<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 20-8969
NOVAMETRIX MEDICAL SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0977422
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Technology Drive, Wallingford, CT 06492
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 265-7701
--------------------------------------------------------------------------
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.01 par value: 7,947,804 shares issued and outstanding as of
February 26, 1999
Page 1 of 22
Index to Exhibits at Page 16
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Quarters ended January 31, 1999 and February 1, 1998 3
Nine months ended January 31, 1999 and February 1, 1998 4
Condensed Consolidated Balance Sheets -
January 31, 1999 and May 3, 1998 5
Condensed Consolidated Statements of Cash Flows -
Nine months ended January 31, 1999 and February 1, 1998 7
Notes to Condensed Consolidated Financial Statements -
January 31, 1999 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
Page 2 of 22
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $8,606,113 $7,378,240
Costs and expenses:
Cost of products sold 3,701,004 3,307,401
Research and product development 1,058,077 884,429
Selling, general and administrative 3,270,606 2,433,411
Interest expense 97,437 5,267
Other expense 11,025 4,737
---------- ----------
8,138,149 6,635,245
---------- ----------
INCOME BEFORE INCOME TAXES 467,964 742,995
Income tax provision 131,000 208,000
---------- ----------
NET INCOME $ 336,964 $ 534,995
========== ==========
Per common share amounts:
Basic $ 0.04 $ 0.06
========== ==========
Diluted $ 0.04 $ 0.06
========== ==========
Weighted average common shares outstanding:
Basic 8,028,342 8,650,811
Diluted 8,406,268 9,336,310
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 3 of 22
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------- ----------------
<S> <C> <C>
Net sales $24,686,085 $22,250,661
Costs and expenses:
Cost of products sold 10,180,215 9,700,283
Research and product development 3,036,994 2,595,742
Selling, general and administrative 8,960,356 7,467,567
Interest expense 122,514 109,599
Other expense 34,492 36,829
----------- -----------
22,334,571 19,910,020
----------- -----------
INCOME BEFORE INCOME TAXES 2,351,514 2,340,641
Income tax provision 659,000 655,000
----------- -----------
NET INCOME $ 1,692,514 $ 1,685,641
=========== ===========
Per common share amounts:
Basic $ 0.20 $ 0.21
=========== ===========
Diluted $ 0.19 $ 0.18
=========== ===========
Weighted average common shares outstanding:
Basic 8,415,739 7,928,820
Diluted 8,768,575 9,377,118
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 4 of 22
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JANUARY 31, 1999 MAY 3, 1998
- ------ ---------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 222,995 $ 1,783,596
Accounts receivable, less
allowance for losses of $250,000 10,011,231 9,712,814
Net investment in sales-type leases,
current portion 352,810
Notes receivable, current portion 245,318
Inventories:
Finished products 3,183,580 3,067,625
Work in process 1,586,874 1,777,028
Materials 3,982,105 3,028,281
------------ ------------
8,752,559 7,872,934
Deferred income taxes, net 2,414,000 2,414,000
Prepaid expenses 1,035,861 697,880
------------ ------------
TOTAL CURRENT ASSETS 23,034,774 22,481,224
Net investment in sales-type leases,
long-term portion 1,248,715
Notes receivable, long-term portion 1,825,158
Equipment 10,171,343 8,627,726
Accumulated depreciation (deduction) (6,572,130) (6,031,517)
------------ ------------
3,599,213 2,596,209
License, technology, patents and other 8,176,255 7,521,371
Accumulated amortization (deduction) (3,860,878) (3,566,574)
------------ ------------
4,315,377 3,954,797
Deferred income taxes, net 1,405,666 1,969,666
------------ ------------
$ 35,428,903 $ 31,001,896
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 5 of 22
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JANUARY 31, 1999 MAY 3, 1998
- ------------------------------------ ---------------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,050,648 $ 1,883,234
Accrued expenses 2,275,189 1,961,441
Notes payable to bank, current portion 3,817,000
Capital lease obligation, current portion 36,307 33,901
------------ ------------
TOTAL CURRENT LIABILITIES 8,179,144 3,878,576
Capital lease obligation, less current portion 60,419 90,881
Notes payable to bank, less current portion 2,450,000
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 9,220,915 at
January 31, 1999 and 9,174,355 at
May 3, 1998, including Treasury shares 92,209 91,744
Additional paid-in capital 34,909,754 34,754,643
Retained-earnings deficit (3,634,396) (5,326,910)
Treasury stock - 1,181,255 shares at January 31, (6,628,227) (2,487,038)
------------ ------------
1999 and 338,452 shares at May 3, 1998
24,739,340 27,032,439
------------ ------------
$ 35,428,903 $ 31,001,896
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited) .
Page 6 of 22
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,692,514 $ 1,685,641
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Depreciation 540,613 441,913
Amortization 357,880 398,690
Deferred income taxes 564,000 607,000
Net investment in sales-type leases (1,601,525)
Changes in operating assets and liabilities:
Accounts and notes receivable (2,368,893) 577,802
Inventories (879,625) (621,353)
Prepaid expenses (337,981) (100,389)
Accounts payable 167,414 (537,588)
Accrued expenses 313,748 (1,124,866)
NET CASH (USED) PROVIDED BY ----------- -----------
OPERATING ACTIVITIES (1,551,855) 1,326,850
INVESTING ACTIVITIES
Purchases of equipment (1,543,617) (646,546)
Purchases of licenses, technology, patents and other (718,460) (408,927)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,262,077) (1,055,473)
FINANCING ACTIVITIES
Proceeds from notes payable 6,267,000
Principal payments on borrowings (28,056) (3,626,285)
Dividends on Preferred Stock (15,000)
Net proceeds from sales of Common Stock 155,576 4,580,970
Purchase of Treasury Stock (4,141,189)
NET CASH PROVIDED BY FINANCING ----------- -----------
ACTIVITIES 2,253,331 939,685
(DECREASE) INCREASE IN CASH ----------- -----------
AND CASH EQUIVALENTS (1,560,601) 1,211,062
Cash and cash equivalents at beginning of period 1,783,596 236,808
----------- -----------
Cash and cash equivalents at end of period $ 222,995 $ 1,447,870
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
Page 7 of 22
<PAGE> 8
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1999
NOTE 1 -- BASIS OF PRESENTATION: The accompanying unaudited condensed
consolidated financial statements of Novametrix Medical Systems Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the quarter and nine months ended January 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending May 2, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended May 3, 1998.
NOTE 2 -- PER SHARE AMOUNTS: The calculation of basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
The calculation of diluted earnings per share excludes anti-dilutive options and
warrants whose exercise price exceeds the average market price.
The following table sets forth the calculation of basic and diluted
earnings per share for the quarter and nine months ended January 31, 1999 and
February 1, 1998:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
01-31-99 02-01-98 01-31-99 02-01-98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NUMERATOR
Net Income $ 336,964 $ 534,995 $1,692,514 $1,685,641
Preferred Stock dividends 15,000
---------- ---------- ---------- ----------
Numerator for basic earnings per share 336,964 534,995 1,692,514 1,670,641
Effect of dilutive securities:
Preferred Stock dividends 15,000
---------- ---------- ---------- ----------
Numerator for diluted earnings per share $ 336,964 $ 534,995 $1,692,514 $1,685,641
========== ========== ========== ==========
</TABLE>
Page 8 of 22
<PAGE> 9
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
01-31-99 02-01-98 01-31-99 02-01-98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,028,342 8,650,811 8,415,739 7,928,820
Effect of dilutive securities:
Employee stock options and warrants 377,926 685,499 352,836 1,207,028
Convertible Preferred Stock 241,270
--------- --------- --------- ---------
Dilutive potential common shares 377,926 685,499 352,836 1,448,298
--------- --------- --------- ---------
Denominator for diluted earnings per share 8,406,268 9,336,310 8,768,575 9,377,118
========= ========= ========= =========
Basic earnings per share $ 0.04 $ 0.06 $ 0.20 $ 0.21
========= ========= ========= =========
Diluted earnings per share $ 0.04 $ 0.06 $ 0.19 $ 0.18
========= ========= ========= =========
</TABLE>
NOTE 3 -- NET INVESTMENT IN SALES-TYPE LEASES: During the first quarter of
fiscal 1999, the Company entered into several sales-type leases with certain
customers which will result in payments over a multi-year period. The leases are
for a term of five years and provide for the transfer of title to the lessee at
the end of the lease term. The Company's net investment in sales-type leases as
of January 31, 1999 consists of:
<TABLE>
<S> <C>
Minimum lease payments receivable $ 1,997,205
Less unearned income (395,680)
-----------
Net investment in sales-type leases $ 1,601,525
===========
</TABLE>
NOTE 4 -- NOTES RECEIVABLE: During the third quarter ended January 31, 1999, the
Company entered into sales agreements with certain customers which call for
payments over a multi-year period. In addition, the Company made loans in the
aggregate amount of $148,100 under the Novametrix Medical Systems Inc. Director
and Senior Officer Stock Retention Plan. The loans bear interest at a fixed rate
equal to the Applicable Federal Rate under Section 1274(d) of the Internal
Revenue Code of 1986, as amended. The loans provide for payments of interest on
a quarterly basis, in arrears, until the third anniversary of the loans at which
time the principal is payable.
Page 9 of 22
<PAGE> 10
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE 5 -- DEBT: The Company maintains a revolving credit agreement with its
lender which provides for borrowing to a maximum of $5,000,000, expires August
31, 2000, and bears interest at the London Interbank Offered Rate ("LIBOR") plus
.98% (totaling 5.94% at February 26, 1999). During the third quarter ended
January 31, 1999, the Company entered into a five-year $3,000,000 term loan with
its lender. The term loan is payable in monthly installments of $50,000 plus
interest at 6.77% under an interest rate swap agreement with its lender. The
Company utilizes the interest rate swap to manage its interest rate risk on its
variable rate term loan. Under the agreement, the Company is required to make
fixed rate payments and in return receives payments from its lender at variable
rates. The risk of loss to the Company in the event of non-performance by its
lender, a major financial institution, is not significant. The Company is
required under both loan agreements to maintain certain financial ratios,
minimum working capital and net worth, has pledged its assets as collateral, and
is limited among other things, on the purchase of its capital stock and new
borrowings.
NOTE 6 -- CAPITAL STOCK: As of January 31, 1999, the Company had purchased
842,803 shares of its common stock at a cost of $4,141,189 under the previously
approved repurchase plans. There are 349,995 remaining shares authorized for
purchase under the repurchase program.
Page 10 of 22
<PAGE> 11
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Primarily as a result of lower than planned international revenues, net
income for the third quarter of fiscal 1999 was approximately $337,000 or $0.04
per diluted share compared to net income of approximately $535,000 or $0.06 per
diluted share for the third quarter of fiscal 1998. Net income of approximately
$1,693,000 or $0.19 per share for the first nine months of fiscal 1999 was
comparable to net income of approximately $1,686,000 or $0.18 per diluted share
reported for the first nine months ended February 1, 1998.
Net sales for the third quarter of fiscal 1999 increased 17% to
approximately $8,606,000 compared to net sales of approximately $7,378,000 for
the third quarter of fiscal 1998. The increase was led by continued strong
growth in domestic sales which was partially offset by a decline in
international shipments. Net sales for the first nine months of fiscal 1999
increased 11% to approximately $24,686,000 compared to net sales of
approximately $22,251,000 for the corresponding period of the prior fiscal year.
The improvement in sales was led by significant growth in domestic sales,
partially offset by decreases in international shipments and OEM sales.
Cost of products sold as a percentage of net sales improved to 43% for the
third quarter of fiscal 1999 compared to 45% for the third quarter of fiscal
1998. Cost of products sold was 41% of net sales for the first nine months of
fiscal 1999 compared to 44% for the first nine months of fiscal 1998. The
improvement in cost of products sold for both periods was primarily related to
increased domestic sales as a percentage of total sales and product mix. The
Company is continuing to pursue product cost reductions.
Research and product development ("R&D") expenses increased by
approximately $174,000 for the quarter ended January 31, 1999 compared to the
quarter ended February 1, 1998. Higher levels of salaries and related fringe
benefits from increased personnel and additional engineering materials were
primarily responsible for the increase. R&D expenses for the nine months ended
January 31, 1999 increased approximately $441,000 compared to the first nine
months of the prior fiscal year. The increase was primarily due to higher levels
of salaries and related fringe benefits from increased personnel, outside
professional services and depreciation expense related to the Company's new
non-invasive cardiac output monitor and disposable rebreathing circuit.
Selling, general and administrative ("S,G&A") expenses increased
approximately $837,000 for the third quarter of fiscal 1999 compared to the
third quarter of fiscal 1998. Increased sales and marketing expenses including
higher levels of salaries and related fringe benefits on increased personnel,
increased dealer and employee sales commissions on the expanded domestic sales
volume, and increased
Page 11 of 22
<PAGE> 12
outside professional services, accounted for the majority of the increase in
S,G&A expense. G&A expenses also increased for the third quarter of fiscal 1999
compared to the third quarter of the prior fiscal year primarily as a result of
increased salaries and related fringe benefits and outside professional
services. S,G&A expenses increased approximately $1,493,000 for the first nine
months of fiscal 1999 as compared to the first nine months of the prior fiscal
year. Increased sales and marketing expenses were primarily responsible for the
overall increase in S,G&A expenses including dealer and employee sales
commissions on the expanded domestic sales efforts, salaries and related fringe
benefits on increased personnel, and outside professional services. Increased
G&A expenses including salaries and related fringe benefits and increased
outside professional services also contributed to the increase in S,G&A
expenses.
Interest expense increased approximately $92,000 for the quarter ended
January 31, 1999 compared to the corresponding quarter of the prior fiscal year.
Interest expense increased approximately $13,000 for the nine months ended
January 31, 1999 compared to the corresponding nine months of the prior fiscal
year. The increase in the Company's borrowings for both comparisons was
primarily associated with the Company's common stock repurchase program and
certain customer sales financing agreements.
Income tax expense for the first nine months of both fiscal 1999 and 1998
was based upon the estimated effective tax rate of 28%. Due to net operating
loss carryforwards for federal income tax purposes, the Company expects income
taxes payable, calculated on an alternative minimum tax basis, to be minimal for
fiscal 1999.
Except for orders pursuant to long-term OEM agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog levels to be a meaningful indicator of future sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $14,856,000 at January 31,
1999 compared to approximately $18,603,000 at May 3, 1998. The decrease in
working capital of approximately $3,747,000 was primarily attributable to an
increase in bank debt resulting from the Company's repurchase of its common
stock for $4,141,189, various sales financing transactions, of which
approximately $3,074,000 was recorded as long-term, and an increase in accounts
payable and accrued expenses. Partially offsetting these transactions were
increases in inventory, accounts receivable, and the current portion of notes
receivable and net investment in sales-type leases. This resulted in a current
ratio of 2.8 to 1 at January 31, 1999 compared to 5.8 to 1 at May 3, 1998.
Approximately $1,552,000 of cash was used by operations for the nine months
ended January 31, 1999 compared to approximately $1,327,000 of cash provided by
operations for the corresponding period of the prior fiscal year. The reduction
in cash provided from operations of approximately $2,879,000 compared to the
first nine months of fiscal 1998 was primarily attributable to increases in net
investments in sales-type leases, accounts and notes receivable, prepaid
expenses, and inventory, which were partially offset by increases in accounts
payable and accrued expenses.
Page 12 of 22
<PAGE> 13
During the first nine months of fiscal 1999, the Company invested
approximately $1,544,000 in capital expenditures compared to approximately
$647,000 for the first nine months of fiscal 1998. The Company expects that
capital expenditures will continue to exceed its normal requirements for the
balance of fiscal 1999 primarily due to costs pertaining to tooling and
production equipment associated with the Company's new products.
Approximately $2,253,000 of funds were provided from financing activities
during the first nine months of fiscal 1999. As of January 31, 1999, the Company
had $6,267,000 of bank debt outstanding including $3,267,000 outstanding against
its revolving credit agreement and a $3,000,000 term loan which was consummated
during December 1998. The bank debt was used primarily to repurchase 842,803
shares of the Company's common stock at a cost of $4,141,189 and to support
certain sales financing agreements which call for payments by the Company's
customers over a multi-year period. There were 349,995 remaining shares
authorized for purchase under the stock repurchase plan as of January 31, 1999.
The Company expects cash from operations and funds available under the
Company's revolving credit agreement to adequately support its planned operating
requirements for the balance of fiscal 1999. In addition, management believes
that additional funds, if needed, could be obtained on commercially reasonable
terms.
YEAR 2000 COMPLIANCE
The Company has addressed the Year 2000 compliance issue with regard to the
potential impact on its business, results of operations and financial condition.
The Company conducted a thorough review of its installed base of monitoring
equipment and has determined that its products are Year 2000 compliant. The
results of the Company's examination have been posted on its website for its
customers to review. During 1998, the Company completed the installation of a
new fully-integrated operating system which is Year 2000 compliant. Other less
significant office technology is scheduled to be upgraded by mid-1999, the costs
of which are expected to be less than $50,000. Further, the Company does not
believe that it will be significantly impacted by the inability of third parties
used by the Company to provide products and services. While the Company cannot
be certain that all third parties will meet the Year 2000 requirements, the
estimated cost or disruption of services is not expected to be material to the
Company's financial position or results of operations.
FORWARD LOOKING INFORMATION
This Quarterly Report contains forward looking statements about the
Company's projected operating results. 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, global economic
changes, an unanticipated slowdown in the healthcare industry, unanticipated
technological developments which affect the competitiveness of the Company's
products, or an unanticipated loss or delay of business. The Company does not
intend to update publicly any of the forward looking statements contained
herein.
Page 13 of 22
<PAGE> 14
PART II- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the
Quarterly Report on Form 10-Q are listed in the attached Index
to Exhibits.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K
filed during the quarter ended January 31, 1999.
Page 14 of 22
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: March 16, 1999 /s/ WILLIAM J. LACOURCIERE
--------------------------
William J. Lacourciere
Chairman of the Board,
President and Chief Executive Officer
Dated: March 16, 1999 /s/ JEFFERY A. BAIRD
--------------------------
Jeffery A. Baird
Chief Financial Officer and
Principal Accounting Officer
Page 15 of 22
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
10(ll) Form of Promissory Note under the Novametrix Medical
Systems Inc. Director and Senior Officer Stock Retention Program 17
27 Financial Data Schedule 22
</TABLE>
Page 16 of 22
<PAGE> 1
EXHIBIT 10(ll)
PROMISSORY NOTE
[ $ Amount ] [ Date ]
FOR VALUE RECEIVED, the undersigned, __________ (the "Borrower"),
hereby promises to pay to the order of NOVAMETRIX MEDICAL SYSTEMS INC., a
Delaware corporation (the "Lender"), the principal sum of ___________________
Dollars ($ Amount), together with interest on the balance of unpaid principal
from the date hereof until paid in full at a rate per annum equal to the
Applicable Federal Rate of _____% (the "Loan"). Interest shall be payable
quarterly, in arrears, commencing on the last day of March, 1999 and thereafter
on the last day of June, September, December and March and at maturity.
Principal shall be payable on the third anniversary of the date hereof. Any
principal that is not paid when due (whether at the stated maturity, by
acceleration or otherwise) shall thereafter bear interest at a rate per annum
equal to the Applicable Federal Rate plus five (5) percentage points until the
Loan is paid in full. As used herein, "Applicable Federal Rate" shall mean a
fixed rate equal to the rate prescribed for the month in which the Loan is made,
under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the
"Code"), for loans with a term of not more than three (3) years and with
interest payable quarterly.
All payments of principal and interest shall be made in money of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts, at the offices of the Lender, 5 Technology
Drive, Wallingford, Connecticut 06492 (or at such other office as the Lender may
from time to time designate by notice to the Borrower).
Section 1. Use of Proceeds; Prepayment; Repayment Limitation.
1.1 Use of Proceeds. The proceeds of the Loan shall be used by the
Borrower to assist the Borrower to continue to own ("to carry") shares of Stock.
This Promissory Note is not secured, directly or indirectly, by shares of Stock.
The Borrower shall designate in a manner satisfactory to the Lender the shares
of Stock carried with the proceeds of the Loan. The number of shares of Stock
deemed carried with the proceeds of the Loan (the "Shares") shall be that number
(rounded to the nearest whole number) equal to the principal amount of the Loan
divided by the per share Value of the Stock on the date the Loan is made.
1.2 Prepayment. This Promissory Note may be prepaid in full or in part,
at any time and without notice, at the option of the Borrower, without charge,
premium or penalty therefor. Any partial prepayment shall be applied first to
accrued interest and then to principal.
1.3 Repayment Limitation. If the Borrower holds all of the Shares until
maturity of the Loan and the per share Value of the Stock on the maturity date
shall be less than the per share Value of the Stock on the date hereof, the
Borrower's repayment obligation under this Promissory Note shall be limited to
the greater of (A) twenty-five percent (25%) of the principal amount of the Loan
and (B) that principal amount which bears the same proportion to the original
principal amount of the Loan as the per share Value of the Stock on the maturity
date of the Loan bears to the per share Value of the
Page 17 of 22
<PAGE> 2
Stock on the date hereof, together with accrued interest in the case of (A) or
(B) on the principal amount of the Loan (determined before application of the
limitation provided in this sentence).
In the event of a Sale (as hereinafter defined) by the Borrower of any
of the Shares prior to the maturity date of the Loan for a Selling Price (as
hereinafter defined) per Share less than the per share Value of the Stock on the
date hereof, the Borrower's repayment obligation with respect to the portion of
the Loan allocable to such Shares (the "Loan Portion") shall be limited to the
greater of (A) twenty-five percent (25%) of the original principal amount of the
Loan Portion and (B) the principal amount which bears the same proportion to the
original principal amount of the Loan Portion as the Selling Price of the Shares
bears to the per share Value of the Stock on the date hereof, together with
accrued interest in the case of (A) or (B) on the principal amount of the Loan
Portion (determined before application of the limitation provided in this
sentence to the date of Sale, and after application of such limitation from and
after the date of Sale). As used herein:
"Loan Portion" shall mean the original principal amount of the Loan
multiplied by a fraction, the numerator of which is the number of Shares sold
and the denominator of which is the total number of Shares. The applicable Loan
Portion shall be determined each time Shares are sold for a Selling Price less
than the per share Value on the date hereof;
"Selling Price" shall mean the gross selling price per Share net of
brokerage commissions;
"Sale" shall mean a public sale of the Shares through a national
securities exchange, NASDAQ (as hereinafter defined) or the over-the-counter
market or a bona fide private sale of the Shares; and
"Value" shall mean the last sale price regular way on the date of
reference, or, in case no sale takes place on such date, the average of the high
bid and low asked prices, in either case on the principal national securities
exchange on which the Stock is listed or admitted to trading, or if the Stock is
not listed or admitted to trading on any national securities exchange, the last
sale price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or the
average of the closing high bid and low asked prices in the over-the-counter
market reported on NASDAQ on such date, whichever is applicable, or if there are
no such prices reported on NASDAQ on such date, as furnished to the Committee by
any New York Stock Exchange member selected from time to time by the Committee
for such purpose. If there is no bid or asked price reported on any such date,
Value shall be determined by the Board of Directors of the Lender in accordance
with the regulations promulgated under Section 2031 of the Code or by any other
appropriate method selected by the Board. The Borrower understands that the
portion of the principal amount of the Loan which the Borrower is not required
to pay pursuant to this Section 1.3 shall constitute cancellation of
indebtedness income and shall be taxable to the Borrower as such.
Section 2. Events of Default, Etc.
2.1 Events of Default. If any one or more of the following events
("Events of Default") shall happen:
Page 18 of 22
<PAGE> 3
(a) default shall be made by the Borrower in the payment of principal
or interest under this Promissory Note when and as the same shall become due and
payable; or
(b) default shall be made by the Borrower in the due performance or
observation of any other covenant, agreement or provision contained in this
Promissory Note to be performed or observed by the Borrower, or a breach shall
exist in any representation or warranty by the Borrower contained herein and
such default or breach shall continue for a period of ten (10) days after notice
to the Borrower with respect thereto; or
(c) the Borrower shall:
(i) admit in writing his inability to pay his debts generally
as they become due;
(ii) file a petition in bankruptcy under the bankruptcy laws
of the United States or any other jurisdiction (as such laws are now or
in the future amended) or any admission seeking the relief therein
provided;
(iii) make an assignment for the benefit of his creditors;
(iv) consent to the appointment of a receiver or trustee for
all or a substantial part of his property or to the filing of a
petition against him under said bankruptcy laws; or
(v) be adjudicated a bankrupt; or
(d) a proceeding shall have been instituted seeking a decree or order
for relief in respect of the Borrower in an involuntary case under applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or for
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Borrower or for any substantial part
of his property and such proceeding shall remain undismissed or unstayed and
in effect for a period of thirty (30) days or such court shall enter a decree
or order granting the relief sought in such proceeding; or
(e) a court of competent jurisdiction shall assume custody of or
sequester all or substantially all the property of the Borrower; or
(f) an attachment shall be made on any substantial part of the property
of the Borrower; then in each and every case the Lender may (unless every such
Event of Default shall have been made good and cured) by notice in writing to
the Borrower declare the unpaid principal of this Promissory Note to be
forthwith due and payable and thereupon such principal together with interest
accrued to the date of payment shall become so due and payable without
presentation, protest or further demand or notice of any kind, all of which are
hereby expressly waived; provided that in the case of an Event of Default
specified in subsections (c), (d), (e) or (f) above, no notice to the Borrower
shall be required and upon the occurrence of such Event of Default the unpaid
principal of this Promissory Note together with interest accrued to the date of
payment shall become immediately due and payable.
Page 19 of 22
<PAGE> 4
2.2 Collection Costs. The Borrower covenants that if default be made in
any payment on this Promissory Note, the Borrower will pay to the Lender such
further amount, to the extent lawful, as shall be sufficient to cover the cost
and expense of collection, including reasonable compensation to counsel of the
Lender for all services rendered in that connection.
2.3 Cumulative Powers. All powers and remedies given hereunder to the
Lender shall, to the extent permitted by law, be deemed cumulative and shall not
be exclusive of any other powers and remedies available to the Lender hereunder,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Promissory Note, and every
power and remedy given hereunder or by law to the Lender may be exercised from
time to time, and as often as shall be deemed expedient by the Lender.
Section 3. Miscellaneous.
3.1 No Waiver. No waiver by the Lender of any breach hereof or default
hereunder shall be deemed a waiver of any preceding or succeeding breach or
default and no failure of the Lender to exercise any right or privilege
hereunder shall be deemed a waiver of the Lender's rights to exercise the same
or any other right or privilege at any subsequent time or times.
3.2. Notice. Each notice or communication required or permitted
hereunder shall be deemed validly given and received if delivered personally or
if sent by registered or certified mail, return receipt requested, addressed as
follows:
(a) If to the Lender:
Novametrix Medical Systems Inc.
5 Technology Drive
Wallingford, Connecticut 06492
Attention: President
(b) If to the Borrower:
at the address for Borrower indicated on the signature page of
this Promissory Note
or to such other address as the party to whom notice is to be given may
subsequently designate by like notice. A notice given in accordance with the
preceding sentence shall be deemed to have been duly given upon receipt, if
delivered personally, or upon mailing, if given by registered or certified mail,
return receipt requested.
3.3 Waiver of Presentment and Notice of Dishonor. The Borrower and all
endorsers, guarantors and any other parties that may be liable under this
Promissory Note hereby waive
Page 20 of 22
<PAGE> 5
presentment, notice of dishonor, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Promissory Note.
3.4 Usury. Nothing contained in this Promissory Note shall authorize or
permit the exaction by the Lender or payment by the Borrower of interest where
the same would be unlawful or prohibited by any applicable law or would violate
the applicable usury law of any jurisdiction which is applicable hereto. In any
such event, this Promissory Note shall automatically be deemed amended to permit
interest charges at an amount equal to, but no greater than, the maximum
permitted by law. Any excess payment shall be applied against the principal
amount outstanding under this Promissory Note, or if not permitted to be so
applied by applicable law, shall be refunded to the Borrower.
3.5. Binding Effect. This Promissory Note shall be binding upon the
Borrower and his heirs, personal representatives, successors and assigns and
shall inure to the benefit of the Lender and its successors and assigns.
3.6. Governing Law. This Promissory Note shall be construed and
enforced in accordance with the laws of the State of Connecticut without regard
to the principles of conflicts of law thereof.
3.7. Headings. The headings of the Sections and subparagraphs of this
Promissory Note are inserted for convenience only and shall not constitute a
part hereof.
3.8. Consent to Jurisdiction. The Borrower hereby submits to the
jurisdiction of the Courts of the State of Connecticut for the enforcement of
this Promissory Note.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered this
Promissory Note as of the date first above written.
-----------------------------------
Signature of Borrower
Print Borrower's Name and Address:
-----------------------------------
-----------------------------------
-----------------------------------
Page 21 of 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Novametrix Medical Systems Inc. Condensed Consolidated Statements of
Income for the nine months ended January 31, 1999 and the Condensed Consolidated
Balance Sheets at January 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-02-1999
<PERIOD-END> JAN-31-1999
<CASH> 222,995
<SECURITIES> 0
<RECEIVABLES> 12,183,607
<ALLOWANCES> (250,000)
<INVENTORY> 8,752,559
<CURRENT-ASSETS> 23,034,774
<PP&E> 10,171,343
<DEPRECIATION> (6,572,130)
<TOTAL-ASSETS> 35,428,903
<CURRENT-LIABILITIES> 8,179,144
<BONDS> 2,510,419
0
0
<COMMON> 92,209
<OTHER-SE> 24,647,131
<TOTAL-LIABILITY-AND-EQUITY> 35,428,903
<SALES> 24,686,085
<TOTAL-REVENUES> 24,686,085
<CGS> 10,180,215
<TOTAL-COSTS> 10,180,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,514
<INCOME-PRETAX> 2,351,514
<INCOME-TAX> 659,000
<INCOME-CONTINUING> 1,692,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,692,514
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
