certain Persons in
the Transaction"), (iv) recapitalization of certain of the Company's
indebtedness (see "THE TRANSACTION--Transaction Financing"), (v) certain
agreements relating to certain employee benefit arrangements (see "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Employee Benefit Arrangements"), and (vi)
certain matters relating to director and officer indemnification and insurance
(see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification; Directors'
and Officers' Insurance") (clauses (i) through (vi), along with the Merger, to
be referred to herein as the "Transaction"). As a result of the Transaction,
the capital stock of FSI, all of which will be owned by THL and the investor
group immediately prior to the Merger, will be converted into between 6,196,891
and 6,507,772 shares of Fisher Common Stock, $0.01 par value per share ("Fisher
Common Stock"). Consummation of the Transaction is conditioned upon the
consummation of the Merger. Shareholders are only being asked to vote upon the
approval of the Merger Agreement as it relates to the Merger and are not being
asked to consider and vote upon the other aspects of the Transaction, including
the recapitalization of the Company's existing indebtedness. However, as the
other aspects of the Transaction are relevant to a shareholder's voting and
investment decision, shareholders are encouraged to read this entire document
carefully, including the portions relating to other aspects of the Transaction.
The Merger Agreement amends and restates the First Amended and Restated
Agreement and Plan of Merger dated as of September 11, 1997 (the "First Amended
Agreement") and the Agreement and Plan of Merger, dated as of August 7, 1997
(the "Original Agreement"), in each case by and between FSI and the Company. As
a result of the Merger, the Company shall be controlled by an investor group
led by THL.
Pursuant to the Merger Agreement, each holder of shares of Fisher Common
Stock, issued and outstanding immediately prior to the effective time of the
Merger (the "Effective Time") (other than (i) shares of Fisher Common Stock
held by Fisher or any wholly owned subsidiary thereof and (ii) shares of Fisher
Common Stock, the holders of which shall have duly perfected their appraisal
rights) will be entitled, at the election of such holder and subject to the
terms described herein, either (a) to receive in an exchange $48.25 in cash
(the "Cash Price") or (b) to retain one fully paid and nonassessable share of
Fisher Common Stock. The Merger Agreement provides that existing stockholders
(including employees of the Company) must retain exactly 746,114 shares of
Fisher Common Stock (the "Standard Pool") in the Merger. If existing
stockholders do not elect to retain an amount of shares at least equal to the
Standard Pool, stockholders electing to receive the Cash Price will be required
to retain shares of Fisher Common Stock in accordance with the proration
procedures described in this Proxy Statement/Prospectus. See "THE
TRANSACTION--Transaction Consideration; Election Procedures." The Merger
Agreement also provides that, in addition to participating in the Standard
Pool, the Company's Named Executive Officers who are currently employed by the
Company and approximately 100 other salaried employees who hold options to
purchase Fisher Common Stock (the "Eligible Employees") are entitled to retain
up to an additional 310,881 shares of Fisher Common Stock (the "Eligible
Employee Pool") in the Transaction and exchange outstanding options for up to
909,392 shares of Fisher Common Stock in the Transaction (the "Option
Conversion"). For the identity of the Named Executive Officers and certain
other information, see "THE TRANSACTION--Effect on Employee Stock Options and
Employee Benefit Matters." Although existing stockholders and Eligible
Employees will be entitled to make an election pursuant to the terms of the
Merger Agreement to either receive cash or retain shares, existing stockholders
(including Eligible Employees) with respect to the Standard Pool, and Eligible
Employees with respect to the Eligible Employee Pool, will be subject to having
a portion of their shares not treated in accordance with their election. As
described more fully under "THE TRANSACTION--Transaction Consideration;
Election Procedures," all elections to either receive cash or retain shares may
be subject to a proration procedure based on
<PAGE>
the elections made by other existing stockholders or Eligible Employees (for
instance, if existing stockholders (including Eligible Employees) elect to
retain more than 746,114 shares of Fisher Common Stock, then some shares of
Fisher Common Stock which were submitted for retention shall, instead, be
converted into cash pursuant to the exchange with the Company covered by the
Merger Agreement). Such section also describes situations in which, as a result
of the Eligible Employee Pool, either (i) the existing stockholders of the
Company, other than the Eligible Employees, may be required to retain either
more shares of Fisher Common Stock than they would have been required to retain
in the absence of the Eligible Employee Pool or (ii) the Eligible Employees
would be entitled to retain more shares of Fisher Common Stock than they would
have retained in the absence of the Eligible Employee Pool. For additional
information concerning the impact of the treatment of Eligible Employees upon
the Company's stockholders generally, see "RISK FACTORS--Stock Election and
Proration into Cash" and "THE TRANSACTION--Recommendation of the Board; Reasons
for the Merger."
The capital provided pursuant to the Transaction and a portion of the
borrowings under certain debt financings described herein will be used to pay
the Cash Price to existing stockholders which, assuming all eligible options
are exchanged for Fisher Common Stock in the Option Conversion and shares are
not issued pursuant to the Eligible Employee Pool, will equal $959.3 million.
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Fisher Common Stock to be retained by
stockholders in the Merger.
The Merger Agreement requires the approval at the Special Meeting of the
holders of not less than a majority of the shares of Fisher Common Stock
entitled to vote thereon. Holders of Fisher Common Stock will be entitled to
appraisal rights under Delaware law in connection with the Merger as described
herein. See "DISSENTING STOCKHOLDERS' RIGHTS."
On November 14, 1997, the Board of Directors of Fisher (the "Board"),
unanimously approved the Merger and the Merger Agreement and determined, among
other things, that the Merger Agreement and the Transaction, taken together,
are advisable and in the best interests of Fisher and its stockholders and
resolved to recommend that holders of Fisher Common Stock approve the Merger
Agreement as it relates to the Merger. In making its determination, the Board
of Directors considered the effects of the treatment of Eligible Employees
under the Merger Agreement as discussed above. See "THE
TRANSACTION--Recommendation of the Board; Reasons for the Merger."
Fisher Common Stock is listed for trading on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "FSH." On August 6, 1997, the last trading
day before public announcement of the execution of the Original Agreement, the
last sale price of Fisher Common Stock as reported on the NYSE was $50-7/8 per
share. On November 13, 1997, the last trading day before public announcement of
the execution of the Merger Agreement, the last sale price of Fisher Common
Stock as reported on the NYSE was $46-15/16 per share. The Company expects that
at the Effective Time, Fisher Common Stock will continue to be listed on the
NYSE and that Fisher will continue to file reports with the Securities and
Exchange Commission (the "Commission"), although there can be no assurances
that Fisher will continue to meet listing criteria or to file such reports
indefinitely following the Effective Time. However, the Company believes that
neither the Merger nor the Transaction has a reasonable likelihood or purpose
of causing Fisher Common Stock to cease being listed on the NYSE following the
Effective Time.
This Proxy Statement/Prospectus, the accompanying form of proxy (the
"Proxy") and the other enclosed documents are first being mailed to
stockholders of the Company on or about December 23, 1997.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF FISHER COMMON STOCK IN CONNECTION WITH
THEIR CONSIDERATION OF THE MERGER AGREEMENT.
THESE RISKS INCLUDE RISKS TO SHAREHOLDERS UNDER APPLICABLE FRAUDULENT
CONVEYANCE STATUTES. SEE "RISK FACTORS--FRAUDULENT CONVEYANCE RISKS."
----------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------
The date of this Proxy Statement/Prospectus is December 22, 1997.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
AVAILABLE INFORMATION ............................................................... 1
FORWARD-LOOKING STATEMENTS ......................................................... 1
SUMMARY ........................................................................... 2
The Special Meeting ............................................................... 2
The Transaction .................................................................. 5
Selected Historical Financial Data of Fisher Scientific International Inc. ......... 17
Selected Unaudited Pro Forma Financial Data of Fisher Scientific International Inc. 19
PRICE OF FISHER COMMON STOCK AND DIVIDENDS .......................................... 20
INTRODUCTION ........................................................................ 21
RISK FACTORS ........................................................................ 22
Disadvantages of the Transaction ................................................... 22
Fraudulent Conveyance Risks ...................................................... 25
Sufficiency of Committed Financing ................................................ 25
Stock Election and Proration Into Cash ............................................. 26
Proration Relating to Fisher Common Stock .......................................... 26
Forecasts; Limits of Reliability ................................................... 26
Difficulty In Executing Post-Transaction Business Strategy ........................ 27
Dependence on Information Systems; Systems Conversion; Year 2000 Issue ............ 27
Shares Eligible for Future Sale ................................................... 27
Reduced Public Float; Possible Volatility of Fisher Common Stock Price ............ 28
Competition ........................................................................ 28
Reliance on Third Party Package Delivery Services ................................. 28
Fisher Sales Growth ............................................................... 29
Environmental Regulation ......................................................... 29
Dependence on Key Personnel ...................................................... 29
International Operations ......................................................... 29
Exchange Rate Fluctuations ......................................................... 30
Dependence on Corporate Research and Development Spending ........................ 30
Healthcare Reform; Cost Containment ................................................ 30
THE COMPANY ........................................................................ 31
Company Strengths .................................................................. 31
Business Strategy .................................................................. 33
THE SPECIAL MEETING ............................................................... 35
Matters to be Considered ......................................................... 35
Required Votes ..................................................................... 36
Voting and Revocation of Proxies ................................................... 36
Record Date; Stock Entitled to Vote; Quorum ....................................... 36
Dissenters' Rights ............................................................... 37
Solicitations of Proxies ......................................................... 37
Availability of Independent Accountants .......................................... 37
THE TRANSACTION ..................................................................... 38
Background of the Merger ......................................................... 38
Purpose of the Transaction; Structure ............................................. 44
Advantages of the Transaction ...................................................... 45
Recommendation of the Board; Reasons for the Merger .............................. 45
Certain Conflicts of Interest ...................................................... 47
Opinions of the Company's Investment Bankers ....................................... 48
Certain Estimates of Future Operations and Other Information ..................... 56
Transaction Consideration; Election Procedures .................................... 57
Stock Election ..................................................................... 59
Possible Effects of Proration ...................................................... 60
Stock Election Procedure ......................................................... 61
Effective Time ..................................................................... 61
</TABLE>
iii
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<S> <C>
Conversion of Shares into Cash/Retention of Shares; Procedures for Exchange of 62
Certificates
Fractional Shares ............................................................ 63
Conduct of Business Pending the Merger ....................................... 63
Conditions to the Consummation of the Merger ................................. 63
Certain Federal Income Tax Considerations .................................... 63
Accounting Treatment ......................................................... 66
Effect on Employee Stock Options and Employee Benefit Matters ............... 66
Interests of Certain Persons in the Transaction .............................. 67
Investors' Agreement ......................................................... 70
Effect of the Merger on Rights of Holders of Fisher Common Stock ............ 70
Delisting; Loss of Liquidity; Reporting Obligations ........................... 70
Resale of Fisher Common Stock Following the Effective Time .................. 71
Capital Commitments of Equity Investors ....................................... 71
Transaction Financing ......................................................... 72
FSI Stock and Fisher Common Stock Ownership Following the Transaction ......... 76
UNAUDITED PRO FORMA FINANCIAL STATEMENTS ....................................... 79
DESCRIPTION OF FISHER CAPITAL STOCK .......................................... 88
General ..................................................................... 88
Fisher Common Stock ......................................................... 88
Preferred Stock ............................................................... 88
CERTAIN PROVISIONS OF THE MERGER AGREEMENT .................................... 92
The Merger .................................................................. 92
Certificate of Incorporation and By-Laws .................................... 92
Board of Directors and Officers of the Company Following the Merger ......... 92
Representations and Warranties ................................................ 92
Conduct of Business Pending the Merger ....................................... 93
Access to Information ......................................................... 94
Efforts ..................................................................... 94
Employee Benefit Arrangements ................................................ 94
Indemnification; Directors' and Officers' Insurance ........................... 94
No Solicitation ............................................................... 95
Conditions to the Consummation of the Merger ................................. 95
Termination; Amendments; Waiver ............................................. 96
Fees and Expenses ............................................................ 97
BUSINESS ..................................................................... 98
Company Overview ............................................................ 98
Company Strengths ............................................................ 98
Business Strategy ............................................................ 100
Industry Overview ............................................................ 101
Products and Services ......................................................... 102
Distribution .................................................................. 103
Manufacturing ............................................................... 103
Recent Acquisitions and Restructuring Plan .................................... 103
Competition .................................................................. 104
Trademarks and Patents ...................................................... 104
Employees ..................................................................... 104
Properties .................................................................. 104
Environmental Matters ......................................................... 105
Legal Proceedings ............................................................ 106
MANAGEMENT ..................................................................... 108
Principals of the Company ................................................... 108
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............... 110
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ............... 112
Compensation of Directors ................................................... 112
Compensation of Executive Officers .......................................... 113
</TABLE>
iv
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Retirement Program ..................................................................... 115
1998 EQUITY AND INCENTIVE PLAN ......................................................... 116
General ................................................................................. 116
Administration ........................................................................ 117
Awards under the Plan .................................................................. 117
Other Features of the Plan ............................................................ 117
Certain Federal Income Tax Consequences ................................................ 118
Contemplated Awards ..................................................................... 120
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION ..................................................................... 121
Overview .............................................................................. 121
Results of Operations .................................................................. 121
Liquidity and Capital Resources ......................................................... 127
Financial Condition ..................................................................... 129
REGULATORY APPROVALS ..................................................................... 130
FSI MERGER CORP. AND THOMAS H. LEE COMPANY ............................................. 130
DISSENTING STOCKHOLDERS' RIGHTS ......................................................... 131
EXPERTS ................................................................................. 132
Financial Statements .................................................................. 132
Legal Opinions ........................................................................ 132
OTHER INFORMATION AND STOCKHOLDER PROPOSALS ............................................. 132
Stockholder Proposals .................................................................. 132
INDEX OF DEFINED TERMS .................................................................. 133
FINANCIAL STATEMENTS OF FISHER SCIENTIFIC INTERNATIONAL INC. ........................... F-1
Schedule I Certain Information Regarding FSI Merger Corp.
Annex I Second Amended and Restated Agreement and Plan of Merger, dated
as of November 14, 1997
Annex II Opinions of the Company's Investment Bankers, dated November 14, 1997
Annex III Excerpts from the General Corporation Law of the State of Delaware Relating to
the Rights of Dissenting Stockholders
Annex IV Commitment letters relating to financing for the Transaction
</TABLE>
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AVAILABLE INFORMATION
No person is authorized to give any information or to make any
presentations, other than as contained in this Proxy Statement/Prospectus, in
connection with the Transaction, and, if given or made, such information or
representations may not be relied upon as having been authorized by Fisher,
FSI, or THL. This Proxy Statement/ Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities to which it relates in
any jurisdiction in which, or to any person to whom, it is unlawful to make
such an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any offer or sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of the Company since the date
hereof.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public References Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains an Internet "website" that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at http://www.sec.gov. Fisher Common Stock is listed on the
NYSE, and reports, proxy statements and other information concerning the
Company may be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus also constitutes a Prospectus of the
Company filed as part of a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"). This Proxy
Statement/ Prospectus omits certain information contained in the Registration
Statement and the exhibits thereto. Reference is made to the Registration
Statement and related exhibits for further information with respect to the
Company and the retention of Fisher Common Stock. For the complete text of any
document, the material provisions of which are described herein, reference is
made in each instance to the copy of the document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from those contemplated or projected, forecast estimated
or budgeted in or expressed or implied by such forward-looking statements. Such
factors include, among others, the risk factors set forth under "RISK FACTORS"
as well as the following: general economic and business conditions; industry
trends; overseas expansion; the loss of major customers or suppliers; the
timing of orders received from customers; cost and availability of raw
materials; changes in business strategy or development plans; availability and
quality of management; and availability, terms and deployment of capital.
SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS INCLUDING,
BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY TO EXECUTE
ITS POST-MERGER BUSINESS STRATEGY, (II) THE COMPANY'S ABILITY TO OBTAIN
SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL EXPENDITURE
NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, (III) INDUSTRY SALES GROWTH AND
THE ABILITY OF THE COMPANY TO MAKE ACQUISITIONS, AND (IV) THE IMPACT OF
ENVIRONMENTAL REGULATION ON THE COMPANY'S OPERATIONS.
1
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. Reference is made to the more detailed
information contained or incorporated by reference in this Proxy Statement/
Prospectus and the Annexes hereto. Stockholders of the Company are urged to
read this Proxy Statement/Prospectus and the Annexes hereto in their entirety.
An Index of Defined Terms appears on page 133 of this Proxy Statement/
Prospectus.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF FISHER COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER AGREEMENT, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD FISHER
COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 22.
The Special Meeting
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Time and Place; Record Date ...... A Special Meeting of the Stockholders of Fisher will be held
on January 16, 1998, at the Mellon Bank Building,
8 Loockerman Street, Dover, Delaware. Stockholders of record
at the close of business on November 21, 1997 (the "Record
Date") will be entitled to notice of, and to vote at, the Special
Meeting. The date of the mailing of this Proxy Statement/
Prospectus to stockholders of the Company will be on or about
December 23, 1997. At the close of business on the Record
Date, there were outstanding and entitled to vote 20,356,764
shares of Fisher Common Stock.
Matters to be Considered ......... The purpose of the Special Meeting is to vote upon a
proposal to approve and adopt the Merger Agreement pursuant
to which (a) FSI will merge with and into Fisher, (b) the
stockholders of Fisher will receive the consideration described
below in the Summary under "THE TRANSACTION--Effects
of the Merger" and (c) the stock of FSI, all of which will be
owned immediately prior to the Effective Time by the Equity
Investors, will become 6,507,772 shares of Fisher Common
Stock less the amount, if any, by which (i) the aggregate
number of shares actually retained by existing stockholders
(including Eligible Employees) exceeds (ii) 746,114, which
amount may not exceed 310,881. Transactions of the Company
which are contemplated by the Merger Agreement which will
occur following the Special Meeting include (i) actions to cause
the Merger to become effective, (ii) the treatment of shares of
the Company and FSI in the Merger (see "THE
TRANSACTION--Transaction Consideration; Election
Procedures" and "--FSI Stock and Fisher Common Stock
Ownership Following the Transaction"), (iii) the treatment of
options to purchase shares of Fisher Common Stock held by
Eligible Employees in the Transaction (see "THE
TRANSACTION--Effect on Employee Stock Options and
Employee Benefit Matters" and "--Interests of Certain Persons
in the Transaction"), (iv) recapitalization of certain of the
Company's indebtedness (see "THE TRANSACTION--
Transaction Financing"), (v) certain agreements relating to
certain employee benefit arrangements (see "CERTAIN
2
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PROVISIONS OF THE MERGER
AGREEMENT--Employee Benefit
Arrangements"), and (vi) certain matters
relating to director and officer
indemnification and insurance (see
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT-- Indemnification; Directors'
and Officers' Insurance") (clauses (i)
through (vi), along with the Merger, to be
referred to herein as the "Transaction").
Shareholders are only being asked to vote
upon the approval of the Merger Agreement
as it relates to the Merger and are not
being asked to consider and vote upon the
other aspects of the Transaction,
including the recapitalization of the
Company's existing indebtedness. The
capital provided pursuant to the
Transaction and a portion of the
borrowings under the debt financings
described herein will be used to pay the
Cash Price to existing stockholders which,
not taking into account options pursuant
to the Option Conversion and assuming
shares are not retained pursuant to the
Eligible Employee Pool, will equal $959.3
million for 96.3% of the outstanding
Fisher Common Stock.
Pursuant to the Merger Agreement, an
investor group led by THL (through Thomas
H. Lee Equity Fund III, L.P. (the "THL
Fund") and the affiliates of THL) which
includes Chase Equity Associates, L.P.
("Chase Equity"), Merrill Lynch & Co.
("Merrill Lynch") and DLJ Merchant Banking
Partners II, L.P. ("DLJMB") and affiliated
funds and entities (collectively, the
"DLJMB Funds" and, together with the THL
Fund, Chase Equity and Merrill Lynch, the
"Equity Investors"), will capitalize FSI
with between $299 million and $314 million
in cash prior to the consummation of the
Merger and FSI shall issue between
6,196,891 and 6,507,772 shares of FSI
Common Stock to the Equity Investors. At
the Effective Time, each such share shall
be converted into one share of Fisher
Common Stock. In addition, the Equity
Investors will receive warrants (the
"Equity Warrants") to purchase 516,663
shares of Fisher Common Stock at or
following the Effective Time. The Equity
Investors will not purchase the Equity
Warrants for cash but will receive the
Equity Warrants in consideration for the
commitment to purchase the cumulative
preferred stock of Fisher (the "Cumulative
Preferred Stock"). The effective per share
price of Fisher Common Stock to be paid by
the Equity Investors for the stock
received in the capital contribution and
upon exercise of the Equity Warrants is
$48.25 per share. FSI, a corporation
organized by THL for the purpose of
consummating the Transaction, currently
has no material assets or operations.
After the Effective Time, there will be
8,163,278 shares of Fisher Common Stock
issued and outstanding, and, if the
warrants to be issued to lenders in
connection with the financing of the
Transaction (the "Note Warrants") and the
Equity Warrants are exercised in full
after the Merger, there will be 9,169,411
shares of Fisher Common Stock issued and
outstanding. As a result of the
Transaction, the Company will be
controlled by the Equity Investors.
3
<PAGE>
Required Votes ........................ Approval of the Merger Agreement as it relates to the Merger
requires the affirmative vote of stockholders holding a majority
of shares of Fisher Common Stock entitled to vote thereon. All
of the directors and officers of the Company holding Fisher
Common Stock are expected to vote their shares of Fisher
Common Stock in favor of the resolution to approve and adopt
the Merger Agreement as it relates to the Merger. As of
December 12, 1997, members of the Board, executive officers
of the Company and their respective affiliates owned
approximately 2.0% of the shares of Fisher Common Stock
entitled to vote on the Merger Agreement.
Voting and Revocation of Proxies ...... Shares of Fisher Common Stock represented by a properly
executed Proxy received in time for the Special Meeting will
be voted in the manner specified in the Proxy.
Proxies that do not contain any instruction to vote for or
against or to abstain from voting on a particular matter
will be voted in favor of such matter. See "THE SPECIAL
MEETING -- Required Votes." It is not expected that any
matter other than the proposal to approve and adopt the
Merger Agreement will be brought before the stockholders at
the Special Meeting. If, however, other matters are properly
presented, the persons appointed as proxies will vote in
accordance with their best judgment with respect to such
matters, unless authority to do so is withheld in the Proxy.
Stockholders may revoke their Proxies at any time prior to the
exercise of such Proxies by (i) attending the Special Meeting and
voting in person (although attendance at the Special Meeting will
not in and of itself constitute revocation of a Proxy), (ii) giving
notice of revocation of their Proxy at the Special Meeting, or (iii)
delivering (a) a written notice of revocation of their Proxy, or (b) a
duly executed Proxy relating to the matters to be considered at the
Special Meeting, bearing a date later than the Proxy previously
executed, to the Secretary of Fisher, Liberty Lane, Hampton, New
Hampshire 03842. Unless revoked in one of the manners set forth
above, Proxies in the form enclosed will be voted at the Special
Meeting in accordance with your instructions.
Solicitation of Proxies ............... The cost of soliciting Proxies will be borne by the Company. The
Company may solicit Proxies and the Company's directors, officers
and employees may also solicit Proxies by telephone, telegram or
in person. These persons will receive no additional compensation
for their services. Arrangements will be made to furnish copies of
Proxy materials to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of shares of Fisher Common
Stock. Such persons will be reimbursed for their reasonable out-of-
pocket expenses. Georgeson & Company Inc. will assist in the
solicitation of Proxies by the Company for a fee of $8,000, plus
reasonable out-of-pocket expenses. Holders of Fisher Common
Stock should not send stock certificates with their proxy cards. See
"THE TRANSACTION-- Stock Election" for instructions for
stockholders electing to retain shares.
4
<PAGE>
The Transaction
Effects of the Merger....... FSI was formed by THL for the purpose of making
an investment in the Company by way of the
Transaction. At the Effective Time, FSI will be
merged with and into Fisher and Fisher will
continue as the Surviving Corporation in the
Merger. Additionally, the Company will
refinance a portion of its existing
indebtedness in connection with the
Transaction. In the Transaction, the shares of
common stock of FSI, all of which shall be held
by the Equity Investors, will be converted into
shares of Fisher Common Stock totalling
6,507,772 less the amount, if any, by which (i)
the aggregate number of shares actually
retained by existing stockholders (including
Eligible Employees) exceeds (ii) 746,114, which
amount may not exceed 310,881. The capital
provided pursuant to the Transaction and a
portion of the borrowings under the certain
debt financings described herein will be used
to pay the Cash Price to existing stockholders
which, not taking into account Options and
assuming shares are not issued pursuant to the
Eligible Employee Pool, will equal $959.3
million for 96.3% of the outstanding shares of
Fisher Common Stock.
The use of the Merger to implement the
Transaction allows the stockholders of the
Company effectively to vote as a group on the
Transaction and, if approved, and the other
conditions to the Merger are satisfied, provides
each stockholder (other than Eligible Employees)
with an equal opportunity to elect to receive
the Cash Price or to retain their shares of
Fisher Common Stock. As a result of this
structure, not taking into account Options and
upon approval by the holders of at least a
majority of the shares of Fisher Common Stock
entitled to vote, between 94.8% and 96.3% of the
Fisher Common Stock will be converted in an
exchange into the Cash Price and the Equity
Investors will gain control of the Company. In
contrast, if the Equity Investors had determined
to attempt to achieve this result by way of a
first step cash tender offer followed by a
second step stock merger, the stockholders of
Fisher would have had to tender at least 94.8%
(or 96.3% if shares were not retained pursuant
to the Eligible Employee Pool) of their shares
in order to achieve this result.
The Transaction will be accounted for as a
recapitalization as there will be a significant
continuation of stockholder ownership.
Accordingly, it will not result in a new basis
of accounting.
Subject to certain provisions as described
herein with respect to shares of Fisher Common
Stock owned by the Company or any wholly owned
subsidiary of the Company, and with respect to
Dissenting Shares (as defined under "Dissenting
Stockholders' Rights" below), as a result of the
Transaction each holder of shares of Fisher
Common Stock will be entitled to elect, with
respect to each share of Fisher Common Stock and
subject to the limitations hereinafter set
forth, (i) to receive in an exchange $48.25 (the
"Cash Price") or (ii) to retain one fully paid
and nonassessable share of Fisher Common Stock
(a "Stock Election Share") for each share of
Fisher Common Stock held (a "Stock Election").
Each stockholder of Fisher shall be deemed to
have elected to receive the Cash Price with
respect to all of the stockholder's shares of
Fisher Common Stock
5
<PAGE>
unless such holder makes a Stock Election. The
Merger Agreement provides that existing
stockholders (including employees of the
Company) must retain exactly 746,114 shares of
Fisher Common Stock in the Standard Pool in the
Transaction. If existing stockholders do not
elect to retain an amount of shares at least
equal to the Standard Pool, stockholders
electing to receive the Cash Price will be
required to retain shares of Fisher Common Stock
in accordance with the proration procedures
described in this Proxy Statement/
Prospectus. See "THE TRANSACTION--Transaction
Consideration; Election Procedures." The Merger
Agreement also provides that, in addition to
participating in the Standard Pool, Eligible
Employees are entitled to retain up to an
additional 310,881 shares of Fisher Common Stock
in the Eligible Employee Pool in the Transaction
and exchange outstanding options for up to
909,392 shares of Fisher Common Stock in the
Transaction pursuant to the Option Conversion.
Although existing stockholders and Eligible
Employees will be entitled to make an election
pursuant to the terms of the Merger Agreement to
either receive cash or retain shares, existing
stockholders (including Eligible Employees) with
respect to the Standard Pool, and Eligible
Employees with respect to the Eligible Employee
Pool, will be subject to having a portion of
their shares not treated in accordance with
their election. As described more fully under
"THE TRANSACTION--Transaction Consideration;
Election Procedures," all elections to either
receive cash or retain shares may be subject to
a proration procedure based on the elections
made by other existing stockholders and Eligible
Employees. In addition, as a result of the
Eligible Employee Pool, the existing
stockholders of the Company, other than the
Eligible Employees, may be required to retain
more shares of Fisher Common Stock than they
would have been required to retain in the
absence of the Eligible Employee Pool if Stock
Elections for the Standard Pool are made for
less than the Standard Share Retained Number and
the Eligible Employees make Stock Elections with
respect to the Eligible Employee Pool. In such a
circumstance, because the shares retained
pursuant to the Eligible Employee Pool would not
be counted as part of the Standard Pool,
existing stockholders would be required to
retain a greater number of shares in the
Standard Pool as a result of the proration
procedures than they would have been required to
retain if the Eligible Employee Pool did not
exist. Also as a result of the Eligible Employee
Pool, the Eligible Employees would be entitled
to retain more shares of Fisher Common Stock
than they would have been entitled to retain in
the absence of the Eligible Employee Pool if
Stock Elections for the Standard Pool are made
for more than the Standard Share Retained Number
and Eligible Employees make Stock Elections with
respect to the Eligible Employee Pool. In such a
circumstance, because the shares retained
pursuant to the Eligible Employee Pool would not
be subject to the proration procedure applied to
the Standard Pool, Eligible Employees would be
entitled to retain a greater number of shares
than they would have been entitled to retain in
the absence of the Eligible Employee Pool.
6
<PAGE>
Assuming that the full 909,392 shares of Fisher
Common Stock is issued pursuant to the Option
Conversion, and further assuming the exercise of
all other Options prior to the Effective Time, a
minimum of approximately 91.1%, and a maximum of
approximately 92.5% of the shares of Fisher
Common Stock will be converted into cash,
resulting in a maximum of 8.9%, and a minimum of
7.5% of such shares being retained by existing
stockholders and Eligible Employees. See "THE
TRANSACTION--Transaction Consideration; Election
Procedures." For a description of the procedures
for making a Stock Election, or for electing to
receive the Cash Price, see "THE
TRANSACTION--Transaction Consideration; Election
Procedures."
Recommendation of
the Board.................. On November 14, 1997, the Board unanimously
determined the consideration to be received by the
Company's stockholders pursuant to the Merger
Agreement to be fair to and in the best interests
of the Company's stockholders. The Board
recommends that stockholders approve and adopt the
Merger Agreement as it relates to the Merger. In
making its determination, the Board of Directors
considered the effects of the treatment of
Eligible Employees under the Merger Agreement as
discussed above. See "THE
TRANSACTION--Recommendation of the Board; Reasons
for the Merger." Each of Lazard Freres & Co. LLC
("Lazard Freres") and Salomon Brothers Inc
("Salomon Brothers"), Fisher's investment bankers
in connection with the Transaction, has rendered
an opinion to the effect that the consideration to
be received in the Transaction by Fisher's
stockholders, taken as a whole is fair to such
stockholders from a financial point of view. In
making its determination, the Board considered
certain relationships among directors and officers
of Fisher, on the one hand, and individuals
affiliated with FSI. See "THE
TRANSACTION--Background of the Merger" and
"--Recommendation of the Board of Directors;
Reasons for the Merger." The Company and the Board
will not take the position in ongoing or future
litigation that a vote in favor of the Merger
Agreement will estop shareholders casting such
affirmative votes from asserting claims against
the Company or the Board arising out of the
Transaction insofar as such claims are based upon
alleged misrepresentations or failures to disclose
material facts in connection with the Transaction.
However, depending upon the circumstances of any
such litigation and upon the then-existing state
of applicable law, the Company and the Board may
take the position that claims arising out of the
Merger Agreement that do not relate to alleged
misrepresentation and/or failures to disclose are
extinguished by virtue of shareholder approval of
the Merger Agreement, including any such claims as
may have been asserted by persons who voted in
favor of the Merger Agreement. See also
"DISSENTING STOCKHOLDERS RIGHTS."
Opinions of the Company's Investment
Bankers.................... The Company has retained Lazard Freres and
Salomon Brothers to act as investment bankers
to the Company in connection with the
Transaction and related matters. At a meeting
of the Board on
7
<PAGE>
November 14, 1997, each of Lazard Freres and
Salomon Brothers delivered its opinion that, as
of November 14, 1997, the consideration to be
received by the holders of Fisher Common Stock,
taken as a whole pursuant to the Transaction was
fair to such stockholders from a financial point
of view. (For purposes of the opinions, the
consideration received in the Transaction by the
holders of Fisher Common Stock is the cash
received and the shares of Fisher Common Stock
retained by such holders, and no opinion is
expressed as to the consideration received by
the Equity Investors in the Merger.) The
opinions of Lazard Freres and Salomon Brothers
do not constitute a recommendation as to how a
stockholder should vote with respect to the
Merger Agreement or whether such stockholder
should elect to retain shares of Fisher Common
Stock in the Merger. On a fully diluted basis,
assuming no shares of Fisher Common Stock are
issued pursuant to the Option Conversion, under
the terms of the Merger Agreement, no holder of
shares of Fisher Common Stock will be required
to receive cash for less than approximately 97%
of its shares and to retain more than
approximately 3% of its shares in the Merger. A
holder may only retain shares of Fisher Common
Stock in excess of the approximately 3% of the
shares which would be retained assuming no
stockholders elected to retain shares if such
holder voluntarily elected to retain such
additional shares in the Transaction. Therefore,
the opinions of Lazard Freres and Salomon
Brothers do not address the fairness to an
individual stockholder who retains in excess of
3% of its shares because the retention of such
shares may occur only at such stockholder's
option. See "THE TRANSACTION--Opinions of the
Company's Investment Bankers."
Copies of the full texts of the written opinions
of Salomon Brothers and Lazard Freres dated as
of September 11, 1997, which set forth the
assumptions made, matters considered and
limitations on the review undertaken in
connection with the opinions, are attached
hereto as Annex II and are incorporated herein
by reference. Holders of Fisher Common Stock are
urged
to read the full text of each opinion in its
entirety.
The Company has agreed to pay certain fees to
each of Lazard Freres and Salomon Brothers in
connection with their acting as the Company's
investment bankers with respect to the Merger
and related matters. A substantial portion of
these fees is contingent upon consummation of
the Merger. The Company also has agreed to
reimburse Salomon Brothers and Lazard Freres for
their reasonable out-of-pocket expenses
(including the reasonable fees and expenses of
their legal counsel) and to indemnify them
against certain liabilities, including certain
liabilities arising under the federal securities
laws.
Fractional Shares........... Fractional retained shares of Fisher Common
Stock will not be issued in the Transaction.
Holders of shares of Fisher Common Stock
otherwise entitled to a fraction of a retained
share of Fisher Common Stock following the
Effective Time will be paid cash in
8
<PAGE>
lieu of such fractional share determined and
paid as described in "THE
TRANSACTION--Fractional Shares."
Conditions to
the Consummation........... The obligations of Fisher and FSI to consummate
the Merger are subject to various conditions,
including, without limitation, the approval of the
Merger Agreement by the holders of the requisite
number of shares of Fisher Common Stock, the
effectiveness of the Company's registration
statement on Form S-4 relating to the shares of
Fisher Common Stock to be retained in the Merger,
and the absence of any injunction or other legal
restraint or prohibition preventing the
consummation of the Merger.
FSI's obligations to effect the Merger are
further subject to the continuing accuracy of
the Company's representations made in the Merger
Agreement, performance of material obligations
of the Company under the Merger Agreement, the
absence of pending or threatened material
litigation intended to prevent the Transaction,
and the receipt of financing proceeds, on terms
set forth in commitment letters attached to the
Merger Agreement, or such other financing
sources as the Company and FSI shall reasonably
agree in amounts sufficient to consummate the
Transaction including payment of the Cash Price,
refinancing of the outstanding indebtedness of
the Company, payment of transaction fees and
expenses and provision of working capital needs
following the Effective Time. The consummation
of the Transaction is contingent upon the
consummation of the Merger.
FSI has informed the Company that it expects
that the financing described under "THE
TRANSACTION--Transaction Financing" will be
sufficient to consummate the Transaction if such
financing is completed in accordance with terms
and conditions described in the financing
commitments which are attached to the Merger
Agreement, which are included herewith as Annex
IV. See "RISK FACTORS--Sufficiency of Committed
Financing." The Company's obligations to effect
the Merger are further subject to the continuing
accuracy of FSI's representations made in the
Merger Agreement and the performance of all
material obligations of FSI under the Merger
Agreement. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Consummation" and
"REGULATORY APPROVALS."
Regulatory Approvals........ On October 30, 1997, the Federal Trade
Commission and the Antitrust Division granted
early termination of the waiting period under
the HSR Act with respect to the Transaction.
See "REGULATORY APPROVALS."
Financing for Payment of the Cash Price
and Refinancing of Existing
Indebtedness............... In connection with the Transaction, Fisher is
expected to enter into and, along with certain
material foreign subsidiaries, will be the
obligor pursuant to debt financing arrangements
(the
"Transaction Debt Financings") aggregating
approximately $1.02 billion, which will consist
of $469.2 million of senior bank financing (the
"Senior Financing"), $150.0 million pursuant to
a securitization of accounts receivable (the
"Receivables
9
<PAGE>
Securitization") and $400.0 million of senior
subordinated financing (the "Senior Subordinated
Financing"). The Senior Financing is expected to
consist of (i) a $294.2 million term loan
facility (the "Term Facility") consisting of a
(a) $125.0 million tranche A term loan ("Tranche
A"), (b) $100.0 million tranche B term loan
("Tranche B") and (c) $69.2 million tranche C
term loan ("Tranche C"); and (ii) a $175.0
million revolving credit facility (the
"Revolving Facility" and, together with the Term
Facility, the "Senior Facilities"). The
Revolving Facility will include a limitation for
the issuance of letters of credit. Borrowings
made under the Revolving Facility will bear
interest at a rate equal to, at the Company's
option, a Eurodollar Rate plus 2.25%, or the
Prime Rate plus 1.25%. The Eurodollar Rate and
Prime Rate margins will be subject to
step-downs, based on various tests of Fisher's
financial performance. The Revolving Facility
expires six (6) years from the Effective Time.
At the Company's option, the Term Facility will
bear interest at either the Eurodollar Rate
(LIBOR) plus 2.25% to 2.75%, or the Prime Rate
plus 1.25% to 1.75% on the various term loans,
based on the Company's performance. Tranche A, B
and C mature six (6), seven (7), and seven and
three quarters (7.75) years, respectively, from
the Effective Time.
The Senior Subordinated Financing is expected to
consist of either (i) $400 million of
subordinated debt securities due ten years after
the issuance with no scheduled principal
payments prior to maturity (the "Subordinated
Notes") or (ii) $400 million of unsecured bridge
loan financing (the "Bridge Loan"). If the
Senior Subordinated Financing consists of the
Bridge Loan, it is anticipated that such
financing would be replaced with debt securities
substantially similar to the Subordinated Notes
as soon as practicable after the Closing Date.
The Subordinated Notes will have an interest
rate and other financial terms based on market
conditions at the time of issuance. The
Subordinated Notes or such debt securities
substantially similar to the Subordinated Notes
will have a maturity of ten years from the date
of issue. Interest shall be payable
semi-annually. The Subordinated Notes shall be
issued in a transaction not involving a public
offering which anticipates resales pursuant to
Rule 144A of the Securities Act ("Rule 144A") to
qualified institutional buyers and non-U.S.
persons and, accordingly, shall not be
registered under the Securities Act. In certain
circumstances based on market conditions,
providers of the debt facilities may hold up to
489,470 Note Warrants, each of which will
entitle the holders to purchase after the
Effective Time one share of Fisher Common Stock.
In connection with the Receivables
Securitization, the Company is expected to enter
into a five year agreement pursuant to which
Fisher will sell its existing and future
domestic trade receivables to a wholly-owned,
special purpose bankruptcy remote corporation
(the "SPC"). The SPC will sell its interest in
the receivables to Park Avenue Receivables
Corporation ("PARCO"), a multi-seller commercial
paper conduit established by The Chase Manhattan
Bank. PARCO will fund its purchase of
receivables through the issuance of commercial
paper rated at least A-1/P-1. The size
10
<PAGE>
of the securitization facility is expected to be
approximately $150 million and is expected to
carry an effective interest rate of LIBOR +
0.50%.
Based on market conditions at the Closing, the
Company may be able to borrow in excess of the
$694.2 million for which it has commitments
under the Term Facility and Senior Subordinated
Financing. The Company currently does not expect
to borrow in excess of the $694.2 million for
which it has commitments. In the event that (i)
less than the maximum number of shares are
converted pursuant to the Option Conversion or
(ii) the level of indebtedness at Closing which
must be refinanced is higher than expected the
Company may seek to borrow in excess of the
$694.2 million for which it has commitments.
The potential sources of equity capital to fund
the Transaction are the cash being received from
FSI in the Merger and the issuance of Cumulative
Preferred Stock as described as follows. THL and
the Equity Investors have committed to purchase
up to $389.0 million of equity ("New Equity
Capital") pursuant to the Transaction which is
composed of (i) up to $314.0 million of new
capital contributed in the form of common equity
by the Equity Investors through FSI, which will
be converted in the Transaction into 6,507,772
shares of Fisher Common Stock less any shares
retained by Eligible Employee shareholders
arising out of the Eligible Employee Pool and
(ii) up to $75.0 million of Cumulative Preferred
Stock. In addition, the Equity Investors will
receive the Equity Warrants less the amount of
Equity Warrants, if any, issued in conjunction
with the sale of securities to other investors
with substantially similar terms as the
Cumulative Preferred Stock and in place thereof,
as discussed below. The Equity Investors will
not purchase the Equity Warrants for cash, but
will receive the Equity Warrants in
consideration for the commitment to purchase the
Cumulative Preferred Stock. The Cumulative
Preferred Stock would have an aggregate
liquidation preference of not more than $75.0
million and the Equity Warrants will have an
exercise price of $48.25 per share. The
effective price to be paid by the Equity
Investors as a result of new capital contributed
by the Equity Investors through FSI and the
exercise of the Equity Warrants will be $48.25
per share of Fisher Common Stock. New Equity
Capital does not include $79.8 million of
non-cash Transaction Consideration valued at the
Cash Price in the form of retained common stock
pursuant to the Stock Election process ($36.0
million) and the conversion of certain
outstanding options into common stock ($43.8
million) pursuant to the Option Conversion
("Option Conversion Shares"). The Cumulative
Preferred Stock may be replaced by preferred
stock sold in a transaction of the type which
anticipates resales under Rule 144A or the sale
of registered securities, in either case, which
securities would have substantially similar
terms as the Cumulative Preferred Stock
commitment. Although the Company does not intend
at the current time to issue any preferred stock
in connection with the Transaction, it reserves
the right to issue preferred stock or similiar
securities having a liquidation preference of
not more than
11
<PAGE>
$75.0 million. The issuance of preferred stock
is subject to (i) the level of indebtedness at
Closing which must be refinanced and (ii) the
actual amount of options converted by employees
pursuant to the Option Conversion to Fisher
Common Stock, which stock will be held in a
trust ("Rabbi Trust") for the benefit of certain
employees. To the extent any of the Cumulative
Preferred Stock is replaced by other securities
as described above, Equity Warrants would be
included with the sale of such securities and
the number of Equity Warrants issued to the
Equity Investors would be reduced by an equal
amount. See "DESCRIPTION OF FISHER CAPITAL
STOCK--Preferred Stock." It is anticipated that
the full proceeds of the Senior Subordinated
Financing, a portion of the proceeds from the
Senior Financing and the proceeds from the New
Equity Capital aggregating approximately $959.3
million will be used to finance the $48.25 per
share cash payment in respect of the shares of
Fisher Common Stock currently outstanding, which
are not retained by existing stockholders and
Eligible Employees, and to refinance a portion
of Fisher's outstanding indebtedness. In
addition, the Senior Financing would be used to
provide for the Company's working capital
requirements at and subsequent to the Effective
Time. In connection with the execution of the
Merger Agreement, FSI, on behalf of the Company,
received commitment letters to provide such
financing. See "THE TRANSACTION--
Transaction Financing."
If the Company is unable to consummate the
issuance and sale of Subordinated Notes, the
Company will rely on the Bridge Loan which may
be on terms less favorable to the Company than
the terms of the Subordinated Notes. The Bridge
Loan would initially bear a variable interest
rate, which rate would increase over time
subject to certain caps. If the Effective Time
were to have occurred on December 1, 1997 the
initial interest rate on the Bridge Loan would
have been approximately 11.4%. As a result, the
annual interest expense would be $7.2 million
higher than currently expected (see Notes to
Unaudited Pro Forma Statements of Operations).
The pro forma net loss, as adjusted herein,
would be $11.7 million for the twelve months
ended December 31, 1996 and $10.7 million for
the nine months ended September 30, 1997.
Certain Federal Income Tax
Considerations............. For U.S. federal income tax purposes, the
receipt of the Cash Price in exchange for
shares of Fisher Common Stock pursuant to the
Merger Agreement will be treated as a taxable
transaction to stockholders who receive cash in
exchange for all or a portion of their shares
of Fisher Common Stock, and such shareholders
will be treated as selling a portion of such
shares to the Equity Investors and having a
portion of such shares redeemed by the Company;
both types of transactions--sale of shares and
redemption of shares--will be taxable to
stockholders. Depending on each stockholder's
particular circumstances, stockholders may
recognize a capital gain or loss and/or
ordinary dividend income with respect to the
receipt of such cash. See "THE
TRANSACTION--Certain Federal Income Tax
Considerations."
12
<PAGE>
Option Treatment............ At the Effective Time (x) each holder of
Options outstanding immediately prior to the
Effective Time, other than Eligible Employees
holding Options who elect to be treated under
the Option Conversion, will receive a cash
payment from the Company in respect of each
such Option equal to the product of (1) the
total number of shares of Fisher Common Stock
subject to such Options and (2) the excess of
the Cash Price over the exercise price per
share of Fisher Common Stock subject to such
Option, (y) holders of Options subject to the
Option Conversion ("Option Conversion
Holders"), will exchange up to approximately
2.73 million outstanding Options for the direct
issuance of shares of Common Stock issued by
Fisher to a Rabbi Trust on their behalf with a
value up to $43.8 million, based upon the
aggregate value of the shares underlying these
Options at the Cash Price less the aggregate
value of the exercise price of each such Option
and (z) the holder of each Restricted Unit (as
defined under "THE TRANSACTION--Effect on
Employee Stock Options and Employee Benefit
Matters") granted under the Restricted Unit
Plan (as defined under "THE TRANSACTION--Effect
on Employee Stock Options and Employee Benefit
Matters") will receive for each such unit a
cash payment equal to the sum of the Cash Price
and the total cash dividends paid on such stock
plus interest thereon based on the average rate
for ten-year U.S. Treasury Notes. The trustee
of the Rabbi Trust will exercise voting control
over all securities held in the Rabbi Trust.
With respect to clause (y) above the total
number of shares of Fisher Common Stock which
may be issued to the Rabbi Trust in connection
with the Option Conversion will not exceed
909,392 shares. Shares of Fisher Common Stock
held in the Rabbi Trust on behalf of Eligible
Employees pursuant to the Option Conversion
will be held for a deferral period (elected by
the optionee) and will be distributable upon
the expiration of such period, and certain
other events; Eligible Employees may also elect
to receive such shares immediately, in which
case such shares will not be subject to
deferral or held in the Rabbi Trust, and will
be voted by such Eligible Employees and not the
trustee of the Rabbi Trust. The payments of the
amounts referred to above will satisfy the
Company's obligations with respect to the
Options and the Restricted Unit Plan. Eligible
Employees who may participate in the Option
Conversion are identified in "THE
TRANSACTION--Effect on Employee Stock Options
and Employee Benefit Matters."
The foregoing description of the Subordinated
Notes and the preferred stock and the other
references herein to such securities does not
constitute an offer to purchase or a
solicitation of an offer to buy such securities.
Interests of Certain Persons in the
Transaction................ In addition to their interests as holders of
Fisher Common Stock, certain directors and
officers of the Company have additional
interests, described herein, that may be
different from those of other holders of Fisher
Common Stock and may present them with
conflicts of interest in connection with the
Transaction. The Board
13
<PAGE>
is aware of these conflicts and considered them
in addition to the other matters described or
referred to under "THE TRANSACTION--Certain
Conflicts of Interest." These interests include
(i) interests arising out of stock and option
ownership by directors and officers, (ii) change
of control employment agreements with
twenty-four key employees, (iii) salary and
benefits expected to be received by executive
officers following the Effective Time, (iv)
amounts to be received by management employees
under certain benefit plans, and (v) certain
indemnification and insurance rights provided to
directors and officers pursuant to the Merger
Agreement. In addition, certain senior
executives of THL have relationships with senior
executives of the Company. For example, Scott M.
Sperling, Managing Director of THL and Chairman
of the Board of FSI, serves on the Board of
Directors of the General Chemical Group Inc., a
company controlled by Paul M. Montrone, the
Company's Chief Executive Officer and a member
of the Board. The Board considered such
interests but determined that such interests
would not alter its evaluation of the
transaction or its ability to act in the best
interests of the Company's stockholders. The
Board's conclusion in this regard was based upon
its knowledge of the professionalism and
experience of the individuals involved and its
view that the economic benefits such individuals
received for, by way of example, serving as
directors, were not material.
Affiliates of Merrill Lynch and The Chase
Manhattan Bank ("Chase") have provided
investment banking and financial advisory
services to THL in connection with the Merger
and affiliates of Merrill Lynch, Chase and
Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") have provided underwriting
commitments and senior subordinated bridge
financing to consummate the Merger and are
acting as initial purchasers with respect to a
private offering of $400 million of senior
subordinated notes in lieu of funding such
bridge financing. In connection with the funding
of the Bridge Financing, the lenders may
receive, under certain circumstances, up to
489,470 Note Warrants with a nominal exercise
price, for no consideration. In connection with
such services and commitments, Fisher is
expected to pay to affiliates of Merrill Lynch,
Chase and DLJ an aggregate amount (including
expense reimbursement) of $15.7 million, $15.7
million, and $5.9 million, respectively.
In exchange for services rendered, THL and its
affiliates will receive an annual management fee
of $1.0 million in the aggregate and a one-time
transaction fee of $20.0 million in the
aggregate in connection with the Transaction.
Following the Effective Time, each executive
officer of the Company will receive the same
salary and benefits as in effect immediately
prior to the Effective Time and will receive the
stock option grants described below and under
"1998 EQUITY AND INCENTIVE PLAN." The base
salary expected to be paid to each of the Named
Executive Officers following the Merger is as
follows: Paul M. Montrone, $540,000; Paul M.
Meister, $360,000; and Denis M. Maiorani,
$275,000. Pursuant to certain employment
14
<PAGE>
agreements, the lump sum payment amounts payable
to each of the named executive officers is as
follows: Mr. Montrone, $5,236,796; Mr. Meister,
$3,479,162; and Mr. Maiorani, $1,156,283. These
individuals could also receive in the Merger,
with respect to options held by them (with the
exception of Messrs. Montrone and Meister who
have agreed to elect to exchange their options
under the Option Conversion): Mr. Montrone,
$11,641,634; Paul M. Meister, $7,107,651; and
Mr. Maiorani, $1,173,284. In addition, although
no specific grant to any individual has been
made, it is currently contemplated that Option
grants will be made at the Effective Time to
members of management in amounts based generally
on the extent to which such person elects to
participate in the Option Conversion and such
person's expected contribution level to the
Company. Messrs. Montrone and Meister, who have
agreed to exchange all of their options under
the Option Conversion, will be granted
immediately following the Merger, options to
purchase an aggregate of 516,663 shares of
Fisher Common Stock having an exercise price of
$48.25 and options to purchase 103,333 shares of
Fisher Common Stock having an exercise price of
$144.75. See "THE TRANSACTION--Interests of
Certain Persons in the Transaction."
Termination of the
Merger Agreement........... The Merger Agreement may be terminated at any
time prior to the Effective Time: (i) by mutual
consent of FSI and Fisher; (ii) by either FSI or
Fisher (a) if a court or other governmental entity
shall have issued a final and nonappealable order,
decree or ruling or taken any other final and
nonappealable action permanently enjoining or
otherwise prohibiting the Merger; or (b) if the
Merger shall not have been consummated on or
before March 31, 1998 (other than due to the
failure of the party seeking to terminate the
Merger Agreement to perform its obligations under
the Merger Agreement at or prior to the Effective
Time); or (iii) by FSI or Fisher in certain other
situations, including in connection with an
alterative transaction. Under certain
circumstances termination of the Merger Agreement
prior to the Effective Time will result in the
payment of a fee and expenses aggregating up to
$37 million from the Company to FSI. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Termination;
Amendments; Waiver" and "--Fees and Expenses." If
the Merger Agreement is terminated, the
Transaction shall not be consummated.
FSI......................... FSI, a Delaware corporation, was organized by
THL, a financial investment firm, in connection
with the Transaction and has not carried on any
activities to date other than those incident to
its formation and the transactions contemplated
by the Merger Agreement. The principal offices
of FSI are located at c/o Thomas H. Lee
Company, 75 State Street, Boston, Massachusetts
02109; telephone number (617) 227-1050.
FSI Stock and Fisher Common The shares of stock of FSI owned by THL and the
Transaction................ Equity Investors Stock Ownership Following the
issued and outstanding immediately prior to the
Effective Time will become shares of Fisher
Common Stock totalling 6,507,772 less the amount,
if any, by which (i) the aggregate number of
shares actually
15
<PAGE>
retained by existing stockholders (including
Eligible Employees) exceeds (ii) 746,114, which
amount may not exceed 310,881. After the
consummation of the Transaction, excluding the
Note Warrants, Equity Warrants and management
options, the Equity Investors will own a maximum
of 79.7% and a minimum of 75.9% of the Fisher
Common Stock and the existing shareholders will
own 9.1% and Eligible Employees will own a
minimum of 11.1% and a maximum of 15.0% of the
Fisher Common Stock. On a fully diluted basis,
assuming the exercise of the maximum number of
Note Warrants, Equity Warrants and management
options, the Equity Investors will own a maximum
of 69.4% and a minimum of 66.5% of the Fisher
Common Stock and the current shareholders will
own 6.9% and Eligible Employees will own a
minimum of 8.4% and a maximum of 11.3% of the
Fisher Common Stock. For certain additional
information concerning share ownership after the
Effective Time, see "THE TRANSACTION--FSI Stock
and Fisher Common Stock Following the
Transaction--Ownership."
Dissenting Stockholders'
Rights..................... Under Section 262 of the Delaware General
Corporation Law (the "DGCL"), a stockholder of the
Company may dissent from the Merger, demand
appraisal of, and obtain payment for, the fair
value of such holder's shares of Fisher Common
Stock ("Dissenting Shares"). In order to dissent,
(i) the dissenting stockholder must deliver to the
Company, prior to the vote being taken on the
Merger at the Special Meeting, written notice of
such holder's intent to demand payment for such
holder's shares of Fisher Common Stock if the
Merger is effected and (ii) the dissenting
stockholder must not vote in favor of the Merger
Agreement. See "DISSENTING STOCKHOLDERS' RIGHTS"
and Annex III.
Selected Financial Data..... Set forth on the following pages are certain
selected historical and pro forma financial and
other data relating to Fisher and the
Transaction. The selected historical data
should be read in conjunction with Fisher's
historical financial statements, including the
notes thereto, attached to this Proxy
Statement/Prospectus. The selected pro forma
financial data should be read in conjunction
with the Pro Forma Consolidated Financial
Statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/
Prospectus.
</TABLE>
16
<PAGE>
Selected Historical Financial Data of Fisher Scientific International Inc.
The following table sets forth selected financial data for the Company for
each of the fiscal years in the five year period ended December 31,1996 and for
the nine month periods ended September 30, 1996 and 1997, respectively. The
selected financial data for each of the fiscal years in the five year period
ended December 31, 1996 have been derived from the Company's audited financial
statements. Such information is contained in and should be read in conjunction
with the financial statements and accompanying notes included or incorporated
by reference in the Company's Annual Reports on Form 10-K for such years. The
selected financial data for the nine months ended September 30, 1996 and 1997
have been derived from the Company's unaudited interim financial statements,
which in the opinion of management include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and results of operations of the Company
for these periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
full year. The nine month data are contained in and should be read in
conjunction with the Company's Quarterly Reports on Form 10-Q for such periods.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1992 1993 1994 1995(1) 1996
------------ ------------ -------------- -------------- --------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales ................................................... $ 813.8 $ 978.4 $ 1,126.7 $ 1,435.8 $ 2,144.4
Cost of sales .......................................... 556.9 685.7 807.8 1,048.9 1,565.9
-------- -------- ---------- ---------- ----------
Gross profit .......................................... 256.9 292.7 318.9 386.9 578.5
Selling, general and administrative expense ............ 210.7 232.0 255.0 334.4 483.9
Restructuring charge(2) ................................. -- -- -- 34.3 --
--------- --------- ----------- ---------- -----------
Income from operations ................................. 46.2 60.7 63.9 18.2 94.6
Interest expense ....................................... 1.9 7.9 9.0 15.0 27.1
Other (income) expense, net ........................... (3.1) (5.0) (7.8) (1.1) (0.1)
--------- --------- ----------- ----------- -----------
Income before income taxes .............................. 47.4 57.8 62.7 4.3 67.6
Provision for income taxes .............................. 20.6 25.2 27.0 1.1 30.8
--------- --------- ----------- ----------- -----------
Net income ............................................. $ 26.8 $ 32.6 $ 35.7 $ 3.2 $ 36.8
========= ========= =========== =========== ===========
Earnings per Common Share:
Primary ................................................ $ 1.66 $ 2.00 $ 2.18 $ 0.19 $ 1.96
Fully diluted .......................................... 1.65 1.88 2.00 0.19 1.87
Other Financial Data:
Ratio of earnings to fixed charges(3) .................. 9.9 x 6.2 x 6.0 x 1.2 x 3.0 x
Net cash provided by operating activities ............... 48.2 56.5 0.2 54.9 49.0
Net cash used in investing activities .................. (99.6) ( 83.5) (29.8) (332.8) (42.0)
Net cash provided by (used in) financing activities . 37.3 79.2 (0.1) 304.7 (46.0)
Depreciation and amortization ........................... 12.8 20.0 19.4 28.9 44.6
Dividends per common share .............................. $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
EBITDA(4) ............................................. 62.1 85.7 91.1 98.2 159.7
Balance Sheet Data (at period end):
Working capital ....................................... $ 72.4 $ 162.4 $ 162.8 $ 284.0 $ 259.8
Total assets .......................................... 533.6 673.8 722.5 1,270.5 1,262.7
Total debt(5)(6) ....................................... 45.3 128.8 131.0 458.0 296.1
Stockholders' equity(6) ................................. 151.2 181.2 218.6 226.0 386.2
Book value per common share ........................... 9.46 11.30 13.63 13.90 19.18
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1996 1997
-------------- ---------------
(unaudited)
<S> <C> <C>
Income Statement Data:
Sales ................................................... $ 1,589.2 $ 1,624.1
Cost of sales .......................................... 1,164.3 1,176.3
---------- -----------
Gross profit .......................................... 424.9 447.8
Selling, general and administrative expense ............ 358.4 382.6
Restructuring charge(2) ................................. -- --
----------- ------------
Income from operations ................................. 66.5 65.2
Interest expense ....................................... 22.1 17.6
Other (income) expense, net ........................... ( 0.4) 0.1
----------- -----------
Income before income taxes .............................. 44.8 47.5
Provision for income taxes .............................. 20.4 23.0
----------- -----------
Net income ............................................. $ 24.4 $ 24.5
=========== ===========
Earnings per Common Share:
Primary ................................................ $ 1.35 $ 1.17
Fully diluted .......................................... 1.29 1.17
Other Financial Data:
Ratio of earnings to fixed charges(3) .................. 2.7 x 3.0 x
Net cash provided by operating activities ............... 21.3 40.2
Net cash used in investing activities .................. ( 27.1) ( 45.6)
Net cash provided by (used in) financing activities . ( 44.3) 10.8
Depreciation and amortization ........................... 32.4 34.2
Dividends per common share .............................. $ 0.06 $ 0.06
EBITDA(4) ............................................. 115.3 120.5
Balance Sheet Data (at period end):
Working capital ....................................... $ 257.9 $ 251.2
Total assets .......................................... 1,223.8 1,280.0
Total debt(5)(6) ....................................... 284.4 300.3
Stockholders' equity(6) ................................. 374.9 406.3
Book value per common share ........................... 18.67 19.96
</TABLE>
- - - ------------
(1) On October 17, 1995, Fisher acquired Curtin Matheson Scientific ("CMS") and
Fisons Scientific Equipment ("FSE") from Fisons plc. The operations of CMS
and FSE have been included in Fisher's consolidated financial statements
from the date of acquisition.
(2) During the third quarter of 1995, Fisher recorded a $34.3 million ($20.3
million, net of tax) restructuring charge. The charge is primarily related
to the elimination and in some cases relocation of certain administrative
functions, a sales force reorganization, and the global consolidation of
certain domestic, Canadian and international logistics and customer
service facilities and systems.
17
<PAGE>
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
expense, and one-third of the rent expense from operating leases, which
management believes is a reasonable approximation of an interest factor.
(4) "EBITDA" is defined herein as it is defined in the Senior Subordinated
Financing indenture as net income, plus provision for income taxes, plus
interest expense, plus depreciation and amortization expense, plus certain
restructuring and nonrecurring expenses, less nonrecurring gains on sales
of assets plus estimated insurance cost reductions in 1996 and 1997 which
will be realized in 1998. EBITDA is used here because the Company believes
it is an indicator of the Company's ability to incur/service future
indebtedness. However, EBITDA should not be considered as an alternative
to net income as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principals. EBITDA is calculated as follows (in millions):
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income ....................................... 26.8 32.6 35.7 3.2 36.8 24.4 24.5
Income Tax Provision ........................ 20.6 25.2 27.0 1.1 30.8 20.4 23.0
Interest Expense .............................. 1.9 7.9 9.0 15.0 27.1 22.1 17.6
Depreciation and Amortization ............... 12.8 20.0 19.4 28.9 44.6 32.4 34.2
Restructuring charge (See note 2 above) ...... -- -- -- 34.3 -- -- --
Nonrecurring charges in selling, general and
administrative expense (a) .................. -- -- -- 14.5 18.2 14.6 18.5
Nonrecurring charges in cost of sales (a) -- -- -- 1.2 1.2 1.0 --
Amounts in other (income) expense:
Gain on sale of property (b) ............... -- -- -- -- ( 1.5) ( 1.5) --
Fees related to evaluation of strategic
alternatives (c) ........................... -- -- -- -- -- -- 3.6
Gains on sale of non-core assets (d) ...... -- -- -- -- -- -- ( 2.8)
Insurance Cost Savings (e) .................. -- -- -- -- 2.5 1.9 1.9
----- ----- ----- ----- ------ ------ ------
EBITDA ....................................... $62.1 $85.7 $91.1 $98.2 $ 159.7 $ 115.3 $ 120.5
===== ===== ===== ===== ======= ======= =======
</TABLE>
(a) Selling, general and administration expense and cost of sales in 1995,
1996 and 1997 include nonrecurring and redundant costs associated with
the implementation of the restructuring plan discussed in (3) above, the
integration of CMS into Fisher, and, in 1997, actions taken to improve
operating efficiencies, software write-offs and other information
system-related charges associated with the Company's implementation of
new global computer systems and an increase in costs attributable to the
UPS strike. In addition, management believes that the strike had a
material impact on revenues which adversely impacted operating profits.
For a discussion of uncertainties relating to the UPS strike, see "THE
TRANSACTION--Background of the Merger" and "RISK FACTORS--Reliance on
Third Party Package Delivery Services."
(b) Certain gains on the sale of property, plant and equipment primarily
related to the restructuring and integration plans were recorded in 1996.
(c) Certain costs were incurred in 1997 related to the Board's review of
strategic alternatives.
(d) Certain gains were recognized in 1997 related to the sale of non-core
assets.
(e) Cost reductions resulting from the renegotiation of insurance policies in
1997 which will be realized in 1998.
(5) Consists of long-term debt and short-term debt.
(6) In June of 1996, the Company issued a notice of redemption for its $125
million step-up convertible subordinated notes due 2003. Approximately
97%, or $121.6 million of the notes were converted into 3,463,154 shares
of Fisher Common Stock and the remaining notes were redeemed by the
Company. The conversion of the debt and associated accrued interest and
subsequent redemption resulted in an increase in stockholders' equity and
a reduction in long-term debt of approximately $125 million.
18
<PAGE>
Selected Unaudited Pro Forma Financial Data of Fisher Scientific International
Inc.
The following table sets forth selected unaudited pro forma financial data
of the Company, as adjusted to give effect to the Transaction and Transaction
Financings, which have been derived from, and should be read in conjunction
with, the Unaudited Pro Forma Financial Statements, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus. See "UNAUDITED
PRO FORMA FINANCIAL STATEMENTS." The selected pro forma financial data are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have occurred if the
Transaction and Transaction Financings had been consummated on the dates
indicated, nor are they necessarily indicative of future operating results or
financial position.
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
-----------------------------------------
(in millions, except per share data)
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales ............................................. $2,144.4 $1,624.1
Cost of sales .................................... 1,565.9 1,176.3
-------- --------
Gross profit .................................... 578.5 447.8
Selling, general and administrative expense ...... 484.9 383.4
-------- --------
Income from operations ........................... 93.6 64.4
Interest expense ................................. 98.5 70.2
Other (income) expense, net ..................... (0.1) 0.1
-------- --------
Loss before income taxes ........................ (4.8) (5.9)
Income tax provision .............................. 2.6 1.6
-------- --------
Net loss .......................................... $ (7.4) $ (7.5)
======== ========
Earnings (loss) per Common Share: ...............
Primary .......................................... $ (0.90) $ (0.91)
Fully diluted .................................... $ (0.90) $ (0.91)
</TABLE>
September 30, 1997
-------------------
SELECTED BALANCE SHEET DATA:
Working capital .......... $ 139.1
Total assets ............... 1,168.0
Total debt ............... 870.0
Stockholders' equity (deficit) ( 296.3)
Book value per common share $(36.30)
19
<PAGE>
PRICE OF FISHER COMMON STOCK AND DIVIDENDS
Fisher Common Stock is listed and traded on NYSE under the symbol "FSH."
The following table sets forth, for the periods indicated, the high and low
sales closing prices per share of Fisher Common Stock.
<TABLE>
<CAPTION>
Dividends Paid
High Low Per Share
---------- --------- ---------------
<S> <C> <C> <C>
FISCAL 1995
First Quarter (ended March 31, 1995) ............ $ 30-7/8 $ 24-5/8 $0.02
Second Quarter (ended June 30, 1995) ............ 33-1/8 29-1/4 $0.02
Third Quarter (ended September 30, 1995) ......... 33-3/4 28-7/8 $0.02
Fourth Quarter (ended December 31, 1995) ......... 34-3/4 28-5/8 $0.02
FISCAL 1996
First Quarter (ended March 31, 1996) ............ $ 38-1/4 $ 33-7/8 $0.02
Second Quarter (ended June 30, 1996) ............ 41-1/4 36-1/2 $0.02
Third Quarter (ended September 30, 1996) ......... 42-1/4 35-1/4 $0.02
Fourth Quarter (ended December 31, 1996) ......... 47-1/8 39-5/8 $0.02
FISCAL 1997
First Quarter (ended March 31, 1997) ............ $ 47 $ 42-1/2 $0.02
Second Quarter (ended June 30, 1997) ............ 47-1/2 35-1/2 $0.02
Third Quarter (ended September 30, 1997) ......... 50-13/16 45-5/16 $0.02
Fourth Quarter (through December 18, 1997) ...... 48 43 --
</TABLE>
On August 6, 1997, the last trading day before public announcement of the
execution of the Original Agreement, the last sale price of Fisher Common Stock
as reported on the NYSE was $50-7/8 per share. The average of the closing prices
for the 20 consecutive trading days ended August 6, 1997 was $46.98 per share.
On December 18, 1997, the most recent practicable date prior to the
printing of this Proxy Statement/Prospectus, the last sale price of Fisher
Common Stock as reported on the NYSE was 475/16 per share. On November 13, 1997,
the last trading day before public announcement of the execution of the Merger
Agreement, the last sale price of Fisher Common Stock as reported on the NYSE
was $46-15/16 per share.
FISHER STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR FISHER
COMMON STOCK.
20
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of Fisher
Common Stock in connection with the solicitation of proxies by the Board for
use at the Special Meeting of Stockholders of Fisher Scientific International
Inc., to be held at the Mellon Bank Building, 8 Loockerman Street, Dover,
Delaware on January 16, 1998, beginning at 9:00 a.m. Eastern Standard Time, and
at any adjournments or postponements thereof. This Proxy Statement/Prospectus
is accompanied by a form of Proxy for use at the Special Meeting. At the
Special Meeting, Fisher stockholders will be asked to approve a Merger
Agreement, pursuant to which FSI will merge with and into Fisher. The Equity
Investors will become the owners of 6,507,772 shares of Fisher Common Stock,
less the amount, if any, by which (i) the aggregate number of shares actually
retained by existing stockholders (including Eligible Employees) exceeds (ii)
746,114, which amount will not exceed 310,881, representing a minimum of
approximately 75.9% and a maximum of approximately 79.7% of the 8,163,278
shares of Fisher Common Stock expected to be issued and outstanding immediately
after the Transaction.
This Proxy Statement/Prospectus also constitutes a prospectus of the
Company with respect to the shares of Common Stock to be retained by holders of
Fisher Common Stock pursuant to the Transaction, which prospectus is part of a
Registration Statement on Form S-4 filed by the Company with the Commission
under the Securities Act.
This Proxy Statement/Prospectus and the accompanying form of proxy are
being mailed to stockholders of the Company on or about December 23, 1997.
21
<PAGE>
RISK FACTORS
Holders of Fisher Common Stock should carefully consider the following
factors in connection with their consideration of the Merger Agreement. See
also "FORWARD-LOOKING STATEMENTS" elsewhere in this Proxy Statement/Prospectus.
Disadvantages of the Transaction
The Transaction will result in significant changes in the affairs and
financial condition of the Company, including the following:
Control By Thomas H. Lee Company and the Other Equity Investors; Risk to
Minority Stockholders. Upon completion of the Transaction, excluding the Note
Warrants, Equity Warrants and management options, a minimum of 75.9% and a
maximum of 79.7% of the outstanding shares of Fisher Common Stock will be held
by the Equity Investors, with the THL Fund and affiliates owning a minimum of
48.6% and a maximum of 51.0% of the outstanding shares of Fisher Common Stock.
Including the Note Warrants (fully retained by the lenders), Equity Warrants
(fully retained by the Equity Investors) and the full issuance of management
options, a minimum of 71.3% and 74.2% of the outstanding shares of Fisher
Common Stock, including shares underlying warrants and options, will be held by
the Equity Investors, with the THL Fund and affiliates owning a minimum of
39.7% and a maximum of 41.5% of the outstanding shares of Fisher Common Stock.
For additional information concerning the equity investment to be made by the
Equity Investors, see "THE TRANSACTION--Transaction Financing--Equity Capital."
Accordingly, the Equity Investors will control the Company and the outcome of
all matters submitted to a vote or for the consent of holders of Fisher Common
Stock and will have the power to elect at least a majority of its directors,
appoint new management and approve any action requiring the approval of the
holders of Fisher Common Stock, including adopting amendments to the Company's
Restated Certificate of Incorporation and approving mergers or sales of
substantially all of the Company's assets. The directors elected by the Equity
Investors will have the authority to make decisions affecting the capital
structure of the Company, including the issuance of additional capital stock,
the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the policies of the Company in effect
prior to the Effective Time will continue after the Effective Time. For a
description of the Fisher Common Stock and the Cumulative Preferred Stock, see
"DESCRIPTION OF FISHER CAPITAL STOCK." In addition, the existence of a
controlling stockholder of the Company may have the effect of making it more
difficult for a third party to acquire, or the effect of discouraging a third
party from seeking to acquire, a majority of the outstanding Fisher Common
Stock. A third party effectively would be required to negotiate any such
transaction with the Equity Investors and the interests of the Equity Investors
may be different from the interests of other stockholders of Fisher.
Accordingly, minority stockholders may be deprived of an opportunity to sell
their shares at a substantial premium over the market price of Fisher Common
Stock.
Discontinuation of Dividends. It is anticipated that following the
Effective Time, the terms of any debt instruments to be entered into in
connection with the Transaction Debt Financings will prohibit or otherwise
restrict the future payment of dividends. No dividends on shares of Fisher
Common Stock are presently contemplated to be made following the Merger. In
addition, the Company is expected to have a stockholders' deficit following the
Transaction. See "UNAUDITED PRO FORMA FINANCIAL STATEMENTS." Under applicable
Delaware law, the Company is able to pay dividends on its stock only in limited
circumstances at a time when it has a stockholders' deficit. As a result, until
the Company has a stockholders' surplus, the Company would be unlikely to be in
a position to pay dividends even if the terms of the debt instruments allowed
for the payment of dividends.
Substantial Leverage; Stockholders' Deficit, Liquidity. In connection with
the Transaction Debt Financing, the Company is expected to issue debt
securities (the "Debt Securities") and enter into syndicated senior secured
term loan facilities and a revolving credit facility to finance a substantial
portion of the cash consideration to be paid to the stockholders of Fisher
Common Stock in the Transaction, to refinance certain of the outstanding
indebtedness of the Company and to provide for working capital requirements.
Upon completion of the Transaction Debt Financings, the Company will have
consolidated indebtedness that will be substantial in relation to its
stockholders' equity and substantially greater than the Company's
pre-Transaction indebtedness. Upon consummation of the Transaction and the
Transaction Debt Financings, it is expected that based upon the Unaudited Pro
Forma Financial Statements of Fisher as of September 30, 1997, the Company will
have consolidated indebtedness of approximately $870.0 million. The increased
indebtedness and higher debt-to-equity ratio of the
22
<PAGE>
Company in comparison to that of the Company on an historical basis may have
the effect of reducing the flexibility of the Company to respond to changing
business and economic conditions, as well as limiting capital expenditures. On
a pro forma basis, after giving effect to the Transaction and the Transaction
Debt Financings, assuming the transactions occurred on January 1, 1996, the
Company's ratio of earnings to fixed charges would have been 1.0x for the year
ended December 31, 1996 and 0.9x for the nine months ended September 30, 1997.
It is expected that the Company will have stockholders' deficit of $296.3
million on a pro forma basis at September 30, 1997 after giving effect to the
Transaction and the Transaction Debt Financings. The Company expects that the
definitive terms of the debt instruments in the Transaction Debt Financings
will include significant operating and financial restrictions, such as limits
on the Company's ability to incur indebtedness, create liens, sell assets,
engage in mergers or consolidations, make investments or acquisitions and pay
dividends. See "--Difficulty in Executing Post-Merger Business Strategy."
In addition, the substantial leverage will have a negative effect on the
Company's net income. For the fiscal year ended December 31, 1996, the
Company's net loss on a pro forma basis as adjusted to give effect to the
Merger and the Transaction Debt Financings, would have been $7.4 million,
compared to the historical net income of $36.8 million for such period and for
the nine months ended September 30, 1997 the Company's pro forma loss would
have been $7.5 million as compared to the historical net income of $24.5
million for such period. Pro forma interest expense would have been $98.5
million for the year ended December 31, 1996 as compared to $27.1 million for
the same period on an historical basis for the Company and, for the nine months
ended September 30, 1997, pro forma interest expense would have been $70.2
million as compared to $17.6 million.
After the Transaction is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of the senior secured credit facility. It is
anticipated that the Company's principal uses of liquidity will be to provide
working capital, meet debt service requirements, finance capital expenditures
and finance the Company's strategic plans. The Revolving Facility will also be
available for the issuance of letters of credit. See "THE
TRANSACTION--Transaction Financing."
Based upon the current and anticipated level of operations, the Company
believes that its cash flow from operations, together with amounts available
under the credit facilities, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments in the foreseeable future. There can be no
assurance, however, that the Company's business will continue to generate cash
flow at or above current levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of its existing debt or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing could be obtained. The inability
to obtain additional financing could have a material adverse effect on the
Company.
Effect of Preferred Stock on Fisher Common Stock. At the Effective Time,
subject to the Company having adequate surplus under Delaware law, preferred
stock having a liquidation preference of up to $75.0 million may be issued
either to the Equity Investors or other investors in the form of Cumulative
Preferred Stock or securities having terms substantially similar thereto. The
terms of such securities will provide that dividends may not be paid on any
class of stock junior to the preferred stock unless dividends have been fully
paid on such securities. No dividends on shares of Fisher Common Stock are
presently contemplated to be made following the Effective Time. Dividends on
shares of Cumulative Preferred Stock will be cumulative from the date of issue
and, subject to the Company having adequate surplus under Delaware law, will be
payable when and as may be declared from time to time by the Board. Such
dividends will accrue on a daily basis (whether or not declared) from the
original date of issue at an annual rate per share equal to 13% of the original
purchase price per share, with such amount to be compounded semi-annually so
that if the dividend is not paid for any year, the unpaid amount will be added
to the original purchase price of the Cumulative Preferred Stock for the
purpose of calculating the succeeding years' dividends. All accumulated but
unpaid dividends will be payable upon redemption of the Cumulative Preferred
Stock.
Dilution In Equity Participation Of Existing Fisher Stockholders. Upon
completion of the Transaction, the percentage held by the Equity Investors will
be as follows, on a primary basis: (i) assuming that the maximum number of
eligible shares of Fisher Common Stock of 310,881 are retained pursuant to the
Eligible Employee Pool by Eligible Employees, the Eligible Employees do not
elect to retain shares of Fisher Common Stock pursuant to the Standard Pool and
the maximum number of shares are issued to Eligible Employees pursuant to the
Option Conversion, the existing stockholders of the Company excluding Eligible
Employees will own 746,114 shares of
23
<PAGE>
Fisher Common Stock in the aggregate, or 9.1% of the outstanding shares,
Eligible Employees will own up to 1,220,273 shares of Fisher Common Stock in
the aggregate, or 15.0% of the outstanding shares and the Equity Investors will
own 6,196,891 shares of Fisher Common Stock in the aggregate, or 75.9% of the
outstanding shares; or (ii) assuming that existing stockholders excluding
Eligible Employees do not elect to retain any shares, and Eligible Employees
elect to retain a number of eligible shares of Fisher Common Stock equal to
310,881 from the Standard Pool, the existing stockholders of the Company
excluding Eligible Employees will own as few as 435,233 shares of Fisher Common
Stock in the aggregate, or 5.3% of the outstanding shares, Eligible Employees
will own up to 1,220,273 shares of Fisher Common Stock in the aggregate, or
15.0% of the outstanding shares and the Equity Investors will own 6,507,772
shares in the aggregate, or 79.7% of the outstanding shares. Assuming the
Eligible Employees do not exercise any Options prior to the Effective Time and
Eligible Employees are able to retain all shares held by them in the Standard
Pool, the Eligible Employees would retain 310,016 shares of Fisher Common
Stock. In certain circumstances based on market conditions, providers of the
Transaction Debt Financings may hold Note Warrants, which will entitle the
holders to purchase after the Effective Time up to 489,470 shares of Fisher
Common Stock, subject to certain anti-dilution adjustments. The Note Warrants
are exercisable at a nominal price for up to 10 years. If the Note Warrants
were exercised in full by the payment of the aggregate exercise price, the
present holders of Fisher Common Stock (including Eligible Employees) would
own, in the aggregate, a maximum of approximately 22.7% of the outstanding
shares (as compared to 24.1% of the outstanding shares without giving effect to
the exercise of the Note Warrants). In addition, such holders will experience a
similar dilution in the proportionate voting power of such shares. At the
Effective Time, Equity Warrants, which will entitle the holders to purchase up
to 516,663 shares of Fisher Common Stock, subject to certain anti-dilution
adjustments, will be issued to the Equity Investors. The Equity Investors will
not purchase the Equity Warrants for cash, but will receive the Equity Warrants
in consideration for the commitment to purchase the Cumulative Preferred Stock.
The Equity Warrants are exercisable at the Cash Price for up to 10 years. If
the Equity Warrants were exercised in full by payment of the aggregate exercise
price, the present holders of Fisher Common Stock would own, in the aggregate,
a maximum of approximately 22.7% of the outstanding shares (as compared to
24.1% of the outstanding shares without giving effect to the exercise of the
Equity Warrants).
Delisting; Loss of Liquidity; Reporting Obligations. The Company believes
that neither the Merger nor the Transaction has a reasonable likelihood or
purpose of causing Fisher Common Stock to cease being listed on the NYSE
following the Effective Time. However, although it is currently intended that
the shares of Fisher Common Stock will continue to be listed on the NYSE
immediately following the Effective Time, there is no obligation for the
Company to maintain the NYSE listing. In addition, there is a possibility that,
following the Merger, the total number of beneficial holders of Fisher Common
Stock will fall below the 400 beneficial holders required for Fisher Common
Stock to maintain its NYSE listing, although the Company expects that it will
satisfy the applicable listing criteria at the Effective Time. Accordingly,
there can be no assurance that the Company will maintain its NYSE listing
following the Effective Time. This expectation is based upon the fact that
Fisher has approximately 3,200 stockholders and upon the assumption, which the
Company believes to be reasonable, that more than 400 of these stockholders
will retain shares. Any delisting of Fisher Common Stock, together with the
substantial decrease in the number of shares of Common Stock to be held by
holders thereof other than the Equity Investors and Eligible Employees, is
expected to result in an substantial decrease in liquidity of Fisher Common
Stock, even if the Company continues to be a reporting company under the
Exchange Act and continues to file the periodic reports required to be filed
thereunder.
Upon any such delisting, shares of Fisher Common Stock would trade only in
the over-the-counter market. Although prices in respect of trades may be
published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and "pink sheets", quotes for such shares would not
be as readily available. As a result, it is anticipated that the shares of
Fisher Common Stock will trade much less frequently relative to the trading
volume of Fisher Common Stock prior to the Effective Time and stockholders may
experience difficulty selling shares of Fisher Common Stock or obtaining prices
that reflect the value thereof.
The Company currently expects to continue to be a reporting company under
the Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) following the Effective Time. The Company will also continue
to provide proxy statements to its stockholders under the Exchange Act if as a
result of the elections to retain stock made by holders of Fisher Common Stock
with respect to the Effective Time, the Company has 300 or more holders of
shares of Fisher Common Stock following the Merger. If, however, after one year
following the Merger and the related offering of Debt Securities, there are
fewer than 300 holders of Debt Securities and fewer
24
<PAGE>
than 300 holders of shares of Fisher Common Stock, the Company may cease to be
a reporting company under the Exchange Act. Any determination by the Company to
cease to be a reporting company under the Exchange Act would be made based on
facts and circumstances at the time the number of holders of Debt Securities or
shares of Fisher Common Stock fell below the relevant threshold. Accordingly,
there can be no assurance that the Company will continue to be a reporting
company under the Exchange Act. If the Company were to cease to be a reporting
company under the Exchange Act, the information now available to holders of
Fisher Common Stock in the periodic reports would not be available to them as a
matter of right.
Fraudulent Conveyance Risks
The incurrence by the Company of indebtedness, including indebtedness in
connection with the Senior Financing and the Senior Subordinated Financing, and
the subsequent transfer of a portion of the proceeds thereof to the Company's
stockholders to pay the Cash Price, is subject to review under relevant federal
and state fraudulent conveyance statutes in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or in a lawsuit by or on behalf of
unpaid creditors of the Company. Under these fraudulent conveyance statues, if
a court were to find that, at the time of the Transaction, (i) the Company
incurred the indebtedness and paid the Cash Price with the intent of hindering,
delaying or defrauding current or future creditors or (ii) (a) the Company
received less than reasonably equivalent value or fair consideration in
connection with the Transaction and (b) the Company (1) was insolvent or was
rendered insolvent by reason of the Transaction, including the incurrence of
the indebtedness related thereto, (2) was engaged in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur obligations beyond its ability to pay as
such obligations matured (as the foregoing terms are defined in or interpreted
under the fraudulent conveyance statutes) or (4) was a defendant in an action
for money damages, or had a judgment for money damages docketed against it (if,
in either case, after final judgment the judgment is unsatisfied), such court
could determine that the payment of the Cash Price to stockholders of the
Company violated applicable provisions of U.S. Bankruptcy code and/or
applicable state fraudulent conveyance laws, which determination would permit
the bankruptcy trustee or debtor in possession or unpaid creditors to avoid the
payment of the Cash Price and recover the Cash Price from the Company's
stockholders.
In the course of its deliberations concerning the Merger Agreement, the
Board was advised of the fraudulent conveyance risks and the relevant legal
principles set forth above. As a result, in order to protect the Company and
its stockholders, the Board insisted that the Merger Agreement contain a
provision requiring that, as a condition to consummation of the Merger, the
Company and the Board receive an opinion from an independent expert as to the
solvency of the Company after giving effect to the Merger and the Transaction.
Based upon its discussions with its advisors and financing sources, the Company
fully anticipates receiving such a solvency opinion.
Sufficiency of Committed Financing
Based on market conditions at the Closing, the Company may be able to
borrow in excess of the $694.2 million for which it has commitments under the
Term Facility and Senior Subordinated Financing. The Company currently does not
expect to borrow in excess of the $694.2 million for which it has commitments.
In the event that (i) less than the maximum number of shares are converted
pursuant to the Option Conversion or (ii) the level of indebtedness at Closing
which must be refinanced is higher than expected the Company may seek to borrow
in excess of the $694.2 million for which it has commitments.
FSI's obligations to effect the Merger are subject to, among other things,
the receipt of financing proceeds, on terms set forth in commitment letters
attached to the Merger Agreement, or such other financing sources as the
Company and FSI shall reasonably agree in amounts sufficient to consummate the
Transaction including payment of the Cash Price, refinancing of the outstanding
indebtedness of the Company, payment of transaction fees and expenses and
provision of working capital needs following the Effective Time.
FSI has informed the Company that it expects that the financing described
under "THE TRANSACTION-- Transaction Financing," including the Term Facility and
the Senior Subordinated Financing, will be sufficient to consummate the
Transaction if such financing is completed in accordance with terms and
conditions described in the financing commitments which are attached to the
Merger Agreement, which are included herewith as Annex IV. However, there can be
no assurance that if the committed financing is not sufficient, the Company will
be able to obtain additional financing or that FSI will agree to consummate the
Merger even if such financing is available.
25
<PAGE>
Stock Election and Proration Into Cash
As described herein, existing stockholders may make a Stock Election with
respect to the Standard Pool while Eligible Employees may make a Stock Election
with respect to both the Standard Pool and the Eligible Employee Pool. However,
if the aggregate number of shares of Fisher Common Stock requested to be
included in the Standard Pool exceeds 746,114, electing stockholders will
receive cash for a portion of such holder's Fisher Common Stock as to which
such holder had made a Stock Election as a result of the proration procedures
described herein under "THE TRANSACTION--Transaction Consideration; Election
Procedures." Similarly, if the aggregate number of shares of Fisher Common
Stock requested to be included in the Eligible Employee Pool exceeds 310,881,
electing Eligible Employees will receive cash for a portion of such holder's
Fisher Common Stock as to which such holder had made a Stock Election as a
result of proration procedures described under the "THE TRANSACTION--
Transaction Consideration; Election Procedures--Stock Election." See "THE
TRANSACTION--Certain Federal Income Tax Considerations" for a discussion of the
tax consequences of receiving cash.
In addition, as a result of the Eligible Employee Pool, the existing
stockholders of the Company, other than the Eligible Employees, may be required
to retain more shares of Fisher Common Stock than they would have been required
to retain in the absence of the Eligible Employee Pool if Stock Elections for
the Standard Pool are made for less than the Standard Share Retained Number and
the Eligible Employees make Stock Elections with respect to the Eligible
Employee Pool. In such a circumstance, because the shares retained pursuant to
the Eligible Employee Pool would not be counted as part of the Standard Pool,
existing stockholders would be required to retain a greater number of shares in
the Standard Pool as a result of the proration procedures than they would have
been required to retain if the Eligible Employee Pool did not exist. Also as a
result of the Eligible Employee Pool, the Eligible Employees would be entitled
to retain more shares of Fisher Common Stock than they would have been entitled
to retain in the absence of the Eligible Employee Pool if Stock Elections for
the Standard Pool are made for more than the Standard Share Retained Number and
Eligible Employees make Stock Elections with respect to the Eligible Employee
Pool. In such a circumstance, because the shares retained pursuant to the
Eligible Employee Pool would not be subject to the proration procedure applied
to the Standard Pool, Eligible Employees would be entitled to retain a greater
number of shares than they would have been entitled to retain in the absence of
the Eligible Employee Pool.
Proration Relating to Fisher Common Stock
Shares of Fisher Common Stock not retained under a Stock Election shall be
exchanged for the right to receive the Cash Price. However, if the aggregate
number of shares requested to be retained by holders of Fisher Common Stock is
less than 746,114, then, as a result of the proration procedures described
herein under "THE TRANSACTION--Transaction Consideration; Election
Procedures--Stock Election Procedure" each stockholder electing cash will be
required to retain shares of Fisher Common Stock.
Forecasts; Limits of Reliability
The forecasts set forth under the "THE TRANSACTION--Estimates of Future
Operations and Other Information" (which were provided to the Equity Investors,
and FSI), while presented with numerical specificity, are based upon a number
of estimates and assumptions which, though considered reasonable by the Company
at the time presented, are inherently subject to significant business, economic
and competitive uncertainties and contingencies, including those set forth
herein under "RISK FACTORS," many of which are beyond the control of the
Company, and upon assumptions with respect to future business strategies and
decisions which are subject to change and may be out of the control of the
current management of the Company. The forecasts were not prepared with a view
to the transactions described herein and did not take into account the
Transactions. The forecasts were also not prepared with a view toward
compliance with published guidelines of the Commission, the American Institute
of Certified Public Accountants, any regulatory or professional agency or body
or generally accepted accounting principles. Moreover, the Company's
independent public accountants, has not compiled or examined the forecasts and
accordingly, does not express any opinion or any other form of assurance with
respect thereto, assumes no responsibility for and disclaims any association
with the forecasts. While the Company believes the forecasts are based upon
reasonable assumptions and estimates, actual results will vary and such
variations may be material. Forecasts are necessarily speculative in nature,
and it is usually the case that one or more of the assumptions underlying the
forecasts will not materialize. Furthermore, the Company does not intend to
update or revise the forecasts to reflect events or circumstances after the
date thereof or to reflect the occurrence of
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unanticipated events. Holders of Fisher Common Stock are cautioned not to place
undue reliance on any of the forecasts included herein. Except for the
forecasts provided by the Company, the Equity Investors (and FSI) did not
receive any report, opinion or approval in formulating its decision to proceed
with the Transaction. See "THE TRANSACTION--Estimates of Future Operations and
Other Information."
Difficulty In Executing Post-Transaction Business Strategy
The post-Transaction business strategy that has been developed by the
Company is based on the Company's current and historical operations and the
operations of other companies in the scientific services industries. See "THE
COMPANY--General" and "--Business Strategy." The Company's strategy was not
prepared with a view to the Transaction. The Company's current business
strategy is based, in part, on the Company's ability to capitalize on benefits
expected to result from various acquisitions and investments made by the
Company over the last few fiscal years, including the acquisitions of CMS and
FSE, investments to expand the Company's international operations and continued
investment in Fisher Technology Group ("FTG"). Although partially completed,
there can be no assurance that the Company will be able to successfully
complete the integration of CMS into its operations, or that such integration,
when complete, will generate expected efficiencies and cost savings. In
addition, the Company's consolidated international operations and FTG each
incurred net losses in fiscal 1996 and are currently operating at a loss. If
the Company is unable to improve the sales and profitability of its
international business and of FTG, the Company's financial condition and
results of operations may be materially adversely affected. After the Effective
Time, the Company's management may decide to alter or discontinue certain parts
of the post-Transaction business strategy described herein and may adopt
alternative or additional strategies. In addition, there can be no assurance
that such a strategy, if implemented, will be successful or will improve
operating results. Moreover, there can be no assurance that the successful
implementation of such a strategy will result in improved operating results.
Further, other conditions may exist, such as increased competition, or an
economic downturn, which may offset any improved operating results that are
attributable to such a strategy.
Dependence on Information Systems; Systems Conversion; Year 2000 Issue
The Company's business is dependent in part on its information systems.
These systems play an integral role in: tracking product offerings (including
pricing and availability); processing and shipping customer orders; warehouse
operations; purchasing; inventory management; financial reporting; and other
operational functions. The Company is currently in the process of implementing
a project whereby many of its present computer systems, including its order
entry, purchasing and financial systems will be replaced. This conversion is
expected to occur over the next two years. There can be no assurance that the
Company will not experience unanticipated delays, complications and expenses in
implementing, integrating and operating such systems. Failure to successfully
complete the conversion of the Company's current computer system on a timely
basis or failures with respect to the Company's systems generally could result
in operational and financial disruptions and could also lead to cost over-runs.
The Company faces "Year 2000" issues. Year 2000 issues exist when dates
are recorded using two digits (rather than four) and are then used for
arithmetic operations, comparisons or sorting. A two-digit date recording may
recognize a date using "00" as 1900 rather 2000, which could cause the
Company's computer systems to perform inaccurate computations. The Company's
year 2000 issues relate not only to its own systems but also to those of its
customers and suppliers. It is anticipated the Company's program to enhance its
systems capabilities described above, and other Year 2000 activities of the
Company with respect to systems not being replaced will resolve the Year 2000
issue with respect to the Company's internal systems. There is no guarantee,
however, that the systems replacements and modifications will be completed on
time. In addition, the failure of the Company's suppliers and customers to
address the Year 2000 Issue could significantly impact the Company.
Shares Eligible for Future Sale
All shares retained by the Equity Investors and the Eligible Employees
will be "restricted stock" as that term is defined in Rule 144 under the
Securities Act, and initially will not be freely saleable in the public market
without registration under the Securities Act. Subject to applicable law, the
THL Fund could sell any or all of the shares of Fisher Common Stock owned by it
from time to time for any reason. Following the Effective Time, the THL Fund
will be entitled to certain demand rights to require the Company file a
registration statement under the
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Securities Act for the sale of its Fisher Common Stock and will also be
entitled to include its Fisher Common Stock in certain registration statements
filed for the benefit of the Company. The Equity Investors will also be
entitled to certain rights to the registration of their Fisher Common Stock.
Although the Company can make no prediction as to the effect, if any, that
sales of shares of Fisher Common Stock by the THL Fund, or the Equity Investors
would have on the market price prevailing for the Fisher Common Stock from time
to time, sales of substantial amounts of Fisher Common Stock or the
availability of such shares for sale could adversely affect prevailing market
prices.
Reduced Public Float; Possible Volatility of Fisher Common Stock Price
There will be substantially fewer shares of Fisher Common Stock held by
the public holders of Fisher Common Stock than shares of Fisher Common Stock
held by the public holders of Fisher Common Stock prior to the Effective Time.
This reduced market capitalization could cause the market price of the shares
of Fisher Common Stock to be subject to significant fluctuations. In addition,
following the Effective Time, factors such as announcements by the Company of
variations in its quarterly financial results, analysts' estimates of the
Company's financial results, industry-wide results, changes in economic
conditions, competitive developments, sales of substantial blocks of the
securities of the Company by the holders thereof, and the issuance of stock in
connection with future financings or corporate transactions among other things,
could cause dilution to the public holders of Fisher Common Stock and cause the
market price of the Company's shares to fluctuate significantly. See "RISK
FACTORS--Shares Eligible for Future Sale," "SUMMARY--Price of Fisher Common
Stock and Dividends."
Competition
The Company operates in a market which is highly competitive. The
Company's competitors include other distributors as well as a large number of
suppliers and manufacturers that sell their own products directly to end users.
Some of these competitors are larger and may have greater resources than the
Company. There has been a recent trend toward consolidation in the industry
which could result in the Company's competitors that provide distribution
services becoming larger. In addition, potential competitors in the future
could include suppliers and manufacturers that currently rely on one or more
third party distributors to distribute their products. There can be no
assurance that competitive factors in the Company's markets, both international
and domestic, will not have a material adverse effect on the Company's
financial condition and results of operations.
Reliance on Third Party Package Delivery Services
Virtually all of the Company's products are shipped to customers by
independent package delivery companies. The Company does not own or maintain a
fleet of transportation vehicles dedicated to the delivery of its products. The
principal independent delivery service used by the Company is United Parcel
Service ("UPS"), which ships products accounting for over sixty percent of the
Company's U.S. revenues. Other carriers used by the Company include national
and regional trucking firms, overnight courier services and the United States
Postal Service. A major work stoppage or other series of events that would make
such carriers unavailable to the Company could have a significant adverse
effect upon the Company's ability to conduct its business. In August 1997, UPS
employees who are members of the International Brotherhood of Teamsters went on
strike for more than two weeks, causing disruption to the Company's shipments
that resulted in lost sales and increased logistics and distribution costs. The
impact of that strike upon the Company's business and financial condition is
being evaluated to determine the extent of the resulting losses, which are
believed to be material, and whether they will be recovered. According to
published reports, UPS has also been negotiating with the Independent Pilots
Association which represents its pilots (the "IPA") regarding the terms of a
new contract. On or about October 1, 1997, IPA announced that its members voted
down UPS' contract proposal. The National Mediation Board, which is overseeing
the UPS-IPA negotiations, has reportedly indicated that it is not going to
reconvene the contract talks until early 1998. If those talks are unsuccessful,
there is a federally mandated 30 day cooling off period before the IPA could
strike. Failure to reach an agreement could result in job actions other than a
strike such as work rule slowdowns. In addition, if the IPA were to go out on
strike, it is possible that the Teamsters union would honor the pilots' picket
line because the IPA honored the Teamsters' picket line during the Teamsters'
August 1997 strike against UPS. Although it is not possible to predict the
duration or quantify the effects of such a strike, were such a strike to occur,
the resulting disruption to the Company's product shipments could have a
material adverse impact upon the Company. In addition, while the Merger
Agreement was modified in connection with the First Amended Agreement to
provide that the impact of the August 1997 UPS strike, and the prospect of an
IPA strike, would not result in certain conditions to FSI's
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obligation to consummate the Merger to not be satisfied, if an IPA strike were
to occur, it is possible that certain conditions to FSI's obligation to
consummate the Merger would not be satisfied. In particular, such a strike
(especially if honored by the Teamsters) could cause representations made by
the Company in the Merger Agreement as to the absence of adverse changes since
March 31, 1997 to be untrue in material respects as of the date on which the
Effective Time is to occur, thereby failing to satisfy a condition to FSI's
obligation to consummate the Merger; if such a condition were not satisfied,
FSI would not be obligated to consummate the Merger or the Transaction.
Fisher Sales Growth
The Company's ability to implement its business strategy will depend on
numerous factors, many of which are beyond the control of the Company. Much of
the Company's recent sales growth was the result of acquisitions, including the
acquisitions of CMS and FSE in October, 1995. Future growth will be largely
dependent on growth in the overall market for instruments, supplies and
equipment, and environmental testing, life sciences, worker safety and emerging
testing techniques and the ability of the Company to make acquisitions. There
can be no assurance that such growth will occur or that suitable acquisition
candidates will be available or that any acquisition will be successful.
Environmental Regulation
Some of the Company's operations involve and have involved the handling,
manufacture or use of many substances that are classified as toxic or hazardous
substances within the meaning of applicable environmental and other laws. Some
risk of environmental and other damage or hazard is inherent in particular
operations and products manufactured, sold or distributed by Fisher. There can
be no assurance that damage, hazard or loss will not occur. To a large extent,
such damage is uninsured. The Company continually monitors and reviews its
procedures and policies for compliance with existing law and the cost of
compliance with existing environmental laws is not expected to have a material
adverse effect on the Company's earnings, liquidity or competitive position.
However, future events, including changes in existing laws and regulations, may
give rise to additional costs which are currently unintended and unforeseen and
which could have a material adverse effect on the Company's financial
condition.
Dependence on Key Personnel
The Company depends heavily on the services of its senior management,
including Paul M. Montrone, the Company's President and Chief Executive
Officer, and Paul M. Meister, the Company's Senior Vice President and Chief
Financial Officer. The loss of any of the Company's senior management,
including Mr. Montrone or Mr. Meister could have an adverse impact on the
Company. In addition, certain members of management have entered into
employment agreements with the Company in connection with the Transaction. See
"THE TRANSACTION--Interests of Certain Persons in the Transaction."
International Operations
The Company conducts international operations through a variety of wholly
owned subsidiaries, majority-owned subsidiaries, joint ventures, equity
interests and agents located in North and South America, Europe, the Far East,
the Middle East and Africa. The Company is also exploring the possibility of
expansion into other international markets as well. There is no guarantee that
the Company will maintain significant operations internationally or that any
such operations will be successful. Any international operations established by
the Company will be subject to risks similar to those affecting its North
American operations in addition to a number of other risks, including lack of
complete operating control, lack of local business experience, foreign currency
fluctuations, difficulty in enforcing intellectual property rights, language
and other cultural barriers and political and economic instability.
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Exchange Rate Fluctuations
The majority of Fisher's revenues and expenses are incurred in U.S.
dollars, although the Company owns properties and conducts operations in
non-U.S. facilities including Canada, France, Mexico, Belgium, Germany, the
Netherlands, Singapore, Malaysia, Switzerland and the United Kingdom.
Accordingly, fluctuations in the exchange rate between the U.S. dollar and the
respective currencies of the aforementioned countries could have an adverse
effect on the Company.
Dependence on Corporate Research and Development Spending
The Company's customers include corporations active in scientific or
technological research, healthcare, industrial, safety and other markets, both
in the U.S. and internationally. The research and development budgets and
activities of these companies have a significant effect on the demand for
products manufactured and/or distributed by the Company. Such policies are
based on a variety of factors, including the need to develop new products,
competition and availability of resources. Although scientific and
technology-related research and development spending in the U.S. historically
has not been subject to cyclical swings, no assurance can be made that this
trend will continue. In addition, as the Company continues to expand its
international operations, the research and development spending levels in other
global markets will become increasingly important. A decrease in research and
development spending by the Company's customers could have a material adverse
effect on the Company's results of operations.
Healthcare Reform; Cost Containment
The Company's sales to the U.S. clinical laboratory market are
significant, approximating more than 20% of the Company's total sales. During
the first three quarters of 1997, sales to this market declined compared to
sales during the comparable period in 1996. This sales decline is largely
attributable to the Company's continued integration of CMS as well as the
impact of the UPS strike. The trend towards managed care, together with efforts
to reform the healthcare delivery system in the U.S., has resulted in increased
pressure on healthcare providers and other participants in the healthcare
industry to reduce cost. To the extent that the Company's customers in the
healthcare industry seek to address the need to contain costs by limiting the
number of clinical tests being performed, the Company's results of operations
could be materially adversely affected.
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THE COMPANY
Founded in 1902, Fisher Scientific International Inc. is a world leader in
serving science, providing more than 245,000 products and services to research,
healthcare, industrial, educational and government customers in 145 countries.
The Company serves as a one-stop source for the scientific and laboratory needs
of its customers, supplying a broad product offering of leading brands of
instruments, research chemicals, clinical consumables, diagnostics, laboratory
workstations and other laboratory supplies. The Company's marketing efforts are
spearheaded by The Fisher Catalog, which has been a standard reference for the
scientific community worldwide and has been published for over 89 years. The
Company provides integrated supply services for the procurement of maintenance,
repair and operating ("MRO") products and other basic supplies and also
develops and markets software for electronic commerce. For the twelve months
ended September 30, 1997, the Company's total sales and EBITDA were $2,179.3
billion and $164.9 million, respectively.
The Company has sourcing relationships with over 3,200 vendors throughout
the world, including many of the premier manufacturers of laboratory products,
and serves over 150,000 customers. Management estimates that proprietary
products, which consist of self-manufactured products and products sold through
exclusive distribution agreements, accounted for approximately 40% of total
sales in fiscal 1996. Consumable products, such as laboratory supplies and
speciality chemicals, represented approximately 75% of the Company's total
sales in fiscal 1996 and provide a stable base of recurring revenues for the
Company.
Aggregate industry-wide domestic revenues in the Company's core research,
healthcare and industrial markets were approximately $18 billion in fiscal
1996. Growth in these markets has been driven by research and development
spending, and general laboratory activity and expansion. During the past
decade, pressure to reduce procurement costs has led the Company's customers to
demand fewer suppliers, standardized products and integrated sources of supply.
As a result, manufacturers of laboratory supplies and equipment have been
increasingly using national distributors to distribute their products, while
regional and international suppliers of these products have been consolidating.
The mergers in 1995 of Fisher and CMS and of VWR Scientific Products
Corporation and the industrial distribution business of Baxter Healthcare
Corporation are the two most recent examples of this consolidation trend.
Company Strengths
Market Leadership. The Company is a leading global provider of
high-quality scientific instruments, equipment, supplies, chemicals and
services to the scientific research, healthcare, industrial, educational and
governmental markets. Based on industry data, management believes that the
Company is the leading distributor of laboratory products to the U.S.
scientific research market and the number two distributor of clinical
laboratory products to the U.S. healthcare market.
Global Brand. For over 90 years the Company has been serving science and
has established Fisher Scientific as a global brand name. As a result of its
international presence and publication of The Fisher Catalog, the Fisher
Scientific name and family of products and services are well-known and
respected in each of the Company's markets. Management believes that The Fisher
Catalog is considered one of the industry's most comprehensive sources for
laboratory supplies and equipment. In addition, the Company publishes the CMS
Catalog, the Fisher Chemicals Catalog, the Fisher Science Education Catalog and
over a dozen international catalogs. More than one million copies of the
Company's various catalogs are produced and distributed biannually, with
supplements tailored to specific market segments such as biotechnology,
research chemicals, educational materials and occupational health and safety.
The Company's international catalogs support its worldwide presence.
Diverse Customer Base. The Company's customer base includes some of the
world's leading pharmaceutical and scientific research companies representing
approximately 4,200 national reference and independent laboratories, 8,650
hospitals and 146,000 physicians offices. In addition to serving customers in
the traditional scientific-related industries, the Company has developed
relationships with emerging biotechnology and entrepreneurial businesses. No
one customer accounted for more than 3% of total sales in fiscal 1996. The
Company's top ten research customers have on average been doing business with
the Company for over 15 years. The Company expects to benefit from this diverse
and long-standing customer base as these customers continue to consolidate the
number of suppliers they utilize.
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Extensive Sourcing and Manufacturing Capabilities. Management believes
that the Company's global sourcing and manufacturing capabilities enhance its
ability to offer its customers the broadest product offering and the best
price/quality relationship. The Company has sourcing relationships with over
3,200 suppliers worldwide as well as its own manufacturing plants in the United
States and Europe. Proprietary products, which consist of self-manufactured
products and products sold through exclusive distribution arrangements,
represented 40% of its total sales in fiscal 1996. Proprietary products provide
the Company with increased sourcing flexibility, and its customers with a
complete range of laboratory supplies. The Company generated approximately 16%
of its total sales in fiscal 1996 through the sale of self-manufactured
products such as chemicals, laboratory equipment and laboratory workstations.
In response to the market's increased demand for integrated supply, the Company
established Strategic Procurement Services, Inc. ("SPS") in 1994. SPS provides
procurement outsourcing and integrated supply services, helping to lower client
inventory, acquisition and process costs.
Worldwide Logistics Network. The Company has developed highly automated
and efficient logistics capabilities, one of the critical links between
supplier and customer. The Company's U.S. logistics facilities, monitored and
coordinated by a command center in Pittsburgh, Pennsylvania, supply products
throughout the U.S. in an efficient and timely manner. Fisher's 32 U.S.
distribution facilities are complemented by its international locations,
including distribution centers in Canada, Germany, France, England, Belgium,
Switzerland, the Netherlands, the Czech Republic, Japan, Singapore, Korea,
Malaysia, Mexico and Australia. In addition, the Company uses affiliated
dealers and distributors to supply products in more remote international
locations. Through its worldwide distribution network, the Company distributes
an average of 20,000 items every business day, with products accounting for
more than 90% of total sales in fiscal 1996 shipped to customers within 24
hours of being ordered. Management believes that this combination of global
logistics, distribution and sourcing capabilities distinguishes the Company
from other distributors serving the scientific community.
Technological Leadership. For more than a decade, the Company has made
significant investments in the research, development and implementation of
improved electronic order entry and purchasing systems designed to improve the
procurement processes of the Company's customers. For many of the Company's
customers, procurement costs represent a significant portion of the overall
cost of an order. The Company believes that its ability to combine its
technological leadership and its expertise in distribution has been a key
element to the Company's success. In 1995, the Company created FTG to
commercialize its software and related services developed by Fisher by
capitalizing on the Company's leadership position in distribution and related
technology. FTG is at the forefront of developing, implementing and
commercializing software and related technology to aid organizations in
implementing advanced supply chain-management techniques designed to improve
the efficiency of the procurement processes of customers, and increase access
to and awareness of the Company's product offerings and third party procurement
capabilities and services.
Growing, Recurring and Diversified Revenue Stream. Management believes
that demand for the Company's products and services is driven primarily by
applicable research and development expenditures. According to data published
by the U.S. National Science Foundation (the "National Science Foundation"),
applicable research and development expenditures have grown at a 4.4%
compounded rate over the last ten years. In addition to the stable historical
growth rates in its core markets, the Company also benefits from revenue
diversity across its different end-user markets with approximately 49% of total
sales in fiscal 1996 derived from sales to the U.S. research sector,
approximately 26% to the U.S. healthcare sector and approximately 21% to its
international customers. The Company's revenue stream is also diversified
across its products, with no stock keeping unit (SKU) representing more than
1.5% of total sales in fiscal 1996. The sale of consumable laboratory supplies
and specialty chemicals, which represented approximately 75% of the Company's
total sales in fiscal 1996, provides a stable base of recurring revenues.
Proven and Committed Senior Management Team. Paul M. Montrone, Fisher's
President and Chief Executive Officer, and Paul M. Meister, Fisher's Senior
Vice President and Chief Financial Officer, have a demonstrated track record of
successfully developing significant international businesses, including
Wheelabrator-Frye Inc., AlliedSignal Inc., Henley Manufacturing Corporation,
Wheelabrator Technologies Inc., The General Chemical Group Inc. and Prestolite
Wire Corporation. At Fisher, the management team has generated a 22% compounded
annual return in the Company's stock price since 1991. Messrs. Montrone and
Meister are expected to remain with the Company following the Effective Time.
In addition, Messrs. Montrone and Meister are expected to have a significant
financial commitment and ownership position in the Company after the Effective
Time. In connection
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with the Transaction, Messrs. Montrone and Meister will have, and are expected
to exercise, an option to retain an equity interest of approximately $29
million representing substantially all of their holdings in Fisher. Certain
other members of management are expected to retain up to an additional $30
million of equity, which when combined with the holdings of Messrs. Montrone
and Meister, totals approximately $59 million, or 14.9% of the Fisher Common
Stock outstanding immediately following the Effective Time.
Business Strategy
Realize Benefits from Acquisitions and Investments.
Healthcare Acquisition. In October 1995, Fisher dramatically increased its
presence in the U.S. healthcare market by acquiring the U.S. clinical
laboratory business of Fisons plc. ("Fisons") operating under the name CMS. The
Company's strategy is to continue to integrate its existing research
distribution network with the CMS network, and leverage this infrastructure and
the Company's distribution expertise to further penetrate the healthcare
segment. To date, Fisher has fully integrated the sales force and back office
functions and expects to continue to integrate the remaining distribution and
customer service facilities. Management expects the Company to benefit from the
continued integration of these businesses into the existing distribution and
manufacturing infrastructure.
International Investment. Among its competitors, management believes that
the Company is one of a few distributors with integrated global logistics
capabilities. As a result, the Company is in a strong position to capture the
growth of research and healthcare spending in international markets. By
focusing on the needs of multinational, regional and local customers, and by
making strategic investments internationally through acquisitions, joint
ventures and agency agreements, the Company has increased its international
business fourfold during the last five years to approximately $450 million. The
Company supports its international growth through a network of distribution
facilities in 14 countries and an expanding network of logistics facilities in
Korea, Malaysia, Singapore, China and Mexico. Although the Company's largest
international operations, Fisher Scientific U.K., Ltd. and Fisher Canada,
Limited, are currently profitable, the Company's consolidated international
operations are currently unprofitable as a result of the investment spending
and start-up costs incurred to develop distribution and logistics capabilities
in rapidly developing markets such as Asia and South America. Management
believes, however, that the Company's consolidated international operations
will contribute to the Company's overall profitability over the next few years
as its global distribution network becomes fully developed and sales reach the
level required to cover market development costs.
Generate Growth Opportunities.
Develop Fisher Technology Group. The Company plans to further develop its
electronic-commerce and advanced procurement systems, particularly those that
strengthen its participation in the Internet and intranet marketplace. FTG was
formed in 1995 to develop and market procurement systems and electronic
commerce solutions to both purchasing organizations and manufacturers. The
Company has developed a number of proprietary services including ProcureNet, a
public Internet mall for business-to-business transactions where more than
300,000 items and approximately 3,000 catalog pages can be browsed, which
received the Gartner Group award in 1997 for best Internet architecture, and
CornerStone, an intranet-based system which allows buyers and suppliers to
create public or private web sites to support their business-to-business
transactions. FTG has entered into a cooperative marketing agreement with IBM
Corporation, pursuant to which IBM will market and sell ProcureNet and
CornerStone to its customers. FTG has also entered into a cooperative
applications initiative to jointly design and develop user interfaces to allow
CornerStone to be used with Oracle Corporation's suite of products. The Company
has invested in the development of FTG as a stand-alone business unit, and as a
result, the operation is currently unprofitable. Management believes that FTG
is positioned to experience further sales growth over the next few years, which
should enable FTG to develop the critical mass necessary to achieve
profitability.
Leverage Global Logistics. The Company continues to evaluate ways to
leverage its global logistics infrastructure and its distribution expertise
into related markets. For example, the Company developed SPS, which allows
customers to outsource the procurement function and provides integrated supply
services for the procurement of MRO products and other basic supplies. The
Company plans to continue to focus on growth through acquisitions, especially
in the more fragmented safety and MRO markets. Furthermore, the Company also
expects to selectively expand its self-manufactured product line in profitable
niche categories.
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Continue to Pursue Additional Cost Saving Opportunities.
Completion of 1995 Restructuring Plan. The plan of restructuring (the
"1995 Restructuring Plan") initiated in the third quarter of 1995 was
implemented to reduce the cost of Fisher's global logistics, customer service
and administrative functions. The 1995 Restructuring Plan, which is expected to
be completed over the next few years, is designed to (i) eliminate redundant
administrative functions, (ii) reorganize the research sales force and (iii)
consolidate and relocate certain logistics and customer service systems and
functions throughout the world. Management believes that there are additional
cost savings which have yet to be realized from this consolidation and
reorganization. As of September 30, 1997, the Company had integrated the sales
force and back office functions, and closed or consolidated 13 logistics
centers, reducing the number of U.S. logistics centers to 32.
Management is also considering a new plan to restructure certain
businesses within the United States and internationally and expects to finalize
the plan in the last quarter of 1997. The plan includes the closure of
additional U.S. warehouse and customer service locations not included in the
1995 Restructing Plan and an evaluation of international businesses not meeting
profit expectations, both of which would result in a reduction of the company-
wide workforce. If the plan is adopted, charges to be recorded in the fourth
quarter are estimated to range from $50 million to $60 million of which
approximately two-thirds represents non-cash charges.
Improve Efficiencies. Fisher management has identified potential
additional cost savings resulting from logistics, marketing, sales and
procurement initiatives. These include (i) process improvements which should
increase warehouse efficiencies, improve order fill rates and reduce
distribution and logistics expenses, (ii) improved procurement and sourcing
alternatives and (iii) increased use of telesales and electronic ordering to
service accounts.
The Company's business strategy following the Merger is generally expected
to be similar to its current strategy. For certain factors affecting the
Company's ability to pursue its post-Transaction business strategy, see "RISK
FACTORS--Difficulty in Executing Post-Transaction Business Strategy."
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THE SPECIAL MEETING
Matters to be Considered
The purpose of the Special Meeting is to consider a transaction pursuant
to which an investor group led by THL will make an investment in Fisher and
vote upon a proposal to approve and adopt the Merger Agreement entered into
between FSI and Fisher as it relates to the Merger. At the Special Meeting,
Fisher stockholders will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement by and between Fisher and FSI.
Transactions of the Company which are contemplated by the Merger Agreement
which will occur following the Stockholder Meeting include (i) actions to cause
the Merger to become effective, including the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the treatment
of shares of the Company and FSI in the Transaction (see "THE
TRANSACTION--Transaction Consideration; Election Procedures" and "--FSI Stock
and Fisher Common Stock Ownership Following the Transaction"), (iii) the
treatment of Options in the Merger (see "THE TRANSACTION--Effect on Employee
Stock Options and Employee Benefit Matters" and "--Interests of Certain Persons
in the Transaction"), (iv) recapitalization of certain of the Company's
indebtedness (see "THE TRANSACTION--Transaction Financing"), (v) certain
agreements relating to certain employee benefit arrangements pursuant to which,
following the Effective Time, the Company and the Surviving Corporation will
honor certain employment, severance and bonus agreements and arrangements to
which the Company is a party and, for two years following the Effective Time,
generally will continue compensation programs and similar plans (see "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Employee Benefit Arrangements"), and (vi)
certain standard matters relating to director and officer indemnification and
insurance (see "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification;
Directors' and Officers' Insurance"). Stockholders are only being asked to vote
upon the approval of the Merger Agreement as it relates to the Merger and are
not being asked to consider and vote upon the other aspects of the Transaction
including the recapitalization of the Company's existing indebtedness or the
1998 Equity and Incentive Plan. However, the Equity Investors, who will control
the Company following the Effective Time, have agreed to take actions necessary
to cause such plan to be approved by stockholders following the Effective Time.
If the Merger Agreement is approved by the stockholders of Fisher, the
Equity Investors shall purchase shares of FSI and receive in exchange (i) an
aggregate of up to 6,507,772 shares of FSI less the amount if any, by which (A)
the aggregate number of shares actually retained by existing stockholders
(including Eligible Employees) exceeds (B) 746,114 which amount may not exceed
310,881, and (ii) the Equity Warrants. The Equity Investors will not purchase
the Equity Warrants for cash but will receive the Equity Warrants in
consideration for the commitment to purchase the Cumulative Preferred Stock.
FSI will then merge with and into Fisher, and each share of Fisher Common Stock
issued and outstanding immediately prior to the Effective Time (other than (i)
shares of Fisher Common Stock held by Fisher or any wholly owned subsidiary
thereof and (ii) shares of Fisher Common Stock, the holders of which have duly
perfected their appraisal rights) will be entitled, with respect to each share
of Fisher Common Stock, at the election of the holder and subject to the terms
described herein, either (a) to receive in an exchange $48.25 in cash or (b) to
retain one fully paid and nonassessable share of Fisher Common Stock. The total
cash consideration is $959.3 million, assuming all eligible Options are
exchanged for Fisher Common Stock and shares are not issued pursuant to the
Eligible Employee Pool. The shares of FSI common stock held by the Equity
Investors shall, pursuant to the Merger, by converted into up to 6,507,772
shares of Fisher Common Stock. The Merger Agreement provides that existing
stockholders (including employees of the Company) must retain exactly 746,114
shares of Fisher Common Stock in the Standard Pool in the Transaction. The
Merger Agreement also provides that, in addition to participating in the
Standard Pool, Eligible Employees are entitled to retain up to an additional
310,881 shares of Fisher Common Stock in the Eligible Employee Pool in the
Transaction and exchange outstanding options for up to 909,392 shares of Fisher
Common Stock in the Transaction pursuant to the Option Conversion. Although
existing stockholders and Eligible Employees will be entitled to make an
election pursuant to the terms of the Merger Agreement to either receive cash
or retain shares, existing stockholders (including Eligible Employees) with
respect to the Standard Pool, and Eligible Employees with respect to the
Eligible Employee Pool, will be subject to having a portion of their shares not
treated in accordance with their election. As described more fully under "THE
TRANSACTION--Transaction Consideration; Election Procedures", all elections to
either receive cash or retain shares may be subject to a proration procedure
based on the elections made by other existing stockholders or Eligible
Employees (for instance, if existing stockholders (including Eligible
Employees) elect to retain more than 746,114 shares of Fisher Common Stock,
then some shares
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of Fisher Common Stock which were submitted for retention shall, instead, be
converted into cash pursuant to the exchange with the Company covered by the
Merger Agreement). The shares of Fisher Common Stock to be owned by the Equity
Investors immediately following the Effective Time, excluding the Note
Warrants, Equity Warrants and management options, will represent a minimum of
75.9% and a maximum of 79.7% of the Fisher Common Stock expected to be issued
and outstanding after the Transaction. Including the Note Warrants (fully
retained by the lenders), Equity Warrants (fully retained by the Equity
Investors) and the full issuance of management options, a minimum of 71.3% and
74.2% of the outstanding shares of Fisher Common Stock, including shares
underlying warrants and options, will be held by the Equity Investors following
the Transaction (see "THE TRANSACTION--Conversion of Stock").
Immediately after the Effective Time, 8,163,278 shares of Fisher Common
Stock are expected to be issued and outstanding. The Merger Agreement
(including the principal exhibits thereto) is attached to this Proxy
Statement/Prospectus as Annex I. See "THE TRANSACTION" and "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT." The Board of Directors of Fisher has, by unanimous
vote of those members attending and voting, approved the Merger Agreement in
its entirety and recommend that the Company's stockholders vote FOR approval of
the Merger Agreement as it relates to the Merger.
Required Votes
The affirmative vote of stockholders holding 10,178,383 shares of Fisher
Common Stock, being a majority of the shares of Fisher Common Stock entitled to
vote thereon, is required to adopt and approve the Merger Agreement as it
relates to the Merger.
As of December 12, 1997, directors and officers of the Company, their
affiliates and associates and certain of their relatives and advisers,
collectively owned of record 406,780 shares (approximately 2.0%) of the
outstanding Fisher Common Stock. All of such persons are expected to vote their
shares of Fisher Common Stock in favor of the resolution to approve and adopt
the Merger Agreement as it relates to the Merger.
Voting and Revocation of Proxies
Shares of Fisher Common Stock that are entitled to vote and are
represented by a Proxy properly signed and received at or prior to the Special
Meeting, unless subsequently properly revoked, will be voted in accordance with
the instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares of Fisher Common Stock represented
by such Proxy will be voted FOR the proposal to approve and adopt the Merger
Agreement. The Board of Directors of Fisher is not currently aware of any
business to be acted upon at the Special Meeting other than as described
herein. If, however, other matters are properly brought before the Special
Meeting or any adjournments or postponements thereof shall occur, the persons
appointed as proxies will have discretion to vote or act thereon in accordance
with their best judgment. The persons appointed as proxies may not exercise
their discretionary voting authority to vote any Proxy in favor of any
adjournments or postponements of the Special Meeting if such proxy contains an
instruction to vote against the approval of the Merger Agreement.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) attending and voting in person at the Special
Meeting, (ii) giving notice of revocation of the Proxy at the Special Meeting,
or (iii) delivering to the Secretary of Fisher (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the Proxy
previously executed. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a Proxy. All written notices of revocation
and other communications with respect to revocation of proxies should be
addressed as follows: Fisher Scientific International Inc., Liberty Lane,
Hampton, New Hampshire 03842, Attention: Secretary, and must be received before
the taking of the votes at the Special Meeting.
Record Date; Stock Entitled to Vote; Quorum
Only holders of Fisher Common Stock at the close of business on November
21, 1997 will be entitled to receive notice of and to vote at the Special
Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote 20,356,764 shares of Fisher Common Stock.
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The presence, in person or by proxy, at the Special Meeting of the holders
of at least 10,178,383 shares of Fisher Common Stock, i.e., a majority of the
shares of Fisher Common Stock outstanding on the Record Date, is necessary to
constitute a quorum for the transaction of business. The affirmative vote of
the holders of 10,178,383 shares of Fisher Common Stock, i.e., a majority of
the votes entitled to be cast by the holders of all outstanding shares of
Fisher Common Stock, is necessary to approve the Merger Agreement. Abstentions
and "broker non-votes" will be counted as present for the purposes of
determining whether a quorum is present but will not be counted as votes cast
in favor of the Merger Agreement. Because the vote on the Merger Agreement
requires the approval of a majority of the votes entitled to be cast by the
holders of all outstanding shares of Fisher Common Stock, abstentions and
"broker non-votes" will have the same effect as a vote against this proposal.
Dissenters' Rights
Holders of Fisher Common Stock who comply with the applicable requirements
of the DGCL may dissent from the Merger and obtain payment for the fair value
of their Fisher Common Stock. See "DISSENTING STOCKHOLDERS' RIGHTS."
Solicitations of Proxies
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers and employees of the Company may
solicit Proxies from stockholders of the Company by telephone, telegram or in
person. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for out-of-pocket
expenses in connection therewith. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for their forwarding of
solicitation material to the beneficial owners of shares held of record by such
persons and the Company will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
Georgeson & Company Inc. will assist in the solicitation of Proxies by the
Company for a fee of $8,000, plus reasonable out-of-pocket expenses.
HOLDERS OF FISHER COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. ONLY HOLDERS OF FISHER COMMON STOCK WHO WISH TO MAKE A STOCK
ELECTION ARE REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION.
SEE "THE TRANSACTION--TRANSACTION CONSIDERATION; ELECTION PROCEDURES."
Availability of Independent Accountants
Representatives of Deloitte & Touche LLP, independent accountants of the
Company, will be present at the Special Meeting, will have the opportunity to
make a statement should they desire to do so and are expected to be available
to respond to appropriate questions.
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THE TRANSACTION
Background of the Merger
In November 1995, Trinity I Fund, L.P. ("Trinity"), an investment fund
affiliated with members of the Bass family of Texas, filed (together with
individual members of the Bass family and others (collectively, the "Trinity
Group")) information with the Commission disclosing that the Trinity Group held
more than 5% of the outstanding shares of Fisher Common Stock. Following
November 1995, the Trinity Group disclosed in additional public filings that it
had further increased its ownership position in the Company. During this
period, the Trinity Group indicated that it held its shares of Fisher Common
Stock for investment purposes but that it would seek to engage the Company's
management in discussions regarding aspects of the Company's business.
From November 1995 through May 1997, representatives of the Trinity Group
periodically contacted the Company's investor relations department for general
information and updates regarding the Company's business in a manner similar to
the contacts between the Company and other large stockholders of the Company.
In May 1997, the Trinity Group disclosed in public filings, among other
things, that it held a 7.3% ownership position in the Company, that one of its
members intended to seek governmental approval to acquire up to 25% of the
shares of Fisher Common Stock and that its members intended to withhold their
votes for election of the Board at the Company's May 13, 1997 Annual Meeting of
Stockholders to "register their dissatisfaction" with the Company. The Trinity
Group's filing indicated an intent to take steps to address what the Trinity
Group characterized as disappointing performance by the Company.
On May 2, 1997, a representative of Trinity contacted Fisher and requested
that representatives of Trinity be permitted to meet with the Board of
Directors of the Company (the "Board"). At that time, Trinity's representative
declined to discuss Trinity's intentions with respect to Fisher or the
substance of the matters to be discussed with the Board. Following this initial
conversation, additional conversations relating to scheduling and travel
arrangements occurred, but no substantive discussions were held and Trinity's
representatives declined to identify the matters to be brought before the Board
or to provide an agenda.
On June 4, 1997, the members of the Board, together with members of
management, Wachtell, Lipton, Rosen & Katz, the Company's special outside legal
counsel, met with representatives of Trinity. At that meeting, Trinity
delivered an unsolicited proposal (the "Trinity Proposal") that contemplated a
recapitalization of the Company in which stockholders who surrendered their
shares would receive $47 to $48 in cash per share or, in the alternative, a
cash merger transaction in which the Company's stockholders would receive the
same consideration. The following day, the Company issued a press release
reporting that the Board and its legal counsel and investment bankers were
evaluating the Trinity Proposal.
On June 9, 1997, the Board met with management and the Company's outside
legal counsel and investment bankers to discuss issues relating to the Trinity
Proposal. At that meeting, the Board, in light of, among other things, the
Trinity Proposal and the Trinity Group's accumulation of shares of Fisher
Common Stock, adopted a Preferred Share Purchase Rights Plan (the "Rights
Agreement") in order to ensure that the Board would have flexibility in
pursuing its goal of maximizing shareholder value. Also at that meeting, the
Board formally ratified the retention, as of June 4, 1997, of Lazard Freres and
Salomon Brothers as its investment bankers to assist the Board in its
evaluation of the Trinity Proposal and other strategic alternatives, and
authorized Lazard Freres and Salomon Brothers to inquire, on a confidential
basis, whether select firms might be interested in pursuing a transaction with
the Company.
On June 23, 1997, the Board met to continue its review of the Company's
alternatives in light of the Trinity Proposal. At that meeting, the Company's
investment bankers reported on their activities to date in gathering
information on the level of interest of various third parties in pursuing a
possible transaction with the Company. Lazard Freres and Salomon Brothers
discussed various types of transaction structures, such as a sale of the entire
Company, leveraged buyouts, recapitalization, and leveraged share repurchases,
and financial valuation analyses which in their opinion would be relevant in
evaluating proposals such as the Trinity Proposal. The analyses reviewed were
similar to those reviewed in connection with the evaluation of the Transaction
and are described in "THE TRANSACTION--Opinions of the Company's Investment
Bankers," and included comparable public company trading analysis, selected
acquisition transactions analysis, a leveraged buy-out/recapitalization
analysis, a leveraged share repurchase analysis and a discounted cash flow
valuation analysis. The assumptions and limitations
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relating to these analyses, including the information received, the reliance
upon the accuracy and completeness of such information, and the assumption that
financial forecasts reflected the best available estimates of management, were
similar in all material respects to those described in "THE
TRANSACTION--Opinions of the Company's Investment Bankers." Following this
presentation, the Board discussed the appropriate long-term strategy for the
Company, and concluded that its investment bankers should, and the Board
instructed them to, conduct a more formal investigation of third-party interest
in order to provide additional information for the Board's ongoing evaluation.
Following the June 23 meeting, the Company's investment bankers contacted
approximately 40 potential strategic buyers (manufacturing and service
companies) and approximately 12 potential financial buyers of the Company to
determine their interest in receiving non-public information concerning the
Company so that they could more fully evaluate the Company. Eight of those
parties contacted, including, on June 23, 1997, THL, executed customary
confidentiality agreements with the Company in order to receive non-public
information for evaluation purposes.
Between June 23 and July 16, 1997, the Company's management and its
investment bankers met with each of these parties and provided them non-public
information concerning the Company. In the course of these meetings, members of
the Company's management made clear to each potential buyer management's desire
to seek a transaction that was in the best interests of the Company's
stockholders. Certain potential transaction partners asked whether they could
have the opportunity to negotiate arrangements with members of the Company's
management in order to ensure management's participation in a transaction. In
response, the Company's management stated that they would remain flexible and
do whatever was in the best interests of the Company and its stockholders, but
that no substantive discussions regarding arrangements for management's
retention or participation could take place until such time, if any, as all of
the material terms of a definitive transaction were agreed upon. Management's
position in part was determined by the Board's direction that all qualified
third parties be given a meaningful opportunity to participate so that the best
possible transaction for the Company's stockholders could be achieved. Of the
entities with whom the Company's management held discussions, three parties,
including THL, delivered oral indications of interest to the Company's
investment bankers as to the type of transaction such party would be willing to
pursue and the range of values such party would be willing to consider. All
three of the parties submitting oral indications of interest were well-known
financial buyers of the type frequently referred to as "leveraged buyout
firms." Each such firm proposed a merger transaction structured in a manner
similar to the Transaction, including the ability of existing stockholders to
retain a small equity stake in the Company, and contemplated the incurrence by
the Company of a substantial amount of indebtedness. The potential values of
the per-share cash consideration proposed ranged from $48 to $51.50. However,
each such firm told the Company's investment bankers that the ranges of values
indicated were very preliminary, were subject to completion of their respective
due diligence investigations of the Company, and were subject to revision or
complete withdrawal for any reason. As such, the investment bankers advised the
Company's management that it could rely on such ranges only generally, and
could not regard such ranges as representing prices that could or would be
obtained in an actual transaction. Of the two other oral indications of
interest received (i.e., in addition to the indication of interest received
from THL), one such indication of interest contemplated an identical structure
to the Transaction with a proposed per-share cash price of $51.50, aggregate
pro forma indebtedness of approximately $1.1-1.3 billion and the ability of
existing stockholders to retain approximately 3% of the outstanding Fisher
Common Stock. The other such indication of interest contemplated an identical
structure to the Transaction with a proposed per-share cash price of $48.00 and
the ability of existing stockholders to retain approximately 5-7% of the
outstanding Fisher Common Stock. No other material terms were provided in such
oral indications (including that provided by THL). The terms of the oral
indications were not negotiated. No negotiations were held with either of the
parties other than THL either before or after receipt of the Thomas H. Lee
Proposal (as defined below), and the Board believes that in light of the
indications of interest received from the other two parties, the THL Proposal
and the Transaction as contemplated by the Merger Agreement (including the
Merger) represent the best available course of action for the Company.
On July 16, 1997, the Board met to review the status of the discussions
with third-parties and the indications of interest received. The Board, upon
consultation with its legal counsel and investment bankers, concluded that the
levels of interest indicated by the potential transaction partners warranted
further investigation so that, in light of the Trinity Proposal, the Board
could make a fully informed decision as to the appropriate long-term strategy
for the Company, including whether or not the Company should pursue a
transaction involving a change of control
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with a third party at that time. As a result, the Company's management and its
advisors were instructed to solicit formal bids from the three parties that had
expressed interest in pursuing such a transaction.
On July 21, 1997, the Company's legal counsel and investment bankers
delivered a draft merger agreement to each of the three interested parties,
together with instructions that the Company expected such parties to submit a
formal written proposal by 12:00 noon on August 5, 1997, together with a marked
copy of the draft agreement indicating the changes such parties would require
prior to executing the agreement. Management and the investment bankers,
pursuant to the Board's instructions, communicated to each party that any bids
were expected to include the terms of all relevant financing commitments, as
the Board was interested only in transaction proposals with respect to
transactions for which there would be a relatively high level of certainty of
completion.
Between July 21 and August 4, 1997, the Company and its legal counsel and
investment bankers assisted each of the three parties in their respective due
diligence investigation of the Company, and the Company's management made
formal presentations to each of the three parties at the Company's headquarters
concerning the operations and financial condition of the Company.
On August 4, 1997, the Company's legal counsel and investment bankers
telephoned Thomas M. Taylor of Trinity, and offered Trinity, subject to the
execution of a customary confidentiality agreement in the same form offered to
other interested parties, the opportunity to receive non-public information
from the Company and to make its best possible proposal in connection with a
possible transaction. The Company's legal counsel indicated that it was
prepared to send a proposed form of confidentiality agreement immediately. Mr.
Taylor indicated that Trinity would consider the Company's offer. Shortly
thereafter, an associate of Mr. Taylor called the Company's legal counsel and
requested that the Company send the draft confidentiality agreement for Trinity
to review. The draft agreement, which was substantially identical to the draft
agreement executed by THL and each of the seven other parties that had entered
into confidentiality agreements with the Company, contained customary
provisions regarding the preservation of confidentiality of non-public
information provided by the Company, as well as a customary covenant that would
restrict for two years the ability of the party receiving such information to
acquire securities of the Company, to make transaction proposals regarding the
Company and to otherwise seek to influence control over the management of the
Company unless previously requested by the Company to do so. Later that
evening, Trinity informed the Company's legal counsel that it was reviewing the
agreement and would respond in the morning. On Tuesday morning, August 5, 1997,
a representative of Trinity called the Company's legal counsel and indicated
that Trinity was not interested in signing the confidentiality agreement or in
receiving non-public information concerning the Company in order to participate
in a sale process. No other condition was imposed upon Trinity for the receipt
of Company information, and Trinity did not attempt to negotiate or otherwise
request changes to the draft confidentiality agreement.
Later on August 5, 1997, THL submitted a proposal (the "Thomas H. Lee
Proposal") to the Company that contemplated a recapitalization of the Company
in the form of a merger with FSI in which the Company's stockholders would,
subject to proration, be able to elect to receive, with respect to each share
of Fisher Common Stock, $50.50 in cash or one retained share of Fisher Common
Stock. The Thomas H. Lee Proposal included detailed financing commitments
covering all aspects of the equity and debt financing that would be required in
connection with such proposal. Following receipt of the Thomas H. Lee Proposal,
the Company's management and advisors began evaluating the Thomas H. Lee
Proposal and contacted representatives of THL to request a meeting.
At approximately 9:00 p.m. on the evening of August 5, 1997,
representatives of THL, including advisors and potential financing sources, met
with members of the Company's management and its legal counsel and investment
bankers. At that meeting, the Company's management and advisors asked questions
about the Thomas H. Lee Proposal and requested that THL consider making its
best and final offer prior to the scheduled meeting of the Board the next
morning. Management and the Company's advisors also requested that THL consider
certain modifications to some of the contractual provisions that it had
included with its formal proposal, including, as discussed below, the
elimination of any representations or warranties relating to the possible
effects of the strike by UPS workers which had begun the day before. The
Company's advisors indicated that they expected that the Board would authorize
them to negotiate with the party whose proposal was the best in terms of price
and certainty of financing and completion.
Early on August 6, 1997, a representative of THL contacted the Company's
advisors to inform them that THL was sending revisions to its proposed form of
merger agreement to the Company's counsel and that THL was prepared to increase
the cash portion of its offer to $50.75.
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At a meeting on the morning of August 6, 1997, the Board received
presentations from its legal counsel and investment bankers and evaluated its
alternatives. The investment bankers reviewed financial and comparative
analyses of the type described in "THE TRANSACTION--Opinions of the Company's
Investment Bankers," including comparable public company trading analysis,
selected acquisition transaction analysis, a leveraged buy-out/
recapitalization analysis, a leveraged share repurchase analysis and a
discounted cash flow valuation analysis, and compared these analyses to a cash
price of $50.75 per share. The assumptions and limitations relating to these
analyses, including the information received, the reliance upon the accuracy
and completeness of such information, and the assumption that financial
forecasts reflected the best available estimates of management, were similar in
all material respects to those described in "THE TRANSACTION--Opinions of the
Company's Investment Bankers." The Company's legal counsel reviewed with the
Board the legal standards applicable to its review of the proposed transaction,
including the duties of care and loyalty owed to the Company and its
stockholders, and also reviewed for the Board the regulatory process that would
apply to the transaction, including required filings with the Commission. The
Company's management and advisors reviewed the terms of the draft merger
agreement that had been provided to the three interested parties, and described
the proposed transaction and the changes THL had requested to the draft merger
agreement. At this meeting, each of Lazard Freres and Salomon Brothers advised
the Board that it was prepared to render an opinion to the Board to the effect
that, as of that date, and based upon the matters considered, the assumptions
made and limitations on the review undertaken as reviewed with the Board and of
a similar type as those matters, assumptions and limitations disclosed in "THE
TRANSACTION--Opinions of the Company's Investment Bankers" in connection with
the September 11, 1997 opinions of the investment bankers and in the texts of
those opinions, which are attached hereto as Annex II, the consideration to be
received by the holders of Fisher Common Stock pursuant to the Merger Agreement
taken as a whole was fair to the Company's stockholders from a financial point
of view. At the conclusion of the meeting, the Board authorized the Company's
management and its advisors to negotiate with representatives of THL to reach
an agreement on terms that were as favorable as possible to the Company's
stockholders, and instructed management and the Company's advisors that the
final transaction terms would be subject to review by the Board. The Board was
requested to remain available to review any final changes to the terms of the
transaction and, if it were their judgment to do so, approve and adopt the
merger agreement and related matters.
In the course of its deliberations, the Board was advised of and
considered the fraudulent conveyance risks and the relevant legal principles
set forth under "RISK FACTORS--Fraudulent Conveyance Risks." In order to
protect the Company and its stockholders from such risks, the Board sought
advice form its advisors and also insisted that the consummation of the Merger
be conditioned upon the Board and the Company receiving a solvency opinion from
an independent expert as to the solvency of Company after giving effect to the
Transaction.
Following the Board meeting on the morning of August 6, representatives of
the Company held several conversations with representatives of THL concerning
what the Company's management considered to be some of the more important
unresolved contractual issues, principally issues concerning the UPS strike,
termination fees, conditions to the Merger and execution of the Merger
Agreement as well as changes to representations made by the Company in the
contract, which changes were designed to limit the scope of such
representations and hence provide the Company with greater certainty that such
representations would not be breached prior to consummating the transaction.
Early in the afternoon of August 6, representatives of THL contacted the
Company's advisors and indicated that THL would be willing to increase the cash
portion of its offer to $51.00 and further indicated that they felt that THL
could offer concessions on some of the contractual points discussed earlier in
the day.
Later on August 6, 1997, representatives of the Company and THL and their
respective legal counsel and investment bankers met continuously and negotiated
the provisions of the Merger Agreement, including the proposed financing
commitments THL had offered to provide. After the material financial terms and
structure of the proposed transaction were established through negotiation, THL
sought to meet with Mr. Paul M. Montrone, the Company's Chief Executive
Officer, and Mr. Paul M. Meister, the Company's Chief Financial Officer, to
determine whether management would be interested in remaining with the Company
after the Merger; since THL, which is principally a financial investment firm,
indicated its belief that it was important to retain management for the
purposes of providing continuity and stability of the business operations of
the Company, to continue existing relationships with customers and suppliers
and to reassure its financing sources that the operations of the Company would
continue to be managed by knowledgeable and skilled individuals. At the time of
the meeting among THL, Merrill Lynch and Chase Securities and Messrs. Montrone
and Meister to explore the possibility of retaining certain key personnel,
there was no arrangement or understanding between THL and Messrs. Montrone and
Meister concerning future employment or financial arrangements with the
Company. At such meeting, however,
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representatives of THL expressed their view that key personnel should make a
substantial personal economic commitment to the Company's future performance in
the form of an equity investment, which could include the retention of Fisher
stock and options by such personnel, who accordingly would not receive cash in
respect of such securities in the Merger.
At approximately 12:00 a.m. on August 7, 1997, after the Company's and
THL's legal counsel had finalized the form of the proposed merger agreement,
the Board reconvened by telephone, was updated on developments since that
morning, received the oral opinions of Lazard Freres and Salomon Brothers
(which opinions were subsequently confirmed in writing and were based on
similar matters and assumptions as set forth in the texts of their September
11, 1997 opinions attached as Annex II hereto) to the effect that, as of that
date, the consideration to be received by the holders of shares of Fisher
Common Stock pursuant to the Merger Agreement taken as a whole was fair to such
stockholders from a financial point of view, determined that the Merger is fair
to and in the best interests of the Company and its stockholders and, by a
unanimous vote of those present and voting, approved and adopted the Original
Merger Agreement and the transactions contemplated thereby. Later that day, the
parties entered into the Original Agreement.
At the time of the August 1997 strike by UPS workers, the Company's
management was concerned that a prolonged work stoppage at UPS could have a
serious effect upon the Company's operations. As a result, at the time of
negotiation of Original Agreement, management had sought to eliminate from the
contract any representations or warranties related to the UPS strike but, in
the course of negotiations, such representations had not been eliminated.
Because such representations had not been eliminated and exceptions to the
representations relating to the UPS issue had not been included in the
contract, if the UPS strike were to have a Material Adverse Effect on the
Company (as defined in the Original Agreement), FSI, under the terms of the
Original Agreement, would not be obligated to consummate the Merger. By early
September 1997, the Company's management had been able to analyze the impact of
the August 1997 UPS strike upon the Company's operations, prospects and
financial position in sufficient detail to recognize that the UPS strike would
significantly reduce the Company's sales for the third quarter of the 1997
fiscal year, and had substantially increased operating costs, and was likely to
have ongoing effects on the Company's business because it had distracted the
Company's management and employees from regular responsibilities; among other
things, the Company redeployed members of its U.S. sales force to make
deliveries to customers. All of the foregoing factors resulted in further
decreased revenues and increased costs. Management recognized that, because of
the Company's dependence on UPS, the disruptive effects of the strike upon each
of the Company's then-current deliveries and its relationships with customers,
the Company's limited alternatives in the short term, and the fact that several
of the Company's competitors had not been affected by the UPS strike to the
same degree as the Company, the Company may have lost customers and sales
permanently, which could likely have continuing repercussions upon the
Company's financial condition beyond the third fiscal quarter, although it was
not possible to quantify those effects definitively, particularly with respect
to effects lasting beyond fiscal 1997. Management held this belief in spite of
the fact that the Company had experienced record earnings for the period ended
June 30, 1997.
During the first week of September, members of management informed
representatives of THL of the issues concerning effects of the UPS strike.
Following discussions in the first week and beginning of the second week of
September, representatives of THL requested that the Original Agreement between
FSI and the Company be modified to reflect a per-share cash price of $48.00. At
the time, THL representatives indicated that they believed that to adjust the
price fully to take account of the Company's deteriorating results, the cash
price in the transaction should in fact be several dollars lower than $48.00,
but that it appeared that $48.00 was the minimum price decrease that THL felt
was required in order to obtain the necessary financing for the transaction on
acceptable terms. THL and its financial sources had indicated concerns about
the ability of the Company, based upon its projected year-end results following
the UPS strike, to satisfy acceptable interest coverage tests and other
financial indicators that were expected to be necessary in order to obtain the
required financing under the terms of the Original Agreement.
The Company's management, upon consultation with its investment bankers,
legal counsel and members of the Board, considered its alternatives in light of
the adverse consequences that could result from a failure to obtain financing,
including the possibility that the transaction would not be consummated and
that Company's share price could fall sharply, perhaps to levels well below the
$37.88 per share price prevailing just prior to announcement of the Trinity
Proposal. These alternatives essentially consisted of (i) agreeing to modify
the Original Agreement or (ii) refusing to agree to any modifications and
proceeding with the transaction on the terms originally negotiated. Under the
terms of the Original Agreement, if at the time all of the other conditions to
consummation of the
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transaction had been satisfied or waived, it was determined that a Material
Adverse Effect on the Company had occurred--an occurrence the Board believed
possible in light of the UPS strike--FSI would not be obligated to consummate
the Merger. During these internal discussions, management, its advisors and
members of the Board also considered the possibility that increased uncertainty
concerning completion of the transaction, or a failure to complete it, would
have a further destabilizing effect upon the Company and the ability of its
employees to focus on day-to-day operations and future growth, potentially
resulting in further, serious erosion in the Company's business and
profitability.
After considering its alternatives, management, with the encouragement of
the Board, the members of which had been involved in or kept informed of
management's activities, determined that it would be in the best interests of
the Company and its stockholders to negotiate with THL and ascertain whether a
modified transaction could be achieved on terms acceptable to the Company. On
Tuesday, September 9, 1997, the Company's investment bankers contacted
representatives of THL to indicate that, without conceding the validity of
THL's contention that the per-share cash price should be reduced to $48.00, the
Company would be willing to meet with THL to discuss THL's request.
On Wednesday, September 10, 1997, members of management and its advisors
met with representatives of THL and its advisors to discuss possible
modifications to the transaction. During these negotiations, management and its
advisors sought to minimize the reduction in the cash price being paid in the
Merger while simultaneously seeking to increase the certainty that the
transaction would be consummated. In that connection, management and its
advisors sought, among other things, (i) to eliminate or modify in a manner
favorable to the Company's stockholders the representation in the Original
Agreement regarding the absence of changes having a Material Adverse Effect on
the Company; (ii) to eliminate or reduce the possibility that the effects of
the August 1997 UPS strike or the prospect of the January 1998 UPS strike or
the prospect of the January 1998 UPS pilots strike would give FSI a contractual
opportunity to refuse to consummate the transaction; (iii) to modify the
financing commitments to reduce the circumstances under which the entities
providing such commitments could refuse to provide financing; and (iv) to
extend the length of the financing commitments so as to provide greater
certainty that sufficient time would be available to complete the required
financing transactions. In addition, management sought to reduce or eliminate
the termination fees that would be payable to FSI if the Merger Agreement were
terminated under certain circumstances. Late on September 10, 1997, the parties
came to a tentative agreement to reduce the cash price to be paid in the merger
to $48.25, and also agreed to modify the Original Agreement so as to (i) reduce
the possibility that the effects of the August 1997 UPS strike or the prospect
of the January 1998 UPS pilots strike (but not the actual occurrence of such a
strike) would give FSI a contractual opportunity to refuse to consummate the
transaction; (ii) to modify the financing commitments to reduce the
circumstances under which the entities providing such commitments could refuse
to provide financing; (iii) to extend the financing commitments until January
31, 1998; and (iv) to reduce the termination fees that could be payable to FSI
by $5,000,000. The financing commitments were revised to reflect the reduced
level of borrowings needed to consummate the Merger as a result of the lower
Cash Price. The other terms and conditions of the financing commitments were
substantially unchanged.
On September 11, 1997, the Board met to discuss the proposed modifications
to the transaction. At such meeting, the Board received presentations from its
legal counsel and investment bankers and evaluated its alternatives in light of
the Company's revised prospects following the UPS strike. The investment
bankers reviewed financial and comparative analyses which are summarized in
"THE TRANSACTION--Opinions of the Company's Investment Bankers." The Company's
counsel described to the Board the changes to the Original Agreement
contemplated by the proposed modifications. Following such presentations and
deliberation by the Board, the Board received the oral opinions of Lazard
Freres and Salomon Brothers (which opinions were subsequently confirmed in
writing) to the effect that, as of that date, the consideration to be received
by the holders of shares of Fisher Common Stock pursuant to the Merger
Agreement taken as a whole was fair to such stockholders from a financial point
of view. (The consideration to be received by Fisher stockholders in the
Transaction is the $48.25 per share in cash to be received in respect to
approximately 97% of the shares and the approximately 3% of the shares of
Fisher Common Stock to be retained, on a fully diluted basis) See "THE
TRANSACTION--Opinions of the Company's Investment Bankers" and the texts of the
investment bankers' opinions set forth in Annex II hereto for a discussion of
the matters considered, the assumptions made and the limits of the review
undertaken in connection with the opinions, which were reviewed with the Board.
The Board then determined that the consideration to be received by the
Company's stockholders pursuant to the Merger Agreement (taking into account
the modifications to the transaction and taking into account that stockholders
have the opportunity to retain on a pro rata basis approximately 3% of the
shares of Fisher Common Stock on a fully diluted basis) is fair
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to and in the best interests of the Company and its stockholders and, by a
unanimous vote of those present and voting, approved and adopted the First
Amended Agreement and the transactions contemplated thereby. The Board's
justification of the reduced cash price contemplated by the First Amendment and
its determination as to the fairness of that price were based principally upon
its judgment that accepting a lower cash price in exchange for the contractual
changes described above was in the best interests of the Company's stockholders
in light of the uncertainty as to the effects of the UPS strike on the Company
and the resulting uncertainty that the transaction as originally contemplated
would be consummated, and upon the opinion rendered by its investment bankers
as to the fairness of the reduced consideration to be received by the Company's
stockholders. The Board was of the view that the trading price of the Fisher
Common Stock immediately prior to the First Amendment was higher than the
reduced per-share cash price contemplated by the First Amendment, but did not
believe that fact to be relevant as such trading price reflected the (publicly
known) $51.00 price that had been disclosed previously. Later that day, the
parties entered into the First Amended Agreement.
During the weeks following the execution of the First Amended Agreement,
representatives of THL contacted the Company and repeated their earlier request
that Messrs. Montrone and Meister continue to serve as executive officers of
the Company following the Effective Time and indicated that they now wanted to
formalize arrangements. THL indicated that it felt Messrs. Montrone and Meister
were, for a variety of reasons including their business expertise and
experience with Fisher, well suited, from THL's perspective, to continue to run
Fisher. THL and Messrs. Montrone and Meister discussed possible management
employment arrangements from time to time over the next several weeks, during
which period THL indicated that, if Messrs. Montrone and Meister were to remain
with the Company, THL would expect them to retain a signficant equity stake in
the Company. THL and Messrs. Montrone and Meister also discussed making
provisions to permit other members of management who would remain with Fisher
to retain an equity stake in the Company by granting them stock options, and/or
making provisions for the conversion of their existing options to stock based
on the Cash Price.
During the second week of November, 1997, the Company and FSI tentatively
agreed to provide Messrs. Montrone and Meister with employment contracts and to
grant options to management (including Messrs. Montrone and Meister), all as of
the Effective Time, as described under "THE TRANSACTION--Interests of Certain
Persons in the Transaction." On November 14, 1997, the Board considered
amendments to the First Amended Agreement, primarily to permit Eligible
Employees to receive shares of Fisher Common Stock in respect of their Options,
as opposed to cash as provided in the First Amended Agreement. At its November
14 meeting, the Board received the oral opinions of Lazard Freres and Salomon
Brothers (which opinions were subsequently confirmed in writing) to the effect
that, as of that date, the consideration to be received by the holders of
shares of Fisher Common Stock pursuant to the Merger Agreement (taking into
account the proposed amendments) was fair to such stockholders from a financial
point of view, and the Board determined that the consideration to be received
by the Company's stockholders pursuant to the amended contract was fair to and
in the best interests of the Company and its stockholders and unanimously
approved such amendments. Following the Board's meeting, on November 14, 1997,
the Company and FSI entered into the Merger Agreement.
Purpose of the Transaction; Structure
The purposes of the Transaction are to enable the Equity Investors to make
an investment in the Company and to enable existing holders of Fisher Common
Stock to realize a premium over historical trading prices on the shares of
Fisher Common Stock owned by them without paying sales commissions; and at the
same time, through the election process described in "THE
TRANSACTION--Transaction Consideration; Election Procedures", to afford those
stockholders who wish to do so the opportunity to retain a limited
participation in the Company's future growth. The Equity Investors are making
an investment in the Company because they believe that there is potential for
future value attributable to an investment in the recapitalized Company. FSI
was formed by THL for the purpose of making an investment in the Company by way
of the Transaction. The Transaction allows the stockholders of the Company to
vote as a group and, if approved, and the other conditions to the Merger are
satisfied, provides each stockholder (other than Eligible Employees) with an
equal opportunity to elect to receive the Cash Price or to retain their shares
of Fisher Common Stock. The Transaction has been structured as a merger so that
holders of Fisher Common Stock will have an opportunity to vote for or against
the Merger Agreement prior to any transfer of control. As a result of this
structure, not taking into account Options and upon approval by the holders of
at least a majority of the shares of Fisher Common Stock entitled to vote,
between 94.8% and 96.3% of the Fisher Common
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Stock will be converted in an exchange into the Cash Price and the Equity
Investors will gain control of the Company. In contrast, if the Investor Group
had determined to attempt to achieve this result by way of a first step cash
tender offer followed by a second step merger, the stockholders of Fisher would
have had to tender at least 94.8% (or 96.3% if shares were not retained
pursuant to the Eligible Employee Pool) of their shares in order to achieve
this result.
FOR INFORMATION CONCERNING THE BOARD'S REASONS FOR APPROVING THE MERGER
AGREEMENT AND RECOMMENDING THE TRANSACTION, SEE "THE TRANSACTION--
RECOMMENDATION OF THE BOARD; REASONS FOR THE MERGER." IN MAKING ITS
DETERMINATION, THE BOARD CONSIDERED CERTAIN RELATIONSHIPS AMONG DIRECTORS AND
OFFICERS OF FISHER, ON THE ONE HAND, AND INDIVIDUALS AFFILIATED WITH FSI. SEE
"THE TRANSACTION--CERTAIN POTENTIAL CONFLICTS OF INTEREST."
Advantages of the Transaction
The principal advantage of the Transaction is that it makes available to
holders of Fisher Common Stock an opportunity to realize a premium over the
closing sale price of Fisher Common Stock of $37.88 per share on June 4, 1997,
the date immediately prior to the public announcement of the Trinity Proposal,
although, in that connection, stockholders should be aware that in the past
year (since October 1, 1996), the trading price of Fisher Common Stock has
ranged from $35-1/2 to $50-13/16. At the same time, the Transaction permits
those holders of Fisher Common Stock who wish to do so to retain a limited
portion of their shares in the Company and thus participate in the future
prospects of the Company. See "PRICE OF FISHER COMMON STOCK AND DIVIDENDS."
Recommendation of the Board; Reasons for the Merger
As stated above, the Board has unanimously determined the consideration to
be received by the Company's stockholders pursuant to the Merger Agreement to
be fair to and in the best interests of Fisher and its stockholders.
Accordingly, the Board has unanimously approved and adopted the Merger
Agreement in its entirety; and the Board recommends that holders of Fisher
Common Stock vote "FOR" approval and adoption of the Merger Agreement as it
relates to the Merger. The recommendation by the Board that holders of Fisher
Common Stock approve and adopt the Merger Agreement is not, and should not be
considered to be, a recommendation that stockholders elect to retain or,
alternatively, that stockholders do not elect to retain shares of Fisher Common
Stock held by them in the Transaction.
The decision of the Board to approve, and recommend adoption and approval
by holders of Fisher Common Stock of, the Merger Agreement was the result of a
considered and deliberate process, conducted by the Board over a two-month
period, to seek the greatest possible value for the Company's stockholders in
light of the Trinity Proposal and the Trinity Group's accumulation of shares of
Fisher Common Stock. In the course of reaching its decision to approve the
Merger Agreement and the Transaction, the Board consulted with the Company's
legal counsel and investment bankers and considered the following factors
(which it believed to be all of the relevant material factors):
(a) the historical market prices and trading history of the Fisher Common
Stock;
(b) the fact that the premium over historical trading prices represented
by the $48.25 per share cash price, although lower than the premium
associated with a $51.00 per share price, remained attractive relative to
historical prices both on an intrinsic basis and in light of the Board's
belief that, if the Transaction was not consummated as a result of events
relating to the UPS strike, the trading range of the Fisher Common Stock
could fall to a level below that in effect immediately prior to
announcement of the Trinity Proposal;
(c) the Company's business, financial condition, results of operations,
business strategy and prospects, as well as the uncertainties associated
with those prospects, particularly in light of the deterioration in the
Company's financial condition following the UPS strike;
(d) the fact that Trinity was accumulating shares of Fisher Common Stock
while it was publicly disparaging the performance of the Company and its
management, the potential distraction of management's attention from the
Company's ongoing business that Trinity's actions might create, and the
potential disruption to and cost of dealing with Trinity in a subsequent
proxy or other control contest;
(e) the uncertainties surrounding the availability of financing for the
transaction or the likelihood of closing the transaction, in each case in
light of the deterioration in the Company's financial condition following
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the UPS strike, and the fact that the Merger Agreement, as amended,
increased the likelihood of obtaining financing and consummating the
Transaction in the face of such developments;
(f) the risks inherent in trying to achieve the Company's long-term
strategic plan in light of an immediate return of value to the Company's
stockholders reflected by the Transaction, and the Board's determination,
based in part on analyses performed by the Company's investment bankers,
that it would take at least two to three years of continued successful
operations under the strategic plan to return the same value to
stockholders as they would receive in the Transaction;
(g) the results of the sale process conducted by the Board, including
that while three financial buyers (including THL) had expressed an interest
in pursuing a transaction with the Company, no strategic buyers had been
interested in pursuing a transaction with the Company and that the
Transaction represented the most attractive proposal to result from a
considered and deliberate process to maximize shareholder value;
(h) the fact that while the consideration to be received by stockholders
of the Company will consist of at least 97% cash (not taking into account
Options), the election process contemplated by the Merger Agreement will
afford a minority of stockholders who wish to continue to participate in
the ownership of the Company an opportunity to do so;
(i) the fact that the recapitalization represents a termination of the
equity interests of a substantial majority of the Company's stockholders
and a relinquishment by them of the potential upside in the Company's
future performance at a time when the Company is in the final stages of
completing the integration of acquisitions expected to yield benefits from
synergies;
(j) the terms of the proposed Transaction, including the price to be paid
to holders of Fisher Common Stock, the conditions to the Transaction, the
terms, potential benefits and burdens of and the committed nature of the
financing for the Transaction, the circumstances under which the Merger
Agreement could be terminated and the termination fees payable in
connection therewith, and the fact that the Merger Agreement is subject to
the approval of the Company's stockholders; and
(k) the financial and comparative analyses performed by Lazard Freres and
Salomon Brothers and reviewed with the Board, and the oral opinions of
Lazard Freres and Salomon Brothers delivered to the Board at its September
11 and November 14, 1997 meetings (subsequently confirmed in writing) to
the effect that, as of such dates, the consideration to be received by the
holders of Fisher Common Stock in the Transaction taken as a whole was fair
to the Company's stockholders from a financial point of view. See
"--Opinions of the Company's Investment Bankers."
With respect to factor (c) set forth above, the Board believed that the
uncertainties surrounding the UPS strike made the prospect of a Material
Adverse Effect on the Company a realistic possibility, which in turn made it
possible that the Merger would not be consummated as a result, an outcome which
the Board believed would not be in the best interests of the Company's
shareholders. With respect to factor (f) set forth above, the Board determined
that because there could be no certainty that the Company's strategic plan
could be executed (or if executed, that external market or economic forces
would not diminish the benefits of such plan), it was more desirable for
stockholders to realize the economic benefits afforded by the Merger than to
risk being in an inferior position several years later. With respect to factor
(g), the Board believed that the absence of strategic buyers in the process
would make future financial buyers (if the proposed transaction were not
consummated) less likely to offer the best possible price for the Company, as
they would not be as concerned about the likelihood of a strategic buyer that
could achieve operational synergies or cost savings outbidding them, and also
believed that because of the thorough process the Board and the Company's
management had engaged in, THL's proposal represented the best proposal the
Company was likely to obtain. With respect to factor (h), the Board believed
that the opportunity to retain shares of Fisher Common Stock pursuant to the
Merger Agreement offered stockholders desiring such an opportunity an
additional benefit (though limited by proration) that would not have been
available in a 100% cash transaction, while giving most stockholders immediate
cash value. With respect to factor (i), the Board was conscious of the fact
that by giving up substantially all of the equity in the Company in exchange
for cash, stockholders were also giving up the opportunity to realize future
appreciation associated with stock ownership at a time when such appreciation
could reasonably be expected as a result of the Company's ongoing cost control
and acquisition integration efforts. Notwithstanding that fact, however, the
Board believed that, as noted above, equity ownership also carried with it
certain risks, including the risk that the Company's strategic plan might not
yield its intended benefits, and believed
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that the consideration to be received by stockholders pursuant to the Merger
Agreement outweighed the advantages of 100% continued equity ownership even in
light of such expected future appreciation. With respect to factor (j), the
Board believed that the provisions of the Merger Agreement were beneficial to
stockholders because, among other things, the financial commitments
contemplated by the Merger Agreement enhanced the certainty of completing the
transaction, while the termination provisions set forth in the Merger Agreement
would preserve the Board's opportunity to terminate the agreement upon payment
of a reasonable termination fee to FSI if another party was willing to offer a
better price to stockholders in an alternative transaction. The Board believed
such certainty and flexibility protected the ability of the Board to obtain the
best possible value for stockholders.
The Board's determination that the cash consideration to be received by
the Company's stockholders pursuant to the Merger Agreement is fair to and in
the best interests of the Company's stockholders relates to the Board's view of
the consideration stockholders will receive as a result of the Transaction. As
described above, this determination was based on many factors, but in making
its determination as to fairness, the Board relied heavily upon the fairness
opinions of the investment bankers, who are recognized experts in the area of
evaluating acquisition transactions from a financial point of view to determine
whether they are fair to stockholders. The individual members of the Board also
relied upon their own knowledge of the Company's business, operations and
financial condition, including the factors enumerated above, in making such
determination.
In reaching its determination that the consideration to be received by the
Company's stockholders pursuant to the Merger Agreement is fair to, and in the
best interests of, the Company and its stockholders, the Board took into
account the fact that employees of the Company would in effect receive
disparate treatment from the Company's other stockholders. The Board considered
in that connection that, as a worst case scenario, if the Company's
stockholders were to determine that (in general) they did not wish to retain
shares of Fisher Common Stock, such stockholders could be forced to retain
relatively more shares through proration to the extent that Eligible Employees
chose to retain shares through the Eligible Employee Pool rather than the
Standard Pool (which action would have the effect of forcing more non-employee
shares into the Standard Pool to meet the Standard Retained Share Number). At
the same time, the Board considered that to the extent stockholders deemed the
ability to retain shares desirable, employee stockholders, by virtue of the
Eligible Employee Pool, were given a benefit that was not available to
non-employee stockholders, namely, the ability to retain shares that were not
subject to competition with non-employee stockholder shares through the
Standard Pool proration process. The Board noted, however, that that the
Eligible Employee Pool provisions included in the Merger Agreement made
possible additional employee equity participation which would benefit both the
Equity Investors and those stockholders who retained shares by aligning the
interests of employees with the Company's stockholders. The Board was able to
reach its fairness determination notwithstanding the priority accorded
employees because (i) the Board placed relatively little weight on the retained
equity component of the consideration being offered, (ii) the Board believed
that the aggregate effect on non-employee stockholders of the Eligible Employee
Pool, regardless of whether stockholders ultimately determined that retaining
equity was desirable or undesirable, was not material in relation to the
aggregate cash consideration being offered and (iii) the Board believed that
the availability of equity participation to non-employee stockholders, even at
a reduced level, would still be an attractive alternative to shareholders.
Certain Conflicts of Interest
In reaching its determination to approve the Merger Agreement, the Board
also considered certain relationships between Scott M. Sperling, Managing
Director of THL and Chairman of the Board of FSI, and certain officers and
directors of Fisher. Mr. Sperling serves on the Board of Directors of the
General Chemical Group Inc. ("General Chemical"), is a member of that board's
compensation committee, and according to publicly filed reports beneficially
owns 5,000 shares of General Chemical common stock. Mr. Paul M. Montrone,
President, Chief Executive Officer and a director of Fisher, is Chairman of
General Chemical's board and, according to publicly filed reports, is deemed to
be the beneficial owner of a majority of General Chemical's outstanding common
stock and is therefore General Chemical's controlling stockholder. Mr. Paul M.
Meister, Fisher's Senior Vice President and Chief Financial Officer, is a
director of General Chemical and according to publicly filed reports
beneficially owns 1,500 shares of General Chemical stock. Non-employee
directors of General Chemical, such as Mr. Sperling, receive annual
compensation of $40,000 from General Chemical, plus reimbursement of expenses.
During its deliberations concerning the proposed transaction, the Board
was reminded of and considered the potential impact of the foregoing
relationships upon the negotiations and upon aspects of the proposed
transaction,
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including the potential impact upon employment and other arrangements
concerning Mr. Montrone's and Mr. Meister's continued involvement with Fisher.
In theory, conflicts of interest could exist if any of the foregoing parties
were to use his relationships with one of the other parties to extract a
special benefit to which he might not otherwise be entitled. The Board
determined that such interests would not alter its evaluation of the
transaction or its ability to act in the best interests of the Company's
stockholders. The Board's conclusion in this regard was based upon its
knowledge of the professionalism and experience of the individuals involved, as
well as the Board's view that the economic benefit such individuals received
(in terms of cash payments or equity-based compensation) from serving as
directors of General Chemical and Fisher, particularly in light of such
individuals' overall financial position and other business interests, was not
material. As to the possibility that Messrs. Montrone and Meister might enter
into compensation arrangements pursuant to which they might continue to be
employed by Fisher following the Effective Time (which will be controlled by
the Equity Investors, including THL), the Board noted at the time it was
considering both the Original Agreement and the First Amended Agreement, there
was no agreement or understanding in place as to the terms of any such
employment. The Board also noted that the equity stakes Messrs. Montrone and
Meister held in Fisher greatly exceeded their cash compensation, and believed
(based on this fact as well as their personal experiences with Messrs. Montrone
and Meister) that Messrs. Montrone and Meister's interests were aligned very
closely with those of the Company's other stockholders. At certain instances in
the preliminary stages of the evaluation process, prior to the time that bids
were sought, to ensure a disinterested evaluation of the Company's
alternatives, the Board deliberated without Messrs. Montrone and Meister being
present, although Messrs. Montrone and Meister did participate, in their
capacities as the Company's senior executive officers, in negotiations relating
to the approval of the Merger Agreement. Messrs. Montrone and Meister also
participated in the negotiations relating to their employment arrangements
following the Effective Time, and in negotiations relating to the new stock
option awards and treatment of their stock options and the stock options held
by other members of the Company's management. The Board vote in favor of the
Merger Agreement was unanimous, and no separate vote of disinterested directors
was sought.
Two other members of the Board, Mr. Philip E. Beekman and Mr. Gerald L.
Lewis, also serve on the Board of Directors of General Chemical, and, according
to published reports made available to the Board, Mr. Beekman beneficially owns
5,000 shares of General Chemical Stock and 5,000 restricted units payable in
General Chemical Stock and Mr. Lewis beneficially owns 5,000 restricted units
payable in General Chemical stock.
The Company and the Board will not take the position in ongoing or future
litigation that a vote in favor of the Merger Agreement will estop shareholders
casting such affirmative votes from asserting claims against the Company or the
Board arising out of the Transactions insofar as such claims are based upon
alleged misrepresentations or failures to disclose material facts in connection
with the Transactions. However, depending upon the circumstances of any such
litigation and upon the then-existing state of applicable law, the Company and
the Board may take the position that claims arising out of the Merger Agreement
that do not relate to alleged misrepresentation and/or failures to disclose are
extinguished by virtue of shareholder approval of the Merger Agreement,
including any such claims as may have been asserted by persons who voted in
favor of the Merger Agreement. See also "DISSENTING STOCKHOLDERS RIGHTS."
See "THE TRANSACTION--Interests of Certain Persons in the Transaction."
Opinions of the Company's Investment Bankers
The Company has retained Lazard Freres and Salomon Brothers to act as its
investment bankers with respect to the Merger and related matters. At a meeting
of the Board held on November 14, 1997 each of Salomon Brothers and Lazard
Freres delivered its opinion to the Board that, as of that date, the
consideration to be received by the holders of Fisher Common Stock pursuant to
the Merger Agreement taken as a whole was fair to such stockholders from a
financial point of view. (For purposes of the opinions, the consideration
received pursuant to the Merger Agreement by the holders of Fisher Common Stock
is the cash received and the shares of Fisher Common Stock retained by such
holders and no opinion is expressed as to the consideration received by the
Equity Investors in the Merger.) Under the terms of the Merger Agreement, no
holder of shares of Fisher Common Stock will be required to receive cash for
less than approximately 97% of its shares and to retain more than approximately
3% of its shares in the Transaction (on a fully diluted basis). A holder may
only retain shares of Fisher Common Stock in excess of the approximately 3% of
the shares which would be retained assuming no stockholders elected to retain
shares if such holder voluntarily elected to retain such additional shares in
the Transaction. Therefore, the opinions of
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Lazard Freres and Salomon Brothers do not address the fairness to an individual
stockholder of its retaining in excess of 3% of its shares because the
retention of such shares may occur only at such stockholder's option.
The full texts of the written opinions of Lazard Freres and Salomon
Brothers directed to the Board and dated as of November 14, 1997, which set
forth the assumptions made, matters considered and limits of the review
undertaken in connection with the opinions, are attached hereto as Annex II and
are incorporated by reference. The opinions of Salomon Brothers and Lazard
Freres were delivered to the Board for its use in connection with its
consideration of the Merger Agreement and are not intended to be, and do not
constitute, a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger Agreement or as to whether
such stockholder should elect to receive cash or to retain shares of Fisher
Common Stock in the Transaction. The summary of the opinions of Lazard Freres
and Salomon Brothers set forth herein is qualified in its entirety by reference
to the full texts of the opinions. HOLDERS OF FISHER COMMON STOCK ARE URGED TO,
AND SHOULD, READ THE OPINIONS OF SALOMON BROTHERS AND LAZARD FRERES IN THEIR
ENTIRETY.
In connection with their opinions, Lazard Freres and Salomon Brothers
reviewed and analyzed, among other things, the financial terms and conditions
of the Merger Agreement and certain related documents; certain financial
forecasts and other non-public financial and operating data concerning the
businesses and operations of the Company that were provided by management of
the Company, including the limited available information regarding the adverse
consequences to the Company of the recent strike by certain employees of UPS
(the "Strike Impact"); certain publicly available business and financial
information with respect to certain other companies believed to be comparable
in certain respects to the Company and the trading markets for such companies'
securities; the historical stock prices and trading volumes of the shares of
Fisher Common Stock; and the financial terms of certain business combinations
and acquisition transactions in lines of business believed to be generally
comparable to those of the Company or otherwise considered relevant to the
analysis. Salomon Brothers and Lazard Freres also met with the senior
management of the Company to discuss the past and current operations, financial
condition and prospects of the Company. In addition, Lazard Freres and Salomon
Brothers considered such other information, financial studies analyses and
investigations and financial, economic, market and trading criteria that they
considered relevant.
Lazard Freres and Salomon Brothers each relied upon the accuracy and
completeness of the financial and other information reviewed by it or conveyed
to it in discussions with the Company's management, and has not assumed any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company. Neither Salomon Brothers nor Lazard Freres was opining or providing
any advice with respect to the impact of the Transaction on the solvency,
viability or the financial condition of the Company or its ability to satisfy
its obligations as they become due. With respect to financial forecasts, each
of Lazard Freres and Salomon Brothers has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Company. In that regard, Lazard Freres and Salomon Brothers
noted that management of the Company has not revised its financial projections
for years other than 1997 to reflect the possible Strike Impact, if any, in
light of the current uncertainty as to the nature, magnitude and duration of
any possible Strike Impact after 1997. Therefore, in connection with their
review, Salomon Brothers and Lazard Freres considered the sensitivity of the
Company's financial projections and the analyses to which they are relevant to
various assumptions regarding the Strike Impact after 1997 and, with the
Company's consent, did not independently analyze the likelihood, magnitude,
timing or duration of any such Strike Impact (and they expressed no opinion
with respect to the Strike Impact). (In considering the sensitivity of those of
their analyses after 1997 employing forecasts for years to different
assumptions regarding the Strike Impact after 1997, Salomon Brothers and Lazard
Freres generally considered three scenarios, without assessing the likelihood
of any scenario and without limiting the possibility of other more and less
favorable scenarios regarding the Strike Impact after 1997: no Strike Impact
after 1997, a continuing negative impact in years after 1997 on operating
income equal to approximately one half of the Strike Impact in 1997, and a
continuing negative impact in years after 1997 on operating income equal to the
Strike Impact in 1997.) The management estimate of the Strike Impact in 1997
was a reduction in operating income of approximately $17.8 million from the
amounts originally estimated. See "THE TRANSACTION--Certain Estimates of Future
Operations and Other Information." In rendering their opinions, they assumed no
responsibility for and expressed no view as to such forecasts, the Strike
Impact, or the assumptions on which they are based. In addition, the opinions
do not address the Company's underlying business decision to enter into the
Merger
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Agreement. The opinions of Lazard Freres and Salomon Brothers are necessarily
based on economic, monetary, market and other conditions as in effect on, and
the information made available to them as of, the date of the opinions. The
opinions do not address or imply any conclusion as to the likely trading range
or value of Fisher Common Stock following the Effective Time, which may vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities as well as the terms of the financing for the
Transaction, the operating and financial results and prospects of the Company
and other factors relating to the Company and its lines of business.
In rendering their opinions, each of Salomon Brothers and Lazard Freres
assumed that the Transaction will be consummated on the terms described in the
Merger Agreement, without any waiver or modification of any material terms or
conditions by the Company and that obtaining any necessary regulatory or third
party approvals for the Merger will not have an adverse effect on the Company.
In connection with their opinions, Lazard Freres and Salomon Brothers
performed certain financial and comparative analyses. In connection with the
Board's consideration of proposals involving a change of control of the
Company, including the Trinity Proposal and the proposal for the Transaction,
financial and comparative analyses generally conducted as part of the financial
review of acquisition transactions were considered relevant. These analyses
were (i) public company trading analysis, (ii) selected transactions analysis,
(iii) discounted cash flow valuation analysis, (iv) leveraged
buy-out/recapitalization analysis (which is intended to include the range of
values a financial investor might be willing to pay to acquire all or, as in
the case of the Transaction or other recapitalization transactions, a
controlling and substantial portion of the Company's equity if it were
interested in pursuing such a transaction), (v) leveraged share repurchase
analysis (the purpose of which is to indicate the possible range of values
which might be realized were the Company to seek to enhance short-term value
without a transfer of control to new equity investors by distributing the
proceeds of new debt financing to existing stockholders), (vi) historical stock
price review, (vii) hypothetical implied trading values based upon earnings,
and (viii) a review of the post-Transaction stock. Each of these analyses were
considered relevant to a financial review of the terms of the Merger Agreement
and the strategic alternatives available to the Company. At a number of
meetings of the Board, these analyses were reviewed with the Board. The
material analyses and their findings are summarized below.
Comparable Public Company Trading Analysis. Lazard Freres and Salomon
Brothers reviewed certain publicly available financial and stock market
information relating to nine selected companies in lines of business believed
to be somewhat similar to those of the Company. The companies selected were
Henry Schein, Inc., Physician Sales & Service, Inc., Owens & Minor, Inc.,
Patterson Dental Company, Allegiance Corp., VWR Scientific Products Corp., W.
W. Grainger, Inc., Sigma-Aldrich Corporation, and Vallen Corporation
(collectively, the "Selected Companies"). Lazard Freres and Salomon Brothers
then focused on Allegiance and VWR, as their businesses were considered most
comparable to those of the Company, although it was noted that there were no
public companies with precisely the same mix of businesses or financial
condition as the Company. This analysis indicated that (i) the price earnings
multiples, based on latest twelve months earnings per share, ranged from 17.2x
to 40.8x for the Selected Companies, with a median of 24.5x, and 23.6x and
37.2x for Allegiance and VWR, respectively, as compared to 19.2x and 22.8x for
the Company, excluding and including non-recurring expenses, respectively,
based upon an acquisition price of $48.25 per share for the entire equity
interest (as noted below, the actual value of the non-cash consideration in the
Transaction may vary; however, any holder of Fisher Common Stock desiring to
receive cash for all of his shares of Fisher Common Stock in the Transaction
will receive $48.25 in cash for at least approximately 97% (on a fully diluted
basis) of his shares of Fisher Common Stock and variations in the value of any
retained shares should not significantly impact the analysis), (ii) based on
1997 estimated earnings per share (based on estimates of First Call
Corporation, a data service that monitors and publishes compilations of
earnings estimates produced by selected research analysts regarding companies
of interest to investors, for the Selected Companies and management estimates
for 1997 after taking into account the Strike Impact for the Company), the 1997
estimated price earnings multiples ranged from 16.1x to 32.4x for the Selected
Companies, with a median of 20.4x, and 19.8x and 20.4x for Allegiance and VWR,
respectively, as compared to 21.2x and 25.5x for the Company, excluding and
including non-recurring expenses, respectively, based on an acquisition price
of $48.25 per share for the entire equity interest (and 18.4x and 21.3x for the
Company, excluding and including non-recurring expenses, respectively, based on
an acquisition price of $51.00 per share, the cash price per share provided in
the Original Agreement, for the entire equity interest and before taking into
account the Strike Impact on 1997 estimated earnings and 22.4x and 27.0x for
the Company, excluding and including non-recurring expenses, respectively,
including the effects of the Strike Impact on 1997 estimated earnings), (iii)
the 1998 estimated price
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earnings multiples (based on estimates of First Call Corporation) ranged from
16.3x to 24.0x for the Selected Companies, with a median of 17.7x, and 17.7x
and 16.3x for Allegiance and VWR, respectively, as compared to 15.6x for the
Company based on an acquisition price of $48.25 per share for the entire equity
interest, (iv) the ratio of firm value to latest twelve months revenues ranged
from 0.2x to 3.1x, with a median of 0.9x, for the Selected Companies, and 0.7x
and 0.8x for Allegiance and VWR, respectively as compared to 0.6x for the
Company based on an acquisition price of $48.25 per share for the entire equity
interest, (v) the ratio of firm value to latest twelve months earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the Selected
Companies ranged from 8.7x to 23.2x, with a median of 11.1x, and 8.9x and 11.1x
for Allegiance and VWR, respectively, as compared to 8.2x and 9.2x for the
Company, excluding and including non-recurring expenses, respectively, based
upon a $48.25 per share acquisition price for all shares of Fisher Common
Stock, (vi) the ratio of firm value to latest twelve months earnings before
interest and taxes ("EBIT") ranged from 11.4x to 28.3x, with a median of 15.3x,
for the Selected Companies, and 15.3x and 15.5x for Allegiance and VWR,
respectively, as compared to 11.4x and 13.3x for the Company, excluding and
including non-recurring expenses, respectively, based on an acquisition price
of $48.25 per share for the entire equity interest, and (vi) the ratio of firm
value to estimated 1997 EBITDA (based on estimates from various equity research
reports from major brokerage houses for the Selected Companies and management
estimates for 1997 after taking into account the Strike Impact for the Company)
ranged from 8.1x to 16.0x, with a median of 10.3x, for the Selected Companies,
and 8.1x and 9.1x for Allegiance and VWR, respectively, as compared to 8.4x and
9.2x for the Company, excluding and including non-recurring expenses, based on
a $48.25 per share acquisition price for all shares of Fisher Common Stock (and
8.0x and 8.6x for the Company, excluding and including non-recurring expenses,
respectively, based on an acquisition price of $51.00 per share for the entire
equity interest and before taking into account the Strike Impact on estimated
1997 EBITDA and 8.8x and 9.7x for the Company, excluding and including
non-recurring expenses, respectively, including the effects of the Strike
Impact on 1997 estimated EBITDA). Using both the estimates of First Call
Corporation and projections provided by the management of the Company, Salomon
Brothers and Lazard Freres calculated an implied hypothetical public market
trading range for shares of Fisher Common Stock, taking into account the
possible negative valuation implications from the uncertainty relating to the
Strike Impact suggesting the use of lower multiples to reflect the greater risk
in achieving projected results, based upon an application to the Company's
financial results and projections of price earnings multiples for the Selected
Companies for latest twelve months and 1997, as adjusted to exclude high and
low multiples and otherwise modified to be most applicable to the Company. This
range was from approximately $32.00 to $40.00 per share of Fisher Common Stock.
This implied hypothetical trading range is not necessarily indicative of actual
trading values and this analysis is subject to the same qualifications and
limitations noted below in the description of "Hypothetical Implied Trading
Values Based Upon Earnings" with respect to any estimates of public trading
value.
Selected Transactions Analysis. Salomon Brothers and Lazard Freres
reviewed and analyzed selected publicly available financial, operating and
stock market information relating to seven acquisition transactions in the
scientific and medical equipment supply and distribution industries since March
1992. The transactions reviewed were the Company's acquisition of the principal
businesses of the laboratory supply division of Fisons plc (announced on August
29, 1995), VWR Scientific Products Corp.'s acquisition of certain assets of
Baxter International Inc.'s Industrial and Life Sciences Division (announced on
May 24, 1995), Bain Capital's acquisition of Dade International, the medical
diagnostic business unit of Baxter International (announced on October 3,
1994), Tyco International Ltd.'s acquisition of Kendall International, Inc.
(announced on July 14, 1994), Owens & Minor, Inc.'s acquisition of Stuart
Medical, Inc. (announced on December 23, 1993), Bergen Brunswig's acquisition
of Durr-Fillauer Medical (announced on July 7, 1992), and W.W. Grainger Inc.'s
acquisition of Lab Safety Supply (announced on March 16, 1992) (collectively,
the "Selected Transactions"). Lazard Freres and Salomon Brothers then focused
on the Company's acquisition of certain businesses of Fisons and VWR's
acquisition of assets from Baxter as the transactions most comparable to the
acquisition of the Company. Lazard Freres and Salomon Brothers noted that the
reasons for, and circumstances surrounding, each of the transactions analyzed
were diverse and the characteristics of the companies involved were not
directly comparable to the Company and the Transaction. This analysis indicated
that (i) the ratio of the price paid for the equity of the acquired business to
its latest twelve months net income ranged from approximately 17.3x to 27.0x,
with a median of 21.8x, for the Selected Transactions (and 27.0x and 17.3x for
the Fisons and VWR transactions, respectively) as compared to 19.2x for the
Company excluding non-recurring expenses (22.8x including non-recurring
expenses) based upon an acquisition price of $48.25 per share for the entire
equity interest in the Company (as noted below, the actual value of the
non-cash consideration in the Transaction may vary; however, any holder of
Fisher Common Stock desiring to receive cash
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for all of his shares of Fisher Common Stock in the Transaction will receive
$48.25 in cash for at least approximately 97% (on a fully diluted basis) of his
shares of Fisher Common Stock and variations in the value of any retained
shares of Fisher Common Stock should not significantly impact the analysis),
(ii) the ratio of firm value (the price paid for the equity and the amount of
assumed or refinanced debt) to the latest twelve months EBITDA ranged from
approximately 6.4x to 12.7x, with a median of 9.0x, for the Selected
Transactions (and 10.2x and 9.8x for the Fisons and VWR transactions,
respectively) as compared to 8.2x for the Company excluding non-recurring
expenses (9.2x including non-recurring expenses) based upon an acquisition
price of $48.25 per share for all outstanding shares, (iii) the ratio of firm
value to latest twelve months revenues ranged from approximately 0.2x to 1.8x,
with a median of 0.6x, for the Selected Transactions (and 0.4x and 0.9x for the
Fisons and VWR transactions, respectively) as compared to 0.6x for the Company
based upon a price of $48.25 per share for all shares of Fisher Common Stock,
(iv) the ratio of firm value to latest twelve months EBIT ranged from 6.9x to
15.6x, with a median of 11.0x, for the Selected Transactions (and 15.6x and
10.2x for the Fisons and VWR transactions, respectively) as compared to 11.4x
for the Company excluding non-recurring expenses (13.3x including non-recurring
expenses) based upon a $48.25 price per share for all shares of Fisher Common
Stock, and (v) in the case of the two Selected Transactions involving the
acquisition of publicly-traded companies, the acquisition price per share
represented premiums of approximately 21.2% and 40.4% (with a median of 30.8%)
over the stock price 30 days prior to the public announcement of the
transaction as compared to a premium of 27.4% over the closing market price for
shares of Fisher Common Stock on June 4, 1997, the last full trading day prior
to the first public announcement of the Trinity Proposal, in the case of an
acquisition of all shares of Fisher Common Stock for $48.25 per share. Based
primarily upon the various multiples calculated for the Fisons and VWR
transactions and consideration of the possible negative valuation implications
from the uncertainty relating to the Strike Impact suggesting the use of lower
multiples to reflect the greater risk in achieving projected results, Salomon
Brothers and Lazard Freres derived hypothetical values for a private market or
third party sale to a strategic purchaser for the shares of Fisher Common Stock
ranging from approximately $44.00 per share to $52.00 per share, which range
reflects multiples of firm value to latest twelve months EBITDA for the Company
of between 8.6 and 9.8, times including non-recurring expenses. These values
are not necessarily indicative of trading values or values actually realizable
in connection with any attempt to sell the Company. It was noted that the terms
of the Merger Agreement resulted from a process in which proposals to acquire
the Company were actively solicited and, therefore, are believed to represent
the highest values obtainable in a sale or recapitalization transaction at this
time.
Discounted Cash Flow Analysis. Lazard Freres and Salomon Brothers
estimated the net present value of the future cash flows of the Company as of
year-end 1997 using projections and extrapolations therefrom for the years 1998
through year 2002 and the year-end 2002 terminal value of the Company based
upon a range of multiples of projected year 2002 EBITDA (including estimates
based on projections and extrapolations therefrom based upon various
assumptions relating to the Strike Impact after 1997 ranging from no post-1997
Strike Impact to a continuing impact equivalent to that estimated for 1997). In
conducting this analysis, Lazard Freres and Salomon Brothers applied discount
rates ranging from 10.5% to 12% and terminal value multiples ranging from 6.0x
to 7.5x estimated 2002 EBITDA resulting in terminal firm values ranging from
approximately $1.45 billion to approximately $1.95 billion. This analysis
indicated a discounted cash flow valuation as of year-end 1997 ranging from
approximately $41.55 per share to $57.70 per share of Fisher Common Stock.
(Assuming no post-1997 Strike Impact, this analysis indicated a valuation as of
year-end 1997 ranging from approximately $44.60 to $57.70 per share. Assuming a
Strike Impact resulting in a reduction in operating income of $8.9 million for
each year after 1997, this analysis indicated a valuation as of year-end 1997
ranging from approximately $42.90 to 55.50 per share. Assuming a Strike Impact
resulting in a reduction in operating income of $17.8 million for each year
after 1997, this analysis indicated a value as of year-end 1997 ranging from
approximately $41.50 to $53.75 per share.) It was noted during the presentation
to the Board that, if one applied higher discount rates to reflect risks that
exist regarding the achievement of projected cash flow, lower present value
ranges would result.
Leveraged Buy-out/Recapitalization Analysis. Lazard Freres and Salomon
Brothers prepared an analysis based on projections provided to them by the
Company's management and on the then current economic and market conditions as
to the consideration a leveraged buy-out purchaser might be able to pay to
acquire the Company. A range of possible acquisition prices was derived by
reviewing the estimated return on equity investment which would result from a
leveraged buy-out based upon various assumptions, including the financial
ratios required by the bank financing and high yield debt markets, interest
rates, only the cost savings included in the Company's projections, and the
uncertainty relating to the Strike Impact resulting in an assumed reduction in
debt capacity of $65 million.
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Assuming terminal values at the end of the fifth year following a buy-out
transaction ranging from 7.0x to 8.5x 2002 EBITDA and required internal rates
of return on equity of 20% to 25%, this methodology indicated that a
prospective leveraged buy-out purchaser might be able to pay a maximum price
ranging from approximately $44.00 per share of Fisher Common Stock to
approximately $50.00 per share. This methodology also was considered relevant
to the ranges of maximum value which might be paid pursuant to a
recapitalization transaction, such as the Transaction, in which the existing
stockholders of a company retain a minority investment in the company in a
transaction resulting in a financial purchaser acquiring a substantial majority
of the equity interest in the company. Lazard Freres and Salomon Brothers
cautioned the Board that the actual price which a party would be willing to pay
in a leveraged buy-out or recapitalization transaction was dependent on various
factors not included in this methodology and, therefore, that this analysis was
not necessarily indicative of actual prices realizable or of rates of return on
shares of Fisher Common Stock retained in the Transaction, which rates of
return may be more or less favorable than those indicated in this analysis, are
dependent on many contingencies and, therefore, are speculative.
Leveraged Share Repurchase. Salomon Brothers and Lazard Freres considered
possible pre-tax values which might result if the Company were to pursue a
leveraged recapitalization without the investment of any additional equity by
new investors or otherwise. Based upon management's revised estimate of 1997
financial results and employing assumptions regarding the credit markets
similar to those used in the leveraged buy-out analysis above, a repurchase of
Fisher Common Stock at a cash price of $48.00 per share financed by new debt
was reviewed. This methodology indicated that between approximately 49% and 66%
of the outstanding shares of Fisher Common Stock might be repurchased depending
upon the level of leverage following such repurchase. If the remaining shares
of Fisher Common Stock were valued as a multiple ranging from 6.0x to 7.0x of
the Company's EBITDA after taking into account the uncertainty relating to the
Strike Impact resulting in a reduction in debt capacity and a lower multiple
for the remaining equity, after taking into account the additional debt
resulting from the share repurchase, and assuming a single share of Fisher
Common Stock received a pro rata portion of the cash, the implied range of
values for a single share of Fisher Common Stock resulting from the leveraged
share repurchase according to this methodology is from approximately $32.00 to
approximately $40.00. The actual market value of equity securities following
leveraged recapitalizations depends on numerous factors as noted in "Review of
Post-Merger Common Stock" below and, therefore, this methodology is not
necessarily indicative of the values actually realizable from a leveraged
recapitalization.
Historical Stock Price Review. Salomon Brothers and Lazard Freres reviewed
information regarding historical price and trading volume for shares of Fisher
Common Stock. As part of this review, the forward price-earnings multiple for
the Fisher Common Stock was compared to that for the Standard & Poor's 400
Index based on daily closing prices from July 29, 1994 through August 6, 1997
the last day before public announcement of the Original Agreement, as reported
by Factset Data Systems. This review showed that the multiple applied to the
Fisher Common stock was lower than that of the S&P 400 Index, with the average
for the Fisher Common Stock over this time frame being approximately 15.6x and
that for the S&P 400 Index being approximately 19.3x. It also was noted that
the 52-week trading range for shares of Fisher Common Stock was from a closing
low of $35.50 per share on May 23, 1997 to a closing high of $50.81 per share
on August 4, 1997 and that the closing market price on June 4, 1997, the last
trading day before it was publicly announced that Trinity and related parties
had proposed a recapitalization transaction with the Company, was $37.88. Those
shares of Fisher Common Stock being converted into the right to receive $48.25
per share in cash pursuant to the Transaction would receive a premium of 35.9%
to this 52-week closing low and of 27.4% to the June 4, 1997 closing price.
Hypothetical Implied Trading Values Based Upon Earnings. Salomon Brothers
and Lazard Freres calculated the present value, as of September 30, 1997, of
the implied hypothetical future public market trading values of Fisher Common
Stock obtained by multiplying projected stand alone earnings per share for the
years 1998, 1999 and 2000 based on information provided by the Company
(including estimates based on projections and extrapolations therefrom based
upon various assumptions relating to the Strike Impact after 1997 ranging from
no post-1997 Strike Impact to a continuing impact equivalent to that estimated
for 1997) by various price to earnings ratios generally within the historical
range. Using price to earnings multiples ranging from 14x to 18x applied to
forward year earnings and equity discount rates of 15% and 20%, the present
value of such implied hypothetical future trading values as of September 30,
1997 ranged from $34.80 to $58.20 per share (and using a price earnings
multiple of 15.6x, ranged from approximately $39.15 to $50.45). (Using price to
earnings ranging from 14x to 18x applied to forward year earnings and equity
discount rates of 15% and 20%, the present value of such implied hypothetical
future trading values as of September 30, 1997, (i) assuming no Strike Impact
in years after 1997, ranged from approximately $39.95 to $58.20 per share, (ii)
assuming a Strike Impact resulting in a reduction in operating income
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of $8.9 million for each year after 1997, ranged from approximately $37.15 to
$54.25 per share, and (iii) assuming a Strike Impact resulting in a reduction
in operating income of $17.8 million for each year after 1997, ranged from
approximately $35.10 to $50.95 per share.) In connection with this
presentation, Salomon Brothers and Lazard Freres advised the Board that this
analysis was not necessarily indicative of future trading ranges of Fisher
Common Stock and that any estimate of future market prices is speculative and
subject to significant uncertainties and contingencies, all of which are
difficult to predict and beyond the control of Salomon Brothers and Lazard
Freres. Therefore, the actual trading prices of Fisher Common Stock may be
outside the estimated range and will depend upon, and fluctuate with, changes
in interest rates, market conditions, the condition, results of operations, and
prospects, financial and otherwise, of the Company and other factors which
generally influence the prices of securities.
Review of Post-Transaction Common Stock. Salomon Brothers and Lazard
Freres reviewed the implied public market trading values for shares of Fisher
Common Stock outstanding following the Effective Time derived from an
application of various multiples to the Company's pro forma earnings per share
and EBITDA giving effect to the Transaction and based upon management's
projections and extrapolations therefrom without any cost-savings not reflected
in these projections (including estimates based on projections and
extrapolations based on various assumptions relating to the Strike Impact
ranging from no post-1997 Strike Impact to a continuing impact equivalent to
that estimated for 1997). This calculation indicated that (i) applying
price-earnings multiples ranging from 10x to 14x to pro forma earnings per
share in 2000 and 2002 and discount rates of 20% and 25% to the resulting
hypothetical stock price in such years resulted in a net present value implied
public market per share trading value as of September 30, 1997 ranging from
approximately $24.30 to approximately $51.70 and (ii) applying a range of
EBITDA multiples to pro forma EBITDA in 2000 and 2002 and various discount
rates to the resulting hypothetical stock price in such years resulted in a net
present value implied public market per share trading value as of September 30,
1997 ranging from approximately $31.85 to $70.55. Using this implied value
range and discount rates of 20% and 25%, Salomon Brothers and Lazard Freres
calculated that a holder of shares of Fisher Common Stock receiving $48.25 in
cash for 97% of his shares of Fisher Common Stock and retaining 3% of his
shares of Fisher Common Stock would receive consideration pursuant to the
Transaction (on a fully diluted basis) having an implied valuation ranging from
approximately $47.50 to approximately $48.90 for each share of Fisher Common
Stock. (In connection with this analysis, it was concluded that following the
Effective Time, the stock market valuation of Fisher Common Stock would be
significantly influenced by estimates of the Company's future earnings and cash
flow. Consequently, this analysis employed forward-looking pro forma earnings
and EBITDA forecasts, with the year 2002 being the last year for which such
information was available and the year 2000 being chosen as an intermediate
point between the anticipated closing of the Transaction and 2002. It is not
intended that estimates for such years are the most likely to be considered
relevant or to be used exclusively by the market, however, they were considered
useful in calculating estimates of ranges of hypothetical values.) In arriving
at these estimates of possible implied public market trading value for shares
of Fisher Common Stock following the Effective Time, Salomon Brothers and
Lazard Freres advised the Board that trading in the post-Transaction Fisher
Common Stock for a period following the Effective Time could be characterized
by a redistribution of such securities among the stockholders of the Company
immediately preceding the Merger and other investors and, accordingly, such
securities may be subject to downward price pressures during this period
resulting in trading prices below the estimated ranges. In addition, in
connection with this presentation, Salomon Brothers and Lazard Freres advised
the Board that any estimate of trading ranges is speculative, and subject to
uncertainties and contingencies, all of which are difficult to predict and
beyond the control of Salomon Brothers and Lazard Freres. Therefore, the actual
trading prices of the post-Transaction Fisher Common Stock may be outside the
estimated range and will depend upon, and fluctuate with, changes in interest
rates, market conditions, the terms of financing for the Transaction, the
condition and prospects, financial and otherwise, of the Company and other
factors which generally influence the prices of securities. In addition, the
reduced public float of shares of Fisher Common Stock (and whether the shares
will remain listed on the NYSE) may adversely affect the liquidity of these
shares and result in greater volatility in trading prices following the
Effective Time, in addition to the increased volatility resulting from the
increased leverage of the Company, as compared to trading prices prior to the
Effective Time.
Miscellaneous. As part of their presentation, Lazard Freres and Salomon
Brothers also (i) noted that an acquisition price of $48.25 per share
represented premiums of 27.4% (5.0)%, and 35.9% to the closing price of the
Fisher Common Stock on the NYSE on June 4, 1997, August 4, 1997 and May 27,
1997, respectively, and (ii) reviewed selected pro forma credit ratios for the
Company after giving effect to the Transaction and based on the Company's
forecasts and extrapolations thereof (assuming $467 million of senior financing
bearing 8.5% interest and $400 million of subordinated debt bearing 11%
interest), which indicated that, the ratio of total debt to EBITDA for the
latest twelve months, 1997,
54
<PAGE>
1998, 1999 and 2000 were 6.8x, 6.9x, 5.5x, 4.7x and 4.2x (assuming no Strike
Impact after 1997) and (assuming a Strike Impact resulting in a reduction of
operating income of $17.8 million in each year after 1997) for 1998, 1999 and
2000 were 6.1x, 5.2x and 4.7x, respectively, the ratio of EBITDA to interest
expense (assuming no Strike Impact after 1997) for the latest twelve months,
1997, 1998, 1999 and 2000 were 1.5x, 1.5x, 1.9x, 2.2x and 2.4x, respectively,
and (assuming a reduction of operating income of 17.8 million in each year
after 1997) were 1.5x, 1.5x, 1.7x, 2.0x and 2.0x for such years, and the ratio
of EBITDA as reduced by capital expenditures to interest expense (assuming no
post-1997 Strike Impact) for the latest twelve months, 1997, 1998, 1999 and
2000 were .8x, .8x, 1.3x, 1.8x, 2.1x and (assuming a reduction in operating
income of $17.8 million in each year after 1997) were .8x, .8x, 1.1x, 1.6x and
1.8x for such time periods. The review of credit ratios was not intended to
predict the actual terms of financing for the Transaction and reference should
be made to "THE TRANSACTION--Transaction Financing" for a description of the
expected sources of financing and the terms and conditions thereof and was
considered to be of significantly less relevance to the analysis of the
fairness from a financial point of view of the consideration to be received by
stockholders pursuant to the Transaction than the analyses described above.
The summary set forth above does not purport to be a complete description
of the analyses performed by Lazard Freres and Salomon Brothers, although it is
a summary of the material financial and comparative analyses performed by these
investment bankers in arriving at their opinions.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the opinions of Salomon Brothers and Lazard Freres. In arriving at
their fairness determinations, Lazard Freres and Salomon Brothers considered
the results of all such analyses and did not assign relative weights to any of
the analyses.
The analyses were prepared solely for the purpose of Salomon Brothers and
Lazard Freres providing their opinions to the Board as to the fairness from a
financial point of view of the consideration to be received in the Merger taken
as a whole to holders of Fisher Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold, which are inherently subject to uncertainty and may be
significantly more or less favorable than as set forth in these analyses.
Similarly, any estimates incorporated in the analyses performed by Lazard
Freres and Salomon Brothers are not necessarily indicative of actual past or
future values or results, which may be significantly more or less favorable
than any such estimates. No company utilized as a comparison is identical to
the Company or the business segment for which a comparison is being made, and
none of the comparable acquisition transactions or other business combinations
utilized as a comparison is identical to the transactions contemplated by the
Merger Agreement. Accordingly, an analysis of publicly traded comparable
companies and comparable business combinations resulting from the transactions
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
The discount rates, terminal values, and multiples used in the analyses were
considered appropriate after a consideration of current economic and financial
market conditions, including price/earnings multiples and capital structures of
selected public companies and rates of return on debt and equity investments in
public and private companies and a qualitative judgment as to the most relevant
information and its application to the Company. In connection with the
analyses, Salomon Brothers and Lazard Freres made, and were provided estimates
and forecasts by the Company management based upon, numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company and its
advisors. Similarly, analyses based upon forecasts of future results, including
the Strike Impact, are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the Company or its
advisors, none of the Company, Lazard Freres, Salomon Brothers or any other
person assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions. The opinions of Salomon Brothers
and Lazard Freres necessarily were based on the economic, market and other
conditions as in effect on, and the information made available to them as of,
the date of their opinions. The foregoing summary is qualified by reference to
the written opinions of Salomon Brothers and Lazard Freres set forth in Annex
II to this Proxy Statement/Prospectus.
As described above, the opinions and presentation of Lazard Freres and
Salomon Brothers to the Board were only one of many factors taken into
consideration by the Board in making its determination to approve the Merger
Agreement. In addition, the terms of the Merger Agreement were determined
through negotiations between the
55
<PAGE>
Company and FSI and its affiliates and were approved by the Board. Although
Salomon Brothers and Lazard Freres provided advice to the Company during the
course of these negotiations, the decision to enter into the Merger Agreement
and to accept the consideration to be received in the Transaction was solely
that of the Board.
Each of Salomon Brothers and Lazard Freres is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, leveraged buyouts, recapitalizations, and
valuations for estate, corporate and other purposes.
The Company selected Lazard Freres and Salomon Brothers to act as its
investment bankers because of their expertise and reputations in investment
banking and mergers and acquisitions.
In connection with the services of Salomon Brothers and Lazard Freres as
investment bankers to the Company with respect to the Transaction and related
matters, the Company has agreed to pay each of Salomon Brothers and Lazard
Freres (i) a fee of $250,000 payable in connection with their retention as
investment bankers to the Company in connection with the Trinity Proposal and
the Company's adoption of a stockholder rights plan, (ii) a fee of $750,000
which became payable upon execution of the Merger Agreement (and, in the
absence of any extraordinary corporate transaction involving the Company, would
otherwise have become payable six months after the date of the engagement of
these firms by the Company) and (iii) a fee contingent upon consummation of a
transaction payable upon consummation of the Transaction or other extraordinary
transaction equal to 0.34% of the transaction value (generally, the total
amount received by stockholders pursuant to the transaction, including cash and
the market value of any stock they retain, and the Company's consolidated
indebtedness less cash and cash equivalents immediately prior to consummation
of the transaction) less the $1,000,000 in fees previously paid, which in the
case of the Transaction is expected to be approximately $3.5 million. Neither
Salomon Brothers nor Lazard Freres are receiving any additional fees in respect
of the Transaction Debt Financings and are not providing any services in
connection with such arrangements. In addition, the Company has agreed to
reimburse each of Salomon Brothers and Lazard Freres for their reasonable
out-of-pocket expenses (including the fees and disbursements of their
attorneys) and to indemnify each of them and certain related persons against
certain liabilities, including certain liabilities under the federal securities
laws, arising out of its engagement.
Each of Lazard Freres and Salomon Brothers has from time to time in the
past provided investment banking services to the Company for which it has
received fees. In the ordinary course of business, Salomon Brothers, Lazard
Freres and their respective affiliates may actively trade in the securities of
the Company for their own account and for the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities.
Certain Estimates of Future Operations and Other Information
In connection with the evaluation by certain third parties, including THL,
of a possible transaction involving the Company, the Company prepared certain
nonpublic estimates reflecting management's views as to the possible future
performance of the Company over the three fiscal years ending in fiscal 1999.
These estimates were based on assumptions which management believes to be
reasonable at the time. Management's belief as to the reasonableness of its
estimates and of the assumptions underlying such estimates, is based upon the
use of industry data, management's history of operations of the Company and the
significant time and resources Management devoted to developing such estimates.
The material assumptions were that (i) sales would increase at the
Company's historical internal growth rate of 5% per annum (which rate
corresponds to the historical rate of growth in applicable research and
development spending), (ii) there would be no improvement in gross margins, and
(iii) selling, general and administrative expenses would increase
proportionately year over year to sales growth to support the expected increase
in sales. This information was provided to such parties on a confidential
basis. A summary of these estimates (collectively, the "Original Company
Estimates") is provided in the following table:
1997 1998 1999
------- ------- ------
Net Sales Growth ............... 4.7% 4.2% 5.0%
Operating Income Growth ......... 12.5% 12.2% 11.1%
Net Earnings Per Share ...... $2.78 $3.10 $3.85
In connection with discussions in early September 1997 leading up to the
adoption of the Merger Agreement (see "--Background of the Merger"), the
Company provided THL on a confidential basis certain revised management
estimates (the "Revised Company Estimates" and, together with the Original
Company Estimates, the
56
<PAGE>
"Company Estimates") indicating that (a) the Company's net sales in fiscal 1997
would increase by approximately 3.2% over the prior fiscal year and (b) the
Company's operating income in fiscal 1997, after eliminating the effects of
certain non-recurring expenses, would decrease 3.1% from the prior fiscal year.
The projected results reflected in the Revised Company Estimates were based
upon management's estimates of the effects of the UPS strike. Revised Company
Estimates for 1998 and 1999 were not prepared.
THE COMPANY ESTIMATES WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH PUBLISHED GUIDELINES ESTABLISHED BY THE COMMISSION OR THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS. THE
COMPANY ESTIMATES ARE INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS SOLELY
BECAUSE SUCH INFORMATION WAS PROVIDED TO THL. NONE OF THE COMPANY, THL OR ITS
AFFILIATES, OR THE COMPANY'S INDEPENDENT AUDITORS ASSUME ANY RESPONSIBILITY FOR
THE ACCURACY OF SUCH INFORMATION. IN ADDITION, BECAUSE THE COMPANY ESTIMATES
ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES
AND CONTINGENCIES BEYOND THE COMPANY'S CONTROL, THERE CAN BE NO ASSURANCE THAT
THE COMPANY ESTIMATES WILL BE REALIZED; ACTUAL RESULTS MAY BE HIGHER OR LOWER
THAN THOSE ESTIMATED. SEE "RISK FACTORS." NEITHER THE COMPANY'S AUDITORS NOR
ANY OTHER INDEPENDENT ACCOUNTANTS HAVE COMPILED, EXAMINED OR PERFORMED ANY
PROCEDURES WITH RESPECT TO THE COMPANY ESTIMATES, NOR HAVE THEY EXPRESSED ANY
OPINION OR ANY OTHER FORM OF ASSURANCE ON SUCH INFORMATION OR ITS
ACHIEVEABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION
WITH, THE FOREGOING PROSPECTIVE FINANCIAL INFORMATION.
The Company Estimates do not give effect to the Transaction and should be
read together with the sections regarding Risk Factors and Unaudited Pro Forma
Financial Statements.
Transaction Consideration; Election Procedures
General. Subject to certain provisions as described herein with respect to
shares of Fisher Common Stock owned by the Company or any wholly owned
subsidiary of the Company and Dissenting Shares, for each share of Fisher
Common Stock, each holder will be entitled to receive in an exchange $48.25 in
cash (the "Cash Price") pursuant to the Transaction or subject to the
limitations described below, to retain one fully paid and nonassessable share
of Fisher Common Stock (a "Stock Election Share") for each share of Fisher
Common Stock held (a "Stock Election"). Holders of shares of Fisher Common
Stock shall be entitled to elect to receive the Cash Price for any or all of
their shares of Fisher Common Stock or to make a Stock Election. The Merger
Agreement provides that existing stockholders (including employees of the
Company) must retain exactly 746,114 shares of Fisher Common Stock in the
Standard Pool in the Transaction. The Merger Agreement also provides that, in
addition to participating in the Standard Pool, Eligible Employees are entitled
to retain up to an additional 310,881 shares of Fisher Common Stock in the
Eligible Employee Pool in the Transaction and exchange outstanding options for
up to 909,392 shares of Fisher Common Stock in the Transaction in the Option
Conversion. Although existing stockholders and Eligible Employees will be
entitled to make an election pursuant to the terms of the Merger Agreement to
either receive cash or retain shares, existing stockholders (including Eligible
Employees) with respect to the Standard Pool, and, Eligible Employees with
respect to the Eligible Employee Pool, will be subject to having a portion of
their shares not treated in accordance with their election; specifically, if
existing stockholders including Eligible Employees do not elect to retain at
least the Standard Retained Share Number of shares, some shares of Fisher
Common Stock for which a Stock Election was not made will become the right to
retain shares of Fisher Common Stock in accordance with the proration
procedures described in "--Stock Election." As described more fully below, all
elections to either receive cash or retain shares may be subject to a proration
procedure based on the elections made by other existing stockholders or
Eligible Employees.
The Transaction contemplates that, taking into account shares subject to
conversion under the Option Conversion, a minimum of approximately 91.1%, and a
maximum of approximately 92.5% of the fully diluted shares of Fisher Common
Stock will be converted into cash, resulting in a maximum of 8.9%, and a
minimum of 7.5% of such shares being retained by existing stockholders and
Eligible Employees. Existing stockholders (including Eligible Employees) who
elect to retain shares of Fisher Common Stock in the Standard Pool may receive
a lesser, prorated number of shares of Fisher Common Stock than such holders
elected to retain, and instead receive cash for a portion of those shares for
which they made a Stock Election, if the aggregate number of shares of Fisher
Common Stock elected to be retained exceeds the sum of Standard Retained Share
Number as described more fully
57
<PAGE>
under "--Stock Election." In addition, Eligible Employees are entitled to elect
to retain shares of Fisher Common Stock pursuant to either the Standard Pool or
the Eligible Employee Pool. Eligible Employees who decide to elect to retain
shares of Fisher Common Stock in the Eligible Employee Pool would be subject to
a similar proration procedure to that applicable to the Standard Pool if the
total number of such shares is in excess of 310,881 shares. However, Eligible
Employees are expected to have less than 310,881 shares and, therefore, it is
unlikely that shares for which an Eligible Employee elects to retain pursuant
to the Eligible Employee Pool would be subject to proration.
In addition, as a result of the Eligible Employee Pool, the existing
stockholders of the Company, other than the Eligible Employees, may be required
to retain more shares of Fisher Common Stock than they would have been required
to retain in the absence of the Eligible Employee Pool if Stock Elections for
the Standard Pool are made for less than the Standard Share Retained Number and
the Eligible Employees make Stock Elections with respect to the Eligible
Employee Pool. In such a circumstance, because the shares retained pursuant to
the Eligible Employee Pool would not be counted as part of the Standard Pool,
existing stockholders would be required to retain a greater number of shares in
the Standard Pool as a result of the proration procedures than they would have
been required to retain if the Eligible Employee Pool did not exist. Also as a
result of the Eligible Employee Pool, the Eligible Employees would be entitled
to retain more shares of Fisher Common Stock than they would have been entitled
to retain in the absence of the Eligible Employee Pool if Stock Elections for
the Standard Pool are made for more than the Standard Share Retained Number and
Eligible Employees make Stock Elections with respect to the Eligible Employee
Pool. In such a circumstance, because the shares retained pursuant to the
Eligible Employee Pool would not be subject to the proration procedure applied
to the Standard Pool, Eligible Employees would be entitled to retain a greater
number of shares than they would have been entitled to retain in the absence of
the Eligible Employee Pool.
For information concerning certain risks related to continuing to hold
Fisher Common Stock, see "RISK FACTORS" above.
Fractional shares of Fisher Common Stock will not be issued in the
Transaction. Holders of Fisher Common Stock otherwise entitled to a fractional
share of Fisher Common Stock following the Effective Time will be paid cash in
lieu of such fractional share in an amount determined and paid as described
under "--Fractional Shares" below.
Any shares of Fisher Common Stock owned by the Company or by any wholly
owned subsidiary of the Company, will automatically be canceled at the
Effective Time and will cease to exist.
Elections Made Pursuant
to the Standard Pool
<TABLE>
<S> <C>
SHARES FOR
WHICH A
STOCK
ELECTION IS
MADE
<S> <C> <C>
STOCK ELECTIONS ARE MADE FOR STOCK ELECTIONS ARE MADE FOR
MORE THAN 746,114 SHARES LESS THAN 746,114 SHARES
- A portion of the stockholder's shares will be retained
on a prorated basis as follows:
- All shares for which a Stock Election has been made
[Number of [Number of [746,114]
Shares to be = Shares for which a X [Total Shares for will be retained.
retained by Stock Election is which a Stock
such holder] made by such holder] Election is made]
- Balance of shares for which a Stock Election is made
will be exchanged for cash
SHARES FOR
WHICH A
STOCK
ELECTION
IS NOT MADE
- A portion of the stockholder's shares will be
retained on a prorated basis as follows:
- All shares for which a Stock Election has not been [Number of [Number of [746,114]-[Total Shares
made will receive cash (except Dissenting Shares) Shares to be = outstanding X for which a Stock
retained Shares for Election is made]
by such which a Stock [Total Number of
- Dissenting Shares will be treated in accordance with
Delaware law holder] Election is not outstanding Shares
made less the for which a Stock
Dissenting Shares Election is not
for such holder] made less the total
Dissenting Shares]
- Balance of shares for which a Stock Election is
not made will be exchanged for cash
- Dissenting Shares will be treated in accordance
with Delaware law
</TABLE>
58
<PAGE>
Stock Election
For purposes of this section,
"Standard Retained Share Number" means 746,114.
"Stock Election" means an unconditional election on or prior to the
Election Date to express a desire to retain shares of Fisher Common Stock.
"Stock Proration Factor" is determined by dividing the Standard Retained
Share Number by the total number of shares requested to be retained by record
holders of Fisher Common Stock.
"Dissenting Shares" means shares of Fisher Common Stock held by a
stockholder who has not voted in favor of the Merger and who has demanded
appraisal for such shares of Fisher Common Stock in accordance with the DGCL
prior to the Effective Time.
"Cash Proration Factor" is determined by dividing (x) the difference
between the Standard Retained Number and the total number of shares for which a
Stock Election was made by (y) the difference between the total number of
shares for which a Stock Election was not made and the total Dissenting Shares.
Record holders of Fisher Common Stock will be entitled to make a Stock
Election on or prior to the Election Date to retain one fully paid and
nonassessable share of Fisher Common Stock. If the number of shares requested
to be retained by record holders of Fisher Common Stock in the Standard Pool
exceeds the Standard Retained Share Number, then (i) the number of shares which
shall actually be retained by any holder making a Stock Election will be
determined by multiplying the total number of shares requested to be retained
by such holder by the Stock Proration Factor, (ii) shares for which a Stock
Election was not made (excluding Dissenting Shares) will receive cash, and
(iii) Dissenting Shares will remain outstanding pending treatment in accordance
with Delaware law (see "Dissenting Stockholder's Rights"). All other shares,
including shares which are requested to be retained in the Standard Pool by
such holder but which are not retained due to proration, will be converted into
the right to receive the Cash Price.
If the number of shares requested to be retained by record holders of
Fisher Common Stock in the Standard Pool is less than the Standard Retained
Share Number, then (i) all such shares will be retained in accordance with the
Merger Agreement, (ii) a number of shares for which a Stock Election was not
made will be retained, which number of shares shall be determined for each
holder by multiplying (x) the difference between the total number of
outstanding shares held by such holder for which a Stock Election was not made
and the total number of Dissenting Shares held by such holder by (y) the Cash
Proration Factor and (iii) Dissenting Shares will remain outstanding pending
treatment in accordance with Delaware law (see "Dissenting Stockholder's
Rights"). All other shares will be converted into the right to receive the Cash
Price. Examples of the effects of the result of a Stock Election in the
Standard Pool are set forth below.
Eligible Employees may elect to retain shares of Fisher Common Stock from
the Standard Pool, from the Eligible Employee Pool or both. If Eligible
Employees elect to retain any shares from the Standard Pool, such shares shall
be subject to proration as described above. To the extent an Eligible Employee
elects to retain shares in the Standard Pool and a portion of such shares are
not so retained, such Eligible Employee may elect to have such shares retained
pursuant to the Eligible Employee Pool. To the extent that more than 310,881
shares are the subject of a Eligible Employee Pool election, the number of
shares retained by each Eligible Employee pursuant to the Eligible Employee
Pool shall be subject to proration. As a result, the number of shares of Fisher
Common Stock to be retained by each Eligible Employee will be equal to the sum
of (i) the number of shares retained by such Eligible Employee pursuant to the
Standard Pool and (ii) the number of shares retained by such Eligible Employee
pursuant to the Eligible Employees Pool.
If a stockholder makes a Stock Election and receives cash as a result of
the proration procedures described above, such stockholder may receive dividend
treatment (rather than capital gain treatment) for any cash received in the
Transaction as a result of such proration procedures. See "THE
TRANSACTION--Certain Federal Income Tax Considerations."
For information concerning certain risks related to continuing to hold
Fisher Common Stock, see "RISK FACTORS."
59
<PAGE>
Possible Effects of Proration
The following examples illustrate the potential effects of proration in
connection with the Standard Pool. The following examples are based upon there
being outstanding 20,356,764 shares of Fisher Common Stock as of the Effective
Time. No fractional shares will be issued; in lieu of fractional shares,
stockholders will receive cash.
A. HOLDER A OWNS 100 SHARES AND DOES NOT ELECT TO RETAIN ANY SHARES.
1. If other stockholders elect to retain a number of shares of Fisher
Common Stock in the Standard Pool that equal or exceeds the Standard
Retained Share Number or more shares in the aggregate, then Holder A will
receive $4,825 in cash (100 shares at $48.25 per share).
2. If other stockholders elect to retain fewer shares of Fisher Common
Stock in the Standard Pool than the Standard Retained Share Number in the
aggregate, then Holder A will not receive cash for all of its 100 shares
of Fisher Common Stock and will be required to retain some shares. In
such a case, every stockholder must retain a small number of shares of
Fisher Common Stock in order to increase the number of retained shares of
Fisher Common Stock to the Standard Retained Share Number. However, even
in the case of maximum proration (i.e., no stockholders elect to retain
shares of Fisher Common Stock), Holder A will still be assured of
receiving at least $4,680.25 in cash (approximately 97% of his or her
shares of Fisher Common Stock, or 97 shares of Fisher Common Stock after
rounding at $48.25 per share) and will retain approximately 3% of his or
her shares of Fisher Common Stock, or 3 shares of Fisher Common Stock
after rounding down to the nearest whole number.
B. HOLDER B OWNS 100 SHARES AND ELECTS TO RETAIN ALL ITS SHARES.
1. If the stockholders (including Holder B) elect to retain a number of
shares of Fisher Common Stock in the Standard Pool equal to or less than
the Standard Retained Share Number, then Holder B will be able to retain
all 100 of its shares of Fisher Common Stock.
2. If the stockholders (including Holder B) elect to retain more shares of
Fisher Common Stock in the Standard Pool than the Standard Retained Share
Number in the aggregate, then Holder B will not be able to retain all its
shares of Fisher Common Stock and will receive some cash. For example, if
stockholders other than Eligible Employees elected to retain 800,000
shares of Fisher Common Stock in the aggregate, then each holder,
including Holder B, would be able to retain only approximately 93.3% of
its shares of Fisher Common Stock in order to reduce the number of
retained shares of Fisher Common Stock to the Standard Retained Share
Number. Therefore, Holder B would be able to retain only 93 shares (or
93.3% of his 100 shares of Fisher Common Stock, rounded down to the
nearest whole number) and would receive $337.75 in cash (7 shares of
Fisher Common Stock at $48.25 per share). In the case of maximum
proration (i.e., all stock holders including Eligible Employees
(including Holder B) elect to retain their shares of Fisher Common
Stock), Holder B would be able to retain only 3 shares of Fisher Common
Stock and would receive $4,680.25 in cash.
C. HOLDER C OWNS 100 SHARES AND ELECTS TO RETAIN 50 SHARES AND CONVERT 50
SHARES TO CASH.
1. In the unlikely event that stockholders (including Holder C) elect to
retain in the Standard Pool exactly 746,114 shares of Fisher Common Stock
in the aggregate, then Holder C will be able to retain its 50 shares of
Fisher Common Stock and will receive $2,412.50 in cash (50 Shares at
$48.25 per share).
2. If the stockholders (including Holder C) elect to retain more shares of
Fisher Common Stock in the Standard Pool than the Standard Retained Share
Number in the aggregate, then Holder C will not be able to retain all of
its 50 shares of Fisher Common Stock. For example, if stockholders
elected to retain 800,000 shares in the aggregate, then each holder,
including Holder C, would be able to retain only 93.3% of its shares of
Fisher Common Stock which it elected to retain in order to reduce the
number of retained shares to the Standard Retained Share Number.
Therefore, Holder C would be able to retain only 46 shares (or 93.3% of
the 50 shares of Fisher Common Stock which it elected to retain rounded
down to the nearest whole number) and would receive $2,605.50 in cash (54
shares of Fisher Common Stock at $48.25 per share). If the stockholders
elected to retain more than 800,000 shares of Fisher Common Stock in the
60
<PAGE>
aggregate, Holder C would receive fewer shares than in the example above,
but would receive a commensurately greater amount of cash.
3. If the stockholders (including Holder C) elect to retain fewer shares of
Fisher Common Stock in the Standard Pool than the Standard Retained Share
Number in the aggregate, then Holder C would be required to retain more
than 50 shares of Fisher Common Stock. For example, if stockholders
elected to retain 50,000 shares of Fisher Common Stock in the aggregate,
then all stockholders that did not elect to retain shares must
collectively retain an additional 696,114 shares of Fisher Common Stock
in order to meet the Standard Retained Share Number. In this example,
Holder C would be required to retain 1 additional share of Fisher Common
Stock (for a total of 51 shares of Fisher Common Stock) and would receive
$2,364.25 in cash (49 shares at $48.25 per share). The 1 additional share
of Fisher Common Stock is calculated by multiplying the 50 shares of
Fisher Common Stock Holder C wants to convert to cash by a fraction the
numerator of which is the 696,114 additional shares of Fisher Common
Stock and the denominator of which is the total number of outstanding
shares less the 50,000 Election Standard Shares. If the stockholders
elected to retain fewer than 50,000 shares of Fisher Common Stock in the
aggregate, Holder C would receive more shares than in the example above,
but would receive commensurately less cash.
Fractional shares of Fisher Common Stock will not be issued in the Merger.
Holders of Fisher Common Stock otherwise entitled to a fractional share of
Fisher Common Stock following the Effective Time will be paid cash in lieu of
such fractional share in an amount determined and paid as described under "--
Fractional Shares" below.
Stock Election Procedure
The Form of Election ("Form of Election") is being mailed to holders of
record of Fisher Common Stock together with this Proxy Statement/Prospectus.
Eligible Employees separately will receive a form of election which, while
similar to the Form of Election, will provide that Eligible Employees will be
entitled to elect to have shares of Fisher Common Stock retained in the
Standard Pool or the Eligible Employee Pool.
FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF FISHER COMMON STOCK
MUST PROPERLY COMPLETE A FORM OF ELECTION, AND SUCH FORM OF ELECTION, TOGETHER
WITH ALL CERTIFICATES FOR SHARES OF FISHER COMMON STOCK HELD BY SUCH HOLDER,
DULY ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON THE
BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET FORTH IN
SUCH FORM OF ELECTION), MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF THE
ADDRESSES LISTED ON THE FORM OF ELECTION AND NOT WITHDRAWN, BY 5:00 P.M.,
EASTERN STANDARD TIME, ON THE SECOND BUSINESS DAY PRIOR TO THE DATE OF THE
SPECIAL MEETING.
ONLY HOLDERS OF FISHER COMMON STOCK WHO WISH TO MAKE A STOCK ELECTION ARE
REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION. HOLDERS OF
FISHER COMMON STOCK WHO DO NOT MAKE A STOCK ELECTION WILL RECEIVE, BY MAIL,
LETTERS OF TRANSMITTAL WITH WHICH SUCH STOCK CERTIFICATES SHOULD BE RETURNED
AFTER THE EFFECTIVE TIME. HOLDERS SHOULD THEREFORE NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
The determinations of the Exchange Agent as to whether or not Stock
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
Effective Time
The Merger and the Transaction will become effective upon the filing of
the certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware or such other date as is specified in such
Certificate of Merger in accordance with the DGCL. Subject to certain
limitations, the Merger Agreement may be terminated by either party if, among
other reasons, the Merger has not been consummated on or before March 31, 1998.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Conditions to Consummation of
the Merger" and "--Termination."
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Conversion of Shares into Cash/Retention of Shares; Procedures for Exchange of
Certificates
At the Effective Time, holders of Fisher Common Stock (other than shares
as to which appraisal rights are properly exercised) will either be entitled to
(i) the right to receive the Cash Price or (ii) retain shares of Fisher Common
Stock following the Effective Time.
As soon as practicable following the Effective Time, the Exchange Agent
will send a letter of transmittal to each holder of Fisher Common Stock (other
than holders of Fisher Common Stock making a Stock Election with respect to all
of such holders' shares, who have properly submitted Forms of Election and
share certificates to the Exchange Agent). The letter of transmittal will
contain instructions with respect to the surrender of certificates representing
shares of Fisher Common Stock in exchange for cash and, if proration is
required, certificates representing shares of Fisher Common Stock to be
retained in the Transaction, or the amount of cash in lieu of any fractional
interest in a share of Fisher Common Stock for which the shares represented by
the certificates so surrendered are exchangeable pursuant to the Merger
Agreement.
EXCEPT FOR FISHER COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "--STOCK ELECTION PROCEDURE," STOCKHOLDERS OF
THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL. LETTERS OF TRANSMITTAL WILL BE
MAILED AFTER THE EFFECTIVE TIME OF THE MERGER.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of Fisher Common Stock shall, upon surrender to the Exchange
Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash, into which the number of
shares of Fisher Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of Fisher Common Stock, if any, to be retained by the holder thereof
pursuant to the Merger Agreement. The Exchange Agent will accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there will be no
further transfer on the records of the Company or its transfer agent of
certificates representing shares of Fisher Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be canceled against delivery of cash and, if appropriate,
certificates for retained shares of Fisher Common Stock. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of Fisher
Common Stock will be deemed at any time after the Effective Time, to represent
only the right to receive upon such surrender the consideration contemplated by
the Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Transaction or in lieu of any fractional
retained shares of Fisher Common Stock.
No dividends or other distributions with respect to retained shares of
Fisher Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered certificate for shares of Fisher Common Stock
with respect to the retained shares of Fisher Common Stock represented thereby
and no cash payment in lieu of a fractional share shall be paid to any such
holder pursuant to the Merger Agreement until the surrender of such certificate
in accordance with the Merger Agreement, or if later, the time specified in
clause (ii)(B) of the immediately following sentence. Unless otherwise limited
by applicable laws relating to the legality of declaration and payment of
dividends and distributions, following surrender of any such certificate, there
shall be paid to the holder of the certificate representing whole retained
shares of Fisher Common Stock issued in connection therewith, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional retained shares of Fisher Common Stock to which such holder is
entitled pursuant to the Merger Agreement and (ii)(A) if the record date for
any applicable dividend or distribution is after the Effective Time but prior
to the date of surrender, at the time of such surrender, the proportionate
amount of dividends or other distributions, if any previously paid with respect
to such whole retained shares of Fisher Common Stock, or (B) if the record date
for any applicable dividend or distribution is after both the Effective Time
and the date of surrender, at the date on which such dividend or distribution
is to be paid to other security holders, the proportionate amount of dividends
or other distributions with respect to such whole retained shares of Fisher
Common Stock.
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Fractional Shares
No certificates or scrip representing fractional retained shares of Fisher
Common Stock will be issued in connection with the Transaction, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Company after the Effective Time. Promptly
following the Effective Time, the Exchange Agent shall aggregate and sell on
the NYSE all such fractional shares and distribute the proceeds from such sale
to the stockholders who would have otherwise been entitled to receive such
fractional shares. As a result, assuming no shares are retained pursuant to the
Eligible Employee Pool, exactly 746,114 shares of Fisher Common Stock will be
held by existing stockholders (and including, possibly, employees of the
Company) (other than management investors pursuant to the Option Conversion)
and others who purchased shares in connection with the fractional share sale.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Fisher has agreed to carry on its
business and that of its subsidiaries prior to the Effective Time in the
ordinary and usual course of business consistent with past practice. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Conduct of Business Pending the
Merger."
Conditions to the Consummation of the Merger
The obligation of the Company and FSI to consummate the Merger is subject
to various conditions, including, without limitation, obtaining requisite
stockholder approval, and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. The
obligation of FSI to consummate the Merger is subject to other conditions,
including, without limitation, receipt by the Company of the proceeds of
financing pursuant to the Commitment Letters (or from such other source as FSI
and the Company shall agree) in amounts sufficient to consummate the
transactions contemplated by the Merger Agreement. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--Conditions to the Consummation of the Merger" and
"REGULATORY APPROVALS." The completion of the Transaction is conditioned upon
the consummation of the Merger.
Certain Federal Income Tax Considerations
Wachtell, Lipton, Rosen & Katz, special counsel for the Company, are of
the opinion that, except as noted otherwise, the following are the material
United States ("U.S.") federal income tax consequences applicable to
stockholders of the Company who receive cash in exchange for all or a portion
of their shares of Fisher Common Stock pursuant to the Transaction. Counsel's
opinion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations promulgated thereunder, judicial
decisions and current administrative pronouncements, all as in effect as of the
date hereof and which are subject to change at any time, potentially with
retroactive effect. Counsel's opinion deals only with stockholders which hold
shares of Fisher Common Stock as capital assets (generally, property held for
investment). Counsel's opinion does not address all aspects of federal income
taxation that may be relevant to particular stockholders in light of their
personal circumstances or to certain types of stockholders subject to special
treatment under the federal income tax laws (including certain financial
institutions, broker dealers, insurance companies, tax-exempt organizations,
foreign persons and persons acquiring shares of Fisher Common Stock pursuant to
the exercise of employee stock options or otherwise as compensation). No ruling
from the Internal Revenue Service ("IRS") will be applied for with respect to
the federal income tax consequences discussed herein and, accordingly, there
can be no assurance that the IRS will agree with the conclusions stated herein.
In addition, counsel's opinion does not address any state, local or foreign tax
consequences of any aspect of the Transaction. ALTHOUGH COUNSEL'S OPINION SETS
FORTH ALL MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS GENERALLY APPLICABLE
TO STOCKHOLDERS OF THE COMPANY AS A CONSEQUENCE OF THEIR RECEIPT OF THE CASH
PRICE AND/OR THE RETENTION OF FISHER COMMON STOCK PURSUANT TO THE TRANSACTION,
COUNSEL'S OPINION DOES NOT ADDRESS EVERY U.S. FEDERAL INCOME TAX CONCERN THAT
MAY BE APPLICABLE TO A PARTICULAR HOLDER OF FISHER COMMON STOCK IN LIGHT OF
SUCH HOLDER'S PARTICULAR CIRCUMSTANCES. ALL HOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTION.
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Characterization of the Merger for U.S. Federal Income Tax Purposes
For U.S. federal income tax purposes, FSI will be disregarded as a
transitory entity, and the merger of FSI with and into the Company will be
treated as if it were a sale of a portion of a stockholder's Fisher Common
Stock to the Equity Investors and a purchase of a portion of the stockholder's
shares of Fisher Common Stock by the Company. There is no authority directly
addressing the method of allocating proceeds received by a stockholder between
the portion treated as received from the Equity Investors and the portion
treated as received from the Company and, due to such lack of authority,
counsel is not rendering an opinion on such allocation. The Company intends to
take the position that the percentage of a stockholder's shares of Fisher
Common Stock disposed of by the stockholder pursuant to the exchange of shares
of Fisher Common Stock for cash as provided for in the Merger Agreement which
will be treated as if sold to the Equity Investors will be a percentage of such
shares of Fisher Common Stock equal to (i) the amount contributed to FSI by the
Equity Investors in exchange for FSI common stock divided by (ii) the aggregate
amount of cash paid to stockholders in exchange for their shares of Fisher
Common Stock pursuant to the Merger Agreement. The remainder of the
stockholder's shares of Fisher Common Stock disposed of in exchange for the
Cash Price pursuant to the Merger Agreement will be treated as redeemed by the
Company. The IRS could, however, adopt a different approach in determining the
portion, if any, of a stockholder's shares of Fisher Common Stock which is
treated as redeemed by the Company. If the IRS adopts a different allocation
methodology, the percentage of shares of Fisher Common Stock treated as sold to
the Equity Investors and the percentage of shares of Fisher Common Stock
treated as redeemed by the Company may differ from the position that will be
taken by the Company. See "Stockholders Receiving Cash" below for a discussion
of the consequences of cash being deemed paid for the redemption of shares of
Fisher Common Stock by the Company and of cash being deemed paid in connection
with a sale of such shares to the Equity Investors.
Stockholders Receiving Cash
As described more fully below, the U.S. federal income tax consequences of
the exchange of shares of Fisher Common Stock for the Cash Price pursuant to
the Merger Agreement with respect to a particular stockholder will depend upon,
among other things, (i) whether the stockholder received any cash in exchange
for shares of Fisher Common Stock for the Cash Price pursuant to the Merger
Agreement, (ii) the extent to which a stockholder is deemed to have sold its
shares of Fisher Common Stock to the Equity Investors or is deemed to have had
its shares of Fisher Common Stock purchased by the Company and (iii) whether
the deemed purchase of a stockholder's shares of Fisher Common Stock by the
Company will qualify as a sale or exchange under Section 302 of the Code.
First, to the extent that a stockholder is considered to have sold shares of
Fisher Common Stock to the Equity Investors, such stockholder will recognize
capital gain or loss equal to the difference between the amount realized on its
deemed sale of shares of Fisher Common Stock to the Equity Investors (i.e., the
cash proceeds properly allocated to such sale) and the stockholder's adjusted
tax basis in such shares of Fisher Common Stock. The U.S. federal income tax
rate that will apply to any such capital gain will depend on the stockholder's
holding period for such shares of Fisher Common Stock. Pursuant to recently
enacted legislation, in the case of an individual holder of shares of Fisher
Common Stock, any such capital gain should be subject to a maximum U.S. federal
income tax rate of (A) 20% if the holder's holding period in such stock was
more than 18 months at the Effective Time and (B) 28% if the holder's holding
period was more than one year but not more than 18 months at the Effective
Time. In addition, a stockholder also will recognize capital gain or loss equal
to the difference between the cash proceeds allocable to the deemed purchase of
such stockholder's shares of Fisher Common Stock by the Company and the
stockholder's adjusted tax basis in such shares of Fisher Common Stock, to the
extent such deemed purchase by the Company is treated as a sale or exchange
under Section 302 of the Code with respect to such stockholder. As described
above, the U.S. federal income tax rate that will apply to any such capital
gain will depend on the stockholder's holding period for such shares of Fisher
Common Stock.
Under Section 302 of the Code, a redemption of shares of Fisher Common
Stock pursuant to the exchange of shares of Fisher Common Stock for the Cash
Price pursuant to the Merger Agreement will be treated as sale or exchange if
such redemption (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete termination" of the stockholder's
interest in the Company or (c) is "not essentially equivalent to a dividend"
with respect to the stockholder.
In applying each of the Section 302 tests, stockholders must take into
account not only the shares of Fisher Common Stock that they actually own but
also shares of Fisher Common Stock they are deemed to own under
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the constructive ownership rules set forth in Section 318 of the Code. Pursuant
to the constructive ownership rules, a stockholder is deemed to own any shares
of Fisher Common Stock that are owned (actually and in some cases
constructively) by certain related individuals or entities and any shares of
Fisher Common Stock that the stockholder has the right to acquire by exercise
of an option or by conversion or exchange of a security.
The deemed redemption of a stockholder's shares of Fisher Common Stock by
the Company will be "substantially disproportionate" with respect to such
stockholder if, among other things, the percentage of shares of Fisher Common
Stock actually and constructively owned by such stockholder immediately
following the Effective Time is less than 80% of the percentage of shares of
Fisher Common Stock actually and constructively owned by such stockholder
immediately prior to the Effective Time. Due to the factual nature of this
determination, no opinion is rendered as to whether the deemed redemption is
"substantially disproportionate" with respect to any particular stockholder.
Stockholders should consult their tax advisors to determine whether the
redemption of their shares of Fisher Common Stock will be "substantially
disproportionate" with respect to such stockholders in their particular
circumstances.
The deemed redemption of a stockholder's shares of Fisher Common Stock by
the Company will result in a "complete termination" of a stockholder's interest
in the Company if (a) all of the shares of Fisher Common Stock actually owned
by the stockholder are redeemed pursuant to the exchange of shares of Fisher
Common Stock for the Cash Price pursuant to the Merger Agreement and (b) all of
the shares of Fisher Common Stock constructively owned by the stockholder are
redeemed pursuant to the exchange of shares of Fisher Common Stock for the Cash
Price pursuant to the Merger Agreement or, with respect to shares of Fisher
Common Stock owned by certain related individuals, the stockholder effectively
waives, in accordance with Section 302(c) of the Code, attribution of such
shares of Fisher Common Stock which otherwise would be considered to be
constructively owned by such stockholder. Due to the factual inquiry required
to determine whether a stockholder may waive the application of the
constructive ownership rules with respect to Fisher Common Stock owned by
certain related individuals, no opinion is rendered as to whether any
particular stockholder qualifies for such a waiver. Stockholders in this
position should consult their tax advisors as to the availability of such a
waiver. Based on the rules described above, a stockholder who does not own (or
is not treated as owning) any shares of Fisher Common Stock following the
Effective Time will satisfy the "complete termination" test and, accordingly,
will recognize capital gain or loss with respect to the cash received in
exchange for all of its shares of Fisher Common Stock.
The deemed redemption of a stockholder's shares of Fisher Common Stock
will be treated as "not essentially equivalent to a dividend" if the reduction
in such stockholder's proportionate interest in the Company constitutes a
"meaningful reduction" given such stockholder's particular facts and
circumstances. Depending upon the specific facts and circumstances related to a
particular stockholder, even a small reduction in a stockholder's proportionate
equity interest may satisfy this test. For example, the IRS has indicated in
published rulings that any reduction in the percentage interest of a
stockholder whose relative stock interest in a publicly held corporation is
minimal (e.g., an interest of less than 1%) and who exercises no control over
corporate affairs should constitute such a "meaningful reduction." Due to the
factual nature of this determination, no opinion is rendered as to whether the
deemed redemption will be treated as "not essentially equivalent to a dividend"
with respect to any particular stockholder. Stockholders should consult their
tax advisors to determine whether any reduction in their interests in the
Company constitutes a "meaningful reduction" in their particular circumstances.
A stockholder may not be able to satisfy one of the above three tests
because of contemporaneous acquisitions of shares of Fisher Common Stock by
such stockholder or a related party whose shares of Fisher Common Stock would
be attributed to such stockholder under Section 318 of the Code. Due to the
factual inquiry required to ascertain whether such an acquisition will be taken
into account to determine if any of the above tests are satisfied, no opinion
is rendered as to the effect of such an acquisition to any particular
stockholder. Stockholders should consult their tax advisors regarding the tax
consequences of such acquisitions in their particular circumstances.
If a stockholder cannot satisfy any of the three tests described above,
the deemed purchase of such stockholder's shares of Fisher Common Stock by the
Company will not be treated as a sale or exchange under Section 302 of the Code
with respect to such stockholder. Accordingly, and to the extent the Company
has sufficient current and/or accumulated earnings and profits, such
stockholder will be treated as having received a dividend which will be
includible in gross income (and treated as ordinary income) in an amount equal
to the cash received in respect of the purchase by the Company of such
stockholder's shares of Fisher Common Stock. To the extent the amount of cash
received by the stockholder exceeds such stockholder's proportionate share of
the Company's current and/or
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accumulated earnings and profits, such excess will be applied first against the
stockholder's adjusted tax basis in the shares of Fisher Common Stock, with any
remainder treated as capital gain.
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the shares of Fisher Common Stock
or if the shares of Fisher Common Stock are treated as "debt financed portfolio
stock" within the meaning of Section 246A of the Code. Additionally, if a
dividends-received deduction is available, the dividend may be treated as an
"extraordinary dividend" under Section 1059 of the Code. Due to the factual
inquiry required to determine whether dividend income is eligible for the
dividends-received deduction and whether a dividend constitutes an
"extraordinary dividend," no opinion is rendered regarding such matters with
respect to any particular corporate stockholder. Corporate stockholders should
consult their tax advisors regarding the tax consequences of such dividend to
them in their particular circumstances.
Stockholders Retaining Fisher Common Stock and Receiving No Cash
There will be no U.S. federal income tax consequences for stockholders who
retain all of their shares of Fisher Common Stock pursuant to the Merger
Agreement, including retention as a result of proration, and do not receive the
Cash Price in exchange for any such shares. Accordingly, a stockholder will not
recognize any gain or loss on any shares of Fisher Common Stock retained by
such stockholder.
Stockholders Retaining a Portion of Their Fisher Common Stock and Receiving
Cash
To the extent that a stockholder elects to retain a portion of its shares
of Fisher Common Stock and exchange a portion of its shares of Fisher Common
Stock for cash, or to the extent a stockholder is subject to the proration
rules and receives cash in exchange for a portion of its shares of Fisher
Common Stock, the tax treatment of the stockholder's receipt of such cash will
be the same as set forth above under "Stockholders Receiving Cash."
As described more fully above under "Stockholders Receiving Cash," a
stockholder's retention of shares of Fisher Common Stock may, cause the cash
received by such stockholder pursuant to the exchange of shares of Fisher
Common Stock for the Cash Price pursuant to the Merger Agreement to be treated
as a dividend for U.S. federal income tax purposes.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each stockholder the
amount of dividends paid to such stockholder and the backup withholding tax, if
any, withheld with respect to such dividends.
A stockholder may be subject to backup withholding at a rate of 31% with
respect to cash amounts representing the Cash Price received pursuant to the
Merger Agreement. In general, backup withholding will apply only if a
stockholder fails to comply with certain identification procedures or fails to
properly report payments of interest and dividends. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. Backup withholding is not an
additional tax and may be claimed as a credit against the U.S. federal income
tax liability of a stockholder, provided that the required information is
furnished to the IRS.
Accounting Treatment
The Transaction will be accounted for as a recapitalization as there will
be a significant continuation of stockholder ownership. Accordingly, it will
not result in a new basis of accounting. See "UNAUDITED PRO FORMA FINANCIAL
STATEMENTS."
Effect on Employee Stock Options and Employee Benefit Matters
At the Effective Time, each Option granted under any stock option or
similar plan of Fisher outstanding immediately prior to the Effective Time,
other than Options held by Messrs. Montrone, Meister and Maiorani (the "Named
Executive Officers" currently employed by the Company) and approximately 100
other salaried employees who currently hold options to purchase Fisher Common
Stock which options are subject to the Option Conversion,
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will receive, with respect to each Option, a cash payment equal to the product
of (x) the total number of shares of Fisher Common Stock subject to such Option
and (y) the excess of the Cash Price over the exercise price per share of
Fisher Common Stock subject to such Option, subject to any required
withholdings of taxes. For information concerning the Option Conversion, see
"THE TRANSACTION--Interests of Certain Persons in the Transaction."
At the Effective Time, each Restricted Unit, evidencing a right to receive
one share of Fisher Common Stock and the cash dividends paid with respect to
such share of stock, issued to nonemployee directors of Fisher under the
Restricted Unit Plan for Non-Employee Directors of Fisher Scientific
International Inc. (the "Restricted Unit Plan") will be converted into cash in
an amount equal to the sum of the (i) Cash Price and (ii) the total cash
dividends paid on such share of Fisher Common Stock plus interest thereon based
on the average rate for ten-year U.S. Treasury Notes. See "THE
TRANSACTION--Interests of Certain Persons in the Transaction." See
"COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY--Restricted
Unit Plan for Non-Employee Directors."
The payment of the amounts referred to above, to each holder of an Option
or a participant in the Restricted Unit Plan, will satisfy in full the
Company's obligations to such employee or non-employee director.
For a period of two years following the Effective Time, the Company will
continue the Company's existing employee benefit plans and arrangements
provided, that the Surviving Corporation shall not be required to maintain any
individual plan or program so long as the plans and programs maintained by the
Surviving Corporation are, in the aggregate, not materially less favorable than
those provided by the Company immediately prior to the date of the Merger
Agreement. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Employee Benefit
Arrangements."
Interests of Certain Persons in the Transaction
As of the date of this Proxy Statement/Prospectus, non-employee directors
of the Company own 1,000 shares of Fisher Common Stock, options to purchase
50,000 shares of Common Stock and 25,000 Restricted Units, all of which will be
cashed out in the Merger in the manner set forth under "THE TRANSACTION--Effect
on Employee Stock Options and Employee Benefit Matters," and in the amounts set
forth below. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT." As of December 12, 1997, executive officers and employee directors
of the Company own (i) 478,150 shares of Fisher Common Stock (approximately
2.0% of the outstanding shares of Fisher Common Stock), as to which they will
have the right to make the elections with respect to such shares of Fisher
Common Stock described under "THE TRANSACTION--Transaction Consideration;
Election Procedures", and (ii) 2,331,979 options to purchase shares of Fisher
Common Stock, which, if not exercised prior to the Effective Time or subject to
the Option Conversion, will be treated in the Transaction in the manner
described under "THE TRANSACTION--Effect on Employee Stock Options and Employee
Benefit Matters" and in the amounts set forth below. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
The Company has entered into Change of Control Employment Agreements with
24 key executives, including Messrs. Montrone and Meister and Mr. Denis
Maiorani, President, Fisher Scientific Worldwide, Inc. These agreements become
effective upon the occurrence or anticipation of the Transaction. Following the
Effective Time, each agreement provides for the continued employment of the
executive, with the same position and duties and on the same terms and
conditions as were in effect before the Effective Time, for a term of three or
two years (depending upon the executive). In the event that the executive's
employment is terminated in certain circumstances, the executive is entitled to
receive a lump sum payment equal to the sum of (i) his accrued but unpaid cash
compensation (including a pro rata bonus for the year of termination), (ii)
three or two (depending on the executive) times his base salary and annual
bonus amount, (iii) the actuarial present value of the additional pension
benefits he would have become entitled to if he had continued to be employed
for another three or two years (as applicable) and (iv) the amount, if any,
necessary to compensate the executive for tax on excess parachute payments for
which the executive may become liable. In addition, the executive will continue
to be provided with medical benefits and, in certain cases, certain fringe
benefits, for the same three- or two-year period, and will be provided with
outplacement services. Such lump sum payment amounts which would be required to
be paid by the Company under the Change of Control Employment Agreements to
each of the named executive officers upon termination of employment are
estimated by the Company to be as follows: Paul M. Montrone, $4,786,703; Paul
M. Meister, $3,255,379; and Denis M. Maiorani, $1,156,283.
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It is anticipated that, following the Effective Time, each executive
officer of the Company (other than Mr. Montrone and Mr. Meister) will receive
the same salary and benefits as in effect immediately prior to the Effective
Time, and will receive in addition the stock option grants described under
"1998 EQUITY AND INCENTIVE PLAN." The base salary expected to be paid to each
of the named executive officers following the Merger is as follows: Paul M.
Montrone, $540,000; Paul M. Meister, $360,000; and Denis M. Maiorani, $275,000.
Information concerning compensation of the Company's senior executive officers
and its directors is set forth under "COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS." Compensation arrangements for directors following the Effective
Time, if any, have not been determined and are not expected to be finalized
prior to the Effective Time. However, it is not expected that the compensation
arrangements for directors following the Effective Time would be materially
different from that existing currently. The existing arrangements have provided
directors with cash compensation, a retirement plan, a restricted unit plan and
stock Options. Mr. Montrone and Mr. Meister have agreed to continue to serve as
officers of the Company following the Effective Time and have agreed to elect
to exchange all of their options under the Option Conversion and to elect to
retain all shares of Fisher Common Stock currently owned by them in the
Transaction. In exchange, each of Messrs. Montrone and Meister's Change of
Control Employment Agreements will be amended, effective as of the Effective
Time, to reflect the revised terms and conditions on which they will so serve.
The term of their agreements will be changed from a fixed three-year term
beginning on the Effective Date of the Merger to a five-year "evergreen" term,
and the severance benefits, if paid, will be based on a multiple of five rather
than three. In return, Messrs. Montrone and Meister have agreed to delete a
provision from the agreements under which they would have been entitled to
terminate their employment for "good reason" and receive severance benefits
based solely on the fact that after the Effective Time, it will no longer be
the case that at least 60 percent of the Company's voting securities are
publicly held by at least 50 unaffiliated stockholders of record, none of whom
owns more than five percent of the outstanding voting securities. Although no
specific grant to any individual has been made, it is currently contemplated
that Option grants will be made at the Effective Time to members of management
in amounts based generally on the extent to which such person elects to
participate in the Option Conversion and expected level of contribution to the
Company. Messrs. Montrone and Meister, who have agreed to exchange all of their
Options under the Option Conversion and to elect to retain all of the shares
owned by them in the Merger, will be granted immediately following the Merger,
options to purchase an aggregate of 516,663 shares of Fisher Common Stock
having an exercise price of $48.25 (approximately 412,200 of which are based
solely on their participation in the Option Conversion based on a grant of 0.6
options for each share of Fisher Common Stock received pursuant to the Option
Conversion and retained in the Merger) in exchange for the conversion of
Options having a value of approximately $20 million under the Option Conversion
and Options to purchase an aggregate of 103,333 shares of Fisher Common Stock
having an exercise price of $144.75. The actual number of options to be granted
to each of Messrs. Montrone and Meister has not been determined but will not
exceed the aggregate amount set forth above. The number of Options of any type
that may be granted, including, but not limited to vesting options and
performance options, to Messrs. Montrone, Meister and Maiorani will not differ
materially from the proposed grants. Options held by non-employee directors
will be cashed out in the Merger. See "1998 EQUITY INCENTIVE PLAN--Contemplated
Awards." There are no other employment or compensation arrangements with the
named executive officers other than as set forth above including amounts that
would be paid in connection with the Transaction. If the Change of Control
Employment Agreements of Messrs. Montrone and Meister are amended as set forth
above to provide for a 5 year term, the payments required to be made by the
Company to each of them upon termination of employment would be $5,236,796 and
$3,479,162, respectively. Options currently held by nonemployee directors will
be cashed out in the Merger.
Pursuant to the provisions of the Merger Agreement, each of the executive
officers and directors named under "COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY" shall be entitled to receive, with respect to each
Option, the Cash Price less the exercise price applicable to each Option.
Accordingly, these individuals could receive the following cash payments in
respect of their Options (with the exception of Messrs. Montrone and Meister
who have agreed to elect to exchange their options under the Option
Conversion): Paul M. Montrone, $11,641,634; Paul M. Meister, $7,107,651; and
Denis N. Maiorani, $1,173,284; and all directors and all employees (including
the officers named above) as a group (a total of 120 individuals), $55,749,064.
However, the Merger Agreement also provides that each employee who is an
Eligible Employee can, pursuant to the Option Conversion and in lieu of
receiving a cash payment in respect of their Options, receive shares of Fisher
Common Stock having an aggregate value (based on a $48.25 per-share price)
equal to the difference between (i) the number of shares underlying such
Options times $48.25, less (ii) the aggregate exercise price of such Options.
68
<PAGE>
Messrs. Montrone and Meister have agreed to have their options exchanged under
the Option Conversion and will receive 241,277 and 147,308 shares of Fisher
Common Stock, respectively. Mr. Maiorani and the remaining Eligible Employees,
who were chosen upon mutual agreement of FSI and the Company, consist of
approximately 100 other salaried Fisher employees who will be eligible to
exchange Options for 24,316 and 496,491 shares of Fisher Common Stock,
respectively pursuant to the Option Conversion.
To facilitate and encourage Eligible Employees to exchange their Options
pursuant to the Option Conversion, the Company intends to establish a Rabbi
Trust, pursuant to which the Eligible Employees will direct shares of Fisher
Common Stock issued pursuant to the Option Conversion. Shares of Fisher Common
Stock held in the Rabbi Trust on behalf of Eligible Employees pursuant to the
Option Conversion will be held for a deferral period (elected by the optionee)
and will be distributable upon the expiration of such period, and certain other
events. While held in the trust such shares will be voted by the trustee, who
will exercise voting and all other rights of a shareholder with respect to such
stock. Although the Merger Agreement provides that the deferral period will end
upon termination of an employee's employment, FSI and the Company have agreed
to provide employees with a broader range of deferral rights, including the
right to receive stock with no deferral period. If an employee elects to
receive stock with no deferral period, such employee may vote such shares
immediately. All of the shares of Fisher Common Stock held in the Rabbi Trust
will be subject to certain rights and restrictions, set forth in a stockholders
agreement, which will also provide that holders will have the right to
participate, on a pro-rata basis, in certain sales of Fisher Common Stock which
may be made by THL. In addition, holders of shares of Fisher Common Stock held
in the Rabbi Trust may be required by the Equity Investors to participate in
certain sales of Fisher Common Stock by the Equity Investors to a third party
not affiliated with the Equity Investors. The trustee as trustee of the Rabbi
Trust, will exercise voting control over all securities held in the Rabbi
Trust.
Messrs. Philip E. Beekman, Robert A. Day, Gerald J. Lewis, Edward A.
Montgomery, Jr. and Lt. Gen. Thomas P. Stafford, respectively, will receive in
the Transaction (i) in respect of shares of Common Stock and Options held by
them, $72,000, $23,750, $23,750, $23,750, and $23,750, respectively; (2) in
respect of Restricted Units held by them, $244,059, $60,947, $244,059,
$244,059, and $244,059, respectively; and (3) estimated retirement benefits (to
which they otherwise would have been entitled regardless of the Transaction),
$222,827, $0, $233,890, $238,073 and $217,420, respectively. Mr. Dingman will
receive $9,341,599 in the Transaction in respect of shares of Fisher Common
Stock and Options held by him. See "COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY."
The Company sponsors the Fisher Scientific International Inc. Executive
Retirement and Savings Program (the "SERP"), under which selected management
employees are entitled to receive supplemental retirement, disability, death,
medical and savings benefits. Upon the occurrence of the Transaction, the
participants' benefits under the SERP become fully vested and cannot be
adversely amended or terminated without the consent of the affected
participant. The Company has created a grantor trust to provide a source for
funds to pay benefits under the SERP. Upon the occurrence of the Transaction,
the trust is required to be fully funded to provide for the SERP benefits and
anticipated administrative expenses. It is not expected that any significant
contribution would be required to be made to the trust as a result of the
Transaction.
Pursuant to the Merger Agreement, the Company has agreed to indemnify all
present and former directors and officers of the Company and its subsidiaries
from and after the Effective Time, and will, subject to certain limitations,
maintain for six years its current directors' and officers' insurance and
indemnification policy. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Indemnification; Directors' and Officers' Insurance."
The Investors include affiliates of Merrill Lynch, The Chase Manhattan
Bank ("Chase"), and Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). Affiliates of Merrill Lynch and Chase have provided investment banking
and financial advisory services to THL in connection with the Merger and
affiliates of Merrill Lynch, Chase and DLJ have provided underwriting
commitments in respect of $650 million of senior bank financing and $400
million in respect of senior subordinated bridge financing to consummate the
Merger and are acting as initial purchasers with respect to a private offering
of $400 million of senior subordinated notes in lieu of funding such bridge
financing. In connection with the funding of the Bridge Loan the bridge lenders
are entitled to earn the right to receive Note Warrants for no additional
consideration if the Bridge Loan remains outstanding for six months or more
following the Closing Date. Such Note Warrants may be used in connection with
refinancing the Bridge Loan. The bridge lenders will be entitled to retain any
of the Note Warrants that are not distributed in connection with the
refinancing of the Bridge Loan. In connection with such services and
commitments, Fisher is expected
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<PAGE>
to pay to affiliates of Merrill Lynch, Chase and DLJ an aggregate amount
(including expense reimbursement) of $15.7 million, $15.7 million, and $5.9
million, respectively. In addition in the event the Merger Agreement is
terminated in circumstances in which a Termination Fee is payable by the
Company, Merrill Lynch, Chase and DLJ would receive in the aggregate fees equal
to $8,500,000.
Scott M. Sperling, Managing Director of THL and Chairman of the Board of
Directors of FSI, is a member of the Board of Directors of General Chemical and
serves on the compensation committee of such board. Each of Mr. Montrone (who,
according to publicly filed reports, is deemed to be General Chemical's
controlling stockholder) and Mr. Meister serves on the General Chemical board,
and two of Fisher's non-employee directors, Mr. Philip E. Beekman and Gerald L.
Lewis, are also directors of General Chemical. For additional information
concerning such relationships and the Board's consideration of such
relationships, see "THE TRANSACTION--Certain Potential Conflicts of Interest."
In addition, following the Effective Time, THL and its affiliates are
expected to receive from the Company a one-time transaction fee of $20 million
in the aggregate and an annual management fee of $1.0 million in the aggregate.
In connection with the transaction fee, THL and its affiliates have provided
equity commitments for the Transaction, arranged additional equity financing,
arranged the Transaction Debt Financings, and structured and negotiated the
Transaction. In return for the annual management fee, THL will provide
consulting and management advisory services.
Investors' Agreement
The THL Fund has proposed that an Investors' Agreement (the "Investors'
Agreement"), at the Effective Time, be entered into among the Company, the THL
Fund, each of the other Equity Investors and certain affiliates and the members
of management who own shares of Fisher Common Stock, including shares held in
the Rabbi Trust (the "Management Stockholders"). Although the terms of the
Investors' Agreement have not yet been finalized and reduced to writing, it is
expected that they will restrict transfers of the shares of Fisher Common Stock
by the Management Stockholders and the Equity Investors other than the THL
Fund, permit the Management Stockholders and the Equity Investors other than
the THL Fund, to participate in certain sales of shares of Fisher Common Stock
by the THL Fund, require the Management Stockholders and the Equity Investors
other than the THL Fund, to sell shares of Fisher Common Stock in certain
circumstances should the THL Fund choose to sell any such shares owned by the
THL Fund, permit the Management Stockholders and the Equity Investors other
than the THL Fund to purchase equity securities proposed to be issued by the
Company on a preemptive basis in the event the THL Fund chooses to acquire any
such equity securities, and provide for certain registration rights on
customary terms. It is also expected that the Investors' Agreement will provide
that the THL Fund has the right to appoint at least a majority of the members
of the Board of Directors. Based upon discussions involving THL, the Equity
Investors, and management stockholders, it is expected that the terms of the
Investors' Agreement will be finalized in written form prior to the Special
Meeting.
Effect of the Merger on Rights of Holders of Fisher Common Stock
As required by the Merger Agreement, the Fisher Board will amend the
Rights Agreement so that the Merger and the Transaction will not cause any of
the Rights to become exercisable. See "DESCRIPTION OF FISHER CAPITAL
STOCK--Preferred Stock."
Delisting; Loss of Liquidity; Reporting Obligations
Although it is currently intended that the shares of Fisher Common Stock
will continue to be listed on the NYSE immediately following the Effective
Time, there is no obligation for the Company to maintain the NYSE listing, and,
in addition there is a possibility that, following the Effective Time, the
total number of beneficial holders of Fisher Common Stock will fall below the
400 beneficial holders required for Fisher Common Stock to maintain its NYSE
listing. Accordingly, there can be no assurance that the Company will maintain
its NYSE listing following the Merger. However, the Company believes that
neither the Merger nor the Transaction has a reasonable likelihood or purpose
of causing Fisher Common Stock to cease being listed on the NYSE following the
Effective Time. Any delisting of Fisher Common Stock, together with the
substantial decrease in the number of shares of Fisher Common Stock to be held
by holders thereof other than affiliates of THL and the other Equity Investors,
70
<PAGE>
is expected to result in a substantial decrease in the liquidity of Fisher
Common Stock, even if the Company continues to be a reporting company under the
Exchange Act and continues to file the periodic reports (including annual and
quarterly reports) required to be filed thereunder.
Upon any such delisting, shares of Fisher Common Stock would trade only in
the over-the-counter market. Although prices in respect of trades may be
published by the National Association of Securities Dealers, Inc. on its
electronic bulletin board and "pink sheets," quotes for such shares would not
be as readily available. As a result, it is anticipated that the shares will
trade much less frequently relative to the trading volume of Fisher Common
Stock prior to the Effective Time, and stockholders may experience difficulty
selling such shares or obtaining prices that reflect the value thereof.
The Company currently expects to continue to be a reporting company under
the Exchange Act and to continue to file periodic reports (including annual and
quarterly reports) following the Effective Time. The Company will also continue
to provide proxy statements to its stockholders under the Exchange Act if as a
result of the Stock Elections made by holders of Fisher Common Stock with
respect to the Transaction, the Company has 300 or more holders of shares of
Fisher Common Stock following the Effective Time. If, however, after one year
following the Effective Time and the related offering of Debt Securities, there
are fewer than 300 holders of Debt Securities and fewer than 300 holders of
shares of Fisher Common Stock, the Company may cease to be a reporting company
under the Exchange Act. Any determination by the Company to cease to be a
reporting company under the Exchange Act would be made based on facts and
circumstances at the time the number of holders of Debt Securities or shares of
Fisher Common Stock fell below the relevant threshold. Accordingly, there can
be no assurance that the Company will continue to be a reporting company under
the Exchange Act. If the Company were to cease to be a reporting company under
the Exchange Act, the information now available to holders of Fisher Common
Stock in the periodic reports would not be available to them as a matter of
right.
Resale of Fisher Common Stock Following the Effective Time
The Fisher Common Stock to be retained in connection with the Transaction
will be freely transferable, except that shares retained by any stockholder who
may be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the
Company for purposes of Rule 145 under the Securities Act will not be
transferable except in compliance with the Securities Act. This Proxy
Statement/Prospectus does not cover sales of Fisher Common Stock retained by
any person who may be deemed to be an affiliate of the Company.
Capital Commitments of Equity Investors
The Equity Investors have committed to contribute an aggregate of up to
$389 million in cash capital to FSI in order to consummate the Transaction. The
commitments of each of the Equity Investors are as follows (in millions):
<TABLE>
<CAPTION>
Common Preferred
Equity Investors Commitment Commitment
- - - --------------------------------- ------------ -----------
<S> <C> <C>
THL Fund and Affiliates $ 201.0 $ 48.0
DLJMB 60.5 14.5
Chase Equity 40.4 9.6
Merrill Lynch 12.1 2.9
- - - --------------------------------- ------- ------
Total $ 314.0 $ 75.0
======= ======
</TABLE>
The commitments of each of the Equity Investors are subject to certain
conditions, including (i) execution of documentation customary in financings of
this type; (ii) execution of the Merger Agreement; and (iii) the investments of
all of the Equity Investors being on the same terms.
71
<PAGE>
Transaction Financing
The following table sets forth the expected sources and uses in connection
with the financing of the Transaction assuming the Transaction is consummated
on September 30, 1997. See "THE TRANSACTION--Capitalization" (in millions):
Sources
<TABLE>
<S> <C>
Cash ........................... $ 15.6
Revolving Facility ............... --
Receivables Securitization ...... 150.0
Term Facility .................. 294.2
Senior Subordinated Notes ...... 400.0
New Equity Capital(1) ............ 314.0
--------
Total ........................ $1,173.8
========
</TABLE>
Uses
<TABLE>
<S> <C>
Cash Transaction Consideration ......... $ 959.3
Repayment of Existing Indebtedness ...... 124.5
Estimated Fees and Expenses ............ 90.0
--------
Total .............................. $1,173.8
========
</TABLE>
(1) Does not include common stock to be retained by existing shareholders
($36 million measured at the Cash Price of $48.25 per share) and up to
$43.8 million of common stock issued to management pursuant to the
Option Conversion. In connection with financing the Transaction, the
Company may issue preferred stock with a liquidation preference of up to
$75.0 million; however, the Company currently does not expect to do so.
Assumes Eligible Employees which elect to retain stock at the Effective
Time are not subject to limitations on the number of shares they can
receive at the Effective Time, and that only 746,114 shares are retained
in the Standard Pool pursuant to the Stock Election process. As a result
of the Transaction, shares of FSI common stock will be converted into
shares of Fisher Common Stock.
Fisher is expected to enter into and, along with certain material foreign
subsidiaries, will be the obligor pursuant to debt financing arrangements
aggregating approximately $1.02 billion, consisting of $469.2 million of senior
bank financing (the "Senior Financing"), $150 million pursuant to a
securitization of accounts receivable (the "Receivables Securitization") and
$400 million of senior subordinated financing (the "Senior Subordinated
Financing"). It is anticipated that the full proceeds of the Senior
Subordinated Financing, together with a portion of the proceeds of the Senior
Financing and the proceeds of the New Equity Capital contribution (as defined
below), will be used to finance the conversion into cash of the shares of
Fisher Common Stock currently outstanding which are not retained by existing
stockholders and Eligible Employees, to refinance certain outstanding
indebtedness of the Company and to pay related fees and expenses of the
Transaction. In addition, the Senior Financing would be used to provide for the
Company's working capital requirements at and subsequent to the Effective Time.
On September 11, 1997, FSI received commitment letters on behalf of the Company
to provide the Senior Financing and the Senior Subordinated Financing. The
commitments are subject to customary conditions, including the negotiation,
execution and delivery of definitive documentation with respect to the
financings contemplated by the commitments.
If the Company is unable to consummate the issuance and sale of
Subordinated Notes (as defined below), the Company will rely on the Bridge Loan
(as defined below) which will be on terms less favorable to the Company than
the terms of the Subordinated Notes. The Bridge Loan would initially bear
interest at a rate in excess of the expected interest rate on the Subordinated
Notes, which rate would increase over time subject to certain caps.
The Senior Financing. The Senior Financing is expected to consist of (i) a
$294.2 million term loan facility (the "Term Facility") consisting of a (a)
$125.0 million tranche A term loan ("Tranche A"), (b) $100.0 million tranche B
term loan ("Tranche B") and (c) $69.2 million tranche C term loan ("Tranche
C"); and (ii) a $175.0 million revolving credit facility (the "Revolving
Facility" and, together with the Term Facility, the "Senior Facilities"). Chase
will act as administrative agent for the syndicate of lenders providing the
Senior Financing, Merrill Lynch Capital Corporation will act as syndication
agent for such facilities and DLJ Capital Funding, Inc. will act as
72
<PAGE>
documentation agent. In its capacity as administrative agent, Chase will
receive an annual fee equal to $100,000. The Revolving Facility will include a
sub-limit for the issuance of letters of credit. In its capacity as issuing
bank of such letters of credit, Chase will receive a fronting fee equal to
0.25% per annum of the undrawn face amount of such letter of credit sublimit
from time to time. Borrowings made under the Revolving Facility will bear
interest at a rate equal to, at the Company's option, a Eurodollar Rate
("LIBOR") plus 2.25%, or the Prime Rate plus 1.25%. The "Prime Rate" is a
fluctuating interest rate equal to the higher of (i) the rate of interest
announced publicly by a reference bank as its prime rate and (ii) a rate equal
to one-half of 1% per annum above the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers. The Company will also pay to the lenders a
commitment fee equal to .50% per annum of the undrawn portion of each lender's
commitment from time to time.
The Eurodollar Rate and Prime Rate margins and the commitment fees will be
subject to reductions, based on various tests of Fisher's financial
performance. Prime Rate interest will be payable monthly in arrears. Eurodollar
Rate interest will be payable in arrears at the earlier of the end of (i) the
applicable interest period and (ii) quarterly. Eurodollar Rate borrowings are
available in 1-, 2-, 3- or 6-month interest periods.
The Revolving Facility expires six (6) years from the consummation of the
Transaction. The Term Facility will bear interest at the rates, and will
amortize and mature at the times, specified in the following table:
<TABLE>
<CAPTION>
Facility Maturity Date Principal Repayments Interest Rate
- - - ----------- --------------- ------------------------------------------------ --------------
<S> <C> <C> <C>
Tranche A 6 years semi-annually (starting 18 months LIBOR + 2.25%
after Closing); in amounts to be Prime + 1.25%
agreed upon
Tranche B 7 years semi-annually in nominal installments LIBOR + 2.50%
during first 6 years (starting 18 months after Prime + 1.50%
Closing), semi-annually thereafter; in
amounts to be agreed upon
Tranche C 7.75 years semi-annually in nominal installments LIBOR + 2.75%
during first 7 years (starting 18 months after Prime + 1.75%
Closing, semi-annually thereafter); in
amounts to be agreed upon
</TABLE>
"LIBOR" is the London Interbank Offer Rate.
The obligations of Fisher and the subsidiary borrowers under the Senior
Financing credit agreement will be secured by substantially all assets of the
Company and each of its material domestic subsidiaries, and will be guaranteed
by each material domestic subsidiary of the Company.
The Senior Financing credit agreement will contain customary covenants of
the Company and the subsidiary borrowers, including, without limitation,
restrictions on (i) indebtedness, (ii) the sale of assets, (iii) mergers,
acquisitions and other business combinations, (iv) voluntary prepayment of
certain debt of the Company, (v) transactions with affiliates, (vi) capital
expenditures and (vii) loans and investments, as well as prohibitions on the
payment of cash dividends to, or the repurchase of redemption of stock from,
shareholders, and various financial covenants. The financial covenants include
requirements to maintain certain levels of interest coverage, debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") and minimum
EBITDA. Pursuant to the terms of the Senior Financing credit agreement, and
subject to applicable grace periods in certain circumstances, the Company would
be in default upon the non-payment of principal or interest when due under such
agreement or, upon the non- fulfillment of the covenants described above,
certain changes in control of the ownership of the Company or various other
defaults to be described therein. If such a default occurs, the Senior
Financing lenders would be entitled to take all actions permitted to be taken
by a secured creditor under the Uniform Commercial Code and to accelerate the
amounts due under the Senior Financing credit agreement and may require all
such amounts to be immediately paid in full. Loans under the Term Facility will
be required to be prepaid with 50% of excess cash flow (to be defined in the
Senior Financing credit agreement and subject to certain limits to be specified
therein) and certain equity issuances of the Company, and 100% of net-cash
proceeds of certain asset sales, certain insurance and condemnation proceeds
and certain debt issuances of the Company.
73
<PAGE>
In connection with the Transaction, Fisher is expected to enter into a
five year Receivables Securitization facility pursuant to which Fisher would
sell approximately $200 million worth of its accounts receivable to a newly
formed wholly-owned bankruptcy remote special purpose subsidiary which in turn
would transfer approximately $150 million of the receivables to Park Avenue
Receivables Corp ("PARCO"), a special purpose corporation formed by Chase
solely for the purpose of issuing commercial paper rated A-1/P-1 or higher.
Chase will act as funding agent and with other commercial banks acceptable to
PARCO will provide liquidity funding to PARCO for the purchase of the
receivables from the Company's receivables subsidiary. The proceeds from the
Receivables Securitization facility will be used to finance a portion of the
conversion into cash of shares of Fisher Common Stock and related fees and
expenses associated with the Transaction. The Receivables Securitization
facility is expected to carry an effective interest rate of LIBOR plus 50 basis
points. To the extent that the Receivables Securitization facility is not
consummated, the borrowings under the Revolving Facility and the Term Facility
would be increased. Excluding participation in the liquidity facility, none of
the parties participating in the debt or equity financing, with the exception
of Chase, will be participating in the Receivables Securitization facility.
Based on market conditions at the Closing, the Company may seek to borrow
in excess of the $694.2 million for which it has commitments under the Term
Facility and Senior Subordinated Financing. The Company currently does not
expect to borrow in excess of the $694.2 million for which it has commitments.
In the event that (i) less than the maximum number of shares are converted
pursuant to the Option Conversion or (ii) the level of indebtedness at Closing
which must be refinanced is higher then expected, the Company may seek to
borrow in excess of the $694.2 million for which it has commitments.
The Senior Subordinated Financing. The Senior Subordinated Financing is
expected to consist of (i) a $400 million offering of subordinated debt
securities due ten years after the issuance with no scheduled principal
payments prior to maturity (the "Subordinated Notes") or (ii) a $400 million
unsecured bridge loan financing (the "Bridge Loan") that would be anticipated
to be replaced with debt securities substantially similar to the Subordinated
Notes as soon as practicable after the Closing Date.
The Subordinated Notes will have an interest rate and other financial
terms based on market conditions at the time of issuance. The Subordinated
Notes will have a maturity of ten years from the date of issue. Interest shall
be payable semi-annually. The Subordinated Notes will be senior subordinated
obligations of the Company, ranking pari passu in light of payment with all
other existing and future senior subordinated indebtedness of the Company. FSI
has engaged Merrill Lynch Pierce Fenner & Smith Incorporated ("MLPFS") and
Chase Securities Inc. ("Chase Securities") to act as joint lead underwriters,
joint lead placement agents or joint lead initial purchasers for the
Subordinated Notes, and DLJ to act as co-underwriter, co-placement agent or
co-initial purchaser.
It is expected that the Subordinated Notes will be redeemable at the
option of the Company at any time on or after five (5) years from the issue
date, in whole or in part at a premium to par value (to be determined at the
time of issue), declining ratably to par value eight (8) years from the issue
date. Notwithstanding the foregoing, at any time on or before three (3) years
from the issue date, the Company may redeem up to 40% of the original aggregate
issue amount of Subordinated Notes at a percentage of accreted value (to be
determined at the time of issue) with the net proceeds of one or more public
equity offerings, provided that at least 60% of the aggregate principal amount
of the Subordinated Notes originally issued remain outstanding immediately
after the occurrence of such redemption. Upon a change of control (to be
defined in the Indenture pursuant to which the Subordinated Notes will be
issued), the Company will be required to make an offer to purchase all
outstanding Subordinated Notes at 101% of accreted value, together with accrued
and unpaid interest. The Subordinated Notes shall be issued in a transaction
not involving a public offering which anticipates resales pursuant to Rule 144A
to qualified institutional buyers and non-U.S. persons and, accordingly, shall
not be registered under the Securities Act.
The Subordinated Notes indenture will contain customary covenants that
will restrict, among other things, (i) the ability of the Company and its
subsidiaries to incur additional indebtedness, (ii) pay dividends or make
certain other restricted payments, (iii) incur liens, (iv) apply net proceeds
from certain asset sales, (v) merge or consolidate with any other person, or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of the Company, (vi) enter into certain transactions with
affiliates, or (vii) incur other senior subordinated indebtedness. The
Subordinated Notes indenture will contain Events of Default which are customary
for transactions of this type.
The Bridge Loan would be funded in a principal amount of up to $400
million. It is expected that MLPFS would act as syndication agent, Chase would
act as administrative agent and DLJ Bridge Finance, Inc. would act
74
<PAGE>
as documentation agent for the Bridge Loan. The administrative agent will
receive an annual fee equal to $50,000. Borrowings made under the Bridge Loan
would bear interest at a rate as specified in the following table:
<TABLE>
<CAPTION>
From the
Beginning
of Month To the End of Month Spread over LIBOR
- - - -------------- --------------------- ------------------
<S> <C> <C>
1 3 5.5%
4 6 6.0%
7 9 7.0%
10 12 8.0%
</TABLE>
Interest would be payable monthly. The Bridge Loan would be unsecured,
although it would be guaranteed by the same entities guaranteeing the Senior
Facilities. The Bridge Loan would be a senior subordinated obligation of the
Company, ranking pari passu in light of payment with all other existing and
future senior subordinated indebtedness of the Company. The Company will also
pay a commitment fee to the bridge lenders equal to 0.25% per annum of their
respective commitments until the Effective Time.
The Bridge Loan would mature one (1) year after funding. Up to 489,470
Note Warrants, with a nominal exercise price, each of which will entitle
holders to purchase after the Effective Time one share of the Common Stock of
the Company, would be issued to the lenders, for no consideration, by the
Company as follows: (i) 60% of such warrants would be issued six (6) months
after funding if any portion of the Bridge Loan is then outstanding, (ii) 20%
of such warrants would be issued nine (9) months after funding if any portion
of the Bridge Loan is then outstanding, and (iii) the balance would be issued
one (1) year after funding if any portion of the Bridge Loan is then
outstanding. Upon maturity, the Bridge Loan would be exchanged for, at the
option of each lender, nine-year senior subordinated debt securities (the
"Rollover Securities") or senior subordinated loans maturing in nine years (the
"Rollover Loans"). The Rollover Securities and the Rollover Loans would bear
interest at the lesser of (i) 13% if funded prior to December 31, 1997 and 14%
thereafter and (ii) the then-applicable six-month Eurodollar Rate plus 9.0%,
and would be evidenced by an indenture or loan agreement, as applicable, with
terms no less favorable than with respect to the Subordinated Notes. The
Company does not expect to register the Rollover Securities upon their initial
issuance to the lenders under the Bridge Loan, in reliance upon the exemption
provided by Section 4(2) of the Securities Act. With respect to subsequent
resales of the Rollover Securities, the holders thereof would have certain
registration rights or could resell such securities under Rule 144A or another
available exemption from registration. The Company will be required to pay a
fee equal to 3.0% of the aggregate principal amount of Rollover Securities or
Rollover Loans issued, which fee would be credited against any underwriting fee
payable to MLPFS, Chase and DLJ for underwriting securities issued to refinance
the Rollover Securities and Rollover Loans. The Rollover Securities and the
Rollover Loans will be mandatorily redeemable or repayable on the same terms as
the Bridge Loan, and optionally redeemable or repayable, as applicable, at
declining premiums, on terms customary for high-yield debt securities,
including four year no-call provisions. Notwithstanding the immediately
preceding sentence, so long as any Lender which made the Bridge Loan at Closing
holds any Rollover Security or Rollover Loan at the maturity of the Bridge
Loan, such Rollover Security or Rollover Loan may be redeemed at the option of
the Company at par plus accrued and unpaid interest. The holders of the
Rollover Securities will be entitled to exchange offer and other registration
rights to permit resale without restriction under applicable securities laws no
less favorable than those applicable to the Subordinated Notes. The purpose of
the Note Warrants is to facilitate the sale of Rollover Securities or the
financing of Rollover Loans, as applicable, in the situation where the maximum
permitted interest rate for such Rollover Securities or Rollover Loans is not
sufficient in the then-prevailing market for such instruments to be sold. Since
the Bridge Lenders have taken the risk that the Bridge Loan cannot be
refinanced at or below the negotiated maximum permitted interest rate for the
rollover instruments, they are permitted to retain all Note Warrants, if any,
which are not used to facilitate the sale of Rollover Securities or the
financing of Rollover Loans, as applicable, in the proportion of their initial
Bridge Loan commitment.
Equity Capital. The potential sources of equity capital to fund the
Transaction are the cash being received from FSI in the Merger and the issuance
of Cumulative Preferred Stock as described as follows. THL and the other Equity
Investors have committed to purchase up to $389.0 million in equity ("New
Equity Capital") pursuant to the Merger which is composed of (i) up to $314.0
million of new capital contributed in the form of common equity by the Equity
Investors through FSI, which will be converted in the Transaction into
6,507,772 shares of Fisher Common Stock less any shares retained by Eligible
Employees pursuant to the Eligible Employee Pool at the Cash
75
<PAGE>
Price (up to 310,881 shares) and (ii) up to $75.0 million of new capital
contributed in the form of Cumulative Preferred Stock which may be issued to
the Equity Investors under certain circumstances. The Equity Investors will
receive warrants to purchase 516,663 shares of Fisher Common Stock at or
following the Effective Time (the "Equity Warrants") in consideration for the
commitment to purchase the Cumulative Preferred Stock. In addition, the Equity
Investors will receive the Equity Warrants less the amount of Equity Warrants,
if any, issued in conjunction with the sale of securities to other investors
with substantially similar terms as the Cumulative Preferred Stock and in place
thereof, as discussed below. The Cumulative Preferred Stock would have an
aggregate liquidation preference of up to $75.0 million and the Equity Warrants
would have an exercise price of $48.25 per share. The effective price to be
paid by the Equity Investors as a result of new capital contributed by the
Equity Investors through FSI and the exercise of the Equity Warrants will be
$48.25 per share of Fisher Common Stock. New Equity Capital does not include
$79.8 million of non-cash Transaction Consideration in the form of (x) $36.0
million of common stock retained by existing shareholders (including Eligible
Employees) pursuant to the Standard Pool valued at the Cash Price, and (y) up
to $43.8 million of common stock issued pursuant to the Option Conversion. The
Cumulative Preferred Stock may be replaced by preferred stock sold in a
transaction of the type which anticipates resales under Rule 144A transaction
or the sale of registered securities, in either case, which securities would
have substantially similar terms as the Cumulative Preferred Stock. Although
the Company does not intend at the current time to issue any preferred stock in
connection with the Transaction, it reserves the right to issue preferred stock
or similar securities having a liquidation preference of not more than $75
million. The issuance of preferred stock is subject to (i) the level of
indebtedness at Closing which must be refinanced and (ii) the issuance of up to
$43.8 million of common stock pursuant to the Option Conversion. For additional
information concerning the Cumulative Preferred Stock and the Equity Warrants,
see "DESCRIPTION OF FISHER CAPITAL STOCK--Preferred Stock." It is expected that
the Equity Investors will enter into an agreement which will provide for
certain customary governance and transfer rights following the Effective Time.
For additional information, see "THE TRANSACTION--Investors' Agreement."
The foregoing description of the Subordinated Notes and the preferred
stock and the other references herein to such securities does not constitute an
offer to purchase or a solicitation of an offer to buy such securities.
FSI Stock and Fisher Common Stock Ownership Following the Transaction
In the Transaction, the shares of stock of FSI issued and outstanding
immediately prior to the Effective Time and held by THL and other Equity
Investors, will be exchanged for 6,507,772 shares of Fisher Common Stock less
the amount, if any, by which (i) the aggregate number of shares actually
retained by existing stockholders (including Eligible Employees) exceeds (ii)
746,114, which amount may not exceed 310,881. As a result, such shares of
Fisher Common Stock will be held by THL and the other Equity Investors.
Ownership. The following table reflects the expected ownership of the
Company after consummation of the Transaction. Assuming all options and
warrants are exercised and the maximum number of shares are issued pursuant to
the Option Conversion, the Equity Investors and management would own an
aggregate of 88.6% of the outstanding stock, excluding any shares which may be
held as part of the Standard Pool. If the warrants and management options are
not issued, and shares are not issued pursuant to the Option Conversion, the
Equity Investors would own 89.7% of the outstanding shares.
76
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Share, Warrant
Title of Beneficial Percent Option
Class Name and Address of Beneficial Owner Ownership of Class Ownership
- - - ---------- --------------------------------------------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Common Equity Investors(1)
Stock THL and Affiliates(2) ........................... 4,165,643 51.0% 38.5%
DLJMB Funds(3) ................................. 1,254,712 15.4% 11.6%
Chase Equity(4) ................................. 836,475 10.2% 7.7%
Merrill Lynch(5) .............................. 250,942 3.1% 2.3%
--------- ----- -----
Subtotal ....................................... 6,507,772 79.7% 60.1%
Standard Election Retained Shares ............... 746,114 9.1% 6.9%
Eligible Employees--Option Conversion(1)(6) ...... 909,392 11.1% 8.4%
--------- ----- -----
Share Ownership ................................. 8,163,278 100.0% 75.4%
Note Warrants(7) ................................. 489,470 4.5%
Equity Warrants(8) .............................. 516,663 4.8%
Management Options(9) ........................... 1,653,322 15.3%
--------- -----
Share, Warrant and Option Ownership ............... 10,822,733 100.0%
</TABLE>
- - - ----------------
(1) Assumes that Eligible Employees who elect to retain all of their 310,881
shares of Fisher Common Stock in the Standard Pool are not subject to
proration and that Eligible Employees do not retain stock in the Eligible
Employee Pool.
(2) The address of THL and Affiliates is 75 State Street, Boston, MA 02109.
(3) The address of DLJMB Funds is 277 Park Avenue, New York, NY 10172
(4) The address of Chase Equity is 270 Park Avenue, New York, NY 10017
(5) The address of Merrill Lynch is World Financial Center, North Tower, 250
Vesey Street, New York, NY 10281
(6) Reflects maximum number of shares issuable pursuant to the Option
Conversion.
(7) To be issued to holders of Bridge Loan securities.
(8) Expected to be issued to the Equity Investors pro rata.
(9) To be issued in part to Eligible Employees and other members of management.
77
<PAGE>
FSI Capitalization. The following table sets forth the anticipated
capitalization of FSI, a subsidiary formed by THL to consummate the Transaction
after giving effect to the planned investment of equity capital prior to the
Effective Time (in millions).
<TABLE>
<CAPTION>
Pro Forma(1)
<S> <C>
Cash and cash equivalents ............ $ 314.0
=======
Shareholders' equity:
Common Stock ........................ 0.1
Capital in excess of par value ...... 313.9
-------
Total Capitalization .................. $ 314.0
=======
</TABLE>
(1) Assumes no shares are issued pursuant to Eligible Employee Pool.
Capitalization. The following table sets forth the capitalization of the
Company as of September 30, 1997 on a historical basis and on a pro forma basis
after giving effect to the Transaction. This table should be read in
conjunction with "THE TRANSACTION--Transaction Financing," "UNAUDITED PRO FORMA
FINANCIAL STATEMENTS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and the Company's consolidated financial
statements and the notes thereto included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1997
-------------------------
Historical Pro Forma
------------ ----------
(in millions)
<S> <C> <C>
Cash and cash equivalents ..................... $ 30.1 $ 14.5
======= =======
Debt(a):
Revolving Facility(b) ........................ $ -- $ --
Term Facility ................................. -- 294.2
Existing Bank Credit Facility ............... 111.7 --
7-1/8% Notes due 2005 ....................... 148.9 148.9
Senior Subordinated Notes ..................... -- 400.0
------- -------
Other ....................................... 39.7 26.9
------- -------
Total debt ................................. 300.3 870.0
Shareholders' equity (deficit):
Preferred Stock(c) ........................... -- --
Common Stock(d) .............................. 0.2 0.1
Capital in excess of par value(d) ............ 277.8 322.7
Retained earnings ........................... 151.7 (557.9)
Other ....................................... ( 23.4) ( 61.2)
------- -------
Total shareholders' equity (deficit) ...... 406.3 (296.3)
------- -------
Total capitalization ..................... $ 706.6 $ 573.7
======= =======
</TABLE>
(a) Excludes $150.0 million of funds received from the sale of accounts
receivable through a receivables securitization which will be entered into
concurrently with the Transaction and which will be reflected as a reduction
in receivables.
(b) The Company expects that the $175.0 million Revolving Facility will be
available for working capital and general corporate purposes.
(c) In connection with the financing of the Transaction, the Company may issue
preferred stock with a liquidation preference of up to $75.0 million;
however, the Company does not currently expect to do so.
(d) Pro Forma includes common stock to be retained by existing stockholders
($36.0 million measured at the cash price of $48.25 per share) and up to
$43.8 million of common stock issued to management pursuant to the Option
Conversion and the Equity Warrants.
78
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Financial Statements are derived from
the Company's Financial Statements. The Unaudited Pro Forma Statements of
Operations give effect to the Transaction and the Transaction Financings as if
they occurred on January 1, 1996. The Unaudited Pro Forma Balance Sheet gives
effect to the Transaction and the Transaction Financings as if they occurred on
September 30, 1997.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The Unaudited Pro Forma Financial Statements should be read in conjunction with
the Financial Statements of the Company and the related notes incorporated
herein by reference, and other financial information included elsewhere in this
Proxy Statement/Prospectus. This unaudited pro forma financial information is
provided for informational purposes only and does not purport to be indicative
of the results which would have been obtained had the Transaction and the
Transaction Financings been completed on the dates indicated or results which
may be expected to occur in the future.
79
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC. UNAUDITED PRO FORMA BALANCE SHEET
(in millions)
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments(a) Pro Forma
------------- ----------------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ....................................... $ 30.1 $ (15.6)(a) $ 14.5
Receivables, net .......................................... 322.7 (150.0)(b) 172.7
Inventories ................................................ 244.4 244.4
Other current assets ....................................... 56.1 56.1
---------- ----------
Total current assets ....................................... 653.3 (165.6) 487.7
Property, plant and equipment, net ........................... 222.5 222.5
Goodwill ................................................... 293.7 293.7
Other assets ................................................ 110.5 $ 53.6 (c) 164.1
---------- ------------- ----------
Total assets ............................................. $ 1,280.0 $ (112.0) $ 1,168.0
========== ============= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Short-term debt ............................................. $ 26.6 $ (26.6)(d) $ --
Accounts payable .......................................... 236.0 236.0
Accrued and other current liabilities ..................... 139.5 (26.9)(e) 112.6
---------- ------------- ----------
Total current liabilities ................................. 402.1 (53.5) 348.6
Long term debt ............................................. 273.7 596.3)(d) 870.0
Other liabilities .......................................... 197.9 47.8)(f) 245.7
---------- ------------- ----------
Total liabilities .......................................... 873.7 590.6 1,464.3
Stockholders' Equity (deficit)
Cumulative redeemable preferred stock ..................... -- -- (g) --
Common stock ................................................ 0.2 (0.1)(g) 0.1
Capital in excess of par value .............................. 277.8 44.9 (g) 322.7
Retained earnings .......................................... 151.7 (709.6)(g) (557.9)
Other ...................................................... ( 23.4) (37.8)(g) (61.2)
---------- ------------- ----------
Total stockholders' equity (deficit) ..................... 406.3 (702.6) (296.3)
---------- ------------- ----------
Total liabilities and stockholders' equity (deficit) ...... $ 1,280.0 $ (112.0) $ 1,168.0
========== ============= ==========
</TABLE>
See accompanying notes to unaudited pro forma balance sheet.
80
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
The pro forma financial data has been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Transaction has been accounted for as a recapitalization
which will have no impact on the historical basis of assets and liabilities.
The pro forma financial data assumes that there are no dissenting shareholders
to the Merger.
(a) The net effect of the Transaction and the Transaction Financing, as if it
occurred on September 30, 1997, reflects the following (in millions):
Sources
<TABLE>
<S> <C>
Cash ........................... $ 15.6
Revolving Facility ............... --
Receivables Securitization ...... 150.0
Term Loans ..................... 294.2
Senior Subordinated Notes ...... 400.0
Equity Capital
Preferred Stock(1) ............ --
FSI common stock(2) ............ 314.0
--------
Total ........................ $1,173.8
========
</TABLE>
Uses
<TABLE>
<S> <C>
Cash Transaction Consideration ......... $ 959.3
Repayment of Existing Indebtedness ...... 124.5
Estimated Fees and Expenses ............ 90.0
--------
Total .............................. $1,173.8
========
</TABLE>
Notes:
(1) In connection with financing the Transaction, the Company may issue
preferred stock with a liquidation preference of up to $75.0 million;
however, the Company currently does not expect to do so.
(2) Assumes Eligible Employees elect to retain stock only in the Standard
Pool in the Transaction and are not subject to limitations on the number
of shares they can receive in the Transaction. As a result, only 746,114
shares would be retained pursuant to the Stock Election.
(b) Concurrent with the Transaction Financing, the Company intends to sell
approximately $150.0 million of its accounts receivable through a
receivables securitization.
(c) The adjustment reflects the following (in millions):
Capitalized financing costs ...... $ 55.0
Write-off of unamortized financing
costs on debt refinanced ...... (1.4)
--------
$ 53.6
========
The $55.0 million reflects the capitalized portion of fees and expenses
anticipated to be paid to effect the Transaction. Total estimated fees and
expenses are $90.0 million, the remaining $35.0 million of which will be
charged off. Such estimated fees and expenses are anticipated to consist of
(i) fees and expenses related to the Transaction Financing, including bank
commitment fees and underwriting discounts and commissions, (ii)
professional, advisory and investment banking fees and expenses and (iii)
miscellaneous fees and expenses such as printing and filing fees. The $1.4
million write-off relates to unamortized financing costs on the portion of
long-term debt refinanced.
81
<PAGE>
(d) The pro forma adjustments to short-term and long-term debt reflect the
following (in millions):
<TABLE>
<CAPTION>
Cash inflow/
(outflow)
-------------
<S> <C>
Term Facility ....................................... $ 294.2
Senior Subordinated Notes ........................... 400.0
--------
Repayment of existing long-term debt outstanding ...... ( 97.9)
--------
Pro forma adjustment to long-term debt ............ 596.3
========
Repayment of existing short-term debt ............... $ (26.6)
========
</TABLE>
The Company expects that a $175.0 million Revolving Facility, including a
letter of credit limit of $150 million, will be available for working
capital and general corporate purposes. See "THE TRANSACTION-- Transaction
Financing." The Revolving Facility amount excludes $35.0 million of letters
of credit which would have been issued to replace existing letters of
credit.
This presentation is the Company's best current estimate of the types of
financing which may be used in connection with the Transaction.
Subject to market conditions, the Company may increase the aggregate amount
of the Term Facility and Senior Subordinated Financing.
(e) The adjustment reflects the income tax benefit related to the employee
stock options exercised of $22.3 million, the grant of Executive
Performance Options of $4.0 million (see Note (f)), and the write-off of
unamortized financing fees on long term debt refinanced of $0.6 million.
(f) The adjustment reflects the following:
<TABLE>
<S> <C>
Liability for new shares to be held in trust ............ $ 43.8
Reversal of liability for old shares held in trust ...... ( 6.0)
Accrual for Executive Performance Options ............... 10.0
-------
$ 47.8
=======
</TABLE>
The $43.8 million of common stock issued to management pursuant to the Option
Conversion will be deposited in a Rabbi Trust. These shares are included in
the Company's pro forma shares outstanding number and, accordingly, in the
pro forma earnings per share calculations. The trust is reflected as a
liability within other long-term liabilities and as a contra-equity item.
Similarly, the Company currently has an existing trust which holds shares
with a market value of $6.0 million at September 30, 1997. These shares
will be released as part of the Transaction.
The $10.0 million accrual for Executive Performance Options relates to
options granted to certain executive officers which provide for a put
right. See "1998 EQUITY AND INCENTIVE PLAN--Contemplated Awards."
82
<PAGE>
(g) The pro forma adjustment reflects the following (in millions):
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Other Total
---------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Repurchase of Common Stock and
conversions of options to cash ......... $ (0.2) $(277.8) $(681.3) $ -- $(959.3)
Equity contribution by FSI ............... 0.1 313.9 -- -- 314.0
Conversion of management stock
options ........................... -- 43.8 (43.8) -- --
Grant of Executive
Performance Options ............... -- -- (10.0) -- (10.0)
Write-off of unamortized financing
fees .............................. -- -- (1.4) -- (1.4)
Fees and expenses related to the
recapitalization .................. -- ( 35.0) -- -- (35.0)
Tax benefit on above charges ......... -- -- 26.9 -- 26.9
Deposit of shares held in trust ...... (43.8) (43.8)
Release of shares held in trust ...... 6.0 6.0
------- ---------
Total .............................. $ (0.1) $ 44.9 $(709.6) $ (37.8) $ (702.6)
====== ======== ======== ======= =========
</TABLE>
83
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments Pro Forma
------------ ---------------- -----------------------
<S> <C> <C> <C>
Sales ............................................. $ 1,624.1 $ $1,624.1
Cost of sales .................................... 1,176.3 1,176.3
Selling, general and administrative expense ...... 382.6 0.8(a) 383.4
--------- --------- --------
Income from operations ........................ 65.2 ( 0.8) 64.4
Interest expense ................................. 17.6 52.6(b) 70.2
Other expense, net .............................. 0.1 0.1
--------- --------
Income (loss) before income taxes ............... 47.5 ( 53.4) (5.9)
Income tax provision/(benefit) .................. 23.0 ( 21.4)(c) 1.6
--------- --------- --------
Net income (loss) .............................. $ 24.5 $ (32.0) $ (7.5)(e)
========= ========= ========
Earnings (loss) per Common Share:
Primary .......................................... $ 1.17 $ (0.91)
========= =========
Fully Diluted .................................... $ 1.17 $ (0.91)
========= =========
Weighted average common shares and common share
equivalents outstanding:
Primary .......................................... 20.9 (12.7)(d) 8.2
========= ========== =========
Fully Diluted .................................... 20.9 (12.7)(d) 8.2
========= ========== =========
</TABLE>
See the accompanying notes to unaudited pro forma statements of operations.
84
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in millions, except per share amounts)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments Pro Forma
------------- ---------------- -------------------
<S> <C> <C> <C>
Sales ............................................. $ 2,144.4 $ $2,144.4
Cost of sales .................................... 1,565.9 1,565.9
Selling, general and administrative expense ...... 483.9 1.0(a) 484.9
--------- --------- -------
Income (loss) from operations .................. 94.6 (1.0) 93.6
Interest expense ................................. 27.1 71.4(b) 98.5
Other income, net ................................. (0.1) (0.1)
---------- -------
Income (loss) before income taxes ............... 67.6 (72.4) (4.8)
Income tax provision (benefit) .................. 30.8 (28.2)(c) 2.6
---------- --------- -------
Net income (loss) for Common Stockholders ...... $ 36.8 $ (44.2) $ (7.4)
========== ========= ========
Earnings (loss) per Common Share:
Primary .......................................... $ 1.96 $ (0.90)
========== ========
Fully Diluted .................................... $ 1.87 $ (0.90)
========== ========
Weighted average common shares and common share
equivalents outstanding:
Primary .......................................... 18.8 ( 10.6)(d) 8.2
========= ========= =========
Fully Diluted .................................... 20.8 ( 12.6)(d) 8.2
========= ========= =========
</TABLE>
See the accompanying notes to unaudited pro forma statements of operations.
85
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The pro forma financial data has been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Transaction has been accounted for as a recapitalization
which will have no impact on the historical basis of assets and liabilities.
The pro forma financial data assumes that there are no dissenting stockholders
to the Merger.
(a) The pro forma adjustment to selling, general and administrative expense
reflects the annual management fee the Company will pay to the THL.
(b) The pro forma adjustment to interest expense reflects the following (in
millions):
<TABLE>
<CAPTION>
12 months 9 months
Rate 1996 1997
---------- ----------- ---------
<S> <C> <C> <C>
Interest expense related to Receivable Securitization ...... 6.25 % $ 9.5 $ 7.1
Interest expense on Term Facility--Tranche A ............... 8.00 % 10.1 7.6
Interest expense on Term Facility--Tranche B ............... 8.25 % 8.4 6.3
Interest expense on Term Facility--Tranche C ............... 8.50 % 6.0 4.5
Interest expense on Subordinated Notes ..................... 9.625% 39.0 29.3
Amortization of capitalized financing fees .................. 7.1 5.3
Interest expense on long-term debt refinanced ............... ( 8.7) ( 7.5)
------ ------
Total adjustment .......................................... $ 71.4 $ 52.6
====== ======
</TABLE>
Because interest rates in connection with the Merger Financings have not been
determined as of the date of this Proxy Statement/Prospectus, this
presentation is the Company's best current estimate of interest rates.
A 0.125% increase or decrease in the assumed average interest rate on the
Term Facility and Subordinated Notes would change the pro forma interest
expense by $1.1 million and $0.8 million for the periods ended December 31,
1996 and September 30, 1997, respectively. For the periods ended December
31, 1996 and September 30, 1997 the pro forma net income would change by
$0.6 million and $0.5 million, respectively, and the pro forma earnings per
share would change by $0.08 and $0.06, respectively.
If the Company is unable to consummate the issuance and sale of the Senior
Subordinated Notes, the Company will rely on the Bridge Loan which will be
on terms less favorable to the Company than the terms of the Subordinated
Notes. The Bridge Loan would initially bear interest at a rate in excess of
the expected interest rate on the Subordinated Notes, which rate would
increase over time subject to certain caps. Assuming that the Company was
unable to consummate the issuance and sale of the Subordinated Notes prior
to the consummation of the Transaction and therefore borrowed pursuant to
the terms of the Bridge Loan, the pro forma interest expense for the
periods ended December 31, 1996 and September 30, 1997 would have increased
by $7.2 million and $5.4 million, respectively.
(c) The adjustment reflects the tax effect of the pro forma adjustments at a
40% and 39% effective tax rate for the periods ended September 30, 1997
and December 31, 1996, respectively. The increase in the effective rate
over the statutory rate is primarily due to state taxes.
(d) Reflects the reduction in weighted average common shares and common share
equivalents outstanding as a result of the reduction in shares in
connection with the Transaction.
Pursuant to the Merger Agreement, upon the consummation of the Transaction,
shares of Fisher Common Stock outstanding will be retained. The shares
(between 19,609,900 and 19,299,019) which are not so converted shall
automatically be canceled and the holders thereof shall be entitled to
receive cash. Simultaneously, all of the shares of FSI shall be converted
into at least 6,196,891 but no more than 6,507,772 shares of Fisher and
existing stockholders and Eligible Employees shall hold at least 746,114
shares but not more than 1,056,995 shares of Fisher Common Stock which
were retained in connection with the Transaction. In addition, Eligible
Employees will be eligible to exchange outstanding options for up to
909,392 shares of Fisher Common Stock pursuant to the Option Conversion.
Thus, immediately following the transaction, there will be an aggregate
86
<PAGE>
of 8,163,278 shares of Fisher Common Stock outstanding and the Equity
Investors will have warrants to acquire 516,663 shares of Fisher Common
Stock at $48.25 per share.
(e) Net income for the year ended December 31, 1996 does not include total
charges of $40.2 million, net of a tax benefit of $26.9 million consisting
of (i) a charge of $33.4 million, net of a tax benefit of $22.3 million
for compensation expense to be recorded in connection with employee stock
options, (ii) a charge of $6.0 million net of a tax benefit of $4.0
million for compensation expense to be recorded in connection with the
grant of Executive Performance Options reflecting the put right associated
with these options, and (iii) a charge of $0.8 million, net of a tax
benefit of $0.6 million for the write-off to be recorded for unamortized
financing costs related to long term debt refinanced. These charges will
be reflected in the Company's net income in the first accounting period
after the Transaction.
87
<PAGE>
DESCRIPTION OF FISHER CAPITAL STOCK
General
Fisher is authorized by its Restated Certificate of Incorporation, to
issue an aggregate of 50,000,000 shares of Fisher Common Stock and 15,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of
which 500,000 shares are designated Series A Junior Participating Preferred
Stock, without par value (the "Series A Preferred Stock"). Currently, the
Company has no shares of Preferred Stock issued or outstanding. The following
is a summary of certain of the rights and privileges pertaining to Fisher
Capital Stock. For a full description of Fisher Capital Stock, reference is
made to the Company's Restated Certificate of Incorporation, a copy of which is
on file with the Commission.
Fisher Common Stock
The holders of Fisher Common Stock are entitled to one vote per share on
all matters submitted for action by the stockholders. Stockholders holding a
majority of the shares of Fisher Common Stock can, if they elect to do so,
approve the Merger. There is no provision for cumulative voting with respect to
the election of directors. Accordingly, the holders of more than 50% of the
shares of Fisher Common Stock can, if they choose to do so, elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Holders of shares of Fisher Common Stock are entitled to share equally,
share for share, in such dividends as the Board may from time to time declare
from sources legally available therefor.
Preferred Stock
General. The Board is also empowered under the Company's Restated
Certificate of Incorporation to divide any and all shares of the Preferred
Stock into series and to fix and determine the relative rights and preferences
of the shares of any series so established. The issuance of Preferred Stock by
the Board could affect the rights of holders of shares of Fisher Common Stock.
For example, issuance of the Preferred Stock could result in a class of
securities outstanding that will have certain preferences with respect to
dividends and in liquidation over the Fisher Common Stock, and may enjoy
certain voting rights, contingent or otherwise, in addition to that of the
Fisher Common Stock, and could result in the dilution of the voting rights, net
income per share and net book value of the Fisher Common Stock.
Rights Agreement; Series A Preferred Stock. On June 9, 1997, the Board
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each share of Fisher Common Stock outstanding at the close of
business on June 19, 1997, (the "Rights Record Date") to the stockholders of
record on that date. Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Preferred Stock at a price
of $190 per one one-hundredth of a share of Preferred Stock (the "Purchase
Price"), subject to adjustment. On August 7, 1997, in connection with the
execution of the Merger Agreement, the Board approved a First Amendment, dated
as of August 7, 1997 (the "First Amendment"), to the Rights Agreement dated as
of June 9, 1997 (as amended, the "Rights Agreement" (except where the contract
otherwise requires)), between the Company and Chase Mellon Shareholder
Services, L.L.C. as Rights Agent. The First Amendment provided, among other
things, that FSI would not be deemed an "Acquiring Person" under the Rights
Agreement. The following is a description of the Rights Agreement, as amended.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (other than FSI and
the Equity Investors) (an "Acquiring Person") have acquired beneficial
ownership of 15% or more of the outstanding Fisher Common Stock or (ii) 10
business days (or such later date as may be determined by action of the Board
of Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of 15% or
more of the outstanding Fisher Common Stock (the earlier of such dates being
called the "Distribution Date"), the Rights will be evidenced, with respect to
any of the Fisher Common Stock certificates outstanding as of the Rights Record
Date, by such Fisher Common Stock certificate with a copy of a summary of
Rights (the "Summary of Rights") attached thereto.
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The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Fisher Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Fisher Common Stock
certificates issued after the Rights Record Date upon transfer or new issuance
of Fisher Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Fisher Common Stock outstanding as of the Rights Record Date, even without such
notation or a copy of the Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Fisher Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights (the "Rights
Certificates") will be mailed to holders of record of the Fisher Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 8, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision combination or reclassification of, the
Series A Preferred Stock, (ii) upon the grant to holders of shares of Series A
Preferred Stock of certain rights or warrants to subscribe for or purchase
shares of Series A Preferred Stock at a price, or securities convertible into
Series A Preferred Stock with a conversion price, less than the then-current
market price of the Series A Preferred Stock or (iii) upon the distribution to
holders of the Series A Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in Series A Preferred Stock) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are also
subject to adjustment in the event of a stock split of the Fisher Common Stock
or a stock dividend on the Fisher Common Stock payable in shares of Fisher
Common Stock or subdivisions, consolidations or combinations of the Common
Stock occurring, in any such case, prior to the Distribution Date.
The shares of Series A Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Series A Preferred Stock will be
entitled to a minimum preferential quarterly dividend payment of $1 per share
but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Fisher Common Stock. In the event of liquidation, the
holders of the Series A Preferred Stock will be entitled to a minimum
preferential liquidation payment of 100 times the payment made per share of
Fisher Common Stock. Each share of Series A Preferred Stock will have 100
votes, voting together with the Fisher Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which Fisher Common Stock is
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Fisher Common Stock. These rights
are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Series A Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of Fisher Common Stock.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of Fisher Common Stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of shares of Fisher Common
Stock having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Fisher Common Stock, the Board may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange
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ratio of one share of Fisher Common Stock, or one one-hundredth of a share of
Series A Preferred Stock (or of a share of a class or series of the Company's
Preferred Stock having equivalent rights, preferences and privileges), per
Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Series A
Preferred Stock on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Fisher Common Stock, the Board may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (the "Redemption Price"). The redemption of the
Rights may be made effective at such time on such basis with such conditions as
the Board in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board without the consent of
the holders of the Rights, including an amendment to lower certain thresholds
described above to not less than the greater of (i) the sum of .001% and the
largest percentage of the outstanding shares of Fisher Common Stock then known
to Fisher to be beneficially owned by any person or group of affiliated or
associated persons and (ii) 10%, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.
Until a Right is exercised, the holder thereof, as such will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
Cumulative Preferred Stock. Following the consummation of the Merger,
assuming Cumulative Preferred Stock is issued, 10,000,000 shares will be
designated as Cumulative Preferred Stock, par value $.01 per share ("Cumulative
Preferred Stock"). In connection with financing the Transaction, the Company
may issue up to 7,500,000 shares of Cumulative Preferred Stock to the Equity
Investors. The Cumulative Preferred Stock is part of the commitment by the
Equity Investors. The Cumulative Preferred Stock is accumulating perpetual
preferred stock.
The Cumulative Preferred Stock will not be mandatorily redeemable. At any
time on or after a date which is approximately five years after the Effective
Time or upon the occurrence of a Redemption Event (as defined below), the
Company may redeem the Cumulative Preferred Stock at its option, in whole or in
part, at $10 per share, together with accumulated unpaid dividends thereon to
the date fixed for redemption. For purposes hereof, a "Redemption Event" shall
mean (i) an underwritten Public Offering (as defined below) of the common stock
of the Company or (ii) a Change of Control. The terms of the credit facilities
restrict the Company's ability to redeem shares of the Cumulative Preferred
Stock. For purposes hereof, a "Public Offering" shall mean an underwritten
offering of the common stock of the Company representing at least $35.0 million
of gross proceeds.
Dividends on shares of Cumulative Preferred Stock will be cumulative from
the date of issue and will be payable when and as may be declared from time to
time by the Board. Such dividends will accrue on a daily basis (whether or not
declared) from the original date of issue at an annual rate per share equal to
13% of the original purchase price per share, with such amount to be compounded
semi-annually so that if the dividend is not paid for any year the unpaid
amount will be added to the original purchase price of the Cumulative Preferred
Stock for the purpose of calculating succeeding years' dividends. All
accumulated but unpaid dividends will be payable upon redemption of the
Cumulative Preferred Stock. In the event the Company elects not to redeem
shares of Cumulative Preferred Stock upon the occurrence of a Redemption Event,
then immediately following such Redemption Event the 13% annual dividend rate
will increase to 15% per annum and will increase 1% per annum on each of the
next two anniversaries of the Redemption Event.
The Cumulative Preferred Stock will, with respect to dividend and
redemption rights and rights upon liquidation, dissolution and winding up, rank
prior to all other series of preferred stock of the Company and all classes of
common stock of the Company. No preferred stock or other class of equity
securities of the Company
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ranking senior to or pari passu with the Cumulative Preferred Stock, with
respect to dividends or redemption payments upon dissolution, liquidation or
winding up, may be created without the consent of the holders of the Cumulative
Preferred Stock.
In the event of any voluntary liquidation, dissolution or winding up of
the Company, the holders of the shares of Cumulative Preferred Stock then
outstanding shall be entitled to receive out of the assets of the Company
available for distribution to its stockholders an amount in cash equal to $10
per share outstanding, plus an amount in cash equal to all accrued but unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up,
before any payment shall be made or any assets distributed to the holders of
any other equity securities of the Company which rank junior to the Cumulative
Preferred Stock with respect to liquidation preference rights.
The holders of shares of Cumulative Preferred Stock shall not be entitled
to any voting rights except as otherwise provided by law.
At the Effective Time, Equity Warrants, which will entitle the holders to
purchase up to 516,663 shares of Fisher Common Stock, will be issued to the
Equity Investors. The Equity Investors will not purchase the Equity Warrants
for cash, but will receive the Equity Warrants in consideration for the
commitment to purchase the Cumulative Preferred Stock. In a transaction of the
type specified under Rule 144A or the sale of registered securities with
substantially similar terms as the Cumulative Preferred Stock equity
commitments, the Equity Warrants may be issued to holders of those securities
issued in lieu of the Cumulative Preferred Stock, which would reduce the number
of Equity Warrants issued to the Equity Investors but not the number of Equity
Warrants in the aggregate. The Equity Warrants are exercisable for $48.25 for
up to 10 years.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement/Prospectus. A copy
of the Merger Agreement is attached as Annex I to this Proxy Statement/
Prospectus and is incorporated herein by reference. The following summary is
qualified in its entirety by reference to the Merger Agreement.
The Merger
The Merger Agreement provides that, subject to the approval and adoption
of the Merger Agreement by the vote of holders of a majority of the shares of
Fisher Common Stock entitled to vote thereon and the satisfaction and waiver of
the other conditions to the Merger, FSI shall be merged with and into the
Company, whereupon the separate corporate existence of FSI shall cease and the
Company shall continue as the Surviving Corporation of the Merger.
Subject to the satisfaction or waiver of the conditions set forth in the
Merger Agreement, the Company shall execute and deliver to the Secretary of
State of the State of Delaware a duly executed Certificate of Merger.
Certificate of Incorporation and By-Laws
The Restated Certificate of Incorporation and By-Laws of the Company will
be the Certificate of Incorporation and By-Laws of the Surviving Corporation
following the Merger until thereafter amended in accordance with the provisions
thereof and applicable law.
Board of Directors and Officers of the Company Following the Merger
The directors of FSI immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation, until their respective
successors are duly elected and qualified. The officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, until their respective successors are duly elected and
qualified.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
the Company relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due organization and good standing of the Company and its
significant subsidiaries; (ii) the capitalization of the Company and the
ownership of the capital stock of the Company's significant subsidiaries; (iii)
the due authorization of the Company to execute and deliver the Merger
Agreement and related matters; (iv) the absence of any conflicts with the
organizational documents or contracts to which the Company and any of its
subsidiaries is a party and the Company's compliance with applicable law; (v)
the absence of any requirement to receive consent from any governmental entity
in connection with the execution and delivery of the Merger Agreement by the
Company, other than under provisions under the DGCL and the HSR Act; (vi) due
filing of all reports and other documents, including financial statements, with
the Commission and the accuracy of the information contained therein; (vii) the
absence of any report or other document filed with the Commission that
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (viii) due preparation of the audited and unaudited financial
statements in accordance with U.S. generally accepted accounting principles and
the fairness of their presentation of the financial position and results of
operations for the periods reported therein; (ix) the absence of any Change of
Control provision in any contract or agreement contemplated by the Merger
Agreement which would have a Material Adverse Effect on the Company; (x) the
absence of pending or, to the knowledge of the Company, threatened litigation
that would have a Material Adverse Effect on the Company; (xi) the accuracy of
information supplied in the Registration Statement and this Proxy Statement/
Prospectus; (xii) the taking of all necessary action by the Fisher Board of
Directors to render Section 203 of the DGCL inapplicable to the Merger; (xiii)
the compliance with the terms of any employee benefit plan and the compliance
of such plans with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and any other applicable law or regulation; (xiv) the filing
of tax returns, the payment of taxes and certain other tax matters; (xv)
compliance with all applicable environmental laws, regulations and
requirements, and the absence of any notices of pending or, to the best
knowledge of the Company, threatened proceedings regarding environmental
violations or liability; (xvi) the
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absence of certain changes having a Material Adverse Effect on the Company
since March 31, 1997; (xvii) the authorization of the Company to take all
necessary action to amend the Rights Agreement so that the transactions
contemplated by the Merger will not cause any Rights to become exercisable;
(xviii) the absence of broker's fees and expenses other than those of the
investment bankers; (xix) the receipt by the Company of an opinion from its
investment bankers as to fairness, from a financial point of view, of the
consideration to be received by the stockholders of the Company; (xx) the
absence of defaults under any material contract; (xxi) the determination of the
Fisher Board of Directors of the advisability of the Merger as in the best
interest of the stockholders of Fisher and the recommendation of the Fisher
Board of Directors with respect to the Merger Agreement and related
transactions; (xxii) the required vote of the Company's stockholders being the
only vote of stockholders required to approve the Merger; (xxiii) the ownership
of and rights to use its intellectual property; (xxiv) the absence of certain
transactions or other obligations between the Company and directors, officers,
partners, affiliates or associates; (xxv) the inapplicability of any state
takeover or similar statute which would prohibit the transactions contemplated
by the Merger Agreement; and (xxvi) compliance with all applicable laws
regarding employment and employment practices and the absence of any notice of
pending claims, actions or violations.
The Merger Agreement also contains various representations and warranties
of FSI relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due organization and good standing of FSI; (ii) the due
authorization, execution and delivery of the Merger Agreement and related
matters; (iii) the absence of any conflicts with the organizational documents
or contracts to which FSI is a party and FSI's compliance with applicable law;
(iv) the absence of any requirement to receive consent from any governmental
entity in connection with the execution and delivery of the Merger Agreement by
FSI; (v) the accuracy of information supplied in the Registration Statement and
this Proxy Statement/ Prospectus; (vi) financing commitments to be obtained
from third parties in connection with the Merger; (vii) inapplicability of the
"interested stockholder" provision of Section 203 of the DGCL to FSI
immediately prior to the execution of the Merger Agreement; and (viii) the
absence of any actual belief by FSI that the representations and warranties
made by the Company are untrue or incorrect in any material respect.
Conduct of Business Pending the Merger
Prior to the Effective Time of the Merger, unless otherwise agreed to in
writing by FSI, the Company and each of its subsidiaries will conduct their
respective businesses, according to its ordinary and usual course of business
consistent with past practice and to use its and their respective reasonable
best efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with them and to preserve goodwill. Except as expressly provided by
the terms and provisions of the Merger Agreement, the Company will not, and
will cause its subsidiaries not to, without the prior consent of FSI: (i)
except for certain limited exceptions and in the ordinary course of business
consistent with past practice, increase the compensation or benefits of any
director, officer or employee of the Company or any of its subsidiaries; (ii)
incur any indebtedness in excess of $1,000,000 (except for borrowings under
existing lines of credit drawn to fund working capital (defined as accounts
receivable plus inventory minus accounts payable) up to $25 million); (iii)
expend funds for capital expenditures in excess of $1,000,000; (iv) sell, lease
or otherwise dispose of any of its properties or assets other than immaterial
properties or assets except in the ordinary course of business consistent with
past practice; (v)(a) declare, set aside or pay any dividends on, or make any
other distributions in respect of, its capital stock except for, among other
things, regular quarterly dividends in an amount not to exceed $0.02 per share,
(b) split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (c) purchase, redeem or
otherwise acquire shares of its capital stock; (vi) issue, deliver or sell any
shares of its capital stock or any other voting securities or any securities
convertible into any such shares, voting securities or convertible securities
or any other securities (except for issuances upon exercise of Options or
pursuant to the Stock Plans or the Rights Agreement); (vii) amend the restated
certificate of incorporation, by-laws or equivalent organizational documents of
the Company or any material subsidiary; (viii) acquire or agree to acquire any
asset which is material to the Company and its subsidiaries, except for (a)
purchases of inventory in the ordinary course of business or (b) pursuant to
purchase orders entered into in the ordinary course of business which do not
call for payments in excess of $10,000,000 per annum; or (ix) settle or
compromise any shareholder derivative suit or any other litigation arising from
the transactions contemplated by the Merger Agreement.
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Access to Information
The Company has agreed in the Merger Agreement that, until the Effective
Time, it will, and will cause its subsidiaries to, give FSI and their
respective officers, employees, counsel, advisors, representatives and
representatives of financing sources identified by FSI (the "Representatives")
reasonable access to the offices and other facilities and to the books and
records of the Company and its subsidiaries. Such information will be held in
confidence in accordance with the provisions of the letter of agreement, dated
June 23, 1997, between THL and the Company (the "Confidentiality Agreement").
Efforts
Each of the Company and FSI have agreed to make all necessary filings with
Governmental Entities as promptly as practicable to facilitate prompt
consummation of the Merger, and to use its reasonable best efforts and will
cooperate with the other party to obtain all necessary waivers, consents and
approvals from governmental entities and make all necessary registrations and
filings, and take all reasonable steps as may be necessary to obtain an
approval or waivers from, or to avoid an action or proceeding by, any
governmental entity.
Each of the Company and FSI shall (i) promptly make or cause to be made
the filings required of such party under the HSR Act with respect to the
Merger; (ii) use its best efforts to avoid the entry of, or to have vacated or
terminated, any decree, order, or judgment that would restrain, prevent or
delay the consummation of the Merger, including without limitation defending
through litigation on the merits any claim asserted in any court by any party;
and (iii) take any and all steps which, in such party's judgment, are
commercially reasonable to avoid or eliminate each and every impediment under
any antitrust, competition, or trade regulation law that may be asserted by any
governmental entity with respect to the Merger.
FSI has agreed to use commercially reasonable efforts to cause the
financing to be obtained on the terms set forth in the commitment letters
provided by THL, Chase Equity, Merrill Lynch, Merrill Lynch Capital
Corporation, The Chase Manhattan Bank, Chase Securities Inc. and Merrill,
Lynch, Pierce, Fenner & Smith Incorporated (the "Commitment Letters"), copies
of which were provided to the Company prior to the execution of the Merger
Agreement; provided, however, that FSI shall be entitled to (i) enter into
commitments for equity and debt financing with other nationally recognized
financial institutions, which commitments will have substantially the same
terms as those set forth in the commitment letters and which commitments may be
substituted for such Commitment Letters and (ii) modify the capital structure
set forth in such Commitment Letters so long as the total committed common
equity equals at least $350 million (including shares of Fisher Common Stock to
be retained), the aggregate Cash Price paid to all stockholders of the Company
is no less than otherwise would have been paid in accordance with the Merger
Agreement and such modified financing is no less certain than that set forth in
such Commitment Letter.
Employee Benefit Arrangements
Following the Effective Time, the Company and the Surviving Corporation
will honor the employment, severance and bonus agreements and arrangements to
which the Company is a party. For a period of two years following the Effective
Time, the Surviving Corporation will continue the compensation programs and
plans and employee benefit and welfare plans, agreements and policies, fringe
benefits and vacation policies which are currently provided by the Company;
provided that notwithstanding anything in the Merger Agreement to the contrary,
the Surviving Corporation shall not be required to maintain any individual plan
or program so long as the benefit plan and agreements maintained by the
Surviving Corporation are, in the aggregate, not materially less favorable than
those provided by the Company immediately prior to the date of the Merger
Agreement.
Indemnification; Directors' and Officers' Insurance
From and after the Effective Time, FSI shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
subsidiaries (the "Indemnified Parties") against all claims or liabilities
related to actions or omissions or alleged actions or omissions occurring at or
prior to the Effective Time (i) to the full extent permitted by Delaware law
or, if the protections afforded thereby to an Indemnified Person are greater,
and (ii) to the same extent and on the same terms and conditions provided for
in the Company's Restated Certificate of Incorporation and By-Laws and
agreements in effect at the date of the Merger Agreement.
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In addition, the Merger Agreement provides that the Company will maintain
in effect for not less than six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by the
Company; provided that the Surviving Corporation may substitute therefor other
policies of at least the same coverage amounts and which contain terms and
conditions not less advantageous to the beneficiaries of the current policies
and provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and,
provided further, that the Surviving Corporation shall not be required to pay
an annual premium in excess of 250% of the last annual premium paid by the
Company prior to the date of the Merger Agreement and if the Surviving
Corporation is unable to obtain the insurance required by this clause, it shall
obtain as much comparable insurance as possible for an annual premium equal to
such maximum amount.
No Solicitation
Prior to the termination of the Merger Agreement, the Company and its
affiliates will not, and will instruct their respective officers, directors,
employees, agents or other representatives (including without limitation, any
investment banker, attorney or accountant retained by the Company or its
subsidiaries) not to: (i) solicit, initiate or encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate, any inquiries or to make any proposal which constitutes a proposal
for a transaction or may reasonably be expected to lead to a proposal for an
Acquisition Transaction (as defined below); (ii) participate in any discussions
or negotiations regarding a proposal for an Acquisition Transaction; (iii)
agree to endorse any proposal for an Acquisition Transaction; or (iv) authorize
the Company or any of its affiliates' Representatives to take such action. By
the terms of the Merger Agreement, the foregoing provision will not prohibit
the Company from (a) furnishing information to or engaging in discussions or
negotiations with a person that makes an unsolicited written, bona fide
proposal to acquire the Company and/or its subsidiaries if the Board determines
in good faith, after consultation with independent legal counsel, that failure
to furnish such information or engage in such discussions or negotiations in
order to comply with its fiduciary duties under applicable law, provided, that
prior to taking such action, the Board notifies FSI of its intentions and
obtains an executed confidentiality agreement from the appropriate parties
substantially similar to the Confidentiality Agreement, (b) failing to make or
withdrawing or modifying its recommendation to the Company's stockholders that
they approve the Merger if the Board, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that such
action is necessary for the Board to comply with its fiduciary duties, and (c)
disclosing to the Company's shareholders a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with respect to any tender offer,
or taking any other legally required action (including, without limitation, the
making of public disclosure as may be necessary or advisable under applicable
securities laws) and provided further, that the Company's or the Board's
exercise of its rights under clause (a), (b) or (c) above shall not constitute
a breach by the Company of the Merger Agreement.
The Company will notify FSI of the receipt of and the terms and conditions
of any proposal for an Acquisition Transaction, and any changes to or
modifications of such proposal. Following the receipt of a proposal for an
Acquisition Transaction, the Company, its affiliates and their Representatives
will cease all activities and discussions with any parties (other than FSI) in
respect of the foregoing and will use its reasonable efforts to cause any
confidential information furnished on behalf of the Company to be returned or
destroyed.
"Acquisition Transaction" means an acquisition, purchase, merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction involving 20% or more of the assets or any securities of,
any merger, consolidation or business combination with, or any public
announcement of a proposal, plan, or intention to do any of the foregoing by,
the Company or any of its subsidiaries.
Conditions to the Consummation of the Merger
The respective obligations of FSI and the Company to consummate the Merger
and the transactions contemplated thereby are subject to certain conditions,
including the following: (i) the requisite approval of the stockholders of the
Company (the "Stockholder Approval"); (ii) the Registration Statement shall
have been declared effective by the Commission under the Securities Act and not
being the subject of any stop order or proceedings seeking a stop order, and
any material "blue sky" and other state securities laws applicable to the
registration and qualification of shares of Fisher Common Stock to be retained
in the Merger shall have been complied with; (iii) the receipt of a letter from
an independent evaluation firm as to the solvency of the Company and its
subsidiaries,
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after giving effect to the transactions contemplated by the Merger Agreement,
including the financing; (iv) the absence of any order given by a federal or
state court or governmental or regulatory agency, or preliminary or permanent
injunction which would (a) prevent the consummation of the Merger, or (b)
impose material limitations on the ability of FSI to acquire the business of
the Company and its subsidiaries; (v) the absence of any federal or state rule
or regulation promulgated after the execution of the Merger Agreement which
could result in any of the adverse consequences referred to in (iv) above; and
(vi) the expiration or early termination of the waiting periods, if any,
applicable to the transactions contemplated by the Merger Agreement under the
HSR Act.
The obligations of FSI to effect the Merger are subject to certain
additional conditions, including the following: (i) the accuracy and
correctness in all material respects of the representations and warranties of
the Company (other than representations relating to capitalization and
authority) that are qualified by materiality unless the failure of such
representations and warranties, individually or in the aggregate, to be true
and correct would result in a Material Adverse Effect, and the truth and
correctness in all respects of the representations and warranties that are not
so qualified and the receipt by FSI of a certificate from the appropriate
officer of the Company to the foregoing effect; (ii) the performance by the
Company in all material respects of all of the obligations required to be
performed by it under the Merger Agreement; (iii) the receipt by FSI of
evidence, in form and substance reasonably satisfactory to it, that all
requisite licenses, permits and consents identified in the Company Disclosure
Schedule (pursuant to the Merger Agreement) have been obtained; (iv) the
absence of any pending suit, action or proceeding by any governmental entity
(or by any other person any suit, action or proceeding which has a reasonable
likelihood of success), (a) challenging the Merger Agreement and the
transactions contemplated thereby or seeking to obtain from FSI or any of their
affiliates any damages that are material to any such party, (b) prohibiting or
limiting the Company's ownership or operation or control of a material portion
of the business or assets of the Company or its subsidiaries, or (c) seeking to
impose limitations on the ability of FSI to acquire or hold, or exercise full
rights of ownership of, any shares of Fisher Common Stock (including the right
to vote shares of Fisher Common Stock on all matters presented to the
stockholders of the Company); and (v) the receipt by the Company of the
proceeds of financing pursuant to the Commitment Letters (or from such other
financing sources as FSI and the Company shall reasonably agree) in amounts
sufficient to consummate the transactions contemplated by the Merger Agreement.
FSI has informed the Company that it expects that the financing described under
"THE TRANSACTION--Transaction Financing" will be sufficient to consummate the
transactions contemplated by the Merger Agreement if such financing is
completed in accordance with the terms and conditions set forth in the
Commitment Letters.
Furthermore, the obligation of the Company to effect the Merger is subject
to certain additional conditions, including the following: (i) the truth and
correctness in all respects of the representations and warranties of FSI (other
than Section 3.02(a) of the Merger Agreement) that are qualified by materiality
unless the failure of such representations and warranties, individually or in
the aggregate, to be true and correct would result in a Material Adverse
Effect, and the truth and correctness in all respects of the representations
and warranties that are not so qualified and the receipt by the Company of a
certificate from the appropriate officer of FSI to this effect; and (ii) the
performance by FSI in all material respects of all obligations required to be
performed by if under the Merger Agreement.
Termination; Amendments; Waiver
The Merger Agreement and the transactions contemplated thereby may be
terminated at any time prior to the Effective Time, notwithstanding approval of
the stockholders of the Company, by: (i) the mutual written consent of FSI and
the Company, by action by their respective Boards of Directors; (ii) FSI or the
Company if the Merger shall not have been consummated on or before March 31,
1998; provided, however, that neither FSI nor the Company may terminate the
Merger Agreement if such party shall have materially breached such Agreement;
(iii) FSI or the Company if any court or other governmental entity has issued
an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; provided, however, that the party
seeking to terminate the Merger Agreement shall have used its reasonable best
efforts to remove or lift such order, decree, ruling or other action; (iv) the
Company if, prior to the Effective Time, any person has made a bona fide
proposal relating to an Acquisition Transaction, or has commenced a tender or
exchange offer for the shares of Fisher Common Stock, and the Board determines
in good faith (a) after consultation with its investment bankers, that such
transaction constitutes a Higher Offer (as defined) and (b) after consultation
with counsel, that failure to approve such proposal and terminate the Merger
Agreement could reasonably be expected to result in a breach of fiduciary
duties of the Board; provided, however,
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that the termination of such Agreement by the Company in compliance with the
fiduciary duty of the Board shall not be deemed to violate any other
obligations of the Company under the Merger Agreement; (v) FSI if the Company
redeems the Rights, amends the Rights Agreement or takes any action which would
allow any person other than FSI to acquire 15% or more of the shares of Fisher
Common Stock without causing a Distribution Date to occur, except that the
Company may take any of the foregoing actions if the Board determines in good
faith, after consultation with counsel, that failing to take such action could
reasonably be expected to result in a breach of fiduciary duty; (vi) FSI, if
the Board shall have (a) failed to recommend to the stockholders of the Company
that they give the Stockholder Approval, (b) withdrawn or modified in a manner
adverse to FSI its approval or recommendation of the Merger Agreement or the
Merger, (c) approved or recommended an Acquisition Transaction, (d) resolved to
effect any of the foregoing or (e) otherwise taken steps to impede the
Stockholder Approval; or (vii) either FSI or the Company, if the Stockholder
Approval shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof.
In the event of the termination of the Merger Agreement pursuant to the
foregoing, such Agreement shall become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders,
other than the provisions with regard to the confidentiality of information
furnished pursuant to the Merger, termination and fees and expenses, which
shall survive any such termination.
The Merger Agreement may be amended by the Company and FSI at any time
before or after any approval of the Merger Agreement by the stockholders of the
Company but, after any such approval, no amendment shall be made which
decreases the consideration due to the stockholders of the Company pursuant to
the Merger Agreement or which adversely affects the rights of the Company's
stockholders thereunder without the approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on
behalf of all the parties.
At any time prior to the Effective Time, FSI, on the one hand, and the
Company, on the other hand, may (i) extend the time for the performance of any
of the obligations or other acts of the other, (ii) waive any inaccuracies in
the representations and warranties contained therein of the other or in any
document, certificate or writing delivered pursuant thereto by the other or
(iii) waive compliance by the other with any of the agreements or conditions.
Any agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
Fees and Expenses
In addition to any other amounts which may be payable or become payable
pursuant to any other provision relating to fees and expenses contained in the
Merger Agreement, in the event that the Merger Agreement is terminated for any
reason other than a material breach by FSI, the Company shall promptly
reimburse THL or FSI, as the case may be, for all out-of-pocket expenses and
fees (including, without limitation, fees payable to all banks, investment
banking firms and other financial institutions, and their respective agents and
counsel, and all fees of counsel, accountants, financial printers, experts and
consultants to THL and its affiliates), whether incurred prior to, on or after
the date hereof, in connection with the Merger and the consummation of all
transactions contemplated by the Merger Agreement, and the financing thereof up
to $12 million. Except as otherwise specifically provided for in the Merger
Agreement, whether or not the Merger is consummated, all costs and expenses
incurred in connection with such Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expenses.
In addition, in the event that (i) the Merger Agreement is terminated in
accordance with subclause (iv) and (v) of the first paragraph under
"--Termination; Amendment; Waiver"; or (ii) any Person (other than THL or any
of its affiliates) shall have made, or proposed, communicated or disclosed in a
manner which is or otherwise becomes public a proposal for an Acquisition
Transaction prior to the Special Meeting, the Stockholder Approval has not been
obtained and, thereafter, the Merger Agreement is terminated then the Company
shall promptly pay FSI a termination fee of $25 million (the "Termination
Fee"), provided that in no event shall more than one Termination Fee be payable
by the Company. In the event that the Company must pay a Termination Fee, the
fees and expenses described in the preceding paragraph will remain payable by
FSI.
The prevailing party in any legal action undertaken to enforce the Merger
Agreement shall be entitled to recover from the other party the costs and
expenses (including attorneys' and expert witness fees) incurred in connection
with such action.
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BUSINESS
Company Overview
Founded in 1902, Fisher Scientific International Inc. is a world leader in
serving science, providing more than 245,000 products and services to research,
healthcare, industrial, educational and government customers in 145 countries.
The Company serves as a one-stop source for the scientific and laboratory needs
of its customers, supplying a broad product offering of leading brands of
instruments, research chemicals, clinical consumables, diagnostics, laboratory
workstations and other laboratory supplies. The Company's marketing efforts are
spearheaded by The Fisher Catalog, which has been a standard reference for the
scientific community worldwide and has been published for over 89 years. The
Company provides integrated supply services for the procurement of maintenance,
repair and operating ("MRO") products and other basic supplies and also
develops and markets software for electronic commerce. For the twelve months
ended September 30, 1997, the Company's total sales and EBITDA (as defined
below) were $2,179.3 million and $164.9 million, respectively.
The Company has sourcing relationships with over 3,200 vendors throughout
the world, including many of the premier manufacturers of laboratory products,
and serves over 150,000 customers. Management estimates that proprietary
products, which consist of self-manufactured products and products sold through
exclusive distribution agreements, accounted for approximately 40% of total
sales in fiscal 1996. Consumable products, such as laboratory supplies and
speciality chemicals, represented approximately 75% of the Company's total
sales in fiscal 1996 and provide a stable base of recurring revenues for the
Company.
Aggregate industry-wide domestic revenues in the Company's core research,
healthcare and industrial markets were approximately $18 billion in fiscal
1996. Growth in these markets has been driven by research and development
spending, and general laboratory activity and expansion. During the past
decade, pressure to reduce procurement costs has led the Company's customers to
demand fewer suppliers, standardized products and integrated sources of supply.
As a result, manufacturers of laboratory supplies and equipment have been
increasingly using national distributors to distribute their products, while
regional and international suppliers of these products have been consolidating.
The mergers in 1995 of Fisher and CMS and of VWR Scientific Products
Corporation and the industrial distribution business of Baxter Healthcare
Corporation are the two most recent examples of this consolidation trend.
Company Strengths
Market Leadership. The Company is a leading global provider of
high-quality scientific instruments, equipment, supplies, chemicals and
services to the scientific research, healthcare, industrial, educational and
governmental markets. Based on industry data, management believes that the
Company is the leading distributor of laboratory products to the U.S.
scientific research market and the number two distributor of clinical
laboratory products to the U.S. healthcare market.
Global Brand. For over 90 years the Company has been serving science and
has established Fisher Scientific as a global brand name. As a result of its
international presence and publication of The Fisher Catalog, the Fisher
Scientific name and family of products and services are well-known and
respected in each of the Company's markets. Management believes that The Fisher
Catalog is considered one of the industry's most comprehensive sources for
laboratory supplies and equipment. In addition, the Company publishes the CMS
Catalog, the Fisher Chemicals Catalog, the Fisher Science Education Catalog and
over a dozen international catalogs. More than one million copies of the
Company's various catalogs are produced and distributed biannually, with
supplements tailored to specific market segments such as biotechnology,
research chemicals, educational materials and occupational health and safety.
The Company's international catalogs support its worldwide presence.
Diverse Customer Base. The Company's customer base includes some of the
world's leading pharmaceutical and scientific research companies representing
approximately 4,200 national reference and independent laboratories, 8,650
hospitals and 146,000 physicians offices. In addition to serving customers in
the traditional scientific-related industries, the Company has developed
relationships with emerging biotechnology and entrepreneurial businesses. No
one customer accounted for more than 3% of total sales in fiscal 1996. The
Company's top ten research customers have on average been doing business with
the Company for over 15 years. The Company expects to benefit from this diverse
and long-standing customer base as these customers continue to consolidate the
number of suppliers they utilize.
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Extensive Sourcing and Manufacturing Capabilities. Management believes
that the Company's global sourcing and manufacturing capabilities enhance its
ability to offer its customers the broadest product offering and the best
price/quality relationship. The Company has sourcing relationships with over
3,200 suppliers worldwide as well as its own manufacturing plants in the United
States and Europe. Proprietary products, which consist of self-manufactured
products and products sold through exclusive distribution arrangements,
represented 40% of its total sales in fiscal 1996. Proprietary products provide
the Company with increased sourcing flexibility, and its customers with a
complete range of laboratory supplies. The Company generated approximately 16%
of its total sales in fiscal 1996 through the sale of self-manufactured
products such as chemicals, laboratory equipment and laboratory workstations.
In response to the market's increased demand for integrated supply, the Company
established Strategic Procurement Services, Inc. ("SPS") in 1994. SPS provides
procurement outsourcing and integrated supply services, helping to lower client
inventory, acquisition and process costs.
Worldwide Logistics Network. The Company has developed highly automated
and efficient logistics capabilities, one of the critical links between
supplier and customer. The Company's U.S. logistics facilities, monitored and
coordinated by a command center in Pittsburgh, Pennsylvania, supply products
throughout the U.S. in an efficient and timely manner. Fisher's 32 U.S.
distribution facilities are complemented by its international locations,
including distribution centers in Canada, Germany, France, England, Belgium,
Switzerland, the Netherlands, the Czech Republic, Japan, Singapore, Korea,
Malaysia, Mexico and Australia. In addition, the Company uses affiliated
dealers and distributors to supply products in more remote international
locations. Through its worldwide distribution network, the Company distributes
an average of 20,000 items every business day, with products accounting for
more than 90% of total sales in fiscal 1996 shipped to customers within 24
hours of being ordered. Management believes that this combination of global
logistics, distribution and sourcing capabilities distinguishes the Company
from other distributors serving the scientific community.
Technological Leadership. For more than a decade, the Company has made
significant investments in the research, development and implementation of
improved electronic order entry and purchasing systems designed to improve the
procurement processes of the Company's customers. For many of the Company's
customers, procurement costs represent a significant portion of the overall
cost of an order. The Company believes that its ability to combine its
technological leadership and its expertise in distribution has been a key
element to the Company's success. In 1995, the Company created the Fisher
Technology Group ("FTG") to commercialize software and related services
developed by Fisher by capitalizing on the Company's leadership position in
distribution and related technology. FTG is at the forefront of developing,
implementing and commercializing software and related technology to aid
organizations in implementing advanced supply chain-management techniques
designed to improve the efficiency of the procurement processes of customers,
and increase access to and awareness of the Company's product offerings and
third party procurement capabilities and services.
Growing, Recurring and Diversified Revenue Stream. Management believes
that demand for the Company's products and services is driven primarily by
applicable research and development expenditures. According to data published
by the U.S. National Science Foundation (the "National Science Foundation"),
applicable research and development expenditures have grown at a 4.4%
compounded rate over the last ten years. In addition to the stable historical
growth rates in its core markets, the Company also benefits from revenue
diversity across its different end-user markets with approximately 49% of total
sales in fiscal 1996 derived from sales to the U.S. research sector,
approximately 26% to the U.S. healthcare sector and approximately 21% to its
international customers. The Company's revenue stream is also diversified
across its products, with no SKU representing more than 1.5% of total sales in
fiscal 1996. The sale of consumable laboratory supplies and specialty
chemicals, which represented approximately 75% of the Company's total sales in
fiscal 1996, provides a stable base of recurring revenues.
Proven and Committed Senior Management Team. Paul M. Montrone, Fisher's
President and Chief Executive Officer, and Paul M. Meister, Fisher's Senior
Vice President and Chief Financial Officer, have a demonstrated track record of
successfully developing significant international businesses, including
Wheelabrator-Frye Inc., AlliedSignal Inc., Henley Manufacturing Corporation,
Wheelabrator Technologies Inc., The General Chemical Group Inc. and Prestolite
Wire Corporation. At Fisher, the management team has generated a 22% compounded
annual return in the Company's stock price since 1991. Messrs. Montrone and
Meister are expected to remain with the Company following the Effective Time.
In addition, Messrs. Montrone and Meister are expected to have a significant
financial commitment and ownership position in the Company after the Effective
Time. In connection with the Transaction, Messrs. Montrone and Meister will
have, and are expected to exercise, an option to retain
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an equity interest of approximately $29 million representing substantially all
of their holdings in Fisher. Certain other members of management are expected
to retain up to an additional $30 million of equity, which when combined with
the holdings of Messrs. Montrone and Meister, totals approximately $59 million,
or 14.9% of the Fisher Common Stock outstanding immediately following the
Effective Time.
Business Strategy
Realize Benefits from Acquisitions and Investments.
Healthcare Acquisition. In October 1995, Fisher dramatically increased its
presence in the U.S. healthcare market by acquiring the U.S. clinical
laboratory business of Fisons plc. ("Fisons") operating under the name CMS. The
Company's strategy is to continue to integrate its existing research
distribution network with the CMS network, and leverage this infrastructure and
the Company's distribution expertise to further penetrate the healthcare
segment. To date, Fisher has fully integrated the sales force and back office
functions and expects to continue to integrate the remaining distribution and
customer service facilities. Management expects the Company to benefit from the
continued integration of these businesses into the existing distribution and
manufacturing infrastructure.
International Investment. Among its competitors, management believes that
the Company is one of a few distributors with integrated global logistics
capabilities. As a result, the Company is in a strong position to capture the
growth of research and healthcare spending in international markets. By
focusing on the needs of multinational, regional and local customers, and by
making strategic investments internationally through acquisitions, joint
ventures and agency agreements, the Company has increased its international
business fourfold during the last five years to approximately $450 million. The
Company supports its international growth through a network of distribution
facilities in 14 countries and an expanding network of logistics facilities in
Korea, Malaysia, Singapore, China and Mexico. Although the Company's largest
international operations, Fisher Scientific U.K., Ltd. and Fisher Canada,
Limited, are currently profitable, the Company's consolidated international
operations are currently unprofitable as a result of the investment spending
and start-up costs incurred to develop distribution and logistics capabilities
in rapidly developing markets such as Asia and South America. Management
believes, however, that the Company's consolidated international operations
will contribute to the Company's overall profitability over the next few years
as its global distribution network becomes fully developed and sales reach the
level required to cover market development costs.
Generate Growth Opportunities.
Develop Fisher Technology Group. The Company plans to further develop its
electronic-commerce and advanced procurement systems, particularly those that
strengthen its participation in the Internet and intranet marketplace. FTG was
formed in 1995 to develop and market procurement systems and electronic
commerce solutions to both purchasing organizations and manufacturers. The
Company has developed a number of proprietary services including ProcureNet, a
public Internet mall for business-to-business transactions where more than
300,000 items and approximately 3,000 catalog pages can be browsed, which
received the Gartner Group award in 1997 for best Internet architecture, and
CornerStone, an intranet-based system which allows buyers and suppliers to
create public or private web sites to support their business-to-business
transactions. FTG has entered into a cooperative marketing agreement with IBM
Corporation, pursuant to which IBM will market and sell ProcureNet and
CornerStone to its customers. FTG has also entered into a cooperative
applications initiative to jointly design and develop user interfaces to allow
CornerStone to be used with Oracle Corporation's suite of products. The Company
has invested in the development of FTG as a stand-alone business unit, and as a
result, the operation is currently unprofitable. Management believes that FTG
is positioned to experience further sales growth over the next few years, which
should enable FTG to develop the critical mass necessary to achieve
profitability.
Leverage Global Logistics. The Company continues to evaluate ways to
leverage its global logistics infrastructure and its distribution expertise
into related markets. For example, the Company developed SPS, which allows
customers to outsource the procurement function and provides integrated supply
services for the procurement of MRO products and other basic supplies. The
Company plans to continue to focus on growth through acquisitions, especially
in the more fragmented safety and MRO markets. Furthermore, the Company also
expects to selectively expand its self-manufactured product line in profitable
niche categories.
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Continue to Pursue Additional Cost Saving Opportunities.
Completion of 1995 Restructuring Plan. The plan of restructuring (the
"1995 Restructuring Plan") initiated in the third quarter of 1995 was
implemented to reduce the cost of Fisher's global logistics, customer service
and administrative functions. The 1995 Restructuring Plan, which is expected to
be completed over the next few years, is designed to (i) eliminate redundant
administrative functions, (ii) reorganize the research sales force and (iii)
consolidate and relocate certain logistics and customer service systems and
functions throughout the world. Management believes that there are additional
cost savings which have yet to be realized from this consolidation and
reorganization. As of September 30, 1997, the Company had integrated the sales
force and back office functions, and closed or consolidated 13 logistics
centers, reducing the number of U.S. logistics centers to 32.
Improve Efficiencies. Fisher management has identified potential
additional cost savings resulting from logistics, marketing, sales and
procurement initiatives. These include (i) process improvements which should
increase warehouse efficiencies, improve order fill rates and reduce
distribution and logistics expenses, (ii) improved procurement and sourcing
alternatives and (iii) increased use of telesales and electronic ordering to
service accounts.
The Company's business strategy following the Effective Time is generally
expected to be similar to its current strategy. For certain factors affecting
the Company's ability to pursue its post-Transaction business strategy, see
"RISK FACTORS--Difficulty in Executing Post-Transaction Business Strategy."
Industry Overview
The Company provides products and services to the scientific research,
healthcare, industrial, educational and governmental markets. According to a
recent study conducted by the Laboratory Products Association, sales to the
scientific research supply market were over $5 billion as of 1996. The
scientific research market is primarily impacted by the level of applicable
scientific and technology related R&D spending in the U.S. The National Science
Foundation estimates that non- defense related R&D expenditures increased from
$44 billion in 1980 to over $130 billion in 1995, representing a compound
annual growth rate of approximately 7.5%. In addition to this growth,
non-defense related R&D expenditures have not been subject to cyclical swings,
having not experienced a year-over-year decline since 1960 (when the National
Science Foundation began publishing such data). The Company's second largest
market is the U.S. clinical laboratory testing market. A recent study by
MarketData Enterprises Inc. concluded that the U.S. clinical laboratory testing
market totaled $30 billion, up from $26.7 billion in 1993. Based on these
overall spending levels, management estimates that the clinical testing
equipment and supply market, the market the Company competes in, totals
approximately $6 billion. The Company's third largest market, safety supply,
which is a subset of the $225 billion MRO market, is estimated to be
approximately $7 billion. This market is currently highly fragmented, but there
has been a recent trend towards consolidation of suppliers of safety products.
The Company competes in the scientific research and healthcare markets
with a number of competitors, including national, regional and local
distributors and manufacturers of all sizes that sell direct to end users.
Competition is largely based on service capability, breadth and depth of
product offering and price. The Company believes that it competes favorably in
these areas through The Fisher Catalog and electronic procurement systems which
provide its customers access to more than 245,000 products. In addition, the
Company's distribution and systems capability allowed it to deliver products
accounting for more than 90% of its total sales in fiscal 1996 to its customers
within 24 hours of ordering.
The markets in which the Company competes are typically characterized by
high transaction volume (units) with relatively small average order prices. As
a result, customers in these markets incur relatively high average procurement
costs per order. The Company believes that as end users consolidate their
vendor base and/or outsource their procurement functions to reduce costs,
manufacturer use of distribution and demand for the Company's distribution and
third party procurement services, including demand for the Company's electronic
ordering technology, will increase. By leveraging the Company's distribution
and technological capabilities as well as its national sales force,
manufacturers and end users can reduce the cost of procurement for an expanding
list of products.
Over the last few years, the trend toward fewer suppliers has resulted in
consolidation of the fragmented scientific distribution market. Consolidation
benefits larger distributors by presenting them with the opportunity to
leverage large distribution infrastructures over higher sales volume and more
customers. The mergers of Fisher
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with CMS and VWR Scientific Products Corporation with Baxter Industrial are
illustrative of this trend. These same trends exist in most international
markets.
Products and Services
The Company currently has over 245,000 products available for delivery
from its electronic and other order-entry systems and is continuously seeking
to expand and refine its product offerings to provide its customers with a
complete array of laboratory and clinical testing supplies. In addition to
supplying leading brands of instruments, supplies and equipment, The Company
offers research chemicals, clinical consumable, instruments, diagnostics, and
laboratory workstations of its own manufacture.
Fisher Products. The Company's product portfolio is comprised of
proprietary products as well as sourced products. Proprietary offerings include
both the Company's private label products as well as other franchised products
sold exclusively through the Company's worldwide distribution network.
Proprietary products account for approximately 40% of total sales in fiscal
1996.
Sales and Customer Service Professionals. In order to reduce the
complexity of today's scientific research and clinical testing product
offerings, the Company provides customer support through a worldwide sales and
customer service network. The Company's direct sales force consists of over
1,000 account representatives and product/systems sales specialists worldwide.
Most of the members of the Company's direct sales force have scientific or
medical backgrounds, which enable them to provide technical assistance to the
end users of the Company's products. In addition to performing traditional
selling functions, these representatives provide the basis for a market-driven
development program for new products and services by identifying customer needs
and utilizing the Company's accumulated technical expertise to translate those
needs into new services or products, which may be manufactured by either the
Company or its suppliers. In addition, the Company's customer service
organization includes over 1,000 representatives worldwide. These customer
service representatives, supported by a scientific and technical staff, respond
to end-user product or application questions and assist the Company's customers
with efficient order entry and order expediting. In response to customers'
efforts to improve purchasing efficiencies, the Company has developed the
computerized order-entry systems described in "Electronic Commerce" below.
Electronic Commerce. In an effort to meet its customers' desire to improve
purchasing efficiencies, the Company expanded its role as an industry leader in
the development and deployment of electronic commerce solutions through the
formation of FTG. This business unit was established to commercialize software
and related services developed by the Company. Organizations are utilizing
these offerings to implement advanced supply-chain- management techniques that
enable procurement to be automated for improved service at lower total cost.
These Internet, intranet and client/server solutions are an extension of FTG's
historical inventory management and procurement systems. The applications
contain full graphics and text display, and provide search, retrieval, order-
management and transaction-processing functions. CornerStone allows buyers and
suppliers to create public or private web sites to support their
business-to-business transactions. ProcureNet (www.procurenet.com), a public
mall owned and operated by FTG, utilizes the CornerStone architecture to
provide the general commercial community access to the electronic storefronts
of its supplier tenants. More than 300,000 products are currently available on
ProcureNet. SupplyLink provides the same capability in a client/server
environment. Fisher recently announced a cooperative marketing agreement with
IBM pursuant to which IBM will market and sell ProcureNet and CornerStone to
its customers. FTG has also entered into a cooperative applications initiative
to jointly design and develop user interfaces to allow CornerStone to be used
with Oracle's suite of products. All of these applications support multiple
commodities and suppliers, and facilitate just-in-time delivery, integrated
supply, vendor-base consolidation and product standardization.
The Fisher Catalog. The Fisher Catalog has been published for over 89
years and is a standard reference for the scientific community worldwide.
Management believes that this catalog is considered to be one of the industry's
most comprehensive sources for laboratory supplies and equipment. In addition,
the Company publishes the CMS Catalog, the Fisher Chemicals Catalog, the Fisher
Science Education Catalog, as well as several international catalogs in nine
different languages. In 1995, the Company established an Internet site
(Fisher1.com) which currently features The Fisher Catalog, the Fisher Chemical
Catalog, the Fisher Safety Catalog, the Acros Organics Catalog, and the Curtin
Matheson Healthcare Products Catalog, as well as other product, safety and
general information, all in electronic form for quick and easy access. More
than 100,000 items and over 25,000 images representing 6,000 catalog pages can
be browsed. New products are continuously added, making the Company's
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<PAGE>
suite of catalogs a dynamic library, one of the most complete and up-to-date
sources of laboratory and safety products available. The Company's customers
now have the ability to place their orders electronically through an intuitive,
integrated and easy-to-use process. The Company also continues to publish over
a dozen international catalogs to support its growing worldwide presence. More
than one million copies of the Company's various catalogs are produced
biannually, with supplements tailored to specific market segments such as
biotechnology, research chemicals, educational materials and occupational
health and safety.
Distribution
The Company's distribution network comprises 32 locations in the U.S.,
including a national distribution center in Somerville, New Jersey, four
regional centers (New Jersey, California, Illinois and Georgia) and
twenty-seven local facilities throughout the United States. The Company also
has two distribution centers in Canada and one each in Germany, France,
England, Belgium, Singapore, Korea, Malaysia, Mexico and Australia. Through its
worldwide distribution networks, the Company distributes an average of 20,000
items every business day, with products accounting for more than 90% of total
sales in fiscal 1996 shipped to customers within 24 hours of being ordered.
Manufacturing
The Company operates principal manufacturing facilities in Fairlawn,
Sommerville and Swedesboro, New Jersey; Two Rivers, Wisconsin; Indiana,
Pennsylvania; Huntersville, North Carolina; Loughborough, United Kingdom; and
Geel, Belgium; with other manufacturing in Rochester, New York and Mountain
Home, Arkansas. Products manufactured include research, bulk and organic
chemical, laboratory equipment, laboratory fumehoods, wood, plastic and metal
laboratory workstations and furniture, computer "LAN" cabinets, scientific
glassware and plastic labware, and diagnostic and educational materials. More
than one-half these products are sold directly to end users, other dealers and
distributors with the balance accounted for through the Company's distribution
network.
The Company's manufacturing customers range from small start-up operations
to large national corporations and government agencies. The Company's
manufacturing operations are not dependent on any single customer and are
operated on a "stand alone" basis to complement the Company's distribution
organization by providing the Company's sales representatives with a full range
of value added service and product offerings and to position the Company as a
one-stop source for all of the customer's scientific research and laboratory
needs.
Recent Acquisitions and Restructuring Plan
During 1996, the Company made several small acquisitions, including the
acquisition of a transaction- processing software company in the United States,
UniKix Technologies (formerly a division of Bull HN Information Systems Inc.),
and a majority interest in a laboratory products distributor in Mexico. The
Company also completed the acquisition of the remaining minority interests in
its laboratory product distributor subsidiaries in Germany.
On October 17, 1995, the Company purchased CMS, the principal businesses
of the laboratory supplies division of Fisons, a company organized under the
laws of England. The total consideration, after final purchase price
adjustments, was $304 million, including $295 million in cash and the
assumption of $9 million of certain external debt relating to the acquired
businesses. The purchase included the acquisitions of all of the issued and
outstanding shares of CMS, a corporation with headquarters in Houston, Texas,
and the goodwill and substantially all of the net assets of FSE, a division of
Fisons, with headquarters in Loughborough in the United Kingdom. CMS is a
leading provider of diagnostic testing supplies, equipment and laboratory
consumable to hospitals, patient testing laboratories, and physicians' offices
that perform diagnostic tests on patients. FSE, now doing business as Fisher
Scientific U.K., Ltd., is the leading provider to the scientific research
community in the United Kingdom and also services research laboratories in the
rest of Europe, Africa, the Middle East, and the Far East.
Following the acquisition of CMS, the Company began implementation of the
1995 Restructuring Plan, to integrate the former Fisons businesses with the
Company, including the elimination and in some cases relocation of certain
administrative functions, reorganization of the research sales force, and the
consolidation and relocation of certain logistics and customer service systems
and locations throughout the world. Implementation of the 1995 Restructuring
Plan is expected to be completed over the next few years.
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<PAGE>
During 1995, the Company also acquired laboratory products distributors in
France and the United Kingdom and completed the acquisition of the remaining
minority interests in its laboratory products distributor subsidiaries in
Singapore and Malaysia. These acquisitions are not material to the Company's
financial statements. All acquisitions have been accounted for as purchases;
operations of the companies and businesses acquired have been included in the
accompanying financial statements from their respective dates of acquisition.
Competition
The Company operates in a highly competitive market. The Company competes
primarily with a wide range of suppliers and manufacturers that sell their own
products directly to end users. The Company also competes with other
distributors, such as VWR Scientific Products Corporation in the scientific
research market and Allegiance Corporation in the healthcare market. The
principal means of competition in the markets the Company serves are systems
capabilities, breadth and exclusivity of product offerings, price and service.
See "Risk Factors "Competition" and "Industry Overview." In addition, the
Company believes that its electronic procurement systems, integrated supply
capabilities, and international logistics and distribution capabilities are
becoming more important competitive factors. As such, the Company believes that
it can compete effectively in each of the markets it serves. See "RISK
FACTORS--Competition."
Trademarks and Patents
The Company owns or licenses a number of patents and patent applications
that are important to its businesses. The Company has more than 200 registered
and unregistered service marks and trademarks for its products and services.
Some of its more significant marks include CornerStone, Fisher Rims,
ProcureNet, SupplyLink, UniKix, Webkix, Accumet, Acros, Biochemical Sciences,
Chemalert, Chemguard, CMS, Curtin Matheson Scientific, Enviroware, Fisher,
Fisherbiotech, Fisherbrand, Fisher Diagnostics, Fisher Healthcare, Fisher
Safety, Fisher Scientific, Gastrak, Hamilton, Histoprep, Isotemp, Marathon,
Microprobe, Optima, Pacific Hemostasis, and Valutrak. Registered trademarks
generally can have perpetual life, provided they are renewed on a timely basis
and continue to be used properly as trademarks, subject to the rights of third
parties to seek cancellation of the marks.
Employees
As of December 31, 1996, the Company had approximately 6,600 full-time
employees. The Company considers relations with its employees to be
satisfactory. The Company has several labor contracts, none of which is
considered material to its business as a whole. From time to time, union
actions have been threatened or taken. However, management does not believe
such actions have had, or will have a material adverse effect on the financial
statements of the Company or on the Company's ability to serve its customers.
Properties
The Company's principal executive offices are located in Hampton, New
Hampshire. Fisher believes that its property and equipment are generally well
maintained, in good operating condition and adequate for its present needs. The
inability to renew any short-term real property lease by Fisher or any of its
subsidiaries would not have a material adverse effect on the Company's
financial statements.
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<PAGE>
The following table identifies the Company's principal facilities, which
are owned in fee unless otherwise indicated:
<TABLE>
<S> <C>
U.S. Logistics Facilities
Santa Clara, California(a) Itasca, Illinois(a)
Denver, Colorado(a) Wood Dale, Illinois(a)
Delmar (Newark), Delaware Agawam, Massachusetts
Suwanee, Georgia(a) Sommerville, New Jersey
Florence, Kentucky Houston, Texas
Non-U.S. Facilities
Geel, Belgium Offices, Logistics and Manufacturing Center
Edmonton, Alberta, Canada Offices and Logistics Center
Whitby, Ontario, Canada Logistics Center
Napaen, Ontario, Canada Offices
Ottawa, Ontario, Canada Offices and Data Center
Maurepas, France Offices and Logistics Center
Kamen, Germany(a) Logistic Center
Kuala Lumpur, Malaysia(b) Offices and Logistics Center
Guadalajara, Mexico Offices and Logistics Center
Singapore(a) Offices and Logistics Center
Loughborough, United Kingdom Offices, Logistics and Manufacturing Center
Other Properties
Hampton, New Hampshire(a) Corporate Offices
Fair Lawn, New Jersey Manufacturing
Rochester, New York Manufacturing
Pittsburgh, Pennsylvania(c) Offices and Data Center
Two Rivers, Wisconsin Offices and Manufacturing Center
Indiana, Pennsylvania(a) Manufacturing
Swedesboro, New Jersey(a) Manufacturing
Huntersville, North Carolina(a) Manufacturing
</TABLE>
- - - ----------
(a) Leased
(b) One property owned, three leased
(c) One property owned, two leased
Environmental Matters
Some of Fisher's operations involve the handling, manufacture or use of
substances that are classified as toxic or hazardous substances within the
meaning of applicable environmental laws. Consequently, some risk of
environmental and other damage is inherent in particular operations and
products of Fisher, as it is with other companies engaged in similar
businesses, and there can be no assurance that material damage will not occur
or be discovered to have occurred or be determined to be material in the
future. The Company is currently involved in various stages of investigation
and remediation relative to environmental protection matters.
The Company maintains two facilities in the State of New Jersey, in Fair
Lawn and Bridgewater, that are the subject of administrative consent orders,
issued pursuant to New Jersey's Environmental Clean-Up and Responsibility Act
("ECRA") (now called the Industrial Site Recovery Act ("ISRA")), in connection
with prior transfers of a controlling interest in the Company, which require
that certain remediation and other activities be undertaken at these sites. The
Fair Lawn facility is also part of a site listed on the "Superfund" National
Priority List under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). Fisher has also
been notified that it is among the potentially responsible parties under CERCLA
or similar state laws for the costs of investigating and/or remediating
contamination caused by hazardous materials at certain other sites. The
Company's non-Superfund liabilities for environmental matters are principally
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<PAGE>
related to compliance with ECRA/ISRA administrative consent orders and other
environmental regulatory requirements such as the Clean Air Act, the Clean
Water Act and other generally applicable requirements.
The potential costs related to environmental matters and the possible
impact on future operations are difficult to predict given the uncertainties
regarding the extent of the required cleanup, the complexity and interpretation
of applicable laws and regulations, the varying costs of alternative cleanup
methods and the extent of the Company's responsibility. Accruals for
environmental liabilities are recorded, based on current interpretations of
environmental laws and regulations, when it is probable that a liability has
been incurred and the amount of such liability can be reasonably estimated.
Estimates are established based upon reports prepared by environmental
specialists, management's knowledge to date and its experience with the
foregoing environmental matters, and include potential costs for investigation,
remediation, operation and maintenance of cleanup sites and related capital
expenditures. Accrued liabilities for environmental matters were $37.6 million
and $35.6 million at December 31, 1996 and 1995, respectively. Although these
amounts do not include third-party recoveries, certain sites may be subject to
indemnification. The Company has accounted for environmental liabilities in
accordance with Accounting Standards Statement of Position 96-1, "Environmental
Remediation Liabilities," which addresses accounting and reporting for
environmental remediation liabilities. Management believes this accrual is
adequate for the environmental liabilities expected to be incurred and, as a
result, believes that the ultimate liability incurred with respect to
environmental matters will not have a material adverse effect on the Company's
financial statements or results of operations. However, future events, such as
changes in existing laws and regulations, changes in agency direction or
enforcement policies or changes in the conduct of Fisher's operations, may give
rise to additional compliance costs which could have a material adverse effect
on the Company's financial statements.
Fisher spent approximately $2.2 million and $1.9 million during the years
ended December 31, 1996 and 1995, respectively, on remediation and related
environmental monitoring and compliance. Amounts expensed for environmental
matters, including compliance costs under the existing administrative consent
orders, for installation and operation of groundwater treatment systems and
other planned expenses, are expected to average between $2 million and $3
million per year.
Legal Proceedings
There are various lawsuits and claims pending against Fisher and certain
of its subsidiaries. In the opinion of the Company's management, the Company's
ultimate liability with respect to these matters, if any, will not have a
material adverse effect on the Company's results of operations and financial
condition. The Company is currently subject to two shareholder suits, each of
which purports to be a class action, Steiner v. Fisher Scientific International
Inc. et. al., Court of Chancery of the State of Delaware, New Castle County,
Civil Action 15730 and Jacob v. Fisher Scientific International Inc. et. al.,
Court of Chancery of the State of Delaware, New Castle County, Civil Action
15743NC. In each case the complaints allege that the Board has breached its
fiduciary duties to shareholders by implementing a "poison pill" and failing to
facilitate the Trinity Proposal or to seek other interested bidders and by
conduct designed to prevent a change of control of the Company. The plaintiff
in each action requests, among other things, an order certifying a class
action, enjoining the use of defensive tactics in a manner inconsistent with
maximizing shareholder value and requiring that the Board create an active
auction for the Company. In addition to damages the suits seek attorneys fees
and expenses. Because the Board, contrary to the allegations contained in the
shareholders suits listed above, did in fact conduct an auction for the Company
and did seek to find potential buyers for the Company, which resulted in a
change of control transaction having a value to shareholders greater than that
of the Trinity Proposal, the shareholder suits are believed to be without merit
and unlikely to have a material adverse effect on the Company's financial
statements or results of operations.
The Company is subject to the jurisdiction of various regulatory agencies
including, among others, the United States Food and Drug Administration and the
Agency for International Development. Various governmental agencies conduct
investigations from time to time to examine matters relating to the Company's
operations. Some of the Company's operations involve and have involved the
handling, manufacture or use of substances that are classified as toxic or
hazardous substances within the meaning of applicable environmental laws.
Consequently, some risk of environmental and other damage is inherent in
particular operations and products of the Company as it is with other companies
engaged in similar businesses, and there can be no assurance that material
damage will not occur or be discovered to have occurred or be determined to be
material in the future. The Company is currently involved in various stages of
investigation and remediation relative to environmental protection matters.
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See "Management's Discussion and Analysis of Financial Condition and Results of
Operations Environmental Matters." The Company's management believes that such
investigations and expenditures in connection therewith, individually and in
the aggregate, will not have any material adverse effect upon the Company's
results of operations and financial condition.
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MANAGEMENT
Principals of the Company
All of the current executive and principal officers of the Company are
expected to remain in their present capacities following the Effective Time.
The respective ages and positions of these individuals and individuals which
are expected to be appointed as directors of the Surviving Corporation are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C>
Paul M. Montrone 56 President and Chief Executive Officer; Director (to be
appointed at the Effective Time) of Fisher Scientific
International Inc.
Paul M. Meister 45 Senior Vice President and Chief Financial Officer; Director
(to be appointed at the Effective Time) of Fisher Scientific
International Inc.
Joseph P. Bolduc 54 Vice President and Chief Information Officer of Fisher
Scientific International Inc.
Denis M. Maiorani 49 President, Fisher Scientific Worldwide Inc.
Bruce H. Nemec 47 President, Logistics and Operations of Fisher Scientific
Company
James R. Osborn, Jr. 53 President, Fisher Healthcare division of Fisher
Scientific Company
Paul F. Patek 38 President, Research of Fisher Scientific Company
Charles V. Wozniak 51 President, Fisher Safety division of Fisher Scientific
Company
Kevin P. Clark 35 Vice President and Treasurer of Fisher Scientific
International Inc.
Todd M. DuChene 34 Vice President, General Counsel and Secretary of Fisher
Scientific International Inc.
Charles R. Hogen 50 Vice President, External Affairs of Fisher Scientific
International Inc.
Anthony J. DiNovi 35 Director of FSI (to be appointed at the Effective Time)
David V. Harkins 56 Director (to be appointed at the Effective Time)
Scott M. Sperling 39 Director of FSI (to be appointed at the Effective Time)
Kent R. Weldon 30 Director of FSI (to be appointed at the Effective Time)
</TABLE>
Paul M. Montrone has been President and Chief Executive Officer of Fisher
Scientific International Inc. since 1991. Prior to that time, he was President
of General Chemical from prior to 1992 to 1994 and has been Chairman of the
Board of General Chemical since 1994. Mr. Montrone served as Vice Chairman of
the Board of Directors of Abex Inc. from 1992 to 1995. Mr. Montrone is a member
of the Board of Directors of Waste Management, Inc.
Paul M. Meister has been Senior Vice President and Chief Financial Officer
of Fisher Scientific International Inc. since 1991. Prior to that time, he was
Senior Vice President of Abex Inc. from 1992 to 1995, Mr. Meister is a member
of the Board of Directors of Power Control Technologies Inc., General Chemical,
Minerals Technologies, Inc. and Wheelabrator Technologies Inc.
Joseph P. Bolduc has been Vice President and Chief Information Officer of
Fisher Scientific International Inc. since October 1996. Mr. Bolduc also served
as Regional Consulting Manager of Oracle Corporation (computer software) from
1995 to October 1996 and Corporate Vice President of Spiegel, Inc. (catalog
merchandiser/retailer) from prior to 1992 to 1995.
Denis N. Maiorani has been the President of Fisher Scientific Worldwide
Inc., since July 1996. Mr. Maiorani also served as President of Fisher
Scientific Europe Limited from January 1996 to July 1996 and as a consultant to
Fisher from 1995 to January 1996. Mr. Maiorani served as President of
Robertson-Ceco Corporation (building-components manufacturer) from 1992 to
1995.
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Bruce H. Nemec has been President, Logistics and Operations, Fisher
Scientific Company since September 1997, and was Vice President-Worldwide
Operations of Fisher Scientific Worldwide Inc., a subsidiary of Fisher
Scientific International Inc., from 1995 until 1997. Mr. Nemec served as Vice
President, European Operations with Thomas & Betts Corporation (electrical and
electronic components) from 1994 until 1995, and was Vice President,
Distribution Operations from prior to 1992 until 1994.
James R. Osborn has been President, Fisher Healthcare division of Fisher
Scientific Company since March 1997, and served as Senior Vice President of
Fisher Scientific Company from August 1995 to March 1997. Mr. Osborn was
self-employed from 1993 to 1995, and served as Chairman and Chief Executive
Officer of Corus Medical Corporation from prior to 1992 until 1993.
Paul F. Patek has been President, Research of Fisher Scientific Company
since October 1997. From February 1996 through October 1997, Mr. Patek served
as Vice President and Controller of Fisher Scientific International Inc. Mr.
Patek also served as Group Controller of Fisher and Senior Vice President,
Finance of Fisher Scientific Company from 1994 to February 1996 and Manager of
Corporate Finance of Chrysler Corporation from prior to 1992 to 1994.
Charles V. Wozniak has been President of the Fisher Safety division of
Fisher Scientific Company since 1997, and was Senior Vice President and General
Manager, Production for Fisher Scientific Company from 1996 until 1997. Mr.
Wozniak served as Senior Vice President, MidEast Region for the MetPath Inc.
division of Corning Inc. from 1994 until 1996, and was Group President, Eastern
Region from prior to 1992 until 1994.
Kevin P. Clark has been Vice President and Treasurer of Fisher Scientific
International Inc. since September 1997, and served as Assistant Treasurer of
Fisher from 1995 to 1997. Mr. Clark served as Treasurer of Federal-Mogul
Corporation (automotive components) from 1994 to 1995, and held various
financial executive positions at Chrysler Corporation from prior to 1992 to
1993, the most current being Manager of Corporate Finance of Chrysler Financial
Corp.
Todd M. DuChene has been Vice President, General Counsel and Secretary of
Fisher Scientific International Inc. since November 1996. Mr. DuChene served as
Senior Vice President, Secretary and General Counsel of OfficeMax, Inc.
(retailer) from March 1995 to November 1996 and Vice President, General Counsel
and Assistant Secretary from January 1994 to March 1995. He was an Associate
with Baker & Hostetler from prior to 1992 to January 1994.
Charles R. Hogen, Jr. has been Vice President, External Affairs of Fisher
Scientific International Inc. since September 1997. Mr. Hogen served as Vice
President, Communications and Public Affairs for Hybridon, Inc. (biotechnology)
from 1995 until 1997, and was Executive Director, Public Affairs for Merck &
Co., Inc. (pharmaceutical products and services) from prior to 1992 until 1995.
Anthony J. DiNovi is President and Director of FSI and will become a
director of Fisher Scientific International Inc. effective upon consummation of
the Merger. Mr. DiNovi has been employed by Thomas H. Lee Company, a private
equity investment firm, since 1988 and currently serves as a Managing Director.
Mr. DiNovi is also Vice President and Trustee of THL Equity Trust III, the
general partner of the THL Equity Advisors III Limited Partnership, which is
the general partner of the Thomas H. Lee Equity Fund III, L.P. and Vice
President of Thomas H. Lee Advisors I and T.H. Lee Mezzanine II, affiliates of
ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee
Acquisition Fund II (Retirement Accounts), L.P., respectively. Mr. DiNovi also
serves as a director of Safelite Glass Corp., First Alert, Inc., The Learning
Company, Inc., and several private corporations.
David V. Harkins will become a director of Fisher Scientific International
Inc. effective upon consummation of the Transaction. Mr. Harkins has been
employed by Thomas H. Lee Company since 1986 and currently serves as a Senior
Managing Director. Mr. Harkins is also the President and Trustee of THL Equity
Trust III, the General Partner of THL Equity Advisors III Limited Partnership,
which is the General Partner of Thomas H. Lee Equity Fund III, L.P. and
Chairman of National Dentex Corporation since 1983. Mr. Harkins is a director
of Stanley Furniture Company, Inc., HomeSide, Inc., First Alert, Inc., Syratech
Corporation and several private corporations.
Scott M. Sperling is Chairman of the Board of Directors of FSI and will
become a director of Fisher Scientific International Inc. effective upon
consummation of the Merger. Since July 1994, Mr. Sperling has served as a
Managing Director of Thomas H. Lee Company. Mr. Sperling is also Vice President
and Trustee of THL Equity Trust III, the general partner of Equity Advisors III
Limited Partnership, which is the general partner of Thomas H. Lee Equity Fund
III L.P. Mr. Sperling also serves as a director of Beacon Properties, Inc., The
Learning Company,
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Livent, Inc., The General Chemical Group Inc., Object Design Inc., Safelite
Glass Corp. and several private corporations.
Kent R. Weldon is the Secretary and Director of FSI and will become a
director of Fisher Scientific International Inc. effective upon consummation of
the Merger. Mr. Weldon worked at Thomas H. Lee Company from 1991 to 1993 and
rejoined in 1995. From 1989 to 1991, Mr. Weldon worked in the Mergers &
Acquisitions Department of Morgan Stanley & Co., Incorporated. From 1993 to
1995, Mr. Weldon attended the Harvard Graduate School of Business
Administration. Mr. Weldon is a Vice President of THL Equity Trust III, the
General Partner of THL Equity Advisers III Limited Partnership, which is the
General Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Weldon also serves
as a director of Syratech Corporation.
Pursuant to the Merger Agreement, the directors of the Surviving
Corporation immediately following the Transaction shall be the current
directors of FSI. It is expected that Messrs. Meister, Montrone and Harkins,
all directors of the Surviving Corporation at the Effective Time, along with
other unidentified persons, will be appointed to the board of directors. The
Equity Investors expect that additional directors will be selected for the
board of directors of the Surviving Corporation, however, the identities of
such directors is yet to be determined.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 31, 1997 certain information
concerning each person believed to be a beneficial owner of more than 5% of
Fisher Common Stock and beneficial ownership of Fisher Common Stock by each
director, named executive officer and all directors and executive officers as a
group:
<TABLE>
<CAPTION>
Prior to Merger Post-Merger
------------------------------------ ---------------------------
Amount Amount
Title and Nature and Nature
of of Beneficial Percent of of Beneficial Percent of
Class Name of Beneficial Owner Ownership Class(1) Ownership Class(1)
- - - ----------- ---------------------------------------- --------------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Common Thomas H. Lee Fund III and -- * 4,165,643 51.0%
Stock affiliates of THL
DLJ Merchant Banking Partners II, L.P. -- * 1,254,712 15.4%
Chase Equity Associates, L.P. -- * 836,475 10.2%
Merrill Lynch & Co. -- * 250,942 3.1%
Portfolio B Investment L.P., et al. 2,142,400(2) 10.5%
Paul M. Montrone 626,816(3) 3.0%
Paul M. Meister 356,541(4) 1.7%
Michael D. Dingman 281,277(5) 1.4%
Michael J. Quinn 188,803(6) 1.0%
Francis M. Scricco 1,110(7) *
Denis N. Maiorani 45,790(8) *
Philip E. Beekman 8,000(9) *
Robert A. Day 7,000(10) *
Gerald J. Lewis 7,000(10) *
Edward A. Montgomery, Jr. 7,000(10) *
Lt. Gen. Thomas P. Stafford 7,000(10) *
All directors and executive 1,615,695(11) 7.3%
officers as a group (19 individuals)
</TABLE>
- - - ----------
* less than 1%.
(1) Calculated after giving effect to the exercise of certain options described
below.
(2) The address of Portfolio B Investors L.P. is 201 Main Street, Fort Worth,
TX 76102. The information is based on an amendment to Schedule 13D dated
June 4, 1997 filed with the Commission by Portfolio B Investors L.P.,
Trinity I Fund, L.P., T.F. Investors, L.P., Trinity Capital Management,
Inc., Thomas M. Taylor, Portfolio Associates, Inc., The Bass Management
Trust, Perry R. Bass, Nancy L. Bass, Sid R. Bass Management Trust, Sid R.
Bass, Lee M. Bass, E.P. Bass reporting an aggregate beneficial ownership
of 2,142,400 shares of Fisher
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<PAGE>
Common Stock with sole voting and dispositive power over (i) 1,636,715
shares of Fisher Common Stock (8.1%) by Portfolio B Investors L.P., (ii)
127,195 shares of Fisher Common Stock by Bass Management Trust, (iii)
127,193 shares of Fisher Common Stock by Sid R. Bass Management Trust, (iv)
127,195 shares of Fisher Common Stock by Lee M. Bass and (v) 124,102 shares
of Fisher Common Stock by E.P. Bass.
(3) Includes 55,000 shares of Fisher Common Stock owned by Mr. Montrone,
418,566 shares of Fisher Common Stock issuable upon exercise of options
exercisable within 60 days of October 31, 1997, 750 shares of Fisher
Common Stock held for Mr. Montrone under the Fisher Scientific
International Inc. Savings and Profit Sharing Plan (the "Savings Plan"),
55,000 shares of Fisher Common Stock held by a charitable foundation of
which Mr. Montrone serves as a director and officer, 72,500 shares of
Fisher Common Stock which have been deferred into the Fisher Scientific
International Inc. Executive Retirement and Savings Program Trust (the
"Savings Trust") and 25,000 shares of Fisher Common Stock owned by Mr.
Montrone's spouse.
(4) Includes 35,000 shares owned by Mr. Meister, 266,433 shares of Fisher
Common Stock issuable upon exercise of options exercisable within 60 days
of October 31, 1997, 800 shares of Fisher Common Stock held for Mr.
Meister under the Savings Plan, and 54,300 shares of Fisher Common Stock
which have been deferred into the Savings Trust.
(5) Includes 46,900 shares of Fisher Common Stock owned by Mr. Dingman, 231,100
shares of Fisher Common Stock issuable upon exercise of option exercisable
within 60 days of October 31, 1997 and 3,277 shares of Fisher Common Stock
held for Mr. Dingman under the Savings Plan.
(6) Includes 34,950 shares of Fisher Common Stock owned by Mr. Quinn, 151,500
shares of Fisher Common Stock issuable upon exercise of options
exercisable within 60 days of October 31, 1997, 1,003 shares of Fisher
Common Stock held for Mr. Quinn under the Savings Plan and 1,350 shares of
Fisher Common Stock owned by Mr. Quinn's spouse. Mr. Quinn left the
Company in October 1997.
(7) Includes 1,110 shares held for Mr. Scricco under the Savings Plan. Mr.
Scricco left the Company in August, 1997.
(8) Includes 9,016 shares of Fisher Common Stock owned by Mr. Maiorani and
36,774 shares of Fisher Common Stock issuable upon exercise of options
exercisable within 60 days of October 31, 1997.
(9) Includes 1,000 shares of Fisher Common Stock owned by Mr. Beekman, 5,000
shares of Fisher Common Stock issuable in respect of units issued to each
non-employee director pursuant to the Restricted Unit Plan for Non-Employee
Directors which shares of Fisher Common Stock are subject to forfeiture
under certain circumstances, and 2,000 shares of Fisher Common Stock issued
upon exercise of options exercisable within 60 days of October 31, 1997.
(10) Includes 5,000 shares of Fisher Common Stock issuable in respect of units
issued to each non- employee director pursuant to the Restricted Unit Plan
for Non-Employee Directors which shares of Fisher Common Stock are subject
to forfeiture under certain circumstances, and 2,000 shares of Fisher
Common Stock issued upon exercise of options exercisable within 60 days of
October 31, 1997.
(11) Includes 1,187,722 shares of Fisher Common Stock issuable upon exercise of
options exercisable within 60 days of October 31, 1997, 9,217 shares of
Fisher Common Stock held for certain officers under the Savings Plan and
25,000 shares of Fisher Common Stock subject to issuance under the
Restricted Unit Plan for Non-Employee Directors.
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<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Compensation of Directors
The non-employee directors of Fisher are entitled to receive cash
compensation and compensation pursuant to the plans described below.
Cash Compensation. Non-employee directors of Fisher receive compensation
of $40,000 per year, with no additional fees for attendance at Board or
committee meetings. Employee directors are not paid any fees or additional
compensation for service as members of the Board or any of its committees. All
directors are reimbursed for expenses incurred in attending Board and committee
meetings. Pursuant to the Deferred Compensation Plan for Non-Employee Directors
of Fisher Scientific International Inc., a non-employee director may elect,
generally prior to the commencement of any calendar year, to have all or any
portion of the director's compensation for such calendar year credited to a
deferred compensation account. Amounts credited to the director's account will
accrue interest based upon the average quoted rate for ten-year U.S. Treasury
Notes. Deferred amounts will be paid in a lump sum or in installments
commencing on the first business day of the calendar year following the year in
which the director ceases to serve on the Board or of a later calendar year
specified by the director.
Retirement Plan for Non-Employee Directors. Pursuant to the Retirement
Plan for Non-Employee Directors of Fisher Scientific International Inc., any
director who retires from the Board with at least five years of service as a
non-employee director is eligible for an annual retirement benefit for the
remainder of the director's lifetime. The annual retirement benefit is equal to
50% of the director's fee in effect at the date of the director's retirement
for a director who retires with five years of eligible service and is increased
by 10% of the director's fee in effect at the date of the director's retirement
for each additional year of service, up to 100% of such fee for 10 or more
years of service as a non-employee director, or for directors who retire at age
70.
Restricted Unit Plan for Non-Employee Directors. Pursuant to the
Restricted Unit Plan for Non-Employee Directors of Fisher Scientific
International Inc., each non-employee director of Fisher, upon becoming a
director of Fisher, receives a one-time grant of 5,000 units ("Units")
evidencing a right to receive shares of Common Stock, subject to certain
restrictions. Fisher maintains a memorandum account for each director who
receives a grant and credits to such account the amount of any cash or stock
dividends and shares of stock of any subsidiary ("Dividend Equivalents")
distributed on a share of Common Stock (or other securities in the memorandum
account) from the date of grant until the payment date (described below). No
shares of Common Stock are issued at the time the Units are granted, and Fisher
is not required to set aside a fund for any such grant or for amounts credited
to the memorandum account. Neither the Units nor the memorandum account may be
sold, assigned, pledged or otherwise disposed of. Twenty-five percent of the
Units and the related Dividend Equivalents will vest for each year of service
as a non-employee director of Fisher. Vested Units and the related Dividend
Equivalents are not payable until the director ceases to be a member of the
Board. At that time the director will receive one share of Common Stock for
each vested Unit, provided that a director may elect, prior to the date on
which Units vest, to have payment deferred to a later date. Any Units that have
not vested at the time the director ceases to be a non-employee director of
Fisher will be canceled unless service has terminated because of death or
disability, in which event all such Units will vest immediately. When payment
of Units is made, the director will also receive cash and shares of Common
Stock equal to the related Dividend Equivalents, together with interest on the
cash based upon the average quoted rate for ten-year U.S. Treasury Notes.
Stock Options. On December 4, 1996, the Board approved a one-time grant of
10,000 options to each non-employee Director. The options have a ten year term
and an exercise price of $45.875 per share, the fair market value of Common
Stock on the date of grant. The options are exercisable in cumulative
installments of 20% per year in each of the five years following the date of
grant, although they may become exercisable upon the occurrence of a change in
control of Fisher or upon the grantee's death, disability or normal retirement.
The options generally must be exercised, if at all, not later than 90 days
following the termination of the grantee's service as a director of Fisher, or
in the event the grantee's service as a director terminates due to death,
disability or normal retirement, not later than one year following the
termination of grantee's service as a director of Fisher.
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<PAGE>
Compensation of Executive Officers
I. Summary Compensation Table
The following table summarizes the compensation paid to the President and
Chief Executive Officer and each of Fisher's four other most highly compensated
executive officers (the "Named Executive Officers") for services in all
capacities to Fisher and its subsidiaries during or with respect to 1994, 1995
and 1996.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual --------------
Compensation(1) Awards
---------------------------- Securities
Underlying
All Other
Salary Bonus Options Compensation
($) $ (#) ($)(2)
--------- ---------------- -------------- -------------
Name and Principal Position
- - - ---------------------------
<S> <C> <C> <C> <C>
Paul M. Montrone, 1996 540,000 475,000 0 82,258
President and Chief 1995 502,500 450,000 399,000 82,567
Executive Officer 1994 90,000 385,000 0 26,676
Paul M. Meister, 1996 360,000 315,000 0 32,964
Senior Vice President, Chief 1995 315,000 290,000 299,000 32,083
Financial Officer and Treasurer 1994 300,000 190,000 0 9,714
Michael J. Quinn, 1996 375,000 250,000 0 18,666
President of Fisher Scientific
Company 1995 218,750 280,000(3) 280,000 7,739
Denis N. Maiorani, 1996 275,000 185,000 22,580 5,343
President of Fisher
Scientific Worldwide Inc.(4)
Francis M. Scricco, 1996 250,000 270,000 0 15,421
Vice President 1995 250,000 50,000 39,000 19,427
1994 187,500 100,000 45,000 3,366
</TABLE>
- - - ----------
(1) Includes amounts deferred by each Named Executive under Fisher's Savings
and Profit Sharing Plan and Executive Retirement and Savings Program.
(2) Amounts listed in this column reflect Fisher's contributions matching the
Named Executive's contributions to Fisher's Savings and Profit Sharing Plan
and Executive Retirement and Savings Program and the value of supplemental
life insurance programs for 1996. Amounts attributable to such supplemental
life insurance programs are as follows: Mr. Montrone ($49,408), Mr. Meister
($12,750) and Mr. Scricco ($5,203).
(3) Includes payments made to Mr. Quinn at the time he joined Fisher.
(4) Mr. Maiorani was elected President of Fisher Scientific Worldwide Inc., a
wholly owned subsidiary of Fisher, in July, 1996.
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<PAGE>
II. Option Grants in Last Fiscal Year
The following table sets forth the stock options granted during 1996 to
the Named Executives.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Grant Date
Options Employees in Price Expiration Present Value
Name Granted Fiscal Year ($/SH) Date ($)(1)
- - - ------------------------- ------------ -------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Denis N. Maiorani ...... 22,580(2) 3% 36.50 4/16/2006 $ 432,516
</TABLE>
- - - ----------
(1) The estimated grant date present value reflected in this column is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected above include (i) an exercise price as indicated in
the table above, equal to the fair market value of the underlying stock on
the date of grant; (ii) options are exercised at the end of a ten year
period; (iii) interest rates representing the interest rate on U.S. Treasury
securities with maturity dates of ten years as of the date of grant; (iv)
volatility of approximately 25.9% calculated using daily stock prices for
the six month period prior to the date of grant; and (v) dividends at the
rate of $0.08 per share representing the annualized dividends paid with
respect to a share of Common Stock at the date of grant. The ultimate value
of the options will depend on the future market price of the Common Stock,
which cannot be forecast with reasonable accuracy. The actual value, if any,
an optionee will realize upon exercise of an option will depend on the
excess of the market value of the Common Stock on the date the option is
exercised over the exercise price.
(2) Options granted pursuant to the Equity Ownership Plan ("EOP"). Under the
EOP, options were granted pursuant to participant's commitment to purchase
and hold shares of Fisher Common Stock. Mr. Maiorani purchased 4,516 shares
of Fisher Common Stock, and was granted the option listed above in exchange
for such purchase. The purchased shares must be held for at least the
vesting period relating to the options. Options become exercisable in three
annual installments of 30%, 30% and 40%, subject to acceleration. The
options generally must be exercised, if at all, not later than 90 days
following the termination of the grantee's employment with Fisher and its
affiliates. However, in the event the grantee's employment terminates due to
death, disability or normal retirement, the options must be exercised, if at
all, not later than one year following the termination of grantee's
employment with Fisher and its affiliates.
III. Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table sets forth information for each Named Executive with
regard to the aggregate stock options held on December 31, 1996, and the value
of in-the-money stock options held as of December 31, 1996.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Shares Options at In-the-Money
Acquired December 31, 1996 Options at
on Value (#) Decenber 31, 1996($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($)(1) Unexercisable Unexercisable(2)
- - - -------------------------- --------------- ----------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Paul M. Montrone ......... 72,500(3) 1,712,813 273,033/336,800 6,157,411/4,488,492
Paul M. Meister ......... 54,300(3) 1,282,838 156,066/255,300 3,023,782/3,397,257
Michael J. Quinn ......... 0 0 87,750/192,250 1,287,797/2,719,991
Denis N. Maiorani ...... 0 0 15,000/ 57,580 205,313/ 711,919
Francis M. Scricco ...... 0 0 20,333/ 48,667 252,005/ 488,928
</TABLE>
- - - ----------
(1) Excess of the value of the underlying securities at the time of exercise
over the exercise price.
(2) Excess of the value of the underlying securities at December 31, 1996 of
$46.8125 over the exercise price.
(3) Shares acquired for the account of the named participant in the Fisher
Scientific International Inc. Executive Retirement and Savings Program
Trust.
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<PAGE>
Retirement Program
Fisher maintains two retirement benefit programs: a tax qualified defined
benefit plan available generally to all employees (the "Pension Plan") and the
Executive Retirement and Savings Program, a non-qualified supplemental benefit
plan pursuant to which retirement benefits are provided to certain executive
officers and other eligible key management employees who are designated by the
Compensation Committee, which determines the service recognized under the
program in calculating a participant's vested interest and retirement income
(the "Supplemental Plan" and, together with the Pension Plan the "Retirement
Program").
The following table shows the total estimated annual benefits payable
under the Retirement Program in the form of a straight life annuity to
hypothetical participants upon retirement at normal retirement age, with
respect to the compensation and years-of-service categories indicated in the
table.
<TABLE>
<CAPTION>
Pension Plan Table
Annualized -----------------------------------------------------------------------
Average 15 Years 20 Years 25 Years 30 Years 35 Years
Earnings of Service of Service of Service of Service of Service
- - - ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000 45,000 60,000 75,000 90,000 105,000
400,000 90,000 120,000 150,000 180,000 210,000
600,000 135,000 180,000 225,000 270,000 315,000
800,000 180,000 240,000 300,000 360,000 420,000
1,000,00 225,000 300,000 375,000 450,000 525,000
1,200,000 270,000 360,000 450,000 540,000 630,000
</TABLE>
The years of service recognized under the Retirement Program generally
include all service with Fisher and its predecessors. The credited years of
service as of December 31, 1996 under the Retirement Program for each of the
Named Executives, are as follows: Mr. Montrone, 26 years; Mr. Meister, 16
years; Mr. Quinn, 2 years; Mr. Maiorani, 1 year; and Mr. Scricco, 2 years.
Compensation recognized under the Retirement Program generally includes a
participant's base salary and annual bonus compensation (including any amounts
deferred). Retirement benefits are calculated based upon the average of a
participant's recognized compensation for the five years out of the ten
consecutive years of credited service that produce the highest average and are
not subject to offset or reduction for social security benefits. Under this
formula, the average recognized compensation under the Retirement Program for
each of the Named Executive Officers as of December 31, 1996 was: Mr. Montrone
$990,000, Mr. Meister $650,000, Mr. Quinn $555,000, Mr. Scricco $300,000, and
Mr. Maiorani $137,500.
115
<PAGE>
1998 EQUITY AND INCENTIVE PLAN
The following is a summary of the expected terms of the Fisher Scientific
International Inc. 1998 Equity and Incentive Plan (the "Plan"). The Plan is
subject to the approval by both the Board and the Stockholders of the Company.
Although the terms of the Plan have not been finalized, the Company expects to
finalize the Plan prior to the Special Meeting and will file the Plan as an
exhibit to the registration statement of which this Proxy Statement/
Prospectus forms a part. The Company expects that the terms of the final Plan
will not differ materially from the description set forth below.
The Plan is intended to afford an incentive to selected employees and
independent contractors of the Company or any subsidiary or affiliate that now
exists or hereafter is organized or acquired, to continue as employees or
independent contractors, as the case may be, to increase their efforts on
behalf of the Company and to promote the success of the Company's business.
The Plan is intended to provide performance-based compensation so as to be
eligible for compliance with Section 162(m) of the Code which, generally,
limits the deduction by an employer for compensation of certain covered
employees. Under Section 162(m) of the Code, certain compensation, including
compensation based on the attainment of performance goals, may be disregarded
for purposes of this deduction limit if certain requirements are met. Among the
requirements for compensation to qualify for this exception is that the
material terms pursuant to which the compensation is to be paid be disclosed to
and approved by the stockholders in a separate vote prior to the payment.
Accordingly, if the Plan is approved by the Board and stockholders and the
other conditions of Section 162(m) relating to performance-based compensation
are satisfied, compensation paid to covered employees pursuant to the Plan will
not fail to be deductible under Section 162(m) of the Code. The Equity
Investors, who upon the Effective Time will hold a majority of the outstanding
shares of Fisher Common Stock, have committed to take actions necessary to
cause the Plan to be approved by stockholders following the Effective Time.
Once these oral agreements are finalized, the Company intends to file these
agreements as an exhibit to the registration statement of which this Proxy
Statement/Prospectus forms a part.
General
The Plan is expected to provide for the granting of awards to such
employees and consultants of the Company as the committee established by the
Board to administer the Plan (the "Committee") may select from time to time.
The Plan is expected to provide an aggregate of not more than 2,000,000
shares of Fisher Common Stock to be reserved for issuance under the Plan,
subject to adjustment as described below. Such shares may be authorized but
unissued shares of Fisher Common Stock or authorized and issued Fisher Common
Stock held in the Company's treasury. Generally, shares subject to an award
that remain unissued upon expiration or cancellation of the award will be
available for other awards under the Plan. It is expected that the Plan will
limit the total number of shares of Fisher Common Stock granted to any
participant in the Plan. In the event that the Committee determines that any
dividend or other distribution, stock split, recapitalization, reorganization,
merger or other similar corporate transaction or event affects the Fisher
Common Stock such that an adjustment would be appropriate in order to prevent
dilution or enlargement of the rights of participants under the Plan, then the
Committee may make such equitable changes or adjustments as it deems necessary
to the number and kind of shares of Fisher Common Stock or other property
(including cash) which may thereafter be issued in connection with awards, the
limit on individual awards, the number and kind of shares of Fisher Common
Stock subject to each outstanding award, the performance goals related to an
award and the exercise price, grant price or purchase price of each award.
It is expected that awards under the Plan may be made in the form of (a)
options intended to be and designated as incentive stock options within the
meaning of Section 422 of the Code ("Incentive Stock Options") (b) options
designated as nonqualified stock options ("Non-Qualified Stock Options")
(Incentive and Non-Qualified Stock Options are collectively referred to as
"options"), (c) stock appreciation rights, (d) certain shares of stock subject
to transferability and other restrictions ("Restricted Stock"), (e) rights
granted to receive Restricted Stock, (f) rights granted to receive cash, stock
or other property equal in value to dividends paid with respect to a specified
number of shares of stock and (g) other cash- and stock-based awards ("Other
Awards"). Awards may be granted to such employees and consultants of the
Company and its subsidiaries as the Committee may select in its discretion.
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<PAGE>
Administration
The Plan is expected to be administered by the Committee. The composition
of the Committee will, at all times, satisfy the provisions of Section 162(m)
of the Code. The Committee will be authorized, among other things, to construe,
interpret and implement the provisions of the Plan, to select the persons to
whom awards will be granted, to determine the terms and conditions of such
awards and to make all other determinations deemed necessary or advisable for
the administration of the Plan.
Awards under the Plan
Stock Options
Options awarded pursuant to the Plan are expected to become exercisable at
such times and upon such conditions as the Committee may determine. The
Committee is expected to determine each option's expiration date; provided,
however, that no incentive stock option may be exercised more than ten years
after the date of grant. The purchase price per share payable upon the exercise
of an option (the "option exercise price") will be established by the
Committee; provided, however, that unless the Committee determines otherwise,
the option exercise price may not be less than the fair market value of a share
of Fisher Common Stock on the date of grant. The option exercise price will be
payable by any one of the following methods or a combination thereof: (a) cash;
(b) by surrender of shares of Fisher Common Stock held at least six months by
the participant and having a fair market value on the date of the exercise
equal to the option exercise price; (c) by having shares of Fisher Common Stock
with a fair market value on the date of exercise equal to the aggregate
exercise price withheld by the Company or sold by a broker-dealer; or (d) by
such other method as the Committee may determine.
Stock Appreciation Rights
Stock appreciation rights may be granted in connection with all or part
of, or independently of, any option granted under the Plan. Unless the
Committee determines otherwise, a stock appreciation right granted in tandem
with any stock option will be exercisable only when and to the extent the
option to which it relates is exercisable. The grantee of a stock appreciation
right will have the right to surrender the stock appreciation right and receive
from the Company, in cash, an amount equal to the excess of the fair market
value of a share of Fisher Common Stock over the exercise price of the stock
appreciation right for each share of Fisher Common Stock in respect of which
such stock appreciation right is being exercised.
Restricted Stock
The Committee may grant restricted shares of Fisher Common Stock to such
persons, in such amounts, and subject to such terms and conditions as the
Committee may determine in its discretion. Awards of Restricted Stock may be
made contingent upon the attainment by the Company of one or more
pre-established performance goals established by the Committee. The performance
goals may consist of the attainment by the Company (and/or its subsidiaries or
divisions if applicable) of targets based upon any one or more of the following
criteria: (i) pre-tax income or after-tax income, (ii) operating profit, (iii)
return on equity, assets, capital or investment, (iv) earnings or book value
per share, (v) sales or revenues, (vi) operating expenses, (vii) Fisher Common
Stock price appreciation and (viii) implementation or completion of critical
projects or processes.
Other Awards
Other awards valued in whole or in part by reference to, or otherwise
based on, Fisher Common Stock may be granted either alone or in addition to
other awards under the Plan. Subject to the provisions of the Plan, the
Committee is expected to have the sole and complete authority to determine the
persons to whom and the time or times at which such other awards will be
granted, the number of shares of Fisher Common Stock to be granted pursuant to
such other awards and all other conditions (including performance goals, if
any) of such other awards.
Other Features of the Plan
It is expected that, in the event of a change in control after the Merger,
all outstanding awards will become fully vested and/or immediately exercisable,
unless otherwise determined by the Committee at the time of the grant and
evidenced in an award agreement. In addition, it is expected that the plan will
provide that each holder of an option or stock appreciation right may receive,
in connection with such option or stock appreciation right, a "limited
117
<PAGE>
stock appreciation right," or "LSAR." An LSAR is a right that is exercisable
during the period of 90 days following a Change in Control. Upon exercise, the
holder surrenders his or her option or stock appreciation right, generally in
exchange for a cash payment equal to the excess of the Change in Control Price
over the exercise price for the option or stock appreciation right. In the case
of Incentive Stock Options, the cash payment would equal the excess of the fair
market value of the underlying stock on the date of exercise of the LSAR over
the exercise price. In addition, an Award Agreement may provide that in the
event the Change in Control transaction was intended to be accounted for as a
pooling of interests, the Committee could elect to deliver stock in lieu of the
cash payment to preserve such pooling treatment.
It is expected that the Plan will provide that the Company may make loans
to option holders in connection with the exercise of options, secured by
Company stock having a value equal to the principal amount of the loan. The
amount of any such loan may not exceed the fair market value of the stock
purchased in such exercise.
It is expected that the Plan will provide that the Board may suspend,
revise, terminate or amend the Plan at any time; provided, however, that no
such action may, without the consent of a participant, adversely affect the
participant's rights under any outstanding award.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of certain U.S. federal income
tax consequences under current federal income tax laws relating to awards under
the Plan to be approved. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign income and other
tax consequences.
Non-Qualified Stock Options
An optionee will not recognize any taxable income upon the grant of a
Non-Qualified Stock Option. The Company will not be entitled to a tax deduction
with respect to the grant of a Non-Qualified Stock Option. Upon exercise of a
Non-Qualified Stock Option, the excess of the fair market value of the Fisher
Common Stock on the exercise date over the option exercise price will be
taxable as compensation income to the optionee and will be subject to
applicable withholding taxes. The Company will generally be entitled to a tax
deduction at such time in the amount of such compensation income. The
optionee's tax basis for the Fisher Common Stock received pursuant to the
exercise of a Non-Qualified Stock Option will equal the sum of such
compensation income and the exercise price. The optionee's holding period in
the Fisher Common Stock received upon the exercise of a Non-Qualified Stock
Option immediately after such Fisher Common Stock is acquired.
In the event of a sale, exchange or other distribution of Fisher Common
Stock received upon the exercise of a Non-Qualified Stock Option, any
appreciation or depreciation after the exercise date generally will constitute
as capital gain or loss. Pursuant to recently enacted legislation, any such
capital gain should be subject to a maximum U.S. federal income tax rate of (A)
20% if the optionee's holding period in such stock was more than 18 months at
the time of such sale, exchange or other disposition and (B) 28% if the
optionee's holding period in such stock was more than one year but not more
than 18 months at the time of such sale, exchange or other disposition.
Incentive Stock Options
An optionee will not recognize any taxable income at the time of grant or
timely exercise of an Incentive Stock Option and the Company will not be
entitled to a tax deduction with respect to such grant or exercise. Exercise of
an Incentive Stock Option may, however, give rise to taxable compensation
income, and a tax deduction to the Company, if the Incentive Stock Option is
not exercised on a timely basis (generally, while the optionee is employed by
the Company or within 90 days after termination of employment) or if the
optionee subsequently engages in a "disqualifying disposition," as described
below.
A sale or exchange by an optionee of shares acquired upon the exercise of
an Incentive Stock Option more than one year after the transfer of the shares
to such optionee and more than two years after the date of grant of the
Incentive Stock Options will result in any difference between the net sale
proceeds and the exercise price being treated as long-term capital gain (or
loss) to the optionee. If such sale or exchange takes place within two years
after the date of the grant of the Incentive Stock Option or within one year
from the date of transfer of the Incentive Stock Option shares to the optionee,
such sale or exchange will generally constitute a "disqualifying disposition"
of such shares that will have the following results: any excess of (a) the
lesser of (i) the fair market value of the shares at the time of exercise of
the Incentive Stock Option and (ii) the amount realized on such disqualifying
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<PAGE>
disposition of the shares over (b) the option exercise price of such shares,
will be ordinary income to the optionee, subject to applicable withholding
taxes, and the Company will generally be entitled to a tax deduction in the
amount of such income. Any further gain or loss after the date of exercise
generally will constitute as capital gain or loss and will not result in any
deduction by the Company.
Restricted Stock
A grantee will not recognize any taxable income upon the receipt of
Restricted Stock unless the grantee elects under Section 83(b) of the Code,
within thirty days of such receipt, to recognize ordinary income in an amount
equal to the fair market value of the Restricted Stock at the time of receipt,
less any amount paid for the shares. If the election is made and the Restricted
Stock is returned to the Company, the holder will not be allowed a deduction
except to the extent of the amount, if any, paid by the holder for such
Restricted Stock, and such amount will be treated as a capital loss. If the
election is not made, the holder will generally recognize ordinary income on
the date that the restrictions to which the Restricted Stock are subject are
removed, in an amount equal to the fair market value of such shares on such
date, less any amount paid for the shares. At the time the holder recognizes
ordinary income, the Company generally will be entitled to a deduction in the
same amount. If an election under Section 83(b) of the Code is not made, the
grantee's holding period in the Fisher Common Stock will begin immediately
after the restrictions to which the Restricted Stock are subject are removed.
If such an election is made, the grantee's holding period in the Fisher Common
Stock will begin immediately after the date such Restricted Stock is
transferred.
Generally, upon a sale, exchange or other disposition of Restricted Stock
with respect to which the holder has previously made a Section 83(b) election
or the restrictions were previously removed, the holder will recognize capital
gain or loss in an amount equal to the difference between the amount realized
on such sale or other disposition and the holder's tax basis in such shares.
Pursuant to recently enacted legislation, any such capital gain should be
subject to a maximum U.S. federal income tax rate of (A) 20% if the grantee's
holding period in such stock was more than 18 months at the time of such sale,
exchange or other disposition and (B) 28% if the grantee's holding period in
such stock was more than one year but not more than 18 months at the time of
such sale, exchange or other disposition.
Stock Appreciation Rights
The grant of a stock appreciation right will not result in income for the
grantee or in a tax deduction for the Company. Upon the settlement of such a
right, the grantee will recognize ordinary income equal to the aggregate value
of the payment received, and the Company generally will be entitled to a tax
deduction in the same amount.
Other Types of Awards
Other types of awards under the Plan generally would result in taxable
ordinary income to the grantee, the amount and timing of which would depend
upon the terms and conditions of the particular award. The Company would
generally be entitled to a corresponding tax deduction.
Tax Consequences of Change in Control
The accelerated vesting of awards under the Plan in connection with a
Change in Control could cause award holders to be subject to the federal excise
tax on "excess parachute payments" and cause a corresponding loss of deduction
on the part of the Company. In addition, options that otherwise qualified as
Incentive Stock Options could be treated as Non-Qualified Options as a result
of such accelerated vesting. Finally, the exercise of an LSAR with respect to
an Incentive Stock Option would be treated as a disqualifying disposition, with
the consequences described above.
Approval of the Plan
At the time the second amendment to the Merger Agreement was executed, THL
and the Equity Investors agreed that they would take all actions necessary to
obtain stockholder approval of the Plan for the purposes of Section 162(m) of
the Code and compliance with NYSE rules. In connection with the second
amendment to the Merger Agreement, the Board approved the Plan and several
grants of options pursuant thereto. See "Contemplated Awards." It is expected
that prior to the Effective Time, the general grants of options described below
will be allocated to the Company's management in a manner acceptable to the
Equity Investors.
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<PAGE>
Contemplated Awards
Subject to Board and stockholder approval of the Plan (as described
above), the Company intends to grant the following awards pursuant to the Plan.
Vesting Options
The Company intends to grant options to purchase an aggregate of 1,033,326
shares of Fisher Common Stock under the plan (the "Vesting Options") to Messrs.
Montrone, Meister and Maiorani and other management employees of the Company
over the next several years following the Merger. Although no specific grant to
any individual has been made, it is currently contemplated that option grants
will be made to members of management in amounts based generally on the extent
to which such person elects to participate in the Option Conversion and
expected level of contribution to the Company. Messrs. Montrone and Meister,
who have agreed to exchange all of their options under the Option Conversion
and to elect to retain all of the shares owned by them in the Merger, will be
granted immediately following the Merger, in addition to the stock into which
such Options are convertible under the Option Conversion, Options to purchase
an aggregate of 516,663 shares of Fisher Common Stock (approximately 412,200 of
which are based solely on their participation in the Option Conversion based on
a grant of 0.6 options for each share of Fisher Common Stock received pursuant
to the Option Conversion and retained in the Merger) in exchange for the
conversion of options having a value of approximately $20 million under the
Option Conversion. The actual number of options to be granted to each of
Messrs. Montrone and Meister has not been determined but will not aggregate
more than 516,663 options. The number of options, of any type that may be
granted, including, but not limited to, vesting and performing options to
Messrs. Montrone, Meister and Maiorani will not differ materially from the
proposed grants.
Unless otherwise provided in an existing employment agreement or option
agreement, the Vesting Options will vest in equal installments on each of the
first five anniversaries of the date of grant. The exercise price of the
Vesting Options will be the greater of the market price of Fisher Common Stock
on the grant date or $48.25.
Executive Performance Options
The Company further intends to grant options to purchase an aggregate of
103,333 shares of the Fisher Common Stock (measured on a fully diluted basis)
to Messrs. Montrone and Meister (the "Executive Performance Options"). The
Executive Performance Options will be fully vested on the date of grant and
have an exercise price per share of the greater of the market price of Fisher
Common Stock on the grant date or $144.75. A cashless exercise procedure will
also be available to Messrs. Montrone and Meister with respect to the Executive
Performance Options. The Executive Performance Options will have a ten-year
term, during which Messrs. Montrone and Meister will each have the right (the
"put right") to require the Company to repurchase all of the Performance
Vesting Options for a cash purchase price equal to $10 million. If the put
right is exercised, the executive will not receive the purchase price for one
year after the date of the exercise of the right, and no interest will be paid
with respect to the $10 million payment during such year. In exchange for the
put right Executive Performance Options, Messrs. Meister and Montrone will each
execute an agreement not to compete with the Company in the scientific
instrument and clinical research laboratory distribution businesses in the
United States for a period of three years following any termination of the
executive's employment with the Company. The Company will have a corresponding
right to require Messrs. Montrone or Meister, as the case may be, to sell the
Executive Performance Options to the Company for a cash purchase price of $10
million, at any time after Mr. Montrone or Mr. Meister, as the case may be,
ceases to be employed by the Company.
Both the Executive Vesting Options and the Executive Performance Options
will be entitled to certain anti-dilution protections, which will apply upon
the occurrence of certain events affecting Fisher Common Stock during the term
of such options, as set forth in the respective option agreements. Shares of
Fisher Common Stock acquired upon the exercise of Executive Vesting Options and
Executive Performance Options will be subject to certain restrictions on
transfer, as set forth in the applicable option agreement.
Management Performance Options
The Company intends to grant options to purchase an aggregate of 516,663
shares of the Fisher Common Stock (measured on a fully diluted basis) to be
allocated among Mr. Maiorani and other management employees of the Company (the
"Management Performance Options"). The Management Performance Options will vest
upon a change of control of the Company if the Company has achieved the
performance targets to be determined by the
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Committee, and will otherwise will vest on the ninth anniversary of the award
date if no change of control has occurred. The exercise price per share of the
Management Performance Options will be the greater of the market price of
Fisher Common Stock on the grant date or $96.50 per share. No specific grant to
any individual has yet been determined.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Overview
Fisher Scientific International Inc. was formed in September 1991. The
Company's operations are conducted by wholly owned and majority-owned
subsidiaries, joint ventures, equity interests and agents, located in North and
South America, Europe, the Far East, the Middle East and Africa. The Company's
activities relate principally to one business segment scientific and clinical
products. This includes operations engaged in the supply, marketing, service
and manufacture of scientific, clinical, educational and occupational health
and safety products, and MRO materials.
On October 17, 1995, Fisher acquired the principal businesses of the
laboratory supplies division of Fisons in a transaction accounted for as a
purchase. The Company purchased the outstanding stock of CMS, headquartered in
Houston, Texas, and substantially all of the net assets of FSE, a division of
Fisons with headquarters in Loughborough in the United Kingdom. CMS is a
supplier of diagnostic test kits, equipment and laboratory supplies to
integrated health care organizations, managed care organizations, national and
independent reference laboratories, and physicians' office laboratories where
human specimens are tested for subsequent diagnosis, as well as a supplier to
the scientific research community. FSE is a leading supplier of laboratory
products in the United Kingdom and also serves markets throughout Europe,
Africa, the Middle East and the Far East. The Company intends to use these
businesses to expand its operations in the clinical laboratory market, enhance
its position in the North American scientific research laboratory market and
complement its international growth strategy. During 1996 and 1995, Fisher made
certain smaller acquisitions of laboratory products distributors and other
businesses. See Note 3 of Notes to Financial Statements. All acquisitions have
been accounted for as purchases; operations of the companies and businesses
acquired have been included in Fisher's consolidated financial statements from
their respective dates of acquisition.
Results of Operations
Nine Months Ended September 1997 as Compared to Nine Months Ended September
1996
Sales
Sales for the three and nine months ended September 30, 1997 increased 3%
and 2% to $554.8 million and $1,624.1 million, respectively, from $541.0
million and $1,589.2 million for the comparable periods in 1996. Sales growth
in Fisher's historical North American operations as well as in operations
acquired in the fourth quarter of 1996 (UniKix Technologies and a laboratory
products distributor in Mexico) were partially offset by a decrease in sales to
the U.S. clinical laboratory market and the impact of the UPS strike. As a
result of its slowdown in the clinical laboratory market and the residual
impact of the UPS strike, the Company expects near-term revenue growth to
remain below historical levels.
Gross Profit
Fisher's gross profit for the three- and nine- month periods ended
September 30, 1997 increased 5% to $153.0 million and $447.8 million,
respectively, from $146.4 million and $424.9 million for the comparable periods
in 1996, as a result of volume increases and from improvements in gross profit
as a percent of sales in Fisher's historical North American operations. Gross
profit as a percent of sales increased to 27.6% for the nine months ended
September 30, 1997 from 26.7% for the comparable period in 1996.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three and nine months
ended September 30, 1997 increased 11% and 7% to $133.7 million and $382.6
million, respectively, from $121.0 million and $358.4 million for the
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comparable periods in 1996. Selling, general and administrative expense in both
periods includes nonrecurring costs associated with the implementation of the
restructuring plan that began in the third quarter of 1995, the integration of
Curtin Matheson Scientific Inc. ("CMS"), acquired in October 1995 and, in 1997,
actions taken to improve operating efficiencies, software write-offs and other
information system-related charges associated with the Company's implementation
of new global computer systems and direct costs resulting from the UPS strike.
Nonrecurring integration and restructuring-related costs include costs
resulting from the temporary duplication of operations, relocation of
inventories and employees, hiring and training new employees, and other
one-time and redundant costs, which will be eliminated as the integration and
restructuring plans are completed. These costs are recognized as incurred. For
the three and nine months ended September 30, 1997, approximately $10.2 million
and $18.5 million, respectively, of nonrecurring costs were included in
selling, general and administrative expense compared with $4.6 million and
$14.6 million for the corresponding periods in 1996. The Company expects these
costs to approximate $22 million for 1997.
Excluding nonrecurring costs, selling, general and administrative expense
as a percentage of sales was 22.4%, compared with 21.6% for the same period in
1996. This increase is primarily due to lower than expected sales volume
without a corresponding decrease in expense. The Company has taken and is
continuing to take actions to improve efficiencies and reduce this expense as a
percent of sales.
Operations outside the United States continue to have significantly higher
selling, general and administrative expense as a percentage of sales as
compared with that of Fisher's domestic operations. These higher costs are
being incurred as part of a plan to develop an integrated worldwide supply
capability, the benefit of which has not been fully realized.
Income from Operations
Income from operations for the three and nine months ended September 30,
1997 decreased to $19.3 million and $65.2 million, respectively from $25.4
million and $66.5 million, respectively, for the corresponding periods in 1996
primarily due to increased selling, general and administrative expense
discussed above. Income from operations as a percent of sales decreased to 4.0%
for the nine months ended September 30, 1997, compared with 4.2% for the same
period in 1996.
As a national distributor, Fisher utilizes the services of UPS for a
significant portion of its domestic shipments. Fisher is one of UPS's largest
customers in terms of annual revenue to the shipper. Although Fisher made the
maximum possible use of alternative methods of delivery during the work
stoppage, it could not overcome the harmful effects of the strike. The UPS
Strike significantly reduced sales for the third quarter and increased
operating costs. The Company expects the residual effects of the UPS strike to
reduce profitability beyond the third quarter of this year. Additionally,
according to published reports, the Independent Pilots Association which
represents the pilots at UPS (the "IPA") has agreed to permit its members to
vote on UPS' contract proposal. IPA's leadership is reportedly remaining
neutral regarding whether its membership should approve the contract proposal.
If the contract is not approved by the pilots, the IPA may consider going out
on strike in early 1998 over the failure of UPS and such union to reach
agreement on the terms of a new contract. Moreover, failure to reach an
agreement could result in job actions other than a strike such as work rule
slowdowns. In addition, if the IPA were to go out on strike, it is possible
that the Teamsters union would honor the pilots' picket line because the IPA
honored the Teamsters' picket line during the Teamsters' August 1997 strike
against UPS. Although it is not possible to predict the duration or quantify
the effects of such a strike, were such a strike to occur, the resulting
disruption to the Company's product shipments could have a material adverse
impact upon the Company.
Interest Expense
Interest expense for the three- and nine- month periods ended September
30, 1997 decreased to $5.4 million and $17.6 million, respectively from $5.7
million and $22.1 million for the comparable periods in 1996. The decrease for
the nine-month period principally reflects the June 1996 conversion and
redemption of the Company's $125 million step-up convertible notes.
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Other (Income) Expense, net
Other (income) expense, net for the three- and nine- month periods ended
September 30, 1997 increased to $4.6 million and $0.1 million of expense,
respectively, from $1.5 million and $0.4 million of income for the comparable
periods in 1996. The increase in expense for the quarter was primarily due to
$3.6 million of fees and expenses related to the Board of Directors' recent
review of strategic alternatives and $1.5 million of gains on sales of assets
recognized in 1996 which did not recur in 1997. The increase in expense for the
nine-month period is due to these amounts partially offset by $2.8 million of
gains on sales of non-core assets recognized earlier this year.
Income Tax Provision
The effective income tax rate for the three and nine months ended
September 30, 1997 increased to 58.1% and 48.4%, respectively, compared with
45.5% for both corresponding periods in 1996. The Company's annual effective
tax rate increased to 48.4% from the 46.0% rate used through June 30, 1997
primarily due to the effect of the nondeductible fees and expenses incurred in
connection with the Board's review of strategic alternatives. Accordingly, the
third quarter reflects the cumulative effect of the higher rate.
Net Income
Net income for the three months ended September 30, 1997 decreased to $3.9
million from $11.5 million for the corresponding periods in 1996. Net income
for the nine month period ended September 30, 1997 was $24.5 million compared
to $24.4 million for the corresponding period in 1996. These changes are due to
the factors discussed above.
Liquidity and Capital Resources
During the nine months ended September 30, 1997, the Company's operations
provided $40.2 million of cash compared with $21.3 million for the same period
in 1996. This increase in cash provided by operating activities primarily
resulted from changes in receivables, payables and accruals partially offset by
changes in other assets and liabilities. Receivables reduced operating cash
flows by $4.5 million in 1997 compared with $25.0 million in 1996 due to an
unusually high balance at September 30, 1996, attributable to the integration
of CMS into Fisher. Payables and accruals reduced operating cash flows by $10.1
million compared with $26.1 million in 1996 primarily due to timing of
payments. Other assets and liabilities reduced operating cash flows by $21.8
million compared with $1.5 million in 1996 primarily due to the increased
effect of foreign currency translation in 1997 and increased payments to
software service vendors related to the implementation of new global computer
systems in 1997.
The Company's operating working capital (defined as receivables plus
inventories less accounts payable and accrued liabilities) decreased slightly
to $191.6 million at September 30, 1997 from $194.2 million at December 31,
1996. Excluding the effect, if any, of future acquisitions and anticipated
temporary inventory duplications as the Company completes the consolidation and
relocation of its logistical facilities in North America, the Company's
operating working capital requirements are not anticipated to increase
substantially throughout the remainder of 1997.
During the nine months ended September 30, 1997, the Company used $45.6
million of cash for investing activities compared with $27.1 million for the
same period in 1996. The increase in cash used for investing activities is
primarily due to capital expenditures partially offset by proceeds from the
sale of property, plant and equipment. For the nine months ended September 30,
1997 and 1996, the Company had capital expenditures of $49.3 million and $24.4
million, respectively. This increase is due to the Company's investments in new
logistical facilities in North America and the Far East and in global computer
systems. The Company implemented a project to upgrade global computer systems
which it plans to complete in 1999. This project is expected to result in
approximately $40 million of spending which the Company plans to fund with cash
from operations and borrowings. The increase in proceeds from the sale of
property, plant and equipment is due to the receipt of proceeds from the sale
of non-core fixed assets.
During the nine months ended September 30, 1997, the Company's financing
activities provided $10.8 million compared with using $44.3 million for the
same period in 1996. This change is primarily due to $49.8 million in
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net long-term debt payments in the first nine months of the prior year, which
were funded by excess cash. In the same period in 1997, the Company had net
long-term debt proceeds of $6.3 million.
Management is considering a new plan to restructure certain businesses
within the United States and internationally and expects to finalize the plan
in the last quarter of 1997. The plan includes the closure of additional U.S.
warehouse and customer service locations not included in the 1995 Restructuring
Plan and an evaluation of international businesses not meeting profit
expectations, both of which would result in a reduction of the company-wide
workforce. If the plan is adopted, charges to be recorded in the fourth quarter
are estimated to range from $50 million to $60 million, of which approximately
two-thirds represents non-cash charges.
Fisher expects that cash flows from operations, together with cash and
cash equivalents on hand and funds available under existing credit facilities,
will be sufficient to meet ongoing operating and capital expenditure
requirements.
On September 11, 1997, the Board of Directors of Fisher declared a
quarterly cash dividend of $0.02 per share, payable October 15, 1997 to
shareholders of record October 1, 1997. If the proposed Transaction discussed
below is consummated, the Company plans to discontinue paying regular quarterly
dividends.
On June 9, 1997, the Board of Directors of Fisher declared a dividend of
one Right for each outstanding share of common stock of the Company. The
dividend was payable on June 19, 1997 to stockholders of record on that date.
The description of all terms of the Rights is set forth in the Rights
Agreement. The Rights Agreement provides, among other things, that FSI and its
Affiliates (as defined in the Rights Agreement and discussed in Note 6) would
not be deemed an Acquiring Person.
Proposed Transaction
Pursuant to the Amended and Restated Agreement and Plan of Merger dated
September 11, 1997, the Company and FSI Merger Corp. ("FSI"), a Delaware
corporation formed by Thomas H. Lee Company ("THL"), entered into an agreement
and plan of merger (the "Amended Merger Agreement") providing for a
recapitalization of Fisher. Under the terms of the Amended Merger Agreement,
approximately 97% of the fully diluted common stock of Fisher (not taking into
account Options) will be converted into the right to receive $48.25 per share
in cash (approximately $1.0 billion in the aggregate). Pursuant to an election
process that gives priority to eligible employees presently holding Fisher
Common Stock and opting to purchase Fisher Common Stock, the remaining shares
will be retained by existing stockholders and will represent ownership in the
recapitalized company. Consummation of the Transaction is subject, among other
things, to certain customary conditions, including certain regulatory and
stockholder approvals, receipt of necessary financing and customary conditions
including the absence of material adverse changes to the Company. In the event
the Amended Merger Agreement is terminated for any reason other than a material
breach by FSI, the Amended Merger Agreement requires the Company to reimburse
THL or FSI for all out-of-pocket expenses and fees incurred by THL or FSI up to
a stated maximum. The Amended Merger Agreement also provides for the payment to
FSI of a Termination Fee under certain circumstances. If the Transaction is
consummated, the transaction would qualify as a change in control and vesting
of outstanding common stock options may accelerate. The Company also has
agreements with certain of its key executives and severance plans for key
employees which provide for severance payments under certain circumstances in
the event an employee is severed following a change in control.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Sales
Sales for the year ended December 31, 1996 increased 49% to $2,144.4
million from $1,435.8 million for the comparable period in 1995. The sales
increase primarily reflects sales of CMS and FSE, acquired in October 1995, as
well as growth in North American distribution.
Gross Profit
Fisher's gross profit for the year ended December 31, 1996 increased 50%
to $578.5 million from $386.9 million for the comparable period in 1995. The
increase in gross profit is attributable primarily to the aforementioned sales
growth.
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Gross profit as a percent of sales was 27.0% for the year ended December
31, 1996 and remained consistent with that of the same period in 1995. Lower
gross margins associated with recently acquired businesses were offset by
improvements in gross margins of Fisher's historical North American operations.
Both 1996 and 1995 include $1.2 million of costs associated with the
revaluation of CMS and FSE acquired inventory.
Selling, General and Administrative Expense
Selling, general and administrative expense for the year ended December
31, 1996 increased 45% to $483.9 million from $334.4 million for the comparable
period in 1995. The increase reflects the inclusion of selling, general and
administrative expenses of recently acquired businesses, growth in base North
American distribution operations, nonrecurring costs to integrate CMS into
Fisher and nonrecurring costs associated with the implementation of the 1995
Restructuring Plan (see "Restructuring Charge" below).
Operations outside of the United States continue to have significantly
higher selling, general and administrative expense as a percentage of sales as
compared with that of Fisher's domestic operations. These higher costs are
being incurred as part of a plan to develop an integrated worldwide supply
capability, the benefit of which has not been fully realized.
Restructuring Charge
In the third quarter of 1995, the Company recorded a pretax restructuring
charge of $34.3 million. The 1995 Restructuring Plan, which anticipated the
integration of the former Fisons businesses with the Company, included the
elimination and in some cases relocation of certain administrative functions,
reorganization of the research sales force, and the consolidation and
relocation of certain logistics and customer service systems and locations
throughout the world. Implementation of the Plan is expected to be completed
and the related accruals substantially expended over the next few years.
Certain costs resulting from the temporary duplication of operations,
relocation of inventories, relocation of employees, hiring and training new
employees, other start-up costs and redundant costs, which will be eliminated
as the 1995 Restructuring Plan is implemented, were not included in the
restructuring charge and are recognized as incurred. Approximately $18.2
million and $14.5 million of such charges have been recorded in 1996 and 1995,
respectively, and are included in selling, general and administrative expense.
Income from Operations
Income from operations for the year ended December 31, 1996 increased to
$94.6 million, compared with $18.2 million for the corresponding period in
1995. The increase reflects the effect of the restructuring charge of $34.3
million recorded in 1995 as well as the factors discussed above. The Company's
operations outside of North America were not profitable, primarily as a result
of costs associated with the continued development of the Company's worldwide
supply capability and up-front infrastructure costs as discussed above in
"Selling, General and Administrative Expense".
Interest Expense
Interest expense of $27.1 million in 1996 increased by $12.1 million from
the 1995 level. The increase principally reflects interest related to
borrowings used to finance the acquisition of CMS and FSE in the fourth quarter
of 1995, partially offset by the June 1996 conversion and redemption of the
Company's $125 million step-up convertible notes. See "Liquidity and Capital
Resources" below.
Net Income
Net income for the year ended December 31, 1996 increased to $36.8 million
from $3.2 million for the comparable period in 1995 as a result of the factors
discussed above.
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Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994
Sales
Sales for the year ended December 31, 1995 increased 27% to $1,435.8
million from $1,126.7 million for the comparable period in 1994. The sales
increase primarily reflects the inclusions of sales of acquired businesses and
continued sales growth in the Company's North American distribution operations.
Gross Profit
Fisher's gross profit for the year ended December 31, 1995 increased 21%
to $386.9 million from $318.9 million for the comparable period in 1994. The
increase in gross profit is attributable primarily to additional sales volume
of recent acquisitions. The gross profit growth in the Company's base North
American distribution businesses was partially offset by lower sales and gross
margins of manufactured laboratory workstations. Gross profit as a percent of
sales decreased to 26.9% for the year ended December 31, 1995 from 28.3% for
the same period in 1994. This decrease primarily reflects lower gross margins
associated with recently acquired businesses (including $1.2 million of costs
associated with the revaluation of CMS and FSE acquired inventories) as well as
lower margins in the laboratory workstation business.
Selling, General and Administrative Expense
Selling, general and administrative expense for the year ended December
31, 1995 increased 31% to $334.4 million from $255.0 million for the comparable
period in 1994. The increase reflects the inclusion of selling, general and
administrative expenses of recently acquired businesses, growth in base North
American distribution operations, nonrecurring costs associated with the
implementation of the restructuring plan (see "Restructuring Charge" below),
costs to integrate CMS into Fisher and higher selling, general and
administrative expenses related to operations outside the United States.
Operations outside of the United States had significantly higher selling,
general and administrative expense as a percentage of sales as compared with
that of Fisher's domestic operations for the period. These higher costs are
being incurred as part of a plan to develop an integrated worldwide supply
capability, the benefit of which has not been realized.
Restructuring Charge
In the third quarter of 1995, the Company recorded a pretax restructuring
charge of $34.3 million as previously discussed. Certain costs resulting from
the temporary duplication of operations, relocation of inventories, relocation
of employees, hiring and training new employees, other start-up costs and
redundant costs, which will be eliminated as the 1995 Restructuring Plan is
implemented, are not included in the restructuring charge and are recognized in
selling, general and administrative expense as incurred. Approximately $14.5
million of such charges were recorded in 1995 and are included in selling,
general and administrative expense.
Income from Operations
Income from operations for the year ended December 31, 1995 decreased to
$18.2 million, compared with $63.9 million for the corresponding period in
1994. The decrease primarily reflects the third-quarter restructuring charge,
the associated nonrecurring costs and net losses from operations outside of
North America. The Company's operations outside of North America were not
profitable, primarily as a result of integration costs associated with the
continued development of the Company's worldwide supply capability and up-front
infrastructure costs as discussed above in "Selling, General and Administrative
Expense."
Interest Expense
Interest expense of $15.0 million in 1995 increased by $6.0 million from
the 1994 level. The increase principally reflects interest related to
borrowings associated with the CMS and FSE acquisition which the Company
financed with bank debt. See "Liquidity and Capital Resources" below.
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Other Income, Net
Other income, net for the year ended December 31, 1995 decreased $6.7
million to $1.1 million of income, from $7.8 million of income for the
comparable period in 1994. Other income, net is lower primarily because of
these factors: reduced income from an inactive insurance subsidiary, lower
interest income as a result of lower cash and investment balances as compared
with those of the prior year, a $2.0 million loss on an early extinguishment of
debt due to a partial debt refinancing in 1995 and lower foreign exchange gains
as a result of hedging certain currency exposures.
Net Income
Net income for the year ended December 31, 1995 decreased to $3.2 million
from $35.7 million for the comparable period in 1994 due to factors discussed
above.
Liquidity and Capital Resources
Historical
For the year ended December 31, 1996, the Company's operations generated
$49.0 million of cash compared with $54.9 million in 1995. This decrease in
cash flows from operating activities primarily reflects a decrease in cash
flows from changes in working capital, offset by net income adjusted for
noncash items. The decrease in cash flow from working capital was primarily
attributable to receivables and accounts payable. The increase in receivables,
which decreased cash flow, was due to increases in sales volume and the impact
of the integration of CMS into Fisher. The decrease in accounts payable, which
also decreased cash flow, was due to an unusually high balance at December 31,
1995 due to initial stocking for new product lines and timing of payments.
The Company's operating working capital (defined as receivables plus
inventories less accounts payable and accrued liabilities) increased to $194.2
million at December 31, 1996 from $162.1 million at December 31, 1995. This
increase is primarily due to increases in receivables discussed above and
increases in inventories due to sales volume and stocking related to new
logistics centers in North America. Excluding the effect, if any, of future
acquisitions and anticipated temporary inventory duplications as the Company
completes the consolidation and relocation of certain of its logistical
facilities in North America, the Company's working capital requirements are not
anticipated to increase substantially in 1997.
During the year ended December 31, 1996, the Company used $42.0 million
for investing activities compared with $332.8 million for the same period in
1995. The decrease in cash used for investing activities is primarily
attributable to the prior-year acquisition of CMS and FSE. The Company used
$10.4 million and $326.6 million of cash for acquisitions during the years
ended December 31, 1996 and 1995, respectively (see Note 3 of Notes to
Financial Statements). During the years ended December 31, 1996 and 1995, the
Company made capital expenditures of $40.7 million and $24.6 million,
respectively. The increase in capital spending primarily related to the
consolidation and relocation of logistical facilities in North America. Capital
expenditures in 1997 are expected to show a similar increase over 1996 as the
Company continues its consolidation and relocation of logistical facilities in
North America and as it expands its logistical facilities in the Far East. The
Company's investing activities were primarily funded by the Company's existing
cash.
Financing activities used $46.0 million in 1996 compared with providing
$304.7 million in 1995. This change is due to 1995 borrowings used to finance
the acquisition of CMS and FSE. See "Debt" below. In 1996 financing activities
included approximately $25 million of long-term debt proceeds from and $74
million of long-term debt repayments of Fisher's bank credit facilities.
Debt
At December 31, 1996, the Company's total debt was $296.1 million as
compared with $458.0 million at December 31, 1995. On June 12, 1996, the
Company issued a notice of redemption for its $125 million step-up convertible
subordinated notes due 2003 at a price of 103.65% of principal, plus accrued
interest. The notes could also be converted into common stock at a conversion
price of $35-1/8 per share prior to the redemption date. On June 26, 1996,
approximately 97%, or $121.6 million, of the notes were converted into
3,463,154 shares of the
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Company's Common Stock. On July 2, 1996, the Company redeemed the remaining
notes for $3.5 million plus accrued interest. The conversion of the debt and
associated accrued interest and subsequent redemption resulted in an increase
in stockholders' equity and a reduction in long-term debt of approximately $125
million.
As discussed above, in October 1995, Fisher purchased CMS and FSE in a
transaction financed through $312 million of borrowings under new credit
facilities (the "Credit Facilities"). Approximately $150.0 million of these
borrowings was repaid with the proceeds of the December 13, 1995 Note Offering
described below. Borrowings under the Credit Facilities were $116.8 million at
December 31, 1996 and had an effective interest rate of approximately 7.3% in
1996. Of the amount outstanding at December 31, 1996, $69.5 million matures on
October 17, 2001 and the remaining amount has scheduled payments over a six
year period. At December 31, 1996, $168.2 million was available for additional
borrowings and letters of credit under the Credit Facilities. All borrowings
under the Credit Facilities bear interest at variable rates. At December 31,
1996, the rate was approximately 5.9%. The Credit Facilities have certain
restrictive covenants customary in financing agreements of this type. The
Company was in compliance with such covenants at December 31, 1996. The
estimated fair market value of the borrowings at December 31, 1996 approximates
the net carrying value.
The Company also has outstanding $150.0 million aggregate principal amount
of 7-1/8% Notes due December 15, 2005, which were sold on December 13, 1995 at a
price to the public equal to 99.184% of principal bringing the effective
interest rate to 7.5%. The net proceeds to the Company from the offering of the
7-1/8% Notes, after underwriting discounts and commissions and estimated
expenses, were approximately $146.5 million. The estimated fair market value of
the 7-1/8% Notes at December 31, 1996, based on quotes from bond traders making
a market in the Notes, was approximately $148.3 million.
Restructuring Plans
As previously noted, in 1995 the Company recorded a pretax restructuring
charge of $34.3 million, of which approximately $18 million consisted of
noncash charges and approximately $16 million consisted of accrued cash charges
related to separation arrangements and exit costs related to consolidation
efforts. Implementation of the 1995 Restructuring Plan is expected to be
completed and the related accruals substantially expended over the next few
years. Fisher expects restructuring-related cash expenditures in 1997 of
approximately $3 million, which will be paid from available funds. Cash
expenditures in 1996 and 1995 were approximately $7 million and $2 million,
respectively. Certain costs resulting from the temporary duplication of certain
operations, relocation of inventory, relocation of employees, hiring and
training new employees, other start-up costs and redundant costs, which are
expected to be eliminated as the Plan is implemented, are not included in the
restructuring charge and were recognized in selling, general and administrative
expense as incurred. Approximately $18.2 million and $14.5 million of such
costs were incurred in 1996 and 1995, respectively. Upon completion of the Plan
and the integration of CMS into Fisher, the Company expects an improvement in
annual pretax profitability in excess of $30 million. See "Cautionary Factors
Regarding Forward-Looking Statements."
During the third quarter of 1991, Fisher recorded a pretax $20.0 million
restructuring charge relating primarily to improving operations of its North
American distribution system through consolidation and expansion of certain
facilities. Fisher expects cash expenditures in 1997 of approximately $2
million related to these improvements, which will be paid from available funds.
Cash expenditures in 1996 were approximately $2 million.
Environmental Matters
Some of Fisher's operations involve and have involved the handling,
manufacture or use of substances that are classified as toxic or hazardous
substances within the meaning of applicable environmental laws. Consequently,
some risk of environmental and other damage is inherent in particular
operations and products of Fisher, as it is with other companies engaged in
similar businesses, and there can be no assurance that material damage will not
occur or be discovered to have occurred or be determined to be material in the
future. The Company is currently involved in various stages of investigation
and remediation relative to environmental protection matters.
The Company maintains two facilities in the State of New Jersey, in Fair
Lawn and Bridgewater, that are the subject of administrative consent orders,
issued pursuant to New Jersey's Environmental Clean-Up and Responsibility Act
("ECRA") (now called the Industrial Site Recovery Act ("ISRA")) in connection
with prior transfers of a controlling interest in the Company, which require
that certain remediation and other activities be
128
<PAGE>
undertaken at these sites. The Fair Lawn facility is also part of a site listed
on the "Superfund" National Priority List under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). Fisher has also been notified that it is among the potentially
responsible parties under CERCLA or similar state laws for the costs of
investigating and/or remediating contamination caused by hazardous materials at
certain other sites. The Company's non-Superfund liabilities for environmental
matters are principally related to compliance with ECRA/ISRA administrative
consent orders and other environmental regulatory requirements such as the
Clean Air Act, the Clean Water Act and other generally applicable requirements.
The potential costs related to environmental matters and the possible
impact on future operations are difficult to predict given the uncertainties
regarding the extent of the required cleanup, the complexity and interpretation
of applicable laws and regulations, the varying costs of alternative cleanup
methods and the extent of the Company's responsibility. Accruals for
environmental liabilities are recorded, based on current interpretations of
environmental laws and regulations, when it is probable that a liability has
been incurred and the amount of such liability can be reasonably estimated.
Estimates are established based upon management's knowledge to date and its
experience with the foregoing environmental matters, and include potential
costs for investigation, remediation, operation and maintenance of cleanup
sites and related capital expenditures. Accrued liabilities for environmental
matters were $37.6 million and $35.6 million at December 31, 1996 and 1995,
respectively. Although these amounts do not include third-party recoveries,
certain sites may be subject to indemnification. Although the ultimate
liability with respect to these matters cannot be determined with certainty, in
view of the Company's financial condition and the environmental accruals
established, and based on information currently available, management does not
believe that the ultimate liability related to these environmental matters will
have a material adverse effect on the Company's financial statements. However,
future events, such as changes in existing laws and regulations, changes in
agency direction or enforcement policies, or changes in the conduct of Fisher's
operations, may give rise to additional compliance costs which could have a
material adverse effect on the Company's financial statements.
Financial Instruments
The Company's financial instruments consist primarily of cash in banks,
investments in marketable securities, accounts receivable and debt. In
addition, the Company has forward currency contracts that hedge certain firm
commitments and balance sheet exposures. See Notes 2 and 5 of Notes to
Financial Statements for additional information.
Dividends
The Company paid a quarterly cash dividend of $0.02 per share for each of
the quarterly periods of fiscal years 1996 and 1995. At December 31, 1996,
retained earnings were free from dividend restrictions.
Financial Condition
At December 31, 1996, current assets decreased $20.8 million from December
31, 1995, with reductions in cash and cash equivalents and other current assets
of $39.0 million and $14.4 million, respectively, offset by increases in
accounts receivable of $19.3 million and inventories of $13.3 million. The
decrease in cash and cash equivalents resulted primarily from capital
expenditures related to the consolidation and relocation of logistical
facilities in North America and repayments on the Company's bank credit
facility. The increase in accounts receivable is due to increases in sales
volume and the impact of the integration of CMS into Fisher. The increase in
inventories is due to increased sales volume and stocking related to new
logistics centers in North America. The reduction in other current assets
reflects decreases in deferred taxes primarily due to restructuring and
integration spending.
Long-term assets increased by $13.0 million, primarily due to increases in
goodwill resulting from recent acquisitions and the final allocation of the
purchase price of CMS and FSE. Long-term debt decreased by $164.8 million,
primarily due to the 1996 conversion and redemption of the Company's $125
million step-up convertible subordinated notes due 2003 and a reduction in the
amount outstanding under the Bank Credit Facility. Stockholders' equity
increased by $160.2 million primarily due to the conversion of the convertible
notes and net income.
129
<PAGE>
Accounting Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement allowed for, and the Company retained, the
current method of accounting for employee stock-based compensation arrangements
in accordance with Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees." The new standard did not have a material effect on the
Company's financial statements.
Effective January 1, 1996, the Company adopted SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The new standard did not have a material effect on the Company's
financial statements.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities", which addresses
accounting and reporting for environmental remediation liabilities. SOP 96-1 is
required to be adopted in 1997. The implementation of SOP 96-1 is not expected
to have a material effect on the Company's financial statements.
REGULATORY APPROVALS
The Merger is subject to the expiration or early termination of the
applicable waiting period under the HSR Act. Certain aspects of the Merger will
require notification to, and filings with, certain securities and other
authorities in certain states, including jurisdictions where the Company
currently operates.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger and the Transaction may not be
consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the applicable waiting period has
expired or been terminated. On October 30, 1997 the FTC and the Antitrust
Division granted early termination of the waiting period under the HSR Act with
respect to the Merger effective immediately. At any time before or after
consummation of the Merger, notwithstanding termination of the waiting period
under the HSR Act, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of the Company. At any time before or after
the Effective Time, and notwithstanding termination of the waiting period under
the HSR Act, any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of
substantial assets of the Company. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, the Company and FSI believe that
the Merger and the Transaction can be effected in compliance with federal and
state antitrust laws. However, there can be no assurance that a challenge to
the consummation of the Merger on antitrust grounds will not be made or that,
if such a challenge were made, the Company and FSI would prevail or would not
be required to accept certain adverse conditions in order to consummate the
Merger.
Other. The obligations of FSI under the Merger Agreement are also subject
to the receipt of all necessary licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties as are necessary in connection with the Transaction unless the
failure to so obtain would not would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
FSI MERGER CORP. AND THOMAS H. LEE COMPANY
FSI, a Delaware corporation organized by THL, was organized in connection
with the Transaction and has not carried on any activities to date other than
those incident to its formation and the transactions contemplated by the Merger
Agreement. As at the date hereof the outstanding shares of FSI are owned by
Thomas H. Lee Equity Fund III, L.P. The name, business, address, principal
occupation or employment, and five-year employment history of each of the
directors and executive officers of FSI and of THL and certain other
information, are set forth in Schedule I to this Proxy Statement/Prospectus.
130
<PAGE>
DISSENTING STOCKHOLDERS' RIGHTS
If the Merger is consummated, stockholders of the Company who make the
demand described below with respect to their shares, who continuously are the
record holders of such shares through the Effective Time, who otherwise comply
with the statutory requirements of Section 262 (a copy of which is attached
hereto as Annex III to this Proxy Statement/Prospectus) and who neither vote in
favor of the Merger Agreement nor consent thereto in writing will be entitled
to an appraisal by the Delaware Court of the fair value of their shares of
Fisher Common Stock. Except as set forth herein, stockholders of the Company
will not be entitled to appraisal rights in connection with the Merger.
A holder of shares of Fisher Common Stock wishing to exercise dissenters'
rights of appraisal must, before the taking of the vote on the Merger at the
Special Meeting, deliver to Fisher a written demand for appraisal of such
shares. A demand for appraisal will be sufficient if it reasonably informs
Fisher of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his or her shares.
Within 10 days after the Effective Time, the Company is required to, and
will, notify each stockholder of the Company who has satisfied the foregoing
conditions on the date on which the Merger became effective. Within 120 days
after the Effective Time, either the Company or any stockholder who has
complied with the required conditions of Sections 262 may file a petition in
the Delaware Court, with a copy served on the Company in the case of a petition
filed by a stockholder, demanding a determination of the fair value of the
shares of all dissenting stockholders. There is no present intent on the part
of the Company to file an appraisal petition and stockholders seeking to
exercise appraisal rights should not assume that the Company will file such a
petition or that the Company will initiate any negotiations with respect to the
fair value of such shares. Accordingly, stockholders who desire to have their
shares appraised should initiate any petitions necessary for the perfection of
their appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Company, a statement
setting forth the aggregate number of shares of Fisher Common Stock not voting
in favor of the Merger Agreement and with respect to which demands for
appraisal were received by the Company and the number of holders of such
shares. Such statement must be mailed within 10 days after the written request
therefor has been received by the Company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed,
the Delaware Court will appraise the shares of Fisher Common Stock owned by
such stockholders, determining the fair value of such shares exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining fair value, the Delaware Court
is to take into account all relevant factors. In Weinberger v. UOP Inc., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered,
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts which could be ascertained as of the date of the merger which
throw lights on future prospects of the merged corporation. In Weinberger, the
Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
Section 262, however, provides that fair value is to be "exclusive of any
element of value arising from the accomplishment or expectation of the merger."
Holders of shares of Fisher Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of the Company, the
131
<PAGE>
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceedings, including
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Company. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal shall cease, and all holders of shares
of Fisher Common Stock will be entitled to receive the consideration offered
pursuant to the Merger Agreement. Inasmuch as the Company has no obligation to
file such a petition, and the Company has no present intention to do so, any
holder of shares of Fisher Common Stock who desires such a petition to be filed
is advised to file it on a timely basis. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to the Company a written
withdrawal of his or her demand for appraisal and acceptance of the Merger,
except (i) that any such attempt to withdraw made more than 60 days after the
Effective Time will require written approval of the Company, and (ii) that no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may
be conditioned upon such terms as the Delaware Court deems just.
The foregoing is only a summary of Section 262, and is qualified in its
entirety by reference to the provisions thereof, the full text of which is set
forth as Annex III to this Proxy Statement/Prospectus. Each stockholder of the
Company is urged to read carefully the full text of Section 262.
EXPERTS
Financial Statements
The consolidated financial statements included in this Proxy
Statement/Prospectus for the three years ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Legal Opinions
The legality of Fisher Common Stock being retained in the Transaction is
being passed on by Todd M. DuChene, Vice President - General Counsel and
Secretary of the Company. Wachtell, Lipton, Rosen & Katz, special counsel for
the Company has delivered an opinion concerning certain Federal income tax
consequences of the Transaction. See "THE TRANSACTION--Certain Federal Income
Tax Considerations."
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be,
or which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before the Special Meeting, the persons
named in the enclosed Proxy or their substitutes will vote the Proxies in
accordance with their judgment with respect to such matters, unless authority
to do so is withheld in the Proxy.
Stockholder Proposals
Proposals which stockholders intend to present at the Company's 1998
Annual Meeting of Stockholders and wish to have included in the Company's proxy
materials must be received by the Company no later than December 8, 1997.
By Order of the Board of Directors
Todd M. DuChene
Vice President--General Counsel and
Secretary
132
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
Term Cited
- - - ------------------------------------- ------
<S> <C>
1995 Restructuring Plan ............ 34
Acquiring Person .................. 88
Acquisition Transition ............ 95
Affiliate ........................... 71
Amended Merger Agreement ............ 124
Antitrust Division .................. 130
Board .............................. ii
Bridge Loan ........................ 10
Cash Price ........................ i
Cash Proration Factor ............... 59
CERCLA .............................. 105
Certificate of Merger ............... 61
Chase .............................. 14
Chase Equity ........................ 3
Chase Securities .................. 74
CMS ................................. 17
Code .............................. 63
Commission ........................ ii
Commitment Letters .................. 94
Committee ........................... 116
Company ........................... i
Company Estimates .................. 57
Confidentiality Agreement ......... 94
Credit Facilities .................. 128
Cumulative Preferred Stock ......... 3
debt financed portfolio stock ...... 66
Debt Securities ..................... 22
DGCL .............................. 16
Dissenting Shares .................. 16
Distribution Date .................. 88
Dividend Equivalents ............... 112
DLJ ................................. 14
DLJMB .............................. 3
DLJMB Funds ........................ 3
EBIT .............................. 51
EBITDA .............................. 18
ECRA .............................. 105
Effective Time ..................... i
Eligible Employee Pool ............ i
Eligible Employees .................. i
EOP ................................. 114
Equity Investors .................. 3
Equity Warrants ..................... 3
ERISA .............................. 92
Exchange Act ........................ 1
Executive Performance Options ...... 120
extraordinary dividend ............ 66
Final Expiration Date ............... 89
First Amended Agreement ............ i
First Amendment ..................... 88
Fisher .............................. i
Fisher Common Stock ............... i
Fisons .............................. 33
Form of Election .................. 61
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
Page
Term Cited
- - - ---------------------------------------- ------
<S> <C>
forward-looking statements ............ 1
FSE .................................... 17
FSI .................................... i
FTC .................................... 130
FTG .................................... 27
General Chemical ..................... 47
Incentive Stock Options ............... 116
Indemnified Parties .................. 94
Investors' Agreement .................. 70
IPA .................................... 28
IRS .................................... 63
ISRA ................................. 105
Lazard Freres ........................ 7
LIBOR ................................. 73
limited stock appreciation right ...... 118
LSAR ................................. 118
Management Performance Options ......... 120
Management Stockholders ............... 70
Merger ................................. i
Merger Agreement ..................... i
Merrill Lynch ........................ 3
MLPFS ................................. 74
MRO .................................... 31
Named Executive Officers ............... 66
National Science Foundation ............ 32
New Equity Capital ..................... 11
Non-Qualified Stock Options ............ 116
Note Warrants ........................ 3
NYSE ................................. ii
Option ................................. 66
Option Conversion ..................... i
Option Conversion Holders ............ 13
Option Conversion Shares ............... 11
Option Exercise Price .................. 117
Original Agreement ..................... i
Original Company Estimates ............ 56
Other Awards ........................... 116
PARCO ................................. 10
Pension Plan ........................... 115
Plan ................................. 116
Preferred Stock ........................ 88
Prime Rate ........................... 73
Proxy ................................. ii
Proxy Statement/Prospectus ............ i
Public Offering ........................ 90
Purchase Price ........................ 88
put right .............................. 120
Rabbi Trust ........................... 12
Receivables Securitization ............ 9
Record Date ........................... 2
Redemption Event ..................... 90
Redemption Price ..................... 90
Representatives ........................ 94
Restricted Stock ..................... 116
Restricted Unit Plan .................. 67
Retirement Program ..................... 115
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
Page
Term Cited
- - - -------------------------------------- ------
<S> <C>
Revised Company Estimates ............ 56
Revolving Facility .................. 10
Right .............................. 88
Rights Agreement ..................... 38
Rights Certificates .................. 89
Rights Record Date .................. 88
Rollover Loans ..................... 75
Rollover Securities .................. 75
Rule 144A ........................... 10
Salomon Brothers ..................... 7
Savings Plan ........................ 111
Savings Trust ........................ 111
Securities Act ..................... 1
Selected Companies .................. 50
Selected Transactions ............... 51
Senior Facilities .................. 10
Senior Financing ..................... 9
Senior Subordinated Financing ...... 10
Series A Preferred Stock ............ 88
SERP ................................. 69
SFAS ................................. 130
SOP ................................. 130
Special Meeting ..................... i
SPC ................................. 10
SPS ................................. 32
Standard Pool ........................ i
Standard Retained Share Number ...... 59
Stock Election ..................... 5
Stock Election Share ............... 5
Stock Proration Factor ............... 59
Stockholder Approval ............... 95
Strike Impact ........................ 49
Subordinated Notes .................. 10
Summary of Rights .................. 88
Supplemental Plan .................. 115
Surviving Corporation ............... i
Term Facility ........................ 10
Termination Fee ..................... 97
THL ................................. i
THL Fund ........................... 3
Thomas H. Lee Proposal ............... 40
Tranche A ........................... 10
Tranche B ........................... 10
Tranche C ........................... 10
Transaction ........................ i
Transaction Debt Financings ......... 9
Trinity .............................. 38
Trinity Group ........................ 38
Trinity Proposal ..................... 38
Units .............................. 112
UPS ................................. 28
U.S. ................................. 63
Vesting Options ..................... 120
Year 2000 ........................... 27
</TABLE>
135
<PAGE>
FINANCIAL STATEMENTS OF FISHER SCIENTIFIC INTERNATIONAL INC.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Interim Consolidated Financial Statements ...... F-2
Annual Consolidated Financial Statements ...... F-4
</TABLE>
F-1
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
INCOME STATEMENTS
(in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------------
1997 1996 1997 1996
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Sales ............................................. $554.8 $ 541.0 $1,624.1 $ 1,589.2
Cost of sales .................................... 401.8 394.6 1,176.3 1,164.3
Selling, general and administrative expense ...... 133.7 121.0 382.6 358.4
------ ------- -------- ---------
Income from operations ........................... 19.3 25.4 65.2 66.5
Interest expense ................................. 5.4 5.7 17.6 22.1
Other (income) expense, net ..................... 4.6 ( 1.5) 0.1 (0.4)
------ -------- -------- ----------
Income before income taxes ........................ 9.3 21.2 47.5 44.8
Income tax provision .............................. 5.4 9.7 23.0 20.4
------ -------- -------- ----------
Net income ....................................... $ 3.9 $ 11.5 $ 24.5 $ 24.4
====== ======== ======== ==========
Earnings per common share:
Primary .......................................... $ 0.18 $ 0.56 $ 1.17 $ 1.35
======= ======== ========= ==========
Fully diluted .................................... $ 0.18 $ 0.56 $ 1.17 $ 1.29
======= ======== ========= ==========
</TABLE>
See the accompanying notes to financial statements.
F-2
<PAGE>
FISHER SCIENTIFIC INTENATIONAL INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 30.1 $ 24.7
Receivables, net ........................... 322.7 316.6
Inventories ................................. 244.4 256.0
Other current assets ........................ 56.1 55.5
---------- ----------
Total current assets ..................... 653.3 652.8
Property, plant and equipment, net ......... 222.5 209.5
Goodwill .................................... 293.7 292.7
Other assets .............................. 110.5 107.7
---------- ----------
$ 1,280.0 $ 1,262.7
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current poriton of long-term debt ......... $ 26.6 14.6
Accounts payable ........................... 236.0 234.5
Accrued and other current liabilities ...... 139.5 143.9
---------- ----------
Total current liabilities ............... 402.1 393.0
Long-term debt .............................. 273.7 281.5
Other liabilities ........................... 197.9 202.0
---------- ----------
Total liabilities ........................ 873.7 876.5
========== ==========
Commitments and Contingencies ...............
Stockholders' equity:
Preferred stock ........................... -
Common stock .............................. 0.2 0.2
Capital in excess ofpar value ............... 277.8 270.7
Retained earnings ........................... 151.7 128.4
Other ....................................... ( 23.4) ( 13.1)
---------- ----------
Total stockholders' equity ............... 406.3 386.2
---------- ----------
$ 1,280.0 $ 1,262.7
========== ==========
</TABLE>
See the accompanying notes to financial statements.
F-3
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 24.5 $ 24.4
Adjustments to reconcile net income to
cash used by operating activities:
Depreciation and amortization ........................... 34.2 32.4
Deferred income taxes .................................... 3.6 7.4
Changes in working capital:
Receivables, net ....................................... ( 4.5) (25.0)
Inventories ............................................. 13.0 4.5
Payables, accrued and other current liabilities ......... (10.1) (26.1)
Other working capital changes ........................... 1.3 5.2
Other assets and liabilities ........................... (21.8) ( 1.5)
------- -------
Cash provided by operating activities .................. 40.2 21.3
------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired ........................ ( 8.8) ( 4.7)
Capital expenditures .................................... (49.3) (24.4)
Proceeds from sale of property, plant and equipment ...... 18.4 2.4
Other investing activities .............................. ( 5.9) ( 0.4)
------- -------
Cash used in investing activities ..................... (45.6) (27.1)
------- -------
Cash flows from financing activities:
Proceeds from stock options exercised ..................... 5.7 6.6
Dividends paid .......................................... ( 1.2) ( 1.1)
Long-term debt proceeds ................................. 98.3 5.5
Long-term debt payments ................................. (92.0) (55.3)
------- -------
Cash provided (used) by financing activities ............ 10.8 (44.3)
Net change in cash and cash equivalents .................. 5.4 (50.1)
Cash and cash equivalents--beginning of period ............ 24.7 63.7
------- -------
Cash and cash equivalents--end of period .................. $ 30.1 $ 13.6
======= =======
</TABLE>
See the accompanying notes to financial statements.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1--Basis of Presentation
Fisher Scientific International Inc.'s ("Fisher" of the "Company")
operations are conducted by wholly owned and majority-owned subsidiaries, joint
ventures, equity interests and agents, located in North and South America,
Europe, the Far East, the Middle East and Africa. The Company's activities
relate principally to one business segment--scientific and clinical products.
This includes operations engaged in the supply, marketing, service and
manufacture of scientific, clinical, educational, and occupational health and
safety products. Other activities include third-party procurement services and
electronic commerce.
Note 2--Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings per Share" (SFAS No. 128) SFAS No. 128
establishes new standards for computing and presenting earnings per share. The
Company is required to adopt SFAS No. 128 in the fourth quarter of 1997. If the
provisions of SFAS No. 128 had been used to calculate earnings per share for
the three and nine months ended September 30, 1997 and 1996, the effect on
earnings per share would have been insignificant.
In June 1997, the FASB issued Statements No. 130 "Reporting Comprehensive
Income" and No. 131 "Disclosures About Segments of an Enterprise and Related
Information," both of which will be adopted by the Company in 1998. These
Statements provide for additional disclosure in financial statements.
Note 3--Inventories
The following is a summary of inventories by major category (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
<S> <C> <C>
Raw material ............ $ 18.9 $ 20.0
Work in process ......... 3.4 3.0
Finished products ...... 222.1 233.0
------ ------
$244.4 $256.0
====== ======
</TABLE>
Note 4--Other Current Assets
In the second quarter of 1997, the Company sold non-core fixed assets,
resulting in a $1.5 million gain classified in other income and expense and a
$17.6 million receivable classified in other current assets at June 30, 1997.
This amount was collected in the third quarter of 1997.
Note 5--Debt
The following is a summary of debt and other obligations (in millions):
<TABLE>
<CAPTION>
September December
1997 1996
<S> <C> <C>
Bank Credit Facility ............................................. $ 111.7 $ 116.8
7-1/8% Notes (net of a discount of $1.1 million at September 30,
1997 and December 31, 1996) ..................................... 148.9 148.9
Other ............................................................ 39.7 30.4
Less current portion of long-term debt ........................... ( 26.6) ( 14.6)
-------- --------
$ 273.7 $ 281.5
======== ========
</TABLE>
F-5
<PAGE>
Note 6--Stockholders' Equity
On September 11, 1997, the Board of Directors of Fisher declared a
quarterly cash dividend of $0.02 per share, payable October 15, 1997 to
stockholders of record October 1, 1997.
On June 9, 1997, the Board of Directors of Fisher declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock of the Company pursuant to a Rights Agreement between the Company
and ChaseMellon Shareholder Services, L.L.C. (the "Original Rights Agreement").
The dividend was payable on June 19, 1997 to stockholders of record on that
date. On September 11, 1997 the Company amended the Original Rights Agreement
(the Original Agreement as amended, the "Rights Agreement") to provide, among
other things, that FSI and its Affiliates (as defined in the Rights Agreement
and discussed in Note 7) would not be deemed an Acquiring Person (as defined in
the Rights Agreement). The description of all terms of the Rights is set forth
in the Rights Agreement. Until the occurrence of a Distribution Date (as
defined in the Rights Agreement), the Rights will be evidenced by the common
stock certificates and may be transferred only with the common stock. Each
Right, when exercisable, entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, without par value (the "Preferred Shares"), of the Company at a price of
$190 per one one-hundredth of a Preferred Share, subject to adjustment. There
are 500,000 authorized shares of Series A Junior Preferred Stock. When issued,
each Preferred Share is entitled to an aggregate dividend of 100 times the
dividend declared per common share. Additionally, in the event of liquidation,
the holders of the Preferred Shares will be entitled to an aggregate payment of
100 times the payment made per common share. Each Preferred Share will also
have 100 votes. In the event of a transaction in which common shares are
exchanged, each Preferred Share will be entitled to receive 100 times the
amount received per common share.
The Rights will expire on June 8, 2007 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company.
Note 7--Proposed Recapitalization
Pursuant to the Amended and Restated Agreement and Plan of Merger dated
September 11, 1997, the Company and FSI Merger Corp. ("FSI"), a Delaware
corporation formed by Thomas H. Lee Company ("THL Co."), entered into an
agreement and plan of merger (the "Amended Merger Agreement") providing for a
recapitalization of Fisher. Under the terms of the Amended Merger Agreement,
approximately 97% of the fully diluted common stock of Fisher will be converted
into the right to receive $48.25 per share in cash (approximately $1.0 billion
in the aggregate). Pursuant to an election process that gives priority to
eligible employees presently holding Fisher Common Stock and opting to purchase
Fisher Common Stock, the remaining shares will be retained by existing
stockholders and will represent ownership in the recapitalized company.
Consummation of the merger is subject, among other things, to certain customary
conditions, including certain regulatory and stockholder approvals, receipt of
necessary financing and customary conditions including the absence of material
adverse changes to the Company. In the event the Amended Merger Agreement is
terminated for any reason other than a material breach by FSI, the Amended
Merger Agreement requires the Company to reimburse THL or FSI for all
out-of-pocket expenses and fees incurred by THL or FSI up to a stated maximum.
The Amended Merger Agreement also provides for the payment to FSI of a
Termination Fee under certain circumstances. If the Merger is consummated, the
transaction would qualify as a change in control and vesting of outstanding
common stock options may accelerate. The Company also has agreements with
certain of its key executives and severance plans for key employees which
provide for severance payments under certain circumstances in the event an
employee is severed following a change in control.
The Amended Merger Agreement amended the original agreement dated August
7, 1997 which provided for shareholders to receive $51.00 per share in cash for
each share owned or stock in the recapitalized company. The original agreement
was modified to (i) reduce the possibility that the effects of the August 1997
United Parcel Service of America, Inc. ("UPS") strike or the prospect of the
January 1998 UPS pilots strike (but not the actual occurrence of such a strike)
would give FSI a contractual opportunity to refuse to consummate the
transaction; (ii) modify the financing commitments to reduce the circumstances
under which the entities providing such commitments could refuse to provide
financing; (iii) extend the financing commitments until January 31, 1998; and
(iv) reduce the termination fees that could be payable to FSI. The financing
commitments were revised to reflect the reduced level of borrowings needed to
consummate the Merger as a result of the lower cash price. The other terms and
conditions of the financing commitments were substantially unchanged.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Fisher Scientific International Inc.:
We have audited the accompanying balance sheets of Fisher Scientific
International Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related statements of income, cash flows, and changes in stockholders' equity
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Fisher Scientific International Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 6, 1997
F-7
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
INCOME STATEMENTS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Sales ............................................. $ 2,144.4 $ 1,435.8 $ 1,126.7
Cost of sales .................................... 1,565.9 1,048.9 807.8
Selling, general and administrative expense ...... 483.9 334.4 255.0
Restructuring charge .............................. -- 34.3 --
---------- --------- ----------
Income from operations ........................... 94.6 18.2 63.9
Interest expense ................................. 27.1 15.0 9.0
Other income, net ................................. (0.1) (1.1) (7.8)
---------- ---------- ----------
Income before income taxes ........................ 67.6 4.3 62.7
Income tax provision .............................. 30.8 1.1 27.0
---------- ---------- ----------
Net income ....................................... $ 36.8 $ 3.2 $ 35.7
========== ---------- ----------
Earnings per common share:
Primary .......................................... $ 1.96 $ 0.19 $ 2.18
========== ---------- ----------
Fully diluted .................................... 1.87 0.19 2.00
========== ========== ==========
</TABLE>
See the accompanying notes to financial statements.
F-8
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
BALANCE SHEETS
(in millions, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 24.7 $ 63.7
Receivables, net ......................................................... 316.6 297.3
Inventories ............................................................ 256.0 242.7
Other current assets ................................................... 55.5 69.9
---------- ----------
Total current assets ................................................... 652.8 673.6
Property, plant and equipment, net ....................................... 209.5 207.6
Goodwill .................................................................. 292.7 270.4
Other assets ............................................................ 107.7 118.9
---------- ----------
Total assets ......................................................... $ 1,262.7 $ 1,270.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ......................................................... $ 14.6 $ 11.7
Accounts payable ......................................................... 234.5 231.2
Accrued and other current liabilities .................................... 143.9 146.7
---------- ----------
Total current liabilities ............................................. 393.0 389.6
Long-term debt ............................................................ 281.5 446.3
Other liabilities ......................................................... 202.0 208.6
---------- ----------
Total liabilities ...................................................... 876.5 1,044.5
---------- ----------
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock ($.01 par value; 15,000,000 shares authorized, none
outstanding) ............................................................ -- --
Common stock ($.01 par value; 50,000,000 shares authorized; 20,131,498 and
16,257,349 shares issued and outstanding at December 31, 1996 and 1995,
respectively) ......................................................... 0.2 0.2
Capital in excess of par value .......................................... 270.7 135.5
Retained earnings ...................................................... 128.4 93.1
Other .................................................................. ( 13.1) ( 2.8)
---------- ----------
Total stockholders' equity ............................................. 386.2 226.0
---------- ----------
Total liabilities and stockholders' equity ........................... $ 1,262.7 $ 1,270.5
========== ==========
</TABLE>
See the accompanying notes to financial statements
F-9
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31, -
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 36.8 $ 3.2 $ 35.7
Adjustments to reconcile net income to cash provided by
operating activities:
Restructuring charge, net of cash expended ............... -- 32.5 --
Depreciation and amortization ........................... 44.6 28.9 19.4
Gain on sale of property, plant and equipment ............ ( 3.0) -- --
Deferred income taxes .................................... 12.3 ( 13.1) 7.1
Changes in working capital:
Receivables, net ....................................... (22.3) ( 0.1) (21.3)
Inventories ............................................. (13.7) ( 20.6) ( 4.8)
Other current assets .................................... 9.4 ( 4.7) ( 4.7)
Accounts payable ....................................... 12.3 53.5 6.4
Accrued and other current liabilities .................. (22.1) ( 12.6) (21.3)
Other assets and liabilities .............................. ( 5.3) ( 12.1) (16.3)
------- ------- -------
Cash provided by operating activities .................. 49.0 54.9 0.2
------- ------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired ........................ (10.4) (326.6) (55.6)
Capital expenditures .................................... (40.7) ( 24.6) (17.7)
Proceeds from sale of property, plant and equipment ...... 6.9 -- --
Marketable securities proceeds and maturities ............ 3.0 21.3 73.8
Marketable securities purchases ........................... -- -- (30.1)
Other ................................................... ( 0.8) ( 2.9) ( 0.2)
------- ------- -------
Cash used in investing activities ........................ (42.0) (332.8) (29.8)
------- ------- -------
Cash flows from financing activities:
Proceeds from stock options exercised ..................... 7.9 3.3 0.2
Dividends paid .......................................... ( 1.5) ( 1.3) ( 1.3)
Long-term debt proceeds ................................. 29.8 457.2 1.7
Long-term debt payments ................................. (82.2) (154.5) ( 0.7)
------- ------- -------
Cash provided (used) by financing activities ............ (46.0) 304.7 ( 0.1)
------- ------- -------
Net change in cash and cash equivalents .................. (39.0) 26.8 (29.7)
Cash and cash equivalents--beginning of year ............... 63.7 36.9 66.6
------- ------- -------
Cash and cash equivalents--end of year ..................... $ 24.7 $ 63.7 $ 36.9
======= ======= =======
Supplemental Cash Flow Information:
Cash paid during the year for: ...........................
Income taxes ............................................. $ 10.7 $ 12.7 $ 15.5
Interest ................................................ 27.7 10.9 7.5
======= ======= =======
</TABLE>
See the accompanying notes to financial statements.
F-10
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained
Stock Par Value Earnings Other Total
-------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ........................ $ 0.2 $ 130.5 $ 56.8 $ (6.3) $ 181.2
Net Income ....................................... -- -- 35.7 -- 35.7
Proceeds from stock options ........................ -- 0.2 -- -- 0.2
Dividends ($0.08 per share) ........................ -- -- ( 1.3) -- ( 1.3)
Other ............................................. -- -- -- 2.8 2.8
------ ------- ------- ----------- --------
Balance, December 31, 1994 ........................ 0.2 130.7 91.2 ( 3.5) 218.6
Net Income ....................................... -- -- 3.2 -- 3.2
Proceeds from stock options ........................ -- 3.3 -- -- 3.3
Tax benefit from exercise of stock options ......... -- 1.5 -- -- 1.5
Dividends ($0.08 per share) ........................ -- -- ( 1.3) -- ( 1.3)
Other ............................................. -- -- -- 0.7 0.7
------ ------- ------- ----------- --------
Balance, December 31, 1995 ........................ 0.2 135.5 93.1 ( 2.8) 226.0
Net Income ....................................... -- -- 36.8 -- 36.8
Proceeds from stock options ........................ -- 7.9 -- -- 7.9
Tax benefit from exercise of stock options ......... -- 1.9 -- -- 1.9
Dividends ($0.08 per share) ........................ -- -- ( 1.5) -- ( 1.5)
Conversion of Convertible Subordinated Notes ...... -- 125.4 -- -- 125.4
Other ............................................. -- -- -- ( 10.3) ( 10.3)
------ ------- ------- ----------- --------
Balance, December 31, 1996 ........................ $ 0.2 $ 270.7 $ 128.4 $(13.1) $ 386.2
====== ======= ======= =========== ========
</TABLE>
See the accompanying notes to financial statements.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Formation and Basis of Presentation
Fisher Scientific International Inc. ("Fisher" or the "Company") was
formed in September 1991. The Company's operations are conducted by
wholly-owned and majority-owned subsidiaries, joint ventures, equity interests
and agents, located in North and South America, Europe, the Far East, the
Middle East and Africa. The Company's activities relate principally to one
business segment--scientific and clinical products. This includes operations
engaged in the supply, marketing, service and manufacture of scientific,
clinical, educational, occupational health and safety products. Other
activities include strategic procurement services.
Fisher provides more than 245,000 products and services to research,
health care, industrial, educational and governmental markets in 145 countries.
The Company serves scientists engaged in biomedical, biotechnology,
pharmaceutical, chemical and other fields of research and development, and is a
supplier to clinical laboratories, hospitals, health care alliances,
physicians' offices, environmental testing centers, remediation companies,
quality- control laboratories and many other customers. Fisher also represents
customers as a third-party purchaser and integrator of suppliers of hundreds of
thousands of scientific products, maintenance, repair and operating (MRO)
materials and other supplies. The Company's largest supplier represents
approximately 16% of 1996 sales.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to their
current presentation.
NOTE 2--Summary of Significant Accounting Policies
Principles of Consolidation--The financial statements contain the accounts
of the Company and all majority-owned subsidiaries. Intercompany accounts and
transactions are eliminated.
Foreign Currency Translation--Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars using year-end exchange
rates. Revenues and expenses of foreign subsidiaries are translated at the
average exchange rates in effect during the year. Adjustments resulting from
financial statement translations are included in other in stockholders' equity.
Gains and losses resulting from foreign currency transactions are reported on
the income statement line item "other income, net," when recognized.
Financial Instruments--The Company enters into forward currency contracts
to hedge exposure to fluctuations in foreign currency rates. Gains and losses
on the Company's forward currency contracts generally offset losses and gains
on the assets and liabilities being hedged. The Company also hedges certain
firm commitments. Gains and losses on these positions are deferred and included
in the basis of the transaction when it is completed. At December 31, 1996 the
outstanding forward currency contracts all mature within one month of year-end.
Cash flows from forward currency contracts accounted for as hedges are
classified in the Statement of Cash Flows in the same category as the item
being hedged or on a basis consistent with the nature of the instrument.
Income Taxes --Deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using expected rates in effect in the years in which the
differences are expected to reverse.
Cash Equivalents and Short-term Investments--Cash equivalents consist
primarily of highly liquid investments with insignificant interest rate risk
and original maturities of three months or less at the date of acquisition.
Similar investments with original maturities beyond three months are considered
short-term marketable securities.
Inventories are valued at the lower of cost or market, cost being
determined principally by the last-in, first-out ("LIFO") method for
inventories of Fisher Scientific Company, and by the first-in, first-out
("FIFO") method for all other subsidiaries.
Other Current Assets primarily consist of deferred income taxes of $41.6
million and $50.1 million at December 31, 1996 and 1995, respectively.
F-12
<PAGE>
Property, Plant and Equipment is recorded at cost and is generally
depreciated based upon the following estimated useful lives: buildings and
improvements 5 to 33 years, machinery and equipment 3 to 12 years, and office
furniture and equipment 3 to 10 years. For financial statement purposes,
depreciation is computed principally using the straight-line method. For tax
purposes, depreciation is generally computed by accelerated methods based on
allowable useful lives.
Goodwill is being amortized for financial statement purposes on a
straight-line basis over 20 to 40 years. The amounts presented are net of
accumulated amortization of $44.0 million and $34.1 million at December 31,
1996 and 1995, respectively. The carrying value of goodwill at the balance
sheet date is evaluated on the basis of whether anticipated undiscounted
operating cash flows generated by the acquired businesses will recover the
recorded asset balances over their estimated useful lives.
Intangible Assets are being amortized on a straight-line basis over their
estimated useful lives, ranging up to 20 years, are included in Other Assets
and are stated net of accumulated amortization of $8.6 million and $5.7 million
at December 31, 1996 and 1995, respectively.
Deferred Debt Issue Costs of $4.0 million and $6.6 million at December 31,
1996 and 1995, respectively, relate to the Company's 7-1/8% Notes and Bank
Credit Facility Debt and, in 1995, to the Convertible Subordinated Notes, are
included in Other Assets and are amortized using the effective interest rate
method over the term of the related debt.
Environmental accruals are recorded based on current interpretations of
environmental laws and regulations when it is probable that a liability has
been incurred and the amount of such liability can be reasonably estimated.
These amounts do not include third-party recoveries. See Note 14 for additional
information.
Other income, net represents its interest income on cash and cash
equivalents and other non-operating income and expense items, including income
resulting from the Company's inactive insurance subsidiary.
Accounting Pronouncements-- Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The new standard did not have a material effect on the Company's financial
statements.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compen- sation" ("SFAS 123"). This statement allowed for, and
the Company retained, the previous method of accounting for employee
stock-based compensation arrangements in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", while
providing the additional disclosures required by SFAS 123. The new standard did
not have a material effect on the Company's financial statements.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities", which addresses
accounting and reporting for environmental remediation liabilities. SOP 96-1 is
required to be adopted in 1997. The implementation of SOP 96-1 is not expected
to have a material effect on the Company's financial statements.
Earnings Per Common Share-- The calculation of primary and fully diluted
earnings per common share assumes the exercise of all outstanding stock
options, using the treasury stock method. The calculation of fully diluted
earnings per common share assumes the foregoing and, in addition, the
conversion of the Company's convertible subordinated notes and related earnings
adjustments (prior to the actual June 1996 conversion) except in 1995, when the
assumed conversion of these potentially dilutive securities was antidilutive.
The primary weighted average number of common and equivalent shares outstanding
(in millions) was 18.8, 16.4 and 16.4 for the years ended December 31, 1996,
1995 and 1994, respectively. The fully diluted weighted average number of
shares outstanding (in millions) was 20.8, 16.4 and 19.9 for the years ended
December 1996, 1995, and 1994, respectively.
NOTE 3--Acquisitions
During 1996, the Company made several small acquisitions, including the
acquisition of a transaction- processing software company in the United States,
UniKix Technologies, and a majority interest in a laboratory products
distributor in Mexico. The Company also completed the acquisition of the
remaining minority interests in its laboratory product distributor subsidiaries
in Germany. These acquisitions were accounted for as purchases and are not
material to the Company's financial statements.
F-13
<PAGE>
In October 1995, Fisher purchased the principal businesses of the
laboratory supplies division of Fisons plc. ("Fisons"), a company organized
under the laws of England. The total consideration, after final purchase price
adjustments, was $304 million, including $295 million in cash and the
assumption of $9 million of certain external debt relating to the acquired
businesses. The purchase included the acquisitions of all of the issued and
outstanding shares of Curtin Matheson Scientific Inc. ("CMS"), a corporation
with headquarters in Houston, Texas, and the goodwill and substantially all of
the net assets of Fisons Scientific Equipment ("FSE"), a division of Fisons,
with headquarters in Loughborough in the United Kingdom.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the acquisitions of CMS and FSE had
occurred at the beginning of the period presented (in millions, except per
share amounts).
Year Ended
December 31, 1995
------------------
Sales .................. $ 2,046.9
Net income ............... 1.1
Earnings per common share:
Primary ............... $ 0.07
Fully diluted ......... 0.07
The pro forma financial information includes the results of CMS and FSE
combined with the Company's historical results (including the restructuring
charge described in Note 18), the effects of the purchase accounting
allocations and adjustments to interest expense to reflect borrowings to
finance the acquisitions described in Note 12. The pro forma financial
information does not purport to present what the Company's results of
operations would actually have been had the acquisition of CMS and FSE occurred
on the assumed date, nor does it project the Company's results of operations
for any future period.
The Company's balance sheet at December 31, 1996 includes the estimated
fair value of assets and liabilities acquired in connection with the
acquisitions of CMS and FSE and other smaller companies. The initial and
subsequent final allocation of the purchase price of CMS and FSE included
liabilities for estimated costs to terminate acquired leases in order to
consolidate logistics facilities and to sever and relocate employees related to
acquired logistics, customer service information services and administrative
functions, which amounted to approximately 8% of the total consideration, after
final purchase price adjustments. During 1996 and 1995, approximately $5
million and $1 million, respectively, of severance and $2 million in 1996 of
other exit costs were paid and charged against these liabilities. These actions
are expected to be substantially completed by the end of 1998. Initial
estimates were revised in 1996 as final appraisals, valuations and other
studies relating to the acquired assets and liabilities were completed. The
excess of the purchase price over the fair value of all net assets acquired in
1996 and 1995 was approximately $32 million (including approximately $18
million related to finalizing the purchase price allocation for the 1995 CMS
and FSE acquisition discussed above) and $127 million, respectively, and will
be amortized over 40 years.
During 1995, Fisher also acquired laboratory products distributors in
France and the United Kingdom and completed the acquisition of the remaining
minority interests in its laboratory products distributor subsidiaries in
Singapore and Malaysia. These acquisitions are not material to the Company's
financial statements. All acquisitions have been accounted for as purchases;
operations of the companies and businesses acquired have been included in the
accompanying financial statements from their respective dates of acquisition.
NOTE 4--Stockholders' Equity
Capital Stock
Fisher's authorized capital stock consists of 50,000,000 shares of Common
Stock, par value $.01 per share, of which 20,131,498, 16,257,349, and
16,039,100 shares were outstanding at December 31, 1996, 1995, and 1994,
respectively, and 15,000,000 shares of preferred stock, par value $.01 per
share (the "Fisher Preferred Stock"), none of which were outstanding at the
above dates.
The Fisher Preferred Stock and the Common Stock are each issuable in one
or more series or classes, any or all of which may have such voting powers,
full or limited, or no voting powers, and such designations, preferences
F-14
<PAGE>
and related participating, optional or other special rights and qualifications,
limitations or restrictions thereof, as are set forth in the Restated
Certificate of Incorporation of Fisher or any amendment thereto, or in the
resolution or resolutions providing for the issue of such stock adopted by
Fisher's Board of Directors, which is expressly authorized to set such terms
for any such issue.
Convertible Subordinated Notes
On June 25, 1996, approximately 97%, or $121.6 million, of the convertible
subordinated notes were converted into 3,463,154 shares of the Company's Common
Stock. The conversion resulted in an increase in stockholders' equity and a
reduction in long-term debt and related accrued interest of approximately $125
million. See Note 12.
NOTE 5--Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash in banks,
investments in marketable securities, receivables and debt. In addition, the
Company has forward currency contracts that hedge certain firm commitments and
balance sheet exposures.
The carrying amounts for cash and cash equivalents, receivables and
short-term debt approximate fair value due to the short-term nature of these
instruments. The carrying and fair market values of marketable securities based
on quoted market prices were $9.0 million and $9.0 million, respectively, for
marketable securities held-to-maturity and $2.4 million and $3.8 million,
respectively, for marketable securities available-for-sale. The marketable
securities held-to-maturity portfolio consists of U.S. government securities
and have the following maturities: $6.0 million due within one year, and $3.0
million due after 5 years. The carrying and fair market values of long-term
debt were $281.5 million and $280.9 million, respectively, at December 31, 1996
and $446.3 million and $456.2 million, respectively, at December 31, 1995. The
fair value of the long-term fixed rate debt was estimated based on current
quotes from bond traders making a market in the debt instrument. The fair value
of debt with variable rates approximates market. The Company has the following
off-balance sheet financial instruments:
<TABLE>
<CAPTION>
Notional Unrealized
Amount Gain/(Loss)
---------- ------------
<S> <C> <C>
Off-Balance Sheet Financial Instruments (in millions):
Forward currency contracts
$US/$Canadian ....................................... $ 1.8 $ --
$US/United Kingdom Pounds ........................... 11.2 --
Standby letters of credit ........................... 26.0 --
</TABLE>
None of the Company's financial instruments represent a concentration of
credit risk because the Company deals with a variety of major banks worldwide,
and its accounts receivable are spread among a number of major customers and
geographic areas. None of the Company's off-balance-sheet financial instruments
would result in a significant loss to the Company if the other party failed to
perform according to the terms of its agreement, as any such loss would
generally be limited to the unrealized gain in any contract.
NOTE 6--Income Taxes
The domestic and foreign components of income before income taxes are as
follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
---------- ---------- -------
<S> <C> <C> <C>
Domestic ........................ $ 69.2 $ 18.4 $ 55.3
Foreign ........................ ( 1.6) (14.1) 7.4
------- ------- ------
Income before income taxes ...... $ 67.6 $ 4.3 $ 62.7
======= ======= ======
</TABLE>
F-15
<PAGE>
The components of the income tax provision (benefit) are as follows (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current income tax expense:
Federal ........................... $ 11.6 $ 8.2 $ 13.8
State .............................. 5.8 4.2 5.0
Foreign ........................... 1.1 1.8 1.1
------- ------- -------
Total current ..................... $ 18.5 $ 14.2 $ 19.9
------- ------- -------
Deferred income tax expense (benefit):
Federal ........................... 11.8 ( 4.4) 6.4
State .............................. 1.1 ( 2.4) 1.1
Foreign ........................... ( 0.6) ( 6.3) ( 0.4)
------- ------- -------
Total deferred ..................... 12.3 (13.1) 7.1
------- ------- -------
Total income tax provision ......... $ 30.8 $ 1.1 $ 27.0
======= ======= =======
</TABLE>
The principal items accounting for the differences in taxes on income
computed at the applicable U.S. statutory rate and as recorded are as follows
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
-------- --------- -------
<S> <C> <C> <C>
Taxes computed at statutory rate .................. $ 23.7 $ 1.5 $ 21.9
Items not deductible for tax purposes ............ 0.8 0.2 1.1
Foreign taxes over U.S. rate ..................... 1.8 1.0 --
State income taxes (net of federal benefit) ...... 4.5 1.2 4.0
Utilization of loss carryforwards ............... -- (2.8) --
------ ------ ------
Income tax provision .............................. $ 30.8 $ 1.1 $ 27.0
====== ====== ======
</TABLE>
The 1995 income tax provision includes a $2.8 million tax benefit for the
utilization of certain domestic net operating loss carryforwards that were
previously not considered realizable.
The tax effects of temporary items that gave rise to significant portions
of the deferred tax accounts are as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Postretirement benefit costs other than pensions ...... $ 34.2 $ 33.7
Environmental accruals ................................. 14.1 13.9
Operating loss and tax credit carryforwards ............ 20.4 13.3
Accrued employee benefits .............................. 12.2 12.0
Restructuring accruals ................................. 6.4 7.6
Other items not deductible until paid .................. 43.8 52.8
-------- --------
Gross deferred tax assets .............................. 131.1 133.3
Less valuation allowance .............................. ( 11.8) ( 5.6)
-------- --------
$ 119.3 $ 127.7
======== ========
Deferred tax liabilities:
Goodwill ............................................. $ 21.1 $ 20.4
Property, plant and equipment ........................ 7.1 6.5
Other ................................................ 8.3 10.8
-------- --------
$ 36.5 $ 37.7
======== ========
</TABLE>
F-16
<PAGE>
The deferred tax asset includes the benefit of net operating loss
carryforwards subject to appropriate valuation allowances. The Company
evaluates the tax benefits of operating loss carryforwards on an ongoing basis
taking into consideration such factors as the future reversals of existing
taxable temporary differences, projected future operating results, the
available carryforward period and other circumstances. At December 31, 1996,
the Company had accumulated foreign net operating loss carryforwards for tax
purposes and pre-acquisition net operating losses from acquired companies of
approximately $44.6 million. A substantial portion of these losses have an
indefinite carryforward period; the remaining losses have expiration dates
beginning in 1997. Of the valuation allowance, $3.1 million relates to deferred
tax assets on net operating loss carryforwards of acquired companies
(subsequent recognition of tax benefits, if any, would result in a reduction of
goodwill).
At December 31, 1996, the Company had not recognized a deferred tax
liability on approximately $17 million of undistributed earnings of foreign
subsidiaries as these earnings are considered to be permanently reinvested.
These earnings could become subject to additional tax if they were remitted as
dividends or if the Company should sell its stock in the subsidiaries. The
amount of additional tax on these earnings has not been determined.
See Note 17 for a description of the Tax Sharing Agreement entered into by
the Company.
NOTE 7--Receivables
The following is a summary of receivables at December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Trade and other receivables ......... $ 338.5 $ 311.7
Allowance for doubtful accounts ...... ( 21.9) ( 14.4)
-------- --------
$ 316.6 $ 297.3
======== ========
</TABLE>
Provisions for doubtful accounts were $4.4 million, $3.0 million and $1.7
million and write-offs were $1.6 million, $1.7 million and $1.1 million for the
years ending December 31, 1996, 1995 and 1994, respectively. Allowances of
companies acquired at their acquisition date were $4.7 million and $6.6 million
in 1996 and 1995, respectively.
NOTE 8--Inventories
The following is a summary of inventories by major category at December 31
(in millions):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Raw materials ......... $ 11.2 $ 13.3
Work in process ......... 3.0 3.9
Finished products ...... 241.8 225.5
------ ------
$256.0 $242.7
====== ======
</TABLE>
Inventories valued using the LIFO method amounted to $195.2 million at
December 31, 1996 and $87.3 million at December 31, 1995, which were below
estimated replacement cost by approximately $26.9 million and $24.0 million for
the years ended December 31, 1996 and 1995, respectively. The increase in
inventories valued at LIFO primarily relates to the January 1, 1996 change in
method of accounting for substantially all inventories of the Company's newly
acquired subsidiary, CMS, (approximately $84 million at December 31, 1995) from
the FIFO method to LIFO. The change did not have a significant effect on the
results of operations.
F-17
<PAGE>
NOTE 9--Property, Plant and Equipment
The following is a summary of property, plant and equipment by major class
of asset at December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land, buildings and improvements ...... $ 145.7 $ 143.4
Machinery, equipment and other ......... 181.8 178.4
-------- --------
327.5 321.8
Accumulated depreciation ............... (118.0) (114.2)
-------- --------
$ 209.5 $ 207.6
======== ========
</TABLE>
NOTE 10--Other Assets
The following is a summary of other assets at December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Marketable securities ...... $ 11.4 $ 14.5
Deferred income taxes ...... 41.7 40.7
Intangible assets ......... 24.0 25.4
Other ..................... 30.6 38.3
------ ------
$107.7 $118.9
====== ======
</TABLE>
NOTE 11--Accrued and Other Current Liabilities
The following is a summary of accrued and other current liabilities at
December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Wages and benefits ...... $ 36.2 $ 41.3
Other .................. 107.7 105.4
------ ------
$143.9 $146.7
====== ======
</TABLE>
NOTE 12--Debt
The following is a summary of debt and other obligations at December 31
(in millions):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Bank Credit Facility ............................................. $ 116.8 $ 161.5
7-1/8% Notes (net of a discount of $1.1 million and $1.2 million
in 1996 and 1995, respectively) ................................. 148.9 148.8
Convertible subordinated notes ................................. -- 125.0
Other ............................................................ 30.4 22.7
Less current portion of long-term debt ........................... ( 14.6) ( 11.7)
-------- --------
Long-term debt ................................................... $ 281.5 $ 446.3
======== ========
</TABLE>
Future maturities of debt, over the next five years and thereafter are as
follows at December 31, 1996: $14.6 million in 1997, $15.3 million in 1998,
$11.9 million in 1999, $11.6 million in 2000, $11.6 million in 2001 and $231.1
million in years subsequent to 2001. In addition, $22.4 million and $24.0
million of the Company's assets were pledged as collateral on a portion of its
debt at December 31, 1996 and 1995, respectively.
As discussed above, in October 1995, Fisher purchased the principal
businesses of the laboratory supplies division of Fisons in a transaction
financed through $312.0 million of borrowings under credit facilities ("Credit
Facilities") from the Toronto-Dominion Bank (the "Bank") and a syndicate of
banks. The Credit Facilities replaced the Company's then existing credit
facility. Approximately $150.0 million of these borrowings was repaid with the
proceeds of the December 13, 1995 7-1/8% Note Offering described below. In
connection with this repayment, the Company recognized a $2.0 million loss on
the early extinguishment of debt, which was recorded in other income, net, in
1995. At December 31, 1996, the Company had $116.8 million outstanding under
the Credit Facilities, $69.5 million of which is denominated in U.S. dollars
and the remainder in British Pounds. These borrowings carry an
F-18
<PAGE>
effective interest rate of approximately 7.3%. The amount denominated in U.S.
dollars is due on October 17, 2001 and the remainder has scheduled payments
over a six year period. There is no penalty for early repayment of principal.
Of the Credit Facilities, $168.2 million is available as a revolving line of
credit and for letters of credit. The Company is required to pay a commitment
fee based on certain of the Company's coverage ratios. At December 31, 1996,
the rate is 0.2% per annum on the unused portion of the Credit Facilities. All
borrowings under the Credit Facilities bear interest, at the Company's option,
at either the Bank's Base Rate or at LIBOR plus a margin, based on certain of
the Company's coverage ratios. At December 31, 1996, the rate was approximately
5.9%. The Credit Facilities contain certain affirmative and negative covenants
including: (i) restrictions on acquisitions, mergers, consolidations and sales
of certain assets by the Company, (ii) restrictions on the Company's ability to
enter into transactions with affiliates, (iii) restrictions on the Company's
ability to incur additional indebtedness and to make certain loans, advances
and investments; and (iv) requirements to maintain certain levels of net worth,
interest coverage and debt to earnings before interest, taxes, depreciation and
amortization. The Credit Facilities also have restrictions on dividends above
current levels if certain financial ratios (as defined) are not achieved. At
December 31, 1996, retained earnings were free from dividend restrictions.
The Company also has outstanding $150.0 million aggregate principal amount
of 7-1/8% Notes due December 15, 2005, which were sold on December 13, 1995 at a
price to the public equal to 99.184% of principal bringing the effective
interest rate to 7.5%. The net proceeds to the Company from the offering of the
7-1/8% Notes, after underwriting discounts and commissions and estimated
expenses, were approximately $146.5 million. The estimated fair market value of
the 7-1/8% Notes at December 31, 1996, based on quotes from bond traders making
a market in the Notes, was approximately $148.3 million.
On June 12, 1996, the Company issued a notice of redemption for its $125
million step-up convertible subordinated notes due 2003 at a price of 103.65%
of principal, plus accrued interest. The notes could also be converted into
common stock at a conversion price of $35-1/8 per share prior to the redemption
date. On June 26, 1996, approximately 97%, or $121.6 million, of the notes were
converted into 3,463,154 shares of the Company's Common Stock. On July 2, 1996,
the Company redeemed the remaining notes for $3.5 million plus accrued
interest.
NOTE 13--Other Liabilities
The following is a summary of other liabilities at December 31 (in
millions):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Postretirement benefit costs other than pensions ...... $ 77.1 $ 81.4
Insurance ............................................. 12.5 18.6
Environmental .......................................... 34.7 33.0
Other ................................................ 77.7 75.6
------ ------
$202.0 $208.6
====== ======
</TABLE>
NOTE 14--Commitments and Contingencies
The following is a summary of annual future minimum lease and rental
commitments under operating leases as of December 31, 1996 (in millions):
<TABLE>
<S> <C>
1997 ........................... $ 13.6
1998 ........................... 11.4
1999 ........................... 9.6
2000 ........................... 7.2
2001 ........................... 6.7
Thereafter ..................... 38.5
------
Net minimum lease payments ...... $ 87.0
======
</TABLE>
Total rental expense included in the accompanying income statements amounted to
$14.5 million in 1996, $10.5 million in 1995 and $9.5 million in 1994.
There are various lawsuits and claims pending against the Company
involving contract, product liability and other issues. In addition, the
Company has assumed certain insurance liabilities, including liabilities
related to an inactive insurance subsidiary, primarily related to certain
historical businesses of its former parent, including those
F-19
<PAGE>
related to workers' compensation, employers', automobile, general and product
liability. In view of the Company's financial condition and the accruals
established for related matters, based on management's knowledge to date,
management does not believe that the ultimate liability, if any, related to
these matters will have a material adverse effect on the Company's financial
statements.
The Company is currently involved in various stages of investigation and
remediation relative to environmental protection matters. The potential costs
related to environmental matters and the possible impact on future operations
are difficult to predict given the uncertainties regarding the extent of the
required cleanup, the complexity and interpretation of applicable laws and
regulations, the varying costs of alternative cleanup methods and the extent of
the Company's responsibility. Accruals for environmental liabilities are
recorded, based on current interpretations of environmental laws and
regulations, when it is probable that a liability has been incurred and the
amount of such liability can be reasonably estimated. Estimates are established
based upon management's knowledge to date and its experience with the foregoing
environmental matters, and include potential costs for investigation,
remediation, operation and maintenance of cleanup sites and related capital
expenditures. Accrued and other liabilities for environmental matters were
$37.6 million and $35.6 million at December 31, 1996 and 1995, respectively.
Although these amounts do not include third-party recoveries, certain sites may
be subject to indemnification. Although the ultimate liability with respect to
these matters cannot be determined with certainty, in view of the Company's
financial condition and the environmental accruals established, and based on
information currently available, management does not believe that the ultimate
liability related to these environmental matters will have a material adverse
effect on the Company's financial statements.
Management is in the process of evaluating the potential effect on its
computer systems resulting from the so-called year 2000 problem. Under the
Company's ongoing program to enhance systems capabilities, management is
implementing a plan to resolve the potential issues associated with the year
2000 problem. The costs of the modifications and enhancements, which are not
known, will be expensed as incurred.
At December 31, 1996, the Company had letters of credit outstanding
totaling $26.0 million, which primarily represent guarantees with respect to
various insurance activities as well as performance letters of credit issued in
the normal course of business. Approximately $9.2 million of the insurance
related letters of credit relate to the Company's inactive insurance subsidiary
and are collateralized by the marketable securities of such subsidiary.
NOTE 15--Retirement Benefits
Defined Benefit Pension Plans
The Company has defined benefit pension plans available to substantially
all employees that generally provide for mandatory employee contributions as a
condition of participation. A participating employee's annual postretirement
pension benefit is determined by the employee's credited service and average
annual earnings during the employee's service with the Company, or predecessors
of the Company. The Company's funding policy is to contribute annually the
statutorily required minimum amount as actuarially determined.
The net periodic pension cost (income) of these plans included the
following components for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service Cost ....................................... $ 6.2 $ 2.8 $ 3.3
Interest cost on projected benefit obligation ...... 11.5 9.6 9.4
Actual (return) loss on assets ..................... (16.8) (29.3) 0.9
Net amortization and deferral ..................... 1.8 16.3 (12.5)
------- ------- -------
Net periodic pension cost (income) .................. $ 2.7 $ (0.6) $ 1.1
======= ======= =======
</TABLE>
During 1996, certain of the Company's defined benefit plans with deficits
(plan assets less than the projected benefit obligation) totaling $6.4 million
as of December 31, 1995 were merged into a plan with a surplus (plan assets in
excess of the projected benefit obligation) of $23.9 million as of December 31,
1995. The funded status at December 31, 1996 and 1995 for all defined benefit
plans was as follows (in millions):
F-20
<PAGE>
<TABLE>
<CAPTION>
1996 Plans with 1995 Plans with
------------------------ -------------------------
Surplus Deficit Surplus Deficit
------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of vested
benefit obligation .................. $ (127.6) $ (3.9) $ (88.7) $ (35.7)
========= ====== ======== ========
Accumulated benefit obligation ...... ( 137.7) ( 4.4) ( 96.8) ( 41.1)
========= ====== ======== ========
Projected benefit obligation ......... ( 157.1) ( 7.8) (106.1) ( 69.1)
Plan assets at fair value ............ 179.6 1.1 131.2 56.6
--------- ------ -------- --------
Plan assets in excess of (less than)
projected benefit obligation ...... $ 22.5 $ (6.7) $ 25.1 $ (12.5)
========= ====== ======== ========
</TABLE>
Certain changes in the items shown above are not recognized as they occur,
but are amortized systematically over subsequent periods. Unrecognized amounts
still to be amortized and the amounts included in the balance sheet of the
Company at December 31, 1996 and 1995 appear below (in millions):
<TABLE>
<CAPTION>
1996 Plans with 1995 Plans with
--------------------- -----------------------
Surplus Deficit Surplus Deficit
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Plan assets in excess of (less than)
projected benefit obligation ......... $ 22.5 $ (6.7) $ 25.1 $ (12.5)
Unrecognized transition asset ......... ( 4.9) ( 0.2) ( 6.0) ( 0.2)
Unrecognized prior service cost ...... 0.4 0.6 0.4 0.6
Unrecognized net (gain) loss ......... (13.2) 2.9 (10.5) 2.4
------ ------ ------ --------
Prepaid (accrued) pension cost ...... $ 4.8 $ (3.4) $ 9.0 $ (9.7)
====== ====== ====== ========
</TABLE>
The development of the net periodic pension cost and the projected benefit
obligation was based upon the following assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Discount rate .......................................... 7.5% 7.5% 9.0%
Average rate of increase in employee compensation ...... 4.5% 4.5% 4.5%
Expected long-term rate of return on assets ............ 9.0% 9.0% 9.0%
</TABLE>
The date used to measure plan assets and liabilities was October 31 in
each year. Plan assets are invested primarily in stocks, bonds, short-term
securities and cash equivalents.
Defined Contribution Plan
The Company maintains a defined contribution savings and profit sharing
plan (the "Plan"). The Plan allows eligible employees to participate after six
months of service. Participants may elect to contribute between 1% and 15% of
their annual compensation as defined in the Plan. The Company is obligated to
contribute an amount equal to 25% of each employee's contributed basic eligible
compensation, as defined, and may, at the discretion of the Company's Board of
Directors, contribute additional amounts. For the years ended December 31,
1996, 1995 and 1994 the Company's contributions to the Plan were $5.0 million,
$3.0 million and $2.0 million, respectively.
Postretirement Benefits Other Than Pensions
The Company, generally at its own discretion, provides to employees who
elect to and are eligible to participate in a postretirement health care
program that is administered by the Company. Fisher funds a portion of the
costs of this program on a self-insured and insured-premium basis and, for the
years ended December 31, 1996, 1995 and 1994, made premium payments totaling
$1.4 million, $1.1 million and $0.8 million, respectively. The funded status of
the Company's postretirement programs was as follows:
F-21
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation (in millions):
Retirees ............................................................ $ 14.5 $ 12.7
Fully eligible active plan participants ........................... 7.7 13.1
Other active plan participants .................................... 9.6 12.5
------ ------
31.8 38.3
Plan assets at fair value .......................................... 0.2 0.2
------ ------
Accumulated postretirement benefit obligation in excess of plan assets 31.6 38.1
Prior service benefit ................................................ 18.1 20.1
Unrecognized net gain from past experience different from that
assumed and from assumption changes ................................. 28.4 26.1
------ ------
Accrued postretirement benefit costs other than pensions ............ $ 78.1 $ 84.3
====== ======
</TABLE>
Net periodic postretirement benefit costs (income) other than pensions
include the following components for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost/benefit attributed to service during the period $ 0.7 $ 0.9 $ 0.7
Interest cost on accumulated postretirement benefit
obligation ................................................ 2.2 1.9 1.8
Net amortization and deferral .............................. ( 4.1) ( 4.0) ( 3.7)
------ ------ ------
Net periodic postretirement benefit costs (income) other
than pensions ............................................. $ (1.2) $ (1.2) $ (1.2)
====== ====== ======
</TABLE>
In 1993, the Company amended certain of its existing postretirement health
care programs creating an unrecognized prior service benefit. The unrecognized
prior service benefit is being amortized over approximately 13 years, providing
a $2 million credit to postretirement costs in 1996, 1995 and 1994.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for December 31, 1996 and 1995, and
9.0% for December 31, 1994. A 9.5% annual rate of increase in per capita cost
of covered health care benefits was assumed for 1996 which decreases to 7.2%
for 2000 and thereafter. Because of limitations on the Company's contributions
under the amended health care program, changes in the health care trend rate
assumption do not have a significant effect on the amounts reported. To
illustrate, a change in the assumed health care cost trend rate by 1 percentage
point effective January 1996 would change the accumulated postretirement
benefit obligation as of December 31, 1996 by approximately $1.9 million and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1996 by
approximately $0.2 million.
NOTE 16--Stock and Other Plans
Stock Plan
Fisher has two stock option plans, the 1991 Stock Plan, as amended, (the
"1991 Plan") and the 1995 Operating Unit Stock Plan ("OUSP"). Fisher may grant
options for up to 3,414,400 shares of stock under the 1991 Plan and 1,500,000
shares of stock under the OUSP to officers, employees and other individuals who
provide services to Fisher. Under these two plans, the Company has granted
options on 3,046,000 shares and 1,171,000 shares, respectively, through
December 31, 1996. Outstanding options under these stock plans have been
granted at 100% of market value on the date of grant. The 1991 Plan and OUSP
options have a ten-year term, vest after three years and expire 90 days after
the last day of an employee's employment; 12 months if the employee retires. In
1995, the Compensation Committee granted stock options to executives as part of
a new program, the Equity Ownership Program ("EOP"), designed to encourage
Fisher executives to make significant, long-term personal investments in Fisher
Common Stock. Under the EOP, certain senior corporate executives made
commitments in 1995 to purchase approximately 200,000 shares of Fisher Common
Stock during 1996, and were granted options on a matching basis in 1995; that
is, a specified number of options were awarded for each share the executive
committed to purchase during the period. This purchase commitment was fulfilled
in 1996. The EOP options were granted at the market price of the Common Stock
on the date of the purchase commitments, and will vest over a three-year
F-22
<PAGE>
period. Shares purchased by the executives in satisfaction of the purchase
commitment must be held for the applicable vesting period covering the related
option. The EOP requires full financing by the executive without company loans
or guarantees. In addition, other participants were offered the opportunity to
receive options under the EOP upon their purchase of shares of Fisher Common
Stock. In light of the considerable changes to the Company's business and
organization during 1995, the equity-based components of the Incentive
Compensation Plan was terminated; options held by substantially all
participants in respect of the performance period covering 1996 have been
surrendered, and the Compensation Committee will not establish any objectives
under the Incentive Compensation Plan in the future. Certain 1995 grants under
the EOP and OUSP were conditional upon the cancellation of certain existing
non-vested options held by the executive or employee. For purposes of the
following tables all such cancellations are presumed to have occurred at
December 31, 1995.
A summary of the status of the Company's two stock option plans at
December 31, 1996, 1995 and 1994 and changes during the years then ended is
presented in the table and narrative below:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
-------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ...... 3,552 $ 28.93 2,473 $ 24.72 2,440 $ 24.46
Granted (1) ........................... 694 37.48 2,243 32.66 205 32.43
Exercised .............................. (405) 19.28 (218) 15.29 (11) 19.58
Canceled/Expired/Forfeited(2) ......... (211) 32.44 (946) 29.92 (161) 30.92
----- ----- -----
Outstanding at end of year ............ 3,630 $ 31.44 3,552 $ 28.93 2,473 $ 24.72
===== ===== =====
Exercisable at end of year ............ 1,237 $ 26.94 938 $ 18.82 976
Weighted average fair value of options
granted .............................. $ 9.87 $ 10.73
</TABLE>
- - - ------------
(1) 1995 includes 1,084,000 shares granted under the EOP in consideration of
participants' commitments to purchase shares of Fisher Common Stock.
(2) 1995 includes options issued under the Incentive Compensation Plan in
respect to the performance plan covering 1996 that were surrendered in
connection with the termination of such plan.
419,000 of the 3,630,300 options outstanding at December 31, 1996 have
exercise prices between $14.50 and $24.94, with a weighted average exercise
price of $15.40 and a weighted average remaining contractual life of 5 years.
410,000 of these options are exercisable; their weighted average exercise price
is $15.25. The remaining 3,211,000 options have exercise prices between $27.84
and $44.88, with a weighted average exercise price of $33.53 and a weighted
average remaining contractual life of 9 years. 827,000 of these options are
exercisable; their weighted average exercise price is $32.75.
Restricted Unit Plan
Pursuant to the restricted unit plan of Fisher, each non-employee director
of the Company received a one- time grant of 5,000 units upon becoming a
director of the Company. The units represent the right to receive an equivalent
number of shares of Common Stock upon separation from service as a member of
the Board of Directors, subject to certain restrictions. The units are subject
to certain transfer restrictions for a specified period during which the
director has the right to receive dividends. The units vest 25% for each year
of service. Unvested units are generally forfeited if the director ceases to be
a non-employee director prior to the end of the restricted period. During 1996
and 1991, 5,000 and 20,000 units, respectively, were granted under the
restricted unit plan.
Pro Forma Disclosures
Had compensation cost for options granted subsequent to January 1, 1995
been based upon fair value determined under SFAS No. 123, the Company's 1996
net income would have been reduced to $31.7 million with primary earnings per
share of $1.71 and fully diluted earnings per share of $1.64. 1995 net income
would have been reduced to $3.0 million with primary and fully diluted earnings
per share of $0.18. The fair value of each option grant is estimated on the
date of grant using a binomial option pricing model with the following weighted
F-23
<PAGE>
average assumptions used for grants in 1996 and 1995: risk-free interest rates
of approximately 6.5% and 5.5% for the 1991 Plan options and 6.0% and 6.0% for
the OUSP options; an annual dividend yield of $0.08 per share; expected lives
of 7 years for the 1991 Plan options and 3 years for the OUSP options and
expected volatility of 25%. Because the SFAS 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
NOTE 17--Tax Sharing Agreement
Fisher and its former parent are parties to a Tax Sharing Agreement that
provides for (i) the payment of taxes for periods during which Fisher and its
former parent were included in the same consolidated, combined or unitary group
for federal, state or local income tax purposes, (ii) the allocation of the
responsibility for the filing of tax returns, (iii) the cooperation of the
parties in realizing certain tax benefits, (iv) the conduct of tax audits and
(v) various related matters. The Company paid approximately $1.4 million and
$0.3 million pursuant to this agreement in 1995 and 1994, respectively.
NOTE 18--Restructuring Charges
In the third quarter of 1995, the Board of Directors approved the
Company's restructuring plan aimed at improving the efficiency and reducing the
costs of its global logistics, customer service and administrative functions
(the "1995 Plan"). As a result, the Company recorded a restructuring charge of
$34.3 million. The 1995 Plan, which anticipated the integration of the former
Fisons businesses with the Company, included the elimination and in some cases
relocation of certain administrative functions, reorganization of the research
sales force and the consolidation and relocation of certain logistics and
customer service systems and locations throughout the world. Implementation of
the 1995 Plan is expected to be complete during 1997. The restructuring charge
consisted of $18.2 million related to noncash asset impairments, $12.0 million
of employee separation arrangements and $4.1 million of exit costs.
Asset impairments were recorded primarily for certain owned facilities
which were closed and sold in 1996. The net book values of these facilities
have been adjusted to their estimated fair market values less costs to sell.
The charge for employee separations was to accrue for the termination and other
severance costs for approximately 300 salaried and hourly employees who have
been or will be severed as a result of the 1995 Plan. Approximately 235
employees had been terminated as of December 31, 1996. The exit costs were
recorded primarily to accrue for future rent, net of estimated sublease
rentals, and other costs related to leased facilities that as a result of the
1995 Plan will be closed prior to the contractual termination date of the
leases.
The following table summarizes the recorded accruals and impairments
related to the 1995 Plan (in millions):
<TABLE>
<CAPTION>
Employee
Separations
Asset and Other Exit
Impairment Costs Total
------------ --------------- ----------
<S> <C> <C> <C>
Restructuring charge .................. $ 18.2 $ 16.1 $ 34.3
Cash payments ........................ -- ( 1.8) ( 1.8)
Noncash items ........................ (18.2) ( 0.3) (18.5)
------- ------- -------
Balance as of December 31, 1995 ...... -- 14.0 14.0
Adjustments ........................... 0.8 ( 0.8) --
Cash payments ........................ -- ( 6.5) ( 6.5)
Noncash items ........................ ( 0.8) -- ( 0.8)
------- ------- -------
Balance as of December 31, 1996 ...... $ -- $ 6.7 $ 6.7
======= ======= =======
</TABLE>
The 1995 Plan also includes opening new logistics facilities and
relocating certain customer service and administrative functions. In accordance
with Financial Accounting Standards Board Emerging Issues Task Force Issue
94-3, "Liability Recognition for Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)", certain costs resulting from the
relocation of inventories, relocation of employees, hiring and training new
employees, other start-up costs, and costs resulting from the temporary
duplication of certain operations have not been included in the restructuring
charge and are recognized in selling, general and administrative expense as
incurred.
F-24
<PAGE>
During the third quarter of 1991, Fisher recorded a $20.0 million
restructuring charge relating to programs designed to improve the operation of
its North American distribution system. This is being accomplished through the
selective consolidation, relocation and expansion of facilities. The 1991
restructuring reserve balance was $3.6 million and $5.6 million at December 31,
1996 and 1995, respectively. In 1996, cash transactions of $2.0 million
affected the reserve. In 1995 cash and noncash transactions of $4.0 million and
$1.0 million, respectively, affected the reserve. On the basis of current
projections, Fisher expects the majority of this program to be completed in
1997.
The Company's restructuring liabilities are evaluated quarterly, taking
into consideration restructuring activity to date and the status of the
restructuring plans.
NOTE 19--Geographical Financial Information
The Company's operations are conducted in one business segment. Selected
geographical financial information for the years ended December 31, 1996, 1995
and 1994 is below (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Geographic Information:
Net Sales:
Domestic .................. $ 1,777.0 $ 1,153.4 $ 942.3
Europe .................. 265.1 179.5 98.4
Other International ...... 102.3 102.9 86.0
---------- ---------- ----------
$ 2,144.4 $ 1,435.8 $ 1,126.7
========== ========== ==========
Income from Operations:
Domestic .................. $ 100.2 $ 34.0 $ 64.0
Europe .................. (6.2) (13.6) (1.8)
Other International ...... 0.6 (2.2) 1.7
---------- ---------- ----------
$ 94.6 $ 18.2 $ 63.9
========== ========== ==========
Identifiable Assets:
Domestic .................. $ 851.8 $ 850.4 $ 467.5
Europe .................. 277.4 275.1 102.1
Other International ...... 65.6 51.2 45.8
Corporate and Other ...... 67.9 93.8 107.1
---------- ---------- ----------
$ 1,262.7 $ 1,270.5 $ 722.5
========== ========== ==========
</TABLE>
Operating income is revenue less related costs and direct and allocated
expenses. Identifiable corporate and other assets consist principally of cash,
marketable securities, and the assets of the Company's inactive insurance
subsidiary. Intercompany sales and transfers between segments were not material
for the years ended December 31, 1996, 1995 or 1994.
NOTE 20--Unaudited Quarterly Financial Information
The following is a summary of quarterly financial information for 1996 and
1995 (in millions, except per share amounts):
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sales .................. $ 516.0 $ 532.2 $ 541.0 $ 555.2 $ 2,144.4
Gross Profit ............ 135.6 142.9 146.4 153.6 578.5
Net income ............... 4.5 8.4 11.5 12.4 36.8
Earnings per common share:
Primary ............... $ .27 $ .49 $ .56 $ .60 $ 1.96
Fully diluted ......... .27 .46 .56 .60 1.87
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sales .................. $ 303.1 $ 314.9 $333.7 $ 484.1 $ 1,435.8
Gross Profit ............ 83.9 91.4 90.1 121.5 386.9
Net income (a) ......... 6.8 10.2 (15.8) 2.0 3.2
Earnings per common share:
Primary ............... $ .42 $ .62 $ (.96) $ .12 $ .19
Fully diluted ......... .40 .56 (.96) .12 .19
</TABLE>
- - - ------------
NOTE: Amounts may not add due to rounding.
(a) During the third quarter of 1995, Fisher recorded a $34.3 million ($20.3
million, net of tax) restructuring charge. The charge is primarily related
to the elimination and in some cases relocation of certain administrative
locations and functions, a sales force reorganization, and the global
consolidation of certain domestic, Canadian and international logistics
and customer service facilities and systems.
F-26
<PAGE>
SCHEDULE I
CERTAIN INFORMATION REGARDING
FSI MERGER CORP.
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years,
the name, principal business and address of any corporation or other
organization in which such occupation or employment is or was conducted and
current directorships of the executive officers, directors and stockholders of
FSI Merger Corp., all of whom are citizens of the United States. Except as
otherwise noted, the address of each such corporation or organization listed
and the business addresses of such persons is the address of Thomas H. Lee
Company, 75 State Street, Boston, Massachusetts 02109. Each person has had the
principal occupation or employment listed for more than the past five years
except as otherwise noted.
<TABLE>
<CAPTION>
NAME AND PRESENT PRINCIPAL OCCUPATION OR
BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- - - ---------------------------- ----- -----------------------------------------------------------------------
<S> <C> <C>
Scott M. Sperling ...... 39 Chairman of the Board of Directors of FSI Merger Corp.
Managing Director of THL Company since July 1994, Vice
President and Trustee of THL Equity Trust III, the General Partner
of Equity Advisors III Limited Partnership, which is the General
Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Sperling also
serves as a director of Safelite Glass Corp., Beacon Properties,
Inc., The Learning Company, Livent, Inc., The General Chemical
Group Inc., Object Design Inc. and several private corporations.
Anthony J. DiNovi ...... 35 President and Director of FSI Merger Corp. Managing Director
of THL Company, Vice President and Trustee of THL Equity Trust
III, the General Partner of Equity Advisors III Limited Partnership,
which is the General Partner of Thomas H. Lee Equity Fund III,
L.P. and Vice President of Thomas H. Lee Advisors I and T.H.
Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P.,
ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition II
(Retirement Accounts), L.P., respectively. Mr. DiNovi also serves
as a director of Safelite Glass Corp., First Alert, Inc., the Learning
Company and several other private corporations.
Kent R. Weldon ......... 30 Secretary and Director of FSI Merger Corp. Vice President of THL
Equity Trust III, the General Partner of THL Equity Advisers III
Limited Partnership, which is the General Partner of Thomas H.
Lee Equity Fund III, L.P. Mr. Weldon also serves as a director of
Syratech Corporation. Worked at THL from 1991 to 1993 and
rejoined in 1995. From 1989 to 1991, Mr. Weldon worked in the
Mergers & Acquisitions Department of Morgan Stanley & Co.
Incorporated. From 1993 to 1995, Mr. Weldon attended the
Harvard Graduate School of Business Administration.
</TABLE>
S-1
<PAGE>
Annex I
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of November 14, 1997, by and between FSI Merger Corp., a
Delaware corporation ("FSI"), and Fisher Scientific International Inc., a
Delaware corporation (the "Company").
WHEREAS, FSI and the Company have entered into that certain Agreement and
Plan of Merger, dated as of August 7, 1997, as amended and restated as of
September 11, 1997 (the "Original Agreement");
WHEREAS, FSI and the Company desire to amend and restate the Original
Agreement in its entirety as set forth below;
WHEREAS, the Merger (as hereinafter defined) and this Agreement require
the vote of a majority of the issued and outstanding shares of the Common
Shares (as hereinafter defined) for the approval thereof (the "Company
Stockholder Approval");
WHEREAS, the respective Boards of Directors of FSI and the Company have
approved the merger of FSI with and into the Company, as set forth below (the
"Merger"), in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") and upon the terms and subject to the conditions set
forth in this Agreement, holders of shares of common stock, par value $.01 per
share (the "Common Shares") (including the associated preferred shares purchase
rights (the "Rights") issued pursuant to the Rights Agreement, dated as of June
9, 1997, between the Company and ChaseMellon Shareholder Services, LLC, as
Rights Agent (the "Rights Agreement"), which Rights, together with the Common
Shares, are hereinafter referred to as the "Shares") issued and outstanding
immediately prior to the Effective Time (as defined below) will be entitled,
subject to the terms hereof and other than as set forth herein, the right
either (A) to retain a portion of their Common Shares or (B) to receive cash in
this Agreement;
WHEREAS, the Board of Directors of the Company (the "Company Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the consideration to be paid for each Share in the Merger
(as hereinafter defined) is fair to the stockholders of the Company, and (B)
the Merger is otherwise in the best interests of the Company and its
stockholders, and (ii) resolved to approve and adopt this Agreement and the
transactions contemplated hereby and to recommend approval and adoption by the
stockholders of the Company of this Agreement;
WHEREAS, FSI and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger, and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, FSI and
the Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, at the Effective Time FSI shall be
merged with and into the Company. Following the Merger, the separate corporate
existence of FSI shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
SECTION 1.02 Effective Time. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article VI, the Company shall execute,
in the manner required by the DGCL, and deliver to the Secretary of State of
the State of Delaware a duly executed and verified certificate of merger, and
the parties shall take such other and further actions as may be required by law
to make the Merger effective. The time the Merger becomes effective in
accordance with applicable law is referred to herein as the "Effective Time."
1
<PAGE>
SECTION 1.03 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and FSI shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and FSI shall
become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04 Certificate of Incorporation and By-Laws of the Surviving
Corporation.
(a) The Restated Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the provisions thereof and hereof and applicable law.
(b) The By-Laws of the Company in effect at the Effective Time shall be
the By-Laws of the Surviving Corporation until amended, subject to the
provisions of Section 5.06 of this Agreement, in accordance with the provisions
thereof and applicable law.
SECTION 1.05 Directors. Subject to applicable law, the directors of FSI
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
SECTION 1.06 Officers. The officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.01 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any Common Shares or
any shares of capital stock of FSI:
(a) Common Stock of FSI. All of the shares of Common Stock of FSI issued
and outstanding immediately prior to the Effective Time shall be converted into
a number of Common Shares following the Merger equal to 6,507,772 Common Shares
less the Election Eligible Shares (as defined in Section 2.01(c)).
(b) Cancellation of Treasury Stock. Each Common Share that is owned by the
Company or by any wholly owned subsidiary of the Company shall automatically be
canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Retention of Common Shares. Except as otherwise provided herein and
subject to Sections 2.02 and 2.03, each Common Share issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
treated as follows:
(i) for each Standard Common Share (as defined in 2.02(a)) with respect
to which an election to retain such Common Share has been effectively made
and not revoked in accordance with Section 2.02 (the "Potential Election
Standard Shares") and which is to be retained in accordance with Section
2.03(b)(ii) or Section 2.03(c), the right to retain such fully paid and
nonassessable Common Share (an "Election Standard Share");
(ii) for each Standard Common Share which was not a Potential Election
Standard Share, but which is to be retained in accordance with Section
2.03(c)(ii), the right to retain such fully paid and non-assessable Common
Share (a "Non-Election Standard Share");
(iii) for each Eligible Common Share (as defined in Section 2.02(a))
which is to be retained in accordance with Section 2.03(d)(i) or
2.03(d)(ii)(B), the right to retain such fully paid and nonassessable
Common Share ("Election Eligible Shares" and, together with the Election
Standard Shares and the Non-Election Standard Shares, the "Retained
Shares");
2
<PAGE>
(iv) for each Common Share (other than Dissenting Shares (as defined in
Section 2.01(d)) and Retained Shares) the right to receive in cash from
the Company following the Merger an amount equal to $48.25 (the "Cash
Price" and, with the Retained Shares, the "Merger Consideration") and each
such Common Share shall no longer be outstanding, shall automatically be
canceled and retired and shall cease to exist, and each holder of a
Certificate representing any such Common Shares shall, to the extent such
Certificate represents such shares, cease to have any rights with respect
thereto, except the right to receive the Cash Price applicable thereto,
upon surrender of such Certificate in accordance with Section 2.05.
(d) Dissenting Shares. Notwithstanding Section 2.01(c), Common Shares
outstanding immediately prior to the Effective Time and held by a holder who
has not voted in favor of the Merger or consented thereto in writing and who
has demanded appraisal for such Common Shares in accordance with the DGCL prior
to the Effective Time ("Dissenting Shares") shall not be converted into a right
to receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses such holder's right to appraisal. If after the
Effective Time such holder fails to perfect or withdraws or loses such holder's
right to appraisal, such Common Shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration. The Company shall give FSI prompt notice of any demands received
by the Company for appraisal of Common Shares, and FSI shall have the right to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of FSI, make any
payment with respect to, or settle or offer to settle, any such demands.
SECTION 2.02 Common Share Elections. (a) Each person who, on or prior to
the Election Date (as defined in Section 2.02(b) below), is a record holder of
Standard Common Shares will be entitled to make an unconditional election on or
prior to such Election Date to express a desire to retain such shares, on the
basis hereinafter set forth and subject to Section 2.03 hereof. In addition,
each person who, on or prior to the Election Date, is a record holder of
Eligible Common Shares will be entitled to make an unconditional election on or
prior to such Election Date to express a desire to retain such shares, on the
basis hereinafter set forth and subject to Section 2.03 hereof.
(i) "Standard Common Shares" are Common Shares other than "Eligible
Option Shares".
(ii) "Eligible Option Shares" are Common Shares which are issued to
employees listed on a schedule to be agreed upon by FSI and the Company
(an "Eligible Employee") upon exercise of Options (as defined in Section
2.04) following the execution of this Agreement and which continue to be
held by such Eligible Employees on the Election Date.
(iii) "Eligible Common Shares" are Eligible Option Shares and Common
Shares which were held by Eligible Employees upon the execution of this
Agreement and which continue to be held by such Eligible Employees on the
Election Date.
(b) Subject to any required clearance by the Securities and Exchange
Commission (the "SEC"), the Company shall prepare and mail a form of election
(the "Form of Election"), which form shall be subject to the reasonable
approval of FSI, with the Proxy Statement to the record holders of Common
Shares as of the record date for the Special Meeting (as hereinafter defined),
which Form of Election shall be used by each record holder of Common Shares who
elects to express a desire to retain Standard Common Shares or Eligible Common
Shares held by such holder. To the extent an Eligible Employee holds a Common
Share which is both a Standard Common Share and an Eligible Common Share, such
Eligible Employee may elect to retain such Common Share first as a Standard
Common Share and, to the extent not so retained, second as an Eligible Common
Share. The Company will use its best efforts to make the Form of Election
available to all persons who become holders of Common Shares during the period
between such record date and the Election Date, with a copy of the Proxy
Statement. Any such holder's election shall have been properly made only if the
Exchange Agent shall have received at its designated office, by 5:00 p.m., New
York City time on the second business day prior to the date of the Special
Meeting (the "Election Date"), a Form of Election properly completed and signed
and accompanied by Certificates for the Common Shares to which such Form of
Election relates, duly endorsed in blank or otherwise in a form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of
delivery of such certificates as set forth in such Form of Election from a firm
which is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within three NYSE
trading days after the date of execution of such guarantee of delivery).
3
<PAGE>
(c) Any Form of Election may be revoked by the holder submitting it to the
Exchange Agent only by written notice received by the Exchange Agent (i) prior
to 5:00 p.m., New York City time on the Election Date or (ii) after the
Election Date, if (and to the extent that) the Exchange Agent is legally
required to permit revocations and the Effective Time shall not have occurred
prior to such date. In addition, all Forms of Election shall automatically be
revoked if the Exchange Agent is notified in writing by FSI and the Company
that the Merger has been abandoned. If a Form of Election is revoked, the
Certificate or Certificates (or guarantees of delivery, as appropriate) for the
Common Shares to which such Form of Election relates shall be promptly returned
to the stockholder submitting the same to the Exchange Agent.
(d) The determination of the Exchange Agent shall be binding with respect
to whether or not elections have been properly made or revoked pursuant to this
Section 2.02 and when elections and revocations were received by it. If the
Exchange Agent determines that any election to retain Common Shares was not
properly made, such shares shall be treated by the Exchange Agent as shares for
which no election was received, and such shares shall be retained or converted
in accordance with Sections 2.01 and 2.03. The Exchange Agent shall also make
all computations as to the allocation and the proration contemplated by Section
2.03, and any such computation shall be conclusive and binding on the holders
of Common Shares. The Exchange Agent may, with the mutual agreement of FSI and
the Company, make such rules as are consistent with this Section 2.02 for the
implementation of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.
SECTION 2.03 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
"Standard Retained Share Number" shall equal 746,114 Common Shares.
(b) If the number of Potential Election Standard Shares is greater than
the Standard Retained Share Number, then each Potential Election Standard Share
shall be retained as an Election Standard Share in accordance with the terms of
Section 2.01(c)(i) or receive cash in accordance with the terms of Section
2.01(c)(iv) in the following manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Standard Retained Share Number by the total
number of Potential Election Standard Shares.
(ii) The number of Potential Election Standard Shares covered by each
election to be retained as Election Standard Shares shall be determined by
multiplying the Non-Cash Proration Factor by the total number of Potential
Election Standard Shares covered by such election, rounded down to the
nearest whole number.
(iii) All Potential Election Standard Shares, other than those shares
which are retained in accordance with Section 2.03(b)(ii), shall be
converted into cash in accordance with the terms of Section 2.01(c)(iv).
(c) If the number of Potential Election Standard Shares is less than or
equal to the Standard Retained Share Number, then each Potential Election
Standard Share shall be retained as an Election Standard Share in accordance
with the terms of Section 2.01(c)(i) and each Standard Common Share other than
a Potential Election Standard Share or a Dissenting Share (a "Potential Cash
Share") shall be retained as a Non-Election Standard Share in accordance with
Section 2.01(c)(ii) or converted into cash in accordance with the terms of
Section 2.01(c)(iv) in the following manner:
(i) A proration factor (the "Cash Proration Factor") shall be determined
by dividing (x) the difference between the Standard Retained Share Number
and the number of Potential Election Standard Shares, by (y) the number of
Potential Cash Shares.
(ii) The number of Potential Cash Shares held by each stockholder to be
retained as Non-Election Standard Shares in accordance with Section
2.01(c)(ii) shall be determined by multiplying the Cash Proration Factor
by the total number of Potential Cash Shares held by such stockholder,
rounded down to the nearest whole number.
(iii) All Potential Cash Shares, other than those shares retained as
Non-Election Standard Shares, shall be converted to cash in accordance
with Section 2.01(c)(iv).
(d) Eligible Common Shares shall be treated as follows:
4
<PAGE>
(i) To the extent the number of Eligible Common Shares with respect to
which an election to retain Common Shares has been effectively made and
not revoked in accordance with Section 2.02 (the "Potential Election
Eligible Shares") is less than or equal to 310,881 Common Shares (the
"Eligible Retained Share Number"), such Potential Election Eligible Shares
shall be retained in accordance with Section 2.01(c)(iii).
(ii) To the extent the number of Potential Election Eligible Shares is
greater than the Eligible Retained Share Number, the following shall
apply:
(A) A proration factor (the "Eligible Proration Factor") shall be
determined by dividing the Eligible Retained Share Number by the
number of Potential Election Eligible Shares.
(B) The number of Potential Election Eligible Shares to be
retained by a holder in accordance with Section 2.01(c)(iii) shall
be determined by multiplying the Eligible Proration Factor by the
total number of Potential Election Eligible Shares held by such
holder, rounded down to the nearest whole number.
(C) All Potential Election Eligible Shares, other than those
shares retained pursuant to Section 2.03(d)(ii)(B), shall be
converted into cash in accordance with Section 2.01(c)(iv).
SECTION 2.04 Options; Stock Plans.
(a) Subject to Section 2.04(c) below, immediately prior to the Effective
Time, each holder of a then-outstanding employee stock option, whether or not
fully exercisable, to purchase Common Shares (an "Option") granted under any
stock option or similar plan of the Company (together with the Restricted Unit
Plan and the Equity Option Program) (as such terms are hereinafter defined, the
"Stock Plans") will be entitled to receive in settlement of such Option a cash
payment from the Company equal to the product of (i) the total number of Common
Shares previously subject to such Option and (ii) the excess of the Cash Price
over the exercise price per Common Share subject to such Option, subject to any
required withholding of taxes. If necessary or appropriate, the Company will,
upon the request of FSI, use reasonable efforts to obtain the written
acknowledgment of each employee holding an Option that the payment of the
amount of cash referred to above will satisfy in full the Company's obligation
to such employee pursuant to such Option and take such other action as is
necessary to effect the provisions of this Section 2.04.
(b) FSI agrees that each holder of Restricted Units (as such term is
defined in the Restricted Unit Plan for Non-Employee Directors of Fisher
Scientific International Inc. (the "Restricted Unit Plan"), shall be entitled
to receive at the Effective Time, and shall pay or cause to be paid to each
such holder promptly following the Effective Time, (i) an amount in cash equal
to the product of (x) the total number of Restricted Units in such holder's
Restricted Unit account (regardless of whether such Restricted Units have
vested in accordance with the Restricted Unit Plan) and (y) the Cash Price, and
(ii) an amount in cash equal to the Cash Dividend Equivalents (as such term is
defined in the Restricted Unit Plan) (and amounts equivalent to interest
thereon) in such holder's Restricted Unit account. If necessary or appropriate,
the Company will, upon the request of FSI, use reasonable efforts to obtain the
written acknowledgment of each director holding Restricted Units that the
payment of the amounts referred to above will satisfy in full the Company's
obligation to such director pursuant to the Restricted Unit Plan and take such
other action as is necessary to effect the provisions of this Section 2.04.
(c) Notwithstanding anything to the contrary set forth in Section 2.04(a)
above, certain employees of the Company shall receive, with respect to the
Options listed on Schedule 2.04(c) hereto (each, an "Electing Option"), in
exchange for the cancellation of such Electing Option, (A) the right (the
"Deferred Share Right") to receive (in accordance with the provisions of
Section 2.04(d) below) the number of Common Shares determined by dividing (X)
the product of (1) the number of Common Shares subject to such Option and (2)
the excess, if any, of the Cash Price over the per share exercise price of such
Option, by (Y) the Cash Price (each a "Converted Option Common Share"), and (B)
a single lump sum cash payment in lieu of any fractional shares that would have
been issued. FSI and the Company shall agree upon the employees to receive
Deferred Share Rights and the number of Converted Option Common Shares to be
distributed to such employees upon their exercise of such Deferred ShareRights.
Notwithstanding anything herein to the contrary, the Deferred Share Rights may
not entitle the holders to receive more than 909,392 Converted Option Common
Shares pursuant to this Section 2.04(c).
(d) Each holder of a Deferred Share Right shall have the right to receive
the number of Converted Option Common Shares set forth on Section 2.04(c) upon
his or her termination of employment for any reason. Until the
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distribution of Converted Option Common Shares following such termination of
employment, the holders of Deferred Share Rights will have no rights as
stockholders of the Surviving Corporation. Converted Option Common Shares so
distributed in satisfaction of the Deferred Share Rights shall be subject to,
and the distribution of such Converted Option Common Shares to the holders of
Deferred Share Rights shall be conditional on, the execution by the holder of
the Deferred Share Rights of a stockholders' agreement with investors in the
Surviving Corporation acceptable to the Company and FSI. The number of
Converted Option Common Shares (not in excess of 909,392) sufficient to satisfy
the Surviving Corporation's obligations with respect to all outstanding
Deferred Share Rights shall be deposited, as soon as practicable following the
Merger, in a grantor trust in such form as shall be agreed by FSI and the
Company.
SECTION 2.05 Payment for Common Shares.
(a) From and after the Effective Time, such bank or trust company as shall
be mutually acceptable to FSI and the Company shall act as exchange agent (the
"Exchange Agent"). At or prior to the Effective Time, FSI shall deposit, or FSI
shall otherwise take all steps necessary to cause to be deposited, with the
Exchange Agent in an account (the "Exchange Fund") the aggregate Merger
Consideration to which holders of Common Shares shall be entitled at the
Effective Time pursuant to Section 2.01(c).
(b) Promptly after the Effective Time, FSI shall cause the Exchange Agent
to mail to each record holder of certificates (the "Certificates") that
immediately prior to the Effective Time represented Common Shares a form of
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent and instructions for use in
surrendering such Certificates and receiving the Merger Consideration in
respect thereof.
(c) In effecting the payment of the Cash Price in respect of Common Shares
represented by Certificates entitled to payment of the Cash Price pursuant to
Section 2.01(c)(iv) (the "Cashed Shares"), upon the surrender of each such
Certificate, the Exchange Agent shall pay the holder of such Certificate the
Cash Price multiplied by the number of Cashed Shares, in consideration
therefor. Upon such payment (and the exchange, if any, of Certificates formerly
representing Common Shares for certificates representing Retained Shares) such
Certificate shall forthwith be cancelled.
(d) In effecting the exchange of Retained Shares in respect of Common
Shares represented by Certificates which, at the Effective Time, shall become
Retained Shares, upon surrender of each such Certificate, the Exchange Agent
shall deliver to the holder of such Certificate a certificate representing that
number of whole Retained Shares which such holder has the right to receive
pursuant to the provisions of Section 2.01(c), and cash in lieu of fractional
Retained Shares. Upon such exchange (and any payment of the Cash Price for
Cashed Shares), such Certificate so surrendered shall forthwith be canceled.
(e) Until surrendered in accordance with paragraphs (c) or (d) above, each
such Certificate (other than Certificates representing Common Shares held by
FSI or any of its affiliates, in the treasury of the Company or by any wholly
owned subsidiary of the Company or Dissenting Shares) shall represent solely
the right to receive the aggregate Merger Consideration relating thereto. No
interest or dividends shall be paid or accrued on the Merger Consideration. If
the Merger Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the Certificate formerly
representing Common Shares surrendered therefor is registered, it shall be a
condition to such right to receive such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person surrendering such Common Shares shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
(f) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Common Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the Common Shares represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.05(g) until the surrender of such Certificates in accordance with this
Section 2.05. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificate
representing whole Common Shares issued in exchange therefor, without interest,
at the time of such surrender, the amount of any cash payable in lieu of a
fractional Common Share to which such holder is entitled pursuant to Section
2.5(g).
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(g) No Fractional Shares (i) No certificates or scrip representing
factional Retained Shares shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests shall not entitle the owner
thereof to vote or to any rights of a stockholder of the Surviving Corporation.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of Retained
Shares delivered to the Exchange Agent by FSI pursuant to Section 2.05(a)
over (y) the aggregate number of whole Retained Shares to be distributed
to holders of the Certificates (such excess being herein called the
"Excess Shares"). As soon as practicable after the Effective Time, the
Exchange Agent, as agent for the holders of the Certificates, shall sell
the Excess Shares at then prevailing prices on the New York Stock
Exchange, Inc. (the "NYSE"), all in the manner provided in paragraph (iii)
of this Section 2.05(g).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and
shall be executed in round lots to the extent practicable. FSI shall bear
the cost of all related changes and fees of the Exchange Agent,
commissions, transfer taxes and other out-of-pocket transaction costs.
Until the proceeds of such sale or sales have been distributed to the
holders of the Certificates, the Exchange Agent shall hold such proceeds
in trust for the holders of the Certificates (the "Common Shares Trust").
The Exchange Agent shall determine the portion of the Common Shares Trust
to which each holder of a certificate shall be entitled, if any, by
multiplying the amount of the aggregate proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interests to which such holder of a Certificate is
entitled and the denominator of which is the aggregate amount of
fractional share interests to which all holders of the Certificates are
entitled.
(iv) As soon as practicable after the determination of the amount of
cash to be paid to holders of Certificates in lieu of any fractional share
interests, the Exchange Agent shall make available such amounts, without
interest, to such holders of Certificates who have surrendered their
Certificates in accordance with this Section 2.05.
(h) Promptly following the date which is 180 days after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a Common Share
may surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
consideration therefor the aggregate Merger Consideration relating thereto,
without any interest or dividends thereon.
(i) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing Common Shares are presented to the
Surviving Corporation or the Exchange Agent, they shall be surrendered and
cancelled in return for the payment of the aggregate Merger Consideration
relating thereto, as provided in this Article II.
(j) No Liability. None of FSI, the Company or Exchange Agent shall be
liable to any person in respect of any Retained Shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund or the
Common Shares Trust delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any Retained Shares, any cash in lieu of
fractional Retained Shares or any dividends or distributions with respect to
Common Shares in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity) any such shares, cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to FSI as follows:
SECTION 3.01 Organization and Qualification; Subsidiaries. The Company and
each of its Significant Subsidiaries (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of its
state or jurisdiction of incorporation and has all requisite corporate power
and corporate authority to own, lease and operate its properties and to carry
on its business as now being conducted and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
failure to be in good standing or to so qualify would have a Material Adverse
Effect on the Company. The term "Material Adverse Effect on the Company," as
used in this Agreement, means any change in or effect on the business,
financial condition, results of operations or reasonably foreseeable prospects
of the Company or any of its subsidiaries that would be materially adverse to
the Company and its subsidiaries taken as a whole. The Company has heretofore
made available to FSI a complete and correct copy of its Restated Certificate
of Incorporation and By-Laws. A "Significant Subsidiary" of any person means
any subsidiary or person that constitutes a significant subsidiary of such
person within the meaning of Rule 1-02(v) of Regulation S-X.
SECTION 3.02 Capitalization; Subsidiaries. The authorized capital stock of
the Company consists of 50,000,000 Common Shares and 15,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"), of which 500,000
shares are designated Series A Junior Participating Preferred Stock, par value
$.01 per share ("Junior Preferred Stock"). As of the close of business on
August 6, 1997, 20,325,546 Common Shares were issued and outstanding, all of
which are entitled to vote on this Agreement, and no Common Shares were held in
treasury. The Company has no shares of Preferred Stock issued and outstanding.
As of August 6, 1997, except for (i) 3,632,195 Common Shares reserved for
issuance pursuant to outstanding Options and rights granted under the Stock
Plans, (ii) 500,000 shares of Junior Preferred Stock reserved for issuance upon
exercise of the Rights and (iii) up to 192,270 Options issuable pursuant to the
Company's Equity Option Program (the "Equity Option Program"), there are not
now, and at the Effective Time there will not be, any existing options,
warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its subsidiaries. All issued and
outstanding Common Shares are validly issued, fully paid, nonassessable and
free of preemptive rights. All of the outstanding shares of capital stock of
each of the Company's Significant Subsidiaries have been validly issued and are
fully paid and non-assessable and, except as set forth on Section 3.02 of the
disclosure schedule delivered to FSI by the Company on the date hereof (the
"Company Disclosure Schedule"), are owned by either the Company or another of
its Significant Subsidiaries free and clear of all liens, charges, claims or
encumbrances. There are no outstanding options, warrants, calls, subscriptions,
or other rights, or other agreements or commitments, obligating any Significant
Subsidiary of the Company to issue, transfer or sell any shares of its capital
stock.
SECTION 3.03 Authority Relative to this Agreement.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, except for the approval of this Agreement by
the shareholders of the Company, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Company Board and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the approval of this Agreement by the shareholders of
the Company, to the extent required by applicable law). This Agreement has been
duly and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of FSI, this Agreement
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
(b) Except as set forth in Section 3.03 of the Company Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of consent, termination, purchase, cancellation
or acceleration of any obligation or to loss of any property, rights or
benefits under, or result in the imposition of any
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additional obligation under, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its subsidiaries under, (i)
the organizational documents of the Company or any of its subsidiaries, (ii)
any contract, instrument, permit, concession, franchise, license, loan or
credit agreement, note, bond, mortgage, indenture, lease or other property
agreement, partnership or joint venture agreement or other legally binding
agreement, whether oral or written (a "Contract"), applicable to the Company or
any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following paragraph, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not have a Material Adverse Effect.
(c) Other than in connection with, or in compliance with, the provisions
of the DGCL with respect to the transactions contemplated hereby, the Exchange
Act, the securities laws of the various states and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), no
authorization, consent or approval of, or filing with, any Governmental Entity
(as hereinafter defined) is necessary for the consummation by the Company of
the transactions contemplated by this Agreement other than authorizations,
consents and approvals the failure to obtain, or filings the failure to make,
which would not, in the aggregate, have a Material Adverse Effect on the
Company. As used in this Agreement, the term "Governmental Entity" means any
government or subdivision thereof, domestic, foreign or supranational or any
administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational.
SECTION 3.04 No Violation. Neither the execution or delivery of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) constitute a breach or violation of
any provision of the Restated Certificate of Incorporation or By-Laws of the
Company or (ii) except as set forth on Section 3.04 of the Company Disclosure
Schedule, constitute a breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
the creation of any lien or encumbrance upon any of the properties or assets of
the Company or any of its subsidiaries under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to
which the Company or any of its subsidiaries is a party or by which they or any
of their respective properties or assets are bound, other than breaches,
violations, defaults, terminations, accelerations or creation of liens and
encumbrances which, in the aggregate, would not have a Material Adverse Effect
on the Company.
SECTION 3.05 SEC Reports and Financial Statements. Since January 1, 1995,
the Company has filed all forms, reports and documents ("SEC Reports") with the
SEC required to be filed by it pursuant to the federal securities laws and the
SEC rules and regulations thereunder. Copies of all such SEC Reports have been
made available to FSI by the Company. None of such SEC Reports (as of their
respective filing dates) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The audited and unaudited consolidated
financial statements of the Company included in the SEC Reports have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as otherwise stated in such financial statements,
including the related notes) and fairly present the financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
results of their operations and changes in financial position for the periods
then ended, subject, in the case of the unaudited financial statements, to
year-end audit adjustments. Except as set forth in the SEC Reports and except
as disclosed in Section 3.05 of the Company Disclosure Schedule, at the date of
the most recent audited financial statements of the Company included in the SEC
Reports, neither the Company nor any of its subsidiaries had, and since such
date neither the Company nor any of such subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, would be required to be
disclosed in a balance sheet prepared in accordance with generally accepted
accounted principles and would reasonably be expected to have a Material
Adverse Effect with respect to the Company except liabilities incurred in the
ordinary and usual course of business and consistent with past practice and
liabilities incurred in connection with the transactions contemplated by this
Agreement.
SECTION 3.06 Compliance with Applicable Laws. Except as set forth on
Section 3.06 of the Company Disclosure Schedule and except for matters relating
to Environmental Laws (which matters are covered in Section
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3.13), (i) the Company and its subsidiaries hold all material permits, licenses
and approvals of all Governmental Entities and (ii) the business operations of
the Company have been conducted in compliance with all laws, ordinances and
regulations of any Governmental Entity, except for possible violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
SECTION 3.07 Change of Control. Except as set forth on Section 3.07 of the
Company Disclosure Schedule or as provided in Section 2.04, the transactions
contemplated by this Agreement will not constitute a "change of control" under,
require the consent from or the giving of notice to a third party pursuant to,
permit a third party to terminate or accelerate vesting or repurchase rights,
or create any other detriment under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, lease, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their properties or assets may be
bound, except where the adverse consequences resulting from such change of
control or where the failure to obtain such consents or provide such notices
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
SECTION 3.08 Litigation. Except as set forth on Section 3.08 of the
Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
the Company or any of its subsidiaries, individually or in the aggregate, which
would have a Material Adverse Effect on the Company and its subsidiaries or
could prevent or materially delay the consummation of the transactions
contemplated by this Agreement. Except as disclosed in the SEC Reports filed
prior to the date of this Agreement, neither the Company nor any of its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, would have a Material Adverse Effect
on the Company or could prevent or materially delay the consummation of the
transactions contemplated hereby.
SECTION 3.09 Information. None of the information supplied by the Company
in writing (other than projections of future financial performance)
specifically for inclusion or incorporation by reference in (i) Form S-4 or
(ii) any other document to be filed with the SEC or any other Governmental
Entity in connection with the transactions contemplated by this Agreement (the
"Other Filings") will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, at
the date it or any amendment or supplement is mailed to stockholders, at the
time of the Special Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by the Company with
respect to (i) any forward-looking information which may have been supplied by
the Company, whether or not included by FSI in the Form S-4 or (ii) statements
made in any of the foregoing documents based upon information supplied by FSI.
SECTION 3.10 Certain Approvals. The Company Board has taken any and all
necessary and appropriate action to render inapplicable to the Merger and the
transactions contemplated by this Agreement the provisions of Section 203 of
the DGCL.
SECTION 3.11 Employee Benefit Plans.
(a) Section 3.11(a) of the Company Disclosure Schedule includes a complete
list of all material employee benefit plans and programs providing benefits to
any employee or former employee of the Company and its subsidiaries sponsored
or maintained by the Company or any of its subsidiaries or to which the Company
or any of its subsidiaries contributes or is obligated to contribute ("Plans").
Without limiting the generality of the foregoing, the term "Plans" includes all
employee welfare benefit plans within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder ("ERISA"), and all employee pension benefit plans within
the meaning of Section 3(2) of ERISA.
(b) With respect to each Plan, the Company has made available to FSI a
true, correct and complete copy of: (i) all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (ii) the
most recent Annual Report (Form 5500 Series) and accompanying schedule, if any;
(iii) the current summary plan description, if any; (iv) the most recent annual
financial report, if any; (v) the most recent actuarial report, if any; and
(vi) the most recent determination letter from the United States Internal
Revenue Service (the "IRS"), if any.
(c) The Company and each of its subsidiaries has complied, and is now in
compliance, in all material respects with all provisions of ERISA, the Internal
Revenue Code of 1986, as amended, including the Treasury Regulations
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thereunder (the "Code") and all laws and regulations applicable to the Plans.
With respect to each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"), the IRS has issued a
favorable determination letter.
(d) All contributions required to be made to any Plan by applicable law or
regulation or by any plan document or other contractual undertaking, and all
premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full
or, to the extent not required to be made or paid on or before the date hereof,
have been fully reflected in the financial statements of the Company included
in the SEC Reports to the extent required under generally accepted accounting
principles.
(e) Except as set forth on Section 3.11(e) of the Company Disclosure
Schedule, no Plan is subject to Title IV or Section 302 of ERISA or Section 412
or 4971 of the Code. Without limiting the generality of the foregoing, no Plan
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"Multiemployer Plan") or a plan that has two or more contributing sponsors at
least two of whom are not under common control, within the meaning of Section
4063 of ERISA and which is subject to Title IV of ERISA (a "Multiple Employer
Plan").
(f) There does not now exist, nor do any circumstances exist that could
result in, any liability under (i) Title IV of ERISA, (ii) section 302 of
ERISA, (iii) sections 412 and 4971 of the Code, (iv) the continuation coverage
requirements of section 601 et seq. of ERISA and section 4980B of the Code, or
(v) corresponding or similar provisions of foreign laws or regulations, other
than a liability that arises solely out of, or relates solely to, the Plans,
that would be a liability of the Company or any of its subsidiaries following
the Effective Time. Without limiting the generality of the foregoing, none of
the Company, its subsidiaries nor any ERISA Affiliate of the Company or any of
its subsidiaries has engaged in any transaction described in Section 4069 or
Section 4204 or 4212 of ERISA. An "ERISA Affiliate" means any entity, trade or
business that is a member of a group described in Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA that includes the Company or any
of its subsidiaries, or that is a member of the same "controlled group" as the
Company or any of its subsidiaries, pursuant to Section 4001(a)(14) of ERISA.
SECTION 3.12 Taxes.
(a) The Company, and each of its subsidiaries and each affiliated,
combined, consolidated, unitary or aggregate group of which the Company or any
of its subsidiaries is a member (a "Company Affiliated Group") has timely filed
all federal, state, local and foreign income Tax Returns (as hereinafter
defined) required to be filed by it, and all other material Tax Returns
required to be filed by it, and has paid or caused to be paid all Taxes (as
hereinafter defined) required to be paid in respect of the periods covered by
such returns and has made adequate provision in the Company's financial
statements for payment of all Taxes that have not been paid, whether or not
shown as due and payable on any Tax Return in respect of all taxable periods or
portions thereof ending on or before the date hereof, except where the failure
to so file or pay or make adequate provision would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. There are no
outstanding agreements, waivers or requests for waivers extending the statutory
period of limitation applicable to any Tax Return of the Company, any of its
subsidiaries or any Company Affiliated Group. Except as set forth on Section
3.12 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries (i) has been a member of a group filing consolidated returns for
federal income tax purposes (except for the group of which the Company is the
common parent), or (ii) is a party to or has any liability pursuant to a Tax
sharing or Tax indemnity agreement or any other agreement of a similar nature
that remains in effect.
(b) Except to the extent of amounts for which indemnification has been
provided to the Company pursuant to Article X of the Purchase Agreement among
the Company and Fisons plc and Fisons U.S. Inc. and Fisons Corporation and
Fisons U.S. Investment Holdings, Inc., dated August 29, 1995, the Company, each
of its subsidiaries and each Company Affiliated Group have complied in all
material respects with all rules and regulations relating to the withholding of
Taxes except to the extent any such failure to comply would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
(c) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For purposes of this
Agreement,
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the term "Tax Return" means any report, return or other information or document
required to be supplied to a taxing authority in connection with Taxes.
SECTION 3.13 Environmental Matters.
(a) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, the Company and its subsidiaries have been and are in compliance with
all applicable Environmental Laws as in effect on the date hereof, except for
such violations and defaults as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(b) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, the Company and its subsidiaries possess all Environmental Permits
required for the operation of the Business pursuant to Environmental Laws as in
effect on the date hereof, all such Environmental Permits are in effect, there
are no pending or to the best knowledge of the Company threatened proceedings
to revoke such Environmental Permits and the Company and its subsidiaries are,
to the best knowledge of the Company, in compliance with all terms and
conditions thereof, except for such failures to possess or comply with
Environmental Permits as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(c) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, and except for matters which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company, neither the Company
nor any subsidiary has received any written notification that the Company or
any subsidiary as a result of any of the current or past operations of the
Business, or any property currently or formerly owned or leased in connection
with the Business, is or may be the subject of any proceeding, investigation,
claim, lawsuit or order by any Governmental Entity or other person as to
whether (i) any Remedial Action is or may be needed to respond to a Release or
threat of Release into the environment of Hazardous Substances as defined under
Environmental Laws as in effect on or prior to the date hereof; (ii) any
Environmental Liabilities and Costs imposed by, under or pursuant to
Environmental Laws as in effect on or prior to the date hereof shall be sought,
or proceeding commenced, related to or arising from the current or past
operations of the Business; or (iii) the Company or any subsidiary is or may be
a "potentially responsible party" for a Remedial Action, pursuant to any
Environmental Law as in effect on or prior to the date hereof, for the costs of
investigating or remediating Releases or threatened Releases into the
environment of Hazardous Substances, whether or not such Release or threatened
Release has occurred or is occurring at properties currently or formerly owned
or operated by the Company and its subsidiaries;
(d) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, and except for the ACO's and Environmental Permits, none of the
Company and its subsidiaries has entered into any written agreement with any
Governmental Entity by which the Company or any subsidiary has assumed
responsibility, either directly or as a guarantor or surety, for the
remediation of any condition arising from or relating to a Release of Hazardous
Substances as defined under Environmental Laws as in effect on or prior to the
date hereof into the environment in connection with the Business, including for
cost recovery with respect to such Releases or threatened Releases;
(e) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, and except for the matters covered by the ACO's, there is not now and
has not been at any time in the past, a Release in connection with the current
or former conduct of the Business of substances that would constitute Hazardous
Substances as regulated under Environmental Laws as in effect on or prior to
the date hereof for which the Company or any subsidiary is required or is
reasonably likely to be required to perform a Remedial Action pursuant to
Environmental Laws as currently in effect, or will incur Environmental
Liabilities and costs that would, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(f) For purposes of this Section:
(i) "ACO" means either of the Administrative Consent orders relating to
the Fair Lawn, New Jersey or the Bridgewater, New Jersey properties
executed by the New Jersey Department of Environmental Protection
("NJDEP") on August 29, 1985; such ACOs were entered into by the NJDEP and
the Fisher Scientific division of Allied-Signal Inc. and titled In the
Matter of Fisher Scientific Division and the Administrative Consent order
executive by the NJDEP on July 31, 1986 and entered into by the NJDEP and
Allied-Signal Inc. titled In the Matter of Allied-Signal Inc., ECRA Case
#'s 85820, 85821, 85822, 85823, 85824, 85825, 85826, 86049, 86103.
(ii) "Business" means the current and former businesses of the Company
and its subsidiaries including, but not limited to, businesses or
subsidiaries that have been previously sold by the Company, its
subsidiaries or any predecessors thereto.
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(iii) "Environmental Laws" means all Laws relating to the protection of
the environment, or to any emission, discharge, generation, processing,
storage, holding, abatement, existence, Release, threatened Release or
transportation of any Hazardous Substances, including, but not limited to,
(i) CERCLA, the Resource Conservation and Recovery Act, the Clean Water
Act, the Clean Air Act, the Toxic Substances Control Act, as amended (the
"TSCA"), property transfer statutes or requirements and (ii) all other
requirements pertaining to reporting, licensing, permitting, investigation
or remediation of emissions, discharges, Releases or threatened Releases
of Hazardous Substances into the air, surface water, groundwater or land,
or relating to the manufacture, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport or handling of Hazardous
Substances.
(iv) "Environmental Liabilities and Costs" means all damages, natural
resource damages, claims, losses, expenses, costs, obligations, and
liabilities (collectively, "Losses"), whether direct or indirect, known or
unknown, current or potential, past, present or future, imposed by, under
or pursuant to Environmental Laws, including, but not limited to, all
Losses related to Remedial Actions, and all fees, capital costs,
disbursements, penalties, fines and expenses of counsel, experts,
contractors, personnel and consultants based on, arising out of or
otherwise in respect of (i) the Company, any subsidiary (including
predecessors and former subsidiaries) or property owned, used or leased by
the Company or any subsidiary in respect of the Business at any time; (ii)
conditions existing on, under, around or above any such property; and
(iii) expenditures necessary to cause any such property or the Company or
any subsidiary to be in compliance with requirements of Environmental
Laws.
(v) "Environmental Permits" means any federal, state, provincial or
local permit, license, registration, consent, order, administrative
consent order, certificate, approval or other authorization necessary for
the conduct of the Business as currently conducted under any Environmental
Law.
(vi) "Hazardous Substances" means any substance that (a) is defined,
listed or identified or otherwise regulated as a "hazardous waste,"
"hazardous material" or "hazardous substance" "toxic substance,"
"hazardous air pollution," "polluted," or "contaminated" or words of
similar meaning and regulatory effect under CERCLA, TSCA or the Resource
Conservation and Recovery Act or any other Environmental Law or analogous
state law (including, without limitation, radioactive substances,
polycholorinated-biphenyls, petroleum and petroleum derivatives and
products) or (b) requires investigation, removal or remediation under
applicable Environmental Law.
(vii) "ISRA" means the Industrial Site Recovery Act of New Jersey,
N.J.S.A. 13:1K-6 et seq.
(viii) "Laws" means all (A) constitutions, treaties, statutes, laws
(including, but not limited to, the common law), rules, regulations,
ordinances or codes of any Governmental Entity, (B) Environmental Permits,
and (C) orders, decisions, injunctions, judgments, awards and decrees of
any Governmental Entity.
(ix) "Release" means as defined in CERCLA or the Resource Conservation
and Recovery Act, without limiting its application to violations or
alleged violations of those statutes, but not including any discharge,
spill or emission that is the subject of, and in compliance with an
Environmental Permit.
(x) "Remedial Action" means all actions required by Governmental Entity
pursuant to Environmental Law or otherwise taken as necessary to comply
with Environmental Law to (i) clean up, remove, treat or in any other way
remediate any Hazardous Substances; (ii) prevent the release of Hazardous
Substances so that they do not migrate or endanger or threaten to endanger
public health or welfare or the environment; or (iii) perform studies,
investigations or monitoring in respect of any such matter.
SECTION 3.14 Absence of Certain Changes. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement or as disclosed in
announcements or other information attached in Section 3.14 of the Company
Disclosure Schedule, concerning future performance of the Company, since March
31, 1997, (i) the Company has conducted its business only in the ordinary
course consistent with past practice and (ii) there has not been any Material
Adverse Effect on the Company.
SECTION 3.15 Rights Agreement. The Company and the Company Board have
authorized all necessary action to amend the Rights Agreement (without
redeeming the Rights) so that none of the execution or delivery of this
Agreement, the making of the Offer, the acquisition of Shares pursuant to the
Offer or the consummation of the Merger will (i) cause any Rights issued
pursuant to the Rights Agreement to become exercisable or to separate
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from the stock certificates to which they are attached, (ii) cause FSI or any
of their Affiliates to be an Acquiring Person (as each such term is defined in
the Rights Agreement) or (iii) trigger other provisions of the Rights
Agreement, including giving rise to a Distribution Date (as such term is
defined in the Rights Agreement), and such amendment shall be in full force and
effect from and after the date hereof.
SECTION 3.16 Brokers. Except for the engagement of the Investment Bankers
(as defined in Section 3.17), none of the Company, any of its subsidiaries, or
any of their respective officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated by this
Agreement.
SECTION 3.17 Opinion of Investment Bankers. The Company has received the
written opinion of each of Lazard FrPres & Co. LLC and Salomon Brothers Inc
(the "Investment Bankers") to the effect that, as of September 11, 1997, the
consideration to be received by the holders of Common Shares pursuant to the
Merger is fair to the Company's stockholders from a financial point of view.
SECTION 3.18 Material Contracts. The Company has provided or made
available to FSI (i) true and complete copies of all written material contracts
and agreements ("Material Contracts"), or (ii) with respect to such Material
Contracts that have not been reduced to writing, a written description thereof,
each of which is listed on Section 3.18 of the Company Disclosure Schedule.
Neither the Company nor any of its subsidiaries is, or has received any notice
or has any knowledge that any other party is, in default in any respect under
any such Material Contract, except for those defaults which would not
reasonably be likely, either individually or in the aggregate, to have a
Material Adverse Effect with respect to the Company; and there has not occurred
any event that, with the lapse of time or the giving of notice or both, would
constitute such a material default.
SECTION 3.19 Board Recommendation. The Company Board, at a meeting duly
called and held, has (a) determined that this Agreement and the transactions
contemplated hereby, taken together, are advisable and in the best interests of
the Company and its stockholders, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the Common Shares approve
this Agreement and the transactions contemplated herby, including the Merger.
SECTION 3.20 Required Company Vote. The Company Stockholder Approval,
being the affirmative vote of a majority of the Common Shares, is the only vote
of the holders of any class or series of the Company's securities necessary to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
SECTION 3.21 Intellectual Property.
The Company and its subsidiaries own or have the valid right to use all
material Intellectual Property used in or necessary to the business, free and
clear of all liens, claims, and encumbrances and, except for the License
Agreements set forth on Section 3.21(a) of the Company Disclosure Schedule,
free and clear of all material licenses to third parties. As employed herein,
the term "Intellectual Property" shall mean: (i) registered and unregistered
trademarks, service marks, slogans, trade names, logos and trade dress
(collectively, and together with the good will associated with each,
"Trademarks"); (ii) patents, patent applications and invention disclosures
(collectively, "Patents"); (iii) registered and unregistered copyrights,
including, but not limited to, copyrights in software and databases
(collectively, "Copyrights"); (iv) software programs and databases (together,
"Software"); (v) unpatented or unpatentable methods, devices, technology, trade
secrets, proprietary information and know-how (collectively, "Technology"); and
(vi) agreements pursuant to which the Company or a subsidiary has obtained or
granted the right to use any of the foregoing (collectively, or other
agreements to which the Company or any subsidiary is a party relating to the
development, acquisition, use, sale or licensure of Intellectual Property,
"License Agreements").
SECTION 3.22 Related Party Transactions. Except as set forth in Section
3.23 of the Disclosure Schedule hereto, no director, officer, partner,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company or any of its subsidiaries (or, with respect to
clause (i) of this sentence, to the knowledge of the Company, its employees)
(i) has borrowed any monies from or has outstanding any indebtedness or other
similar obligations to the Company or any of its subsidiaries; (ii) owns any
direct or indirect interest of any kind in, or is a director, officer,
employee, partner, affiliate or associate of, or consultant or lender to, or
borrower from, or has the right to participate in the management, operations or
profits of, any person or entity which is (1) a competitor, supplier, customer,
distributor, lessor, tenant, creditor or debtor of the Company or any of its
subsidiaries, (2) engaged in a business related to the business of the Company
or any of its subsidiaries, (3)
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participating in any transaction to which the Company or any of its
subsidiaries is a party or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its subsidiaries.
SECTION 3.23 State Takeover Statutes. The Company Board has taken such
action so that no statute, takeover statute or similar statute or regulation of
the State of Delaware (and, to the knowledge of the Company after due inquiry,
of any other state or jurisdiction) applies to this Agreement, the Merger, or
any of the other transactions contemplated hereby. Except for the Rights
Agreement and except as set forth in Section 3.23 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has any rights plan,
preferred stock or similar arrangement which have any of the aforementioned
consequences in respect of the transactions contemplated hereby.
SECTION 3.24 Labor Relations and Employment.
(a) Except as set forth on Section 3.24(a) of the Company Disclosure
Schedule and except for matters which would not (other than in the case of
clause (iii) or (iv) of this sentence) result in a Material Adverse Effect, (i)
there is no labor strike, dispute, slowdown, stoppage or lockout actually
pending, or, to the best knowledge of the Company, threatened against the
Company or any of its subsidiaries, and during the past three years there has
not been any such action; (ii) to the best knowledge of the Company, no union
claims to represent the employees of the Company or any of its subsidiaries;
(iii) neither the Company nor any of its subsidiaries is a party to or bound by
any collective bargaining or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any of its subsidiaries;
(iv) none of the employees of the Company or any of its subsidiaries is
represented by any labor organization and the Company does not have any
knowledge of any current union organizing activities among the employees of the
Company or any of its subsidiaries, nor does any question concerning
representation exist concerning such employees; (v) the Company and its
subsidiaries are, and have at all times been, in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation;
(vi) there is no unfair labor practice charge or complaint against the Company
or any of its subsidiaries pending or, to the knowledge of the Company,
threatened before the National Labor Relations Board or any similar state or
foreign agency; (vii) there is no grievance arising out of any collective
bargaining agreement or other grievance procedure; (viii) no charges with
respect to or relating to the Company or any of its subsidiaries are pending
before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices; (ix) neither
the Company nor any of its subsidiaries has received notice of the intent of
any federal, state, local or foreign agency responsible for the enforcement of
labor or employment laws to conduct an investigation with respect to or
relating to the Company or any of its subsidiaries and no such investigation is
in progress; and (x) there are no complaints, lawsuits or other proceedings
pending or to the best knowledge of the Company threatened in any forum by or
on behalf of any present or former employee of the Company or any of its
subsidiaries alleging breach of any express or implied contract of employment,
any law or regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship.
(b) To the best knowledge of the Company, since the enactment of the
Worker Adjustment and Retraining Notification ("WARN") Act, there has not been
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or any of its subsidiaries; or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of its subsidiaries; nor has the Company or any
of its subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth in Section 3.24(b) of the
Company Disclosure Schedule, to the best knowledge of the Company, none of the
employees of the Company or any of its subsidiaries has suffered an "employment
loss" (as defined in the WARN Act) since three months prior to the date of this
Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FSI
FSI represents and warrants to the Company as follows:
SECTION 4.01 Organization and Qualification. FSI is a corporation duly
organized, validly existing and in good standing under the laws of its state or
jurisdiction of incorporation and is in good standing as a foreign corporation
in each other jurisdiction where the properties owned, leased or operated, or
the business conducted, by it require such qualification and where failure to
be in good standing or to so qualify would have a Material Adverse Effect on
FSI. The term "Material Adverse Effect on FSI", as used in this Agreement,
means any change in or effect on the business, financial condition, results of
operations or reasonably forseeable prospects of FSI or any of its subsidiaries
that would be materially adverse to FSI.
SECTION 4.02 Authority Relative to this Agreement.
(a) FSI has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of FSI and no other corporate proceedings on the part of FSI are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by FSI and, assuming this Agreement constitutes a valid and binding obligation
of the Company, this Agreement constitutes a valid and binding agreement of
FSI, enforceable against FSI in accordance with its terms. (b) Other than in
connection with, or in compliance with, the provisions of the DGCL with respect
to the transactions contemplated hereby, the Exchange Act, the securities laws
of the various states and the HSR Act, no authorization, consent or approval
of, or filing with, any Governmental Entity is necessary for the consummation
by the Company of the transactions contemplated by this Agreement other than
authorizations, consents and approvals the failure to obtain, or filings the
failure to make, which would not, in the aggregate, have a Material Adverse
Effect on FSI.
SECTION 4.03 No Violation. Neither the execution or delivery of this
Agreement by FSI nor the consummation by FSI of the transactions contemplated
hereby will (i) constitute a breach or violation of any provision of the
Certificate of Incorporation or By-Laws of FSI or (ii) constitute a breach,
violation or default (or any event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
or encumbrance upon any of the properties or assets of FSI under, any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument to which FSI is a party or by which it or any of its properties or
assets are bound, other than breaches, violations, defaults, terminations,
accelerations or creation of liens and encumbrances which, in the aggregate
would not have a Material Adverse Effect on FSI.
SECTION 4.04 Information. None of the information supplied by FSI in
writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Form S-4 or (ii) the
Other Filings will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, at
the date it or any amendment or supplement is mailed to stockholders, at the
time of the Special Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by FSI with respect to
statements made in any of the foregoing documents based upon information
supplied by the Company.
SECTION 4.05 Financing. Schedule 6.02(e) of the disclosure schedule
delivered by FSI and attached hereto (the "FSI Disclosure Schedule") sets forth
true and complete copies of written documentation from third parties which
provides for financing in amounts sufficient to consummate the transactions
contemplated hereby as contemplated by Section 6.02(e).
SECTION 4.06 Delaware Law. FSI was not immediately prior to the execution
of this Agreement, an "interested stockholder" within the meaning of Section
203 of the DGCL.
SECTION 4.07 Information. FSI represents and warrants that, as of the date
hereof, neither FSI, its representatives nor affiliates has formed an actual
belief that any of the representations or warranties of the Company are untrue
or incorrect in any material respect.
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ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by FSI, during the period
from the date of this Agreement to the Effective Time, the Company will, and
will cause each of its subsidiaries to, conduct its operations according to its
ordinary and usual course of business and consistent with past practice and use
its and their respective reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
business dealings with them and to preserve goodwill. Without limiting the
generality of the foregoing, and except as (x) otherwise expressly provided in
this Agreement, (y) required by law, or (z) set forth on Section 5.01 of the
Company Disclosure Schedule, prior to the Effective Time, the Company will not,
and will cause its subsidiaries not to, without the consent of FSI (which
consent shall not be unreasonably withheld):
(i) except with respect to annual bonuses made in the ordinary course of
business consistent with past practice, adopt or amend in any material
respect any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, pension, retirement, employment or
other employee benefit agreement, trust, plan or other arrangement for the
benefit or welfare of any director, officer or employee of the Company or
any of its subsidiaries or increase in any manner the compensation or
fringe benefits of any director, officer or employee of the Company or any
of its subsidiaries or pay any benefit not required by any existing
agreement or place any assets in any trust for the benefit of any
director, officer or employee of the Company or any of its subsidiaries
(in each case, except with respect to employees and directors in the
ordinary course of business consistent with past practice);
(ii) incur any indebtedness for borrowed money in excess of $1,000,000,
other than indebtedness under existing lines of credit drawn to fund
working capital (defined as accounts receivable plus inventory minus
accounts payable) up to $25 million;
(iii) expend funds for capital expenditures in excess of $1,000,000;
(iv) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets other
than immaterial properties or assets (or immaterial portions of properties
or assets), except in the ordinary course of business consistent with past
practice;
(v) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (A) as
contemplated by the Rights Agreement or the Restricted Unit Plan and (B)
for dividends paid by subsidiaries to the Company with respect to capital
stock and (C) for regular quarterly dividends in an amount not to exceed
the lesser of $0.02 per share per quarter and the amount paid per share in
the immediately preceding quarter), (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(vi) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of its capital stock
or the capital stock of any of its subsidiaries, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or any other securities or equity equivalents (including
without limitation stock appreciation rights) (other than issuances upon
exercise of Options or pursuant to the Stock Plans or the Rights
Agreement);
(vii) amend its Restated Certificate of Incorporation, By-Laws or
equivalent organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of any material subsidiary of the Company;
(viii) make or agree to make any acquisition of assets which is material
to the Company and its subsidiaries, taken as a whole, except for (x)
purchases of inventory in the ordinary course of business or
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(y) pursuant to purchase orders entered into in the ordinary course of
business which do not call for payments in excess of $10,000,000 per
annum; or
(ix) settle or compromise any shareholder derivative suits arising out
of the transactions contemplated hereby or any other litigation (whether
or not commenced prior to the date of this Agreement) or settle, pay or
compromise any claims not required to be paid, individually in an amount
in excess of $1,000,000, other than in consultation and cooperation with
FSI, and, with respect to any such settlement, with the prior written
consent of FSI.
SECTION 5.02 Access to Information. From the date of this Agreement until
the Effective Time, the Company will, and will cause its subsidiaries, and each
of their respective officers, directors, employees, counsel, advisors and
representatives (collectively, the "Company Representatives") to, give FSI and
their respective officers, employees, counsel, advisors, representatives
(collectively, the "FSI Representatives") and representatives of financing
sources identified by FSI reasonable access, upon reasonable notice and during
normal business hours, to the offices and other facilities and to the books and
records of the Company and its subsidiaries and will cause the Company
Representatives and the Company's subsidiaries to furnish FSI and the FSI
Representatives and representatives of financing sources identified by FSI with
such financial and operating data and such other information with respect to
the business and operations of the Company and its subsidiaries as FSI and
representatives of financing sources identified by FSI may from time to time
reasonably request. FSI agrees that any information furnished pursuant to this
Section 5.02 will be subject to the provisions of the letter agreement dated
June 23, 1997 between Thomas H. Lee Company ("THL") and the Company (the
"Confidentiality Agreement").
SECTION 5.03 Efforts.
(a) Each of the Company and FSI shall, and the Company shall cause each of
its subsidiaries to, make all necessary filings with Governmental Entities as
promptly as practicable in order to facilitate prompt consummation of the
transactions contemplated by this Agreement. In addition, each of FSI and the
Company will use its reasonable best efforts (including, without limitation,
payment of any required fees) and will cooperate fully with each other to (i)
comply as promptly as practicable with all governmental requirements applicable
to the transactions contemplated by this Agreement, including the making of all
filings necessary or proper under applicable laws and regulations to consummate
and make effective the transactions contemplated by this Agreement, including,
but not limited to, cooperation in the preparation and filing of the Form S-4
and any actions or filings related thereto, the Proxy Statement or other
foreign filings and any amendments to any thereof and (ii) obtain promptly all
consents, waivers, approvals, authorizations or permits of, or registrations or
filings with or notifications to (any of the foregoing being a "Consent"), any
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement (except for such Consents the failure of which
to obtain would not prevent or materially delay the consummation of the
Merger). Subject to the Confidentiality Agreement, FSI and the Company shall
furnish to one and other such necessary information and reasonable assistance
as FSI or the Company may reasonably request in connection with the foregoing.
(b) Without limiting Section 5.03(a), FSI and the Company shall each (i)
promptly make or cause to be made the filings required of such party under the
HSR Act with respect to the Merger; (ii) use its best efforts to avoid the
entry of, or to have vacated or terminated, any decree, order, or judgment that
would restrain, prevent or delay the consummation of the Merger, including
without limitation defending through litigation on the merits any claim
asserted in any court by any party; and (iii) take any and all steps which, in
such party's judgment, are commercially reasonable to avoid or eliminate each
and every impediment under any antitrust, competition, or trade regulation law
that may be asserted by any Governmental Entity with respect to the Merger so
as to enable consummation thereof to occur as soon as reasonably possible. Each
party hereto shall promptly notify the other parties of any communication to
that party from any Governmental Entity and permit the other parties to review
in advance any proposed communication to any Governmental Entity. FSI and the
Company shall not (and shall cause their respective affiliates and
representatives not to) agree to participate in any meeting with any
Governmental Entity in respect of any filings, investigation or other inquiry
unless it consults with the other party in advance and, to the extent permitted
by such Governmental Entity, gives the other party the opportunity to attend
and participate thereat. Subject to the Confidentiality Agreement, each of the
parties hereto will coordinate and cooperate fully with the other parties
hereto in exchanging such information and providing such assistance as such
other parties may reasonably request in connection with the foregoing and in
seeking early termination of any applicable waiting
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periods under the HSR Act or in connection with other Consents. Each of the
Company and FSI agrees to respond promptly to and comply fully with any request
for additional information or documents under the HSR Act. Subject to the
Confidentiality Agreement, the Company will provide FSI, and FSI will provide
the Company, with copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof) between such party or any of its
representatives, on the one hand, and any Governmental Entity or members of its
staff, on the other hand, with respect to this Agreement and the transactions
contemplated hereby.
(c) FSI shall use commercially reasonable efforts to cause the financing
necessary for satisfaction of the condition in Section 6.02(e) to be obtained
on the terms set forth in the commitment letters attached to Schedule 6.02(e)
of the FSI Disclosure Schedule; provided, however, that FSI shall be entitled
to (i) enter into commitments for equity and debt financing with other
nationally recognized financial institutions, which commitments will have
substantially the same terms as those set forth in the commitment letters and
which commitments may be substituted for such commitment letters and (ii)
modify the capital structure set forth in such commitment letters so long as
the total committed common equity equals at least $350 million (including
Common Shares to be retained), the aggregate Cash Price paid to all
stockholders of the Company is no less than otherwise would have been paid in
accordance with this Agreement and such modified financing is no less certain
than that set forth in such commitment letter.
SECTION 5.04 Public Announcements. The Company, on the one hand, and FSI,
on the other hand, agree to consult promptly with each other prior to issuing
any press release or otherwise making any public statement with respect to the
Merger and the other transactions contemplated hereby, agree to provide to the
other party for review a copy of any such press release or statement, and shall
not issue any such press release or make any such public statement prior to
such consultation and review, unless required by applicable law or any listing
agreement with a securities exchange.
SECTION 5.05 Employee Benefit Arrangements.
(a) FSI agrees that the Company will honor, and, from and after the
Effective Time, FSI will cause the Surviving Corporation to honor, in
accordance with their respective terms as in effect on the date hereof, the
employment, severance and bonus agreements and arrangements to which the
Company is a party which are set forth on Sections 3.07 and 5.05 of the Company
Disclosure Schedule.
(b) FSI agrees that for a period of two years following the Effective
Time, the Surviving Corporation shall continue the (i) compensation (including
bonus and incentive awards) programs and plans and (ii) employee benefit and
welfare plans, programs, contracts, agreements and policies (including
insurance and pension plans), fringe benefits and vacation policies which are
currently provided by the Company; provided that notwithstanding anything in
this Agreement to the contrary the Surviving Corporation shall not be required
to maintain any individual plan or program so long as the benefit plan and
agreements maintained by the Surviving Corporation are, in the aggregate, not
materially less favorable than those provided by the Company immediately prior
to the date of this Agreement.
SECTION 5.06 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, FSI shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
expenses or liabilities arising out of or related to actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time (i) to
the full extent permitted by Delaware law or, if the protections afforded
thereby to an Indemnified Person are greater, (ii) to the same extent and on
the same terms and conditions (including with respect to advancement of
expenses) provided for in the Company's Restated Certificate of Incorporation
and By-Laws and agreements in effect at the date hereof (to the extent
consistent with applicable law), which provisions will survive the Merger and
continue in full force and effect after the Effective Time. Without limiting
the foregoing, (i) FSI shall, and shall cause the Surviving Corporation to,
periodically advance expenses (including attorney's fees) as incurred by an
Indemnified Person with respect to the foregoing to the full extent permitted
under applicable law, and (ii) any determination required to be made with
respect to whether an Indemnified Party shall be entitled to indemnification
shall, if requested by such Indemnified Party, be made by independent legal
counsel selected by the Surviving Corporation and reasonably satisfactory to
such Indemnified Party.
(b) FSI agrees that the Company, and, from and after the Effective Time,
the Surviving Corporation, shall cause to be maintained in effect for not less
than six years from the Effective Time the current policies of the directors'
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and officers' liability insurance maintained by the Company; provided that the
Surviving Corporation may substitute therefor other policies of at least the
same coverage amounts and which contain terms and conditions not less
advantageous to the beneficiaries of the current policies and provided that
such substitution shall not result in any gaps or lapses in coverage with
respect to matters occurring prior to the Effective Time; and provided,
further, that the Surviving Corporation shall not be required to pay an annual
premium in excess of 250% of the last annual premium paid by the Company prior
to the date hereof and if the Surviving Corporation is unable to obtain the
insurance required by this Section 5.06(c) it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
(c) This Section 5.06 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
FSI and the Surviving Corporation, and shall be enforceable by the Indemnified
Parties.
SECTION 5.07 Notification of Certain Matters. FSI and the Company shall
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (A) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (B) to cause
any covenant, condition or agreement under this Agreement not to be complied
with or satisfied and (ii) any failure of the Company, or FSI, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder. Each of the Company and
FSI shall give prompt notice to the other parties hereof of any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement.
SECTION 5.08 Rights Agreement. Subject to the provisions of Section 5.15,
the Company covenants and agrees that it will not (i) redeem the Rights, (ii)
amend the Rights Agreement or (iii) take any action which would allow any
Person (as defined in the Rights Agreement) other than FSI to acquire
beneficial ownership of 15% or more of the Common Shares without causing a
Distribution Date (as such term is defined in the Rights Agreement) to occur.
Notwithstanding the foregoing, the Company may take any of the actions
described in the preceding sentence, if the Company Board determines in good
faith, after consultation with counsel, that failing to take such action could
reasonably be expected to result in a breach of fiduciary duties of the Company
Board.
SECTION 5.09 State Takeover Laws. The Company shall, upon the request of
FSI, take all reasonable steps to assist in any challenge by FSI to the
validity or applicability to the transactions contemplated by this Agreement,
including the Merger, of any state takeover law.
SECTION 5.10 No Solicitation.
(a) From and after the date hereof until the termination of this
Agreement, the Company and its affiliates shall not, and shall instruct their
respective officers, directors, employees, agents or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or its subsidiaries) (the "Representatives") not to,
(i) directly or indirectly solicit, initiate, or encourage (including by
way of furnishing non-public information or assistance), or take any other
action to facilitate, any inquiries or proposals from any person that
constitute, or may reasonably be expected to lead to, an acquisition,
purchase, merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction involving 20% or more of
the assets or any securities of, any merger consolidation or business
combination with, or any public announcement of a proposal, plan, or
intention to do any of the foregoing by, the Company or any of its
subsidiaries (such transactions being referred to herein as "Acquisition
Transactions"),
(ii) enter into, maintain, or continue discussions or negotiations with
any person in furtherance of such inquiries or to obtain a proposal for an
Acquisition Transaction,
(iii) agree to or endorse any proposal for an Acquisition Transaction,
or
(iv) authorize or permit the Company's or any of its affiliates'
Representatives to take any such action;
provided, however, that nothing in this Agreement shall prohibit the Company
Board from
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(A) furnishing information to, and engaging in discussions or negotiations
with, any person or entity that makes an unsolicited written, bona fide
proposal to acquire the Company and/or its subsidiaries pursuant to a merger,
consolidation, share exchange, tender offer or other similar transaction, but
only to the extent that independent legal counsel (who may be the Company's
regularly engaged outside legal counsel) advises the Company Board in good
faith that failure to furnish such information or engage in such discussions or
negotiations with such person or entity would be a breach of the fiduciary
duties of the Company Board, provided, that prior to taking such action, the
Company Board notifies FSI of its intentions and obtains an executed
confidentiality agreement from the appropriate parties substantially similar to
the Confidentiality Agreement,
(B) failing to make or withdrawing or modifying its recommendation referred to
in Section 5.14 if the Company Board, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged outside legal counsel), determines in good faith that such action is
necessary for the Company Board to comply with its fiduciary duties to
stockholders under applicable law, and
(C) disclosing to the Company's shareholders a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act with respect to any tender
offer, or taking any other legally required action (including, without
limitation, the making of public disclosure as may be necessary or advisable
under applicable securities laws);
and provided further, that the Company's or the Board of Directors' exercise of
its rights under clause (A), (B) or (C) above shall not constitute a breach by
the Company of this Agreement.
(b) The Company will promptly notify FSI of the receipt of any proposal for an
Acquisition Transaction, the terms and conditions of such proposal and the
identity of the person making it. The Company also will promptly notify FSI of
any change to or modification of such proposal for an Acquisition Transaction
and the terms and conditions thereof.
(c) Subject to the provisions of subsection (b), the Company shall immediately
cease and cause its affiliates and its and their Representatives to cease any
and all existing activities, discussions or negotiations with any parties
(other than FSI) conducted heretofore with respect to any of the foregoing, and
shall use its reasonable best efforts to cause any such parties in possession
of confidential information about the Company that was furnished by or on
behalf of the Company to return or destroy all such information in the
possession of any such party (other than FSI) or in the possession of any
Representative of any such party.
SECTION 5.11 Affiliate Letters. Prior to the Closing Date, the Company shall
deliver to FSI a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each such person to
deliver to FSI on or prior to the Closing Date a written agreement in a form
reasonably satisfactory to FSI and the Company.
SECTION 5.12 ISRA Requirements. Prior to the Closing Date, the Company shall be
responsible for compliance with the requirements of ISRA applicable to this
transaction relating to obtaining the necessary approvals for each property
subject to ISRA that will allow this transaction to be completed. The Company
shall consult with FSI with respect to its ISRA filings and strategy, including
allowing FSI to comment on such filing where time permits, and shall provide
copies of all correspondence to and from the DEP with respect to ISRA
compliance.
SECTION 5.13 Reports. The Company shall provide FSI with monthly financial
statements, broken out by business segment, no later than the fifth business
day following the end of each calendar month following the date of this
Agreement.
SECTION 5.14 Stockholders' Meeting.
(a) The Company, acting through the Company Board, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting") as soon as practicable following the
execution of this Agreement for the purpose of considering and taking
action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to this Agreement, and use its reasonable efforts (A) to obtain
and furnish the information required to be included by the SEC in a
definitive proxy statement (the "Proxy Statement") and Form S-4 in which
the Proxy Statement will be
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included (collectively with the Proxy Statement, the "Form S-4") and,
after consultation with FSI, to respond promptly to any comments made by
the SEC with respect to the preliminary proxy statement and cause the
Proxy Statement to be mailed to its stockholders and (B) to obtain the
necessary approvals of the Merger and this Agreement by its stockholders;
and
(iii) subject to the fiduciary duties of the Company Board as provided
in Section 5.10, include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of the
approval of this Agreement.
(b) The Company represents that the Form S-4 will comply in all material
respects with the provisions of applicable federal securities laws and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
FSI in writing for inclusion in the Form S-4. Each of the Company, on the one
hand, and FSI, on the other hand, agree promptly to correct any information
provided by either of them for use in the Form S-4 if and to the extent that it
shall have become false or misleading, and the Company further agrees to take
all steps necessary to cause the Form S-4 as so corrected to be filed with the
SEC and to be disseminated to the holders of Shares, in each case, as and to
the extent required by applicable federal securities laws.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions. The respective obligations of FSI and the Company
to consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions:
(a) Stockholder Approval. The stockholders of the Company shall have duly
approved the transactions contemplated by this Agreement (the "Stockholder
Approval"), if required by applicable law.
(b) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
laws applicable to the registration and qualification of Common Shares to be
retained in the Merger shall have been complied with.
(c) Solvency Letters. Each of the Board of Directors of the Company and
FSI shall have received a solvency letter, in form and substance and from an
independent evaluation firm reasonably satisfactory to it, as to the solvency
of the Company and its subsidiaries on a consolidated basis after giving effect
to the transactions contemplated by this Agreement, including all financings
contemplated hereby.
(d) Orders and Injunctions. An order shall have been entered in any action
or proceeding before any United States federal or state court or governmental
agency or other United States regulatory or administrative agency or commission
(an "Order"), or a preliminary or permanent injunction by a United States court
of competent jurisdiction shall have been issued and remain in effect (an
"Injunction"), which, in either case, would have the effect of (i) preventing
consummation of the Merger, or (ii) imposing material limitations on the
ability of FSI effectively to acquire or hold the business of the Company and
its subsidiaries taken as a whole or to exercise full rights of ownership of
the Shares acquired by it; provided, however, that in order to invoke this
condition, FSI shall have used in its judgment, its commercially reasonable
best efforts to prevent such Order or Injunction or ameliorate the effects
thereof.
(e) Illegality. There shall have been any United States federal or state
statute, rule or regulation enacted or promulgated after the date of this
Agreement that could in the reasonable judgment of FSI result in any of the
material adverse consequences referred to in paragraph (c) above.
(f) HSR Act. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or terminated.
SECTION 6.02 Conditions to Obligations of FSI. The obligations of FSI to
effect the Merger are further subject to the following conditions:
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(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
respects in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date; provided, however, that,
with respect to representations and warranties other than Sections 3.02 and
3.03(a) and representations and warranties otherwise qualified by Material
Adverse Effect, for purposes of this Section 6.02(a), such representations and
warranties and statements shall be deemed to be true and correct in all
respects unless the failure or failures of such representations and warranties
and statements to be so true and correct, individually or in the aggregate,
would result in a Material Adverse Effect with respect to the Company. FSI
shall have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to the effect
set forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this Agreement
at or prior to the Closing Date, including but not limited to its obligations
pursuant to Section 6.06 hereof, except for such failures to perform as have
not had or would not, individually or in the aggregate, have a Material Adverse
Effect with respect to the Company or materially adversely affect the ability
of the Company to consummate the transactions contemplated hereby.
(c) Consents, etc. FSI shall have received evidence, in form and substance
reasonably satisfactory to it, that all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties set forth in Section 3.03 of the Company Disclosure Schedule
shall have been obtained.
(d) No Litigation. There shall not be pending by any Governmental Entity
any suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement or seeking to obtain from FSI
or any of their affiliates any damages that are material to any such party (ii)
seeing to prohibit or limit the ownership or operation by the Company or any of
its subsidiaries of any material portion of the business or assets of the
Company or any of its subsidiaries, to dispose of or hold separate any material
portion of the business or assets of the Company or any of its subsidiaries, as
a result of the Merger or any of the other transactions contemplated by this
Agreement or (iii) seeking to impose limitations on the ability of FSI (or any
designee of FSI), to acquire or hold, or exercise full rights of ownership of,
any Common Shares, including, without limitation, the right to vote Common
Shares on all matters properly presented to the stockholders of the Company.
(e) Financing. The Company shall have received the proceeds of financing
pursuant to the commitment letters set forth on Section 6.02(e) of the FSI
Disclosure Schedule on terms and conditions set forth therein (or (as modified
in accordance with Section 5.03(c)) on such other terms and conditions, or
involving such other financing sources, as FSI and the Company shall reasonably
agree and are not materially more onerous) in amounts sufficient to consummate
the transactions contemplated by this Agreement, including, without limitation
(i) to pay, with respect to all Common Shares in the Merger, the cash portion
of the Merger Consideration pursuant to Section 2.01(c)(iv), (ii) to refinance
the outstanding indebtedness of the Company, (iii) to pay any fees and expenses
in connection with the transactions contemplated by this Agreement or the
financing thereof and (iv) to provide for the working capital needs of the
Company following the Merger, including, without limitation, if applicable,
letters of credit.
SECTION 6.03 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
FSI set forth in this Agreement shall be true and correct in all respects, in
each case as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, provided, that, for purposes of this
Section 6.03(a), with respect to representations and warranties other than
Section 3.02(a) and the representations and warranties otherwise qualified by
Material Adverse Effect, such representations and warranties shall be deemed to
be true and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in
the aggregate, would result in a Material Adverse Effect of FSI. The Company
shall have received certificates signed on behalf of FSI, respectively, by an
authorized officer of FSI, respectively, to the effect set forth in this
paragraph.
(b) Performance of Obligations of FSI. FSI shall have performed the
obligations required to be performed by it under this Agreement at or prior to
the Closing Date (except for such failures to perform as have not had or could
not reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect with respect
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to FSI or adversely affect the ability of FSI to consummate the transactions
herein contemplated or perform its obligations hereunder).
ARTICLE VII
TERMINATION; AMENDMENTS; WAIVER
SECTION 7.01 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by the mutual written consent of FSI and the Company, by action of
their respective Boards of Directors;
(b) by FSI or the Company if the Merger shall not have been consummated on
or before March 31, 1998; provided, however, that neither FSI nor the Company
may terminate this Agreement pursuant to this Section 7.01(b) if such party
shall have materially breached this Agreement;
(c) by FSI or the Company if any court of competent jurisdiction in the
United States or other United States Governmental Entity has issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; provided, however, that the party seeking
to terminate this Agreement shall have used its reasonable best efforts to
remove or lift such order, decree, ruling or other action;
(d) by the Company if, prior to the Effective Time, any person has made a
bona fide proposal relating to an Acquisition Transaction, or has commenced a
tender or exchange offer for the Common Shares, and the Company Board
determines in good faith (i) after consultation with its financial advisors,
that such transaction constitutes a superior offer from a financial point of
view and (ii) after consultation with counsel, that failure to approve such
proposal and terminate this Agreement could reasonably be expected to result in
a breach of fiduciary duties of the Company Board; provided, however, that,
notwithstanding anything in this Agreement to the contrary, the termination of
this Agreement by the Company in compliance with this Section 7.01(d) shall not
be deemed to violate any other obligations of the Company under this Agreement;
(e) by FSI if the Company breaches its covenant in Section 5.08 or takes
an action pursuant to the second sentence of Section 5.08;
(f) by FSI, if the Company Board shall have (i) failed to recommend to the
stockholders of the Company that they give the Stockholder Approval, (ii)
withdrawn or modified in a manner adverse to FSI its approval or recommendation
of this Agreement or the Merger, (iii) shall have approved or recommended an
Acquisition Transaction, (iv) shall have resolved to effect any of the
foregoing or (v) shall have otherwise taken steps to impede the Stockholder
Approval; or
(g) by either FSI or the Company, if the Stockholder Approval shall not
have been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment thereof.
SECTION 7.02 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions of the last
sentence of Section 5.02 and the provisions of this Section 7.02 and Section
7.03, which shall survive any such termination. Nothing contained in this
Section 7.02 shall relieve any party from liability for any breach of this
Agreement.
SECTION 7.03 Fees and Expenses.
(a) In addition to any other amounts which may be payable or become
payable pursuant to any other paragraph of this Section 7.03, in the event that
this Agreement is terminated for any reason other than a material breach by
FSI, the Company shall promptly reimburse THL or FSI, as the case may be, for
all out-of-pocket expenses and fees (including, without limitation, fees
payable to all banks, investment banking firms and other financial
institutions, and their respective agents and counsel, and all fees of counsel,
accountants, financial printers, experts and consultants to THL and its
affiliates), whether incurred prior to, on or after the date hereof, in
connection with
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the Merger and the consummation of all transactions contemplated by this
Agreement, and the financing thereof up to $12 million. Except as otherwise
specifically provided for herein, whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
(b) In the event that (i) this Agreement is terminated pursuant to Section
7.01(d) or (f), or (ii) any Person (other than THL or any of its affiliates)
shall have made, or proposed, communicated or disclosed in a manner which is or
otherwise becomes public a proposal for an Acquisition Transaction prior to the
Special Meeting, the Stockholder Approval has not been obtained and,
thereafter, this Agreement is terminated then the Company shall promptly pay
FSI a termination fee of $25 million (the "Termination Fee"), provided that in
no event shall more than one Termination Fee be payable by the Company.
(c) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
SECTION 7.04 Amendment. This Agreement may be amended by the Company and
FSI at any time before or after any approval of this Agreement by the
stockholders of the Company but, after any such approval, no amendment shall be
made which decreases the Merger Consideration or which adversely affects the
rights of the Company's stockholders hereunder without the approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties.
SECTION 7.05 Extension; Waiver. At any time prior to the Effective Time,
FSI, on the one hand, and the Company, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties contained
herein of the other or in any document, certificate or writing delivered
pursuant hereto by the other or (iii) waive compliance by the other with any of
the agreements or conditions. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Section 2.04, Section 2.05, the last sentence of Section 5.03(a), Section 5.05
and Section 5.06 shall survive the Effective Time indefinitely (except to the
extent a shorter period of time is explicitly specified therein).
SECTION 8.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred
to herein) and the Confidentiality Agreement constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party
(except that FSI may assign its rights, interest and obligations to any
affiliate or direct or indirect subsidiary of FSI without the consent of the
Company provided that no such assignment shall relieve FSI of any liability for
any breach by such assignee). Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 8.03 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
SECTION 8.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
25
<PAGE>
If to FSI:
Thomas H. Lee Company
75 State Street, Ste. 2600
Boston, Massachusetts 02109
Attention: Scott M. Sperling
Anthony J. Di Novi
Telecopier Number: (617) 227-3514
with a copy to:
Skadden, Arps, Slate, Meager & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Eric L. Cochran, Esq.
Telecopier Number: (212) 735-2000
If to the Company:
Fisher Scientific International Inc.
Liberty Lane
Hampton, New Hampshire 03842
Attention: General Counsel
Telecopier Number: (603) 929-2703
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Barry A. Bryer, Esq.
Telecopier Number: (212) 403-2000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 8.05 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
SECTION 8.06 Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 8.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.08 Parties in Interest. Except with respect to Sections 2.04, 5.05
and 5.06 (which are intended to be for the benefit of the persons identified
therein, and may be enforced by such persons), this Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.09 Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any person, shall mean any other person
directly or indirectly controlling, controlled by, or under common control
with, that person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the
26
<PAGE>
management and policies of that person, whether through the ownership of voting
securities, by contract or otherwise;
(b) the term "Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(c) the term "Subsidiary" or "subsidiaries" means, with respect to FSI, the
Company or any other person, any corporation, partnership, joint venture or
other legal entity of which FSI, the Company or such other person, as the case
may be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, stock or other equity interests the holders of which
are generally entitled to more than 50% of the vote for the election of the
board of directors or other governing body of such corporation or other legal
entity.
SECTION 8.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
FISHER SCIENTIFIC INTERNATIONAL INC.
By: /s/ Paul M. Meister
-------------------------------
Name: Paul M. Meister
Title: Senior Vice President
and
Chief Financial Officer
FSI MERGER CORP.
By: /s/ Scott M. Sperling
-------------------------------
Name: Scott M. Sperling
Title: Chairman of the Board
27
<PAGE>
Annex II
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, N.Y. 10020
--------
New York
Telephone (212) 632-6000
Facsimile (212) 632-6060
November 14, 1997
The Board of Directors
Fisher Scientific International Inc.
Liberty Lane
Hampton, NH 03842
Dear Members of the Board:
We understand that FSI Merger Corp. ("FSI"), an entity formed by Thomas
H. Lee Company, its affiliates and certain other new equity investors, and
Fisher Scientific International Inc. (the "Company") have entered into a Second
Amended and Restated Agreement and Plan of Merger dated as of November 14, 1997
(the "Agreement"), pursuant to which FSI will merge with and into the Company
(the "Merger"). The Agreement provides that upon consummation of the Merger
approximately 97% of the fully diluted shares of Common Stock of the Company
(the "Common Shares") will be converted into the right to receive $48.25 per
Common Share in cash and approximately 3% of the fully diluted Common Shares
will be converted into the right to retain Common Shares on a one for one basis
(such cash and retained shares, the "Merger Consideration"), subject to the
procedures and conditions set forth in the Agreement. Immediately following
consummation of the Merger, the affiliates of, and certain other new equity
investors in, FSI will own approximately 89.7% of the then outstanding Common
Shares and the holders of Common Shares prior to the Merger who retain Common
Shares in the Merger will own approximately 10.3% of the then outstanding
Common Shares. The terms and conditions of the Merger are set forth in the
Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Common Shares of the Merger Consideration taken as a
whole. In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating
to the Company;
<PAGE>
Lazard Freres & Co. LLC
(iii) the Company relating to its businesses and financial performance,
including the limited available information regarding the adverse consequences
to the Company of the recent strike by certain employees of United Parcel
Service of America, Inc. (the "Strike Impact");
(iv) Held discussions with members of the senior management of the Company
with respect to the businesses and prospects of the Company and the Strike
Impact;
(v) Reviewed public information with respect to certain other companies in
lines of businesses we believe to be generally comparable to the businesses of
the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be generally comparable
to those of the Company;
(vii) Reviewed the historical stock prices and trading volumes of the
Common Shares; and
(viii) Considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed
appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company. We are not opining or
providing any advice with respect to the impact of the Merger on the solvency,
viability or the financial condition of the Company or its ability to satisfy
its obligations as they become due. With respect to financial forecasts, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of management of the Company
as to the future financial performance of the Company. In that regard, we note
that management of the Company has not revised its financial projections for
years other than 1997 to reflect the possible Strike Impact, if any, in light
of the current uncertainty as to the nature, magnitude and duration of any
possible Strike Impact after 1997. Therefore, in connection with our review, we
have considered the sensitivity of the Company's financial projections and the
analyses to which they are relevant to various assumptions regarding the Strike
Impact after 1997 and, with your consent,
2
<PAGE>
Lazard Freres & Co. LLC
have not independently analyzed the likelihood, magnitude, timingor duration of
any such Strike Impact (and we express no opinion with respect to the Strike
Impact). We assume no responsibility for and express no view as to such
forecasts, the Strike Impact or the assumptions on which they are based. In
addition, our opinion does not address the Company's underlying business
decision to enter into the Agreement. Further, our opinion is necessarily based
on economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining any necessary
regulatory or third party approvals for the Merger will not have an adverse
effect on the Company. Our opinion does not address the future trading value of
the Common Shares following the Merger.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon consummation of the Merger. Our
firm has in the past provided investment banking services to the Company and
has received fees for rendering such services.
Our opinion is addressed to, and is for the use and benefit of, the Board
of Directors of the Company and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger
or as to whether such stockholder should elect to receive cash or to retain
Common Shares in the Merger.
Based on and subject to the foregoing, we are of the opinion that the
Merger Consideration taken as a whole is fair to the holders of Common Shares
from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/
---------------------------
Managing Director
By:
3
<PAGE>
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
212-783-7000
----------------
Salomon Brothers
--------------------
Confidential
November 14, 1997
Board of Directors
Fisher Scientific International Inc.
Liberty Lane
Hampton, NH 03842
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of common stock, par value $.01 per
share (the "Common Stock"), of Fisher Scientific International Inc. (the
"Company") of the Merger Consideration (as defined below) taken as a whole to
be received by such holders pursuant to the Second Amended and Restated
Agreement and Plan of Merger by and between FSI Merger Corp. ("FSI") and the
Company dated as of November 14, 1997 (the "Merger Agreement"). The Merger
Agreement provides for, among other things, the merger (the "Merger") of FSI
with and into the Company, pursuant to which each share of Common Stock issued
and outstanding immediately prior to the effective time of the Merger will be
converted into either the right to receive $48.25 in cash or the right to
retain one share of Common Stock subject to the procedures and conditions set
forth in the Merger Agreement. (The cash received and the shares retained by
the holders of Common Stock are referred to as the "Merger Consideration").
Immediately following consummation of the Merger, FSI, its affiliates and
certain other new equity investors will own approximately 89.7% of the then
outstanding Common Stock and the holders of Common Shares prior to the Merger
who retain Common Stock in the Merger will own approximately 10.3% of the then
outstanding Common Stock.
In connection with rendering our opinion, we have, among other things: (i)
reviewed the draft of the Merger Agreement and certain documents referred to
therein; (ii) reviewed certain publicly available business and financial
information concerning the Company; (iii) reviewed certain publicly available
information concerning the industry in which the Company operates; (iv)
- - - --------------------------------------------------------------------------------
Salomon Brothers Inc & Worldwide Affiliates
- - - --------------------------------------------------------------------------------
[Letterhead]
<PAGE>
Fisher Scientific International Inc.
November 14, 1997
Page 2
financial and operating data concerning the businesses and operations of the
Company that were provided to us or reviewed for us by management of the
Company, including the limited available information regarding the adverse
consequences to the Company of the recent strike by certain employees of United
Parcel Service of America, Inc. (the "Strike Impact"); (v) reviewed certain
publicly available business and financial information with respect to certain
other companies that we believe to be comparable in certain respects to the
Company and the trading markets for such companies' securities; (vi) reviewed
and analyzed certain publicly available and other information concerning the
trading of, and the trading market for, the Common Stock; (vii) reviewed the
financial terms of certain business combinations and acquisition transactions
we deem reasonably comparable to the Merger and otherwise relevant to our
inquiry; and (viii) considered such other information, financial studies,
analyses, investigations and financial, economic, market and trading criteria
as we deemed relevant to our inquiry. We have also discussed with certain
officers and employees of the Company the foregoing, including the past and
current business operations, financial condition and prospects of the Company
and the Strike Impact as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon, without assuming any responsibility for verification, the accuracy
and completeness of all of the financial and other information provided to,
discussed with, or reviewed by or for us or publicly available. With respect to
the financial projections for the Company provided to us or reviewed for us by
the management of the Company, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments on the part of the management of the Company as to the future
financial performance of the Company. In that regard, we note that management
of the Company has not revised its financial projections for years after 1997
to reflect the current uncertainty as to the nature, magnitude and duration of
any possible Strike Impact after 1997, if any. In connection with our review,
we have, with your consent, considered the sensitivity of the Company's
financial projections (and the analyses to which they are relevant) to various
assumptions regarding the Strike Impact after 1997. We have not independently
analyzed the likelihood, magnitude, timing or duration of any such Strike
Impact (and we express no opinion with respect to the Strike
<PAGE>
Fisher Scientific International Inc.
November 14, 1997
Page 3
Impact). We express no view as to such projections, the Strike Impact, or
information or the assumptions on which they are based. We have not assumed
easy responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of the Company. We are not opining or providing any advice with
respect to the impact of the Merger on the solvency, viability or the financial
condition of the Company or its ability to satisfy its obligations as they
become due.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Merger or constitute a recommendation to any holder of Common
Stock as to how such holder should vote with respect to the Merger or as to
whether such holder should elect to receive cash or retain Common Stock in the
Merger. Our opinion as expressed below does not imply any conclusion as to the
likely trading range for the Common Stock following the announcement or
consummation of the Merger, which may vary depending upon, among others
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and connect, that each part will
perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger will be satisfied without waiver thereof. We have also assumed that all
material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either the Company is a party, as
contemplated by the Merger Agreement, no restrictions will be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits of the Merger.
<PAGE>
Fisher Scientific International Inc.
November 14, 1997
Page 4
As you are aware, we have acted as the financial advisor to the Company in
connection with the Merger and related matters and will receive fees from the
Company for our services, a portion of which is contingent upon consummation of
the Merger. The Company has also agreed to indemnify us for certain liabilities
arising out of our engagement. Additionally, we have rendered certain
investment banking and financial advisory services to certain other business
entities affiliated with certain directors of the Company in the past for which
we have been paid fees. In the ordinary course of our business, we or our
affiliates may actively trade the securities of the Company for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Merger Consideration taken as a whole, is fair, from a
financial point of view, to the holders of the Common Stock.
Very truly yours,
Salomon Brothers Inc
<PAGE>
ANNEX III
EXCERPTS FROM THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to [sec] 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to 251 (other than a merger effected pursuant to subsection
(g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of [sec] 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
[sec][sec] 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under [sec] 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all
<PAGE>
or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to [sec] 228 or
[sec] 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or
2
<PAGE>
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
3
<PAGE>
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
<PAGE>
Annex IV
Thomas H. Lee Company 75 State Street, Boston, Massachusetts 02109
Telephone 617-227-1050
Fax 617-227-3514
November 14, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street, 26th Floor
Boston, Massachusetts 02119
Re: Recapitalization Proposal
Dear Sirs or Madams:
Reference is made to the proposal letter, dated as of August 5, 1997 (the
"Proposal Letter"), of Thomas H. Lee Equity Company, addressed to Fisher
Scientific International Inc. ("Fisher"), describing a proposed transaction
(the "Transaction") between FSI Merger Corp. ("FSI"), a wholly-owned subsidiary
of Thomas H. Lee Company, and Fisher regarding the recapitalization of Fisher.
Reference is also made to the equity commitment letters, dated as of
August 5, 1997 and September 11, 1997, of Thomas H. Lee Company addressed to
FSI, which are hereby superseded by this equity commitment letter as a result
of amendments made to the Agreement and Plan of Merger, dated as of November
14, 1997 (the "Merger Agreement"), by and between FSI and Fisher. Terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
This is to advise you that Thomas H. Lee Equity Fund III, L.P. (the
"Fund") hereby commits to purchase up to $249.0 million of equity to take the
form of (i) common stock of FSI (which will be converted in the Transaction
into the right to receive 4,165,643 shares of common stock of Fisher less the
pro rata portion of the Election Eligible Shares), (ii) 4,800,773 shares of
preferred stock of Fisher ($10 liquidation preference per share) and (iii)
warrants to purchase 330,717 shares of common stock of Fisher at or following
the Transaction for an exercise price of $48.25 per share (subject to standard
anti-dilution adjustments).
1. Conditions. The commitments set forth herein shall be subject to:
(a) execution of documentation customary in financings of this type; and
(b) execution of the Second Amended and Restated Agreement and Plan of
Merger by and between FSI and Fisher (including reasonable changes
acceptable to the Fund) and satisfaction (and not waiver) of all conditions
set forth therein.
2. Expenses. If the transactions contemplated by this letter shall be
consummated, FSI shall pay and save the Fund harmless against any liability for
all reasonable out-of-pocket expenses of the Fund for attorneys, accountants
and other professional services required in conjunction with (i) the
preparation of this letter, (ii) the "due diligence" process involved in
evaluating the status of the affairs of Fisher, (iii) the negotiation,
documentation and closing of the transactions contemplated hereby, and (iv) all
related printing, reproduction, or similar transactional costs, provided,
however, that FSI shall not be required to pay for such expenses if the Fund
fails to close this transaction for reasons which are unrelated to the
satisfaction of any of the conditions of this commitment letter in accordance
with the terms hereof.
3. Indemnification. FSI agrees to indemnify and to hold harmless the Fund
from and against any and all actions, suits, proceedings (including any
investigations or inquiries), losses, claims, damages, liabilities or expenses
of any kind or nature whatsoever which may be incurred by or asserted against
or involve the Fund or any of its respective partners, officers, agents or
employees as a result of or arising out of or in any way related to the
transactions described in this letter, provided, however, that the Fund shall
not have the right to be indemnified hereunder for their own gross negligence
or willful misconduct as determined by a court of competent jurisdiction. FSI
further agrees to pay or reimburse to the Fund upon demand any legal or other
expenses incurred by the Fund in connection with investigating, defending or
preparing to defend any such action, writ, claim or proceeding (including any
inquiry or investigation). The provisions of this paragraph 3 and the
immediately preceding paragraph 2 are independent of all other obligations of
FSI hereunder and shall survive termination or expiration of the commitment
embodied in this letter.
<PAGE>
4. Closing Date. The commitment to purchase equity as set forth herein, as
so accepted by you, shall expire if not closed on or before January 31, 1998.
5. No Assignment. The commitment evidenced by this letter shall not be
assignable by you without the Fund's prior written consent, and the granting of
such consent in a given instance shall be solely in the discretion of the Fund
and, if granted, shall not constitute a waiver of this requirement as to any
subsequent assignment.
Very truly yours,
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, General Partner
By: THL Equity Trust III, General Partner
By: /s/ Scott M. Sperling
---------------------------------
Name: Scott M. Sperling
Title: Managing Director
2
<PAGE>
Donaldson, Lufkin & Jenrette
DLJ Merchant Banking, Inc.
277 Park Avenue, New York, New York 10172 [bullet] (212) 892-3000
Dated as of November 14, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street, 26th Floor
Boston, Massachusetts 02119
Re: Recapitalization Proposal
Dear Sirs or Madams:
Reference is made to the proposal letter, dated as of August 5, 1997, (the
"Proposal Letter"), of Thomas Lee H. Equity Company, addressed to Fisher
Scientific International Inc. ("Fisher"), describing a proposed transaction
(the "Transaction") between FSI Merger Corp. ("FSI"), a wholly-owned subsidiary
of Thomas H. Lee Company, and Fisher regarding the recapitalization of Fisher.
Reference is also made to the equity commitment letters, dated as of
August 6, 1997 and September 11, 1997, of the DLJ Investors (as defined below)
addressed to FSI, which are hereby superseded by this equity commitment letter
as a result of amendments made to the Agreement and Plan of Merger, dated as of
November 14, 1997 (the "Merger Agreement"), by and between FSI and Fisher.
Terms not otherwise defined herein shall have the meanings set forth in the
Merger Agreement.
This is to advise you that DLJ Merchant Banking II, Inc., on behalf of one
or more of DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking
Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners,
L.P. DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ
Millennium Partner-A, L.P., DLJMB Funding II, Inc., UK Investment Plan 1997
Partners, DLJ EAB Partners, L.P. and DLJ First ESC LLC (collectively, the "DLJ
Investors"), hereby commits to purchase an aggregate amount of $75.0 million of
equity to take the form of (i) common stock of FSI (which will be converted in
the Transaction into the right to receive 1,254,712 shares of common stock of
Fisher less the pro rata portion of the Election Eligible Shares), (ii)
1,446,015 shares of preferred stock of Fisher ($10 liquidation preference per
share) and (iii) warrants to purchase 99,614 shares of common stock of Fisher
at or following the Transaction for an exercise price of $48.25 per share
(subject to standard anti-dilution adjustments).
1. Conditions. The commitments set forth herein shall be subject to:
a. execution of documentation customary in financings of this type,
including appropriate minority investor rights;
b. execution of the Second Amended and Restated Agreement and Plan of
Merger by and between FSI and Fisher (including reasonable changes
acceptable to the DLJ Investors) and satisfaction (and not waiver) of
all conditions set forth therein;
c. the investment by the DLJ Investors being on the same terms as the
investment by the Thomas H. Lee Equity Fund III, L.P.; and
d. the investment by the DLJ Investors being on terms that are in
compliance with Regulations Y.
2. Expenses. If the transactions contemplated by this letter shall be
consummated, FSI shall pay and save the DLJ Investors harmless against any
liability for all reasonable out-of-pocket expenses of the DLJ Investors for
attorneys, accountants and other professional services required in conjunction
with (i) the preparation of this letter, (ii) the "due diligence" process
involved in evaluating the status of the affairs of Fisher, (iii) the
negotiation, documentation and closing of the transactions contemplated hereby,
and (iv) all related printing, reproduction, or similar transactional costs,
provided, however, that FSI shall not be required to pay for such expenses if
the DLJ Investors fail to close this transaction for reasons which are
unrelated to the satisfaction of any of the conditions of this commitment
letter in accordance with the terms hereof.
3. Indemnification. FSI agrees to indemnify and to hold harmless the DLJ
Investors and their respective partners, officers, agents and employees from
and against any and all actions, suits, proceedings (including any
investigations or inquiries), losses, claims, damages, liabilities or expenses
of any kind or nature whatsoever which
<PAGE>
may be incurred by or asserted against or involve the DLJ Investors or any of
their respective partners, officers, agents or employees as a result of or
arising out of or in any way related to the transactions described in this
letter, provided, however, that none of the DLJ Investors or any of the other
indemnified person referred to above shall have the right to be indemnified
hereunder for their own gross negligence or willful misconduct as determined by
a court of competent jurisdiction. FSI further agrees to pay or reimburse to
the DLJ Investors upon demand any legal or other expenses incurred by the DLJ
Investors in connection with investigating, defending or preparing to defend
any such action, writ, claim or proceeding (including any inquiry or
investigation). The provisions of this paragraph 3 and the immediately
preceding paragraph 2 are independent of all other obligations of FSI hereunder
and shall survive termination or expiration of the commitment embodied in this
letter.
4. Closing Date. The commitment to purchase equity as set forth herein, as
so accepted by you, shall expire if not closed on or before January 31, 1998.
5. No Assignment. The commitment evidenced by this letter shall not be
assignable by you without the DLJ Investors' prior written consent, and the
granting of such consent in a given instance shall be solely in the discretion
of the DLJ Investors and, if granted, shall not constitute a waiver of this
requirement as to any subsequent assignment.
Very truly yours,
DLJ MERCHANT BANKING II, INC.
on behalf of the DLJ Investors
referred to above
By: /s/ Thompson Dean
---------------------------------
Name: Thompson Dean
Title: Managing Director
2
<PAGE>
Matthias B. Bowman
Vice Chairman
Investment Banking
Corporate and
Institutional
Client Group
[Merrill Lynch logo]
World Financial
Center
North Tower
New York, New York
10281-1327
212 449 8200
FAX 212 449 8634
[email protected]
November 14, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street, 26th Floor
Boston, Massachusetts 02119
Re: Recapitalization Proposal
Dear Sirs or Madams:
Reference is made to the proposal letter, dated as of August 5, 1997 (the
"Proposal Letter"), of Thomas H. Lee Equity Company, addressed to Fisher
Scientific International Inc. ("Fisher"), describing a proposed transaction
(the "Transaction") between FSI Merger Corp. ("FSI"), a wholly-owned subsidiary
of Thomas H. Lee Company, and Fisher regarding the recapitalization of Fisher.
Reference is also made to the equity commitment letter, dated as of August
5, 1997 or September 11, 1997, of Thomas H. Lee Company addressed to FSI, which
is hereby superseded by this equity commitment letter as a result of amendments
made to the Agreement and Plan of Merger, dated as of August 7, 1997, by and
between FSI and Fisher.
This is to advise you that Merrill Lynch & Co., KECALP Inc. on behalf of
Merrill Lynch KECALP International L.P. 1997, and Merrill Lynch KECALP L.P.
1997 ("Merrill Lynch") hereby commits to purchase up to $15 million of equity
to take the form of (i) common stock of FSI (which will be converted in the
Transaction into the right to receive 250,942 shares of common stock of Fisher
less the pro rata portion of the Election Eligible Shares), (ii) 289,204 shares
of preferred stock of Fisher ($10 liquidation preference per shares) and (iii)
warrants to purchase 19,923 shares of common stock of Fisher at or following
the Transaction for an exercise price of $48.25 per share (subject to standard
anti-dilution Adjustment).
1. Conditions. The commitments set forth herein shall be subject to:
(a) execution of documentation customary in financings of this type,
including appropriate minority investors rights;
(b) execution of the Second Amended and Restated Agreement and Plan of
Merger by and between FSI and Fisher (including reasonable changes
acceptable to Merrill Lynch) and satisfaction (and not waiver) of all
conditions set forth therein;
(c) the investment by Merrill Lynch being on the same terms as the
investment by the Thomas H. Lee Equity Fund III, L.P.; and
(d) the investment by Merrill Lynch being on terms that are in compliance
with Regulation G.
2. Expenses. If the transactions contemplated by this letter shall be
consummated, FSI shall pay and save Merrill Lynch harmless against any
liability for all reasonable out-of-pocket expenses of Merrill Lynch for
attorneys, accountants and other professional services required in conjunction
with (i) the preparation of this letter, (ii) the "due diligence" process
involved in evaluating the status of the affairs of Fisher, (iii) the
negotiation, documentation and closing of the transactions contemplated hereby,
and (iv) all related printing, reproduction, or similar transactional costs,
provided, however, that FSI shall not be required to pay for such expenses if
Merrill Lynch fails to close this transaction for reasons which are unrelated
to the satisfaction of any of the conditions of this commitment letter in
accordance with the terms hereof.
<PAGE>
3. Indemnification. FSI agrees to indemnify Merrill Lynch and its
affiliates and their respective directors, officers, employees, agents and
controlling persons (Merrill Lynch and each such person being an "Indemnified
Party") from and against any and all losses, claims, damages and liabilities,
joint or several, to which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise, and related to or arising out of
the transactions described in this letter and will reimburse any Indemnified
Party for all expenses (including counsel fees and expenses) as they are
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party and whether or not such claim,
action or proceeding is initiated or brought by or on behalf of FSI. FSI will
not be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability or expense is found in a final judgment by a
court to have resulted from Merrill Lynch's bad faith or gross negligence.
4. Closing Date. The commitment to purchase equity as set forth herein, as
so accepted by you, shall expire if not closed on or before January 31, 1998.
5. No Assignment. The commitment evidenced by this letter shall not be
assignable by you without Merrill Lynch's prior written consent, and the
granting of such consent in a given instance shall be solely in the discretion
of Merrill Lynch and, if granted, shall not constitute a waiver of this
requirement as to any subsequent assignment.
Very truly yours,
KECALP Inc.
By: /s/ Matthias B. Bowman
---------------------------------
Name: Matthias B. Bowman
Title: Director and Chief Investment
Officer
Merrill Lynch & Co.
By:
------------------------------
Name:
------------------------------
Title:
2
<PAGE>
[logo] Chase
Mitchell J. Blutt, M.D.
Chase Capital Partners
380 Madison Avenue, 12th Floor Executive Partner
New York, NY 10017-2591
Tel 212-622-3024
Fax 212-622-3755
November 14, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street, 26th Floor
Boston, Massachusetts 02119
Re: Recapitalization Proposal
Dear Sirs or Madam:
Reference is made to the proposal letter, dated as of August 5, 1997 (the
"Proposal Letter"), of Thomas H. Lee Equity Company, addressed to Fisher
Scientific International Inc. ("Fisher"), describing a proposed transaction
(the "Transaction") between FSI Merger Corp. ("FSI"), a wholly-owned subsidiary
of Thomas H. Lee Company, and Fisher regarding the recapitalization of Fisher.
Reference is also made to the equity commitment letters, dated as of
August 5, 1997 and September 11, 1997, of Thomas H. Lee Company addressed to
FSI, which are hereby superseded by this equity commitment letter as a result
of amendments made to the Agreement and Plan of Merger, dated as of November
14, 1997 (the "Merger Agreement"), by and between FSI and Fisher. Terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
This is to advise you that Chase Equity Associates, L.P. or an affiliate
thereof ("the Fund") I hereby commits to purchase up to $50.0 million of equity
to take the form of (I) common stock of FSI (which will be converted in the
Transaction into the right to receive 836,475 shares of common stock of Fisher
less the pro rata portion of the Election Eligible Shares), (ii) 964,008 shares
of preferred stock of Fisher ($10 liquidation preference per share) and (iii)
warrants to purchase 66,409 shares of common stock of Fisher at or following
the Transaction for an exercise price of $48.25 per share (subject to standard
anti-dilution adjustments).
1. Conditions. The commitments set forth herein shall be subject to:
(a) execution of documentation customary in financings of this type,
including appropriate minority investor rights;
(b) execution of the Second Amended and Restated Agreement and Plan of
the Merger by and between FSI and Fisher (including reasonable changes
acceptable to the Fund) and satisfaction (and not waiver) of all
conditions set forth therein.
(c) the investment by the Fund being on the same terms as the investment
by the Thomas H. Lee Equity Fund III, L.P.; and
(d) the investment by the Fund being on terms that are in compliance with
Regulation Y.
2. Expenses. If the transactions contemplated by this letter shall be
consummated, FSI shall pay and save the Fund harmless against any liability for
all reasonable out-of-pocket expenses of the Fund for attorneys, accountants
and other professional services required in conjunction with (i) the
preparation of this letter, (ii) the "due diligence" process involved in
evaluation the status of the affairs of Fisher, (iii) the negotiation,
documentation and closing of the transactions contemplated hereby, and (iv) all
related printing, reproduction, or similar transactional costs, provided,
however, that FSI shall not be required to pay for such expenses if the Fund
fails to close this transaction for reasons which are unrelated to the
satisfaction of any of the conditions of this commitment letter in accordance
with the terms hereof.
3. Indemnification. FSI agrees to indemnify and to hold harmless the Fund
from and against any and all actions, suits, proceedings (including any
investigations or inquiries), losses, claims, damages, liabilities or expenses
of any kind or nature whatsoever which may be incurred by or asserted against
or involve the Fund or any of its respective partners, officers, agents or
employees as a result of or arising out of or in any way related to the
transactions
<PAGE>
described in this letter, provided, however, that the Fund shall not have the
right to be indemnified hereunder for their own gross negligence or willful
misconduct as determined by a court of competent jurisdiction. FSI further
agree to pay or reimburse to the Fund upon demand any legal or other expenses
incurred by the Fund in connection with investigation, defending or preparing
to defend any such action, writ, claim or proceeding (including any inquiry of
investigation). The provisions of this paragraph 3 and the immediately
preceding paragraph 2 are independent of all other obligations of FSI hereunder
and shall survive termination or expiration of the commitment embodied in this
letter.
4. Closing Date. The commitment to purchase equity as set forth herein, as
so accepted by you, shall expire if not closed on or before January 31, 1998.
5. No Assignment. The commitment evidenced by this letter shall not be
assignable by you without the Fund's' prior written consent, and the granting
of such consent in a given instance shall be solely in the discretion of the
Fund and, if granted, shall not constitute a waiver of this requirement as to
any subsequent assignment.
Very truly yours,
CHASE EQUITY ASSOCIATES
By: Chase Capital Partners
Its General Partner
By: /s/ Mitchell J. Blutt
---------------------------------
Name: Mitchell J. Blutt
Title: Executive Partner
2
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION THE CHASE MANHATTAN BANK
World Financial Center 270 Park Avenue
North Tower New York, New York 10017
250 Vesey Street
New York, New York 10281
DLJ BRIDGE FINANCE, INC.
277 Park Avenue
New York, New York 10172
November 14, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street
Suite 2600
Boston, Massachusetts 02109
Re: Fisher Scientific International, Inc.
Ladies and Gentlemen:
Reference is made to the Bridge Loan Commitment Letter dated as of
September 11, 1997 attached hereto as Exhibit A (the "Commitment Letter"). We
have reviewed, and consent to, the changes incorporated in the Second Amended
and Restated Merger Agreement dated as of November 14, 1997 between FSI Merger
Corp. and Fisher Scientific International, Inc. and confirm the Commitment
Letter is in full force and effect as of the date hereof.
[Signature Page Follows]
<PAGE>
Very truly yours,
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Michael J. Zupon
Name: Michael J. Zupon
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Bruce Borden
Name: Bruce Borden
Title: Vice President
DLJ BRIDGE FINANCE, INC.
By: /s/ Robert C. Grien
Name: Robert C. Grien
Title: Vice President
Accepted and agreed to as of
the date first written above:
FSI MERGER CORP.
By: /s/ Kent R. Weldon
Name: Kent R. Weldon
Title: Vice President
2
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION THE CHASE MANHATTAN BANK
World Financial Center 270 Park Avenue
North Tower New York, New York 10017
250 Vesey Street
New York, New York 10281
DLJ BRIDGE FINANCE, INC.
277 Park Avenue
New York, New York 10172
September 11, 1997
FSI Merger Corp.
c/o Thomas H. Lee Company
75 State Street
Suite 2600
Boston, Massachusetts 02109
Re: Bridge Loan Commitment Letter
Ladies and Gentlemen:
You have advised Merrill Lynch Capital Corporation ("Merrill Lynch"), The
Chase Manhattan Bank ("Chase") and DLJ Bridge Finance, Inc. ("DLJ") that Thomas
H. Lee Company and its affiliates ("THL") have formed a Delaware corporation
("MergerCo") for the purpose of merging (the "Recapitalization") with and into
a company previously identified to us as Sci Fi ("Target" or "Borrower")
pursuant to a Recapitalization and Merger Agreement (the "Recapitalization
Agreement") to be entered into between MergerCo and Target. Pursuant to the
Recapitalization Agreement, MergerCo will merge with and into Target and Target
will be the survivor (such survivor, "New Target"). The sources and uses of the
funds necessary to consummate the Recapitalization and the related transactions
are set forth on Annex I to the attached Term Sheet.
You have advised Merrill Lynch, Chase and DLJ that in connection with the
consummation of the Recapitalization, (a) (1) a group of investors arranged by
you, comprising Merrill Lynch, Chase, DLJ and THL (or certain of their
respective affiliates) (together, the "Investors") will make cash capital
contributions to MergerCo in an aggregate amount of at least $299 million, (2)
certain members of management of Target ("Management") and the existing holders
(each, an "Existing Stockholder") of common stock of Target (the "Common
Stock") that is outstanding immediately prior to the Recapitalization will
retain common equity of Target with a value of not less than $36 million and
not more than $51 million excluding the value of Common Stock underlying
options held by Eligible Employees (as defined in the Recapitalization
Agreement) and (3) the Investors will purchase, if not purchased by outside
investors, payment-in-kind preferred stock of Target (the "PIK Preferred")
having an aggregate value of not less than $75 million (collectively, the
"Equity Financing"); provided, however, that the total Equity Financing shall
not be less than $425 million; (b) each Existing Stockholder will, subject to
the provisions of the Recapitalization Agreement, be entitled to elect either
(x) to receive an amount of cash on a per-share basis equal to cash merger
consideration of $48.25 per share (in which case such shares of Common Stock
will be canceled) or (y) to retain any such shares of Common Stock; provided,
however, that, upon completion of the Recapitalization, the Existing
Stockholders will not own more than 20% of the then outstanding Common Stock;
(c) MergerCo stock will be exchanged for newly issued shares of Common Stock
having an aggregate value equal to $299 million; (d) except for options held by
Eligible Employees (as defined in the Recapitalization Agreement) to be
converted subsequent to the Merger, each of the options of Target that are
outstanding immediately prior to the Recapitalization will be canceled and the
holder thereof will be entitled to receive an amount of cash equal to the
difference between the cash merger consideration paid in connection with the
Recapitalization and the exercise price of such option; (e) Target will raise
gross proceeds of up to $400 million either from an offering of unsecured
senior subordinated debt securities due 2007 with no scheduled principal
payments prior to maturity (the "Senior Subordinated Notes") (the "Securities
Offering"), or from an unsecured senior subordinated bridge loan (the "Bridge
Loan") which would be anticipated to be replaced with debt securities
substantially similar to the Senior Subordinated Notes after the closing of the
Recapitalization (the "Debt Securities") (the Securities Offering or the
take-down under the Bridge Loan, the "Senior Subordinated Financing"); and (f)
Target will enter into the credit facilities (the "Credit Facilities")
described herein. The PIK Preferred shall be on terms and conditions and
pursuant to documentation satisfactory to Merrill Lynch, Chase and DLJ.
<PAGE>
In addition, upon consummation of the Recapitalization, Target intends to
(i) repay all indebtedness (approximately $190 million) and terminate all
commitments to make extensions of credit under its existing $250 million
revolving credit facility of Target and its subsidiaries agented by Toronto
Dominion Bank (the "Existing Credit Facility"), and (ii) leave outstanding and
equally and ratably secure pursuant to documentation and on terms and
conditions satisfactory to Merrill Lynch, Chase and DLJ all of its $150 million
aggregate principal amount 71/8% Senior Notes due 2005 (the "Existing Notes").
After giving effect to the Recapitalization, the Investors will own not
less than 80% of the then outstanding Common Stock.
The Recapitalization, the Senior Subordinated Financing, the Equity
Financing, the repayment of all debt and cancellation of all commitments to
make extensions of credit under the Existing Credit Facility (the "Existing
Debt Repayment"), the entering into and borrowings under the Credit Facilities
by the parties herein described and the other transactions described above
entered into and consummated in connection with the Recapitalization are herein
referred to as the "Transactions".
You have further advised us that (i) the Credit Facilities will consist of
an aggregate of $650 million in senior credit facilities to finance the
Existing Debt Repayment, the Recapitalization, certain fees and expenses and to
provide for working capital and general corporate purposes, of which not more
than $475 million will be borrowed at Funding (as defined below in Section 1),
and (ii) after the consummation of the Recapitalization, New Target intends to
effect a receivables securitization transaction on terms acceptable to Merrill
Lynch, Chase and DLJ in an amount sufficient to generate gross cash proceeds to
New Target of $200 million (the "Receivables Financing").
By separate letter agreement, Merrill Lynch, Chase and DLJ Capital
Funding, Inc. have agreed to provide the Credit Facilities.
You have advised Merrill Lynch, Chase and DLJ that immediately after
giving effect to the Transactions, New Target and its subsidiaries will have no
material indebtedness outstanding other than the Credit Facilities, the Senior
Subordinated Notes or the Bridge Loan and the Existing Notes (and, thereafter,
the Debt Securities), and, if consummated, the Receivables Financing.
We further understand that the precise structure of the Transactions will
be under continuing consideration, may vary from the foregoing and will be
subject to our mutual agreement.
You have requested that (a) Merrill Lynch (or Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S")) act as exclusive syndication agent for
the Bridge Loan, (b) Chase act as administrative agent for the Bridge Loan, (c)
DLJ (or Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC")) act as
documentation agent for the Bridge Loan, and (d) Merrill Lynch (or MLPF&S) and
Chase (or Chase Securities, Inc. ("CSI")) agree to exclusively structure,
arrange and syndicate the Bridge Loan.
Accordingly, subject to the terms and conditions set forth below and in
the Summary of Indicative Terms attached hereto as Exhibit A and incorporated
by reference herein (the "Term Sheet"), Merrill Lynch, Chase and DLJ severally
hereby agree with you as follows:
1. Commitment. In the event that the Securities Offering shall not have
been consummated at or prior to the time of the closing of the
Recapitalization, Merrill Lynch, Chase and DLJ each severally hereby commits to
you to provide, or to cause one or more of their respective affiliates to
provide, subject to the terms and conditions outlined in this Commitment
Letter, in each fee letter (the "Fee Letter") dated the date hereof and
delivered to you, and in the Term Sheet, $160 million, $160 million and $80
million, respectively, of the Bridge Loan in immediately available funds at the
funding (the "Funding") for the purpose of financing in part the Transactions.
The Funding will occur simultaneously with the consummation of the
Transactions. At Funding, any unused commitment under this Commitment Letter
will terminate immediately after making the Bridge Loan.
2. Bridge Financing Agreement. At or prior to the Funding, Borrower shall
enter into a financing agreement (the "Bridge Loan Agreement") with Merrill
Lynch, Chase and DLJ, substantially in the form of Merrill Lynch's customary
loan agreement entered into in connection with bridge financings. The Bridge
Loan Agreement shall be in form and substance satisfactory to Merrill Lynch,
Chase, DLJ and Borrower and will contain, without limitation, the following
provisions:
(a) Those terms, covenants and events of default specified in the Term
Sheet.
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(b) A requirement that, at or prior to the Funding, Borrower shall execute
and deliver a note or notes (the "Notes") evidencing Borrower's obligations
under the Bridge Loan Agreement, in the form attached to such Bridge Loan
Agreement and containing those terms specified therefor in Exhibit A hereto.
(c) Provisions pursuant to which Borrower shall undertake to use its
reasonable best efforts to (i) prepare an offering memorandum for a private
placement through resale pursuant to Rule 144A or (ii) file a registration
statement under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act") with respect to the Debt
Securities (in each case, the "Debt Offering"), to refinance in full the Bridge
Loan, and consummate such Debt Offering as soon as practicable thereafter in an
amount sufficient to refinance all amounts outstanding under the Bridge Loan
Agreement. Such Debt Offering shall be on such terms and conditions (including,
without limitation, interest rate, yield, redemption prices and dates) as
MLPF&S, CSI and DLJSC may in their reasonable judgment determine to be
appropriate in light of prevailing circumstances and market conditions and the
financial condition and prospects of Borrower and its subsidiaries and
containing those terms specified therefor in Exhibit B hereto. The indenture
(or other governing documentation) for the Debt Securities will be
substantially in the form of MLPF&S's standard indenture for high yield debt
securities, modified as appropriate to reflect the terms of this transaction
and the financial condition and prospects of Borrower and its subsidiaries, and
in form and substance reasonably satisfactory to MLPF&S, CSI, DLJSC, and
Borrower. If any Debt Securities are issued in a transaction not registered
under the Securities Act to effect the refinancing of the Bridge Loan, all such
Debt Securities shall be entitled to the benefit of a registration rights
agreement to be entered into by Borrower and any other obligor in respect of
the Bridge Loan in customary form reasonably acceptable to MLPF&S, CSI, DLJSC,
and Borrower (which shall include provisions for a customary registered
exchange offer with respect to any Debt Securities). Borrower will enter into
an underwriting agreement or securities purchase agreement relating to the Debt
Offering, which shall be substantially in the form of MLPF&S's standard
underwriting agreement or securities purchase agreement for high yield
offerings of a similar nature, modified as appropriate to reflect the terms of
this transaction and the financial condition of Borrower and its subsidiaries
and as is mutually agreeable to MLPF&S, CSI, DLJSC, and Borrower. If a
"qualified independent underwriter" is required by the National Association of
Securities Dealers Inc., you will pay such underwriter's fee and agree to
indemnify such underwriter on customary terms. Upon the closing of the Debt
Offering, any unused commitment under the Bridge Loan Agreement shall
terminate.
(d) Provisions pursuant to which Borrower shall undertake to (i) cooperate
with MLPF&S, CSI and DLJSC and provide MLPF&S, CSI and DLJSC with information
reasonably required by them in connection with the Debt Offering or other means
of refinancing the indebtedness under the Bridge Loan Agreement, (ii) cooperate
with MLPF&S, CSI and DLJSC to complete a successful syndication of the Bridge
Loan if requested to do so by MLPF&S, CSI and DLJSC and provide MLPF&S, CSI and
DLJSC in a timely manner with information reasonably requested by it in
connection therewith, and (iii) assist MLPF&S, CSI and DLJSC in connection with
the marketing of the Debt Securities pursuant to the Debt Offering (including
promptly providing to MLPF&S, CSI and DLJSC any information reasonably
requested to effect the issue and sale of the Debt Securities and making
available senior management of Borrower for investor meetings). You agree that,
in lieu of drawing upon the Bridge Loan commitment, upon notice by MLPF&S, CSI
and DLJSC (a "Debt Securities Notice") after a full marketing thereof, at any
time and from time to time following the date hereof and prior to the
consummation of the Recapitalization, Borrower will issue and sell such
aggregate principal amount (up to $400 million) of senior subordinated debt
securities upon such terms and conditions as may be specified by MLPF&S, CSI
and DLJSC in the Debt Securities Notice; provided, however, that (i) Borrower
will be required to issue such securities only if the yield on such securities
is less than or equal to 13% per annum through December 31, 1997 and 14% per
annum thereafter; (ii) MLPF&S, CSI and DLJSC, in their reasonable discretion
after consultation with you, shall determine whether such securities will be
issued through a registered public offering or a private placement for resale
pursuant to Rule 144A; (iii) such securities will contain such terms (including
registration rights, in the event of a private placement), conditions and
covenants as are customary for similar financings and are reasonably
satisfactory in all respects to MLPF&S, CSI and DLJSC; and (iv) all other
arrangements with respect to such securities shall be reasonably satisfactory
in all respects to MLPF&S, CSI and DLJSC in light of then prevailing market
conditions. The gross proceeds of such sale of securities pursuant to a Debt
Securities Notice shall reduce on a dollar-for-dollar basis the commitments
hereunder.
(e) (i) Provisions pursuant to which at the Funding, Borrower will agree
to issue at the times provided in clause (ii) below such number of warrants to
purchase common stock of Borrower ("Warrants") as equals 5% of the
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common stock of Borrower on the date of the Funding after giving effect to the
Transactions (on a fully diluted basis giving effect to the issuance of such
Warrants, but excluding options reserved at Funding to be issued to management
of Borrower exercisable for common stock of Borrower in an amount not to exceed
10% of the common stock of Borrower on a fully diluted basis). Such Warrants
shall be issued pursuant to a customary warrant agreement and shall be
exercisable over a ten year period at a nominal exercise price per Warrant, and
the terms thereof shall provide for customary anti-dilution adjustments for
events occurring after the Funding.
(ii) So long as any portion of the Bridge Loan remains outstanding, on the
date which is six months after the Funding, 60% of the Warrants to be issued
will be issued to Merrill Lynch for the account of Merrill Lynch, Chase and
DLJ; on the date which is nine months after the Funding, an additional 20% of
the Warrants to be issued will be issued to Merrill Lynch for the account of
Merrill Lynch, Chase and DLJ; and on the date which is 12 months after the
Funding, the balance of such Warrants to be issued will be issued to Merrill
Lynch for the account of Merrill Lynch, Chase and DLJ. All such Warrants may be
used by Merrill Lynch at any time as necessary in light of market
considerations in connection with the refinancing of the Bridge Loan, the
Rollover Securities or the Rollover Loans, if required in Merrill Lynch's and
Chase's judgment, in such amounts as are necessary in order for Borrower to
receive net proceeds from the sale of the Debt Securities in an amount
sufficient to repay the Bridge Loan. Any Warrants not used to effect any
refinancing shall be retained by Merrill Lynch, Chase and DLJ.
(iii) If any Warrants are not distributed to the purchasers (including
Merrill Lynch, Chase, DLJ or their respective affiliates) of debt securities
issued in connection with the refinancing of the Bridge Loan, the Rollover
Securities or the Rollover Loans in full, any such Warrants which are held by
Merrill Lynch after the Bridge Loan, the Rollover Securities or the Rollover
Loans have been refinanced in full shall be distributed by Merrill Lynch among
Merrill Lynch, Chase and DLJ, pro rata, based upon their initial commitment
amounts set forth in Section 1 hereof.
(f) Until the earlier of final maturity or repayment of the Bridge Loan in
full, a requirement that (i) MLPF&S will be the book-running joint lead
underwriter or book-running joint lead placement agent, or book-running joint
lead initial purchaser, as the case may be (it being understood that another
Lender satisfactory to you, Merrill Lynch, Chase and DLJ will act as a joint
lead underwriter, joint lead placement agent or joint lead initial purchaser)
and (ii) that DLJSC will be a co-underwriter, co-placement agent or co-initial
purchaser, as the case may be, for Borrower in connection with any public
offering or private placement of the Debt Securities or any other securities as
contemplated hereby or of any other securities issued to repay, in whole or in
part, the Bridge Loan. In connection with the sale of the Debt Securities or
any other securities as contemplated hereby, MLPF&S, any such joint lead
underwriter, placement agent or initial purchaser and DLJSC will be entitled to
underwriting discounts or placement fees based upon the percentages and amounts
set forth in the engagement letter dated of approximate even date herewith,
among you, MLPF&S, any such joint lead underwriter, placement agent or initial
purchaser and DLJSC (the "Engagement Letter"), payable, in each case, in cash
upon the closing of each such sale.
(g) Provisions that state that the proceeds of the Debt Offering will be
used to repay, first, all accrued and unpaid interest on the Bridge Loan and,
second, the then aggregate unpaid principal amount (and premium required to be
paid, if any) of the Bridge Loan to the extent of such proceeds. Any excess
proceeds will be paid to, or as directed by, Borrower. If less than the
aggregate unpaid principal amount of the Bridge Loan is repaid from the
proceeds of the Debt Offering, all of Borrower's obligations under the Bridge
Loan Agreement relating to the issuance and sale of the Debt Securities will
continue to be in effect.
(h) If all or any portion of the principal of the Bridge Loan is repaid
otherwise than from the proceeds of (x) the issuance of Debt Securities
pursuant to the Debt Offering or (y) the issuance of additional equity
securities to one or more of the Investors after such time as MLPF&S, CSI and
DLJSC have fully marketed a securities offering sufficient to refinance the
Bridge Loan in full so long as such equity securities are not redeemed, repaid
or refinanced within three months of issuance, Borrower will pay MLPF&S, CSI
and DLJSC a fee, at the time such repayment is made, equal to the amount that
would have been payable to MLPF&S, CSI and DLJSC if Debt Securities had been
issued for such amount in the Debt Offering as set forth in the Engagement
Letter and if MLPF&S, CSI and DLJSC had acted as exclusive underwriters,
placement agents or initial purchasers as the case may be; provided, however,
that, to the extent that the Bridge Loan is so otherwise repaid, any fees
received from Borrower and retained by any of MLPF&S or CSI or DLJSC in
connection with any alternative transaction resulting in such repayment shall
reduce the amounts due pursuant to this clause (h) to MLPF&S or CSI or DLJSC,
respectively; provided, further, however, that the amount of such reduction
shall not exceed 3% of the recipient's pro rata share of the
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Bridge Loan repaid. Unless such amounts (as so reduced, if applicable) are paid
in full, all of Borrower's obligations under the Bridge Loan Agreement will
continue in effect.
3. Conditions. The obligation of each of Merrill Lynch, Chase and DLJ to
provide the Bridge Loan pursuant to Section 1 is subject to the concurrent
funding by each of Merrill Lynch, Chase and DLJ of their respective commitment
in respect of the Bridge Loan and to satisfaction prior to the Funding of such
reasonable conditions as are customarily found in loan agreements entered into
in connection with bridge financings, the conditions set forth elsewhere herein
and in Exhibit A hereto, and including the following:
(a) There shall not have occurred or become known (i) any material adverse
change or any condition or event that could reasonably be expected to result in
a material adverse change in the business, assets, operations, properties,
financial condition, reasonably foreseeable prospects or material agreements
(each, a "Material Adverse Change") of Borrower, together with its subsidiaries
taken as a whole, as the case may be (and before and after giving effect to the
Transactions) since March 31, 1997, other than those publicly disclosed by
Borrower or otherwise disclosed in writing to Merrill Lynch, Chase and DLJ, in
each case on or prior to the date hereof, or (ii) any dividend or distribution
of any kind declared or paid by Borrower on its capital stock (other than
regular quarterly dividends in amounts consistent with past practice).
(b) Borrower shall have made available, and delivered to the extent
required by Merrill Lynch, Chase and/or DLJ, (i) audited and unaudited
historical financial statements (including unaudited pro forma financial
statements) of Borrower and its subsidiaries reasonably acceptable to Merrill
Lynch, Chase and DLJ and as required by the Securities Act for registration
statements filed thereunder, including without limitation, audited financial
statements, with any required U.S. reconciliations, of Borrower and its
subsidiaries for the three most recent preceding fiscal years and any quarterly
and monthly periods since the last fiscal year, together with an unqualified
report thereon by an independent accounting firm reasonably acceptable to
Merrill Lynch, Chase and DLJ and (ii) all other non-financial information
reasonably requested by Merrill Lynch, Chase and/or DLJ or as required by the
Securities Act. Such financial statements shall not be materially different
from the current publicly available financial information of Target.
(c) If requested in the reasonable judgment of Merrill Lynch, Chase and
DLJ, Borrower shall have provided in any confidential information memorandum
relating to syndication of the Bridge Loan, or in any other document relating
to the syndication of the Bridge Loan, reasonably detailed pro forma
consolidated financial projections prepared by you or on your behalf for
Borrower and its respective subsidiaries for 1997 and the three subsequent
fiscal years that are not different in a materially adverse manner as compared
with those previously made available to Merrill Lynch, Chase and DLJ.
(d) There shall not have occurred and be continuing any material
disruption of or material adverse change in the financial, banking or capital
markets since the date hereof.
(e) None of MergerCo or Target or any of their respective subsidiaries
shall have syndicated or issued, attempted to syndicate or issue, announced or
authorized the announcement of the syndication or issuance of any debt facility
or debt security of MergerCo, Target or New Target, or any of their respective
subsidiaries, including renewals thereof, other than the Securities Offering,
the Bridge Loan, the Debt Securities, the Credit Facilities and the Receivables
Financing.
(f) MLPF&S shall have been retained as book-running joint lead underwriter
or book-running joint lead placement agent or book-running joint lead initial
purchaser (it being understood that another Lender satisfactory to you, Merrill
Lynch, Chase and DLJ shall be retained as joint lead underwriter, joint lead
placement agent or joint lead initial purchaser) and DLJSC shall have been
retained as co-underwriter, co-placement agent or co-initial purchaser, as the
case may be, with respect to (A) the Securities Offering in an amount resulting
in gross proceeds to Borrower of $400 million in lieu of a drawdown under the
commitment hereunder (with the amount thereof being a dollar for dollar
reduction of the amount to be drawn hereunder) and (B) the Debt Securities and
any other securities issued to refinance the Bridge Loan, with, if necessary, a
"qualified independent underwriter" selected by Merrill Lynch, Chase and DLJ
and reasonably acceptable to Borrower.
In addition, the commitments of Merrill Lynch, Chase and DLJ hereunder are
subject to the negotiation, execution and delivery of definitive documentation
with respect to the Bridge Loan customary for transactions of this type and
satisfactory to Merrill Lynch, Chase and DLJ.
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4. Information and Investigations. You hereby represent and covenant that
(a) all written information and data (excluding financial projections)
concerning MergerCo or Target, their respective subsidiaries, the Transactions
and the other transactions contemplated hereby (the "Information") that have
been made or will be prepared by or on behalf of you or any of your affiliates
or authorized representatives or advisors and that have been or will be made
available to Merrill Lynch, Chase and/or DLJ by you or on your behalf in
connection with the transactions contemplated hereby, taken as a whole, is (to
the best of your knowledge in the case of information provided by Target) and
will be complete and correct in all material respects and does not and will
not, taken as a whole, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which such
statements are made and (b) all financial projections concerning Borrower,
Target, their respective subsidiaries and the transactions contemplated hereby
(the "Projections") that have been prepared by or on behalf of you or any of
your affiliates or authorized representatives and that have been or will be
made available to Merrill Lynch, Chase and/or DLJ by you or on behalf of you or
any of your affiliates or authorized representatives or advisors in connection
with the transactions contemplated hereby have been and will be prepared in
good faith based upon assumptions believed by you to be reasonable when made
(it being understood that the projections are subject to significant
uncertainties and contingencies, many of which are beyond the control of you
and Target, and that no assurance can be given that such Projections will be
realized). The representations and covenants set forth in this paragraph shall
be superseded by the definitive documentation with respect to the Bridge Loan
upon execution and delivery of such definitive documentation. You agree to
supplement the Information and the Projections from time to time until the
consummation of the Transactions and, if requested by Merrill Lynch or Chase,
for a reasonable period thereafter necessary to complete the syndication of the
Bridge Loan so that the representation and covenant in the preceding sentence
remain correct. In arranging the Bridge Loan, including the syndication
thereof, Merrill Lynch and Chase will be using and relying primarily on the
Information and the Projections without independent check or verification
thereof.
Merrill Lynch's, Chase's and DLJ's commitment hereunder is based upon the
accuracy and completeness of the financial and other information provided to us
by or on behalf of you. If Merrill Lynch, Chase or DLJ discovers information
not previously disclosed to any of them, or Merrill Lynch, Chase or DLJ
discovers or otherwise learns of new information or additional developments
concerning conditions or events previously disclosed to them, that Merrill
Lynch, Chase or DLJ believes (x) has had or could reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
Transactions or on the tax and accounting consequences of the Transactions or
has resulted or could reasonably be expected to result in a Material Adverse
Change or (y) would be materially and adversely inconsistent with the
assumptions underlying the Projections, then Merrill Lynch, Chase and DLJ (a)
shall be entitled to decline to participate in the financing contemplated
hereby or (b) may, in their sole discretion, suggest alternative financing
amounts or structures that ensure adequate protection for Merrill Lynch, Chase,
DLJ and the other Lenders (as defined herein). In any such event, Merrill
Lynch, Chase and DLJ shall not be responsible or liable for any damages which
may be alleged as a result of its failure, in accordance with the terms of this
Commitment Letter, to provide the Bridge Loan.
5. Indemnification and Contribution. By executing this Commitment Letter,
you agree to indemnify and hold harmless Merrill Lynch, Chase and DLJ and
certain other persons referred to in Exhibit C hereto in accordance with the
terms and provisions set forth in such Exhibit C, which terms and provisions
are incorporated herein and made a part hereof. Such indemnification provisions
will be superseded by the indemnification provisions contained in the
definitive transaction documentation.
6. Fees. In consideration of Merrill Lynch's, Chase's and DLJ's commitment
hereunder, you agree to pay or cause to be paid to the persons named therein
the fees described in each Fee Letter, which terms and provisions are
incorporated herein and made a part hereof. Except as set forth in the Fee
Letter, such fees shall be paid only if the Recapitalization occurs (and, if
so, then on the date thereof).
7. Termination. In the event that (i) you have not accepted this
Commitment Letter by September 11, 1997 or MergerCo has not executed a
definitive Recapitalization Agreement with Target in form and substance
acceptable to Merrill Lynch, Chase and DLJ on or prior to August 31, 1997; (ii)
the Funding does not occur on or before January 31, 1998; (iii) any
circumstance described in Section 3(a), 3(d) and 3(e) shall have occurred; (iv)
the Recapitalization Agreement is terminated and the abandonment of the effort
to recapitalize Target; or (v) Target accepts an acquisition or
recapitalization proposal other than that of MergerCo or upon the termination
of an executed recapitalization agreement between MergerCo and Target, this
Commitment Letter and Merrill Lynch's, Chase's and DLJ's
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commitment hereunder shall terminate (upon written notice by Merrill Lynch,
Chase and DLJ with respect to clause (ii) of this sentence) unless each of
Merrill Lynch, Chase and DLJ shall, in their sole respective discretion, agree
to an extension (it being understood that an extension by any signatory hereto
shall not bind any other signatory hereto). Notwithstanding the foregoing, the
compensation, reimbursement, indemnification and confidentiality provisions
hereof and of the Term Sheet and the Fee Letter and Sections 13 and 17 shall
survive any termination of this Commitment Letter or Merrill Lynch's, Chase's
or DLJ's commitment hereunder.
8. Fees and Expenses. By executing this Commitment Letter, you agree to
reimburse Merrill Lynch, Chase and DLJ and their respective affiliates upon
consummation of the Recapitalization, and (except as set forth in the Fee
Letter) only upon consummation of the Recapitalization, for their reasonable
out-of-pocket expenses (including, without limitation, expenses of Merrill
Lynch's, Chase's and DLJ's due diligence investigation, consultants' fees (if
such consultants are engaged by Merrill Lynch, Chase and DLJ with your consent
(which consent shall not be unreasonably withheld or delayed)), syndication
expenses, appraisal and valuation fees and expenses, travel expenses, and the
reasonable fees, disbursements and other charges of counsel) incurred in
connection with the Bridge Loan Agreement and the negotiation, preparation,
execution and delivery, waiver or modification, administration, collection and
enforcement of this Commitment Letter, the Term Sheet, the Fee Letter and the
Engagement Letter and the Debt Offering or any other refinancing of the Bridge
Loan. Except as set forth in the Fee Letter, Merrill Lynch, Chase and DLJ agree
that no fees, costs or expenses shall be paid or payable by you or on your
behalf, and no demand will be made by or on behalf of Merrill Lynch, Chase or
DLJ therefor, until the consummation of the Recapitalization shall occur.
9. Public Announcements. You acknowledge that Merrill Lynch, Chase and DLJ
may, at their option and expense but only after the consummation of the
Recapitalization, and subject to Borrower's approval (which shall not be
unreasonably withheld, delayed or conditioned) place an announcement in such
newspapers and periodicals as any of them may choose, stating that Merrill
Lynch, Chase and DLJ have acted in the capacities set forth in this Commitment
Letter.
10. Agreement to Cooperate. You agree to, and to use your reasonable best
efforts to cause Target to, (i) cooperate with MLPF&S, CSI and DLJSC and
provide MLPF&S, CSI and DLJSC with information reasonably required by them in
connection with the Debt Offering, as the case may be, or other means of
refinancing the Bridge Loan, (ii) cooperate with Merrill Lynch and Chase to
complete a successful syndication of the Bridge Loan if requested to do so by
Merrill Lynch or Chase, and provide Merrill Lynch and Chase in a timely manner
with information reasonably required by them in connection therewith, (iii)
assist MLPF&S, CSI and DLJSC in connection with the marketing of the Debt
Securities pursuant to the Debt Offering (including making available senior
management of Borrower or Target (as determined by MLPF&S, CSI and DLJSC) for
investor meetings) and (iv) cooperate with MLPF&S, CSI and DLJSC in the timely
preparation of any registration statement or private placement memorandum
relating to the Debt Offering and other marketing materials to be used in
connection with the syndication. You also agree to use your best efforts to
ensure that Merrill Lynch's and Chase's syndication efforts benefit from your
existing lending relationships.
11. Syndication. Merrill Lynch, Chase and DLJ reserve the right, prior to
or after the execution of the Bridge Loan Agreement, to syndicate all or a
portion of their respective commitment and the Bridge Loan to one or more
financial institutions (Merrill Lynch, Chase, DLJ and such financial
institutions being referred to herein as the "Lenders") that will become
parties to the Bridge Loan Agreement, and in that connection, promptly
following your acceptance of Merrill Lynch's, Chase's and DLJ's commitment
hereunder, Merrill Lynch and Chase may commence the syndication of the Bridge
Loan to such Lenders. Upon your acceptance of the commitment of any Lender to
provide a portion of the Bridge Loan, each of Merrill Lynch, Chase and DLJ
shall be released from a portion of its commitment hereunder in an aggregate
amount equal to 40%, 40% and 20%, respectively, of the commitment of such
Lender. You agree that no Lender will receive compensation outside the terms
contained herein and in the Fee Letter in order to obtain its commitment to
participate in the Bridge Loan. It is understood and agreed that, except as
otherwise provided in the Fee Letter, the amount and distribution of the fees
and other compensation referred to herein among the Lenders will be at Merrill
Lynch's and Chase's sole discretion. It is understood and agreed that Merrill
Lynch and Chase will manage all aspects of the syndication (but will consult
with you in such matters), including, without limitation, decisions as to the
selection of potential Lenders reasonably acceptable to you to be approached
and when they will be approached, when their commitments will be accepted,
which Lenders will participate, any naming rights (including the naming of
co-agents, subject to your reasonable approval) and the final allocations of
the commitments among the Lenders.
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You agree that no additional agents, co-agents or arrangers will be
appointed, or other titles conferred, without the consent of Merrill Lynch and
Chase.
You agree actively to assist Merrill Lynch and Chase in achieving a timely
syndication that is satisfactory to Merrill Lynch, Chase and you. The
syndication efforts will be accomplished by a variety of means, including
direct contact during the syndication between senior management (including, but
not limited to, the chief executive officer, chief financial officer and
treasurer of Borrower and you) and advisors and affiliates of Borrower and you
on the one hand and the proposed syndicate Lenders on the other hand. To assist
Merrill Lynch and Chase in their syndication efforts, you agree (a) promptly to
provide or cause to be provided all financial and other information in your or
Borrower's possession with respect to MergerCo, Borrower, the Transactions and
any other transactions contemplated hereby, including but not limited to the
Projections, and (b) to assist, and to cause your and Borrower's affiliates and
advisors to assist, Merrill Lynch and Chase in the preparation of a
Confidential Information Memorandum and other marketing materials to be used in
connection with the syndication.
12. Confidentiality. You agree that this Commitment Letter (including
exhibits), the Fee Letter, the contents of any of the foregoing and Merrill
Lynch's, Chase's, DLJ's or their respective affiliates' activities pursuant
hereto or thereto is confidential and shall not be disclosed by you to any
person without the prior written consent of Merrill Lynch, Chase and DLJ and
any such affiliate, other than to your and Target's officers, directors,
employees, accountants, attorneys and other advisors, and then only in
connection with the Transactions and on a confidential and need-to-know basis,
except that, following your acceptance hereof (and payment of any fees due and
payable upon such acceptance as set forth in the Fee Letter) you may disclose
this Commitment Letter and the Term Sheet (but not the Fee Letter or any matter
related to any information in the Fee Letter) and you may make such other
public disclosures of the terms and conditions hereof as you are required by
applicable law or compulsory legal process to make; provided, however, that if
such disclosure is required by applicable law or compulsory legal process you
agree to give Merrill Lynch, Chase and DLJ reasonable notice to afford Merrill
Lynch, Chase and DLJ the opportunity to seek a protective order and to
cooperate reasonably with Merrill Lynch, Chase and DLJ in securing such a
protective order. You agree that you will permit Merrill Lynch, Chase and DLJ
to review and approve any reference to Merrill Lynch, Chase and DLJ in
connection with the Bridge Loan, the Securities Offering or the Debt Offering
or the transactions contemplated hereby contained in any press release or
similar public disclosure prior to public release.
13. GOVERNING LAW. THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS).
14. Assignment, etc. This Commitment Letter and Merrill Lynch's, Chase's
and DLJ's commitment hereunder shall not be assignable by any party hereto
without the prior written consent of the other parties hereto, except that
MergerCo may assign its rights and obligations hereunder to Target pursuant to
a writing reasonably satisfactory to Merrill Lynch, Chase and DLJ, and any
attempted assignment shall be void and of no effect; provided, however, that
nothing contained in this Section shall prohibit either of Merrill Lynch, Chase
or DLJ (in their respective sole discretion) from (i) performing any of their
respective duties hereunder through any of their respective affiliates
(including, in the case of Merrill Lynch, MLPF&S, in the case of Chase, CSI and
in the case of DLJ, DLJSC), and you will owe any related duties (including
those set forth in Section 11 above) hereunder to any such affiliate, and (ii)
granting participations in, or selling assignments of all or a portion of, the
commitment or the Bridge Loan pursuant to arrangements satisfactory to Merrill
Lynch, Chase, DLJ and you (and your consent shall not be unreasonably withheld,
delayed or conditioned). This Commitment Letter is intended to be solely for
the benefit of the parties hereto and is not intended to confer any benefits
upon, or create any rights in favor of, any person other than the parties
hereto.
15. Execution in Counterparts. This Commitment Letter may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of this Commitment Letter by telecopier
shall be effective as delivery of a manually executed counterpart of this
Commitment Letter.
16. Amendments, etc. No amendment or waiver of any provision of this
Commitment Letter, nor any consent or approval to any departure therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the parties hereto and then any such waiver, consent or approval shall be
effective only in the specific instance
8
<PAGE>
and for the specific purpose for which given. By executing this Commitment
Letter, you acknowledge that this Commitment Letter, the Fee Letter and the
Engagement Letter are the only agreements among you, Merrill Lynch, Chase and
DLJ with respect to the Bridge Loan and set forth the entire understanding of
the parties with respect thereto. Those matters that are not covered or made
clear herein or in the Fee Letter are subject to mutual agreement of the
parties.
17. Waiver of Jury Trial. Each of you, Merrill Lynch, Chase and DLJ (in
each case on its own behalf and, to the extent permitted by applicable law, on
behalf of its shareholders) waives all right to trial by jury in any action,
proceeding or counterclaim (whether based upon contract, tort or otherwise)
related to or arising out of the Transactions, the transactions contemplated by
the Debt Offering or the other transactions contemplated by this Commitment
Letter, or the performance by Merrill Lynch, Chase or DLJ or any of their
respective affiliates of the services contemplated by this Commitment Letter.
18. Notices. Any notice given pursuant to any of the provisions of this
Commitment Letter shall be in writing and shall be mailed or delivered, (i) if
to MergerCo, at the address set forth on page one of this Commitment Letter to
the attention of Kent Weldon, with a copy to James M. Douglas, Esq., at
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022 and (ii) if to Merrill Lynch, at World Financial Center, North Tower, 250
Vesey Street, New York, New York 10281, Attention: Michael Zupon, if to Chase
at 270 Park Avenue, New York, New York 10017, Attention: Daniel P. Tredwell and
if to DLJ at 277 Park Avenue, New York, New York 10172, Attention: Glenn
Tongue, in each case with a copy to Michael E. Michetti, Esq., at Cahill Gordon
& Reindel, 80 Pine Street, New York, New York 10005.
19. Amendment and Restatement of Prior Letter Agreement. This letter
agreement amends and restates in its entirety the Bridge Loan Commitment Letter
dated August 6, 1997 among FSI Merger Co., Merrill Lynch and Chase.
[Signature Page Follows]
9
<PAGE>
Please confirm the foregoing correctly sets forth our agreement of the
terms hereof and the Fee Letter by signing and returning to Merrill Lynch (on
behalf of Merrill Lynch, Chase and DLJ) the duplicate copies of this Commitment
Letter and the Fee Letter enclosed herewith. Upon your acceptance hereof, this
Commitment Letter shall constitute a binding agreement among you, Merrill
Lynch, Chase and DLJ; provided Merrill Lynch shall have received your executed
duplicate copies not later than 5:00 p.m., New York City time, on September 12,
1997, at which time Merrill Lynch's, Chase's and DLJ's commitment hereunder
will expire in the event Merrill Lynch has not received such executed duplicate
originals.
We are pleased to have this opportunity and we look forward to working with
you on this transaction.
Very truly yours,
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Christopher Birosak
Name: Christopher Birosak
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Bruce S. Borden
Name: Bruce S. Borden
Title: Vice President
DLJ BRIDGE FINANCE, INC.
By: /s/ Paul Thompson III
Name: Paul Thompson III
Title:
Accepted and agreed to as of
the date first written above:
FSI MERGER CORP.
By: /s/ Anthony J. DiNovi
Name: Anthony J. DiNovi
Title: President
10
<PAGE>
CONFIDENTIAL
Exhibit A
Summary of Indicative Terms for a Bridge Loan*
Borrower Sci Fi ("Company" or "Borrower").
Agents Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S") will (a) act as syndication agent for a
syndicate of financial institutions reasonably
satisfactory to MLPF&S and Borrower (the "Lenders")
and (b) perform the duties and exercise the authority
customarily associated with such roles.
The Chase Manhattan Bank will (a) act as
administrative agent for the Bridge Loan, and (b)
perform the duties and exercise the authority
customarily associated with such role.
DLJ Bridge Finance, Inc. ("DLJ") will (a) act as
documentation agent for the Bridge Loan, and (b)
perform the duties and exercise the authority
customarily associated with such role.
Bridge Loan Senior Subordinated Bridge Loan (the "Bridge Loan").
Principal Amount Up to $400 million.
Recapitalization Thomas H. Lee Company and its affiliates ("THL") have
formed a Delaware corporation ("MergerCo") for the
purpose of merging (the "Recapitalization") with and
into Borrower pursuant to a Recapitalization and
Merger Agreement (the "Recapitalization Agreement" to
be entered between MergerCo and Borrower. Pursuant to
the Recapitalization Agreement, MergerCo will merge
with and into Borrower and Borrower will be the
survivor (such survivor, "New Target").
In connection with the consummation of the
Recapitalization, (a)(1) a group of investors arranged
by THL, comprising Merrill Lynch, Chase, DLJ and THL
(or certain of their respective affiliates) (together,
the "Investors") will make cash capital contributions
to MergerCo in an aggregate amount of at least $299
million, (2) certain members of management of Target
("Management") and the existing holders (each, an
"Existing Stockholder") of common stock of Target (the
"Common Stock") that is outstanding immediately prior
to the Recapitalization will retain common equity of
Target with a value of not less than $36 million and
not more than $51 million excluding the value of
Common Stock underlying options held by Eligible
Employees (as defined in the Recapitalization
Agreement) and (3) the Investors will purchase, if not
purchased by outside investors, payment-in-kind
preferred stock of Target (the "PIK Preferred") having
an aggregate value of not less than $75 million
(collectively, the "Equity Financing"); provided,
however, that the Equity Financing shall not be less
than $425 million; (b) each Existing Stockholder will,
subject to the provisions of the Recapitalization
Agreement, be entitled to elect either (x) to receive
an amount of cash on a per-share basis equal to cash
merger consideration of $48.25 per share (in which
case such shares of Common Stock will be canceled) or
(y) to retain any such shares of Common Stock;
provided, however, that, upon completion of the
Recapitalization, the Existing Stockholders will not
own more than 20% of the then outstanding Common
Stock; (c) MergerCo stock will be exchanged for newly
issued shares of Common Stock having an aggregate
value equal to $299 million; (d) except for options
held by Eligible Employee (as defined in the
Recapitalization Agreement to be converted subsequent
the Merger each of the options of Borrower that are
outstanding immediately prior to the Recapitalization
will be canceled and the holder thereof will be
entitled to receive an amount of cash equal to the
difference between the cash merger consideration paid
in connection with the Recapitalization and the
exercise price of such option; (e) Borrower will raise
gross proceeds of up to $400 million from either an
offering of unsecured senior subordinated debt
securities due
- - - ------------
* Terms used herein and not defined herein shall have the meanings set forth in
the commitment letter to which this exhibit is attached.
<PAGE>
2007 with no scheduled principal payments prior to
maturity (the "Senior Subordinated Notes") (the
"Securities Offering"), or from an unsecured senior
subordinated bridge loan (the "Bridge Loan") which
would be anticipated to be replaced with debt
securities substantially similar to the Senior
Subordinated Notes after the closing of the
Recapitalization (the "Debt Securities") (the
Securities Offering or the take-down under the Bridge
Loan, the "Senior Subordinated Financing"); and (f)
Borrower will enter into the credit facilities (the
"Credit Facilities") described herein. The PIK
Preferred shall be on terms and conditions and
pursuant to documentation satisfactory to Merrill
Lynch, Chase and DLJ.
In addition, upon consummation of the
Recapitalization, Borrower intends to (i) repay all
indebtedness (approximately $190 million) and
terminate all commitments to make extensions of credit
under its existing credit facility, and (ii) leave
outstanding and equally and ratably secure pursuant to
documentation and on terms and conditions satisfactory
to Merrill Lynch, Chase and DLJ all of its $150
million aggregate principal amount 7-1/8% Senior Notes
due 2005 (the "Existing Notes"). After giving effect
to the Recapitalization, the Investors will own not
less than 80% of the then-outstanding Common Stock.
The Recapitalization, the Senior Subordinated
Financing, the Equity Financing, the repayment of all
debt and cancellation of all commitments to make
extensions of credit under the Existing Credit
Facility (the "Existing Debt Repayment"), the entering
into and borrowings under the Credit Facilities by the
parties herein described and the other transactions
described above entered into and consummation in
connection with the Recapitalization are herein
referred to as the "Transactions".
The Credit Facilities will consist of an aggregate of
$650 million in senior credit facilities to finance
the Existing Debt Repayment, the Recapitalization,
certain fees and expenses and to provide for working
capital and general corporate purposes, of which not
more than $475 million will be borrowed at Funding.
After the consummation of the Recapitalization, New
Target intends to effect a receivables securitization
transaction on terms acceptable to Merrill Lynch,
Chase and DLJ in an amount sufficient to generate
gross cash proceeds to New Target of $200 million (the
"Receivables Financing").
Use of Proceeds Together with proceeds derived from senior credit
facilities of approximately $650 million (up to $475
million to be drawn at closing) and the Equity
Financing, to effect the Recapitalization, and the
Existing Debt Repayment and to pay the fees and
expenses related to the Transactions.
Maturity The Bridge Loan will mature twelve months after the
initial funding date. Upon the satisfaction of certain
terms and conditions described under "Exchange
Feature: Rollover Securities and Rollover Loans," the
Bridge Loan will be exchanged for, at the option of
each Lender, either (i) nine year senior subordinated
U.S. dollar denominated debt securities ("Rollover
Securities"), evidenced by an indenture in a form
attached to the Bridge Financing Agreement, or (ii)
senior subordinated U.S. dollar denominated loans
maturing in nine years (the "Rollover Loans"),
evidenced by the Bridge Loan Agreement.
Indicative Interest Rate Expressed as a basis point spread over Rate 30-day
LIBOR:*
From the To the
Beginning End of
of Month Month Spread
- - - ----------- ------- --------
1 3 550 bps
4 6 600 bps
7 9 700 bps
10 12 800 bps
- - - ------------
* Indicative interest rate for Bridge Loan may also be expressed as a basis
point spread over the Prime Rate.
2
<PAGE>
Upon and during the continuance of an event of
default, the interest rate will increase to a margin
of 200 basis points over the rate otherwise in
effect.
Interest Cap--13% per annum if the Funding occurs on
or prior to December 31, 1997; 14% per annum if the
Funding occurs after December 31, 1997 thereafter (in
each case exclusive of any additional interest payable
due to an event of default and exclusive of any yield
attributable to Warrants).
Interest Payment Dates Monthly, interest paid in cash in arrears.
Security None.
Guarantee The Bridge Loan will be guaranteed on a senior
subordinated basis by the same entities guaranteeing
the Credit Facilities.
Ranking The Bridge Loan will be a senior subordinated
obligation of Borrower ranking pari passu with other
senior subordinated indebtedness of Borrower.
Optional Redemption The Bridge Loan will be redeemable at par at any time
at Borrower's option, in whole or in part, plus
accrued and unpaid interest. Breakage costs, if any,
will be paid by Borrower.
Mandatory Redemption Upon the receipt by Borrower or any of its
subsidiaries of the net proceeds from (i) the issuance
by Borrower or any of its subsidiaries of any debt
(other than in connection with the Receivables
Financing), (ii) the receipt by Borrower of any
capital contribution or the sale or issuance by
Borrower or any of its subsidiaries of any capital
stock or any securities convertible into or
exchangeable for capital stock or any warrants, rights
or options to acquire capital stock, debt or equity
securities, other than proceeds received from the
exercise of stock options up to $5 million, and (iii)
to the extent permitted by all other debt instruments
(including the Credit Facilities) and after
application required to such debt (or if no such debt
or any commitment in respect thereof is then
outstanding), asset sales and other asset
dispositions, Borrower will apply, or cause to be
applied, all such net proceeds to the prepayment of
the Bridge Loan at par, together with accrued interest
thereon.
Exchange Feature
Rollover Securities
and Rollover Loans Upon the twelve-month maturity (to the extent the Debt
Securities have not been sold), unless the Company or
any material guarantor is in bankruptcy or there has
been an acceleration of the Credit Agreement (or any
refinancing thereof) or the Bridge Loan and subject to
the receipt of all fees due to the holder of the
Bridge Loan, each Lender (and participant) shall
either have its interest in the Bridge Loan exchanged
for, at the option of each Lender, Rollover Securities
or Rollover Loans. The Rollover Securities and the
Rollover Loans will mature nine years after issue,
will bear interest, payable quarterly in arrears, at a
rate per annum equal to the lesser of (i) the
then-applicable six-month LIBOR rate (as adjusted each
six months) plus 900 basis points and (ii) 13% if the
Funding occurs on or prior to December 31, 1997 and
14% if the Funding occurs after December 31, 1997 (in
each case exclusive of any additional interest payable
due to an event of default and exclusive of any yield
attributable to Warrants). Notwithstanding the
foregoing or anything else to the contrary herein, in
no event shall the applicable interest rate exceed the
maximum rate permitted by applicable law. The Rollover
Securities and the Rollover Loans will be mandatorily
redeemable or repayable on the basis applicable to the
Bridge Loan and optionally redeemable or repayable, as
the case may be, at declining premiums, on terms
customary for high-yield debt securities, including
four year no-call provisions.
Notwithstanding the immediately preceding sentence, so
long as any Lender which made the Bridge Loan at
Funding holds any Rollover Security or Rollover Loan
issued to such Lender at the maturity of the Bridge
Loan, such Rollover Security or Rollover Loan may be
redeemed at the option of the Borrower at par plus
accrued and unpaid interest. From and after transfer
of any such Rollover Security or Rollover Loan by such
Lender to any third party, the redemp-
3
<PAGE>
tion of such Rollover Security and Rollover Loans will
be subject to the provisions of the second preceding
sentence.
The Rollover Securities will be evidenced by an
indenture in form for qualification under the
Securities Act and will otherwise contain provisions
customary for public debt securities and the Rollover
Loans will be evidenced by the Bridge Loan Agreement.
The holders of the Rollover Securities will be
entitled to exchange offer and other registration
rights to permit resale by the holders of Rollover
Securities without restriction under applicable
securities laws no less favorable to holders than
those set forth in Exhibit B with respect to the Debt
Securities.
Conditions to
Effectiveness
and to Bridge Loan The making of the Bridge Loan shall be subject to
reasonable conditions precedent that are usual for
facilities and transactions of this type, and to those
specified below and in the Commitment Letter including
but not limited to execution and delivery of the
appropriate documentation acceptable in form and
substance to the Lenders; delivery of borrowing
certificates; accuracy of representations and
warranties; absence of defaults and material
litigation; evidence of authority; compliance with
laws; and adequate insurance and payment of fees.
The making of the Bridge Loan will be subject to the
following additional conditions:
(a) Borrower shall have entered into the Bridge Loan
Agreement with Merrill Lynch, Chase and DLJ as
provided for in Section 2 of the Commitment Letter and
all conditions precedent thereunder to the obligation
of Merrill Lynch, Chase and DLJ to provide the Bridge
Loan shall have been satisfied.
(b) Borrower shall have executed and delivered the
Notes in the form attached to the Bridge Loan
Agreement.
(c) The delivery, prior to the Funding, of (i) legal
opinions in form and substance reasonably satisfactory
to Merrill Lynch, Chase and DLJ, (ii) officers'
certificates, together with the accompanying charter
documents and corporate resolutions, in form and
substance satisfactory to Merrill Lynch, Chase and
DLJ, and (iii) a certificate from the chief financial
officer of Borrower in form and substance satisfactory
to Merrill Lynch, Chase and DLJ with respect to the
solvency of Borrower immediately after the Funding.
(d) The Board of Directors of MergerCo and Target
shall have authorized and approved the
Recapitalization and the Recapitalization Agreement
and Merrill Lynch, Chase and DLJ shall have received
satisfactory evidence of the same. MergerCo and Target
shall have entered into the Recapitalization Agreement
and the Recapitalization Agreement shall be in full
force and effect.
(e) MergerCo and Borrower shall have effected the
Equity Financing for not less than $425 million, and
the proceeds thereof shall have been used to finance
the Recapitalization.
(f) The Recapitalization shall have been consummated
or shall be consummated simultaneously with the
Funding in accordance with applicable law and the
Recapitalization Agreement, and the Lenders shall be
satisfied (i) with the terms and conditions of the
Recapitalization Agreement and the other agreements
(including management shareholder agreements and other
shareholder agreements) to be entered into in
connection with the Recapitalization, (ii) that the
capitalization, structure and equity ownership of
MergerCo and Borrower shall be as described to Merrill
Lynch, Chase and DLJ prior to the date hereof, and
(iii) that the aggregate level of fees and expenses
(including any premiums associated with debt
repayment) to be paid in connection with the
Recapitalization, the financing therefor and the other
transactions contemplated hereby shall not exceed $95
million. The Investors shall have purchased not less
than
4
<PAGE>
$374 million of new equity in the Equity Financing
(less up to $75 million of the PIK Preferred purchased
by third parties and issued on terms and conditions
and pursuant to documentation satisfactory to Merrill
Lynch, Chase and DLJ) and Existing Stockholders shall
have retained not less than $36 million of equity in
Borrower and not more than $51 million excluding the
value of Common Stock underlying options held by
Eligible Employees (as defined in the Recapitalization
Agreement). Any PIK Preferred purchased by the
Investors shall be on terms and conditions and
pursuant to documentation satisfactory to Merrill
Lynch, Chase and DLJ.
(g) The documents and materials filed publicly by
MergerCo and Borrower in connection with the
Recapitalization shall have been furnished to Merrill
Lynch, Chase and DLJ in reasonably satisfactory form.
(h) After giving effect to the Recapitalization and
the other transactions contemplated hereby, Borrower
and its subsidiaries shall have outstanding no
indebtedness or preferred stock other than (a) the
loans under the Credit Facilities, (b) the Bridge
Loan, (c) any preferred stock of Borrower issued in
connection with the capitalization thereof on terms
and conditions, and pursuant to documentation,
satisfactory to Merrill Lynch, Chase and DLJ, (d) the
Existing Notes and (e) other limited indebtedness or
preferred stock disclosed to, and in amounts and on
terms reasonably satisfactory to, the Lenders.
(i) Certain of the Investors, the largest of which
shall be THL, shall own and control not less than a
majority of the voting power of the capital stock of
MergerCo and Borrower and an economic interest therein
satisfactory to Merrill Lynch, Chase and DLJ.
(j) Each of the Transactions (other than extensions
of credit under the Bridge Loan) shall have been
consummated in all material respects in accordance
with the terms hereof and the terms of documentation
therefor (without the waiver of any material condition
unless consented to by Merrill Lynch, Chase and DLJ)
that are in form and substance reasonably satisfactory
to Merrill Lynch, Chase and DLJ.
(k) There shall not have occurred or become known
any material adverse change or any condition or event
that could reasonably be expected to result in a
material adverse change in the business, assets,
operations, properties, financial condition,
reasonably foreseeable prospects or material
agreements (each, a "Material Adverse Change") of
Borrower, together with its subsidiaries taken as a
whole, as the case may be (and before and after giving
effect to the Transactions) since March 31, 1997,
other than those publicly disclosed by Borrower or
otherwise disclosed in writing to Merrill Lynch, Chase
and DLJ, in each case on or prior to the date hereof,
or (ii) any dividend or distribution of any kind
declared or paid by Target on its capital stock (other
than regular quarterly dividends in amounts consistent
with past practice).
(l) The Lenders shall have received the audited
consolidated balance sheets and related statements of
income, stockholders' equity and cash flows for
Borrower for the fiscal year ended December 31, 1996,
unaudited consolidated balance sheets and related
statements of income, shareholders' equity and cash
flows for Borrower for the three months ended March
31, 1997, and monthly and quarterly financial
statements of Borrower for periods ending after March
31, 1997, to the extent available, all certified by
the chief financial officer of Borrower.
(m) The Lenders shall have received a pro forma
consolidated balance sheet of Borrower dated as of the
date of the most recently available quarterly
financial statements after giving effect to the
Recapitalization, which balance sheet shall be
consistent in all material respects with the sources
and uses shown on Annex I hereto and the forecast
previously provided to the Lenders. The sources and
uses to effect the Recapitalization shall not differ
in any material respect from that set forth in Annex I
hereto.
5
<PAGE>
(n) The Lenders shall have received a solvency
letter, in form and substance and from an independent
evaluation firm reasonably satisfactory to the
Lenders, together with such other evidence reasonably
requested by the Lenders of the solvency of Borrower
and its subsidiaries on a consolidated basis after
giving effect to the Transactions and the other
transactions contemplated hereby.
(o) All requisite governmental authorities and third
parties shall have approved or consented to the
Transactions and the other transactions contemplated
hereby to the extent required, all applicable appeal
periods shall have expired and there shall be no
governmental or judicial action, actual or threatened,
that has or could have a reasonable likelihood of
restraining, preventing or imposing materially
burdensome conditions on any of the Transactions or
the other transactions contemplated hereby.
(p) The Lenders shall have received copies of all
tax sharing agreements to which Borrower and its
subsidiaries are or are to be a party.
(q) No event shall have occurred and be continuing
or would result from the Bridge Loan or the
Transactions, or from the application of the proceeds
therefrom, that shall constitute a default under the
Bridge Loan Agreement or the Credit Facilities.
(r) Any defaults in any material agreements of
Borrower that may result from the Transactions shall
have been resolved or otherwise addressed in a manner
reasonably satisfactory to Merrill Lynch, Chase and
DLJ; no law or regulation shall be applicable in the
judgment of Merrill Lynch, Chase and DLJ that
restrains, prevents or imposes materially adverse
conditions upon any component of the Transactions or
the financing thereof, including the Bridge Loan.
(s) All other material documentation and agreements
related to the Transactions or which, in the
reasonable judgment of Merrill Lynch, Chase and DLJ,
affects the extension of credit under the Bridge Loan
in any respect shall be in form and substance
reasonably satisfactory to Merrill Lynch, Chase and
DLJ; and all conditions precedent under all
documentation relating to the Transactions (other than
the conditions precedent set forth in the Bridge Loan
Agreement) or the financing or refinancing thereof as
the case may be shall have been satisfied (except to
the extent such conditions have been waived with the
prior consent of Merrill Lynch, Chase and DLJ).
(t) Borrower shall have entered into the Credit
Facilities with one or more financial institutions
providing for $650 million under the Credit
Facilities, pursuant to agreements, and terms and
conditions thereunder, in form and substance
reasonably satisfactory to Merrill Lynch, Chase and
DLJ. Not more than $475 million under the Credit
Facilities shall have been borrowed at Funding.
(u) If requested in the reasonable judgment of
Merrill Lynch, Chase and DLJ, Borrower shall have
provided in any confidential information memorandum
relating to syndication of the Bridge Loan, or in any
other document relating to the syndication of the
Bridge Loan, reasonably detailed pro forma
consolidated financial projections prepared by you or
on your behalf for Borrower and Target and their
respective subsidiaries for 1997 and the three
subsequent fiscal years that are not different in a
materially adverse manner as compared with those
previously made available to Merrill Lynch, Chase and
DLJ.
(v) All accrued fees and expenses (including the
reasonable fees and expenses of counsel to Merrill
Lynch and Chase) of Merrill Lynch, Chase and DLJ in
connection herewith and the Engagement Letter, the Fee
Letter and the Bridge Loan Agreement shall have been
paid.
(w) Merrill Lynch, Chase and DLJ shall have
determined that reasonably satisfactory insurance
relating to Borrower and its subsidiaries will be in
place after the Recapitalization.
6
<PAGE>
(x) Merrill Lynch, Chase and DLJ shall have received
such other legal opinions, corporate documents and
other instruments and/or certificates as they may
reasonably request.
Representations and
Warranties Customary for facilities similar to the Bridge
Loan, including, but not limited to, no Default or
Event of Default; absence of Material Adverse Change;
receipt of financial statements (including pro forma
financial statements); absence of undisclosed
liabilities or material contingent liabilities not
disclosed in writing to Merrill Lynch, Chase and DLJ
prior to the date hereof; compliance with laws;
solvency; no conflicts with laws, charter documents or
agreements; good standing; payment of taxes; ownership
of properties; corporate power and authority; no
burdensome restrictions; ERISA matters; environmental
matters; labor matters; absence of material
litigation; use of proceeds and margin regulations; no
material misstatement; absence of liens and security
interests; and accuracy of MergerCo's and Borrower's
representations and warranties in the Recapitalization
Agreement.
Affirmative Covenants Customary for facilities similar to the Bridge Loan,
including, but not limited to, maintenance of
corporate existence and rights; compliance with laws;
performance of obligations; maintenance of material
rights and privileges; maintenance of properties in
good repair; maintenance of appropriate and adequate
insurance; inspection of books and properties;
consummation of the Recapitalization on the terms set
forth in the Recapitalization Agreement (without
waiver or amendment of any material term other than
with the consent of Merrill Lynch, Chase and DLJ);
payment of taxes and other liabilities; notice of
defaults, litigation and other adverse action;
delivery of financial statements, financial
projections and compliance certificates; ERISA
compliance; environmental compliance; and further
assurances.
Upon issuance of the Rollover Securities and the
Rollover Loans, the covenants shall conform to a
customary high-yield indenture (including those set
forth in Exhibit B hereto).
Negative Covenants Customary for facilities similar to the Bridge Loan
(with customary baskets and exceptions to be
negotiated), including, but not limited to, limitation
on indebtedness; limitation on liens; limitation on
loans, investments and joint ventures; limitation on
guarantee or other contingent obligations; limitation
on restricted payments (including dividends,
redemptions and repurchases of equity interests);
limitation on fundamental changes (including
limitation on mergers (other than the
Recapitalization), acquisitions and asset sales);
limitation on restrictions on amending documents
related to the Bridge Loan; limitation on issuance,
sale or other disposition of subsidiary stock;
limitation on sale-leaseback transactions; limitation
on transactions with affiliates; limitation on
dividend and other payment restrictions affecting
subsidiaries; limitation on changes in business
conducted; and limitation on prepayment or repurchase
of subordinated or other pari passu indebtedness. No
material change may be made to the Recapitalization
Agreement without the consent of Merrill Lynch, Chase
and DLJ. MergerCo shall not conduct any business,
enter into any transactions or incur any obligations
or liabilities other than as contemplated herein in
connection with the Transactions and matters
incidental thereto and performing their respective
obligations in respect of the Transactions and the
agreements related thereto.
The negative covenants shall include appropriate
exceptions to permit the Receivables Financing on
terms acceptable to Merrill Lynch, Chase and DLJ.
Upon issuance of the Rollover Securities and the
Rollover Loans, the covenants shall conform to a
customary high-yield indenture (including those set
forth in Exhibit B hereto).
Events of Default Events of Default will include, but not be limited to,
any default in the payment of principal when due and
interest or fees after five day grace; any represen-
7
<PAGE>
tation or warranty contained in the Bridge Loan
Agreement proving incorrect in any material respect
when made; default (after a 30-day grace period to
cure in certain cases) in the performance of any
covenant contained in the Bridge Loan Agreement;
failure to pay at maturity or any acceleration of the
maturity of any indebtedness of Borrower or any
subsidiary which is outstanding in a principal amount
of at least $10.0 million in the aggregate; final
judgments or orders rendered against Borrower or any
subsidiary which require the payment in money, either
individually or in an aggregate amount, that is more
than $10.0 million and such final judgments or orders
remain unsatisfied or unpaid beyond a period of 60
days; cessation of any guarantee of any material
subsidiary to be in full force and effect; certain
events of bankruptcy, insolvency or reorganization;
and any change of control (to be defined).
Obligation to Complete
Sale of Securities
Borrower and/or its affiliates will be required to use
its reasonable best effortsto facilitate the offering
of debt securities in a registered public offering or
private placement (including a Rule 144A offering with
registration rights), as determined by MLPF&S, CSI,
DLJSC, and Borrower, as soon as practicable after the
Funding. Borrower and/or its affiliates will cooperate
fully with MLPF&S, CSI and DLJSC and provide all
information reasonably required by MLPF&S, CSI and
DLJSC to effect the issue and sale of debt securities
as soon as practicable following the Funding.
Following the Funding, upon notice (a "Refinancing
Securities Notice") by Merrill Lynch as book-running
joint lead underwriter, book-running joint lead
placement agent or book-running joint lead
underwriter, book-running joint lead placement agent
or book-running joint lead initial purchaser, as the
case may be, CSI as joint lead underwriter, joint lead
placement agent or joint lead initial purchaser, as
the case may be, and DLJSC as co-underwriter, co-
placement agent and co-initial purchaser, as the case
may be, Borrower will issue and sell unsecured senior
subordinated debt securities (any such securities, the
"Refinancing Securities") after a full marketing
thereof in an amount of up to the lesser of (a) the
aggregate outstanding principal amount of the Bridge
Loan (but in no event less than $75 million), or (b)
$400 million upon such terms and conditions as are
specified by MLPF&S, CSI and DLJSC in the Refinancing
Securities Notice; provided, however, that: (i)
Borrower will be required to issue such Refinancing
Securities only if the yield on the Refinancing
Securities issued to refinance the Bridge Notes is
less than or equal to 13% per annum through December
31, 1997 and 14% per annum thereafter (in each case
exclusive of any discount attributable to any Warrants
issued in connection therewith); (ii) MLPF&S, CSI and
DLJSC, in their reasonable discretion, shall determine
whether the Refinancing Securities issued to refinance
the Bridge Loan shall be issued through a registered
public offering or a private placement; (iii) such
Refinancing Securities will contain such terms
(including registration rights, in the event of a
private placement), conditions and covenants as are
customary for similar financings and are reasonably
satisfactory in all respects to MLPF&S, CSI and DLJSC;
and (iv) all other arrangements with respect to such
Refinancing Securities shall be reasonably
satisfactory in all respects to MLPF&S, CSI and DLJSC
in light of then prevailing market conditions.
Subject to the foregoing, the Refinancing Securities
will have such terms, including interest rates,
yields, and redemption prices, as MLPF&S, CSI and
DLJSC consider appropriate, in consultation with
Borrower, in light of market conditions, and
Borrower's financial condition and prospects at the
time of sale.
Yield Protection and
Increased Costs Usual for facilities and transactions of this type,
including, but not limited to, in respect of
compensation in respect of redeployment costs in the
case of prepayments other than at the end of an
interest period, taxes (including but not limited to
gross-up provisions for withholding taxes imposed by
any governmental authority), indemnity for breakage
costs, changes in capital requirements, guidelines or
policies or their interpretation or application,
illegality, changes in circumstances, increased costs
as a result of change in law or in the
8
<PAGE>
interpretation or administration thereof, or as a
result of regulatory guidelines or requests, changes
in reserves (to the extent not included in the
interest rate) and other provisions reasonably deemed
necessary by Merrill Lynch, Chase and DLJ to provide
customary protection for U.S. and non-U.S. Lenders.
Expenses and
Indemnification All reasonable out-of-pocket expenses (including, but
not limited to, expenses incurred in connection with
due diligence) of Merrill Lynch, Chase and DLJ
associated with the preparation, execution and
delivery, administration, syndication, waiver or
modification and enforcement of the Bridge Loan
Agreement and the other documentation contemplated
thereby (including the reasonable fees, disbursements
and other charges of counsel for Merrill Lynch, Chase
and DLJ) are to be paid by Borrower from and after the
Funding. In addition, all out-of-pocket expenses of
Merrill Lynch, Chase and DLJ for enforcement costs and
documentary taxes associated with the Bridge Loan
Agreement are to be paid by Borrower from and after
the Funding. Except as set forth in the Fee Letter, in
the event the Funding does not occur, no such costs or
expenses shall be payable.
Borrower will indemnify Merrill Lynch, Chase, DLJ and
the other Lenders (and their assignees and affiliates)
in the Bridge Loans and hold them harmless from and
against all claims, damages, losses, costs, expense
(including reasonable fees, disbursements and other
charges of counsel) and liabilities of Merrill Lynch,
Chase and DLJ (and their assignees and affiliates) in
the Bridge Loan arising out of or relating to any
claim or any investigation, litigation or other
proceeding (regardless of whether Merrill Lynch or
Chase or DLJ, any such other Lenders, or any of their
assignees or affiliates are a party thereto) that
relate to the proposed transactions, provided that
none of Merrill Lynch, Chase, DLJ or any such other
Lenders nor any such assignee or affiliate will be
indemnified for its gross negligence or willful
misconduct.
Assignments and
Participations Merrill Lynch, Chase, DLJ and the other Lenders will be
able to sell, syndicate, assign or transfer their
interest in the Bridge Loan and their commitments
therefor, in whole or in part, at any time with
Borrower's consent (which shall not be unreasonably
withheld, delayed or conditioned) and participate such
interests at any time. Participants will have the same
benefits as the selling Lenders would have (and will be
limited to the amount of such benefits) with regard to
yield protection and increased costs, but voting rights
of participants shall be limited to matters in respect
of (a) reduction of principal, interest or fees, and
(b) extensions of scheduled amortization.
Voting Amendments and waivers of the Bridge Loan Agreement
and the other definitive credit documentation will
require the approval of Lenders holding a majority
(the "Required Percentage") of the outstanding Bridge
Loan, except that the consent of each affected Lender
will be required for (a) reductions of principal,
interest rates, fees or margins, (b) extensions of the
maturity date, (c) additional restrictions on the
right to exchange the Bridge Loan for Rollover
Securities or Rollover Loans or any amendment of the
rate of such exchange, or (d) any amendment to the
Debt Securities that require (or would, if any Debt
Securities were outstanding, require) the approval of
all such holders of Debt Securities.
Governing Law and Forum New York.
Waiver of Jury Trial All parties to the Bridge Loan Agreement waive right
to trial by jury.
Counsel for Lenders Cahill Gordon & Reindel.
9
<PAGE>
CONFIDENTIAL
Exhibit B
Summary of Indicative Terms for a Rule 144A or a
Registered Offering of Senior Subordinated Notes*
Issuer Sci Fi (the "Company").
Issue Senior Subordinated Notes (the "Notes").
Type of Offering Offering with registration rights pursuant to Rule
144A or a registered public offering.
Principal Amount $400 million.
Maturity 2007 (10 years).
Indicative Coupon [ ]% to [ ]%, subject to market conditions at
time of pricing and credit ratings achieved.
Interest Payment Dates Semi-annual; interest paid in arrears.
Use of Proceeds The net proceeds from the sale of the Notes will be
used to effect the recapitalization of Target or to
refinance the Bridge Loan and pay related fees and
expenses.
Ranking The Notes will be senior subordinated obligations of
the Company ranking pari passu with other senior
subordinated indebtedness of the Company.
Guarantees The Notes will be guaranteed on a senior subordinated
basis by each subsidiary of the Company that is an
obligor,
or who provides credit support, under the Credit
Facilities.
Optional Redemption The Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or after
[ ], 2002 (five years from the date of issuance) at a
percentage of par, to be determined at the time of the
issuance of the Notes, declining ratably to par on
[ ], 2005 (8 years from the date of issuance), in each
case, together with accrued and unpaid interest, if
any, to the redemption date.
Optional Redemption Upon
Public Equity Offerings On or before [ ], 2000 (three years after the date of
issuance), the Companymay redeem up to 35% of the
principal amount of the Notes originally issued at a
percentage of par (exact price to be determined at the
time of pricing), together with accrued and unpaid
interest, if any, to the redemption date, with the net
proceeds of one or more Public Equity Offerings (to be
defined); provided however that at least 65% of the
aggregate principal amount of the Notes originally
issued are outstanding following any such redemption.
Mandatory Redemption None.
Change in Control In the event of a Change in Control (to be defined),
each holder of Notes may require the Company to
repurchase such holder's Notes at 101% of the
principal amount thereof, together with accrued and
unpaid interest, if any, to the repurchase date.
Incurrence Covenants Covenants may include, but not be limited to, the
following:
Limitations on Incurrence of Indebtedness;
Limitations on Restricted Payments;
Limitations on Transactions with Affiliates;
- - - ------------
*Capitalized terms set forth herein and not defined herein shall have the
meanings ascribed thereto in the commitment letter to which this exhibit is
attached.
<PAGE>
Limitations on Liens;
Limitations on Disposition of Asset Sale Proceeds;
Limitations on Other Senior Subordinated Indebtedness;
Limitations on Issuance of Capital Stock by
Subsidiaries;
Limitations on Subsidiary Guarantees of Other
Indebtedness;
Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries;
Limitations on Mergers, Consolidations or Sale of
Substantially All Assets; and
Provisions of Financial Statements.
Events of Default As are customary for transactions of this nature,
including, but not limited to, the following: (i)
default in the payment of any interest on the Notes
when it becomes due and payable, and continuance of
such default for a period of 30 days; (ii) default in
the payment of the principal of (or premium, if any,
on) the Notes when due, (iii) (a) default in the
performance, or breach, or covenants of the Company in
the Indenture and the continuance of such default for
a period of 30 days, (b) default in the performance,
or breach, of the provision of "Mergers,
Consolidations or Sale of Substantially All Assets,"
or (c) the Company fails to make an offer to purchase
the Notes upon a Change in Control when applicable;
(iv) failure to pay at maturity or any acceleration of
the maturity of any Indebtedness of the Company or any
Subsidiary which is outstanding in a principal amount
of at least $15.0 million in the aggregate; (v) final
judgments or orders rendered against the Company or
any Subsidiary which require the payment in money,
either individually or in an aggregate amount, that is
more than $15.0 million and such final judgments or
orders remain unsatisfied or unpaid beyond a period of
60 days; (vi) cessation of any guarantee of any
material subsidiary to be in full force and effect;
and (vii) certain events of bankruptcy, insolvency or
reorganization.
Exchange Offer;
Registration Rights If the Notes are sold in a private placement pursuant
to Rule 144A, the Company agrees to use its reasonable
best efforts to file with the Securities and Exchange
Commission (the "SEC") within 60 days after the date of
original issue of the Notes (the "Issue Date") a
registration statement with respect to an offer to
exchange the Notes (the "Exchange Offer") for notes of
the Company with terms substantially identical to the
Notes (the "Exchange Notes"). The Company also agrees
to use its best efforts to cause such registration
statement to become effective within 135 days of the
Issue Date and to consummate the Exchange Offer by 165
days of the Issue Date. The Company further agrees to
provide a shelf registration statement with respect to
the Notes under certain circumstances.
In the event that (i) the registration statement for
the Exchange Offer is not filed with the SEC by the
60th day or (ii) the registration statement is not
declared effective by such 135th day, or (iii) the
Exchange Offer is not consummated prior to such 165th
day or (iv) the shelf registration is not declared
effective when required, the Company will be obligated
to pay liquidated damages in an amount equal to $0.192
per week per $1,000 principal amount of the Notes
until the registration statement is filed or declared
effective or the Exchange Offer is consummated, as the
case may be. The accrual of liquidated damages will
cease upon compliance with the registration
requirements.
Modification of
Indenture Requires consent of holders of the majority of the
aggregate principal amount outstanding, except for
modifications to certain monetary and maturity terms
which require the consent of each holder affected
thereby.
2
<PAGE>
Exhibit C
Borrower (in such capacity, the "Indemnitor") agrees to indemnify and hold
harmless Merrill Lynch, Chase, DLJ and their respective affiliates, directors,
officers, employees, agents and controlling persons (Merrill Lynch, Chase, DLJ
and each such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable law, or otherwise
related to or arising out of (i) the Transactions or any transaction
contemplated by the commitment letter to which this Exhibit C is attached (the
"Commitment Letter"), the Bridge Loan Agreement or related documents
(collectively, the "Loan Documents") or the execution, delivery or performance
of the Loan Documents or any other document in any way relating to the Bridge
Loan and the other transactions contemplated by the Loan Documents or the
engagement of Merrill Lynch, Chase and DLJ pursuant to, and the performance by
Merrill Lynch, Chase, DLJ or any of their respective affiliates of the services
contemplated by the Commitment Letter or the Engagement Letter (as defined in
the Commitment Letter) or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any information (whether oral or written) or
documents furnished or made available by the Indemnitor or any of its
affiliates or Target, directly or through Merrill Lynch, Chase or DLJ, to any
holder of securities placed or underwritten by Merrill Lynch, Chase or DLJ in
connection with the Transactions or otherwise contemplated pursuant to the
Commitment Letter or the omission or the alleged omission to state therein a
material fact necessary in order to make the statements therein not misleading,
in light of the circumstances under which they were made, and in each case will
promptly reimburse any Indemnified Party for any and all reasonable expenses
(including counsel fees and expenses) as they are incurred in connection with
the investigation or, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party and whether or not such claim, action or
proceeding is initiated or brought by or on behalf of the Indemnitor or any of
its affiliates, Target and whether or not resulting in any liability. The
Indemnitor shall not be liable to an Indemnified Party under clause (i) of the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted solely from Merrill Lynch's, Chase's or
DLJ's bad faith or gross negligence.
The Indemnitor also agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to
Borrower, Target or their respective security holders or creditors related to
or arising out of or in connection with the Commitment Letter, the Bridge Loan
Agreement, any other Loan Document, the use of proceeds of the Bridge Loan, the
Transactions or any related transaction or the engagement of Merrill Lynch,
Chase and DLJ pursuant to, or the performance by Merrill Lynch, Chase and DLJ
or any of their respective affiliates of the services contemplated by the
Commitment Letter, except to the extent that any loss, claim, damage or
liability is found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted solely from such Indemnified Party's bad faith or
gross negligence.
If the indemnification of an Indemnified Party provided for herein is for
any reason held unenforceable or insufficient in respect of any losses, claims,
damages or liabilities suffered by an by Indemnified Party, the Indemnitor
agrees to contribute to the losses, claims, damages, liabilities and expenses
for which such indemnification is held unenforceable (i) in such proportion as
is appropriate to reflect the relative benefits to the Indemnitor and its
affiliates, on the one hand, and Merrill Lynch, Chase or DLJ, as the case may
be, on the other hand, of the Transactions as contemplated (whether or not the
Transactions are consummated) or (ii) if (but only if) the allocation provided
for in clause (i) is for any reason held unenforceable, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) but also the relative fault of the Indemnitor, on the one hand, and such
Indemnified Party, on the other hand, as well as any other relevant equitable
considerations. The Indemnitor agrees that for the purposes of this paragraph
the relative benefits to the Indemnitor, on the one hand, and Merrill Lynch,
Chase or DLJ, as the case may be, on the other hand, of the Transactions as
contemplated shall be deemed to be in the same proportion that the total value
of the Transactions bears to the fees paid to Merrill Lynch, Chase or DLJ, as
the case may be, under the Commitment Letter; provided, however, that, to the
extent permitted by applicable law, in no event shall the Indemnified Parties
be required to contribute an aggregate amount in excess of the aggregate fees
actually paid to Merrill Lynch, Chase or DLJ, as the case may be, under the
Commitment Letter.
The Indemnitor agrees that, without Merrill Lynch's, Chase's and DLJ's
prior written consent, neither the Indemnitor nor any of its affiliates or
subsidiaries will settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding in respect of which
indemnification has been or could be sought under the indemnification
provisions of the Commitment Letter (whether or not Merrill Lynch, Chase, DLJ
or any other Indemnified Party is an actual or potential party to such claim,
action or proceeding), unless such
<PAGE>
settlement, compromise or consent (i) includes an unconditional written release
in form and substance satisfactory to the Indemnified Parties of each
Indemnified Party from all liability arising out of such claim, action or
proceeding and (ii) does not include any statement as to, or an admission of,
fault, culpability or a failure to act by or on behalf of any Indemnified
Party.
In the event that an Indemnified Party is requested or required to appear
as a witness in any action brought by or on behalf of or against the Indemnitor
or any of its subsidiaries or affiliates in which such Indemnified Party is not
named as a defendant, the Indemnitor agrees to reimburse such Indemnified Party
for all reasonable expenses incurred by it in connection with such Indemnified
Party's appearing and preparing to appear as such a witness, including, without
limitation, the reasonable fees and expenses of its legal counsel and to
compensate Merrill Lynch, Chase and DLJ in an amount to be mutually agreed
upon.
The foregoing contribution and indemnification agreement shall be in
addition to any rights that any Indemnified Party may have at common law or
otherwise. No investigation or failure to investigate by any Indemnified Party
shall impair the foregoing indemnification and contribution agreement or any
right an Indemnified Party may have.
Without prejudice to the survival of any other agreement of the Indemnitor
hereunder, the agreements and obligations of the Indemnitor contained herein
shall survive the payment in full of all amounts owing under the Bridge Loan
Agreement and under the Notes (as defined in Exhibit A).
2
<PAGE>
Annex I
Sources and Uses of Funds*
(in millions)
<TABLE>
<CAPTION>
Sources Uses
- - - ----------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Revolving Credit Facility $ 142.0 Payment of Merger Consideration $ 1,157.0
Term Loan 325.0 Repayment/Assumption of Existing Debt 315.1
Tranche A $ 125.0 Exercise of Options and Warrants ( 120.1)
Tranche B 100.0
Tranche C 100.0
7-1/8 Notes due 2005 150.0
Bridge Loan 400.0
Equity Financing (including up to
$75.0 million of PIK Preferred or
Holdco Discount Notes) 425.0
Fees and Expenses 90.0
-------- ----------
Total Sources $1,442.0 Total Uses $ 1,442.0
======== ==========
</TABLE>
- - - ------------
* Assumes per share merger consideration of $48.25.
1
<PAGE>
Consent dated as of November 14, 1997
Reference is hereby made to the commitment letter dated as of September
11, 1997, among the Chase Manhattan Bank ("Chase"), Merrill Lynch Capital
Corporation ("Merrill"), DLJ Capital Funding, Inc., Chase Securities Inc.
("CSI"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPFS" and,
together with Chase, Merrill, DLJ and CSI, the "Agents") and FSI Merger Co.
("MergerCo") attached hereto as Exhibit A (the "Commitment Letter"). Each of
the Agents has reviewed, and hereby consents to the changes incorporated in,
the Second Amended and Restated Merger Agreement dated as of November 14, 1997,
between MergerCo and Fisher Scientific International Inc. attached hereto as
Exhibit B. Each Agent hereby confirms the Commitment Letter remains in full
force and effect as of the date hereof.
THE CHASE MANHATTAN BANK
By: /s/ Bruce Borden
Name: Bruce Borden
Title: Vice President
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Brian E. O'Callahan
Name: Brian E. O'Callahan
Title: Vice President
DLJ CAPITAL FUNDING, INC.
By: Harold Philipps
Name: Harold J. Philipps
Title: Managing Director
CHASE SECURITIES INC.
By: /s/ Brian S. Hunnicutt
Name: Brian S. Hunnicutt
Title: Vice President
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ Brian E. O'Callahan
Name: Brian E. O'Callahan
Title: Director
<PAGE>
September 11, 1997
FSI Merger Co.
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Senior Secured Credit Facilities
Amended and Restated Commitment Letter
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase"), Merrill Lynch Capital
Corporation ("Merrill Lynch"), DLJ Capital Funding, Inc. ("DLJ" and, together
with Chase and Merrill Lynch, the "Agents"), Chase Securities Inc. ("CSI") and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") that (a) Thomas
H. Lee Company and its affiliates ("THL") intend to form a Delaware corporation
("MergerCo") and (b) THL intends that MergerCo will merge (the
"Recapitalization") with and into a company previously identified to us as Sci
Fi (the "Borrower") pursuant to a Recapitalization and Merger Agreement (the
"Recapitalization Agreement") between MergerCo and the Borrower. The sources
and uses of the funds necessary to consummate the Recapitalization and the
related transactions are set forth on Annex II to the Summary of Principal
Terms and Conditions attached hereto as Exhibit A (the "Term Sheet").
You have informed the Agents, CSI and MLPF&S that, in connection with the
Recapitalization, (a) certain investors arranged by you (the "Investors") will
make capital contributions to MergerCo, as common equity, in an aggregate cash
amount of $299,000,000, and certain members of the management of the Borrower
and the existing shareholders (each, an "Existing Stockholder") of common stock
of the Borrower (the "Common Stock") that is outstanding immediately prior to
the Recapitalization will retain common equity of the Borrower with a value of
not less than $36,000,000 and not more than $51,000,000 (collectively, the
"Equity Financing"), provided that the Equity Financing shall have an aggregate
value of not less than $350,000,000; (b) each Existing Stockholder will,
subject to the provisions of the Recapitalization Agreement, be entitled to
elect either (i) to receive an amount of cash on a per-share basis equal to
cash merger consideration of $48.25 per share (in which case such shares of
Common Stock will be canceled) or (ii) to retain any such shares of Common
Stock; provided, however, that, upon completion of the Recapitalization, the
Existing Stockholders will not own more than 20% of the then-outstanding Common
Stock; (c) MergerCo stock will be exchanged for newly issued shares of Common
Stock; (d) the Investors will purchase, if not purchased by outside investors,
payment-in-kind preferred stock (the "PIK Preferred Stock") of the Borrower
having an aggregate value of not less than $75,000,000; (e) except for options
held by Eligible Employees (as defined in the Recapitalization Agreement) to be
converted subsequent to the Recapitalization, each of the options of the
Borrower that are outstanding immediately prior to the Recapitalization will be
canceled and the holder thereof will be entitled to receive an amount of cash
equal to the difference between the cash merger consideration paid in
connection with the Recapitalization and the exercise price of such option; (f)
the Borrower will raise gross proceeds of up to $400,000,000 from either (i) an
offering of unsecured senior subordinated debt securities due 2007 with no
scheduled principal payments prior to maturity (the "Senior Subordinated
Notes") or (ii) an unsecured senior subordinated bridge loan (the "Bridge
Loan") that would be anticipated to be replaced with debt securities
substantially similar to the Senior Subordinated Notes after the closing of the
Recapitalization (the Senior Subordinated Notes or the take-down under the
Bridge Loan, the "Senior Subordinated Financing"); (g) the Borrower's 7-1/8
Senior Notes will remain outstanding; and (h) the Borrower will enter into the
senior secured credit facilities (the "Facilities") described in the Term
Sheet. The PIK Preferred Stock will be on terms and conditions and pursuant to
documentation satisfactory to the Agents. After giving effect to the
Recapitalization, the Investors will own not less than 80% of the
then-outstanding Common Stock. The Recapitalization and the other transactions
described in this paragraph and the immediately preceding paragraph are
referred to herein as the "Transactions".
You have requested that (a) Chase act as administrative agent for the
Facilities (the "Administrative Agent"), (b) Merrill Lynch act as syndication
agent for the Facilities (the "Syndication Agent"), (c) DLJ act as
documentation agent for the Facilities (the "Documentation Agent"), (d) Chase
commit to provide $260,000,000 of the Facilities, (e) Merrill Lynch commit to
provide $260,000,000 of the Facilities, (f) DLJ commit to provide $130,000,000
of the Facilities and (g) CSI and MLPF&S agree to manage the syndication of the
Facilities.
In connection with the foregoing, (a) Chase is pleased to advise you of
its commitment to provide $260,000,000 of the Facilities, (b) Merrill Lynch is
pleased to advise you of its commitment to provide $260,000,000 of the
<PAGE>
Facilities and (c) DLJ is pleased to advise you of its commitment to provide
$130,000 000 of the Facilities, in each case upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "Commitment
Letter") and in the Term Sheet. The commitment of each of the Agents will be
allocated pro rata among the Facilities.
It is agreed that (a) Chase will act as the Administrative Agent, (b)
Merrill Lynch will act as the Syndication Agent, (c) DLJ will act as the
Documentation Agent and (d) CSI and MLPF&S will manage the syndication of the
Facilities. It is further agreed that no additional agent, co-agent or arranger
will be appointed and no Lender (as defined in the Term Sheet) will receive
compensation outside the terms contained herein and in the Fee Letter referred
to below in order to obtain its commitment to participate in the Facilities, in
each case unless you and we so agree.
You have advised us that you may want a portion of the Revolving Facility
included in the Facilities to be made available to the Borrower in the form of
an accounts receivable purchase facility (i.e., a facility providing interim
financing to a securitization of receivables). At your request, we will provide
you a separate term sheet describing our proposal for such an accounts
receivable purchase facility.
The Agents reserve the right, prior to or after the execution of
definitive documentation for the Facilities, to syndicate all or a portion of
their respective commitments hereunder to one or more financial institutions
reasonably satisfactory to the Agents, CSI, MLPF&S and you. Upon your
acceptance of the commitment of any Lender to provide a portion of the
Facilities, each Agent shall be released from a portion of its commitment
hereunder in an aggregate amount equal to such Agent's pro rata portion (based
on the Agents' initial commitment amounts hereunder) of the commitment of such
Lender. You agree actively to assist CSI and MLPF&S in achieving a timely
syndication that is satisfactory to the Agents, CSI, MLPF&S and you. This
assistance will be accomplished by a variety of means, including direct contact
during the syndication (at times mutually agreed upon) between the senior
officers, representatives and advisors of you and the Borrower, on the one
hand, and prospective Lenders, on the other hand.
CSI and MLPF&S will manage all aspects of the syndication in consultation
with the Agents and you, including selection of Lenders, determination of when
CSI and MLPF&S will approach potential Lenders, any naming rights and the final
allocations of the commitments among the Lenders. To assist CSI and MLPF&S in
their syndication efforts, you agree (a) promptly to provide or cause to be
provided all financial and other information in your or the Borrower's
possession with respect to MergerCo, the Borrower, the Transactions and any
other transactions contemplated hereby, including but not limited to financial
projections (the "Projections") relating to the foregoing, and (b) to assist,
and to cause your and the Borrower's affiliates and advisors to assist, CSI,
MLPF&S and the Agents in the preparation of a Confidential Information
Memorandum and other marketing materials to be used in connection with the
syndication.
You hereby represent and covenant that (a) to the best of your knowledge,
all written information (other than the Projections) concerning MergerCo, the
Borrower, the Transactions and any other transactions contemplated hereby (the
"Information") that has been or will be made available to the Agents, CSI or
MLPF&S by your or any of your representatives in connection with the
transactions contemplated hereby, when taken as a whole, is or will be complete
and correct in all material respects and does not or will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not materially misleading in
light of the circumstances under which such statements are made and (b) the
Projections that have been or will be made available to the Agents, CSI or
MLPF&S by you or any of your representatives in connection with the
transactions contemplated hereby have been and will be prepared in good faith
based upon assumptions believed by you to be reasonable (it being understood
that the Projections are subject to significant uncertainties and
contingencies, many of which are beyond the control of you and the Borrower,
and that no assurance can be given that such Projections will be realized). The
representations and covenants set forth in this paragraph shall be superseded
by the definitive documentation with respect to the Facilities upon execution
and delivery of such definitive documentation.
As consideration for the commitments of the Agents hereunder and the
agreement of CSI and MLPF&S to structure, arrange and syndicate the Facilities
and to provide advisory services in connection therewith, you agree to pay (or
cause the Borrower to pay) to Chase (for the account of the Agents), only if
the Recapitalization occurs (and, if so, then on the date thereof), the fees as
set forth in the Term Sheet and in the Fee Letter dated the date hereof and
delivered herewith (the "Fee Letter"). Once paid, such fees shall not be
refundable under any circumstances.
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The commitments of the Agents hereunder and the agreement of CSI and
MLPF&S to provide the services described herein are subject to (a) there not
having occurred any material adverse change in the business, assets,
operations, properties, financial condition, reasonably foreseeable prospects
or material agreements of the Borrower and its subsidiaries, taken as a whole,
since March 31, 1997, other than those publicly disclosed by Borrower or
otherwise disclosed in writing to the Agents, in each case on or prior to the
date hereof, (b) our not becoming aware after the date hereof of any
information or other matter affecting the Borrower, the Transactions or the
other transactions contemplated hereby that is inconsistent in a material and
adverse manner with the information known by us on the date hereof, (c) there
not having occurred and being continuing any material disruption of or material
adverse change in the financial, banking or capital markets since the date
hereof and (d) the other conditions set forth herein and in the Term Sheet.
You agree that, prior to and during the syndication of the Facilities,
there shall be no competing issues of debt securities (other than the Senior
Subordinated Notes or the Bridge Loan) or commercial bank facilities of
MergerCo, the Borrower or any of their respective subsidiaries being offered,
placed or arranged.
In addition, the commitments of the Agents hereunder are subject to the
negotiation, execution and delivery of definitive documentation with respect to
the Facilities satisfactory to the Agents. Such documentation shall contain
such indemnities, covenants, representations and warranties, events of default,
conditions precedent, security arrangements and other terms and conditions as
shall be satisfactory to the Agents and you.
You agree (a) to indemnify and hold harmless CSI, MLPF&S, each Agent and
the other Lenders and their respective officers, directors, employees,
affiliates, agents and controlling persons from and against any and all losses,
claims, damages, liabilities and expenses, joint or several, to which any such
person may become subject arising out of or in connection with this Commitment
Letter, the Fee Letter, the Term Sheet, the Transactions, the Facilities, the
use of proceeds of the loans thereunder or any claim, litigation, investigation
or proceeding relating to any of the foregoing, regardless of whether any of
such indemnified parties is a party thereto, and to reimburse each of such
indemnified parties upon demand for any reasonable legal or other expenses
incurred in connection with investigating or defending any of the foregoing,
provided that the foregoing indemnity will not, as to any indemnified party,
apply to losses, claims, damages, liabilities or related expenses to the extent
they have resulted from the willful misconduct or gross negligence of such
indemnified party, and (b) to reimburse CSI, MLPF&S and the Agents on the
Closing Date for all out-of-pocket expenses (including but not limited to
expenses of their due diligence investigation, expenses of obtaining a solvency
opinion, syndication expenses, travel expenses and reasonable fees,
disbursements and other charges of counsel), in each case incurred in
connection with the Facilities and the preparation of this Commitment Letter,
the Term Sheet, the Fee Letter, the definitive documentation for the Facilities
and the security arrangements in connection therewith. No indemnified person
shall be liable for any indirect or consequential damages in connection with
its activities related to the Facilities. The foregoing indemnification
provisions will be superseded by the indemnification provisions contained in
the definitive loan documentation upon the execution thereof.
This Commitment Letter and the commitments of the Agents hereunder shall
not be assignable by you without the prior written consent of each Agent, CSI
and MLPF&S, and any purported assignment without such consent shall be void;
provided, however, that this Commitment Letter, the commitment of the Agents
hereunder and the Fee Letter may be assigned by you to the Borrower pursuant to
a writing reasonably satisfactory to the Agents. This Commitment Letter may not
be amended or any provision hereof waived or modified except by an instrument
in writing signed by each Agent, CSI, MLPF&S and you. This Commitment Letter
may be executed in any number of counterparts, each of which shall be an
original and all of which, when taken together, shall constitute one agreement.
Delivery of an executed counterpart of a signature page of this Commitment
Letter by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Commitment Letter. This Commitment Letter is
intended to be solely for the benefit of the parties hereto and is not intended
to confer any benefits upon, or create any rights in favor of, any person other
than the parties hereto. This Commitment Letter shall be governed by, and
construed in accordance with, the laws of the State of New York.
Please indicate your acceptance of the terms hereof and of the Term Sheet
and the Fee Letter by returning to us executed counterparts of this Commitment
Letter and the Fee Letter not later than 5:00 p.m., New York City time, on
September 11, 1997. The commitments of the Agents hereunder and the agreement
of CSI and MLPF&S to provide the services described herein will automatically
terminate at such time in the event that we have not received such executed
counterparts in accordance with the immediately preceding sentence. In the
event that the
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initial borrowing in respect of the Facilities does not occur on or before
January 31, 1998, then this Commitment Letter, the commitments of the Agents
hereunder and the agreement of CSI and MLPF&S to provide the services described
herein shall automatically terminate unless each Agent, CSI and MLPF&S shall,
in their direction, agree to an extension. Subject to the provisions of the
immediately preceding paragraph, the compensation, reimbursement and
indemnification provisions contained herein and in the Fee Letter shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or the commitments of the Agents
hereunder.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter or the Fee Letter nor any of their terms or
substance shall be disclosed, directly or indirectly, to any other person
except to the extent permitted by the Fee Letter.
This Commitment Letter amends and restates in all respects the Commitment
Letter dated August 6, 1997, among Chase, Merrill Lynch, CSI, MLPF&S and you.
Chase, Merrill Lynch, DLJ, CSI and MLPF&S are pleased to have been given
the opportunity to assist you in connection with the financing for the
Recapitalization.
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Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Bruce S. Borden
Name: Bruce S. Borden
Title: Vice President
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Christopher Birosak
Name: Christopher Birosak
Title: Vice President
DLJ CAPITAL FUNDING, INC.
By: /s/ Harold Phillips
Name: Harold Phillips
Title:
CHASE SECURITIES INC.
By: /s/ Robert W. Mathews
Name: Robert W. Mathews
Title: Vice President
MERRILL LYNCH, PIERCE FENNER
& SMITH INCORPORATED
By: /s/ Christopher Birosak
Name: Christopher Birosak
Title: Managing Director
Accepted and agreed to as of
the date first above written:
FSI MERGER CO.
By: /s/ Anthony J. DiNovi
Name: Anthony J. DiNovi
Title: President
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EXHIBIT A
CONFIDENTIAL
September 11, 1997
Senior Secured Credit Facilities
Summary of Principal Terms and Conditions
Borrower: A Delaware corporation previously identified to The
Chase Manhattan Bank ("Chase"), Merrill Lynch Capital
Corporation ("Merrill Lynch") and DLJ Capital Funding,
Inc. ("DLJ" and, together with Merrill Lynch and
Chase, the "Agents") as Sci Fi (the "Borrower").
Recapitalization: (a) Thomas H. Lee Company and its affiliates ("THL")
intend to form a Delaware corporation ("MergerCo") and
(b) MergerCo will merge (the "Recapitalization") with
and into the Borrower, pursuant to a Recapitalization
and Merger Agreement (the "Recapitalization
Agreement") between MergerCo and the Borrower.
In connection with the Recapitalization, (a) certain
investors arranged by THL (the "Investors") will make
capital contributions to MergerCo, as common equity,
in an aggregate cash amount of $299,000,000, and
certain members of the management of the Borrower and
the existing shareholders (each, an "Existing
Stockholder") of common stock of the Borrower (the
"Common Stock") that is outstanding immediately prior
to the Recapitalization will retain common equity of
the Borrower with a value of not less than $36,000,000
and not more than $51,000,000 (collectively, the
"Equity Financing"), provided that the Equity
Financing shall have an aggregate value of not less
than $350,000,000; (b) each Existing Stockholder will,
subject to the provisions of the Recapitalization
Agreement, be entitled to elect either (i) to receive
an amount of cash on a per-share basis equal to cash
merger consideration of $48.25 per share (in which
case such shares of Common Stock will be canceled) or
(ii) to retain any such shares of Common Stock;
provided, however, that, upon completion of the
Recapitalization, the Existing Stockholders will not
own more than 20% of the then-outstanding Common
Stock; (c) MergerCo stock will be exchanged for newly
issued shares of Common Stock; (d) the Investors will
purchase, if not purchased by outside investors,
payment-in-kind preferred stock (the "PIK Preferred
Stock") of the Borrower having an aggregate value of
not less than $75,000,000; (e) except for options held
by Eligible Employees (as defined in the
Recapitalization Agreement) to be converted subsequent
to the Recapitalization, each of the options of the
Borrower that are outstanding immediately prior to the
Recapitalization will be canceled and the holder
thereof will be entitled to receive an amount of cash
equal to the difference between the cash merger
consideration paid in connection with the
Recapitalization and the exercise price of such
option; (f) the Borrower will raise gross proceeds of
up to $400,000,000 from either (i) an offering (the
"Securities Offering") of unsecured senior
subordinated debt securities due 2007 with no
scheduled principal payments prior to maturity (the
"Senior Subordinated Notes") or (ii) an unsecured
senior subordinated bridge loan (the "Bridge Loan")
that would be anticipated to be replaced with debt
securities substantially similar to the Senior
Subordinated Notes after the closing of the
Recapitalization (the "Debt Securities") (the Senior
Subordinated Notes or the take-down under the Bridge
Loan, the "Senior Subordinated Financing"); (g) the
Borrower's 7-1/8 Senior Notes (the "Outstanding Senior
Notes") will remain outstanding; and (h) the Borrower
will enter into the senior secured credit facilities
(the "Facilities") described under the caption
"Facilities" below. The PIK Preferred Stock will be on
terms and conditions and pursuant to documentation
satisfactory to the Agents. After giving effect to the
Recapitalization, the Investors will own not less than
80% of the then-outstanding Common Stock.
The Recapitalization and the other transactions
described in the two immediately preceding paragraphs
are referred to herein as the "Transactions". The
sources and uses necessary to consummate the
Transactions are set forth on Annex II hereto.
<PAGE>
Facilities: (A) A term loan facility in an aggregate principal
amount of $325,000,000 (the "Term Facility")
divided into three tranches (i) a $125,000,000
tranche A (the "Tranche A Facility"), (ii) a
$100,000,000 tranche B (the "Tranche B Facility")
and (iii) a $100,000,000 tranche C (the "Tranche C
Facility").
(B) A revolving credit facility in the principal
amount of $325,000,000 (the "Revolving Facility")
of which up to an amount to be agreed upon will be
available in the form of letters of credit. Up to
$145,000,000 of the Revolving Facility may be drawn
at closing.
Agents: Chase will act as administrative agent(the
"Administrative Agent") for a syndicate of financial
institutions reasonably satisfactory to the Agents and
the Borrower (the "Lenders").
Merrill Lynch will act as syndication agent for the
Facilities (the "Syndication Agent").
DLJ will act as documentation agent for the Facilities
(the "Documentation Agent").
Purposes: The proceeds of the Term Facility, together with (a)
the proceeds of the Equity Financing, (b) the proceeds
of the Senior Subordinated Financing, (c) up to
$145,000,000 of the proceeds of loans under the
Revolving Facility and (d) the net proceeds from the
issuance of the PIK Preferred Stock, will be used by
the Borrower on the date the Recapitalization is
consummated (the "Closing Date"), solely (i) to pay a
portion of the cash consideration to be paid in
connection with the Recapitalization, (ii) to pay
related fees and expenses and (iii) to refinance
existing indebtedness of the Borrower and its
subsidiaries.
The proceeds of loans under the Revolving Facility
(other than the loans used for the purposes set forth
in the immediately preceding paragraph) will be used
to finance the working capital and other general
corporate purposes of the Borrower.
Letters of credit will be used by the Borrower solely
for ordinary course purposes.
Availability: The full amount of the Term Facility must be drawn in
a single drawing on the Closing Date. Amounts repaid
under the Term Facility may not be reborrowed.
Loans under the Revolving Facility will be available
at any time prior to the final maturity of the
Revolving Facility. Amounts repaid under the Revolving
Facility may be reborrowed. At the request of the
Borrower, a portion to be agreed upon of the Revolving
Facility may be made available to the Borrower's
foreign subsidiaries to be agreed upon in applicable
currencies.
Letters of Credit will be available at any time before
the fifth business day prior to the final maturity of
the Revolving Facility.
Letters of Credit: Letters of credit under the Revolving Facility will be
issued by Chase, as fronting bank (in such capacity,
the "Fronting Bank"). Each letter of credit shall
expire no later than the earlier of (a) 12 months
after its date of issuance and (b) the fifth business
day prior to the final maturity of the Revolving
Facility.
Drawings under any letter of credit shall be
reimbursed by the Borrower within two business days.
To the extent that the Borrower does not reimburse the
Fronting Bank, the Lenders under the Revolving
Facility shall be irrevocably obligated to reimburse
the Fronting Bank pro rata based upon their respective
Revolving Facility commitments, with the amount of
such reimbursement payment being deemed to be a
drawing under the Revolving Facility.
The issuance of all letters of credit shall be subject
to the customary procedures of the Fronting Bank.
Final Maturity and
(A) Term Loan Facility
Amortization:
The Tranche A Facility will mature six years after
the Closing Date, and
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will amortize in semi-annual installments
(commencing 18 months after the Closing Date) in
amounts to be agreed upon.
The Tranche B Facility will mature seven years
after the Closing Date, and will amortize in
nominal semi-annual installments (commencing 18
months after the Closing Date) during the first
six years of such Facility and in semi-annual
installments thereafter, in each case in amounts
to be agreed upon.
The Tranche C Facility will mature eight years
after the Closing Date, and will amortize in
nominal semi-annual installments (commencing 18
months after the Closing Date) during the first
seven years of such Facility and in semi-annual
installments thereafter, in each case in amounts
to be agreed upon.
(B) Revolving Facility
The Revolving Facility will mature six years after
the Closing Date.
Guarantees: All obligations of the Borrower under the Facilities
will be unconditionally guaranteed by each material
existing and each material subsequently acquired or
organized domestic subsidiary of the Borrower.
Security: The Facilities and interest rate hedging agreements
with any Lender will be secured by substantially all
the assets of the Borrower and each material existing
and each material subsequently acquired or organized
domestic subsidiary of the Borrower (collectively, the
"Collateral"), including but not limited to (a) a
first-priority pledge of the capital stock of each
material existing and each material subsequently
acquired or organized subsidiary of the Borrower
(which pledge, in the case of any foreign subsidiary,
shall be limited to 65% of the capital stock of such
foreign subsidiary to the extent, and for so long as,
the pledge of any greater percentage would have
adverse tax consequences for the Borrower) and (b)
perfected first-priority security interests in, and
mortgages on, substantially all tangible and
intangible assets of the Borrower and each material
existing and each material subsequently acquired or
organized domestic subsidiary of the Borrower
(including but not limited to accounts receivable,
contracts, inventory, equipment, intellectual
property, general intangibles, owned and leased real
property to be agreed upon, cash proceeds of the
foregoing).
All the above-described pledges, security interests
and mortgages shall be created on terms, and pursuant
to documentation, satisfactory to the Lenders, and
none of the Collateral shall be subject to any other
pledges, security interests or mortgages, except as
specifically permitted by the Lenders.
Any portion of the Revolving Facility borrowed by a
foreign subsidiary of the Borrower will be secured by
substantially all the assets of such foreign
subsidiary and its subsidiaries and a pledge of a
capital stock of such foreign subsidiary borrower.
Interest Rates and Fees: As set forth on Annex I hereto.
Mandatory Prepayments: Loans under the Term Facility shall be prepaid with
(a) 50% of Excess Cash Flow (to be defined), subject
to limits to be agreed upon, (b) 100% of the net cash
proceeds of all non-ordinary-course asset sales or
other dispositions of property by the Borrower and its
subsidiaries (including insurance and condemnation
proceeds), except in certain circumstances where such
proceeds are used to replace property in amounts to be
agreed upon, subject to limited exceptions to be
agreed upon, (c) 100% of the net proceeds of issuances
of debt obligations of the Borrower and its
subsidiaries (other than the proceeds of (i) any
accounts receivable securitization transaction to the
extent that such transaction is consummated within six
months following the Closing Date and the proceeds of
such transaction are applied to the prepayment of
loans under the Revolving Facility and (ii) any Debt
Securities issued after the Closing Date to the extent
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that such proceeds are applied to the prepayment of
the Bridge Loan) and (d) 50% of the net proceeds from
the issuance of equity by the Borrower and its
subsidiaries in excess of an amount to be agreed upon
(other than to the extent that such proceeds are
applied to the prepayment of the Bridge Loan), subject
to exceptions to be agreed upon, including exceptions
for proceeds received from the exercise of stock
options granted to management.
The above-described mandatory prepayments of the Term
Facility shall be applied pro rata to each tranche and
to the remaining amortization payments under such
tranche.
The Lenders of the Tranche B Facility and Tranche C
Facility will each be entitled to decline certain
prepayments so long as the Tranche A Facility is in
effect, with the result that the Tranche A Facility
will be prepaid with any such prepayments so declined.
Voluntary Prepayments: Voluntary prepayments will be permitted in whole or in
part, at the option of the Borrower, in minimum
principal amounts to be agreed upon, without premium
or penalty, subject to reimbursement of the Lenders'
redeployment costs in the case of prepayment of
Adjusted LIBOR borrowings other than on the last day
of the relevant Interest Period.
All voluntary prepayments under the Term Facility
shall be applied pro rata to the remaining
amortization payments under such Facility.
Representations and
Warranties: Usual for facilities and transactions of this
type and others to be reasonably specified by the
Agents, including but not limited to accuracy of
financial statements; no material adverse change;
absence of litigation; no violation of agreements or
instruments, including no default or event of default;
compliance with laws (including ERISA, margin
regulations and environmental laws); payment of taxes;
ownership of properties; inapplicability of the
Investment Company Act; solvency; effectiveness of
regulatory approvals; labor matters; environmental
matters, including the absence of material
environmental liabilities; accuracy of information;
and validity, priority and perfection of security
interests in the Collateral.
Conditions Precedent to
Initial Borrowing: Usual for facilities and transactions of this type
(including accuracy of representations and absence of
defaults) and those specified below.
Absence of material adverse change in the business,
assets, operations, properties, financial condition,
reasonably foreseeable prospects or material
agreements of the Borrower and its subsidiaries, taken
as a whole, since March 31, 1997, other than those
publicly disclosed by the Borrower or otherwise
disclosed in writing to the Agents, in each case on or
prior to the date hereof.
MergerCo shall have received the Equity Financing, and
the proceeds thereof shall have been used to finance
the Recapitalization.
The Recapitalization shall have been consummated or
shall be consummated simultaneously with the closing
of the Facilities in accordance with applicable law
and the Recapitalization Agreement, and the Lenders
shall be satisfied (a) with the terms and conditions
of the Recapitalization Agreement and the other
agreements (including management shareholder
agreements and other shareholder agreements) to be
entered into in connection with the Recapitalization,
(b) that the capitalization, structure and equity
ownership of the Borrower shall be as described to the
Agents prior to the date hereof and (c) that the
aggregate level of fees and expenses (including any
premiums associated with debt repayment) to be paid in
connection with the Recapitalization, the financing
therefor and the other transactions contemplated
hereby shall not exceed $90,000,000.
The Borrower shall have received up to $400,000,000 in
gross cash proceeds from the Senior Subordinated
Financing. The terms and conditions of the Senior
Subordinated Notes and, if applicable, the Bridge Loan
shall be reasonably satisfactory in all respects to
the Lenders (including but not limited to the
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interest rate, fees, maturity, subordination,
covenants, events of default and remedies).
The Borrower shall have received not less than
$75,000,000 in cash proceeds from the issuance of the
PIK Preferred Stock in a public offering or in a Rule
144A or other private placement to one or more holders
satisfactory to the Agents. The terms and conditions
of the PIK Preferred Stock (including but not limited
to terms and conditions relating to the dividend rate
and redemption), shall be satisfactory in all respects
to the Lenders.
The documents and materials filed publicly by MergerCo
and the Borrower in connection with the
Recapitalization shall have been furnished to the
Agents in reasonably satisfactory form.
After giving effect to the Recapitalization and the
other transactions contemplated hereby, the Borrower
and its subsidiaries shall have outstanding no
indebtedness or preferred stock other than (a) the
loans under the Facilities, (b) the Senior
Subordinated Notes or the Bridge Loan, (c) the
Outstanding Senior Notes, (d) the PIK Preferred Stock
and (e) other limited indebtedness or preferred stock
disclosed to, and in amounts and on terms reasonably
satisfactory to, the Lenders.
Certain of the Investors, the largest of which will be
THL, shall own and control not less than a majority of
the voting power of the capital stock of MergerCo and
the Borrower and an economic interest therein
satisfactory to the Agents.
The Lenders shall have received a pro forma
consolidated balance sheet of the Borrower dated as of
the date of the most recently available quarterly
financial statements after giving effect to the
Recapitalization, which balance sheet shall be
consistent in all material respects with the sources
and uses shown on Annex II hereto and the forecast
previously provided to the Lenders.
The Lenders shall have received a solvency letter, in
form and substance and from an independent evaluation
firm reasonably satisfactory to the Lenders, together
with such other evidence reasonably requested by the
Lenders of the solvency of the Borrower and its
subsidiaries on a consolidated basis after giving
effect to the Transactions and the other transactions
contemplated hereby.
All requisite governmental authorities and third
parties shall have approved or consented to the
Transactions and the other transactions contemplated
hereby to the extent required, all applicable appeal
periods shall have expired and there shall be no
governmental or judicial action, actual or threatened,
that has or could have a reasonable likelihood of
restraining, preventing or imposing materially
burdensome conditions on any of the Transactions or
the other transactions contemplated hereby.
The Lenders shall have received copies of all tax
sharing agreements to which the Borrower and its
subsidiaries are or are to be a party.
Payment of required fees and expenses to the Agents
and the Lenders.
The Lenders shall have received such legal opinions,
certificates and corporate and other documents as they
shall reasonably request.
The Lenders shall have received satisfactory title
insurance and surveys with respect to certain of the
mortgaged real property to be mutually agreed upon by
the Borrower and the Agents.
All necessary or advisable filings shall have been
duly made to create a perfected first-priority lien on
and security interest in all Collateral, and all
Collateral shall be free and clear of all liens,
except permitted liens to be negotiated.
Affirmative Covenants: Usual for facilities and transactions of this type and
others to be reasonably specified by the Agents (to be
applicable to the Borrower and its subsidiaries).
The Borrower will also be required to maintain
interest rate protections arrange-
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ments with respect to an amount of the Term Facility
to be agreed upon (which amount shall not exceed 50%
of the Term Facility) and with other terms to be
agreed upon.
Negative Covenants: Usual for facilities and transactions of this type and
others to be reasonably specified by the Agents (to be
applicable to the Borrower and its subsidiaries, and
with exceptions (and, where appropriate, grace
periods) to be agreed upon), including but not limited
to limitations on cash dividends, redemptions and
repurchases of capital stock; prohibition of
prepayments, redemptions and repurchases of debt
(other than prepayment of loans under the Facilities
and other than prepayment of loans under the Bridge
Loan with the proceeds of any Debt Securities);
limitations on liens and sale-leaseback transactions;
limitations on loans and investments; limitations on
debt; limitations on capital expenditures; limitations
on mergers and asset sales; limitations on
transactions with affiliates; limitations on changes
in business conducted by the Borrower and its
subsidiaries; and limitations on amendment of debt and
other material agreements. The covenants will permit
an accounts receivable securitization transaction on
terms to be agreed upon.
Selected Financial
Covenants: The credit agreement relating to the Facilities
(the "Credit Agreement") will contain financial
covenants appropriate in the context of the proposed
transaction based upon the financial information
provided to the Agents, including but not limited to
(a) a maximum leverage ratio, (b) a minimum interest
coverage ratio and (c) a fixed charge covenant
(definitions and levels to be agreed upon).
Events of Default: Usual for facilities and transactions of this type and
others to be reasonably specified by the Agents, with
exceptions to be agreed upon, including but not
limited to: nonpayment of principal or interest,
violation of covenants, incorrectness of
representations and warranties in any material
respect, cross default and cross acceleration,
bankruptcy, material judgments, ERISA, actual or
asserted invalidity of security documents or
guarantees and Change in Control (the definition of
which will be agreed upon).
Voting: Amendments and waivers of the Credit Agreement and the
other definitive credit documentation will require the
approval of Lenders holding more than 50% (the
"Required Percentage") of the aggregate amount of the
loans and commitments under the Facilities, except
that (a) the consent of each Lender adversely affected
thereby shall be required with respect to, among other
things, (i) increases in commitments, (ii) reductions
of principal, interest or fees, (iii) extensions of
scheduled amortization or final maturity and (iv)
releases of any substantial part of the Collateral or
any significant guarantee (other than in connection
with any sale of Collateral or the relevant guarantor
permitted by the Credit Agreement) and (b) the consent
of Lenders holding more than the Required Percentage
of the loans and commitments of each of the Tranche A
Facility, the Tranche B Facility and the Tranche C
Facility shall be required with respect to any
amendment that changes the application of prepayments
of loans under the Term Facility.
Cost and Yield
Protection: Usual for facilities and transactions of this type.
Assignments and Participations: The Lenders will be
permitted to assign loans, notes and commitments to
Lenders and, in aggregate amounts of not less than
$5,000,000, to other financial institutions with the
consent of the Borrower, not to be unreasonably
withheld. The Administrative Agent will receive a
processing and recordation fee of $3,500, payable by
the assignor and/or the assignee, with each assignment.
Assignments will be novation and shall not be required
to be pro rata among the Facilities.
The Lenders will be permitted to participate loans,
notes and commitments without restriction. Voting
rights of participants shall be limited to matters in
respect of (a) reductions of principal, interest or
fees, (b) extensions of scheduled amortization or
maturity and (c) certain releases of collateral.
6
<PAGE>
Expenses and
Indemnification: All reasonable out-of-pocket expenses (including
but not limited to expense incurred in connection with
due diligence) of the Agents associated with the
syndication of the Facilities and with the
preparation, execution and delivery, administration,
waiver or modification and enforcement of the Credit
Agreement and the other documentation contemplated
hereby and thereby (including the reasonable fees,
disbursements and other changes of counsel) are to be
paid by the Borrower on the Closing Date. In addition,
all out-of-pocket expenses of the Lenders for
enforcement costs and documentary taxes associated
with the Facilities are to be paid by the Borrower.
The Borrower will indemnify each Agent and the other
Lenders and hold them harmless from and against all
costs, expenses (including reasonable fees,
disbursements and other charges of counsel) and
liabilities of each Agent and such other Lenders
arising out of or relating to any claim or any
litigation or other proceedings (regardless of whether
either Agent or any such other Lender is a party
thereto) that relates to the proposed transactions,
including the financing contemplated hereby, the
Transactions or any other transactions connected
therewith, provided that neither the Agents nor any
such other Lender will be indemnified for its gross
negligence or willful misconduct.
Governing Law and Forum: New York.
Counsel to Agents: Cravath, Swaine & Moore.
7
<PAGE>
Annex I
Interest Rates: The interest rates under the Facilities will be, at
the option of the Borrower, as follows:
Revolving Facility
Adjusted LIBOR plus 2.25% or ABR plus 1.25%, in each
case subject after the first anniversary of the
Closing Date to step-downs to be agreed upon based on
the Borrower's financial performance.
Term Facility
Tranche A: Adjusted LIBOR plus 2.25% or ABR plus
1.25%, in each case subject after the first
anniversary of the Closing Date to step-downs to be
agreed upon based on the Borrower's financial
performance.
Tranche B: Adjusted LIBOR plus 2.50% or ABR plus
1.50%, in each case with such spreads to remain in
effect throughout the term of the Term Loan Facility.
Tranche C: Adjusted LIBOR plus 2.75% or ABR plus
1.75%, in each case with such spreads to remain in
effect throughout the term of the Term Loan Facility.
All Facilities
The Borrower may elect interest periods of 1, 2, 3 or
6 months for Adjusted LIBOR Borrowings.
Calculation of interest shall be on the basis of
actual number of days elapsed in a year of 360 days
(or 365 or 366 days, as the case may be, in the case
of ABR loans based on the Prime Rate) and interest
shall be payable at the end of each interest period
and, in any event, at least every 3 months, upon
maturity and upon repayment in full.
ABR is the Alternate Base Rate, which is the higher of
Chase's Prime Rate and the Federal Funds Effective
Rate plus 1/2 of 1%.
Adjusted LIBOR will at all times include statutory
reserves.
Letter of Credit Fee: A per annum fee equal to the spread over Adjusted
LIBOR from time to time in effect with respect to
loans under the Revolving Facility will accrue on the
aggregate face amount of outstanding letters of credit
under the Revolving Facility, payable in arrears at
the end of each quarter and upon the termination of
the Revolving Facility, in each case for the actual
number of days elapsed over a 360-day year. Such fees
shall be distributed to the Lenders participating in
the Revolving Facility pro rata in accordance with the
amount of each such Lender's Revolving Facility
commitment. In addition, the Borrower shall pay to the
Fronting Bank, for its own account (a) a per annum fee
equal to an amount to be determined on the aggregate
face amount of outstanding letters of credit, payable
in arrears at the end of each quarter and upon the
termination of the Revolving Facility, in each case
for actual number of days elapsed over a 360-day year,
and (b) the Fronting Bank's customary issuing fees and
expenses.
Commitment Fee: With respect to each Lender, 1/2 of 1% per annum on
the undrawn portion of the commitment of such Lender
in respect of the Facilities, commencing to accrue
upon the acceptance of such commitment and payable on
the Closing Date and quarterly in arrears after the
Closing Date. Following the first anniversary of the
Closing Date, the commitment fee will be subject to a
step-down to be agreed upon based on the Borrower's
financial performance.
Default Rate: The applicable interest rate plus 2% per annum.
<PAGE>
Annex II
Sources and Uses of Funds*
(in millions)
<TABLE>
<CAPTION>
Sources Uses
- - - ------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Revolving Credit Facility $ 142.0 Payment of Merger Consideration $ 1,157.0
Term Loan 325.0 Repayment 165.1
Tranche A $ 125.0 Assumption of Existing Debt 150.0
Tranche B 100.0 Exercise of Options and Warrants ( 120.1)
Tranche C 100.0 Fees and Expenses 90.0
----------
Existing 7-1/8 Notes 150.0
Senior Subordinated Financing 400.0
PIK Preferred Stock 75.0
Equity Financing 350.0
--------
Total Sources $1,442.0 Total Uses $ 1,442.0
-------- ----------
</TABLE>
- - - ------------
*Assumes per-share merger consideration of $48.25
