<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 19
TO
SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
HEALTHDYNE TECHNOLOGIES, INC.
(Name of Subject Company)
I.H.H. CORP.
INVACARE CORPORATION
(Bidders)
------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
18139610
(CUSIP Number of Class of Securities)
------------------------
THOMAS R. MIKLICH, ESQ.
CHIEF FINANCIAL OFFICER, GENERAL COUNSEL, TREASURER AND CORPORATE SECRETARY
INVACARE CORPORATION
899 CLEVELAND STREET
ELYRIA, OHIO 44035
TELEPHONE: (216) 329-6000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications on Behalf of Bidders)
------------------------
COPY TO:
ROBERT E. SPATT, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017-3954
TELEPHONE: (212) 455-2000
------------------------
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE**
<S> <C>
$208,851,120 $41,771
</TABLE>
* Based on the offer to purchase all of the outstanding shares of Common Stock
of the Subject Company and the associated Preferred Stock Purchase Rights at
$15.00 cash per share, the number of shares outstanding as reported as of
May 1, 1997 in the Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 of the Subject Company and the number of options
outstanding as of December 31, 1996 as reported in the Annual Report on Form
10-K for the fiscal year ended December 31, 1996 of the Subject Company,
less the number of shares owned by the Parent and the Purchaser.
** 1/50 of 1% of Transaction Valuation. An aggregate of $37,554 has previously
been paid in connection with the filing of the Schedule 14D-1 on January 27,
1997 and Amendment No. 8 thereto on April 1, 1997.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
AMOUNT PREVIOUSLY PAID: FILING PARTY:
FORM OR REGISTRATION NO.: DATE FILED:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No. 19 amends and supplements the Tender Offer Statement on
Schedule 14D-1 filed on January 27, 1997 (as amended, the "Schedule 14D-1")
relating to the offer by I.H.H. Corp., a Delaware corporation (the "Purchaser")
and a wholly owned subsidiary of Invacare Corporation, an Ohio corporation (the
"Parent"), to purchase all of the outstanding shares of Common Stock, par value
$0.01 per share (the "Shares"), of Healthdyne Technologies, Inc., a Georgia
corporation (the "Company"), and unless and until the Purchaser declares that
the Rights Condition as defined in the Offer to Purchase referred to below is
satisfied) the associated Preferred Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement, as amended, dated as of May 22, 1995, between
the Company and SunTrust Bank, Atlanta (formerly Trust Company Bank), as Rights
Agent, at a purchase price of $13.50 per Share (and associated Right), net to
the seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated January 27, 1997, as amended
and supplemented by the Supplement thereto dated April 4, 1997 (the "Offer to
Purchase"), and in the related Letter of Transmittal. Unless otherwise
indicated, all capitalized terms used but not defined herein shall have the
meanings assigned to them in the Schedule 14D-1.
The Schedule 14D-1 is hereby amended and supplemented as follows:
On June 2, 1997, the Parent and the Purchaser filed a Motion for Summary
Judgment on Parent's Dead-Hand Elimination Proposal Counterclaim and a
memorandum opposing the Company's motion for summary judgment on Company's
Dead-Hand Elimination Proposal Counterclaim and in support of the Motion for
Summary Judgment on Parent's Dead-Hand Elimination Proposal Counterclaim. A copy
of the memorandum filed by the Parent and the Purchaser is set forth in Exhibit
11(g)(14).
On June 4, 1997, the Parent issued a press release announcing that the
Purchaser had increased the cash purchase price for all outstanding Shares of
the Company in the Offer to $15.00 per Share, net to the Seller in cash without
interest thereon, upon the other terms and subject to the conditions set forth
in the Offer to Purchase and the related Letter of Transmittal. The full text of
the press release is set forth in Exhibit 11(a)(28) and is incorporated herein
by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(28) Press Release issued by the Parent on June 4, 1997.
(g)(14) Memorandum filed by the Parent and the Purchaser on June 2, 1997.
2
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this Statement is true, complete and correct.
INVACARE CORPORATION
By: /s/ THOMAS R. MIKLICH
-----------------------------------------
Name: Thomas R. Miklich
Title: Chief Financial Officer
I.H.H. CORP.
By: /s/ THOMAS R. MIKLICH
-----------------------------------------
Name: Thomas R. Miklich
Title: President
Date: June 4, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------------------- -------------------------------------------------------------------------------------- ---------
<S> <C> <C>
Exhibit 11(a)(28) Press Release issued by the Parent on June 4, 1997....................................
Exhibit 11(g)(14) Memorandum filed by the Parent and the Purchaser on June 2, 1997......................
</TABLE>
<PAGE>
NEWS RELEASE MACKENZIE
PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
212 929-5500
FAX 212 929-0308
FOR IMMEDIATE RELEASE
Contact: Mark Harnett
MacKenzie Partners, Inc.
929-5877
INVACARE ANNOUNCES "BEST AND FINAL" INCREASE IN OFFER PRICE
FOR HEALTHDYNE TECHNOLOGIES TO $15
Elyria, Ohio -- (June 4, 1997) -- Invacare Corporation (NASDAQ/NMS:IVCR)
announced today that its wholly owned subsidiary I.H.H. Corp. has increased the
price in its tender offer for all outstanding shares of common stock of
Healthdyne Technologies, Inc. (NASDAQ/NMS:HDTC) from $13.50 to $15.00 per share,
net to the seller in cash without interest thereon, upon the other terms and
subject to the conditions set forth in the Offer to Purchase dated January 27,
1997, as amended and supplemented by the Supplement thereto dated April 4, 1997,
and the related Letter of Transmittal. The increased offer represents a premium
of approximately 70% over Healthdyne's $8.88 stock price on the trading day
before Invacare made its initial acquisition proposal.
A. Malachi Mixon, III, Invacare's Chairman and Chief Executive Officer, said,
"This substantial increase -- made in the interest of bringing this
unnecessarily drawn-out process to an end -- represents our best and final offer
for Healthdyne. Absent a negotiated transaction in which Healthdyne's
management is able to substantiate additional value to our satisfaction, we do
not intend to raise our price again."
"Let me add that if Healthdyne's shareholders do not elect our nominees at the
upcoming July 30 annual meeting so as to permit our transaction to go forward,
we fully intend to evaluate all our options at that time, including withdrawing
our offer and/or disposing of some or all of our 600,000 shares of Healthdyne
stock."
"In light of our increased offer, which fully reflects current market estimates
of Healthdyne's future performance, I once again call on Chairman Parker H.
Petit and the rest of Healthdyne's management to meet with us promptly to
discuss a mutually agreeable transaction. Alternatively, we urge them to take
the necessary actions to remove Healthdyne's defensive measures with respect to
our transaction to permit their shareholders to take immediate advantage of our
premium offer, which we are confident is simply too compelling to pass up."
The tender offer is currently scheduled to expire at 12:00 midnight, New York
City time, on Friday, June 20, 1997, unless further extended in the manner
described in the above-described Offer to Purchase and Supplement.
# # #
-More-
<PAGE>
INVACARE/HEALTHDYNE 2
JUNE 4, 1997
PAGE TWO
PARTICIPANT INFORMATION
Invacare may solicit proxies for Healthdyne's 1997 annual meeting with respect
to the above-described nominees and its previously announced proposals. Besides
Invacare and the nominees, other participants in this solicitation may include
the following directors and/or executive officers of Invacare: A. Malachi Mixon,
III (Chairman, Chief Executive Officer and Director), Gerald B. Blouch
(President, Chief Operating Officer and Director), Thomas R. Miklich (Chief
Financial Officer, Secretary, General Counsel and Treasurer), Joseph B. Richey,
II (Senior Vice President--Total Quality Management and Director), Donald P.
Andersen (Group Vice President--Respiratory Products) and Louis F.J. Slangen
(Senior Vice President--Sales & Marketing). Although Salomon Brothers Inc
("Salomon Brothers"), which is acting as dealer manager in connection with the
tender offer and serving as financial advisor to Invacare in connection with the
proposed acquisition of Healthdyne, does not admit that it or any of its
directors, officers, employees or affiliates is a "participant", as defined in
Schedule 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, or that such Schedule 14A requires
the disclosure of certain information concerning them, the following employees
of Salomon Brothers may assist Invacare in such a solicitation: Scott Wilson
(Managing Director), Wilder Fulford (Managing Director), John Fowler (Managing
Director), John Chambers (Director) and Sarah Barnes (Vice President).
Invacare beneficially owns an aggregate of 600,000 shares of Healthdyne's common
stock. Salomon Brothers will receive customary financial advisor and dealer
manager fees, reimbursement and indemnification from Invacare in connection with
the tender offer and any acquisition by Invacare of Healthdyne. Salomon Brothers
will not receive any additional fee for or in connection with assisting in any
solicitation of proxies. Salomon Brothers engages in a full range of investment
banking, securities trading, market-making and brokerage services for
institutional and individual clients. In the ordinary course of its business,
Salomon Brothers maintains customary arrangements and effects transactions in
the securities of Healthdyne for the accounts of its customers. As a result of
its engagement by Invacare, Salomon Brothers has restricted its proprietary
trading in the securities of Healthdyne (although it may still execute trades
for customers on an unsolicited agency basis).
<PAGE>
EXHIBIT 11 (g)(14)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
- ------------------------------)
INVACARE CORPORATION and )
I.H.H. CORP., )
)
Plaintiffs, )
)
v. ) CIVIL ACTION NO. 97-CV-0205-CC
)
HEALTHDYNE TECHNOLOGIES, )
INC., ET AL., )
)
Defendants. )
- ------------------------------)
PLAINTIFFS' MEMORANDUM IN OPPOSITION
TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
AND IN SUPPORT OF PLAINTIFFS' CROSS-MOTION
FOR SUMMARY JUDGMENT ON CLAIMS RELATED TO
INVACARE'S PROPOSED BYLAW AMENDMENT
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
SIMPSON THACHER & BARTLETT
425 Lexington Avenue
New York, New York 10017
Attorneys for Plaintiffs
<PAGE>
1
Plaintiffs Invacare Corporation and I.H.H. Corp. (collectively
"Invacare") submit this memorandum in opposition to the motion for summary
judgment filed by defendant Healthdyne Technologies, Inc. ("Healthdyne") on its
counterclaim seeking a declaration that the bylaw amendment proposed by Invacare
violates Georgia law and is not a proper proposal for consideration at the
upcoming Healthdyne Annual Meeting. Invacare also submits this memorandum in
support of its cross-motion for summary judgment on its counterclaim on the same
issue.
I. PRELIMINARY STATEMENT
Healthdyne argues that its current board has "sole discretion" to
manage the company's poison pill and that the board's authority cannot be
"limited" by a shareholder-approved bylaw. Healthdyne's argument ignores the
most basic principle of corporate law -- that the shareholders own the
corporation, and as owners they have the legal right to limit the board's
authority.
The shareholders' most important right as owners is to elect directors
who will manage the corporation in accordance with the shareholders' will. The
illegal Dead Hand Provision destroys this fundamental right by blocking a
successor board elected by the shareholders from removing the poison pill
obstacle to shareholder consideration of Invacare's Offer and Merger Proposal.
Invacare's proposed bylaw amendment limits the authority of Healthdyne's current
board to hamstring future boards with the Dead Hand Provision, thus assuring
that successor boards elected by the shareholders will have full power to manage
the corporation in accordance with the shareholders' wishes.
<PAGE>
2
Healthdyne's extreme position that the shareholders are powerless to
define the board's authority is based entirely on distortions of the governing
statutory text. The Georgia Business Corporation Code ("GBCC") plainly allows
shareholders to limit the board's authority through a shareholder-approved
bylaw. The fundamental provision of the GBCC governing the duties of the board
of directors, O.C.G.A. ss. 14-2-801(b), provides that the board's powers are
"SUBJECT TO ANY LIMITATION SET FORTH IN the articles of incorporation, BYLAWS
APPROVED BY THE SHAREHOLDERS, or agreements among the shareholders which are
otherwise lawful." (emphasis added).
In short, the Healthdyne board has announced its intention to use the
illegal Dead Hand Provision to subvert the shareholders' voting franchise by
crippling a successor board duly-elected by the shareholders. The GBCC gives
Healthdyne's shareholders the right to vote on a bylaw proposal that cures this
illegal result.
II. STATEMENT OF FACTS
Virtually all of the background facts necessary to the Court's
consideration of this motion are set forth in Invacare's Preliminary Injunction
Brief, filed May 16, 1997. Invacare incorporates herein the Statement of Facts
from that brief.(1)
On March 20, 1997, Invacare gave Healthdyne notice of Invacare's
intention to introduce certain matters for consideration by Healthdyne's
shareholders at the 1997 annual shareholders meeting ("Invacare's Notice").
Invacare's Notice contains a number
- --------------------------
(1) Invacare will continue to use the defined terms from its Preliminary
Injunction Brief.
<PAGE>
3
of shareholder proposals which will, if accepted by the shareholders, clear the
way for the shareholders to consider Invacare's Offer and Proposed Merger -- a
path currently being blocked by Healthdyne's incumbent directors.
Healthdyne's Counterclaim and Motion for Summary Judgment challenge
only one of Invacare's proposals -- shareholder proposal number 2 (attached
hereto as Exhibit A, hereafter "the Proposed Bylaw"), which addresses
Healthdyne's Dead Hand Provision. In summary, the Proposed Bylaw provides that
the current Board cannot impose or permit to exist any limitation on the
authority a new board would otherwise have, including the authority to redeem or
amend the poison pill. Invacare seeks shareholder consent to amend the bylaws to
remedy the illegal effects of the Dead Hand Provision.
As shown below, the Court should deny Healthdyne's motion and grant
Invacare's cross-motion because the Proposed Bylaw is a valid exercise of the
statutory power granted to shareholders under the GBCC to limit the power of the
board of directors.
III. INVACARE'S PROPOSAL IS LEGAL,
VALID, AND ENFORCEABLE
A. THE GBCC EXPRESSLY AUTHORIZES BYLAWS WHICH
LIMIT THE POWER OF THE BOARD OF DIRECTORS.
The GBCC embodies the policy that the shareholders, as the owners of
the corporation, have the "fundamental power to control the corporation." Jerome
L. Kaplan, GEORGIA CORPORATIONS, LIMITED PARTNERSHIPS AND LIMITED LIABILITY
COMPANIES, ss. 11-8 at 381 (1996 ed.). Because the shareholders, as owners of
the corporation, delegate managerial authority to the directors, the
shareholders
<PAGE>
4
have the inherent right to define the scope of that authority. 5
Fletcher, CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS, p. 460 ("[I]t is for
[the shareholders] to . . . define [the Board's] powers, unless there is some
charter or statutory provision to the contrary."); May 31, 1997 Second Affidavit
of William J. Carney, P. 10, hereafter "Second Carney Aff." (The GBCC "attempts
to provide shareholders with wide powers to contract and constrain the ...
misbehavior ... of their agents, the directors.").
Consistent with these general principles, the GBCC expressly authorizes
the shareholders to enact bylaws which restrict the Board's authority. The
bylaws "may contain any provision for managing the business and regulating the
affairs of the corporation that is not inconsistent with law or the articles of
incorporation." O.C.G.A. ss. 14-2-206(b). Section 801(b) provides that the
business and affairs of the corporation shall be managed under the direction of
its board of directors
SUBJECT TO ANY LIMITATIONS SET FORTH IN the articles of
incorporation, BYLAWS APPROVED BY THE SHAREHOLDERS, or
agreements among the shareholders which are otherwise lawful.
(emphasis added). In addition, O.C.G.A. ss. 14-2-1020(c) states:
A bylaw limiting the authority of the board of directors or
establishing staggered terms for directors may only be
adopted, amended, or repealed by the shareholders.
These provisions authorize Healthdyne's shareholders to amend the bylaws to
prevent the incumbent board from enforcing the Dead Hand Provision -- which was
enacted by the directors alone -- against the shareholders' wishes. The treatise
repeatedly cited by Healthdyne supports this conclusion. SEE Goldstein, GEORGIA
<PAGE>
5
CORPORATION LAW & PRACTICE, ss. 10.10, p. 309 (Prentice-Hall 1993) ("SINCE THE
ULTIMATE GOVERNANCE AUTHORITY OF THE CORPORATION RESTS IN THE SHAREHOLDERS,
bylaws adopted by the directors may be amended or repealed by the
shareholders.") (emphasis added); ID. ss. 2.3, pp. 32-33 ("If there is a board
of directors, however, the Articles OR BYLAWS may either limit or increase the
Board's powers.") (emphasis added).
B. HEALTHDYNE'S ARGUMENTS AGAINST THE PROPOSED
BYLAW DEPEND ON A TWISTED READING OF THE
GBCC WHICH WOULD LEAD TO ABSURD RESULTS.
1. HEALTHDYNE'S ARGUMENT THAT THE PROPOSED
BYLAW VIOLATES SECTION 624 IS BASED ON
AN INCOMPLETE QUOTATION OF THE STATUTE.
Healthdyne contends that under O.C.G.A.ss. 14-2-624, the board of
directors has the unlimited sole discretion to determine the terms and
conditions in a company's poison pill. Healthdyne asserts:
That section emphasizes the authority of the Board of
Directors "to determine IN ITS SOLE DISCRETION, the terms
and conditions of the rights . . . issuable
pursuant to [ss.624]."
Healthdyne Brief at 13, quoting O.C.G.A. ss. 14-2-624. Healthdyne further
asserts that because the Proposed Bylaw purportedly would intrude upon the "sole
discretion" of the Board by requiring deletion of the Dead Hand Provision, the
proposal "is invalid as a matter of law." ID. This argument fails for three
reasons.
First, ss. 624 actually provides, in relevant part:
NOTHING CONTAINED IN CODE SECTION 14-2-601 SHALL BE DEEMED TO
LIMIT THE BOARD OF DIRECTORS' AUTHORITY to determine, in its
sole discretion, the terms and conditions of the rights,
options or warrants issuable pursuant to this Code Section.
<PAGE>
6
O.C.G.A. ss. 14-2-624(c) (emphasis added). The underlined language, scissored
out by Healthdyne, clearly shows that the 1989 amendments to ss. 624 were simply
meant to provide that nothing in ss. 601 limits a board's authority to adopt a
shareholder rights plan. SEE Invacare's Preliminary Injunction Brief, pp. 17-18.
Healthdyne's argument that ss. 624 is a POSITIVE grant of unlimited "sole
discretion" to boards to adopt any manner of rights plan is simply unsupported
by the statutory text.
The Comment to ss. 624 establishes that the language at issue was
added in 1989 to overrule the holding in WEST POINT-PEPPERELL, INC. V. FARLEY,
INC., 711 F. Supp. 1088 (N.D. Ga. 1988). In WEST POINT, Judge Tidwell
invalidated a Georgia corporation's poison pill on the grounds that it violated
the predecessor to ss. 601 by discriminating against the bidder because the
bidder could not exercise stock purchase rights, while other shareholders
holding the same class of shares could exercise these rights. 711 F. Supp. at
1095.(2) The case had nothing to do with dead hand provisions.
Section 601(a) provides that all shares of the same class must be
treated equally. Thus, because the essential nature of a poison pill is to
dilute a bidder by granting favorable purchase rights to other shareholders, ss.
601(a) effectively precluded use of poison pills by Georgia corporations. To
reverse this holding, and clarify that ss. 601(a) does not invalidate so-called
- --------------------
(2) O.C.G.A.ss. 14-2-80(a) was the predecessor to GBCC section 601(a).
Comment, O.C.G.A.ss. 14-2-601; Carney Aff.,P. 38. Section 601(a) provides
that all shares of the same class must be treated equally.
<PAGE>
7
"discriminatory" plans under which the bidder is treated differently than other
shareholders, the Georgia legislature amended ss. 624 by adding the sentence
beginning with "Nothing in Section 601 ...."(3)
Thus, the language in ss. 624 cited by Healthdyne only reflects the
legislature's judgment that discriminatory rights plans in general are not
prohibited by ss. 601; it does not purport to address issues of the authority of
boards vis-a-vis the shareholders. SEE Goldstein, GEORGIA CORPORATION LAW &
PRACTICE, SUPRA, ss. 5.17 at p. 87 ("The GBCC provision is drafted to overrule
the argument accepted by some courts that, under GBCC ss. 14-2-601, all shares
of the same class or series need be treated alike."); Comment, O.C.G.A. ss.
14-2-624 ("[A]ny restrictions placed on the issuance of shares by Code section
14-2-601 should not be interpreted as applying to the issuance of rights,
options, or warrants and the determination of their terms and conditions by the
board of directors under subsection (a).") Section 624(c) does not bestow upon
the board of directors "unfettered discretion to adopt whatever form of poison
pill [that] might entrench the . . .Directors in power." Carney Aff.,P. 39. And,
of course,ss. 624 does not in any way approve dead hand provisions.
Second, while ss. 624(c) expressly overrides ss. 601, it does not even
MENTION ss. 801(b) and ss. 1020(c) -- the statutory grant of authority to
shareholders to adopt bylaws limiting board authority. The express reference to
ss. 601, when contrasted with
- ----------------------
(3) For a detailed discussion of the legislative history behind ss. 624, SEE
Carney Aff., P. P. 37-41.
<PAGE>
8
the lack of any reference to ss. 801(b) or ss. 1020(c), compels the conclusion
that ss. 624(c), while intended to override ss. 601, was not intended to
overrule or modify ss. 801(b) or ss. 1020(c). Therefore, ss. 624(c) cannot be
read to limit in any way shareholders' rights to adopt bylaws pursuant to ss.
801(b) and ss. 1020(c) limiting the board's authority regarding poison pill
plans.
Third, and finally, Healthdyne's extreme argument that the "sole
discretion" language in ss. 624(c) -- which on its face speaks only to ss. 601
- -- overrides all other Code sections leads to absurd results. For example,
allowing directors unlimited discretion to set the terms and conditions of a
company's rights plan would conflict with the strict provisions governing
self-dealing transactions in GBCC ss.ss. 14-2-860 to 863. Healthdyne's strained
interpretation of ss. 624 would allow directors to issue themselves rights on a
discriminatory basis without either (1) approval by disinterested
decision-makers (either disinterested directors or shareholders) or (2) bearing
the burden of defending their actions in court as being fair to the corporation.
O.C.G.A. ss.14-2-861(b). These results are plainly contrary to law.
In short, through selective quotation and other sleight of hand,
Healthdyne attempts to transform the actual language of ss. 624:
Nothing contained in Code Section 14-2-601 shall be deemed
to limit the board of directors' authority to determine, in
its sole discretion, the terms and conditions of the rights
... issuable pursuant to this Code section....
into an imaginary provision that would read as follows:
<PAGE>
9
The board of directors shall have the right to determine, in
its sole discretion, terms and conditions of rights
plans.... Nothing contained in any provision of the GBCC,
the articles of incorporation, or the bylaws shall be deemed
to limit this grant of discretion to the board of directors.
Healthdyne, however, must abide by the Code as written. The Court should reject
Healthdyne's unsupportable argument thatss. 624 trumps the entire GBCC,
includingss.801(b) and its fundamental grant of power to shareholders to limit
board authority in the bylaws. SEE Carney Aff.,P. 41.
2. HEALTHDYNE'S ARGUMENT THAT SHAREHOLDERS OF
A PUBLIC CORPORATION CANNOT DEFINE THE
AUTHORITY OF THE BOARD IS BASED ON A SPECIOUS
READING OF GBCC SECTION 731.
Although ss. 801(b) and ss. 1020(c) expressly authorize bylaws which
limit the board of directors' authority, Healthdyne contends that ss. 731(c)
restricts such bylaws to privately-held corporations. Healthdyne Brief at 14.
Healthdyne's tortured reasoning is that because ss. 731(c) authorizes certain
shareholder agreements for privately-held companies, the statute -- purely by
negative implication -- must preclude all such agreements for public companies.
This strained and illogical argument fails for a variety of reasons.
A. HEALTHDYNE'S INTERPRETATION IGNORES THE
PURPOSE OF SECTION 731 -- TO PERMIT ACTION
BY PRIVATELY HELD CORPORATIONS.
Section 731(c) provides:
Except in cases where the shares of the corporation are
listed on a national securities exchange or regularly quoted
in the markets maintained by security dealers or brokers, no
written agreement by all the shareholders, whether embodied
in the articles of incorporation or bylaws or in any
agreement
<PAGE>
10
in writing, which relates to any phase of the affairs of the
corporation, whether to the management of its business or to
the division of its profits or otherwise, shall be invalid
as among the shareholders on the ground that it eliminates a
board of directors, authorizes director proxies or weighed
voting rights for directors, or is AN ATTEMPT TO RESTRICT
THE DISCRETION OR POWERS OF THE BOARD OF DIRECTORS IN ITS
MANAGEMENT OF THE BUSINESS OF THE CORPORATION AS IF IT WERE
A PARTNERSHIP OR TO ARRANGE THE RELATIONSHIPS OF
SHAREHOLDERS IN A MANNER THAT WOULD BE APPROPRIATE ONLY
BETWEEN PARTNERS.
O.C.G.A. ss. 14-2-731(c) (emphasis added). The express language of the statute,
the Comment to the statute, and the authorities interpreting statutes on which
ss. 731(c) was based, all demonstrate that ss. 731(c) was intended only to
"provide a safe harbor for close corporations to vary their management
arrangements in any way they might see fit, including arrangements that stripped
the board of all authority and placed it in the shareholders' hands." Second
Carney Aff., P. 7. In other words, ss. 731(c) provides only that if all the
shareholders of a closely held corporation decide to eliminate or limit a board
of directors, these actions will not be invalid on that ground alone.
The Georgia legislature patterned ss. 731(c) -- first adopted in
1968 -- after similar statutes adopted in the 1950s and 60s in New York, North
Carolina, and South Carolina. SEE Comment, O.C.G.A. ss. 14-2-120 (predecessor of
O.C.G.A. ss. 14-2-731). Authorities interpreting North Carolina's statute,
section 55-73(b)(recodified as N.C. Stat. Sec. 55-7-31)(4), recognized that
- ---------------------
(4) The North Carolina statute (section 55-73(b)) was the first statute of
its kind. It provided:
(continued...)
<PAGE>
11
the statute "merely provides that a shareholders' agreement in which the parties
seek to deal with affairs of the corporation in a manner which would be
appropriate only between partners, is not invalid for that reason." BLOUNT V.
TAFT, 246 S.E.2d 763, 772 (N.C. 1978). SEE ALSO, Elvin R. Latty, THE CLOSE
CORPORATION AND THE NEW NORTH CAROLINA BUSINESS CORPORATION ACT, 34 N.C.L. Rev.
432, 439 (1955)(North Carolina's statute "furnish[ed] shareholders a legal
framework within which partnership-like arrangements having a reasonable
business purpose could be worked out with a substantial assurance of legal
validity."). The North Carolina statute thus overruled those cases invalidating
shareholder agreements on the basis that they made the corporation run like a
partnership. SEE, E.G., JACKSON V. HOOPER, 75 A. 568, 571 (N.J. Ct. Err. & App.
1910) (shareholders "cannot be partners INTER SESE and a corporation to the rest
of the world."); KAPLAN V. BLOCK, 31
- -----------------------
(4)(...continued)
Except in cases where the shares of the corporation are at
the time or subsequently become generally traded in the
markets maintained by securities dealers or brokers, no
written agreement to which all of the shareholders have
actually assented, whether embodied in the charter or bylaws
or in any side agreement in writing and signed by all the
parties thereto, and which relates to any phase of the
affairs of the corporation, whether to the management of its
business or division of its profits or otherwise, shall be
invalid as between the parties thereto, on the ground that
it is an attempt by the parties thereto to treat the
corporation as if it were a partnership or to arrange their
relationships in a manner that would be appropriate only
between partners . . . . A transferee of shares covered by
such agreement who acquires them with knowledge thereof is
bound by its provisions.
<PAGE>
12
S.E.2d 893, 896 (Va. 1944)(corporation cannot have partner-like management
agreements).
Statutes such as GBCC ss. 731(c) and N.C. 55-73(b) -- which INSULATE
unanimous agreements by shareholders of a small, privately held corporation from
attack on the grounds that they made the corporation run like a partnership --
do not purport to and cannot PROHIBIT non-unanimous agreements, bylaws, or other
arrangements by shareholders in publicly held companies restricting the board's
authority:
Conversely, the provision [N.C. 55-73(b)] does not limit
validation of [other] agreements [limiting board power] to
those that meet the language of this statutory provision. So,
unless the Court goes out of its way to read in a negative
implication, the Court might still validate, at least as
against certain parties, a side agreement that has NOT been
signed by all, or that is NOT in writing, etc., as the
circumstances of the case may appear to require.
Latty, SUPRA, at 439 (emphasis original).(5)
Finally, no court interpreting similar statutes in other states has
ever held that those statutes block the shareholders of
- -------------------
(5) Even if ss. 731(c) could be read to prohibit certain agreements, the statute
would not bar the Proposed Bylaw. Several commentators have opined that statutes
resembling ss. 731(c) only regulate agreements which fundamentally alter the
traditional power of the board of directors. SEE, E.G., Official Comment, Model
Business Corporation Act ss. 7.32 (statute overrules cases which invalidated
shareholder agreements because the agreements "sterilized" the board's
authority). Invacare's Proposed Bylaw, however, does not "sterilize"
Healthdyne's board. The Proposed Bylaw has no effect whatsoever on the authority
of Healthdyne's board to run its day-to-day operations or to make policy
decisions such as how to raise capital and what lines of business to pursue. Nor
does it limit the board's authority to adopt a poison pill. Instead, the
proposal simply precludes the incumbent Board from taking illegal action by
exercising the Dead Hand Provision. It is not within the "traditional power" of
boards to break the law.
<PAGE>
13
public companies from adopting a bylaw limiting the power of the board of
directors. Instead, statutes such as O.C.G.A. ss. 14-2-731 have been applied
only to validate partnership-type agreements in the context of close
corporations. SEE BLOUNT, 246 S.E.2d at 772. Particularly telling here is the
complete absence of any case law supporting Healthdyne's unprincipled argument.
B. THE TEXT OF AND COMMENTS TO SS. 801(B)
AND SS. 1020(C) ALSO UNDERMINE HEALTHDYNE'S
SS. 731(C) ARGUMENT.
The text of ss. 801(b) and ss. 1020(c) -- the statutory authority for
shareholders to limit board power -- contain no reference to ss. 731(c). In
contrast, ss. 801(A), which requires companies to "have a board of directors",
expressly exempts this requirement if the company has "a written agreement
meeting the requirements of Code section 14-2-731." Section 801(A)'s express
reference to ss. 731, coupled with the lack of any reference to ss. 731 in ss.
801(B) and ss. 1020(c), is further demonstration that ss. 731 was not intended
to limit the GBCC's fundamental allocation of power to shareholders to limit
board authority. SEE, E.G., MORTON V. BELL, 264 Ga. 832, 452 S.E.2d 103, 104
(1995) (noting "the venerable principle of statutory construction EXPRESSIO
UNIUS EST EXCLUSIO ALTERIUS: the express mention of one thing implies the
exclusion of another"). Thus, contrary to Healthdyne's contention, the right to
adopt bylaws which restrict the board's authority is not limited to shareholders
of privately held companies. The Comment to ss. 801(b), which states that ss.
801(b) applies to "all varieties of corporations", including "small
corporations" and larger "publicly held corporations" reinforces this
conclusion.
<PAGE>
14
Healthdyne's reliance on the suggestion in the Comment to ss. 801(b)
that the section should be read "in conjunction with section 731(c)" does not
alter the analysis. Again, the Comment simply states that "IN ORDER TO BE
INSULATED FROM ATTACK AS AN ATTEMPT TO MANAGE THE CORPORATION AS IF IT WERE A
PARTNERSHIP," an agreement restricting the power of the board must be approved
by all of the shareholders. Comment, O.C.G.A. ss. 14-2-801 (emphasis added).
Since the Proposed Bylaw cannot credibly be characterized "as an attempt to
manage [Healthdyne] as if it were a partnership," Second Carney Aff., P. 7
(citation omitted), the reference to ss. 731(c) is irrelevant here.
C. GBCC SS. 1022 EXPRESSLY REFUTES
HEALTHDYNE'S CONTENTION THAT SS. 731(C)
REQUIRES UNANIMOUS SHAREHOLDER APPROVAL.
Healthdyne argues in the alternative that, under ss. 731(c), any bylaw
restricting the authority of the board must receive unanimous shareholder
approval. Healthdyne Brief at 14. However, the express language of ss. 1022
refutes this contention.
Under O.C.G.A. ss. 14-2-1022(a)(1), bylaw amendments fixing a greater
quorum or voting requirement for the board of directors may be adopted "by the
affirmative vote of a majority of the votes entitled to be cast" by the
shareholders. This statute contains no reference to ss. 731(c). Thus, ss. 1022
makes clear that a bylaw amendment which restricts the board's authority does
not require unanimous shareholder approval.(6)
- ----------------------
(6) SEE ALSO Comment, O.C.G.A. ss. 14-2-1020 (stating that plurality of
shares voting when a quorum present is sufficient to amend the bylaws).
<PAGE>
15
D. HEALTHDYNE'S INTERPRETATION OFSS. 731(C) CONFLICTS WITH
OTHER GBCC PROVISIONS PERMITTING SHAREHOLDER LIMITATION OF
BOARD AUTHORITY.
Healthdyne's argument that ss. 731(c) prohibits public company
shareholders from ever limiting the power of the board flies in the face of
numerous other provisions of the GBCC that expressly permit such limitations
without any reference to ss. 731(c). For example, O.C.G.A. ss. 14-2-202(b)(2)(B)
and (C) authorize the articles of incorporation or bylaws to contain provisions
regarding managing the business and regulating the affairs of the corporation,
and defining, limiting, and regulating the powers of the corporation, its board
of directors, and shareholders. In addition, O.C.G.A. ss. 14-2-621(a) allows the
shareholders to reserve to themselves the powers granted to the board of
directors to approve the issuance of shares. O.C.G.A. ss. 14-2-640(a) allows the
articles of incorporation or bylaws to limit the power of directors to authorize
distributions to shareholders.(7)
As noted in the affidavit of Invacare's Georgia Business Corporation
Code expert, Professor William Carney of the Emory Law
- ------------------------
(7) SEE ALSO O.C.G.A. ss. 14-2-810(a) (either the articles of incorporation
or a bylaw approved by the shareholders may limit the power of directors to
fill vacancies on the board); O.C.G.A. ss. 14-2-811 (either the articles of
incorporation or bylaws may eliminate the power of the board of directors to
fix its own compensation); O.C.G.A. ss. 14-2-820 (the articles of
incorporation or bylaws may limit the power of the board to permit directors
to participate in meetings by electronic means); O.C.G.A. ss. 14-2-825(a)
(the articles of incorporation or bylaws may limit the power of the board to
create committees); O.C.G.A. ss. 14-2-1002 (the articles of incorporation may
limit the power of the board to adopt certain amendments to the articles of
incorporation without shareholder approval); and O.C.G.A. ss. 14-2-1020 (the
articles of incorporation may reserve the power to amend bylaws exclusively
to the shareholders, and shareholders may amend a provision of the bylaws to
provide that it may not be amended by the board of directors); Second Carney
Aff. P. 15.
<PAGE>
16
School, if there were truly an intention to prohibit the shareholders of public
companies from restricting board power, "[o]ne would have expected each of these
sections to be prefaced by language to the effect that 'subject to the
provisions of Code Section 731(c) ....' The GBCC is rife with such references,
but not in any of these sections treating limitations on the power of the
board." Second Carney Aff., P. 16.
Healthdyne concedes that statutes "must be viewed so as to make all its
parts harmonize and give a sensible and intelligent effect to each part."
Healthdyne Brief at 18. Healthdyne's interpretation of ss. 731(c) -- that it
prohibits the shareholders of publicly held companies from adopting bylaws which
restrict board authority -- conflicts with numerous other provisions in the GBCC
which expressly provide that shareholders may restrict the powers of the board.
To avoid these unnecessary conflicts, the Court should reject Healthdyne's
interpretation of ss. 731(c).
Finally, it is critical to note that Healthdyne's ss. 731(c) argument,
if true, does not simply prohibit limitations on the authority of the board in
the BYLAWS, it also prohibits such limitations in the ARTICLES OF INCORPORATION
of a public company. Both ss. 801(b) and ss. 731(c) refer to the articles of
incorporation and the bylaws. Accordingly, under Healthdyne's proposed
interpretation, if Healthdyne shareholders unanimously approved a charter
provision under which the board could not cause the company to go into the coal
mining business, that limitation would be ineffective. To take another example,
if a Georgia public corporation were a mutual fund, a limitation in its charter
to the
<PAGE>
17
effect that the board did not have authority to invest the corporation's funds
in derivative securities would likewise be ineffective. These ridiculous
consequences of Healthdyne's strained interpretation of ss. 731(c) demonstrate
the absurdity of reading ss. 731(c) to eliminate a host of fundamental
safeguards under the GBCC for shareholders of all Georgia corporations -- public
or private.
C. THE RECENT FLEMING DECISION AFFIRMS THE RIGHT OF SHAREHOLDERS TO
MAKE BYLAW PROPOSALS LIMITING THE USE OF POISON PILLS.
A recent federal court decision from Oklahoma explicitly recognized the
right of shareholders to propose bylaws broadly limiting the use of poison
pills. INTERNATIONAL BROTHERHOOD OF TEAMSTERS V. FLEMING COMPANIES, INC., 1997
U.S. Dist. LEXIS 2980 (W.D. Okl. Jan. 24, 1997), attached as Exhibit B. In
anticipation of Fleming's 1997 annual shareholders meeting, the Teamsters
submitted a proposal to amend Fleming's bylaws to redeem the poison pill and to
require that any future pill be approved by a majority of shareholders. Fleming
responded that the Teamsters' proposal was not a proper subject for action by
shareholders under Oklahoma law. The Teamsters submitted a binding shareholder
proposal for inclusion in the 1997 proxy materials that would enact a new bylaw
requiring shareholder approval before any pill could be maintained.
Fleming filed a complaint seeking a declaration that the proposal was
not a proper subject for shareholder action under Oklahoma law and moved for
summary judgment. The Teamsters
<PAGE>
18
counterclaimed and cross-moved for summary judgment seeking a declaration that
the proposal was proper under Oklahoma law.
Ruling from the bench in what it termed "an issue of great importance",
the district court granted the Teamsters' cross-motion and ordered Fleming to
include the shareholder resolution in its 1997 proxy materials. Transcript of
Proceedings of Jan. 14, 1997 ("Tr.," copy attached as part of Ex. B) at 30. The
court acknowledged that under Oklahoma law -- which both parties admitted was
patterned after Delaware law(8) -- the directors had "the power to adopt any
[shareholder rights] plan they wish" (presumably as long as it was not illegal)
but agreed with the Teamsters' contention "that after the directors do that,
after they take that action, then the shareholders, through the device of
bylaws, would have a right of review." Tr. at 31.
The court expressed reluctance about the directors having exclusive
authority to adopt and redeem shareholder rights plans: "without any effective
shareholder review, the power in question is granted to directors, it's granted
with finality, and it's thereby vested in that constituency in corporate
governance that is most likely to be viewing the situation in light of
self-interest, and I have reservations about that." ID. The court added that
"the very purpose of a poison pill is producing an effect on the marketability
of shares ... I have reservations ... that there should be any effect on
marketability of shares which
- -------------------
(8) SEE Tr. at 9 (Teamsters citing Delaware cases and statutes); Tr. at 26
(Fleming citing proposition "under both Oklahoma and Delaware law").
<PAGE>
19
is beyond the cognizance of the shareholders, who are the people who really care
about the marketability of shares." ID. at 32.
Although the governing corporate provisions and issues in FLEMING
differ slightly from those involved in this case, FLEMING stands as a recent
example of a court affirming the ultimate right of the shareholders to decide
for themselves whether the use of poison pills by management should be limited.
Moreover, that court's concerns about exclusive power over poison pills being
"vested in the constituency ... that is most likely to be viewing the situation
in light of self-interest" apply with even greater force here, where the issue
is not a basic poison pill subject to attack in an election contest, but the far
more onerous Dead Hand Provision which the current Healthdyne board enacted in
order to be insulated from a shareholder vote.9/ Thus, the FLEMING case is
compelling authority that the Proposed Bylaw is a proper subject for shareholder
action and that Healthdyne's motion for summary judgment should be denied.
IV. CONCLUSION
For the reasons stated herein, the Court should enter an order denying
Healthdyne's motion for summary judgment, granting Invacare's cross-motion for
summary judgment, and providing that
- ---------------------
(9) Healthdyne cannot sustain its melodramatic claim that the Dead Hand
Provision is necessary to save the shareholders from being "coerced" into
accepting a "grossly inadequate" offer. Invacare's Offer has been outstanding
over four months. It has been continuously scrutinized by numerous analysts
and the media. There is precisely zero evidence that Healthdyne shareholders,
many of whom are sophisticated institutions, are being "coerced". Nor has
Healthdyne advanced one single argument why a poison pill WITHOUT a dead hand
provision is inadequate protection against any alleged coercion.
<PAGE>
20
the Proposed Bylaw is a valid exercise of shareholder authority under Georgia
law.
Dated: June 2, 1997.
KING & SPALDING
/s/ Michael Smith
--------------------------
M. Robert Thornton
Georgia Bar No. 710475
Michael R. Smith
Georgia Bar No. 661689
David J. Onorato
Georgia Bar No. 553826
191 Peachtree Street, N.E. Attorneys for Plaintiffs
Atlanta, Georgia 30303 Invacare Corporation and
Telephone: (404) 572-4600 I.H.H. Corp.
Facsimile: (404) 572-5100
