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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
- - ----------
X Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
- Act of 1934 for the fiscal year ended June 30, 1995 or
-------------
- Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File No. 000-16723
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1304989
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1001 Murry Ridge Drive
Murrysville, Pennsylvania 15668
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-733-0200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None --
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days. Yes X No .
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As of August 31, 1995, the aggregate market value of the shares of the
registrant's Common Stock held by non-affiliates was approximately
$235,000,000.
As of August 31, 1995, there were 16,805,085 shares of Common Stock of the
registrant outstanding.
Documents Incorporated by reference: Portions of the Proxy Statement for the
registrant's Annual Meeting of Shareholders to be held on November 8, 1995 are
incorporated by reference into Part III of this Annual Report on Form 10-K.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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INDEX
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Page
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PART I
Item 1 Business.................................... 1
Item 2. Description of Property..................... 15
Item 3. Legal....................................... 15
Item 4. Submission of Matters to a Vote of
Security Holders............................ 16
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters............. 17
Item 6. Selected Financial Data..................... 18
Item 7. Management's Discussion and
Analysis of Results of Operations and
Financial Condition......................... 19
Item 8. Consolidated Financial Statements........... 24
Item 9. Disagreements on Accounting and
Financial Disclosure........................ 41
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................. 42
Item 11. Executive Compensation...................... 42
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 42
Item 13. Certain Relationships and Related
Transactions................................ 42
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K........... 43
Signatures ............................................... 49
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PART I
Item 1. Business
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General
Respironics, Inc. designs, manufactures and markets medical products
which address a wide range of respiratory and pulmonary problems by assisting
patient breathing. These products are used in the home, in hospitals and in
emergency medical situations. The Company is a Delaware corporation which was
originally incorporated in Pennsylvania in 1976 as the successor company for
certain products of Lanz Medical Products Corporation. As part of a corporate
reorganization completed in 1984, the Company became a Delaware corporation.
The Company has two principal operating subsidiaries, Respironics (HK)
Limited, which is wholly-owned and based in Hong Kong, and Respironics Medical
Products (Shenzhen) Ltd., which is wholly-owned by Respironics (HK) Limited and
is based in the Peoples Republic of China. The Company has another wholly-owned
subsidiary, RIC Investments, Inc., a Delaware corporation which conducts its
operations in Delaware. The Company's executive offices are located at 1001
Murry Ridge Drive, Murrysville, PA 15668. Unless the context indicates
otherwise, reference in this Annual Report to the "Company" or "Respironics"
refers to Respironics, Inc. and its subsidiaries.
In 1981, the Company developed and introduced the first commercially
available single-use air-filled cushion anesthesia mask. The Company was the
sole manufacturer of such masks for approximately four years and the Company
believes that it continues to be one of the leading manufacturers of single-use
anesthesia masks which are marketed in the United States. In 1985, the Company
developed and introduced the first commercially available product designed to
treat the sleeping disorder known as obstructive sleep apnea. After a two year
period during which the Company was the primary provider of non-invasive sleep
apnea therapy products, other and larger companies entered the market for
products designed to treat obstructive sleep apnea. Currently, the Company
believes that its REMstar Choice product (the fifth generation device in the
sleep apnea product line) and certain of its BiPAP products (see below) continue
to be the leading products in the obstructive sleep apnea therapy market in the
United States.
In 1989, the Company introduced the BiPAP Airway Management and
Ventilatory Support Systems which are unique products that deliver non-
invasive pressure support therapy to patients who require ventilatory
assistance but are not dependent on a ventilator for life support and to those
suffering from severe cases of obstructive sleep apnea.
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The Company's other products are generally single-patient use products
designed to provide an effective and comfortable means of patient ventilation
which reduce the risk of cross contamination among patients and medical
personnel. This product group includes the Company's redesigned BagEasy manual
resuscitator, which was introduced in March 1995. A predecessor version of
BagEasy was manufactured and sold by the Company from 1988 through 1993.
Unless the context indicates otherwise, reference in this Annual
Report to "fiscal year" refers to the twelve month period ending on June 30 of
the year indicated.
In February 1995, the Company's Board of Directors declared a two-for-
one stock split of the Company's common stock, distributing on March 17, 1995
one additional share of common stock for each share held of record on March 3,
1995. All agreements concerning stock options were amended to provide for
issuance of two shares of common stock for every one share issuable prior to the
split. An amount equal to the par value of the shares issued was transferred
from additional capital to the common stock account. This transfer has been
reflected in the Consolidated Statements of Changes in Shareholders' Equity at
July 1, 1992. All references to number of shares, except shares authorized, and
to per-share information in the consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.
"Respironics", "REMstar", "BiPAP", and "BagEasy" are registered
trademarks of the Company. "The Hayek Oscillator" is a registered trademark of
Flexco Medical Instruments.
Products
At the present time, the Company's principal products can be divided into
four categories: obstructive sleep apnea products, ventilation products, face
mask products and resuscitation products.
Obstructive Sleep Apnea Products
--------------------------------
One of the Company's principal products is its REMstar Choice Nasal CPAP
system, which is designed to treat a sleeping disorder known as obstructive
sleep apnea. The Company believes that this product leads the market in the
United States for the treatment of obstructive sleep apnea.
Obstructive sleep apnea is the repeated cessation of breathing during
sleep caused by anatomical disorders. It is characterized by very loud,
irregular snoring or other labored breathing sounds during sleep of which the
patient may not be fully aware. The disorder is commonly found in obese
individuals, and the consumption of alcohol, sleeping pills and tranquilizers by
obstructive sleep apnea sufferers can make the problem worse. The most common
symptom associated with obstructive sleep apnea is daytime sleepiness or
fatigue.
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The Company estimates that in the United States approximately 1,500 sleep
clinics currently exist at hospitals and other medical centers where
pulmonologists, technicians and other medical professionals diagnose
obstructive sleep apnea (as well as other sleep disorders) and then prescribe
the appropriate treatment. Such laboratories provide the most frequent source
of patient introductions to the REMstar Choice product.
REMstar Choice consists of a small, portable air pressurization device
and a patient's breathing circuit. A nasal or full face mask is purchased
separately based upon the patient's clinical needs and personal preference. All
of these are prescribed by a medical professional as explained above. The mask
is connected to the breathing circuit and is worn by the patient at home during
sleep, and utilizes a pulmonary procedure known as Continuous Positive Airway
Pressure ("CPAP"). CPAP involves the delivery of air under continuous positive
pressure, generally through the patient's nose, and acts like a mechanical or
pneumatic "splint" to prevent upper airway collapse or obstruction. The Company
markets nasal and full face masks for use with each REMstar Choice unit and also
markets nasal and full face masks, tubing, filters, and headgears for the
replacement market.
The REMstar Choice unit, the fifth generation device in the sleep apnea
product line, was introduced in November 1991. REMstar Choice offers improved
functional features compared to its predecessor devices, including improved
pressure stability, reduced operating noise, and a "ramp" feature which
gradually increases the pressure delivered to the patient as he or she falls
asleep. The REMstar Choice unit also includes a cordless remote controller which
can be used to turn the unit on and off and can also be used to activate the
ramp feature. Severe cases of obstructive sleep apnea can also be treated with
two models of the BiPAP Airway Management System (see "Products-Ventilation
Products"). The use of a BiPAP unit in these cases is generally more comfortable
to the patient because of the higher pressure levels required to treat severe
obstructive sleep apnea.
When accompanied by a physician's authorized prescription, the
obstructive sleep apnea patient can purchase REMstar Choice or the BiPAP Airway
Management System from home health care products dealer locations worldwide.
Personnel at each of these locations are equipped to train the patient in the
product's use and to maintain and service the product (See "Marketing, Sales,
and Distribution"). The retail price for a REMstar Choice unit generally ranges
from $700 to $1,300, depending on geographical market and whether certain
accessories are purchased. The retail price for a BiPAP unit generally ranges
from $2,800 to $8,000, depending on which model is purchased.
In April 1995, the Company completed the acquisition of Vitalog
Monitoring, Inc., a developer, manufacturer, and marketer of monitoring and
diagnostic devices for sleep and other respiratory disorders. These diagnostic
devices record and retain a variety of physiological data that is collected from
a patient via sensor interfaces. Both of Vitalog's primary products, the VX4
Recording Oximeter and the HMS 5000 Monitor, interface with a personal computer
to download and display the collected data. The retail price for the VX4 ranges
from $1,600 to $1,800 and for the HMS 5000 ranges from $20,000 to $25,000
depending on which product configuration is ordered.
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The acquisition of Vitalog will allow the Company to enter the market for
devices related to the diagnosis and monitoring of sleep and other respiratory-
related disorders and will also give the Company access to technology and
development efforts led by Vitalog personnel. The Company believes that the
acquisition will enhance its marketing efforts in the obstructive sleep apnea
area by expanding the Company's presence in sleep labs and permitting the
Company to sell diagnostic equipment that is complementary to its therapeutic
devices (REMstar Choice and BiPAP).
Sales of obstructive sleep apnea products and all related accessories and
replacement parts accounted for 67%, 64%, and 57% of the Company's net sales for
its fiscal years 1995, 1994, and 1993, respectively.
Ventilation Products
--------------------
The Company's principal ventilation product is the BiPAP Ventilatory
Support System. Introduced in December 1989, this product is a unique, non-
invasive pressure support ventilator which provides ventilatory assistance to
those individuals who experience difficulty in breathing but are not dependent
on a ventilator for life support. The BiPAP Ventilatory Support System is a
low-pressure, electrically-driven flow generator with an electronic pressure
control which is designed to augment patient ventilation by supplying
pressurized air to the patient. BiPAP takes its name from "bi-level positive
airway pressure" because it senses the patient's breathing and adjusts its
output to assist in inhalation or exhalation. The BiPAP Ventilatory Support
System minimizes the work of breathing in the presence of most mask leaks which
can sometimes occur in the delivery of ventilation to the patient, thereby
providing what the Company believes is a more consistent therapy than most
competing ventilators. In May 1992, the Company introduced the Hospital BiPAP
Ventilatory Support System which includes accessories such as an airway pressure
monitor, a detachable control panel, a disposable circuit, and a mounting stand,
all of which are designed to allow the system to be used more easily in the
hospital environment.
The Company believes that the BiPAP Ventilatory Support System offers a
number of benefits compared to other volume ventilators and that it has the
potential for greater patient comfort, because it adapts to the patient's
breathing cycles rather than requiring the patient to adapt his or her breathing
to the ventilator cycles and because it can be effectively used with a face
mask. The BiPAP Ventilatory Support System is being used in hospitals and in
home care applications. Pulmonary physicians and respiratory therapists are the
primary caregivers and referral sources for patients currently being treated
with BiPAP. The retail price for a BiPAP Ventilatory Support System generally
ranges from $4,000 to $8,000, depending on which model is purchased.
The Company is monitoring and sponsoring clinical trials which are
investigating the benefits of BiPAP therapy for different types of patient
populations.
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The marketing of BiPAP Ventilatory Support Systems for use in these patient
populations will most likely require additional 510(k) clearances from the
United States Food and Drug Administration ("FDA") (see "Regulatory Matters").
The published results of recent studies have continued to be favorable with
respect to the BiPAP Ventilatory Support System's use with patients with both
acute and chronic respiratory insufficiency and patients with nocturnal
breathing disorders who benefit from assisted ventilation.
Sales of ventilatory products and all related accessories and replacement
parts accounted for 26%, 27%, and 23% of the Company's net sales for its fiscal
years 1995, 1994, and 1993, respectively.
Face Mask Products
------------------
The Company currently provides three primary types of face masks: (1)
reusable and disposable Nasal Sealing Flap Masks for use with REMstar and BiPAP
devices; (2) disposable air-filled cushion anesthesia masks primarily for use
during surgery; and (3) disposable resuscitation masks for use in emergency
medical situations. The Company's face masks are designed, in part, to respond
to the increasing demand for single patient use ventilation products which
reduce the potential for cross-contamination among patients and supporting
medical personnel from contagious diseases.
The Company believes that its Nasal Sealing Flap Mask was the first mask
to adequately seal on a patient's face for CPAP and BiPAP therapy. The Nasal
Sealing Flap Mask is used with the Company's obstructive sleep apnea and
ventilation products.
The Company's line of disposable anesthesia masks utilizes a very thin
and pliable soft plastic air-filled cushion around the nose and mouth which
provides a uniform seal to prevent leakage of the anesthetic gases. The Company
believes that Vital Signs, Inc., the exclusive marketer of the anesthesia masks
produced by the Company, is the market share leader in the United States in
single patient use anesthesia masks.
Sales of all face masks (including some masks which are components of
obstructive sleep apnea products, ventilation products, and resuscitation
products and which are also included in the net sales figures for those product
groups) accounted for 15%, 16%, and 18% of the Company's net sales for its
fiscal years 1995, 1994, and 1993, respectively.
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Resuscitation Products
----------------------
The Company's primary resuscitation product is a manual disposable
resuscitator called BagEasy, which is used in emergency and critical care
medicine. Manual resuscitators are used to ventilate the lungs of a patient by
squeezing a self-inflating bag connected to a face mask or endotracheal tube.
The device can be used to resuscitate patients who have stopped breathing and to
sustain proper breathing function for a short period of time in critically ill
patients. The BagEasy manual resuscitator is designed, among other things, to
respond to the increasing demand for single patient use resuscitation products
which reduce the potential for cross-contamination among patients and supporting
medical personnel from contagious diseases. The current version of BagEasy was
introduced in March 1995.
In November 1993, the Company discontinued a predecessor version of the
BagEasy and voluntarily recalled all remaining products in distribution channels
and customer inventories. See Note J to the Consolidated Financial Statements
for additional information regarding this discontinuance.
The Company's other resuscitation products include several disposable
resuscitation masks and non-rebreathing valves that are used primarily in the
emergency medical market and in hospitals. Sales of resuscitation products
accounted for 2%, 4%, and 11% of the Company's net sales for its fiscal years
1995, 1994, 1993, respectively. BagEasy sales were 0.33%, 2%, and 8% of the
Company's net sales for fiscal years 1995, 1994, and 1993 respectively.
Manufacturing and Properties
The Company's corporate headquarters and domestic manufacturing
operations are located in Murrysville, Pennsylvania (approximately 20 miles east
of Pittsburgh) in a 116,000 square foot facility that was first occupied by the
Company in July 1990. The facility includes a 46,000 square foot addition that
was completed in November 1993. The entire facility is subject to mortgages used
to secure financing related to the construction and expansion of the facility.
See Note D to the Consolidated Financial Statements for additional information
regarding the mortgages and the financing. The facility is a one and one-half
story building of steel and concrete construction in which manufacturing,
related support departments, and research and development activities comprise
approximately 106,000 square feet, with the remaining 10,000 square feet devoted
to corporate headquarters functions. The total cost of the facility, including
the addition, was approximately $7,800,000.
The Company also leases, on a month to month basis, a 22,000 square foot
office facility in Plum Borough, Pennsylvania approximately two miles
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from the existing corporate headquarters facility. This leased facility
currently houses the Company's customer satisfaction and technical service
groups.
The operations of Vitalog, which was acquired by the Company in April
1995, are conducted in a 2,500 square foot leased facility in Redwood City,
California.
The Company began manufacturing operations in Hong Kong in 1981 where it
currently manufactures a portion of its patient mask products. The Company's
warehousing, manufacturing and administrative activities in Hong Kong are
conducted in a 28,000 square foot light manufacturing complex in Kwun Tong,
Kowloon, Hong Kong. The premises are leased under a renewable agreement
expiring on April 30, 1997. The landlord of this space, Micro Electronics,
Ltd., is a shareholder of the Company. Bernard Shou-Chung Zau, a shareholder
and Director of the Company, is also a shareholder and a Director of Micro
Electronics, Ltd..
The Company conducts the remainder of its patient mask manufacturing in a
facility in Shenzhen City in the Peoples Republic of China, bordering Hong Kong.
The Shenzhen facility is leased and operated by the Company. The present
manufacturing space totals approximately 66,000 square feet. The facility is
located in a special economic zone (where the Company has been operating since
1987) that was established by the Peoples Republic of China in 1980 to induce
foreign investment. During fiscal year 1992, this facility, which had been
operated under a "sub-contract" agreement pursuant to which the subcontractor
provided employees on a monthly fee basis, began operating under a new
arrangement under which the workers at the facility are employees of the
Company. The Company believes that this arrangement results in improved
control over the facility's operations. In addition, the Company believes that
the establishment of corporate presence in the Peoples Republic of China well in
advance of the 1997 transfer of control of Hong Kong to the Peoples Republic of
China will reduce the likelihood that this transfer of control will affect the
Company's operations.
The Company believes that its present facilities in the United
States, Hong Kong, and the Peoples Republic of China are suitable and adequate
for its current and presently anticipated future needs. While each facility is
extensively utilized, additional productive capacity is available through a
variety of means including, at the Murrysville site, augmenting the current
partial second shift work schedule. Rental space, which the Company believes is
readily available and reasonably priced near each current location, could be
utilized as well. The Company also owns approximately 20 acres of land adjacent
to the 10 acre site on which the Murrysville facility is located. Future
expansion in Murrysville, if needed, would likely take place on this 20 acre
site.
The Company generally performs all major assembly work on all of its
products. It manufactures the plastic components for its face mask products and
uses subcontractors to supply certain other components. The Company
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believes that the raw materials for all of its products are readily available
from a number of suppliers.
Marketing, Sales and Distribution
The Company sells its products to approximately 2,500 homecare and
hospital dealers worldwide, and to Vital Signs, Inc. ("Vital Signs"), the
exclusive customer for the Company's disposable anesthesia masks. These
customers in turn resell and rent the Company's products to end users.
The Company manages this dealer network through its sales management team,
its own 23 person direct sales force, and approximately 60 independent
manufacturers' representatives. The Company's sales management team consists
of a Vice President of Sales and Marketing, a Director of Sales, and ten
Regional Sales Managers. Two of the Regional Sales Managers and two of the
direct sales representatives concentrate exclusively on international sales.
The Company serves the home health care market with products such as
REMstar Choice and the BiPAP Airway Management and Ventilatory Support systems;
the hospital market with products such as the Hospital BiPAP Ventilatory Support
System, the BagEasy disposable manual resuscitator, and several disposable
resuscitation masks and valves; and the field emergency medical services market
with products such as BagEasy and the disposable resuscitation masks and
valves.
The Company also sells its REMstar Choice, BiPAP and accessory products
outside the United States, primarily in Europe and Canada, and to an increasing
extent in South America, Latin America, Australia and the Far East (including
the Peoples Republic of China). International sales accounted for approximately
20%, 20%, and 18% of the Company's net sales for its 1995, 1994, and 1993 fiscal
years, respectively.
The Company provides sales and promotional materials, training, and in-
depth technical assistance to its dealer network. The Company also advertises
in trade journals and is represented at all major trade shows for respiratory
medical products.
The Company's marketing organization is currently staffed with a Director
of Marketing and marketing-oriented product managers who are assigned to each of
the Company's principal product groups. The product managers monitor changes in
the marketplace, with an emphasis on product use specifications, features,
price, promotions, education and training, and distribution.
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Vital Signs is the exclusive marketer for the Company's air-filled
cushion anesthesia masks. Vital Signs is an unaffiliated corporation based in
Totowa, New Jersey, which specializes in the distribution of anesthesia medical
products directly to hospitals. Sales to Vital Signs, primarily of air-filled
cushion anesthesia masks, accounted for 5%, 6%, and 10% of the Company's net
sales for its 1995, 1994, and 1993 fiscal years, respectively. Sales of air-
filled cushion anesthesia masks to Vital Signs are made under the terms of a
supply agreement which will expire in June, 1997.
The Company's customer base is undergoing significant consolidation. The
Company's two largest customers (both of which were home care dealers) recently
merged, and many smaller customers have been acquired by larger entities. This
consolidation is likely to result in pricing pressure as a result of greater
purchasing power and market dominance enjoyed by larger customers, however
opportunities are expected to develop for increased unit sales volumes under
partnering arrangements.
Competition
The Company believes that the principal competitive factor in all of its
markets is differentiated product performance. Efficient and effective
distribution and competitive price are also very important factors for its more
mature products. In the case of a number of the Company's and its competitors'
products, patent protection is becoming more prevalent and of increasing
competitive importance.
Because of the specialized nature of the Company's products, there is only
one company, Nellcor Puritan-Bennett, which offers an array of products which
compete with all of the Company's major products. In addition, the Company
competes on a product-by-product basis with various other companies which
develop and manufacture respiratory medical products for use in the home, in
hospitals and in emergency medical situations. In many cases, these companies
have significantly greater financial and marketing resources and broader product
lines than the Company.
The Company believes that it has the leading position in the market for
home care devices for the treatment of obstructive sleep apnea in the United
States. However, other manufacturers, including other larger and more
experienced manufacturers of home health care products, have entered the market
and the Company expects that strong competition will continue and increase.
Healthdyne Technologies, Inc. is the primary competitor for the Company's
REMstar Choice units. In addition, Nellcor Puritan-Bennett, DeVilbiss, Inc.
(a division of Sunrise Medical) and ResMed Inc. compete with the Company in the
obstructive sleep apnea market.
ResMed offers a bi-level system for use in the obstructive sleep apnea
market, and Nellcor Puritan Bennett offers a bi-level system for use in both the
obstructive sleep apnea and ventilation markets.
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Internationally, in addition to the U.S. companies described above, the Company
competes with several European manufacturers of both obstructive sleep
apnea and ventilation units.
The disposable anesthesia mask and disposable manual resuscitator markets
have become very competitive, with particular emphasis on price, and the Company
expects that this trend will continue.
Similar to the Company's customer base, the medical device manufacturing
industry is also undergoing significant consolidation. Several of the
Company's competitors have announced or completed mergers, most notably the
recently completed merger of Nellcor and Puritan Bennett. The impact on the
Company of this consolidation is likely to be greater competition from medical
device manufacturers who can utilize greater financial and technical resources
available from larger consolidated entities.
Research and Development
The Company conducts substantially all of its research and development for
existing and potential new products in the United States. As of June 30,
1995, it employed a total of 84 engineers and technicians in such activities.
Research and development activities cover overall conceptual design work through
production start up and are conducted on a project basis. The Company spent
approximately $7,100,000, $4,794,000, and $3,556,000 in research and development
in fiscal years 1995, 1994, and 1993, respectively, to support active, ongoing
product enhancement and new product development on all of the Company's product
lines. Several new product introductions took place during fiscal year 1995 and
early in fiscal year 1996 (including a redesigned BagEasy manual resuscitator,
new face masks, and part of the family of new obstructive sleep apnea products),
with additional new product introductions to follow later in fiscal year 1996.
By the end of fiscal year 1996, the Company expects to have introduced new
families of products in both the obstructive sleep apnea and ventilation areas.
In some cases, initial distribution has been, and will be, conducted in
international markets until regulatory clearance to market in the United States
is obtained (see "Regulatory Matters").
The Company also maintains both formal and informal ethical relationships
with physician practitioners and researchers (including sleep laboratories).
Patent, Trademarks and Licenses
The Company seeks patent protection for certain of its products through the
acquisition of patents and exclusive licensing arrangements. In addition, the
Company aggressively defends its patents against infringement by other
companies. The Company currently has approximately 20 U.S. and foreign patents
and 21 additional U.S. and foreign patent applications pending.
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The Company owns the proprietary rights to most of its current products,
including patents on the BiPAP Airway Management System (which was strengthened
in July 1995 with receipt of additional protection under a Continuation In Part
patent), components of Nasal Sealing Flap Mask and other valve and mask related
accessories. Certain proprietary rights to the disposable anesthesia mask are
owned by Vital Signs, Inc. (see "Marketing, Sales and Distribution"). A
competitor, ResMed, Inc., through its subsidiary ResCare Limited, has brought
suit alleging that certain of the Company's products infringe its patents. See
"Legal Proceedings".
The Company currently has approximately 55 registered U.S. and foreign
trademarks and 10 additional U.S. and foreign trademark applications have been
filed.
Regulatory Matters
The Company's products are subject to regulation by, among other
governmental entities, the United States Food and Drug Administration ("FDA")
and corresponding foreign agencies. The FDA regulates the introduction,
manufacture, advertising, labeling, packaging, marketing and distribution of and
recordkeeping for such products. In manufacturing and marketing its products,
the Company must comply with FDA regulations and is subject to various other FDA
recordkeeping requirements and to inspections by the FDA. Failure to comply with
applicable FDA regulations can result in fines, civil penalties, suspensions or
revocation of approvals, recalls or product seizures, operating restrictions or
criminal penalties. The portion of the FDA regulations relating to
manufacturing, labeling, packaging, distribution and recordkeeping is known as
"Good Manufacturing Practice".
The Company must also obtain, in certain cases, FDA or foreign regulatory
approval for marketing the Company's new devices prior to their release. The
testing for, preparation of, and subsequent FDA review of required applications
for approval is expensive, lengthy and uncertain. Moreover, regulatory
approval, if granted, can include significant limitations on the indicated uses
for which a product may be marketed.
There are two primary means by which the FDA permits a medical device to
be marketed. First, a manufacturer may seek clearance for the device by filing a
510(k) premarket notification with the FDA. The manufacturer or distributor may
not market the device until a "substantial equivalence" determination notice is
issued by the FDA. This notice may be issued within 90 days of submission, but
usually takes longer and often involves responding to questions from the FDA. If
significant questions are raised, obtaining FDA clearance of a 510(k) premarket
notification can take a number of years and require the expenditure of
substantial resources.
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If a manufacturer cannot establish to FDA's satisfaction that a new
device is substantially equivalent to a previously marketed device, it will have
to seek approval to market the device through the premarket approval application
("PMA") process. This is a far more complex and costly process.
Foreign regulatory approvals vary widely depending on the country.
Exports to foreign countries are also currently subject to FDA's jurisdiction.
Three FDA inspections of the Company were conducted during fiscal year
1995. The first took place at various times between May 1994 and August 1994 at
the Murrysville facility. In late August 1994, the FDA investigators issued an
FDA Form 483 setting forth the results of this inspection. The Company responded
to these findings in September 1994. On December 22, 1994, the Company received
a "warning letter" from the FDA relating to the FDA's August 1994 inspection. A
warning letter is a statement by the FDA that the agency believes that
significant violations have occurred and is prepared to take enforcement action
if corrective measures are not taken. In the warning letter, the FDA raised
issues relating to: (i) alleged shortcomings in the Company's complaint
processing procedures, (ii) the Company's alleged failure to file certain
medical device reports ("MDR's") and (iii) the Company's alleged failure to
obtain 510(k) premarket notification clearances that the FDA indicated were
necessary for certain features of the Company's BiPAP systems and for certain
claims regarding product use. Each of these issues is discussed below.
Complaint Procedure.
-------------------
The FDA stated that the Company's complaint records did not comply with Good
Manufacturing Practice regulations. Prior to receipt of the warning letter, the
Company had revised its procedures and complaint recordkeeping to address this
issue. In addition, the Company's complaint processing system has been
automated. Based on the results of a follow up investigation described below,
the Company believes that this aspect of the FDA's warning letter has been
resolved.
Medical Device Reports.
----------------------
An MDR report is required to be filed (i) if a death or serious injury occurs
and a manufacturer's products may have caused or contributed to the death or
serious injury or (ii) if a manufacturer's product malfunctions and the product
would be likely to cause or contribute to a death or serious injury if the
malfunction were to recur. The FDA stated in its warning letter that the Company
had not filed an MDR for what the FDA believed to be a reportable malfunction.
In response, the Company has filed MDRs with respect to certain malfunctions
which the FDA referred to during the 1994 inspections, and the Company has also
changed certain procedures with respect to the determination of when
12
<PAGE>
an MDR will be filed. Based on the results of a follow up investigation
described below, the Company believes that this aspect of the FDA's warning
letter has been resolved.
510(k) BiPAP Ventilation Issues.
-------------------------------
The Company believes that it has all 510(k) premarket notification clearances
required for the uses for which it markets its BiPAP ventilatory products and
for the BiPAP product itself and all of its features. The concerns cited in the
FDA warning letter with respect to the Company's 510(k) premarket notification
clearances related solely to its BiPAP systems and involved allegations that the
Company had modified the approved devices so as to require additional clearances
and that the Company was marketing the devices for uses that were not within the
scope of their 510(k) premarket notification clearances. The FDA has expressed
its concerns regarding the marketing of the BiPAP device for indications other
than adult obstructive sleep apnea. As noted above, the Company believes that it
has appropriate 510(k) premarket notification clearance for the uses for which
it is marketing the device and for the device itself. During the course of the
FDA inspections described above, and prior to the issuance of the FDA warning
letter, the Company discontinued marketing its BiPAP products for invasive
applications (which the FDA stated in the warning letter were not clearly
covered in the 510(k) premarket notifications).
Since receiving the warning letter, the Company has filed with the FDA
additional 510(k) premarket notification requests with respect to the technical
features that were cited in the warning letter and to certain uses beyond adult
obstructive sleep apnea, in each case indicating that the application was filed
without prejudice to the Company's position that no additional filing is
required. The Company cannot predict whether the FDA will clear any of the
510(k) premarket notifications or that the clearances, if obtained, will be
obtained in a timely manner.
Respironics is continuing its past practice of cooperating with the FDA
in attempting to resolve the issues which gave rise to the warning letter. Among
other things, it is further improving its record keeping and complaint
procedures and filing MDR's and 510(k) premarket notification requests even
where the Company believes such filings are not required. The Company believes
that it is in substantial compliance with FDA requirements relating to its
products and also believes that its existing 510(k) clearances for BiPAP
encompass ventilatory claims in addition to the treatment of obstructive sleep
apnea in adults and the technical features cited in the FDA warning letter.
While the Company cannot predict what action, if any, the FDA will take, the
Company believes that there is not likely to be any interruption of its business
as a result of the issues raised in the warning letter.
The second FDA inspection took place at the Murrysville facility in
January 1995. A report on Form 483 was issued by the FDA investigator setting
forth the results of the inspection, which had focused on a voluntary
recall conducted by the Company. The Form 483 also reiterated, as expected,
13
<PAGE>
the FDA's position relative to the 510(k) clearances for BiPAP. The Company
responded to the Form 483 findings in February 1995.
The third FDA inspection took place at the Murrysville facility in May
1995. A report on Form 483 was issued by the FDA investigators setting forth the
results of the inspection, which had focused on the Company's revised systems
complaints and MDR's. Revisions had been made to these systems as described
above. The Form 483 issued for this inspection did not refer to MDR's or
complaint handling, but contained only the FDA's expected reiteration of its
position relative to the 510(k) clearances for BiPAP. The Company responded to
the Form 483 findings in June 1995.
During the last three fiscal years, the Company has conducted five recalls
of its products, all of which were voluntary and conducted with the knowledge of
the FDA. Except for the voluntary BagEasy recall (and the related product line
discontinuance) described above and in Note J to the Consolidated Financial
Statements, none of these recalls has had a material adverse affect on the
Company's results of operations or financial condition.
Third Party Reimbursement
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid,
and corporate health insurance plans including health maintenance organizations
and managed care organizations. If adverse changes are made in reimbursement
policies for medical products under these insurance programs, the ability of the
Company's customers (medical product dealers) to obtain adequate reimbursement
for their resale or rental of the Company's products could be reduced. In recent
years, limitations imposed on the levels of reimbursement by both government and
private insurance programs have become more prevalent.
For the Company's products used in home care, "procedure codes" have been
obtained from the Health Care Financing Administration ("HCFA"). These procedure
codes provide the mechanism for home care dealers to obtain reimbursement for
providing products for patients covered by Medicare. In addition, many private
insurance programs also utilize the HCFA procedure code system. However, the
rate of reimbursement associated with each code can be reduced after a code is
established (as the reimbursement level for the Company's REMstar Choice system
was in January 1994). The Company has in the past, and plans in the future to
take a very active role in working closely with HCFA and similar agencies as
such agencies consider changes in reimbursement practices.
For the Company's products that are used in hospitals, the primary
determinant of the revenue that can be realized by hospital dealers who resell
or
14
<PAGE>
rent the Company's products is the amount of reimbursement that a hospital
can obtain under the Medicare diagnosis related group ("DRG") payment system for
utilizing such products in treating patients. Many private insurance programs
also utilize the Medicare DRG system. The various uses of the Company's
hospital products to treat patients are accepted in the DRG system. The
levels of reimbursement under the DRG system are also subject to review and
change.
Employees
As of June 30, 1995, the Company had 1,181 employees, including 257
hourly employees in the United States and 532 hourly employees in Hong Kong
and the Peoples Republic of China. None of the Company's employees are covered
by collective bargaining agreements. The Company considers its labor relations
to be good and has never suffered a work stoppage as a result of a labor
conflict.
Financial Information About Foreign and Domestic Operations and Export Sales
Financial Information concerning foreign and domestic operations and
export sales is discussed in Part I "Marketing, Sales and Distribution" and
set forth in Note G of the Consolidated Financial Statements included in this
Annual Report.
Item 2. Description of Properties
Information with respect to the location and general character of the
principal properties of the Company is included in Item 1.
Item 3. Legal Proceedings
Patent Litigation:
The Company is a party to an action currently before the United States
District Court for the Western District of Pennsylvania that was filed in
January 1995 by ResCare Limited ("ResCare"), a competitor, in which ResCare
alleges that in the manufacture and sale in the U.S. of nasal masks and CPAP
systems and components, the Company infringes three U.S. patents, two of which
are owned by and one of which is licensed to ResCare. In its complaint, ResCare
seeks preliminary and permanent injunctive relief, an accounting for damages and
an award of three times actual damages because of the Company's alleged actual
knowledge of the alleged infringement. In its response to the action, the
Company has denied the allegations and has separately sought a declaratory
judgment that the ResCare patents in question are invalid and that the Company
does not infringe upon the patents in any event.
15
<PAGE>
Discovery in the case is currently under way and is scheduled to end in January
1996. The Company believes that none of its products infringes any of the
patents in question in the event that any one or more of such patents should be
held to be valid, and it intends to vigorously defend this position.
Other Matters:
The Company is, as a normal part of its business operations, a party
to several legal proceedings in addition to the action described above. Legal
counsel has been retained for each proceeding and none of these proceedings are
expected to have a material adverse impact on the Company's operations or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of the fiscal year 1995, no matters were
submitted to a vote of security holders.
16
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related
-------------------------------------------------
Shareholder Matters.
-------------------
16,744,785 shares of the Company's common stock were issued and
outstanding as of June 30, 1995. These shares are traded in the over-the-
counter market and are reported on the NASDAQ National Market System under the
symbol "RESP". As of September 8, 1995, there were 1,400 holders of record of
the Company's common stock. In February 1995, the Company's Board of Directors
declared a two-for-one stock split of the Company's common stock, distributing
on March 17, 1995 one additional share of common stock for each share held of
record on March 3, 1995. See "Item 1 - Business" for a discussion of the stock
split.
The Company has never paid a cash dividend with respect to its common
stock and does not intend to pay cash dividends in the foreseeable future.
High and low closing sales price information for the Company's common
stock for the applicable quarters is shown below.
<TABLE>
<CAPTION>
Fiscal year ending June 30, 1995:
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
High $10.63 $12.25 $16.88 $17.00
Low $ 8.00 $ 9.75 $11.63 $10.50
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ending June 30, 1994:
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
High $11.25 $ 9.88 $12.00 $10.63
Low $ 9.00 $ 8.32 $ 9.25 $ 8.38
</TABLE>
17
<PAGE>
Item 6. Selected Financial Data
-----------------------
Note: Per share data and number of shares outstanding have been adjusted
retroactively to reflect the two-for-one stock split effected in fiscal year
1995.
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
Income Statement Data:
Year Ended June 30
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $99,450 $78,171 $69,286 $48,976 $36,031
Cost of goods sold 43,077 34,830 32,114 23,360 17,554
------- ------- ------- ------- -------
56,373 43,341 37,172 25,616 18,477
General and administrative expense 14,050 10,028 10,581 6,538 5,295
Sales, marketing and commission expense 17,696 15,069 12,313 9,211 6,045
Research and development expense 7,077 4,794 3,556 2,311 1,646
Nonrecurring charges -0- 7,086 -0- -0- -0-
Interest expense 194 171 176 201 300
Other income (1,179) (623) (550) (704) (362)
------- ------- ------- ------- -------
Income before income taxes 18,535 6,816 11,096 8,059 5,553
Income taxes 6,858 2,075 3,717 2,696 1,782
------- ------- ------- ------- -------
Net income $11,677 $ 4,741 $ 7,379 $ 5,363 $ 3,771
======= ======= ======= ======= =======
Primary earnings per share $ 0.67 $ 0.27 $ 0.43 $ 0.31 $ 0.26
======= ======= ======= ======= =======
Weighted average shares of Common Stock
outstanding and equivalents 17,532,422 17,280,680 17,318,606 17,056,704 14,630,592
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
June 30
1995 1994 1993 1992 1991
---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 39,413 $ 31,032 $ 25,172 $19,979 $ 16,086
Total assets 78,039 58,917 54,331 43,462 36,140
Total long-term obligations 5,538 4,854 4,288 4,291 4,535
Shareholder's equity 58,369 44,224 39,148 31,391 25,799
</TABLE>
- - ------------
There were no cash dividends declared during any of the periods presented in the
above table.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Results of
--------------------------------------------------
Operations and Financial Condition
----------------------------------
Results of Operations
Net sales for fiscal year 1995 were $99,450,000, representing a 27%
increase in net sales over the $78,171,000 recorded in fiscal year 1994. 1994
net sales represented a 13% increase over the $69,286,000 recorded in fiscal
year 1993.
The increase in net sales from fiscal year 1994 to fiscal year 1995
was primarily attributable to increases in total unit sales of the Company's
obstructive sleep apnea and ventilatory support products and reflects sales
growth across all of the Company's market bases for these product groups. In
addition, sales of the Company's face mask products, including those used as
accessories for its obstructive sleep apnea and ventilatory support products and
those manufactured and sold on an OEM basis (disposable anesthesia masks),
increased in both unit and dollar terms. Finally, the overall increase in net
sales was accomplished in spite of a decrease in sales of the Company's
resuscitation products resulting from the Company's November 1993 decision to
discontinue production and shipment of its BagEasy line of disposable manual
resuscitators, which accounted for 2% of net sales for fiscal year 1994. In
March 1995, the Company introduced a redesigned version of the BagEasy product,
however sales for this redesigned version accounted for less than one-half of
one percent of fiscal year 1995 sales.
The increase in net sales from fiscal year 1993 to fiscal year 1994
was also primarily attributable to increases in total unit sales for the
Company's obstructive sleep apnea and ventilatory support products. Sales of
resuscitation products decreased from fiscal year 1993 to fiscal year 1994 as a
result of the discontinuance of the BagEasy manual resuscitator product
discussed above (BagEasy accounted for 8% of net sales for fiscal year 1993).
Finally, sales of the Company's disposable anesthesia masks decreased in both
unit and dollar terms from fiscal year 1993 to fiscal year 1994 due primarily to
reduced orders from the Company's customer for disposable anesthesia masks.
The reduction in disposable anesthesia mask sales was also due to a reduction in
the unit selling price of the masks under the terms of the June 1993 supply
agreement with the Company's sole customer for these masks. Under the 1993
agreement, the customer may choose to pay a lower unit price for the masks in
exchange for assuming responsibility for freight and duty costs related to mask
shipments.
The Company's gross profit was 57% of net sales for fiscal year 1995
as compared to 55% of net sales for fiscal year 1994 and 54% of net sales for
fiscal year 1993. The increases in gross profit percentage were due primarily to
the Company's ability to limit the growth in its manufacturing support costs to
rates less than the rate of sales increases achieved and a shift in sales mix
toward the Company's higher margin products. In addition, fiscal year 1994
gross margin was reduced because of a temporary diversion during that year of
19
<PAGE>
engineering resources away from research and development activities and to
manufacturing support activities in response to recommendations resulting from
an FDA inspection.
General and administrative expenses were $14,050,000 (14% of net
sales) for fiscal year 1995 as compared to $10,028,000 (13% of net sales) for
fiscal year 1994 and $10,581,000 (15% of net sales) for fiscal year 1993. The
increase in these costs from fiscal year 1994 to fiscal year 1995 was due to a
provision for year-end profit sharing bonuses based on financial results
achieved in fiscal year 1995 and to higher administrative costs related to the
growth of the Company, including staffing increases, increased legal fees, and
increased provisions for uncollectible accounts receivable. The decrease in
these costs, both in absolute dollars and as a percentage of net sales, from
fiscal year 1993 to fiscal year 1994 was due primarily to the absence of profit
sharing bonuses in fiscal year 1994 based on financial results achieved in that
year.
Sales, marketing and commission expenses were $17,696,000 (18% of
nets sales) for fiscal year 1995 as compared to $15,069,000 (19% of net sales)
for fiscal year 1994 and $12,313,000 (18% of net sales) for fiscal year 1993.
These increases in absolute dollars were due to increased commission expenses
paid to independent sales representatives resulting from a shift in sales mix
towards products handled by these representatives, increased trade show and
training expenses, increased salary expenses for new employees in sales and
marketing management, and, for the fiscal 1994 to fiscal 1995 comparison,
product literature and advertising expenses incurred in anticipation of new
product launches.
Research and development expenses were $7,077,000 (7% of net sales)
for fiscal year 1995 as compared to $4,794,000 (6% of net sales) for fiscal year
1994 and $3,556,000 (5% of net sales) for fiscal year 1993. The continuing
increases in research and development spending reflect the Company's commitment
to investment in future product development and product enhancements in all of
the Company's major product groups. Extensive new product development efforts
were conducted during fiscal years 1994 and 1995 in anticipation of new product
introductions in each major product group during calendar year 1995.
Development work was conducted on new families of obstructive sleep apnea and
ventilation devices and the redesigned BagEasy manual resuscitator. Certain new
models of the obstructive sleep apnea devices were introduced in the first
quarter of fiscal year 1996, the redesigned BagEasy manual resuscitator was
introduced in March 1995, and a variety of patient interface devices were
introduced at various times during the three year period. Additional costs
were also incurred throughout the three year period to fund clinical studies.
Finally, the increase from 1994 to 1995 resulted, to a lesser extent, from the
temporary diversion during fiscal year 1994 of engineering resources away from
research and development activities and to manufacturing support activities in
response to recommendations resulting from an FDA inspection.
20
<PAGE>
Nonrecurring charges totaled $7,086,000 (9% of net sales) for fiscal
year 1994. The first component of these charges, recorded in the first
quarter, totaled $1,966,000 and represented costs incurred by the Company in
connection with its November 1993 decision to discontinue the production and
sale of its BagEasy line of disposable manual resuscitators and recall all
remaining BagEasy products in distribution channels and customer inventories and
included provisions for write-offs of inventories and fixed assets, the
satisfaction of purchase order and compensation commitments, and costs
associated with the recall. The second component of these nonrecurring
charges, recorded in the fourth quarter, totaled $5,120,000 and represented
the write-off of the remaining balance on the prepayment for Hayek Oscillators
and the net book value of units that had been purchased under the terms of the
distribution agreement for that product. See Notes I and J to the
Consolidated Financial Statements for additional information regarding these
charges. The Company did not incur any nonrecurring charges in fiscal year 1995
or 1993.
The Company's effective income tax rate was 37% for fiscal year 1995
as compared to 30% for fiscal year 1994 and 33% for fiscal year 1993. Changes
in the Company's effective income tax rate were due primarily to changes in the
relative proportions of taxable income attributable to its United States
operation versus taxable income attributable to its Hong Kong and Peoples
Republic of China operations because the United States operation pays income
taxes at a higher rate (approximately 41% before available income tax credits)
than do the Hong Kong and Peoples Republic of China operations. The proportion
of taxable income attributable to the United States operation has increased,
with the exception of fiscal year 1994. During that year, the non-recurring
charges described above were incurred almost exclusively by the United States
operation, reducing taxable income attributable to the U.S. operation and
correspondingly reducing the Company's overall effective income tax rate.
As a result of the factors described above, the Company's net income
was $11,677,000 (12% of net sales) for fiscal year 1995 as compared to
$4,741,000 (6% of net sales) for fiscal year 1994 and $7,379,000 (11% of net
sales) for fiscal year 1993.
Financial Condition, Liquidity and Capital Resources
The Company had working capital of $39,413,000 and $31,032,000 at
June 30, 1995 and 1994, respectively. Net cash provided by operating
activities was $9,469,000, $4,568,000 and $10,669,000 for fiscal years 1995,
1994 and 1993, respectively. The increase in cash provided by operating
activities from fiscal year 1994 to fiscal year 1995 was due to an increase in
net income, a decrease in refundable income taxes, and increases in accounts
payable and accrued expenses during fiscal year 1995 as compared to decreases or
smaller increases in those liability accounts during fiscal year 1994. The
reduction in cash provided by operating activities from fiscal year 1993 to
fiscal year 1994 was due primarily to increases in accounts receivable
21
<PAGE>
and refundable income taxes as well as decreases in accounts payable and accrued
expenses.
Trade accounts receivable increased from June 30, 1994 to June 30,
1995 at a rate greater than the percentage change in sales for the fiscal years
ending on those dates primarily because the Company's quarterly sales were at
their highest level for those two fiscal years during the last quarter of fiscal
year 1995. In addition, the aging of the Company's receivables increased as a
result of extended payment terms offered by the Company under several flexible
financing programs.
Net cash used by investing activities was $7,711,000, $8,415,000, and
$6,363,000 for fiscal years 1995, 1994 and 1993, respectively. Net cash used
for capital expenditures was $6,941,000, $7,735,000 and $6,363,000 for the
respective years. Approximately $2,643,000 of the capital expenditures for
fiscal year 1994 and $1,203,000 of the capital expenditures for fiscal year 1993
were for the purchase and development of additional land and expansion costs
related to the Company's headquarters and manufacturing facility in Murrysville,
Pennsylvania. The remainder of the significant capital expenditures for fiscal
years 1995, 1994 and 1993 were made for the purchase of production equipment,
office equipment and computers. In addition, fiscal year 1995 investing
activities included an expenditure of $745,000 representing a portion of the
purchase price of an acquired business plus related acquisition expenses. The
remainder of the purchase price was paid with shares of the Company's common
stock. See Note L to the Consolidated Financial Statements for additional
information about this acquisition.
In November 1993, the Company completed a 46,000 square foot addition
to its headquarters and manufacturing facility in Murrysville, Pennsylvania.
Financing for the addition includes a Redevelopment Authority Loan for $978,000
that was received in June 1994 and a $1,100,000 loan that received from the
Pennsylvania Industrial Development Authority in February 1995. Both loans have
a 2% fixed interest rate and a 15 year repayment term. See Note D to the
Consolidated Financial Statements for additional information about long-term
obligations. Funding for the remainder of the facility addition and the other
capital expenditures has been provided by positive cash flows from operating
activities and from cash and short-term investment balances.
Net cash provided by financing activities also includes proceeds from
the issuance of common stock under the Company's stock option plans and the
receipt of a minority interest investment in a joint venture and is reduced by
payments made on long-term obligations. In October 1994, the Company entered
into a new line of credit facility with a commercial bank that provides for the
availability of $1,250,000 at the bank's prime interest rate until the
expiration date of the agreement on October 31, 1995. The Company expects that
this line of credit facility will be renewed upon its expiration. See Note D to
the Consolidated Financial Statements for a discussion of the line of credit.
22
<PAGE>
As discussed above, in November 1993 the Company discontinued the
production and sale of its BagEasy line of disposable manual resuscitators and
recalled all remaining BagEasy products in distribution channels and customer
inventories. The BagEasy product represented approximately 8% of the Company's
total sales for the year ended June 30, 1993 (the last full fiscal year it was
sold) and did not make significant contributions to profitability. In March
1995, the Company began shipping a redesigned version of the BagEasy manual
resuscitator.
The Company has not provided a valuation allowance for deferred income
tax assets because it has determined that it is more likely than not that such
assets can be realized, at a minimum, through carrybacks to prior years in which
taxable income was generated.
The Company believes that positive cash flow from operating and
financing activities, its $1,250,000 line of credit facility, and its
accumulated cash and short-term investments will be sufficient to meet its
current and presently anticipated needs for fiscal year 1996 for operating
activities, investing activities and financing activities (primarily consisting
of payments on long-term debt).
Inflation
Inflation has not had a significant effect on the Company's business
during the periods discussed.
23
<PAGE>
Item 8. Consolidated Financial Statements
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................ 25
Consolidated Balance Sheets as of June 30, 1995 and 1994.. 26
Consolidated Statements of Operations for the
years ended June 30, 1995, 1994 and 1993............... 28
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1995, 1994 and 1993....... 29
Consolidated Statements of Cash Flows for the
years ended June 30, 1995, 1994 and 1993............... 30
Notes to Consolidated Financial Statements................ 31
</TABLE>
24
<PAGE>
Report of Independent Auditors
Board of Directors
Respironics, Inc.
We have audited the accompanying consolidated balance sheets of Respironics,
Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Respironics, Inc.
and subsidiaries at June 30, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
Ernst & Young LLP
Pittsburgh, Pennsylvania
September 11, 1995
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30
1995 1994
------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $16,126,904 $12,384,054
Trade accounts receivable, less allowance for
doubtful accounts of $700,000 and $525,000 19,448,187 15,011,285
Refundable income taxes -0- 1,787,265
Inventories 13,136,664 7,833,755
Prepaid expenses and other 1,951,358 1,168,167
Deferred income tax benefits 2,200,595 2,021,776
----------- ----------
TOTAL CURRENT ASSETS 52,863,708 40,206,302
PROPERTY, PLANT AND EQUIPMENT
Land 2,589,117 2,417,334
Buildings 8,674,675 7,713,405
Machinery and equipment 14,155,510 10,849,230
Furniture and office equipment 9,394,000 7,240,447
Leasehold improvements 577,175 519,744
----------- ----------
35,390,477 28,740,160
Less allowances for depreciation
and amortization 15,443,041 11,929,911
----------- ----------
19,947,436 16,810,249
Funds held in trust for construction
of new facility 710,929 680,372
OTHER ASSETS 2,668,592 1,220,297
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 1,847,905 -0-
----------- -----------
$78,038,570 $58,917,220
=========== ===========
See notes to consolidated financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
June 30
1995 1994
-------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,858,554 $ 3,086,776
Accrued compensation and related expenses 3,827,187 3,055,420
Accrued expenses 2,694,298 1,968,977
Income taxes 1,572,121 658,364
Current portion of long-term obligations 498,150 404,866
----------- -----------
TOTAL CURRENT LIABILITIES 13,450,310 9,174,403
LONG-TERM OBLIGATIONS 5,537,996 4,854,440
MINORITY INTEREST 681,068 664,268
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
16,744,785 shares at June 30, 1995 and
16,344,690 shares at June 30, 1994 167,448 163,446
Additional capital 19,254,977 16,790,919
Retained earnings 38,946,771 27,269,744
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 58,369,196 44,224,109
----------- -----------
$78,038,570 $58,917,220
=========== ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
<S> <C> <C> <C>
Net sales $99,450,333 $78,171,028 $69,285,613
Cost of goods sold 43,077,158 34,830,308 32,113,280
----------- ----------- -----------
56,373,175 43,340,720 37,172,333
General and administrative expenses 14,050,071 10,027,842 10,580,602
Sales, marketing and commission expenses 17,696,059 15,069,159 12,313,483
Research and development expenses 7,077,216 4,794,242 3,555,903
Nonrecurring charges -0- 7,086,085 0
Interest expense 193,550 171,223 175,843
Other income (1,178,685) (624,180) (549,635)
----------- ----------- -----------
37,838,211 36,524,371 26,076,196
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 18,534,964 6,816,349 11,096,137
Income taxes 6,857,937 2,075,105 3,717,206
----------- ----------- -----------
NET INCOME $11,677,027 $ 4,741,244 $ 7,378,931
=========== =========== ===========
Earnings per share $ 0.67 $ 0.27 $ 0.43
=========== =========== ===========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 17,532,422 17,280,680 17,318,606
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Retained
Shares Amount Capital Earnings Total
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1992 as
previously reported 8,065,907 $ 80,659 $16,160,464 $15,149,569 $31,390,692
Two-for-one stock split 8,065,907 80,659 (80,659) -0- -0-
---------- -------- ----------- ----------- -----------
BALANCE AT JULY 1, 1992 AS ADJUSTED 16,131,814 161,318 16,079,805 15,149,569 31,390,692
Net income for the year ended
June 30, 1993 -0- -0- -0- 7,378,931 7,378,931
Shares sold pursuant to stock option
plans 89,346 894 343,668 -0- 344,562
Shares sold pursuant to consulting
agreement 8,000 80 33,320 -0- 33,400
---------- -------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1993 16,229,160 162,292 16,456,793 22,528,500 39,147,585
Net income for the year ended
June 30, 1994 -0- -0- -0- 4,741,244 4,741,244
Shares sold pursuant to stock option
plans 107,530 1,074 289,526 -0- 290,600
Shares sold pursuant to consulting
agreement 8,000 80 44,600 -0- 44,680
---------- -------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1994 16,344,690 163,446 16,790,919 27,269,744 44,224,109
Net income for the year ended
June 30, 1995 -0- -0- -0- 11,677,027 11,677,027
Shares sold pursuant to stock
option plans 315,001 3,150 1,188,499 -0- 1,191,649
Acquistion of a business 85,094 852 1,275,559 -0- 1,276,411
---------- -------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1995 16,744,785 $167,448 $19,254,977 $38,946,771 $58,369,196
========== ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $11,677,027 $ 4,741,244 $ 7,378,931
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,831,793 3,571,500 3,858,339
Provision for deferred income taxes (178,819) 191,763 (1,390,181)
Provision for losses on write-off of equipment -0- 270,791 -0-
Provision for losses on accounts receivable 175,000 75,000 100,000
Loss on sale of equipment 35,719 -0- -0-
Provision for nonrecurring charges -0- 5,120,000 -0-
Changes in operating assets and liabilities:
Increase in accounts receivable (4,515,077) (3,812,916) (2,198,685)
Decrease (increase) in refundable income taxes 1,787,265 (1,787,265) -0-
Increase in inventories and prepaid
expenses (5,770,417) (1,057,575) (705,007)
(Increase) decrease in other assets (1,448,295) (949,001) 289,908
Increase (decrease) in accounts payable 1,680,521 (738,842) 1,547,383
Increase (decrease) in accrued compensation
and related expenses 764,557 (947,563) 1,642,235
Increase (decrease) in accrued expenses 516,442 528,074 (42,716)
Increase (decrease) in accrued income taxes 912,999 (636,912) 188,668
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 9,468,715 4,568,298 10,668,875
INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,940,667) (7,734,854) (6,362,511)
Proceeds from sale of equipment 5,503 -0- -0-
Increase in funds held in trust for construction
of new facility (30,557) (680,372) -0-
Acquisition of a business, net of cash acquired (745,433) -0- -0-
----------- ----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (7,711,154) (8,415,226) (6,362,511)
FINANCING ACTIVITIES
Proceeds from long-term obligations 1,132,760 978,396 -0-
Reduction in long-term obligations (355,920) (382,508) (263,601)
Issuance of common stock 1,191,649 335,280 377,962
Increase in minority interest 16,800 664,268 -0-
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,985,289 1,595,436 114,361
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 3,742,850 (2,251,492) 4,420,725
Cash and short-term investments at beginning of year 12,384,054 14,635,546 10,214,821
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $16,126,904 $12,384,054 $14,635,546
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESPIRONICS, INC. AND SUBSIDIARIES
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
- - ---------------------------
The consolidated financial statements include the accounts of Respironics, Inc.
(the Company), its consolidated wholly owned foreign subsidiary, Respironics
(HK) Ltd., its wholly owned domestic subsidiary, RIC Investments, Inc., and a
foreign joint venture in which it holds a 51% equity investment. The joint
venture partner's 49% equity interest is included in the Company's financial
statements as minority interest. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition:
- - -------------------
Revenue is recognized from sales when a product is shipped.
Inventories:
- - -----------
Inventories are valued at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment:
- - -----------------------------
Property, plant and equipment is recorded on the basis of cost. Depreciation is
computed using the straight-line method based upon the estimated useful lives of
the respective assets, except for assets under capital leases which are
depreciated using the straight-line method over the shorter of the lease term or
the estimated useful lives of such assets. Amortization of assets under capital
leases is included in depreciation expense.
Income Taxes:
- - ------------
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards #109, "Accounting for Income Taxes". Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when differences are expected
to reverse. The Company has elected not to restate the consolidated financial
statements of any prior years. The cumulative effect of the adoption and the
effect of the adoption on the results of operations for the year ended June 30,
1994 were not material.
The Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiary (other than deemed dividends which are taxed
currently) because such earnings are reinvested and, in the opinion of
management, will continue to be reinvested indefinitely.
Foreign Currency Translation:
- - ----------------------------
The Company follows Statement of Financial Accounting Standards No. 52 for the
translation of the accounts of its foreign subsidiary, Respironics (HK) Ltd.,
and its joint venture. Foreign currency assets and liabilities are translated
into United States dollars at the rate of exchange existing at the statement
date or historical rates depending upon the nature of the account. Income and
expense amounts are translated at the average of the monthly exchange rates.
Adjustments resulting from these translations are immaterial.
Stock Split:
- - -----------
In February 1995, the Company's Board of Directors declared a two-for-one stock
split of the Company's common stock, distributing on March 17, 1995 one
additional share of common stock for each share held of record on March 3, 1995.
All agreements concerning stock options were amended to provide for issuance of
two shares of common stock for every one share issuable prior to the split. An
amount equal to the par value of the shares issued was transferred from
additional capital to the common stock account. This transfer has been reflected
in the consolidated statements of changes in shareholders' equity at July 1,
1992. All references to number of shares, except shares authorized, and to per-
share information in the consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis.
Stock Options:
- - -------------
Stock options are granted to certain employees and certain members of the
Company's Board of Directors at fair market value on the date of the grant.
Proceeds from the exercise of common stock options are credited to shareholders'
equity at the date the options are exercised. There are no charges or credits to
income with respect to these options.
Earnings per Share:
- - ------------------
Earnings per share is based on the weighted average number of shares outstanding
during each year and the assumed exercise of dilutive stock options (less the
number of treasury shares assumed to be purchased with the proceeds using the
average market price of the Company's common
31
<PAGE>
stock for primary earnings per share and the higher of the ending market price
or average market price for fully diluted earnings per share).
Cash and Short-Term Investments:
- - -------------------------------
The Company considers all highly liquid investments with a maturity of 90 days
or less when purchased to be cash and short-term investments.
Capitalized Software Development Costs:
- - --------------------------------------
In 1994, the Company commenced development of software to be included in certain
of its new products. Software development costs have been capitalized and will
be amortized to the cost of product revenues over the estimated economic lives
of the products that will include such software. The products that include such
software are expected to be introduced for sale during the year ending June 30,
1996. Total capitalized software development costs were $1,982,000 and $ 675,000
at June 30, 1995 and 1994, respectively.
NOTE B -- SHORT-TERM INVESTMENTS
Short-term investments consist primarily of money market accounts and
certificates of deposit issued by large commercial banks located in the United
States and Hong Kong. These investments are readily convertible to cash and
are stated at cost which approximates market.
NOTE C -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30
1995 1994
-----------------------
<S> <C> <C>
Raw materials $ 7,960,573 $5,268,039
Work-in-process 1,105,010 818,400
Finished goods 4,071,081 1,747,316
----------- ----------
$13,136,664 $7,833,755
=========== ==========
</TABLE>
32
<PAGE>
NOTE D -- LONG TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
June 30
1995 1994
----------------------
<S> <C> <C>
1989 Economic Development
Revenue Bonds, variable interest
rate (effective rate of 5.28%,
including letter of credit and
remarketing fees, at June
30,1995), principal payable in
annual installments of $100,000
through 1996 and $200,000
thereafter through 2004 $1,900,000 $2,000,000
Industrial Development Authority
Loan, payable in monthly install-
ments of $13,777, including interest
at 3%, through June 2005 1,407,312 1,528,469
Redevelopment Authority Loan,
payable in quarterly installments
of $14,533, including interest at 5%,
through June 2005 481,137 514,172
Capital lease obligation, payable in
quarterly installments of $19,834
including interest at a floating rate
(2.25% at June 30, 1995)
through June 1997 131,581 201,353
Redevelopment Authority Loan,
payable in monthly installments of
$6,296, including interest at 2%,
through July 2009 921,894 978,395
Capital lease obligation, payable in
monthly installments of $1,860,
including interest at 4.60%,
through January 1996 13,889 36,917
Industrial Development Authority
Loan, payable in monthly install-
ments of $7,289, including interest
at 2%, through March 2010 1,132,240 -0-
Capital lease obligation, payable in
monthly installments of $2,284,
including interest at 4.62%,
through April 1997 48,093 -0-
---------- ----------
6,036,146 5,259,306
Less current portion 498,150 404,866
---------- ----------
$5,537,996 $4,854,440
========== ==========
</TABLE>
The Economic Development Revenue Bonds, the Industrial Development Authority
Loans, and the Redevelopment Authority Loans are secured by mortgages upon the
Company's headquarters and manufacturing facility in Murrysville, Pennsylvania.
Proceeds from the bonds and the loans were used to finance the construction and
expansion of the facility. The Company is required to meet certain financial
33
<PAGE>
covenants in connection with these obligations, including those relating to
current ratio, ratio of total liabilities to tangible net worth, and minimum
tangible net worth. At June 30, 1995 the Company was in compliance with these
covenants.
The Company is a party to capital lease agreements with commercial banks
relating to certain of its fixed assets. The lease terms are two to four years
with options for the Company to purchase the assets at the end of the lease.
Assets under capital leases at June 30, 1995 consist of machinery and equipment
and office equipment with a net book value of $149,228. Capital lease
obligations incurred are considered non-cash items and, accordingly, are not
considered in the consolidated statements of cash flows. Capital lease
obligations incurred were $52,265 for the year ended June 30, 1995.
The Company also has $1,250,000 available under a line of credit facility with a
commercial bank at the bank's prime rate until the expiration date of October
31, 1995. Borrowings made on this line of credit are unsecured. The Company
is required to meet certain financial covenants under this line of credit
relating to current ratio, the ratio of total liabilities to tangible net worth
and a minimum tangible net worth. There were no outstanding borrowings under
this credit facility.
Scheduled maturities of long-term obligations for the next five years are as
follows:
<TABLE>
<CAPTION>
Minimum Lease Interest on
Maturities of Payments Under on Capital
Long-Term Debt Capital Leases Leases Total
-------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
1996 $ 384,875 $120,837 $(7,562) $ 498,150
1997 492,623 82,343 (2,055) 572,911
1998 500,847 -0- -0- 500,847
1999 509,516 -0- -0- 509,516
2000 518,370 518,370
Thereafter 3,436,352 -0- -0- 3,436,352
---------- -------- ------- ----------
Total $5,842,583 $203,180 $(9,617) $6,036,146
========== ======== ======= ==========
</TABLE>
Interest paid was $194,220, $167,718, and $180,421 for the years ended June 30,
1995, 1994, and 1993, respectively.
NOTE E -- INCOME TAXES
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Income taxes consisted of:
Current:
Federal $5,379,275 $1,509,015 $ 3,988,590
Foreign 197,943 60,112 94,746
State 1,459,538 314,214 1,024,051
---------- ---------- -----------
7,036,756 1,883,341 5,107,387
Deferred:
Federal (165,132) 151,826 (1,071,993)
State (13,687) 39,938 (318,188)
---------- ---------- -----------
(178,819) 191,764 (1,390,181)
---------- ---------- -----------
TOTAL INCOME TAXES $6,857,937 $2,075,105 $ 3,717,206
========== ========== ===========
</TABLE>
34
<PAGE>
The difference between the statutory U.S. federal income tax rate and the
Company's effective income tax rate is explained below:
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 34% 34%
Increases (decreases):
State taxes 5 3 4
Tax credits utilized (3) (7) (3)
Tax on foreign earnings
at less than
the statutory rate -0- (5) (5)
Other items, net, none of which
individually exceeds 5% of
federal income taxes at
statutory rates -0- 5 3
----- ---- ----
EFFECTIVE INCOME TAX RATE 37% 30% 33%
===== ==== ====
</TABLE>
Deferred income tax assets consisted of the following:
<TABLE>
<CAPTION>
June 30
1995 1994
---------- ----------
<S> <C> <C>
Deferred compensation $ -0- $204,546
Inventories 600,513 418,607
Allowance for bad debts 245,804 210,720
Depreciation 635,128 617,944
Accruals 673,926 555,645
Other 45,224 14,314
---------- ----------
Total $2,200,595 $2,021,776
========== ==========
</TABLE>
Income before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year ended June 30
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
United States $17,935,537 $5,578,476 $ 9,038,558
Foreign 599,427 1,237,873 2,057,579
----------- ---------- -----------
Total $18,534,964 $6,816,349 $11,096,137
=========== ========== ===========
</TABLE>
Undistributed earnings of the foreign subsidiary on which no U.S. income tax has
been provided amounted to $9,537,838 at June 30, 1995.
The Company's operation in the Peoples Republic of China is affected by an
income tax holiday. Net income increased by $339,851 ($0.02 per share),
$345,564 ($0.02 per share), and $568,955 ($0.03 per share) for the years ended
June 30, 1995,1994, and 1993 respectively, as a result of this income tax
holiday. Under the terms of the income tax holiday, the Company's operation
in the Peoples Republic of China paid no income tax for the years ended June 30,
1993 and 1994. The income tax rate increased to 7.5% for the year ended June
30, 1995 and will remain at 7.5% for years ending June 30, 1996 and 1997 and
will then increase to 15% for years thereafter. The applicable statutory
income tax rate in the Peoples Republic of China is approximately 33%.
Income taxes paid were $4,335,733, $4,620,928, and $4,918,719 for the years
ended June 30, 1995, 1994, and 1993, respectively.
35
<PAGE>
NOTE F -- STOCK OPTION PLANS
The Company has the 1984 Incentive Stock Option Plan (the "1984 Plan") which
provided options to eligible employees to purchase common stock over five or
ten years at fair market value at the time of the grant. Options become
exercisable one year from the date of the grant at a rate not exceeding 25% per
year (subject to possible acceleration in certain circumstances). The Company
reserved shares of its common stock and authorized options to purchase 3,400,000
shares of common stock under the 1984 Plan. The 1984 Plan terminated as to new
grants on December 31, 1993.
Pertinent information regarding options under the 1984 Plan follows:
<TABLE>
<CAPTION>
Option Shares
-------------
Year Ended June 30
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Outstanding at beginning of period 1,298,466 1,277,860 1,330,562
Granted:
$ 8.25 per share -0- -0- 5,000
$ 8.32 per share -0- 2,000 -0-
$ 9.25 per share -0- 132,000 -0-
$10.07 per share -0- -0- 104,362
$10.38 per share -0- -0- 1,000
Exercised:
$ 1.00 per share (2,000) (10,100) (12,400)
$ 1.38 per share (80,000) (46,600) (6,400)
$ 2.82 per share (18,300) (11,800) (9,800)
$ 4.50 per share (187,250) (34,610) (48,920)
$ 5.41 per share (600) -0- -0-
$ 6.22 per share (20,696) (4,420) (11,426)
$10.07 per share (1,580) -0- -0-
Canceled (58,726) (5,864) (74,118)
--------- --------- ---------
Outstanding at end of period 929,314 1,298,466 1,277,860
========= ========= =========
Exercisable at end of period 749,134 802,758 911,866
========= ========= =========
Shares available for future grant -0- -0- 191,236
========= ========= =========
</TABLE>
The Company also has the 1992 Stock Incentive Plan (the "1992 Plan") which was
approved by the Company's shareholders in November 1992. Under the 1992 Plan,
eligible employees may receive options to purchase common stock over ten years
at option prices that may not be less than fair market value at the date of
grant. Stock options granted under the 1992 Plan become exercisable no sooner
than six months from grant date (subject to possible acceleration under certain
circumstances) and such options may include cash payment rights. Eligible
employees may also receive awards of restricted shares of the Company's common
stock under the 1992 Plan. The aggregate number of options and restricted shares
which may be issued under the 1992 Plan is 1,000,000. Options to purchase
106,960 shares at $9.88 per share were granted during the year ended June 30,
1994 and options to purchase 52,752 shares at $16.25 per share were granted
during the year ended June 30, 1995. Options to purchase 2,575 shares at $9.88
per share were exercised during the year ended June 30, 1995. Options to
purchase 5,050 shares were canceled during the year ended June 30, 1995. At June
30, 1995, total options to purchase 152,087 shares were outstanding under the
1992 Plan, of which 23,628 were exercisable.
In connection with an initial public offering that was completed in June 1988,
an officer of the Company exchanged his rights in certain non-patented products
for an option to purchase 400,000 shares of common stock at a price of $1.88 per
share. The option to purchase 80,000 of the shares was exercisable immediately,
and options to purchase 80,000 shares became exercisable on each of June 30,
1989, 1990, 1991, and 1992. The option will be exercisable for a maximum period
of ten years after grant. No options have been exercised under this plan.
36
<PAGE>
In November 1991, the Company's shareholders approved the adoption of the 1991
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). The
aggregate number of shares which may be issued and as to which grants of options
may be made under the Directors' Plan is 200,000. All options under the
Directors' Plan are granted to members of the Company's Board of Directors who
are not employees of the Company. Such options are granted at fair market
value on the date of grant.
Under the provisions of the Directors' Plan, in November 1991 each of the four
non-employee directors who had been non-employee directors for at least two
years prior to the approval of the Directors' Plan received a one-time option to
purchase 10,000 shares at an option price of $6.13 per share. In addition, each
of the five non-employee directors (regardless of years of service) received an
option to purchase 5,100 shares at an option price of $6.13 per share. In
November 1992, each non-employee director received an option to purchase 5,100
shares at an option price of $10.63 per share. In November 1993, each non-
employee director received an option to purchase 5,100 shares at an option price
of $9.50 per share. In November 1994, each non-employee director received an
option to purchase 5,100 shares at an option price of $11.25 per share. In the
future, each non-employee director will receive an option to purchase an
additional 5,100 shares on the third business day following the Company's annual
meeting of shareholders. These grants will continue until options for all the
share available under the Directors' Plan have been granted.
The one time option granted to non-employee directors with more than two years
of service was exercisable in full three months after the date of grant. For all
other options granted under the Directors' Plan, 25% of the shares are
exercisable one year after the date of the grant, 25% are exercisable two years
after the date of grant, and the remaining 50% are exercisable three years after
the date of grant. All options granted under the Directors' Plan expire ten
years after the date of grant. Options to purchase 2,000 shares at $6.13 per
share were exercised during the yearEended June 30, 1995.
NOTE G -- FINANCIAL INFORMATION BY GEOGRAPHIC AREAS AND MAJOR
CUSTOMERS
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
NET SALES
Hong Kong:
Unaffiliated Customers $ 1,720,248 $ 1,462,292 $ 1,157,402
Interarea transfers 8,430,823 7,312,399 9,281,661
----------- ----------- ------------
10,151,071 8,774,691 10,439,063
United States:
Unaffiliated Customers 97,730,086 76,708,736 68,128,211
Interarea transfers 750,744 543,883 794,124
----------- ----------- ------------
98,480,830 77,252,619 68,922,335
Eliminations--transfers (9,181,567) (7,856,282) (10,075,785)
----------- ----------- ------------
NET SALES $99,450,333 $78,171,028 $ 69,285,613
=========== =========== ============
OPERATING PROFIT
Hong Kong $ 877,325 $ 1,538,966 $ 2,359,200
United States 22,239,437 9,315,357 12,411,549
----------- ----------- ------------
OPERATING PROFIT 23,116,762 10,854,323 14,770,749
Corporate expense 4,388,248 3,866,751 3,498,769
Interest expense 193,550 171,223 175,843
----------- ----------- ------------
INCOME BEFORE INCOME
TAXES $18,534,964 $ 6,816,349 $ 11,096,137
=========== =========== ============
</TABLE>
37
<PAGE>
Interarea transfers are accounted for at prices comparable to unaffiliated
customer sales reduced by an approximation of costs not incurred on internal
sales.
The Company sells to distributors in the health care industry and closely
monitors the extension of credit to both domestic and foreign customers,
including obtaining and analyzing credit applications for all new accounts and
maintaining an active program to contact customers promptly when invoices become
past due. Sales to one customer accounting for 10% or more of net sales were
$10,955,000 for the year ended June 30, 1995 and $8,569,000 for the year ended
June 30, 1994. Sales to another customer (accounting for 10% or more of net
sales) were $6,711,000 for the year ended June 30, 1993.
Additional information regarding assets and liabilities by geographic area
follows:
<TABLE>
<CAPTION>
June 30
1995 1994
------------------------
<S> <C> <C>
IDENTIFIABLE ASSETS
Hong Kong $ 5,597,154 $ 3,773,038
United States 54,113,917 40,738,352
----------- -----------
59,711,071 44,511,390
Corporate assets (primarily
cash and short-term
investments) 18,327,499 14,405,830
----------- -----------
TOTAL ASSETS $78,038,570 $58,917,220
=========== ===========
TOTAL ASSETS
Hong Kong $11,140,130 $ 9,328,819
United States 66,898,440 49,588,401
----------- -----------
$78,038,570 $58,917,220
=========== ===========
TOTAL LIABILITIES
Hong Kong $ 2,712,833 $ 1,548,270
United States 16,956,541 13,144,841
----------- -----------
$19,669,374 $14,693,111
=========== ===========
</TABLE>
NOTE H-- RETIREMENT PLAN
The Company has a Retirement Savings Plan which is available to all United
States employees. Employees may contribute up to 15% (to a defined maximum) of
their compensation. The Company matches employee contributions (up to 3% of
each employee's compensation) at a 100 % rate and may make discretionary
contributions. The Company contributed $420,000, $357,000 and $169,000 to the
plan for the years ended June 30, 1995, 1994, and 1993, respectively.
The Company's current benefit program does not provide postretirement benefits
to employees.
NOTE I-- DISTRIBUTION AGREEMENT
In June 1991, the Company entered into a distribution agreement with the owner
of non-invasive ventilator product. Under the terms of the agreement, the
Company had the exclusive United States distribution rights for a product (The
Hayek Oscillator) that is produced by the manufacturer. The initial term of the
agreement was three years with provisions to extend the term for additional
periods. A six-month extension of the initial term expired December 31, 1994.
As part of the agreement, the Company paid $5,000,000 to the manufacturer,
representing a partial prepayment for the product to be sold by the Company
during the initial term of the agreement.
Because of the manufacturer's repeated failures to meet stipulated requirements,
particularly in assuring compliance with Good Manufacturing Practice as required
by FDA law and regulations, and the Company's resulting inability to introduce
the product for sale, in June 1994 the Company concluded that the ultimate
38
<PAGE>
realizability of the prepayment was no longer probable. Accordingly, during
the quarter ended June 30, 1994, the Company recorded nonrecurring charges
totaling $5,120,000 to write off the remaining balance on the prepayment and the
net book value of units that had been purchased.
NOTE J-- DISCONTINUANCE OF PRODUCT LINE
In November 1993, the Company discontinued the production and sale of its
BagEasy line of disposable manual resuscitators and recalled all remaining
BagEasy products in distribution channels and customer inventories. Accordingly,
during the quarter ended September 30, 1993, the Company recorded non-recurring
charges of $1,966,000 which included provisions for write-offs of inventories
and fixed assets, the satisfaction of purchase order and compensation
commitments, and costs associated with the recall.
NOTE K-- JOINT VENTURE
During the quarter ended December 31, 1993, the Company completed a 51% equity
investment, totaling approximately $600,000, in a joint venture with a company
located in the Peoples Republic of China. This joint venture will facilitate
the wider distribution of the Company's products in the Peoples Republic of
China and will also manufacture and distribute medical products and over-the-
counter medicines in that country. The joint venture is not expected to be
fully operational until the second half of fiscal year 1996.
NOTE L-- ACQUISITION
On April 6, 1995, the Company acquired Vitalog Monitoring, Inc., a California
company that designs, manufactures and markets sleep monitoring and diagnostic
equipment. This combination was treated for financial reporting purposes as a
purchase. Vitalog's results of operations have been included in the Company's
consolidated financial statements beginning April 7, 1995. Vitalog's operations
were not material in relation to the Company's consolidated financial statements
and pro forma financial information has therefore not been presented.
Consideration paid was $745,000 in cash (including transactions costs) and
85,094 shares of the Company's common stock valued at $1,276,000 in exchange for
the outstanding stock of Vitalog, related patents, and non-competition
agreements. The cost in excess of net assets acquired was $1,887,000 and is
being amortized on a straight line basis over 12 years.
NOTE M -- CONTINGENCY
The Company is a party to an action filed in a federal District Court in January
1995 in which a competitor alleges that the Company's sale in the United States
of certain products infringes three of the competitor's patents. In its
response to the action, the Company has denied the allegations and has
separately sought a declaratory judgment that the claims under the patents are
invalid and that the Company does not infringe upon the patents. Discovery in
the case is currently underway and is scheduled to end in January 1996. The
Company believes that none of its products infringe any of the patents in
question in the event that any one or more of such patents should be held to be
valid and it intends to vigorously defend this position.
39
<PAGE>
NOTE N -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following are the unaudited quarterly results of operations for the fiscal years
ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995
----
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $21,669,809 $23,867,803 $25,599,736 $28,312,985
Gross Profit 12,199,078 13,679,172 14,485,883 16,009,042
Net Income 2,420,016 2,696,380 3,071,740 3,488,891
Earnings Per Share 0.14 0.15 0.17 0.20
1994
----
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
Net Sales $18,224,518 $18,600,037 $19,307,611 $22,038,862
Gross Profit 9,989,061 10,099,895 10,704,488 12,547,276
Non-recurring charges 1,966,085 -0- -0- 5,120,000
Net Income (Loss) 873,481 2,063,884 2,244,295 (440,416)
Earnings (Loss)
Per Share 0.05 0.12 0.13 (0.03)
</TABLE>
40
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
41
<PAGE>
PART III
Items 10 through 13.
- - --------------------
In accordance with the provisions of General Instruction G to Form 10-K,
the information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is not set forth herein because prior to October 28, 1995
the Company will file with the Commission a definitive Proxy Statement which
involves the election of Directors at its Annual Meeting of Shareholders to be
held on November 8, 1995, which Proxy Statement will contain such information.
The information required by Items 10, 11, 12 and 13 is incorporated herein by
reference to such Proxy Statement.
42
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K.
---------
The financial statements, financial statement schedules and exhibits
listed below are filed as part of this annual report.
(a) (1) Financial Statements:
---------------------
The Consolidated Financial Statements of the Company and its
subsidiaries, together with the report of Ernst & Young LLP, dated September 11,
1995, filed as part of this annual report are listed in the index to
Consolidated Financial Statements in Item 8.
(a) (2) Financial Statement Schedules:
------------------------------
Page
----
Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts................ 44
Schedule I, III, IV and V are omitted since the subject
matter thereof is not present.
(a) (3) Exhibits:.................................................... 45
43
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
RESPIRONICS, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- - ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
Balance at ------------------------------------ Balance at
Beginning of Charged to Costs Charged to Other End of
DESCRIPTION Period and Expenses Accounts-Describe Deductions-Describe Period
----------- ------------ ---------------- ----------------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $525,000 $175,000 $0 $700,000
======== ======== == ========
Year ended June 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $450,000 $ 75,000 $0 $525,000
======== ======= == ========
Year ended June 30, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $350,000 $100,000 $0 $450,000
======== ======== == ========
</TABLE>
44
<PAGE>
EXHIBITS
Exhibit No. Description and Method of Filing
- - ----------- --------------------------------
3.1 Restated Certificate of Incorporation of the Company, Filed as
Exhibit 3.2 to Amendment No. 1 to Form S-1, Registration No. 33-
20899.
3.2 Amendment to Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.2 to Form S-1, Registration No. 33-
39938.
3.3 By-Laws of the Company, filed as Exhibit 3.4 to Amendment No. 2
to Form S-1,Registration No. 33-20899.
3.4 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Form S-8, Registration No. 33-89308.
4.1 Loan Agreement dated November 1, 1989 between the Company and the
Pennsylvania Economic Development Financing Authority, filed as
Exhibit 4.1 to Annual Report on Form 10-K for Fiscal Year ending
June 30, 1990.
4.2 Consent, Subordination, and Assumption Agreement dated April 20,
1990 between the Company and the Greater Murrysville Industrial
Corporation, filed as Exhibit 4.2 to Annual Report on Form 10-K
for Fiscal Year ending June 30, 1990.
4.3 Loan Agreement dated June 5, 1990 between the Company and the
Redevelopment Authority of the County of Westmoreland, to be filed
with the Commission upon request.
4.4 Consent, Subordination, and Assumption Agreement dated June 21,
1994 between the Company and the Redevelopment Authority of the
County of Westmoreland, filed as Exhibit 4.4 to Annual Report on
Form 10-K for Fiscal Year ending June 30, 1994
4.5 Consent, Subordination, and Assumption Agreement dated February
22, 1995 between the Company and the Central Westmoreland
Development Corporation, filed as Exhibit 4.5 this Annual Report.
10.1 Amended and Restated Incentive Stock Option Plan of Respironics,
Inc. and form of Stock Option Agreement used for Stock Options
granted after December 31, 1987, filed as Exhibit 10.2 to Form S-
1, Registration No. 33-20899.
10.2 Agreements between the Company and Gerald E. McGinnis, filed as
Exhibit 10.4 to Amendment No. 2 to Form S-1, Registration No. 33-
20899.
45
<PAGE>
10.3 Employment Agreement, dated September 2, 1982, and effective
October 1, 1982, between the Company and Kam-Kwen Ng, filed as
Exhibit 10.5 to Form S-1, Registration No. 33-20899.
10.4 Employment Agreement dated September 1983 between the Company and
Eugene N. Scarberry, filed as Exhibit 10.6 to Form S-1,
Registration No. 33-20899.
10.5 Letter Agreements between the Company and Vital Signs, Inc.,
filed as Exhibit 10.11 to Form S-1, Registration No. 33-20899.
10.7 Respironics, Inc. Retirement Savings Plan, filed as Exhibit 10.11
to Annual Report on Form 10-K for Fiscal Year ending June 30,
1989.
10.8 Incentive Bonus Plan dated January 26, 1985, filed as Exhibit
10.16 to Form S-1, Registration No. 33-20899.
10.10 Consulting Agreement dated July 1, 1988 between the Company and
Dr. Mark Sanders, filed as Exhibit 10.15 to Annual Report on Form
10-K for Fiscal Year ending June 30, 1989.
10.11 Employment and Royalty Agreement dated September 21, 1982 and
March 1, 1989 and effective October 1, 1982 and March 1, 1989
between the Company and Ronald J. Zdrojkowski, filed as Exhibit 1
to the Company's Form 10-Q for the quarter ended September 30,
1989.
10.12 Supply Agreement with Vital Signs, Inc. effective July 1, 1993 and
expiring June 30, 1997, filed as Exhibit 10.12 to Annual Report on
Form 10-K for fiscal year ending June 30, 1993.
46
<PAGE>
10.18 Line of Credit Agreement dated November 14, 1994 with PNC Bank,
filed as Exhibit 10.18 to this Annual Report.
10.19 Employment Agreement dated and effective as of April 1, 1995
between the Company and Gerald E. McGinnis, filed as Exhibit 10.19
to this Annual Report.
10.20 Employment Agreement dated and effective as of December 1, 1994
between the Company and Robert D. Crouch, filed as Exhibit 1 to
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994.
10.21 Employment Agreement dated and effective as of December 1, 1994
between the Company and Dennis S. Meteny, filed as Exhibit 2 to
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994.
10.22 1991 Non-Employee Directors' Stock Option Plan, filed as Exhibit A
to 1991 Proxy Statement incorporated by reference into Annual
Report on Form 10-K for Fiscal Year ending June 30, 1991.
10.23 1992 Stock Incentive Plan, filed as Exhibit A to 1992 Proxy
Statement incorporated by reference into Annual Report on Form
10-K for Fiscal Year ending June 30, 1992.
11.1 Statement re: Earnings per share, filed as Exhibit 11.1 to this
Annual Report.
21.1 List of Subsidiaries, amending Exhibit 22.1 to Form S-1,
Registration No. 33-20899, filed as Exhibit 22.1 to Annual Report
on Form 10-K for Fiscal Year ending June 30, 1992.
23.1 Consent of Ernst & Young, filed as Exhibit 23.1 to this Annual
Report
47
<PAGE>
(b) Reports on Form 8-K:
--------------------
No events which resulted in the filing of a current report on Form 8-K
occurred during the fourth quarter of fiscal year 1995.
48
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RESPIRONICS, INC.
/s/ Dennis S. Meteny
-------------------------------
By: Dennis S. Meteny, President and
Chief Executive Officer
Date: September 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated on September 27, 1995:
/s/ Dennis S. Meteny /s/ James H. Hardie
- - -------------------------------- ---------------------------------
Dennis S. Meteny James H. Hardie
(President and (Director)
Chief Executive Officer
and Director)
/s/ Daniel J. Bevevino
- - -------------------------------- ---------------------------------
Daniel J. Bevevino Joseph C. Lawyer
(Controller and Chief Financial (Director)
and Accounting Officer)
/s/ Gerald E. McGinnis /s/ George J. Magovern
- - -------------------------------- ---------------------------------
Gerald E. McGinnis George J. Magovern, M.D.
(Chairman of the (Director)
Board of Directors)
- - -------------------------------- ---------------------------------
Daniel P. Barry Bernard Shou-Chung Zau
(Director) (Director)
/s/ Douglas A. Cotter
- - --------------------------------
Douglas A. Cotter
(Director)
49
<PAGE>
EXHIBITS INDEX
Exhibit No. Description and Method of Filing
- - ----------- --------------------------------
3.1 Restated Certificate of Incorporation of the Company, Filed as
Exhibit 3.2 to Amendment No. 1 to Form S-1, Registration
No. 33-20899.
3.2 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.2 to Form S-1, Registration No. 33-39938.
3.3 By-Laws of the Company, filed as Exhibit 3.4 to Amendment No. 2 to
Form S-1, Registration No. 33-20899
3.4 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Form S-8, Registration No. 33-89308.
4.1 Loan Agreement dated November 1, 1989 between the Company and the
Pennsylvania Economic Development Financing Authority, filed as
Exhibit 4.1 to Annual Report on Form 10-K for Fiscal Year ending
June 30, 1990.
4.2 Consent, Subordination, and Assumption Agreement dated April 20,
1990 between the Company and the Greater Murrysville Industrial
Corporation, filed as Exhibit 4.2 to Annual Report on Form 10-K for
Fiscal Year ending June 30, 1990.
4.3 Loan Agreement dated June 5, 1990 between the Company and
the Redevelopment Authority of the County of Westmoreland, to be
filed with the Commission upon request.
4.4 Consent, Subordination, and Assumption Agreement dated June 21, 1994
between the Company and the Redevelopment Authority of the County of
Westmoreland, filed as Exhibit 4.4 to Annual Report on Form 10-K for
Fiscal Year ending June 30, 1994
4.5 Consent, Subordination, and Assumption Agreement dated February 22,
1995 between the Company and the Central Westmoreland Development
Corporation, filed herewith at page
---------
10.1 Amended and Restated Incentive Stock Option Plan of Respironics,
Inc. and form of Stock Option Agreement used for Stock Options
granted after December 31, 1987, filed as Exhibit 10.2 to Form S-1,
Registration No. 33-20899.
10.2 Agreements between the Company and Gerald E. McGinnis, filed as
Exhibit 10.4 to Amendment No. 2 to Form S-1, Registration
No. 33-20899.
<PAGE>
10.3 Employment Agreement, dated September 2, 1982, and effective
October 1, 1982, between the Company and Kam-Kwen Ng, filed as
Exhibit 10.5 to Form S-1, Registration No. 33-20899.
10.4 Employment Agreement dated September 1983 between the
Company and Eugene N. Scarberry, filed as Exhibit 10.6 to
Form S-1, Registration No. 33-20899.
10.5 Letter Agreements between the Company and Vital Signs, Inc.,
filed as Exhibit 10.11 to Form S-1, Registration No. 33-20899.
10.7 Respironics, Inc. Retirement Savings Plan, filed as Exhibit 10.11
to Annual Report on Form 10-K for Fiscal Year ending June 30, 1989.
10.8 Incentive Bonus Plan dated January 26, 1985, filed as Exhibit
10.16 to Form S-1, Registration No. 33-20899.
10.10 Consulting Agreement dated July 1, 1988 between the Company and Dr.
Mark Sanders, filed as Exhibit 10.15 to Annual Report on Form 10-K
for Fiscal Year ending June 30, 1989.
10.11 Employment and Royalty Agreement dated September 21, 1982 and March
1, 1989 and effective October 1, 1982 and March 1, 1989 between
the Company and Ronald J. Zdrojkowski, filed as Exhibit 1 to the
Company's Form 10-Q for the quarter ended September 30, 1989.
10.12 Supply Agreement with Vital Signs, Inc. effective July 1, 1993 and
expiring June 30, 1997, filed as Exhibit 10.12 to Annual Report on
Form 10-K for fiscal year ending June 30, 1993.
<PAGE>
10.18 Line of Credit Agreement dated November 14, 1994 with PNC Bank,
filed herewith at page .
-------
10.19 Employment Agreement dated and effective as of April 1, 1995 between
the Company and Gerald E. McGinnis, filed herewith at page .
------
10.20 Employment Agreement dated and effective as of December 1, 1994
between the Company and Robert D. Crouch, filed as Exhibit 1 to
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994.
10.21 Employment Agreement dated and effective as of December 1, 1994
between the Company and Dennis S. Meteny, filed as Exhibit 2 to
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994.
10.22 1991 Non-Employee Directors' Stock Option Plan, filed as Exhibit
A to 1991 Proxy Statement incorporated by reference into Annual
Report on Form 10-K for Fiscal Year ending June 30, 1991.
10.23 1992 Stock Incentive Plan, filed as Exhibit A to 1992 Proxy
Statement incorporated by reference into Annual Report on
Form 10-K for Fiscal Year ending June 30, 1992.
11.1 Statement re: Earnings per share, filed herewith at page .
-------
21.1 List of Subsidiaries, amending Exhibit 22.1 to Form S-1,
Registration No. 33-20899, filed as Exhibit 22.1 to Annual Report
on Form 10-K for Fiscal Year ending June 30, 1992.
23.1 Consent of Ernst & Young, filed herewith at page .
-----------
<PAGE>
EXHIBIT 4.5
CONSENT, SUBORDINATION AND
ASSUMPTION AGREEMENT
THIS AGREEMENT is made this 22nd day of February, 1995, effective as of
---- --------
February 22, 1995, by RESPIRONICS, INC., a corporation with an address at 1001
Murry Ridge Road, Murrysville, Pennsylvania 15668 (the "Industrial Occupant"),
and CENTRAL WESTMORELAND DEVELOPMENT CORPORATION, a Pennsylvania nonprofit
corporation with an address at Route 30 West, Toll Gate Hill Road, Greensburg,
Pennsylvania 15601 (the "Borrower"), in favor of THE PENNSYLVANIA INDUSTRIAL
DEVELOPMENT AUTHORITY, a public body corporate and politic with an address at
481 Forum Building, Harrisburg, Pennsylvania 17120 ("PIDA").
ARTICLE I
Background
----------
Section 1.01 After placement of the Mortgage, the Borrower shall convey to
the Industrial Occupant certain premises situate in Westmoreland County,
Pennsylvania, as more particularly described on Exhibit A attached hereto and
made a part hereof (the "Premises"), subject to, and with the express
assumption and agreement of the Industrial Occupant to pay and perform any and
all obligations of the Borrower to PIDA under a certain Open-End Supplement to
Second Mortgage from Borrower to PIDA, effective as of the same date as the
effective date hereof and to be recorded in the Office of the Recorder of Deeds
of the county wherein the Premises are located (the "Mortgage"), which Mortgage
secures a loan in the amount of One Million One Hundred Thirty-Two Thousand
Seven Hundred Sixty-One Dollars ($1,132,761.00) from PIDA to the Borrower (the
"Loan"), evidenced by a note from the Borrower to PIDA dated the same date as
the effective date hereof (the "Note") and made pursuant to a Loan Agreement
dated the same date as the effective date hereof between the Borrower and PIDA
(the "Loan Agreement"), providing for the financing by PIDA of an industrial
development project on the Premises to be occupied by the Industrial Occupant.
-1-
<PAGE>
Section 1.02 The Industrial Occupant has reviewed fully with separate legal
counsel for the Industrial Occupant the Loan Agreement, Note and Mortgage and
consents thereto and desires to assume all obligations and liabilities of the
Borrower thereunder and agrees to pay to PIDA for the account of the Borrower
the debt evidenced by the Loan Agreement and Note and secured by the Mortgage.
To induce PIDA to make the Loan and as a material and substantive
inducement to the Borrower to execute and deliver the Note, for the account of
the Industrial Occupant, to borrow proceeds of the Loan for the benefit of and
for the account of the Industrial Occupant, and to execute the Mortgage and the
Loan Agreement, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Industrial Occupant, intending to be legally
bound, represents and warrants to PIDA and the Borrower and agrees with PIDA and
the Borrower as follows:
ARTICLE II
Representations and Warranties of the Industrial Occupant
---------------------------------------------------------
The Industrial Occupant makes the following representations and warranties to
PIDA and the Borrower:
Section 2.01 Corporate Organization. The Industrial Occupant is a duly
----------------------
organized and validly existing corporation in good standing under the laws of
Delaware. If incorporated in a jurisdiction other than the Commonwealth of
Pennsylvania, Industrial Occupant is duly qualified to conduct business in the
Commonwealth of Pennsylvania as a foreign corporation. The Industrial Occupant
has full corporate power and authority to own its property and assets and to
transact the business in which it is engaged or currently proposes to engage,
including without limitation the business and operations referred to in the
Application.
Section 2.02 Power and Authority. The Industrial Occupant has the corporate
-------------------
power to execute and deliver, or to assume, as the case may be, and to carry
out, the terms and provisions hereof and of each of the Loan Documents to which
it is a party or the terms of which it has assumed hereunder, and to carry on
the business and operations referred to in the Application. The Industrial
Occupant has taken all necessary corporate action (including obtaining any
consent of stockholders required by law or by its Articles or Certificate of
Incorporation or bylaws) to authorize the execution and delivery, or the
assumption, as the case may be, and the performance, by
-2-
<PAGE>
the Industrial Occupant, of this Agreement and each of the Loan Documents to
which it is a party or the terms of which the Industrial Occupant has assumed,
the incurrence of the obligations of the Industrial Occupant hereunder and
thereunder, and the carrying on of the business and operations stated in the
Application. This Agreement and each of the Loan Documents to which the
Industrial Occupant is a party or the terms of which the Industrial Occupant has
assumed constitute the duly authorized, legal and valid and binding obligations
of the Industrial Occupant, except as the enforceability thereof may be limited
by bankruptcy, insolvency or other substantially similar laws of general
application relating to or affecting the enforcement of creditors' rights or by
general principles of equity.
Section 2.03 Necessary Approvals. Except such approvals, if any, as are
-------------------
listed or described in Exhibit 2.03 hereto, which have been obtained, are in
full force and effect and evidence of which has been furnished to PIDA, no
approval is required to authorize, or is otherwise required in connection with,
(i) the execution and delivery, or the assumption, as the case may be, by the
Industrial Occupant of, (ii) the performance, by the Industrial Occupant, of, or
(iii) the legality, validity, binding effect or enforceability of the
obligations of the Industrial Occupant under, this Agreement or the Loan
Documents to which the Industrial Occupant is a party or the terms of which it
has assumed, including without limitation the making of any of the payments
provided for herein or therein, the absence of which approval could have a
material adverse effect on the ability of the Industrial Occupant to make
payments or perform and observe its other material obligations hereunder or
thereunder. The Industrial Occupant is not aware of any circumstances as a
result of which any approval heretofore granted may be revoked or cancelled.
Section 2.04 Loan Documents Consistent With Law and Agreements. The
-------------------------------------------------
Industrial Occupant is not in default under any agreement to which it is a party
or by which it is bound which default could have a material adverse effect on
the ability of the Industrial Occupant to make payments or perform and observe
its other material obligations under this Agreement or any of the Loan Documents
to which it is a party or the terms of which it has assumed or to carry on
operations at the Project as stated in the Application. The execution and
delivery, or the assumption, as the case may be, and the performance, by the
Industrial Occupant, of this Agreement and the Loan Documents to which the
Industrial Occupant is a party or the terms of which it has assumed, the
consummation of the transactions contemplated in this
-3-
<PAGE>
Agreement and the Loan Documents, and the compliance by the Industrial Occupant
with the terms and provisions of this Agreement and the Loan Documents to which
it is a party or the terms of which it has assumed, and the carrying on of
operations at the Project as stated in the Application, do not (i) contravene
any provision of law, statute, rule or regulation to which the Industrial
Occupant is subject or any judgment, decree, franchise, order or permit
applicable to the Industrial Occupant or (ii) violate or conflict with any
provision of the Articles or Certificate of Incorporation or bylaws of the
Industrial Occupant or conflict with, or result in any breach of, any of the
terms, covenants, conditions or provisions of, or constitute a material default
under, or result in the creation or imposition of (or the obligation to create
or impose) any lien upon any of the assets or revenues of the Industrial
Occupant pursuant to the terms of, any indenture, mortgage, deed of trust,
agreement or other instrument to which the Industrial Occupant is a party or by
which it is bound or to which it may be subject.
Section 2.05 Litigation. Except for such litigation, if any, as is listed or
----------
described in Exhibit 2.05 hereto, there are no court actions, suits or
proceedings, and no proceedings before any arbitral tribunal or by or before any
governmental commission, board, bureau or other administrative agency, pending
or (to the knowledge of the Industrial Occupant) threatened against the
Industrial Occupant or any affiliate which could have a material adverse
effect on the financial condition or operations of the Industrial Occupant or
the ability of the Industrial Occupant to perform its obligations under this
Agreement or the Loan Documents to which it is a party or the terms of which it
has assumed, or to carry on operations at the Project as stated in the
Application.
Section 2.06 Project Agreements. The Industrial Occupant has furnished to
------------------
PIDA originals or true and correct copies of all material written agreements
relating to the acquisition, construction or financing of the Project (including
any amendments thereto) (collectively, the "Project Documents") or, to the
extent PIDA shall have permitted summaries of Project Documents to be furnished
in lieu of the actual documents, fair and accurate summaries of the Project
Documents. All Project Documents are in full force and effect. There are in
existence no agreements, laws, rules, regulations, orders, judgments,
injunctions, decrees, resolutions, determinations, awards or other instruments
whatsoever amending, supplementing or affecting, or
-4-
<PAGE>
affecting the rights and obligations of the Industrial Occupant under, the Loan
Documents or the Project Documents, in a manner which could have a material
adverse effect on the ability of the Industrial Occupant to make payments or to
perform and observe its other material obligations under, this Agreement, or
under the Project Documents and/or Loan Documents to which it is a party or by
which it is bound or the terms of which it has assumed.
Section 2.07 Prepayments. The Industrial Occupant has not prepaid any amount
-----------
payable to the Borrower.
Section 2.08 No Default For Borrowed Money. No default with respect to any
-----------------------------
agreement pursuant to which the Industrial Occupant has borrowed money or
(except for (i) endorsement of negotiable instruments in the ordinary course of
business or (ii) guaranties in the ordinary course of business of travel or
relocation expenses of employees in non-material amounts) guaranteed the
obligations of others has occurred and is continuing as of the date hereof.
Section 2.09 Financial Statements and Financial Condition. All financial
--------------------------------------------
statements of the Industrial Occupant (including all related notes) and all
supplementary financial information delivered to PIDA fairly present what they
purport to present as of the dates and for the respective fiscal periods
presented, and were prepared in accordance with generally accepted accounting
principles consistently applied, except as disclosed in such financial
statements or in Exhibit 2.09 hereto. The Industrial Occupant has no material
liabilities, direct or indirect, fixed or contingent, as of the date of such
financial statements which are not reflected therein. Except as disclosed in
Exhibit 2.09 hereto and consented to by PIDA there has been no material adverse
change in the financial condition of the Industrial Occupant from that
disclosed in the most recent annual financial statements delivered to PIDA
prior to the initial approval of the Loan by the PIDA Board.
Section 2.10 Taxes. The Industrial Occupant has filed all tax returns and
-----
reports required to be filed by it with the United States of America and the
Commonwealth of Pennsylvania, and, where the failure to file such returns or
reports may have a material adverse effect on the financial condition or results
of operations of the Industrial Occupant, any other jurisdiction having the
power to require filing of such returns or reports, through the date hereof and
is current in the payment of all monies due to such jurisdictions, whether as
taxes or otherwise, unless the obligation to file such return or report or pay
such tax is being contested by an appropriate administrative or judicial appeal
or proceeding being conducted diligently in good faith. With respect to any
such appeal or proceeding to which the United
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States of America or the Commonwealth of Pennsylvania is a party, the Industrial
Occupant has posted or caused to be posted a bond or other security satisfactory
to PIDA in an amount which is at least equal to the sum which is the subject of
the appeal or proceeding, together with all interest, costs, and charges
relating thereto.
Section 2.11 Employee Benefits.
-----------------
(a) Any employee pension benefit plans and employee welfare benefit
plans, collectively referred to as employee benefit plans, within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
maintained by the Industrial Occupant or any subsidiary of the Industrial
Occupant ("Subsidiary"), comply in all material respects with the reporting and
disclosure and fiduciary responsibility provisions of Title I of ERISA.
(b) Except as disclosed in Exhibit 2.11 hereto, no "prohibited
transaction" (as defined in either ERISA or Section 4975 of the Internal Revenue
Code (the "Code")) potentially having a material adverse effect on the
continuing operations of the Industrial Occupant, has occurred with respect to
any employee benefit plan sponsored or maintained by the Industrial Occupant or
any Subsidiary or (except with respect to any multi-employer pension or benefit
plan to which the Industrial Occupant or any Subsidiary contributes, as to which
no representation or warranty is expressed) to which the Industrial Occupant or
any Subsidiary contributes, nor is any person contractually bound to enter into
any such prohibited transaction.
(c) Except as disclosed in Exhibit 2.11 hereto, the Industrial Occupant
and its Subsidiaries have filed or (except with respect to any multi-employer
pension or benefit plan to which the Industrial Occupant or any Subsidiary
contributes, as to which no representation or warranty is expressed) caused to
be filed on a timely basis all returns, reports, statements, notices,
declarations, and other documents required by any governmental agency, whether
local, state or federal (including without limitation the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation and
the Securities and Exchange Commission) with respect to each employee benefit
plan sponsored or maintained by the Industrial Occupant or any Subsidiary or to
which the Industrial Occupant or any Subsidiary contributes, where a failure to
file may potentially have a material adverse effect on the continuing operations
of the Industrial Occupant.
(d) Except as described in Exhibit 2.11 hereto, and except for any multi-
employer pension or benefit plan not maintained or sponsored by
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Industrial Occupant or its Subsidiaries but to which Industrial Occupant or its
Subsidiaries contributes, as to which no representation or warranty is
expressed, (i) all employee pension benefit plans maintained or sponsored by
the Industrial Occupant and each Subsidiary, or to which the Industrial
Occupant or any Subsidiary contributes, meet, as of the date hereof, the
minimum funding standards of Section 302 of ERISA and Section 412 of the Code,
and (ii) no "reportable event", as defined in Section 4043 of ERISA,
potentially having a material adverse effect on the continuing operations of
the Industrial Occupant, has occurred with respect to any such plan.
(e) The foregoing representations and warranties of the Industrial
Occupant as to itself and its Subsidiaries set forth in this Section are
accurate not only with respect to the Industrial Occupant and each Subsidiary
but with respect to each other member of any "controlled group of corporations"
or any "group of trades or businesses under common control" (as such terms are
defined in Section 414 of the Code) of which the Industrial Occupant or any
Subsidiary is a member.
Section 2.12 Environmental Matters. With respect to the Premises, and with
---------------------
respect to any other facility as defined in The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, ("CERCLA") (a
"facility") where a breach of any of the representations and warranties
contained in this section could potentially have a material adverse effect on
the financial condition or operations of the Industrial Occupant:
(a) Except as described in Exhibit 2.12 hereto, to the best knowledge of
Industrial Occupant after Due Inquiry, neither Industrial Occupant nor any of
its Affiliates (as defined below) is in violation of CERCLA, the Superfund
Amendments and Reauthorization Act of 1986, The Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984, The Clean Water Act, The Toxic Substances Control Act, The Clean Air Act,
the Pennsylvania Hazardous Sites Cleanup Act, the Pennsylvania Solid Waste
Management Act, the Pennsylvania Storage Tank and Spill Prevention Act, the
Pennsylvania Worker and Community Right to Know Act, the Pennsylvania Clean
Streams Law, or any rule or regulation promulgated pursuant to any of the
foregoing statues, or any other applicable law, statute, rule, regulation or
ordinance regulating the manufacture, use, possession, discharge or disposal of
substances injurious to the natural environment or to human health, whether
federal, state or local (collectively, as from time to time amended, the
"Environmental Laws");
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(b) Except as described in Exhibit 2.12 hereto, to the best knowledge of
Industrial Occupant after Due Inquiry, neither the Industrial Occupant nor any
Affiliate, or officer, employee, agent or independent contractor of the
Industrial Occupant has arranged, by contract, agreement or otherwise, (i) for
the disposal or treatment of, or (ii) with a transporter for the transport for
disposal or treatment of, any Hazardous Material owned, used or possessed by
the Industrial Occupant or any Affiliate, in a manner which violates any
applicable Environmental Laws;
(c) Except as described in Exhibit 2.12 hereto, to the best knowledge of
the Industrial Occupant after Due Inquiry, there are no Hazardous Materials now
present on the Premises that may require remediation under any Environmental
Laws;
(d) Except as described in Exhibit 2.12 hereto, neither (i) the
Industrial Occupant nor (ii) in connection with the operations of the Industrial
Occupant, any Affiliate of the Industrial Occupant, is an "operator" or, to the
best knowledge of Industrial Occupant after Due Inquiry, an "owner," (each as
defined in CERCLA) of a facility at which Hazardous Materials were disposed of;
(e) Except as described in Exhibit 2.12 hereto, to the best knowledge of
Industrial Occupant after Due Inquiry, neither (i) the Industrial Occupant nor
(ii) in connection with the operations of the Industrial Occupant, any Affiliate
of the Industrial Occupant, "owned" or "operated" (as defined in CERCLA) any
facility containing Hazardous Materials at the time such Hazardous Materials
were disposed of;
(f) For purposes of this Agreement: "Affiliate" shall mean any
individual, corporation, partnership, joint venture, trust, or unincorporated
organization, or a government or any agency or political subdivision thereof
(collectively, a "Person") which directly or indirectly controls, or is
controlled by, or is under common control, with, the Industrial Occupant,
including, without limitation, any record or beneficial holder of more than 25%
of any class of the Industrial Occupant's equity securities and any executive
officer or person employed or engaged in a senior management capacity of
Industrial Occupant. "Control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. "Due Inquiry" shall mean that the Industrial Occupant,
consistent with good commercial or customary practice, has caused to be made by
a responsible officer or agent of the Industrial
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<PAGE>
Occupant appropriate inquiry among those directors, officers, employees, agents,
accountants and attorneys for the Industrial Occupant who might reasonably be
expected to have knowledge of the particular matter and, when such matter
includes the condition of the Premises or other facility, has further undertaken
appropriate inquiries into the present and past ownership and uses thereof.
"Hazardous Materials", shall include, without limitation, asbestos (including
asbestos in friable form), polychlorinated biphenyls, petroleum products,
flammable or explosive materials, radioactive materials, hazardous materials,
hazardous waste, hazardous or toxic substances or related materials, each as
defined under or pursuant to any Environmental Law.
Section 2.13 Bankruptcy, etc. Except as disclosed in Exhibit 2.13 hereto,
---------------
neither Industrial Occupant nor any Affiliate of Industrial Occupant has within
seven (7) years prior to the date hereof (i) filed any voluntary petition for
relief under the U.S. Bankruptcy Code or any state insolvency law or any law of
similar import of any nation or political subdivision thereof (any such law, a
"Bankruptcy Law"); (ii) had any involuntary petition filed against it under any
Bankruptcy Law which was not dismissed within 60 days subsequent to the filing
thereof; (iii) was adjudicated bankrupt or insolvent under any Bankruptcy Law;
(iv) entered into any assignment or composition for the benefit of creditors;
(v) entered into any transaction voidable under the Uniform Fraudulent
Conveyance Act or any law of similar import; (vi) admitted its inability to pay
its debts as such debts come due; or (vii) sought to take advantage of any
moratorium law then in effect.
Section 2.14 Criminal Convictions. Except as disclosed in Exhibit 2.14
--------------------
hereto, neither Industrial Occupant, nor to Industrial Occupant's best knowledge
after Due Inquiry, any controlling shareholder (if Industrial Occupant is a
corporation required to file periodic reports under the U.S. Securities Exchange
Act of 1934, as amended from time to time (the "Exchange Act")), or any record
or beneficial holder of more than 10% of any class of Industrial Occupant's
equity securities (if Industrial Occupant is not required to file periodic
reports under the Exchange Act), director, officer or person employed or
engaged by Industrial Occupant in a senior management capacity or as a manager
or comptroller of the Project, has been convicted by any court of any felony or
any misdemeanor involving theft, dishonesty, deception, false swearing, or the
filing or submission of any false or misleading information to any agency of
government.
Section 2.15 Occupancy Agreements. Except for the agreements listed on
--------------------
Exhibit 2.15 hereto, there exist no agreements between the Industrial Occupant
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and any other person, corporation or other entity regarding use or occupancy of
any portion of the Premises. The Industrial Occupant has requested the Borrower
to acquire title to the Premises and convey the Premises to Industrial Occupant
as of the date hereof by the Deed solely for the purpose of obtaining the Loan,
all benefit of which will be received by the Industrial Occupant. Such title as
the Borrower holds to the Premises is solely as security for the Loan being made
by PIDA to Borrower, exclusively for Industrial Occupant's benefit. Borrower
has not had, does not have, and will not have any right to occupy or access to
the Premises or control or right to control any of the operations of Industrial
Occupant thereon.
Section 2.16 Permits. The construction of the Project as provided in the
-------
Application, the use of the Project for the purposes stated in the Application,
and the operation of the Project, comply in all respects with, and are lawful,
permitted and conforming uses under, all applicable building, fire, safety,
subdivision, zoning, sewer, environmental, securities, health, insurance and
other laws, ordinances, rules, regulations and plan approval conditions of any
governmental, public or other body or authority having jurisdiction over the
Project except where failure to so comply will not have a material adverse
effect on operations to be carried on at the Project.
Except for (i) a permit for occupancy of the Project to be issued by the
Pennsylvania Department of Labor and Industry (where the Project is not complete
as of the date hereof) and (ii) the permits specifically identified in Exhibit
2.16 hereto, the Industrial Occupant has received all material administrative
permits required for the operations to be carried on at the Project, including
without limitation zoning permits and permits under all Environmental Laws.
Except as specifically identified on Exhibit 2.16 hereof, the Industrial
Occupant, after Due Inquiry, has no reason to believe that any required permits
not yet obtained will not be timely issued in the ordinary course of business
of the issuing agency.
Section 2.17 Necessary Technology, etc. Except as stated in Exhibit 2.17
-------------------------
hereto, to the best knowledge of the Industrial Occupant after Due Inquiry, the
Industrial Occupant has possession of or ready access to all resources it will
require for operations at the Project, including without limitation working
capital, raw materials, labor (possessing necessary skills), machinery,
equipment, technology, communications, patents, trademarks and other
intellectual property.
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Section 2.18 No Violation. Except as disclosed in Exhibit 2.18 hereto, to
------------
the best knowledge of the Industrial Occupant after Due Inquiry there is no
violation, nor is there notice or other record of any violation, of any zoning,
subdivision, environmental, building or other statute, ordinance, regulation,
restrictive covenant or other restriction applicable to the Project.
Section 2.19 No Liens. There exist no liens, encumbrances or other charges
--------
against the Project (including statutory and other liens of mechanics, workers,
contractors, subcontractors, suppliers, taxing authorities and others), except
the Mortgage and the liens listed on Exhibit 2.19 hereto; and the Industrial
Occupant has not made a contract or arrangement of any kind, the performance of
which by the other party thereto could give rise to a lien on the Project by
operation of law or otherwise except such as are adequately and fully covered by
PIDA's title insurance insuring the lien of the Mortgage.
Section 2.20 Utilities and Access. All utility services necessary for
--------------------
construction and operation of the Project, including water supply, storm and
sanitary sewer facilities, gas, electricity and telephone facilities are, or
prior to the projected Project completion date will be, available within the
boundaries of the Project; and all roads necessary for the full utilization of
the Project for their intended purposes either have been completed or the
necessary rights-of-way therefor have been acquired by the appropriate
governmental authority or others or have been or will, prior to the projected
date of occupancy of the Project, be dedicated to public use and accepted by
such governmental authority, and all necessary steps have been taken by the
Industrial Occupant and all such governmental authority or others to assure
complete construction and installation thereof by the projected date of
occupancy of the Project.
Section 2.21 Information Furnished Accurate. To the best knowledge of
------------------------------
Industrial Occupant after Due Inquiry, all information supplied directly or
indirectly by the Industrial Occupant to PIDA on or prior to the date hereof,
including without limitation the Application, as of the respective dates of such
materials were, and as of the date hereof, are true and accurate in all material
respects and did not and do not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading, provided that (i) the statements therein describing documents and
agreements are summaries only and such summaries are
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qualified by reference to such documents and agreements, (ii) financial
statements and other statements expressly effective as of a particular date
prior to the date when furnished are warranted only to be true and accurate or
(in the case of financial statements) fairly to present what they purport to
present, in either case as of the effective date thereof, and (iii) to the
extent any such information therein provided by the Industrial Occupant was
based upon or constitutes a forecast, projection or other data which by its
nature is uncertain, the Industrial Occupant represents only that it acted in
good faith and utilized due and careful consideration and the best information
known to it after Due Inquiry in the preparation of such information.
ARTICLE III
Assumption Of Obligations
-------------------------
Section 3.01 Assumption of Obligations. The Industrial Occupant for itself,
-------------------------
its successors and assigns: (i) hereby assumes all obligations of the Borrower
to make payments and discharge all obligations, expenses, costs and liabilities
of the Borrower in accordance with the terms and conditions of the Note, the
Mortgage and the Loan Agreement, as if the Industrial Occupant itself had
executed the Note, the Mortgage, and the Loan Agreement; (ii) consents and
agrees that its liability to pay and perform in accordance with the terms of the
Note, the Mortgage and the Loan Agreement shall continue until the Loan,
together with any and all interest, penalties and costs thereon, is paid in full
and all obligations are performed; (iii) consents and agrees that PIDA may
enforce against the Industrial Occupant the obligations of the Borrower assumed
hereby without any restriction or limitation (A) arising from any provision of
the Note restricting enforcement of certain liabilities thereunder (including,
without limitation, indemnification obligations arising under Sections 4.07 or
4.20 hereof) against assets of the Borrower other than the Borrower's interest
in the Premises, or (B) arising from the Loss Sharing Agreement effective as of
June 4, 1980 between the Borrower and PIDA, under which PIDA has agreed, among
other things, to exhaust remedies against the Industrial Occupant and any
Guarantor before pursuing remedies against the assets of the Borrower other than
the Premises; and (iv) assumes and covenants to perform any and all obligations,
promises and covenants of the Borrower contained in the Note, the
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Mortgage and the Loan Agreement, as if the Industrial Occupant itself had
executed the Note, the Mortgage, and the Loan Agreement, except those
obligations, promises and covenants which relate to the internal organization of
the Borrower and therefore, by their nature, can only be performed by the
Borrower.
Section 3.02 Subordination of Interest. The Industrial Occupant hereby
-------------------------
consents for itself, its successors and assigns to the Loan Agreement, Note, and
Mortgage, agrees that the terms and provisions hereof (including, without
limitation, each of the representations, warranties and covenants of Industrial
Occupant herein) shall be deemed included in the Loan Agreement, Note and
Mortgage and shall be enforceable under the Loan Agreement, Note and Mortgage as
though Industrial Occupant had executed the Loan Agreement, Note and Mortgage
and the terms and provisions hereof were expressly set forth in the Loan
Agreement, Note and Mortgage, and agrees that whatever right, title and interest
which it, its successors and assigns may have in and to the Premises shall be,
and the same are hereby expressly made subject and subordinate to the lien of
the Mortgage and any other judgment, lien or encumbrance pursuant to the Note or
Loan Agreement.
ARTICLE IV
Special Covenants of the Industrial Occupant
--------------------------------------------
The Industrial Occupant covenants and agrees as follows:
Section 4.01 Necessary Machines. The Industrial Occupant will supply or
------------------
cause to be supplied all machinery and/or equipment necessary for the operation
of the Project.
Section 4.02 No Removal of Jobs. The establishment of the Project by the
------------------
Borrower and the Industrial Occupant at the Premises will not cause the removal
of an industrial or manufacturing plant or facility or research and development
facility or agricultural enterprise controlled directly or indirectly by the
Industrial Occupant or any Affiliate from one area of the Commonwealth of
Pennsylvania to another area of the Commonwealth, nor result in the reduction of
the number of employees at any other plant controlled by the Industrial Occupant
or any Affiliate currently located in the Commonwealth of Pennsylvania.
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Section 4.03 Operations and Number of Jobs. The Industrial Occupant will
-----------------------------
create, or retain, as the case may be, at the Premises within three years from
the date of the grant of a permit for occupancy of the Premises by the
Department of Labor and Industry, no less than the number of jobs specified to
be created or retained in the Application.
Section 4.04 Certificate re Jobs. The Industrial Occupant will annually
-------------------
provide PIDA with a certificate executed by an authorized officer setting forth
the number of employees, and their respective job classifications (skilled,
semi-skilled and unskilled), employed by the Industrial Occupant or any
subsidiary during the previous year at the Project, together with such other
related information as PIDA may request.
Section 4.05 Non-Discrimination. The Industrial Occupant and its
------------------
subsidiaries will not discriminate against any employee or against any applicant
for employment because of race, religion, color, handicap, ancestry, national
origin, sex or age, in any manner, including but not limited to the following
activities: employment; upgrading, demotion or transfer; recruitment or
recruitment advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. The
Industrial Occupant hereby accepts and agrees to be bound by the
nondiscrimination provisions set forth in Exhibit 4.05 hereto, and will cause
comparable non-discrimination provisions to be inserted into all Project
contracts.
Section 4.06 Employee Benefit Plans. The Industrial Occupant and its
----------------------
Subsidiaries shall: (1) fund all of their employee pension benefit plans, to
the extent required, in accordance with the minimum funding standards of Section
302 of ERISA and Section 412 of the Code, except where the failure to do so
would not have a material adverse effect on the continuing operations of the
Industrial Occupant; (2) make all payments of contributions to all employee
benefit plans within the time periods established in ERISA and the Code, except
where the failure to do so would not have a material adverse effect on the
continuing operations of the Industrial Occupant; (3) furnish PIDA, upon its
request, with copies of all reports or other statements filed with the United
States Department of Labor, the Internal Revenue Service or the Pension Benefit
Guaranty Corporation, or any other agencies, whether federal, state, or local,
with respect to all employee benefit plans; (4) advise PIDA within ten days of
the occurrence of any "reportable event" or "prohibited transaction," within the
respective meanings of these terms in
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ERISA and the Code, with respect to any employee benefit plan to which the
Industrial Occupant or any Subsidiary contributes, potentially having a material
adverse effect on the continuing operations of the Industrial Occupant; (5)
promptly advise PIDA of any audit or investigation of any employee benefit plans
by the Internal Revenue Service or Department of Labor or any other governmental
agency or any threatened or proposed action by any such agency affecting the
status of, and deductibility of contributions to, any employee benefit plans,
potentially having in any such case a material adverse effect on the continuing
operations of Industrial Occupant.
Section 4.07 Environmental Compliance.
------------------------
(a) Except as described on Exhibit 2.12 hereto, the Project and the
Industrial Occupant's operations at the Premises shall comply with all
Environmental Laws in all material respects (including, without limitation, in
all respects having a significant effect on the quality of air or surface or
ground water in the vicinity of the Premises).
(b) Without limiting the generality of the foregoing, the Industrial
Occupant shall keep the Project and Premises free of Hazardous Materials except
to the extent that such Hazardous Materials are stored and/or used in compliance
with all Environmental Laws. The Industrial Occupant shall not suffer or permit
the Premises to be used to generate, manufacture, refine, transport, treat,
dispose of, transfer, produce or process Hazardous Materials in violation of any
Environmental Laws. In addition, Industrial Occupant shall not suffer or permit
any tenant, subtenant or occupant to release any Hazardous Materials onto the
Premises or onto adjacent property in violation of any Environmental Laws.
(c) The Industrial Occupant shall immediately upon obtaining knowledge of
any of the following notify the appropriate regulatory agency in writing, with a
copy to PIDA:
(i) the release of any Hazardous Material or any other substance
regulated by the Environmental Laws, from, on or about the Premises in violation
of any Environmental Law;
(ii) receipt by the Industrial Occupant, or any tenant, subtenant or
occupant of the Premises, of any notice concerning the Premises of any violation
of any applicable Environmental Law;
(iii) any violation affecting the Project or the Premises of any
applicable Environmental Law; and
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(iv) any claim or claims made against the Industrial Occupant
relating to the Project or the Premises relating to damage, contribution, cost
of recovery, compensation, loss or injury resulting from any Hazardous Material
or any other substance regulated by any applicable Environmental Law; provided
that notice to PIDA shall not be required pursuant to this Section 4.07 so long
as (A) the business of Industrial Occupant carried on at the Project is of a
character that, notwithstanding exercise of all possible care on the part of
Industrial Occupant, routinely produces discharges regulated under applicable
Environmental Laws, (B) such release, claim or violation relates to a discharge
of the character referred to in clause (A) hereof, and (C) such release, claim
or violation will not have a material adverse effect on the operations being
carried on at the Project or the operations or financial condition of the
Industrial Occupant.
(d) The Industrial Occupant, at its sole expense, shall conduct and
complete all investigations, studies, sampling and testing, and all removal and
other actions necessary to clean up and remove all Hazardous Materials on,
under, from or affecting the Project or the Premises if required by and in
accordance with all applicable federal, state and local laws, ordinances, rules,
regulations and policies, in accordance with the orders and directives of all
federal, state and local governmental authorities, to the reasonable
satisfaction of PIDA. The Industrial Occupant shall at all times keep the
Project and the Premises free of any lien imposed pursuant to any Environmental
Law including, without limitation, any Environmental Law relating to any
Hazardous Material.
(e) The Industrial Occupant shall indemnify, defend and hold harmless the
Borrower, PIDA, and the Commonwealth of Pennsylvania and their respective
employees, agents, officers and directors, including, without limitation, any
engineer or environmental consultant retained by Borrower or PIDA (such parties
collectively, "Indemnified Parties"), from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs or expenses of
whatever kind or nature, known or unknown, contingent or otherwise, including
without limitation reasonable attorney fees, fees of environmental consultants
and laboratory fees, arising out of or in any way related to the following
matters: (i) the presence, disposal, release or threatened release of any
Hazardous Materials, on, over, under, from or affecting the Project or the
Premises or the soil, water, vegetation, buildings, personal property, persons
or animals thereon; (ii) any personal
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injury (including wrongful death) or property damage (real or personal) arising
out of or related to any Hazardous Materials on, over, under, released from or
affecting the Project or the Premises; (iii) any lawsuit brought or threatened,
settlement reached or governmental order relating to such Hazardous Materials
with respect to the Project or the Premises; (iv) any violation of laws, orders,
regulations, requirements or demand of government authorities, which are based
upon or in any way related to any Hazardous Materials on, over, under, released
from or affecting the Project or the Premises; and/or (v) the breach of any
warranty, representation or covenant of the Industrial Occupant contained in
this Agreement relating to the Environmental Laws.
(f) (i) in the event PIDA shall have reasonable cause to suspect that the
Industrial Occupant has failed to comply with the terms of this Agreement, or
shall have reasonable cause to suspect that any Hazardous Materials exist on the
Premises in violation of any Environmental Laws, PIDA may direct the Industrial
Occupant to obtain, or if the Industrial Occupant shall have failed or refused
to so obtain after thirty (30) days notice from PIDA, PIDA may obtain, an
environmental audit of the Premises, at the sole expense of the Industrial
Occupant; (ii) the nature and scope of the environmental audit shall be
determined by PIDA, in its reasonable judgment; (iii) the Industrial Occupant
shall permit PIDA and PIDA's agents and employees access to the Project and the
Premises for the purpose of monitoring or conducting the environmental audit, as
the case may be, and shall otherwise reasonably cooperate and provide such
additional information as may be requested by PIDA or its agents and employees;
(iv) the Industrial Occupant shall comply with all reasonable recommendations
relating to amelioration of violation of any Environmental Laws contained in the
environmental audit, including, but not limited to, any recommendations for
additional testing or studies to detect the presence of Hazardous Materials or
contamination caused by Hazardous Materials, at the sole cost and expense of the
Industrial Occupant; (v) in the event the Industrial Occupant fails to pay for
the cost of the environmental audit or any remedial actions or additional
testing recommended thereby, relating to amelioration of violation of any
Environmental Laws, PIDA may pay for same; (vi) each payment made by PIDA shall
become a part of the indebtedness evidenced by the Note and secured by
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the Mortgage; shall be due and payable upon demand; and shall bear interest at
the default rate of interest established in the Note, until paid in full by the
Industrial Occupant.
(g) The liability under this Section 4.07 shall in no way be limited or
impaired by (i) any extension of time for performance required by any of the
Loan Documents, (ii) any sale, assignment or foreclosure of the Note or any
sale or transfer of all or part of the Project or the Premises, (iii) the
discharge of the Note, (iv) any exculpatory provisions in any of the Loan
Documents limiting PIDA's recourse to any other security, (v) the accuracy or
inaccuracy of the representations and warranties made by the Industrial
Occupant; (vi) the release of the Industrial Occupant or any other person from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law, PIDA's
voluntary act (other than the execution and delivery by PIDA of an instrument
of release expressly and specifically referring to Industrial Occupant's
indemnification obligations), or otherwise, (vii) the release or substitution
in whole or in part of any security for the Note; or (viii) PIDA's failure to
file any mortgage or UCC financing statements (or PIDA's improper filing of any
thereof) or to otherwise perfect, protect, secure or insure any mortgage,
security interest or lien given as security for the Note; and, in any such
case, whether with or without notice to the Industrial Occupant and with or
without consideration.
(h) The indemnity provisions contained in this Section 4.07 hereof shall
survive any judicial foreclosure, foreclosure by power of sale, deed in lieu of
foreclosure, transfer of the property by the Industrial Occupant or PIDA, and
payment of the Loan in full, provided, however, that such indemnity provisions
shall at no time accrue to, or be construed to benefit, any other third-party
entity (other than an Indemnified Party or a successor in interest or assign of
PIDA) no matter how such other third-party entity obtains title or any interest
in the Project or Premises.
The liability covered by the indemnity provision shall include, but not
be limited to, losses sustained by an Indemnified Party for (i) amounts owing
under the Loan and the Loan Documents, (ii) amounts arising out of personal
injury or death claims, (iii) amounts charged to such Indemnified Party for any
environmental or Hazardous Materials clean up costs and
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expenses, liens, or other such charges or impositions, (iv) payment for fees,
court costs, environmental tests and design studies, and (v) any other amounts
reasonably expended by any such Indemnified Party.
Section 4.08 Compliance with Agreements and Laws; Payment of Obligations.
-----------------------------------------------------------
The Industrial Occupant will act in accordance with all applicable agreements,
laws, rules, regulations, orders, judgments, injunctions, decrees, resolutions,
permits, franchises, determinations or awards of any administrative or
governmental authority or administrative or governmental organization, non-
compliance with which could have a material adverse effect on the ability of the
Industrial Occupant to carry on the operations at the Project contemplated in
the Application or make payments or perform and observe its other material
obligations under any of the Loan Documents.
The Industrial Occupant will pay and discharge all bills, claims and
charges relating to the Project or the Premises, including without limitation
claims for taxes and claims of laborers, mechanics and materialmen
(collectively, "Project Claims"), prior to the time the holder of any Project
Claim lawfully may cause any judgment or writ of execution to be filed or lodged
against the Premises as a result of such Project Claim.
Section 4.09 Maintenance and Operations of Project. The Industrial Occupant
-------------------------------------
will maintain and diligently operate the Project in a good and workmanlike
manner consistent with sound operating procedures, and cause all machinery,
equipment and facilities of any kind now or hereafter forming part of the
Project or necessary for the development thereof or the operation or maintenance
of the Project, to be provided and to be kept in good and efficient operating
condition, and all repairs, replacements, additions and improvements thereto
required to such end to be promptly made.
The Industrial Occupant will not permit, commit or suffer any material
waste with respect to the Project, nor use or permit the use of the Project for
any unlawful purpose or any purpose other than (i) the purpose stated in the
Application or (ii) a purpose eligible, at the time of commencement thereof, for
financing by PIDA under the PIDA Act, regulations, statements of policy,
guidelines and interpretations of the PIDA Board and staff as in effect from
time to time ("PIDA-Eligible") or permit any nuisance to exist on the Premises,
and not sell, transfer, lease, mortgage, pledge,
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<PAGE>
convey or otherwise dispose of the Project or Premises or any interest therein
except with the written consent of PIDA.
The Industrial Occupant will carry on in good faith at the Premises
substantial PIDA-Eligible manufacturing, industrial or other activities.
Section 4.10 Preservation of Corporate Existence, etc. Except as otherwise
----------------------------------------
permitted in Section 4.21, the Industrial Occupant will (a) maintain and
preserve its corporate existence and the right to carry on its business with
respect to the Project, and (b) duly procure and maintain all necessary
licenses, franchises, permits and other documents necessary or appropriate in
connection therewith and all necessary renewals and extensions thereof.
Section 4.11 Inspection. The Industrial Occupant will allow upon reasonable
----------
prior written notice by PIDA to the Industrial Occupant, any representative of
PIDA to visit and inspect the Project and all or any of the facilities or
operations thereof, all at such reasonable times and as often as PIDA or any
such representative may request.
Section 4.12 Financial Statements. During the term of the Loan, the
--------------------
Industrial Occupant will provide PIDA with:
(a) financial statements for the Industrial Occupant within one hundred
twenty (120) days after the close of each fiscal year including balance sheets,
statements of income and reconciliations of equity, in accordance with generally
accepted accounting principles, prepared by an independent certified public
accountant at a level of review satisfactory to PIDA, provided that if the
Industrial Occupant is a corporation subject to the reporting requirements of
the Exchange Act, the Industrial Occupant's obligation under this paragraph
shall be satisfied by delivery to PIDA of the financial statements required to
be filed by the Industrial Occupant under the Exchange Act in its annual
reports;
(b) with reasonable promptness, such other information respecting the
business, operations and condition (financial or otherwise) of the Industrial
Occupant as PIDA may from time to time reasonably request, including information
relating to the Project; and
(c) with reasonable promptness, after it becomes known to the Industrial
Occupant, reasonably complete information on material adverse developments which
may reasonably be expected to threaten the completion or continued operation of
the Project.
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<PAGE>
Section 4.13 Compliance Certificates. If PIDA shall so request, the
-----------------------
Industrial Occupant will provide PIDA with annual Compliance Certificates
executed by officers authorized to execute and deliver the same within 120 days
of each fiscal year's end reciting compliance with representations, warranties
and covenants.
Section 4.14 Insurance. The Industrial Occupant will maintain the insurance
---------
required by the Mortgage.
Section 4.15 Assignment and Subleases. Except as expressly permitted in
------------------------
writing by PIDA, the Industrial Occupant shall not assign or sublease any
portion of the Premises, and shall not lease any portion of the Premises to or
permit any portion thereof to be occupied by any person other than Industrial
Occupant, and in no event shall the portion of the Project occupied by persons
other than the Industrial Occupant exceed 30% of the leasable space of the
Project. In the event any portion of the Project is leased, subleased or
assigned to or otherwise occupied by any person other than the Industrial
Occupant, the Industrial Occupant shall pay to PIDA as a prepayment under the
Note, in addition to any other payments required thereunder, 50% of (i) the
gross rent or equivalent charges received by the Industrial Occupant relating to
such occupancy, less only (ii) the proportionate amount of taxes, insurance, and
utilities allocable to the portion of the Premises being so leased, subleased or
assigned.
Section 4.16 Direct Payment. The Industrial Occupant will make all payments
--------------
assumed by it pursuant to Section 3.01 hereof directly to PIDA, at such address
as PIDA may specify from time to time.
Section 4.17 Accuracy of Information Supplied. The Industrial Occupant will
--------------------------------
ensure that all information prepared by the Industrial Occupant and supplied to
PIDA or any third party under the provisions of this Agreement for the purpose
of any report or certificate to be furnished to PIDA in connection with this
Agreement or any of the Loan Documents will at the time it is supplied be true
and accurate in all material respects, except that (i) financial statements and
other statements expressly effective as of a particular date prior to the date
when furnished are required only to be true and accurate or (in the case of
financial statements) fairly to present what they purport to present, in either
case as of the effective date thereof, and (ii) to the extent any such
information is based upon or constitutes a forecast, projection or other data
which by its nature is uncertain, the
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<PAGE>
Industrial Occupant is committed only to act in good faith and utilize due and
careful consideration and the best information then known to it in preparing
such information. With respect to all information prepared by third parties and
supplied by the Industrial Occupant to PIDA and/or any third party under the
provisions hereof for the purpose of any report or certificate to be furnished
to PIDA in connection with this Agreement or any of the Loan Documents, the
Industrial Occupant shall deliver a written notice to PIDA as soon as possible
if it believes that such information is not complete and accurate in all
material respects, which written notice shall include the basis for such belief.
Section 4.18 Notice of Defaults. The Industrial Occupant will give prompt
------------------
notice to PIDA of the occurrence of any Event of Default under the Loan
Documents either on its part, or on the part of the Borrower of which the
Industrial Occupant becomes aware.
Section 4.19 Further Assurances. The Industrial Occupant will make, execute
------------------
or endorse, and acknowledge and deliver or file, all such vouchers, invoices,
notices and certifications and additional agreements, undertakings, conveyances,
transfers, assignments, financing statements, continuation statements or further
assurances, and take any and all such other actions, as PIDA may reasonably deem
necessary or advisable from time to time in connection with the Loan or the Loan
Documents to assure or confirm to PIDA and perfect all or any part of the
security for the Loan and any other obligations of the Industrial Occupant.
Section 4.20 Indemnification. To the extent permitted by applicable law, the
---------------
Industrial Occupant hereby indemnifies and holds harmless the Indemnified
Parties from and against any and all claims, damages, losses, liabilities, costs
or expenses (including all reasonable fees or expenses resulting from the
settlement of any claims or liabilities and reasonable attorneys' fees)
(collectively, "Indemnified Claims") whatsoever which the Indemnified Party may
incur (or which may be claimed against the Indemnified Party by any person or
entity whatsoever) by reason of or in connection with (a) the issuance of the
Loan, (b) any breach by the Industrial Occupant of any representation, warranty,
covenant, term or condition in, or the occurrence of any default under, this
Agreement or the Loan Documents, and (c) involvement of the Indemnified Party in
any legal suit, investigation, proceeding, inquiry or action as a consequence,
direct or indirect, of PIDA's issuance of the
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<PAGE>
Loan, PIDA's or the Borrower's entering into this Agreement or any of the Loan
Documents or any other event or transaction contemplated by any of the
foregoing; provided, however, that (i) the Indemnified Party shall within sixty
(60) days of becoming aware of (A) its actual or potential liability for any
Indemnified Claim or (B) the formal assertion against it in writing of any
Indemnified Claim, have notified the Industrial Occupant of such Indemnified
Claim and tendered to the Industrial Occupant the defense of such claim; (ii)
that no Indemnified Claim shall be paid or compromised without the consent of
the Industrial Occupant, which shall not unreasonably be withheld and shall be
deemed given if the Industrial Occupant does not object, by a notice in writing
to the Indemnified Party, to the payment or compromise of such Indemnified Claim
within 10 calendar days after the Indemnified Party has given to the Industrial
Occupant notice of the proposed payment or compromise thereof, and (iii) the
Industrial Occupant shall not be required to indemnify an Indemnified Party
hereunder for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by the gross negligence or willful
misconduct of such Indemnified Party.
The liability under this Section 4.20 shall in no way be limited or impaired
by (i) any extension of time for performance required by any of the Loan
Documents, (ii) any sale, assignment or foreclosure of the Note or any sale or
transfer of all or part of the Project or the Premises, (iii) the discharge of
the Note, (iv) any exculpatory provisions in any of the Loan Documents limiting
PIDA's recourse to any other security, (v) the accuracy or inaccuracy of the
representations and warranties made by the Industrial Occupant; (vi) the release
of the Industrial Occupant or any other person from performance or observance
of any of the agreements, covenants, terms or conditions contained in any of
the Loan Documents by operation of law, PIDA's voluntary act (other than the
execution and delivery by PIDA of an instrument of release expressly and
specifically referring to Industrial Occupant's indemnification obligations),
or otherwise, (vii) the release or substitution in whole or in part of any
security for the Note; or (viii) PIDA's failure to file any mortgage or UCC
financing statements (or PIDA's improper filing of any thereof) or to otherwise
perfect, protect, secure or insure any mortgage, security interest or lien
given as security for the Note; and, in any such case, whether with or without
notice to the Industrial Occupant and with or without consideration.
-23-
<PAGE>
The indemnity provisions contained in this Section 4.20 hereof shall
survive any judicial foreclosure, foreclosure by power of sale, deed in lieu of
foreclosure, transfer of the property by the Industrial Occupant or PIDA, and
payment of the Loan in full, provided, however, that such indemnity provisions
shall at no time accrue to, or be construed to benefit, any other third-party
entity (other than an Indemnified Party or a successor in interest or assign of
PIDA) no matter how such other third-party entity obtains title or any interest
in the Project or Premises.
The liability covered by the indemnity provision shall include, but not
be limited to, losses sustained by an Indemnified Party for (i) amounts owing
under the Loan and the Loan Documents, (ii) amounts arising out of personal
injury or death claims, (iii) amounts charged to an Indemnified Party for any
environmental or Hazardous Materials clean up costs and expenses, liens, or
other such charges or impositions, (iv) payment for fees, court costs,
environmental tests and design studies, and (v) any other amounts reasonably
expended by an Indemnified Party.
Section 4.21 Negative Covenants.
------------------
(a) The Industrial Occupant will not prepay any sums to be paid by it to
the Borrower, in whole or in part, without the prior written consent of PIDA.
(b) Without the prior written consent of PIDA, the Industrial Occupant
shall not permit, allow or suffer to exist, any lien, judgment, mortgage, or
encumbrance to be placed against the Premises or any interest therein, or enter
into any agreement requiring, contemplating or providing for placement of any
such judgment, mortgage, lien or encumbrance, except (i) mortgages, liens and
encumbrances expressly provided for in the Application to which PIDA shall not
have objected in writing, and (ii) that the terms of this Section 4.21(b) shall
not be deemed to prohibit execution of any note or credit instrument not
providing for any specific lien against the Premises but permitting confession
of judgment against the Industrial Occupant subsequent to an event of default
thereunder so long as judgment is not confessed thereunder.
(c) The Industrial Occupant will not change its name without notice to
PIDA.
(d) Without the prior written consent of PIDA, the Industrial Occupant
shall not (i) merge or consolidate with any other corporation or
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<PAGE>
dispose of all or any substantial portion of its assets, except in the ordinary
course of business, unless the Industrial Occupant or surviving corporation, as
the case may be, shall have a tangible net worth (after giving effect to such
merger, consolidation or sale of assets) not less than that shown in the most
recent audited financial statements for the Industrial Occupant delivered to
PIDA prior to approval of the Loan, and, if a corporation different from the
Industrial Occupant, shall have expressly assumed the obligations of the
Industrial Occupant hereunder, or (ii) take any corporate action to permit or
facilitate any change in control from that set forth in the Application.
ARTICLE V
Confession of Judgment
----------------------
Section 5.01 THE FOLLOWING PARAGRAPHS SET FORTH WARRANTS OF AUTHORITY FOR AN
---------------------------------------------------------------
ATTORNEY TO CONFESS JUDGMENT AGAINST THE INDUSTRIAL OCCUPANT. IN GRANTING THIS
- - -------------------------------------------------------------------------------
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE INDUSTRIAL OCCUPANT, THE
- - ----------------------------------------------------------------------------
INDUSTRIAL OCCUPANT HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE
- - --------------------------------------------------------------------------------
ADVICE OF THE SEPARATE COUNSEL OF THE INDUSTRIAL OCCUPANT, UNCONDITIONALLY
- - --------------------------------------------------------------------------
WAIVES ANY AND ALL RIGHTS THE INDUSTRIAL OCCUPANT HAS OR MAY HAVE TO PRIOR
- - ----------------------------------------------------------------------------
NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS
- - ------------------------------------------------------------------------
AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT
- - --------------------------------------------------------------------------
AS EXPRESSLY SET FORTH HEREIN AND IN THE RULES OF THE PENNSYLVANIA RULES OF
- - ---------------------------------------------------------------------------
CIVIL PROCEDURE PERTAINING TO CONFESSED JUDGMENTS, AS FROM TIME TO TIME
- - -----------------------------------------------------------------------
IN EFFECT.
- - ----------
(A) (i) IF ANY REPRESENTATION OR WARRANTY MADE BY THE INDUSTRIAL OCCUPANT
-------------------------------------------------------------------------
HEREUNDER SHALL PROVE TO HAVE BEEN INCORRECT IN ANY MATERIAL RESPECT WHEN MADE;
- - -------------------------------------------------------------------------------
(ii) IF INDUSTRIAL OCCUPANT SHALL FAIL, AFTER EXPIRATION OF ANY APPLICABLE
- - --------------------------------------------------------------------------
GRACE, NOTICE AND/OR CURE PERIODS, TIMELY TO MAKE ANY OF THE PAYMENTS OR
- - ------------------------------------------------------------------------
DISCHARGE ANY OF THE DUTIES OF BORROWER ASSUMED BY INDUSTRIAL OCCUPANT
- - ----------------------------------------------------------------------
HEREUNDER; OR (iii) IF INDUSTRIAL OCCUPANT SHALL FAIL IN ANY MATERIAL RESPECT TO
- - --------------------------------------------------------------------------------
CARRY OUT ANY OF THE COVENANTS OF INDUSTRIAL OCCUPANT HEREUNDER OR UNDER ANY OF
- - -------------------------------------------------------------------------------
THE LOAN DOCUMENTS EXECUTED AND DELIVERED BY, OR THE OBLIGATIONS UNDER WHICH
- - ----------------------------------------------------------------------------
WERE ASSUMED BY, INDUSTRIAL OCCUPANT, THE BENEFITS OF WHICH WERE ASSIGNED TO
- - ----------------------------------------------------------------------------
PIDA AS SECURITY FOR THE LOAN, AND SUCH FAILURE SHALL CONTINUE IN EFFECT, AFTER
- - -------------------------------------------------------------------------------
NOTICE OF SUCH FAILURE TO INDUSTRIAL OCCUPANT HEREUNDER, FOR NOT
- - -----------------------------------------------------------------
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<PAGE>
LESS THAN THIRTY DAYS (OR, IF SUCH FAILURE IS CAPABLE OF BEING CURED AND
- - ------------------------------------------------------------------------
INDUSTRIAL OCCUPANT IS PROCEEDING DILIGENTLY TO CURE SUCH FAILURE, FOR SUCH
- - ---------------------------------------------------------------------------
GREATER PERIOD OF TIME AFTER NOTICE AS SHALL BE REQUIRED FOR SUCH CURE IN THE
- - -----------------------------------------------------------------------------
GOOD FAITH JUDGMENT OF PIDA, WHICH SHALL BE CONCLUSIVE): THEN, IN ANY SUCH
- - ---------------------------------------------------------------------------
EVENT (OF WHICH AN AFFIDAVIT ON BEHALF OF PIDA SHALL BE SUFFICIENT EVIDENCE)
- - ----------------------------------------------------------------------------
INDUSTRIAL OCCUPANT HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF
- - ------------------------------------------------------------------------------
ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA, OR
- - -----------------------------------------------------------
ELSEWHERE, TO APPEAR FOR AND TO ENTER AND CONFESS JUDGMENT AGAINST THE
- - ----------------------------------------------------------------------
INDUSTRIAL OCCUPANT, AT ANY TIME OR TIMES AND AS OF ANY TERM, FOR ANY AND ALL
- - -----------------------------------------------------------------------------
SUMS DUE AND OWING TO PIDA BY VIRTUE OF INDUSTRIAL OCCUPANT'S ASSUMPTION OF THE
- - -------------------------------------------------------------------------------
BORROWER'S OBLIGATIONS UNDER THE NOTE, MORTGAGE AND LOAN AGREEMENT AND/OR
- - -------------------------------------------------------------------------
INDUSTRIAL OCCUPANT'S OBLIGATIONS UNDER ANY OF THE LOAN DOCUMENTS EXECUTED AND
- - ------------------------------------------------------------------------------
DELIVERED BY, OR THE OBLIGATIONS UNDER WHICH WERE ASSUMED BY, INDUSTRIAL
- - ------------------------------------------------------------------------
OCCUPANT, THE BENEFITS OF WHICH WERE ASSIGNED TO PIDA AS SECURITY FOR THE LOAN,
- - -------------------------------------------------------------------------------
WITH OR WITHOUT DECLARATION, WITH INTEREST AND COSTS OF SUIT, WITHOUT STAY OF
- - -----------------------------------------------------------------------------
EXECUTION, AND WITH REASONABLE ATTORNEY'S FEES. THE INDUSTRIAL OCCUPANT AGREES
- - -------------------------------------------------------------------------------
THAT ANY OF ITS PROPERTY MAY BE LEVIED UPON TO COLLECT SAID JUDGMENT AND MAY BE
- - -------------------------------------------------------------------------------
SOLD UPON A WRIT OF EXECUTION, AND HEREBY WAIVES AND RELEASES ALL LAWS, NOW OR
- - ------------------------------------------------------------------------------
HEREAFTER IN FORCE, RELATING TO EXEMPTION, APPRAISEMENT OR STAY OF EXECUTION.
- - ------------------------------------------------------------------------------
THE AUTHORITY HEREBY GRANTED TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY
- - ------------------------------------------------------------------------------
EXERCISE THEREOF, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL
- - -----------------------------------------------------------------------------
THE INDUSTRIAL OCCUPANT HAS PAID ALL SUMS REQUIRED TO BE PAID BY THE INDUSTRIAL
- - -------------------------------------------------------------------------------
OCCUPANT AND HAS PERFORMED ALL OF THE OTHER OBLIGATIONS REQUIRED OF INDUSTRIAL
- - ------------------------------------------------------------------------------
OCCUPANT HEREUNDER.
- - -------------------
(B) IN CASE OF ANY BREACH OF THE TERMS OF SUBSECTION (A) OF THIS SECTION,
---------------------------------------------------------------------
(OF WHICH AN AFFIDAVIT ON BEHALF OF PIDA SHALL BE SUFFICIENT EVIDENCE), THEN,
- - -----------------------------------------------------------------------------
AND IN ANY SUCH EVENT, ANY ATTORNEY OF ANY COURT OF RECORD OF PENNSYLVANIA OR
- - -----------------------------------------------------------------------------
ELSEWHERE IS HEREBY AUTHORIZED AND EMPOWERED TO APPEAR FOR THE INDUSTRIAL
- - -------------------------------------------------------------------------
OCCUPANT AND ALL PERSONS CLAIMING UNDER OR THROUGH THE INDUSTRIAL OCCUPANT, AND
- - -------------------------------------------------------------------------------
AS ATTORNEY FOR THE INDUSTRIAL OCCUPANT AND ALL PERSONS CLAIMING UNDER OR
- - -------------------------------------------------------------------------
THROUGH THE INDUSTRIAL OCCUPANT, TO SIGN AN AGREEMENT FOR ENTERING AN AMICABLE
- - ------------------------------------------------------------------------------
ACTION OF EJECTMENT FOR POSSESSION OF THE PREMISES OR ANY PART THEREOF AND TO
- - -----------------------------------------------------------------------------
CONFESS JUDGMENT THEREIN AGAINST THE INDUSTRIAL OCCUPANT, IN FAVOR OF PIDA,
- - ---------------------------------------------------------------------------
WHEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY ISSUE FOR THE POSSESSION OF THE
- - ------------------------------------------------------------------------------
PREMISES, WITHOUT ANY PRIOR COMPLAINT, WRIT OR PROCEEDING WHATSOEVER; AND FOR SO
- - --------------------------------------------------------------------------------
DOING THIS AGREEMENT, OR A COPY HEREOF VERIFIED BY
- - ---------------------------------------------------
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<PAGE>
AFFIDAVIT, SHALL BE HIS SUFFICIENT WARRANT. THIS POWER MAY BE EXERCISED AS
- - ---------------------------------------------------------------------------
OFTEN AS PIDA SHALL REQUIRE AND SHALL NOT BE EXHAUSTED BY ONE OR MORE OR BY ANY
- - -------------------------------------------------------------------------------
IMPERFECT EXERCISE THEREOF.
- - ---------------------------
IF FOR ANY REASON AFTER ANY SUCH ACTION HAS BEEN COMMENCED THE SAME SHALL
-------------------------------------------------------------------------
BE DISCONTINUED OR POSSESSION OF THE PREMISES SHALL REMAIN IN OR BE RESTORED TO
- - -------------------------------------------------------------------------------
THE INDUSTRIAL OCCUPANT, PIDA SHALL HAVE THE RIGHT FOR THE SAME DEFAULT OR ANY
- - ------------------------------------------------------------------------------
SUBSEQUENT DEFAULT TO BRING ONE OR MORE FURTHER AMICABLE ACTIONS AS ABOVE
- - -------------------------------------------------------------------------
PROVIDED TO COLLECT ALL SUMS DUE AND/OR TO RECOVER POSSESSION OF THE PREMISES.
- - -------------------------------------------------------------------------------
PIDA MAY BRING ANY SUCH AMICABLE ACTION IN EJECTMENT BEFORE OR AFTER JUDGMENT ON
- - --------------------------------------------------------------------------------
THE MORTGAGE OR ON THE NOTE, OR AFTER A SALE OF THE PREMISES BY THE SHERIFF. IF
- - --------------------------------------------------------------------------------
AFTER EXECUTION AND RETURN OF THE WRIT OF POSSESSION, THE INDUSTRIAL OCCUPANT
- - -----------------------------------------------------------------------------
SHALL REENTER INTO POSSESSION OF THE PREMISES, THE PROTHONOTARY, UPON PRAECIPE
- - ------------------------------------------------------------------------------
AND AFFIDAVIT SETTING FORTH THE FACTS FILED WITHIN THREE YEARS AFTER THE RETURN
- - -------------------------------------------------------------------------------
OF THE WRIT UPON WHICH EXECUTION WAS COMPLETED, SHALL ISSUE A NEW WRIT OF
- - -------------------------------------------------------------------------
POSSESSION.
- - ----------
(C) IF INDUSTRIAL OCCUPANT WISHES TO CHALLENGE ANY JUDGMENT CONFESSED
-----------------------------------------------------------------
PURSUANT TO THIS SECTION, IT SHALL DO SO ONLY BY FILING A PETITION TO OPEN THE
- - ------------------------------------------------------------------------------
JUDGMENT PURSUANT TO PENNSYLVANIA RULES OF CIVIL PROCEDURE RULE 2959, AS IN
- - ---------------------------------------------------------------------------
EFFECT FROM TIME TO TIME, ("RULE 2959") AND SHALL NOT OTHERWISE INTERFERE (BY
- - -----------------------------------------------------------------------------
FILING ANY CIVIL ACTION BILL IN EQUITY, OR OTHERWISE) WITH THE OPERATION OF
- - ---------------------------------------------------------------------------
THIS JUDGMENT GRANTED PURSUANT TO THIS SECTION. INDUSTRIAL OCCUPANT EXPRESSLY
- - ------------------------------------------------------------------------------
ACKNOWLEDGES THAT THE PROCEDURE AVAILABLE TO IT THROUGH RULE 2959 WILL PROVIDE
- - ------------------------------------------------------------------------------
IT WITH A FULL AND FAIR OPPORTUNITY TO BE HEARD AS TO ANY REASON WHY JUDGMENT
- - -----------------------------------------------------------------------------
SHOULD NOT BE ENTERED AGAINST IT.
- - ---------------------------------
THE INDUSTRIAL OCCUPANT ACKNOWLEDGES THAT IT UNDERSTANDS THE MEANING AND
------------------------------------------------------------------------
EFFECT OF THE CONFESSION CONTAINED IN THE FOREGOING PARAGRAPHS. SPECIFICALLY,
- - ------------------------------------------------------------------------------
THE INDUSTRIAL OCCUPANT UNDERSTANDS AMONG OTHER THINGS THAT (1) IT IS
- - ---------------------------------------------------------------------
RELINQUISHING THE RIGHT TO HAVE THE BURDEN OF PROOF OF DEFAULT REST ON PIDA
- - ---------------------------------------------------------------------------
PRIOR TO THE ENTRY OF JUDGMENT, (2) THE ENTRY OF JUDGMENT MAY RESULT IN A LIEN
- - ------------------------------------------------------------------------------
ON ITS PROPERTY, (3) IT WILL BEAR THE BURDEN AND EXPENSE OF ATTACKING THE
- - -------------------------------------------------------------------------
JUDGMENT AND CHALLENGING EXECUTION ON THE LIEN AND SALE OF THE PROPERTY COVERED
- - -------------------------------------------------------------------------------
THEREBY, AND (4) ENOUGH OF ITS PROPERTY MAY BE TAKEN TO PAY THE PRINCIPAL
- - -------------------------------------------------------------------------
AMOUNT, INTEREST COSTS AND ATTORNEY'S FEES.
- - -------------------------------------------
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<PAGE>
ARTICLE VI
Miscellaneous
-------------
Section 6.01 Obligations Unconditional. The obligations of the Industrial
-------------------------
Occupant to PIDA under this Agreement and each of the Loan Documents shall be
absolute and unconditional without defense or set-off by reason of any default
by the contractors under the contracts relating to the Project or by Borrower or
by PIDA under this Agreement, any of the Loan Documents, or under any other
agreement between the Borrower and the Industrial Occupant or between the
Industrial Occupant and PIDA, or for any other reason, including without
limitation failure to complete the Project, any acts or circumstances that may
constitute failure of consideration, destruction of or damage to the Project,
commercial frustration of purpose, or failure of the Borrower or PIDA to
perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with the Loan, it being the
intention of the parties that the payments required by Industrial Occupant
under each of the Loan Documents will be paid in full when due without any
delay or diminution whatsoever. Payments and additional sums required to be
paid by Industrial Occupant to PIDA under any of the Loan Documents shall be
received by PIDA as net sums and the Industrial Occupant agrees to pay or cause
to be paid all charges against or which might diminish such net sums. The
provisions of this Section shall not impair the ability of the Industrial
Occupant or any other person to bring an independent action against PIDA with
respect to any cause of action which such person may have against PIDA.
Section 6.02 Provisions Complementary. The provisions of this Agreement
------------------------
shall be in addition to those of any other Loan Document. All of such
provisions shall be construed as complementary to each other. Nothing contained
herein shall prevent PIDA from enforcing any and all of such provisions in
accordance with their respective terms.
Section 6.03 Rights and Remedies. The terms hereof and of each of the Loan
-------------------
Documents shall be liberally construed in favor of PIDA to effectuate the
purposes hereof. No delay or failure on the part of PIDA in exercising any
right, power or privilege under any of the Loan Documents shall affect such
right, power or privilege; nor shall any single or partial exercise thereof or
-28-
<PAGE>
any abandonment, waiver, or discontinuance of steps to enforce such a right,
power or privilege preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. The rights and remedies of
PIDA under any of the Loan Documents are cumulative and concurrent and not
exclusive of any rights or remedies which it might otherwise have. PIDA shall
have the right at all times to enforce the provisions of the Loan Documents and
all related documentation in strict accordance with the terms hereof,
notwithstanding any conduct or custom on the part of PIDA in refraining from so
doing at any time or times. The failure of PIDA at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of such Loan Document or any such documentation or as
having in any way or manner modified or waived the same. All rights and
remedies of PIDA are cumulative and concurrent and the exercise of one right or
remedy shall not be deemed a waiver or release of any other right or remedy.
Section 6.04 Offset Clause. The Industrial Occupant agrees that the
-------------
Commonwealth of Pennsylvania may set off the amount of any state tax liability
or other debt of the Industrial Occupant or its respective subsidiaries that is
owed to the Commonwealth and not being contested on appeal against any payments
due the Industrial Occupant under this or any other contract with the
Commonwealth.
Section 6.05 Contractor Responsibility Provisions. Included in and made a
------------------------------------
part of this Agreement is Exhibit 6.05, a clause pertaining to Contractor
Responsibility.
Section 6.06 Conflict of Interest. The Industrial Occupant covenants that it
--------------------
presently has no interest and shall not acquire any interest, direct or
indirect, which would conflict in any manner or degree with the performance of
its obligations hereunder. Included in and made a part of this Agreement is
Exhibit 6.06, a clause pertaining to Contractor Integrity.
Section 6.07 Americans with Disabilities Act Provisions. Included in and
------------------------------------------
made a part of this Agreement is Exhibit 6.07, a clause pertaining to compliance
with the Americans with Disabilities Act.
Section 6.08 Assignment; Beneficiaries. This Agreement and each of the Loan
-------------------------
Documents shall inure to the benefit of, and shall be binding upon, the
respective successors and assigns of PIDA and the Industrial Occupant. Although
PIDA has no present intention to convey, pledge or otherwise assign
-29-
<PAGE>
its rights under the Loan Documents, it may nevertheless do so in whole or in
part without notice to any person (including, without limitation, the
Industrial Occupant). The Industrial Occupant has no right to assign any of
its rights or obligations hereunder or under any of the Loan Documents without
the prior written consent of PIDA, and any such assignment without the prior
written consent of PIDA shall be void.
The Industrial Occupant and PIDA intend that no person (other than
Borrower and any Indemnified Party) shall have any claim or interest under this
Agreement or any of the Loan Documents or right of action thereunder.
Section 6.09 Amendments. This Agreement and the Loan Agreement may be
----------
modified or amended only by a written instrument duly executed by PIDA, the
Borrower, and the Industrial Occupant. Each of the remaining Loan Documents may
be modified only by a written instrument duly executed by PIDA and the remaining
parties to the particular Loan Document.
Section 6.10 Notices. Notices required hereunder, or any correspondence
-------
concerning this Agreement shall be directed to the following addresses and shall
be deemed properly given (a) if delivered by hand, (b) if sent by certified
mail, return receipt requested, postage prepaid, or by recognized overnight
courier service (including, without limitation, Federal Express or United Parcel
Service overnight service), charges prepaid; or (c) if sent by facsimile, with a
copy sent by first class U.S. Mail, postage prepaid.
(a) If PIDA:
PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY
c/o Department of Commerce
Room 480, Forum Building
Harrisburg, Pennsylvania 17120
FAX: (717) 234-4560
Attention: Executive Director
(b) If Industrial Occupant:
RESPIRONICS, INC.
1001 Murry Ridge Road
Murrysville, Pennsylvania 15668
Attention: Treasurer
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<PAGE>
(c) If Borrower:
CENTRAL WESTMORELAND DEVELOPMENT CORPORATION
Route 30 West
Toll Gate Hill Road
Greensburg, Pennsylvania 15601
Attention: President
Notices and communications hereunder shall be deemed sufficiently given when
dispatched pursuant to the foregoing provisions. Notices and communications
delivered by hand shall be effective upon receipt; notices and communications
sent by fax, with a copy by first class U.S. Mail, shall be effective upon
dispatch; notices and communications sent by recognized overnight courier
service shall be effective on the business day following dispatch; and notices
sent by certified mail shall be effective on the third business day following
dispatch. The parties hereto may, by a notice given hereunder, designate any
further or different addresses to which any subsequent notice or communication
hereunder shall be sent.
Section 6.11 Delivery to PIDA. Any materials delivered to PIDA's independent
----------------
engineer or financial consultant shall be deemed to have been delivered to PIDA,
provided that any amendment or supplement to information delivered shall be
deemed effectively delivered only if delivered to the same entity as received
the original information.
Section 6.12 Severability; Interest Limitation. If any provision hereof or
---------------------------------
of the Loan Documents is found by a court of competent jurisdiction to be
prohibited or unenforceable in any jurisdiction, it shall be ineffective as to
such jurisdiction only to the extent of such prohibition or unenforceability,
and such prohibition or unenforceability shall not invalidate the balance of
such provision as to such jurisdiction to the extent it is not prohibited or
unenforceable, nor invalidate such provision in any other jurisdiction, nor
invalidate the other provisions hereof, all of which shall be liberally
construed in favor of PIDA in order to effect the provisions of this Agreement.
Notwithstanding anything to the contrary herein contained, the total liability
of the Industrial Occupant for payment of interest pursuant to the Loan
Documents shall not exceed the maximum amount, if any, of such interest
permitted by applicable law to be contracted for, charged or received, and if
any payments by the Industrial Occupant to PIDA include interest in excess of
such a maximum amount, PIDA shall apply such excess to
-31-
<PAGE>
the reduction of the unpaid principal amount due pursuant hereto, or if none is
due, such excess shall be refunded to the Industrial Occupant; provided that, to
the extent permitted by applicable law, in the event the interest is not
collected, is applied to principal or is refunded pursuant to this sentence and
interest thereafter payable pursuant hereto shall be less than such maximum
amount, then such interest thereafter so payable shall be increased up to such
maximum amount to the extent necessary to recover the amount of interest, if
any, theretofore uncollected, applied to principal or refunded pursuant to this
sentence. Any such application or refund shall not cure or waive any Event of
Default. In determining whether or not any interest payable under the Loan
Documents exceeds the highest rate permitted by law, any nonprincipal payment
(except payments specifically stated to be "interest") shall be deemed, to the
extent permitted by applicable law, to be an expense, fee, premium or penalty
rather than interest.
Section 6.13 Complete Agreement. The Loan Documents constitute the entire
------------------
agreement between PIDA and the Industrial Occupant. The Loan Documents
supersede and replace all prior agreements related to the subject matter thereof
including, without limitation, the Commitment, except to the extent such prior
agreements are expressly incorporated by reference or otherwise referred to.
Section 6.14 Consent to Jurisdiction; Venue. The Industrial Occupant hereby
------------------------------
irrevocably (a) agrees that any suit, action or other legal proceeding arising
out of or relating to this Agreement or the Loan Documents may be brought in any
federal or state court located in or whose district includes Harrisburg,
Pennsylvania or the county wherein the Project is located and consents to the
jurisdiction of such court in any such suit, action or proceeding, and (b)
waives any objection which it may have to the laying of venue of any such suit,
action or proceeding in any such court and any claim that any such suit, action
or proceeding has been brought in an inconvenient forum. The Industrial
Occupant hereby irrevocably consents to the service of any and all process in
any such suit, action or proceeding by mailing of copies of such process to the
Industrial Occupant at its address provided under or pursuant to Section 6.10.
The Industrial Occupant agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. All mailings
under this section shall be by certified or
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<PAGE>
registered mail, return receipt requested. Nothing in this section shall affect
the right of PIDA to serve legal process in any other manner permitted by law or
affect the right of PIDA to bring any suit, action or proceeding against the
Industrial Occupant or its property in the courts of any other jurisdiction.
Section 6.15 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Pennsylvania
without reference to its principles of conflicts of law.
Section 6.16 Survival of Covenants. All covenants made or assumed by the
---------------------
Industrial Occupant in any of the Loan Documents shall survive the delivery of
this Agreement and the Loan Documents and until the Loan is prepaid in full,
unless a longer term is expressly provided therein, in which event such longer
term shall apply.
Section 6.17 Accounting Terms. Each accounting term not defined herein and
----------------
each accounting term partly defined herein, to the extent not defined herein,
shall have the meaning given it under generally accepted accounting principles
as in effect from time to time in the United States of America, consistently
applied.
Section 6.18 Rules of Construction. In this Agreement, unless otherwise
---------------------
indicated, (i) defined terms may be used in the singular or the plural and the
use of any gender includes all genders, (ii) the words, "hereof", "herein",
"hereto", "hereby and "hereunder" refer to this entire Agreement and (iii) all
references to particular Articles or Sections are references to the Articles or
Sections of this Agreement.
Section 6.19 Defined Terms. All capitalized terms not defined herein shall
-------------
have the meanings ascribed to them in the Loan Agreement.
Section 6.20 Exhibits. All exhibits to this Agreement are incorporated
--------
within this Agreement and constitute a part thereof.
Section 6.21 Descriptive Headings. Descriptive headings of the several
--------------------
Articles and Sections of this Agreement are intended for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
Section 6.22 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument. All signatures need
not appear on the same copy hereof.
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<PAGE>
Section 6.23 Seal. This Agreement is intended to take effect as an
----
instrument under seal.
IN WITNESS WHEREOF, the Industrial Occupant, intending to be legally bound
hereby, has caused this Consent, Subordination and Assumption Agreement to be
executed on its behalf by the undersigned duly authorized officers and its
corporate seal to be affixed hereto as of the day and year first above written.
ATTEST: RESPIRONICS, INC.
/s/ Dorita A. Pishko /s/ James Woll
By________________________________ By______________________________________
Secretary Treasurer
(CORPORATE SEAL)
The terms and conditions of the foregoing Consent, Subordination and Assumption
Agreement are hereby approved and agreed to, with the express understanding that
the undersigned's obligations under the Loan Agreement, Note and Mortgage are
not relieved or in any way diminished by virtue of the Industrial Occupant's
execution of this Agreement:
ATTEST: CENTRAL WESTMORELAND DEVELOPMENT
CORPORATION
/s/ /s/ Anthony J. Caletri
By________________________________ By______________________________________
Secretary President
(CORPORATE SEAL)
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<PAGE>
EXHIBIT A
FIRST:
- - -----
ALL that certain piece, parcel or tract of land situate in the Municipality
of Murrysville, County of Westmoreland, Commonwealth of Pennsylvania, known
and designated as Lot 5 in the Respironics Plan, recorded in the Office
of the Recorder of Deeds of Westmoreland County, Pennsylvania, in Plan Book
Volume 90, pages 1131 and 1132 ("Respironics Plan"), and being more
particularly bounded and described as follows:
BEGINNING at a point on the southeasterly side of Old Logan Ferry Road on
the line of lands now or formerly R. E. Lott; thence along the lines of
lands now or formerly R. E. Lott and Lot 3 in the Sardis Heights Plan No.
2, recorded in the Office of the Recorder of Deeds of Westmoreland County,
Pennsylvania, in Plan Book Volume 26, page 50 ("Sardis Heights Plan No.
2"), South 70 degrees 38' 30" East, 488.291 feet to a point on the line of
Lot 6 in the Respironics Plan; thence along the line of Lot 6 in the
Respironics Plan, South 38 degrees 08' 30" East, 381.826 feet to a point;
thence continuing along the line of Lot 6 in the Respironics Plan, South
51 degrees 54' 00" West, 468.257 feet to a point; thence continuing along
the line of Lot 6 in the Respironics Plan, on a curve to the right having
a radius of 352.276 feet a central angle of 53 degrees 04' 16" for an arc
distance of 326.302 feet to a point; thence continuing along the line of
Lot 6 in the Respironics Plan, North 75 degrees 01' 44" West, 297.668 feet
to a point on the easterly side of Logan Ferry Road, S.R. 4057; thence along
the easterly side of Logan Ferry Road in a northerly direction by a curve
to the right having a radius of 25.000 feet a central angle of 84 degrees
49' 52" for an arc distance of 37.015 feet to a point on the easterly side
of Logan Ferry Road, S.R. 4057 (a 60.000 foot street); thence along the
easterly side of Logan Ferry Road in a northerly direction by a curve to
the left having a radius of 530.000 feet a central angle of 24 degrees 01'
56" for an arc distance of 222.304 feet to a point; then along same by a
curve to a right having a radius of 25.000 feet a central angle of 76 degrees
29' 13" for an arc distance of 33.374 feet to a point on the southeasterly
side of Old Logan Ferry Road (a 50.000 foot street); thence along the
southeasterly side of Old Logan Ferry Road in northerly direction by a curve
to the left having a radius of 323.410 feet a central angle of 30 degrees
09' 37" for an arc distance of 170.242 feet to a point; thence along the
southeasterly side of Old Logan Ferry Road, North 32 degrees 05' 50" East,
220.025 feet to a point; thence along same by a curve to the left having
a radius of 145.565 feet a central angle of 35 degrees 12' 50" for an arc
distance of 89.464 feet to a point, the place of beginning.
CONTAINING: 11.316 acres.
SECOND:
- - ------
ALL that certain piece, parcel or tract of land situate in the Municipality
of Murrysville, County of Westmoreland, Commonwealth of Pennsylvania, known
and designated as Lot 6 in the Respironics Plan, recorded in the Office
of the Recorder of Deeds of Westmoreland County, Pennsylvania, in Plan Book
Volume 90, pages 1131 and 1132 ("Respironics Plan"), and being more
particularly bounded and described as follows:
-35-
<PAGE>
BEGINNING at a point common to Lot 5 and Lot 6 in the Respironics Plan and
the line of Lot 3 in the Sardis Heights Plan No. 2, recorded in the Office
of the Recorder of Deeds of Westmoreland County, Pennsylvania, in Plan Book
Volume 26, page 50 ("Sardis Heights Plan No. 2"); thence along the lines
of Lot 3, Margaretta Drive, Lot 6, Lot 7, Lot 8, and Lot 9, in the Sardis
Heights Plan No. 2 and lands now or formerly K. R. Reed, South 79 degrees
38' 30" East, 713.549 feet to a point; thence along the line of lands now
or formerly K. R. Reed, North 77 degrees 30' 20" East, 468.160 feet to a
point at the corner of lands now or formerly John Lott; thence along the
line of lands now or formerly John Lott, South 20 degrees 33' 20" East,
438.265 feet to a point on the line of lands now or formerly Alexander
McAlister; thence along the lines of lands now or formerly Alexander McAlister
and now or formerly R. D. Latta, South 69 degrees 26' 40" West, 1,872.155
feet to a point at the corner of Lot 3 in the Murry Ridge Corporate Center
Plan No. 3, recorded in the Office of the Recorder of Deeds of Westmoreland
County, Pennsylvania, in Plan Book Volume 90, pages 691 and 692 ("Murry
Ridge Corporate Center Plan No. 3:); thence along the line of Lot No. 3
in the Murry Ridge Corporate Center Plan No. 3, North 20 degrees 33' 20"
West, 323.455 feet to a point; thence along same, North 14 degrees 58' 16"
East, 106.555 feet to a point; thence along same, North 75 degrees 01' 44"
West, 219.688 feet to a point; thence through and across a 50' Private Access
and Utility Easement, North 14 degrees 58' 16" East, 50 feet to a point
on the line of Lot 5 in the Respironics Plan; thence along the line of Lot
5 in the Respironics Plan, South 75 degrees 01' 44" East, 297.668 feet to
a point; thence on a curve to the left having a radius of 352.276 feet a
central angle of 53 degrees 04' 16" for an arc distance of 326.302 feet
to a point; thence continuing along the line of Lot 5 in the Respironics
Plan, North 51 degrees 54' 00" East, 468.257 feet to a point; thence continuing
along the line of Lot 5 in the Respironics Plan, North 38 degrees 08' 30"
West, 381.826 feet to a point, the place of beginning.
CONTAINING: 21.635 acres.
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<PAGE>
EXHIBIT 2.03
NECESSARY APPROVALS
-------------------
NONE
-37-
<PAGE>
EXHIBIT 2.05
LITIGATION
----------
[INSERT EXHIBIT OF RESPIRONICS, INC. TO BE PROVIDED BY ITS
---------------------------------------------------------
COUNSEL WITH RESPECT TO A PATENT DISPUTE]
----------------------------------------
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<PAGE>
LETTERHEAD OF REED SMITH SHAW & MCCLAY
436 SIXTH AVENUE
MAILING ADDRESS: WASHINGTON, DC
P.O. BOX 2009 PITTSBURGH, PA 15219-1886 PHILADELPHIA, PA
PITTSBURGH, PA 15230-2008 HARRISBURG, PA
412-288-3131 MCLEAN, VA
FACSIMILE 412-288-3083 PRINCETON, NJ
WRITER'S DIRECT DIAL NUMBER
(412) 288-7224 February 21, 1995
VIA FACSIMILE
- - -------------
Charles J. Millman, Esq.
Pennsylvania Department of Commerce
Office of the Chief Counsel
416 Forum Building
Harrisburg, PA 17120-0025
James J. Conte, Esq.
101 North Main Street
Greensburg, PA 15601
Re: Consent, Subordination and Assumption Agreement
by Respironics, Inc. and Central Westmoreland
Development Corporation in favor of the
Pennsylvania Industrial Development Authority
(the "Agreement")
-----------------------------------------------
Dear Charles and Jim:
Attached hereto please find a description of a patent infringement
action filed by ResCare Limited against Respironics, Inc., which must be
disclosed in Section 2.05 of the above-referenced Agreement.
If you have any comments or questions, please do not hesitate to give
me a call.
Very truly yours,
/s/ Ted R. Heuston
-----------------------------------
Ted R. Heuston
TRH:jmj
Attachment
-39-
<PAGE>
PART 2 OTHER INFORMATION
Item 1: Legal Proceedings
On January 9, 1995 ResCare Limited ("ResCare") filed an action
against the Company in United States District Court for the Southern
District of California (Civil Action No. '95 0032K (AJB)) alleging
that in the manufacture and sale in the United States of nasal
masks and CPAP systems and components, the Company infringes
three United States patents, two of which are owned by and one
of which is licensed to ResCare. In its complaint (served on
the Company on February 3, 1995), ResCare seeks preliminary and
permanent injunctive relief, an accounting for damages and an
award of three times actual damages because of the alleged actual
knowledge of the infringement, plus counsel fees and costs.
On February 1, 1995 the Company filed Civil Action No. 95-0151
in the United States District Court for the Western District
of Pennsylvania against ResCare seeking a declaratory judgement
that the claims of the three patents referred to in the preceding
paragraph are invalid and that the Company does not infringe
upon the same.
It is the Company's belief, based upon the information available
to it at the present time, that none of its products infringe
any of the patents referred to in the first paragraph above in
the event that any one or more of such patents should be held
to be valid. The Company intends vigorously to defend the litigation
referred to in the first paragraph and to vigorously pursue the
litigation referred to in the second paragraph. The sale of
the products which ResCare alleges infringe the patents in question
constitute approximately one half of the sales of the Company's
products used for the treatment of obstructive sleep apnea.
-40-
<PAGE>
EXHIBIT 2.09
LIABILITIES NOT PREVIOUSLY DISCLOSED
------------------------------------
EXHIBIT 2.11
ERISA DISCLOSURES
-----------------
NONE
EXHIBIT 2.12
ENVIRONMENTAL DISCLOSURES
-------------------------
PHASE I ENVIRONMENTAL ASSESSMENT: Prepared in 1989 and reissued August 1991.
Originally conducted by KEYSTONE ENVIRONMENTAL on a 70 acre parcel in which the
Premises lies. Also, a letter dated March 16, 1994 from Gary Edwards of CHESTER
ENVIRONMENTAL (formerly KEYSTONE) was provided. No significant hazards or
problems reported.
EXHIBIT 2.13
ACTS OF BANKRUPTCY
------------------
NONE
EXHIBIT 2.14
CRIMINAL CONVICTIONS
--------------------
NONE
EXHIBIT 2.15
OCCUPANCY AGREEMENTS
--------------------
NONE
EXHIBIT 2.16
NECESSARY PERMITS
-----------------
NONE
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<PAGE>
EXHIBIT 2.17
NECESSARY TECHNOLOGY, ETC.
--------------------------
NONE
EXHIBIT 2.18
VIOLATIONS
----------
NONE
EXHIBIT 2.19
PERMITTED LIENS
---------------
First Mortgage Lien: That certain Mortgage and Security Agreement on the
- - -------------------
Premises from the Industrial Occupant to PITTSBURGH NATIONAL BANK, dated
November 1, 1989, and recorded on November 15, 1989 in Westmoreland County
Mortgage Book volume 2505, page 0185, in the original principal amount of Two
---- ----
Million Four Hundred Fifty-Nine Thousand One Hundred Seventy-Eight Dollars
($2,459,178.00), of which amount only a lien in the principal amount of One
Million Four Hundred Two Thousand One Hundred Eleven Dollars ($1,402,111) shall
have priority over the Mortgage (by virtue of a Mortgage Subordination
Agreement, executed by PITTSBURGH NATIONAL BANK et al. on April 20, 1990 and
recorded on April 30, 1990 in Westmoreland County Mortgage Book volume 2559,
----
page 027), which first mortgage lien has an outstanding principal balance not in
---
excess of One Million One Hundred Forty-Three Thousand Eighty-Nine Dollars
($1,143,089).
Subordinate Lien: That certain Open-End Mortgage, dated June 21, 1994, from the
- - ----------------
Industrial Occupant to the Pennsylvania Department of Commerce in the principal
amount of $978,395, to secure a BID Loan to the Redevelopment Authority of the
County of Westmoreland. Said mortgage was recorded on June 27, 1994 in
Westmoreland County Mortgage Book volume 3414 page 025.
---- ---
Subordinate Lien: That certain Mortgage, dated June 5, 1990, from the Industrial
- - ----------------
Occupant to the Redevelopment Authority of the County of Westmoreland in the
principal amount of $610,870. Said mortgage was recorded in Westmoreland County
Mortgage Book volume 2574 page 235.
---- ---
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<PAGE>
EXHIBIT 4.05
NONDISCRIMINATION CLAUSE
------------------------
During the term of this contract, Industrial Occupant agrees as follows:
1. Industrial Occupant shall not discriminate against any employe, applicant for
employment, independent contractor or any other person because of race, color,
religious creed, ancestry, national origin, age or sex. Industrial Occupant
shall take affirmative action to insure that applicants are employed, and that
employes or agents are treated during employment, without regard to their race,
color, religious creed, handicap, ancestry, national origin, age or sex. Such
affirmative action shall include, but is not limited to: employment, upgrading,
demotion or transfer, recruitment or recruitment advertising; layoff or
termination; rates of pay or other forms of compensation; and selection for
training. Industrial Occupant shall post in conspicuous places, available to
employes, agents, applicants for employment and other persons, a notice to be
provided by the contracting agency setting forth the provisions of this
nondiscrimination clause.
2. Industrial Occupant shall in advertisements or requests for employment placed
by it or on its behalf, state that all qualified applicants will receive
consideration for employment without regard to race, color, religious creed,
handicap, ancestry, national origin, age, or sex.
3. Industrial Occupant shall send each labor union or workers' representative
with which it has a collective bargaining agreement or other contract or
understanding, a notice advising said labor union or workers' representative of
its commitment to this nondiscrimination clause. Similar notice shall be sent
to every other source of recruitment regularly utilized by Industrial Occupant.
4. It shall be no defense to a finding of noncompliance with this
nondiscrimination clause that Industrial Occupant had delegated some of its
employment practices to any union, training program or other source of
recruitment which prevents it from meeting its obligations. However, if the
evidence indicates that the Industrial Occupant was not on notice of the third-
party discrimination or made a good faith effort to correct it, such factor
shall be considered in mitigation in determining appropriate sanctions.
5. Where the practices of a union or of any training program or other source of
recruitment will result in the exclusion of minority group persons, so that
Industrial Occupant will be unable to meet its obligations under this
nondiscrimination clause, Industrial Occupant shall then employ and fill
vacancies through other nondiscriminatory employment procedures.
6. Industrial Occupant shall comply with all state and federal laws prohibiting
discrimination in hiring or employment opportunities. In the event of
Industrial Occupant's noncompliance with the nondiscrimination clause of this
contract or with any such laws, this contract may be terminated or suspended, in
whole or in part, and Industrial Occupant may be declared temporarily ineligible
for further Commonwealth contracts, and other sanctions may be imposed and
remedies invoked.
-43-
<PAGE>
7. Industrial Occupant shall furnish all necessary employment documents and
records to, and permit access to its books, records and accounts by, the
contracting agency for purposes of investigation to ascertain compliance with
the provisions of this clause. If Industrial Occupant does not possess
documents or records reflecting the necessary information requested, it shall
furnish such information on reporting forms supplied by the contracting agency.
8. Industrial Occupant shall actively recruit minority subcontractors and women
subcontractors or subcontractors with substantial minority representation among
their employees.
9. Industrial Occupant shall include the provisions of this nondiscrimination
clause in every subcontract, so that such provisions will be binding upon each
subcontractor.
10. Industrial Occupant obligations under this clause are limited to the
Industrial Occupant's facilities within Pennsylvania or, where the contract is
for purchase of goods manufactured outside of Pennsylvania, the facilities at
which such goods are actually produced.
-44-
<PAGE>
EXHIBIT 6.05
CONTRACTOR RESPONSIBILITY PROVISIONS
------------------------------------
1. Contractor certifies that it is not currently under suspension or
debarment by the Commonwealth, any other state, or the federal government.
2. If contractor enters into any subcontracts under this contract with
subcontractors who are currently suspended or debarred by the Commonwealth or
federal government or who become suspended or debarred by the Commonwealth or
federal government during the term of this contract or any extensions or
renewals thereof, the Commonwealth shall have the right to require the
contractor to terminate such subcontracts.
3. The contractor agrees that it shall be responsible for reimbursing the
Commonwealth for all necessary and reasonable costs and expenses incurred by the
Office of the Inspector General relating to an investigation of the contractor's
compliance with the terms of this or any other agreement between the contractor
and the Commonwealth which results in the suspension or debarment of the
contractor.
-45-
<PAGE>
EXHIBIT 6.06
CONTRACTOR INTEGRITY PROVISION
------------------------------
1. Definitions.
a. Confidential information means information that is not public knowledge,
------------------------
or available to the public on request, disclosure of which would give an unfair,
unethical, or illegal advantage to another desiring to contract with the
Commonwealth.
b. Consent means written permission signed by a duly authorized officer or
-------
employee of the Commonwealth, provided that where the material facts have been
disclosed, in writing, by prequalification, bid, proposal, or contractual terms,
the Commonwealth shall be deemed to have consented by virtue of execution of
this Agreement.
c. Contractor means the individual or entity that has entered into this
----------
Agreement with the Commonwealth, including directors, officers, partners,
managers, key employees, and owners of more than a 5% interest.
d. Financial Interest means:
------------------
(1) ownership of more than a 5% interest in any business; or
(2) holding a position as an officer, director, trustee, partner, employee,
or the like, or holding any position of management.
e. Gratuity means any payment of more than nominal monetary value in the
--------
form of cash, travel, entertainment, gifts, meals, lodging, loans,
subscriptions, advances, deposits of money, services, employment, or contracts
of any kind.
2. The contractor shall maintain the highest standards of integrity in the
performance of this Agreement and shall take no action in violation of state or
federal laws, regulations, or other requirements that govern contracting with
the Commonwealth.
3. The contractor shall not disclose to others any confidential information
gained by virtue of this Agreement.
4. The contractor shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly offer, confer, or agree to confer
any pecuniary benefit on anyone as consideration for the decision, opinion,
recommendation, vote, other exercise of discretion, or violation of a known
legal duty by any officer or employee of the Commonwealth.
5. The contractor shall not, in connection with this or any other agreement
with the Commonwealth, directly or indirectly, offer, give, or agree or promise
to give to anyone any gratuity for the benefit of or at the direction or request
of any officer or employee of the Commonwealth.
-46-
<PAGE>
6. Except with the consent of the Commonwealth, neither the contractor nor
anyone in privity with him shall accept or agree to accept from, or give or
agree to give to, any person, any gratuity from any person in connection with
the performance of work under this Agreement except as provided therein.
7. Except with the consent of the Commonwealth, the contractor shall not
have a financial interest in any other contractor, subcontractor, or supplier
providing services, labor, or material on this project.
8. The contractor, upon being informed that any violation of these
provisions has occurred or may occur, shall immediately notify the Commonwealth
in writing.
9. The contractor, by execution of this Agreement and by the submission of
any bills or invoices for payment pursuant thereto, certifies and represents
that he has not violated any of these provisions.
10. The contractor, upon the inquiry or request of the Inspector General of
the Commonwealth or any of that official's agents or representatives, shall
provide, or if appropriate, make promptly available for inspection or copying,
any information of any type or form deemed relevant by the Inspector General to
the contractor's integrity or responsibility, as those terms are defined by the
Commonwealth's statutes, regulations, or management directives. Such
information may include, but shall not be limited to, the contractor's business
or financial records, documents or files of any type or form which refer to or
concern this agreement. Such information shall be retained by the contractor
for a period of three years beyond the termination of the contract unless
provided by law.
11. For violation of any of the above provisions, the Commonwealth may
terminate this and any other agreement with the contractor, claim liquidated
damages in an amount equal to the value of anything received in breach of these
provisions, claim damages for all expenses incurred in obtaining another
contractor to complete performance hereunder, and debar and suspend the
contractor from doing business with the Commonwealth. These rights and remedies
are cumulative, and the use or nonuse of any one shall not preclude the use of
all or any other. These rights and remedies are in addition to those the
Commonwealth may have under law, statute, regulation, or otherwise.
-47-
<PAGE>
EXHIBIT 6.07
AMERICANS WITH DISABILITIES ACT PROVISIONS
------------------------------------------
During the term of this contract, the Industrial Occupant agrees as
follows:
1. Pursuant to federal regulations promulgated under the authority of The
Americans With Disabilities Act, 28 C.F.R. (S)35.101 et seq., the Industrial
Occupant understands and agrees that no individual with a disability shall, on
the basis of the disability, be excluded from participation in this contract or
from activities provided for under this contract. As a condition of accepting
and executing this contract, the Industrial Occupant agrees to comply with the
"General Prohibitions Against Discrimination," 28 C.F.R. (S)35.130, and all
other regulations promulgated under Title II of The Americans With Disabilities
Act which are applicable to the benefits, services, programs, and activities
provided by the Commonwealth of Pennsylvania through contracts with outside
contractors.
2. The Industrial Occupant shall be responsible for and agrees to indemnify
and hold harmless the Commonwealth of Pennsylvania from all losses, damages,
expenses, claims, demands, suits, and actions brought by any party against the
Commonwealth of Pennsylvania as a result of the Borrower's failure to comply
with the provisions of paragraph 1 above.
-48-
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF WESTMORELAND :
ON THIS, the 22nd day of February, 1995, before me, the undersigned officer,
------
personally appeared JAMES C. WOLL, who acknowledged himself to be the Treasurer
of RESPIRONICS, INC., a Delaware corporation and the within named Industrial
Occupant, and that he as such officer being authorized to do so, executed the
foregoing instrument for the purpose therein contained by signing the name of
the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Beverly J. Hopwood
------------------------------
Notary Public
My Commission Expires: Seal of:
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF WESTMORELAND :
ON THIS, the 22nd day of February, 1995, before me, the undersigned officer,
personally appeared ANTHONY J. CALETRI, who acknowledged himself to be the
President of CENTRAL WESTMORELAND DEVELOPMENT CORPORATION, a nonprofit
corporation and the within named Borrower, and that he as such officer being
authorized to do so, executed the foregoing instrument for the purpose therein
contained by signing the name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Beverly J. Hopwood
------------------------------
Notary Public
My Commission Expires: Seal of:
-49-
<PAGE>
Certificate of Residence of PIDA
--------------------------------
I hereby certify that the precise residence and complete post office address
of The Pennsylvania Industrial Development Authority is: Room 481, Forum
Building, c/o Department of Commerce, Harrisburg, Pennsylvania 17120.
/s/ Charles J. Millman
----------------------------------------
Charles J. Millman, Assistant Counsel
Attorney for PIDA
RECORDED in the Office for the Recording of Deeds, in and for the County of
Westmoreland, in ____________ Book Volume _________, page _________.
----------------------------
(Title)
-50-
<PAGE>
EXHIBIT 10.18
November 14, 1994
[Logo of PNCBANK]
Respironics, Inc.
1001 Murry Ridge Drive
Murrysville, Pennsylvania 15668
Attention: James Woll, Treasurer
Re: $1,250,000.00 Committed Line of Credit
Dear Mr. Woll:
We are pleased to inform you that PNC Bank, National Association (the
"Bank"), has approved your request for a committed line of credit to
RESPIRONICS, INC. (the "Borrower"). We look forward to this opportunity
to help you meet the financing needs of your business. As your primary bank,
we want to supply all your banking needs.
All the details regarding your loan are outlined in the following sections
of this letter. If these terms are satisfactory, please follow the instructions
for proceeding with your loan provided at the end of this letter.
1. Type of Facility and Use of Proceeds. This is a committed revolving
------------------------------------
line of credit under which the Borrower may request and the Bank, subject
to the terms and conditions of this letter, will make advances to the Borrower
from time to time until the Expiration Date, in an amount in the aggregate
at any time outstanding not to exceed $1,250,000.00 (the "Line of Credit").
The "Expiration Date" means October 30, 1995, or such later date as may
be designated by the Bank by written notice to the Borrower. Advances may
be used for working capital or other general business purposes of the Borrower.
2. Interest Rate. Interest on the unpaid balance of the Line of Credit
-------------
advances will be charged at a rate per annum which is at all times equal
to the rate of interest publicly announced by the Bank from time to time
as its prime rate (the "Prime Rate").
3. Repayment. Subject to the terms and conditions of this letter, the
---------
Borrower may borrow, repay and reborrow until the Expiration Date, on which
date the outstanding principal balance and any accrued but unpaid interest
shall be due and payable. Interest will be due and payable on a monthly
basis, and will be computed on the basis of a year of 360 days and paid
on the actual number of days elapsed.
4. Note. The obligation of the Borrower to repay loans under the Line
----
of Credit shall be evidenced by a committed line of credit note (the "Note") in
form and content satisfactory to the Bank.
<PAGE>
5. Fee. The Borrower will pay to the Bank a fee in the amount of $2,500.00.
---
6. Depository. The Borrower will establish and maintain at the Bank the
----------
Borrower's primary depository accounts.
7. Covenants. Unless compliance is waived in writing by the Bank or until
---------
payment in full and termination of the Line of Credit:
(a) The Borrower will promptly submit to the Bank such information relating
to the Borrower's affairs (including but not limited to annual financial
statements for the Borrower and any guarantor) or any security for the Line
of Credit as the Bank may reasonably request.
(b) The Borrower will not make or permit any change in the nature of its
business as carried on as the date of this letter or in its senior management
or equity ownership.
(c) The Borrower will maintain at all times a minimum Tangible Net Worth
of $37,000,000.00 plus (ii) an amount equal to 50% of the Borrower's net income
----
for each fiscal year ending after December 31, 1994. "Tangible Net Worth" means
stockholders' equity in the Borrower less any advances to third parties and all
----
items properly classified as intangibles, in accordance with GAAP.
(d) The Borrower will maintain at all times a ratio of current assets to current
liabilities of at least 2.0 to 1.
(e) The Borrower will maintain at all times a ratio of total liabilities to
Tangible Net Worth of less than 1.0 of 1.
8. Additional Provisions. Before the first advance under the Line of Credit, the
---------------------
Borrower agrees to sign and deliver to the Bank the Note and Other required
documents and such other instruments and documents as the Bank may reasonably
request, such as certified resolutions, incumbency certificates or other
evidence of authority. The Bank will not be obligated to make any advance under
the Line of Credit if any Event of Default (as defined in the Note) or event
which with the passage of time, provision of notice or both would constitute an
Event of Default under the Note shall have occurred and be continuing.
Prior to execution of the final documents, the Bank may terminate this letter if
a material adverse change occurs with respect to the Borrower, any guarantor,
any collateral for the Line of Credit or any other person or entity connected in
any way with the Line of Credit, or if the Borrower fails to comply with any of
the terms and conditions of this letter, or if the Bank reasonably determines
that any of the conditions cannot be met.
To accept these terms, please sign the enclosed copy of this letter as set forth
below and return it to the Bank within 30 days from the date of this letter. If
accepted, the final
-2-
<PAGE>
documents must be executed within 60 days from the date of this letter, or this
letter may be terminated at the Bank's option without liability or further
obligation of the Bank.
Thank you for giving PNC Bank this opportunity to work with your business. We
look forward to other ways in which we may be of service to your business or to
you personally.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
Kurtis W. Huffman
Assistant Vice President
ACCEPTANCE
With the intent to be legally bound hereby, the above terms and conditions are
hereby agreed to and accepted this 14th day of November, 1994.
BORROWER:
RESPIRONICS, INC.
By: James C. Woll
----------------------------------
Print Name: James C. Woll
---------------------------
Title: Treasurer
-------------------------------
-3-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made as of April 1, 1995, by and between RESPIRONICS,
INC., a Delaware corporation (the "Company"), and GERALD E. MCGINNIS, of Export,
PA ("Chairman").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of the design,
development, manufacture, marketing and sale principally of respiratory and
other medical equipment;
WHEREAS, Chairman founded the Company, for many years had been its
chief executive officer, and continues to possess valuable knowledge and skills
that will contribute to the continued successful operation of the Company's
business;
WHEREAS, the Company and Chairman have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Chairman
has had and will continue to have to confidential or proprietary information of
the Company, (ii) the willingness of the Company to make valuable benefits
available hereafter to Chairman and (iii) Chairman's receipt of compensation
from time to time by the Company; and
WHEREAS, the Company desires to continue to retain the services of
Chairman, and Chairman is willing to continue in the employment of the Company,
upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Chairman, and Chairman hereby agrees to be employed by the Company, upon
the following terms and conditions:
ARTICLE I
EMPLOYMENT
----------
1.01. Office. Chairman is hereby employed as Chairman of the Board
------
of Directors of the Company and in such other executive and managerial
capacities as the Board of Directors of the Company may from time to time
determine and in such capacity or capacities shall use his best energies or
abilities in the performance of his duties hereunder and as prescribed in the
By-Laws of the Company. Chairman shall not be required to devote more than
approximately two-thirds of his working time to the performance of his duties
hereunder.
<PAGE>
In addition to his duties of presiding at all meetings of shareholders
and directors of the Company, Chairman shall: (a) take all steps which he feels
are reasonably required in order to insure that the policies and directions of
the Board are being carried out by the Company's management and to assist
management in its efforts to do so, (b) together with the Company's President,
fulfill the Company's civic and charitable responsibilities along lines from
time to time approved by the Board, (c) act as Chairman of the Company's
Strategic Planning Committee and through such Committee develop and maintain
strategic plans for the Company's future, the development of its present and new
products and strategies for continued operation and growth and (d) provide
guidance and direction in new product development, as well as acquisition of new
products and businesses manufacturing or distributing related or complimentary
products. Chairman shall also perform such other duties and responsibilities as
the Board of Directors may reasonably require. Chairman's duties as Chairman of
the Board of Directors shall be subject only to the direction and control of the
Board of Directors.
1.02. Term. Subject to the terms and provisions of Article II
----
hereof, Chairman shall be employed by the Company for a period of three years
(the "Term"), commencing on the date of this Employment Agreement and ending on
March 31, 1998. Until March 31, 1997, subject to the terms and provisions of
Article II hereof, the Term shall automatically be extended for an additional
year unless, not less than ninety (90) days prior to the expiration of the then-
current first year of the Term, either Chairman or the Company shall advise the
other that the Term will not be further extended.
1.03. Base Salary. During the Term, compensation shall be paid to
-----------
Chairman by the Company at the rate of $190,000 per annum (the "Base Salary"),
payable biweekly. The Base Salary to be paid to Chairman may be adjusted upward
or downward (but not below the Base Salary) by the Board of Directors of the
Company at any time (but not less frequently than annually) based upon
Chairman's contribution to the success of the Company and on such other factors
as the Board of Directors of the Company shall deem appropriate.
1.04. Chairman Benefits. At all times during the Term, Chairman
-----------------
shall have the right to participate in and receive benefits under and in
accordance with the then-current provisions of all incentive, profit sharing,
retirement, life, health and accident insurance, hospitalization and other
incentive and benefit plans or programs (except for any such plan in which
Chairman may not participate pursuant to the terms of such plan) which the
Company may at any time or from time to time have in effect for executive
employees of the Company or its subsidiaries, Chairman's participation to be on
a basis commensurate with other executive employees considering their respective
responsibilities and compensation. Chairman shall also be entitled to be
-2-
<PAGE>
reimbursed for all reasonable expenses incurred by him in the performance of his
duties hereunder. Chairman shall not be eligible to participate in the
Company's stock option or purchase plans. This Agreement shall have no affect
upon the Agreement Regarding Supplemental Retirement Benefits between the
Company and Chairman, dated September 1, 1992, which Agreement shall continue in
full force and effect in accordance with the terms thereof. In determining the
amounts set aside for Chairman under all retirement and other similar benefit
plans in which Chairman has been participating, the contributions to be made by
the Company thereto shall continue to be made on the basis that Chairman is
working full-time for the Company at a salary equal to 150% of his then Base
Salary.
1.05. Principal Place of Business. The headquarters and principal
---------------------------
place of business of the Company is located in Murrysville, Pennsylvania.
Chairman's principal place of business will be at his home in Export, PA or such
other location within 25 miles of the Company's headquarters as Chairman may
designate. The Company will not maintain an office for Chairman at its
headquarters but will reimburse Chairman for all reasonable out-of-pocket
expenses in maintaining his office at his home or such other location as he may
direct.
ARTICLE II
TERMINATION
-----------
2.01. Illness, Incapacity. If, during the Term of Chairman's
-------------------
employment hereunder, the Board of Directors of the Company shall determine that
Chairman shall be prevented from effectively performing all his duties hereunder
by reason of illness or disability and such failure so to perform shall have
continued for a period of not less than three months, then the Company may, by
written notice to Chairman, terminate Chairman's employment hereunder effective
at any time after such three month period. Upon delivery to Chairman of such
notice, together with payment of any salary accrued under Section 1.03 hereof,
Chairman's employment and all obligations of the Company under Article I hereof
shall forthwith terminate. The obligations of Chairman under Article IV hereof
shall continue notwithstanding termination of Chairman's employment pursuant to
this Section 2.01.
2.02. Death. If Chairman dies during the Term of his employment
-----
hereunder, Chairman's employment hereunder shall terminate and all obligations
of the Company hereunder, other than any obligations with respect to the payment
of accrued and unpaid salary, shall terminate.
2.03. Company Termination. (a) For Cause. In the event that, in
------------------- ---------
the reasonable judgment of the Board of Directors of the Company, Chairman shall
have (a) been guilty of any act of
-3-
<PAGE>
dishonesty material with respect to the Company, (b) been convicted of a crime
involving moral turpitude or (c) intentionally disregarded the provisions of
this Agreement or the express instructions of the Board of Directors of the
Company with respect to matters of policy continuing (in the case of clause (c))
for a period of not less than thirty (30) days after notice of such disregard,
the Company may terminate this Agreement effective at such date as it shall
specify in a written notice to Chairman. Any such termination by the Company
shall be deemed to be termination "for cause". Upon delivery to Chairman of
such notice of termination, together with payment of any salary accrued under
Section 1.03 hereof, Chairman's employment and all obligations of the Company
under Article I hereof shall forthwith terminate. The obligations of Chairman
under Article IV hereof shall continue notwithstanding termination of Chairman's
employment pursuant to this Section 2.03(a).
(b) Without Cause. Chairman's employment hereunder may be terminated
-------------
at any time by the Company without cause if the Board of Directors of the
Company, by resolution duly adopted by the Board, so determines. The
obligations of Chairman under Article IV hereof shall continue notwithstanding
termination of Chairman's employment pursuant to this Section 2.03(b).
2.04. Chairman Termination. Chairman agrees to give the Company
--------------------
ninety (90) days prior written notice of the termination of his employment with
the Company. Simultaneously with such notice, Chairman shall inform the Company
in writing as to his employment plans following the termination of his
employment with the Company. In the event Chairman has terminated his
employment with the Company because, in his reasonable judgment, there has been:
(a) a material downgrading in Chairman's duties, titles or responsibilities, (b)
a change in the Company's principal office to a location not within 15 miles of
its present location, (c) any significant and prolonged increase in the
traveling requirements applicable to the discharge of Chairman's
responsibilities or (d) any other significant material adverse change in working
conditions, responsibilities or prestige, Chairman shall be entitled to the
compensation provided for in Section 2.05 upon such termination. The
obligations of Chairman under Article IV hereof shall continue notwithstanding
termination of Chairman's employment pursuant to this Section 2.04.
2.05. Termination Payments - Discharge Without Cause. If the Company
----------------------------------------------
terminates Chairman's employment without cause pursuant to (S) 2.03(b), Chairman
shall be paid for the balance of the Term the Base Salary then in effect, such
payment to be made in a lump sum within sixty (60) days of termination.
2.06. Termination Payments - After Change of Control. If Chairman or
----------------------------------------------
the Company (except pursuant to Section 2.03(a) terminates this Agreement during
the Term upon or after the
-4-
<PAGE>
occurrence of a Business Combination not approved by a majority of Disinterested
Directors then in office, as those terms are defined in Article Ninth of the
Company's Certificate of Incorporation, Chairman shall be paid an amount equal
to three times the Base Salary then in effect, such payment to be made in a lump
sum within sixty (60) days of termination.
ARTICLE III
CHAIRMAN'S ACKNOWLEDGMENTS
--------------------------
Chairman recognizes and acknowledges that: (a) in the course of
Chairman's employment by the Company it will be necessary for Chairman to
acquire information which could include, in whole or in part, information
concerning the Company's sales, sales volume, sales methods, sales proposals,
customers and prospective customers, identity of customers and prospective
customers, identity of key purchasing personnel in the employ of customers and
prospective customers, amount or kind of customer's purchases from the Company,
the Company's sources of supply, the Company's computer programs, system
documentation, special hardware, product hardware, related software development,
the Company's manuals, formulae, processes, methods, machines, compositions,
ideas, improvements, inventions or other confidential or proprietary information
belonging to the Company or relating to the Company's affairs (collectively
referred to herein as the "Confidential Information"); (b) the Confidential
Information is the property of the Company; (c) the use, misappropriation or
disclosure of the Confidential Information would constitute a breach of trust
and could cause irreparable injury to the Company; and (d) it is essential to
the protection of the Company's good will and to the maintenance of the
Company's competitive position that the Confidential Information be kept secret
and that Chairman not disclose the Confidential Information to others or use the
Confidential Information to Chairman's own advantage or the advantage of others.
For purposes of this Agreement, "Confidential Information" shall not include any
information that is in the public domain, so long as such information is not in
the public domain as a result of any action or inaction by Chairman which would
constitute a violation of this Agreement or the Company's policies with respect
to such information.
Chairman further recognizes and acknowledges that it is essential for
the proper protection of the business of the Company that Chairman be
restrained, but only to the extent hereinafter provided (a) from soliciting or
inducing any employee of the Company to leave the employ of the Company, (b)
from hiring or attempting to hire any employee of the Company, (c) from
soliciting the trade of or trading with the customers and suppliers of the
Company for any business purpose, and (d) from competing against the Company for
a reasonable period following the termination of Chairman's employment with the
Company.
-5-
<PAGE>
Chairman further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(S) 1 et seq. In the event of publication of such materials, Chairman
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Chairman by-line credit on such materials as the Company may deem
appropriate.
ARTICLE IV
CHAIRMAN'S COVENANTS AND AGREEMENTS
-----------------------------------
4.01. Non-Disclosure of Confidential Information. Chairman agrees to
------------------------------------------
hold and safeguard the Confidential Information in trust for the Company, its
successors and assigns and agrees that he shall not, without the prior written
consent of the Company, misappropriate or disclose or make available to anyone
for use outside the Company's organization at any time, either during his
employment with the Company or subsequent to the termination of his employment
with the Company for any reason, including without limitation termination by the
Company for cause or without cause, any of the Confidential Information, whether
or not developed by Chairman, except as required in the performance of
Chairman's duties to the Company.
4.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Chairman shall disclose promptly to the Company or its
- - ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Chairman during the period of employment and related to the
business or activities of the Company, and hereby assigns and agrees to assign
all his interest therein to the Company or its nominee. Whenever requested to
do so by the Company, Chairman shall execute any and all applications,
assignments or other instruments which the Company shall deem necessary to apply
for and obtain Letters Patent or Copyrights of the United States or any foreign
country or to otherwise protect the Company's interest therein. Such
obligations shall continue beyond the termination of employment with respect to
works, inventions, discoveries and improvements authored, conceived or made by
Chairman during the period of employment, and shall be binding upon Chairman's
assigns, executors, administrators and other legal representatives.
(b) Chairman agrees that in the event of publication by Chairman of
written or graphic materials in the course of performing his duties under this
Agreement, the Company will retain and own all rights in said materials,
including right of copyright.
-6-
<PAGE>
4.03. Duties. Chairman agrees to be a loyal employee of the Company.
------
Chairman shall devote not less than two-thirds of his working time to the
performance of his duties hereunder. Chairman agrees to devote his best efforts
to the performance of his duties for the Company, to give proper time and
attention to furthering the Company's business, and to comply with all rules,
regulations and instruments established or issued by the Company. Chairman
further agrees that during the term of this Agreement, Chairman shall not,
directly or indirectly, engage in any business which would detract from
Chairman's ability to apply his best efforts to the performance of his duties
hereunder. Chairman also agrees that he shall not usurp any corporate
opportunities of the Company.
4.04. Return of Materials. Upon the termination of Chairman's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, Chairman shall promptly
deliver to the Company all correspondence, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers or concerning products or processes
used by the Company and, without limiting the foregoing, will promptly deliver
to the Company any and all other documents or materials containing or
constituting Confidential Information.
4.05. Restrictions on Competition. Chairman covenants and agrees
---------------------------
that during the period of Chairman's employment hereunder plus a period of three
years following the termination of Chairman's employment, including without
limitation termination by the Company for cause or without cause, Chairman shall
not, in the United States of America or in any other country of the world in
which the Company has done business at any time during the last three years
prior to termination of Chairman's employment with the Company, engage, directly
or indirectly, whether as principal or as agent, officer, director, employee,
consultant, shareholder, or otherwise, alone or in association with any other
person, corporation or other entity, in any Competing Business. For purposes of
this Agreement, the term "Competing Business" shall mean and include any person,
corporation or other entity which develops, manufactures, sells or markets or
attempts to develop, manufacture, sell or market any product or services which
are the same as or similar to the products and services sold by the Company at
any time and from time to time during the last three years prior to the
termination of Chairman's employment hereunder; provided, however, that for
-------- -------
purposes of determining what constitutes a Competing Business there shall not be
included (x) any product or service of any entity which product or service
Chairman determines is not material to the business or prospects of the Company
and which product or service the Company's Board, having been requested to do so
by Chairman, also so determines; or (y) any product or service of any entity so
long as the Chairman and such entity can demonstrate to the reasonable
satisfaction of
-7-
<PAGE>
the Company that Chairman is and will continue to be effectively isolate from
and not participate in the development, manufacture, sale or marketing of such
product or service, but only so long as Chairman is effectively so isolated and
does not so participate. In the event the employment of Chairman terminates at
the conclusion of the Term before Chairman obtains the age of 65 and because the
Company has elected not to further extend the Term pursuant to (S) 1.02, then
the provisions of this (S) 4.05 and (S)'s 4.06 and 4.07 shall not be applicable
after the conclusion of the Term unless the Company advises Chairman at least
six months prior to conclusion of the Term that it will continue to pay the Base
Salary in effect at conclusion of the Term for such two-year period or such
shorter portion thereof as the Company may specify (which specification shall
foreshorten such two-year period accordingly) and the Company pays such amounts
during such two-year or shorter period.
4.06. Non-Solicitation of Customers and Suppliers. Chairman agrees
-------------------------------------------
that during his employment with the Company he shall not, directly or
indirectly, solicit the trade of, or trade with, any customer, prospective
customer, supplier, or prospective supplier of the Company for any business
purpose other than for the benefit of the Company. Chairman further agrees that
for three years following termination of his employment with the Company,
including without limitation termination by the Company for cause or without
cause, Chairman shall not, directly or indirectly, solicit the trade of, or
trade with, any customers or suppliers, or prospective customers or suppliers,
of the Company.
4.07. Non-Solicitation of Employees. Chairman agrees that, during
-----------------------------
his employment with the Company and for three years following termination of
Chairman's employment with the Company, including without limitation termination
by the Company for cause or without cause, Chairman shall not, directly or
indirectly, solicit or induce, or attempt to solicit or induce, any employee of
the Company to leave the Company for any reason whatsoever, or hire any employee
of the Company.
ARTICLE V
CHAIRMAN'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
5.01. No Prior Agreements. Chairman represents and warrants that he
-------------------
is not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability to perform his obligations hereunder, including without limitation
any contract, agreement or understanding containing terms and provisions similar
in any manner to those contained in Article IV hereof. Chairman further
represents and warrants that his employment with the Company will not require
him to disclose or use any confidential information belonging to prior employers
or other persons or entities.
-8-
<PAGE>
5.02. Chairman's Abilities. Chairman represents that his experience
--------------------
and capabilities are such that the provisions of Article IV will not prevent him
from earning his livelihood, and acknowledges that it would cause the Company
serious and irreparable injury and cost if Chairman were to use his ability and
knowledge in competition with the Company or to otherwise breach the obligations
contained in Article IV.
5.03. Remedies. In the event of a breach by Chairman of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Chairman and to enjoin Chairman
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Chairman acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE VI
MISCELLANEOUS
-------------
6.01. Authorization to Modify Restrictions. It is the intention of
------------------------------------
the parties that the provisions of Article IV hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
6.02. Tolling Period. The non-competition, non-disclosure and non-
--------------
solicitation obligations contained in Article IV hereof shall be extended by the
length of time during which Chairman shall have been in breach of any of the
provisions of such Article IV.
6.03. Entire Agreement. This Agreement represents the entire
----------------
agreement of the parties with respect to the employment of Chairman by the
Company and may be amended only by a writing signed by each of them.
6.04. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania.
-9-
<PAGE>
6.05. Consent to Jurisdiction; Venue. Chairman hereby irrevocably
------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania in any action or proceeding arising out of or relating to
this Agreement, and Chairman hereby irrevocably agrees that all claims in
respect of any such action or proceeding may be heard and determined in either
such court. Chairman hereby irrevocably waives any objection which he now or
hereafter may have to the laying of venue of any action or proceeding arising
out of or relating to this Agreement brought in the United States District Court
for the Western District of Pennsylvania or the Court of Common Pleas of
Allegheny County, Pennsylvania and any objection on the ground that any such
action or proceeding in either of such Courts has been brought in an
inconvenient forum. Nothing in this Section 6.05 shall affect the right of the
Company to bring any action or proceeding against Chairman or his property in
the courts of other jurisdictions where Chairman resides or has his principal
place of business or where such property is located.
6.06. Service of Process. Chairman hereby irrevocably consents to
------------------
the service of any summons and complaint and any other process which may be
served in any action or proceeding arising out of or related to this Agreement
brought in the United States District Court for the Western District of
Pennsylvania or the Court of Common Pleas of Allegheny County by the mailing by
certified or registered mail of copies of such process to Chairman at his
address as set forth on the signature page hereof.
6.07. Remedies. If the Company finally prevails in a proceeding for
--------
damages or injunctive relief, the Company, in addition to other relief, shall be
entitled to reasonable attorneys' fees, costs and the expenses of litigation
incurred by the Company in securing the relief granted by the Court.
6.08. Agreement Binding. The obligations of Chairman under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
6.09. Counterparts, Section Headings. This Agreement may be executed
------------------------------
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument. The
section headings of this Agreement are for convenience of reference only and
shall not affect the construction or interpretation of any of the provisions
hereof.
6.10. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) hand delivered or
-10-
<PAGE>
(b) mailed, registered mail, first class postage paid, return receipt requested,
or (c) sent via overnight delivery service or courier, delivery acknowledgment
requested, or (d) via any other delivery service with proof of delivery:
if to the Company:
Respironics, Inc.
1001 Murry Ridge Drive
Murrysville, PA 15668-8550
if to Chairman, at the address set forth below
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
Chairman acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed the day and year first above written.
Witness:
/s/ James Woll /s/ Gerald E. McGinnis
- - ------------------------ --------------------------------
Gerald E. McGinnis
Address: 3585 Hills Church Road
Export, PA 15632
Attest
RESPIRONICS, INC.
/s/ Dorita A. Pishko By: /s/ Dennis Meteny
- - ------------------------ ------------------------------
Secretary
Title: President & CEO
_______________________
[Corporate Seal]
-11-
<PAGE>
Exhibit 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
RESPIRONICS, INC.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 16,492,113 16,271,710 16,176,088
Net effect of dilutive stock options--based on the treasury
stock method using average market price 1,040,309 1,008,970 1,142,518
----------- ----------- -----------
TOTAL 17,532,422 17,280,680 17,318,606
=========== =========== ===========
Net income $11,677,027 $ 4,741,244 $ 7,378,931
=========== =========== ===========
Per share amount:
Net income $0.67 $0.27 $0.43
=========== =========== ===========
FULLY DILUTED
Average shares outstanding 16,492,113 16,271,710 16,176,088
Net effect of dilutive stock options--based on the treasury
stock method using year end market price, if higher than
average market price 1,148,200 1,008,970 1,173,354
----------- ----------- -----------
TOTAL 17,640,313 17,280,680 17,349,442
=========== =========== ===========
Net income $11,677,027 $ 4,741,244 $ 7,378,931
=========== =========== ===========
Per share amount:
Net income $0.66 $0.27 $0.43
=========== =========== ==========
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
Registration Statement on Form S-8 relating to the 1992 Stock Incentive Plan
(File No. 33-89308)
Registration Statement on Form S-8 relating to the 1991 Nonemployee Directors'
Stock Option Plan (File No. 33-44716)
Registration Statement on Form S-8 relating to the Amended and Restated
Incentive Stock Option Plan of Respironics, Inc., Stock Option Agreement dated
May 19, 1988 between Respironics, Inc. and Gerald E. McGinnis and the Consulting
Agreement dated July 1, 1988 between Respironics, Inc. and Mark H. Sanders, M.D.
(File No. 33-36459)
We consent to the incorporation by reference in the above listed Registration
Statements of our report dated September 11, 1995, with respect to the
consolidated financial statements and schedule of Respironics, Inc. and
subsidiaries included in this Annual Report on Form 10-K for the year ended June
30, 1995.
Ernst & Young LLP
Pittsburgh, Pennsylvania
September 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> 0
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1994
<PERIOD-START> JUL-01-1994 JUL-01-1993
<PERIOD-END> JUN-30-1995 JUN-30-1994
<EXCHANGE-RATE> 1.00000 1.00000
<CASH> 16,126,904 12,384,054
<SECURITIES> 0 0
<RECEIVABLES> 20,148,187 15,536,285
<ALLOWANCES> 700,000 525,000
<INVENTORY> 13,136,664 7,833,755
<CURRENT-ASSETS> 52,863,708 40,206,302
<PP&E> 35,390,477 28,740,160
<DEPRECIATION> 15,443,041 11,929,911
<TOTAL-ASSETS> 78,038,570 58,917,220
<CURRENT-LIABILITIES> 13,450,310 9,174,403
<BONDS> 0 0
<COMMON> 167,448 163,446
0 0
0 0
<OTHER-SE> 58,201,748 44,060,663
<TOTAL-LIABILITY-AND-EQUITY> 78,038,570 44,224,109
<SALES> 99,450,333 78,171,028
<TOTAL-REVENUES> 99,450,333 78,171,028
<CGS> 43,077,158 34,830,308
<TOTAL-COSTS> 43,077,158 34,830,308
<OTHER-EXPENSES> 37,644,661 36,353,148
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 193,550 171,223
<INCOME-PRETAX> 18,534,964 6,816,349
<INCOME-TAX> 6,857,937 2,075,105
<INCOME-CONTINUING> 11,677,027 4,741,244
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,677,027 4,741,244
<EPS-PRIMARY> .67 .27
<EPS-DILUTED> 0.0 0.0
</TABLE>
