<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number: 01-10920
Fisher Scientific International Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 02-0451017
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Liberty Lane
Hampton, New Hampshire 03842
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 926-5911
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X . No _____.
The number of shares of Common Stock outstanding at August 10, 1998 was
40,043,940.
1
<PAGE> 2
FISHER SCIENTIFIC INTERNATIONAL INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page No.
--------
Part I - Financial Information:
Item 1 - Financial Statements:
Introduction to the Financial Statements................. 3
Income Statements -
Three and Six Months Ended June 30, 1998 and 1997........ 4
Balance Sheets -
June 30, 1998 and December 31, 1997...................... 5
Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997.................. 6
Notes to Financial Statements............................ 7
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 15
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders.... 21
Item 6 - Exhibits and Reports on Form 8-K....................... 22
SIGNATURE................................................................ 23
EXHIBIT INDEX ......................................................... 25
2
<PAGE> 3
FISHER SCIENTIFIC INTERNATIONAL INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION TO THE FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
Fisher Scientific International Inc. ("Fisher" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
December 31, 1997 balance sheet is the balance sheet included in the audited
financial statements as shown in the Company's 1997 Annual Report on Form 10-K.
The Company believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The financial information presented herein reflects all adjustments that
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. The results for interim periods are
not necessarily indicative of the results to be expected for the full year.
3
<PAGE> 4
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
------ ------ -------- --------
<S> <C> <C> <C> <C>
Sales $562.3 $542.6 $1,123.8 $1,069.3
Cost of sales 406.5 394.1 814.6 774.5
Selling, general and
administrative expense 127.8 127.4 255.8 248.9
Transaction-related costs -- -- 71.0 --
------ ------ -------- --------
Income (loss) from operations 28.0 21.1 (17.6) 45.9
Interest expense 21.6 6.0 46.5 12.1
Other income, net (0.7) (2.8) (3.1) (4.4)
------ ------ -------- --------
Income (loss) before income taxes 7.1 17.9 (61.0) 38.2
Income tax (benefit) provision 4.7 8.3 (21.5) 17.6
------ ------ -------- --------
Net income (loss) $ 2.4 $ 9.6 $ (39.5) $ 20.6
====== ====== ======== ========
Earnings (loss) per common share:
Basic $ 0.06 $ 0.10 $ (0.99) $ 0.20
====== ====== ======= ========
Diluted $ 0.06 $ 0.09 $ (0.99) $ 0.20
====== ====== ======= ========
</TABLE>
See the accompanying notes to financial statements.
4
<PAGE> 5
FISHER SCIENTIFIC INTERNATIONAL INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52.5 $ 18.2
Receivables, net 118.9 297.1
Inventories 209.6 223.8
Other current assets 57.9 53.3
-------- --------
Total current assets 438.9 592.4
Property, plant and equipment, net 233.4 223.6
Goodwill 253.1 251.4
Other assets 161.0 109.1
-------- --------
$1,086.4 $1,176.5
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Short-term debt $ 14.3 $ 19.7
Accounts payable 197.4 199.8
Accrued and other current liabilities 160.4 135.4
-------- --------
Total current liabilities 372.1 354.9
Long-term debt 822.0 267.8
Other liabilities 210.0 206.7
-------- --------
Total liabilities 1,404.1 829.4
-------- --------
Commitments and Contingencies
Stockholders' (deficit) equity:
Preferred stock -- --
Common stock 0.4 0.2
Capital in excess of par value 313.3 278.9
Retained (deficit) earnings (607.8) 96.7
Accumulated other comprehensive income (23.6) (22.6)
Other -- (6.1)
======== ========
Total stockholders' (deficit) equity (317.7) 347.1
-------- --------
$1,086.4 $1,176.5
======== ========
</TABLE>
See the accompanying notes to financial statements.
5
<PAGE> 6
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (39.5) $ 20.6
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Transaction-related costs, net of cash expended 70.5 --
Depreciation and amortization 27.2 22.3
Loss (gain) on sale of property, plant and
equipment and write-off of assets 0.3 (2.8)
Deferred income taxes (12.4) 2.5
Changes in working capital:
Receivables, net 18.0 1.3
Inventories 15.4 11.5
Payables, accrued and other current liabilities 20.4 (30.0)
Other working capital changes (12.4) 2.5
Other assets and liabilities (8.9) (20.1)
------- ------
Cash provided by operating activities 78.6 7.8
------- ------
Cash flows from investing activities:
Acquisitions, net of cash acquired (6.6) (8.6)
Capital expenditures (26.9) (32.4)
Other investing activities 1.2 1.8
------- ------
Cash used in investing activities (32.3) (39.2)
------- ------
Cash flows from financing activities:
Common stock repurchased and conversion of
stock to cash (955.1) --
Proceeds from common stock sold to FSI 303.0 --
Transaction-related fees and expenses (67.5) --
Proceeds from accounts receivable securitization, net 162.6 --
Proceeds from long-term debt 699.7 89.1
Payments of long-term debt (155.2) (69.3)
Proceeds from stock options exercised -- 4.0
Dividends paid -- (0.8)
Proceeds from the sale of common stock 0.5 --
------- ------
Cash (used) provided by financing activities (12.0) 23.0
------- ------
Net change in cash and cash equivalents 34.3 (8.4)
Cash and cash equivalents - beginning of period 18.2 24.7
------- ------
Cash and cash equivalents - end of period $ 52.5 $ 16.3
------- ------
</TABLE>
See the accompanying notes to financial statements.
6
<PAGE> 7
FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - RECAPITALIZATION AND MERGER
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
dated November 14, 1997 (as amended, the "Merger Agreement") between the Company
and FSI Merger Corp. ("FSI"), a Delaware corporation formed by Thomas H. Lee
Company ("THL"), providing for the merger of FSI with and into Fisher and the
recapitalization of Fisher (collectively, "the Transaction"), which Transaction
was consummated on January 21, 1998, approximately 87% of the fully diluted
shares of common stock of Fisher were converted into the right to receive $9.65
per share in cash (approximately $955.0 million in the aggregate) pursuant to an
election process that provided stockholders the right to elect for each share of
Fisher common stock held, subject to proration, either $9.65 in cash or to
retain one share of common stock, $.01 par value ("Common Stock"), in the
recapitalized company. Pursuant to the Merger Agreement, vesting of all
outstanding options accelerated.
In connection with the Transaction, the Company recorded $71.0 million of
expenses consisting primarily of non-cash compensation expense relating to the
conversion of employee stock options, the implementation of certain executive
employment agreements and the grant of options to certain executives in
accordance with the terms of the Transaction (see Note 6).
On March 9, 1998, Fisher's Board of Directors declared a five-for-one
stock split on the Company's Common Stock. As a result of the stock split, four
additional shares of Common Stock were issued for each share of Common Stock
held by the shareholders of record as of the close of business on March 19,
1998. All references in this report to the number of shares and per-share
amounts have been restated as appropriate to give effect to the stock split.
NOTE 2 - ACCOUNTING POLICIES AND PRONOUNCEMENTS
Interest-Rate Swap Agreements - The Company enters into interest-rate swap
agreements in order to manage its exposure to interest-rate fluctuations. The
Company does not hold or issue financial instruments for trading or speculative
purposes. Net-interest differentials to be paid or received are included in
interest expense.
Reclassification - Certain prior year amounts have been reclassified to
conform to their current presentation.
Accounting Pronouncements - During 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), and Statement of Financial
Accounting
7
<PAGE> 8
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in the financial
statements and requires companies to disclose comprehensive income as part of
the basic financial statements. SFAS No. 130 was adopted during the first
quarter of 1998. SFAS No. 131 establishes standards for reporting information on
operating segments in financial statements. The Company is required to adopt
SFAS No. 131 in the fourth quarter of 1998 and is currently reviewing the impact
it may have on additional disclosure, if any, in its financial statements.
In February 1998, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" (SFAS No. 132). SFAS No. 132
addresses disclosures only and supersedes the disclosure requirements in SFAS
No. 87 "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and For
Termination Benefits" and SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company is required to adopt SFAS No. 132 in
the fourth quarter of 1998 and is currently reviewing the impact it may have on
additional disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activity," which will be effective for the fiscal years beginning
January 1, 2000. Management has not yet determined the impact that the adoption
of this statement may have on the Company's financial statements.
During 1998, the Accounting Standards Executive Committee of the AICPA
(AcSEC) released Statement of Position 98-1 (SOP 98-1) "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," and Statement of
Position 98-5 (SOP 98-5) "Reporting on the Cost of Start-Up Activities." SOP
98-1 requires the capitalization of certain costs related to the development of
software for internal use, and SOP 98-5 requires entities to expense, as
incurred, costs associated with start-up activities. The Company is required to
adopt these new standards in the first quarter of 1999 and does not expect their
implementation to have a material effect on the Company's financial statements.
NOTE 3 - INVENTORIES
The following is a summary of inventories by major category (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw material $ 17.0 $ 17.5
Work in process 4.0 3.2
Finished products 188.6 203.1
------ ------
Total $209.6 $223.8
====== ======
</TABLE>
NOTE 4 - OTHER ASSETS
At June 30, 1998, other assets includes $31.5 million of deferred
financing fees relating to costs incurred in conjunction with the new debt
facilities entered into during the first quarter of 1998, and a deferred tax
asset of $58.7 million. The Company's deferred tax asset at December 31, 1997
was $43.7 million.
8
<PAGE> 9
NOTE 5 - DEBT
The following is a summary of debt and other obligations (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<C> <C> <C>
9% Senior Subordinated Notes $400.0 $ --
New Credit Facility 254.2 --
Prior Credit Facility -- 100.6
7 1/8% Notes (net of a discount
of $1.0 million at June 30, 1998
and December 31, 1997) 149.0 149.0
Other 33.1 37.9
Less current portion of long-term debt (14.3) (19.7)
------ ------
Total $822.0 $267.8
====== ======
</TABLE>
On January 21, 1998, in connection with the Transaction, Fisher entered
into new debt financing arrangements, providing for up to $469.2 million of
senior bank financing (the "New Credit Facility"), a $150 million receivables
securitization facility (the "Receivables Securitization") and $400 million of
9% Senior Subordinated Notes due 2008 (the "9% Notes"). The proceeds of the 9%
Notes, together with a portion of the proceeds of the New Credit Facility, were
used to finance the conversion into cash of the common stock then outstanding
that were not retained by existing stockholders and employees, to refinance
$107.8 million of indebtedness outstanding on the date of the Transaction and to
pay related fees and expenses of the Transaction. In addition, the New Credit
Facility will be used to provide for the Company's working capital requirements
and future acquisitions, if any.
In March, the Company paid down $40.0 million of borrowings under the New
Credit Facility, funded by $20 million of proceeds from the sale of accounts
receivable under the Receivables Securitization, increasing that facility limit
to $170 million, and $20 million of cash generated by operations. As of June 30,
1998, the New Credit Facility consisted of (i) a $254.2 million term loan
facility (the "Term Facility") consisting of a (a) $108.0 million tranche A term
loan ("Tranche A"), (b) $86.4 million tranche B term loan ("Tranche B") and (c)
$59.8 million tranche C term loan ("Tranche C"); and (ii) a $175.0 million
revolving credit facility (the "Revolving Facility"). Borrowings under the Term
Facility bear interest at a rate equal to, at the Company's option, the
following: Tranche A, LIBOR plus 2.25% or Prime Rate plus 1.25%; Tranche B,
LIBOR plus 2.50% or Prime Rate plus 1.50%; and Tranche C, LIBOR plus 2.75% or
Prime Rate plus 1.75%. Borrowings made under the Revolving Facility bear
interest at a rate equal to, at the Company's option, LIBOR plus 2.25%, or the
Prime Rate plus 1.25%. 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 LIBOR and Prime Rate margins and the commitment fees are
subject to reductions, based upon certain changes in the leverage ratio. The
Term Facilities have the following maturity periods from the date of inception:
Tranche A - 6 years, Tranche B - 7 years and Tranche C - 7.75 years. The
Revolving Facility expires six years from the date of inception. On January 21,
1998, the Company executed two interest-rate swap agreements with a
9
<PAGE> 10
counterparty exchanging its floating-rate obligation on $120 million notional
principal amount for a fixed-rate payment obligation of 5.6425% per annum
through January 23, 2001 and on $250 million notional principal amount for a
fixed- rate payment obligation of 5.7375% per annum through January 23, 2003. In
the unlikely event that the counterparty fails to meet the terms of the
interest-rate swap agreement, the Company's exposure is limited to the
interest-rate differential on the notional amount at each quarterly settlement
period over the life of the agreements. The Company does not anticipate
non-performance by the counterparty. The fair values of interest-rate swap
agreements are the estimated amounts that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates, the market expectation for future interest rates and the current
creditworthiness of the counterparty. The fair value of these interest-rate swap
agreements as of June 30, 1998, based upon quoted market prices, was $0.7
million.
The obligations of Fisher and the subsidiary borrowers under the New
Credit Facility are secured by substantially all assets of the Company and its
material domestic subsidiaries, a pledge of the stock of all domestic
subsidiaries, and a pledge of 65% of the stock of material foreign subsidiaries,
which are direct subsidiaries of the Company or one of its material domestic
subsidiaries. Obligations of each foreign subsidiary borrower are secured by a
pledge of 100% of the shares of such borrower. The obligations of Fisher and the
subsidiary borrowers are further guaranteed by Fisher and each material domestic
subsidiary of Fisher.
The New Credit Facility contains 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) minority investments, (v) the payment of cash
dividends to shareholders, and (vi) 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 and to limit capital expenditures. Loans under the
Term Facility are required to be prepaid with 50% of excess cash flow (as
defined in the New Credit Facility and subject to certain limits as 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. The mandatory repayment schedule of the
Term Facility over the next five years and thereafter is as follows: $0.0
million in 1998, $5.2 million in 1999, $14.7 million in 2000, $19.0 million in
2001, $32.0 million in 2002 and $183.3 million in years subsequent to 2002.
The Receivables Securitization relates to the sale, on a revolving basis,
of certain of the accounts receivable of Fisher Scientific Company, L.L.C., a
Delaware limited liability corporation ("FSC"), to a bankruptcy remote
subsidiary of FSC that entered into an agreement to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of
accounts receivable up to a maximum amount based on a defined calculated
percentage of the outstanding accounts receivable balance. The facility has a
maturity of five years, and the effective interest rate is approximately LIBOR
plus 50 basis points.
10
<PAGE> 11
The 9% Notes will mature on February 1, 2008 with interest payable
semiannually in arrears on February 1 and August 1 of each year commencing
August 1, 1998. The 9% Notes are unsecured senior subordinated obligations of
the Company, subordinated in right of payment to all existing and future senior
indebtedness and rank pari passu in light of payment with all other existing and
future senior subordinated indebtedness of the Company.
The 9% Notes are redeemable at the option of the Company at any time after
February 1, 2003 at an initial redemption price of 104.5%, declining ratably to
par on or after February 1, 2006. In addition, on or prior to February 1, 2001,
the Company may redeem up to 40% of the original principal amount of the 9%
Notes at a redemption price of 109% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption with the net cash
proceeds of one or more public equity offerings, provided that at least 60% of
the aggregate principal amount of the 9% Notes originally issued remains
outstanding immediately after the occurrence of such redemption. Upon a Change
of Control Triggering Event (as defined in the Indenture under which the 9%
Notes are issued), the Company will be required to make an offer to purchase all
outstanding 9% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
The Indenture under which the 9% Notes are issued contains covenants that
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) merge or consolidate with any other
person, (iv) minority investments, and (v) other various covenants that are
customary for transactions of this type.
NOTE 6 - STOCKHOLDERS' (DEFICIT) EQUITY
The following is a summary of the changes in stockholders' (deficit)
equity for the period ended June 30, 1998. Total comprehensive income components
included in stockholders' (deficit) equity include any changes in equity during
a period that are not the result of transactions with the Company's
stockholders.
11
<PAGE> 12
<TABLE>
<CAPTION>
Shares Accumulated
Capital in Shares To Be Retained Other Subtotal-
Common Excess of Held in Distribute Earnings Comprehensive Comprehensive
Stock Par Value Trust From Trust (Deficit) Income Total Income
------ ---------- ------- ---------- --------- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> - <C> <C> <C>
Balance, January 1, 1998 $0.2 $ 278.9 $ (6.1) $ -- $ 96.7 $(22.6) $347.1
Comprehensive income:
Net loss -- -- -- -- (39.5) -- (39.5) (39.5)
Foreign currency translation adjustments -- -- -- -- -- (1.0) (1.0) (1.0)
------
Subtotal-comprehensive income -- -- -- -- -- -- -- $(40.5)
Five-for-one stock split 0.3 (0.3) -- -- -- -- -- ------
Common stock issued -- 0.5 -- -- -- -- 0.5
Change in market value of common shares
held in trust -- -- (21.0) -- -- -- (21.0)
Reversal of changes in market value of
common stock held in trust -- -- 25.6 -- -- -- 25.6
Reclass from other liabilities -- -- -- 30.3 -- -- 30.3
Transaction-related activity:
Common stock repurchased and conversion
of options to cash (0.2) (268.7) -- -- (686.2) -- (955.1)
Shares deposited in trust -- -- (28.8) -- -- -- (28.8)
Equity contribution by FSI 0.1 302.9 -- -- -- -- 303.0
Proceeds from stock options -- -- -- -- 55.7 -- 55.7
Recapitalization fees and expenses -- -- -- -- (34.5) -- (34.5)
---- ------- ------ ----- ------- ------ -------
Balance, June 30, 1998 $0.4 $ 313.3 $(30.3) $30.3 $(607.8) $(23.6) $(317.7)
==== ======= ====== ===== ======= ====== =======
</TABLE>
Subsequent to June 30, 1998, the Emerging Issues Task Force issued
bulletin No. 97-14 ("EITF 97-14"). In order to comply with the guidance set
forth in EITF 97-14, the Company reduced other liabilities and stockholders'
equity (shares held in trust) by approximately $25.6 million to eliminate the
impact of the previous practice of adjusting shares held in trust to market
value. Also, the amount representing the cash exercise price for shares placed
in the trust (approximately $30.3 million) previously included in other
liabilities, was reclassified to shareholders' equity.
After the Transaction, the Company's authorized capital stock consisted of
50,000,000 shares of Common Stock, par value $.01 per share, and 15,000,000
shares of Preferred Stock, par value $.01 per share, of which 35,988,645 shares
of Common Stock and 4,035,290 shares of non-voting Common Stock shares were
outstanding at January 21, 1998. As of June 30, 1998, the Company's authorized
capital stock consisted of 100,000,000 shares of Common Stock, par value $.01
per share, and 15,000,000 shares of Preferred Stock, par value $.01 per share,
of which 36,008,650 shares of Common Stock and 4,035,290 shares of non-voting
Common Stock were outstanding. Of the total 40,043,940 shares of Common Stock,
3,724,510 represents shares owned by employees and 1,194,285 represents shares
retained by management pursuant to the stock election process. In addition,
warrants to purchase 2,583,315 shares of Common Stock at $9.65 per share were
issued as part of the Transaction.
Pursuant to the Merger Agreement, the vesting of all options accelerated
on the date of the Transaction. Of the 17,570,000 options outstanding at
December 31, 1997, approximately 6,720,000 were converted to cash and the
remainder were converted to Fisher Common Stock. When the options were
converted, the Company recorded compensation expense of approximately
$56 million to reflect the "cashless" conversion of the options into cash or
common stock having a value on the date of the Transaction equal to the product
of (x) the excess of $9.65 over the exercise price per share of Fisher Common
Stock subject to such option, and (y) the total number of shares of Fisher
Common Stock subject to option, subject to any required tax withholdings. In
connection
12
<PAGE> 13
with the Transaction, the Company adopted the 1998 Equity Incentive Plan ("1998
Plan"), under which up to 10,000,000 shares of Fisher Common Stock are reserved
for issuance. Awards under the 1998 Plan may be made in the form of options
(whether incentive or otherwise), stock appreciation rights, restricted stock,
dividend equivalents and other stock-based awards. Pursuant to the Transaction,
the Company granted options to purchase 3,616,000 shares of Fisher Common Stock
having a ten-year term and vesting on a pro rata basis over 5 years.
The options have an exercise price equal to $9.65, the fair market value
of a share of Fisher Common Stock on the date of grant. The Company also granted
options to purchase 1,811,000 shares of Fisher Common Stock having a ten-year
term and vesting nine years from the date of grant, unless sooner vested upon
the achievement of certain performance targets and other factors. These options
have an exercise price equal to $19.30 per share. In addition, the Company
granted to certain executives, options to purchase 517,000 shares of Fisher
Common Stock having a ten-year term and vesting nine years from the date of
grant, unless sooner vested upon the achievement of certain performance targets,
or unless "put" to the Company by the executive or "called" by the Company in
accordance with their terms. The total "put" / "call" right is limited to
$10 million (plus interest) and was issued in exchange for a three-year
non-compete agreement pursuant to which the executives agree not to participate
in the scientific-instrument or clinical-research-laboratory business in the
United States. The Company recorded $10 million of compensation expense related
to this "put" / "call" right in January 1998.
13
<PAGE> 14
NOTE 7 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computation for the three and six
months ended June 30, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ------ -------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income (Loss) $ 2.4 $ 9.6 $(39.5) $ 20.6
===== ====== ====== =====
Average Shares of Common Stock Outstanding 40.0 101.3 40.0 101.1
===== ====== ====== =====
Basic Earnings (Loss) Per Share $0.06 $ 0.10 $(0.99) $0.20
===== ====== ====== =====
DILUTED EARNINGS PER SHARE:
Net Income (Loss) $ 2.4 $ 9.6 $(39.5) $ 20.6
===== ====== ====== ======
Average Shares of Common Stock Outstanding 40.0 101.3 40.0 101.1
Common Stock Equivalents (a) 1.3 2.4 -- 2.8
----- ------ ------ -----
Total Shares Used in Diluted Earnings Per
Share Calculation 41.3 103.7 40.0 103.9
===== ====== ====== ======
Diluted Earnings (Loss) Per Share $0.06 $ 0.09 $(0.99) $ 0.20
===== ====== ====== ======
</TABLE>
(a) For the three and six months ended June 30, 1998, the Company had options
and warrants outstanding to purchase 5.3 million and 9.7 million shares,
respectively, that could potentially dilute basic earnings per share that
were excluded from the diluted earnings per share computation because to do
so would have been antidilutive.
Earnings (loss) per share and weighted average common shares outstanding
for the three and six months ended June 30, 1998 are based on the Company's
recapitalized structure and reflect the five-for-one stock split declared on
March 9, 1998. Earnings (loss) per share for the three and six months ended
June 30, 1997 are based on the Company's capital structure at that time (prior
to the recapitalization) and have been restated to reflect the aforementioned
stock split.
NOTE 8 - RELATED PARTIES
The Company paid a one-time transaction fee aggregating $20 million and
will pay an aggregate annual management fee of $1 million to two affiliates of
THL. In exchange for the transaction fee, THL and its affiliates provided equity
commitments for the Transaction, arranged additional equity financing, arranged
the Transaction debt financing and structured and negotiated the Transaction. In
return for the annual management fee, THL, and certain of its affiliates, will
provide consulting and management advisory services. Additionally, in connection
with the Transaction and the related debt financings, the Company paid its other
equity investors (excluding management) one-time fees aggregating approximately
$35 million.
One of the Company's equity investors is a financial institution that
provides financing to the Company at terms that are considered to be at
arm's-length.
14
<PAGE> 15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include those factors discussed in the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Cautionary Factors Regarding Forward-Looking Statements" contained
in the Company's Form 10-K for the year ended December 31, 1997.
RECAPITALIZATION AND MERGER
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
dated November 14, 1997 (as amended, the "Merger Agreement") between the Company
and FSI Merger Corp. ("FSI"), a Delaware corporation formed by Thomas H. Lee
Company ("THL"), providing for the merger of FSI with and into Fisher and the
recapitalization of Fisher (collectively, "the Transaction"), which Transaction
was consummated on January 21, 1998, approximately 87% of the fully diluted
shares of common stock of Fisher were converted into the right to receive $9.65
per share in cash (approximately $955.0 million in the aggregate) pursuant to an
election process that provided stockholders the right to elect for each share of
Fisher common stock held, subject to proration, either $9.65 in cash or to
retain one share of common stock, $.01 par value ("Common Stock"), in the
recapitalized company. Pursuant to the Merger Agreement, vesting of all
outstanding options accelerated.
On March 9, 1998, Fisher's Board of Directors declared a five-for-one
stock split on the Company's Common Stock. As a result of the stock split, four
additional shares of Common Stock were issued for each share of Common Stock
held by the shareholders of record as of the close of business on March 19,
1998. All references in this report to the number of shares and per share
amounts have been restated as appropriate to give effect to the stock split.
RESULTS OF OPERATIONS
SALES
Sales for the three and six months ended June 30, 1998 increased 3.6% and
5.1% to $562.3 million and $1,123.8 million, respectively, from $542.6 million
and $1,069.3 million for the comparable periods in 1997, primarily due to growth
in domestic operations.
15
<PAGE> 16
GROSS PROFIT
Fisher's gross profit for the three and six month periods ended June 30,
1998 increased 4.9% and 4.9% to $155.8 million and $309.2 million, respectively,
from $148.5 million and $294.8 million for the comparable periods in 1997,
primarily as a result of increased volume. Gross profit as a percent of sales
increased to 27.7% for the three months ended June 30, 1998, from 27.4% for the
same period in 1997 and decreased by 0.1% to 27.5% for the six months ended
June 30, 1998 as compared to the same period in the prior year. The increase in
the second quarter of 1998 largely reflects improvements in gross margins of
Fisher's domestic operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the three and six month
periods ended June 30, 1998 increased 0.3% and 2.8% to $127.8 million and
$255.8 million, respectively, from $127.4 million and $248.9 million for the
comparable periods in 1997, primarily as a result of increased sales volume.
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 as well as costs to integrate Curtin
Matheson Scientific ("CMS"), acquired in October 1995, into Fisher.
Additionally, the periods ended June 30, 1998 include nonrecurring costs
associated with the implementation of the 1997 Restructuring Plan. Certain 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 restructuring plans are
completed, are recognized as incurred. For the three and six month periods ended
June 30, 1998, $2.3 million and $4.1 million of such costs were included in
selling, general and administrative expense, compared with $6.4 million and
$8.3 million for the corresponding periods in 1997. Excluding such costs,
selling, general and administrative expense as a percentage of sales was 22.3%
and 22.4% for the three and six months ended June 30, 1998 compared with 22.3%
and 22.5% for the same periods in 1997.
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.
TRANSACTION-RELATED COSTS
In connection with the Transaction, the Company recorded $71.0 million of
expenses consisting primarily of non-cash compensation expense relating to the
conversion of employee stock options, the implementation of certain executive
severance agreements and the grant of options to certain executives in
accordance with the terms of the Transaction.
16
<PAGE> 17
INCOME (LOSS) FROM OPERATIONS
Income from operations for the three months ended June 30, 1998 increased
to $28.0 million from $21.1 million for the corresponding period in 1997. Income
(loss) from operations decreased to a loss of $17.6 million for the six months
ended June 30, 1998, compared with income of $45.9 million for the corresponding
period in 1997. Income (loss) from operations, excluding Transaction-related
costs and the aforementioned nonrecurring costs, as a percent of sales was 5.1%
for the six months ended June 30, 1998 and June 30, 1997.
INTEREST EXPENSE
Interest expense increased to $21.6 million and $46.5 million for the
three and six month periods ended June 30, 1998 from $6.0 million and
$12.1 million for the comparable periods in 1997. The increase is the result of
additional indebtedness resulting from the Transaction as well as $6.9 million
of charges, incurred during the first quarter of 1998, related to the
consummation of the Transaction, including one-time bank commitment fees, the
write-off of unamortized financing costs related to long-term debt refinanced
and the loss on the sale of accounts receivable (discussed below).
INCOME TAX (BENEFIT) PROVISION
The income tax provision for the three months ended June 30, 1998 was
$4.7 million compared to $8.3 million for the corresponding period in 1997. The
effective tax rate for the six months ended June 30, 1998 was a 35.2% tax
benefit compared with a 46.1% tax charge for the corresponding period in 1997.
Excluding the $71.0 million of Transaction-related costs, the effective income
tax rate for the six months ended June 30, 1998 was 57.2%. The increase in the
effective tax rate from the prior year is primarily related to the reduction in
domestic pretax income due to the additional interest expense incurred as a
result of the Transaction and foreign losses for which no tax benefit is
recorded.
NET INCOME (LOSS)
Net income (loss) for the three and six months ended June 30, 1998
decreased to income of $2.4 million and a loss of $39.5 million, respectively,
from income of $9.6 million and $20.6 million for the comparable periods in
1997, as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998, the Company's operations
generated $78.6 million of cash compared with $7.8 million for the same period
in 1997. This increase in cash provided by operating activities primarily
reflects an increase in cash flows from changes in working capital, accounts
receivable and inventories. The increase in cash flows from changes in working
capital is due primarily to an increase in cash
17
<PAGE> 18
provided by payables and accruals as well as accounts receivable. The payables
and accruals change is primarily due to the timing of accounts payable payments
and reduced payments of accrued compensation amounts. The increase in cash flow
from changes in accounts receivable is due to overall improvements in
collections of outstanding receivables.
The Company's operating working capital (defined as receivables plus
inventories less accounts payable and accrued liabilities) decreased to
($29.3) million at June 30, 1998 from $185.7 million at December 31, 1997. This
decrease is due principally to decreases in accounts receivable and inventories
and an increase in accrued liabilities. The decrease in accounts receivable is
primarily the result of the sale of receivables under a receivables
securitization, discussed below, coupled with improved collections of
outstanding receivables. Inventory decreased principally due to the ongoing
consolidation of logistical facilities. The increase in accrued liabilities is
principally attributable to accrued interest associated with the new debt
resulting from the Transaction.
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
throughout the remainder of 1998. In August 1998, the Company executed an
agreement to acquire a manufacturing business for approximately $55 million,
subject to adjustment based on a post-closing audit of the business and
applicable regulatory approvals. The Company anticipates consummating the
transaction in the third quarter of 1998. The transaction will be funded
primarily by excess cash and borrowings under existing credit facilities.
During the six months ended June 30, 1998, the Company used $32.3 million
of cash for investing activities compared with $39.2 million for the same period
in 1997. The decrease in cash used for investing activities is primarily due to
decreases in capital expenditures. For the six months ended June 30, 1998 and
1997, the Company had capital expenditures of $26.9 million and $32.4 million,
respectively. This decrease is primarily due to timing. The Company anticipates
its 1998 annual capital expenditures will meet or exceed total 1997 expenditures
as it continues its consolidation and relocation of logistics facilities in
North America and its project to upgrade global computer systems.
During the six months ended June 30, 1998, the Company's financing
activities used $12.0 million compared with generating $23.0 million for the
same period in 1997. This change is primarily due to an increase of
$687.3 million in net long-term debt proceeds, including proceeds from the
Receivables Securitization (discussed below), attributable to the Transaction.
In connection with the Transaction, effective January 21, 1998, Fisher entered
into new debt financing arrangements, providing for $469.2 million of senior
bank financing (the "New Credit Facility"), a $150 million receivables
securitization facility (the "Receivables Securitization") and $400 million of
9% Senior Subordinated Notes due 2008 (the "9% Notes"). The full proceeds of the
9% Notes, together with a
18
<PAGE> 19
portion of the proceeds of the New Credit Facility, were used to finance the
conversion into cash of the shares of Fisher Common Stock then outstanding that
were not retained by existing stockholders and employees, to refinance
$107.8 million of indebtedness of the Company outstanding on the date of the
Transaction and to pay related fees and expenses of the Transaction. In
addition, the New Credit Facility will be used to provide for the Company's
working capital requirements and future acquisitions, if any. The interest rates
and maturity dates of the New Credit Facility, the Receivables Securitization
and the 9% Notes are described in Note 5 to Financial Statements.
On January 21, 1998, the Company executed two interest rate swap
agreements exchanging its floating-rate obligation on $120 million notional
principal amount for a fixed-rate payment obligation of 5.6425% per annum
through January 23, 2001 and $250 million notional principal amount for a fixed-
rate payment obligation of 5.7375% per annum through January 23, 2003. The fair
value of these interest-rate swap agreements as of June 30, 1998, based upon
quoted market prices, was $0.7 million.
The New Credit Facility contains 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) minority investments, (v) the payment of cash
dividends to shareholders, and (vi) 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 and limitations on capital expenditures. In
addition to the mandatory repayment schedule discussed in Note 5 to Financial
Statements, loans under the Term Facility are required to be prepaid with 50% of
excess cash flow (as defined in the New Credit Facility and subject to certain
limits as 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.
The Receivables Securitization relates to the sale, on a revolving basis,
of certain of the accounts receivables of Fisher Scientific Company L.L.C., a
Delaware limited liability corporation ("FSC"), to a bankruptcy remote
subsidiary of FSC that entered into an agreement to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of
accounts receivable, up to a maximum amount based on a defined calculated
percentage of the outstanding accounts receivable balance.
The 9% Notes are redeemable at the option of the Company at any time after
February 1, 2003 at an initial redemption price of 104.5%, declining ratably to
par on or after February 1, 2006. In addition, on or prior to February 1, 2001,
the Company may redeem up to 40% of the original principal amount of the 9%
Notes at a redemption price of 109% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption with the net cash
proceeds of one or more public equity offerings, provided that at least 60% of
the aggregate principal amount of the 9% Notes originally issued remains
outstanding immediately after the occurrence of such redemption. Upon a Change
of Control Triggering Event (as defined in the Indenture under which the 9%
Notes are issued), the Company will be required to make an offer to purchase all
outstanding 9% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
19
<PAGE> 20
The Indenture under which the 9% Notes are issued contains covenants that
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) merge or consolidate with any other
person, (iv) minority investments, and (v) other various covenants which are
customary for transactions of this type.
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.
DEPENDENCE ON INFORMATION SYSTEMS; SYSTEMS CONVERSION; YEAR 2000 ISSUE
The Company's business is dependent in large part on its information
systems. These systems play an integral role in: tracking product offerings
(including pricing and availability); processing and shipping more than 20,000
items per day; warehouse operations; purchasing from more than 3,000 vendors;
inventory management; financial reporting; and other operational functions.
The Company is dealing with "year 2000" issues. Year 2000 issues exist
when dates in computer systems 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.
Following an assessment of the Company's year 2000 issues, the Company is
determined to implement a project pursuant to which many of its present computer
systems, including certain of its financial systems would be replaced and other
systems would be remediated. Although the Company's remediation efforts will
focus in particular on those systems which are not intended to be replaced prior
to the year 2000, the Company believes that its remediation effort should also
be extensive enough to provide a contingency plan in the event that all or a
portion of the planned system replacement did not take place. Although that
project has begun, and is scheduled to be completed within the next eighteen
months, there is no guarantee that the project will actually be implemented,
that the project or a significant portion of the project will be implemented
prior to the year 2000, or that the project will be implemented successfully.
Aggregate spending for remediation and replacement of certain computer systems
is expected to approximate $25 million over the remainder of 1998 and 1999.
Although the Company believes that its present remediation and replacement
programs will adequately address the year 2000 issues with respect to its
internal systems, there can be no assurance that the Company's belief is correct
or that its present assessment is in fact accurate. There can be no assurance
that the remediation and replacement programs will be completed prior to the
year 2000. In addition, there can be no assurance that the Company's vendors,
suppliers and the myriad of other financial, transportation, utility and other
service providers will successfully resolve their own year 2000 issues in a
manner which avoids significant impact to the Company. The Company has received
written assurances from many of its providers acknowledging the year 2000 issues
and stating a present intention to be compliant. The Company has not received
assurances from all its providers and there is no guarantee that any of its
providers will actually become compliant in time or that their efforts will be
successful. Because of the complexity of the Company's systems, the number of
transactions processed and the number of third parties with whom the Company
interacts, any failure of the Company or its suppliers, vendors and other
service providers to completely overcome the year 2000 issue could result in
substantial and material impact on the Company's business, operations and
financial results.
The Company's forecasted costs and timing for completion of its year 2000
programs are based on its best estimates, which in turn are based on numerous
assumptions of future events, including the continued availability and cost of
necessary personnel and other resources, third party modification plans, and
other factors. However, the Company cannot be certain that these estimates will
be achieved and actual results could differ materially from these estimates.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a). The annual meeting of stockholders of the Company was held on
May 12, 1998.
b). At the annual meeting, Robert A. Day, Michael D. Dingman and Kent
R. Weldon were each elected as directors of the Company for a
three-year term expiring in 2001. The terms of Mitchell J. Blutt,
Anthony J. NiNovi, David V. Harkins, Paul M. Montrone, Paul M.
Meister and Scott M. Sperling as directors of the Company continued
after the annual meeting.
c). The results of the voting on the proposals considered at the annual
meeting of stockholders are as follows:
1. ELECTION OF DIRECTORS
VOTES
VOTES FOR WITHHELD
---------- --------
Robert A. Day 25,572,151 16,900
Michael D. Dingman 25,571,586 17,465
Kent R. Weldon 25,570,911 18,140
2. PROPOSAL TO APPROVE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION
The proposal to approve the Amendment to the Restated
Certificate of Incorporation of the Company increasing the
authorized number of shares of Common Stock that may be issued
from 50,000,000 to 100,000,000, was approved, and the voting
results were as follows:
25,476,496 FOR, 94,400 AGAINST and 18,155 ABSTAIN
3. PROPOSAL TO APPROVE THE COMPANY'S 1998 EQUITY AND INCENTIVE PLAN
The proposal to approve the 1998 Equity and Incentive Plan of
the Company was approved, and voting results were as follows:
23,443,156, FOR, 336,049 AGAINST, and 25,262 ABSTAIN.
21
<PAGE> 22
4. APPOINTMENT OF INDEPENDENT AUDITORS
The appointment of Deloitte & Touche LLP as independent auditors
for the current fiscal year was ratified, and voting results
were as follows:
25,556,746 FOR, 16,555 AGAINST, and 15,750 ABSTAIN.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3 - Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company.
Exhibit 10 - Employment Agreement dated as of March 31, 1998
between the Company and David Della Penta.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FISHER SCIENTIFIC INTERNATIONAL INC.
Date: August 14, 1998 /s/ PAUL M. MEISTER
------------------------------------
PAUL M. MEISTER
Vice Chairman of the Board,
Executive Vice President -
Chief Financial Officer
and Director
23
<PAGE> 24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FISHER SCIENTIFIC INTERNATIONAL INC.
EXHIBITS
TO
FORM 10-Q
for the quarter ended June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
24
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------
3 Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company
10 Employment Agreement dated as of March 31, 1998
between the Company and David Della Penta
27 Financial Data Schedule
25
<PAGE> 1
EXHIBIT 3
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FISHER SCIENTIFIC INTERNATIONAL INC.
FISHER SCIENTIFIC INTERNATIONAL INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "DGCL"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation in accordance
with the provisions of Section 242 of the DGCL, by the unanimous vote of its
members on March 16, 1998, filed with the minutes of the Board of Directors,
duly adopted resolutions setting forth a proposed amendment to the Certificate
of Incorporation of the Corporation declaring such amendment to be advisable and
directing that such amendment be submitted to and be considered by the
stockholders of the Corporation for approval at the 1998 Annual Meeting of
Stockholders. The resolution setting forth the proposed amendment is as follows:
RESOLVED, That the Certificate of Incorporation of the
Corporation be amended by changing the Fourth Article thereof
so that, as amended, such Article shall be and read as
follows:
<PAGE> 2
"The total number of shares of stock which the Corporation
shall have authority to issue is 115,000,000 shares, of which
100,000,000 shall be Common Stock, par value $0.01 per share
(the "Common Stock"), and 15,000,000 shares shall be Preferred
Stock, par value $0.01 per share (the "Preferred Stock").
SECOND: That thereafter, the foregoing amendment to the Corporation's
Certificate of Incorporation was duly adopted by the holders of a majority of
the outstanding shares of Common Stock of the Corporation at the Annual Meeting
of Stockholders on May 12, 1998 in accordance with the provisions of Section 242
of the DGCL and the terms of the Certificate of Incorporation.
IN WITNESS WHEREOF, FISHER SCIENTIFIC INTERNATIONAL INC. has caused
this Certificate of Amendment to be signed by Paul M. Meister, its Executive
Vice President, and attested by Todd M. DuChene, its Vice President and
Secretary, this 18th day of May, 1998.
FISHER SCIENTIFIC INTERNATIONAL INC.
By: /S/ PAUL M. MEISTER
------------------------
Paul M. Meister
Executive Vice President
ATTEST:
By: /S/ TODD M. DUCHENE
-------------------
Todd M. DuChene
Vice President and Secretary
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 31st day of March, 1998 by and between Fisher
Scientific International Inc., a Delaware corporation having its primary place
of business at Liberty Lane, Hampton, New Hampshire 03842 (the "Company") and
David T. Della Penta, residing at 2500 East Avenue, Apartment 8T, Rochester, New
York 14610 (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive as its President and
the Executive is willing to serve in that capacity;
WHEREAS, the Company and the Executive desire to set forth the terms and
conditions of such employment;
NOW THEREFORE, in consideration of the provisions of mutual covenants and
agreements herein contained, the Company and the Executive agree as follows:
1. EMPLOYMENT PERIOD. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to employ the Executive, and the Executive
hereby agrees to be employed by the Company for the period commencing on
April 20, 1998 (the "Effective Date") and ending on the third anniversary
of such date, together with any extension thereof (the "Employment
Period"). On each anniversary of the date hereof, unless either party
hereto shall have given the other party thirty (30) days' advance notice to
the contrary, the Employment Period shall be extended by an additional
year, so that on each anniversary of the date hereof the Employment Period
shall always consist of three years.
2. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. During the Employment
Period, Executive shall serve as President and Chief Operating Officer of the
Company. During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
his full business time, attention, skill and efforts to the business and affairs
of the Company and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such responsibilities.
Notwithstanding the foregoing, it shall not
<PAGE> 2
be a violation of this Agreement for the Executive to (i) serve with the prior
approval of the Board of Directors of the Company (the "Board") on corporate,
civic, charitable, governmental or religious boards or committees; provided,
however, it is understood and agreed that the Executive may continue to serve as
a member of the Board of Directors of World of Science, Inc., Yellow Springs
Instruments, Inc. and Sear Brown and Associates and (ii) manage personal
investments, so long as such activities do not interfere in more than a DI
MINIMUS manner with the performance of Executive's responsibilities under this
Agreement.
(b) COMPENSATION. As full compensation for Executive's services
hereunder, and subject to all the provisions hereof,
(i) BASE SALARY. During the Employment Period, the Company shall pay
Executive an annual base salary at such rate per annum as may be fixed by
the Compensation Committee of the Board from time to time but in no event
at a rate less than Four Hundred Fifty Thousand Dollars ($450,000) per
annum ("Base Salary"). Base Salary shall be paid to Executive semi-monthly
or otherwise in accordance with the Company's normal payroll practices and
subject to required withholding.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be eligible to receive an annual bonus (the "Annual Bonus") for each
fiscal year ending during the Employment Period targeted at 100% of
Executive's Base Salary. The actual amount of Executive's Annual Bonus
shall be dependent on the Company's and Executive's performance as may be
determined by the Compensation Committee, in its discretion, in accordance
with its policies generally.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible to participate in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company
2
<PAGE> 3
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company; provided however that
notwithstanding the foregoing, the Company shall provide the Executive with
a Split-Dollar Life Insurance policy in the face amount of Two Million Five
Hundred Thousand Dollars ($2,500,000), 75% of the annual cost of which
shall be borne by the Company and 25% of the annual cost of which shall be
borne by the Executive.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive in accordance with the policies,
practices, and procedures of the Company generally. In addition, the
Company shall pay for or provide, as the case may be, a membership in
Wentworth By The Sea Country Club and reimburse the Executive for club dues
and/or personal tax planning services in an amount not to exceed Ten
Thousand Dollars ($10,000) per year.
(vi) SIGN-ON BONUS. As a bonus in connection with execution of this
Agreement, the Executive shall be paid, subject to withholding, Three
Hundred Thousand Dollars ($300,000) and shall have the right and option,
but not the obligation, exercisable within thirty (30) days of the date of
this Agreement, to purchase up to 50,000 shares of Common Stock, $.01 par
value ("Common Stock") of the Company, at a price of $9.65 per share.
Common Stock purchased by the Executive shall be subject to the terms and
conditions of the Investors Agreement dated as of January 21, 1998 (the
"Investors Agreement"), a copy of which is attached as Exhibit A.
(vii) STOCK OPTIONS. (A) Subject to execution of this Agreement by
Executive, Executive was granted Executive shall be granted options to
purchase 250,000 shares of Common Stock having an exercise price of $9.65
per share and vesting in cumulative installments of 20% per annum (the
"Vesting Options") and such other terms and conditions set forth in the
Fisher Scientific International Inc. 1998 Equity and Incentive Plan (the
"1998 Option Plan") and the applicable Award Agreement evidencing the grant
of such options attached hereto as Exhibits B-1 and B-2, respectively,
subject in any event to approval of the
3
<PAGE> 4
1998 Option Plan at the Company's Annual Meeting of Stockholders to be held
May 12, 1998 (the "Annual Meeting"). For each share of Common Stock
purchased pursuant to paragraph (vi) above, Executive will be granted an
additional 1.5 Vesting Options having the same exercise price and vesting
period as the 250,000 Vesting Options granted pursuant to this paragraph.
(B) Subject to the execution of this Agreement, Executive was
granted options to purchase 250,000 shares of Common Stock having an
exercise price of $19.30 per share (the "Performance Options")and such
other terms and conditions set forth in the 1998 Option Plan and the
applicable Award Agreement evidencing the grant of such options attached as
Exhibit B-3, subject in any event to approval of such plan at the Annual
Meeting. For each share of Common Stock purchased by Executive pursuant to
paragraph (vi) above, Executive will be granted an additional 1.5
Performance Options having the same exercise price and vesting period as
the 250,000 Vesting Options granted pursuant to this paragraph.
(viii) RELOCATION. Full relocation benefits in accordance with the
standard policies and practices of the Company with other peer executives.
3. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that a Disability of
the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within such period, the Executive shall not
have returned to full-time performance of the Executive's duties. For purposes
of this Agreement, "Disability" shall mean the absence or inability of the
Executive to perform his duties under this Agreement on a full-time basis for
180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
4
<PAGE> 5
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the conviction (or plea of guilty or NOLO CONTENDERE) of the
Executive with respect to any felony, or with respect to any crime
involving fraud, dishonesty or misappropriation, or moral turpitude whether
or not the act giving rise to such conviction or plea is directly involving
the Company;
(ii) commission of an act directly involving the Company, which
involves fraud, dishonesty or misappropriation or moral turpitude;
(iii) Executive's continued willful neglect of his duties and
responsibilities under the Agreement or Executive's gross negligence;
(iv) Executive's willful misconduct with respect to the Company or
its subsidiaries;
(v) the failure of the Executive to perform substantially the
Executive's duties with the Company (other than any such failure resulting
from incapacity due to physical or mental illness), after a written demand
for performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(vi) material breach of any of the provisions of this Agreement by
the Executive.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason at any time within 90 days after the occurrence of
Good Reason. For purposes of this Agreement, Good Reason shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
material respect with the Executive's position, authority, duties or
responsibilities as contemplated by Section 2(a) of this Agreement, or any
other action by the Company which results in a material and permanent
diminution in such position, authority, duties or
5
<PAGE> 6
responsibilities, excluding action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof by the
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 2(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by the Executive;
(iii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(iv) any failure by the Company to comply with and satisfy Section
5(c) of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 6(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on which the Company notifies the Executive of such termination and (iii)
if the Executive's employment is
6
<PAGE> 7
terminated by reason of death or Disability, the date of death of the Executive
or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER
THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause, Death
or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive the following:
(A) the Executive's Base Salary through the Date of
Termination to the extent not theretofore paid.
(B) the Executive's Base Salary, less interim earnings,
applicable to the period beginning on the Date of Termination and
ending on the date which is the second anniversary of the Date of
Termination or the end of the Employment Period whichever shall be
first to occur (the "Severance Period").
(C) any amount or benefit payable under the 1998 Equity and
Incentive Plan as specified in an Award Agreement between the Company
and the Executive.
(ii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services selected by the Company, the total
cost of which shall not exceed $50,000; and
(iii) during the Severance Period or such longer period required by
COBRA, to the extent not theretofore paid or provided, the Company shall
provide, and timely pay the premiums for, medical coverage for Executive
and his dependents in a manner consistent with that provided to other peer
executives of the Company.
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligation to the Executive's legal representatives under this
Agreement, other than for payment to Executive's estate of Executive's Base
Salary through the date of death to the extent not theretofore paid, Executive's
Annual Bonus to the extent declared but unpaid
7
<PAGE> 8
and such payment, obligations and duties as may be required under any benefit or
incentive Plan applicable to the Executive, including the 1998 Option Plan.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligation to the Executive other than the obligation
to pay to the Executive (x) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid and (y) the amount of any
compensation previously deferred by the Executive. If the Executive voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligation to the
Executive, other than the obligation to pay Executive's Base Salary through the
Date of Termination to the extent not theretofore paid and the timely payment or
provision of other benefits to which the Executive is entitled as of the Date of
Termination under any employer benefit or incentive plan applicable to the
Executive.
5. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
6. MISCELLANEOUS. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New Hampshire, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors
8
<PAGE> 9
and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE:
David T. Della Penta
2500 East Avenue
Apartment 8T
Rochester, New York 14610
IF TO THE COMPANY:
Attention: General Counsel
Fisher Scientific International Inc.
Liberty Lane
Hampton, NH 03842
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
7. INTELLECTUAL PROPERTY; CONFIDENTIAL INFORMATION, CONFLICTS OF
INTEREST AND RELEASE. Contemporaneously with the execution of this Agreement
Executive has executed the Agreement Relating to Intellectual Property,
Confidential Information, Conflicts of Interest and Release (the "Noncompete")
attached
9
<PAGE> 10
hereto as Exhibit C. The terms of the Noncompete are incorporated by reference
in this Agreement as if fully set forth herein.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ David T. Della Penta
----------------------------------
David T. Della Penta
Fisher Scientific International Inc
By: /s/ Todd M. Duchene
----------------------------------
Todd M. Cuchene
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF JUNE 30, 1998 AND THE INCOME STATEMENT FOR THE SIX MONTHS
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 52,500
<SECURITIES> 0
<RECEIVABLES> 118,900
<ALLOWANCES> 0
<INVENTORY> 209,600
<CURRENT-ASSETS> 438,900
<PP&E> 233,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,086,400
<CURRENT-LIABILITIES> 372,100
<BONDS> 0
0
0
<COMMON> 400
<OTHER-SE> (318,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,086,400
<SALES> 1,123,800
<TOTAL-REVENUES> 1,123,800
<CGS> 814,600
<TOTAL-COSTS> 814,600
<OTHER-EXPENSES> 255,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,500
<INCOME-PRETAX> (61,000)
<INCOME-TAX> 21,500
<INCOME-CONTINUING> (39,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,500)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
