-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LghB9c7yoH6GTLC8unUUrviG40KjcXDXra5gsfL39HcVkoaWJczWckmMAtjtWa6u cA3loFovPPZl3OL0FnEcIg== 0000950135-98-004813.txt : 19980817 0000950135-98-004813.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950135-98-004813 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISHER SCIENTIFIC INTERNATIONAL INC CENTRAL INDEX KEY: 0000880430 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 020451017 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10920 FILM NUMBER: 98691253 BUSINESS ADDRESS: STREET 1: LIBERTY LANE CITY: HAMPTON STATE: NH ZIP: 03842 BUSINESS PHONE: 6039265911 MAIL ADDRESS: STREET 1: LIBERTY LANE CITY: LIBEHAMPTON STATE: NH ZIP: 03842 10-Q 1 FISHER SCIENTIFIC INTERNATIONAL, INC. 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 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 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 4 FISHER SCIENTIFIC INTERNATIONAL INC. STATEMENTS OF OPERATIONS (in millions, except per share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 1998 1997 1998 1997 ------ ------ -------- -------- 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 ====== ====== ======= ========
See the accompanying notes to financial statements. 4 5 FISHER SCIENTIFIC INTERNATIONAL INC. BALANCE SHEETS (in millions)
June 30, December 31, 1998 1997 ----------- ------------ ASSETS (unaudited) 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 ======== ========
See the accompanying notes to financial statements. 5 6 FISHER SCIENTIFIC INTERNATIONAL INC. STATEMENTS OF CASH FLOWS (in millions) (unaudited)
Six Months Ended June 30, 1998 1997 ------- -------- 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 ------- ------
See the accompanying notes to financial statements. 6 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 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):
June 30, December 31, 1998 1997 -------- ------------ Raw material $ 17.0 $ 17.5 Work in process 4.0 3.2 Finished products 188.6 203.1 ------ ------ Total $209.6 $223.8 ====== ======
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 9 NOTE 5 - DEBT The following is a summary of debt and other obligations (in millions):
June 30, December 31, 1998 1997 -------- ------------ 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 ====== ======
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 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 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 12
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 ------ ---------- ------- ---------- --------- ------------- ----- ------------- - 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) ==== ======= ====== ===== ======= ====== =======
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 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 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):
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1998 1997 1998 1997 ------- ------- ------ ------- 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 ===== ====== ====== ======
(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 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 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 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 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 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 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 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 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 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 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 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 EX-3 2 CERTIFICATE OF AMENDMENT 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: 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 EX-10 3 EMPLOYMENT AGREEMENT 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 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 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 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 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 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 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 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 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 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 EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 52,500 0 118,900 0 209,600 438,900 233,400 0 1,086,400 372,100 0 0 0 400 (318,100) 1,086,400 1,123,800 1,123,800 814,600 814,600 255,800 0 46,500 (61,000) 21,500 (39,500) 0 0 0 (39,500) (0.99) (0.99)
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