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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7,
1996].
For the fiscal year ended May 2, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from __________ to _____________
Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0977422
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5 Technology Drive
Wallingford, Connecticut 06492
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(Address of Principal Executive Offices) (Zip Code)
(203) 265-7701
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(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
------------------- --------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock,
$.01 par value Class B Warrants
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(Title of class) (Title of class)
Page 1 of 131 pages
Exhibit Index at page E-1.
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Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant. The aggregate market value
shall be computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of a
specified date within 60 days prior to the date of filing.
Aggregate market value as of July 1, 1999....... $31,557,579
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of July 1, 1999 ..... 7,946,346 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference herein and the
Part of the Form 10-K into which the document is incorporated:
Proxy Statement to be dated on or about August 27, 1999 -- Part III
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ITEM 1. BUSINESS.
GENERAL
Organized in 1978, Novametrix Medical Systems Inc. (the "Company") is
engaged in the business of designing, developing, manufacturing and marketing
monitors and sensors which provide continuous and non-invasive measurements of
a patient's blood gas levels, cardiac output parameters and respiratory
mechanics. The Company's current product line consists of the following:
- Capnographs -- monitors which measure the level of exhaled carbon
dioxide.
- Pulse Oximeters -- monitors which measure arterial blood oxygen
saturation levels and pulse rates.
- Volumetric CO(2) Monitors - devices which utilize the integration of
CO(2) and airway flow to provide significant new parameters such as
airway deadspace and CO(2) elimination.
- Non-Invasive Cardiac Output Monitor -- a monitor which measures
cardiac output through the breath.
- Transcutaneous Blood Gas Monitors -- monitors which measure oxygen
and carbon dioxide levels through the skin.
- Respiratory Mechanics Monitors -- monitors which measure pressure,
flow and volume in a patient's airway and lungs.
- Reusable and disposable sensors and adapters, related accessories
and replacement parts.
The Company also produces several monitors which combine two or more of
the above parameters in a single device.
Levels of oxygen and carbon dioxide ("CO(2)") in the blood are
important indicators of the condition of critically ill or injured patients.
These levels are particularly important to doctors, nurses, therapists and other
clinicians during anesthesia in the operating room, the assessment of a patient
in the emergency room, the monitoring of a patient in the intensive care unit
and recovery room and throughout respiratory care applications. Healthy people
have a normal range of oxygen and CO(2) levels in their blood, lungs and other
tissue. Previously, the only methods of determining the body's oxygen and CO(2)
levels involved invasive techniques of withdrawing blood samples from a
patient's artery and waiting for laboratory analysis of the samples. The
Company's products offer healthcare providers the alternative of non-invasive,
continuous and immediate measurement of oxygen and CO(2). The Company's blood
gas monitoring products utilize three different technologies, each of which is
suitable for different applications.
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Also, depending on a person's size and age, there is a range of normal
airway and lung pressure, flow and volume levels. By continuously monitoring
these ranges, a change in a patient's status can be detected at an early stage
and modified before serious deterioration in a patient's condition occurs. In
addition, if a patient's blood gas levels or respiratory mechanics are outside
their normal ranges, continuous monitoring provides healthcare professionals
with important information concerning the progress of the medical treatment
undertaken to restore them to within normal ranges.
CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal CO(2)
monitors) provide a continuous, non-invasive measurement and display of the
amount of CO(2) in each breath exhaled by the patient. Clinically, end-tidal
CO(2) levels have been correlated to a patient's arterial blood CO(2) levels.
Measurement of these levels provides a simple, non-invasive method of estimating
the CO(2) levels of the patient. Applications for capnographs include (i)
intubation verification - the verification of the introduction of an airway tube
into the trachea (air tube) rather than the esophagus (food tube) and the
verification of an open and unobstructed airway; (ii) extubation detection - the
disclosure of the accidental dislodging from the trachea of an airway tube;
(iii) ventilation management through the disclosure of ventilator malfunctions
and the proper adjustment of mechanical ventilation to match a patient's
condition and needs; and (iv) verification of the effectiveness of
cardio-pulmonary resuscitation (CPR).
The Company's capnographs utilize a form of infrared spectrometry (a
method of analyzing gas content by measuring the amount of infrared energy
absorbed) developed by the Company to measure levels of expired CO(2) throughout
the patient's respiratory cycle. These monitors provide both a graphical and
digital display of CO(2) levels and respiratory rate. The reliability and
accuracy of capnography have made its use a rapid indicator of proper and
continuous intubation, obstructions in the airway and pulmonary efficiency in
eliminating CO(2). In addition, end-tidal CO(2) and respiratory rate
measurements facilitate proper and cost-efficient ventilator use. In recognition
of its accurate measurement of clinically significant facts, as well as the
added degree of safety that it affords patients, capnography has been
recommended for use in the operating room by the American Society of
Anesthesiologists and in the intensive care unit by the Society of Critical Care
Medicine.
The Company's TIDAL WAVE(TM) monitor (measuring 8" high, 3" wide and 1
1/2" deep and battery operated) is the first hand-held mainstream CO(2)
monitor with a graphical waveform on the market. Applications for this monitor
include areas outside the traditional bedside setting such as emergency medical
services where a smaller, portable monitor is required. During fiscal 1999, the
Company introduced the TIDAL WAVE Sp, a hand-held monitor which offers the
customer both capnography and pulse oximetry. The Company also has two bedside
capnographs: the CAPNOGARD(R), and the CO(2)SMO(R), a combined capnograph and
pulse oximeter. These "mainstream" (on the airway) capnographs are designed to
take measurements at the patient's airway through infrared measurements as
compared to "sidestream" measurements of exhaled breath which involve the
drawing of samples through tubes connected to bedside monitors and which are
susceptible to moisture and other secretion contaminants. All models utilize a
durable and solid-state sensor developed by the Company. The TIDAL
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WAVE and TIDAL WAVE Sp have a list sales price of approximately $2,800 and
$3,800, respectively, depending on configuration, the CAPNOGARD has a list
sales price of approximately $6,000 and the CO(2)SMO has a list sales price of
approximately $8,000.
PULSE OXIMETERS. The Company's pulse oximeters provide a continuous and
non-invasive measurement and display of pulse rate and arterial blood oxygen
saturation through the detection and measurement of infrared light absorbed by
hemoglobin in the blood. Reusable finger and multi-position sensors
(Y-Sensor(TM)) are available for adult, pediatric and neonatal applications and
eliminate the use of costly disposable sensors. Pulse oximeters have been
clinically demonstrated as safe, accurate and cost-effective for the
determination and trending of levels of blood oxygen saturation and pulse
rates. Applications for these monitors are widespread since the level of oxygen
in a patient's blood can be as important a vital sign of a patient's condition
as the patient's temperature, blood pressure, respiratory rate and
electrocardiogram. Pulse oximetry is used in many departments of the hospital,
including the operating room by anesthesiologists, emergency rooms and
intensive care units by nurses and respiratory therapists and neonatal
intensive care units by neonatologists. Additional applications include inter-
and intra-hospital transport situations and clinical applications in surgical
centers, doctors' offices and clinics during outpatient procedures.
The Company has a family of pulse oximeters designed to meet the
individual needs of clinicians in a variety of settings. Each oximeter utilizes
the Company's reusable Superbright(TM) sensors, which provide safe and accurate
results on all types of patients, including neonates (an infant less than 28
days old) and poorly perfused patients (patients with insufficient blood flow).
The Company's full-featured oximeter, the OXYPLETH(R), provides high visibility
of the plethysmographic waveform (a graphic display of arterial pulse, also
known as a plethysmogram) through the use of digital technology combined with
advanced software developed by the Company. The Model 515B and Model 515C (with
plethysmogram) pulse oximeters utilize the same basic technology and software
as our more expensive model to provide the same oxygen saturation and pulse
rate information but with fewer available added features.
This family of pulse oximeters also includes new battery operated
hand-held pulse oximeters, the Models 512 and 513. The monitors measure
approximately 4" high, 2" wide and 1" deep and weigh less than 1 pound. The
lightweight design and portability of these monitors permit wide applications
throughout the hospital, as well as in non-hospital locations including
doctors' offices, clinics and homecare.
The Company also offers a unique Sensor Management Program designed to
reduce hospital operating costs. Under the program, typically three years or
longer, hospitals are able to achieve significant operating cost reductions by
switching from disposable oximetry sensors to Novametrix reusable sensors. The
program capitates (or limits) contract expenditures while providing the
hospital with new pulse oximetry monitors, sensors, and accessories, each of
which is warranted over the life of the contract.
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The OXYPLETH has a list sales price of approximately $3,000. The Models
515B, 515C, 512 and 513 have list sales prices of approximately $2,000, $2,200,
$1,000 and $1,000, respectively.
VOLUMETRIC CO(2) MONITORS. The Company's CO(2)SMO Plus!(TM) is the
first monitor to integrate airway flow measurements with capnography (and pulse
oximetry) in one small package for continuous bedside monitoring of
mechanically ventilated patients. The CO(2)SMO Plus! provides continuous,
non-invasive measurements of flow, pressure and volume in a patient's airway,
as well as measurements of other pulmonary mechanics including CO(2)
elimination and arterial oxygenation. Applications for this monitor include the
clinical management of proper pressure and flow of airway gases being delivered
to a mechanically ventilated patient's lungs, allowing therapists to wean a
patient from costly mechanical ventilation to spontaneous breathing at the
clinically appropriate time. The addition of the first combined mainstream
CO(2) adapter/flow sensor provides continuous measurements of pulmonary
deadspace (the portion of the patient's lungs that does not participate in gas
exchange) and CO(2) elimination (the volume of CO(2) exhaled by the patient),
two parameters never before available continuously at the bedside. The use of
these parameters, and the impact of each parameter on patient ventilation,
provides the clinician with important feedback to optimize the patient's care.
Thus the use of the CO(2)SMO Plus! enhances patient care by minimizing the
trauma, length of stay and costs associated with mechanical ventilation. The
CO(2)SMO Plus! has a list price of approximately $11,000.
NON-INVASIVE CARDIAC OUTPUT (NICO(TM)) MONITOR. The Company's newest
monitor, NICO, is the first device to non-invasively measure cardiac output (the
work performed by the heart) using the indirect Fick partial rebreathing
technique. NICO offers several advances including "hands off" automatic
continuous operation, completely non-invasive techniques and easy to use
functionality. Although cardiac output is the best indicator of heart function,
it has not been routinely monitored in patients undergoing general surgery
because available techniques were too invasive (risky), costly or technically
difficult.
The original Fick method, which requires invasive measurements and
labor-intensive manual tasks, is a well-accepted standard reference technique
used to evaluate all other means of determining cardiac output. Until now, the
Fick method has been too difficult to use in most clinical practice
circumstances such as surgical operating rooms and intensive care units. NICO
uses the Fick principle applied to CO(2) produced by the body and eliminated
through gas exchange in the lungs.
NICO provides a continuous display of cardiovascular monitoring
variables including cardiac output, stroke volume, cardiac index and heart rate.
In addition, NICO provides real time displays of other physiologic variables
including CO(2) elimination, end
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tidal CO(2), respiration, oxygen saturation, heart rate and respiratory
mechanics parameters based on measurements of capnography, airway flow and
pulse oximetry.
Clinical applications of this new device include monitoring patients
during surgery (in the operating room), in the emergency room and in the
intensive care unit. It provides a needed alternative to the conventional
invasive procedure for monitoring cardiac output, (thermodilution), which
requires insertion of a catheter through the heart and into the pulmonary artery
(PA). Patient safety can be enhanced by eliminating the documented hazards of PA
catheters which include infection, embolism and heart or lung tissue damage. By
eliminating the costs, risks and complications associated with the use of PA
catheters, NICO is dramatically simpler and less costly to utilize. Further,
since NICO is non-invasive and easy to operate, the use of this technology may
be expanded to other applications where it was previously deemed too risky or
costly.
The NICO system and rebreathing sensor are covered by numerous patents
and patents pending. The NICO monitor has a list price of approximately $12,000.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous
(through the skin) blood gas monitor provides continuous and non-invasive
measurements of oxygen and CO(2) levels in the skin tissue of patients. This
monitor utilizes dual parameter sensors attached to the patient's skin surface
to measure the amount of oxygen and CO(2) diffusing through the skin. Based
upon the magnitude of the diffusion of the blood gas molecules, the monitor
converts the sensor readings into a value corresponding to the oxygen or CO(2)
at the patient's skin surface and displays the information on the monitor.
Premature and other critically ill newborn infants are the primary patients who
benefit from the use of transcutaneous monitoring. In view of their limited
blood supply, frequent invasive blood sampling has been recognized as traumatic
and unsatisfactory for these patients.
The TCO(2)M(R) Model 860 is a lightweight, portable unit with a simple
menu system which guides the user through set-up and operation. The TCO(2)M is
the first monitor of its kind to provide on-screen graphical trending
information allowing patient data to be reviewed directly at the bedside.
TCO(2)M accepts combination or single oxygen and CO(2) sensors for optimum
versatility and has a list sales price of approximately $6,500 to $8,500
depending on configuration.
RESPIRATORY MECHANICS MONITORS. Respiratory mechanics monitors provide
continuous information on a patient's ventilatory status to help prevent
Barotrauma (lung rupture) and other complications associated with mechanical
ventilation.
Vent[check](TM) (Ventcheck), a hand-held respiratory mechanics
monitor, measures flow, pressure and volume at the airway and graphically
displays flow and pressure waveforms and loops, breath by breath. Measuring 8"
high, 3" wide and 1 1/(2)" deep and battery operated, this monitor is designed
for spot checking mechanically ventilated patients and,
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when used during transport, provides an additional level of safety for the
patient. Respiratory therapy and critical care departments with patients
requiring mechanical ventilation represent the primary users of the Vent[check].
The Company's VenTrak(R) Model 1550 respiratory mechanics monitor also
provides pressure, flow and volume in a patient's airway, both continuously and
non-invasively. In addition, the VenTrak can be combined with the Company's
capnography technology for enhanced monitoring of mechanical ventilation
effectiveness and patient respiratory capabilities.
The Vent[check] has a list sales price of approximately $2,000 and the
VenTrak has a list sales price of approximately $9,000 to $13,000 depending upon
its configuration.
The Company also maintains the exclusive rights to patented technology
for the commercial manufacture and marketing of a family of disposable airway
sensors and a combined CO(2)/flow adapter.
SALES, MARKETING AND CUSTOMERS
The Company markets its products domestically and internationally
through salespersons and outside distributors to its customers, most of which
are hospitals. All of the Company's blood gas and respiratory mechanics
products are marketed primarily to hospitals for use in operating rooms,
emergency rooms, intensive care units, respiratory therapy departments,
transport situations and in other departments where critically ill or injured
patients require monitoring. The Company is expanding its marketing efforts to
physician groups, nursing homes, surgical centers, outpatient clinics, other
healthcare facilities and the homecare market through the use of private label
agreements and specialty distributors experienced in these marketplaces.
The Company also markets its products to original equipment
manufacturers (OEMs) which incorporate certain of the Company's products and
technologies in the manufacture of their own multi-parameter systems,
ventilators and other non-competing products. Generally, the Company sells its
products to OEM customers pursuant to long-term contracts which, in certain
cases, provide for the purchase of minimum quantities of products at specified
prices. The Company assembles products to be sold to OEM customers and,
generally, also agrees to provide maintenance and replacement parts. The
Company continues to seek new agreements with other OEM customers and
additional agreements for other products with its current customers. However,
there can be no assurance that the Company will be successful in obtaining
other long-term OEM contracts.
The Company employs a 26-person direct United States sales force and
also utilizes two outside distributors throughout the United States to sell its
products. Typically, these distributors sell other medical instruments and
products, but do not sell products which compete directly with those offered by
the Company. In addition, the
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Company utilizes manufacturer's representatives to support sales of its
products in the non-hospital markets.
Internationally, the Company currently employs four sales and marketing
managers and has approximately 85 outside international distributors. The
Company markets its products in over 75 countries. The Company's international
net sales of products and services constituted 37%, 41% and 41% of total net
sales during fiscal 1999, 1998 and 1997, respectively. The Company is engaged
in continuing efforts to improve and expand the international distribution of
its products and expects international sales to continue to constitute a
significant portion of total net sales.
Many of the countries into which the Company sells its products require
governmental approval for the sale of the Company's medical instruments. In
most countries which require approval, the approval process is shorter than
that in the United States and, generally, the Company shares the costs
associated with the approval process with its international distributors. The
Company believes it has all of the necessary approvals to sell the products
which it currently distributes internationally.
The Company's international sales are denominated in U.S. dollars,
which may be affected by exchange rate fluctuations. The Company believes that
fluctuations in the strength of the U.S. dollar have had a minimal impact on
its international sales during prior fiscal years. However, economic
uncertainties and currency devaluations against the U.S. dollar in the Pacific
Rim region during the latter part of fiscal 1998 and into fiscal 1999
negatively affected the Company's sales. The Company is continuing its efforts
to maximize business opportunities in that region as it monitors economic
events.
No customer accounted for more than 10% of the Company's net sales in
fiscal 1999, 1998 or 1997.
Advertising of the Company's products consists primarily of displays at
medical meetings and trade shows. The Company also advertises in trade journals
and periodicals and cooperates in the publication of technical papers written
by medical authorities in areas relating to the Company's products.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are devoted to the
design and development of new monitor and sensor technologies and to the
development and enhancement of its existing products. The Company anticipates
offering new products in the future, however, there can be no assurance that
the Company will introduce new products in successive fiscal years. With the
advent of managed care and continuing healthcare cost containment efforts,
these research and development activities are focused on providing technology
and related products which measure and record medically necessary information
in a safe and cost-effective manner.
The Company's research and development activities presently are, and
during the foreseeable future are expected to be, devoted primarily to the
development and
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enhancement of the Company's existing products and technologies and to the
design and development of new products. For fiscal 1999, 1998 and 1997, the
Company incurred research and development costs aggregating approximately
$10,784,000, of which approximately $3,958,000 was attributable to fiscal 1999,
$3,522,000 was attributable to fiscal 1998 and $3,304,000 was attributable to
fiscal 1997. All of the Company's research and development activities are
sponsored by the Company.
The Company's Cascadia Technology Division, located in Redmond,
Washington, is principally engaged in research and development. The research
and development portion of expenses related to this division are included in
the amounts stated in the preceding paragraph.
PRODUCTION AND SERVICE
Substantially all of the components in the Company's products,
including those designed to the Company's specifications, are manufactured by
others and then assembled by the Company. The Company's assembly operations
require a variety of electronic and mechanical components and supplies, as well
as specialized equipment which the Company owns or leases.
The Company does not have any long-term contracts with any of its
suppliers and believes that the needed components and supplies are available
from alternate sources. The Company has not experienced any interruption of
production or deliveries of components, supplies or equipment. However, there
can be no assurance that the Company will continue to receive timely service or
that the Company would be able to find readily a substitute manufacturer if one
were needed on short notice. Interruption of the Company's sources of supply or
quality problems with the supplied components could have a material adverse
effect on the Company's business and financial position.
The Company provides maintenance service for its products through
service technicians who are employees of the Company and, to a lesser extent,
through independent service representatives. The Company's products utilize
modular components which have been designed for maximum maintenance
accessibility and ease of removal for repair or replacement. The Company
generally warrants its products against defects in material and workmanship,
including parts and labor, for up to one year. The costs related thereto are
recognized as incurred and are not material to the Company's financial
statements. The Company also enters into multi-year sales agreements under
which the estimated repair costs are provided for at the time of sale. The
Company also offers extended warranty programs that may be purchased by its
customers.
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BACKLOG
Except for orders pursuant to long-term OEM agreements, the Company
ships its products on a current basis and substantially all of the product
backlog at May 2, 1999 is expected to be shipped within its normal operating
cycle. As such, the Company does not consider its backlog to be a meaningful
indicator of future sales.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company holds 29 U.S. patents and has pending applications for
22 additional U.S. patents. The Company's patents primarily cover its
capnography and respiratory flow technologies which the Company believes provide
it with a competitive advantage in the marketplace. Although the Company holds
patents and has patents pending related to certain of the Company's products,
the Company does not believe that its business as a whole is or will be
materially dependent upon patent protection of these products. However, the
Company will continue to seek patents as it deems advisable to protect its
research and development and the market for its products.
Due to extensive patent coverage in the medical electronics instruments
industry and the rapid rate of issuance of new patents, certain components of
the Company's products may involve infringement of existing patents. The
Company believes that any risks presently being assumed with respect to any
possible patent infringement are reasonable business risks similar to those
being assumed by other companies in the industry.
The Company is the owner of approximately 28 trademarks in the United
States including, but not limited to, Novametrix(R), CAPNOGARD(R),
CAPNOSTAT(R), CO(2)SMO(R), CO(2)SMO Plus!(TM), NICO(TM), Y-Sensor(TM),
SPO(2)T[check], OXYPLETH(R), SuperBright(TM), VenTrak(R), PNEUMOGARD(R),
TIDAL WAVE(TM), TCO(2)M(R) and Vent[check](TM).
The Company relies on trade secrets and proprietary know-how, which it
will seek to protect, in part, by confidentiality agreements with certain of
its employees, suppliers and customers. However, there can be no assurance that
the Company's confidentiality agreements, when in place, will not be breached
or that the Company would have adequate remedies for any breach. There can be
no assurance that the Company's trade secrets or proprietary know-how will not
otherwise become known or be independently discovered by competitors.
COMPETITION
The electronic medical instrumentation industry is extremely
competitive. The Company considers the most significant competitive factors in
its industry to be product capability and performance (including reliability
and ease of use), price and terms of purchase, availability of prompt and
effective maintenance, and an ability to introduce new and improved products
with regularity. The Company believes that it competes effectively in each of
these areas.
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While the Company's line of monitoring products is generally available
from several of its competitors, the Company believes that its monitors provide
advantages over currently available competing products in terms of accuracy,
reliability and versatility. Additionally, the Company feels that what it
believes to be the technological superiority in size, performance and
durability of its products provides it with a competitive advantage.
The electronic medical instrumentation industry is characterized by
rapid technological changes and advances. Although the Company believes that
its products are technologically current, the development of new technologies
or refinements of existing ones by the Company's competitors could at any time
make the Company's existing products technologically or economically obsolete.
Although the Company is not aware of any pending technological developments
that would be likely to materially and adversely affect its business or
financial position, there can be no assurance that such developments will not
occur at any time.
Although all of the Company's competitors do not market all of the
products which the Company markets, the Company estimates that it competes with
at least ten competitors. Such competitors vary in size from those which are
smaller than the Company to divisions or subsidiaries of multinational
corporations. There can be no assurance that the Company will be able to
compete successfully with its competitors, some of which also have extensive
production facilities, well-established marketing and service organizations,
recognized reputations in the electronic medical instrumentation industry
and/or far greater financial resources than the Company has or will have in the
foreseeable future.
PRODUCT LIABILITY AND INSURANCE COVERAGE
From time to time, the Company is subject to product liability claims,
suits and complaints incidental to its business. These claims, suits and
complaints are covered by insurance policies maintained by the Company, subject
to certain policy limits. In addition, certain of the Company's OEM agreements
require the Company to maintain certain levels of product liability insurance.
The Company currently maintains product liability insurance in the amount of
$5,000,000 with a $50,000 per occurrence deductible up to an aggregate annual
deductible of $250,000. The Company is not aware of any pending claims, suits
or complaints, the disposition of which, in the opinion of management, would
have a material adverse effect upon the Company's financial position, results
of operations or liquidity. The Company, however, could be materially adversely
affected by successful product liability claims, and there can be no assurance
that the Company will have sufficient resources to satisfy any liability
resulting from claims not covered by existing insurance policies.
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REGULATION
The Company's products are subject to regulation in the United States
and in many of the foreign countries where the Company markets or seeks to
market its products.
Certain of the Company's products are "devices" within the meaning of
the Federal Food, Drug and Cosmetics Act. Under that Act, a manufacturer must
obtain approval by the United States Food and Drug Administration ("FDA") of
certain new devices before they can be marketed in the United States. The
approval process requires that the safety and efficacy of such devices be
demonstrated by the manufacturer to the FDA. Under certain circumstances, the
cost of obtaining such pre-marketing approval may be high and the process
lengthy, and no assurance can be given that approval will be obtained. All of
the products currently marketed domestically by the Company requiring
pre-marketing approval from the FDA have been so approved.
In the future, certain other classes of medical devices may be required
to comply with industry-wide performance standards with respect to safety and
efficacy when these standards are promulgated by the FDA and internationally
recognized standards organizations (such as ISO and IEC). The FDA has not yet
developed industry-wide performance standards with respect to the safety and
effectiveness of those products manufactured by the Company which would be
subject to such standards. When and if these standards are adopted, the Company
will be required to submit data demonstrating compliance with the standards
(during which period the Company may be permitted to continue to market
products which have previously been approved by the FDA).
There can be no assurance that the Company's products will comply with
the applicable industry-wide performance standards when and if adopted or that
the Company will receive the requisite approvals to market any of its future
products. Any failure to receive approvals or non-compliance with performance
standards would have a material adverse effect on the Company's business and
financial position.
Underwriters' Laboratories, Inc. ("UL") has established safety
standards for patient-connective electrical apparatus. These standards, or
their equivalent, have been adopted as purchase specifications by many
hospitals. The Company has obtained UL or equivalent approval with respect to
certain of its products and has applied or intends to apply for approval with
respect to all its other products to which these standards apply. In addition,
state and municipal testing agencies have imposed similar standards with which
the Company's products sold in particular areas may be required to comply. The
Company does not believe that compliance with these state and municipal
standards will involve significant expense.
Various countries in which the Company markets its products have
regulatory agencies which perform functions comparable to those of the FDA.
Compliance to international standards is a growing factor in conducting
business in such markets. Novametrix has obtained ISO 9001 (Quality System) and
EN46001 (Quality System specific to medical device manufacturing)
certification. By obtaining certification to
<PAGE> 14
14
these standards, the Company is permitted to place a "CE" mark on its products
which indicates product compliance as specifically required by the European
marketplace. To date, foreign regulations have not adversely affected the
Company's business. However, there can be no assurance that any such
regulations will not have a material adverse effect on the Company's business
and financial condition in the future.
Changes within the United States healthcare market continue at a rapid
pace. The move toward managed care, and the growing influence of managed care
networks, hospital group purchasing organizations ("GPOs"), integrated delivery
networks ("IDNs") and hospital cooperatives, have had a major impact on the
healthcare industry by accelerating trends toward shorter hospital stays, the
use of outpatient facilities rather than hospitalization and by lowering annual
cost increases for healthcare spending. Today, hospitals in general have
expanded their efforts toward reducing operating costs and improving cost
controls as well as managing the purchase price of goods and services.
Additional cost saving changes, consolidation and restructuring could further
influence decision-making by hospitals, clinics and other healthcare providers,
which form the Company's customer base. These possible changes could
potentially reduce or delay capital expenditures by these providers, and could
change the users and markets for the Company's products. However, the acute
care portion of a hospital (including the operating room and intensive care
unit) which is a significant market for the Company's products should not be
greatly affected by the trend toward the use of outpatient facilities as such
outpatient facilities generally care for patients who are not critically ill.
In addition, the trend toward managed competition may improve sales of certain
of the Company's non-disposable products which provide substantial cost savings
compared to similar disposable products sold by its competitors, and may also
improve sales of other Company products that improve patient throughput and
thereby result in shorter hospital stays.
Although the trend toward managed competition may have a positive
impact on the Company's business by providing increased coverage for medical
procedures utilizing the Company's products, thereby increasing demand for the
Company's products, it is not possible at this time to predict what, if any,
further changes in healthcare will occur.
EMPLOYEES
As of May 2, 1999, the Company had a total of 214 full-time employees,
consisting of 94 production personnel, 40 research and development personnel,
63 sales, marketing and service personnel and 17 administrative, managerial and
financial personnel. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relationship with its employees
to be satisfactory.
<PAGE> 15
15
ITEM 2. PROPERTIES.
The Company's main plant and executive offices are located at 5
Technology Drive, Wallingford, Connecticut where it occupies approximately
53,000 square feet of office and manufacturing space under a twelve year lease
expiring in August 2008. The lease provides for minimum annual lease payments
of $408,425, and contains one five-year renewal option and a purchase option
upon the commencement of the sixth year of the lease. The lease requires the
Company to pay for property taxes, insurance and repairs related to the
facility.
The Company also leases a building in Redmond, Washington under a
three-year lease expiring in March 2000, renewable for an additional three
years, and comprising approximately 7,000 square feet of space utilized for
research and development and manufacturing support. The lease provides for
minimum annual lease payments of $61,700 plus taxes, insurance and other
expenses.
The Company believes that its facilities are well maintained, in good
operating condition and are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.
See also "Patents, Trademarks and Proprietary Rights" and "Product
Liability and Insurance Coverage" under "Item 1. Business."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE> 16
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock, $.01 par value (the "Common Stock"), trades
on The Nasdaq Stock Market(R) under the symbol "NMTX". The following table sets
forth the range of high and low sales prices per share for the Common Stock for
each of fiscal 1999 and 1998.
<TABLE>
<CAPTION>
High Sale Low Sale
--------- --------
<S> <C> <C>
FISCAL 1999
First Quarter.................... $8 7/16 $6 1/8
Second Quarter................... 6 1/2 3 13/16
Third Quarter.................... 7 1/4 4 7/8
Fourth Quarter................... 6 5/16 3 1/8
FISCAL 1998
First Quarter.................... $9 1/2 $5 1/8
Second Quarter................... 11 1/16 7 1/8
Third Quarter.................... 8 1/4 6
Fourth Quarter................... 9 5 3/4
</TABLE>
On July 23, 1999, the last sale price of the Common Stock as reported
on The Nasdaq Stock Market(R) was $5.00.
As of July 1, 1999, there were approximately 765 record holders of the
Common Stock. No dividends have been declared on the Common Stock since the
Company was organized. In addition, loan agreements to which the Company is a
party contain, among other provisions, various covenants restricting the
Company's ability to pay cash dividends to holders of the Common Stock.
In addition, the Company has Class B Warrants that trade on The Nasdaq
Stock Market(R) under the symbol "NMTXZ". The Warrants are each exercisable
into one share of Common Stock at an exercise price of $5.85 and are scheduled
to expire on December 8, 1999. The Warrants are callable by the Company under
specified circumstances.
<PAGE> 17
17
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial and operating data of
the Company as of the end of each fiscal year and for each of the years in the
five-year period ended May 2, 1999.
<TABLE>
<CAPTION>
May 2, May 3 April 27, April 28, April 30,
FOR YEAR ENDED 1999 (1) 1998(1) 1997(1) 1996 1995
-------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $32,864,673 $31,561,144 $28,253,750 $25,260,180 $24,032,101
Income Before Income Taxes
and Non-recurring Expenses 2,870,367 3,951,598 3,073,469 2,136,795 1,644,367
Net Income(2)(3) 2,066,667 2,903,598 4,923,559 3,116,795 1,604,367
Net Income Per Share(2)(3)
Basic 0.25 0.35 0.70 0.50 0.27
Diluted 0.24 0.31 0.59 0.38 0.21
Cash Dividends on Common
Stock - - - - -
AT YEAR END
Total Assets 35,975,874 31,001,896 27,224,432 18,823,362 16,605,981
Working Capital 15,233,539 18,602,648 10,831,127 8,363,914 6,411,756
Long-Term Debt 2,254,071 90,881 782,275 1,333,333 2,308,333
Redeemable Preferred Stock - - 1,000,000 1,000,000 1,000,000
Stockholders' Equity 24,655,944 27,032,439 18,109,926 12,528,549 9,151,900
</TABLE>
- ----------------------
(1) The above data should be read in conjunction with the consolidated
financial statements, related notes and other financial information set
forth elsewhere herein.
(2) Includes income tax benefits of $4,030,000 ($0.58 per basic share and
$0.49 per diluted share) and $1,020,000 ($0.17 per basic share and
$0.12 per diluted share), respectively, for fiscal 1997 and fiscal 1996
as a result of a reduction in the Company's net deferred tax asset
valuation allowance.
(3) Fiscal 1997 net income includes non-recurring expenses of $2,149,910
($0.31 per basic share and $0.26 per diluted share) pertaining to an
attempted merger and related proxy context.
<PAGE> 18
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED MAY 2, 1999 COMPARED TO YEAR ENDED MAY 3, 1998
The Company reported net income of $2.1 million or $0.24 per diluted
share for the fiscal year ended May 2, 1999 compared to net income of
approximately $2.9 million or $0.31 per diluted share for the fiscal year ended
May 3, 1998. Sales shortfalls to international and OEM (original equipment
manufacturer) customers, combined with increased investment in research and
development ("R&D") and sales and marketing to support the Company's new
products and the growing domestic effort, were the primary cause for the
reduction in earnings.
Net sales increased approximately $1.3 million or 4% to approximately
$32.9 million for the fiscal year ended May 2, 1999 compared to approximately
$31.6 million for the fiscal year ended May 3, 1998. The increase in sales, led
by significant growth in domestic sales which resulted primarily from an
increase in pulse oximetry sales, was partially offset by reductions in
international sales and sales to OEM customers primarily due to the impact of
global economic conditions.
Cost of sales as a percentage of net sales was 41.3% for fiscal 1999
compared to 42.4% for fiscal 1998 led by the improvement in domestic sales. The
improvement in the cost of sales percentage resulted primarily from favorable
product and market mix in fiscal 1999 compared to the prior year. Management is
continuing to focus on product cost reductions through increased automation,
improved product design and process efficiencies.
R&D expenses increased by approximately $435,000 or 12% to
approximately $3,958,000 for fiscal 1999 compared to approximately $3,523,000
for fiscal 1998. The increase is primarily attributable to higher expenditures
for salaries and related fringe benefits associated with increased R&D
personnel which was partially offset by lower levels of expenditures for
engineering materials. R&D spending, which approximated 12% of net sales for
fiscal 1999, is expected to approximate 10% to 11% of net sales in fiscal 2000
on about the same level of spending as fiscal 1999 but on the higher level of
expected sales.
Selling, General & Administrative ("S,G&A") expenses increased by
approximately $1,723,000 or 16% to approximately $12,321,000 for fiscal 1999
compared to approximately $10,598,000 for fiscal 1998. The vast majority of the
increase was related to increased expenditures associated with the expansion of
domestic sales including salaries and related fringe benefits, employee and
dealer commissions, outside consulting and travel and entertainment expenses.
Marketing expenses, including salaries and related fringe benefits, outside
professional services and travel and entertainment
<PAGE> 19
19
expenses also accounted for a portion of the increase in S,G&A expense.
Decreased international sales and marketing expenses,including commissions on
reduced sales volume and marketing promotional costs, partially offset the
increase in overall S,G&A expense.
Interest expense increased approximately $99,000 to approximately
$212,000 for fiscal 1999 compared to approximately $113,000 for fiscal 1998.
During fiscal 1999, the Company entered into new debt agreements with its bank
primarily to finance the Company's purchase of its treasury stock and for
general working capital requirements.
Income tax expense was approximately $804,000 during fiscal 1999
compared to approximately $1,048,000 for fiscal 1998 which reflected the lower
earnings. The Company's effective tax rate of 28% for fiscal 1999 was below the
statutory rate as a result of benefits derived from R&D tax credits, the
Company's Foreign Sales Corporation and a further reduction in the deferred tax
valuation allowance. Management believes that current levels of pre-tax
earnings will be sufficient to generate approximately $11,000,000 of future
taxable income required to utilize the deferred tax benefit recorded as of May
2, 1999. Management expects the effective tax rate to approximate 31% to 33%
for fiscal 2000.
On July 1, 1999, the Company announced that it had restated its
quarterly results for the first three quarters of fiscal 1999 to adjust revenue
and related costs and expenses in those periods. The restatements, which were
completed on July 14, 1999, reflected adjustments as a result of modifications
to the accounting treatment for sales financing arrangements which the Company
entered into with customers, and the reversal of certain dealer sales where
products were ultimately returned to the Company due to cancellation of dealer
orders by end users.
YEAR ENDED MAY 3, 1998 COMPARED TO YEAR ENDED APRIL 27, 1997
Fiscal 1998 operating results compared favorably to the prior year. Net
income for the year ended May 3, 1998 was $2.9 million or $0.31 per diluted
share compared to reported net income for the prior year ended April 27, 1997
of $4.9 million or $0.59 per diluted share. The prior year, however, contained
a benefit of $4.0 million from a reduction in the Company's net deferred tax
asset valuation allowance and approximately $2.1 million of non-recurring
expenses. On a comparable, fully-taxed basis excluding the non-recurring
expenses, earnings would have been approximately $2.1 million or $0.25 per
diluted share for the year ended April 27, 1997.
Net sales increased by approximately $3.3 million or 12% to
approximately $31.6 million for the fiscal year ended May 3, 1998 compared to
approximately $28.3 million for the fiscal year ended April 27, 1997. The
growth in sales was primarily led by an increase in domestic sales and sales to
OEM customers. Sales to international customers reflected a modest improvement
for fiscal 1998 compared to fiscal 1997 as growth was slowed primarily by
economic uncertainties in the Pacific Rim region.
<PAGE> 20
20
Cost of sales as a percentage of net sales was 42.4% for fiscal 1998
compared to 43.6% for fiscal 1997. The improvement in the cost of sales
percentage resulted primarily from favorable sales mix and higher gross margins
associated with the Company's newer products. Management planned to continue to
focus on product cost reductions through increased utilization of automated
equipment, improved product design and reductions in purchase price for
materials.
R&D expenses increased by approximately $219,000 or 7% to $3,523,000
for fiscal 1998 compared to R&D expenses of approximately $3,304,000 during
fiscal 1997. Increased expenditures for salaries and related fringe benefits
were partially offset by reduced expenses for outside professional services. In
accordance with the Company's product development plans, R&D spending was
expected to continue to approximate 11% of sales for fiscal 1999.
S,G&A expenses increased by approximately $1,291,000 or 14% to
$10,598,000 for fiscal 1998 compared to $9,307,000 for fiscal 1997.
Approximately 63% of the increase was related to higher sales and marketing
expenses and pertains to increased sales and marketing salaries, commissions
and related fringe benefits, marketing promotional costs, and travel and
entertainment expenses. The balance of the S,G&A increase was related to
increased administrative expenses including salaries and related fringe
benefits, outside professional services and general insurance.
Interest expense decreased by approximately $137,000 or 55% to $113,000
for fiscal 1998 compared to approximately $250,000 for fiscal 1997. During
fiscal 1998, the Company repaid its term loan, revolving line-of-credit
facility and a capital lease obligation resulting in lower interest expense.
Income tax expense increased to $1,048,000 during fiscal 1998 from a
net benefit of $4,000,000 recorded during fiscal 1997. The prior year benefit
resulted from a reduction in the net deferred tax asset valuation allowance.
The Company's effective tax rate for fiscal 1998 was 26.5% which was less than
the statutory rate as a result of benefits received from the Company's Foreign
Sales Corporation, R&D tax credits, and a further reduction in the Company's
deferred tax valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at May 2, 1999 was approximately $15.2 million compared
to approximately $18.6 million at May 3, 1998. The reduction in working capital
of approximately $3.4 million was primarily attributable to certain long-term
sales financing arrangements entered into during fiscal 1999, the purchase of
treasury stock, and increased expenditures for the purchase of technology and
capital equipment.
Cash used in operations was approximately $228,000 for fiscal 1999
compared to cash provided of approximately $1,697,000 for fiscal 1998. A
reduction in income before income taxes, depreciation and amortization and
increases in inventory and
<PAGE> 21
21
accounts and notes receivable, partially offset by increases in accounts
payable and accrued expenses, were primarily responsible for the decrease.
$6,200,000 of funds were provided from the proceeds of a term loan and
revolving credit agreement consummated during fiscal 1999 with the Company's
lender. The proceeds were primarily used to purchase 960,903 shares of the
Company's Common Stock at a cost of $4,655,072 and to support general working
capital requirements. As of May 2, 1999, there were 231,895 shares authorized
for purchase under the stock repurchase plan which expires August 24, 1999.
Cash provided from operations is expected to be the Company's principal
source of working capital for fiscal 2000. Additional funds are available under
the Company's revolving credit agreement which expires in August 2001. In
addition, approximately $3,300,000 may potentially be realized from the
exercise of the Company's Class B Warrants which are callable under specified
conditions, exercisable at $5.85 per share and expire on December 8, 1999.
Further, management believes that additional funds will continue to be
available on commercially acceptable terms.
MARKET RISK
The Company's revolving credit facility and term loan agreements are
based upon the London Interbank Offered Rate ("LIBOR") and, as such, are
sensitive to changes in interest rates. To mitigate the impact of interest rate
fluctuations on a portion of this debt, the Company entered into an interest
rate swap agreement to hedge a notional amount equal to the remaining principal
balance on the term loan. The Company believes that the interest rate swap
agreement limits interest rate risk if interest rates should fluctuate. If
interest rates should change by 2% in fiscal 2000 from those rates in effect at
May 2, 1999, assuming no change in the outstanding debt balance and considering
the effects of the Company's interest rate swap agreement, the effect on
interest expense would be immaterial. These amounts are determined by
considering the hypothetical interest rates on the Company's borrowing cost and
interest rate swap agreement. This analysis does not consider the effects of
actions management would take if interest rates were to fluctuate by such a
significant degree. The sensitivity analysis also assumes no changes in the
Company's financial structure. The agreement had no material effect on interest
expense during fiscal 1999.
SUBSEQUENT EVENT
On June 30, 1999, the Company acquired Children's Medical Ventures,
Inc., a privately owned developer and marketer of neonatal and pediatric
products and services for the amount of $8,700,000 in cash and a five-year
warrant to purchase 25,000 shares of the Company's common stock at an exercise
price of $4.6325 per share. The acquisition including transaction costs was
financed with the proceeds of a $4,800,000 five-year term loan agreement with
the Company's primary bank which bears interest at LIBOR plus 1.8% and a
$4,800,000 five-year term loan with another bank which bears interest at LIBOR
plus 1.6%. In addition, the Company expanded its revolving credit agreement
<PAGE> 22
22
with its primary lender to $6,000,000 for general working capital purposes and
extended the expiration date to August 2001.
RECENT ACCOUNTING PRONOUNCEMENT
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-up Activities". The SOP, which is effective
for the Company beginning May 3, 1999, requires that certain costs capitalized
prior thereto be written-off and any future start-up costs be expensed as
incurred. As of May 2, 1999, there were approximately $329,000 of unamortized
start-up costs which will be written-off as a cumulative effect of an
accounting change during the Company's first quarter of fiscal year 2000. The
Company estimates the impact of adopting this SOP will result in a reduction of
fiscal 2000 earnings of approximately $224,000.
YEAR 2000 COMPLIANCE
Year 2000 compliance is a potentially significant issue for most, if
not all companies, the impact of which cannot be predicted with any degree of
certainty. The risk to the Company resulting from the failure of its own
systems or those of third parties with which it does business to attain Year
2000 readiness is similar to that of other manufacturing firms or business
enterprises. The risks include, but are not limited to, disruptions in
transacting or processing information, disruptions in the supply of materials
from major vendors and delays in shipment to customers due to their Year 2000
non-compliance. The Company has established a Year 2000 program dedicated to
assessing the potential impact on its business, results of operations and
financial condition. The Company has conducted a thorough review of its
installed base of monitoring equipment and has determined that its current
products are Year 2000 compliant. The results of the Company's examination have
been posted on its web site for its customers to review. During fiscal 1999,
the Company completed the installation of a new fully-integrated operating
system and has recently completed an upgrade of its communication systems to
achieve Year 2000 compliance. To date the Company has capitalized approximately
$375,000 to upgrade its operating and information systems and does not expect
to incur additional capital or non-capital expenditures of a material amount
for Year 2000 compliance purposes. As a result of these expenditures,
management believes that the Year 2000 issue will not pose significant
operational problems for its internal operating systems. The Company has also
contacted its major suppliers to assess their Year 2000 readiness and is
continuing to address this issue with other suppliers and third parties with
which the Company conducts business. While the Company has not identified any
Year 2000 issues as a result of this effort, the Company cannot be certain that
its suppliers will obtain Year 2000 readiness and is developing contingency
plans to mitigate exposure resulting from non-compliance including considering
the substitution of those suppliers that provide an unacceptable response.
However, it would be impractical for the Company to attempt to address all
potential Year 2000 problems of its suppliers and other third parties. The
Company will continue to refine its contingency plans as conditions warrant.
<PAGE> 23
23
IMPACT OF INFLATION
The rate of inflation continues to have a marginal impact on the
operations of the Company. While management routinely assesses the possible
effects of inflation with respect to the Company's future business plans, the
rate of inflation is not expected to have a material impact upon the growth of
the Company during fiscal 2000.
***************
This Annual Report on Form 10-K contains certain forward-looking
statements about the Company's products and projected operating results.
Shareholders and potential investors are cautioned that such statements are
predictions and that actual events or results may vary significantly. The
Company's ability to achieve its projected results is dependent upon a variety
of factors, many of which are outside of management's control, including
without limitation: an unanticipated slowdown in the healthcare industry;
unanticipated technological developments which affect the competitiveness of
the Company's products; or an unanticipated delay or loss of business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the caption "Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information concerning this Item, see "Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
<PAGE> 24
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the executive officers and directors of
the Registrant is set forth below:
<TABLE>
<CAPTION>
Name Positions Age
- ---- with the Company ---
----------------
<S> <C> <C>
William J. Lacourciere Chairman of the Board,
President, Chief Executive Officer
and Director (Class C) 59
Joseph A. Vincent Executive Vice President, Chief
Operating Officer, Treasurer and
Secretary 47
Leslie E. Mace Vice President - Engineering 53
Philip F. Nuzzo Vice President - Marketing and
Product Development 46
Jeffery A. Baird Corporate Controller, Chief
Financial Officer 45
Paul A. Cote Director (Class A) 69
Vartan Ghugasian Director (Class A) 54
Thomas M. Haythe Director (Class C) 59
John P. Mahoney Director (Class B) 51
Photios T. Paulson Director (Class B) 60
Steven J. Shulman Director (Class B) 48
</TABLE>
William J. Lacourciere has been Chairman of the Board of the Company
since September 1991, Chief Executive Officer since February 1991, President
since August 1986 and a director since October 1982. He served as Chief
Operating Officer from March 1983 to February 1991. Mr. Lacourciere served as
Executive Vice President from March 1983 to August 1986. From October 1982 to
March 1983, he served as Executive Vice President - Marketing. From April 1980
to October 1982, Mr. Lacourciere served as Vice President - Domestic Sales.
Joseph A. Vincent, CMA was appointed Executive Vice President and Chief
Operating Officer of the Company in February 1997. Mr. Vincent served as Vice
President - Finance from August 1991 to February 1997 and as Chief Financial
Officer
<PAGE> 25
25
from April 1990 to February 1997. He has been Secretary since April 1990 and
Treasurer since February 1991 and served as Controller from September 1984 to
April 1990. Mr. Vincent held various positions with Picker International, Inc.
(a manufacturer of medical diagnostic instruments and supplies) from August
1974 until joining the Company in August 1983. Mr. Vincent was a director of
the Company from February 1994 to November 1996.
Leslie E. Mace has been Vice President - Engineering of the Company and
General Manager of the Company's Cascadia Division in Redmond, Washington since
March 1991. He served as Vice President of the Company's Cascadia Division from
May 1989 to March 1991. Mr. Mace served as Vice President, Chief Operating
Officer and Engineering Manager of Cascadia Technology Corporation, a
Washington corporation (research and development company), from prior to 1988
to April 1989.
Philip F. Nuzzo was appointed Vice President - Marketing and Product
Development of the Company in August 1996. He served as Director of Marketing
from February 1993 to August 1996, as Marketing Manager from July 1989 to
February 1993, and as Product Manager from January 1986 to July 1989. Prior to
joining Novametrix, Mr. Nuzzo, a licensed Respiratory Care Practitioner,
obtained his clinical experience with several hospitals including St. Joseph's
Hospital in Bellingham, Washington and LAC/USC Medical Center in Los Angeles,
California.
Jeffery A. Baird was appointed Chief Financial Officer in February
1997. He has served as Controller since February 1993 and has held various
positions since joining the Company in 1988. Prior to his employment at
Novametrix, Mr. Baird was employed at Philips Medical Systems, Inc., a
manufacturer of diagnostic medical imaging equipment.
Paul A. Cote has been a director of the Company since November 1996.
Mr. Cote has been a practicing lawyer in Maine since 1955 and is the President
and Director of the law firm of Cote, Cote & Hamann. Mr. Cote was a member of
the Board of Directors of Secor Federal Savings & Loan, Birmingham, Alabama
(1992 -1993) and Northeast Bankshare Association (later became Norstar and
subsequently Fleet) (1975-1989). He also served on the advisory boards of
Norstar and Fleet banks (1990-1992).
Vartan Ghugasian has been a director of the Company since November
1996. Dr. Ghugasian has been a practicing dentist in Massachusetts since 1972
specializing in prosthodontics. Dr. Ghugasian has enjoyed a number of academic
appointments, including as an associate in prosthetic dentistry, Harvard
University School of Dental Medicine from 1980 until 1993 and Director of
Pre-Clinical Studies at Tufts University School of Dental Medicine from 1974 to
1980. Dr. Ghugasian has also served as a director of the Karagheusian
Commemorative Corporation, New York, New York.
Thomas M. Haythe has been a director of the Company since March 1978.
He has been a partner at the law firm of Haythe & Curley since prior to 1991.
Mr. Haythe also serves as a director of Guest Supply, Inc., a provider of hotel
guest room amenities, accessories and products, Westerbeke Corporation, a
manufacturer of marine engine products, and Ramsay Youth Services, Inc., a
provider of youth and educational services.
<PAGE> 26
26
John P. Mahoney has been a director of the Company since October 1997.
Dr. Mahoney has served as a staff pathologist with Pathology Associates, Inc.
(pathology group providing services in surgical, cytologic, clinical and
forensic pathology) from 1981 to 1994 and since 1996. During such time, Dr.
Mahoney has served as Chief of Staff, Tallahassee Community Hospital;
President, Capital Medical Society; and Associate Medical Examiner, State of
Florida, District II. From 1987 to 1995, Dr. Mahoney was President and Chief
Executive Officer of Health Enterprises, Inc., a holding company that included
a 62,000 member health maintenance organization, which was merged with Coastal
Physicians Group in 1995. Dr. Mahoney is a member of the Manning 13D
Stockholders Group. See "Security Ownership of Certain Beneficial Owners" under
"Item 12, Security Ownership of Certain Benefit Owners and Management."
Photios T. Paulson has been a director of the Company since July 1992.
Mr. Paulson has served as Vice President of bioMerieux Alliance, a
privately-held French holding company, since January 1995, Chairman of
bioMerieux Vitek Inc., a manufacturer of clinical diagnostic systems, since
July 1991 and as Senior Advisor-Health Care Industry and International
Investment Banking for Prudential Securities Inc. since prior to 1991.
Steven J. Shulman has been a director of the Company since November
1993. Mr. Shulman serves as President and Chief Executive Officer of Prudential
HealthCare, one of the nation's ten largest healthcare providers. Mr. Shulman
was a founder and director of Value Health, Inc., a provider of specialty
managed care programs, from 1987 to 1997. During that time he served as
President of the Pharmacy and Disease Management Group as well as Executive
Vice President. Prior to 1989, Mr. Shulman was President of the East Central
Division at CIGNA Healthplan, Inc., a provider of group life and health
insurance, including managed care products. Mr. Shulman is also a director of
Ramsay Health Care, Inc., a provider of psychiatric healthcare services.
For additional information concerning this item, see text under caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Proxy Statement, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see text under the captions
"Executive Compensation," "Compensation of Directors," "Employment Agreements,"
"Compensation and Stock Option Committee Interlocks and Insider Participation,"
"Performance Graph" and "Report of the Compensation and Stock Option Committee"
in the Proxy Statement, which information is incorporated herein by reference.
<PAGE> 27
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see text under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see text under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement, which
information is incorporated herein by reference.
<PAGE> 28
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Consolidated Financial Statements:
Information with respect to this Item regarding the consolidated
financial statements is contained on page F-1 of this Annual Report on Form
10-K.
2. Consolidated Financial Statement Schedules
Information with respect to this Item regarding the consolidated
financial statement schedules is contained on page F-1 of this Annual Report on
Form 10-K.
3. Exhibits
Information with respect to this Item regarding Exhibits
required to be filed pursuant to Item 601 of Regulation S-K is contained in the
attached Index to Exhibits, which Exhibits are incorporated herein by
reference. Exhibits 10(a), 10(b), 10(s), 10(t), 10(u), 10(y), 10(gg), 10(ii)
and 10(kk) are the management contracts and compensatory plans or arrangements
required to be filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K during
the quarter ended May 2, 1999. Subsequent to May 2, 1999, the Company did file
on July 15, 1999 a Current Report on Form 8-K related to the acquisition of
Children's Medical Ventures, Inc.
(c) Exhibits:
Information with respect to this Item regarding Exhibits
required to be filed pursuant to Item 601 of Regulation S-K is contained in the
attached Index to Exhibits, which Exhibits are incorporated herein by
reference. Exhibits 10(a), 10(b), 10(s), 10(t), 10(u), 10(y), 10(gg), 10(ii),
10(kk) and 10(ll) are the management contracts and compensatory plans or
arrangements required to be filed as part of this Annual Report on Form 10-K.
(d) Consolidated Financial Statement Schedule:
Information with respect to this Item regarding the consolidated
financial statement schedule required by Regulation S-X which is excluded from
the annual report to shareholders by Rule 14a-3(b) is contained on page S-1 in
this Annual Report on Form 10-K.
<PAGE> 29
29
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoint each of William J. Lacourciere and Jeffery A. Baird as
attorneys-in-fact with full power of substitution, severally, to execute in the
name and on behalf of the Registrant and each such person, individually and in
each capacity stated below, one or more amendments to this Annual Report on
Form 10-K which amendments may make such changes in this Report as the
attorney-in-fact acting in the premises deems appropriate and to file any such
amendment to this Report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July 30, 1999
NOVAMETRIX MEDICAL SYSTEMS INC.
By/s/William J. Lacourciere
---------------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: July 30, 1999
By/s/William J. Lacourciere
---------------------------------------
William J. Lacourciere
Chairman of the Board,
President, Chief Executive
Officer and Director
<PAGE> 30
30
Dated: July 30, 1999
By/s/Jeffery A. Baird
---------------------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Dated: July 30, 1999
By/s/Paul A. Cote
---------------------------------------
Paul A. Cote
Director
Dated: July 30, 1999
By/s/Vartan Ghugasian
---------------------------------------
Vartan Ghugasian
Director
Dated: July 30, 1999
By/s/Thomas M. Haythe
---------------------------------------
Thomas M. Haythe
Director
Dated: July 30, 1999
By/s/John P. Mahoney
---------------------------------------
John P. Mahoney
Director
Dated: July 30, 1999
By/s/Photios T. Paulson
---------------------------------------
Photios T. Paulson
Director
Dated: July 30, 1999
By/s/Steven J. Shulman
---------------------------------------
Steven J. Shulman
Director
<PAGE> 31
Annual Report on Form 10-K
Item 8--Financial Statements
Item 14(a)(1) and (2)--List of Financial Statements and
Financial Statement Schedule
Item 14(d)--Financial Statement Schedule
Year ended May 2, 1999
Novametrix Medical Systems Inc.
Wallingford, Connecticut
<PAGE> 32
Novametrix Medical Systems Inc.
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated July 1, 1999, and
the following consolidated financial statements of Novametrix Medical Systems
Inc. are included in Item 8:
Consolidated Balance Sheets--May 2, 1999 and May 3, 1998
Consolidated Statements of Income--Years ended May 2, 1999, May 3, 1998 and
April 27, 1997
Consolidated Statements of Shareholders' Equity--Years ended May 2, 1999,
May 3, 1998 and April 27, 1997
Consolidated Statements of Cash Flows--Years ended May 2, 1999, May 3, 1998
and April 27, 1997
Notes to Consolidated Financial Statements--May 2, 1999
The following consolidated financial statement schedule of Novametrix Medical
Systems Inc. is included in Item 14(d):
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 33
Report of Independent Auditors
Board of Directors
Novametrix Medical Systems Inc.
We have audited the accompanying consolidated balance sheets of Novametrix
Medical Systems Inc. as of May 2, 1999 and May 3, 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended May 2, 1999, May 3, 1998 and April 27, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Novametrix Medical Systems Inc. at May 2, 1999 and May 3, 1998, and the
consolidated results of its operations and its cash flows for the years ended
May 2, 1999, May 3, 1998 and April 27, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/S/ERNST & YOUNG LLP
Hartford, Connecticut
July 1, 1999
F-2
<PAGE> 34
Novametrix Medical Systems Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 269,399 $ 1,783,596
Accounts receivable, less allowance for losses of
$250,000 11,613,251 9,712,814
Current portion of notes receivable 380,003
Inventories:
Finished products 4,193,808 3,624,385
Work in process 1,224,991 1,777,028
Materials 3,933,648 2,471,521
---------------------------------
9,352,447 7,872,934
Deferred income taxes, net 1,768,688 2,414,000
Prepaid expenses and other current assets 915,610 697,880
---------------------------------
Total current assets 24,299,398 22,481,224
Notes receivable, less current portion 1,501,118
Equipment, less accumulated depreciation and
amortization of $6,913,927 in 1999 and $6,031,517 in
1998 3,682,126 2,596,209
License, technology, patent and other costs, less
accumulated amortization of $3,982,188 in 1999 and
$3,566,574 in 1998 4,544,432 3,954,797
Deferred income taxes, net 1,948,800 1,969,666
---------------------------------
$ 35,975,874 $ 31,001,896
=================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 35
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
---------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt and capital lease obligation $ 3,836,810 $ 33,901
Accounts payable 2,384,925 1,883,234
Accrued expenses 2,844,124 1,961,441
---------------------------------
Total current liabilities 9,065,859 3,878,576
Long-term debt and capital lease obligation, less
current portion 2,254,071 90,881
Shareholders' equity:
Common Stock, $.01 par value, authorized 20,000,000
shares; issued 9,232,659 shares in 1999 and
9,174,355 shares in 1998 92,327 91,744
Additional paid-in capital 34,965,970 34,754,643
Retained-earnings (deficit) (3,260,243) (5,326,910)
Treasury stock; 1,299,355 shares in 1999 and 338,452
shares in 1998 (7,142,110) (2,487,038)
---------------------------------
24,655,944 27,032,439
---------------------------------
$ 35,975,874 $ 31,001,896
=================================
</TABLE>
F-4
<PAGE> 36
Novametrix Medical Systems Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
--------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $ 32,864,673 $ 31,561,144 $ 28,253,750
Interest 113,491 45,761 7,912
--------------------------------------------------
32,978,164 31,606,905 28,261,662
Costs and expenses:
Cost of products sold 13,568,836 13,377,206 12,307,178
Research and product development 3,957,760 3,522,687 3,303,822
Selling, general and administrative 12,320,693 10,597,621 9,306,728
Interest 212,365 113,246 249,805
Non-recurring expenses 2,149,910
Other expense, net 48,143 44,547 20,660
--------------------------------------------------
30,107,797 27,655,307 27,338,103
--------------------------------------------------
Income before income taxes 2,870,367 3,951,598 923,559
Income tax provision (benefit) 803,700 1,048,000 (4,000,000)
--------------------------------------------------
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
==================================================
Earnings per common share:
Basic $.25 $.35 $.70
Diluted $.24 $.31 $.59
</TABLE>
See accompanying notes.
F-5
<PAGE> 37
Novametrix Medical Systems Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL RETAINED-
COMMON STOCK PAID-IN EARNINGS
----------------------
SHARES AMOUNT CAPITAL (DEFICIT)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended April 27, 1997:
Balance at April 28, 1996 6,985,964 $ 69,860 $ 28,054,794 $(13,109,067)
Issuance of stock 539,575 5,395 682,423
Dividends on Preferred Stock ($.75 a share) (30,000)
Net income 4,923,559
-------------------------------------------------------------
Balance at April 27, 1997 7,525,539 75,255 28,737,217 (8,215,508)
Year ended May 3, 1998:
Issuance of stock 1,204,372 12,045 4,734,204
Tax benefit related to stock option
exercises 287,666
Conversion of Redeemable Preferred
Stock 444,444 4,444 995,556
Dividends on Preferred Stock ($.75 a
share) (15,000)
Net income 2,903,598
-------------------------------------------------------------
Balance at May 3, 1998 9,174,355 91,744 34,754,643 (5,326,910)
Year ended May 2, 1999:
Issuance of stock 58,304 583 193,380
Tax benefit related to stock option
exercises 17,947
Purchase of Common Stock for treasury
Net income 2,066,667
-------------------------------------------------------------
Balance at May 2, 1999 9,232,659 $ 92,327 $ 34,965,970 $ (3,260,243)
=============================================================
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK
---------------------------
SHARES AMOUNT TOTAL
----------------------------------------------
<S> <C> <C> <C>
Year ended April 27, 1997:
Balance at April 28, 1996 (338,452) $(2,487,038) $ 12,528,549
Issuance of stock 687,818
Dividends on Preferred Stock ($.75 a share) (30,000)
Net income 4,923,559
-----------------------------------------------
Balance at April 27, 1997 (338,452) (2,487,038) 18,109,926
Year ended May 3, 1998:
Issuance of stock 4,746,249
Tax benefit related to stock option
exercises 287,666
Conversion of Redeemable Preferred
Stock 1,000,000
Dividends on Preferred Stock ($.75 a
share) (15,000)
Net income 2,903,598
-----------------------------------------------
Balance at May 3, 1998 (338,452) (2,487,038) 27,032,439
Year ended May 2, 1999:
Issuance of stock 193,963
Tax benefit related to stock option
exercises 17,947
Purchase of Common Stock for treasury (960,903) (4,655,072) (4,655,072)
Net income 2,066,667
-----------------------------------------------
Balance at May 2, 1999 (1,299,355) $(7,142,110) $ 24,655,944
===============================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 38
Novametrix Medical Systems Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
MAY 2, 1999 MAY 3, 1998 APRIL 27, 1997
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Deferred income tax expense (benefit) 686,700 954,000 (4,030,000)
Depreciation 882,410 635,426 487,952
Amortization 501,500 524,092 526,594
Changes in operating assets and liabilities:
Accounts and notes receivable (3,781,558) (1,384,299) (2,393,987)
Inventories (1,750,741) (1,038,119) (1,159,335)
Prepaid expenses and other current assets (217,730) (384,660) (181,377)
Accounts payable 501,691 (174,908) 814,652
Accrued expenses 882,683 (338,268) 806,719
--------------------------------------------------
Net cash (used) provided by operating activities (228,378) 1,696,862 (205,223)
INVESTING ACTIVITIES
Purchases of equipment (1,699,674) (944,720) (1,225,492)
Purchases of licenses, technology, patents and other (1,091,135) (304,730) (146,233)
--------------------------------------------------
Net cash used by investing activities (2,790,809) (1,249,450) (1,371,725)
FINANCING ACTIVITIES
Revolving line of credit, net 3,200,000
Proceeds from term loan 3,000,000 1,420,000
Principal payments on term loan and capital lease
obligation (233,901) (3,631,873) (547,065)
Issuance of Common Stock 193,963 4,746,249 687,818
Purchase of Common Stock for treasury (4,655,072)
Dividends on Preferred Stock (15,000) (30,000)
--------------------------------------------------
Net cash provided by financing activities 1,504,990 1,099,376 1,530,753
--------------------------------------------------
(Decrease) increase in cash and cash equivalents (1,514,197) 1,546,788 (46,195)
Cash and cash equivalents at beginning of year 1,783,596 236,808 283,003
--------------------------------------------------
Cash and cash equivalents at end of year $ 269,399 $ 1,783,596 $ 236,808
==================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 39
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements
May 2, 1999
1. ACCOUNTING POLICIES
NATURE OF BUSINESS
Novametrix Medical Systems Inc. develops, manufactures and markets non-invasive
critical care monitors, sensors and accessories which are distributed worldwide
and provide continuous patient monitoring capabilities. The Company's current
product offering and future development plans utilize leading-edge
technologies. The Company markets its products domestically and internationally
directly through salespersons and outside distributors to its customers, most
of which are hospitals. The Company also markets its products to original
equipment manufacturers ("OEM's") which incorporate certain of the Company's
products and technologies into the manufacture of their own products.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Novametrix
Medical Systems Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany accounts and transactions are
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. While management believes that the estimates and
assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from these estimates.
REVENUE RECOGNITION AND PRODUCT WARRANTY COSTS
Revenues from sales are generally recognized when products are shipped. The
Company generally warrants its products against defects for up to one year;
costs related thereto are recognized as incurred and are not material to the
Company's financial statements. The Company provides for the estimated costs to
repair products under multi-year agreements at the time of sale.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. These investments are valued at
cost, which approximates fair value.
F-8
<PAGE> 40
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAPS
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate debt. These agreements involve
the exchange of amounts based on the London Interbank Offered Rate ("LIBOR")
for amounts based on a fixed interest rate over the life of the agreement,
without an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is accrued and
recognized as an adjustment to interest expense. The related amount payable or
receivable from counter parties is included in accrued expenses. The fair value
of these agreements is not recognized in the financial statements.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, notes receivable and trade
receivables. The Company places its cash equivalents with high credit-quality
financial institutions and has established guidelines that seek to maintain
safety and liquidity. The Company's customer base consists of a large number of
diverse customers. The Company performs ongoing credit evaluations of its
customers and does not require collateral. The Company provides for potential
credit losses; such losses have not been significant and have been within
management's expectations.
LONG-LIVED ASSETS
Equipment, including assets purchased under a capital lease obligation of
$175,480 at May 2, 1999 and May 3, 1998, are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization is computed over
the estimated useful lives of the assets using the straight-line method.
Capital lease amortization is included in depreciation expense.
F-9
<PAGE> 41
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
License, technology, patent and other costs are stated at cost, less
accumulated amortization. Amortization is computed by the straight-line method
over periods ranging from 3 to 17 years.
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If such impairment indicators are present, the Company recognizes
a loss on the basis of whether these amounts are fully recoverable from
projected discounted cash flows of the related asset or product.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred and are included in
selling, general and administrative expenses. Advertising costs were $603,670
in 1999, $494,330 in 1998 and $385,749 in 1997.
DEFERRED INCOME TAXES
Deferred income taxes are provided on temporary differences between the tax and
financial reporting bases of assets and liabilities based on enacted tax rates
applicable to the periods in which the differences are expected to reverse.
EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) savings plan which covers all
employees who meet the eligibility requirements, as defined. Participants may
contribute a percentage of their compensation, as defined by the plan
agreement. Matching contributions to the plan are determined annually by the
Company and are equal to a stated percentage of the amount contributed by the
participants. The expense related thereto was not material for fiscal years
1999, 1998 and 1997.
The Company maintains an Employee Stock Ownership Plan ("ESOP") under which all
shares have previously been allocated to participants. The 116,954 shares held
by the ESOP in participant accounts are treated as outstanding for the purpose
of computing earnings per share. Expenses pertaining to the ESOP were not
material for fiscal years 1999, 1998 and 1997.
F-10
<PAGE> 42
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share."
STOCK-BASED COMPENSATION
The Company accounts for its employee stock compensation plans in accordance
with Accounting Principle Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees." Under APB No. 25, compensation cost is the excess, if
any, of the quoted market price of the stock at the grant date over the amount
the employee must pay to acquire the stock. As required by SFAS No. 123,
"Accounting for Stock-Based Compensation," pro forma disclosures of net
earnings and earnings per share, as if the fair value based method of
accounting had been applied, are presented in Note 5.
NON-RECURRING EXPENSES
During fiscal 1997, the Company's stockholders voted against a proposed merger
with Andros Holdings Inc. As a result, $2,149,910 of merger and proxy related
contest costs were expensed.
2. NOTES RECEIVABLE
During fiscal 1999, the Company sold products in exchange for long-term
non-interest bearing notes receivable, generally payable over a period of eight
years. The Company has imputed interest on these notes based upon its estimated
incremental borrowing rate. In addition, the Company has notes receivable from
various officers and directors. These notes bear interest at the Applicable
Federal Rate, as defined (4.84% at May 2, 1999), and provide for quarterly
interest payments until the third anniversary of the note at which time the
principal is due. Notes receivable at May 2, 1999 consist of:
<TABLE>
<CAPTION>
<S> <C>
Notes exchanged for product sales ($1,792,815 face amount,
less unamortized discount of $318,679) $ 1,474,136
Officer and director notes receivable 272,100
Other 134,885
--------------
1,881,121
Less current portion 380,003
--------------
$ 1,501,118
==============
</TABLE>
F-11
<PAGE> 43
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. DEBT AND CAPITAL LEASE OBLIGATION
Debt and capital lease obligation consist of:
<TABLE>
<CAPTION>
MAY 2, 1999 MAY 3, 1998
----------------------------
<S> <C> <C>
Note payable to bank under revolving credit agreement $ 3,200,000 $ -
Term loan payable to bank 2,800,000 -
Capital lease obligation 90,881 124,782
----------------------------
6,090,881 124,782
Less current portion 3,836,810 33,901
----------------------------
$ 2,254,071 $ 90,881
============================
</TABLE>
The Company's revolving credit agreement, as amended December 11, 1998, limits
borrowing to a maximum of $5,000,000. The agreement expires August 31, 2000 and
bears interest at LIBOR plus 0.98% (5.88% at May 2, 1999). The Company pays an
availability fee, as defined, equal to 0.125% of the unused available principal
under the revolving credit agreement.
The Company's term loan payable to bank is due in monthly installments of
$50,000, plus interest at LIBOR plus 1.4% (6.30% at May 2, 1999) through
November 30, 2003.
During fiscal 1999 and pursuant to the term loan agreement, the Company entered
into an interest rate swap transaction agreement to hedge a notional amount
equal to the remaining principal balance on the term loan. The rate is fixed at
6.77% and the agreement expires November 2003. The Company believes the
interest rate swap transaction agreement limits the substantial risk should
interest rates rise. The interest rate swap agreement had no material effect on
interest expense in fiscal 1999.
Under the terms of the term loan and revolving credit agreement (the
"Facilities"), the Company is required to maintain certain financial ratios and
minimum levels of working capital and net worth. Borrowings under the
Facilities are secured by the Company's business assets.
The capital lease obligation is at a fixed interest rate of 8.87% and is
collateralized by the leased property.
F-12
<PAGE> 44
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
3. DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
Aggregate annual maturities of debt and the capital lease obligation as of
May 2, 1999 follow:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASE TOTAL
---------------------------------------
<S> <C> <C> <C>
2000 $ 3,800,000 $ 42,994 $ 3,842,994
2001 600,000 42,994 642,994
2002 600,000 14,331 614,331
2003 600,000 600,000
2004 400,000 400,000
-----------------------------------------
Total 6,000,000 100,319 6,100,319
Less amount representing interest on
capital lease 9,438 9,438
-----------------------------------------
$ 6,000,000 $ 90,881 $ 6,090,881
=========================================
</TABLE>
The Company paid interest under its bank debt agreements and capital lease
obligation of $172,768 in 1999, $135,921 in 1998 and $248,734 in 1997.
The carrying amounts of the financing arrangements approximate their fair
values.
4. CAPITAL STOCK
The Company has authorized 1,000,000 shares of $1.00 par value Preferred Stock
of which 50,000 shares are designated as Series A (none issued) and 120,000
shares are designated as Series B. The Series B shares have been fully issued
and converted to Common Stock. The Board of Directors of the Company is
authorized to establish, among other things, the rate of dividends payable,
redemption rights and voting rights prior to issuance.
At May 2, 1999 there are 7,933,304 preferred share purchase rights outstanding.
Each right entitles the registered holder to purchase one one-hundredth of a
share of Preferred Stock, Series A, for $25.00 upon the occurrence of certain
specified "takeover" events. The rights are redeemable and exchangeable only in
certain specified circumstances. As of May 2, 1999, no takeover events had
occurred and no rights were exercisable.
During fiscal 1999, the Company purchased 960,903 shares of its Common Stock
for $4,655,072 under its stock repurchase programs. At May 2, 1999, there are
231,895 remaining shares authorized for repurchase.
F-13
<PAGE> 45
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS
On October 14, 1997, the Company's shareholders approved the Novametrix Medical
Systems Inc. 1997 Long Term Incentive Plan (the "Incentive Plan") which
provides for the granting of nonqualified or incentive stock options,
restricted stock awards, stock appreciation rights and performance awards to
any employee, director or consultant. The Company reserved 500,000 shares of
its Common Stock for issuance under the Incentive Plan. The Company also has a
limited number of remaining issuable stock options from stock option plans
authorized during previous years.
Activity relating to the Company's stock option plans follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 709,953 $5.94 457,618 $4.23 413,734 $3.59
Granted 65,000 5.03 278,000 8.50 115,000 5.72
Exercised (9,000) 2.83 (20,665) 2.93 (57,782) 2.43
Cancelled (7,500) 5.44 (5,000) 4.38 (13,334) 5.00
====================================================================
Outstanding at
end of year 758,453 $5.07 709,953 $5.94 457,618 $4.23
====================================================================
Options exercisable
at end of year 476,453 $5.01 343,619 $3.95 245,951 $3.44
====================================================================
</TABLE>
Options outstanding as of May 2, 1999 had exercise prices as follows: 362,953
options ranging from $1.00 to $5.00 and 395,500 options ranging from $5.50 to
$6.31. The weighted average remaining contractual life of these options is 6.8
years.
During fiscal 1999, the Company repriced 250,000 options with an exercise price
of $9.125 and 50,000 options with an exercise price of $7.625 to $6.3125, the
fair value of the Company's Common Stock on the date of repricing.
At May 2, 1999, options for 194,501 shares have been authorized but not yet
granted under the Company's stock option plans.
F-14
<PAGE> 46
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
The Company has an employee stock purchase plan expiring on December 31, 2002
for which 150,000 shares of Common Stock have been reserved. As of May 2, 1999,
97,569 shares of Common Stock had been issued under this plan.
The Company has redeemable Class B Warrants outstanding covering an aggregate
of 566,785 shares. The warrants, each exercisable into one share of Common
Stock at an exercise price of $5.85, are scheduled to expire on December 8,
1999. They are callable by the Company under certain circumstances and traded
on The NASDAQ Stock Market(R) under the symbol NMTXZ. The Company's outstanding
warrants also include warrants previously granted to directors, its general
counsel and consultants to purchase shares of the Company's Common Stock. Data
relating to warrants outstanding at May 2, 1999 follows:
<TABLE>
<CAPTION>
FISCAL YEAR WARRANTS RANGE OF NUMBER OF SHARES COVERED
GRANTED EXERCISE PRICES BY OUTSTANDING WARRANTS
---------------------------------------------------------------------------------------
<S> <C> <C>
1990 $.89 to $1.81 162,814
1992 $.93 1,776
1993 $2.625 10,000
1995 $4.125 to $5.85 639,964
---------------------------
814,554
===========================
</TABLE>
The warrants were granted at prices which equaled or exceeded the market price
of the Company's Common Stock at the date of grant. The warrants expire at
various dates from December 1999 through June 2004, and are all currently
exercisable. During fiscal 1999, an aggregate of 32,763 warrants were exercised
at prices ranging from $.89 to $4.60 per share and 47,000 warrants were
cancelled.
At May 2, 1999, there were 1,819,939 shares of Common Stock reserved for the
issuance and exercise of options and warrants, and purchases through the
Company's employee stock purchase plan.
F-15
<PAGE> 47
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)
If compensation costs for the Company's stock-based compensation plans had been
determined based on the fair value at the grant dates for 1999, 1998 and 1997
consistent with the method prescribed by SFAS No. 123, the Company's net income
and earnings per common share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Pro forma net income:
Basic $1,576,060 $2,546,338 $4,798,364
Diluted 1,576,000 2,561,338 4,828,364
Pro forma earnings per share:
Basic $.19 $.31 $.69
Diluted .18 .27 .58
</TABLE>
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on the stock option grants and employee stock
purchases subsequent to April 30, 1995. Therefore, the pro forma amounts may
not be indicative of the effects of compensation cost on net income and
earnings per share in future years. Pro forma compensation cost relating to the
stock options is recognized over the 36 month vesting period. The fair value of
each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for grants in fiscal 1999, 1998 and 1997: dividend yield of 0%;
expected volatility of .892% in 1999, .524% in 1998 and .294% for 1997; risk
free interest rate of 6% in 1999 and 5% in 1998 and 1997; and expected life of
ten years. The weighted average fair value of stock options granted in fiscal
1999, 1998 and 1997 was $4.45, $5.84 and $2.84, respectively.
F-16
<PAGE> 48
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
6. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Net income $ 2,066,667 $ 2,903,598 $ 4,923,559
Preferred stock dividends (15,000) (30,000)
------------------------------------------
Numerator for basic earnings per share 2,066,667 2,888,598 4,893,559
Effect of dilutive securities:
Preferred Stock dividends 15,000 30,000
------------------------------------------
Numerator for diluted earnings per share $ 2,066,667 $ 2,903,598 $ 4,923,559
==========================================
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,299,707 8,147,451 6,993,161
Effect of dilutive securities:
Employee stock options and warrants 296,455 1,045,661 852,589
Convertible Preferred Stock 180,892 444,444
------------------------------------------
Dilutive potential common shares 296,455 1,226,553 1,297,033
------------------------------------------
Denominator for diluted earnings per share 8,596,162 9,374,004 8,290,194
==========================================
Basic earnings per share $ .25 $ .35 $ .70
==========================================
Diluted earnings per share $ .24 $ .31 $ .59
==========================================
</TABLE>
Certain options and warrants to purchase 919,285, 250,000 and 680,000 shares of
the Company's Common Stock outstanding in 1999, 1998 and 1997, respectively,
were not included in the computation of diluted earnings per share because
their exercise price was greater than the average market price of the common
shares and, therefore, their inclusion would have been antidilutive.
7. CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.
F-17
<PAGE> 49
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
8. OPERATING LEASES
The Company has a noncancellable long-term operating lease for its main plant
and office facility which expires in 2008. The lease requires the Company to
pay for related property taxes and insurance, contains a renewal option for
five years, a purchase option upon commencement of the sixth year of the lease
and stipulates a general inflation escalation clause. In addition, the Company
leases certain equipment under various noncancellable long-term operating
leases. Future minimum annual lease payments for these long-term operating
leases for the next five years and thereafter are:
<TABLE>
<S> <C>
2000 $ 646,797
2001 575,699
2002 497,928
2003 458,848
2004 414,860
Thereafter 1,735,806
--------------
$ 4,329,938
==============
</TABLE>
Total rental expense under operating leases was $687,219 in 1999, $702,438 in
1998 and $554,272 in 1997.
9. INCOME TAXES
The components of the Company's deferred income tax accounts follow:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Deferred income tax assets:
Tax credits $ 1,079,585 $ 971,545 $ 656,900
Net operating loss carryforwards 1,976,314 3,033,564 3,907,427
Inventories - valuation
allowance and other 734,492 646,692 812,122
Other 190,058 163,096 267,621
--------------------------------------------------
Total deferred income tax assets 3,980,449 4,814,897 5,644,070
</TABLE>
F-18
<PAGE> 50
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Valuation allowance for deferred
income tax assets $ (158,780) $ (328,428) $ (506,141)
--------------------------------------------------
3,821,669 4,486,469 5,137,929
Less deferred income tax
liabilities 104,181 102,803 87,929
--------------------------------------------------
Net deferred income tax assets $ 3,717,488 $ 4,383,666 $ 5,050,000
================ ================ ================
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 78,000 $ 89,000 $ 22,000
State 39,000 5,000 8,000
--------------------------------------------------
117,000 94,000 30,000
Deferred tax expense (benefit):
Federal 685,700 930,000 (4,036,000)
State 1,000 24,000 6,000
--------------------------------------------------
686,700 954,000 (4,030,000)
--------------------------------------------------
Income tax provision (benefit) $ 803,700 $ 1,048,000 $ (4,000,000)
==================================================
</TABLE>
F-19
<PAGE> 51
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The provision for income taxes at the Company's tax rate differed from the
provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Computed tax expense at expected
statutory rate $ 975,925 $ 1,343,543 $ 314,000
Benefit of foreign sales corporation (60,629) (113,000)
State taxes, net of federal effect 26,465 19,000 (4,000)
Permanent items--net effect 63,689 63,392 30,000
Utilization of net operating loss
carryforwards (476,000)
Tax credits (32,102) (87,222)
Reduction in valuation allowance (169,648) (177,713) (3,864,000)
-----------------------------------------------
$ 803,700 $ 1,048,000 $ (4,000,000)
===============================================
</TABLE>
At May 2, 1999, the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $5,813,000 of which $1,243,000
expires in 2005, $4,195,000 expires in 2006 and $375,000 expires in 2007. The
Company has unused research and other tax credits of approximately $1,080,000
at May 2, 1999 which expire in varying amounts between 2000 and 2014.
During 1999, 1998 and 1997, the Company reduced its valuation allowance due to
the increased likelihood that the Company will generate sufficient taxable
income to fully utilize the net deferred tax asset recorded at the end of each
reporting period.
Income taxes paid in 1999, 1998 and 1997 were not significant.
F-20
<PAGE> 52
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
10. SUBSEQUENT EVENT
On June 30, 1999, the Company acquired 100% of the capital stock of Children's
Medical Ventures, Inc. (ChMV), a privately owned developer and marketer of
neonatal and pediatric care products and services. The purchase price was
comprised of cash of $8.7 million and a warrant to purchase 25,000 shares of
the Company's common stock at an exercise price of $4.3625 per share. The
purchase price was financed with two term loans aggregating $9.6 million. The
acquisition will be accounted for as a purchase; accordingly, the purchase
price will be allocated to the underlying assets and liabilities based on their
respective estimated fair values at the date of acquisition.
Concurrent with the acquisition, the Company amended and restated its bank
Facilities (See Note 3). Under the amended and restated agreement with its
primary lender, the Company borrowed an additional $4.8 million in the form of
a term loan, increased the amount of credit available under the revolving
credit agreement from $5 million to $6 million and extended the maturity date
to August 2001. In addition, the Company entered into a new term loan agreement
with another bank for $4.8 million which expires July 1, 2004. Pursuant to the
terms of the amended and restated bank Facilities and the new term loan
agreement, the Company is required, among other things, to maintain certain
financial ratios and maintain minimum levels of working capital and net worth,
and is restricted from the payment of dividends.
11. RECENT ACCOUNTING PRONOUNCEMENT
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-up Activities." The SOP, which is effective for the Company
beginning May 3, 1999, requires start-up costs capitalized prior thereto to be
written-off and any future start-up costs to be expensed as incurred. The
unamortized balance of start-up costs (approximately $329,000 as of May 2,
1999) will be written-off as a cumulative effect of an accounting change as of
May 3, 1999. The Company estimates the impact of adopting this SOP will result
in a reduction of fiscal 2000 earnings of approximately $224,000.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
establishes the accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires recognition of all derivatives as either assets
or liabilities measured at their fair value. Depending on the intended use of
the derivative, changes in fair value will be reported in the period of change
as either a component of earnings or a component of other comprehensive income.
The Company has not quantified the impact of adoption on its financial
statements. The Statement is effective for the Company's 2002 fiscal year.
F-21
<PAGE> 53
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
12. REPORTABLE SEGMENTS
The Company is domiciled in the United States and operates in one industry
segment--the design, manufacture and marketing of non-invasive monitors,
sensors and accessories. The Company's products are marketed domestically and
internationally with no one customer accounting for more than 10% of net sales.
The Company has earned revenue from sales to customers in the following
geographic locations:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
United States $ 20,608,666 $ 18,565,126 $ 16,809,870
Europe 4,484,675 5,075,086 3,299,928
Asia 3,234,864 2,892,071 3,682,431
Western Hemisphere (other than U.S.) 3,437,907 3,496,434 3,386,274
Other 1,098,561 1,532,427 1,075,247
----------------------------------------------
$ 32,864,673 $ 31,561,144 $ 28,253,750
==============================================
</TABLE>
F-22
<PAGE> 54
Novametrix Medical Systems Inc.
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY DATA (UNAUDITED)
On July 1, 1999, the Company announced that it had restated its condensed
consolidated financial statements for each of the unaudited first three
quarterly periods ended January 31, 1999. The restatements reflected
adjustments as a result of modifications to the accounting treatment for sales
financing arrangements which the Company entered into with customers during the
first three quarters of fiscal 1999, and the reversal of certain dealer sales
where products were ultimately returned to the Company due to cancellation of
dealer orders by end users.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH
-----------------------------------------------------------------------
AS REPORTED RESTATED AS REPORTED RESTATED AS REPORTED RESTATED QUARTER
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues $7,672,209 $7,027,885 $8,407,763 $8,134,062 $8,606,113 $8,087,894 $9,728,323
Gross profit 4,982,081 4,280,011 4,888,680 4,817,398 4,905,109 4,449,756 5,862,163
Research and
development
expenses 912,146 912,146 1,066,771 1,066,771 1,058,077 1,058,077 920,766
Selling, general and
administrative
expenses 2,932,206 2,796,390 2,757,544 2,751,801 3,270,606 3,243,319 3,529,183
Income tax provision 239,000 155,600 289,000 270,500 131,000 11,200 366,400
Net income 612,939 400,085 742,611 695,572 336,964 28,698 942,312
Diluted earnings
per share $0.07 $0.04 $0.09 $0.08 $0.04 $0.00 $0.12
1998
Revenues $7,366,461 $7,505,960 $7,378,240 $9,356,244
Gross profit 4,252,009 4,227,530 4,070,839 5,679,321
Research and
development
expenses 860,157 851,156 884,429 926,945
Selling, general and
administrative
expenses 2,538,974 2,495,182 2,433,411 3,130,054
Income tax provision 236,000 211,000 208,000 393,000
Net income 523,858 626,788 534,995 1,217,957
Diluted earnings
per share $0.06 $0.07 $0.06 $0.13
</TABLE>
F-23
<PAGE> 55
Novametrix Medical Systems Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
May 2, 1999
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended May 2, 1999:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 12,000 $ 12,000 $ 250,000
================================= =================================
Year ended May 3, 1998:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 29,000 $29,000 (1) $ 250,000
================================= =================================
Year ended April 27, 1997:
Allowance for doubtful accounts deducted
from accounts receivable $ 250,000 $ 29,000 $29,000 (1) $ 250,000
================================= =================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 56
Index to Exhibits*
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3(a) Certificate of Incorporation of the Company, as amended (incorporated by --
reference to Exhibit 3(a) and 3(e) to the Company's Registration Statement on
Form SB-2 dated June 8, 1994).
3(b) Certificate of Designation of Series A Preferred Stock of the Company filed with --
the Secretary of State of the State of Delaware on March 17, 1989 (incorporated
by reference to Exhibit 3(b) to the Company's Registration Statement on Form SB-2
dated June 8, 1994).
3(c) Certificate of Designation of Series B Preferred Stock of the Company filed with --
the Secretary of State of the State of Delaware on August 29, 1991 (incorporated
by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated
August 29, 1992).
3(e) Amendment to By-Laws of the Company effective September 30, 1997 (incorporated by --
reference to Exhibit 3(e) of the Company's Form 10-QSB for the quarter ended
November 2, 1997).
3(d) By-Laws of the Company, as amended to date (incorporated by reference to Exhibit --
3(d) of the Company's Form 10-KSB for the year ended April 28, 1996).
10(a) Employment Agreement dated as of June 1, 1988 between the Company and William J. --
Lacourciere, as amended (incorporated by reference to Exhibit 10(a) to the
Company's Registration Statement on Form SB-2 dated June 8, 1994).
10(b) Amendment dated as of August 1, 1988 to the Employment Agreement between the --
Company and William J. Lacourciere (incorporated by reference to Exhibit 10(b) to
the Company's Registration Statement on Form SB-2 dated June 8, 1994).
10(c) Warrant Certificate of the Company, the warrants evidenced thereby exercisable --
commencing on December 29, 1989, together with Schedule of substantially
identical warrants (incorporated by reference to Exhibit 10(c) to the Company's
Form 10-KSB for the year ended April 28, 1996).
10(d) Warrant Certificate of the Company, the warrants evidenced thereby exercisable --
commencing on May 23, 1990 (incorporated by reference to Exhibit 10(d) to the
Company's Form 10-KSB for the year ended April 28, 1996).
</TABLE>
- --------
* Copies of exhibits filed with this Annual Report on Form 10-K or
incorporated by reference herein do not accompany copies hereof for distribution
to stockholders of the Company. The Company will furnish a copy of any of such
exhibits to any stockholder requesting the same for a nominal charge to cover
duplicating costs.
E-1
<PAGE> 57
Index to Exhibits
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(e) Warrant Certificate of the Company, the warrants evidenced thereby exercisable --
commencing on September 15, 1988, together with Schedule of substantially
identical warrants (incorporated by reference to Exhibit 10(e) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994).
10(f) First Amendment to Warrant Certificate of the Company dated as of September 19, --
1989, together with Schedule of substantially identical amendments (incorporated
by reference to Exhibit 10(f) to the Company's Form 10-KSB for the year ended
April 28, 1996).
10(g) Warrant Certificate of the Company, the warrants evidenced thereby exercisable --
commencing on May 1, 1989, together with Schedule of substantially identical
warrants (incorporated by reference to Exhibit 10(g) to the Company's
Registration Statement on Form SB-2 dated June 8, 1994).
10(h) First Amendment to Warrant Certificate of the Company dated as of September 19, --
1989, together with Schedule of substantially identical amendments (incorporated
by reference to Exhibit 10(h) to the Company's Form 10-KSB for the year ended
April 28, 1996).
10(i) Warrant Certificate of the Company, the warrants evidenced thereby exercisable --
commencing on January 2, 1991 (incorporated by reference to Exhibit 10(dd) to the
Company's Registration Statement on Form S-1 dated December 30, 1991).
10(j) Form of Warrant Certificate of the Company, the warrants evidenced thereby --
exercisable commencing on December 2, 1991 (incorporated by reference to Exhibit
10(ee) to the Company's Registration Statement on Form S-1 dated December 30,
1991).
10(k) Rights Agreement dated as of March 14, 1989 between the Company and The --
Connecticut Bank and Trust Company, N.A., as Rights Agent ("CBT"), which includes
the form of Certificate of Designation setting forth the terms of the Series A
Preferred Stock, $1.00 par value, as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C
(incorporated by reference to Exhibit 10(l) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
10(l) Amendment to Rights Agreement dated as of October 30, 1990 among the Company, CBT --
and Mellon Bank, N.A. (incorporated by reference to Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the year ended April 28, 1991).
</TABLE>
E-2
<PAGE> 58
Index to Exhibits
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(m) Amendment to Rights Agreement dated as of August 29, 1991 between the Company and --
Mellon Bank, N.A. (incorporated by reference to Exhibit 10(p) to the Company's
Registration Statement on Form S-1 dated December 30, 1991).
10(p) Securities Purchase Agreement dated as of August 29, 1991 among the Company, --
William W. Nicholson, Auric Partners Limited, a Michigan limited partnership, and
Union Trust Company (incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated August 29, 1991).
10(q) Third Amended and Restated Loan and Security Agreement dated as of August 29, --
1991 among the Company, NTC Technology Inc., a Delaware corporation ("NTC"), and
Union Trust Company (incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K dated August 29, 1991).
10(r) First Amendment to Third Amended and Restated Loan and Security Agreement dated --
as of April 29, 1993 among the Company, NTC and Union Trust Company (incorporated
by reference to Exhibit 5(a) to the Company's Current Report on Form 8-K dated
April 28, 1993).
10(s) 1979 Stock Option Plan, as amended (incorporated by reference to Exhibit 10(ee) --
to the Company's Annual Report on Form 10-K for the year ended May 2, 1993).
10(t) 1990 Stock Option Plan (incorporated by reference to Exhibit 10(ff) to the --
Company's Annual Report on Form 10-K for the year ended May 2, 1993).
10(u) 1992 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10(gg) to --
the Company's Annual Report on Form 10-K for the year ended May 2, 1993)
(incorporated by reference to Exhibit 10(y) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
10(v) Form of Letter Agreement between the Company and Keane Securities Co., Inc. --
("Keane") pursuant to which Keane will act as finder for the Company
(incorporated by reference to Exhibit 10(z) to the Company's Registration
Statement on Form SB-2 dated June 8, 1994).
</TABLE>
E-3
<PAGE> 59
Index to Exhibits
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(w) Fourth Amended and Restated Loan and Security Agreement dated as of June 16, 1994 --
among the Company, NTC and Union Trust Company (incorporated by reference to
Exhibit 10A to the Company's Quarterly Report on Form 10-QSB for the three month
period ended July 31, 1994).
10(x) Amendment to Securities Purchase Agreement dated as of June 16, 1994 among the --
Company, William W. Nicholson, Auric Partners Limited and Union Trust Company
(incorporated by reference to Exhibit 10B to the Company's Quarterly Report on
Form 10-QSB for the three month period ended July 31, 1994).
10(y) 1994 Stock Option Plan (incorporated by reference to Exhibit 4(i) to the --
Company's Registration Statement on Form S-8, dated August 3, 1994).
10(z) Form of Representative Warrant Agreement, certificate included (incorporated by --
reference to Exhibit 4(a) to the Company's Registration Statement on Form SB-2
dated June 8, 1994).
10(aa) Form of Warrant Agreement, certificate included (incorporated by reference to --
Exhibit 4(b) to the Company's Registration Statement on Form SB-2 dated June 8,
1994).
10(bb) Amendment No. 1 to Fourth Amended and Restated Loan and Security Agreement dated --
as of July 26, 1995 among the Company, NTC and First Fidelity Bank, formerly
Union Trust Company (incorporated by reference to Exhibit 10(ff) to the Company's
Annual Report on Form 10-KSB for the year ended April 30, 1995).
10(cc) Amendment No. 3 to Rights Agreement dated as of November 28, 1995 between the --
Company and Mellon Bank, N.A. (incorporated by reference to Exhibit 10(cc) to the
Company's Form 10-KSB for the year ended April 28, 1996).
10(dd) Lease dated January 4, 1996 between Nova Associates, L.L.C. and the Company --
(incorporated by reference to Exhibit 10(dd) to the Company's Form 10-KSB for the
year ended April 28, 1996).
10(ee) Amendment No. 2 to Fourth Amended and Restated Loan and Security Agreement dated --
as of October 25, 1996 among the Company, NTC and First Union Bank of
Connecticut, formerly First Fidelity Bank (incorporated by reference to Exhibit
10(ee) to the Company's Form 10-KSB for the year ended April 27, 1997).
</TABLE>
E-4
<PAGE> 60
Index to Exhibits
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(ff) Amendment No. 3 to Fourth Amended and Restated Loan and Security Agreement dated --
as of April 25, 1997 among the Company, NTC and First Union Bank of Connecticut
(incorporated by reference to Exhibit 10(ff) to the Company's Form 10-KSB for the
year ended April 27, 1997).
10(gg) Restricted Stock Agreement between the Company and Joseph A. Vincent --
(incorporated by reference to Exhibit 10(gg) to the Company's Form 10-KSB for the
year ended April 27, 1997).
10(hh) Stockholders Agreement between the Company and the Charles F. Manning, Jr., M.D., --
Group dated as of September 30, 1997 (incorporated by reference to Exhibit 10(hh)
of the Company's Form 10-QSB for the quarter ended November 2, 1997).
10(ii) Amendment dated as of November 24, 1997 to Employment Agreement dated as of June --
1, 1988 between the Company and William J. Lacourciere (incorporated by reference
to Exhibit 10(ii) of the Company's Form 10-Q for the quarter ended February 1,
1998).
10(jj) Amendment No. 4 to Fourth Amended and Restated Loan and Security Agreement dated --
as of January 1, 1998 among the Company, NTC and First Union Bank of Connecticut
(incorporated by reference to Exhibit 10(jj) of the Company's Form 10-K for the
year ended May 3, 1998).
10(kk) 1997 Long Term Incentive Plan (incorporated by reference to Exhibit A of the --
Company's Proxy Statement for the Annual Meeting held October 14, 1997).
10(ll) Form of Promissory Note under the Novametrix Medical Systems Inc. Director and --
Senior Officer Stock Retention Program (incorporated by reference to Exhibit
10(ll) of the Company's Form 10-Q/A for the quarter ended January 2, 1999).
10(mm) Stock Purchase Agreement dated as of June 30, 1999 by and among the Company, --
Children's Medical Ventures, Inc. ("ChMV") and the Stockholders of ChMV
(incorporated by reference to Exhibit 10(mm) of the Company's Current Report of
Form 8-K dated July 15, 1999).
10(nn) 1998 Loan Agreement dated as of August 1, 1998 among the Company, NTC and First E-7
Union National Bank.
10(oo) Amended and Restated 1998 Loan Agreement dated as of October 9, 1998 among the E-18
Company, NTC and First Union National Bank.
</TABLE>
E-5
<PAGE> 61
Index to Exhibits
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10(pp) Second Amended and Restated 1998 Loan Agreement dated as of December 11, 1998 E-31
among the Company, NTC and First Union National Bank.
10(qq) 1999 Amended and Restated Loan Agreement dated as of June 30, 1999 among the E-44
Company, NTC, ChMV and First Union National Bank.
10(rr) Loan Agreement dated as of June 30, 1999 among the Company, NTC, ChMV and Webster E-60
Bank.
21 Subsidiaries of the Company. E-74
23.1 Consent of Ernst & Young LLP, Independent Auditors. E-75
24 Power of Attorney (See "Power of Attorney" in Form 10-K). --
27 Financial Data Schedule. E-76
</TABLE>
E-6
<PAGE> 1
EXHIBIT 10(nn)
1998 LOAN AGREEMENT
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Novametrix Medical Systems Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
NTC Technology, Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
(Individually and collectively "Borrower")
This 1998 Loan Agreement ("Agreement") is entered into as of August 1, 1998, by
and between Bank and Borrower, a Corporation organized under the laws of
Delaware.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
LINE OF CREDIT - in the principal amount of $3,500,000.00 (the "Principal
Amount") which is evidenced by the 1998 Promissory Note dated as of even date
herewith ("Line of Credit Note"), under which Borrower may borrow, repay, and
reborrow, from time to time, so long as the total indebtedness outstanding at
any one time does not exceed the Principal Amount minus the sum of (i) the
amount available to be drawn plus (ii) the amount of unreimbursed drawings under
all letters of credit issued by Bank for the account of Borrower plus (iii) the
aggregate outstanding amount arising out of foreign exchange services provided
to the Borrower by the Bank as reasonably established by the Bank. The Loan
proceeds are to be used by Borrower solely for working capital. Bank's
obligation to advance or readvance under the Line of Credit Note shall terminate
if Borrower is in Default under the Line of Credit Note.
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<PAGE> 2
SUBLIMITS. (i) Standby Letters of Credit. The Bank shall issue standby letters
of credit for the account of the Borrower ("New Standby L/Cs") only when,
combined with any standby or commercial letters of credit outstanding and issued
by the Bank for the account of the Borrower ("Outstanding L/Cs"), the aggregate
available undrawn amount and the drawn but unreimbursed amount of the New
Standby L/Cs and Outstanding L/Cs will not exceed $200,000. The Bank shall not
issue Commercial L/Cs pursuant to this Agreement or the Line of Credit Note.
Subject to the foregoing limitations, the Bank shall issue New Standby L/Cs only
after the Borrower has executed such documentation and paid such fees as the
Bank may require. (ii) Foreign Exchange. The Borrower may utilize foreign
currency exchange services provided by the Bank up to a maximum credit exposure
of $150,000 in the aggregate to be outstanding at any time, provided, however,
that forward contracts shall be limited to $125,000 and the maximum daily
settlement limit shall be $25,000.
This Agreement amends, restates and replaces in its entirety that certain Fourth
Amended and Restated Loan Agreement dated June 16, 1994, as amended and modified
from time to time.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations" as used in this Agreement, are defined in the Note.
The term "Borrower" shall include its Subsidiaries and Affiliates. As used in
this Agreement as to Borrower, "Subsidiary" shall mean any corporation of which
more than 50% of the issued and outstanding voting stock is owned directly or
indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
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<PAGE> 3
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. ASSET OWNERSHIP. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. DISCHARGE OF LIENS AND TAXES. Borrower
has duly filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items are
E-9
<PAGE> 4
being appropriately contested in good faith and an adequate reserve for the
payment thereof is being maintained. SUFFICIENCY OF CAPITAL. Borrower is not,
and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Loan,
will not be, insolvent within the meaning of 11 U.S.C. Section 101(32).
COMPLIANCE WITH LAWS. Borrower is in compliance in all respects with all
federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. Section 3617,
et seq.) or narcotics (including 21 U.S.C.Section 801, et seq.) and/or any
commercial crimes; all applicable federal, state and local laws and regulations
intended to protect the environment; and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION AND AUTHORITY.
Each Borrower is duly created, validly existing and in good standing under the
laws of the state of its organization, and has all powers, governmental
licenses, authorizations, consents and approvals required to operate its
business as now conducted. Each Borrower is duly qualified, licensed and in good
standing in each jurisdiction where qualification or licensing is required by
the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations, properties or prospects of
Borrower or any such guarantor. NO LITIGATION. There are no pending or
threatened suits, claims or demands against Borrower or any guarantor that have
not been disclosed to Bank by Borrower in writing. REGULATION U. None of the
proceeds of the Loan made pursuant to this Agreement shall be used directly or
indirectly for the purpose of purchasing or carrying any margin stock in
violation of any of the provisions of Regulation U of the Board of Governors of
the Federal Reserve System ("Regulation U"), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might render the Loan a "Purpose
Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit
plan, as defined in ERISA, maintained by Borrower meets, as of the date
E-10
<PAGE> 5
hereof, the minimum funding standards of ERISA and all applicable regulations
thereto and requirements thereof, and of the Internal Revenue Code of 1954, as
amended. No "Prohibited Transaction" or "Reportable Event" (as both terms are
defined by ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. INSURANCE. Maintain adequate insurance coverage with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER NOTICES.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing
of (i) any material adverse change in its financial condition or its business;
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by
E-11
<PAGE> 6
Borrower; (iii) any material adverse claim against or affecting Borrower or any
part of its properties; (iv) the commencement of, and any material determination
in, any litigation with any third party or any proceeding before any
governmental agency or unit affecting Borrower; and (v) at least 30 days prior
thereto, any change in Borrower's name or address as shown above, and/or any
change in Borrower's structure. COMPLIANCE WITH OTHER AGREEMENTS. Comply with
all terms and conditions contained in this Agreement, and any other Loan
Documents, and swap agreements, if applicable, as defined in the Note. PAYMENT
OF DEBTS. Pay and discharge when due, and before subject to penalty or further
charge, and otherwise satisfy before maturity or delinquency, all obligations,
debts, taxes, and liabilities of whatever nature or amount, except those which
Borrower in good faith disputes. REPORTS AND PROXIES. Deliver to Bank, promptly,
a copy of all financial statements, reports, notices, and proxy statements, sent
by Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority. OTHER FINANCIAL
INFORMATION. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request. NON-DEFAULT CERTIFICATE FROM BORROWER. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower, if
Borrower is an individual, or by a principal financial officer of Borrower
warranting that no "Default" as specified in the Loan Documents nor any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred. ESTOPPEL CERTIFICATE. Furnish, within 15 days after
request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $25,000.00. JUDGMENT
ENTERED. Permit the entry of any monetary
E-12
<PAGE> 7
judgment or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Borrower in an amount in excess of $25,000.00 and that is not
discharged or execution is not stayed within Thirty (30) days of entry.
GOVERNMENT INTERVENTION. Permit the assertion or making of any seizure, vesting
or intervention by or under authority of any government by which the management
of Borrower or any guarantor is displaced of its authority in the conduct of its
respective business or such business is curtailed or materially impaired.
PREPAYMENT OF OTHER DEBT. Retire any long-term debt entered into prior to the
date of this Agreement at a date in advance of its legal obligation to do so.
RETIRE OR REPURCHASE CAPITAL STOCK. Without prior written consent of the Bank,
expend more than $2,500,000 in the aggregate during the term of this Agreement
to retire or otherwise acquire any of its capital stock. CHANGE OF CONTROL.
Borrower shall not make a material change in executive management without prior
written consent of the Bank. CHANGE IN FISCAL YEAR. Borrower or guarantor shall
not change its fiscal year without prior written notice to Bank. GUARANTEES.
Guarantee or otherwise become responsible for obligations of any other person
other than the endorsement of checks and drafts for collection in the ordinary
course of business. ENCUMBRANCES. Create, assume, or permit to exist any
mortgage, security deed, deed of trust, pledge, lien, charge or other
encumbrance on any of its assets, whether now owned or hereafter acquired, other
than: (i) liens for taxes contested in good faith; (ii) liens accruing by law
for employee benefits; or (iii) Permitted Liens.
FINANCIAL COVENANTS. Borrower agrees to the following provisions, all of which
shall be on a consolidated basis, from the date hereof until final payment in
full of the Obligations, unless Bank shall otherwise consent in writing: FIXED
CHARGE COVERAGE RATIO. Borrower shall, at each fiscal year-end, maintain a Fixed
Charge Coverage Ratio of not less than 3.00 to 1.00. "Fixed Charge Coverage"
shall mean the sum of net profit plus taxes, depreciation, amortization, and
interest expense less capital expenditures divided by the sum of interest
expense and current maturities of long term debt and capital lease obligations
from the prior fiscal year. WORKING CAPITAL.
E-13
<PAGE> 8
Borrower shall, at all times, maintain Working Capital of at least $11,000,000.
"Working Capital" shall mean cash, accounts receivable, and inventory minus
current liabilities including borrowings under this Agreement and the Note.
TANGIBLE NET WORTH. Borrower shall, at all times, maintain a Tangible Net Worth
of at least $20,000,000.00. Tangible Net Worth shall increase annually, as of
the last day of each fiscal year of the Borrower, by not less than fifty percent
(50%) of net income plus one hundred percent (100%) of additions to paid in
capital realized in such fiscal year. "Tangible Net Worth" shall mean the total
assets minus total liabilities. For purposes of this computation, the aggregate
amount of any intangible assets of Borrower including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names, copyrights,
service marks, and brand names, shall be subtracted from total assets, and total
liabilities shall include fully subordinated debt. TOTAL LIABILITIES TO TANGIBLE
NET WORTH RATIO. Borrower shall, at all times, maintain a ratio of Total
Liabilities, including fully subordinated debt, divided by Tangible Net Worth of
not more than 1.00 to 1.00. For purposes of this computation, "Total
Liabilities" shall mean all liabilities of Borrower, including capitalized
leases and all reserves for deferred taxes and other deferred sums appearing on
the liabilities side of a balance sheet of Borrower, in accordance with
generally accepted accounting principles applied on a consistent basis. DEPOSIT
RELATIONSHIP. Borrower shall maintain its primary depository account and cash
management account with Bank. LIMITATION ON DEBT. Borrower shall not, directly
or indirectly, create, incur, assume or become liable for, any debt, contingent
or direct, if, giving effect to such additional debt on a pro forma basis,
causes the aggregate amount of Borrower's debt, including obligations to Bank,
to exceed $5,000,000.00.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis
E-14
<PAGE> 9
consistent with that of the preceding year. All such statements shall be
examined by an independent certified public accountant acceptable to Bank. The
opinion of such independent certified public accountant shall not be acceptable
to Bank if qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
45 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. PAYMENT OF COMMITMENT FEE. Borrower
shall have paid to the Bank the commitment fee of $10,000. AVAILABILITY FEE.
Borrower shall pay to Bank quarterly, on the 1st day of each October, January,
April and
E-15
<PAGE> 10
July, an availability fee at a rate equal to 0.125% per annum on the average
daily unused available principal under the Note for the preceding calendar
quarter or portion thereof. OPINION OF COUNSEL. On or prior to the date of any
borrowing hereunder, Bank shall have received a written opinion of the counsel
of Borrower acceptable to Bank that includes confirmation of the following: (a)
The accuracy of the representations set forth in this Agreement in the
Representations Subparagraphs entitled "Authorization; Non-Contravention";
"Compliance with Laws", and "Organization and Authority". (b) This Agreement and
other Loan Documents have been duly executed and delivered by Borrower and
constitute the legal, valid and binding obligations of Borrower, enforceable in
accordance with their terms. (c) No registration with, consent of, approval of,
or other action by, any federal, state or other governmental authority or
regulatory body to the execution and delivery of this Agreement, the borrowing
under this Agreement or other Loan Documents, is required by law, or, if so
required, such registration has been made, and consent or approval given or such
other appropriate action taken. (d) The Loan is not usurious.
JOINT AND SEVERAL OBLIGATIONS. The obligations of the Borrower hereunder and
under the Note shall be joint and several.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:_____________________________
name:
title:
NTC TECHNOLOGY, INC.
By:_____________________________
name:
title:
E-16
<PAGE> 11
FIRST UNION NATIONAL BANK
By:_____________________________
name:
title:
E-17
<PAGE> 1
EXHIBIT 10(oo)
AMENDED AND RESTATED 1998 LOAN AGREEMENT
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Novametrix Medical Systems Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
NTC Technology, Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
(Individually and collectively "Borrower")
This Amended and Restated 1998 Loan Agreement ("Agreement") is entered into as
of October 9, 1998, by and between Bank and Borrower, a Corporation organized
under the laws of Delaware.
RECITALS
Bank is the holder of a 1998 Promissory Note executed and delivered by Borrower,
dated as of August 1, 1998, in the original principal amount of up to
$3,500,000.00, as modified by Allonge No. 1 to 1998 Promissory Note of even date
herewith, the effect of which is to increase the original principal amount to up
to $5,000,000.00 (the 1998 Promissory Note as modified by Allonge No. 1 to the
1998 Promissory Note is hereinafter referred to as the "Note"); and certain
other Loan Documents, including a 1998 Loan Agreement, dated as of August 1,
1998 (the "Original Loan Agreement"); and
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<PAGE> 2
Borrower and Bank have agreed to modify the terms of the Original Loan Agreement
by replacing the original Loan Agreement with this Agreement.
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
Borrower has applied to the Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by the Note as follows:
LINE OF CREDIT - in the principal amount of $5,000,000.00 (the "Principal
Amount") which is evidenced by the 1998 Promissory Note dated as of even date
herewith ("Line of Credit Note"), under which Borrower may borrow, repay, and
reborrow, from time to time, so long as the total indebtedness outstanding at
any one time does not exceed the Principal Amount minus the sum of (i) the
amount available to be drawn plus (ii) the amount of unreimbursed drawings under
all letters of credit issued by Bank for the account of Borrower plus (iii) the
aggregate outstanding amount arising out of foreign exchange services provided
to the Borrower by the Bank as reasonably established by the Bank. The Loan
proceeds are to be used by Borrower solely for working capital. Bank's
obligation to advance or readvance under the Line of Credit Note shall terminate
if Borrower is in Default under the Line of Credit Note.
SUBLIMITS. (i) Standby Letters of Credit. The Bank shall issue standby letters
of credit for the account of the Borrower ("New Standby L/Cs") only when,
combined with any standby or commercial letters of credit outstanding and issued
by the Bank for the account of the Borrower ("Outstanding L/Cs"), the aggregate
available undrawn amount and the drawn but unreimbursed amount of the New
Standby L/Cs and Outstanding L/Cs will not exceed $200,000. The Bank shall not
issue Commercial L/Cs pursuant to this Agreement or the Line of Credit Note.
Subject to the foregoing limitations, the Bank shall issue New Standby L/Cs only
after the Borrower has executed such documentation and paid such fees as the
Bank may require. (ii) Foreign Exchange. The Borrower may utilize foreign
currency exchange services provided by the Bank up to a maximum credit
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<PAGE> 3
exposure of $150,000 in the aggregate to be outstanding at any time, provided,
however, that forward contracts shall be limited to $125,000 and the maximum
daily settlement limit shall be $25,000.
This Agreement amends, restates and replaces in its entirety that certain 1998
Loan Agreement dated as of August 1, 1998.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations" as used in this Agreement, are defined in the Note.
The term "Borrower" shall include its Subsidiaries and Affiliates. As used in
this Agreement as to Borrower, "Subsidiary" shall mean any corporation of which
more than 50% of the issued and outstanding voting stock is owned directly or
indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable
E-20
<PAGE> 4
obligations of Borrower and any guarantors; and do not (i) contravene, or
constitute (with or without the giving of notice or lapse of time or both) a
violation of any provision of applicable law, a violation of the organizational
documents of Borrower or any guarantor, or a default under any agreement,
judgment, injunction, order, decree or other instrument binding upon or
affecting Borrower or any guarantor, (ii) result in the creation or imposition
of any lien (other than the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (iii) give cause for the acceleration of
any obligations of Borrower or any guarantor to any other creditor. ASSET
OWNERSHIP. Borrower has good and marketable title to all of the properties and
assets reflected on the balance sheets and financial statements supplied to Bank
by Borrower, and all such properties and assets are free and clear of mortgages,
security deeds, pledges, liens, charges, and all other encumbrances, except as
otherwise disclosed to Bank by Borrower in writing ("Permitted Liens"). To
Borrower's knowledge, no default has occurred under any Permitted Liens and no
claims or interests adverse to Borrower's present rights in its properties and
assets have arisen. DISCHARGE OF LIENS AND TAXES. Borrower has duly filed, paid
and/or discharged all taxes or other claims which may become a lien on any of
its property or assets, except to the extent that such items are being
appropriately contested in good faith and an adequate reserve for the payment
thereof is being maintained. SUFFICIENCY OF CAPITAL. Borrower is not, and after
consummation of this Agreement and after giving effect to all indebtedness
incurred and liens created by Borrower in connection with the Loan, will not be,
insolvent within the meaning of 11 U.S.C. Section 101(32). COMPLIANCE WITH LAWS.
Borrower is in compliance in all respects with all federal, state and local
laws, rules and regulations applicable to its properties, operations, business,
and finances, including, without limitation, any federal or state laws relating
to liquor (including 18 U.S.C. Section 3617, et seq.) or narcotics (including 21
U.S.C.Section 801, et seq.) and/or any commercial crimes; all applicable
federal, state and local laws and regulations intended to protect the
environment; and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if applicable. ORGANIZATION AND AUTHORITY. Each Borrower is duly
created, validly existing and in good standing
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<PAGE> 5
under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Each Borrower is duly qualified, licensed
and in good standing in each jurisdiction where qualification or licensing is
required by the nature of its business or the character and location of its
property, business or customers, and in which the failure to so qualify or be
licensed, as the case may be, in the aggregate, could have a material adverse
effect on the business, financial position, results of operations, properties or
prospects of Borrower or any such guarantor. NO LITIGATION. There are no pending
or threatened suits, claims or demands against Borrower or any guarantor that
have not been disclosed to Bank by Borrower in writing. REGULATION U. None of
the proceeds of the Loan made pursuant to this Agreement shall be used directly
or indirectly for the purpose of purchasing or carrying any margin stock in
violation of any of the provisions of Regulation U of the Board of Governors of
the Federal Reserve System ("Regulation U"), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might render the Loan a "Purpose
Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit
plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof,
the minimum funding standards of ERISA and all applicable regulations thereto
and requirements thereof, and of the Internal Revenue Code of 1954, as amended.
No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by
ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or its
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<PAGE> 6
agents, during normal business hours, access to the books, records and such
other documents of Borrower as Bank shall reasonably require, and allow Bank to
make copies thereof at Bank's expense. INSURANCE. Maintain adequate insurance
coverage with respect to its properties and business against loss or damage of
the kinds and in the amounts customarily insured against by companies of
established reputation engaged in the same or similar businesses including,
without limitation, commercial general liability insurance, workers compensation
insurance, and business interruption insurance; all acquired in such amounts and
from such companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER
NOTICES. (a) Notice of Default. Furnish to Bank immediately upon becoming aware
of the existence of any condition or event which constitutes a Default (as
defined in the Loan Documents) or any event which, upon the giving of notice or
lapse of time or both, may become a Default, written notice specifying the
nature and period of existence thereof and the action which Borrower is taking
or proposes to take with respect thereto. (b) Other Notices. Promptly notify
Bank in writing of (i) any material adverse change in its financial condition or
its business; (ii) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any indebtedness owing by Borrower; (iii)
any material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least 30 days prior thereto, any change
in Borrower's name or address as shown above, and/or any change in Borrower's
structure. COMPLIANCE WITH OTHER AGREEMENTS. Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. PAYMENT OF DEBTS. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. REPORTS AND PROXIES. Deliver to Bank, promptly, a copy of
all financial statements, reports, notices, and proxy statements, sent by
Borrower to stockholders, and all
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regular or periodic reports required to be filed by Borrower with any
governmental agency or authority. OTHER FINANCIAL INFORMATION. Deliver promptly
such other information regarding the operation, business affairs, and financial
condition of Borrower which Bank may reasonably request. NON-DEFAULT CERTIFICATE
FROM BORROWER. Deliver to Bank, with the Financial Statements required herein, a
certificate signed by Borrower, if Borrower is an individual, or by a principal
financial officer of Borrower warranting that no "Default" as specified in the
Loan Documents nor any event which, upon the giving of notice or lapse of time
or both, would constitute such a Default, has occurred. ESTOPPEL CERTIFICATE.
Furnish, within 15 days after request by Bank, a written statement duly
acknowledged of the amount due under the Loan and whether offsets or defenses
exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $25,000.00. JUDGMENT
ENTERED. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in an amount in
excess of $25,000.00 and that is not discharged or execution is not stayed
within Thirty (30) days of entry. GOVERNMENT INTERVENTION. Permit the assertion
or making of any seizure, vesting or intervention by or under authority of any
government by which the management of Borrower or any guarantor is displaced of
its authority in the conduct of its respective business or such business is
curtailed or materially impaired. PREPAYMENT OF OTHER DEBT. Retire any long-term
debt entered into prior to the date of this Agreement at a date in advance of
its legal obligation to do so. RETIRE OR REPURCHASE CAPITAL STOCK. Without prior
written consent of the Bank, expend more than $6,000,000 in the aggregate during
the term of this Agreement to retire or otherwise acquire any of its capital
stock. CHANGE OF CONTROL. Borrower shall not make a material
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<PAGE> 8
change in executive management without prior written consent of the Bank. CHANGE
IN FISCAL YEAR. Borrower or guarantor shall not change its fiscal year without
prior written notice to Bank. GUARANTEES. Guarantee or otherwise become
responsible for obligations of any other person other than the endorsement of
checks and drafts for collection in the ordinary course of business.
ENCUMBRANCES. Create, assume, or permit to exist any mortgage, security deed,
deed of trust, pledge, lien, charge or other encumbrance on any of its assets,
whether now owned or hereafter acquired, other than: (i) liens for taxes
contested in good faith; (ii) liens accruing by law for employee benefits; or
(iii) Permitted Liens.
FINANCIAL COVENANTS. Borrower agrees to the following provisions, all of which
shall be on a consolidated basis, from the date hereof until final payment in
full of the Obligations, unless Bank shall otherwise consent in writing: FIXED
CHARGE COVERAGE RATIO. Borrower shall, at each fiscal year-end, maintain a Fixed
Charge Coverage Ratio of not less than 3.00 to 1.00. "Fixed Charge Coverage"
shall mean the sum of net profit plus taxes, depreciation, amortization, and
interest expense less capital expenditures divided by the sum of interest
expense and current maturities of long term debt and capital lease obligations
from the prior fiscal year. WORKING CAPITAL. Borrower shall, at all times,
maintain Working Capital of at least $11,000,000. "Working Capital" shall mean
cash, accounts receivable, and inventory minus current liabilities including
borrowings under this Agreement and the Note. TANGIBLE NET WORTH. Borrower
shall, at all times, maintain a Tangible Net Worth of at least $20,000,000.00.
Tangible Net Worth shall increase annually, as of the last day of each fiscal
year of the Borrower, by not less than fifty percent (50%) of net income plus
one hundred percent (100%) of additions to paid in capital realized in such
fiscal year. "Tangible Net Worth" shall mean the total assets minus total
liabilities. For purposes of this computation, the aggregate amount of any
intangible assets of Borrower including, without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, and brand names, shall be subtracted from total assets, and total
liabilities shall include fully subordinated debt. TOTAL LIABILITIES TO TANGIBLE
NET WORTH RATIO. Borrower shall, at
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<PAGE> 9
all times, maintain a ratio of Total Liabilities, including fully subordinated
debt, divided by Tangible Net Worth of not more than 1.00 to 1.00. For purposes
of this computation, "Total Liabilities" shall mean all liabilities of Borrower,
including capitalized leases and all reserves for deferred taxes and other
deferred sums appearing on the liabilities side of a balance sheet of Borrower,
in accordance with generally accepted accounting principles applied on a
consistent basis. DEPOSIT RELATIONSHIP. Borrower shall maintain its primary
depository account and cash management account with Bank. LIMITATION ON DEBT.
Borrower shall not, directly or indirectly, create, incur, assume or become
liable for, any debt, contingent or direct, if, giving effect to such additional
debt on a pro forma basis, causes the aggregate amount of Borrower's debt,
including obligations to Bank, to exceed $6,500,000.00.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be examined by an independent certified public accountant
acceptable to Bank. The opinion of such independent certified public accountant
shall not be acceptable to Bank if qualified due to any limitations in scope
imposed by Borrower or its Subsidiaries, if any. Any other qualification of the
opinion by the accountant shall render the acceptability of the financial
statements subject to Bank's approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
45 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the
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<PAGE> 10
preceding year. Such statements shall be certified as to their correctness by a
principal financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
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<PAGE> 11
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. PAYMENT OF COMMITMENT FEE. Borrower
shall have paid to the Bank the commitment fee of $3,750. AVAILABILITY FEE.
Borrower shall pay to Bank quarterly, on the 1st day of each October, January,
April and July, an availability fee at a rate equal to 0.125% per annum on the
average daily unused available principal under the Note for the preceding
calendar quarter or portion thereof. OPINION OF COUNSEL. On or prior to the date
of any borrowing hereunder, Bank shall have received a written opinion of the
counsel of Borrower acceptable to Bank that includes confirmation of the
following: (a) The accuracy of the representations set forth in this Agreement
in the Representations Subparagraphs entitled "Authorization;
Non-Contravention"; "Compliance with Laws", and "Organization and Authority".
(b) This Agreement and other Loan Documents have been duly executed and
delivered by Borrower and constitute the legal, valid and binding obligations of
Borrower, enforceable in accordance with their terms. (c) No registration with,
consent of, approval of, or other action by, any federal, state or other
governmental authority or regulatory body to the execution and delivery of this
Agreement, the borrowing under this Agreement or other Loan Documents, is
required by law, or, if so required, such registration has been made, and
consent or approval given or such other appropriate action taken. (d) The Loan
is not usurious.
JOINT AND SEVERAL OBLIGATIONS. The obligations of the Borrower hereunder and
under the Note shall be joint and several.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the State of Connecticut
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<PAGE> 12
without reference to conflicts of laws principles. This Agreement and the other
Loan Documents constitute the sole agreement of the parties with respect to the
subject matter thereof and supersede all oral negotiations and prior writings
with respect to the subject matter thereof. No amendment of this Agreement, and
no waiver of any one or more of the provisions hereof shall be effective unless
set forth in writing and signed by the parties hereto. The illegality,
unenforceability or inconsistency of any provision of this Agreement shall not
in any way affect or impair the legality, enforceability or consistency of the
remaining provisions of this Agreement or the other Loan Documents. This
Agreement and the other Loan Documents are intended to be consistent. However,
in the event of any inconsistencies among this Agreement and any of the Loan
Documents, the terms of the Note, and then this Agreement, shall control. This
Agreement may be executed in any number of counterparts and by the different
parties on separate counterparts. Each such counterpart shall be deemed an
original, but all such counterparts shall together constitute one and the same
agreement. Terms used in this Agreement which are capitalized and not otherwise
defined herein shall have the meanings ascribed to such terms in the Loan
Documents.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND
HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
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<PAGE> 13
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:_____________________________
name:
title:
NTC TECHNOLOGY, INC.
By:_____________________________
name:
title:
FIRST UNION NATIONAL BANK
By:______________________________
name:
title:
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<PAGE> 1
EXHIBIT 10(pp)
SECOND 1998 AMENDED AND RESTATED LOAN AGREEMENT
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Novametrix Medical Systems Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
NTC Technology, Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
(Individually and collectively "Borrower")
This Second 1998 Amended and Restated Loan Agreement ("Agreement") is entered
into as of December 11, 1998, by and between Bank and Borrower, each of which
are corporations organized under the laws of Delaware.
RECITALS
Bank is the holder of a 1998 Promissory Note executed and delivered by Borrower,
dated as of August 1, 1998, in the original principal amount of up to
$3,500,000.00, as modified by Allonge No. 1 to 1998 Promissory Note dated as of
October , 1998, the effect of which is to increase the principal amount to up to
$5,000,000.00 (the 1998 Promissory Note as modified by Allonge No. 1 to the 1998
Promissory Note is hereinafter referred to as the "Line of Credit Note"); and
certain other Loan Documents, including the Amended and Restated 1998 Loan
Agreement, dated as of October 9, 1998 (the " Amended and Restated Loan
Agreement"); and
Borrower and Bank have agreed to modify the terms of the Original Loan Agreement
by replacing the Amended and Restated Loan Agreement with this Agreement.
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<PAGE> 2
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
Borrower has applied to the Bank for a loan or loans (individually and
collectively, the "Loan") as follows:
TERM LOAN - in the principal amount of $3,000,000.00 which is evidenced by the
1998 Promissory Term Note dated as of even date herewith (the "1998 Term Note").
The Loan proceeds are to be used by Borrower solely to refinance existing
borrowings under the Line of Credit.
LINE OF CREDIT - in the principal amount of up to $5,000,000.00 (the "Principal
Amount") which is evidenced by the Line of Credit Note, under which Borrower may
borrow, repay, and reborrow, from time to time, so long as the total
indebtedness outstanding at any one time does not exceed the Principal Amount
minus the sum of (i) the amount available to be drawn plus (ii) the amount of
unreimbursed drawings under all letters of credit issued by Bank for the account
of Borrower plus (iii) the aggregate outstanding amount arising out of foreign
exchange services provided to the Borrower by the Bank as reasonably established
by the Bank. The Loan proceeds are to be used by Borrower solely for working
capital. Bank's obligation to advance or readvance under the Line of Credit Note
shall terminate if Borrower is in Default under the Line of Credit Note.
SUBLIMITS. (i) Letters of Credit. The Bank shall issue commercial and/or standby
letters of credit for the account of the Borrower ("New L/Cs") only when,
combined with any standby or commercial letters of credit outstanding and issued
by the Bank for the account of the Borrower ("Outstanding L/Cs"), the aggregate
available undrawn amount and the drawn but unreimbursed amount of the New L/Cs
and Outstanding L/Cs will not exceed $200,000. Subject to the foregoing
limitations, the Bank shall issue New L/Cs only after the Borrower has executed
such documentation and paid such fees as the Bank may require. (ii) Foreign
Exchange. The Borrower may utilize foreign currency exchange services provided
by the Bank up to a maximum
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<PAGE> 3
credit exposure of $150,000 in the aggregate to be outstanding at any time,
provided, however, that forward contracts shall be limited to $125,000 and the
maximum daily settlement limit shall be $25,000.
This Agreement amends, restates and replaces in its entirety that certain
Amended and Restated 1998 Loan Agreement dated as of October 9, 1998.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations" as used in this Agreement shall have the collective
meanings of such terms as defined in the Term Note and the Line of Credit Note
(collectively, the "Notes"). The term "Borrower" shall include its Subsidiaries
and Affiliates. As used in this Agreement as to Borrower, "Subsidiary" shall
mean any corporation of which more than 50% of the issued and outstanding voting
stock is owned directly or indirectly by Borrower. As to Borrower, "Affiliate"
shall have the meaning as defined in 11 U.S.C. Section 101, except that the term
"debtor" therein shall be substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan
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<PAGE> 4
Documents to which it is a party are within its power, have been duly authorized
by all necessary action taken by the duly authorized officers of Borrower and
any guarantors and, if necessary, by making appropriate filings with any
governmental agency or unit and are the legal, binding, valid and enforceable
obligations of Borrower and any guarantors; and do not (i) contravene, or
constitute (with or without the giving of notice or lapse of time or both) a
violation of any provision of applicable law, a violation of the organizational
documents of Borrower or any guarantor, or a default under any agreement,
judgment, injunction, order, decree or other instrument binding upon or
affecting Borrower or any guarantor, (ii) result in the creation or imposition
of any lien (other than the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (iii) give cause for the acceleration of
any obligations of Borrower or any guarantor to any other creditor. ASSET
OWNERSHIP. Borrower has good and marketable title to all of the properties and
assets reflected on the balance sheets and financial statements supplied to Bank
by Borrower, and all such properties and assets are free and clear of mortgages,
security deeds, pledges, liens, charges, and all other encumbrances, except as
otherwise disclosed to Bank by Borrower in writing ("Permitted Liens"). To
Borrower's knowledge, no default has occurred under any Permitted Liens and no
claims or interests adverse to Borrower's present rights in its properties and
assets have arisen. DISCHARGE OF LIENS AND TAXES. Borrower has duly filed, paid
and/or discharged all taxes or other claims which may become a lien on any of
its property or assets, except to the extent that such items are being
appropriately contested in good faith and an adequate reserve for the payment
thereof is being maintained. SUFFICIENCY OF CAPITAL. Borrower is not, and after
consummation of this Agreement and after giving effect to all indebtedness
incurred and liens created by Borrower in connection with the Loan, will not be,
insolvent within the meaning of 11 U.S.C. Section 101(32). COMPLIANCE WITH LAWS.
Borrower is in compliance in all respects with all federal, state and local
laws, rules and regulations applicable to its properties, operations, business,
and finances, including, without limitation, any federal or state laws relating
to liquor (including 18 U.S.C. Section 3617, et seq.) or narcotics (including 21
U.S.C.Section 801, et seq.) and/or
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<PAGE> 5
any commercial crimes; all applicable federal, state and local laws and
regulations intended to protect the environment; and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION
AND AUTHORITY. Each Borrower is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Each Borrower is duly qualified, licensed
and in good standing in each jurisdiction where qualification or licensing is
required by the nature of its business or the character and location of its
property, business or customers, and in which the failure to so qualify or be
licensed, as the case may be, in the aggregate, could have a material adverse
effect on the business, financial position, results of operations, properties or
prospects of Borrower or any such guarantor. NO LITIGATION. There are no pending
or threatened suits, claims or demands against Borrower or any guarantor that
have not been disclosed to Bank by Borrower in writing. REGULATION U. None of
the proceeds of the Loan made pursuant to this Agreement shall be used directly
or indirectly for the purpose of purchasing or carrying any margin stock in
violation of any of the provisions of Regulation U of the Board of Governors of
the Federal Reserve System ("Regulation U"), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might render the Loan a "Purpose
Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit
plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof,
the minimum funding standards of ERISA and all applicable regulations thereto
and requirements thereof, and of the Internal Revenue Code of 1954, as amended.
No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by
ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES.
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<PAGE> 6
Maintain, preserve and keep its property in good repair, working order and
condition, making all needed replacements, additions and improvements thereto,
to the extent allowed by this Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank,
or its agents, during normal business hours, access to the books, records and
such other documents of Borrower as Bank shall reasonably require, and allow
Bank to make copies thereof at Bank's expense. INSURANCE. Maintain adequate
insurance coverage with respect to its properties and business against loss or
damage of the kinds and in the amounts customarily insured against by companies
of established reputation engaged in the same or similar businesses including,
without limitation, commercial general liability insurance, workers compensation
insurance, and business interruption insurance; all acquired in such amounts and
from such companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER
NOTICES. (a) Notice of Default. Furnish to Bank immediately upon becoming aware
of the existence of any condition or event which constitutes a Default (as
defined in the Loan Documents) or any event which, upon the giving of notice or
lapse of time or both, may become a Default, written notice specifying the
nature and period of existence thereof and the action which Borrower is taking
or proposes to take with respect thereto. (b) Other Notices. Promptly notify
Bank in writing of (i) any material adverse change in its financial condition or
its business; (ii) any default under any material agreement, contract or other
instrument to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any indebtedness owing by Borrower; (iii)
any material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least 30 days prior thereto, any change
in Borrower's name or address as shown above, and/or any change in Borrower's
structure. COMPLIANCE WITH OTHER AGREEMENTS. Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Notes. PAYMENT OF DEBTS. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities
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<PAGE> 7
of whatever nature or amount, except those which Borrower in good faith
disputes. REPORTS AND PROXIES. Deliver to Bank, promptly, a copy of all
financial statements, reports, notices, and proxy statements, sent by Borrower
to stockholders, and all regular or periodic reports required to be filed by
Borrower with any governmental agency or authority. OTHER FINANCIAL INFORMATION.
Deliver promptly such other information regarding the operation, business
affairs, and financial condition of Borrower which Bank may reasonably request.
NON-DEFAULT CERTIFICATE FROM BORROWER. Deliver to Bank, with the Financial
Statements required herein, a certificate signed by Borrower, if Borrower is an
individual, or by a principal financial officer of Borrower warranting that no
"Default" as specified in the Loan Documents nor any event which, upon the
giving of notice or lapse of time or both, would constitute such a Default, has
occurred. ESTOPPEL CERTIFICATE. Furnish, within 15 days after request by Bank, a
written statement duly acknowledged of the amount due under the Loan and whether
offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $25,000.00. JUDGMENT
ENTERED. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in an amount in
excess of $25,000.00 and that is not discharged or execution is not stayed
within Thirty (30) days of entry. GOVERNMENT INTERVENTION. Permit the assertion
or making of any seizure, vesting or intervention by or under authority of any
government by which the management of Borrower or any guarantor is displaced of
its authority in the conduct of its respective business or such business is
curtailed or materially impaired. PREPAYMENT OF OTHER DEBT. Retire any long-term
debt entered into prior to the date of this Agreement at a date in advance of
its legal obligation to do so. RETIRE OR REPURCHASE CAPITAL
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<PAGE> 8
STOCK. Without prior written consent of the Bank, expend more than $6,000,000 in
the aggregate during the term of this Agreement to retire or otherwise acquire
any of its capital stock. CHANGE OF CONTROL. Borrower shall not make a material
change in executive management without prior written consent of the Bank. CHANGE
IN FISCAL YEAR. Borrower or guarantor shall not change its fiscal year without
prior written notice to Bank. GUARANTEES. Guarantee or otherwise become
responsible for obligations of any other person other than the endorsement of
checks and drafts for collection in the ordinary course of business.
ENCUMBRANCES. Create, assume, or permit to exist any mortgage, security deed,
deed of trust, pledge, lien, charge or other encumbrance on any of its assets,
whether now owned or hereafter acquired, other than: (i) liens for taxes
contested in good faith; (ii) liens accruing by law for employee benefits; or
(iii) Permitted Liens.
FINANCIAL COVENANTS. Borrower agrees to the following provisions, all of which
shall be on a consolidated basis, from the date hereof until final payment in
full of the Obligations, unless Bank shall otherwise consent in writing: FIXED
CHARGE COVERAGE RATIO. Borrower shall, on a rolling four quarter basis, maintain
a Fixed Charge Coverage Ratio of not less than 3.00 to 1.00. "Fixed Charge
Coverage" shall mean the sum of net profit plus taxes, depreciation,
amortization, and interest expense less capital expenditures divided by the sum
of interest expense and amounts repaid on long term debt and capital lease
obligations during the prior four fiscal quarters. WORKING CAPITAL. Borrower
shall, at all times, maintain Working Capital of at least $11,000,000. "Working
Capital" shall mean current assets minus current liabilities including
borrowings under the Line of Credit Note. TANGIBLE NET WORTH. Borrower shall,
beginning January 31, 1999, maintain a Tangible Net Worth of at least
$16,000,000.00. Tangible Net Worth shall increase quarterly, as of the last day
of each fiscal quarter of the Borrower, by not less than fifty percent (50%) of
net income plus one hundred percent (100%) of additions to paid in capital
realized in such fiscal quarter. "Tangible Net Worth" shall mean the total
assets minus total liabilities. For purposes of this computation, the aggregate
amount of any intangible assets of Borrower including, without limitation,
goodwill, franchises,
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<PAGE> 9
licenses, patents, trademarks, trade names, copyrights, service marks, and brand
names, shall be subtracted from total assets, and total liabilities shall
include fully subordinated debt. TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO.
Borrower shall, at all times, maintain a ratio of Total Liabilities, including
fully subordinated debt, divided by Tangible Net Worth of not more than 1.00 to
1.00. For purposes of this computation, "Total Liabilities" shall mean all
liabilities of Borrower, including capitalized leases and all reserves for
deferred taxes and other deferred sums appearing on the liabilities side of a
balance sheet of Borrower, in accordance with generally accepted accounting
principles applied on a consistent basis. DEPOSIT RELATIONSHIP. Borrower shall
maintain its primary depository account and cash management account with Bank.
LIMITATION ON DEBT. Borrower shall not, directly or indirectly, create, incur,
assume or become liable for, any debt, contingent or direct, if, giving effect
to such additional debt on a pro forma basis, causes the aggregate amount of
Borrower's debt, including obligations to Bank, to exceed $8,000,000.00.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be examined by an independent certified public accountant
acceptable to Bank. The opinion of such independent certified public accountant
shall not be acceptable to Bank if qualified due to any limitations in scope
imposed by Borrower or its Subsidiaries, if any. Any other qualification of the
opinion by the accountant shall render the acceptability of the financial
statements subject to Bank's approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting
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<PAGE> 10
schedules, as soon as available and in any event within 45 days after the close
of each such period; all in reasonable detail and prepared in conformity with
generally accepted accounting principles, applied on a basis consistent with
that of the preceding year. Such statements shall be certified as to their
correctness by a principal financial officer of Borrower.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. PAYMENT OF COMMITMENT FEE. Borrower
shall have paid to the Bank a one time commitment fee of $3,750 for the Line of
Credit and a one time commitment fee of $3,750 for the Term Loan. AVAILABILITY
FEE. Borrower shall pay to Bank quarterly, on the 1st day of each October,
January, April and July, an availability fee at a rate equal to 0.125% per annum
on the average daily unused available principal under the Line of Credit Note
for the preceding calendar quarter or portion thereof. OPINION OF COUNSEL. On or
prior to the date of any borrowing hereunder, Bank shall have received a written
opinion of the counsel of Borrower acceptable to Bank that includes confirmation
of the following: (a) The accuracy of the representations set forth in this
Agreement in the Representations Subparagraphs entitled "Authorization;
Non-Contravention"; "Compliance with Laws", and "Organization and Authority".
(b) This Agreement and other Loan Documents have been duly executed and
delivered by Borrower and constitute
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<PAGE> 11
the legal, valid and binding obligations of Borrower, enforceable in accordance
with their terms. (c) No registration with, consent of, approval of, or other
action by, any federal, state or other governmental authority or regulatory body
to the execution and delivery of this Agreement, the borrowing under this
Agreement or other Loan Documents, is required by law, or, if so required, such
registration has been made, and consent or approval given or such other
appropriate action taken. (d) The Loan is not usurious.
JOINT AND SEVERAL OBLIGATIONS. The obligations of the Borrower hereunder and
under the Notes shall be joint and several.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the State of Connecticut without reference to conflicts of laws
principles. This Agreement and the other Loan Documents constitute the sole
agreement of the parties with respect to the subject matter thereof and
supersede all oral negotiations and prior writings with respect to the subject
matter thereof. No amendment of this Agreement, and no waiver of any one or more
of the provisions hereof shall be effective unless set forth in writing and
signed by the parties hereto. The illegality, unenforceability or inconsistency
of any provision of this Agreement shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of this
Agreement or the other Loan Documents. This Agreement and the other Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among this Agreement and any of the Loan Documents, the terms of
the Notes, and then this Agreement, shall control. This Agreement may be
executed in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed an original, but all such
counterparts shall together constitute one and the same agreement. Terms used in
this Agreement which are capitalized and not otherwise defined herein shall have
the meanings ascribed to such terms in the Loan Documents.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND
HEREBY VOLUNTARILY AND KNOWINGLY
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<PAGE> 12
WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON PREJUDGMENT REMEDIES UNDER CHAPTER
903A OF THE CONNECTICUT GENERAL STATUTES OR OTHER STATUTES AFFECTING PREJUDGMENT
REMEDIES, AND AUTHORIZES THE BANK'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF
THIS WAIVER.
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<PAGE> 13
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:_____________________________
name:
title:
NTC TECHNOLOGY, INC.
By:_____________________________
name:
title:
FIRST UNION NATIONAL BANK
By:______________________________
name:
title:
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<PAGE> 1
EXHIBIT 10(qq)
1999 AMENDED AND RESTATED LOAN AGREEMENT
First Union National Bank
300 Main Street
Stamford, Connecticut 06904
(Hereinafter referred to as the "Bank")
Novametrix Medical Systems Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
("Novametrix")
NTC Technology, Inc.
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
("NTC")
Children's Medical Ventures, Inc.
541 Main Street
South Weymouth, Massachusetts 02190
("CMV"; Novametrix, NTC and CMV being,
individually and collectively "Borrower")
This 1999 Amended and Restated Loan Agreement ("Agreement") is entered into as
of June 30, 1999, by and between Bank and Borrower, each of which are
corporations organized under the laws of Delaware.
RECITALS
Bank is the holder of, inter alia: (i) a certain 1999 Substitute Promissory Note
executed and delivered by Borrower, dated of even date herewith, in the original
principal amount of up to $6,000,000.00, (hereinafter referred to as the "Line
of Credit Note"); (ii) a certain 1999 Term Promissory Note in the original
principal amount of $4,800,000.00, dated of even date herewith, from the
Borrower to the Bank (hereinafter referred to as the "1999 Term Note"); (iii) a
certain 1998 Term Promissory Note
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<PAGE> 2
executed and delivered by Novametrix and NTC, dated December 11, 1998, in the
original principal amount of $3,000,000.00, as modified by Allonge No. 1 to 1998
Term Promissory Note, dated of even date herewith, executed by Borrower and the
Bank (as modified, hereinafter referred to as the "1998 Term Note"); and certain
other Loan Documents, including the Second 1998 Amended and Restated Loan
Agreement, dated as of December 11, 1998 (the "Amended and Restated Loan
Agreement"); and
Borrower and Bank have agreed to modify the terms of the Amended and Restated
Loan Agreement by replacing the Amended and Restated Loan Agreement with this
Agreement.
In consideration of Bank's continued extension of credit and the agreements
contained herein, the parties agree as follows:
Borrower has applied to the Bank for a loan or loans (individually and
collectively, the "Loan") as follows:
1998 TERM LOAN - in the original principal amount of $3,000,000.00 which is
evidenced by the 1998 Term Note. The Loan proceeds were to be used by Borrower
solely to refinance existing borrowings under the Line of Credit.
1999 TERM LOAN - in the principal amount of $4,800,000.00 which is evidenced by
the 1999 Term Note. The Loan proceeds are to be used by Borrower solely to
finance the acquisition of CMV.
LINE OF CREDIT - in the principal amount of up to $6,000,000.00 (the "Principal
Amount") which is evidenced by the Line of Credit Note, under which Borrower may
borrow, repay, and reborrow, from time to time, so long as the total
indebtedness outstanding under the Line of Credit Note at any one time does not
exceed the Principal Amount minus the sum of (i) the amount available to be
drawn plus (ii) the amount of unreimbursed drawings under all letters of credit
issued by Bank for the account of Borrower plus (iii) the aggregate outstanding
amount arising out of foreign exchange services provided to the Borrower by the
Bank as reasonably established by the Bank. The Loan proceeds are to be used by
Borrower solely for working capital. Bank's obligation to advance or readvance
under the
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<PAGE> 3
Line of Credit Note shall terminate if Borrower is in Default under
the Line of Credit Note.
SUBLIMITS. (i) Letters of Credit. The Bank shall issue commercial and/or standby
letters of credit for the account of the Borrower ("New L/Cs") only when,
combined with any standby or commercial letters of credit outstanding and issued
by the Bank for the account of the Borrower ("Outstanding L/Cs"), the aggregate
available undrawn amount and the drawn but unreimbursed amount of the New L/Cs
and Outstanding L/Cs will not exceed $200,000. Subject to the foregoing
limitations, the Bank shall issue New L/Cs only after the Borrower has executed
such documentation and paid such fees as the Bank may require. (ii) Foreign
Exchange. The Borrower may utilize foreign currency exchange services provided
by the Bank up to a maximum credit exposure of $150,000 in the aggregate to be
outstanding at any time, provided, however, that forward contracts shall be
limited to $125,000 and the maximum daily settlement limit shall be $25,000.
This Agreement amends, restates and replaces in its entirety the Amended and
Restated Loan Agreement.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations" as used in this Agreement shall have the collective
meanings of such terms as defined in the 1998 Term Note, the 1999 Term Note and
the Line of Credit Note (collectively, the "Notes"). The term "Borrower" shall
include each entity constituting the Borrower, and each of their respective
Subsidiaries and Affiliates, all individually and collectively, jointly and
severally. As used in this Agreement as to Borrower, "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have
the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein.
This Agreement and the Loans contemplated and covered herein are subject to that
certain Intercreditor Agreement by and between the Bank and Webster Bank, a
Connecticut banking association
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<PAGE> 4
with a place of business at 80 Elm Street, New Haven, CT 06510 ("Webster"). The
parties acknowledge and agree that Borrower is entering into a Loan Agreement
and related loan documents (the "Webster Loan Documents"), including executing
and delivering to Webster a certain Term Promissory Note in the original
principal amount of $4,800,000.00, dated of even date herewith (the "Webster
Note").
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or
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<PAGE> 5
guarantor's assets, or (iii) give cause for the acceleration of any obligations
of Borrower or any guarantor to any other creditor. ASSET OWNERSHIP. Borrower
has good and marketable title to all of the properties and assets reflected on
the balance sheets and financial statements supplied to Bank by Borrower, and
all such properties and assets are free and clear of mortgages, security deeds,
pledges, liens, charges, and all other encumbrances, except as otherwise
disclosed to Bank by Borrower in writing on Schedule I attached hereto and made
a part hereof ("Permitted Liens"). To Borrower's knowledge, no default has
occurred under any Permitted Liens and no claims or interests adverse to
Borrower's present rights in its properties and assets have arisen. DISCHARGE OF
LIENS AND TAXES. Borrower has duly filed, paid and/or discharged all taxes or
other claims which may become a lien on any of its property or assets, except to
the extent that such items are being appropriately contested in good faith and
an adequate reserve for the payment thereof is being maintained. SUFFICIENCY OF
CAPITAL. Borrower is not, and after consummation of this Agreement and after
giving effect to all indebtedness incurred and liens created by Borrower in
connection with the Loan, will not be, insolvent within the meaning of 11 U.S.C.
Section 101(32). COMPLIANCE WITH LAWS. Borrower is in compliance in all respects
with all federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. Section 3617,
et seq.) or narcotics (including 21 U.S.C. Section 801, et seq.) and/or any
commercial crimes; all applicable federal, state and local laws and regulations
intended to protect the environment; and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION AND AUTHORITY.
Each Borrower is duly created, validly existing and in good standing under the
laws of the state of its organization, and has all powers, governmental
licenses, authorizations, consents and approvals required to operate its
business as now conducted. Each Borrower is duly qualified, licensed and in good
standing in each jurisdiction where qualification or licensing is required by
the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a
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<PAGE> 6
material adverse effect on the business, financial position, results of
operations, properties or prospects of Borrower or any such guarantor. NO
LITIGATION. Except as set forth on Schedule II, attached hereto and made a part
hereof, there are no pending or threatened suits, claims or demands against
Borrower or any guarantor that have not been disclosed to Bank by Borrower in
writing. There is no litigation set forth on Schedule II the outcome of which
would materially and adversely affect the Borrower. REGULATION U. None of the
proceeds of the Loan made pursuant to this Agreement shall be used directly or
indirectly for the purpose of purchasing or carrying any margin stock in
violation of any of the provisions of Regulation U of the Board of Governors of
the Federal Reserve System ("Regulation U"), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might render the Loan a "Purpose
Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit
plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof,
the minimum funding standards of ERISA and all applicable regulations thereto
and requirements thereof, and of the Internal Revenue Code of 1986, as amended.
No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by
ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. INSURANCE. Maintain adequate insurance coverage with respect
to its properties and business against
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<PAGE> 7
loss or damage of the kinds and in the amounts customarily insured against by
companies of established reputation engaged in the same or similar businesses
including, without limitation, commercial general liability insurance, workers
compensation insurance, and business interruption insurance; all acquired in
such amounts and from such companies as Bank may reasonably require. NOTICE OF
DEFAULT AND OTHER NOTICES. (a) Notice of Default. Furnish to Bank immediately
upon becoming aware of the existence of any condition or event which constitutes
a Default (as defined in the Loan Documents) or any event which, upon the giving
of notice or lapse of time or both, may become a Default, written notice
specifying the nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto. (b) Other Notices.
Promptly notify Bank in writing of (i) any material adverse change in its
financial condition or its business; (ii) any default under any material
agreement, contract or other instrument to which it is a party or by which any
of its properties are bound, or any acceleration of the maturity of any
indebtedness owing by Borrower; (iii) any material adverse claim against or
affecting Borrower or any part of its properties; (iv) the commencement of, and
any material determination in, any litigation with any third party or any
proceeding before any governmental agency or unit affecting Borrower; and (v) at
least 30 days prior thereto, any change in Borrower's name or address as shown
above, and/or any change in Borrower's structure. COMPLIANCE WITH OTHER
AGREEMENTS. Comply with all terms and conditions contained in this Agreement,
and any other Loan Documents, and swap agreements, if applicable, as defined in
the Notes. PAYMENT OF DEBTS. Pay and discharge when due, and before subject to
penalty or further charge, and otherwise satisfy before maturity or delinquency,
all obligations, debts, taxes, and liabilities of whatever nature or amount,
except those which Borrower in good faith disputes. REPORTS AND PROXIES. Deliver
to Bank, promptly, a copy of all financial statements, reports, notices, and
proxy statements, sent by Borrower to stockholders, and all regular or periodic
reports required to be filed by Borrower with any governmental agency or
authority. OTHER FINANCIAL INFORMATION. Deliver promptly such other information
regarding the operation, business affairs, and financial condition of Borrower
which Bank may reasonably request. ESTOPPEL
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<PAGE> 8
CERTIFICATE. Furnish, within 15 days after request by Bank, a written statement
duly acknowledged of the amount due under the Loan and whether offsets or
defenses exist against the Obligations. CASH MANAGEMENT RELATIONSHIP. Borrower
will maintain its cash management account with the Bank. DEPOSIT RELATIONSHIP.
Borrower will maintain its primary depository relationship with the Bank.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $25,000.00. JUDGMENT
ENTERED. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in an amount in
excess of $25,000.00 and that is not discharged or execution is not stayed
within thirty (30) days of entry. GOVERNMENT INTERVENTION. Permit the assertion
or making of any seizure, vesting or intervention by or under authority of any
government by which the management of Borrower or any guarantor is displaced of
its authority in the conduct of its respective business or such business is
materially curtailed or impaired. PREPAYMENT OF OTHER DEBT. Retire any long-term
debt entered into prior to the date of this Agreement at a date in advance of
its legal obligation to do so. RETIRE OR REPURCHASE CAPITAL STOCK. Without prior
written consent of the Bank, expend more than $6,000,000 in the aggregate during
the term of this Agreement to retire or otherwise acquire any of its capital
stock. CHANGE OF CONTROL. Borrower shall not make a material change in executive
management without prior written consent of the Bank. Borrower shall not make a
material change in ownership that effectively changes control of Borrower
without prior written consent of the Bank. CHANGE IN FISCAL YEAR. Borrower or
guarantor shall not change its fiscal year without prior written consent of the
Bank. GUARANTEES. Guarantee or otherwise become responsible for obligations of
any other person or entity other than the endorsement of checks and drafts for
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<PAGE> 9
collection in the ordinary course of business. ENCUMBRANCES. Create, assume, or
permit to exist any mortgage, security deed, deed of trust, pledge, lien, charge
or other encumbrance on any of its assets, whether now owned or hereafter
acquired, other than: (i) security interests required by the Loan Documents;(ii)
liens for taxes contested in good faith; (iii) liens accruing by law for
employee benefits; or (iv) Permitted Liens.
FINANCIAL COVENANTS. All financial covenants shall be tested quarterly, unless
specifically otherwise noted. Borrower agrees to the following provisions, all
of which shall be on a consolidated basis, from the date hereof until final
payment in full of the Obligations, unless Bank shall otherwise consent in
writing: FUNDED DEBT TO EBITDA RATIO. Beginning April 30, 2000 and for the
following three fiscal quarters, Borrower shall maintain a ratio of Funded Debt
to EBITDA of not more than 1.60 to 1.00. Beginning April 30, 2001 and for the
following three fiscal quarters, Borrower shall maintain a ratio of Funded Debt
to EBITDA of not more than 1.25 to 1.00. At all times thereafter, Borrower shall
maintain said ratio of not more than 1.00 to 1.00. This covenant shall be tested
on a rolling four quarter basis. "Funded Debt" shall mean, as applied to any
person or entity, the sum of all indebtedness for borrowed money including,
without limitation, capital lease obligations, subordinated debt (including debt
subordinated to the Bank), and unreimbursed drawings under letters of credit, or
any other monetary obligation evidenced by a note, bond, debenture or other
agreement of that person or entity. "EBITDA" shall mean earnings before
interest, taxes, depreciation and amortization. FIXED CHARGE COVERAGE RATIO.
Beginning April 30, 2000 and for the following three fiscal quarters, Borrower
shall maintain a Fixed Charge Coverage Ratio of not less than 1.50 to 1.00.
Beginning April 30, 2001 and for all fiscal quarters thereafter, Borrower shall
maintain a Fixed Charge Coverage Ratio of not less than 1.75 to 1.00. This
covenant shall be tested on a rolling four quarter basis. "Fixed Charge
Coverage" shall mean the sum of net income plus taxes, depreciation,
amortization, and interest expense less capital expenditures not financed
divided by the sum of interest expense and scheduled amounts repaid on long term
debt and capital lease obligations and
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<PAGE> 10
unfunded capital expenditures during the prior four fiscal quarters. WORKING
CAPITAL. Borrower shall, from closing through fiscal year-end April 30, 2000,
maintain Working Capital of at least $13,000,000. Borrower shall, at all times
thereafter, maintain Working Capital of at least $14,000,000. "Working Capital"
shall mean current assets minus current liabilities including borrowings under
the Line of Credit Note. TANGIBLE NET WORTH. Borrower shall, from closing until
the end of the third fiscal quarter, January 31, 2000, maintain a Tangible Net
Worth of at least $11,500,000.00; for fiscal year-end April 30, 2000, maintain a
Tangible Net Worth of at least $16,000,000.00. For each fiscal year thereafter,
Tangible Net Worth shall increase by not less than fifty percent (50%) of net
income plus one hundred percent (100%) of additions to paid in capital realized
in such fiscal year. "Tangible Net Worth" shall mean the total assets minus
total liabilities. For purposes of this computation, the aggregate amount of any
intangible assets of Borrower including, without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, and brand names, shall be subtracted from total assets, and total
liabilities shall include subordinated debt. Including and after April 30, 2000,
this covenant shall be tested annually. LIMITATION ON DEBT. Borrower shall not
create, assume or become liable, directly or indirectly, for any debt,
contingent or direct, if, giving effect to such additional debt on a proforma
basis, causes the aggregate amount of Borrower's debt, including obligations to
Bank and Webster, to exceed nineteen million dollars ($19,000,000.00).
DIVIDENDS. Borrower shall not, during any fiscal year, declare or pay dividends
in any amount.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated basis and in reasonable detail, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year. All such statements shall be
examined by an independent certified public accountant
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reasonably acceptable to Bank. The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any limitations
in scope imposed by Borrower or its Subsidiaries, if any. Any other
qualification of the opinion by the accountant shall render the acceptability of
the financial statements subject to Bank's approval. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower.
CERTIFICATE OF FULL COMPLIANCE FROM ACCOUNTANT. Borrower shall deliver to Bank,
with the annual financial statements required above, a certification by
Borrower's independent certified public accountant that Borrower is in full
compliance with the Loan Documents. NON-DEFAULT CERTIFICATE FROM BORROWER.
Borrower shall deliver to Bank, with the annual financial statements required
above, a certificate, reasonably satisfactory to Bank in form and substance,
signed by Borrower, by a principal financial officer of Borrower, showing
calculations of financial covenant formulas and warranting that no "Default" as
specified in the Loan Documents, nor any event which, upon the giving of notice
or the lapse of time or both, would constitute such a Default, has occurred.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
45 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding period. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower.
NON-DEFAULT CERTIFICATE FROM BORROWER. Borrower shall deliver to Bank, with the
periodic financial statements required above, a certificate, reasonably
satisfactory to Bank in form and substance, signed by Borrower, by a principal
financial officer of Borrower, showing calculations of financial covenant
formulas and warranting that no "Default" as specified in the Loan Documents,
nor any event which, upon the giving of notice or the lapse of time or both,
would constitute such a Default, has occurred.
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<PAGE> 12
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
PREPAYMENT. Any and all proceeds from the exercise of Class B Warrants will be
required to be paid as additional principal reduction as follows: first, to the
1998 Term Note, the 1999 Term Note and the Webster Note (in such proportions as
determined by the Borrower); then, to any outstanding balance on the Line of
Credit Note. Monies received by Bank from any source for application toward
payment of the Obligations shall be applied first to unpaid fees and expenses,
then to accrued interest and then to principal.
In the event that the Class B Warrants are not exercised or that net proceeds of
any exercise are less than $2,500,000.00, Borrower will be required to pay
annually an additional principal payment, to be applied as set forth above,
equal to 35% of Excess Cash Flow. Such payment shall be due within ninety (90)
days of each fiscal year end commencing with fiscal year end April 30, 2000. For
purposes hereof "Excess Cash Flow" means EBITDA minus any cash payments of
taxes, minus principal and interest paid, minus unfunded capital expenditures to
a maximum annual amount of $1,000,000.00. "EBITDA" is earnings before interest,
taxes, depreciation and amortization.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance reasonably acceptable to Bank of
Borrower's Year 2000 compatibility.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
ADDITIONAL DOCUMENTS. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. PAYMENT OF COMMITMENT FEE.
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<PAGE> 13
Borrower shall have paid to the Bank a one time commitment fee of $10,000.00 for
the Loan. AVAILABILITY FEE. Borrower shall pay to Bank quarterly, on the 1st day
of each October, January, April and July, an availability fee at a rate equal to
0.125% per annum on the average daily unused available principal under the Line
of Credit Note for the preceding calendar quarter or portion thereof. OPERATING
DOCUMENTS. Receipt by Bank of a copy of Borrower's by-laws, partnership
agreement, or operating agreement, and of Borrower's authorizing resolutions in
connection with the Loan, certified as to completeness and accuracy by an
appropriate officer of borrower. ERISA. Each employee pension benefit plan, as
defined in ERISA, maintained by Borrower meets, as of the date of closing, the
minimum funding standards of ERISA and all applicable regulations thereto and
requirements thereof, and of the Internal Revenue Code of 1986, as amended. No
"Prohibited Transaction" or "Reportable Event" (as both terms are defined in
ERISA) has occurred with respect to any such plan. CERTIFICATE OF GOOD STANDING.
Bank shall have received from Borrower a certificate from the Secretary of State
of the state of Borrower's incorporation or organization, as applicable, as to
the good standing of Borrower. CHARTER DOCUMENTS. Bank shall have received from
Borrower a copy of the Articles of Incorporation and all other charter documents
of Borrower, all certified by the Secretary of State of the state of Borrower's
incorporation or organization, as applicable. CERTIFICATE OF INCUMBENCY. Bank
shall have received from Borrower a certificate of an appropriate officer of
Borrower as to the incumbency and signatures of the officers of Borrower
executing the Loan Documents. CREDIT INSURANCE. Borrower shall, within 90 days
following the closing, have obtained and shall provide Bank with evidence, in
form and substance reasonably satisfactory to Bank of, credit insurance on all
foreign accounts receivable. OPINION OF COUNSEL. Bank shall have received a
written opinion of the counsel of Borrower acceptable to Bank that includes
confirmation of the following: (a) The Borrower is duly organized and validly
existing under the laws of the jurisdictions where Borrower is organized and
have full power and authority to undertake the activities contemplated by the
Loan. (b) The Loan Documents create a perfected lien on and security interest in
the Collateral (as defined in the Loan
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<PAGE> 14
Documents). (c) The accuracy of the representations set forth in this Agreement
in the Representations Subparagraphs entitled "Authorization;
Non-Contravention"; "Compliance with Laws" as to the transaction contemplated by
this Agreement and the documents pertaining thereto; and "Organization and
Authority." (d) This Agreement and other Loan Documents have been duly executed
and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their terms. (e) No
registration with, consent of, approval of, or other action by, any federal,
state or other governmental authority or regulatory body to the execution and
delivery of this Agreement, the borrowing under this Agreement or other Loan
Documents, is required by law, or, if so required, such registration has been
made, and consent or approval given or such other appropriate action taken. (f)
The Loan and its terms do not violate any laws including, without limitation,
any usury laws of the jurisdictions where Borrower and any Collateral are
located; such other matters and opinions as the Bank reasonably requests.
Borrower agrees, upon request of Bank from time to time, to provide Bank with a
then-current Certificate of Good Standing, Charter Documents, or Certificate of
Incumbency.
JOINT AND SEVERAL OBLIGATIONS. The obligations of the Borrower hereunder and
under the Notes shall be joint and several.
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the State of Connecticut without reference to conflicts of laws
principles. This Agreement and the other Loan Documents constitute the sole
agreement of the parties with respect to the subject matter thereof and
supersede all oral negotiations and prior writings with respect to the subject
matter thereof. No amendment of this Agreement, and no waiver of any one or more
of the provisions hereof shall be effective unless set forth in writing and
signed by the parties hereto. The illegality, unenforceability or inconsistency
of any provision of this Agreement shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of this
Agreement or the other Loan Documents. This Agreement and the other Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among this
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Agreement and any of the Loan Documents, the terms of the Notes, and then this
Agreement, shall control. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts. Each such
counterpart shall be deemed an original, but all such counterparts shall
together constitute one and the same agreement. Terms used in this Agreement
which are capitalized and not otherwise defined herein shall have the meanings
ascribed to such terms in the Loan Documents.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND
HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
WAIVER OF JURY TRIAL. EACH BORROWER ACKNOWLEDGES THAT IT HAS IRREVOCABLY WAIVED
ANY RIGHT IT MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE.
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<PAGE> 16
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:_____________________________
name:
title:
NTC TECHNOLOGY, INC.
By:_____________________________
name:
title:
CHILDREN'S MEDICAL VENTURES, INC.
By:_____________________________
name:
title:
FIRST UNION NATIONAL BANK
By:______________________________
name:
title:
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<PAGE> 1
EXHIBIT 10(rr)
LOAN AGREEMENT
Webster Bank
a Connecticut banking association
with a place of business at
80 Elm Street
New Haven, Connecticut 06510
(Hereinafter referred to as the "Bank")
Novametrix Medical Systems Inc.
a Delaware corporation
with a place of business at
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
("Novametrix")
NTC Technology Inc.
a Delaware corporation
with a place of business at
5 Technology Drive, P.O. Box 690
Wallingford, Connecticut 06492
("NTC")
Children's Medical Ventures, Inc.
a Delaware corporation
with a place of business at
541 Main Street
South Weymouth, Massachusetts 02190
("CMV"; Novametrix, NTC and CMV being,
individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into as of June 30, 1999, by and
between Bank and Borrower.
RECITALS
Borrower is acquiring all of the issued and outstanding stock in CMV for the sum
of $8,750,000. Borrower has requested that Bank and First Union National Bank, a
national banking association with a place of business at 300 Main Street,
Stamford, CT ("First Union") each lend the sum of $4,800,000.00 to fund such
purchase. Bank is
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<PAGE> 2
willing to lend such $4,800,000.00 as a term loan (the "Loan"), which Loan is to
be evidenced by a Term Promissory Note in the amount of $4,800,000.00 dated of
even date herewith, together with any note which from time to time extends,
amends, supplements, modifies, renews or substitutes for such note, the "Note").
In consideration of Bank's making of the Loan to Borrower and the agreements
contained herein, the parties agree as follows:
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations" as used in this Agreement shall have the collective
meanings of such terms as defined in the Note.( The term "Borrower" shall
include each entity constituting the Borrower, and each of their respective
Subsidiaries and Affiliates, all individually and collectively, jointly and
severally. As used in this Agreement as to Borrower, "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have
the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein.
This Agreement and the Loans contemplated and covered herein are subject to that
certain Intercreditor Agreement by and between the Bank and First Union. The
parties acknowledge and agree that Borrower is entering into a Loan Agreement
and related loan documents ("First Union Loan Documents") and is executing and
delivering (or has executed and delivered) to First Union a certain Term
Promissory Note in the original principal amount of $4,800,000.00, dated as of
even date herewith (the "1999 First Union Term Promissory Note"), a certain 1998
Term Promissory Note executed and delivered by Novametrix and NTC dated as of
December 11, 1998 in the original principal amount of $3,000,000 as modified by
Allonge No. 1 to 1998 Term Promissory Note dated as of even date herewith ("1998
First Union Term Promissory Note") and a certain 1999 Substitute Promissory Note
dated as of even date herewith ("Line of Credit Note")(the 1999 First Union Term
Promissory Note, the 1998 First Union Term Promissory Note and the Line of
Credit Note are hereinafter collectively referred to as the "First Union
Notes").
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<PAGE> 3
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof
(including all contingent liabilities of every type), and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. AUTHORIZATION; NON-CONTRAVENTION. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. ASSET OWNERSHIP. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied to Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower on
Schedule I attached hereto ("Permitted Liens"); To Borrower's knowledge, no
default has occurred
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<PAGE> 4
under any Permitted Liens and no claims or interests adverse to Borrower's
present rights in its properties and assets have arisen. DISCHARGE OF LIENS AND
TAXES. Borrower has duly filed, paid and/or discharged all taxes or other claims
which may become a lien on any of its property or assets, except to the extent
that such items are being appropriately contested in good faith and an adequate
reserve for the payment thereof is being maintained. SUFFICIENCY OF CAPITAL.
Borrower is not, and after consummation of this Agreement and after giving
effect to all indebtedness incurred and liens created by Borrower in connection
with the Loan, will not be, insolvent within the meaning of 11 U.S.C. Section
101(32). COMPLIANCE WITH LAWS. Borrower is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. Section 3617,
et seq.) or narcotics (including 21 U.S.C.Section 801, et seq.) and/or any
commercial crimes; all applicable federal, state and local laws and regulations
intended to protect the environment; and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), if applicable. ORGANIZATION AND AUTHORITY.
Each Borrower is duly created, validly existing and in good standing under the
laws of the state of its organization, and has all powers, governmental
licenses, authorizations, consents and approvals required to operate its
business as now conducted. Each Borrower is duly qualified, licensed and in good
standing in each jurisdiction where qualification or licensing is required by
the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations, properties or prospects of
Borrower or any such guarantor. NO LITIGATION. There are no pending or
threatened suits, claims or demands against Borrower or any guarantor that have
not been disclosed to Bank by Borrower on Schedule II attached hereto. There is
no litigation set forth on Schedule II, the outcome of which would materially
and adversely affect the Borrower. REGULATION U. None of the proceeds of the
Loan made pursuant to this Agreement shall be used directly or indirectly for
the purpose of purchasing or carrying any margin stock in violation of any of
the provisions of Regulation U of the Board of Governors
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<PAGE> 5
of the Federal Reserve System ("Regulation U"), or for the purpose of reducing
or retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purchase which might render the Loan a "Purpose
Credit" within the meaning of Regulation U. ERISA. Each employee pension benefit
plan, as defined in ERISA, maintained by Borrower meets, as of the date hereof,
the minimum funding standards of ERISA and all applicable regulations thereto
and requirements thereof, and of the Internal Revenue Code of 1986, as amended.
No "Prohibited Transaction" or "Reportable Event" (as both terms are defined by
ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. MAINTAIN PROPERTIES. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. INSURANCE. Maintain adequate insurance coverage with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. NOTICE OF DEFAULT AND OTHER NOTICES.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing
of (i) any
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<PAGE> 6
material adverse change in its financial condition or its business; (ii) any
default under any material agreement, contract or other instrument to which it
is a party or by which any of its properties are bound, or any acceleration of
the maturity of any indebtedness owing by Borrower; (iii) any material adverse
claim against or affecting Borrower or any part of its properties; (iv) the
commencement of, and any material determination in, any litigation with any
third party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least 30 days prior thereto, any change in Borrower's name
or address as shown above, and/or any change in Borrower's structure. COMPLIANCE
WITH OTHER AGREEMENTS. Comply with all terms and conditions contained in this
Agreement, and any other Loan Documents, and swap agreements, if applicable, as
defined in the Notes. PAYMENT OF DEBTS. Pay and discharge when due, and before
subject to penalty or further charge, and otherwise satisfy before maturity or
delinquency, all obligations, debts, taxes, and liabilities of whatever nature
or amount, except those which Borrower in good faith disputes. REPORTS AND
PROXIES. Deliver to Bank, promptly, a copy of all financial statements, reports,
notices, and proxy statements, sent by Borrower to stockholders, and all regular
or periodic reports required to be filed by Borrower with any governmental
agency or authority. OTHER FINANCIAL INFORMATION. Deliver promptly such other
information regarding the operation, business affairs, and financial condition
of Borrower which Bank may reasonably request. NON-DEFAULT ESTOPPEL CERTIFICATE.
Furnish, within 15 days after request by Bank, a written statement duly
acknowledged of the amount due under the Loan and whether offsets or defenses
exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: DEFAULT ON OTHER CONTRACTS OR
OBLIGATIONS. Default on any material contract with or obligation when due to a
third party or default in the performance of any obligation to a third party
incurred for money borrowed in an amount in excess of $25,000.00. JUDGMENT
ENTERED. Permit the entry of any monetary judgment or the assessment against,
the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in
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<PAGE> 7
an amount in excess of $25,000.00 and that is not discharged or execution is not
stayed within Thirty (30) days of entry. GOVERNMENT INTERVENTION. Permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or any guarantor
is displaced of its authority in the conduct of its respective business or such
business is materially curtailed or materially impaired. PREPAYMENT OF OTHER
DEBT. Retire any long-term debt entered into prior to the date of this Agreement
at a date in advance of its legal obligation to do so. RETIRE OR REPURCHASE
CAPITAL STOCK. Without prior written consent of the Bank, expend more than
$6,000,000 in the aggregate during the term of this Agreement to retire or
otherwise acquire any of its capital stock. CHANGE OF CONTROL. Borrower shall
not make a material change in executive management without prior written consent
of the Bank. Borrower shall not make a material change in ownership that
effectively changes control of Borrower without prior written consent of the
Bank. CHANGE IN FISCAL YEAR. Borrower or guarantor shall not change its fiscal
year without prior written consent of the Bank. GUARANTEES. Guarantee or
otherwise become responsible for obligations of any other person or entity other
than the endorsement of checks and drafts for collection in the ordinary course
of business. ENCUMBRANCES. Create, assume, or permit to exist any mortgage,
security deed, deed of trust, pledge, lien, charge or other encumbrance on any
of its assets, whether now owned or hereafter acquired, other than: (i) security
interests required by the Loan Documents;(ii) liens for taxes contested in good
faith; (iii) liens accruing by law for employee benefits; or (iv) Permitted
Liens.
FINANCIAL COVENANTS. All financial covenants shall be tested quarterly, unless
specifically otherwise noted. Borrower agrees to the following provisions, all
of which shall be on a consolidated basis, from the date hereof until final
payment in full of the Obligations, unless Bank shall otherwise consent in
writing: FUNDED DEBT TO EBITDA RATIO. Beginning April 30, 2000 and for the
following three fiscal quarters, Borrower shall maintain a ratio of Funded Debt
to EBITDA of not more than 1.60 to 1.00. Beginning April 30, 2001 and for the
following three fiscal quarters, Borrower shall maintain a ratio of Funded Debt
to EBITDA of not more than 1.25 to 1.0. At all times
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<PAGE> 8
thereafter, Borrower shall maintain said ratio of not more than 1.00 to 1.00.
This covenant shall be tested on a rolling four quarter basis. "Funded Debt"
shall mean, as applied to any person or entity, the sum of all indebtedness for
borrowed money including, without limitation, capital lease obligations,
subordinated debt (including debt subordinated to the Bank), and unreimbursed
drawings under letters of credit, or any other monetary obligation evidenced by
a note, bond, debenture or other agreement of that person or entity. "EBITDA"
shall mean earnings before interest, taxes, depreciation and amortization. FIXED
CHARGE COVERAGE RATIO. Beginning April 30, 2000 and for the following three
fiscal quarters, Borrower shall maintain a Fixed Charge Coverage Ratio of not
less than 1.50 to 1.00. Beginning April 30, 2001 and for all fiscal quarters
thereafter, Borrower shall maintain a Fixed Charge Coverage Ratio of not less
than 1.75 to 1.00. This covenant shall be tested on a rolling four quarter
basis. "Fixed Charge Coverage" shall mean the sum of net income plus taxes,
depreciation, amortization and interest expense less capital expenditures not
financed divided by the sum of interest expense and amounts repaid on long term
debt and capital lease obligations and unfunded capital expenditures during the
prior four fiscal quarters. WORKING CAPITAL. Borrower shall, from closing
through fiscal year ending April 30, 2000, maintain Working Capital of at least
$13,000,000. Borrower shall at all times thereafter, maintain Working Capital of
at least $14,000,000. "Working Capital" shall mean current assets minus current
liabilities including borrowings under the Line of Credit Note. TANGIBLE NET
WORTH. Borrower shall, from closing until the end of the third fiscal quarter,
January 31, 2000, maintain a Tangible Net Worth of at least $11,500,000.00; for
fiscal year-end April 30, 2000, maintain a Tangible Net Worth of at least
$16,000,000.00. For each fiscal year thereafter, Tangible Net Worth shall
increase by not less than fifty percent (50%) of net income plus one hundred
percent (100%) of additions to paid in capital realized in such fiscal year.
"Tangible Net Worth" shall mean the total assets minus total liabilities. For
purposes of this computation, the aggregate amount of any intangible assets of
Borrower including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall include subordinated
debt. After
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April 30, 2000, this covenant shall be tested annually. LIMITATION ON DEBT.
Borrower shall not create, assume or become liable, directly or indirectly, for
any debt, contingent or direct, if, giving effect to such additional debt on a
proforma basis, causes the aggregate amount of Borrower's debt, including
obligations to Bank and First Union, to exceed nineteen million dollars
($19,000,000.00). DIVIDENDS. Borrower shall not, during any fiscal year, declare
or pay dividends in any amount.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated basis and in reasonable detail, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding year. All such statements shall be
examined by an independent certified public accountant reasonably acceptable to
Bank. The opinion of such independent certified public accountant shall not be
acceptable to Bank if qualified due to any limitations in scope imposed by
Borrower or its Subsidiaries, if any. Any other qualification of the opinion by
the accountant shall render the acceptability of the financial statements
subject to Bank's approval. Such statements shall be certified as to their
correctness by a principal financial officer of Borrower. CERTIFICATE OF FULL
COMPLIANCE FROM ACCOUNTANT. Borrower shall deliver to Bank, with the annual
financial statements required above, a certification by Borrower's independent
certified public accountant that Borrower is in full compliance with the Loan
Documents. NON-DEFAULT CERTIFICATE FROM BORROWER. Borrower shall deliver to
Bank, with the annual financial statements required above, a certificate
reasonably satisfactory to Bank in form and substance, signed by Borrower, by a
principal financial officer of Borrower, showing calculations of financial
covenant formulas and warranting that no "Default" as specified in the Loan
Documents, nor any event which, upon the giving of notice or the lapse of time
or both, would constitute such a Default, has occurred.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial
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<PAGE> 10
statements, including, without limitation, a balance sheet, profit and loss
statement and statement of cash flows, with supporting schedules, as soon as
available and in any event within 45 days after the close of each such period;
all in reasonable detail and prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding
period. Such statements shall be certified as to their correctness by a
principal financial officer of Borrower.
NON-DEFAULT CERTIFICATE FROM BORROWER. Borrower shall have delivered to Bank,
with the periodic financial statements required above, a certificate, reasonably
satisfactory to Bank in form and substance, signed by Borrower, by a principal
financial officer of Borrower, showing calculations of financial covenant
formulas and warranting that no "Default" as specified in the Loan Documents,
nor any event which, upon the giving of none or the lapse of time or both, would
constitute such a Default, has occurred.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
PREPAYMENT. Any and all proceeds from the exercise of Class B Warrants will be
required to be paid as additional principal reduction as follows: first, to the
First Union 1998 Term Note (as defined in a certain 1999 Amended and Restated
Loan Agreement between First Union and Borrower of even date herewith (the
"First Union Loan Agreement")), the First Union 1999 Term Note and the Note in
such proportions as determined by the Borrower; then, to any outstanding balance
on the First Union Line of Credit Note (as defined in the First Union Loan
Agreement). Monies received by Bank from any source for application toward
payment of the Obligations shall be applied first to unpaid fees and expenses,
then to accrued interest and then to principal.
In the event that the Class B Warrants are not exercised, or that the net
proceeds of any exercise of Class B Warrants are less than two million five
hundred thousand
E-69
<PAGE> 11
($2,500,000.00), Borrower will be required to pay annually an additional
principal payment, to be applied as set forth above, equal to 35% of Excess Cash
Flow. Such payment shall be due within ninety (90) days of each fiscal year end
commencing with fiscal year end April 30, 2000. For purposes hereof "Excess Cash
Flow" means EBITDA minus any cash payments of taxes, minus principal and
interest paid, minus unfunded capital expenditures to a maximum annual amount of
$1,000,000.00.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance reasonably acceptable to Bank of
Borrower's Year 2000 compatibility.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan are subject to
the following conditions precedent: ADDITIONAL DOCUMENTS. Receipt by Bank of
such additional supporting documents as Bank or its counsel may reasonably
request. PAYMENT OF COMMITMENT FEE. Borrower shall have paid to the Bank a one
time commitment fee of $12,500.00 for the Loan. OPERATING DOCUMENTS. Receipt by
Bank of a copy of Borrower's by-laws, partnership agreement, or operating
agreement, and of Borrower's authorizing resolutions in connection with the
Loan, certified as to completeness and accuracy by an appropriate officer of
borrower. ERISA. Each employee pension benefit plan, as defined in ERISA,
maintained by Borrower meets, as of the date of closing, the minimum funding
standards of ERISA and all applicable regulations thereto and requirements
thereof, and of the Internal Revenue Code of 1986, as amended. No "Prohibited
Transaction" or "Reportable Event" (as both terms are defined in ERISA) has
occurred with respect to any such plan. CERTIFICATE OF GOOD STANDING. On or
prior to the date hereof, Bank shall have received from Borrower a certificate
from the Secretary of State of the state of Borrower's incorporation or
organization, as applicable, as to the good standing of Borrower. CHARTER
DOCUMENTS. On or prior to the date hereof, Bank shall have received from
Borrower a copy of the Articles of Incorporation and all other charter documents
of Borrower, all certified by the Secretary of State of the state of Borrower's
incorporation or organization, as applicable. CERTIFICATE OF INCUMBENCY. On or
prior to the date hereof,
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<PAGE> 12
Bank shall have received from Borrower a certificate of an appropriate officer
of Borrower as to the incumbency and signatures of the officers of Borrower
executing the Loan Documents. CREDIT INSURANCE. Borrower shall, within ninety
(90) days following the closing, have obtained and shall provide Bank with
evidence, in form and substance reasonably satisfactory to Bank of, credit
insurance on all foreign accounts receivable. OPINION OF COUNSEL. On or prior to
the date hereof, Bank shall have received a written opinion of the counsel of
Borrower acceptable to Bank that includes confirmation of the following: (a) The
Borrower is duly organized and validly existing under the laws of the
jurisdictions where Borrower is organized and have full power and authority to
undertake the activities contemplated by the Loan. (b) The Loan Documents create
a perfected lien on and security interest in the Collateral (as defined in the
Loan Documents). (c) The accuracy of the representations set forth in this
Agreement in the Representations Subparagraphs entitled "Authorization;
Non-Contravention"; "Compliance with Laws" as to the transaction contemplated by
this Agreement and the documents pertaining thereto, and "Organization and
Authority". (d) This Agreement and other Loan Documents have been duly executed
and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower, enforceable in accordance with their terms. (e) No
registration with, consent of, approval of, or other action by, any federal,
state or other governmental authority or regulatory body to the execution and
delivery of this Agreement, the borrowing under this Agreement or other Loan
Documents, is required by law, or, if so required, such registration has been
made, and consent or approval given or such other appropriate action taken. (f)
The Loan and its terms do not violate any laws including, without limitation,
any usury laws of the jurisdictions where Borrower and any Collateral are
located; such other matters and opinions as the Bank reasonably requests.
Borrower agrees, upon request of the Bank from time to time, to provide Bank
with a then-current Certificate of Good Standing, Charter Documents or
Certificate of Incumbency.
JOINT AND SEVERAL OBLIGATIONS. The obligations of the Borrower hereunder and
under the Notes shall be joint and several.
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<PAGE> 13
MISCELLANEOUS. This Agreement shall be construed in accordance with and governed
by the laws of the State of Connecticut without reference to conflicts of laws
principles. This Agreement and the other Loan Documents constitute the sole
agreement of the parties with respect to the subject matter thereof and
supersede all oral negotiations and prior writings with respect to the subject
matter thereof. No amendment of this Agreement, and no waiver of any one or more
of the provisions hereof shall be effective unless set forth in writing and
signed by the parties hereto. The illegality, unenforceability or inconsistency
of any provision of this Agreement shall not in any way affect or impair the
legality, enforceability or consistency of the remaining provisions of this
Agreement or the other Loan Documents. This Agreement and the other Loan
Documents are intended to be consistent. However, in the event of any
inconsistencies among this Agreement and any of the Loan Documents, the terms of
the Notes, and then this Agreement, shall control. This Agreement may be
executed in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed an original, but all such
counterparts shall together constitute one and the same agreement. Terms used in
this Agreement which are capitalized and not otherwise defined herein shall have
the meanings ascribed to such terms in the Loan Documents.
CONNECTICUT PREJUDGMENT REMEDY WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE
TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND
HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON
PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR
OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.
WAIVER OF JURY TRIAL. WITH RESPECT TO ANY CONTROVERSY, ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THE TRANSACTIONS DESCRIBED
HEREIN OR CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH
THE LOAN OR THE OBLIGATIONS, THE COLLATERAL AND/OR ANY OF THE LOAN DOCUMENTS,
BORROWER AND BANK EACH VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHT TO OR CLAIM
FOR A TRIAL BY JURY.
E-72
<PAGE> 14
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:_____________________________
name:
title:
NTC TECHNOLOGY INC.
By:_____________________________
name:
title:
CHILDREN'S MEDICAL VENTURES, INC.
By:_____________________________
name:
title:
WEBSTER BANK
By:______________________________
name:
title:
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. NTC Technology Inc.
2. NTC Management Inc.
3. Emertech, Sarl.
4. Novametrix International, Ltd.
5. Novametrix Acquisition Corporation
6. Novametrix Foreign Sales Corporation
E-74
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement
Number 33-58789 on Form S-3 dated April 25, 1995, Registration Statement Number
33-82336 on Form S-8 dated August 3, 1994, Post Effective Amendment No. 1 on
Form S-3 dated August 12, 1994 to Registration Statement Number 33-67478 on Form
S-1 dated August 17, 1993, Registration Statement Number 33-44786 on Form
S-8 dated December 30, 1991 pertaining to the Novametrix Medical Systems Inc.
1990 Stock Option Plan, and Registration Statement on Form S-8 dated July 24,
1998 pertaining to the Novametrix Medical Systems Inc. 1997 Long Term Incentive
Plan and the Novametrix Medical Systems Inc. Employee Warrants Plan of our
report dated July 1, 1999, with respect to the consolidated financial
statements and schedule of Novametrix Medical Systems Inc. included in this
annual report (Form 10-K) for the year ended May 2, 1999.
/s/Ernst & Young LLP
Hartford, Connecticut
July 26, 1999
E-75
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
Novametrix Medical Systems Inc. Consolidated Statements of Income for the year
ended May 2, 1999 and the Consolidated Balance Sheets at May 2, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-02-1999
<PERIOD-END> MAY-02-1999
<CASH> 269,399
<SECURITIES> 0
<RECEIVABLES> 13,744,372
<ALLOWANCES> (250,000)
<INVENTORY> 9,352,447
<CURRENT-ASSETS> 24,299,398
<PP&E> 10,596,053
<DEPRECIATION> 6,913,927
<TOTAL-ASSETS> 35,975,874
<CURRENT-LIABILITIES> 9,065,859
<BONDS> 2,254,071
0
0
<COMMON> 92,327
<OTHER-SE> 24,563,617
<TOTAL-LIABILITY-AND-EQUITY> 35,975,874
<SALES> 32,864,673
<TOTAL-REVENUES> 32,978,164
<CGS> 13,568,836
<TOTAL-COSTS> 13,568,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,365
<INCOME-PRETAX> 2,870,367
<INCOME-TAX> 803,700
<INCOME-CONTINUING> 2,066,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,066,667
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.24
</TABLE>
