<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 11
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No. 11 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, dated as of May 22, 1995, as amended, 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 (the "Offer
to Purchase"), as amended and supplemented by the Supplement thereto dated April
4, 1997 (the "Supplement"), and in the revised Letter of Transmittal (which,
together with any other amendments or supplements thereto, constitute the
"Offer").
The Schedule 14D-1 is hereby amended and supplemented as follows:
On April 14, 1997, the Company filed a Motion to Amend its Answer in the
Defensive Tactics Litigation to add a counterclaim (the "Proposed Counterclaim")
alleging that, among other things, the Proposal to be made by the Parent at the
Annual Meeting to require the existing Board to eliminate the "dead-hand pill"
restrictions in the Rights Agreement would be in violation of Georgia law and
requesting that the Parent be enjoined from soliciting proxies in support of
such Proposal. The Company also filed a Motion for Summary Judgment on the
Proposed Counterclaim on the same day. Copies of the Proposed Counterclaim and
the memorandum of law in support of the Company's Motion for Summary Judgment on
the Proposed Counterclaim are set forth in Exhibits 11(g)(6) and 11(g)(7),
respectively.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(g)(6) Proposed Counterclaim filed by the Company on April 14, 1997.
(g)(7) Memorandum of Law in Support of the Motion for Summary Judgement on the
Proposed Counterclaim filed by the Company on April 14, 1997.
</TABLE>
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: April 16, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ----------- ---------------------------------------------------------------------------------------------- -----
<S> <C> <C>
(g)(6) Proposed Counterclaim filed by the Company on April 14, 1997.
(g)(7) Memorandum of Law in Support of the Motion for Summary Judgement on the Proposed Counterclaim
filed by the Company on April 14, 1997.
</TABLE>
<PAGE>
Exhibit 11.(g)(6)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
INVACARE CORPORATION and :
I.H.H. CORP., :
:
Plaintiffs, :
: CIVIL ACTION NO.
v. :
: 1:97-CV-0205-CC
HEALTHDYNE TECHNOLOGIES, INC., :
CRAIG B. REYNOLDS, :
J. TERRY DEWBERRY, :
ALEXANDER H. LORCH, :
J. LELAND STRANGE, :
JAMES J. WELLMAN, and :
J. PAUL YOKUBINAS, :
:
Defendants. :
COUNTERCLAIM
Counterclaim plaintiff Healthdyne Technologies, Inc. ("Healthdyne"),
by its undersigned counsel, alleges upon knowledge with respect to itself and
its acts and upon information and belief as to all other matters, as follows:
1. Healthdyne is a Georgia corporation with its principal place of
business in Marietta, Georgia. Since its founding in the 1980s, Healthdyne has
emerged as an innovator and industry leader in the development and manufacturing
of proprietary respiratory and sleep disorder products. Among other things, the
Company designs, manufactures and distributes high technology diagnostic and
therapeutic devices, particularly sleep disorder products, respiratory
<PAGE>
therapy products and infant and obstetrical monitoring products. Healthdyne's
growth over the years has been impressive, due largely to the timely development
of numerous new products, most of which ultimately have achieved leadership in
their respective markets. Revenues have grown from approximately $11 million in
1986 to approximately $118 million in 1996.
2. Invacare is an Ohio corporation with its principal place of
business in Elyria, Ohio. Over the past three years, Invacare has approached
Healthdyne on several occasions to discuss possible business combination
transactions, and on each occasion after due consideration of the Invacare
overture, Healthdyne determined not to pursue a transaction with Invacare.
3. On January 2, 1997, Invacare's chairman sent a letter to
Healthdyne's president, Mr. Craig Reynolds, indicating Invacare's continuing
interest in a combination and proposing to acquire Healthdyne in a negotiated
merger transaction in which shareholders of Healthdyne would receive $12.50 in
cash for each share of Healthdyne Common Stock. Following careful consideration
and an extensive presentation by Healthdyne's financial advisor, Cowen & Company
("Cowen"), the Healthdyne Board, on January 23,
2
<PAGE>
1997, concluded that Invacare's offer was grossly inadequate from a financial
point of view.
4. On the following Monday, January 27, 1997, Invacare commenced an
unsolicited tender offer for all outstanding shares of Healthdyne Common Stock
at $13 per share and began litigation against Healthdyne and all of its
directors (except Chairman Petit who was personally represented by Invacare's
counsel at the time). Invacare also announced its intention to eliminate any
Healthdyne shareholders who did not tender by means of a second-step merger. The
offer represented a substantial discount from the closing price of the
Healthdyne Common Stock at that time. After further financial advice from Cowen
and additional discussions, the Healthdyne Board on January 30, 1997 again
concluded that the Invacare Offer was "grossly inadequate" from a financial
point of view.
5. On March 31, 1997, more than two months after its initial offer,
Invacare increased its offer to $13.50 per share. Two days later, that offer was
rejected after careful consideration, and based upon advice from Healthdyne's
financial advisors that the price was grossly inadequate. As of this filing, the
market price of Healthdyne's stock remains higher than the Invacare offer.
3
<PAGE>
6. Like thousands of other corporations across the country, Healthdyne
has adopted a shareholders Rights Plan, sometimes referred to as a poison pill.
Rights plans have almost universally been recognized as not only lawful, but
necessary to protect stockholders from the coercive effects of hostile offers.
Among other things, a rights plan makes consummation of a tender offer
prohibitively expensive, until such time as the rights are redeemed by the board
of directors. In this manner, rights plans allow corporate directors the time
and negotiating power needed to properly respond to such offers.
7. As with many rights plans, the Healthdyne Rights Plan includes what
is known as a "continuing director" feature. In general, the continuing director
feature requires that, in order for the Board of Directors to redeem the rights,
the redemption must have been approved by one or more directors who were members
of the Board prior to the adoption of the plan, or who were subsequently elected
to the board with the recommendation and approval of the other continuing
directors. The purpose of the continuing director feature, in general, is to
prevent shareholder oppression in the event that a bidder were able to seize a
majority position on the Board, by creating shareholder confusion, a false sense
of urgency, or otherwise. Under
4
<PAGE>
such circumstances, the vote of the continuing directors would be required to
redeem the rights. The continuing directors would also be in a position to veto
any squeeze-out or other oppressive or unfair transactions directed at
shareholders.
8. On or about March 20, 1997, Healthdyne received from Invacare a
notice of business to be brought before the 1997 Annual Meeting of shareholders
of Healthdyne (the "Invacare Notice"). A copy of the Invacare Notice is attached
to this counterclaim as Exhibit A. Among other things, the Invacare Notice
stated that it was Invacare's current intention to appear in person and/or by
proxy at the Healthdyne Annual Meeting to introduce certain matters for
consideration by the shareholders of Healthdyne. The Invacare Notice further
disclosed that Invacare intends to make certain proposals at the Annual Meeting
in order to facilitate its Offer and proposed second step merger.
9. One of the proposals which Invacare says it intends to introduce at
the Annual Meeting would prohibit the Healthdyne board of directors from
enforcing the validly enacted "continuing director" feature of the Healthdyne
Rights Plan, which Invacare has challenged in its Invacare complaint. In
particular, shareholder proposal No. (2) identified in the Invacare Notice is as
follows:
5
<PAGE>
a proposal, to be considered prior to election of directors at the
Annual Meeting, to amend the Bylaws to provide that the Board of
Directors shall have no authority to take any action, or omit to take
any action, the effect of which action or omission would be to impose,
or permit to continue or be imposed, any limitation (directly or
indirectly, and including any such limitation imposed by means of a
requirement for concurrence or other action by any particular director
or particular type of director), resulting from or becoming operative
in light of, in whole or in part, a change of the composition of the
Board of Directors (whether or not under specified circumstances), on
the exercise by any future Board of Directors of any power or
authority that it would otherwise have, including any such limitation
on the ability of a Board of Directors to redeem or amend any
shareholder rights plan of the Company which limitation results from
or becomes operative in light of, in whole or in part, a change in the
composition of the Board of Directors (whether or not under specified
circumstances). In particular, but not in limitation, such amendment
--------------
will also specifically provide that the incumbent Board of Directors
--------------------------------------------------------------------
will be in violation of the Bylaws if such Board, including any
---------------------------------------------------------------
requisite group of "continuing directors", fails to immediately take
--------------------------------------------------------------------
all necessary action (prior to the consideration of the election of
-------------------------------------------------------------------
directors at the Annual Meeting) to amend any shareholder rights plan
---------------------------------------------------------------------
of the Company to remove all such limitations. Such amendment will
----------------------------------------------
further provide that such Bylaw may not be amended, or any new Bylaw
provision which is in any manner inconsistent therewith be adopted,
without the approval of the shareholders; (Emphasis added).
6
<PAGE>
10. Section 14-2-624 of the Georgia Business Corporation Code (the
"GBCC") specifically authorizes directors of Georgia corporations to adopt
shareholder rights plans and to define the terms of those plans. Moreover, 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. Ga. Code. Ann. ss. 14-2-624. In addition, the official Comment to ss.
624 further emphasizes that
the language [of ss. 624] was intended to permit the approach of
courts interpreting Delaware law, including the Delaware Supreme Court
in Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985),
--------------------------------------
which have held that the Board of Directors is authorized to issue
rights pursuant to shareholders rights plans. See, e.g. Dynamics
Corporation of America v. CTS Corp., 637 F. Supp. 406 (N.D. Ill.),
-----------------------------------
affirmed 794 F.2d 250 (7th Circuit 1986), reversed on other grounds,
-------------------------
107 S.Ct. 1637 (1987). The language rejects the holding of the federal
district court for the Northern District of Georgia in West-Point
----------
Pepperell, Inc. v. Farley Inc., 711 F. Supp. 1088 (Nov. 14, 1988) and
------------------------------
was intended specifically to permit the use by Georgia corporations of
----------------------------------------------------------------------
shareholder rights plans incorporating both so-called "flip-over" and
---------------------------------------------------------------------
discriminatory "flip-in" provisions.
------------------------------------
(Emphasis added). The official Comment also explains the intended breadth of the
statute: "[T]he discretion granted to the board of directors to issue rights ...
and set their
7
<PAGE>
terms under subsection (a) is intended to be limited only by the directors'
fiduciary obligations to the corporation."
11. The continuing director feature in Healthdyne's Rights Plan is
similar to provisions which have been included in the rights plans of several
Georgia corporations and in the rights plans of corporations nationwide.
12. Moreover, Georgia law endorses the continuing director concept in
both the Georgia Fair Price statute, Ga. Code Ann. ss. 14-2-1110, and the
Georgia Business Combination statute, Ga. Code Ann. ss. 14-2-1132. Specifically,
the Fair Price statute defines the term "continuing director" at Section
1110(6), and provides, among other things, that where a vote is needed to
approve a business combination, that business combination must be "(1)
unanimously approved by the continuing directors provided that the continuing
directors constitute at least three members of the board of directors at the
time of such approval; or (2) recommended by at least two-thirds of the
continuing directors and approved by a majority of votes entitled to be cast by
holders of voting shares, other than voting shares beneficially owned by the
interested shareholder who is, or whose affiliate is, a party to the business
combination." Ga. Code. Ann. ss. 14-2-1111. The Georgia Business Combination
8
<PAGE>
statute similarly provides at Section 1133(b) that a bylaw opting into the
statute cannot be repealed without "the affirmative vote of at least two-thirds
of the continuing directors...." Ga. Code Ann. ss. 14-2-1133(b). Thus, the
Georgia legislature has repeatedly affirmed the importance from the standpoint
of public policy of continuing directors in the protection of shareholder
rights.
13. Invacare's attempt to eliminate the Healthdyne continuing director
feature through a bylaw amendment is detective under Georgia law. Such a bylaw
flies in the face of Section 624 of the GBCC, which broadly and exclusively
grants to boards of directors the power to determine the terms of rights plans.
14. In addition, under Georgia law, the bylaws of a publicly traded
corporation such as Healthdyne cannot contain restrictions on the authority of
the board of directors. See Ga. Code Ann. ss. 14-2-801(b) and ss. 14-2-731(c).
---
Although Section 801(b) makes reference to limitations appearing in "bylaws
approved by the shareholders", the legislative history of that section makes
clear that section 801(b) must be read in conjunction with Section 731(c), which
is not applicable to corporations whose shares are listed on a national
--------------
securities exchange or regularly quoted in the markets maintained by securities
dealers or
9
<PAGE>
brokers, such as Healthdyne, which is traded on the NASDAQ National Market.
Moreover, even in the context of private corporations, bylaws limiting the
authority of a board of directors may only be adopted by a unanimous vote of
"all the shareholders." Ga. Code Ann. ss. 14-2-731(c). The official Comment of
Section 801(b) emphasizes that:
subsection (b) should be read in conjunction with Sections 14-2-731(c)
which provides that if either articles of incorporation, bylaws, or a
separate agreement restrict the power of the board to manage the
business, it must be approved by all of the shareholders in order to
--------------------------
be insulated from attack as an attempt to manage the corporation as if
it were a partnership.
Ga. Code Ann. ss. 14-2-801(b), Comment (emphasis added). The official Comment to
Section 920 of the GBCC (which regulates private corporations) similarly
emphasizes that:
[A]rrangements permitted for statutory close corporations are also
permitted for other corporations, provided the corporation does not
---------------------------------
have shares traded regularly in public securities markets. . . . All
--------------------------------------------------------- ---
the shareholders must enter into the agreement if it is one covered by
----------------
this section.
Ga. Code Ann. 14-2-920, Comment. Thus, since Healthdyne is a publicly traded
Georgia corporation, the authority of Section 731(c) to restrict the authority
of the board of directors in a bylaw (which must in any event be unanimously
approved by all of the shareholders) is inapplicable.
10
<PAGE>
15. Invacare apparently agrees that a bylaw cannot limit the authority
of Healthdyne's Board. Invacare alleged at Paragraph 48 of its complaint:
[U]nder O.C.G.A. Section 14-2-801, duly elected directors are
empowered to exercise all corporate powers and to direct the
management of the business and affairs of the corporation, subject
-------
only to limitations contained in the corporation's articles of
--------------------------------------------------------------
incorporation. (emphasis added).
--------------
Invacare made a similar allegation at paragraph 69 of its complaint:
Subject only to limitations contained in the articles of
--------------------------------------------------------
incorporation, the duly elected directors are empowered to exercise
--------------
all corporate powers and to direct the management of the business and
affairs of the corporation. (emphasis added).
Because Invacare's bylaw proposal purports to impose limitations on Healthdyne's
Board of Directors through a bylaw amendment, it is, by Invacare's own
admission, in violation of Georgia law.
16. In contrast, the continuing director provision in Healthdyne's
Rights Plan was adopted pursuant to Section 624 of the GBCC, which authorizes
the Board of Directors "in its sole discretion" to determine the terms and
conditions of the rights, and further specifically provides that "such terms and
conditions need not be set forth in the articles of incorporation." Ga. Code.
Ann. ss. 14-2-624.
11
<PAGE>
17. The proposed bylaw which Invacare intends to submit for
shareholder approval at the Healthdyne Annual Meeting is thus in violation of
Georgia law and is not a proper proposal for consideration at the Healthdyne
Annual Meeting.
18. A determination by this Court with respect to the validity of the
proposed bylaw is necessary prior to the Healthdyne Annual Meeting in order that
shareholders can be informed as to whether Invacare's proposal can be properly
and lawfully considered.
WHEREFORE, Healthdyne requests that this Court:
1. Enter a judgment declaring that the Invacare proposed bylaw
amendment is in violation of Georgia law;
2. Preliminarily and permanently enjoin Invacare from soliciting
proxies in support of its illegal bylaw proposal; and
12
<PAGE>
3. Grant such other and further relief as may be necessary or
appropriate.
DATED this 14th day of April, 1997.
Respectfully submitted,
TROUTMAN SANDERS LLP
/s/ Winifred D. Simpson
-----------------------------
Winifred D. Simpson
Georgia Bar No. 648275
John H. Bowler
Georgia Bar No. 071770
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
(404) 885-3000
Of Counsel
- ----------
Edward P. Welch
Herbert W. Mondros
Paul J. Lockwood
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (DELAWARE)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
ATTORNEYS FOR DEFENDANT-COUNTERCLAIM
PLAINTIFF HEALTHDYNE TECHNOLOGIES, INC.
13
<PAGE>
Exibit 11.(g)(7)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
INVACARE CORPORATION and :
I.H.H. CORP., :
:
Plaintiffs, :
: CIVIL ACTION NO.
v. :
: 1:97-CV-0205-CC
HEALTHDYNE TECHNOLOGIES, INC., :
CRAIG B. REYNOLDS, :
J. TERRY DEWBERRY, :
ALEXANDER H. LORCH, :
J. LELAND STRANGE, :
JAMES J. WELLMAN and :
J. PAUL YOKUBINAS, :
:
Defendants. :
OPENING BRIEF OF COUNTERCLAIM PLAINTIFF HEALTHDYNE
TECHNOLOGIES, INC. IN SUPPORT OF ITS MOTION
FOR SUMMARY JUDGMENT
--------------------------------------
TROUTMAN SANDERS LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, GA 30308-2216
(404) 885-3000
OF COUNSEL:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (DELAWARE)
One Rodney Square
P.O. Box 636
Wilmington, DE 19899
(302) 651-3000
<PAGE>
TABLE OF CONTENTS
PRELIMINARY STATEMENT ....................................................... 1
STATEMENT OF FACTS .......................................................... 4
1. Background ........................................................ 4
2. The Grossly Inadequate Invacare Offers ............................ 5
3. The Healthdyne Rights Plan ........................................ 7
4. Invacare's Bylaw Attack on the
Continuing Director Feature ....................................... 9
ARGUMENT AND CITATION OF AUTHORITIES ........................................ 12
I. Healthdyne's Motion for Summary Judgment
Should be Granted ...................................................... 12
II. The Proposed Bylaw Illegally Usurps the
Board's Exclusive Authority Over the Rights Plan ....................... 12
III. The Proposed Bylaw Illegally Usurps the Board's
Exclusive Authority to Manage the Corporation .......................... 14
CONCLUSION .................................................................. 19
<PAGE>
PRELIMINARY STATEMENT
Counterclaim Defendant, Invacare Corporation ("Invacare"), has made a
hostile tender offer for Healthdyne Technologies, Inc. ("Healthdyne"), a Georgia
corporation, and is attempting to acquire Healthdyne at the lowest possible
price. Invacare's proposals to acquire Healthdyne at $12.50, $13 and now $13.50
per share have already been rejected as grossly inadequate. The board of
directors of Healthdyne (the "Board") has determined that Healthdyne's strategic
plan will bring more value to shareholders than Invacare's grossly inadequate
offer. Indeed, Healthdyne just announced outstanding results for the first
quarter of 1997.
Healthdyne's management is not alone in their recognition of the gross
inadequacy of the offer. The market concurs that the hostile offer is too low.
Invacare's most recent offer remains below the current market price. A Wall
-----
Street analyst unaffiliated with Healthdyne recently reported:
Based on our new 1997 estimate of $0.75 and our long term EPS growth rate
of 22%, we believe that Healthdyne should trade on the $16-l8 range over
the next 12 months on a stand-alone basis and even more on a takeout....
[H]ostile suitor Invacare's tactics currently make little sense to us ....
<PAGE>
(Dillon, Read & Co. Inc., April 8, 1997, a true and correct copy of which is
attached hereto as Ex. A) Healthdyne's shareholders also recognize that Invacare
has made a grossly inadequate offer: only seventeen (17) percent of Healthdyne
shareholders have tendered into the offer.
Healthdyne shareholders are protected from Invacare's grossly
inadequate hostile offer by Healthdyne's shareholders Rights Plan. Like
thousands of other public corporations, Healthdyne has a shareholders Rights
Plan, sometimes referred to as a poison pill, which enables the Healthdyne Board
to play an active role in responding to a hostile bidder like Invacare. Indeed,
the presence of the Rights Plan, and the ability of the Healthdyne Board to say
"no" to Invacare's grossly inadequate offers, have already played a critical
role in Invacare's decisions to increase its price twice (even though its most
recent offer remains grossly inadequate).
One of the important provisions of the Healthdyne Rights Plan is known
as a "continuing director" feature. That provision, endorsed from a policy
standpoint in both the Georgia Business Combination Statute and the Georgia Fair
Price Statute, requires that the votes of "continuing directors" (as defined in
the Rights Plan) be cast in favor
2
<PAGE>
of certain transactions as a prerequisite to an effective board vote.
In its January 27, 1997 complaint, Invacare requested injunctive and
declaratory relief that would invalidate the Rights Plan, the Georgia Business
Combination Statute and the Georgia Fair Price Statute. In implicit recognition
of the weakness of its case, Invacare has made no motion for declaratory or
injunctive relief regarding those claims.
Instead, Invacare has developed a new strategy. Invacare has now
proposed a bylaw amendment which would purportedly require the Healthdyne Board
to repeal the continuing director feature of the Rights Plan.
The Invacare bylaw is legally defective in two respects, either of
which renders Invacare's proposal invalid as a matter of law. First, the
proposed bylaw illegally infringes on the Board's statutory duty to exercise its
"sole discretion" in determining the terms and conditions of a Rights Plan. Ga.
Code Ann. ss. 14-2-624. Second, a bylaw cannot restrict the management authority
of Healthdyne's Board in any respect. Invacare apparently agrees with this
conclusion. In its own complaint filed with this Court, Invacare repeatedly
alleges that under Georgia law, the board of directors manages a Georgia
corporation "subject
3
<PAGE>
only to limitations contained in the corporation's articles of incorporation."
--------------------------
Invacare Complaint, P. P. 48, 69 (emphasis added).
In other words, the bylaw amendment proposed by Invacare violates
Georgia law. As set forth more fully below, Healthdyne's motion for summary
judgment with respect to the invalidity of Invacare's proposed bylaw should be
granted.
STATEMENT OF FACTS
------------------
1. Background.
-----------
Healthdyne is a Georgia corporation with its principal place of
business in Marietta, Georgia. Healthdyne has emerged as an innovator and
industry leader in the development and manufacturing of proprietary respiratory
and sleep disorder products. Among other things, the Company designs,
manufactures and distributes high technology diagnostic and therapeutic devices,
particularly sleep disorder products, respiratory therapy products and infant
and obstetrical monitoring products. Healthdyne's growth over the years has been
impressive, due largely to the timely development of numerous new products, most
of which ultimately have achieved leadership in their respective markets.
Revenues have grown from approximately $11 million in 1986 to approximately $118
million in 1996.
4
<PAGE>
Invacare is an Ohio corporation with its principal place of business
in Elyria, Ohio. Over the past three years, Invacare has approached Healthdyne
on several occasions to discuss possible business combination transactions, and
on each occasion, after due consideration of the Invacare overture, Healthdyne
determined not to pursue a transaction with Invacare.
2. The Grossly Inadequate Invacare Offers.
---------------------------------------
On January 2, 1997, Invacare's chairman sent a letter to Healthdyne's
president, Mr. Craig Reynolds, indicating Invacare's continuing interest in a
combination and proposing to acquire Healthdyne in a negotiated merger
transaction in which shareholders of Healthdyne would receive $12.50 in cash for
each share of Healthdyne Common Stock. Following careful consideration and an
extensive presentation by Healthdyne's financial advisor, Cowen & Company
("Cowen"), the Healthdyne Board, on January 23, 1997, concluded that Invacare's
offer was grossly inadequate from a financial point of view.
On the following Monday, January 27, 1997, Invacare commenced an
unsolicited tender offer for all outstanding shares of Healthdyne Common Stock
at $13 per share (the "$13 Offer") and began litigation against Healthdyne and
all of its directors (except Chairman Petit
5
<PAGE>
who was at the time personally represented by Invacare's counsel). Invacare also
announced its intention to eliminate any Healthdyne shareholders who did not
tender by means of a second-step merger. After further financial advice from
Cowen and additional discussions, the Healthdyne Board, on January 30, 1997,
again concluded that the Invacare Offer was grossly inadequate from a financial
point of view.
On March 31, 1997, Invacare increased its offer to $13.50 per share.
The Healthdyne Board, after careful consideration, and advice from Healthdyne's
financial advisors that the price was grossly inadequate, also rejected
Invacare's $13.50 offer. The Board, which is composed of a majority of
independent directors, unanimously concluded that the Invacare offer does not
reflect the long-term value of Healthdyne and that the shareholders' interests
will best be served by Healthdyne's remaining independent. The correctness of
this strategy has been confirmed by Healthdyne's outstanding results for the
first quarter of 1997.
The market has also concluded that Invacare's lowball bid does not
reflect the value of Healthdyne. The market price of Healthdyne's stock remains
significantly higher than the Invacare offer. In addition, independent
third-party analysts have criticized Invacare's bid as
6
<PAGE>
"awkwardly low." (Tucker Anthony report, 4/9/97, a true and correct copy of
which is attached hereto as Ex. B. See also Dillon Reed report, 4/8/97, Ex. A).
--------
Despite the fact that it has been outstanding since January, only 17 percent of
the shareholders have tendered into Invacare's offer.
3. The Healthdyne Rights Plan.
---------------------------
Like thousands of other corporations across the country, Healthdyne
has adopted a shareholders rights plan. Rights plans, sometimes referred to as
poison pills, have almost universally been recognized as not only lawful, but
necessary to protect shareholders from inadequately priced hostile offers and
other coercive takeover tactics. Among other things, a rights plan makes
consummation of a tender offer prohibitively expensive until such time as the
rights are redeemed. In this manner, a rights plan allows corporate directors
the time needed to properly respond to the offer.
Recognizing the importance of rights plans, the Georgia legislature,
in 1989, amended the Georgia corporation law to explicitly provide for
shareholders rights plans like the one adopted by Healthdyne. See Ga. Code Ann.
---
ss. 14-2-624. Many Georgia corporations have adopted plans similar to
Healthdyne's. Moreover, thousands of corporations across the country, acting
pursuant to similar statutes, have also
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<PAGE>
adopted similar plans. Invacare's own board has approved and adopted a rights
plan.
As with many rights plans,(1) the Healthdyne Rights Plan includes what
is known as a "continuing director" feature. In general, the continuing director
feature requires that, in order for the Board of Directors to redeem the rights,
the redemption must have been approved by one or more directors who were members
of the Board prior to the adoption of the plan, or who were subsequently elected
to the Board with the recommendation and approval of the other continuing
directors. The purpose of the continuing director feature is to prevent
shareholder oppression, in the event that a bidder were able to seize a majority
position on the Board, by creating shareholder confusion, a false sense of
urgency, or otherwise. Under such circumstances, the vote of the continuing
directors would be required to redeem the rights. The continuing directors would
also be in a position to veto any squeeze-out or other oppressive or unfair
transactions directed at shareholders.(2)
- ----------
(1) Indeed, one of Invacare's nominees for Healthdyne's Board of Directors,
Bill R. Sanford, is Chairman and CEO of a company that has a rights plan
with a continuing director provisions similar to Healthdyne's.
(2) The continuing director feature, like the other features of the Rights
Plan, was adopted pursuant to Section 624 of the Georgia Business Corporate
Code, which emphasizes the authority of the Board "to
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<PAGE>
Thus, continuing director features are fully consistent with the
protection of shareholder interests. Moreover, Georgia law explicitly endorses
the continuing director concept in both the Georgia Fair Price statute, Ga. Code
Ann. ss. 14-2-1110, and the Georgia Business Combination statute. Ga. Code Ann.
ss. 14-2-1132. The Georgia legislature has thus repeatedly affirmed the
importance from the standpoint of public policy of continuing directors in the
protection of shareholder rights.
4. Invacare's Bylaw Attack on the Continuing
Director Feature.
------------------------------------------
In apparent recognition of the weakness of its complaint, Invacare has
not pressed any of its original claims. In nearly three months, it has only
brought a motion based on an issue not even raised in its complaint -- a
--------------------------------
premature request to compel an annual meeting. Invacare has lost interest in
pursuing its broad and baseless attacks on the authority of the Healthdyne Board
and the General Assembly of Georgia and has developed a new strategy.
- ----------
(..continued)
determine, in it sole discretion, the terms and conditions" of the rights.
---------------------
Ga. Code Ann. ss. 14-2-624. Moreover, Section 624 emphasizes that the terms
and conditions of rights "need NOT be set forth in the articles of
incorporation." Ga. Code Ann. ss. 14-2-624 (emphasis added).
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<PAGE>
On or about March 20, 1997, Healthdyne received from Invacare a notice
of business to be brought before the 1997 Annual Meeting of shareholders of
Healthdyne (the "Invacare Notice").(3) Among other things, the Invacare Notice
stated that it was Invacare's current intention to appear in person and/or by
proxy at the Healthdyne Annual Meeting to introduce certain matters for
consideration by the shareholders of Healthdyne. The Invacare Notice admits that
Invacare intends to make certain proposals in order to facilitate its Offer and
proposed merger.
One of the proposals which Invacare says it intends to introduce would
prevent the Healthdyne Board from enforcing the continuing director feature of
the Healthdyne Rights Plan. This proposal purports to require the Board to amend
the Rights Plan to eliminate the continuing director feature. Invacare will
attempt to achieve this by means of a bylaw which places limitations on the
authority of the Healthdyne Board.(4) As explained below, the proposed bylaw
- ----------
(3) A copy of the Invacare Notice is attached to Healthdyne's counterclaim as
Exhibit A.
(4) In particular, shareholder proposal No. (2) identified in the Invacare
Notice is as follows:
a proposal, to be considered prior to election of directors at the
Annual Meeting, to amend the Bylaws to provide that the Board of
Directors shall have no authority to take any action, or
10
<PAGE>
- ----------
(..continued)
omit to take any action, the effect of which action or omission would
be to impose, or permit to continue or be imposed, any limitation
(directly or indirectly, and including any such limitation imposed by
means of a requirement for concurrence or other action by any
particular director or particular type of director), resulting from or
becoming operative in light of, in whole or in part, a change of the
composition of the Board of Directors (whether or not under specified
circumstances), on the exercise by any future Board of Directors of
any power or authority that it would otherwise have, including any
such limitation on the ability of a Board of Directors to redeem or
amend any shareholder rights plan of the Company which limitation
results from or becomes operative in light of, in whole or in part, a
change in the composition of the Board of Directors (whether or not
under specified circumstances). In particular, but not in limitation,
such amendment will also specifically provide that the incumbent Board
----------------------------------------------------------------------
of Directors will be in violation of the Bylaws if such Board,
--------------------------------------------------------------
including any requisite group of "continuing directors", fails to
-----------------------------------------------------------------
immediately take all necessary action (prior to the consideration of
--------------------------------------------------------------------
the election of directors at the Annual Meeting) to amend any
-------------------------------------------------------------
shareholder rights plan of the Company to remove all such limitations.
---------------------------------------------------------------------
Such amendment will further provide that such Bylaw may not be
amended, or any new Bylaw provision which is in any manner
inconsistent therewith be adopted, without the approval of the
shareholders;
(Emphasis added).
11
<PAGE>
which Invacare intends to submit for shareholder approval at the Healthdyne
Annual Meeting violates Georgia law and is not a proper proposal for
consideration at the Healthdyne Annual Meeting.
ARGUMENT AND CITATION OF AUTHORITIES
------------------------------------
I. HEALTHDYNE'S MOTION FOR SUMMARY JUDGMENT SHOULD
BE GRANTED.
------------------------------------------------
A motion for summary judgment should be granted where "there is no
genuine issue of material fact and that the moving party is entitled to summary
judgment as a matter of law." Bennett v. United States, 102 F.3d 486, 488 (11th
Cir. 1996). A factual dispute is only "material" if it "might affect the outcome
of the case under the governing law." Id. Here, the material record regarding
Healthdyne's counterclaim is entirely undisputed. Therefore, Healthdyne's motion
for summary judgment should be granted because, as shown below, Healthdyne is
entitled to judgment as a matter of law.
II. THE PROPOSED BYLAW ILLEGALLY USURPS THE BOARD'S
EXCLUSIVE AUTHORITY OVER THE RIGHTS PLAN.
------------------------------------------------
The proposed bylaw would mandate that the Board amend the Rights Plan
-------
to remove the continuing director provision. Invacare's proposal thus would
preclude the directors from exercising their own discretion with respect to
whether amending the Rights Plan will serve the best
12
<PAGE>
interests of the corporation and its shareholders. The proposed bylaw violates
Georgia law.
Section 624 of the Georgia Business Corporation Code (the "GBCC")
specifically authorizes directors of Georgia corporations to adopt shareholder
rights plans and to define the terms of those plans. 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]. Such
terms and conditions need not be set forth in the articles of incorporation."
Ga. Code Ann. ss. 14-2-624. The official Comment to Section 624 explains that
"the discretion granted to the board of directors to issue rights ... and set
their terms under subsection (a) is intended to be limited only by the
directors' fiduciary obligations to the corporation." Ga. Code Ann. ss.
14-2-624, Comment.
The proposed bylaw would intrude upon the "sole discretion" of the
Board -- indeed it would eradicate the Board's authority to apply any
discretion. The bylaw would order the Board to rescind its prior valid action
and would dictate the time at which the directors had to take such action. (See
---
Counterclaim Ex. A). Because the proposed bylaw conflicts directly with Section
624, it is invalid as
13
<PAGE>
a matter of law. Healthdyne's motion for summary judgment should be granted.
III. THE PROPOSED BYLAW ILLEGALLY USURPS THE BOARD'S
EXCLUSIVE AUTHORITY TO MANAGE THE CORPORATION.
-----------------------------------------------
The Proposed Bylaw not only invades the Board's specific powers
regarding the Rights Plan, but it infringes upon the Board's exclusive authority
to manage the business and affairs of the corporation in general.
Under Georgia law, a publicly traded corporation such as Healthdyne
cannot have restrictions on the authority of the board of directors in its
bylaws. See Ga. Code Ann. ss. 14-2-801(b) and ss. 14-2-731(c).
---
While Section 801(b) of the GBCC makes reference to limitations
appearing in "bylaws approved by the shareholders," the official Comment of that
section makes clear that this section must be read in conjunction with Section
731(c). That Section does not apply to corporations whose shares are listed on a
national securities exchange or regularly quoted in the markets maintained by
securities dealers or brokers, such as Healthdyne. See Ga. Code Ann. ss.
---
14-2-801, Comment & 14-2-731. Moreover, even a private corporation can only
limit the authority of a board of directors by a unanimous vote of "all the
shareholders." Ga. Code Ann. ss. 14-2-731(c). The official Comment to Section
801(b) provides, in pertinent part:
14
<PAGE>
[s]ubsection (b) should be read in conjunction with Section
14-2-731(c), which provides that if either articles of incorporation,
bylaws, or a separate agreement restrict the power of the board to
manage the business, it must be approved by all of the shareholders in
--------------------------
order to be insulated from attack as an attempt to manage the
corporation as if it were a partnership."
Ga. Code Ann. ss. 801(b), Comment (emphasis added).(5)
Two other sections of the GBCC, Sections 920 and 1020, involve the
mechanisms whereby shareholders or close corporations can limit the authority of
the board. These sections further make clear that a bylaw limitation on the
board's authority may only be employed in privately held corporations and with
the unanimous consent of the shareholders. The official Comment of Section 920,
the section which applies when shareholders of a statutory close
- ----------
(5) Invacare's proposed bylaw would cause Healthdyne to be managed as a
partnership with respect to critical issues involving the Company's
response to a hostile tender offer. An important difference between a
statutory corporation and a partnership is that corporate shareholders "do
not participate directly in management." Alan R. Bromberg & Larry E.
Ribstein, Bromberg and Ribstein on Partnership ss. 101(b)(2) (1996). "The
------------------------------------
management of the affairs of the corporation is in the hands of the
directors. The stockholders have committed its management to their
judgment." Malone v. Armor Insulating Co., 12 S.E.2d 299, 301 (Ga. 1940).
------------------------------
Invacare proposes that the shareholders directly manage the affairs of the
corporation by ordering the directors to amend the Rights Plan and even
dictating the time when the directors should take that action.
15
<PAGE>
corporation agree to directly exercise the management authority of that
corporation, emphasizes that:
[A]rrangements permitted for statutory close corporations are also
permitted for other corporations, provided the corporation does not have
--------------------------------------
shares traded regularly in public securities markets.... All the
---------------------------------------------------- -------
shareholders must enter into the agreement, if it is one covered by this
------------
section.
Ga. Code Ann. ss. 14-2-920, Comment.
The other pertinent section, Section 1020(c), addresses the extent to
which the authority to amend the bylaws is vested exclusively in the
stockholders, in contrast to board amendments to certain provisions of the
bylaws. See Ga. Code Ann. ss. 14-2-1020.(6) Section 1020(c) provides that a
---
"bylaw limiting the authority of the board of directors ... may only be adopted,
----
amended or repealed by the shareholders." Ga. Code Ann. ss. 14-2-1020(c)
(emphasis added). This provision does not alter the standard set in Section
801(b), but merely provides that where lawfully adopted (in private corporations
and by unanimous vote of the shareholders), such bylaw amendments cannot be
changed by the Board. The official Comment explains that:
- ----------
(6) Section 1020 is in Part 2 of Article 10 of the GBCC, which is entitled
"Amendment Of Bylaws." Section 1020 is entitled: "Amendment By Board Of
Directors Or Shareholders." Ga. Code Ann. ss. l4-2-l020.
16
<PAGE>
Section 14-2-801 permits bylaw limitations on the authority of the board
.... [T]he Model Act limited such provisions to the articles of
incorporation, which require shareholder approval for amendment. In order
to achieve the same protection for such provisions when placed in the
bylaws, it was necessary to "lock in" these provisions against board
amendment.
Ga. code Ann. ss. 14-2-1020, Comment.
Sections 801(b) and 731(c), when read together (as the official
Comment instructs), permit bylaw limitations on the authority of the Board only
where the corporation is not publicly traded and where the bylaw has been
unanimously approved by the stockholders. Since Healthdyne is a publicly traded
Georgia corporation, the authority of ss.ss. 801(b) and 731(c) to restrict the
authority of the board of directors in a bylaw is inapplicable. Moreover, since
the proposal is already not supported by a number of substantial shareholders,
there is absolutely no possibility of unanimous approval of the provision.
A leading treatise on Georgia corporate law confirms that requirements
of Section 731(c) apply to bylaw limitations:
[t]he corporate powers which reside in the Board are to be exercised by or
under the authority of, and the business and affairs of the corporation are
to be managed under the direction of, the Board.... [T]he articles of
incorporation, the bylaws approved by the shareholders ... or an agreement
among shareholders under the provisions of GBCC ss. 14-2-731 may define or
limit the duties or powers of the Board.... [A] reduction in the
17
<PAGE>
power of the Board from either of the statutory models, if contained in an
amendment to the bylaws, must be approved by all shareholders.
---
Elliot Goldstein, Georgia Corporation Law & Practice, at 171-72 (citations
----------------------------------
omitted) (emphasis added).
This construction of the applicable statutes is fully consistent with
Georgia law governing principles of statutory construction. It is well-settled
that a statute must be viewed so as to make "'all its parts harmonize and to
give a sensible and intelligent effect to each part.'" State Farm Mutual Auto.
-----------------------
Ins. v. Day, 195 Ga.App. 823, 824, 394 S.E.2d 913, 914 (1990) (quoting Houston
- ----------- -------
v. Lowes of Savannah, 235 Ga. 201, 203, 219 S.E.2d 115 (1975)). These principles
- --------------------
require that Sections 731(c) and 801(b) of the GBCC, which pertain to the same
subject matter, be construed together. See City of LaGrange v. Georgia Power
-------------------------------------
Co., 185 Ga.App. 60, 62, 363 S.E.2d 286, 287 (1988).
- --
Even Invacare agrees that a restriction on the authority of
Healthdyne's Board cannot be placed in a bylaw. Invacare alleged at Paragraph 48
of its complaint:
[U]nder O.C.G.A. Section 14-2-801, duly elected directors are
empowered to exercise all corporate powers and to direct the
management of the business and affairs of the corporation, subject
-------
only to limitations contained in the corporation's articles of
--------------------------------------------------------------
incorporation. (emphasis added).
-------------
Invacare made a similar allegation at paragraph 69 of its complaint:
18
<PAGE>
Subject only to limitations contained in the articles of
--------------------------------------------------------
incorporation, the duly elected directors are empowered to exercise
-------------
all corporate powers and to direct the management of the business and
affairs of the corporation. (emphasis added).
Because Invacare's bylaw proposal purports to impose limitations on Healthdyne's
Board of Directors through a bylaw amendment, it is, by Invacare's own
admission, in violation of Georgia law.
The proposed bylaw which Invacare intends to submit for shareholder
approval at the Healthdyne Annual Meeting is thus in violation of Georgia law
and is not a proper proposal for consideration at the Healthdyne Annual Meeting.
CONCLUSION
----------
For the reasons set forth above, the proposed bylaw which Invacare
intends to submit for shareholder approval at the Healthdyne Annual Meeting is
in violation of Georgia law and is not a proper proposal for consideration at
the Healthdyne Annual Meeting. A ruling to this effect by this Court is
necessary prior to the Healthdyne Annual Meeting in order that shareholders can
be fully
19
<PAGE>
informed with respect to the scope of proposals for consideration. Healthdyne's
motion for summary judgment should be granted.
Respectfully submitted this 14th day of April, 1997.
TROUTMAN SANDERS LLP
/s/ Winifred D. Simpson
-------------------------------
Winifred D. Simpson
Georgia Bar No. 648275
John M. Bowler
Georgia Bar No. 071770
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, GA 30308-2216
(404) 885-3000
Of Counsel
- ----------
Edward P. Welch
Herbert W. Mondros
Paul J. Lockwood
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (DELAWARE)
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
ATTORNEYS FOR DEFENDANT
HEALTHDYNE TECHNOLOGIES, INC.
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