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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
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Act of 1934 for the fiscal year ended June 30, 1996 or
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Transition Report pursuant to section 13 or 15(d) of the Securities
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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
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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, 1996, the aggregate market value of the shares of the
registrant's Common Stock held by non-affiliates was approximately
$375,000,000.
As of August 31, 1996, there were 19,309,000 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 20, 1996 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.
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INDEX
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PART I
Item 1 Business................................. 1
Item 2. Description of Property.................. 14
Item 3. Legal Proceedings........................ 14
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. ("Respironics" or the "Company") is a leading
developer, manufacturer and marketer of medical devices used for the treatment
of patients suffering from respiratory disorders. The Company's products are
designed to reduce costs while improving the effectiveness of patient care and
are used primarily in the home and hospitals, as well as emergency medical
settings and alternative care facilities. The Company's primary product lines
are: (i) continuous positive airway pressure ("CPAP") devices and bi-level
positive airway pressure ("BiPAP") devices for the treatment of obstructive
sleep apnea ("OSA"), a serious disorder characterized by the repeated cessation
of breathing during sleep; (ii) bi-level non-invasive ventilatory support
devices; (iii) patient mask products; and (iv) single-use resuscitation
products. Respironics markets its products through a sales organization
consisting of approximately 90 direct and independent sales representatives, who
sell primarily to a network of over 2,500 medical product dealers. The Company's
sales are currently comprised of 68% equipment and 32% consumable and single-use
products. With approximately 85% of its sales currently reaching the home care
market, Respironics believes that it is well-positioned to take advantage of the
growing preference for in-home treatment of patients suffering from respiratory
disorders.
Respironics is a Delaware corporation. The Company has two principal
operating subsidiaries, Respironics (HK) Limited, which is wholly-owned and
based in Hong Kong, and its subsidiary, 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 a third wholly-owned subsidiary, RIC
Investments, Inc., a Delaware corporation which conducts its operations in
Delaware. In August 1996, the Company announced its plans to acquire all the
capital stock of LIFECARE International, Inc. for $50 million in cash. See
"Acquisition" for additional information about this transaction. 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. 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.
Certain statements in this annual report on Form 10-K, including
statements about the Company's belief or expectations or about whether any
particular event or circumstance is likely to occur or continue, are
forward-looking statements concerning the future operations of the Company. Such
forward-looking statements are subject to risks and uncertainties. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. There are many important factors that
could cause actual results to differ materially from those in the
forward-looking statements contained herein.
Respironics(R), REMstar(R), BiPAP(R), BagEasy(R), Circle Seal(R) and
SealEasy(R) are registered trademarks of the Company. Great Performers(TM),
Monarch Mini Mask(TM), GEL Mask(TM), Aria(TM), Virtuoso(TM), Maestro(TM),
Solo(TM), Encore(TM), and Vitalog(TM) are trademarks of the Company.
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Products
At the present time, the Company's principal products can be divided
into four categories: obstructive sleep apnea products, non-invasive
ventilatory support products, patient mask products and resuscitation products.
Obstructive Sleep Apnea Products
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Respironics believes it is the U.S. market share leader in OSA therapy
devices, with an approximate 50% market share. The Company's primary OSA
products are REMstar Choice, the BiPAP S Airway Management System, the Great
Performers family of products, and related accessories such as masks, tubes,
filters and headgear.
REMstar Choice is the Company's fifth generation CPAP device for the
treatment of OSA. REMstar Choice consists of a small, portable air
pressurization device, air pressure control, a cordless remote on-and-off
control and a mask worn by the patient at home during sleep. REMstar Choice
offers improved functional features compared to its predecessor devices,
including improved pressure stability, reduced operating noise and a smaller
design. The BiPAP S Airway Management System is used to treat severe OSA and is
useful in improving acceptance of therapy by patients who have difficulty
tolerating CPAP. The unit senses the patient's breathing cycles and adjusts the
pressure accordingly. See "Non-invasive Ventilatory Support Products" for a
further description of the BiPAP devices.
The Company introduced its next-generation family of OSA products,
known as the "Great Performers" product line, during fiscal year 1996 with the
first international shipments commencing in July 1995. This new family of
products includes several products including CPAP, bi-level and clinical units.
The Company has received clearance from the United States Food and Drug
Administration ("FDA") for three Great Performers products; the Aria CPAP
system, the Solo CPAP system, and the Maestro clinical remote control unit.
Domestic shipments of Aria began in spring 1996, domestic shipments of Maestro
began in summer 1996, and domestic shipments of Solo are expected to begin in
fall 1996. The Aria CPAP system features built-in memory to record patient usage
data. The software necessary to extract this data from the Aria unit was made
available in September 1996 and is known as Encore. The Solo CPAP system is an
innovative OSA therapy device that meets the Company's strategy of offering
units at all key price points. The Maestro unit is used by clinicians in
prescribing therapy for the treatment of adult OSA. The Great Performers family
of products also includes another CPAP device, known as Virtuoso, that utilizes
innovative technology to monitor the patient's airway and adjust output
automatically in order to deliver the appropriate pressure. The Company has made
or is making filings seeking FDA clearance to market Virtuoso and other
devices in the Great Performers series of products in the United States.
Products in the Great Performers product line other than Aria, Solo, and Maestro
are being initially distributed solely in international markets until regulatory
clearance to market them in the U.S. is obtained.
Respironics also manufactures devices related to the diagnosis and
monitoring of sleep and other respiratory-related disorders, which it obtained
through the acquisition of Vitalog Monitoring, Inc. ("Vitalog") in 1995. The
Vitalog acquisition provides the Company with access to technology and products
complementary to its own, particularly in the OSA product line and is part of
the Company's strategic effort to enter the diagnostic market. The Company
believes that the Vitalog acquisition will enhance its marketing efforts in the
OSA area by expanding the Company's
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presence in sleep labs and permitting the Company to sell diagnostic equipment,
which helps drive the market for the Company's therapeutic devices.
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 and Great Performers products.
The obstructive sleep apnea patient can purchase REMstar Choice, Aria,
or the BiPAP Airway Management System from home health care products dealer
locations nationwide. 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
"Sales, Distribution, and Marketing"). The retail price for a REMstar Choice or
Aria unit ranges from $1,100 to $1,600, depending on the specific model, the
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.
Sales of obstructive sleep apnea products and all related accessories
and replacement parts accounted for 67%, 67%, and 64% of the Company's net sales
for its fiscal years 1996, 1995, and 1994, respectively.
Non-invasive Ventilatory Support Products
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The Company believes it is the leading manufacturer and marketer
of non-invasive ventilatory support devices in the U.S. for individuals who
require ventilatory assistance but who are not dependent on a ventilator for
continuous life support.
The Company's principal non-invasive ventilatory support product is
the BiPAP Ventilatory Support System. Introduced in December 1989, the BiPAP
Ventilatory Support System is a low-pressure, electrically-driven flow generator
with an electronic pressure control designed to augment patient breathing by
supplying pressurized air to the patient. The BiPAP Ventilatory Support System
was the first device for non-invasive use designed specifically to compensate
for mask leaks. BiPAP devices sense the patient's breathing and adjust their
output to assist in inhalation and exhalation. The BiPAP Ventilatory Support
System compensates for mask leaks, which often occur in the delivery of
ventilatory support to the patient, thereby providing what the Company believes
is a more efficient and consistent non-invasive therapy than competing volume
ventilators.
The Company believes the BiPAP Ventilatory Support System has the
potential for increasing patient comfort because the BiPAP Ventilatory Support
System adapts to the patient's breathing cycles as opposed to requiring the
patient to adapt his breathing to the ventilator cycles and because it can be
used effectively with a patient mask rather than requiring intubation. The
retail price for a
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BiPAP unit, which ranges from $2,800 to $8,000, also compares favorably to the
cost of invasive ventilators, which generally retail for $10,000 to $28,000.
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 BiPAP Ventilatory Support System to be used more
easily in the hospital environment.
The Company is supporting clinical trials that are investigating the
possible benefits of BiPAP therapy for different types of patient populations.
Applications being studied include use by patients suffering from emphysema and
other respiratory disorders, as well as other in-hospital applications. The
marketing of BiPAP Ventilatory Support Systems for use in these patient
populations may require additional clearances from the FDA prior to marketing in
the United States.
The Company also is currently conducting research on the incorporation
of Proportional Assist Ventilation ("PAV") into its line of BiPAP ventilatory
support products. PAV is a mode of ventilatory support that provides assistance
in proportion to the needs of the patient. The Company began sponsoring clinical
trials investigating PAV in 1995. Application for regulatory clearance to market
devices that include PAV, which may be required prior to the marketing of such
products in the U.S., has not yet been made. The PAV technology was obtained by
the Company through a non-exclusive licensing arrangement with the University of
Manitoba in Winnipeg, Canada.
Sales of non-invasive ventilatory support products and all related
accessories and replacement parts accounted for 27%, 26%, and 27% of the
Company's net sales for its fiscal years 1996, 1995, and 1994 respectively.
Patient Mask Products
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The Company provides three types of patient masks: (1) masks used with
CPAP and BiPAP devices including nasal sealing flap masks, the Monarch Mini Mask
and, in the near future, the GEL Mask; (2) disposable air-filled cushion
anesthesia masks primarily for use during surgery; and (3) disposable SealEasy
and Circle Seal resuscitation masks for use in medical emergencies. The
Company's patient masks are designed to respond to the increasing demand for
single-use products, which reduce the potential for cross-contamination among
patients and also help to minimize the exposure of medical personnel to
infectious diseases, such as tuberculosis and pneumonia. The Company believes
that its nasal sealing flap mask was the first mask to adequately seal on a
patient's face for air delivery, thereby minimizing patient discomfort and
promoting increased patient compliance with prescribed usage. In early 1996, the
Company received 510(k) clearance from the FDA to market the Monarch Mini Mask
and GEL Mask for use with its CPAP
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and BiPAP devices. The Monarch Mini Mask is designed to enhance patient comfort
with its small size and unique placement on the patient's face; the GEL Mask
utilizes a gel-like cushion to create a comfortable mask seal around the
contours of the face. The Company's line of disposable air-filled cushion
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 and helps ensure compliance with anesthesia gas
exposure standards imposed on hospitals by regulatory bodies.
Sales of all face masks (including some masks which are components of
obstructive sleep apnea products, non-invasive ventilatory support products, and
resuscitation products and which are also included in the net sales figures for
those product groups) accounted for 17%, 15%, and 16% of the Company's net sales
for its fiscal years 1996, 1995, and 1994, respectively.
Resuscitation Products
----------------------
The Company's other products consist of single-use resuscitation
products, the most significant being the BagEasy manual resuscitator. The
current version of the BagEasy resuscitator was introduced in March 1995 and
represents a comprehensive redesign of an earlier version of this product. The
current version includes significantly fewer components and requires
significantly fewer assembly steps than did the previous version. In addition,
the current BagEasy product includes features such as a flexible design and an
integral pressure valve that the Company believes distinguish it from
competitive products.
In November 1993, the Company discontinued a predecessor version of
the BagEasy and voluntarily recalled all remaining such products in distribution
channels and customer inventories. See Note K to the Consolidated Financial
Statements for additional information regarding this discontinuance.
The Company's other resuscitation products include several small,
disposable resuscitation masks and non-rebreathing valves that are used
primarily in the emergency medical market and, to a lesser extent, in hospitals.
Sales of resuscitation products accounted for 2%, 2%, and 4% of the Company's
net sales for its fiscal years 1996, 1995, and 1994 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 in July 1990. The facility includes a 46,000 square
foot
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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 that had a total
cost, including the addition, of 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 located approximately two
miles from the existing corporate headquarters facility. This leased facility
currently houses the Company's customer satisfaction and technical service
groups.
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 Company conducts the remainder of its Far East 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. Operations in Hong Kong and the
Peoples Republic of China are subject to the risks normally associated with
foreign operations including, but not limited to, possible changes in export or
import restrictions and the modification or introduction of other governmental
policies with potentially adverse effects.
The Company also maintains small leased facilities, each totaling less
than 3,500 square feet in size, in Wilmington, Delaware; Redwood City,
California; Winnipeg, Manitoba; Nantes, France; and Subic Bay, Philippines.
The Company believes that its present facilities 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 is currently exploring several options
relative to leased office space in the eastern suburbs of Pittsburgh as an
alternative way to increase the productive capacity at the Murrysville site. 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, could take place on this 20 acre site.
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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 believes
that the raw materials for all of its products are readily available from a
number of suppliers.
Sales, Distribution and Marketing
The Company sells its products primarily to home care and hospital
dealers. These parties in turn resell and rent the Company's products to end
users. The Company's products reach its customers primarily through the
Company's field network, which consists of 13 sales management employees, 29
direct sales representatives and sales support specialists, 51 independent
manufacturers' representatives and over 2,500 medical products distributors
(also referred to as "dealers").
The Company manages its U.S. dealer network through a direct sales
force and independent manufacturers' representatives. The Company's U.S. sales
management team includes a Vice President of Sales and Marketing, a Director of
Sales and seven Regional Sales Managers. This team directs the activities of 51
independent manufacturers' representatives and 25 direct sales representatives
and sales support specialists. In most areas of the U.S., the hospital market is
served by the direct sales representatives and the home care market is served
primarily by the independent manufacturers' representatives.
The Company's international sales efforts are conducted currently
through a European General Manager, a South American Sales Manager, a Pacific
Rim Sales Manager, and a Canadian Sales Manager. The Company also has two direct
sales representatives and a customer satisfaction staff in Europe and one direct
sales representative in Canada. All of the Company's international sales
employees serve both the home care and hospital markets. The Company's
international sales consist primarily of BiPAP Ventilatory Support Systems,
BiPAP S Airway Management Systems, REMstar Choice units, Great Performers units,
and related accessories. International sales accounted for approximately 24%,
20%, and 20% of the Company's net sales for fiscal year 1996, 1995 and 1994,
respectively.
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 four principal product groups. The Product Managers
stay abreast of changes in the marketplace, with an emphasis on product use
specifications, features, price, promotions, education, training and
distribution.
The Company's customer base (which ranges in size from large, publicly
held dealers with several hundred branch locations to small, owner-operated
dealers with one location) is undergoing significant consolidation, particularly
among dealers specializing in home care products. The Company's two largest
home care dealer customers (both of which were publicly held and had branch
locations throughout the U.S.) merged in August 1995, and many
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smaller customers have been acquired by larger entities. The impact on the
Company of this customer consolidation is likely to continue in the form of
reduced selling prices for the Company's products as a result of greater
purchasing power and market dominance enjoyed by larger customers.
Competition
The Company believes that the principal competitive factors in all of
its markets are product and service performance and innovation. Efficient
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. The Company competes on a product-by-product basis with
various other companies, some of which have significantly greater financial and
marketing resources and broader product lines.
The Company believes that it has the leading position in the U.S.
market for home care devices for the treatment of OSA. However, other
manufacturers, including other larger and more experienced manufacturers of home
health care products, have entered the market and the Company expects that
competition will increase. In its major market segments, the Company competes
with three principal competitors, Nellcor Puritan-Bennett ("Nellcor"),
Healthdyne Technologies ("Healthdyne") and ResMed ("ResMed") through its
subsidiary ResCare ("ResCare"). Nellcor, which is the Company's largest major
competitor and has the largest financial resources of the Company's competitors,
offers an array of products which compete with all of the Company's products.
Healthdyne is the primary competitor for the Company's CPAP units and competes
with the Company in the non-invasive ventilatory support market as well. ResMed
competes with the Company primarily in the OSA market, and is in the process of
introducing devices that will compete with the Company's non-invasive
ventilatory support products.
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
August 1995 merger of Nellcor and Puritan Bennett. Nellcor Puritan Bennett has
subsequently acquired, or announced plans to acquire, two other respiratory
products companies in 1996. The impact on the Company of this consolidation
among its competitors is likely to be greater competition from medical device
manufacturers who can utilize the financial and technical resources that may be
made available when they are involved in a merger.
Research and Development
The Company believes that its ability to identify product
opportunities, to respond to the needs of cardiopulmonary physicians and their
patients in the treatment of respiratory disorders and to incorporate the latest
technological innovations into its medical products has been and will continue
to be important to its success. The Company's research and development efforts
are focused on understanding the problems faced by cardiopulmonary physicians
and their
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patients' needs and on maintaining the Company's technological leadership in its
core product areas. The Company maintains both formal and informal relationships
with physician practitioners and researchers (including sleep laboratories) to
supplement these research and development efforts. The Company's research and
development efforts enable it to capitalize on opportunities in the respiratory
medical product market, through upgrading its current products as well as
developing new products.
The Company conducts substantially all of its research and development
for existing and potential new products in the U.S.. The Company currently
employs approximately 95 engineers and technicians in such activities. The
research and development staff performs overall conceptual design work for all
products and the design work related to the manufacturing, engineering and
tooling for products manufactured by the Company. The Company spent
approximately $9,328,000 (7% of net sales) in fiscal year 1996, $7,077,000 (7%
of net sales) in fiscal year 1995 and $4,794,000 (6% of net sales) in fiscal
year 1994 to support product enhancement and new product development.
Several new product introductions took place during fiscal year 1996
and early in fiscal year 1997, including products in the Great Performers
product line and several new patient mask products. By the end of fiscal year
1997, the Company expects to have introduced the remainder of the products in
the Great Performers family in addition to new products in the non-invasive
ventilatory support product line. 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."
Patents, Trademarks and Licenses
The Company seeks patent protection for certain of its products
through the prosecution and acquisition of patents and exclusive licensing
arrangements. In addition, the Company aggressively defends its patents when
infringed by other companies. The Company currently has 35 U.S. and foreign
patents and has additional U.S. and foreign patent applications pending.
The patents owned by Company relate to a variety of the Company's
products, including the BiPAP Airway Management System, the BiPAP Ventilatory
Support System, the BagEasy manual resuscitator, and various masks and related
accessories.
The Company also has 50 registered U.S. and foreign trademarks, and
has additional U.S. and foreign trademark applications pending.
Regulatory Matters
The Company's products are subject to regulation by, among other
governmental entities, the United States Food and Drug Administration (the
"FDA") and corresponding foreign agencies. The FDA regulates the introduction,
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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. The testing for and
preparation of required applications can be expensive, and subsequent FDA review
can be lengthy and uncertain. Moreover, clearance or approval, if granted, can
include significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable FDA regulations can result in fines,
civil penalties, suspensions or revocation of clearances or approvals, recalls
or product seizures, operating restrictions or criminal penalties. Delays in
receipts of or failure to receive, clearances or approvals for the Company's
products for which such clearances or approvals have not been obtained would
adversely affect the marketing of such products in the United States and could
adversely affect the results of future operations.
The Company must obtain FDA or foreign regulatory approval or
clearance for marketing the Company's new devices prior to their release. There
are two primary means by which the FDA permits a medical device to be marketed.
A manufacturer may seek clearance for the device by filing a 510(k) premarket
notification with the FDA. To obtain such clearance, the 510(k) premarket
notification must establish that the device is "substantially equivalent" to a
device that has been legally marketed or was marketed before May 28, 1976. The
manufacturer may not place the device into commercial distribution in the United
States 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. The FDA, however, may determine that the proposed device is not
substantially equivalent, or require further information, such as additional
test data or clinical data, or require the Company to modify its product
labeling, before it will make a finding of substantial equivalence. The process
of obtaining FDA clearance of a 510(k) premarket notification, including
testing, preparation and subsequent FDA review, can take a number of years and
require the expenditure of substantial resources.
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If a manufacturer cannot establish to the FDA's satisfaction that a
new device is substantially equivalent to a legally marketed device, it will
have to seek approval to market the device through the premarket approval
application ("PMA") process. This process involves preclinical studies and
clinical trials. The process of completing clinical trials, submitting a PMA and
obtaining FDA approval takes a number of years and requires the expenditure of
substantial resources. In addition, there can be no assurance that the FDA will
approve a PMA. The Company's export activities and clinical investigations also
are subject to the FDA's jurisdiction and enforcement.
Foreign regulatory approvals vary widely depending on the country. In
January 1996, the Company received ISO 9001 certification from the International
Organization of Standards, a quality standards organization based in Geneva,
Switzerland. At the same time, the Company received authorization, under the
European Union's Medical Device Directives, to affix the "CE Mark" to the
Company's products marketed throughout the world. The primary component of the
certification process was an audit of the Company's quality system conducted by
an independent agency authorized to perform conformity assessments under ISO
guidelines and the Medical Device Directives.
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On December 22, 1994 the Company received a warning letter from the
FDA. A "warning letter" is a statement issued by the FDA that the agency
believes significant violations have occurred and that the agency 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
the file certain MDRs 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 system and for certain claims regarding
that product's use.
The Company believes that the issues relating to complaint processing
and MDRs have been resolved. Although the Company believed that a new 510(k)
notice was not needed, in an effort to cooperate with the FDA and resolve the
third item cited in the warning letter the Company filed with the FDA additional
510(k) premarket notifications with respect to features and uses of BiPAP that
were cited in the warning letter, in each case indicating that the application
was filed without prejudice to the Company's position that no additional filing
was required. In July 1996, the Company received clearance from the FDA for the
first and most complicated of the 510(k) premarket notifications that were filed
in response to the warning letter. Based on the receipt of the clearance, the
Company expects to (but cannot be assured that it will) receive the additional
related clearances that were filed. Accordingly, the Company believes that this
aspect of the FDA's warning letter also has now been resolved.
12
<PAGE>
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 programs including health maintenance
organizations and managed care organizations. The Company's future results of
operations and financial condition could be negatively affected by adverse
changes made in the reimbursement policies for medical products under these
insurance programs. If such changes were to occur, the ability of the Company's
customers (medical product distributors and dealers) to obtain adequate
reimbursement for the 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.
The Company has obtained "procedure codes" for its home care
products from the Health Care Financing Administration ("HCFA"). These
procedure codes enhance the ability of medical product distributors and dealers
to obtain reimbursement for providing products to patients covered by Medicare.
In addition, many private insurance programs also use the HCFA procedure code
system. However, reimbursement levels can be reduced after a procedure code has
been established, as was the case in January 1994 when the reimbursement level
for all nasal CPAP systems was reduced.
The amount of reimbursement that a hospital can obtain under the
Medicare diagnosis related group ("DRG") payment system for utilizing the
Company's products in treating patients is a primary determinant of the revenue
that can be realized by medical product distributors and dealers who resell or
rent the Company's hospital products. Many private insurance programs also
utilize the Medicare DRG system. The various uses of the Company's hospital
products to treat patients are provided within the DRG system. The levels of
reimbursement under the DRG system are also subject to review and change.
Acquisition
On August 26, 1996, the Company announced that it had signed a
definitive agreement to acquire all the capital stock of LIFECARE International,
Inc. ("LIFECARE") for a purchase price of $50 million in cash. The
transaction, which is expected to be completed in October 1996, is subject to
regulatory approval and customary closing conditions.
LIFECARE is a privately held company headquartered in Colorado and is
a leading international developer, manufacturer, and marketer of respiratory
therapy products, principally for use in the home. Its sales for its fiscal
year ended March 31, 1996 were $33.1 million. LIFECARE's primary business focus
is on portable volume ventilators which are used invasively to provide life
support to patients who are dependent on the ventilator, and it holds the
world's leading market share position for devices of that type. LIFECARE has a
modern 75,000 square foot headquarters, manufacturing, and warehouse facility
near Denver, 18 district offices throughout the United States, and a
manufacturing and distribution facility in
13
<PAGE>
Munich, Germany. LIFECARE's products are complimentary to the Company's, and
the Company believes that LIFECARE's facilities and staff of 300 employees
worldwide, including a strong clinical staff in sales and field technical
service positions, will increase the Company's ability to serve its current
and future customers.
Respironics will finance the acquisition primarily with proceeds from
the public offering completed in April 1996. The transaction will be accounted
for as a purchase.
Employees
As of June 30, 1996, the Company had 1,217 employees, including 274
hourly employees in the United States and 478 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 " Sales, Distribution and Marketing " and
set forth in Note H 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
-----------------
Australian ResCare Litigation.
-----------------------------
ResCare Limited, an Australian corporation ("ResCare"),filed suit in Australia
(the "Australian Suit") against the Company's Australian distributor in 1992,
alleging that the Company's CPAP products then being sold by such distributor in
Australia infringed upon an Australian patent (the "Australian Patent")
embodying a substantial part of ResCare's CPAP technology. After trial, the
Australian trial court held that the Company's products infringed the Australian
Patent (which the Court also held to be valid). This decision was appealed, and
in May, 1994 the Australian Court of Appeals reversed the decision of the trial
court, declaring the Australian Patent invalid. This decision also nullified the
trial court's finding that the Company's products infringed upon the Australian
Patent. In October, 1994, the Supreme Court of Australia refused to accept an
appeal of the decision of the Court of Appeals. No further appeals can be made
by ResCare with respect to the decision of the Australian Court of Appeals. The
Australian Patent has now been revoked by the Australian Patent Office in lieu
of the final decision by the Supreme Court of Australia. The Company now is in
the process of prosecuting formal petitions with the Australian courts to
collect from ResCare approximately U.S. $500,000 representing that portion of
the Company's expenses in pursuing the Australian Suit which the Company
believes it is entitled to recover under applicable Australian law.
U.S. ResCare Litigation.
-----------------------
On January 9, 1995 ResCare filed an action (the "California Suit") against the
Company in the United States District Court for the Southern District of
California alleging 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 (the
"ResCare Patents"), two of which are owned by and one of which is licensed to
ResCare. One of the three ResCare Patents was filed in the U.S. shortly after
the Australian Patent (which was held to be invalid in the Australian Suit) was
filed. The other two patents involved in the California Suit deal with mask
applications and with a "ramp" feature of ResCare's CPAP devices. 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 willful infringement of the ResCare patents. The Company has
filed an answer to ResCare's complaint in the California Suit denying, in all
material respects, the allegations of the complaint.
On February 1, 1995 the Company filed an action (the "First Pittsburgh
Suit") in the United States District Court for the Western District of
Pennsylvania (Civil Action No. 95-0151) against ResCare seeking a declaratory
judgment that the three ResCare Patents are invalid and unenforceable and that
the Company does not infringe the patents. Upon the Company's motion, on May 24,
1995, the United States District Court for the Southern District of California
transferred the California Suit to the United States District Court for the
Western District of Pennsylvania.
On June 4, 1996, ResCare (now known as ResMed) filed an action (the
"Second Pittsburgh Suit") in the United States District Court for the Western
District of Pennsylvania (Civil Action No. 96-1062) against the Company alleging
that in the manufacture and sale in the U.S. of CPAP systems the Company
infringes a fourth U.S. patent issued to ResCare on June 4, 1996. This fourth
ResCare patent deals with the "ramp" feature of ResCare's CPAP device which is
also the subject of one of the three patents in the First Pittsburgh Suit. 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 willful infringement of the fourth ResCare patent. The Company
has filed an answer to ResCare's complaint in the Second Pittsburgh Suit
denying, in all material respects, the allegations of the complaint. The First
Pittsburgh Suit, the California Suit and the Second Pittsburgh Suit have now
been consolidated by the Court for trial. Discovery is proceeding. No trial date
has been set. A Motion for Summary Judgment as to non-infringement of the
ResCare mask patent was filed by the Company on August 6, 1996, and argued on
September 4, 1996. The Court has not yet rendered its decision.
It is the Company's belief, based upon its investigation and discovery
to date and upon discussions with its counsel, that the four ResCare patents are
invalid or unenforceable and that, even if they are valid and enforceable, none
of the products infringe any of the patents. The Company intends vigorously to
defend and pursue this litigation and strongly believes that the outcome should
be favorable to it. The sale of products which ResCare alleges infringes the
patents in question constitute approximately one-half of the Company's sales of
OSA products.
14
<PAGE>
Other Matters.
-------------
The Company is, as a normal part of its business operations, a party to other
legal proceedings in addition to those described above. Legal counsel has been
retained for each proceeding and none of these proceedings is expected to have a
material adverse impact on the Company's results of operations or financial
condition.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
During the fourth quarter of the fiscal year 1996, 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.
--------------------
As of June 30, 1996, 19,305,406 shares of the Company's common stock
were issued and outstanding. 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 19, 1996, there were 1,400 holders of record of the
Company's common stock.
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 sales price information for the Company's common stock as
reported on the NASDAQ National Market System for the applicable quarters is
shown below.
Fiscal year ending June 30, 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $19.75 $22.25 $24.75 $23.50
Low $13.75 $17.00 $17.00 $17.25
</TABLE>
Fiscal year ending June 30, 1995:
<TABLE>
<CAPTION>
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>
17
<PAGE>
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
Income Statement Data:
Year Ended June 30
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 125,766 $ 99,450 $ 78,171 $ 69,286 $ 48,976
Cost of goods sold 55,249 43,077 34,830 32,114 23,360
----------- ----------- ----------- ----------- -----------
70,517 56,373 43,341 37,172 25,616
General and administrative expense 16,602 14,050 10,028 10,581 6,538
Sales, marketing and commission expense 20,845 17,696 15,069 12,313 9,211
Research and development expense 9,328 7,077 4,794 3,556 2,311
Nonrecurring charges -0- -0- 7,086 -0- -0-
Interest expense 200 194 171 176 201
Other income (1,615) (1,179) (623) (550) (704)
----------- ----------- ----------- ----------- -----------
Income before income taxes 25,157 18,535 6,816 11,096 8,059
Income taxes 9,819 6,858 2,075 3,717 2,696
----------- ----------- ----------- ----------- -----------
Net income $ 15,338 $ 11,677 $ 4,741 $ 7,379 $ 5,363
=========== =========== =========== =========== ===========
Primary Earnings per share $0.84 $0.67 $0.27 $0.43 $0.31
Weighted Average shares of Common Stock
outstanding and equivalents 18,324,500 17,532,422 17,280,680 17,318,606 17,056,704
<CAPTION>
Balance Sheet Data:
June 30
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital $ 99,434 $ 39,413 $ 31,032 $ 25,172 $ 19,979
Total assets 143,947 78,039 58,917 54,331 43,462
Total long-term obligations 4,966 5,538 4,854 4,288 4,291
Shareholder's equity 121,545 58,369 44,224 39,148 31,391
</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 1996 were $125,800,000, representing a 26%
increase in net sales over the $99,450,000 recorded in fiscal year 1995. 1995
net sales represented a 27% increase over the $78,171,000 recorded in fiscal
year 1994.
The increases in net sales from fiscal year 1995 to fiscal year 1996
and from fiscal year 1994 to fiscal year 1995 were attributable to increases in
total unit sales of the Company's obstructive sleep apnea and ventilatory
support products and reflect 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 significantly in both unit and dollar
terms.
The Company's gross profit was 56% of net sales for fiscal year 1996
as compared to 57% of net sales for fiscal year 1995 and 55% of net sales for
fiscal year 1994. The decrease in gross margin percentage in the fiscal year
1995 to 1996 comparison was primarily caused by reduced average selling prices,
principally for the Company's REMstar Nasal CPAP systems. These reductions in
average selling price resulted from increasing competition in the obstructive
sleep apnea market, particularly relative to the Company's large, national
customers who received lower prices in exchange for volume purchase commitments.
In addition, manufacturing support costs grew from fiscal year 1995 to fiscal
year 1996 at a rate higher than the overall rate of sales growth. The increase
in gross profit percentage in the fiscal year 1994 to 1995 comparison was due
primarily to a 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. This temporary diversion resulted in higher than normal
manufacturing support costs and a correspondingly reduced gross margin
percentage in fiscal year 1994.
General and administrative expenses were $16,602,000 (13% of net
sales) for fiscal year 1996 as compared to $14,050,000 (14% of net sales) for
fiscal year 1995 and $10,028,000 (13% of net sales) for fiscal year 1994. The
increase in absolute dollars from fiscal year 1995 to fiscal year 1996 was due
primarily to an increased provision for year-end profit sharing bonuses based on
financial results achieved and to increased legal fees, including those incurred
related to the previously disclosed ResCare patent litigation. The overall
increase in absolute dollars, however, was still at a rate less than the rate of
increase in sales. The increase in general and administrative expenses from
fiscal year 1994 to fiscal year 1995, both in absolute dollars and as a
percentage of net sales, was due to a
19
<PAGE>
provision for year-end profit sharing bonuses based on financial results
achieved in fiscal year 1995 (there were no profit sharing bonuses in fiscal
year 1994 based on financial results achieved in that year) 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.
Sales, marketing and commission expenses were $20,845,000 (17% of net
sales) for fiscal year 1996 as compared to $17,696,000 (18% of net sales) for
fiscal year 1995 and $15,069,000 (19% of net sales) for fiscal year 1994. These
increases in absolute dollars were due to higher commissions paid to independent
sales representatives based on the increased sales levels achieved, increased
trade show and related travel expenses, and increased salary expenses, primarily
for new employees in sales and marketing management and training and medical
education, and, for the fiscal 1994 to fiscal 1995 comparison, product
literature and advertising expenses incurred in anticipation of new product
launches. The overall increases in absolute dollars, however, were still at
rates less than the rate of increase in sales.
Research and development expenses were $9,328,000 (7% of net sales)
for fiscal year 1996 as compared to $7,077,000 (7% of net sales) for fiscal year
1995 and $4,794,000 (6% of net sales) for fiscal year 1994. The continuing
increases in research and development spending reflect the extensive new product
development efforts that were conducted during the three year period in all of
the Company's major product groups. A new family of obstructive sleep apnea
therapy devices, the Great Performers line, was introduced during fiscal year
1996. The redesigned BagEasy manual resuscitator was introduced in fiscal year
1995, and a variety of patient interface devices were introduced at various
times during the three year period. Additional costs also were incurred
throughout the three year period to fund clinical studies and work involving
opportunities in other respiratory product areas. Finally, the increase in the
fiscal year 1994 to 1995 comparison 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.
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
of that year, 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 to 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 of that year, 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 J and K to the Consolidated
Financial Statements for additional information regarding
20
<PAGE>
these charges. The Company did not incur any nonrecurring charges in fiscal year
1996 or 1995.
The Company's effective income tax rate was 39% for fiscal year 1996
as compared to 37% for fiscal year 1995 and 30% for fiscal year 1994. Changes in
the Company's effective income tax rate are due primarily to changes in the
relative proportions of taxable income attributable to its United States
operation as compared to 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 40% 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 United States
operation and correspondingly reducing the Company's overall effective income
tax rate. In addition, the Company had a research and development tax credit
which expired effective July 1, 1995. This income tax credit had been available
in fiscal years 1995 and 1994 to reduce income taxes paid by the United States
operation and therefore reduce the effective income tax rate.
As a result of the factors described above, the Company's net income
was $15,339,000 (12% of net sales) for fiscal year 1996 as compared to
$11,677,000 (12% of net sales) for fiscal year 1995 and $4,741,000 (6% of net
sales) for fiscal year 1994.
Financial Condition, Liquidity and Capital Resources
The Company had working capital of $99,434,000 and $39,413,000 at June
30, 1996 and 1995, respectively. Net cash provided by operating activities was
$7,838,000, $9,469,000, and $4,568,000 for fiscal years 1996, 1995 and 1994,
respectively. The decrease in cash provided by operating activities from fiscal
year 1995 to fiscal year 1996 was due primarily to an increase in accounts
receivable during fiscal year 1996 in an amount greater than the increase in
that account during fiscal year 1995 and to a tax refund received during fiscal
year 1995. The increase in cash provided by operating activities from fiscal
year 1994 to fiscal year 1995 was due to an increase in net income, the tax
refund received, 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 increase in accounts receivable during fiscal year 1996 described
above was due to growth in international sales at a rate greater than overall
sales growth (all international sales are made on extended payment terms), an
increase in the portion of the Company's domestic sales that were made on
extended payment terms, and, to a lesser extent, an increase in the proportion
of the Company's sales made late in the fiscal year.
21
<PAGE>
Net cash used by investing activities was $6,255,000, $7,711,000, and
$8,415,000 for fiscal years 1996, 1995 and 1994, respectively. Net cash used
for capital expenditures was $6,220,000, $6,941,000, and $7,735,000 for the
respective years. Approximately $2,643,000 of the capital expenditures for
fiscal year 1994 was 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 1996, 1995 and 1994 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 M 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 $1,133,000 Pennsylvania Industrial
Development Authority Loan that was received 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 $46,832,000
from a public offering of 2,373,589 shares of common stock completed in April
1996 and proceeds from the issuance of common stock under the Company's stock
option plans during each of the years presented.
In October 1995, 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, 1996. 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.
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 2% of the Company's
total sales for the year ended June 30, 1994 and did not make significant
contributions to profitability. In March 1995, the Company began shipping a
redesigned version of the BagEasy manual resuscitator.
In August 1996, the Company announced that it had signed a definitive
agreement to acquire all the capital stock of LIFECARE International, Inc. for
$50 million in cash. This acquisition will reduce the Company's cash and short
term investments and its working capital. In addition, LIFECARE International,
Inc. has long term debt, some of which may be liquidated at or after the
closing. The transaction is expected to be completed in October 1996.
22
<PAGE>
See Note O to the Consolidated Financial Statements for additional information
regarding this acquisition.
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 1997 for operating
activities, investing activities (including the planned acquisition of LIFECARE
International, Inc.) 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
---------------------------------
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
<S> <C>
Report of Independent Auditors............................ 25
Consolidated Balance Sheets as of June 30, 1996 and 1995.. 26
Consolidated Statements of Operations for the
years ended June 30, 1996, 1995 and 1994............... 28
Consolidated Statements of Cash Flows for the
years ended June 30, 1996, 1995 and 1994............... 29
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1996, 1995 and 1994....... 30
Notes to Consolidated Financial Statements................ 31
</TABLE>
24
<PAGE>
Report of Independent Auditors
Board of Directors
Respironics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Respironics,
Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1996. 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, 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.
Ernst & Young LLP
Pittsburgh, Pennsylvania
September 13, 1996
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30
1996 1995
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 65,255,699 $ 16,126,904
Trade accounts receivable, less allowance for
doubtful accounts of $1,200,000 and $700,000 27,883,365 19,448,187
Inventories 17,863,887 13,136,664
Prepaid expenses and other 2,522,327 1,951,358
Deferred income tax benefits 2,457,453 2,200,595
------------ ------------
TOTAL CURRENT ASSETS 115,982,731 52,863,708
PROPERTY, PLANT AND EQUIPMENT
Land 2,771,934 2,589,117
Building 8,907,692 8,674,675
Machinery and equipment 17,219,371 14,155,510
Furniture and office equipment 11,642,943 9,394,000
Leasehold improvements 1,068,851 577,175
------------ ------------
41,610,791 35,390,477
Less allowances for depreciation
and amortization 19,294,440 15,443,041
------------ ------------
22,316,351 19,947,436
Funds held in trust for construction
of new facility 746,114 710,929
OTHER ASSETS 3,210,802 2,668,592
COST IN EXCESS OF NET ASSETS OF
BUSINESS ACQUIRED 1,690,636 1,847,905
------------ ------------
$143,946,634 $ 78,038,570
============ ============
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
June 30
1996 1995
--------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,178,301 $ 4,858,554
Accrued compensation and related expenses 5,088,077 3,827,187
Accrued expenses 3,801,780 2,694,298
Income taxes 2,907,545 1,572,121
Current portion of long-term obligations 572,905 498,150
------------ -----------
TOTAL CURRENT LIABILITIES 16,548,608 13,450,310
LONG-TERM OBLIGATIONS 4,965,871 5,537,996
MINORITY INTEREST 887,320 681,068
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
19,305,406 shares at June 30, 1996 and
16,744,785 shares at June 30, 1995 193,054 167,448
Additional capital 67,105,290 19,254,977
Retained earnings 54,285,379 38,946,771
Treasury stock (38,888) -0-
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 121,544,835 58,369,196
------------ -----------
$143,946,634 $78,038,570
============ ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
Net sales $125,766,388 $99,450,333 $78,171,028
Cost of goods sold 55,248,973 43,077,158 34,830,308
------------ ----------- -----------
70,517,415 56,373,175 43,340,720
General and administrative expenses 16,602,072 14,050,071 10,027,842
Sales, marketing and commission expenses 20,844,836 17,696,059 15,069,159
Research and development expenses 9,328,293 7,077,216 4,794,242
Nonrecurring charges -0- -0- 7,086,085
Interest expense 199,926 193,550 171,223
Other income (1,615,320) (1,178,685) (624,180)
------------ ----------- -----------
45,359,807 37,838,211 36,524,371
------------ ----------- -----------
INCOME BEFORE INCOME TAXES 25,157,608 18,534,964 6,816,349
Income taxes 9,819,000 6,857,937 2,075,105
------------ ----------- -----------
NET INCOME $15,338,608 $11,677,027 $ 4,741,244
============ =========== ===========
Earnings per share 0.84 0.67 $ 0.27
============ =========== ===========
Weighted Average Number of Shares
Used in Computing Earnings Per Share 18,324,500 17,532,422 17,280,680
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $15,338,608 $11,677,027 $ 4,741,244
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,008,668 3,831,793 3,571,500
Provision for deferred income taxes (256,858) (178,819) 191,763
Provision for losses on write-off of equipment -0- -0- 270,791
Provision for losses on accounts receivable 500,000 175,000 75,000
Loss on sale of equipment -0- 35,719 -0-
Provision for nonrecurring charges -0- -0- 5,120,000
Changes in operating assets and liabilities:
Increase in accounts receivable (8,935,178) (4,515,077) (3,812,916)
Decrease (increase) in refundable income taxes -0- 1,787,265 (1,787,265)
Increase in inventories and prepaid
expenses (5,298,192) (5,770,417) (1,057,575)
Increase in other assets (542,210) (1,448,295) (949,001)
(Decrease) increase in accounts payable (680,253) 1,680,521 (738,842)
Increase (decrease) in accrued compensation
and related expenses 1,260,890 764,557 (947,563)
Increase in accrued expenses 1,107,482 516,442 528,074
Increase (decrease) in accrued income taxes 1,335,424 912,999 (636,912)
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,838,381 9,468,715 4,568,298
INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,220,314) (6,940,667) (7,734,854)
Proceeds from sale of equipment -0- 5,503 -0-
Increase in funds held in trust for construction
of new facility (35,185) (30,557) (680,372)
Acquisition of a business, net of cash acquired -0- (745,433) -0-
----------- ----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (6,255,499) (7,711,154) (8,415,226)
FINANCING ACTIVITIES
Proceeds from long-term obligations -0- 1,132,760 978,396
Reduction in long-term obligations (497,370) (355,920) (382,508)
Issuance of common stock 47,875,919 1,191,649 335,280
Increase in minority interest 206,252 16,800 664,268
Acquisition of treasury stock (38,888) -0- -0-
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 47,545,913 1,985,289 1,595,436
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 49,128,795 3,742,850 (2,251,492)
Cash and short-term investments at beginning of year 16,126,904 12,384,054 14,635,546
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $65,255,699 $16,126,904 $12,384,054
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
29
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------- Additional Retained -----------------
Shares Amount Capital Earnings Shares Amount Total
---------- --------- ----------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 16,229,160 $ 162,292 $16,456,793 $22,528,500 -0- $ -0- $39,147,585
Net income for the year ended
June 30, 1994 -0- -0- -0- 4,741,244 -0- -0- 4,741,244
Shares sold pursuant to stock
option plans 107,530 1,074 289,526 -0- -0- -0- 290,600
Shares sold pursuant to
consulting agreement 8,000 80 44,600 -0- -0- -0- 44,680
---------- --------- ----------- ----------- ------ -------- -----------
BALANCE AT JUNE 30, 1994 16,344,690 163,446 16,790,919 27,269,744 -0- -0- 44,224,109
Net income for the year ended
June 30, 1995 -0- -0- -0- 11,677,027 -0- -0- 11,677,027
Shares sold pursuant to stock
option plans 315,001 3,150 1,188,499 -0- -0- -0- 1,191,649
Acquisition of a business 85,094 852 1,275,559 -0- -0- -0- 1,276,411
---------- --------- ----------- ----------- ------ --------- ------------
BALANCE AT JUNE 30, 1995 16,744,785 167,448 19,254,977 38,946,771 -0- -0- 58,369,196
Net income for the year ended
June 30, 1996 -0- -0- -0- 15,338,608 -0- -0- 15,338,608
Shares sold pursuant to stock
option plans 187,032 1,870 1,018,722 -0- -0- -0- 1,020,592
Acquisition of treasury stock -0- -0- -0- -0- 1,819 (38,888) (38,888)
Net proceeds from shares sold
in public offering 2,373,589 23,736 46,831,591 -0- -0- -0- 46,855,327
---------- --------- ----------- ----------- ------ --------- ------------
BALANCE AT JUNE 30, 1996 19,305,406 $ 193,054 $67,105,290 $54,285,379 1,819 $(38,888) $121,544,835
========== ========= =========== =========== ====== ========= ============
</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:
- ------------
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrrying
value of assets and liabilities.
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 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. The Company follows the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for stock based compensation.
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 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.
31
<PAGE>
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 were introduced during the year ended June 30, 1996 or are expected to
be introduced for sale during the year ending June 30, 1997. Total net
capitalized software development costs were $2,676,000 and $1,982,000 at
June 30, 1996 and 1995, respectively.
Advertising Costs:
- ------------------
Advertising is charged to expense during the period in which it is incurred.
Total advertising expense for the fiscal years ended June 30, 1996, 1995 and
1994 were $429,250, $430,913, $323,540 respectively.
Use of Estimates:
- -----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statement and accompanying notes.
Actual results could differ from those estimates.
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
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $11,047,978 $ 7,960,573
Work-in-process 2,075,329 1,105,010
Finished goods 4,740,580 4,071,081
----------- -----------
$17,863,887 $13,136,664
=========== ===========
</TABLE>
32
<PAGE>
NOTE D -- LONG TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
June 30
1996 1995
---------- ----------
<S> <C> <C>
1989 Economic Development
Revenue Bonds, variable interest
rate (effective rate of 4.58%,
including letter of credit and
remarketing fees, at June
30,1996), principal payable in
annual installments of $100,000
through 1996 and $200,000
thereafter through 2004 $1,800,000 $1,900,000
Industrial Development Authority
Loan, payable in monthly install-
ments of $13,777, including interest
at 3%, through June 2005 1,282,938 1,407,312
Redevelopment Authority Loan,
payable in quarterly installments
of $14,533, including interest at 5%,
through June 2005 446,420 481,137
Capital lease obligation, payable in
quarterly installments of $19,834
including interest at a floating rate
(2.25% at June 30, 1996)
through June 1997 57,918 131,581
Redevelopment Authority Loan,
payable in monthly installments of
$6,296, including interest at 2%,
through July 2009 864,253 921,894
Capital lease obligation, payable in
monthly installments of $1,860,
including interest at 4.60%,
through January 1996 -0- 13,889
Industrial Development Authority
Loan, payable in monthly install-
ments of $7,289, including interest
at 2%, through March 2010 1,064,883 1,132,240
Capital lease obligation, payable in
monthly installments of $2,284,
including interest at 4.62%,
through April 1997 22,364 48,093
---------- ----------
5,538,776 6,036,146
Less current portion 572,905 498,150
---------- ----------
$4,965,871 $5,537,996
========== ==========
</TABLE>
33
<PAGE>
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
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, 1996 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 consist of machinery and equipment and office
equipment with a net book value of $40,499 and $149,228 at June 30, 1996 and
1995 respectively. 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 $0, $52,265, and $44,869
for the years ended June 30, 1996, 1995 and 1994 respectively.
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, 1996. 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
Maturities of Payments Under on Capital
Long-Term Debt Capital Leases Leases Total
-------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
1997 $ 492,623 $82,343 $(2,061) $ 572,905
1998 500,847 -0- -0- 500,847
1999 509,516 -0- -0- 509,516
2000 518,370 -0- -0- 518,370
2001 527,500 -0- -0- 527,500
Thereafter 2,909,638 -0- -0- 2,909,638
---------- ------- ------- ----------
Total $5,458,494 $82,343 $(2,061) $5,538,776
========== ======= ======= ==========
</TABLE>
Interest paid was $ 203,764, $194,220, and $167,718 for the years ended June 30,
1996, 1995, and 1994, respectively.
NOTE E - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments
Cash and short term investments:
- -------------------------------
The carrying amount approximates fair value because of the short maturity of
those investments.
Long Term Obligations:
- ---------------------
The fair values of long term debt obligations are established from the market
values of similar issues.
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
June 30
1996 1995
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Cash and short term investments $65,255,699 $65,255,699 $16,126,904 $16,126,904
Long term obligations 4,965,871 4,965,871 5,537,996 5,537,996
</TABLE>
34
<PAGE>
NOTE F -- INCOME TAXES
<TABLE>
<CAPTION>
Year Ended
June 30
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Income taxes consisted of:
Current:
Federal $ 8,280,388 $5,379,275 $1,509,015
Foreign 96,316 197,943 60,112
State 1,699,154 1,459,538 314,214
---------- --------- ---------
10,075,858 7,036,756 1,883,341
Deferred:
Federal (216,330) (165,132) 151,826
State (40,508) (13,687) 39,938
---------- --------- ---------
(256,858) (178,819) 191,764
---------- --------- ---------
TOTAL INCOME TAXES $ 9,819,000 $6,857,937 $2,075,105
=========== ========== ==========
</TABLE>
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
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income
tax rate 35% 35% 34%
Increases (decreases):
State taxes 4 5 3
Tax credits utilized -0- (3) (7)
Tax on foreign earnings at less than
the statutory rate (1) -0- (5)
Other items, net, none of which
individually exceeds 5% of
federal income taxes at statutory
rates 1 -0- 5
---- ---- ----
EFFECTIVE INCOME TAX RATE 39% 37% 30%
==== ==== ====
</TABLE>
Deferred income tax assets consisted of the following:
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995
---- ----
<S> <C> <C>
Inventories $ 329,589 $ 600,513
Allowance for doubtful
accounts 402,575 245,804
Depreciation 609,810 635,128
Accruals 1,110,855 673,926
Other 4,624 45,224
----------- ----------
Total $ 2,457,453 $2,200,595
=========== ==========
</TABLE>
Income before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $23,793,338 $17,935,537 $5,578,476
Foreign 1,364,270 599,427 1,237,873
----------- ----------- ----------
Total $25,157,608 $18,534,964 $6,816,349
=========== =========== ==========
</TABLE>
35
<PAGE>
Undistributed earnings of the foreign subsidiary on which no U.S. income tax has
been provided amounted to $10,200,439 at June 30, 1996.
The Company's operation in the Peoples Republic of China is affected by an
income tax holiday. Net income increased by $433,895 ($0.02 per share),
$339,851 ($0.02 per share), and $345,564 ($0.02 per share) for the years ended
June 30, 1996,1995, and 1994 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 year ended June 30,
1994. The income tax rate increased to 7.5% for the years ended June 30, 1995
and 1996 and will remain at 7.5% for year ending June 30, 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 $8,740,435, $4,335,733, and $4,620,928 for the years
ended June 30, 1996, 1995, and 1994, respectively.
NOTE G -- 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.
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.
In connection with the 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.
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
succeeding years, each non-employee director receives 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
shares 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.
36
<PAGE>
Pertinent information regarding options under all Plans are as follows:
<TABLE>
<CAPTION>
Option Shares
-------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Outstanding at beginning of period 1,621,401 1,921,926 1,768,860
Granted:
Price Range ($13.38 - $22.75) 90,425
Price Range ($11.25 - $16.25) 78,252
Price Range ($ 8.32 - $9.88) 266,460
Exercised:
Price Range ($1.00 - $16.25) (187,032)
Price Range ($1.00 - $10.07) (315,001)
Price Range ($1.00 - $6.22) (107,530)
Canceled (8,363) (63,776) (5,864)
------------ ----------- -----------
Outstanding at end of period 1,516,431 1,621,401 1,921,926
============ =========== ===========
Exercisable at end of period 1,232,224 1,256,387 1,248,883
============ =========== ===========
Shares available for future grant 807,863 898,288 976,540
============ =========== ===========
</TABLE>
NOTE H -- FINANCIAL INFORMATION BY GEOGRAPHIC AREAS AND MAJOR
CUSTOMERS
<TABLE>
<CAPTION>
Year Ended June 30
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
NET SALES
Far East:
Unaffiliated customers $ 4,410,018 $ 1,720,248 $ 1,462,292
Interarea transfers 7,433,684 8,430,823 7,312,399
------------ ----------- -----------
11,843,702 10,151,071 8,774,691
United States:
Unaffiliated customers 121,356,370 97,730,086 76,708,736
Interarea transfers 551,002 750,744 543,883
------------ ----------- -----------
121,907,372 98,480,830 77,252,619
Eliminations--transfers (7,984,686) (9,181,567) (7,856,282)
------------ ----------- -----------
NET SALES $125,766,388 $99,450,333 $78,171,028
============ =========== ===========
OPERATING PROFIT
Far East $ 1,543,241 $ 877,325 $ 1,538,966
United States 28,536,740 22,239,437 9,315,357
------------ ----------- -----------
OPERATING PROFIT 30,079,981 23,116,762 10,854,323
Corporate expense 4,722,447 4,388,248 3,866,751
Interest expense 199,926 193,550 171,223
------------ ----------- -----------
INCOME BEFORE INCOME
TAXES $ 25,157,608 $18,534,964 $ 6,816,349
============ =========== ===========
</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 of the United States segment (which merged
with another customer in August 1995) accounting for 10% or more of net sales
were $20,495,000 for the year ended June 30, 1996. Sales to the same customer
prior to the merger were $10,955,000 for the year ended June 30, 1995 and
$8,569,000 for the year ended June 30, 1994.
Additional information regarding assets and liabilities by geographic area
follows:
<TABLE>
<CAPTION>
June 30
1996 1995
------------ ------------
<S> <C> <C>
IDENTIFIABLE ASSETS
Far East $ 8,416,965 $ 5,597,154
United States 68,133,435 54,113,917
------------ -----------
76,550,400 59,711,071
Corporate assets (primarily
cash and short-term
investments) 67,396,234 18,327,499
------------ -----------
TOTAL ASSETS $143,946,634 $78,038,570
============ ===========
TOTAL ASSETS
Far East $ 14,202,072 $11,140,130
United States 129,744,562 66,898,440
------------ -----------
$143,946,634 $78,038,570
============ ===========
TOTAL LIABILITIES
Far East $ 3,026,017 $ 2,712,833
United States 19,375,782 16,956,541
------------ -----------
$ 22,401,799 $19,669,374
============ ===========
</TABLE>
NOTE I-- 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 $433,000, $420,000, and $357,000 to the
plan for the years ended June 30, 1996, 1995, and 1994, respectively.
The Company's current benefit program does not provide postretirement benefits
to employees.
38
<PAGE>
NOTE J -- DISTRIBUTION AGREEMENT
In June 1991, the Company entered into a distribution agreement with the owner
of a non-invasive ventilator product. Under the terms of the agreement, the
Company had the exclusive United States distribution rights for a product that
was to be 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
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 K -- 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 L -- JOINT VENTURE
In fiscal year 1994, 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.
NOTE M -- 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 N -- CONTINGENCY
The Company is a party to actions filed in a federal District Court in January
1995 and June 1996 in which a competitor alleges that the Company's manufacture
and sale in the United States of certain products infringes four of the
competitor's patents. In its response to these actions, the Company has denied
the allegations and has separately sought a declaratory judgment that the claims
under the patents are invalid or unenforceable and that the Company does not
infringe upon the patents. Discovery in these cases is currently underway. 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 enforceable and it intends to vigorously defend this position.
NOTE O -- SUBSEQUENT EVENT
On August 26, 1996 the Company announced that it had signed a definitive
agreement to acquire the capital stock of LIFECARE International, Inc. for a
purchase price of $50 million in cash. The transaction is subject to regulatory
approval and customary closing conditions. LIFECARE International, Inc. is a
privately held company headquartered in Colorado and is a leading international
developer, manufacturer, and marketer of respiratory therapy products,
principally for use in the home. Its sales for its fiscal year ended March 31,
1996 were $33.1 million. The transaction is expected to be completed in October
1996.
39
<PAGE>
NOTE P -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following are the unaudited quarterly results of operations for the fiscal years
ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996
----
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $26,674,675 $30,241,119 $32,651,155 $36,199,439
Gross Profit 15,160,165 16,860,310 18,174,637 20,322,303
Net Income 3,219,272 3,508,968 3,799,113 4,811,256
Earnings Per Share 0.18 0.20 0.21 0.24
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
</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, 1996
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 20, 1996, 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, dated September 13,
1996, 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:
Valuation and Qualifying Accounts............ 44
(a) (3) Exhibits:.................................... 45
--------
43
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
RESPIRONICS, INC.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
Balance at ------------------------------------ Balance at
DESCRIPTION Beginning of Charged to Costs Charged to Other Deductions-Describe End of
Period and Expenses Accounts-Describe Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $700,000 $500,000 $0 $0 $1,200,000
======== ======== == == ==========
Year ended June 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $525,000 $175,000 $0 $0 $700,000
======== ======== == == ==========
Year ended June 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $450,000 $75,000 $0 $0 $525,000
======== ======== == == ==========
</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 the 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 to Annual Report on Form 10-K for Fiscal Year ending
June 30, 1995.
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.
10.6 Loan Agreement dated as of May 23, 1989 with Pittsburgh
National Bank, filed as Exhibit 10.10 to Annual Report on
Form 10-K for Fiscal Year ending June 30, 1989.
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.
10.9 Employment Agreement dated December 23, 1988 and
effective January 3, 1989 between the Company and Robert
D. Crouch, filed as Exhibit 1 to the Company's Form 10-Q
for the quarter ended March 31, 1989.
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.
10.13 Amendment to Loan Agreement dated as of February 19, 1993
with Pittsburgh National Bank, amending Exhibit 10.15 to
Form S-1, Registration No. 33-39938, filed as Exhibit
10.13 to Annual Report on Form 10-K for fiscal year
ending June 30, 1993.
46
<PAGE>
10.14 Tenancy Agreement dated May 1, 1992 between Micro
Electronics Ltd., as Lessor, and Respironics (HK)
Limited, as Lessee, expiring on April 30, 1995, amending
Exhibit 10.19 to Annual Report on Form 10-K for Fiscal
Year ending June 30, 1990, filed as Exhibit 10.14 to
Annual Report on Form 10-K for Fiscal Year ending June
30, 1992.
10.15 Distribution Agreement dated June 20, 1991 between the
Company and Flexco Medical Instruments AG, filed as
Exhibit 10.15 to Annual Report on Form 10-K for Fiscal
Year ending June 30, 1991.
10.16 Tenancy Agreement dated September 13, 1990 between Fu
Kwok (Shenzen) Ltd. as Lessor and Respironics (HK) Ltd.
expiring on October 15, 1993, filed as Exhibit 10.16 to
Annual Report on Form 10-K for Fiscal Year ending June
30, 1992.
10.17 Line of Credit Agreement dated October 28, 1993 with PNC
Bank, Pittsburgh, filed as Exhibit 10.17 to Annual Report
on Form 10-K for Fiscal Year ending June 30, 1994.
10.18 Line of Credit Agreement dated November 14, 1995 with PNC
Bank, filed as Exhibit 10.18 to Annual Report on Form 10-
K for Fiscal Year ending June 30, 1995.
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 Annual Report on Form 10-K for Fiscal
Year ending June 30, 1995.
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.
47
<PAGE>
10.24 Line of Credit Extension dated January 31, 1996 with PNC
Bank, filed as Exhibit 10.24 to this Annual Report.
10.25 Agreement for Purchase and Sale of Stock dated as of
August 21, 1996 among Respironics, Inc., LIFECARE
International, Inc. and LIFECARE stockholders, filed as
Exhibit 10.25 to this Annual Report.
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
(b) Reports on Form 8-K:
--------------------
Two Form 8-K's were filed resulting from events that occurred during
the fourth quarter of fiscal year 1996. On May 22, 1996, the Company filed a
Form 8-K announcing the election of Daniel J. Bevevino to the position of Vice-
President and Chief Financial Officer. Mr. Bevevino had been the Company's
Controller and Chief Financial Officer. Also on May 22, 1996, the Company
filed a Form 8-K announcing the election of Donald H. Jones to the Company's
Board of Directors. Mr. Jones is the Chairman of Industry.Net, an electronic
news service utilizing the Internet.
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 26, 1996
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 26, 1996:
/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 Donald H. Jones
(Vice President and Chief Financial (Director)
and Accounting Officer)
/s/ Gerald E. McGinnis
___________________________________ ___________________________________
Gerald E. McGinnis Joseph C. Lawyer
(Chairman of the (Director)
Board of Directors)
/s/ George J. Magovern
___________________________________ ___________________________________
Daniel P. Barry George J. Magovern, M.D.
(Director) (Director)
/s/ Douglas A. Cotter
___________________________________ ___________________________________
Douglas A. Cotter Bernard Shou-Chung Zau
(Director) (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 the 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 to Annual Report on Form 10-K for Fiscal Year ending
June 30, 1995.
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.
<PAGE>
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.
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.
10.6 Loan Agreement dated as of May 23, 1989 with Pittsburgh
National Bank, filed as Exhibit 10.10 to Annual Report on
Form 10-K for Fiscal Year ending June 30, 1989.
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.
10.9 Employment Agreement dated December 23, 1988 and
effective January 3, 1989 between the Company and Robert
D. Crouch, filed as Exhibit 1 to the Company's Form 10-Q
for the quarter ended March 31, 1989.
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.
10.13 Amendment to Loan Agreement dated as of February 19, 1993
with Pittsburgh National Bank, amending Exhibit 10.15 to
Form
<PAGE>
S-1, Registration No. 33-39938, filed as Exhibit
10.13 to Annual Report on Form 10-K for fiscal year
ending June 30, 1993.
10.14 Tenancy Agreement dated May 1, 1992 between Micro
Electronics Ltd., as Lessor, and Respironics (HK)
Limited, as Lessee, expiring on April 30, 1995, amending
Exhibit 10.19 to Annual Report on Form 10-K for Fiscal
Year ending June 30, 1990, filed as Exhibit 10.14 to
Annual Report on Form 10-K for Fiscal Year ending June
30, 1992.
10.15 Distribution Agreement dated June 20, 1991 between the
Company and Flexco Medical Instruments AG, filed as
Exhibit 10.15 to Annual Report on Form 10-K for Fiscal
Year ending June 30, 1991.
10.16 Tenancy Agreement dated September 13, 1990 between Fu
Kwok (Shenzen) Ltd. as Lessor and Respironics (HK) Ltd.
expiring on October 15, 1993, filed as Exhibit 10.16 to
Annual Report on Form 10-K for Fiscal Year ending June
30, 1992.
10.17 Line of Credit Agreement dated October 28, 1993 with PNC
Bank, Pittsburgh, filed as Exhibit 10.17 to Annual Report
on Form 10-K for Fiscal Year ending June 30, 1994.
10.18 Line of Credit Agreement dated November 14, 1995 with PNC
Bank, filed as Exhibit 10.18 to Annual Report on Form 10-
K for Fiscal Year ending June 30, 1995.
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 Annual Report on Form 10-K for Fiscal
Year ending June 30, 1995.
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.
<PAGE>
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.
10.24 Line of Credit Extension dated January 31, 1996 with PNC
Bank, filed herewith at page _______.
10.25 Agreement for Purchase and Sale of Stock dated as of
August 21, 1996 among Respironics, Inc., LIFECARE
International, Inc. and LIFECARE stockholders, filed
herewith at page _______.
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>
PNC Bank, N.A.
Pittsburgh, PA 15265
Exhibit 10.24
January 31, 1996 [LOGO OF PNCBANK]
Respironics, Inc.
1001 Murry Ridge Drive
Murrysville, Pennsylvania 15668
Attn: James Woll, Treasurer
Re: Extension of Expiration Date
for Committed Line of Credit
Dear Mr. Woll:
We are please to inform you that the Expiration Date, as set forth in that
certain Letter Agreement dated November 14, 1994, and in the Committed Line of
Credit Note executed and delivered pursuant to that Letter Agreement, has been
extended from January 31, 1996 to October 30, 1996. This extension is
conditioned upon your payment of an extension fee of $2,500.00. All other terms
and conditions of the Committed Line of Credit Note and the Letter Agreement
remain in full force and effect.
It has been a pleasure working with you and I look forward to a continued
successful relationship. Thank you again for your business.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
/s/ Michael Hammond
Michael Hammond
Vice President
<PAGE>
Exhibit 10.25
Conformed Copy
--------------
================================================================================
AGREEMENT FOR PURCHASE AND SALE OF STOCK
dated as of August 21, 1996
among
RESPIRONICS, INC.,
LIFECARE(R) INTERNATIONAL, INC.
and
LIFECARE STOCKHOLDERS
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF SHARES................................ 1
Section 1.1 Sale and Purchase of Shares................ 1
ARTICLE II THE CLOSING................................................ 2
Section 2.1 Closing.................................... 2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE COMPANY STOCKHOLDERS..................... 3
Section 3.1 Organization of the Company
and Its Subsidiaries..................... 3
Section 3.2 Capital Structure.......................... 3
Section 3.3 Authority; No Conflict; Required
Filings and Consents..................... 5
Section 3.4 Financial Statements....................... 6
Section 3.5 No Undisclosed Liabilities................. 6
Section 3.6 Absence of Certain Changes
or Events................................ 7
Section 3.7 Properties; Encumbrances................... 7
Section 3.8 Fixed Assets; Plant and Equipment.......... 7
Section 3.9 Bank Accounts.............................. 8
Section 3.10 Taxes...................................... 8
Section 3.11 Intellectual Property...................... 9
Section 3.12 Contracts and Commitments.................. 11
Section 3.13 Customer Orders, Commitments and
Returns.................................. 13
Section 3.14 Insurance.................................. 14
Section 3.15 Labor Unions; Employee Relations........... 14
Section 3.16 Litigation................................. 15
Section 3.17 Products and Warranty Liability............ 15
Section 3.18 Employee Benefit Plans..................... 15
Section 3.19 Personnel.................................. 17
Section 3.20 Agreements in Full Force and
Effect................................... 18
Section 3.21 Compliance with Laws....................... 18
Section 3.22 Brokers and Finders........................ 18
Section 3.23 Disclosure................................. 18
Section 3.24 Title to the Shares........................ 18
Section 3.25 Environmental Matters...................... 19
Section 3.26 Licenses and Permits, Etc.................. 21
Section 3.27 Accounts Receivable; Inventory............. 22
Section 3.28 Books of Account; Records.................. 22
Section 3.29 Rental Pool Equipment...................... 22
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER................ 22
Section 4.1 Organization of Purchaser.................. 22
Section 4.2 Authority; No Conflict; Required
Filings and Consents..................... 23
Section 4.3 Brokers and Finders........................ 23
Section 4.4 Disclosure................................. 24
Section 4.5 Financial Assurances....................... 24
ARTICLE V CONDUCT OF BUSINESS........................................ 24
Section 5.1 Covenants of the Company................... 24
Section 5.2 Cooperation................................ 26
ARTICLE VI ADDITIONAL AGREEMENTS...................................... 26
Section 6.1 No Solicitation............................ 26
Section 6.2 Access to Information...................... 27
Section 6.3 Supplements to the Company
Disclosure Schedule...................... 27
Section 6.4 Public Disclosure.......................... 28
Section 6.5 Consents................................... 28
Section 6.6 Access to Customers, Employees,
Lenders and Others....................... 28
Section 6.7 SEC Filing................................. 28
Section 6.8 Additional Agreements;
Reasonable Best Efforts.................. 29
ARTICLE VII CONDITIONS TO TRANSACTION.................................. 29
Section 7.1 Conditions to Obligations of
Purchaser, the Company and the
Company Stockholders to
Effect the Transaction................... 29
Section 7.2 Additional Conditions to
Obligations of Purchaser................. 29
Section 7.3 Additional Conditions to
Obligations of the Company............... 32
ARTICLE VIII SURVIVAL AND INDEMNIFICATION............................... 32
Section 8.1 Survival................................... 32
Section 8.2 Indemnification by the Company
Stockholders............................. 33
Section 8.3 Indemnification by Purchaser............... 34
Section 8.4 Procedures Relating to
Indemnification.......................... 34
ARTICLE IX TERMINATION; FEES AND EXPENSES............................. 36
Section 9.1 Termination................................ 36
Section 9.2 Effect of Termination...................... 36
Section 9.3 Fees and Expenses.......................... 37
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE X MISCELLANEOUS.............................................. 37
Section 10.1 Amendment.................................. 37
Section 10.2 Extension; Waiver.......................... 37
Section 10.3 Notices.................................... 37
Section 10.4 Interpretation............................. 39
Section 10.5 Counterparts............................... 39
Section 10.6 Entire Agreement; No
Third-Party Beneficiaries................ 39
Section 10.7 Governing Law.............................. 39
Section 10.8 Severability............................... 39
Section 10.9 Assignment; Successors,
Assigns and Heirs........................ 39
</TABLE>
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<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross-Reference
---------------
Terms In Agreement
- ----- ------------
<S> <C>
Acquisition Proposal.................................................Section 6.1
Agreement...............................................................Preamble
Claim.............................................................Section 8.4(a)
Closing...........................................................Section 2.1(a)
Closing Date......................................................Section 2.1(a)
Code.............................................................Section 3.10(f)
Company.................................................................Preamble
Company Balance Sheets............................................Section 3.4(a)
Company Bylaws....................................................Section 3.3(c)
Company Closing Certificate.......................................Section 2.1(b)
Company Common Stock....................................................Preamble
Company Disclosure Schedule..........................................Article III
Company Employee Plans...........................................Section 3.18(a)
Company Financial Statements......................................Section 3.4(a)
Company Intellectual Property Rights.............................Section 3.11(a)
Company Stockholders....................................................Preamble
Company Third-Party Intellectual Property Rights.................Section 3.11(a)
Confidentiality Agreement.........................................Section 6.2(b)
ERISA............................................................Section 3.18(a)
ERISA Affiliate..................................................Section 3.18(a)
Exchange Act......................................................Section 3.2(c)
Foothills.........................................................Section 3.2(e)
Governmental Entity...............................................Section 3.3(d)
Indemnified Party.................................................Section 8.4(a)
Indemnifying Party................................................Section 8.4(a)
IRS..............................................................Section 3.18(b)
LIFECARE Europe...................................................Section 3.2(b)
LIFECARE Rentals..................................................Section 3.2(d)
Loss..............................................................Section 8.2(a)
Losses............................................................Section 8.2(a)
Material Adverse Effect...........................................Section 3.1(a)
Purchase Price....................................................Section 1.1(b)
Purchaser SEC Reports.............................................Section 4.3(a)
Purchaser...............................................................Preamble
Purchaser Representatives............................................Section 6.6
SEC...............................................................Section 4.3(a)
Securities Act....................................................Section 3.2(e)
Shares..................................................................Preamble
Stockholders' Representative......................................Section 8.2(c)
Tax Return.......................................................Section 3.10(h)
Taxes............................................................Section 3.10(h)
Third-Party Claim.................................................Section 8.4(b)
Transaction.............................................................Preamble
</TABLE>
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<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
AGREEMENT FOR PURCHASE AND SALE OF STOCK, dated as of August 21, 1996
(the "Agreement"), by and among RESPIRONICS, INC., a Delaware corporation
("Purchaser"), LIFECARE International, Inc., a Colorado corporation ("the
Company"), and the individuals listed on Schedule 1.1(a) attached hereto (the
"Company Stockholders").
WHEREAS, at the date hereof, the Company Stockholders are collectively
the owners of all of the issued and outstanding shares of the voting common
stock, $.10 par value (the "Company Common Stock") of the Company; and
WHEREAS the Purchaser wishes to purchase from the Company Stockholders
an aggregate of 282,329 Shares of Common Stock (hereinafter referred to as the
"Shares"), in the respective numbers and for the respective consideration set
forth on Schedule 1(a) hereinafter referred to, and the Company Stockholders
wish to sell the Shares to the Purchaser, all upon the terms and conditions
herein set forth (the "Transaction"); and
WHEREAS the parties hereto further contemplate the execution and
delivery of certain collateral agreements and the consummation of certain
related and other transactions herein described and therefore, the Company has
joined in the execution hereof to evidence its agreement with respect to certain
of such transactions;
NOW, THEREFORE, the Purchaser, the Company and the Company
Stockholders agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Sale and Purchase of Shares. The purchase and sale of
---------------------------
the Shares shall be accomplished as follows:
(a) Sale of Shares. Each of the Company Stockholders agrees, subject
--------------
to the conditions of their obligations herein set forth, to sell to the
Purchaser, or to cause to be sold to the Purchaser, on the Closing Date (as
hereinafter defined), free and clear of all security interests, pledges,
mortgages, liens, charges, and encumbrances, the number of the Shares described
and set opposite the name of each of the Company Stockholders on Schedule 1.1(a)
attached hereto, and the Purchaser agrees, subject to the conditions of its
obligations herein set forth, to purchase and accept the Shares from each of the
Company Stockholders for the consideration payable in cash,
<PAGE>
set opposite the name of each of the Company Stockholders on Schedule 1(a)
hereto.
(b) Payment of Consideration. The consideration to be paid by the
------------------------
Purchaser for the Shares is Fifty Million Dollars ($50,000,000) (the "Purchase
Price").
ARTICLE II
THE CLOSING
Section 2.1 Closing.
(a) Date and Time. The purchase and sale of the Shares as
-------------
provided in Article I hereof (the "Closing") shall take place on the later of
(i) October 31, 1996 or (ii) the second business day after satisfaction of the
latest to occur of the conditions set forth in Section 7.1 (provided that the
other closing condition set forth in Article VII have been met or waived as
provided therein at or prior to Closing), at the offices of Gorsuch Kirgis
L.L.C. beginning at 10:00 a.m., or at such other time, date and place as may be
mutually agreed upon by the Purchaser, the Company and the Stockholders'
Representative. The date and time of delivery of, and payment for, the Shares to
be sold as provided in Article I hereof is herein called the "Closing Date". At
the Closing, the Company Stockholders shall deliver all certificates
representing the Shares to be sold by them, duly endorsed in blank or
accompanied by duly executed stock powers, with signatures guaranteed by a
national or state bank, against payment by the Purchaser of the Purchase Price
by certified or bank cashier's checks drawn to the order of the Company
Stockholders or by wire transfer in immediately available funds to an account
designated by each Company Stockholder at least two days prior to the Closing.
All action to be taken at the Closing and all documents and instruments
delivered in connection therewith shall be considered to have been taken or
delivered simultaneously, and no such action or delivery or payment shall be
considered complete until all action incident to the Closing shall have been
completed.
(b) The Company Closing Certificate. At the Closing, the Company
-------------------------------
shall deliver to Purchaser a certificate substantially in the form of Exhibit A
hereto and signed by its President and Treasurer (the "Company Closing
Certificate"), certifying (i) that all issued, outstanding and exercisable
options to purchase Company Common Stock have been exercised, (ii) the number of
outstanding shares of Company Common Stock, as of the Closing Date, and (iii) by
reference to a schedule to the Company Closing Certificate, a list of all the
Company Stockholders as such names appear on the stock transfer books of the
Company and the number of shares of Company Common Stock held by each Company
Stockholder.
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<PAGE>
(c) Cancellation of Treasury Stock. All shares of Company Common
------------------------------
Stock that are owned by the Company as treasury stock shall be cancelled and
retired and shall cease to exist and no other consideration shall be delivered
in exchange therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE COMPANY STOCKHOLDERS
The Company and the Company Stockholders represent and warrant to
Purchaser that the statements contained in this Article III are true and
correct, except as set forth in the disclosure schedule delivered by the Company
to Purchaser on or before the date of this Agreement (the "Company Disclosure
Schedule"). The Company Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections contained in this Article
III.
Section 3.1 Organization of the Company and Its Subsidiaries. Each
------------------------------------------------
of the Company and its subsidiaries (as listed in Section 3.1 of the Company
Disclosure Schedule) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
business as now being conducted and as proposed to be conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction where it carries on any business or owns or
leases any property except where the failure to be so qualified or licensed
would not, in the aggregate, have or result in a material adverse effect on the
business, assets (including intangible assets), properties, liabilities, results
of operations, condition (financial or otherwise) or current prospects of the
Company and its subsidiaries taken as a whole ("Material Adverse Effect").
Except as set forth at Section 3.1 of the Company Disclosure Schedule, the
Company and its subsidiaries do not own, directly or indirectly, any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
Section 3.2 Capital Structure.
-----------------
(a) The Company Capital Structure. The authorized capital
-----------------------------
stock of the Company consists of 500,000 shares of Company Common Stock. As of
the date of this Agreement, 282,329 shares of Company Common Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable.
All shares of Company Common Stock to be purchased by Purchaser are owned
beneficially or of record, or both, by the Company Stockholders
-3-
<PAGE>
free and clear of all security interests, liens, claims, pledges, agreements,
charges or encumbrances of any nature.
(b) LIFECARE Europe Capital Structure. LIFECARE Europe GmbH
---------------------------------
("LIFECARE Europe") is a German company with registered capitalization of
DM200,000, and is a wholly-owned subsidiary of the Company.
(c) Foothills Capital Structure. The authorized capital stock of
---------------------------
Foothills Medical Equipment, Inc. ("Foothills") consists of 100,000 shares of
common stock. As of the date of this Agreement, 74,000 shares of Foothills
common stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable, and which are owned by the Company, and no shares of
Foothills common stock are held in its treasury.
(d) LIFECARE Rentals Capital Structure. The authorized capital
----------------------------------
stock of LIFECARE Rentals, Inc. ("LIFECARE Rentals") consists of 50,000 shares
of LIFECARE Rentals common stock. As of the date of this Agreement, 10,000
shares of LIFECARE Rentals common stock are issued and outstanding, all of which
are validly issued, fully paid and nonassessable, and which are owned by the
Company, and no shares of LIFECARE Rentals common stock are held in its
treasury.
(e) LIFECARE International, Ltd. Capital Structure. LIFECARE
----------------------------------------------
International, Ltd. ("LIFECARE Ltd.") is a Virgin Islands corporation with
authorized capital of 1,000 shares of common stock. LIFECARE Ltd. is a wholly-
owned subsidiary of the Company.
(f) Except as set forth in Section 3.2(a) of this Agreement,
there are no equity securities of any class of the Company, its subsidiaries, or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. There are no options, warrants,
calls, rights, commitments or agreements of any character to which the Company
or its subsidiaries are a party, or by which the Company or its subsidiaries are
bound, obligating the Company or its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or its subsidiaries or obligating the Company or the subsidiaries to
grant, extend or accelerate the vesting of or enter into any such option,
warrant, call, right, commitment or agreement. There are no voting trusts,
proxies or other agreements or understandings with respect to the shares of
capital stock of the Company or its subsidiaries. There are no obligations,
contingent or otherwise, of the Company to effect the registration of any
securities of the Company or its subsidiaries under the Securities Act of 1933,
as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). There are no obligations, contingent or otherwise,
of the Company or its subsidiaries to repurchase,
-4-
<PAGE>
redeem or otherwise acquire any shares of capital stock of the Company or its
subsidiaries. There are no obligations, contingent or otherwise, of the Company
or its subsidiaries to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity.
(g) As of the date of this Agreement, there are no accrued and
unpaid dividends with respect to any outstanding shares of stock of the Company
or its subsidiaries.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) The Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and the Company Stockholders and
constitutes the valid and binding obligation of the Company and the Company
Stockholders enforceable in accordance with its terms.
(b) The Board of Directors of the Company (at a meeting duly
called and held) has unanimously (i) approved this Agreement and the Transaction
and (ii) determined that the Transaction is fair to and in the best interests of
the Company Stockholders.
(c) The execution and delivery of this Agreement by the Company
does not, and the consummation of the Transaction will not, (i) conflict with,
or result in any violation or breach of any provision of the Company's Articles
of Incorporation, or the Bylaws of the Company (the "Company Bylaws") or the
constituent documents of any of the Company's subsidiaries, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their respective properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Company or any
of its subsidiaries or any of their respective properties or assets, except in
the case of (ii) and (iii) for any such violations, breaches, defaults,
terminations, cancellations, accelerations or conflicts which would not, in the
aggregate, have a Material Adverse Effect or
-5-
<PAGE>
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity"), is required by or with respect to the Company, its subsidiaries or any
Company Stockholder in connection with the execution and delivery of this
Agreement or the consummation of the Transaction except for (i) pre-merger
notification provided for by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not, in the aggregate, have
a Material Adverse Effect or impair the ability of the Company, its subsidiaries
or any Company Stockholder to consummate the transactions contemplated by this
Agreement.
Section 3.4 Financial Statements.
--------------------
(a) The Company has heretofore delivered or made available to
Purchaser (i) consolidated balance sheets of the Company and its subsidiaries as
of March 31, 1996 (the "Company Balance Sheets"), March 31, 1995 and March 31,
1994 and (ii) consolidated statements of income, statements of stockholders'
equity and statements of cash flows of the Company and its subsidiaries for the
years ended March 31, 1996, March 31, 1995 and March 31, 1994 audited by Ernst &
Young LLP, independent certified public accountants whose audit reports thereon
are included therein, (iii) unaudited consolidated balance sheets of the Company
and its subsidiaries as of June 30, 1996 (the "June 30, 1996 Balance Sheets")
and (iv) unaudited consolidated statements of income, statements of
stockholders' equity and statements of cash flows of the Company and its
subsidiaries for the three months ended June 30, 1996 (the "June 30 Income
Statement" and, together with the June 30, 1996 Balance Sheets, the "June 30,
1996 Financial Statements") (collectively, the "Company Financial Statements").
(b) Each of the Company Financial Statements (including, in each
case, any related notes) was prepared in accordance with generally accepted
accounting principles (except in the case of the June 30, 1996 Financial
Statements for the omission of footnotes and for normal year end adjustments)
applied on a consistent basis throughout the periods involved and fairly present
the financial position of the Company and its subsidiaries as at the respective
dates and the results of its operations and cash flows for the periods
indicated.
Section 3.5 No Undisclosed Liabilities. The Company and its
--------------------------
subsidiaries do not have any liabilities or obligations (whether accrued,
contingent, due or to become due) other than (i) liabilities reflected in the
June 30, 1996 Balance Sheet as at
-6-
<PAGE>
June 30, 1996 or (ii) normal or recurring liabilities incurred since June 30,
1996 in the ordinary course of business consistent with past practices.
Section 3.6 Absence of Certain Changes or Events. Since June 30,
------------------------------------
1996 the Company and each of its subsidiaries has conducted its business only in
the ordinary course and in a manner consistent with past practices and, since
such date, there has not been any change in the business, assets (including
intangible assets), properties, liabilities, results of operations, condition
(financial or otherwise) or current prospects of the Company and its
subsidiaries taken as a whole which would have a Material Adverse Effect or
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
Section 3.7 Properties; Encumbrances. The Company and each of its
------------------------
subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, all the properties and assets which it purports to own or lease
(real, personal and mixed, tangible and intangible), including, without
limitation, all the properties and assets reflected in the June 30, 1996 Balance
Sheet (except for personal property sold since the date of the June 30, 1996
Balance Sheet in the ordinary course of business and consistent with past
practices). All properties and assets owned by the Company and its subsidiaries
or reflected in the June 30, 1996 Balance Sheet are free and clear of all title
defects or objections, liens, claims, charges, security interests or other
encumbrances of any nature whatsoever, except for liens reflected on the June
30, 1996 Balance Sheet and liens for current taxes not yet due and other liens
that do not materially detract from the value or impair the use of the property
or assets subject thereto.
Section 3.8 Fixed Assets; Plant and Equipment.
---------------------------------
(a) Section 3.8 of the Company Disclosure Schedule sets forth a
list of all the furniture, fixtures, equipment, machinery, leasehold
improvements and other fixed assets of the Company and its subsidiaries as of
June 30, 1996 (the "Fixed Assets"). All Fixed Assets are on hand at the plant or
offices of the Company or one of its subsidiaries and are suitable for their
intended use.
(b) The plant, structures and equipment of the Company and its
subsidiaries are structurally sound with no material defects and are in good
operating condition and repair and are adequate for the uses to which they are
being put; and none of such plants, structures or equipment are in need of
maintenance and repairs except for ordinary, routine maintenance and repairs
which are not material in nature or cost. Neither the Company nor any of its
subsidiaries has received notification that it is in violation of any applicable
building, zoning, anti-pollution, health or other law, ordinance or regulation
in
-7-
<PAGE>
respect of its plants or structures or their operations and, to its knowledge,
no such violations exist.
Section 3.9 Bank Accounts. Section 3.9 of the Company Disclosure
-------------
Schedule sets forth the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which the
Company or any of its subsidiaries maintains safe deposit boxes or accounts of
any nature and the names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
Section 3.10 Taxes.
-----
(a) The Company and each of its subsidiaries has filed all
federal, state, local, foreign and provincial Tax Returns required to have been
filed on or prior to the date hereof, or appropriate extensions therefor have
been properly obtained, and such Tax Returns are true, correct and complete,
except to the extent that any failure to be true, correct and complete would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) All Taxes shown to be due on such Tax Returns have been
timely paid or such Taxes are being contested in good faith and in a timely
manner, and the Company and each of its subsidiaries has complied with all rules
and regulations relating to the withholding of Taxes, except to the extent that
any failure to comply with such rules and regulations would not, individually or
in the aggregate, have a Material Adverse Effect.
(c) Neither the Company nor any of its subsidiaries has waived
any statute of limitations in respect of its Taxes.
(d) No issues have been raised in writing or orally by the
relevant taxing authority in connection with the examination of Tax Returns of
the Company and its subsidiaries which are currently pending.
(e) All deficiencies asserted or assessments made as a result of
any examination of Tax Returns by any taxing authority (i) have been paid in
full or (ii) are being contested timely, properly and in good faith. The
charges, accruals and reserves on the books of the Company and its subsidiaries
in respect of Taxes have been established and maintained in accordance with
generally accepted accounting principles. All contested deficiencies, if any,
have been described on Section 3.10 of the Company Disclosure Schedule.
(f) Neither the Company nor any of its subsidiaries is a party
to any agreement, contract or arrangement that could result, separately, or in
the aggregate, in the payment of any "excess parachute payments" within Section
280A of the
-8-
<PAGE>
Internal Revenue Code of 1986 (the "Code"). Neither the Company nor any of its
subsidiaries has made an election under Section 341(f) of the Code.
(g) There are no liens for Taxes on any property or assets of the
Company or any of its subsidiaries, except for liens for Taxes not yet due.
(h) For purposes of this Agreement: (i) "Taxes" means any
federal, state, local, foreign or provincial income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or added minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, imposed by any
governmental entity; and (ii) "Tax Return" means any return, report or similar
statement (including any attached schedules) required to be filed with respect
to any Tax, including any information return, claim for refund, amended return
or declaration or estimated Tax.
Section 3.11 Intellectual Property.
---------------------
(a) The Company and each of its subsidiaries owns, or has a valid
license to use or otherwise possess legally enforceable rights to use, free and
clear of all liens or rights or claims of others, all patents and applications
for patents, trademarks, trade names, service marks, copyrights, schematics,
technology, know-how, trade secrets, computer software programs or applications
and tangible or intangible proprietary information or material (including any of
the foregoing embedded in any of the equipment owned, leased, sold or otherwise
used by the Company and its subsidiaries) that are necessary to conduct the
business of the Company and its subsidiaries as currently conducted and as
presently proposed to be conducted (collectively, the "Company Intellectual
Property Rights") except for such of the Company Intellectual Property Rights
the absence of which would not have a Material Adverse Effect. The Company and
each of its subsidiaries has taken all steps reasonably necessary to protect the
Company Intellectual Property. The Company Intellectual Property includes all
rights to enforce and protect the Company Intellectual Property. No present or
former employee of the Company or any of its subsidiaries has any claim against
the Company or such subsidiary with respect to the Company Intellectual
Property. The Company and each of its subsidiaries has obtained assignments of
rights in the Company Intellectual Property from their respective employees and
agents.
(b) Section 3.11 of the Company Disclosure Schedule lists (i) all
patents and patent applications and all trademarks, registered copyrights, trade
names and service marks, which are material to the business of the Company and
its subsidiaries, including all registrations and applications for
-9-
<PAGE>
registrations thereof and the jurisdictions in which each such the Company
Intellectual Property Right has been issued or registered or in which any such
application for such issuance and registration has been filed, (ii) all material
licenses, sublicenses and other agreements as to which the Company or any of its
subsidiaries is a party and pursuant to which any person is authorized to use
any of the Company Intellectual Property Rights and (iii) all material licenses,
sublicenses and other agreements as to which the Company or any of its
subsidiaries is a party and pursuant to which the Company or any of its
subsidiaries is authorized to use any third party patents, trademarks, service
marks, copyrights, trade secrets, technology or know-how (the "Company Third-
Party Intellectual Property Rights") which are material to the business of the
Company or its subsidiaries.
(c) Neither the Company nor any of its subsidiaries is, nor will
any of them be as a result of the execution and delivery of this Agreement or
the performance of the Company's or the Company Stockholder's obligations under
this Agreement, in breach of any license, sublicense or other agreement relating
to the Company Intellectual Property Rights or the Company Third-Party
Intellectual Property Rights, the breach of which would have a Material Adverse
Effect.
(d) All patents and all trademark, service mark and copyright
registrations held by the Company or any of its subsidiaries are valid and
subsisting, in full force and effect and have been duly maintained.
(e) (i) Neither the Company nor any of its subsidiaries is a
party to any suit, action or proceeding which involves a claim of infringement,
invalidity, misuse or abandonment of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party, and the Company does not otherwise have knowledge of any such claim
involving or potentially involving the Company or any of its subsidiaries or the
Company Intellectual Property Rights; (ii) the manufacturing, marketing,
licensing, sale, distribution or use of the products or services of the Company
and its subsidiaries does not infringe or violate any patent, trademark, service
mark, copyright, trade secret or other proprietary right of any third party,
which such violation or infringement would have a Material Adverse Effect; and
(iii) the Company has no knowledge that any third party is violating or
infringing any Company Intellectual Property Rights, which such violation or
infringement would have a Material Adverse Effect. No acts have been done or
omitted to be done by the Company or any of its subsidiaries, or any licensee,
distributor, sublicensee or subdistributor thereof, to impair or dedicate to the
public or entitle any governmental authority to cancel, forfeit, modify or hold
abandoned any of the Company Intellectual Property Rights.
-10-
<PAGE>
(f) Consummation of the Transaction shall not adversely affect
the ability of the Company and its subsidiaries to use the Company Intellectual
Property or the Company Third-Party Intellectual Property Rights in the same
manner and to the same extent as used by the Company and its subsidiaries on the
date hereof.
Section 3.12 Contracts and Commitments.
-------------------------
(a) Section 3.12 of the Company Disclosure Schedule lists all
agreements, contracts and commitments of the following types (collectively, the
"Contracts") to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or by which any of their
respective assets is bound:
(i) joint venture, general and limited partnership agreements;
(ii) mortgages, indentures, loan or credit agreements, security
agreements, guarantees and other agreements and instruments with any person
(including any affiliate of the Company or any of its subsidiaries) relating to
the borrowing of money or extension of credit;
(iii) contracts containing any covenant not to compete (binding
upon or in favor of the Company or any of its subsidiaries) or any covenant
relating to the disclosure by the Company or any of its subsidiaries of
proprietary information;
(iv) contracts or letters of intent (other than between the
Company and Purchaser) relating to the acquisition or disposition of any assets
of the Company or any of its subsidiaries;
(v) contracts with brokers, dealers, distributors, sales
representatives, original equipment manufacturers, value added remarketers and
agents which are currently in effect;
(vi) contracts for the lease of equipment by the Company or any
of its subsidiaries, rent-to-own agreements, shared services agreement,
consulting agreements which are currently in effect;
(vii) contracts with respect to services provided by any
affiliate of the Company or any of its subsidiaries to the Company or such
subsidiaries, regardless of whether such contracts are written or oral;
(viii) license agreements (as licensor or licensee) which are
currently in effect;
-11-
<PAGE>
(ix) any employment, consulting, retirement or severance
agreements, and any other contracts with employees, officers, directors or
shareholders of the Company or any of its subsidiaries;
(x) any contract or agreement obligating the Company or any of
its subsidiaries to advance funds to any party by loan or capital contribution;
(xi) contracts, commitments, letter agreements, quotations and
purchase orders with customers or suppliers, which are currently in effect or
which were in effect during the 12 months prior to the date of this Agreement
(excluding purchase orders which have been fully performed), and which (x) have
a value of more than $10,000 and relate to the purchase or sale of goods, or (y)
have a term of one year or more;
(xii) any franchise agreements;
(xiii) any contract or agreement with a local, state, federal or
foreign government, or any bureau, agency or other division thereof;
(xiv) any leases of production equipment, trucks, trailers,
tankers, office equipment, tooling, dies or moulds; and
(xv) other material agreements, contracts and commitments which
are currently in effect or which were in effect during the 12 months prior to
the date of this Agreement and which individually have a value of $50,000 or
more.
(b) No Contract will, by its terms, terminate as a result of the
transactions contemplated hereby or require any consent from any other party in
order to remain in full force and effect immediately after the Effective Time,
except for Contracts which, if terminated, would not have a Material Adverse
Effect;
(c) No purchase contract of the Company or any of its
subsidiaries continues for a period of more than 12 months or is in excess of
the normal, ordinary and usual requirements of the business of the Company and
its subsidiaries or requires payment of more than $100,000;
(d) Neither the Company nor any of its subsidiaries has any
outstanding contracts with officers, employees, agents, consultants, advisors,
salespeople, sales representatives, distributors or dealers that are not
cancelable by it on notice of not longer than 30 days and without liability,
penalty or premium or that provide for the payment of any bonus or commission
based on sales or earnings;
(e) Neither the Company nor any of its subsidiaries has any
employment agreement, or any other agreement
-12-
<PAGE>
that contains any severance or termination pay liabilities or obligations;
(f) All Contracts are valid, binding and enforceable on the
Company or its subsidiary, as applicable, and, to the knowledge of the Company,
on the other parties thereto in accordance with their terms and are in full
force and effect, except where such invalidity or unenforceability would not
have a Material Adverse Effect. No default or alleged default by the Company or
any of its subsidiaries exists under any Contract except for defaults or alleged
defaults which would not have a Material Adverse Effect and , to the knowledge
of the Company, no other party to a Contract is in default or alleged to be in
default thereunder;
(g) Neither the Company nor any of its subsidiaries has any
officer, director or employee to whom it is paying base salary, bonuses and
commissions at the annual rate of more than $100,000 in the aggregate;
(h) Neither the Company nor any of its subsidiaries is restricted
by any agreement, contract or commitment from carrying on their respective
businesses anywhere in the world;
(i) Neither the Company nor any of its subsidiaries has any
outstanding loan to any person, other than travel advances to employees in the
ordinary course of business consistent with past practices; and
(j) Neither the Company nor any of its subsidiaries has any power
of attorney outstanding or any obligations or liabilities (whether absolute,
accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any person,
corporation, partnership, joint venture, association, organization or other
entity.
The Company has made available to Purchaser copies of all Contracts, except for
Contracts which are oral, as to which the Company has provided Purchaser with a
written summary of the terms thereof.
Section 3.13 Customer Orders, Commitments and Returns. Section
----------------------------------------
3.13(a) of the Company Disclosure Schedule sets forth the aggregate amounts of
all accepted and unfilled customer orders entered into by the Company and its
subsidiaries as of June 30, 1996, all of which orders have been made in the
ordinary course of business. Section 3.13(b) of the Company Disclosure Schedule
sets forth as of June 30, 1996, each claim against the Company to return in
excess of an aggregate of $25,000 of its product by reason of alleged
overshipments, defective merchandise or
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<PAGE>
otherwise or by reason of an understanding that such product would be
returnable.
Section 3.14 Insurance. Section 3.14 of the Company Disclosure
---------
Schedule contains an accurate and complete list of all policies of fire,
liability, workers' compensation and other forms of insurance, including, but
not limited to, all group insurance programs in effect for employees of the
Company and its subsidiaries, owned or held by the Company and its subsidiaries.
All such policies are in full force and effect, all premiums with respect
thereto covering all periods up to and including the Closing Date have been paid
and no notice of cancellation or termination has been received with respect to
any such policy. Such policies (i) are sufficient for compliance with
requirements of law and of agreements to which the Company or any of its
subsidiaries is a party; (ii) are valid, outstanding and enforceable policies;
(iii) provide insurance coverage for the assets and operations of the Company
and its subsidiaries in scope and amount customary and reasonable for the
business in which they are engaged; (iv) will remain in full force and effect
through the respective dates set forth in Section 3.14 of the Company Disclosure
Schedule without the payment of additional premiums; and (v) will not in any way
be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company and its subsidiaries have had in
effect for the past five years product liability insurance in amounts of not
less that $5,000,000 with deductibles of not more than $50,000 per occurrence
($25,000 per occurrence as of April 1, 1994). Except as indicated on Section
3.14 of the Company Disclosure Schedule, all such policies are written on a
"claims made" basis. Since June 30, 1996, neither the Company nor any of its
subsidiaries has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited, by any insurance carrier to which
it has applied for any such insurance or with which it has carried insurance.
Section 3.15 Labor Unions; Employee Relations.
--------------------------------
(a) None of the employees of the Company or any of its
subsidiaries is represented by a union. The Company and each of its subsidiaries
(i) is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours and
(ii) is not engaged in any unfair labor practice.
(b) Section 3.15(b) of the Company Disclosure Schedule sets forth
all claims of discrimination or wrongful termination or the like asserted
against the Company or any of its subsidiaries by an employee thereof during the
past five years. Within the last five years, neither the Company nor any of its
subsidiaries has experienced any labor disputes or any stoppages due to labor
disagreements. Neither the Company nor any of its subsidiaries has received a
notice that there is any unfair labor
-14-
<PAGE>
practice, charge or complaint against the Company or any of its subsidiaries
pending or, to the best knowledge of the Company, threatened before the National
Labor Relations Board or any comparable state agency or authority. There is no
labor strike, dispute, request for representation, slowdown or stoppage actually
pending or, to the Company's knowledge, threatened against or affecting the
Company or any of its subsidiaries. No material grievance is pending or, to the
best knowledge of the Company, threatened against the Company or any of its
subsidiaries and, to the best knowledge of the Company, the relations of the
Company and its subsidiaries with their respective employees are generally
satisfactory. There has been no "mass layoff" or "plant closing" as defined by
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. (S)(S) 2101 et
--
seq., as amended, and regulations thereunder or any comparable state, local or
- ----
foreign law, rule or regulation with respect to the Company or any of its
subsidiaries within the six months prior to the date hereof and the Company and
each of its subsidiaries has complied in all material respects with applicable
provisions of the Immigration Reform and Control Act of 1986.
Section 3.16 Litigation. There is no action, suit, opposition,
----------
challenge or proceeding, claim, arbitration or investigation pending or, to the
best knowledge of the Company, threatened against the Company or any of its
subsidiaries which would have or result in a Material Adverse Effect.
Section 3.17 Products and Warranty Liability.
-------------------------------
(a) There is no action, suit, claim, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the Company's best knowledge,
threatened against or involving the Company or any of its subsidiaries relating
to any product developed or marketed or alleged to have been developed or
marketed by the Company or any of its subsidiaries and alleged to have been
defective, or improperly designed or manufactured, nor, to the Company's best
knowledge, is there any valid basis for any such action, proceeding or
investigation. None of the products or devices manufactured, marketed, sold or
leased by the Company and its subsidiaries or components thereof require general
recall, market withdrawal or systematic repairs and replacement.
(b) The reserve for warranty liability set forth on the June 30,
1996 Balance Sheets is sufficient to cover all product, service or warranty
claims arising under or relating to products sold or leased by the Company and
its subsidiaries prior to June 30, 1996.
Section 3.18 Employee Benefit Plans.
----------------------
(a) The Company has set forth in Section 3.18(a) of the Company
Disclosure Schedule all employee benefit plans (as
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defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock appreciation right,
restricted stock, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired employment or severance agreements, written or otherwise, for the
benefit of, or relating to, any current or former employee of the Company or any
of its subsidiaries or any trade or business (whether or not incorporated) which
is under common control with the Company (an "ERISA Affiliate") within the
meaning of Section 414 of the Code (together, the "Company Employee Plans").
(b) With respect to the Company Employee Plans, the Company has
made available to Purchaser a true and correct copy, if applicable, of (i) the
most recent annual report (Form 5500) filed with the Internal Revenue Service
("IRS"), (ii) the Company Employee Plans and the most recent summary plan
description thereof and (iii) each trust agreement and group annuity contract
relating to the Company Employee Plans.
(c) With respect to the Company Employee Plans, individually and
in the aggregate, no event has occurred, and to the knowledge of the Company,
there exists no condition or set of circumstances in connection with which the
Company or any ERISA Affiliate could be subject to any liability lien,
encumbrance or loss of tax deduction with respect to any Company Employee Plans
that would have a Material Adverse Effect on the Company under ERISA, the Code
or any other applicable law (including the law of contracts) and that is not
properly accounted for on the June 30, 1996 Balance Sheet.
(d) None of the Company Employee Plans is subject to Title IV of
ERISA.
(e) Full payment has been made, or will be made in accordance
with Section 404(a)(6) of the Code, of all amounts that the Company or any ERISA
Affiliate is required to pay under the terms of each of the Company Employee
Plans, and the Company will pay or cause to be paid all such amounts properly
accrued through the Closing Date with respect to the current plan year thereof
on or prior to the Closing Date or all such amounts will be properly recorded on
the June 30, 1996 Balance Sheet.
(f) None of the Company Employee Plans is a "multiemployer
pension plan," as such term is defined in Section 3(37) of ERISA.
(g) Each of the Company Employee Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified.
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<PAGE>
(h) Neither the Company nor any of its subsidiaries is a party to
any oral or written (i) agreement with any officer or other key employee of the
Company or any of its subsidiaries, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature contemplated by this Agreement (ii)
agreement or plan, including any stock option plan, stock appreciation right
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
by any such transaction together with the occurrence of a second event, such as
termination of employment, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(i) None of the Company Employee Plans provides for retiree
welfare benefits, except as may be required by applicable law.
(j) Except for the ERISA and Code anti-cutback provisions (ERISA
Section 204(g) and Section 411(d)(6) of the Code) and any termination or
surrender charges set forth in the Principle Insurance Annuity, none of the
Company Employee Plans contains any restrictions, limitations or similar
provision (nor have the Company or any of its subsidiaries or the Company
Stockholders made any oral, written or other communications to any current or
former employee with respect to such Company Employee Plans) which restrict,
limit or otherwise adversely affect, directly or indirectly, the ability of
Purchaser or the Company or its subsidiaries to modify or terminate any such
Company Employee Plan at any time on or after the Closing.
Section 3.19 Personnel.
---------
(a) Section 3.19(a) of the Company Disclosure Schedule sets forth
a true and complete list of:
(i) the names and current salaries of all directors and
elected and appointed officers of the Company and each of its subsidiaries and
the number of shares of Company Common Stock owned beneficially or of record, or
both, by each such person and the family relationships, if any, among such
persons; and
(ii) the wage rates for nonsalaried and nonexecutive salaried
employees of the Company and each of its subsidiaries by classification.
(b) Section 3.19(b) of the Company Disclosure Schedule sets forth
a summary of the Company's policies, arrangements or agreements concerning pay
raises for, and payments
-17-
<PAGE>
of bonuses and commissions to, officers and other employees of the Company and
each of its subsidiaries.
Section 3.20 Agreements in Full Force and Effect. No contracts,
-----------------------------------
agreements, leases, commitments, policies or licenses referred to in the Company
Disclosure Schedule have been abandoned or terminated by the Company or any of
its subsidiaries, and true copies thereof have been delivered to or have been
made available to Purchaser prior to the date of this Agreement.
Section 3.21 Compliance with Laws.
--------------------
(a) The Company and each of its subsidiaries has complied with,
is not in violation of, and has not received any notices of violation with
respect to, any federal, state, local or foreign statute, law, rule, regulation,
clearance or approval with respect to the conduct of its business, or the
ownership or operation of its business, except for failures to comply or
violations which would not in the aggregate have or result in a Material Adverse
Effect.
(b) None of the Company's equity securities have been or have
been required to be registered under the Securities Act or the Exchange Act.
Section 3.22 Brokers and Finders. Except for Alex. Brown & Sons
-------------------
Incorporated, no broker, finder or investment banker is entitled to any
brokerage, finders or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company.
Section 3.23 Disclosure. No representations or warranties by the
----------
Company in this Agreement or its exhibits and schedules contain any untrue
statement of material fact or omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
Section 3.24 Title to the Shares. Each of the Company Stockholders
-------------------
has, and on the Closing Date will have, valid and marketable title to the number
of shares of capital stock of the Company set forth opposite his name on
Schedule 1(a) attached hereto, free and clear of any security interests,
pledges, mortgages, charges, claims, liens, encumbrances, or other rights or
interests of any other person, and has, and on the Closing Date will have, the
absolute and unrestricted right, power, authority, and capacity to sell the
number of Shares set forth opposite his name on Schedule 1(a) hereto to the
Purchaser, and upon delivery thereof to the Purchaser, against payment therefor,
the Company Stockholders will transfer to the Purchaser valid and marketable
title thereto, free and clear of any security interests, pledges, mortgages,
liens, or similar encumbrances.
-18-
<PAGE>
Section 3.25 Environmental Matters.
---------------------
(a) The Company and its subsidiaries and the assets owned,
leased, used or operated by the Company and its subsidiaries (the "Operating
Assets") are, and the Operating Assets have been owned, leased, used or
operated, in compliance with all applicable Environmental Laws, and all
applicable rules, regulations, permits, licenses or other authorizations,
standards, and requirements of the United States Environmental Protection Agency
("EPA") and of state and local agencies and comparable foreign agencies and
Governmental Authorities with jurisdiction over pollution or protection of
health or the environment.
(b) There is no suit, claim, action, notification or proceeding,
pending or, to the knowledge of the Company, threatened, before any court,
governmental agency, board or other forum pursuant to which the Company or any
of its subsidiaries or any Operating Assets has been or, with respect to
threatened proceedings, may be named as a defendant or a potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the Release into the environment of any
Material of Environmental Concern, whether or not occurring at or on any site
owned (including as trustee), leased or operated by the Company or any of its
subsidiaries or any Operating Assets.
(c) To the best knowledge of the Company, there is no basis for
any suit, claim, action or proceeding of a type described in Section 3.25(b).
(d) During the period of (i) ownership (including as trustee),
leasing or operation by the Company or any of its subsidiaries of any of the
Operating Assets, or (ii) participation by the Company or any of its
subsidiaries in the management of any property, there has been no Release of any
Material of Environmental Concern in, on, under or affecting any such property
that would constitute a reportable event or would require response or
remediation under any Environmental Laws.
(e) No underground or above-ground storage tanks are located at
the real property owned by the Company located in Westminster, Colorado (the
"Westminster Property") and, to the best knowledge of the Company, no
underground or above-ground storage tanks have ever been removed from the
Westminster Property. Neither the Company nor any of its subsidiaries owns, uses
or operates any underground or above-ground storage tanks at any of the real
property leased by the Company and its subsidiaries.
(f) Section 3.25 of the Company Disclosure Schedule lists all
environmental assessments, investigations, surveys, sample results, reports of
releases, notices of violation and administrative orders or judicial proceedings
relating to
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<PAGE>
environmental compliance and conditions, with respect to the Company and its
subsidiaries or the Operating Assets. Copies of the materials described in the
preceding sentence have been provided to Purchaser.
(g) No Operating Assets are listed or proposed for listing on the
National Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), or the Comprehensive
Environmental Response, Compensation and Liability Information System List
("CERCLIS") or on any similar state or foreign list of sites requiring
investigation or cleanup; and no lien, encumbrance, claim or charge has been
filed against the Company or any of its subsidiaries or any Operating Assets
under any Environmental Law.
(h) With respect to all Operating Assets that are leased by the
Company and its subsidiaries (the "Leased Operating Assets"), the
representations and warranties set forth in paragraphs (a) through (g) of this
Section 3.25 are limited to the knowledge of the company with respect to the
activities of Persons other than the Company and its subsidiaries, including
landlords and other tenants, at or with respect to the Leased Operating Assets.
(i) As used herein, the following terms have the following
meanings:
"Environmental Claim" shall mean, with respect to any Person, any
action, suit, proceeding, investigation, notice, claim, complaint, demand,
request for information or other communication (written or oral) alleging,
asserting or claiming any actual or potential (a) violation of any Environmental
Law, (b) liability under any Environmental Law or (c) liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, fines or penalties
arising out of, based on or resulting from the presence, or release into the
environment, of any Materials of Environmental Concern at any location, whether
or not owned by such Person.
"Environmental Laws" shall mean any federal, state or local law,
regulation, rule, ordinance, order or decree now existing relating to (a)
pollution or protection of the environment, including natural resources, (b)
exposure of Persons, including but not limited to employees, to Materials of
Environmental Concern, (c) protection of the public health or welfare from the
effects of products, by-products, wastes, emissions, discharges or releases of
Materials of Environmental Concern or (d) regulation of the manufacture, use or
introduction into commerce of Materials of Environmental Concern including their
manufacture, formulation, packaging, labeling, distribution, transportation,
handling, storage or disposal.
-20-
<PAGE>
"Materials of Environmental Concern" shall mean (a) any flammable
substance, explosive or radioactive material, hazardous material, hazardous
waste, toxic substance, solid waste, pollutant, contaminant or any related
material, raw material, substance, product or by-product of any substance
specified in or regulated or otherwise affected by any Environmental Laws, (b)
any toxic chemical or other hazardous substance resulting from or related to
industrial, commercial or institutional activities, and (c) asbestos, gasoline,
diesel fuel, motor oil, waste and used oil, heating oil and other petroleum
products or compounds, polychlorinated biphenyls, radon and urea formaldehyde.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, governmental
agency, body or authority or any other entity.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
Section 3.26 Licenses and Permits, Etc. All permits, variances,
--------------------------
licenses, registrations, certificates, approvals, clearances and other
governmental authorizations held by the Company and its subsidiaries and used in
the conduct of their respective businesses and the manufacturing, marketing,
sale and leasing of their respective products and devices are herein referred to
as the "Company Permits and Approvals." The Company Permits and Approvals
constitute all permits, variances, licenses, registrations, certificates,
approvals, clearances and other governmental authorizations necessary for the
Company and its subsidiaries to conduct their respective businesses and to
manufacture, market, sell and lease their respective products and devices in the
manner presently being conducted by the Company and its subsidiaries, except for
such permits, variances, licenses, registrations, certificates, approvals,
clearances and other governmental authorizations the absence of which could not
have a Material Adverse Effect. There are no proceedings pending (or, to the
best knowledge of the Company, threatened, nor to the best knowledge of the
Company has any event occurred or does any condition exist that is reasonably
likely to form the basis for any proceeding) that is reasonably likely to result
in the revocation, cancellation or suspension, or any adverse modification, of
any Company Permit and Approval or any interruption in the business of the
Company or any of its subsidiaries, and the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such revocation, cancellation, suspension or modification. The
conduct of their respective businesses and the manufacturing, marketing, sale
and leasing of their respective products and devices by the Company and its
subsidiaries has not and does not violate or infringe on any Company Permit and
Approval.
-21-
<PAGE>
Section 3.27 Accounts Receivable; Inventory.
------------------------------
(a) All accounts receivable of the Company and its subsidiaries
represent sales or leases actually made or services actually rendered in the
ordinary course of business. Said accounts receivable are subject to no
defenses, counterclaims or rights of set-off and are collectible by the Company
or its subsidiaries within the 12 month period following June 30, 1996 (except
to the extent of reserves set forth against the same on the June 30, 1996
Balance Sheet).
(b) All of the inventories of the Company and its subsidiaries
set forth in the June 30, 1996 Financial Statements consist of a quality and
quantity currently usable and saleable in the ordinary and usual course of
business and have been valued on the June 30, 1996 Balance Sheet at the lower of
cost or market value, except for inventory of LIFECARE Europe which is valued at
an average cost which approximates the lower of cost or market value (except to
the extent of reserves set forth against the same on the June 30, 1996 Balance
Sheet).
Section 3.28 Books of Account; Records. The general ledgers, books
-------------------------
of account, stock record books, minute books and other corporate records of the
Company and its subsidiaries relating to their respective assets, properties,
contracts and outstanding legal obligations are true, correct and complete in
all material respects.
Section 3.29 Rental Pool Equipment. Section 3.29 of the Company
---------------------
Disclosure Schedule sets forth a list of all equipment of the Company and its
subsidiaries which, as of June 30, 1996, was leased to third parties or held for
lease to third parties by the Company and its subsidiaries (the "Rental Pool
Equipment"). As of June 30, 1996, all Rental Pool Equipment was located at the
lessee's premises or at the plant or offices of the Company or one of its
subsidiaries. All Rental Pool Equipment currently being billed has the
necessary documentation for payment, such as a certificate of medical necessity,
prescription or appropriate insurance documentation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Organization of Purchaser. Purchaser is a corporation
-------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
-22-
<PAGE>
be so qualified or licensed would not have or result in a material adverse
effect on Purchaser.
Section 4.2 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Purchaser has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes the valid and
binding obligation of Purchaser enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by Purchaser
does not and the consummation of the transactions contemplated by this Agreement
will not, (i) conflict with, or result in any violation or breach of any
provision of the Articles of Incorporation, as amended, of Purchaser or the
Bylaws of Purchaser, (ii) except for the consents and approvals described on
Schedule 4.2 hereto, result in any violation or breach of, or constitute (with
or without notice or lapse of time, or both) a default (or give rise to a right
of termination, cancellation or acceleration of any obligation or loss of any
benefit) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Purchaser is a party or by which Purchaser or any of its
properties or assets may be bound (except where the consent of a lender or
holder might be required), or (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or any of its properties
or assets, except in the case of (ii) and (iii) for any such violations,
breaches, defaults, terminations, cancellations, accelerations or conflicts
which would not, in the aggregate, have or result in a material adverse effect
on Purchaser.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Purchaser in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby or
hereby, except for (i) pre-merger notification provided for by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, and (ii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not, in the aggregate, have or result in a material adverse effect
on Purchaser.
Section 4.3 Brokers and Finders. Except for Parker/Hunter
-------------------
Incorporated, no broker, finder or investment banker
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<PAGE>
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Purchaser.
Section 4.4 Disclosure. No representations or warranties by
----------
Purchaser in this Agreement contain or will contain any untrue statement of
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
Section 4.5 Financial Assurances. Purchaser has the financial
--------------------
capability to pay the Purchase Price to the Company Stockholders on the Closing
Date.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of the Company. During the period from the
------------------------
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing Date, the Company agrees (except to the extent
that Purchaser shall otherwise consent in writing) to, and to cause each of its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted, to pay
their respective debts and taxes when due subject to good faith disputes over
such debts or taxes, to pay or perform other obligations when due, and, to the
extent consistent with such businesses, use all reasonable efforts consistent
with past practices and policies to preserve intact their respective present
business organizations, keep available the services of their respective present
officers and key employees and preserve their respective relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with any of them, to the end that their respective goodwill
and ongoing businesses shall be unimpaired on the Closing Date. Except as
expressly contemplated by this Agreement, the Company shall not, and shall not
permit any subsidiary to, without the prior written consent of Purchaser:
(a) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property Rights,
other than in the ordinary course of business consistent with past practices;
(b) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or redeem or
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otherwise acquire, directly or indirectly, any shares of its capital stock;
(c) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue, any such shares or convertible securities;
(d) Merge or consolidate with another corporation, partnership or
other business organization, or acquire or purchase an equity interest in or a
substantial portion of the assets of another corporation, partnership or other
business organization or otherwise acquire any assets outside the ordinary
course of business consistent with past practices or otherwise enter into any
material contract, commitment or transaction outside the ordinary course of
business consistent with past practices;
(e) Sell, lease, license, waive, release, transfer, encumber or
otherwise dispose of any of its properties or assets, except in the ordinary
course of business consistent with past practices;
(f) (i) Incur, assume or prepay any indebtedness or any other
liabilities other than in the ordinary course of business consistent with past
practices; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person; (iii) make any loans, advances or capital contributions to, or
investments in, any other person; (iv) authorize or make capital expenditures in
excess of the amounts currently budgeted therefor; or (v) permit any insurance
policy naming the Company or any of its subsidiaries as a beneficiary or a loss
payee to be cancelled or terminated other than in the ordinary course of
business consistent with past practices;
(g) (i) Increase in any manner the compensation or fringe
benefits of, or pay any bonus or commission to, any director, officer or
employee, except for (x) normal increases in salaried compensated in the
ordinary course of business consistent with past practices and (y) bonuses or
commissions payable, in the ordinary course of business consistent with past
practices, pursuant to bonus or commission arrangements or agreements in effect
on the date hereof as set forth in Section 3.19(b) of the Company Disclosure
Schedule; (ii) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or employee,
except in the ordinary course of business consistent with past practices, (iii)
enter into any collective bargaining agreement or (iv) establish, adopt, enter
into or amend any bonus, profit sharing, thrift, compensation, stock option,
restricted stock,
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pension, retirement, deferred compensation, employment, termination, severance
or other plan, trust, fund, policy or arrangement including, without limitation,
any Company Employee Plan, for the benefit of any directors, officers or
employees;
(h) Take any action with respect to, or make any material change
in its accounting or tax policies or procedures in effect at June 30, 1996,
except as may be required by changes in generally accepted accounting principles
upon the advice of its independent accountants;
(i) Revalue any of its assets, including writing down the value
of inventory or writing off notes or accounts receivable other than in the
ordinary course of business consistent with past practices;
(j) Amend or propose to amend the Company Articles of
Incorporation or the Company Bylaws or the constituent documents of any of its
subsidiaries; or
(k) Enter into any contract, agreement, commitment or arrangement
with respect to any of the actions described in Sections (a) through (j) above,
or any action which would be reasonably likely to make any of the Company's
representations or warranties contained in this Agreement untrue or incorrect as
of the date of this Agreement or the Closing Date.
Section 5.2 Cooperation. Subject to compliance with applicable law,
-----------
from the date hereof until the Closing Date, (a) the Company and the
Stockholders' Representative shall confer on a regular and frequent basis with
one or more representatives of Purchaser to report operational matters of
materiality and the general status of ongoing operations and (b) each of
Purchaser and the Company shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
---------------
The Company and the Company Stockholders and each of their respective
officers, directors, employees, representatives and agents (including Alex.
Brown & Sons Incorporated) will immediately cease any existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal (as defined below). The Company and the Company
Stockholders shall not, directly or indirectly, through any officers, directors,
employees, representatives or agents (and
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shall use reasonable efforts to cause such officers, directors, employees,
representatives and agents not to, directly or indirectly), (i) solicit,
initiate, facilitate or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock or similar transactions involving the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement (any of
the foregoing inquires or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve or recommend any Acquisition
Proposal.
Section 6.2 Access to Information.
---------------------
(a) Upon reasonable notice, during normal business hours during
the period prior to the Closing Date, the Company shall, and shall cause its
subsidiaries to, (i) afford to the officers, directors, employees, accountants,
counsel and other representatives of Purchaser, reasonable access to all their
respective properties, plants, personnel, books, contracts, commitments and
records (other than privileged documents) and (ii) all other information
concerning its business, properties and personnel as Purchaser may reasonably
request during such period; provided, that if the Company or any subsidiary
--------
withholds information on the grounds that it is privileged, the Company or such
subsidiary shall so indicate and the parties shall cooperate in arranging for an
appropriate means by which Purchaser shall have access to the relevant
information or the salient aspects thereof. No information or knowledge
obtained in any investigation pursuant to this Section 6.2 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations or the parties to consummate the Transaction.
(b) The Confidentiality Agreement, dated as of February 28, 1996
by and between Purchaser and the Company (the "Confidentiality Agreement") shall
apply with respect to information furnished by the Company and its
representatives hereunder.
Section 6.3 Supplements to the Company Disclosure Schedule. From
----------------------------------------------
time to time prior to the Closing, the Company shall give prompt notice to
Purchaser and thereafter promptly supplement or amend the Company Disclosure
Schedule with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Company Disclosure Schedule. No supplement or
amendment of the Company Disclosure Schedule made pursuant to this Section 6.3
shall be deemed to cure any breach of any representation or warranty made in
this Agreement unless
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Purchaser specifically agrees thereto in writing; provided, however, that (i)
if, prior to the Closing, the Company promptly notifies Purchaser and
supplements or amends the Company Disclosure Schedule with respect to any matter
not previously set forth or described in the Company Disclosure Schedule which,
if existing or occurring at the date of this Agreement would have been required
to be set forth or described in the Company Disclosure Schedule and (ii)
notwithstanding such notice and supplement or amendment to the Company
Disclosure Schedule, Purchaser elects to consummate the Transaction by such
election Purchaser shall be deemed to have waived its right to indemnification
under Section 8.2 with respect to any such matter.
Section 6.4 Public Disclosure. Purchaser and the Company shall
-----------------
consult with each other before issuing any press release or otherwise making any
public statement with respect to the Transaction or this Agreement and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 6.5 Consents. Each of Purchaser and the Company shall use
--------
all reasonable best efforts to obtain all necessary consents, waivers and
approvals under any of Purchaser's or the Company's material agreements,
contracts, licenses, leases or commitments in connection with the Transaction.
Without the prior written consent of Purchaser, from the date hereof through the
Closing Date, the Company shall not enter into any material agreement, contract,
license, lease or commitment which by its terms would require the consent,
waiver or approval of any other party or entity in connection with the
Transaction.
Section 6.6 Access to Customers, Employees, Lenders and Others. At
--------------------------------------------------
Purchaser's request, the Company shall introduce such persons designated by
Purchaser (the "Purchaser Representatives") to the principal customers of the
Company and its subsidiaries, the employees of the Company and its subsidiaries,
the principal lenders to the Company and its subsidiaries and other persons with
whom Purchaser reasonably requests to meet and confer in order to verify the
accuracy of representations and warranties contained in Article III and to
facilitate discussions between the Purchaser Representatives and such customers,
employees, lenders and other persons with respect to the conduct by the Company
and its subsidiaries of their respective businesses prior to the Closing Date
and Purchaser's conduct of the such businesses after the Closing Date.
Section 6.7 SEC Filing. The Company shall use all reasonable best
----------
efforts to make available and obtain any required consent to the inclusion of
any financial statements of the Company and its subsidiaries or audit reports
thereon required to be filed by Purchaser with the SEC pursuant to the
Securities Act or the Exchange Act or the rules and regulations promulgated
thereunder.
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<PAGE>
Section 6.8 Additional Agreements; Reasonable Best Efforts. Subject
----------------------------------------------
to the terms and conditions of this Agreement, each of the parties agrees to use
all reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. In case at any time after the
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement the proper officers and directors of each corporate
party to this Agreement and the Company Stockholders shall take all such
necessary action.
ARTICLE VII
CONDITIONS TO TRANSACTION
Section 7.1 Conditions to Obligations of Purchaser, the Company and
-------------------------------------------------------
the Company Stockholders to Effect the Transaction. The respective obligations
- --------------------------------------------------
of Purchaser, the Company and the Company Stockholders to effect the Transaction
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Approvals. All consents, approvals, orders or
---------
authorizations of, or registrations, declarations or filings with, or
expirations of waiting periods imposed by, any Governmental Entity, the failure
of which to occur, file or be obtained would be reasonably likely to have a
Material Adverse Effect or a material adverse effect on Purchaser shall have
occurred or have been filed or obtained without the imposition of any condition,
requirement or commitment which in the case of the Company and its subsidiaries,
is reasonably likely to have a Material Adverse Effect or, in the case of the
Purchaser, is reasonable likely to have a material adverse effect on Purchaser
and its subsidiaries.
(b) No Injunctions or Restraints; Illegality. No order, ruling
----------------------------------------
or injunction issued by any court of competent jurisdiction or other
Governmental Entity restraining, enjoining or otherwise prohibiting the
consummation of the Transaction or limiting or restricting Purchaser's conduct
or operation of the business of Purchaser after the Transaction shall have been
issued and then be in effect (provided, that Purchaser and the Company shall use
their reasonable best efforts to have any such order, ruling or injunction
vacated or lifted); nor shall there be any statute, rule or regulation enacted,
enforced or deemed applicable to the Transaction which makes the consummation of
the Transaction illegal.
Section 7.2 Additional Conditions to Obligations of Purchaser. The
-------------------------------------------------
obligations of Purchaser to effect the Transaction are subject to the
satisfaction of each of the following
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<PAGE>
conditions, any of which may be waived in writing exclusively by Purchaser.
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Company Stockholders set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for changes contemplated by this Agreement; and
Purchaser shall have received a certificate signed on behalf of the Company by
the President and the Treasurer of the Company and by the Stockholders'
Representative to such effect.
(b) Performance of Obligations of the Company. The Company
-----------------------------------------
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date; and
Purchaser shall have received a certificate signed on behalf of the Company by
the President and the Treasurer of the Company to such effect.
(c) Opinions. The Company shall have delivered to Purchaser the
--------
written opinion of Gorsuch Kirgis L.L.C., counsel to the Company, dated the
Closing Date, covering the matters set forth on Exhibit B hereto. In rendering
such opinion, Gorsuch Kirgis L.L.C. may receive and rely upon representations
contained in any certificate of the Company and the Company Stockholders, as it
deems appropriate.
(d) Prohibition on Competition and Solicitation of the Company
----------------------------------------------------------
Employees.
- ---------
(i) Each Company Stockholder (other than Company Stockholders who
are also executive officers of the Company, excluding James C. Campbell) that
owns beneficially or of record, or both, securities of the Company that are
equal to one percent (1%) or more of the outstanding shares of Company Common
Stock on the Closing Date and each other person who is a director of the Company
(except Lanette G. Gimbel and Margaret E. von der Schmidt), shall have agreed in
writing, in form and substance satisfactory to Purchaser, that for a period of
five years from the Closing Date, such Company Stockholder or director will not
(x) compete, directly or indirectly, with Purchaser or its affiliates (including
the Company and its subsidiaries) or (y) approach or otherwise solicit any
person employed by the Purchaser and its affiliates (including the Company or
any of its subsidiaries) on the Closing Date for employment other than by the
Purchaser or its affiliates.
(ii) Each executive officer of the Company and its subsidiaries
(including Lanette G. Gimbel but excluding any person who is an executive
officer only of LIFECARE Ltd. and not of the Company or any of its other
subsidiaries) shall have agreed in writing, in form and substance satisfactory
to Purchaser (which may be in the form of an affirmation of an existing
agreement with
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<PAGE>
the Company or such subsidiary in form and substance acceptable to Purchaser),
that for a period of two years from the later of the Closing Date or termination
of such executive officer's employment by the Purchaser and its affiliates
(including the Company or such subsidiary), such executive officer will not (x)
compete, directly or indirectly, with Purchaser or its affiliates (including the
Company and its subsidiaries) or (y) approach or otherwise solicit any person
employed by the Purchaser and its affiliates (including the Company or any of
its subsidiaries) on the Closing Date for employment other than by the Purchaser
or its affiliates.
(iii) Margaret E. von der Schmidt shall have agreed in writing,
in form and substance satisfactory to Purchaser, that for a period of five years
from the Closing Date, Ms. von der Schmidt will not (x) compete, directly or
indirectly, with Purchaser or its affiliates (including the Company and its
subsidiaries) in the area of ventilatory equipment (excluding accessories)
(which exclusion is in recognition of Ms. von der Schmidt's current employment)
or (y) approach or otherwise solicit any person employed by the Purchaser and
its affiliates (including the Company or any of its subsidiaries) on the Closing
Date for employment other than by the Purchaser or its affiliates.
(e) Consents. The Company shall have obtained consents, waivers
--------
or approvals required in respect of the Contracts listed in Section 3.12(b) of
the Company Disclosure Schedule, except for those consents, waivers or approvals
which, if not obtained, would not have a Material Adverse Effect on the Company.
(f) Employment Agreement. The Company shall have entered into an
--------------------
employment agreement with Geoffrey Waters on terms and conditions reasonably
acceptable to Purchaser and Mr. Waters.
(g) Environmental Audit. Purchaser shall have received an
-------------------
update of the Phase I Environmental Audit dated May 2, 1994 prepared by Empire
Laboratories Inc. covering the property and operations at the Company's
Westminster, Colorado facility and the results of such updated Audit shall be
reasonably satisfactory to Purchaser.
(h) Verification of Rental Pool. Purchaser shall have received
---------------------------
verification in form and substance reasonably satisfactory to Purchaser that at
least 98% of all Rental Pool Equipment under lease as of the Closing Date is, as
of such date, in service and generating rental income that can be substantiated
by cash receipts from the lessees, subject to processing time for additions to
and deletions from the Rental Pool Equipment in the normal course of business.
(i) Resignation of Directors. Purchaser shall have received
------------------------
written resignations from each of the Directors of
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the Company and each of its subsidiaries effective as of the Closing Date.
Section 7.3 Additional Conditions to Obligations of the Company. The
---------------------------------------------------
obligations of the Company to effect the Transaction is subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Purchaser set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for changes
contemplated by this Agreement; and the Company shall have received a
certificate signed on behalf of Purchaser by the Chief Executive Officer and the
Chief Financial Officer of Purchaser to such effect.
(b) Performance of Obligations of Purchaser. Purchaser shall
---------------------------------------
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and the Company
shall have received a certificate signed on behalf of Purchaser by the Chief
Executive Officer and the Chief Financial Officer of Purchaser to such effect.
(c) Opinions. Purchaser shall have delivered to the Company the
--------
opinion of Reed Smith Shaw & McClay, counsel to Purchaser, dated the Closing
Date, covering the matters set forth on Exhibit C hereto. In rendering such
opinion, Reed Smith Shaw & McClay may receive and rely upon representations
contained in any certificate of the Purchaser as it deems appropriate.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
Section 8.1 Survival.
--------
(a) The respective representations and warranties of the Company
and the Company Stockholders, on the one hand, and Purchaser, on the other hand,
contained in Article III and Article IV, respectively, shall survive the Closing
and shall remain in full force and effect thereafter until the date three years
after the Closing Date (as of which date they shall terminate); provided, (i)
--------
the representations and warranties of the Company and the Company Stockholders
contained in Sections 3.2 and 3.24 shall survive the Closing and shall remain in
full force and effect thereafter; and (ii) the representations and warranties of
the Company and the Company Stockholders contained in
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Sections 3.10 and 3.18 shall survive the Closing and shall remain in full force
and effect thereafter until the expiration of the applicable statute of
limitations period, as extended.
(b) The respective covenants and agreements of the Company and
Purchaser, contained in this Agreement shall survive the Closing and shall be
fully effective and enforceable for the periods therein indicated (as of the end
of which period they shall terminate) or, where not indicated, forever.
(c) Neither Purchaser nor the Company Stockholders shall be
entitled to any indemnification under Section 8.2 or 8.3, respectively, with
respect to any breach of a representation or warranty, covenant or agreement
after the termination thereof pursuant to Section 8.1(a) or (b), except for
claims previously asserted pursuant to Section 8.4(a).
Section 8.2 Indemnification by the Company Stockholders.
-------------------------------------------
(a) The Company Stockholders, on a pro-rata basis, shall
indemnify Purchaser and its affiliates and their respective officers, directors,
employees and agents against and hold them harmless from any loss, liability,
damage, demand, claim, cost, suit, action or cause of action, judgment, award,
assessment, interest, penalty or expense (including, without limitation,
reasonable expenses of investigation and reasonable attorneys' and consultants'
fees) (any of the foregoing being hereinafter referred to individually as a
"Loss" and collectively, as "Losses") suffered or incurred by any such
indemnified person for or on account of or arising from or in connection with
(i) any misrepresentation or breach of any representation or warranty of the
Company and the Company Stockholders contained in Article III of this Agreement,
or (ii) any breach or non-fulfillment of any covenant or agreement of the
Company Stockholders contained in this Agreement. Solely for the purposes of
establishing whether any matter is indemnifiable pursuant to Section 8.2(a)(i)
hereof, the accuracy of the representations and warranties made by the Company
and the Company Stockholders in this Agreement shall be determined without
giving effect to the qualifications to such representations and warranties
concerning "materiality" or "Material Adverse Effect".
(b) No indemnification for any Loss shall be made by the Company
Stockholders pursuant to Section 8.2(a) unless the aggregate amount of all
Losses suffered or incurred by Purchaser or any of its affiliates or their
respective officers, directors, employees or agents exceeds $1,000,000;
provided, that if the aggregate amount of such Losses exceeds $1,000,000, then
- --------
the Company Stockholders shall be liable for all such Losses, including the
first $1,000,000 thereof. Any other provision of this Agreement
notwithstanding, in no event shall the aggregate obligation of the Company
Stockholders herein exceed $10,000,000
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(the "Stockholders' Indemnification Cap"); provided, that the Stockholders'
--------
Indemnification Cap shall equal the Purchase Price in the case of Losses
suffered or incurred by Purchaser or any of its affiliates or their respective
officers, directors, employees or agents in connection with or as a result of
misrepresentations or breach of the representations and warranties contained in
Sections 3.10, 3.18, 3.21, 3.25 and 3.26 or willful misconduct or fraud by the
Company, the Company Stockholders or any of their respective officers,
directors, employees or agents. No claim for indemnification under this section
shall be made unless the claim individually is for an amount in excess of
$25,000; provided, that such de minimis exception shall not apply to breaches of
--------
the representations and warranties contained in Sections 3.8(a), 3.27 and 3.29.
(c) Execution of this Agreement by the Company Stockholders shall
constitute their appointment of James C. Campbell to act as their representative
(the "Stockholders' Representative") pursuant to the terms and conditions set
forth in this Agreement, and Mr. Campbell hereby accepts such appointment. If
Mr. Campbell becomes incapacitated or dies, then the Company Stockholders shall
appoint a new Stockholders' Representative, subject to approval by Purchaser,
which consent shall not be unreasonably withheld.
Section 8.3 Indemnification by Purchaser.
----------------------------
(a) Purchaser shall indemnify the Company Stockholders and hold
them harmless from any Losses suffered or incurred by any such indemnified
person for or on account of or arising from or in connection with (i)
misrepresentation or any breach of any representation or warranty of Purchaser
contained in Article IV of this Agreement or (ii) any breach or non-fulfillment
of any covenant or agreement of Purchaser contained in this Agreement. Solely
for the purposes of establishing whether any matter is indemnifiable pursuant to
Section 8.3(a)(i) hereof, the accuracy of the representations and warranties
made by the Purchaser in this Agreement shall be determined without giving
effect to the qualifications to such representations and warranties concerning
"materiality" or "material adverse effect".
(b) No indemnification for any Loss shall be made by Purchaser
pursuant to Section 8.3(a) until the aggregate amount of all Losses suffered or
incurred by the Company Stockholders exceeds $1,000,000; provided, that if the
--------
aggregate amount of such Losses exceeds $1,000,000, then the Purchaser shall be
liable for all such Losses, including the first $1,000,000 thereof. Any other
provision of this Agreement notwithstanding, in no event shall the aggregate
obligation of the Purchaser herein exceed $10,000,000 (the "Purchaser's
Indemnification Cap"); provided, that the Purchaser's Indemnification Cap shall
--------
equal the Purchase Price in the case of Losses suffered or incurred by Company
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<PAGE>
Stockholders in connection with or as a result of willful misconduct or fraud by
the Purchaser. No claim for indemnification under this section shall be made
unless the claim individually is for an amount in excess of $25,000.
Section 8.4 Procedures Relating to Indemnification.
--------------------------------------
(a) An indemnified person under Section 8.2 or 8.3 (the
"Indemnified Party") shall give prompt written notice to an indemnifying party
(the "Indemnifying Party") of any Loss in respect of which such Indemnifying
Party has a duty to indemnify such Indemnified Party under Section 8.2 or 8.3 (a
"Claim"), specifying in reasonable detail the nature of the Loss for which
indemnification is sought, the section or sections of this Agreement to which
the Claim relates, and, if practicable, the amount of such Claim, except that
any delay or failure so to notify the Indemnifying Party shall only relieve the
Indemnifying Party of its obligations hereunder to the extent, if at all, that
it is prejudiced by reason of such delay or failure. For purposes of this
Section 8.4, the Indemnified Party under Section 8.3 and the Indemnifying Party
under Section 8.2 shall mean the Stockholders' Representative.
(b) If a Claim is brought or asserted by a third party (a "Third-
Party Claim"), the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all expenses. The Indemnified Party shall have the
right to employ separate counsel in such Third-Party Claim and participate in
such defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnified Party. If the Indemnifying Party fails to assume the
defense of any Third-Party Claim within 20 days after notice thereof, the
Indemnified Party shall have the right to undertake the defense, compromise or
settlement of such Third-Party Claim for the account of the Indemnifying Party
to assume the defense of such Third-Party Claim with counsel reasonably
satisfactory to the Indemnified Party at any time prior to the compromise,
settlement or final determination thereof (except that the Stockholders'
Representative shall not have the right to assume the defense of any Third-Party
Claim the defense of which is not assumed within 20 days after notice thereof).
Anything in this Section 8.4 to the contrary notwithstanding, the Indemnifying
Party shall not, without the Indemnified Party's prior written consent, settle
or compromise any Third-Party Claim or consent to the entry of any judgment with
respect to any Third-Party Claim which would have an adverse effect on the
Indemnified Party. The Indemnifying Party may, without the Indemnified Party's
prior written consent, compromise or settle in good faith any such Third-Party
Claim or consent to entry of any judgment with respect to any Third-Party Claim
which requires solely money damages paid by the Indemnifying Party, and which
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Party from all liability in respect of such Third-
Party Claim.
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<PAGE>
(c) With respect to any Claim other than a Third-Party Claim, the
Indemnifying Party shall have 20 days from receipt of notice from the
Indemnified Party of such Claim within which to respond thereto. If the
Indemnifying Party does not respond within such 20-day period, the Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such Claim. If the Indemnifying
Party notifies the Indemnified Party within such 20-day period that it rejects
such Claim in whole or in part, the Indemnified Party shall be free to pursue
such remedies as may be available to the Indemnified Party under applicable law.
ARTICLE IX
TERMINATION; FEES AND EXPENSES
Section 9.1 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing Date, (with respect to Sections 9.1(b) through 9.1(e),
by written notice by the terminating party to the other parties):
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company if the Transaction shall
not have been consummated by November 7, 1996 (provided that the right to
terminate this Agreement under this Section 9.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Transaction to occur on or before
such date);
(c) by either Purchaser or the Company if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, ruling or injunction or taken any other action, in each case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Transaction;
(d) by Purchaser in the event that any action is taken that is
prohibited by Section 6.1;
(e) by Purchaser or the Company, if there has been a breach of
any representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach shall not have been cured, in
the case of a representation or warranty, prior to the Closing or, in the case
of a covenant or agreement, within 10 business days following receipt by the
breaching party of written notice of such breach from the other party.
Section 9.2 Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 9.1, this
-36-
<PAGE>
Agreement shall immediately become void and there shall be no liability or
obligation on the part of Purchaser, the Company, the Company Stockholders or
their respective officers, directors, stockholders or affiliates, except as set
forth in Section 9.3 and further except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties or covenants set forth in this Agreement; provided that Section 9.3
and the Confidentiality Agreement shall remain in full force and effect and
survive any termination of this Agreement. Notwithstanding the foregoing, the
Company and the Company Stockholders acknowledge and agree that a wrongful
failure by the Company or the Company Stockholders to satisfy their obligations
hereunder and to consummate the Transaction in accordance with the terms hereof
shall result in immediate and irreparable harm to Purchaser not subject to
remedy through monetary damages, and the Company and the Company Stockholders
hereby agree that Purchaser shall be entitled to obtain injunctive relief in the
event of such wrongful failure by the Company or the Company Stockholders.
Section 9.3 Fees and Expenses. Whether or not the transactions
-----------------
contemplated by this Agreement shall be consummated, all fees and expenses
(including attorneys' fees) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses. All fees and expenses payable by the Company and/or the Company
Stockholders to Alex. Brown & Sons Incorporated and Gorsuch Kirgis in connection
with the Transaction and the preparation and negotiation of this Agreement shall
be paid by the Company Stockholders (and not the Company) at the Closing.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment. This Agreement may be amended by the parties
---------
hereto, at any time before the Closing Date. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 10.2 Extension; Waiver. At any time prior to the Closing
-----------------
Date, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
Section 10.3 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed
-37-
<PAGE>
given if delivered personally or by next-day courier or telecopied with
confirmation of receipt to the parties at the addresses specified below (or at
such other address for a party as shall be specified by like notice). Any such
notice or other communication shall be effective upon receipt, if personally
delivered or telecopied, or one day after delivery to a courier for next-day
delivery.
(a) if to Purchaser, to
Respironics, Inc.
1001 Murry Ridge Drive
Murrysville, PA 15668-8550
Attention: Steven P. Fulton, General Counsel
Telecopy: 412-733-5893
with a copy to:
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: Arlie R. Nogay, Esquire
Telecopy: 412-288-3063
(b) if to the Company, to
LIFECARE International, Inc.
Park Centre
1401 West 122nd Avenue
Westminster, CO 80234-3421
Attention: President
Telecopy: 303-255-9000
with a copy to:
Gorsuch Kirgis L.L.C.
1401 17th Street, Suite 1100
Denver, CO 80202
Attention: John J. King, Jr.
Telecopy: 303/298-0215
(c) if to the Stockholders' Representative, to
James C. Campbell
1777 Larimer Street
Apt. 1310
Denver, CO 80202
Telecopy: 303-292-3536
-38-
<PAGE>
with a copy to:
Gorsuch Kirgis L.L.C.
1401 17th Street, Suite 1100
Denver, CO 80202
Attention: John J. King, Jr.
Telecopy: 303/298-0215
Section 10.4 Interpretation. When a reference is made in this
--------------
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation."
Section 10.5 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 10.6 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement, the Confidentiality Agreement, and the documents and the instruments
referred to herein (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral; among the parties with
respect to the subject matter hereto and (b) except as provided in Sections 8.2
and 8.3, are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 10.7 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Colorado without regard to
any applicable conflicts of law.
Section 10.8 Severability. In case any one or more of the provisions
------------
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceable shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
Section 10.9 Assignment; Successors, Assigns and Heirs. Neither this
-----------------------------------------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties (the Company Stockholders
acting through the Stockholders' Representative).
-39-
<PAGE>
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective
successors, assigns, heirs, executors and personal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
RESPIRONICS, INC.
By: /s/ Dennis S. Meteny
-----------------------------------------
Title: President & CEO
--------------------------------------
LIFECARE INTERNATIONAL, INC.
By: /s/ James C. Campbell
----------------------------------------
Title: CEO
--------------------------------------
[Signatures of Company Stockholders appear
on next page]
-40-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ James C. Campbell Date: 8/22/96
- ------------------------------ ---------------------------
JAMES C. CAMPBELL
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Janice K. Campbell Date: 8/22/96
- ------------------------------ ---------------------------
JANICE K. CAMPBELL
STATE OF COLORADO )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by Janice K. Campbell and James C. Campbell.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-41-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Janice K. Campbell Date: 8/22/96
- ------------------------------ ---------------------------
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all her shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ James C. Campbell Date: 8/22/96
- ------------------------------ ---------------------------
JAMES C. CAMPBELL
STATE OF COLORADO )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by Janice K. Campbell and James C. Campbell.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-42-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement.
By: /s/ Mildred J. Campbell Date: 8/21/96
--------------------------- ---------------------------
MILDRED J. CAMPBELL
STATE OF FLORIDA )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Mildred J. Campbell.
Witness my hand and official seal.
My commission expires: 11/8/98 .
--------------------------------
/s/ George A. Ruszat
--------------------------------
GEORGE A. RUSZAT
( SEAL )
-43-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement.
/s/ Jeffrey A. Davis Date: 8/21/96
- ------------------------------ ---------------------------
JEFFREY A. DAVIS
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Martha Davis Date: 8/21/96
- ------------------------------ ---------------------------
MARTHA DAVIS
STATE OF MISSOURI )
) ss:
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Martha Davis and Jeffrey A. Davis.
Witness my hand and official seal.
My commission expires: 12/29/98
--------------------------------
/s/ Ruth A. Hakim A.
--------------------------------
Notary Public
( SEAL )
-44-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Harold R. Ellerington Date: 8/21/96
- ------------------------------ ---------------------------
HAROLD R. ELLERINGTON
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Marlene H. Ellerington Date: 8/21/96
- ------------------------------ ---------------------------
MARLENE H. ELLERINGTON
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Marlene H. Ellerington and Harold R. Ellerington.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-45-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Robert S. Fary Date: 8/21/96
- ------------------------------ ---------------------------
ROBERT S. FARY
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Maureen D. Fary Date: 8/21/96
- ------------------------------ ---------------------------
MAUREEN D. FARY
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Maureen D. Fary and Robert S. Fary.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-46-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement.
/s/ Matthew B. Garber Date: 8/22/96
- ------------------------------ ---------------------------
MATTHEW B. GARBER
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Tammy Garber Date: 8/21/96
- ------------------------------ ---------------------------
TAMMY GARBER
STATE OF PENNSYLVANIA )
) ss.
COUNTY OF MONTGOMERY )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by Tammy Garber.
Witness my hand and official seal.
My commission expires: 5/2/99 .
--------------------------------
/s/ Kathleen DePrince
--------------------------------
Notary Public
( SEAL )
-47-
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Matthew B. Garber.
Witness my hand and official seal.
My commission expires: 5/2/99 .
--------------------------------
/s/ Kathleen DePrince
--------------------------------
Notary Public
( SEAL )
-48-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement.
/s/ Derek L. Glinsman Date: 8/22/96
- ------------------------------ ---------------------------
DEREK L. GLINSMAN
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ LaDonna K. Glinsman Date: 8/22/96
- ------------------------------ ---------------------------
LADONNA K. GLINSMAN
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by LaDonna K. Glinsman and Derek L. Glinsman.
Witness my hand.
/s/ Geoffrey C. Waters .
--------------------------------
--------------------------------
Witness
( SEAL )
-49-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Bruce D. Harrel Date: 8/21/96
- ------------------------------ ---------------------------
BRUCE D. HARREL
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Janis Harrel Date: 8/21/96
- ------------------------------ ---------------------------
JANIS HARREL
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Bruce D. Harrel and Janis Harrel.
Witness my hand and official seal.
My commission expires: 7/19/97 .
--------------------------------
/s/ Barbara L. Hanson
--------------------------------
Notary Public
( SEAL )
-50-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Rufus R. Jackson Date: 8/22/96
- ------------------------------ ---------------------------
RUFUS R. JACKSON
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Alma J. Jackson Date: 8/22/96
- ------------------------------ ---------------------------
ALMA J. JACKSON
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by Alma J. Jackson and Rufus R. Jackson.
Witness my hand and official seal.
My commission expires: 10/28/99 .
--------------------------------
/s/ Karen Stephem
--------------------------------
Notary Public
( SEAL )
-51-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
By: /s/ Richard O. Roe Date: 8/21/96
--------------------------- ---------------------------
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Richard O. Roe.
Witness my hand and official seal.
My commission expires: 7/19/97 .
--------------------------------
/s/ Barbara L. Hanson
--------------------------------
Notary Public
( SEAL )
-52-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ James R. Seeley Date: 8/22/96
- ------------------------------ ---------------------------
JAMES R. SEELEY
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Linda J. Seeley Date: 8/21/96
- ------------------------------ ---------------------------
LINDA J. SEELEY
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Linda J. Seeley.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-53-
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF LAKE )
The foregoing instrument was acknowledged before me this 22nd day of
August, 1996, by James R. Seeley.
Witness my hand and official seal.
My commission expires: 4/8/97 .
--------------------------------
/s/ Marlene S. Huff
--------------------------------
Notary Public
( SEAL )
-54-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement.
/s/ Richard A. Tharp Date: 8/21/96
- ------------------------------ ---------------------------
RICHARD A. THARP
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Melinda Tharp Date: 8/21/96
- ------------------------------ ---------------------------
MELINDA THARP
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Richard A. Tharp and Melinda Tharp.
Witness my hand and official seal.
My commission expires: 4/13/99 .
--------------------------------
/s/ Jacklynne E. Word
--------------------------------
Notary Public
( SEAL )
-55-
<PAGE>
LIFECARE INTERNATIONAL, INC. SHAREHOLDER
/s/ Geoffrey C. Waters Date: 8/16/96
- ------------------------------ ---------------------------
GEOFFREY C. WATERS
Spouse's Consent
I acknowledge that I have rad the foregoing Agreement and that I know
its contents. I am aware that by its provisions my spouse agrees to sell all
his shares of the Company, on the occurrence of certain events. I hereby
consent to the sale, approve the provisions of the Agreement, and agree that
those shares and any interest that I might have in them are subject to the
provisions of the Agreement and that I will take no action at any time to hinder
operation of the Agreement on those shares.
/s/ Karin D. Waters Date: 8/20/96
- ------------------------------ ---------------------------
KARIN D. WATERS
STATE OF COLORADO )
) ss:
COUNTY OF ADAMS )
The foregoing instrument was acknowledged before me this 16th day of
August, 1996, by Geoffrey C. Waters.
Witness my hand and official seal.
My commission expires: 8/24/98 .
--------------------------------
/s/ Janelle Andrews
--------------------------------
Notary Public
-56-
<PAGE>
STATE OF COLORADO )
) ss:
COUNTY OF ADAMS )
The foregoing instrument was acknowledged before me this 20th day of
August, 1996, by Karin D. Waters.
Witness my hand and official seal.
My commission expires: 8/15/98 .
--------------------------------
/s/ Susan Gonzales
--------------------------------
Notary Public
( SEAL )
-57-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
/s/ Gregory W. Young Date: 8/21/96
- ------------------------------ ---------------------------
GREGORY W. YOUNG
Spouse's Consent
I acknowledge that under the above-referenced Agreement my spouse
agrees to sell all his shares of the Company, on the occurrence of certain
events. I hereby consent to the sale and agree that those shares and any
interest that I might have in them are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of the
Agreement on those shares.
/s/ Diane O. Young Date: 8/21/96
- ------------------------------ ---------------------------
DIANE O. YOUNG
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Diane O. Young and Gregory W. Young.
Witness my hand and official seal.
My commission expires: 7/19/97 .
--------------------------------
/s/ Barbara L. Hanson
--------------------------------
Notary Public
( SEAL )
-58-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
THE GATHERING PLACE ENDOWMENT FUND
By: /s/ Nikki Parker Date: 8/21/96
--------------------------- ---------------------------
NIKKI PARKER, President The
Gathering Place Endowment Fund, Trustee
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, by Nikki Parker, as President The Gathering Place Endowment Fund,
Trustee.
Witness my hand and official seal.
My commission expires: 6/1/99 .
--------------------------------
/s/ Cheryl Peterson Hurlbut
--------------------------------
Notary Public
( SEAL )
-59-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
WITH RESPIRONICS, INC.
The undersigned shareholder of LIFECARE International, Inc., hereby
agrees to the above referenced Agreement dated August 21, 1996.
By: /s/ Timothy A. Jones Date: August 21, 1996
--------------------------- ---------------------------
TIMOTHY A. JONES
Treasurer
- ------------------------------
Title
STATE OF COLORADO )
) ss.
CITY/COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st day of
August, 1996, Timothy A. Jones, as Treasurer of The University of Colorado
Foundation, Inc.
Witness my hand and official seal.
My commission expires: 7/19/97 .
--------------------------------
/s/ Barbara L. Hanson
--------------------------------
Notary Public
( SEAL )
-60-
<PAGE>
Exhibit 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
RESPIRONICS, INC.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 17,443,907 16,492,113 16,271,710
Net effect of dilutive stock options--based on the treasury
stock method using average market price 880,593 1,040,309 1,008,970
----------- ----------- ----------
TOTAL 18,324,500 17,532,422 17,280,680
=========== =========== ==========
Net income $15,338,608 $11,677,027 $4,741,244
=========== =========== ==========
Per share amount:
Net income $0.84 $0.67 $0.27
=========== =========== ==========
FULLY DILUTED
Average shares outstanding 17,443,907 16,492,113 16,271,710
Net effect of dilutive stock options--based on the treasury
stock method using year end market price, if higher than
average market price 882,768 1,148,200 1,008,970
----------- ----------- ----------
TOTAL 18,326,675 17,640,313 17,280,680
=========== =========== ==========
Net income $15,338,608 $11,677,027 $4,741,244
=========== =========== ==========
Per share amount:
Net income $0.84 $0.66 $0.27
=========== =========== ==========
</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 13, 1996 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, 1996.
Ernst & Young LLP
Pittsburgh, Pennsylvania
September 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 62,255,699 16,126,904
<SECURITIES> 0 0
<RECEIVABLES> 27,883,365 19,448,187
<ALLOWANCES> 1,200,000 700,000
<INVENTORY> 17,863,887 13,136,664
<CURRENT-ASSETS> 115,982,731 52,863,708
<PP&E> 41,610,791 35,390,477
<DEPRECIATION> 19,294,440 15,443,041
<TOTAL-ASSETS> 143,946,634 78,038,570
<CURRENT-LIABILITIES> 16,548,608 13,450,310
<BONDS> 0 0
0 0
0 0
<COMMON> 193,054 167,448
<OTHER-SE> 121,351,781 58,201,748
<TOTAL-LIABILITY-AND-EQUITY> 143,946,634 78,038,570
<SALES> 125,766,388 99,450,333
<TOTAL-REVENUES> 125,766,388 99,450,333
<CGS> 55,248,973 43,077,158
<TOTAL-COSTS> 55,248,973 43,077,158
<OTHER-EXPENSES> 45,159,881 37,644,661
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 199,926 193,550
<INCOME-PRETAX> 25,157,608 18,534,964
<INCOME-TAX> 9,819,000 6,857,937
<INCOME-CONTINUING> 15,338,608 11,677,027
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,338,608 11,677,027
<EPS-PRIMARY> .84 .67
<EPS-DILUTED> .84 .67
</TABLE>
