<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Respironics, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF RESPIRONICS]
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Respironics, Inc. at 1:00 p.m., local time, on Wednesday, November 20, 1996 at
the Union Trust Building, in the Auditorium on the Tenth Floor, at 501 Grant
Street, Pittsburgh, Pennsylvania.
Information about the business of the meeting and the nominees for election as
directors of the Company is set forth in the notice of the meeting and the Proxy
Statement, which are attached. This year you are asked to increase the number of
authorized shares, provide that shareholder action can only be taken at a
shareholders' meeting, amend the 1991 non-employee director's stock option plan,
elect three directors and ratify the selection of independent auditors for
fiscal year 1997.
It is important that your shares be represented at the meeting. Even if you plan
to attend the meeting in person, please sign, date and return your proxy in the
enclosed envelope as promptly as possible. This will not prevent you from voting
your shares in person if you do attend, but will make sure that your shares are
represented in the event that you cannot attend.
Very truly yours,
/s/ Dennis S. Meteny
Dennis S. Meteny
President
October 18, 1996
<PAGE>
RESPIRONICS, INC.
1001 Murry Ridge Drive
Murrysville, Pennsylvania 15668
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------
The Annual Meeting of Shareholders of Respironics, Inc. will be held at the
Union Trust Building, 501 Grant Street, Pittsburgh, Pennsylvania, on Wednesday,
November 20, 1996 at 1:00 p.m., local time, in the Auditorium on the Tenth
Floor, for the following purposes:
(1) To elect three directors;
(2) To amend the certificate of incorporation to increase the number of
authorized shares to 100,000,000;
(3) To make amendments to the certificate of incorporation and by-laws
regarding elimination of shareholder action by written consent;
(4) To make amendments to the 1991 non-employee directors' stock option
plan;
(5) To ratify the selection of auditors to examine the consolidated
financial statements of the Company for the fiscal year ending June
30, 1997; and
(6) To transact such other business as may properly come before the
meeting.
Please refer to the accompanying Proxy Statement for a description of the
matters to be considered at the meeting.
Please sign, date and return the enclosed proxy promptly in the envelope
provided, which requires no United States postage.
Dorita A. Pishko
Secretary
October 18, 1996
<PAGE>
RESPIRONICS, INC.
1001 Murry Ridge Drive
Murrysville, Pennsylvania 15668
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD NOVEMBER 20, 1996
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Respironics, Inc. (the "Company") for use at the Annual Meeting of Shareholders
to be held at 1:00 p.m., local time, on Wednesday, November 20, 1996 at the
Union Trust Building, 501 Grant Street, Pittsburgh, Pennsylvania. The
accompanying Notice of Annual Meeting of Shareholders sets forth the purposes of
the meeting.
The enclosed proxy may be revoked at any time before its exercise by giving
notice of revocation to the Secretary of the Company. The shares represented by
proxies in the form solicited by the Board of Directors will be voted at the
meeting. If a choice is specified on the proxy with respect to a matter to be
voted upon, the shares represented by the proxy will be voted in accordance with
that specification. If no choice is specified, the shares will be voted as
stated below in this Proxy Statement.
It is expected that this Proxy Statement and the accompanying form of proxy
will first be mailed to shareholders of the Company on or about October 18,
1996. The Company's Annual Report to Shareholders for 1996 is enclosed with this
Proxy Statement but does not form a part of the proxy soliciting material. The
cost of soliciting proxies will be borne by the Company. Following the original
mailing of the proxy soliciting material, regular employees of the Company may
solicit proxies by mail, telephone, telegraph, telecopy and personal interview.
The Company may also request brokerage firms and other nominees or fiduciaries
to forward copies of the proxy soliciting material and the 1996 Annual Report to
beneficial owners of the stock held in their names, and the Company will
reimburse them for reasonable out-of-pocket expenses incurred in doing so.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
If any shareholder wishes to present a proposal at the 1997 Annual Meeting
of Shareholders, the proposal must be received by the Secretary of the Company
by May 31, 1997 to be considered for inclusion in the Company's Proxy Statement
and form of proxy relating to the 1997 Annual Meeting. The 1997 Annual Meeting
is presently scheduled for November 20, 1997.
VOTING SECURITIES AND RECORD DATE
Holders of the Company's Common Stock of record as of the close of business
on October 4, 1996 (the "record date") are entitled to receive notice of and to
vote at the meeting. On the record date, the Company had outstanding 19,312,535
shares of Common Stock, the holders of which are entitled to one vote per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Common Stock beneficially
owned by each director and nominee for director of the Company, the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company and by all directors, nominees and executive officers of the
Company as a group, as of the record date. Management of the Company does not
know of any other person who beneficially owned as of the record date more than
five percent of the outstanding shares of the Company's Common Stock. As used
herein, "beneficial ownership" means the sole or shared power to vote, or to
direct the voting of, a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose of, or to direct the
disposition of, a security). A person is deemed, as of any date, to have
"beneficial ownership" of any security that the person has the right to acquire
within 60 days after that date.
<PAGE>
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
Daniel P. Barry..................................................................... 1,275 0.01%
Daniel J. Bevevino (9).............................................................. 46,100 0.24%
Douglas A. Cotter, Ph. D. (1)....................................................... 29,465 0.15%
Robert D. Crouch (2)................................................................ 252,000 1.29%
Steven P. Fulton (10)............................................................... 1,250 0.01%
James H. Hardie (1), (3)............................................................ 25,725 0.13%
Donald H. Jones..................................................................... 0 0.00%
Joseph C. Lawyer (1), (4)........................................................... 3,825 0.02%
Candace Littell..................................................................... 0 0.00%
George J. Magovern, M.D. (1), (5)................................................... 627,518 3.24%
Gerald E. McGinnis (6).............................................................. 895,584 4.55%
Dennis S. Meteny (7)................................................................ 390,568 2.01%
Robert M. Oates (8)................................................................. 38,883 0.20%
Bernard Shou-Chung Zau (1).......................................................... 328,230 1.70%
Ronald J. Zdrojkowski, Ph. D........................................................ 618,473 3.20%
All of the above as a group (15 persons)............................................ 3,258,896 16.13%
</TABLE>
- - - ---------
(1) Includes shares which would be outstanding upon the exercise of currently
exercisable stock options granted under the 1991 Non-Employee Directors'
Stock Option Plan in the following amounts: Dr. Cotter, 24,125 shares; Mr.
Barry, 1,275 shares; Mr. Hardie, 15,625 shares; Mr. Lawyer, 3,825 shares;
Dr. Magovern, 29,125 shares; and Mr. Zau, 29,125 shares.
(2) Includes 212,000 shares which would be outstanding upon the exercise of
currently exercisable stock options granted under the Company's 1984
Incentive Stock Option Plan.
(3) Includes 10,000 shares held by a partnership in which Mr. Hardie is the
general partner. Does not include 14,000 shares owned by Mr. Hardie's wife,
as to which he disclaims beneficial ownership.
(4) Does not include 900 shares held by Mr. Lawyer's wife, who has sole voting
and investment power of these shares and as to which he disclaims
beneficial ownership.
(5) Includes 556,383 shares held jointly with Dr. Magovern's wife, as to which
voting and investment power is shared, and 33,500 shares held by the
Magovern Grandchildren's Trust, of which Dr. Magovern and his wife are the
trustees, and 8,510 shares held by the Magovern Family Foundation Trust, of
which Dr. Magovern and his wife are the trustees. Dr. Magovern's business
address is 320 E. North Ave., Pittsburgh, PA 15212.
(6) Includes 44,240 shares held jointly with Mr. McGinnis' wife, as to which
voting and investment power is shared. Also includes 385,000 shares which
would be outstanding upon the exercise of currently exercisable stock
options granted to Mr. McGinnis as described below under "Employment
Agreements and Other Transactions." Also includes 34,400 shares held in the
Gerald E. McGinnis Charitable Foundation. Does not include 56,000 shares
held by Mr. McGinnis' wife, as to all of which Mr. McGinnis disclaims
beneficial ownership. Mr. McGinnis' business address is 1001 Murry Ridge
Drive, Murrysville, PA 15668.
(7) Includes 144,000 shares held jointly with Mr. Meteny's wife, as to which
voting and investment power is shared, and 4,000 shares held by Mr.
Meteny's minor children, as to which he controls voting and investment
power. Also includes 120,000 shares which would be outstanding upon the
exercise of currently exercisable stock options granted under the Company's
1984 Incentive Stock Option Plan.
(8) Includes 31,705 shares which would be outstanding upon the exercise of
currently exercisable stock options granted under the Company's 1984
Incentive Stock Option Plan.
(9) Included 36,100 shares which would be outstanding upon the exercise of
currently exercisable stock options granted under the Company's 1984
Incentive Stock Option Plan and 1992 Stock Incentive Plan.
(10) Includes 1,250 shares which would be outstanding upon the exercise of
currently exercisable stock options granted under the Company's 1992 Stock
Incentive Plan.
2
<PAGE>
The information presented is based upon the knowledge of management and, in the
case of the named individuals, upon information furnished by them.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has four committees to assist in the management of
the affairs of the Company: the Stock Option and Compensation Committee, the
Audit Committee, the Nominating Committee and the Strategy Committee.
Stock Option and Compensation Committee. The Stock Option and Compensation
Committee (the "Compensation Committee") currently consists of Dr. Cotter
(Chairman) and Messrs. Jones and Lawyer . Mr. Jones replaced Mr. Hardie as a
member of the Compensation Committee in August, 1996. The Compensation Committee
administers the Company's 1984 Incentive Stock Option Plan and the 1992 Stock
Incentive Plan and has the authority to grant options thereunder. The
Compensation Committee also makes recommendations regarding the compensation
payable, including compensation under the Company's bonus plan, to all executive
officers of the Company and certain other management personnel.
Audit Committee. The Audit Committee consists of Messrs. Hardie (Chairman),
Barry and Zau. This committee assists the Board in fulfilling its functions
relating to corporate accounting and reporting practices and financial and
accounting controls.
Nominating Committee. The Nominating Committee consists of Messrs. McGinnis
(Chairman) and Meteny and Dr. Magovern. The Nominating Committee reviews the
size and composition of the Board of Directors and makes recommendations with
respect to nominations for directors. The Nominating Committee will consider
nominees recommended by shareholders provided that shareholders submit the names
of nominees in writing to the Secretary of the Company together with a statement
of the nominee's qualifications. Such information should be received no later
than May 31, 1997 with respect to nominations for election at the 1997 Annual
Meeting of Shareholders.
Strategy Committee. The Strategy Committee now consists of all Directors.
The Strategy Committee makes recommendations to the Board of Directors with
respect to general corporate strategy, including the development of present and
new products internally or by acquisition and, the development of strategies for
continued growth and profitability of the Company's business.
The Compensation Committee met three times during fiscal year 1996, the
Audit and Nominating Committees both met twice during fiscal year 1996, and the
Strategy Committee met four times during fiscal year 1996. These committees also
met informally by telephone during the fiscal year as the need arose. The Board
of Directors held four meetings and one teleconference during fiscal year 1996.
Mr. Zau, because of a death in the family, was unable to attend the March 1996
meeting of the Board. Each of the other Directors attended all of the meetings
of the Board and each committee on which the Director served.
Each director who is not an employee of the Company receives an annual fee
of $9,600 for his service as a director and committee member. In addition, each
non-employee director receives fees of $500 and $300 for attendance at meetings
of the full Board of Directors and of committees of the Board of Directors,
respectively, and is reimbursed for his travel expenses for attendance at all
such meetings. Directors of the Company who are not employees also hold and
receive stock options under the Company's 1991 Non-Employee Directors' Stock
Option Plan. Under this Plan, each non-employee director is granted an option on
the third business day following each Annual Meeting of Shareholders to purchase
5,100 shares of the Company's Common Stock at the fair market value on such
date. Each option has a term of 10 years, is exercisable in installments and
becomes fully exercisable after three years from date of grant.
MATTERS TO BE ACTED UPON
1. ELECTION OF DIRECTORS
The Board of Directors, acting pursuant to the bylaws of the Company, has
determined that the number of directors constituting the full Board of Directors
shall be nine at the present time.
3
<PAGE>
The Board is divided into three classes. One such class is elected every
year at the Annual Meeting of Shareholders for a term of three years.
Accordingly, a class is to be elected at the 1996 Annual Meeting of
Shareholders, with each director to hold office until the 1999 Annual Meeting of
Shareholders or until the director's prior death, disability, resignation or
removal.
The Board of Directors has nominated Daniel P. Barry and Donald H. Jones
for reelection and Candace Littell for election as directors, and each of them
has agreed to serve if elected. Proxies are solicited in favor of these nominees
and will be voted for them unless otherwise specified. If any nominee becomes
unable or unwilling to serve as director, it is intended that the proxies will
be voted for the election of such other person, if any, as shall be designated
by the Board of Directors.
The bylaws of the Company provide that the size of the Board of Directors
may be determined either by the Board of Directors or by shareholders at an
Annual Meeting of Shareholders. Vacancies in the Board of Directors may be
filled by Board action. The term of office of any director so elected to the
Board by the Board itself lasts until the next election of the class of
directors to which such director was elected.
Information concerning those nominees for director (class of 1996) and the
other directors who will continue in office after the meeting (classes of 1997
and 1998) is set forth below, together with information concerning the Company's
executive officers who are not directors.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
---- -------------------------
<S> <C>
Class of 1996
Daniel P. Barry Director
Donald H. Jones Director
Candace Littell Director
Class of 1997
James H. Hardie Director
Joseph C. Lawyer Director
Dennis S. Meteny President, Chief Executive Officer and Director
Class of 1998
Douglas A. Cotter, Ph.D. Director
George J. Magovern, M.D. Director
Gerald E. McGinnis Chairman of the Board
</TABLE>
Mr. Barry is 49 years old and a private investor. He has been a director of
the Company since August 1995. Mr. Barry had been the Vice Chairman of the
former AMSCO International, Inc. ("AMSCO") (now merged with Steris Corporation)
from July 1995 through May 1996. Prior to that, he served as President and Chief
Executive Officer of AMSCO from October 1994 through July 1995 and had been the
Chief Financial Officer, as well as serving in various other executive and
consulting capacities with AMSCO, since 1981. Mr. Barry had been a director of
AMSCO since 1991. He is also a director of Tollgrade Communications, Inc.
Dr. Cotter is 53 years old. He has been a director of the Company since
February 1989. He is currently Vice President of Decision Resources, an
international consulting firm specializing in the health care industry
(primarily pharmaceuticals). From 1985 to 1996, he was President of Healthcare
Decisions, Inc., a Massachusetts health care and biotechnology consulting firm
specializing in corporate development, strategic planning and acquisitions. For
nineteen years prior to joining Healthcare Decisions he was employed by Corning
Glass Works, where he held various management positions in research, product
development and clinical information systems.
Mr. Hardie is 66 years old. He has been a director of the Company since
November 1991. He is a lawyer and a partner of Reed Smith Shaw & McClay, a law
firm with principal offices in Pittsburgh, Washington and Philadelphia, which
since 1988 has performed legal services for the Company. Mr. Hardie has been a
partner of that firm since 1962. He is a Director of Access Corporation, a
marketer and developer of document and image handling systems and related
software. He is also a director of a number of other corporations, the
securities of which are not publicly traded.
4
<PAGE>
Mr. Jones is 59 years old. He has been a director of the Company since May
1996. Currently, Mr. Jones serves as chairman of IndustryNet, an online
electronic commerce company linking business-to-business buyers and sellers
through electronic networks including the Internet. Mr. Jones founded
IndustryNet in 1990. In 1982 Mr. Jones launched International Cybernetics
Corporation ("ICC"), a developer of breakthrough factory automation control
systems. In 1985 Mr. Jones merged ICC into the Industrial Automation Systems
Division of Gould Electronics ("Gould") and he became Vice President of Business
Development for Gould. In 1988 the division was sold to AEG, a West German based
multinational company and Mr. Jones ceased to be an officer. Mr. Jones is a
director of the Associated Group Inc., a telecommunications company and PNC
Equity Management Group.
Mr. Lawyer is 51 years old. Since 1988, he has been President, Chief
Executive Officer and a Director of Chatwins Group, Inc. (CGI), headquartered in
Pittsburgh, Pennsylvania, which designs, manufactures and markets a broad range
of fabricated and machined parts and products, in a variety of industries
primarily to original equipment manufacturers. From 1986 to 1988 he was
President, Chief Executive Officer and a Director of CP Industries, a
predecessor company of CGI. Prior thereto, he held various operations,
marketing, sales, finance and strategic planning positions for U.S. Steel
Corporation for 17 years.
Ms. Littell is 39 years old. Since 1995, she has been the President of C L
Littell & Associates, Inc., a consulting firm, headquartered in Virginia,
specializing in health policy, payment and outcomes management for medical
technology companies and related health care organizations. Between 1992 and
1994, Ms. Littell was Executive Director of the Health Care Technology
Institute, a privately funded organization where she oversaw the development of
research related to the impact on the economy of the medical technology
industry. From 1989 to 1991, Ms. Littell served as Vice President of payment and
policy for the Health Industry Manufacturing Association ("HIMA"), an
organization representing more than 700 manufacturers of medical devices,
diagnostic products and health care information systems.
Dr. Magovern is 72 years old. He has been a director of the Company since
1983. Currently, he is Executive Vice President for Health Services Delivery and
Professor of Surgery at Allegheny General Hospital, a 736-bed, acute care
teaching hospital in Pittsburgh. Between 1968 and 1995 Dr. Magovern was director
of the Department of Surgery. He has been affiliated with Cardio-Thoracic
Surgical Associates, Inc., a professional corporation, since 1970. He has been a
Clinical Associate Professor of Surgery at the University of Pittsburgh School
of Medicine and is currently a Professor of Surgery at the Medical College of
Pennsylvania. Dr. Magovern has participated in the development of the
application of bio-engineering to cardiac and thoracic surgery at Allegheny
General Hospital.
Mr. McGinnis is 62 years old. He has been a director of the Company since
1977 and Chairman of the Board since November 1994. He served as Chief Executive
Officer of the Company between 1977 and 1994, and President between 1984 and
1994. Prior to 1977, Mr. McGinnis was President of Lanz Medical Products
Corporation, the predecessor to the Company. From 1971 to 1975, Mr. McGinnis
also served on the staff of the Critical Care Department, Presbyterian
University Hospital, Pittsburgh, where he participated in various medical
engineering programs seeking the application of technology to medical care.
Prior thereto, Mr. McGinnis was head of the Surgical Research Department at
Allegheny General Hospital, Pittsburgh, for two years and for eleven years he
was employed at the research and development laboratory of Westinghouse Electric
Corporation. At Westinghouse he served six years as the Manager of the
Bio-Engineering Department and headed the medical product development
activities.
Mr. Meteny is 43 years old. He has been a director of the Company since
January 1986 and President and Chief Executive Officer since November 1994. From
August 1992 through November 1994, Mr. Meteny served as Executive Vice President
and Chief Operating and Financial Officer of the Company. He was Vice
President--General Manager and Chief Financial Officer of the Company from
January 1988 through August 1992 and was Vice President--Finance and Accounting
from 1984 through January 1988. For eight years prior to joining the Company he
was employed as an accountant in various auditing capacities by Ernst & Young.
2. INCREASE IN THE NUMBER OF AUTHORIZED SHARES
Shareholders are being asked to adopt an amendment to the Company's
Restated Certificate of Incorporation (the "Certificate") to increase the number
of authorized shares of the Company's Common Stock from 40,000,000 shares to a
total of 100,000,000 shares. The text of the Amendment is set forth on Exhibit A
to this
5
<PAGE>
Proxy Statement. The Company believes that such increase is desirable in light
of the Company's public offering in March 1996. After giving effect to the
issuance of shares as a result of such offering the Company now has outstanding
(as of October 4, 1996) 19,312,535 shares of Common Stock, with an additional
1,509,302 shares of Common Stock reserved for issuance upon exercise of
outstanding options and an additional 807,683 reserved for stock options not yet
granted under the Company's existing stock option plans, leaving a total of only
18,370,480 shares available for issuance from time to time in the future.
Since the Company's shareholders do not have preemptive rights, authorized
but unissued shares may be issued at any time and from time to time upon
approval of the Company's Board of Directors, without further approval of the
Company's shareholders; provided, that, under the rules of NASDAQ, no more than
20% of the outstanding shares can be issued in an acquisition transaction
without shareholder approval.
The Company believes that it is desirable to have the ability to issue
substantial numbers of additional shares of Common Stock from time to time in
connection with acquisitions, the payment of a stock split (by way of stock
distribution or dividend) or other corporate transactions required or desired to
be completed promptly, without the delay and expense inherent in calling a
special meeting of the shareholders to increase the number of authorized shares.
The Company is not presently involved in or negotiating any transaction which
would require the issuance of additional shares. Accordingly, the Board of
Directors has proposed and recommends that the shareholders adopt this increase
to provide the Company with additional flexibility in situations where the
issuance of additional shares of Common Stock may be necessary or desirable.
The proxies solicited on behalf of the Board of Directors will be voted for
the amendment to the Company's Certificate to increase the authorized number of
shares unless otherwise specified. The favorable vote of the holders of a
majority of the outstanding shares of Common Stock is required for adoption of
the amendment to the Certificate.
3. WRITTEN CONSENT PROPOSAL
DESCRIPTION OF THE CONSENT PROPOSAL
The Board of Directors has proposed and recommends to shareholders that
they adopt (i) an additional amendment to the Company's Certificate to add a new
provision to require that shareholder action may be taken only at an annual or
special meeting and to prohibit shareholder action by written consent and (ii)
an amendment to the Company's By-laws to delete Section 1.07 of the By-laws
which permits shareholder action by written consent (both amendments being the
"Written Consent Proposal"). The text of new Article TWELFTH of the Certificate
is set forth on Exhibit A to this Proxy Statement. Unless otherwise provided in
the Certificate, Delaware law permits any action required or permitted to be
taken by shareholders to be taken without a meeting, without prior notice and
without shareholder vote if a written consent setting forth the action to be
taken is signed by the holders of shares of outstanding stock having the number
of votes necessary to authorize such action at a meeting of shareholders.
Currently, the Certificate does not contain any provisions regarding shareholder
consent actions and the By-laws provide that action may be taken by written
consent. Consequently, unless the Written Consent Proposal is approved, persons
holding a majority interest in the Company could take significant corporate
action without giving other shareholders notice or the opportunity to vote.
POTENTIAL EFFECTS OF THE WRITTEN CONSENT PROPOSAL
The Written Consent Proposal, by prohibiting shareholder action by written
consent, would require that notice of and the opportunity to participate in any
proposed shareholder action be given to all shareholders of the Company who are
entitled to vote on that particular matter. Such notice would enable the
shareholders to take action, including judicial action, in order to protect
their interests.
In addition, the elimination of shareholder action by written consent may
prevent untimely action in a context where shareholders might not have the full
benefit of the knowledge, advice or participation of the Company's management
and the Board of Directors. In the event of a proposed acquisition of the
Company, for example, the interests of shareholders may best be served by a
transaction that results from negotiations based on careful consideration of the
proposed terms. Although there can be no certainty as to the result of any
particular
6
<PAGE>
negotiations, adoption of the Written Consent Proposal may tend to promote
negotiations concerning any proposed acquisition of the Company by giving the
Board greater bargaining power. Any provision in the Company's Certificate that
in effect requires a potential acquirer to negotiate with the Company's
management and Board of Directors, however, could be characterized as increasing
management's and the Board's ability to retain their positions with the Company
and to resist a transaction that may be deemed advantageous by certain
shareholders.
The elimination of action by written consent also may deter acquisitions of
the Company's stock and may delay, deter or impede shareholder action not
approved by the Board of Directors. Such actions may include shareholder
attempts to obtain control of the Board, unsolicited tender offers or other
efforts to acquire control of the Company. The Written Consent Proposal may
impede or delay, at least until the next regularly scheduled annual meeting, the
initiation or consummation of significant business transactions, such as
reorganizations, mergers or recapitalizations, that are opposed by the Board of
Directors even though sought by a majority of the shareholders.
The Company's Board of Directors is of the view that the adverse effect, if
any, of the matters mentioned in the preceding paragraph is significantly
outweighed by the greater publicity, discussion and negotiation which is likely
to result from the adoption of the Written Consent Proposal.
The proxies solicited on behalf of the Board of Directors will be voted for
the Written Consent Proposal unless otherwise specified. The favorable vote of
the holders of a majority of the outstanding shares of Common Stock is required
for approval of the Written Consent Proposal.
4. AMENDMENTS TO 1991 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The proposed amendments to the 1991 Non-Employee Directors' Stock Option
Plan (the "Plan") were approved by the Board of Directors on August 8, 1996. The
Board of Directors recommends that the shareholders vote for the adoption of the
amendments to the Plan.
The principal features of the amendments to the Plan are summarized below,
but the summary is qualified in its entirety by the full text of the First
Amendment to the Plan, which is set forth as Exhibit B to this Proxy Statement.
THE PLAN
The Plan was approved by the shareholders at the 1991 Annual Meeting of the
Company's shareholders. Its purposes are to promote the long term success of the
Company by creating a long-term mutuality of interest between the non-employee
directors and shareholders of the Company, to provide an additional inducement
for such directors to remain with the Company and to provide a means through
which the Company may attract able persons to serve as directors of the Company.
Only directors who are not employed by the Company or any subsidiary of the
Company ("non-employee directors") are eligible to participate in the Plan.
There currently are seven directors eligible to participate in the Plan and,
following the Annual Meeting, if all director nominees are elected, there also
will be seven directors eligible to participate in the Plan.
The Plan provides that on the third business day following each Annual
Meeting, each non-employee director will be granted a "nonstatutory stock
option" (i.e., a stock option which does not qualify under Section 422 of the
Internal Revenue Code of 1986) to purchase shares of Common Stock. As the result
of stock splits, currently that number of shares per year is 5,100. The option
price for each stock option is the fair market value of the Common Stock on the
date the stock option is granted.
On the first anniversary of the grant of a stock option, it becomes
exercisable for 25% of the shares covered thereby and it is thereafter
exercisable for an additional 25% of the shares on the second anniversary and
for the remaining 50% of the shares on the third anniversary. In general, each
stock option expires ten years from the date of grant. If a grantee's service as
a director terminates for any reason other than death, disability, resignation
or removal for cause, any unexpired option which is then exercisable will remain
exercisable for a period of four years following the date of termination or
until expiration of the option, whichever is shorter.
7
<PAGE>
Stock options may be exercised by paying the option price to the Company in
cash and/or by delivering to the Company shares of Common Stock having a fair
market value on the date of exercise equal to the option price for the shares
being purchased, except that no shares of Common Stock which have been held less
than one year may be delivered in payment of the option price.
PROPOSED AMENDMENTS
Increase in Number of Shares to be Issued under the Plan. The aggregate
number of shares of Common Stock which could have been issued and as to which
grants of stock options could have been made under the Plan was 200,000 shares
of Common Stock, as adjusted for stock splits. As of July 31, 1996 the aggregate
remaining number of shares of Common Stock as to which grants of stock options
may be made uner the Plan was 27,400. The Board of Directors believes it is
desirable to continue to induce non-employee directors to remain with the
Company and has proposed and recommends that Section 2 of the Plan be amended to
increase the number of shares of Common Stock which may be issued and as to
which grants of stock options may be made under the Plan by an additional
100,000 shares.
Change in Exercise Date. Stock options are granted to grantees on the
third business day following the day of each Annual Meeting of Shareholders of
the Company, and these stock options become exercisable in installments on
subsequent anniversary dates of the grants. However, in the case of a
non-employee director who does not stand for re-election at an Annual Meeting,
and thus ceases to be a director on the date of such meeting, if the exercise
date provision is interpreted strictly, the Plan would seem to provide that the
director loses the ability to exercise the stock options at the date of the
Annual Meeting, even though such director has served the full year of his or her
term for which such stock options were granted. This is inconsistent with one of
the purposes for which stock options are granted, that is, to reward the
non-employee directors for their service as directors. The proposed amendment to
Section 4 of the Plan would eliminate this inconsistency by providing that for
the purposes of determining when an outstanding stock option held by a grantee
who ceases to be a director of the Company shall be exercisable, the anniversary
date of the grant of such option shall be deemed to be the date immediately
preceding the date on which the Annual Meeting of Shareholders of the Company is
held. This amendment avoids the above-described possible inequitable result in
the current Plan.
Adjustment and Substitution of Shares. Currently, the Plan provides that
if a dividend or other distribution is declared upon the Common Stock payable in
shares of Common Stock or if the outsanding shares of the Common Stock are
changed into or exchanged for a different number or kind of shares of stock,
then the number of shares of the Common Stock then subject to any outstanding
stock options and the number of shares of the Common Stock which may be issued
under the Plan but are not then subject to outstanding stock options shall be
adjusted to reflect such dividend or distribution or such transaction. In some
cases, however, it may be desirable to limit the effect of such an adjustment on
future options which may be granted for the shares of Common Stock under the
Plan. The proposed amendment to Section 5 of the Plan permits the Board of
Directors to provide that no adjustment or a specified limited adjustment may be
given effect as a result of such dividend or other distribution or such
transaction upon the number of shares upon which options may be granted after
such dividend or distribution, if the Board of Directors makes such
determination at the time of such dividend, distribution or transaction.
Addition of New Section 9. The proposed amendments to the Plan include the
addition of a new Section 9 to the Plan which accelerates the exercisability of
options in the event of certain potential change of control transactions. New
Section 9 of the Plan provides for certain additional rights upon the occurrence
of one or more events described in Section 9 ("Section 9 Events"). Section 9
Events are deemed to occur when:
(a) The Company acquires actual knowledge that any person (other than the
Company, a subsidiary or any employee benefit plan sponsored by the Company) has
acquired beneficial ownership, directly or indirectly, of securities of the
Company entitling such person to 20% or more of the voting power of the Company;
or
(b) A tender offer is made to acquire securities of the Company entitling
the holders thereof to 20% or more of the voting power of the Company; or
(c) A person other than the Company solicits proxies relating to the
election or removal of 50% or more of the members of any class of the Board or
Directors; or
8
<PAGE>
(d) The shareholders of the Company approve a merger, consolidation, share
exchange, division or sale or other disposition of assets of the Company as a
result of which the shareholders of the Company immediately prior to such
transaction shall not hold, directly or indirectly, immediately following such
transaction a majority of the voting power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in the case of a
share exchange, the acquiring corporation or (iii) in the case of a division or
a sale or other disposition of assets, each surviving, resulting or acquiring
corporation which, immediately following the transaction, holds more than 10% of
the consolidated assets of the Company immediately prior to the transaction.
If a Section 9 Event occurs, all outstanding stock options under the Plan
become immediately and fully exercisable whether or not exercisable by their
terms.
Possible Anti-Takeover Effect. The provisions of Section 9 of the Plan
providing for the acceleration of the exercise date of stock options upon the
occurrence of a Section 9 Event may be considered as having an anti-takeover
effect. However, in view of the fact that the other stock option and stock
incentive plans of the Company contain similar provisions, the Board of
Directors does not believe that the addition of Section 9 to the Plan will
significantly increase the Company's current anti-takeover position.
The proxies solicited on behalf of the Board of Directors will be voted for
the amendments to the Plan unless otherwise specified. The favorable vote of the
holders of a majority of the outstanding shares of Common Stock represented in
person or by proxy at the Annual Meeting of Shareholders is required for
adoption of the amendments to the Plan.
5. SELECTION OF AUDITORS
The Board of Directors, following the recommendation of the Audit
Committee, has selected the independent public accounting firm of Ernst & Young
as the auditors to examine the consolidated financial statements of the Company
for fiscal year 1997. The proxies solicited on behalf of the Board of Directors
will be voted to ratify selection of that firm unless otherwise specified.
Ernst & Young has served as the independent auditors for the Company since
1984. Representatives of Ernst & Young are expected to be present at the Annual
Meeting of Shareholders. They will have the opportunity to make statements if
they desire to do so and will be available to respond to appropriate questions.
6. OTHER BUSINESS
The Board of Directors does not know of any other business to be presented
to the Annual Meeting of Shareholders. If any other matters properly come before
the meeting, however, the persons named in the enclosed form of proxy will vote
the proxy in accordance with their best judgment.
VOTE REQUIRED
Under Delaware law, the three nominees for election as directors at the
Annual Meeting of Shareholders who receive the greatest number of votes cast for
the election of directors by the holders of the Company's Common Stock present
in person or represented by proxy and entitled to vote at the meeting, a quorum
being present, will be elected as directors. Under Delaware law, the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting of Shareholders, a quorum being present, is necessary for the
ratification of the selection of Ernst & Young. The vote required for the
approval of the other matters presented for Shareholder approval is set forth
above. The aggregate number of shares for which a vote "For", "Against" or
"Abstain" is made is counted for the purpose of determining the minimum number
of affirmative votes required for ratification of the selection, and the total
number of votes cast "For" ratification of the selection is counted for the
purpose of determining whether sufficient votes are received. An abstention from
voting on a matter other than election of directors by a stockholder present in
person or represented by proxy and entitled to vote has the same legal effect as
a vote "Against" the matter.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
the Chief Executive Officer of the Company and the four highest paid executive
officers other than the Chief Executive Officer (the "named officers") for
services rendered in all capacities to the Company and its subsidiaries during
the fiscal years ended June 30, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------ -------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS SAR'S PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) (A) ($) ($) (B) ($) (#) ($) ($) (C)
- - - --------------------------- ---- ------- ----- ------------ ---------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald E. McGinnis
Chairman of the Board 1996 190,258 -- 19,277 -- -- -- 138,413
1995 231,704 34,171 -- -- -- -- 130,474
1994 254,695 -- -- -- -- -- 118,575
Dennis S. Meteny
President and Chief
Executive Officer 1996 204,888 130,898 -- -- -- -- 28,294
1995 187,696 74,094 -- -- -- -- 26,018
1994 159,083 -- -- -- 32,000 -- 22,895
Robert D. Crouch
Vice President--Sales
and Marketing 1996 144,830 82,402 -- -- -- -- 20,232
1995 137,205 53,260 -- -- -- -- 17,831
1994 128,569 -- -- -- 48,000 -- 18,055
Ronald J. Zdrojkowski
Vice President--Research
and Development 1996 246,403(D) -- -- -- -- -- 9,088
1995 228,695(D) -- -- -- -- -- 9,166
1994 205,444(D) -- -- -- -- -- 8,672
Robert M. Oates
Vice President--Engineering 1996 106,252 31,801 -- -- -- -- 14,983
1995 109,020 27,503 -- -- -- -- 14,007
1994 104,075 -- -- -- 20,000 -- 14,851
</TABLE>
- - - ------------
(A) This column represents base salary and includes tax deferred Section 401(k)
contributions under the Company's Retirement Savings Plan.
(B) The dollar value of perquisites and other personal benefits is required to
be disclosed under this column if the amount for any named officer equals or
exceeds $50,000 or 10% of the total of annual salary and bonus. The dollar
value of the perquisites and other personal benefits did not exceed the
threshold amount for any of the named officers for any of the years covered
in the table other than for Mr. McGinnis in 1996. The only prequisite
received by Mr. McGinnis in excess of 25% of the total perquisites received
by him was an auto allowance of $17,100.
(C) The amounts in this column for 1996 represent the following: matching
contributions under the Company's Retirement Savings Plan (Mr. McGinnis,
$8,420; Mr. Meteny, $8,734; Mr. Crouch, $6,413; Dr. Zdrojkowski, $2,328 and
Mr. Oates, $4,383); annuity plan premiums paid on the officer's behalf (Mr.
McGinnis, $39,150; Mr. Meteny, $19,560; Mr. Crouch, $13,819; Dr. Zdrojowski,
$6,760; and Mr. Oates, $10,600); and life insurance premiums paid by the
Company for policies under which the named officer (or his estate) will
receive the accumulated cash surrender value of the policy upon the earlier
of his death or his reaching age 65 and the Company will receive the
remainder of the death benefit (Mr. McGinnis, $90,843).
(D) The amounts shown for Dr. Zdrojkowski include royalties paid to him based on
sales of a product developed by him pursuant to his employment agreement.
See "Employment Agreements and Other Transactions."
10
<PAGE>
STOCK OPTIONS
No stock options were granted to any named officers during fiscal year
1996. The Company has not granted any stock appreciation rights ("SAR's") to any
of the named officers or any other officers or employees of the Company.
The following table sets forth information concerning the stock option
exercises by the named officers during the fiscal year 1996 and the unexercised
stock options held at June 30, 1996 by the named officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE FY-END (#) FY-END ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE (2)/
NAME (#) ($) (1) UNEXERCISABLE UNEXERCISABLE
- - - --------------------- --------------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Gerald E. McGinnis 15,000 249,375 385,000/-- 6,400,625/--
Dennis S. Meteny -- -- 112,000/16,000 1,492,000/148,000
Robert D. Crouch -- -- 200,000/24,000 2,936,000/222,000
Ronald J. Zdrojkowski -- -- --/-- --/--
Robert M. Oates 8,295 113,576 20,455/16,250 176,984/147,488
</TABLE>
- - - ---------
(1) Represents the amount by which the fair market value of the shares acquired
on exercise at the exercise date exceeded the exercise price of such
shares.
(2) Represents the amount by which the fair market value ($18.50) of the shares
covered by the stock options on June 30, 1996 exceeded the exercise price
of such stock options.
EMPLOYMENT AGREEMENTS AND OTHER TRANSACTIONS
The Company paid royalties to Dr. Zdrojkowski for fiscal years 1996, 1995
and 1994 on the sale of a product developed by him pursuant to his employment
agreement. These royalties are included in Dr. Zdrojkowski's compensation shown
in the Summary Compensation Table. His Employment Agreement is for a term of one
year, renewable annually.
Effective in May 1988, Mr. McGinnis transferred to the Company his rights
to all inventions, improvements, processes or discoveries made or conceived by
him during his employment with the Company, and his right to royalty payments
under a former employment and license agreement terminated. In exchange for his
patents on certain of the Company's products, the Company in May 1988 paid Mr.
McGinnis $600,000 in cash and in exchange for all other intellectual properties
transferred granted him the right to purchase 400,000 shares of common stock of
the Company at a price of $1.88 per share. The exercise price of the option
granted to Mr. McGinnis was determined through arms' length negotiations between
Mr. McGinnis and the Company's directors other than Mr. McGinnis. The option is
presently exercisable for the remaining 385,000 options outstanding. The option
is exercisable for a maximum period of 10 years after grant. The information on
Mr. McGinnis' options has been adjusted to reflect stock splits.
The Company believes that securing full rights to the Company's products
from Mr. McGinnis and terminating future royalty payments to him was in the best
interests of the Company. The consideration paid was determined by negotiations
between the Board of Directors of the Company and Mr. McGinnis, taking into
account all relevant factors including a review of past royalty payments and
estimate of future royalty payments. The terms of this agreement were approved
by the Board of Directors, including all of the disinterested directors of the
Company.
Effective April 1, 1995 the Company entered into an Employment Agreement
with Mr. McGinnis providing for his employment as Chairman of the Company's
Board of Directors for a three year term ending March 31,
11
<PAGE>
1998. Each year until March 31, 1997, the term of the Agreement is automatically
extended for one additional year unless previously either Mr. McGinnis or the
Company gives notice in the then current first year of the term that the term
will not be further extended. Under the terms of the Agreement, Mr. McGinnis
agreed to spend not less than two-thirds of his working time in the performance
of his duties as Chairman, including assisting the Company's President in
fulfilling the Company's civic and charitable responsibilities, serving as
Chairman of the Company's Strategy Committee, providing guidance and direction
in new product development as well as acquisition of new products and businesses
and ensuring good liaison between the Board and the Company's management. The
Agreement provides for a base salary at the rate of $190,000 per year plus
participation in the Company's benefit plans (other than stock option and stock
purchase plans) on a basis comparable with other executives in the Company.
Effective December 1, 1994 the Company entered into an Employment Agreement
with Mr. Meteny providing for his employment as President and Chief Executive
Officer of the Company for a three year term ending November 30, 1997. Effective
the same date the Company and Mr. Crouch entered into an Employment Agreement
providing for his employment as Vice President of Sales and Marketing also for a
three year term ending November 30, 1997. Each agreement is automatically
extended each year for one additional year absent prior notice by either party.
The Agreements provide for base salaries for Messrs. Meteny and Crouch of
$195,600 per year and $138,200 per year, respectively, plus participation in the
Company's benefit and incentive plans on a basis comparable with other
executives in the Company.
In April 1995, the Company guaranteed a loan made by a commercial bank to
Mr. Crouch in the amount of $400,000. In consideration for this guarantee, Mr.
Crouch granted to the Company a security interest in 80,000 shares of the
Company's common stock owned by him. Mr. Crouch repaid the commercial bank loan
in full in June 1996, at which time the Company's guarantee and its security
interest terminated.
Respironics (HK) Limited is lessee under a Tenancy Agreement expiring on
April 30, 1997, with Micro Electronics, Ltd. as lessor, for premises located in
Hong Kong, providing for a monthly rent of approximately $12,000 (U.S.). Bernard
Shou-Chung Zau, a director of the Company, is also a director of Micro
Electronics, Ltd., and Micro Electronics, Ltd. is a shareholder of the Company.
Together with other family members, Mr. Zau controls Micro Electronics, Ltd. The
Company believes that the terms of the above agreements with Micro Electronics,
Ltd. are no less favorable than those which the Company would have agreed to if
determined through arms'-length negotiations with unaffiliated third parties.
EXECUTIVE OFFICERS
The executive officers of the Company, other than those who also serve as
directors and are described above, are Ronald J. Zdrojkowski, Ph.D., 53, Vice
President--Research & Development, Robert D. Crouch, 48, Vice President--Sales
and Marketing, Robert M. Oates, 54, Vice President--Engineering, Daniel J.
Bevevino, 36, Vice President and Chief Financial Officer and Steven P. Fulton,
37, General Counsel.
Dr. Zdrojkowski assumed the position of Vice President--Research and
Development in late 1990. Prior to 1990 Dr. Zdrojkowski was Vice
President--Engineering for the Company since 1987 and held that position from
1977 to 1985 as well. From 1985 to 1987 he was Product Development Manager. Dr.
Zdrojkowski joined the Company in 1977 and has worked on the design, development
and manufacturing of most of the Company's products and the transfer of
technology to Respironics (HK) Limited. Prior to joining the Company, he worked
as a consultant for various companies assisting in the design of new medical
products.
Mr. Crouch joined the Company as Director of Sales and Marketing in January
1989. He was promoted to Vice President Sales and Marketing in May 1989. From
1986 to 1989, Mr. Crouch worked as a consultant for various companies on
administrative and governmental affairs issues. From 1985 to 1986, he was
employed by Cryogenic Associates, serving as Executive Vice President and later
President. From 1983 to 1985, Mr. Crouch was President, Chief Executive Officer
and Chairman of the Board of BetaMed Pharmaceuticals.
Mr. Oates joined the Company as Vice President--Engineering in July 1992.
From 1982 to July 1992, he was employed by Westinghouse Electric Company Science
& Technology Center, serving as the Manager of Communication Systems, Sensor
Development and Electo-optic Systems.
12
<PAGE>
Mr. Bevevino joined the Company in 1988 as Manager of Cost Accounting. From
1990 to 1994 Mr. Bevevino served as Controller. In November of 1994, Mr.
Bevevino was elected Chief Financial Officer and in May 1996 was also elected
Vice President. Immediately prior to his affiliation with the Company, Mr.
Bevevino--a Certified Public Accountant--spent five years with the international
accounting firm of Ernst & Young.
Mr. Fulton joined the Company on a part time basis in May 1995 serving as
General Counsel. In January 1996 his role was expanded to full time status.
Prior to joining the Company, Mr. Fulton was a partner in the Pittsburgh law
firm of Reed Smith Shaw & McClay. He joined the law firm in May 1984. Prior to
this employment, he served briefly in an engineering capacity for Westinghouse
Electric Corporation.
REPORT OF THE COMPENSATION COMMITTEE
INTRODUCTION
Decisions regarding compensation of the Company's executives generally are
made based on recommendations by the Compensation Committee, which is composed
of three independent outside directors. All decisions of the Compensation
Committee relating to compensation of the Company's executive officers are
reviewed and approved by the full Board. Set forth below is a report submitted
by Dr. Cotter and Messrs. Hardie and Lawyer (the members of the Compensation
Committee at the relevant time during fiscal year 1996) in their capacity as
members of the Board's Compensation Committee addressing the Company's
compensation policies for fiscal year 1996 as they affected executive officers
of the Company, including Mr. Meteny, the President and Chief Executive Officer,
and Messrs. McGinnis, Crouch, Oates and Zdrojkowski, the four executive officers
other than Mr. Meteny who were, for fiscal year 1996, the Company's most highly
compensated executives.
COMPENSATION
The Company's executive and key employee compensation program consists of a
base salary component, a component providing the potential for an annual profit
sharing bonus based on overall Company performance as well as individual
performance, and a component providing the opportunity to earn stock options
linking the employee's long-term financial success to that of the Company's
stockholders.
Cash Compensation
Officers are compensated within salary ranges that are generally based on
similar positions in companies of comparable size and complexity to the Company.
Companies are selected based on products marketed, customers and markets served,
geographic distribution, manufacturing locations and complexity of operations
(which involves several factors, with sales revenue being a major factor) for
those companies operating in the respiratory products market. In addition, the
Company participates in and receives summary compensation survey information
from the Health Industry Manufacturers Association ("HIMA"), which surveyed 55
HIMA member companies in 1995.
The methodology used to determine guidelines for compensation was a
matching of each executive's responsibilities to a comparable position described
in the HIMA survey. Based on this matching, each executive's salary was compared
to the corresponding salary range of comparable executives in the HIMA survey.
Then, an appropriate salary range (e.g., 25th percentile, median, 75th
percentile) was selected based on the comparison of the executive's
responsibilities to those of the comparable position in the HIMA survey. The
comparable companies operating in the respiratory market and other data were
then examined for reasonableness on a position-by-position basis. Salaries were
established based on the performance of the executive given his responsibilities
within a specific position and the relationship of the current salary to the
appropriate percentile of the HIMA survey for the most comparable position
available within the survey.
The primary level of compensation is based on a combination of years of
experience and performance. An officer's performance is based on how well he
meets objectives set by his supervisor through a Company-wide process of stating
objectives for each associate (employee), insuring compatibility of objectives
among associates, reviewing performance against objectives and recognizing the
accomplishment of these objectives. The Board of Directors establishes and
reviews the objectives of the Chairman of the Board, and the Board also
13
<PAGE>
assesses the Chairman's performance compared to these objectives. The salary of
all officers is reviewed annually in November, with the amount of the increases
(which take effect the following February) based on factors such as Company
performance, general economic conditions, marketplace compensation trends and
individual performance. The relative weight of each of these factors in
determining salary increases varies for each annual salary determination. There
is no fixed weighting. However, in the past, the factors which have generally
had the greatest influence on salary increases have been (in decreasing
significance) Company performance, individual performance, marketplace trends in
compensation and general economic conditions.
In fiscal year 1996 the Compensation Committee recommended and the Board
approved a base salary increase for Mr. Meteny of 12% considering the foregoing
factors. It also recommended and the Board approved a 12% increase in base
salary for Mr. Crouch based on the above mentioned factors. In the case of Mr.
McGinnis, who became Chairman of the Board of Directors in 1994 and spends not
less than two-thirds of his working time on Company matters, the Committee
recommended and the Board approved no change in base salary. See "Executive
Compensation--Employment Agreements and Other Transactions."
In the case of Dr. Zdrojkowski, his base salary remained at the same level
as approved by the Board after consultation with the Committee. His compensation
increased because of increased royalty payments made to him under his Employment
Agreement, which payments were at the same rates, but on greater amounts of
covered sales. In the case of Mr. Oates, the Committee recommended and the Board
approved no change in base salary.
Profit Sharing Bonus
The second compensation component is a Company-wide profit sharing program
under the Company's Profit Sharing Bonus Plan. Bonuses are primarily based on
the Company's annual financial performance and secondarily on the performance of
the individual. Bonuses under this program generally range from zero to 50% of
base salary. The measures of annual financial performance used in determining
the amount of bonuses include sales growth, earnings growth and net income as a
percentage of sales. Based on these factors, profit sharing bonuses were accrued
for fiscal year 1996 for the named officers in the amounts set forth in the
Summary Compensation Table above.
Stock Options
The third major component of the officer's compensation consists of stock
options. The primary purpose of granting stock options is to link the officers'
financial success to that of the stockholders of the Company. The exercise price
of stock options is determined by the Compensation Committee at the time the
option is granted, but may not be less than the fair market value of the
Company's Common Stock as of the date of grant. Options become exercisable
commencing a minimum of six months from the date of grant and are exercisable
for a maximum period of 10 years, as determined by the Compensation Committee.
The Compensation Committee awarded stock options to 87 of the Company's
employees during fiscal year 1996. No stock options were granted to any named
officer during fiscal year 1996.
CEO COMPENSATION
The following factors constitute the basis for the compensation paid to Mr.
Meteny, the Company's Chief Executive Officer ("CEO"), during fiscal year 1996;
his responsibilities as the Company's CEO; the Company's ability to achieve its
objectives for revenue and earnings growth and its objectives for long-term
growth; the salaries paid to other CEO's of comparable companies as reported in
the HIMA survey; and Mr. Meteny's experience compared to the CEO's of comparable
companies in the HIMA survey. As indicated in the Summary Compensation Table,
Mr. Meteny was awarded a bonus for fiscal year 1996 of $130,898, which amount
included an additional bonus (outside of the Plan) for his outstanding effort
and performance in the successful completion of the Company's March 1996 public
offering.
14
<PAGE>
Compensation Committee of the Company's Board of Directors:
Douglas A. Cotter, Chairman
James H. Hardie
Joseph C. Lawyer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Securities and Exchange Commission's rules relating to the disclosure
of executive compensation require that the Proxy Statement include certain
information about "insider" participation on compensation committees and about
specific kinds of "interlocking" relationships between the compensation
committees of different companies, under the foregoing caption.
The Compensation Committee of the Board of Directors is responsible for
executive compensation decisions as described above under "Board of Directors
and Committees of the Board." During fiscal year 1996, the Committee consisted
of Dr. Cotter (Chairman) and Messrs. Lawyer and Hardie, with Mr. Jones replacing
Mr. Hardie as a member of the Committee in August 1996. Mr. Hardie is a partner
in the law firm which has provided legal services to the Company since 1988 and
which is expected to provide legal services to the Company in the future.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "Commission") and the National Association of
Securities Dealers National Market System initial reports of ownership and
reports of change in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten-percent shareholders are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
All Forms 3, 4, and 5 have been filed within the guidelines of the
Commission during fiscal year 1995 with the exception of the Forms 4 filed by
James Hardie, Gerald McGinnis, Dennis Meteny, Robert Oates, Bernard Zau and Ron
Zdrojkowski, each in connection with shares sold as part of the Company's March
1996 public offering, which were filed on April 23, 1996. In making this
disclosure, the Company has relied solely on the written representation of its
directors and officers and copies of the reports that they have filed with the
Commission.
15
<PAGE>
PERFORMANCE GRAPH
The following graph shows a five year comparison of cumulative total
returns for the Company, the NASDAQ Market Index and the Standard & Poor's
Medical Products and Supplies Index ("Hlthcare-500"). The graph assumes that the
value of the investment in the Company's Common Stock and each index was $100 at
June 30, 1991, and that all dividends were reinvested.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------------------------------------
1991 1992 1993 1994 1995 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Respironics, Inc..................... $ 100.00 $ 156.34 $ 244.41 $ 327.08 $ 242.60 $ 409.75
NASDAQ............................... $ 100.00 $ 120.13 $ 151.08 $ 152.52 $ 203.59 $ 261.43
Hlth care-500........................ $ 100.00 $ 114.19 $ 130.39 $ 106.95 $ 103.10 $ 158.18
</TABLE>
Dorita A. Pishko
Secretary
October 18, 1996
16
<PAGE>
EXHIBIT A
PROPOSED AMENDMENTS TO THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION
AMENDMENT INCREASING NUMBER OF AUTHORIZED SHARES:
FOURTH: The total number of shares of stock which this Corporation shall
have authority to issue is One Hundred Million (100,000,000) shares of Common
Stock par value $.01 per share.
AMENDMENT RELATING TO THE PROHIBITION OF SHAREHOLDER ACTION BY WRITTEN CONSENT:
TWELFTH: All actions taken by shareholders shall be taken only at an annual
or special meeting of shareholders. No action by shareholders may be taken by
written consent or otherwise without a meeting.
<PAGE>
EXHIBIT B
PROPOSED AMENDMENTS TO THE COMPANY'S
1991 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
RESPIRONICS, INC.
First Amendment to 1991 Non-Employee Directors' Stock Option Plan
The 1991 Non-Employee Directors' Stock Option Plan (the "Plan") of
Respironics, Inc. (the "Company") is amended as follows:
INTRODUCTION
As of July 31, 1996 the aggregate remaining number of shares of Common
Stock as to which grants of stock options may be made under the Plan is 27,400.
As a result of stock splits and distributions the number of shares of Common
Stock which are to be granted each year to each non-employee Director of the
Company is 5,100 shares.
AMENDMENT TO SECTION 2
Effective as of the date of the Annual Meeting of Shareholders of the
Company in 1996, the number of shares of Common Stock which may be issued under
the Plan and as to which grants of stock options may be made is increased by
100,000 shares.
AMENDMENT TO SECTION 3
Effective as of the date of the Annual Meeting of Shareholders of the
Company in 1996, the number of shares of Common Stock as to which options are
granted each year under the Plan to each non-employee Director shall be 5,100
subject to adjustment and substitution as set forth in Section 5.
AMENDMENT TO SECTION 4
Section 4 of the Plan is amended by revising Section 4(E)(i) to read as
follows: (i) If a grantee ceases to be a Director of the Company for any reason
other than resignation, removal for cause or death, any then outstanding stock
option held by such grantee shall be exercisable by the grantee (but only to the
extent exercisable by the grantee immediately prior to ceasing to be a Director)
at any time prior to the expiration date of such stock option or within four
years after the date the grantee ceases to be a Director, whichever is the
shorter period, provided that, for purposes of determining when an outstanding
stock option held by a grantee who ceases to be a Director of the Company shall
be exercisable, the anniversary date of the grant of such option in the year in
question shall be deemed to be the date immediately preceding the date on which
the Annual Meeting of Shareholders of the Company is held in that year, and
further provided that, in the case of a grantee who is disabled within the
meaning of Section 22(e)(3) of the Code (a "Disabled Grantee"), any then
outstanding stock option shall be exercisable in accordance with the provisions
of the first sentence of Section 4(C) hereof whether or not exercisable by the
grantee immediately prior to ceasing to be a Director;
AMENDMENT TO SECTION 5
In the case of an adjustment in the number of shares of Common Stock set
forth in Section 3 on account of a dividend or other distribution declared upon
the Common Stock payable in shares of the Common Stock, the adjustment provided
for in the first paragraph of Section 5 of the Plan may not be given any or only
limited effect with respect to awards subsequent to the date of the adjustment
if the Board of Directors' of the Company should determine at the time of such
dividend or other distribution that no or a specified limited adjustment would
be more appropriate for purposes of the Plan. Similarly the adjustment provided
for in the second paragraph of Section 5 of the Plan may be given a specified
limited effect if the Board of Directors of the Company should determine at the
time of the transaction otherwise occasioning such adjustment such specified
limited affect would be more appropriate for purposes of the Plan.
<PAGE>
ADDITION OF NEW SECTION 9
There shall be added to the Plan a new Section which shall read as follows:
SECTION 9
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) DEFINITIONS
For purposes of this Section 9, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act".)
(2) Beneficial Ownership shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on August 1, 1996.
(3) "Voting Shares" shall mean all securities of a company entitling the
holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the
Common Stock to elect directors by a separate class vote); and a
specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to
cast such percentage of all the votes which could be cast in an annual
election of directors (without consideration of the rights of any
class of stock other than the Common Stock to elect Directors by a
separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of the Company (other than such an offer made by the
Company or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(5) "Section 9 Event" shall mean the date upon which any of the following
events occurs:
(a) The Company acquires actual knowledge that any Person other than
the Company, a Subsidiary or any employee benefit plan(s)
sponsored by the Company has acquired the Beneficial Ownership,
directly or indirectly, of securities of the Company entitling
such Person to 20% or more of the Voting Power of the Company; or
(b) A Tender Offer is made to acquire securities of the Company
entitling the holders thereof to 20% or more of the Voting Power
of the Company; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or
more of the members of any class of the Board shall be made by
any person other than the Company; or
(d) The shareholders of the Company shall approve a merger,
consolidation, share exchange, division or sale or other
disposition of assets of the Company as a result of which the
shareholders of the Company immediately prior to such transaction
shall not hold, directly or indirectly, immediately following
such transaction a majority of the Voting Power of (i) in the
case of a merger or consolidation, the surviving or resulting
corporation, (ii) in the case of a share exchange, the acquiring
operation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring
corporation which, immediately following the transaction, holds
more than 10% of the consolidated assets of the Company
immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
paragraph 5(a), (ii) a grantee is required to be named pursuant to Item 2 of the
Schedule 14D-1 (or any similar successor filing requirement) required to filed
by the bidder making a Tender Offering referred to in paragraph 5(b) or (iii) if
a grantee is a "participant" as defined in 14a-11 under the 1934 Act (or any
successor Rule) in a solicitation (other than a solicitation by the Company)
referred to in paragraph 5(c), then no Section 9 Event with respect to such
grantee shall be deemed to have occurred by reason of such event.
<PAGE>
(B) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTION
Notwithstanding any other provision contained in the Plan, in case any
"Section 9 Event" occurs all outstanding stock options under the Plan shall
become immediately and fully exercisable whether or not otherwise exercisable by
their terms.
<PAGE>
RESPIRONICS, INC.
1001 Murry Ridge Dr.
Murrysville, PA 16668
Annual Meeting of Shareholders, November 20, 1996
Gerald E. McGinnis, Dennis S. Meteny and Dorita A. Pishko, or any of them,
are hereby appointed proxies with full power of substitution, to vote the
shares of the shareholder(s) named on the reverse side hereof at the Annual
Meeting of Shareholders of Respironics, Inc. to be held at the Union Trust
Building, in the Auditorium, at 501 Grant Street, Pittsburgh, Pennsylvania,
on November 20, 1996, and at any adjourment thereof, as directed hereon,
and in their discretion to vote and act upon any other matters as may properly
come before this meeting.
(Continued on reverse side)
/\ FOLD AND DETACT HERE /\
<PAGE>
Unless you attend and vote in person, you MUST sign and return your proxy
in order to have your shares voted at the meeting.
Please mark
your votes as [X]
indicated on
this example
1. Election of Directors.
NOMINEES: Daniel P. Barry, Donald H. Jones, Candace Littell
FOR all nominees WITHHOLD
(listed above except AUTHORITY
is marked to the to vote for all
contrary) nominees listed above
[_] [_]
(Instruction: To withhold authority to vote for any nominee, write
that nominee's name in the space provided below.)
- - - ---------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment to the Company's Certificate of Incorporation [_] [_] [_]
to increase the number of authorized shares of the
Company's common stock to 100,000,000.
FOR AGAINST ABSTAIN
3. Amendments to Certificate of Incorporation and [_] [_] [_]
By-Laws regarding elimination of shareholder action
by written consent.
FOR AGAINST ABSTAIN
4. Amendments to the 1991 Non-Employee Directors' [_] [_] [_]
Stock Option Plan.
FOR AGAINST ABSTAIN
5. To ratify the selection of Ernst & Young LLP as [_] [_] [_]
Independent public accoutants for the fiscal year
ending June 30, 1997.
This proxy is solicited on behalf of the Board of Directors and
will be voted as specified. A vote FOR the election of nominees
listed includes discretionary authority to vote for a substitute if
any nominee is unable to serve or for good cause will not serve.
Date: , 1996
----------------------------------------
- - - ---------------------------------------------------
- - - ---------------------------------------------------
Shareholder(s) signature should correspond to the name(s)
shown hereon. (Executors, Administrators, Trustees, etc. should
so indicate when signing.)
PLEASE SIGN, DATE AND MAIL YOUR PROXY TODAY!
/\ FOLD AND DETACH HERE /\
