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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1998 or
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Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ______
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)
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, including area code) 412-731-2100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
------------------- ---------------------
None --
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No .
--- ---
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. [ ]
--
As of August 31, 1998, the aggregate market value of the shares of the
registrant's Common Stock (based upon the last price reported by the NASDAQ
National Market System) held by non-affiliates was approximately
$350,000,000.
As of August 31, 1998, there were 32,461,374 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 19, 1998 are
incorporated by reference into Part III of this Annual Report on Form 10-K.
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INDEX
Page
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PART I
Item 1. Business.............................. 3
Item 2. Description of Property............... 15
Item 3. Legal Proceedings..................... 15
Item 4. Submission of Matters to a Vote of
Security Holders...................... 16
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters....... 17
Item 6. Selected Financial Data............... 18
Item 7. Management's Discussion and
Analysis of Results of Operations and
Financial Condition................... 19
Item 8. Consolidated Financial Statements..... 23
Item 9. Disagreements on Accounting and
Financial Disclosure.................. 44
PART III
Item 10. Directors and Executive Officers of
the Registrant........................ 45
Item 11. Executive Compensation................ 45
Item 12. Security Ownership of Certain
Beneficial Owners and Management...... 45
Item 13. Certain Relationships and Related
Transactions.......................... 45
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K..... 46
Signatures ..................................... 51
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PART I
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES REFORM ACT OF 1995.
The statements contained in this Annual Report on Form 10-K,
specifically those contained in Item 1 "Business," Item 3, "Legal Proceedings,"
and Item 7 "Management's Discussion and Analysis of Financial Condition and
Operation," and statements incorporated by reference in this Form 10-K from the
1998 Annual Report to Shareholders, along with statements in other reports
filed with the Securities and Exchange Commission, external documents and oral
presentations which are not historical are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21B of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such statements
are qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Results actually
achieved may differ materially from expected results included in these
statements. Those factors include the following: third party reimbursement;
increasing price competition and other competitive factors in the sale of
products; the United States Food and Drug Administration (the "FDA"), the
Health Care Financing Administration ("HCFA"), the Durable Medical Equipment
Regional Carriers ("DMERC's") and other government regulation; intellectual
property and related litigation; foreign currency fluctuations, regulations and
other factors affecting operations and sales outside the United States
including potential future effects of the change in sovereignty of Hong Kong;
and customer consolidation and concentration.
Item 1. Business
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General
Respironics, Inc. 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) devices used for the
diagnosis and treatment of obstructive sleep apnea ("OSA"), a serious disorder
characterized by the repeated cessation of breathing during sleep; these
devices include continuous positive airway pressure ("CPAP") units and bi-level
positive airway pressure units;(ii) respiratory devices, including bi-level
non-invasive ventilatory support units and portable invasive volume ventilator
units, oxygen concentrators and monitoring systems; and (iii) asthma, allergy
and original equipment manufacturer ("O.E.M.") products, including peak flow
meters, drug delivery devices, medication nebulizers and anesthesia masks.
Respironics markets its products through a sales organization consisting of
approximately 140 direct and independent sales representatives and specialists,
who sell to a network of over 5,000 medical product dealers. In certain foreign
markets, the Company's products are sold directly to end users. The Company also
rents products to dealers and, in certain cases, directly to end users in the
United States. The Company's sales are currently comprised of 72% equipment and
28% consumable and single-use products. With over 90% 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 with executive offices located
at 1501 Ardmore Boulevard, Pittsburgh, PA 15221. Unless the context indicates
otherwise, reference in this Annual Report to the "Company" or "Respironics"
refers to Respironics, Inc. and its domestic and foreign 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.
In February 1998, the Company merged a wholly-owned subsidiary with
Healthdyne Technologies, Inc. ("Healthdyne"), a leading designer, manufacturer
and marketer of technologically advanced medical devices for use in the home
and hospital, in a stock for
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stock merger by issuing approximately 12,000,000 shares of the Company's common
stock in exchange for the outstanding shares of Healthdyne. The Merger was
accounted for as a pooling of interests. Accordingly, all discussion herein is
presented on a combined basis for all periods presented. Healthdyne is based in
Marietta, Georgia and has since been renamed Respironics Georgia, Inc. See
Notes A and K to the Consolidated Financial Statements for more information
about this merger.
The following are registered trademarks of the Company as used in
this document: Respironics, REMstar, Great Performers, Aria, Virtuoso, Duet,
Encore, Quartet, Maestro, BiPAP, Harmony, PLV, Monarch, Solo, OptiChamber,
Healthdyne, Quantum, Alice, Alliance, Healthaire, Soft Series Nasal Mask, Full
Face Mask, Tranquility, SmartMonitor, ASSESS, PERSONAL BEST, Wallaby,
Nightwatch, and Optihaler. The following are trademarks of the Company as used
in this document; Inspiration, Contour Nasal Mask, Gold Seal, Gel, Millennium
and Vision.
Products
At the present time, the Company's principal products can be divided
into three categories: sleep products, respiratory products and asthma, allergy
and O.E.M. products.
Sleep Products
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Respironics believes it is the U.S. market share leader in OSA
therapy devices, with a market share in excess of 60%. The Company's primary
OSA therapy products are the Great Performers family, including the Solo,
REMstar, Aria and Virtuoso CPAP units and the Duet bi-level unit, the BiPAP S
Airway Management System, the Tranquility family of CPAP and bi-level units and
related accessories such as masks, tubes, filters and headgear.
The Company's CPAP devices in both the Great Performer and
Tranquility families consist of a small, portable air pressurization device, an
air pressure control and a mask worn by the patient at home during sleep. The
Solo, REMstar and Tranquility CPAP systems are low cost, innovative OSA therapy
devices that meet the Company's strategy of offering units at all key price
points. The Aria CPAP system features built-in memory to record patient usage
data. The software necessary to extract this data from the Aria unit is known
as Encore. The Virtuoso and Tranquility Auto CPAP systems utilize innovative
technology to monitor the patient's airway and adjust output automatically in
order to deliver the appropriate pressure. The BiPAP Duet Airway Management
System, the Tranquility Bi-Level System, and the BiPAP S Airway Management
System are the Company's bi-level OSA units. These units sense the patient's
breathing cycle and adjust the pressure accordingly. The Duet unit also contains
advanced leak-sensing technology which improves the unit's pressure adjustment
capability. Bi-level units are used to treat severe OSA and are useful in
improving acceptance of therapy by patients who have difficulty tolerating CPAP.
The Great Performers Clinical System, consisting of the Quartet Clinical System,
a bedside pressure generator and the Maestro Clinical Remote Control Unit, is
used by clinicians in prescribing therapy for the treatment of adult OSA. The
Company has received clearance from the United States Food and Drug
Administration ("FDA") for all of the Great Performers, Tranquility and BiPAP S
Airway Management products.
Respironics also manufactures and distributes a wide range of
technologically advanced computer-based products for use in the diagnosis of
sleep related disorders. The Company develops products for patient testing in
the home which allow clinicians to expand the number of patients who can be
served by a traditional sleep disorders laboratory. The Company also provides
advanced, technically proficient clinical products for use in sleep disorders
laboratories.
The Company's primary sleep diagnostic product is the Alice system.
Alice is a computer-based system for use in sleep laboratories and other
clinical settings. It is capable of recording up to 25 channels of
physiological data which are stored on either a desktop or portable computer
prior to permanent storage on optical cartridges. In addition
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to acquiring and storing the patient's physiological data, the Alice system
utilizes physician input and internal algorithms to provide a comprehensive
range of reports for clinical analysis. Alice can be used on either infants or
adults and separate software programs have been developed specifically for each
type of patient.
The Company also manufactures and markets Nightwatch, a portable
sleep system which monitors up to nine channels of physiological data for up to
ten hours per patient. Among other factors, Nightwatch is distinguished by a
unique software algorithm for the analysis of sleep states. In addition, its
physiological sensors are specifically designed for use in the home. These
sensors record a variety of patient data and transmit the information to a base
recording station located in the patient's room. The information is
subsequently sent by modem to the sleep laboratory or other clinical setting
where it is monitored by a trained clinician. A single Nightwatch system can
be expanded economically to conduct sleep studies at multiple locations by
adding additional recorders to the central system in order to collect data from
several patients simultaneously.
The Company estimates that in the U.S. approximately 1,500 sleep
clinics currently exist at hospitals and other medical centers where
pulmonologists, technicians and other medical professionals diagnose OSA (as
well as other sleep disorders) and then prescribe the appropriate treatment.
Such laboratories provide the most frequent source of patient introductions to
the Company's sleep products.
The OSA patient can purchase the Company's OSA therapy products from
home health care products dealer locations worldwide. Personnel at each of
these locations are equipped to train the patient in the product's use and to
maintain and service the product (See "Sales, Distribution, and Marketing").
The retail price for a CPAP unit ranges from $800 to $1,600, depending on type
of unit, geographical market and whether certain accessories are purchased.
The retail price for a bi-level OSA unit generally ranges from $2,000 to
$3,200, depending on which model is purchased. The Company's sleep diagnostic
products are sold through dealers and directly to clinical sites.
The Company also provides masks used with CPAP and bi-level devices,
including the Contour Nasal Mask, the GEL and Gold Seal Masks, the Soft Series
Mask, Monarch Mini Mask, and Full Face Masks. The Company believes that its
Contour Nasal 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. The Monarch Mini Mask is designed to
enhance patient comfort with its small size and unique placement on the
patient's face; the GEL, Gold Seal and Soft Series masks utilize a variety of
cushion materials to create a comfortable mask seal around the contours of the
face. Full Face Masks address the needs of specific patient groups for whom CPAP
and bi-level therapy is delivered most effectively and comfortably through masks
that cover the mouth and nose.
Sales of sleep products and all related accessories and replacement
parts accounted for 48%, 46% and 53% of the Company's net sales for its fiscal
years 1998, 1997 and 1996, respectively.
Respiratory Products
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The Company's respiratory products can be separated into four major
subcategories: non-invasive ventilatory support products, invasive portable
volume ventilation products, oxygen concentrators and monitoring devices.
Non-invasive Ventilation Products. The Company believes it is the
leading manufacturer and marketer of non-invasive ventilatory support devices
in the U.S. Such devices are intended to augment the ventilation of a
spontaneously breathing patient, but are not intended to satisfy the total
ventilatory requirements of the patient.
The Company's principal non-invasive ventilatory support products are
the BiPAP Ventilatory Support System, the initial version of which was
introduced in December 1989, and the Quantum Pressure Support Ventilator, which
was introduced in 1995. Both products are low-pressure, electrically-driven flow
generators with an electronic pressure control
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designed to augment patient breathing by supplying pressurized air to the
patient. Both products sense the patient's breathing and adjust their
output to assist in inhalation and exhalation. Additionally, both products
compensate 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 face masks described in the Sleep Products section above are
also used with the non-invasive ventilatory support units.
The Company believes that its non-invasive ventilatory support
products have the potential for increasing patient comfort by adapting to the
patient's breathing cycles as opposed to requiring the patient to adapt his
breathing to the ventilator cycles and by delivering therapy effectively with a
patient mask rather than requiring intubation. The retail price for the units,
which range from $6,000 to $9,500, also compares favorably to the cost of
invasive ventilators, which generally retail for $10,000 to $28,000.
The Company also manufactures and markets 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 a variety of
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 U.S.
The Company's next generation non-invasive unit for the hospital
market, the BiPAP Vision, is currently being distributed in international
markets, with domestic distribution to begin upon receipt of clearance to
market from the FDA. The BiPAP Vision features an integrated display screen and
an optional oxygen module, provides higher flow and pressure functions than the
Company's other non-invasive units, and is designed to be easily upgradeable
when advanced technology becomes available.
International distribution of BiPAP Harmony, the next generation
non-invasive unit for the homecare market, is expected to begin before the end
of fiscal year 1999, with domestic release to follow upon receipt of clearance
to market from the FDA. The BiPAP Harmony features simple, menu-driven
operations and improved portability (including AC or DC power capability) and
is also designed to be easily upgradeable.
The Company also is currently working to incorporate 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 has conducted extensive clinical studies
in Europe using PAV and has been granted Investigational Device Exemptions by
the FDA to conduct clinical tests in the U.S. using PAV in both non-invasive
and invasive applications. Application for regulatory clearance to market
devices that include PAV, which is 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.
Insurance coverage by federal government insurance programs for home
use in the United States of non-invasive ventilatory support products like the
Company's BiPAP Ventilatory Support System and the Quantum Pressure Support
Ventilator is currently under review. During the third and fourth quarters of
fiscal year 1998, the Company's sales of these products for home use in the
United States were adversely affected by the uncertainty in the market that
this review created and the corresponding reduction in purchases of these units
by the Company's dealer customers pending resolution of these coverage
guidelines. The Company expects that its sales of non-invasive ventilatory
support units for home use in the United States will continue to be negatively
impacted as compared with periods prior to the issuance of the guidelines until
final coverage guidelines are
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issued, or for the foreseeable future if final guidelines are issued that are
either as restrictive as, or more restrictive than, the draft guidelines. See
"Business -- Third Party Reimbursement" for a detailed discussion of this
matter.
Invasive Ventilation Products. The Company believes that it is also
the leading manufacturer and marketer of invasive portable volume ventilators
that are used in the home by individuals who are dependent on the ventilators
for continuous life support.
The Company's principal invasive portable volume ventilator is the
PLV-100, a microprocessor-controlled, electrically-powered unit specifically
designed for long term use in the home and also suitable for transport, short
term and institutional use. The PLV can be used to ventilate a wide range of
patients. The small, lightweight unit delivers volume ventilation through the
operation of a piston inside the unit, and it can be powered by normal AC power
or DC battery power and can be operated in three different ventilation modes
depending on the patient's needs. The unit features a variety of alarms and
displays to alert clinicians and caregivers to changes in the patient's
pulmonary status or to possible unit malfunction. The Company manufactures and
distributes different versions of the PLV-100 for international markets based
on language differences, and it also manufactures and distributes a variety of
accessories for use with the PLV-100. The PLV-100 unit and related accessories
reach end user patients primarily through the Company's network of medical
product dealers who purchase or rent the unit from the Company and resell or
rent it to end users. In certain limited cases, the Company rents these units
directly to end users. The Company also manufactures, distributes and rents
several other home ventilation products, including a version of the PLV-100
designed more specifically for institutional use.
Oxygen Products. The Company's principal oxygen products are oxygen
concentrators, which provide a continuous flow of oxygen by separating it from
room air with a molecular sieve composed of an inorganic silicate. Oxygen
concentrators are generally used in the home by patients who require
supplemental oxygen. Supplemental oxygen is prescribed for persons with a
variety of chronic pulmonary disorders, such as lung cancer, emphysema,
bronchitis or acute pneumonia. These individuals generally rent an oxygen
delivery system from a home medical equipment dealer. The Company believes it
is currently one of the leaders in the manufacture and sale of oxygen
concentrators in the United States.
The Company offers two primary oxygen concentrator products, the
Alliance series and the recently introduced Millenium series, both of which
produce a continuous flow of up to 95% oxygen. Both units are designed to be
easy to maintain and service and are suitable for chronic patients in the
advanced stages of illness and for the less severe respiratory patient.
The Company also manufactures and markets oximeter products for use
in the home. The units, which allow patients to take readings of their blood
oxygen levels and pulse rate, feature the capability to store up to 18 hours of
data. This data can be later downloaded via the Company's software, which
prints reports for oximetry analysis.
Monitoring Products. The Company's primary monitoring products are
designed for infants at risk for sudden infant death syndrome or "SIDS". SIDS
is the sudden unexpected death of an infant which remains unexplained after
investigation and is one of the leading causes of death in the United States of
infants between one month and one year of age. Despite extensive research, the
causes of SIDS remain unknown. High risk infants who are prescribed home
monitors include infants with low birth weight, those who are premature, those
who survive a serious cardiorespiratory episode and those born to a family with
a SIDS incident history. There is no alternative therapy generally available.
The Company's primary infant monitor is the SmartMonitor, a
fifth-generation microprocessor-based design that incorporates many aspects of
a physiological recorder into the traditional monitor. In addition to sounding
an alarm to alert the parents, the SmartMonitor documents patient episodes with
an internal electronic memory system, enabling physicians to study up to six
channels of patient waveforms in order to assess the medical significance of
the alarm episodes and determine the need for continued monitoring or
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possible hospitalization. The data collected by the SmartMonitor can be
transmitted from the home to a clinical center over phone lines or can be
extracted from the SmartMonitor using a memory transfer device such as a
computer or "memory module."
The Company also manufactures and markets the Wallaby II phototherapy
system, a cost-effective alternative to conventional overhead phototherapy
lights for treating newborn jaundice, a condition which is caused by
elevated levels of bilirubin in the blood and which, in severe cases, can
result in brain damage.
Sales of respiratory products and related accessories and replacement
parts accounted for 43%, 45% and 36% of the Company's net sales for its fiscal
years 1998, 1997 and 1996 respectively.
Asthma, Allergy and O.E.M. Products
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Asthma and Allergy Products. The asthma device market is comprised
primarily of peak flow meters and drug delivery systems, including spacer
devices. A peak flow meter provides an objective measure of lung function and
is used by the patient at home to assist in the management of asthma. A
spacer, when used with a metered dose inhaler ("MDI"), facilitates the delivery
of asthma medications.
The Company believes that it is currently the national leader in the
sale of peak flow meters, with products that include the ASSESS peak flow meter
and the portable peak flow meter, PERSONAL BEST. The Company's drug delivery
device, OptiHaler, is consistent with new medical reimbursement guidelines,
which give preference to metered-dose delivery systems. The Company also
markets a spacer product known as OptiChamber. In addition, the revised
National Asthma Education and Prevention Program ("NAEPP") Guidelines issued in
March 1997 have placed further emphasis on the use of peak flow meters and
spacers to ensure effective asthma management. OptiChamber represents an
important growth area based upon NAEPP's expanded indications for MDI
anti-inflammatory therapy, including new recommendations for use with children
under five years of age.
The Company's asthma products are sold through its subsidiary,
Respironics HealthScan, Inc., ("HealthScan") located in Cedar Grove, New
Jersey. Several distribution channels are used, including specialty hospital
dealers.
The Company also distributes several models of medication nebulizers,
which dispense medication in a fine mist for inhalation deep into the lungs,
under the trade name Inspiration. The primary uses for nebulizers have been in
the treatment of respiratory diseases, such as emphysema and chronic bronchitis,
and conditions such as asthma or allergies. The Company's models utilize a
compressor to direct a flow of air through the nebulizer chamber which contains
medication in liquid form. An increase in the number of available respiratory
medications in recent years, coupled with the cost and efficacy of aerosol
delivery methods, has contributed to the growth of this market.
O.E.M. Products. The Company provides disposable cushion anesthesia
masks primarily for use during surgery. 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 asthma, allergy and O.E.M. products accounted for 9%, 9%
and 11% of the Company's net sales for its fiscal years 1998, 1997 and 1996,
respectively.
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Manufacturing and Properties
Domestic:
The Company's corporate headquarters is located in a leased facility
in Pittsburgh, Pennsylvania and its primary domestic manufacturing operations
are located in Murrysville, Pennsylvania (approximately 20 miles east of
Pittsburgh), Marietta, Georgia (approximately 25 miles north of Atlanta), and
Westminster, Colorado (approximately 10 miles north of Denver). The Company also
maintains 19 Customer Satisfaction Centers in major cities throughout the United
States. See Note E to the Consolidated Financial Statements for additional
information regarding leased facilities.
The Murrysville facility is a 116,000 square foot facility that was
first occupied in July 1990 and expanded to its current size in November 1993.
The entire facility is owned and 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 expansion, of approximately $7,800,000.
The Marietta facility is a 127,000 square foot facility that is
leased. This facility is similar in design, construction and layout to the
Murrysville and Westminster facilities.
The Westminster facility is a 74,000 square foot facility that was
first occupied in October 1994. The facility is owned and is subject to
mortgages used to secure financing related to the construction 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 story
building of steel and concrete construction that had a total cost of
approximately $3,700,000.
The Company leases space ranging from 2,000 to 5,500 square feet for
each of the Customer Satisfaction Centers. These centers provide technical and
customer service and limited product distribution.
The Company leases a 28,000 square foot research and development,
manufacturing, and office facility in Vista, California that houses certain of
the Company's respiratory product operations.
The Company also leases a 22,000 square foot office facility in Plum
Borough, Pennsylvania, approximately two miles from the Murrysville facility.
This leased facility currently houses certain research and development projects
and technical service groups.
The Company leases a 6,000 square foot office facility in Cedar Grove,
New Jersey that functions as the headquarters for the Company's HealthScan
subsidiary. See "Asthma and Allergy Products".
International:
The Company's Far East Administrative headquarters are located in a
28,000 square foot leased facility in Kowloon, Hong Kong.
The Company conducts its patient mask manufacturing and certain other
high volume production of plastic components in a facility in Shenzhen City in
the Peoples Republic of China, bordering Hong Kong, and in Subic Bay,
Philippines. The Shenzhen facility is leased and 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. The Subic Bay facility, totaling approximately 10,000 square feet,
is also leased.
The Company's European facilities (all of which are leased) include a
10,000 square foot office and warehouse facility in Herrsching, Germany; a
5,000 square foot office and warehouse facility in Wendelstein, Germany; 5,000
square feet of office and warehouse facilities in Nantes, France; and several
smaller leased sales offices throughout Germany.
Operations in the Far East and Europe are subject to the risks
normally associated with foreign operations including, but not limited to,
foreign currency
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fluctuations, possible changes in export or import restrictions and the
modification or introduction of other governmental policies with potentially
adverse effects. The change of control in Hong Kong from British to Chinese
rule has not affected the Company's operations.
The Company believes that its present facilities are suitable and
adequate for its current and presently anticipated future needs. While several
facilities are extensively utilized, additional productive capacity is
available through a variety of means including, at the Murrysville, Marietta,
and Westminster sites, augmenting the current partial second shift work
schedule. Rental space, which the Company believes is readily available and
reasonably priced near each current location, could be utilized as well. The
Company also owns approximately 20 acres of land adjacent to the 10 acre site
on which the Murrysville facility is located. Future expansion in Murrysville,
if needed, could take place on this 20 acre site.
The Company generally performs all major assembly work on all of its
products. It manufactures the plastic components for its face mask products
and uses subcontractors to supply certain other components. The Company
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 and, in some cases, rents 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 in
the United States primarily through the Company's field network, which consists
of 13 sales management employees, 97 direct sales representatives and sales
support specialists, 45 independent manufacturers' representatives and
approximately 5,000 medical products distributors (also referred to as
"dealers").
The Company manages its U.S. dealer network through the direct sales
force and independent manufacturers' representatives. The Company's sales
management team includes a Vice President of Sales and Marketing, a Vice
President of U.S. and Canadian Sales, ten Regional Sales Managers, and a
National Accounts Manager. This team directs the activities of the independent
manufacturers' representatives, direct sales representatives and sales support
specialists. Independent manufacturers' representatives, direct sales
representatives and sales support specialists sell products from all three of
the Company's major product groups (see "Products").
The Company's international sales efforts are conducted through a Vice
President of International Sales, a Director of European Sales, a South
American Sales Manager, and a Director of Far East Sales. The Company also has
direct sales representatives and a customer satisfaction staff in the Far East,
Germany and France. The Company's international sales employees sell products
from all three major product groups. International sales accounted for
approximately 22%, 21% and 18% of the Company's net sales for fiscal year 1998,
1997 and 1996, respectively.
The Company's marketing organization is currently staffed by Product
Managers, who are assigned to each of the Company's 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 U.S. dealer 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 impact on the Company of this customer consolidation is likely to continue
to be reduced selling prices for the Company's products as a result of greater
purchasing power and market dominance enjoyed by larger customers.
10
<PAGE>
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. 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 is the U.S. market leader for OSA therapy
products, non-invasive ventilatory support products, and invasive portable
volume ventilation products. However, other manufacturers, including other
larger and more experienced manufacturers of home health care products, are
active in these markets and the Company expects that competition will increase.
In its major market segments, the Company competes with two principal
competitors, Mallinckrodt, Inc. ("Mallinckrodt") and ResMed, Inc. ("ResMed").
Mallinckrodt, 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. ResMed competes with
the Company in the OSA and non-invasive ventilatory support markets. The Company
also competes with Invacare Corp. and with divisions of Sunrise Medical, Inc.
and Thermo Election Corporation in several product lines.
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, such as the
acquisition of Nellcor-Puritan Bennett by Mallinckrodt. The impact on the
Company of this competitor consolidation is likely to be greater competition
from medical device manufacturers which can utilize the financial and technical
resources that may be made available as a result of the consolidation.
Research and Development
The Company believes that its ability to identify product
opportunities, to respond to the needs of cardiopulmonary and other physicians
and their patients in the treatment of respiratory and other 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 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 by
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 183 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 $20,225,000 (6% of net sales) in fiscal year 1998, $17,836,000
(6% of net sales) in fiscal year 1997 and $14,567,000 (6% of net sales) in
fiscal year 1996 to support product enhancement and new product development.
New product introductions in all of the Company's core product areas
took place during fiscal years 1996, 1997 and 1998, including the products in
the Great Performers family, the BiPAP Vision Hospital Ventilatory Support
System, new versions of the Tranquility and Quantum units, a new sleep
diagnostic product, a new oxygen concentrator, and several new face mask
products. The Company expects to release a variety of new devices in its core
product areas in fiscal year 1999. In some cases, initial distribution has been,
and will be, conducted in international markets until regulatory clearance to
market in the U.S. is obtained. See "Regulatory Matters."
11
<PAGE>
In addition to its development efforts in its core product areas, the
Company is actively pursuing product development activities in new markets,
most notably infant care and fetal monitoring.
The Company has obtained the North American rights to a patented
technology from Spectrx, Inc. for a non-invasive method of measuring the level
of bilirubin in the blood of infants. The current method of measuring
bilirubin levels to diagnose jaundice in infants, the "heel stick", involves
drawing blood from the infant and is a painful, costly and time consuming
procedure. The non-invasive method for measuring bilirubin has obvious
advantages over the heel stick and will allow the detection and diagnosis of
jaundice to occur in the entire spectrum of infant care, from hospital to home.
The Spectrx device, called the BiliCheck, is expected to be launched in Canada
in the second quarter of fiscal year 1999. An application for U.S. regulatory
clearance to market has been filed, and the U.S. launch of the BiliCheck will
begin when this clearance is received.
The Company also owns proprietary technology in the area of fetal
oximetry monitoring. The current technology utilized in the United States for
determining fetal well-being during labor and delivery involves monitoring
fetal heart rate. The Company believes that fetal heart rate is reliable as a
measure of fetal distress only about 50% of the time, and as a result
unnecessary cesarean deliveries are performed, increasing costs and
medical/legal exposure. The Company's fetal oximetry technology will give
clinicians new oxygen data relative to fetal well being and will also provide
heart rate data, thereby providing a more complete picture of the fetus's
status. The fetal oximetry product is currently under development and is also
undergoing clinical evaluation.
The Company also maintains a New Ventures Group at its facility in
Plum Borough, Pennsylvania. Led by a Senior Vice President of New Ventures,
this group of employees, which includes engineers, researchers, technicians,
and business development experts, is charged with identifying product,
technology, and business opportunities outside of the Company's core products
areas.
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 120 U.S. and foreign
patents and has additional U.S. and foreign patent applications pending.
The Company also has 153 registered U.S. and foreign trademarks and
has additional U.S. and foreign trademark applications pending.
The Company is a party to two legal actions relating to its
patents and the patents of its competitors. See "Item 3 - Legal Proceedings"
for more information regarding these actions.
Regulatory Matters
The Company's products are subject to regulation by, among other
governmental entities, the FDA and corresponding foreign agencies. The FDA
regulates the introduction, manufacture, advertising, labeling, packaging,
marketing and distribution of and recordkeeping for such products. On June 1,
1997, new FDA regulations governing the manufacture of medical devices took
effect. These regulations imposed new requirements on device manufacturers such
as design controls. 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. The FDA also regulates the clinical
testing of medical devices. 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 receipt of, or failure to receive, clearances or approvals for the
Company's products for
12
<PAGE>
which such clearances or approvals have not yet been obtained would adversely
affect the marketing of such products in the U.S. 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 U.S.
until a substantial equivalence determination notice is issued by the FDA. 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 of
the 510(k) premarket notification and subsequent FDA review, can take a number
of years and require the expenditure of substantial resources.
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.
The Company has received ISO 9001 certification for its Murrysville, Marietta
and Westminster facilities from the International Organization of Standards, a
quality standards organization based in Geneva, Switzerland. The Company has
also received authorization for the same facilities, 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 facilities' quality systems conducted by an
independent agency authorized to perform conformity assessments under ISO
guidelines and the Medical Device Directives. Since receiving its original ISO
9001 certification, these facilities have undergone periodic update audits by
such independent agencies.
Third Party Reimbursement
The cost of a significant portion of medical care in the U.S. 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.
Early in calendar year 1998, government policy makers began a review
of the coverage guidelines for home use in the United States of non-invasive
ventilatory support products like the Company's BiPAP Ventilatory Support
Systems and Quantum Pressure Support Ventilators. The majority of end users of
these products participate in federal government insurance programs that are
impacted by the decisions of HCFA regarding these coverage guidelines. As part
of this review process, the DMERC's, which are the entities that process
insurance claims for federal government insurance programs, attended a
"consensus conference" on non-invasive ventilation in February 1998. This
consensus conference was organized and attended by members of the National
Association for Medical
13
<PAGE>
Direction of Respiratory Care, an association of clinicians involved in
respiratory care. Other attendees included representatives from HCFA, the
DMERC's, representatives from major medical and trade associations and
equipment manufacturers and distributors. The conference was intended to
develop a consensus regarding appropriate clinical criteria for the use of
non-invasive ventilation in the home. During the third and fourth quarters of
fiscal year 1998, the Company's sales of non-invasive ventilatory support
products for home use in the United States were adversely affected by the
uncertainty in the market that this coverage guideline review created and the
corresponding reduction in the purchase of these units by the Company's dealer
customers pending resolution of the coverage guidelines.
In July 1998, the DMERC's issued their draft basic coverage policy for
the use of non-invasive ventilation in the home. These draft guidelines as
issued were believed by industry observers to be more restrictive than the
findings of the consensus conference, particularly with regard to the
certifications required of prescribing physicians, the requirement of in-
hospital testing prior to use and the requirement for a three part evaluation
during this in-hospital testing. In addition, the guidelines as drafted appear
to contemplate changes in reimbursement classifications in addition to changes
in coverage policies.
The Company filed formal comments on the DMERC draft guidelines in
September 1998 as permitted by DMERC and HCFA regulations. A variety of trade
and medical associations, device manufacturers and home care distributors also
filed formal comments. The Company, and the other groups filing comments,
agreed that while coverage guidelines are needed, the guidelines as drafted are
too restrictive, do not reflect the findings of the consensus conference and
will in fact increase the total cost of medical care for patients who could
benefit from non-invasive ventilatory support in the home while at the same
time limiting patient access to this type of therapy.
The Company estimates that the final coverage policy will be published
by the DMERC's in late calendar year 1998 or early calendar year 1999 after the
comments which have been filed have been reviewed and considered. While the
Company cannot predict with certainty the provisions of the final coverage
policy, it believes that favorable modifications will be made from the draft
version that was released in July 1998. However, there can be no assurances
that the final coverage policy will be favorably modified or that it will not
be as or more restrictive than the draft policy. The Company expects that its
sales of non-invasive ventilatory support units for home use in the United
States will continue to be negatively impacted as compared with periods prior
to the issuance of the guidelines until the final guidelines are issued, or for
the foreseeable future if final guidelines are issued that are either as
restrictive as, or more restrictive than, the draft guidelines. During the
quarter ended June 30, 1998, sales of non-invasive ventilatory support units
for home use in the United States accounted for less than 10% of the Company's
total sales.
The Company has obtained "procedure codes" for its home care products
from 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.
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.
Employees
The Company currently has 2,045 employees, including 741 hourly
employees in the U.S. and 642 hourly employees in the Far East. 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.
14
<PAGE>
Financial Information About Foreign and Domestic Operations and Export Sales
Financial information concerning foreign and domestic operations and
export sales is discussed in Item 1 "Business -- Sales, Distribution and
Marketing" and set forth in Note I of the Consolidated Financial Statements
included in this Annual Report.
Item 2. Properties
----------
Information with respect to the location and general character of the
principal properties of the Company is included in Item 1 "Business --
Manufacturing and Properties".
Item 3. Legal Proceedings
-----------------
U.S. ResCare Litigation
In January 1995 ResCare, a former subsidiary of ResMed, 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, two of which are owned by and one of which is
licensed to ResCare (the "ResCare Patents"). The patents involved in the
California suit deal with basic CPAP, mask applications and with a "ramp"
feature of ResCare's CPAP devices. In the 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.
In its answers to ResCare's complaint, the Company denied, in all
material respects, the allegations of the complaint. The Company also filed an
action in the United States District Court for the Western District of
Pennsylvania against ResCare seeking declaratory judgments that the ResCare
patents in issue are either invalid or unenforceable or that the Company does
not infringe the patents.
Also as part of its response to the ResCare complaint, the Company
filed a motion in the United States District Court for the Southern District
of California seeking to transfer the California suit to the United States
District Court for the Western District of Pennsylvania and to consolidate the
two suits. The motion was granted and the cases have been consolidated in
Pittsburgh, Pennsylvania.
In June 1996 ResCare filed another action against the Company in the
United States District Court for the Western District of Pennsylvania alleging
that in the manufacture and sale in the U.S. of CPAP systems, the Company
infringes a fourth U.S. patent that had been recently issued to ResCare
relating to the ramp technology component used in CPAP systems. In this
additional litigation, ResCare seeks similar damages as in the pre-existing
patent suits. This suit was consolidated, upon the Company's motion, with the
pre-existing patent suits described above and discovery is now proceeding on
the consolidated action.
In January 1998, the Court granted the Company's motion for summary
judgment that it does not infringe ResCare's mask patent. In September 1998,
the Court granted the Company's motion for summary judgment that it does not
infringe ResCare's basic CPAP patent. It is the Company's belief, based upon
its investigation and discovery to date, that the ResCare patents are invalid
or unenforceable and that, even if they are valid and enforceable, none of the
Company's products infringe any of the patents. The Company intends to
vigorously defend and pursue this litigation and strongly believes that the
outcome should be favorable to the Company.
15
<PAGE>
AirSep Patent Infringement Litigation
In November 1996, the Company filed an action in the United States
District Court for the Western District of Pennsylvania against AirSep
Corporation ("AirSep") alleging that AirSep infringes one of the Company's
patents covering its bi-level OSA technology and seeking a preliminary and
permanent injunction, damages for infringing sales, and special damages for
willful infringement.
AirSep has answered the Company's complaint and has denied, in all
material respects, the allegations of the Company's complaint and has filed a
counterclaim alleging that the Company's bi-level patent involved in the
litigation is invalid and is unenforceable.
After a hearing, the Court entered an injunction in November 1997
preliminarily enjoining AirSep from infringing the Company's bi-level patent.
AirSep filed an appeal with the United States Court of Appeals for the Federal
Circuit. In September 1998 the Appeals Court affirmed the preliminary
injunction. A trial date has not yet been set.
Healthdyne Technologies, Inc. Shareholder Litigation
As noted in the Healthdyne Technologies Form 10-Q for the quarter
ended June 30, 1997, Healthdyne Technologies, Inc. (now Respironics Georgia,
Inc.) ("Healthdyne") and certain of its directors are defendants in a
class action lawsuit brought on behalf of Healthdyne shareholders in
connection with an unsuccessful takeover bid for Healthdyne made by Invacare
Corp. The shareholder litigation is covered by insurance, and the Company
believes that the lawsuit is mooted by the merger of Healthdyne with and
into a wholly-owned subsidiary of the Company.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
During the fourth quarter of the fiscal year 1998, 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, 1998, 32,678,632 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 21, 1998, there were 3,323 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
for the applicable quarters is shown below.
Fiscal year ending June 30, 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $28.13 $30.38 $29.63 $29.13
Low $21.00 $21.50 $20.63 $14.50
</TABLE>
Fiscal year ending June 30, 1997:
<TABLE>
<CAPTION>
First Second Third Fourth
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $25.00 $25.00 $22.25 $21.50
Low $17.25 $13.50 $16.75 $17.75
</TABLE>
17
<PAGE>
Item 6. Selected Financial Data
-------------------------------
<TABLE>
<CAPTION>
(In thousands except per share data)
Income Statement Data:
Year Ended June 30
1998 1997 1996 1995 1994
------ ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 351,576 $ 314,542 $ 236,471 $ 203,704 $156,025
Cost of goods sold 180,650 161,283 120,597 108,794 80,627
---------- --------- --------- --------- --------
170,926 153,259 115,874 94,910 75,398
General and administrative
expense 37,200 30,103 23,038 19,824 15,373
Sales, marketing and
commission expense 65,560 58,391 42,327 36,423 28,244
Research and development
expense 20,225 17,836 14,567 11,413 8,016
Nonrecurring charges -0- -0- -0- -0- 7,086
Merger related costs 40,751 -0- -0- -0- -0-
Costs associated with
unsolicited offer to acquire
Healthdyne Technologies, Inc. 650 2,150 -0- -0- -0-
Interest expense 4,189 3,173 2,514 1,625 463
Other income (1,513) (2,379) (1,900) (1,619) (831)
--------- -------- -------- -------- --------
Income before income taxes 3,864 43,984 35,328 27,244 17,047
Income taxes 5,689 17,559 13,842 10,323 6,141
--------- -------- -------- -------- --------
Net income (loss) $ (1,825) $ 26,425 $ 21,486 $ 16,921 $ 10,906
========= ======== ======== ======== ========
Diluted earnings (loss) $ (0.06) $ 0.82 $ 0.71 $ 0.58 $ 0.39
per share
========= ======== ======== ======== ========
Weighted average number
of shares used in computing
diluted earnings per share 32,098 32,352 30,285 29,008 28,100
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
June 30
1998 1997 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working capital $ 137,550 $ 110,566 $ 135,564 $ 71,292 $ 53,931
Total assets 328,102 298,769 232,924 154,088 108,667
Total long-term
obligations 69,316 48,985 33,035 30,113 11,354
Shareholder's equity 200,840 191,056 162,644 91,185 71,809
</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 1998 were $351,576,000, representing a 12%
increase in net sales over the $314,542,000 recorded in fiscal year 1997. 1997
net sales represented a 33% increase over the $236,471,000 recorded in fiscal
year 1996. Increases in sales for the periods presented were due to increases
in unit and dollar sales for the Company's major product lines and, to a lesser
extent, to sales generated by two companies acquired during fiscal year 1997
(see Note K to the Consolidated Financial Statements for additional information
regarding these acquisitions). Sales for the second half of fiscal year 1998
were adversely impacted by a decrease in sales of the Company's non-invasive
ventilatory support products compared to prior year levels. These sales
decreases were caused by uncertainty in the market concerning insurance coverage
guidelines for the home use of these products in the United States and the
corresponding reduction in purchases of these units by the Company's dealer
customers pending resolution of the coverage guidelines. Government policy
makers issued a draft coverage policy in July 1998 that was more restrictive
than had been expected. The Company, along with trade and medical associations,
other device manufacturers and home care dealers, have filed formal comments as
permitted with the policy makers indicating disagreement with the draft coverage
policy. The Company estimates that a final coverage policy will be issued in
late calendar year 1998 or early calendar year 1999 and believes that until
these final guidelines are issued, sales of its non-invasive ventilatory support
units for home use in the United States will continue to be negatively impacted
as compared with periods prior to the issuance of the guidelines. If the final
guidelines issued are either as restrictive as, or more restrictive than, the
draft guidelines, the Company's sales of its non-invasive ventilatory support
units for home use in the United States will continue to be negatively impacted.
In addition, the Company is also experiencing more general challenges in its
marketplace due to the January 1998 reductions in Medicare reimbursement for
oxygen therapy, which adversely affected many of the Company's dealer customers.
The Company's gross profit held constant at 49% of net sales for
fiscal years 1998, 1997 and 1996, reflecting the fact that decreases in average
selling prices for the Company's major products (which had been expected over
the period) were offset by manufacturing support costs increasing at rates less
than the rate of sales increase, lower product costs and sales mix.
General and administrative expenses were $37,200,000 (11% of net
sales) for fiscal year 1998 as compared to $30,103,000 (10% of net sales) for
fiscal year 1997 and $23,038,000 (10% of net sales) for fiscal year 1996. The
increases in expenses for the periods presented were due primarily to increased
information systems costs, legal fees, allowances for doubtful accounts and
other administrative expenses. The increases were also due to costs incurred by
the Company's Respironics Colorado, Inc. ("Respironics Colorado") and Stimotron
Medizinische Gerate GmbH ("Stimotron") subsidiaries, since their acquisition in
October 1996 and February 1997, respectively. Finally, amortization of the
goodwill generated by those acquisitions is included in general and
administrative expenses starting at the date of acquisition. These increased
expenses for fiscal year 1998 were offset by cost reductions that the Company
obtained since the February 1998 closing of the merger with Healthdyne.
Sales, marketing and commission expenses were $65,560,000 (19% of net
sales) for fiscal year 1998 as compared to $58,391,000 (19% of net sales) for
fiscal year 1997 and $42,327,000 (18% of net sales) for fiscal year 1996. The
increases in expenses for the periods presented were due primarily to increased
costs for advertising, trade shows and related marketing communication
activities, international sales and marketing activities and sales and marketing
management. The increases were also due to costs incurred by the Company's
Respironics Colorado and Stimotron subsidiaries since their acquisition.
Respironics Colorado has a network of 19 fully staffed customer satisfaction
centers throughout the U.S., a portion of the costs of which are included in
sales, marketing and commissions. In addition, because a portion of the
Company's distribution activities in Germany are managed through Stimotron,
most of Stimotron's operating expenses are included in sales, marketing and
19
<PAGE>
commissions. These increased expenses for fiscal year 1998 were offset by cost
reductions that the Company obtained since the February 1998 closing of the
merger with Healthdyne.
Research and development expenses were $20,225,000 (6% of net sales)
for fiscal year 1998 as compared to $17,836,000 (6% of net sales) for fiscal
year 1997 and $14,567,000 (6% of net sales) for fiscal year 1996. The increase
in expenses for the periods presented were due to continuing development work on
a variety of new products in each of the Company's major product lines.
Specifically, significant development and clinical work was conducted, and is
continuing, on the Company's obstructive sleep apnea therapy products and the
next generation versions of the Company's non-invasive ventilation products.
Additional development work and clinical trials are being conducted in the
Company's other primary product areas and in certain product areas outside the
Company's core products.
During the fiscal year 1998, the Company incurred $40,751,000 in costs
related to the merger with Healthdyne. The primary components of these costs
were direct expenses of the transaction such as legal and investment banking
fees ($9,500,000), severance and other employment related costs ($9,500,000) and
asset write downs to reflect decisions made regarding product and operational
standardization (inventory; $11,000,000, other assets, $8,000,000). See Note M
to the Consolidated Financial Statements for additional information regarding
merger costs. During fiscal years 1998 and 1997, the Company also incurred
$2,800,000 in costs associated with an unsolicited offer by a third party to
acquire Healthdyne.
The Company's effective income tax rate from operations (i.e. excluding
the impact of the merger costs described above) was 40% for fiscal year 1998 as
compared to 40% for fiscal year 1997 and 39% for fiscal year 1996. Changes in
the Company's effective income tax rate are due primarily to changes in the
relative proportions of taxable income attributable to its U.S. and European
operations versus taxable income attributable to its Hong Kong and Peoples
Republic of China operations because the U.S. and European operations pay income
taxes at a higher rate (approximately 41% before available income tax credits)
than do the Hong Kong and Peoples Republic of China operations. For the fiscal
year 1996 to 1997 comparison, the proportion of taxable income attributable to
the U.S. and European operations increased, due in part to taxable income
generated by the Company's new subsidiaries, Respironics Colorado and Stimotron,
since their acquisitions. Accordingly, since these U.S. operations pay income
tax at a higher rate than do the Hong Kong and Peoples Republic of China
operations the result was an increased effective tax rate for 1997. The
Company's effective income tax rate for fiscal year 1998 including the impact of
the merger charges was 147% because certain of the direct expenses of the merger
transaction, such as investment banking and legal fees, are not deductible for
income tax purposes.
As a result of the factors described above, the Company's net income
(loss) was $(1,825,000) (1% of net sales) or $(.06) per diluted share for fiscal
year 1998 as compared to $26,425,000 (8% of net sales) or $0.82 per diluted
share for fiscal year 1997 and $21,486,000 (9% of net sales) or $0.71 per
diluted share for fiscal year 1996. Excluding the impact of the merger costs
and the costs associated with the unsolicited offer to acquire Healthdyne, the
Company's net income was $27,270,000 (8% of net sales) or $0.82 per diluted
share for fiscal year 1998 and $27,714,000 (9% of net sales) or $0.86 per
diluted share for fiscal year 1997.
Financial Condition, Liquidity and Capital Resources
The Company had working capital of $137,550,000 and $110,566,000 at
June 30, 1998 and 1997, respectively. Net cash used by operating activities was
$13,042,000 for fiscal year 1998, as compared to net cash provided by operating
activities of $19,904,000 and $9,864,000 for fiscal years 1997 and 1996,
respectively. The net use of cash by operating activities for the fiscal year
1998 as compared to net cash provided by operating activities in fiscal year
1997 was due primarily to lower earnings (including the impact of the cash
portion of the merger costs incurred), increases in inventory and accounts
receivable and decreases in accounts payable and accrued expenses. The increase
in cash provided by operating activities from fiscal year 1996 to fiscal year
1997 was due primarily to higher earnings, an increase in inventory in fiscal
year 1997 in an amount
20
<PAGE>
smaller than the increase in that account in the prior year and increases in
accounts payable and accrued expenses.
Net cash used by investing activities was $20,013,000, $69,717,000 and
$11,466,000 for fiscal years 1998, 1997 and 1996, respectively. Net cash used
by investing activities for fiscal year 1997 included $49,865,000 relating to
the October 21, 1996 acquisition of LIFECARE International, Inc. and $9,000,000
relating to the February 26, 1997 acquisition of Stimotron. The majority of
the remaining cash used by investing activities for all periods represented
capital expenditures, including the purchase of production equipment, computer
and telecommunications equipment, and office equipment. The funding for the
investment activities in all periods was provided by positive cash flows from
financing activities, accumulated cash and short-term investment balances, and
for the prior year periods, positive cash flows from operating activities. See
Note K to the Consolidated Financial Statements for additional information
regarding these acquisitions. Funding for the Stimotron acquisition was
provided by a $9,000,000 loan received from a commercial bank in February 1997
under the terms of a credit agreement. See Notes D and K to the Consolidated
Financial Statements for additional information about long-term obligations and
acquisition financing.
Net cash provided by financing activities includes borrowings and
repayments under the Company's various long-term obligations and also includes
proceeds of $46,832,000 from a public offering of 2,374,000 shares of common
stock completed in April 1996 along with proceeds from the issuance of common
stock under the Company's stock option plans during each of the years
presented.
On August 21, 1998, the Company's Board of Directors authorized a stock
buy back of up to 1,000,000 shares of the Company's outstanding common stock.
As of September 21, 1998, the Company has repurchased 551,000 shares in open
market transactions. Shares that are repurchased are added to treasury shares
pending future use and will reduce the number of shares outstanding.
On May 8, 1998, the Company finalized a $100,000,000 revolving credit
facility with a group of commercial banks. This credit facility was used to
refinance approximately $55,000,000 of the Company's long term debt with the
remaining balance of the facility available for future borrowing. The
revolving credit facility permits borrowings and repayments until its maturity
in May 2003. The revolving credit facility is unsecured and contains certain
financial covenants with which the Company must comply. The Company is
currently in compliance with these covenants. The interest rate on the
revolving credit facility is based on a spread over the London Interbank
Borrowing Rate ("LIBOR"). As of June 30, 1998, the resulting interest rate on
amounts outstanding under the revolving credit facility was approximately
6.10%. See Note D to the Consolidated Financial Statements for additional
information about the credit facility.
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, the availability of additional funds under its new
revolving credit facility, and its accumulated cash and short-term investments
will be sufficient to meet its current and presently anticipated future needs
for fiscal year 1999 for operating activities, investing activities, and
financing activities (primarily consisting of payments on long-term debt).
Year 2000
State of Readiness. The Company is currently executing an overall
Year 2000 compliance strategy utilizing the services of a Year 2000 consulting
firm. A program management office is in place consisting of full time staff
resources from both the Company and the consulting firm to address the four
identified primary risk areas: core business information systems and
technology; issues relative to the Company's products; issues
21
<PAGE>
relative to third party product and service providers; and issues relative to
the Company's facilities.
Year 2000 compliance of the Company's core business information
systems and technology has been largely addressed with the recent
implementation of Year 2000 compliant enterprise-wide resource planning ("ERP")
software at each of the Company's major locations. One implementation of Year
2000 compliant software remains to be completed at the Company's German
distribution subsidiary and is expected to be completed during fiscal year
1999.
A technical review of the Company's current and discontinued product
lines addressing Year 2000 issues has been completed; one non-compliance was
found and has been corrected. A strategy for dealing with customer inquiries
regarding Year 2000 compliance of the Company's products has been implemented
as well.
A review of issues relating to third party product and service
providers' Year 2000 compliance, including defining inventory and vendor
management processes, planning a third party compliance assessment and
identifying potential contingency planning and remediation strategies, is
currently in process. This review is currently scheduled to be completed in
October 1998. Based upon the results of this review, a detail project plan for
addressing third party product and supplier issues will be developed and
carried out. The Company's current expectation is that issues relating the
third party product and suppliers' Year 2000 compliance will be resolved by
June 1999.
A preliminary review of issues relating to the Year 2000 compliance of
the Company's facilities infrastructure has been completed and no major
problems or significant risks are anticipated based on this preliminary review.
Year 2000 Costs. Total costs for the Company's Year 2000 compliance
efforts are currently estimated to be approximately $11,000,000. The majority
of these costs relate to the ERP system installations and upgrades and have
been, and will be, capitalized and charged to expense over the estimated useful
life of the associated software and hardware. The remaining costs have been,
and will be charged directly to expense. Additional costs could be incurred if
significant remediation activities are required with third party suppliers (see
below).
Risks and Contingency Plans. Based on the Year 2000 compliance work
conducted to date and described above, the Company's most significant risk, and
its reasonably likely worst case scenario relative to Year 2000 compliance,
appears to be that upon completion of its review of its third party product and
service providers' Year 2000 compliance, it determines that certain of its
third party product and service suppliers may not be Year 2000 compliant. If
such product and service suppliers in fact do not become Year 2000 compliant in
a timely manner and these suppliers cannot provide the Company with products
and services in a timely and cost effective manner, future operating results
could be adversely affected. The Company believes that the vendor management
process that is currently being developed will identify these potential risks.
While a formal contingency plan for dealing with third party product
and service providers who are not Year 2000 compliant has not been completed,
the Company expects to have several options available to deal with identified
non-compliance.
For product and services where the Company's needs are not unique or
where a long term relationship with a supplier does not exist, a search for
alternative suppliers who are Year 2000 compliant would be conducted and
suppliers changed as needed prior to January 1, 2000.
While the Company believes that raw materials and components for its
products are readily available from a number of suppliers and believes that its
service needs are not significantly unique from other companies, it is possible
that for some of its suppliers who are identified as being non-compliant,
certain remediation strategies with the supplier may be employed, at least
initially, as an alternative to switching suppliers because of the operational
difficulties that switching suppliers could cause. These remediation
strategies include, but are not limited to, increasing purchases from the
suppliers in
22
<PAGE>
question prior to January 1, 2000 to provide a safety stock if the supplier
experiences difficulty and providing the Company's Year 2000 compliance
resources to assist the supplier in becoming compliant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates
and foreign exchange rates.
Interest Rates:
The Company's primary interest rate risk relates to its long term debt
obligations. At June 30, 1998, the Company had total long term obligations,
including the current portion of those obligations, of $72,436,000. Of that
amount, $3,516,000 was in fixed rate obligations and $68,920,000 was in
variable rate obligations. Assuming a 10% increase in interest rates on the
Company's variable rate obligations (i.e., an increase from the June 30, 1998
weighted average interest rate of 6.12% to a weighted average interest rate of
6.73%), annual interest expense would be approximately $422,000 higher based on
the June 30, 1998 outstanding balance of variable rate obligations. The
Company has no interest rate swap or exchange agreements.
Foreign Exchange Rates:
A substantial majority of the Company's sales, expenses, and cash
flows are transacted in U.S. dollars. For the year ended June 30, 1998, sales
denominated in currencies other than the U.S. dollar (primarily the German
mark, and to a lesser extent the French franc and the Chinese yuan) totaled
$28,404,000, or approximately 8% of total sales. Pre-tax income denominated in
currencies other than the U.S. dollar (primarily the Hong Kong dollar and the
German mark) totaled $3,611,000, or approximately 8% of total pre-tax income
excluding the impact of merger costs and costs related to an unsolicited offer
to acquire Healthdyne. An adverse change of 10% in exchange rates would have
resulted in a decrease in sales of $2,840,000 and a decrease in net income of
$361,000 for the year ended June 30, 1998. The Company's entities that operate
in Germany, France, Hong Kong and China have certain accounts receivable and
accounts payable denominated in U.S. dollars in addition to receivable and
payable accounts in their home currencies which can act to further mitigate the
impact of foreign exchange rate changes. The Company has no significant
foreign currency exchange contracts.
Inflation
Inflation has not had a significant effect on the Company's business
during the periods discussed.
Item 8. Consolidated Financial Statements
---------------------------------
Index to Consolidated Financial Statements
Report of Independent Auditors.................................. 24
Consolidated Balance Sheets as of June 30, 1998 and 1997........ 25
Consolidated Statements of Operations for the
years ended June 30, 1998, 1997 and 1996...................... 27
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1997 and 1996...................... 28
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1998, 1997 and 1996.............. 29
Notes to Consolidated Financial Statements...................... 30
23
<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, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1998. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Respironics, Inc. and subsidiaries at June 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young, LLP
Pittsburgh, Pennsylvania
September 28, 1998
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30
1998 1997
------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 14,874,753 $ 18,630,657
Trade accounts receivable, less allowance for
doubtful accounts of $8,246,000 and
$4,908,000 90,985,120 78,096,383
Inventories 58,897,764 56,008,256
Prepaid expenses and other 14,977,842 9,161,299
Deferred income tax benefits 14,948,226 6,795,897
------------- -------------
TOTAL CURRENT ASSETS 194,683,705 168,692,492
PROPERTY, PLANT AND EQUIPMENT
Land 3,360,885 3,327,775
Building 13,564,623 12,936,177
Machinery and equipment 54,087,893 43,822,845
Furniture, office and computer equipment 27,170,001 17,059,117
Leasehold improvements 1,148,251 1,236,327
------------- -------------
99,331,653 78,382,241
Less allowances for depreciation
and amortization 50,408,095 36,287,759
------------- -------------
48,923,558 42,094,482
Funds held in trust for construction
of new facility 817,820 1,754,452
OTHER ASSETS 14,774,380 12,871,491
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED 68,902,667 73,356,458
------------- -------------
$ 328,102,130 $ 298,769,375
============= =============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
June 30
1998 1997
------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 20,966,011 $ 24,148,853
Accrued expenses and other 33,048,316 32,176,590
Current portion of long-term obligations 3,119,617 1,801,211
------------- -------------
TOTAL CURRENT LIABILITIES 57,133,944 58,126,654
LONG-TERM OBLIGATIONS 69,316,177 48,984,933
MINORITY INTEREST 812,116 602,072
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
32,678,632 shares at June 30, 1998 and
31,656,900 shares at June 30, 1997 326,786 316,569
Additional capital 105,376,608 92,838,205
Cumulative effect of foreign currency
translations (1,416,465) (689,813)
Retained earnings 97,648,469 99,473,203
Treasury stock (1,095,505) (882,448)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 200,839,893 191,055,716
------------- -------------
$ 328,102,103 $ 298,769,375
============= =============
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Net sales $ 351,576,443 $ 314,541,736 $ 236,471,388
Cost of goods sold 180,650,363 161,283,031 120,596,973
------------- ------------- -------------
170,926,080 153,258,705 115,874,415
General and administrative expenses 37,200,146 30,102,668 23,038,072
Sales, marketing and commission expenses 65,560,336 58,391,202 42,326,836
Research and development expenses 20,224,584 17,835,838 14,567,293
Merger related costs 40,751,079 -0- -0-
Costs associated with an unsolicited offer
to acquire Healthdyne Technologies, Inc. 650,000 2,150,000 -0-
Interest expense 4,188,740 3,173,497 2,514,926
Other income (1,513,291) (2,378,746) (1,900,320)
------------- ------------- -------------
167,061,594 109,274,459 80,546,807
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 3,864,486 43,984,246 35,327,608
Income taxes 5,689,220 17,559,494 13,842,000
------------- ------------- -------------
NET (LOSS) INCOME $ (1,824,734) $ 26,424,752 $ 21,485,608
============= ============= =============
Basic (loss) earnings per share $ (0.06) $ 0.84 $ 0.73
============= ============= =============
Basic shares outstanding 32,097,955 31,292,658 29,293,152
============= ============= =============
Diluted (loss) earnings per share $ (0.06) $ 0.82 $ 0.71
============= ============= =============
Diluted shares outstanding 32,097,955 32,352,208 30,285,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
June 30
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (1,824,734) $ 26,424,752 $ 21,485,608
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Depreciation 10,586,890 7,420,375 6,167,223
Amortization 3,428,791 2,773,294 853,445
Provision for asset write offs 18,134,483 -0- -0-
Provision for deferred income taxes (8,152,329) (803,924) 286,142
Changes in operating assets and liabilities:
Increase in accounts receivable (14,888,737) (11,021,845) (9,654,178)
Accounts receivable sold with recourse 5,892,000 3,953,000 -0-
Increase in inventories and other current assets (20,282,088) (5,850,801) (7,867,192)
Increase in other assets (1,902,889) (4,705,223) (3,471,210)
(Decrease) increase in accounts payable and accrued
expenses (4,032,945) 1,714,683 2,064,543
------------- ------------- -------------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (13,041,558) 19,904,311 9,864,381
INVESTING ACTIVITIES
Purchase of property, plant and equipment (20,012,780) (11,186,005) (10,066,499)
Acquisition of businesses, net of cash acquired -0- (58,531,208) (1,400,000)
------------- ------------- -------------
NET CASH USED BY
INVESTING ACTIVITIES (20,012,780) (69,717,213) (11,466,499)
FINANCING ACTIVITIES
Proceeds from long-term obligations 68,500,000 21,750,000 13,250,000
Reduction in long-term obligations (46,850,350) (22,168,575) (10,350,370)
Issuance of common stock 8,378,449 3,132,056 49,819,919
Acquisition of treasury stock (213,057) (843,560) (38,888)
Increase (decrease) in minority interest 210,044 (283,248) 206,252
------------- ------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 30,025,086 1,586,673 52,886,913
EFFECT OF EXCHANGE RATE CHANGES ON CASH (726,652) (689,813) -0-
------------- ------------- -------------
(DECREASE) INCREASE IN CASH AND
SHORT-TERM INVESTMENTS (3,755,904) (48,916,042) 51,284,795
Cash and short-term investments at beginning of period 18,630,657 67,546,699 16,261,904
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 14,874,753 $ 18,630,657 $ 67,546,699
============= ============= =============
</TABLE>
See notes to consolidated financial statements
28
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RESPIRONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Cumulative
Effect of
Common Stock Foreign Treasury Stock
------------------- Additional Currency Retained ------------------
Shares Amount Capital Translations Earnings Shares Amount Total
---------- -------- ------------ ------------ ----------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 28,136,095 $281,361 $ 39,343,064 $ 0 $51,562,843 0 $ 0 $ 91,187,268
Net income for the year ended
June 30, 1996 0 0 0 0 21,485,608 0 0 21,485,608
Shares sold pursuant to stock option
plans 420,298 4,203 2,960,389 0 0 0 0 2,964,592
Acquisition of treasury stock 0 0 0 0 0 1,819 (38,888) (38,888)
Income tax benefit from exercise of
stock options 0 0 192,000 0 0 0 0 192,000
Net proceeds from shares sold in
public offering 2,373,589 23,736 46,831,591 0 0 0 0 46,855,327
---------- -------- ------------ ----------- ----------- ------ ----------- ------------
BALANCE AT JUNE 30, 1996 30,929,982 309,300 89,327,044 0 73,048,451 1,819 (38,888) 162,645,807
Net income for the year ended
June 30, 1998 0 0 0 0 26,424,752 0 0 26,424,752
Shares sold pursuant to stock option
plans 726,918 7,269 3,124,786 0 0 0 0 3,132,056
Acquisition of treasury stock 0 0 0 0 0 46,000 (843,560) (843,560)
Income tax benefit from exercise of
stock options 0 0 386,374 0 0 0 0 386,374
Translation adjustments 0 0 0 (689,813) 0 0 0 (689,813)
---------- -------- ------------ ----------- ----------- ------ ----------- ------------
BALANCE AT JUNE 30, 1997 31,656,900 316,569 92,838,205 (689,813) 99,473,203 47,819 (882,448) 191,055,716
Net loss for the year ended
June 30, 1998 0 0 0 0 (1,824,734) 0 0 (1,824,734)
Shares sold pursuant to stock option
plans 1,021,732 10,217 8,368,232 0 0 0 0 8,378,449
Net acquisition and use of treasury
stock 0 0 0 0 0 2,208 (213,057) (213,057)
Income tax benefit from exercise of
stock options 0 0 4,170,171 0 0 0 0 4,170,171
Translation adjustments 0 0 0 (726,652) 0 0 0 (726,652)
---------- -------- ------------ ----------- ----------- ------ ----------- ------------
BALANCE AT JUNE 30, 1998 32,678,632 $326,786 $105,376,608 $(1,416,465) $97,648,469 50,027 $(1,095,505) $200,839,893
========== ======== ============ =========== =========== ====== =========== ============
</TABLE>
See notes to consolidated financial statements.
29
<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 wholly owned domestic and foreign subsidiaries, and a
foreign joint venture in which it holds a 51% ownership. 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.
Merger; Pooling of Interests Accounting:
- -------------------------------
In February 1998, the Company merged a wholly owned subsidiary with Healthdyne
Technologies, Inc. ("Healthdyne") in a stock for stock merger by issuing
approximately 12,000,000 shares of the Company's common stock in exchange for
the outstanding shares of Healthdyne. The merger was accounted for as a pooling
of interests. Accordingly, the consolidated financial statements include, for
all periods presented, the combined financial results and financial position of
the Company and Healthdyne. Healthdyne has since been renamed Respironics
Georgia, Inc. Sales and net income for the six months ended December 31, 1997
(the most recent interim period prior to the pooling) were $105,369,000 and
$11,447,000, respectively, for Respironics and $80,852,000 and $5,361,000,
respectively, for Healthdyne. Intercompany transactions prior to the
combination were not material.
Revenue Recognition:
- -------------------
Revenue is recognized from sales when a product is shipped to a customer
location.
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. 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
carrying value of assets and liabilities.
The Company does not provide for federal income taxes on the undistributed
earnings of its foreign subsidiaries (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.
30
<PAGE>
Foreign Currency Translation:
- ----------------------------
The Company follows Statement of Financial Accounting Standards No. 52 for the
translation of the accounts of its foreign subsidiaries 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 credited or charged directly to a separate component
of shareholders' equity. Gains and losses resulting from foreign currency
transactions are credited or charged directly to income.
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:
- ------------------
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share", on December 31, 1997 which prescribes the calculation
methodology and financial reporting requirements for basic and diluted earnings
per share. Basic earnings per share are based on the weighted average number of
shares actually outstanding. Diluted earnings per share are based on the
weighted average number of shares actually outstanding and dilutive potential
shares, such as dilutive stock options which are determined using the treasury
stock method. All prior period earnings per share data presented in these
financial statements have been restated to conform to the provisions of
Statement No. 128.
Cash and Short-Term Investments:
- ---------------------------------
The Company considers all highly liquid investments with a maturity of 90 days
or less when purchased to be cash and short-term investments.
Capitalized Software Production Costs:
- ---------------------------------------
Software development costs have been capitalized and are being amortized to the
cost of product revenues over the estimated economic lives of the products that
include such software. Total net capitalized software production costs were
$1,978,000 and $2,522,000 at June 30, 1998 and 1997, respectively.
Advertising Costs:
- ------------------
Advertising is charged to expenses during the period in which it is incurred.
Total advertising expenses for the fiscal years ended June 30, 1998, 1997 and
1996 were $1,138,000, $1,006,000 and $853,000 respectively.
Goodwill:
- ---------
The cost in excess of the fair value of net assets of businesses acquired is
amortized on the straight line method over periods from 15 to 40 years.
Accumulated amortization was $8,117,000 and $4,029,000 at June 30, 1998 and
1997.
Accrued Expenses and Other:
- ---------------------------
Accrued expense and other includes accrued compensation of $6,062,000 and
$7,899,000 at June 30, 1998 and 1997 respectively.
31
<PAGE>
Recently Issued Accounting Standards:
- -------------------------------------
In June 1998, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both Statements become effective for the Company's fiscal
year ended June 30, 1999 and relate to the disclosure of financial information
not found in the basic financial statements. Statement No. 130 establishes
standards for the reporting and display of "comprehensive income" and its
components, in addition to net income, in financial statements. Comprehensive
income is intended to include certain items that are not reflected in the
statement of operations, such as foreign currency translation adjustments.
Statement No. 131 changes the way public companies report segment information
and establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company is currently studying the
provisions of these Statements and has not adopted such provisions in the June
30, 1998 financial statements.
Use of Estimates:
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements 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
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $18,540,521 $24,712,760
Work-in-process 7,570,524 5,237,043
Finished goods 32,786,719 26,058,453
----------- -----------
$58,897,764 $56,008,256
=========== ===========
</TABLE>
32
<PAGE>
NOTE D -- LONG TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
June 30
1998 1997
----------- ------------
<S> <C> <C>
1989 Economic Development
Revenue Bonds, variable interest
rate (effective rate of 4.63%,
including letter of credit and
remarketing fees, at June
30, 1998), principal payable in
annual installments of $200,000
through 2004 $1,400,000 $1,600,000
Industrial Development Authority
Loan, payable in monthly install-
ments of $13,777, including interest
at 3%, through June 2005 1,021,786 1,154,297
Redevelopment Authority Loan,
payable in quarterly installments
of $14,533, including interest at 5%,
through June 2005 371,589 409,934
Redevelopment Authority Loan,
payable in monthly installments of
$6,296, including interest at 2%,
through July 2009 746,275 805,448
Industrial Development Authority
Loan, payable in monthly install-
ments of $7,289, including interest
at 2%, through March 2010 926,144 996,190
Industrial Development Revenue Bond,
payable in quarterly installments of
$40,000 plus interest at a floating
rate (effective rate of 5.57% including
letter of credit fees at June 30, 1998)
through November 2009 4,520,000 4,720,000
Unsecured promissory note incurred in
connection with business acquisition;
interest at 6%; principal with accrued
interest payable in two annual installments
which began June 1997 -- 573,000
Unsecured, noninterest-bearing obligation
incurred in connection with business
acquisition; payable in 1998 450,000 450,000
Commercial Bank Credit Agreement,
payable in one lump sum in May 2003
including interest at a floating rate
(6.19% at June 30, 1998) 63,000,000 9,000,000
Commercial Bank Revolving Credit
Agreement -- 31,075,000
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Other -- 2,275
----------- -----------
$72,435,794 $50,786,144
Less current portion 3,119,617 1,801,211
----------- -----------
$69,316,177 $48,984,933
=========== ===========
</TABLE>
The Economic Development Revenue Bonds, the Industrial Development Authority
Loans, and the Redevelopment Authority Loans are secured by mortgages upon the
Company's manufacturing facility in Murrysville, Pennsylvania. The Revenue Bond
is secured by a mortgage upon the Company's facility in Westminster, Colorado.
Proceeds from the bonds and the loans were used to finance the construction and
expansion of the facilities. The Commercial Bank Revolving Credit Agreement,
under which a total of $100,000,000 is available, is unsecured. 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, minimum tangible net worth, leverage, and
interest coverage. At June 30, 1998 the Company was in compliance with these
covenants. The Commercial Bank Revolving Credit Agreement includes a commitment
fee, currently equal to 0.15%, on the unused portion of the facility.
The Commercial Bank Revolving Credit Agreement was an obligation of Healthdyne,
which merged with the Company in February 1998. The total commitment available
under the Agreement was $50,000,000 and the Agreement was secured by
inventories, accounts receivable, and certain intangible assets of Healthdyne.
Amounts outstanding under this Agreement were paid off at the closing of the
merger using proceeds from the Commercial Bank Credit Agreement described above.
Scheduled maturities of long-term obligations for the next five years are as
follows:
<TABLE>
<CAPTION>
Maturities of
Long-Term Debt
--------------
<S> <C>
1999 $ 1,119,617
2000 678,370
2001 687,500
2002 696,941
2003 63,507,480
Thereafter 5,745,886
--------------
TOTAL $72,435,794
==============
</TABLE>
Interest paid was $3,790,000, $2,962,000 and $2,453,000 for the years ended June
30, 1998, 1997 and 1996, respectively.
NOTE E - OPERATING LEASES
The Company leases its corporate headquarters, its customer satisfaction centers
and certain of its offices, warehouses and manufacturing facilities in the
United States and also leases its offices, warehouses and manufacturing
facilities in the Far East and in Europe.
34
<PAGE>
The minimum rentals due under noncancelable leases with recurring terms of one
year or more as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30 Amount
- ------------------- ------
<S> <C>
1999 $ 2,969,000
2000 1,988,000
2001 1,393,000
2002 988,000
2003 644,000
</TABLE>
Total rent expense for the years ended June 30, 1998, 1997 and 1996 was
$3,318,000, $2,533,000 and $1,440,000, respectively.
NOTE F -- FAIR VALUE 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, 1998 June 30, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash and Short Term
Investments $14,874,753 $14,874,753 $18,630,657 $18,630,657
Long Term Obligations 72,435,794 72,435,794 50,786,144 50,786,144
</TABLE>
NOTE G -- INCOME TAXES
Income before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year ended June 30
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
United States $ 253,254 $40,455,546 $33,960,330
Foreign 3,611,232 3,528,700 1,367,270
----------- ----------- -----------
Total $3,864,486 $43,984,246 $35,327,608
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes consisted of:
Current
Federal $11,046,816 $14,578,734 $11,203,772
Foreign 648,804 1,485,216 96,316
State 2,145,929 2,299,468 2,255,770
Tax benefit from exercise
of stock options (4,170,171) (386,374) (192,000)
------------ ------------ ------------
9,671,378 17,977,044 13,363,858
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C>
Deferred:
Federal (7,017,573) (796,731) 237,643
State (1,134,756) (7,193) 48,499
------------ ------------ ------------
(8,152,329) (803,924) 286,142
------------ ------------ ------------
Credit to additional paid in
capital for tax benefit
from stock option
exercises 4,170,171 386,374 192,000
------------ ------------ ------------
TOTAL INCOME TAXES
$5,689,220 $17,559,494 $13,842,000
============ ============ ============
</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
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Increases (decreases):
State taxes 17 3 4
Foreign taxes (13) -0- -0-
Tax credits (29) -0- -0-
Non-deductible expenses (primarily
certain merger related costs) 137 -0- -0-
Other items, net, none of which
individually exceeds 5% of
federal income taxes at statutory
rates -0- 2 -0-
------- ------ ------
EFFECTIVE INCOME TAX RATE 147% 40% 39%
======= ====== ======
</TABLE>
Deferred income tax assets consisted of the following:
<TABLE>
<CAPTION>
June 30
1998 1997
---------- -----------
<S> <C> <C>
Allowance for bad debts $ 2,527,747 $1,310,410
Depreciation 1,709,546 513,468
Accruals and reserves not
deducted for tax purposes 10,710,933 4,972,019
----------- -----------
Total $14,948,226 $6,795,897
=========== ==========
</TABLE>
36
<PAGE>
Undistributed earnings of the foreign subsidiaries on which no U.S. income tax
has been provided amounted to $11,890,000 at June 30, 1998.
Income taxes paid were $18,473,851, $17,674,183 and $12,708,766 for the years
ended June 30, 1998, 1997 and 1996, respectively.
NOTE H -- STOCK OPTION AND PURCHASE PLANS
The Company has in place the 1984 Incentive Stock Option Plan (the "1984 Plan")
and the 1992 Stock Incentive Plan (the "1992 Plan") which provide options to
eligible employees to purchase common stock over five or ten years at option
prices not less than fair market value at the time of the grant. Options become
exercisable no sooner than six months from the date of the grant at rates that
vary depending on the plan and are subject to possible acceleration in certain
circumstances. Under the 1992 Plan, options may include cash payment rights and
eligible employees may receive awards of restricted shares of the Company's
common stock. The 1984 Plan, which terminated as to new grants in 1993, had
3,400,000 options approved for issuance. The 1992 Plan has 1,000,000 options
and restricted shares approved for issuance.
The Company also has in place the 1991 Non-Employee Directors' Stock Option Plan
(the "Directors' Plan"). All options under the Directors' Plan are granted to
members of the Company's Board of Directors who are not employees of the
Company. Each non-employee director receives an option to purchase 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. Such options are granted
at fair market value on the date of grant. For 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. The
Directors' Plan has 300,000 options approved for issuance.
Healthdyne had in place, prior to its merger with the Company, four stock option
plans: the 1993 Stock Option Plan; the 1993 Nonemployee Director Stock Option
Plan; the 1995 Stock Option Plan II; and 1996 Stock Option Plan. Options
granted under all the Healthdyne plans were exercisable at the fair market value
of Healthdyne's common stock at the date of grant and became exercisable ratably
over a period of three years from the date of grant. Under the terms of the
merger, all options granted under the Healthdyne plans but not exercised
37
<PAGE>
as of the merger date were converted to options to purchase Respironics common
stock using the exchange ratio of 0.922 Respironics option for each Healthdyne
option granted but not exercised. The exercise price of the outstanding
Healthdyne options was correspondingly adjusted by the 0.922 exchange ratio as
well. At the date of the merger, the outstanding Healthdyne options were
converted into a total of 1,360,061 options to purchase Respironics common
stock. Under the terms of the Healthdyne plans, all such options became
immediately exercisable at the date of the merger and the plans terminated as to
new grants. All future stock option grants will be made from Respironics stock
option plans.
Pertinent information regarding options under all Plans is as follows:
<TABLE>
<CAPTION>
Option Shares
-------------
Year Ended June 30
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of period
Granted: 2,696,987 3,122,661 3,367,807
Price range ($18.56 - $26.84) 248,500
Price range ($ 9.70 - $23.25) 429,274
Price range ($10.85 - $22.75) 362,445
Exercised:
Price range ($ 1.00 - $22.75) (1,017,589)
Price range ($ 1.00 - $16.25) (684,111)
Price range ($ 1.00 - $16.25) (416,119)
Canceled (84,350) (170,837) (191,472)
--------- --------- ---------
Outstanding at end of period (Weighted average
price $11.96) 1,843,278 2,696,987 3,122,661
========== ========== ==========
Exercisable at end of period 1,458,557 2,345,365 2,838,454
========== ========== ==========
Shares available for future grant 577,377 741,527 999,964
========== ========== ==========
</TABLE>
The per share weighted-average fair value of stock options granted during 1998,
1997 and 1996 was $12.09, $7.86 and $9.43, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Expected volatility 43.12% 39.75% 40.20%
Expected dividend yield none none none
Risk-free interest rate 5.67% 6.11% 7.49%
Expected life of stock options 5 5 5
</TABLE>
38
<PAGE>
The Company applies APB Opinion No. 25 in accounting for its stock option plans
and accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS 123, the
Company's net earnings and related per share amounts would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings (loss):
As reported $(1,824,734) $26,424,752 $21,485,608
Pro forma (3,243,498) 25,462,011 20,995,240
Diluted earnings (loss) per share:
As reported (0.06) 0.82 0.71
Pro forma (0.10) 0.79 0.69
</TABLE>
In March 1997, the Company adopted an Employee Stock Purchase Plan ("Plan")
under which employees can purchase common stock of the Company through payroll
deductions. The purchase price under the Plan is the lesser of 85% of the
market value of the Company's common stock on either the first or last day of
the Plan year. The maximum amount each employee can purchase is equal to 20% of
annual compensation. There are no charges or credits to income in connection
with the Plan. Shares are purchased with the funds set aside through payroll
deductions at the end of each Plan year. Healthdyne had a similar Employee
Stock Purchase Plan in place until its termination in December 1997 in
anticipation of the merger.
In June 1996, the Company adopted a shareholders' rights plan under which
existing and future shareholders received a right for each share outstanding
entitling such shareholders to purchase shares of the Company's common stock at
a specified exercise price. The right to purchase such shares is not currently
exercisable, but would become exercisable in the future if certain events
occurred relating to a person or group (the "acquiror") acquiring or attempting
to acquire 20% or more of the Company's outstanding shares of common stock. In
the event the rights become exercisable, each right would entitle the holder
(other than the acquiror) to purchase shares of the Company's common stock
having a value equal to two times the specified exercise price.
NOTE I -- FINANCIAL INFORMATION BY GEOGRAPHIC AREAS AND MAJOR
CUSTOMERS
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
NET SALES
United States:
Unaffiliated customers $317,032,121 $290,988,977 $232,061,370
Interarea transfers 25,318,249 16,030,250 551,002
------------ ------------ -----------
342,350,370 307,019,227 232,612,372
Europe:
Unaffiliated customers 24,094,532 14,348,947 --
Far East:
Unaffiliated customers 10,449,790 9,203,812 4,410,018
Interarea transfers 4,713,133 4,883,257 7,433,684
------------ ------------ -----------
15,162,923 14,087,069 11,843,702
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Elimination--Transfers 30,031,382 20,913,507 7,984,686
------------ ------------ ------------
NET SALES $351,576,443 $314,541,736 $236,471,388
============ ============ ============
OPERATING PROFIT
United States $ 52,861,539 $50,800,333 $41,631,740
Europe 1,037,896 2,138,534 --
Far East 4,172,253 3,453,349 1,543,241
------------ ------------ ------------
OPERATING PROFIT 58,071,688 56,392,216 43,174,981
Corporate expense 50,018,462 9,234,473 5,332,447
Interest expense 4,188,740 3,173,497 2,514,926
------------ ------------ ------------
INCOME BEFORE INCOME
TAXES $ 3,864,486 $43,984,246 $35,327,608
============ ============ ============
</TABLE>
Interarea transfers are accounted for at prices comparable to unaffiliated
customer sales reduced by an approximation of costs not incurred on internal
sales.
Additional information regarding assets and liabilities by geographic area
follows:
<TABLE>
<CAPTION>
June 30
1998 1997
------------ ------------
<S> <C> <C>
IDENTIFIABLE ASSETS
United States $257,892,111 $249,716,983
Europe 20,032,689 10,109,490
Far East 10,572,147 9,652,898
------------ ------------
288,496,947 269,389,371
Corporate assets (primarily
cash and short-term
investments and deferred
income taxes) 29,822,979 25,426,555
------------ ------------
TOTAL ASSETS $318,319,926 $294,815,926
============ ============
TOTAL ASSETS
United States $280,174,789 $267,930,230
Europe 20,718,545 10,897,618
Far East 17,426,592 15,988,078
------------ ------------
$318,319,926 $294,815,926
============ ============
TOTAL LIABILITIES
United States $109,122,934 $ 95,145,188
Europe 4,844,086 6,036,274
Far East 3,513,013 2,578,748
------------ ------------
$117,480,033 $103,760,210
============ ============
</TABLE>
The Company develops, manufactures and markets medical devices for the treatment
of patients suffering from respiratory disorders. Its products are used
primarily in the home and in hospitals, as well as emergency medical settings
and alternative care facilities. The Company sells and rents primarily to
distributors in the health care industry and
40
<PAGE>
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 accounting for 10%
or more of net sales were $27,138,000 for the year ended June 30, 1996. No
single customer accounted for 10% or more of net sales for the years ended June
30, 1997 or June 30, 1998.
NOTE J -- RETIREMENT PLANS
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. Healthdyne also maintained a similar plan in a multi-employer
arrangement. Employees who participate in the Healthdyne plan will begin
participating in the Company's Retirement Savings Plan in fiscal year 1999.
Total Company contributions to these plans was $877,000, $759,000 and $638,000
for the years ended June 30, 1998, 1997 and 1996, respectively.
Healthdyne also maintained an unfunded nonqualified defined benefit pension plan
for a select group of its senior management. The benefits under the Plan are
based on the employee's compensation during the three calendar years in which
the individual's base salary is the highest and actual years of service. In
connection with the merger, this defined benefit pension plan was frozen and is
expected to be terminated. For 1998, 1997 and 1996, the assumptions used in
developing the projected benefit obligation were a discount rate of 7.0% and a
rate of increase in compensation of 5.0%. The pension liability is expected to
be paid to participants during fiscal year 1999 when the plan is terminated.
Net periodic pension cost of the plan was as follows:
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost on benefits
earned during the year $250,204 $232,135 $107,230
Interest cost on projected
benefit obligation 185,615 160,255 87,750
Net amortization and deferral 59,613 72,952 33,975
-------- -------- --------
Net periodic pension cost $495,432 $465,342 $228,955
======== ======== ========
</TABLE>
The actuarial present value of benefit obligations and funded status of the
Company's defined benefit pension plans was as follows:
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997
---- ----
<S> <C> <C>
Vested benefit obligation $1,173,772 $ 869,250
========== ==========
Accumulated benefit obligation $1,252,311 $ 950,935
========== ==========
Projected benefit obligation $3,465,256 $2,475,244
Unrecognized net gain (loss) (1,011,009) (467,892)
Unrecognized prior service cost (924,674) (973,211)
---------- ----------
Net pension liability $1,529,573 $1,034,141
========== ==========
</TABLE>
The Company's current benefit program does not provide postretirement benefits
to employees.
NOTE K-- SIGNIFICANT ACQUISITIONS
In February 1998, the Company merged a wholly owned subsidiary with Healthdyne
Technologies, Inc. ("Healthdyne") in a stock for stock merger by issuing
approximately 12,000,000 shares of the Company's common stock in exchange for
the outstanding shares of Healthdyne. The merger was accounted for as a pooling
of interests. Accordingly, the consolidated financial statements include, for
all periods presented, the combined
41
<PAGE>
financial results and financial position of the Company and Healthdyne.
Healthdyne has since been renamed Respironics Georgia, Inc.
In February 1997, the Company acquired the capital stock of Stimotron
Medizinische Gerate GmbH ("Stimotron"). Stimotron was based in Wendelstein,
Germany and was the exclusive distributor for the Company's products in that
country. The initial consideration paid was $9,000,000 in cash, with the terms
of the transaction providing for additional consideration of up to $5,000,000 in
cash over the next four years based upon the achievement of certain financial
results in Germany. Financing for the initial consideration was obtained from a
commercial bank, and financing for the additional consideration, if needed, is
expected to come from the Company's Commercial Bank Credit Agreement. The
acquisition was treated as a purchase for financial reporting purposes, and
accordingly the Company's results of operations include the results of
operations of Stimotron since the acquisition date. Goodwill generated by the
acquisition will be amortized over 20 years on a straight line basis.
In October 1996, the Company acquired the capital stock of LIFECARE
International, Inc., a developer, manufacturer and marketer of respiratory
therapy products, with its primary focus on portable home ventilation therapy,
based in Westminster, Colorado (LIFECARE International, Inc. has since been
renamed Respironics Colorado, Inc.). Consideration paid was $50,000,000 in
cash. Financing for the acquisition came primarily from the proceeds of a
public offering completed by the Company in April 1996. The acquisition was
treated as a purchase for financial accounting purposes, and accordingly the
Company's results of operations include the results of operations of
Respironics Colorado, Inc. since the acquisition date. Goodwill generated by
the acquisition will be amortized over 20 years on a straight line basis.
NOTE L -- CONTINGENCIES
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 sale in the
United States of certain products infringes a total of four of the competitor's
patents. In its response to these actions, the Company has denied the
allegations and has separately sought judgment that the claims under the patents
are invalid and that the Company does not infringe upon the patents. The
January 1995 and June 1996 actions have been consolidated, and discovery is
currently underway. The Court has granted the Company's motions for summary
judgment that the Company does not infringe two of the competitor's patents.
The Company believes that none of its products infringe any of the patents in
question in the event that any one or more of such patents should be held to be
valid and it intends to vigorously defend this position.
In connection with a customer leasing program between Healthdyne and two
independent leasing companies, the Company is contingently liable in the event
of a customer default to the leasing companies within certain limits for unpaid
installment receivables transferred to the leasing companies. Under the
provisions of Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", the Company is required to record certain of these transferred
lease receivables as collateralized borrowing arrangements. Accordingly, the
Company has included $9,782,000 and $3,953,000 of receivables sold with recourse
as assets in prepaid expenses and other at June 30, 1998 and 1997, respectively,
and has recorded offsetting liabilities at those dates in accrued expense and
other.
NOTE M -- MERGER COSTS
During the year ended June 30, 1998, the Company incurred approximately
$41,000,000 in costs related to the merger with Healthdyne. The primary
components of these costs were direct expenses of the transaction ($9,500,000),
employment related costs ($9,500,000), asset write downs to reflect decisions
made regarding product and operational standardization (inventory; $11,000,000,
other assets; $8,000,000), and other merger related costs ($3,000,000).
Transaction
42
<PAGE>
and employment costs incurred but not yet paid have been credited to accrued
expense and asset write downs have been credited against the applicable asset
accounts. Included in asset write downs is $1,000,000 resulting from Healthdyne
and Respironics conforming accounting practices as they relate to the recording
of the allowance for doubtful accounts.
NOTE N - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended June 30
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net (loss) income $ (1,824,734) $ 26,424,752 $ 21,485,608
Denominator:
Denominator for basic
earnings per share -
weighted average
shares 32,097,955 31,292,658 29,293,152
Effect of Dilutive
Securities:
Stock Options -0- 1,059,550 991,848
--------------- --------------- ---------------
Denominator for
diluted earnings per
share - adjusted
weighted average
shares and assumed
conversions 32,097,955 32,352,208 30,285,000
=============== =============== ===============
Basic (Loss) Earnings
Per Share $ (0.06) $ 0.84 $ 0.73
=============== =============== ===============
Diluted (Loss) Earnings
Per Share $ (0.06) $ 0.82 $ 0.71
=============== =============== ===============
</TABLE>
On August 21, 1998, the Company's Board of Directors authorized a stock buy back
of up to 1,000,000 shares of the Company's outstanding common stock. Such shares
will be added to treasury shares pending future use and will reduce the number
of shares outstanding.
43
<PAGE>
NOTE O-- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following are the unaudited quarterly results of operations for the fiscal years
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----
Three Months Ended
September 30 December 31 March 31 June 30
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $90,750,000 $95,472,000 $80,128,000 $85,227,000
Gross Profit 45,022,000 47,093,000 38,228,000 40,583,000
Merger Related Costs -- -- 37,503,000 3,248,000
Costs Associated with
Unsolicited Offer to
Acquire Healthdyne 650,000 -- -- --
Net Income (Loss) 7,853,851 8,953,000 (22,250,000) 3,618,000
Basic Earnings (Loss) Per Share .25 .28 (.69) .11
Diluted Earnings (Loss) Per Share .24 .27 (.69) .11
<CAPTION>
1997
----
Three Months Ended
September 30 December 31 March 31 June 30
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $63,309,000 $76,053,000 $83,485,000 $91,695,000
Gross Profit 31,092,000 35,867,000 40,340,000 45,960,000
Costs Associated with
Unsolicited Offer to
Acquire Healthdyne -- -- 1,300,000 850,000
Net Income 5,715,000 6,236,000 6,373,000 8,101,000
Basic Earnings Per Share .18 .20 .20 .26
Diluted Earnings Per Share .18 .19 .20 .25
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
44
<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,
1998 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 19, 1998, 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.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
-------------------------------------------------------
Form 8-K.
---------
The financial statements, financial statement schedules and exhibits
listed below are filed as part of this annual report.
(a) (1) Financial Statements:
---------------------
The Consolidated Financial Statements of the Company and its
subsidiaries, together with the report of Ernst & Young LLP dated September 28,
1998, filed as part of this Annual Report on Form 10-K 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.......... 46
(a) (3) Exhibits:.................................. 47
--------
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
RESPIRONICS, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Balance at Charged to Charged to Balance
Beginning of Costs and Other Accts.- Deductions at End
Period Expenses Describe Describe of Period
DESCRIPTION
------------ ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998:
Deducted from asset accounts:
Allowance for doubtful
accounts $4,908,000 $2,838,000 $500,000(a) $ $8,246,000
========== ========== ========== ==== ==========
Year ended June 30, 1997:
Deducted from asset accounts:
Allowance for doubtful
accounts $2,566,000 $2,342,000 $ $ $4,908,000
========== ========== ============== ==== ==========
Year ended June 30, 1996:
Deducted from asset accounts:
Allowance for doubtful
accounts $1,724,000 $842,000 $ $ $2,566,000
========== ========== ============== ==== ==========
</TABLE>
(a) Added in connection with a business combination accounted for as a purchase.
46
<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 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Company's Registration Statement on Form
S-8, Registration No. 33-36459.
3.4 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Company's Registration Statement on Form
S-8, Registration No. 33-89308.
3.5 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.5 to Form 10-Q for fiscal quarter ended
December 31, 1996.
3.6 By-Laws of the Company, filed as Exhibit 3.4 to Amendment No. 2 to
Form S-1, Registration No. 33-20899.
3.7 Amendment to By-Laws of the Company adopted on June 3, 1998, filed
as Exhibit 3.7 to this Annual Report.
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.
4.6 Form of Rights Agreement between Respironics, Inc. and Chase
Mellon Shareholder Services, L.L.C. filed as Exhibit 1 to Form 8A
filed by the Company on June 28, 1996.
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.
47
<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 Letter Agreements between the Company and Vital Signs, Inc., filed
as Exhibit 10.11 to Form S-1, Registration No. 33-20899.
10.4 Incentive Bonus Plan dated January 26, 1985, filed as Exhibit
10.16 to Form S-1, Registration No. 33-20899.
10.5 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.
10.6 Supply Agreement with Vital Signs, Inc. effective July 1, 1993 and
expiring June 30, 2001, filed as Exhibit 10.12 to Annual Report on
Form 10-K for fiscal year ending June 30, 1993.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 Healthdyne Technologies, Inc. 1996 Stock Option Plan, filed as
Exhibit 10.13 to this Annual Report.
10.14 Healthdyne Technologies, Inc. Stock Option Plan, filed as
Exhibit 10.8 to the Healthdyne Technologies, Inc. Registration
Statement on Form S-1, Registration No. 33-60706.
10.15 Healthdyne Technologies, Inc. Non-Employee Director Stock
Option Plan, filed as Exhibit 10.9 to the Healthdyne Technologies,
Inc. Registration Statement on Form S-1, Registration No.
33-60706.
10.16 Healthdyne Technologies, Inc. Stock Option Plan II, filed as an
Exhibit to the Healthdyne Technologies, Inc. Annual Report on
Form 10-K for the year ended December 31, 1994.
48
<PAGE>
10.17 Credit Agreement by and among RESPIRONICS, INC. as the Borrower,
THE BANKS PARTY HERETO, as the Lenders hereunder, and PNC BANK,
NATIONAL ASSOCIATION as the Issuing Bank, PNC BANK NATIONAL
ASSOCIATION as the Administrative Agent and the Syndication Agent
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as the
Documentation Agent, dated as of May 8, 1998, filed as Exhibit
10.1 to Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
10.18 Employment Agreement dated December 30, 1996 between the Company
and Steven P. Fulton, filed as Exhibit 10.15 to Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
10.19 Employment Agreement dated October 21, 1996 between the Company
and Geoffrey C. Waters, filed as Exhibit 10.16 to Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
10.20 Agreement and Plan of Reorganization and related Agreement and
Plan of Merger, each dated as of November 10, 1997, by and among
Respironics, Inc., Healthdyne Technologies, Inc., and RIGA, Inc.
a wholly owned subsidiary of Respironics, filed as Exhibit 10.17
to Quarterly Report on Form 10-Q (File No. 000-16723) dated
November 14, 1997.
10.21 Form of Amendment to Agreement and Plan of Reorganization and
related Agreement and Plan of Merger, dated as of December __ ,
1997 by and among Respironics, Inc., Healthdyne Technologies,
Inc., and RIGA, Inc., a wholly owned subsidiary of Respironics,
filed as Exhibit 10.17 to Quarterly Report on Form 10-Q (File No.
000-16723) dated November 14, 1997.
10.22 Employment Agreement dated November 11, 1977 between the Company
and Craig B. Reynolds, filed as Exhibit 10.22 to this Annual
Report.
10.23 Supplemental Employment Agreement dated November 11, 1997 between
the Company and Craig B. Reynolds, filed as Exhibit 10.23 to this
Annual Report.
10.24 Employment Agreement dated November 10, 1997 between the Company
and John L. Miclot, filed as Exhibit 10.24 to this Annual Report.
10.25 Supplemental Employment Agreement dated November 10, 1997 between
the Company and John L. Miclot, filed as Exhibit 10.25 to this
Annual Report.
10.26 Corporate Services Agreement dated as of April 23, 1995 by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.21 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.27 Tradename License Agreement dated as of April 21, 1995 by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.23 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.28 Form of letter agreement by and among the Company, Healthdyne
Technologies, Inc. and Matria Healthcare, Inc. confirming and
amending Corporate Services Agreement and Tradename License
Agreement between Healthdyne, Inc., now Matria Healthcare, Inc.,
and Healthdyne Technologies, Inc., now Respironics, Georgia,
Inc., filed as Appendix D to Exhibit 10.17 to Quarterly Report on
Form 10-Q
49
<PAGE>
(File No. 000-16723) dated November 14, 1997.
10.29 Amendment No. 1 to Healthdyne Technologies, Inc. Stock Option
Plan, filed as Exhibit 10.40 to Healthdyne Technologies, Inc. Form
10-K/A for the year ended December 31, 1996.
10.30 Amendment No. 2 to Healthdyne Technologies, Inc. Stock Option
Plan, filed as Exhibit 10.41 to Healthdyne Technologies, Inc. Form
10-K/A for the year ended December 31, 1996.
10.31 Tax Sharing Agreement, dated April 21, 1995 between Healthdyne
Technologies, Inc., now Respironics Georgia, Inc., and Healthdyne,
Inc., now Matria Healthcare, Inc., filed as an Exhibit to the
Healthdyne Technologies, Inc. Annual Report on Form 10-K for the
year ended December 31, 1995.
10.32 Administrative Services Agreement, dated March 31, 1993, between
Healthdyne Technologies, Inc., now Respironics Georgia, Inc., and
Healthdyne, Inc., now Matria Healthcare, Inc., filed as Exhibit
10.2 to the Healthdyne Technologies, Inc. Registration Statement
on Form S-1, Registration No. 33-60706.
10.33 Tax Indemnity Agreement, dated as of April 21, 1995, by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.20 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.34 Lease Agreement, dated December 20, 1993, between Max L.
Kuniansky, David L. Kuniansky, Amy Kuniansky Clark, Douglas S.
Kuniansky and Healthdyne Technologies, Inc., now Respironics
Georgia, Inc., filed as an Exhibit to the Healthdyne
Technologies, Inc. Annual Report on Form 10-K for the year ended
December 31, 1993.
10.35 Employment Agreement dated November 10, 1997 between the Company
and Robert Tucker, filed as Exhibit 10.35 to this Annual Report.
10.36 Supplemental Employment Agreement dated November 10, 1997 between
the Company and Robert Tucker, filed as Exhibit 10.36 to this
Annual Report.
21.1 List of Subsidiaries, filed as Exhibit 21.1 to this Annual Report.
23.1 Consent of Ernst & Young, filed as Exhibit 23.1 to this Annual
Report.
(b) Reports on Form 8-K:
--------------------
Not applicable.
50
<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 24, 1998
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 24, 1998:
/s/ Dennis S. Meteny /s/ James H. Hardie
------------------------------------- -------------------------------------
Dennis S. Meteny James H. Hardie
(President and (Director)
Chief Executive Officer
and Director)
(Principal Executive Officer)
/s/ Daniel J. Bevevino
------------------------------------- -------------------------------------
Daniel J. Bevevino Donald H. Jones
(Vice President and Chief Financial (Director)
Officer)
(Principal Accounting Officer)
/s/ Gerald E. McGinnis /s/ Craig B. Reynolds
------------------------------------- -------------------------------------
Gerald E. McGinnis Craig B. Reynolds
(Chairman of the (Director)
Board of Directors)
/s/ Daniel P. Barry
------------------------------------- -------------------------------------
Daniel P. Barry Joseph C. Lawyer
(Director) (Director)
/s/ Douglas A. Cotter
------------------------------------- -------------------------------------
Douglas A. Cotter George J. Magovern, M.D.
(Director) (Director)
- -------------------------------------
J. Terry Dewberry
(Director)
51
<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 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Company's Registration Statement on Form
S-8, Registration No. 33-36459.
3.4 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.2 to Company's Registration Statement on Form
S-8, Registration No. 33-89308.
3.5 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.5 to Form 10-Q for fiscal quarter ended
December 31, 1996.
3.6 By-Laws of the Company, filed as Exhibit 3.4 to Amendment 3.1
No. 2 to Form S-1, Registration No. 33-20899.
3.7 Amendment to By-Laws of the Company adopted on June 3, 1998,
filed as Exhibit 3.7 to this Annual Report.
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.
4.6 Form of Rights Agreement between Respironics, Inc. and Chase
Mellon Shareholder Services, L.L.C. filed as Exhibit 1 to Form 8A
filed by the Company on June 28, 1996.
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.
52
<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 Letter Agreements between the Company and Vital Signs, Inc., filed
as Exhibit 10.11 to Form S-1, Registration No. 33-20899.
10.4 Incentive Bonus Plan dated January 26, 1985, filed as Exhibit
10.16 to Form S-1, Registration No. 33-20899.
10.5 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.
10.6 Supply Agreement with Vital Signs, Inc. effective July 1, 1993 and
expiring June 30, 2001, filed as Exhibit 10.12 to Annual Report on
Form 10-K for fiscal year ending June 30, 1993.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 Healthdyne Technologies, Inc. 1996 Stock Option Plan, filed as
Exhibit 10.13 to this Annual Report.
10.14 Healthdyne Technologies, Inc. Stock Option Plan, filed as
Exhibit 10.8 to the Healthdyne Technologies, Inc. Registration
Statement on Form S-1, Registration No. 33-60706.
10.15 Healthdyne Technologies, Inc. Non-Employee Director Stock Option
Plan, filed as Exhibit 10.9 to the Healthdyne Technologies, Inc.
Registration Statement on Form S-1, Registration No. 33-60706.
10.16 Healthdyne Technologies, Inc. Stock Option Plan II, filed as an
Exhibit to the Healthdyne Technologies, Inc. Annual Report on
Form 10-K, for the year ended December 31, 1994.
10.17 Credit Agreement by and among RESPIRONICS, INC. as the Borrower,
THE BANKS PARTY HERETO, as the Lenders hereunder, and PNC BANK,
NATIONAL ASSOCIATION as the Issuing Bank, PNC BANK NATIONAL
53
<PAGE>
ASSOCIATION as the Administrative Agent and the Syndication Agent
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as the
Documentation Agent, dated as of May 8, 1998, filed as Exhibit
10.1 to Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
10.18 Employment Agreement dated December 30, 1996 between the Company
and Steven P. Fulton, filed as Exhibit 10.15 to Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
10.19 Employment Agreement dated October 21, 1996 between the Company
and Geoffrey C. Waters, filed as Exhibit 10.16 to Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.
10.20 Agreement and Plan of Reorganization and related Agreement and
Plan of Merger, each dated as of November 10, 1997, by and among
Respironics, Inc., Healthdyne Technologies, Inc., and RIGA, Inc.
a wholly owned subsidiary of Respironics, filed as Exhibit 10.17
to Quarterly Report on Form 10-Q (File No. 000-16723) dated
November 14, 1997.
10.21 Form of Amendment to Agreement and Plan of Reorganization and
related Agreement and Plan of Merger, dated as of December __ ,
1997 by and among Respironics, Inc., Healthdyne Technologies,
Inc., and RIGA, Inc., a wholly owned subsidiary of Respironics,
filed as Exhibit 10.17 to Quarterly Report on Form 10-Q (File No.
000-16723) dated November 14, 1997.
10.22 Employment Agreement dated November 11, 1997 between the Company
and Craig B. Reynolds, filed as Exhibit 10.22 to this Annual
Report.
10.23 Supplemental Employment Agreement dated November 11, 1997 between
the Company and Craig B. Reynolds, filed as Exhibit 10.23 to this
Annual Report.
10.24 Employment Agreement dated November 10, 1997 between the Company
and John L. Miclot, filed as Exhibit 10.24 to this Annual Report.
10.25 Supplemental Employment Agreement dated November 10, 1997 between
the Company and John L. Miclot, filed as Exhibit 10.25 to this
Annual Report.
10.26 Corporate Services Agreement dated as of April 23, 1995 by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.21 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.27 Tradename License Agreement dated as of April 21, 1995 by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.23 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.28 Form of letter agreement by and among the Company, Healthdyne
Technologies, Inc. and Matria Healthcare, Inc. confirming and
amending Corporate Services Agreement and Tradename License
Agreement between Healthdyne, Inc., now Matria Healthcare, Inc.,
and Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Appendix D to Exhibit 10.17 to Quarterly Report on Form
10-Q (File No. 000-16723) dated November 14, 1997.
54
<PAGE>
10.29 Amendment No. 1 to Healthdyne Technologies, Inc. Stock Option
Plan, filed as Exhibit 10.40 to Healthdyne Technologies, Inc.
Form 10-K/A for the year ended December 31, 1996.
10.30 Amendment No. 2 to Healthdyne Technologies, Inc. Stock Option
Plan, filed as Exhibit 10.41 to Healthdyne Technologies, Inc.
Form 10-K/A for the year ended December 31, 1996.
10.31 Tax Sharing Agreement, dated April 21, 1995 between Healthdyne
Technologies, Inc., now Respironics Georgia, Inc., and
Healthdyne, Inc., now Matria Healthcare, Inc., filed as an
Exhibit to the Healthdyne Technologies, Inc. Annual Report on
Form 10-K for the year ended December 31, 1995.
10.32 Administrative Services Agreement, dated March 31, 1993, between
Healthdyne Technologies, Inc., now Respironics Georgia, Inc., and
Healthdyne, Inc., now Matria Healthcare, Inc., filed as Exhibit
10.2 to the Healthdyne Technologies, Inc. Registration Statement
on Form S-1, Registration No. 33-60706.
10.33 Tax Indemnity Agreement, dated as of April 21, 1995, by and
between Healthdyne, Inc., now Matria Healthcare, Inc., and
Healthdyne Technologies, Inc., now Respironics Georgia, Inc.,
filed as Exhibit 10.20 to the Healthdyne Technologies, Inc. Form
8-K dated April 20, 1995.
10.34 Lease Agreement, dated December 20, 1993, between Max L.
Kuniansky, David L. Kuniansky, Amy Kuniansky Clark, Douglas S.
Kuniansky and Healthdyne Technologies, Inc., now Respironics
Georgia, Inc., filed as an Exhibit to the Healthdyne
Technologies, Inc. Annual Report on Form 10-K for the year ended
December 31, 1993.
10.35 Employment Agreement dated November 10, 1997 between the Company
and Robert Tucker, filed as Exhibit 10.35 to this Annual Report.
10.36 Supplemental Employment Agreement dated November 10, 1997 between
the Company and Robert Tucker, filed as Exhibit 10.36 to this
Annual Report.
21.1 List of Subsidiaries filed as Exhibit 21.1 to this Annual Report.
23.1 Consent of Ernst & Young, filed as Exhibit 23.1 to this Annual
Report.
55
<PAGE>
Exhibit 3.7
RESOLVED, that Section 3.01 of the By-laws of Respironics, Inc. be, and the same
hereby is, amended to read as follows (underlining included solely to identify
changes):
Section 3.01. Officers. The officers of the Corporation shall be the President,
one or more Vice Presidents, a Secretary and a Treasurer, and may include a
Chairman of the Board as the Board of Directors may from time to time determine,
all of whom shall be elected by the Board of Directors or, to the extent
-----------------
hereinafter provided, appointed by the President. Except for officers who would
- -------------------------------------------------------------------------------
be deemed to be "Executive Officers" under applicable SEC rules and officers who
- --------------------------------------------------------------------------------
have been appointed to or would become members of the Strategy Council, the
- ---------------------------------------------------------------------------
President may appoint officers of the Corporation from time to time, notifying
- ------------------------------------------------------------------------------
members of the Board of all such appointments not later than the next succeeding
- --------------------------------------------------------------------------------
regular Board meeting. Any action taken by the President to appoint officers may
- --------------------------------------------------------------------------------
be superseded by subsequent action of the Board of Directors. Any two or more
- -------------------------------------------------------------
offices may be held by the same person. Each officer shall hold office until the
next succeeding annual meeting of the Board of Director and thereafter until his
successor is duly elected or appointed and qualified, or until his earlier
------------
death, resignation or removal.
<PAGE>
Exhibit 10.13
HEALTHDYNE TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
----------------------
ARTICLE I
PURPOSE
-------
1.1 The HEALTHDYNE TECHNOLOGIES, INC. 1996 Stock Option Plan is intended
to advance the interests of Healthdyne Technologies, Inc., its shareholders and
its subsidiaries by attracting, retaining and stimulating the performance of
officers, key employees, consultants and advisors of the Company of high caliber
and potential upon whose judgment, initiative and effort Healthdyne
Technologies, Inc. is largely dependent for the successful conduct of its
business, and to encourage and enable such officers, key employees, consultants
and advisors to acquire and retain a proprietary interest in Healthdyne
Technologies, Inc. by ownership of its stock. Options granted may, if so
intended by the Committee (as hereafter defined), be designed to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended.
ARTICLE II
DEFINITIONS
-----------
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
2.3 "Common Stock" means the Company's Common Stock, par value $.01 per
share.
2.4 "Committee" means the Stock Option Committee appointed by the Board.
2.5 "Company" means Healthdyne Technologies, Inc.
2.6 "Date of Grant" means the date on which an Option is granted under
the Plan.
2.7 "Fair Market Value" shall be the mean between the highest and the
lowest quoted selling prices at which the Common Stock is sold in the regular
way on the NASDAQ National Market (NASDAQ) or on any similar securities exchange
on the day an Option is granted hereunder or, in the absence of any reported
sales on such day, the first preceding day on which there were such sales. If
the Common Stock is not listed on NASDAQ or any similar exchange for the public
trading of securities, the Committee shall determine the Fair Market Value in
whatever way it considers appropriate under the circumstances taking into
account the financial condition of the Company as reflected in its financial
statements and available independent third party (such as analysts) estimates of
such Fair Market Value.
2.8 "Incentive Stock Option" means a stock option granted under the Plan
which is intended to meet the requirements of Section 422 of the Code or any
similar provision thereto.
2.9 "1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.10 "Nonqualified Stock Option" means an option which is not an
Incentive Stock Option.
2.11 "Option" means a Nonqualified Stock Option or an Incentive Stock
Option granted under the Plan.
2.12 "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
2.13 "Plan" means this Healthdyne Technologies, Inc. 1996 Stock Option
Plan.
<PAGE>
2.14 "Stock Option Agreement" means an agreement between the Company and
an Optionee under which the Optionee may purchase Common Stock thereunder.
2.15 "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
corporations of the Company as defined in Section 424 of the Code and, with
respect to Nonqualified Stock Options, any partnership in which the Company is a
partner with at least a 50 percent ownership interest.
ARTICLE III
PARTICIPANTS
------------
Options may be granted under the Plan to any person who is or who agrees to
become an officer or key employee of the Company or any of its Subsidiaries, or
a consultant, advisor or other person providing services to the Company. An
employee may be a member of the Board of Directors of the Company or of any
Subsidiary, but no member of the Board of Directors shall be considered an
employee solely by reason of his membership on such Board of Directors. The
Committee may grant options to such persons in accordance with such
determinations as the Committee from time to time in its sole discretion may
make.
ARTICLE IV
ADMINISTRATION
--------------
4.1 Committee. The Plan shall be administered by a Committee comprised
---------
of three persons (or such lesser or greater number of persons as may be required
or permitted from time to time by Rule 16b-3 under the 1934 Act) selected by the
Board. Solely to the extent necessary to be deemed a "disinterested person"
within the meaning of Rule 16b-3 under the 1934 Act (or any successor rule of
similar import), each Committee member shall be ineligible, and shall have been
ineligible for the one-year period prior to appointment thereto, for selection
as a person to whom stock of the Company may be allocated or to whom stock
options, performance units, or restricted stock may be granted pursuant to this
Plan or in any other similar plan of the Company or any affiliate. Grants of
options to any "Covered Employee" as such term is defined by Code Section
162(m), shall be made only by a Subcommittee of the Committee, if necessary,
which is composed solely of two or more outside directors within the meaning of
Code Section 162(m) to the extent necessary or desirable to qualify such grants
as "performance-based compensation" under Code Section 162(m). In cases of such
grants to Covered Employees, references to the "Committee" shall be deemed to be
references to the Subcommittee. Subject to the express provisions of the Plan,
the Committee shall have sole discretion and authority to determine from among
eligible officers, key employees, advisors, consultants and other persons
providing services to the Company, those to whom and the time or times at which
Options may be granted and the number of shares of Common Stock to be subject to
each Option. Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to it, to determine the details and
provisions of each Stock Option Agreement, and to make all the determinations
necessary or advisable in the administration of the Plan. All such actions and
determinations by the Committee shall be conclusively binding for all purposes
and upon all persons.
4.2 Majority Rule. A majority of the members of the Committee (or, if
-------------
less than three, all of the members) shall constitute a quorum, and any action
taken by a majority present at a meeting at which a quorum is present or any
action taken without a meeting evidenced by a writing executed by a majority of
the whole Committee shall constitute the action of the Committee.
4.3 Company Assistance. The Company shall supply full and timely
------------------
information to the Committee on a matters relating to eligible officers,
employees, consultants and advisors, their employment or engagement, death,
retirement, disability or other termination of employment or engagement, and
such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
2
<PAGE>
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
-------------------------------
5.1 Limitations. Subject to adjustment pursuant to the provisions of
-----------
Section 5.3 hereof, the number of shares of Common Stock which may be issued and
sold hereunder shall be Seven Hundred Fifty Thousand (750,000) shares of Common
Stock. Such shares may be either authorized but unissued shares, shares issued
and reacquired by the Company or shares bought on the market for the purposes of
the Plan. The maximum number of shares of Common Stock with respect to which
Options may be granted to any individual hereunder per calendar year shall not
exceed 200,000 subject to adjustment pursuant to Section 5.3 and Code Section
162(m) to the extent necessary or desirable to cause options granted to Covered
Employees to qualify as "performance-based compensation" under Code Section
162(m).
5.2 Options Granted Under Plan. Shares of Common Stock with respect to
--------------------------
which an Option granted hereunder shall have been exercised shall not again be
available for the grant of an Option hereunder. If an Option granted hereunder
shall terminate for any reason (including, without limitation, the surrender of
the Option by the Optionee in connection with the grant of a new Option on the
same or different terms or the expiration of the Option for any reason) without
being wholly exercised, the number of shares to which such Option termination
relates shall again be available for grant hereunder.
5.3 Antidilution. In the event that the outstanding shares of Common
------------
Stock hereafter are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up or stock dividend, or in the event that
there should be any other stock splits, stock dividends, changes in
capitalization, merger, separation (including a spin-off) or other relevant
corporate transactions as described in Code Section 424(a) occurring after the
effective date of this Plan:
(a) The aggregate number and kind of shares subject to Options which may
be granted hereunder shall be adjusted appropriately; and
(b) Rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted appropriately.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests. Any adjustment to
an option granted to a Covered Employee shall be made in accordance with Code
Section 162(m) to the extent necessary or desirable to cause such options to be
"performance-based compensation" for purposes of Code Section 162(m).
ARTICLE VI
OPTIONS
-------
6.1 Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement dated as of the Date of Grant and executed by
the Company and the Optionee. The Stock Option Agreement shall set forth such
terms and conditions as may be determined by the Committee to be consistent with
the Plan, but may include additional provisions and restrictions, provided that
they are not inconsistent with the Plan. Nothing in this Plan shall preclude the
Committee from issuing or agreeing to issue new Options to any holder upon the
condition that all or any portion of such holder's then outstanding Options be
surrendered for cancellation regardless of whether the exercise price of such
new Options is higher or lower than, or the terms are different from, the
surrendered Options; provided, however, that in the case of any Option granted
to a Covered Employee, such grant shall be made in accordance with Code Section
162(m) to the extent necessary or desirable to cause such Options to be
performance-based compensation.
3
<PAGE>
6.2 Option Price. The per share Option price of the Common Stock
------------
subject to each Option shall be determined by the Committee but, except as
otherwise provided in Article VII(a), the per share price shall not be less than
the Fair Market Value of the Common Stock on the date the Option is granted.
6.3 Option Period. Each Option granted hereunder may be granted at any
-------------
time after the effective date of the Plan and prior to the termination of the
Plan, provided that no Incentive Stock Option may be granted at any time more
than ten years after the earlier of the date this Plan has been adopted by the
Board or the shareholders of the Company. The period for the exercise of each
Option shall be determined by the Committee, provided, however, that (i) except
-------- -------
as otherwise expressly provided in this Plan, and prior to a "Change of Control
Event" or Transaction as defined below, the Committee may, in its discretion,
upon 60 days' written notice given to the Optionee, terminate outstanding
Options or accelerate the exercise dates thereunder, provided, however, that any
option terminated hereunder shall be fully vested and exercisable from the date
of such notice of termination to the date of termination specified in such
notice, and (ii) the period during which each Nonqualified or Incentive Stock
Option may be exercised shall not be later than ten years from the date such
Nonqualified or Incentive Stock Option is granted, provided that Incentive Stock
Options granted to a "10-percent owner" (as defined in Article VII) must be
exercised within five years from the date thereof. Notwithstanding anything to
the contrary herein, all stock options granted under the Plan shall immediately
vest and become fully exercisable upon a "Change of Control Event" defined as
(I) any "person" (as such term is used in Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), becoming the
"beneficial owner" (as defined in Rule 13d-3 promulgated pursuant to the Act),
directly or indirectly, of securities representing 50% or more of the combined
voting power of the Corporation's then outstanding securities, or (II) as a
result of, or in combination with, any cash tender offer or exchange offer,
merger or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions (a "Transaction"), the persons who
are directors of the Company before the Transaction ceasing to constitute a
majority of the Board of Directors of the Corporation or any successor to the
Corporation, or (III) approval by the Company's shareholders of the sale,
transfer or other disposition of all or substantially all of the assets of the
Company (including the capital stock of the Company's subsidiary corporations).
In its discretion, the Committee may provide in any Stock Option Agreement (or
in an amendment thereto) evidencing an Option hereunder that, in the event of
any Change in Control Event, the Option shall remain exercisable notwithstanding
Section 6.7 for the remaining term of the Option. In no event shall any Option
under the Plan be exercised after the expiration of the term provided for in the
related Stock Option Agreement pursuant to clause (ii) of this Section 6.3.
6.4 Option Exercise. Options may be exercised in whole at any time, or
---------------
in part from time to time, with respect to whole shares only, within the period
permitted for the exercise thereof, and shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of shares
delivered to the Company at its principal office, and payment in full to the
Company at said office of the amount of the Option price for the number of
shares of the Common Stock with respect to which the Option is then being
exercised. In addition to and at the time of payment of the Option price,
Optionee shall pay to the Company or the appropriate Subsidiary the full amount
of all federal and state withholding or other employment taxes applicable to the
taxable income of such Optionee resulting from such exercise.
6.5 Payment. The purchase price for shares of Common Stock purchased
-------
upon exercise of Options together with any federal and state tax withholding
amounts or other employment taxes shall be paid in one or a combination of the
following forms: (a) in cash, (b) in shares of Common Stock of the Company (not
subject to limitations on transfer) valued at the Fair Market Value of such
shares on the trading day immediately preceding the date of purchase; provided
that any shares of Common Stock tendered for payment shall have been owned for a
period of six (6) months or such other period as in the opinion of the Committee
shall be sufficient for such shares to be considered "mature" shares for
purposes of accounting for the transaction, or (c) by delivery on a form
prescribed by the Committee of irrevocable directions to a securities broker
4
<PAGE>
approved by the Committee to sell shares of Common Stock and deliver all or a
portion of the proceeds to the Company in payment for the Common Stock.
6.6 Nontransferability of Option. No Option shall be transferred by an
----------------------------
Optionee otherwise than by will or the laws of descent and distribution. During
the lifetime of an Optionee the Option shall be exercisable only by him, or, in
the case of an Optionee who is mentally incapacitated, the Option shall be
exercisable by his guardian or legal representative.
6.7 Effect of Death or Other Termination of Employment or Engagement.
----------------------------------------------------------------
(a) Except as otherwise provided in this Section 6.7, if, prior to a
date thirty (30) days from the date of grant of an Option (or such longer time
as may be established by the Committee), the Optionee's employment with the
Company or a Subsidiary or engagement by the Company or a Subsidiary as a
consultant or advisor shall be terminated for any reason, or by the act of the
Optionee, the Optionee's right to exercise such Option shall terminate and all
rights thereunder shall cease.
(b) If, on or after thirty (30) days from the date an Option shall have
been granted (or such longer time as may be established by the Committee), an
Optionee's employment with or engagement as a consultant or advisor by the
Company or its Subsidiaries shall be terminated for any reason other than death,
retirement, permanent total disability or for serious misconduct, the Optionee
shall have the right, during the period ending on the earlier of the expiration
of the option period or 60 days (or such longer time as may be established by
the Committee at the date of grant or afterwards) after such termination, to
exercise such option to the extent that it was exercisable at the date of such
termination of employment or engagement and shall not have been exercised,
provided, however, such time period may be shortened in accordance with the
provisions of Section 6.3 if a shortened exercise period is applied to Optionees
in general.
(c) If an Optionee shall die at any time after the Date of Grant and
while in the employ or engagement of the Company or its Subsidiaries or within
60 days (or such length of time as may be established by the Committee after the
date of grant or afterwards) after termination of such employment or engagement,
the executor or administrator of the estate of the decedent or the person or
persons to whom an Option granted hereunder shall have been validly transferred
by the executor or the administrator pursuant to will or the laws of descent and
distribution shall have the right, during the period ending on the earlier of
the expiration of the option period or one year after the date of the Optionee's
death, to exercise the Optionee's Option to the extent that it was exercisable
at the date of termination of employment by death or otherwise and shall not
have been exercised, provided, however, such time period may be shortened in
accordance with the provisions of Section 6.3 if a shortened exercise period is
applied to Optionees in general.
(d) If an Optionee shall retire or become permanently and totally
disabled at any time after the Date of Grant, the Optionee (or in the case of an
Optionee who is mentally incapacitated, his guardian or legal representative)
shall have the right, during a period ending on the earlier of the expiration of
the option period or one year after such retirement or disability, to exercise
such Option to the extent that it was exercisable at the date of termination of
employment or engagement by retirement or disability and shall not have been
exercised, provided, however, such time period may be shortened in accordance
-------- -------
with the provisions of Section 6.3 if a shortened exercise period is applied to
Optionees in general.
(e) If Optionee's employment with or engagement by the Company or its
Subsidiaries shall be terminated by the Company or Subsidiary for serious
misconduct as determined by the Committee, the Optionee's right to exercise such
Option shall immediately terminate and all rights thereunder shall cease. For
purposes of this Plan, the term "serious misconduct" shall include, but not be
limited to, embezzlement or misappropriation of corporate funds, other acts of
dishonesty, significant activities harmful to the reputation of the Company or
the Subsidiaries, a significant violation of Company or Subsidiary policy,
willful refusal to perform, or substantial disregard of,
5
<PAGE>
the duties properly assigned to the Optionee, or a significant violation of any
contractual, statutory or common law duty of loyalty to the Company or the
Subsidiaries.
(f) No transfer of an Option by the Optionee by will or by laws or
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of such Option.
6.8 Rights as Shareholder. An Optionee or a transferee of an Option
---------------------
shall have no rights as a shareholder with respect to any shares subject to such
Option prior to the purchase of such shares by exercise of such Option as
provided herein. Nothing contained herein or in the Stock Option Agreement shall
create an obligation on the part of the Company to repurchase any shares of
Common Stock purchased hereunder.
6.9 Dividend or Distribution Equivalents. An Optionee, whether or not
------------------------------------
his Options are exercisable, shall, in the sole discretion of the Committee, as
determined at the Date of Grant or at any time thereafter, be entitled to
receive a payment in cash, stock, rights, warrants, assets or other securities
from the Company, as and when cash dividends or other distributions of stock,
rights, warrants, assets or other securities are payable or distributed to the
holders of the Common Stock of the Company, in the amount equal to the cash
dividend or distribution which would be paid to said Optionee in respect of all
shares subject to such Options were such Optionee the holder of such shares on
the record date for such cash dividend or distribution.
ARTICLE VII
TEN-PERCENT OWNERS
------------------
Notwithstanding any other provisions of this Plan, the following terms and
conditions shall apply to Incentive Stock Options granted hereunder to a "10-
percent owner." For this purpose, a "10-percent owner" shall mean an Optionee
who, at the time the Incentive Stock Option is granted, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of any Subsidiary. With respect to a 10-percent owner:
(a) the price at which shares of stock may be purchased under an
Incentive Stock Option granted pursuant to this Plan shall be not less than 110
percent of the Fair Market Value thereof, said Fair market Value being
determined in the manner described in Section 2.7, above; and
(b) the period during which any such Incentive Stock Option may be
exercised, to be fixed by the Committee in the manner described in Section 6.3,
above, shall expire not later than five years from the date the Incentive Stock
Option is granted.
ARTICLE VIII
ANNUAL LIMITS
-------------
Incentive Stock Options shall not be granted to any individual pursuant to
this Plan, the effect of which would be to permit such person to first exercise
Incentive Stock Options, in any calendar year, for the purchase of shares having
a Fair Market Value in excess of $100,000 (determined at the time of the grant
of the Incentive Stock Options). An Optionee hereunder may exercise Incentive
Stock Options for the purchase of shares valued in excess of $100,000
(determined at the time of grant of the Incentive Stock Options) in a calendar
year, but only if the right to exercise such Incentive Stock Options shall have
first become available in prior calendar years.
ARTICLE IX
OTHER TERMS AND CONDITIONS
--------------------------
Any Incentive Stock Option granted hereunder shall contain such additional
terms, not inconsistent with the terms of this Plan, which are deemed necessary
or desirable by the Committee, which terms, together with the terms of this
Plan, shall constitute such
6
<PAGE>
incentive stock option as an "incentive stock option" within the meaning of
Section 422 of the Code and lawful regulations thereunder.
ARTICLE X
STOCK CERTIFICATES
------------------
10.1 Conditions. The Company shall not be required to issue or deliver
----------
any certificate for shares of Common Stock purchased upon the exercise of any
Option granted hereunder or any portion thereof prior to fulfillment of all of
the following conditions:
(a) The completion of any registration or other qualification of such
shares under any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall in its sole discretion deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any federal
or state governmental agency which the Committee shall in its sole discretion
determine to be necessary or advisable;
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Committee from time to time may establish for reasons of
administrative convenience; and
(d) Satisfaction by the Optionee of all applicable withholding taxes or
other withholding liabilities.
10.2 Legends. The Company reserves the right to legend any certificate
-------
for shares of Common Stock, conditioning sales of such shares upon compliance
with applicable federal and state securities laws and regulations.
ARTICLE XI
TERMINATION, AMENDMENT, AND MODIFICATION OF PLAN
------------------------------------------------
The Board may at any time, upon recommendation of the Committee, terminate,
and may at any time and from time to time and in any respect, amend or modify
the Plan subject to shareholder approval to the extent required under the 1934
Act, applicable exchange listing or NASD requirements, the Code or other
applicable corporate law, provided, however, that no such action shall impair
-------- -------
the rights of any holder of an Option theretofore granted; and further provided,
that (unless and until such time as shareholder approval is no longer required
under the 1934 Act, applicable exchange listing requirements or NASD
requirements, the Code and applicable corporate law) no such action of the Board
without approval of the shareholders of the Company may: (a) Increase the total
number of shares of Common Stock subject to the Plan, except as contemplated in
Section 5.3 hereof,
(b) Change the manner of determining the Option price;
(c) Withdraw the administration of the Plan from the Committee or the
Board;
(d) Materially increase the benefits accruing under the Plan, including
the maximum number of shares of Common Stock with respect to which options may
be granted to a Covered Employee; or
(e) Change the class of people who may become participants in the Plan;
provided further, that, except to the extent otherwise permitted in Section 6.3,
- -------- -------
no termination, amendment, or modification of the Plan shall in any manner
affect any Option theretofore granted under the Plan without the consent of the
Optionee or transferee of the Option.
7
<PAGE>
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Employment or Engagement. Nothing in the Plan or in any Option
------------------------
granted hereunder or in any Stock Option Agreement relating thereto shall confer
upon any director, officer, employee, advisor or consultant the right to
continue as such with the Company or any Subsidiary.
12.2 Other Compensation Plans. The adoption of the Plan shall not affect
------------------------
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees of
the Company or any Subsidiary.
12.3 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
Company, its successors and assigns, and the Optionee, his executor,
administrator and permitted transferees.
12.4 Singular, Plural; Gender. Whenever used herein, nouns in the
------------------------
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.5 Headings, etc., Not Part of Plan. Headings of Articles and Sections
--------------------------------
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
12.6 Effective Date. The Plan shall become effective upon its approval
--------------
by the Board of Directors, subject to ratification of the Plan by the holders of
a majority of the outstanding shares of Common Stock of the Company represented
at the next annual or special meeting of the public shareholders of the Company.
If the Plan is not so approved by the shareholders, the Plan shall terminate and
any Options granted hereunder shall be void and have no force or effect
whatsoever.
12.7 Compliance With Laws. The Plan, the grant and exercise of Options
--------------------
hereunder, and the obligation of the Company to sell and deliver shares under
such Options, shall be subject to all applicable laws, rules and regulations,
including, but not limited to, those of the United States and its states, and to
such approvals by any government or regulatory agency as may be required.
12.8 Governing Law. This Plan shall be construed and interpreted in
-------------
accordance with and governed by Georgia law, to the extent such construction and
interpretation does not adversely affect the treatment of any Option as an
Incentive Stock Option under the Code.
8
<PAGE>
Exhibit 10.22
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made as of November 11, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), Healthdyne
Technologies, Inc., a Georgia Corporation ("Healthdyne") and Craig Reynolds
("Executive"). This Employment Agreement will be null and void in its entirety
if the Company's currently contemplated acquisition of Healthdyne does not
occur. Furthermore, if future benefits provided to Senior Vice Presidents or the
President (other than base salary) become more favorable than those contained
herein, Executive will receive the benefit of those changes.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of the design,
development, manufacture, marketing and sale principally of respiratory and
other medical equipment;
WHEREAS, Executive has been employed by Healthdyne and will be employed
by the Company after the Company acquires Healthdyne (the "Merger");
WHEREAS, Healthdyne and Executive agree that their Non-Competition
Agreement will become null and void in all respects effective upon the Closing
of the Merger (the "Closing Date"), so that no "Change of Control" occurs for
purposes of said Non-Competition Agreement, in consideration of the acquisition
and Executive's employment with the Company;
WHEREAS, Healthdyne and Executive further agree that neither Healthdyne
nor the Company will owe Executive any monies as a result of Executive's change
in employment from Healthdyne to the Company other than as expressly set forth
or referred to herein;
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) Executive's receipt of compensation
from time to time by the Company; and
WHEREAS, the Company desires to retain the services of Executive, and
Executive is willing to accept employment with the Company, upon the terms
contained in the attached offer letter and subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Executive, and Executive hereby agrees to be employed by the Company,
upon the following terms and conditions:
ARTICLE I
EMPLOYMENT
----------
1.01. Office. Effective at the Closing Date, Executive will be employed
------
as Senior Vice President, New Product Development of the Company, having such
duties and responsibilities as are commensurate with such position and title.
Executive shall report to the President and Chief Executive Officer of the
Company and shall also perform such other duties unrelated to his title and
position as may be mutually agreed upon by Executive and the Company. In such
capacity or capacities Executive shall use his best energies or abilities in the
performance of his duties hereunder and as prescribed in the By-Laws of the
Company.
1.02. Term. Subject to the terms and provisions of Article II hereof,
----
Executive shall be employed by the Company for a period of three years (the
"Term"), commencing
<PAGE>
on the Closing Date. Subject to the terms and provisions of Article II hereof,
the Term shall automatically be extended for an additional year unless, not less
than ninety (90) days prior to the expiration of the then-current first year of
the Term, either Executive or the Company shall advise the other that the Term
will not be further extended. "Term" shall also include any extension or
renewals of the original Term.
1.03. Base Salary. After March 1, 1998, compensation shall be paid to
-----------
Executive by the Company at the rate of $251,538 per annum (the "Base Salary"),
payable bi-weekly. The Base Salary to be paid to Executive may be adjusted
upward by the Board of Directors of the Company at any time (but not less
frequently than annually) based upon Executive's contribution to the success of
the Company and on such other factors as the Board of Directors of the Company
shall deem appropriate. Executive's first annual review shall occur in November
1998 with any resulting salary increase becoming effective in February 1999.
1.04. Executive Benefits. At all times during the Term, Executive shall
------------------
have the right to participate in and receive benefits under and in accordance
with the then-current provisions of all incentive, profit sharing, retirement,
stock option or purchase plans, life, health and accident insurance,
hospitalization and other incentive and benefit plans or programs (except for
any such plan in which Executive may not participate pursuant to the terms of
such plan or Executive's geographic location) which the Company may at any time
or from time to time have in effect for executive employees of the Company or
its subsidiaries, Executive's participation to be on a basis commensurate with
other executive employees considering their respective responsibilities and
compensation. Prior service of Executive with Healthdyne or a Healthdyne
Subsidiary (including service with predecessor entities to the extent recognized
under analogous Healthdyne benefit plans) shall be counted in determining
eligibility to participate in Company plans and for purposes of vesting.
Executive shall also be entitled to be reimbursed for all reasonable expenses
incurred by him in the performance of his duties hereunder. For the period from
January 1, 1998 through the Closing Date, Executive shall be entitled to a pro
rata normal and customary bonus from Healthdyne's bonus plan in accordance with
the terms of that plan as of the date hereof. Also, the Company will pay
Executive within 30 days after the Closing Date for all accrued, but unpaid,
vacation pay due Executive by Healthdyne through the Closing Date.
1.05. Principal Place of Business. The headquarters and principal place
---------------------------
of business of the Company is located in Pittsburgh, Pennsylvania. For
Executive's convenience, Executive's principal place of business will be in
Marietta, Georgia, and he will reside within a reasonable distance thereof.
ARTICLE II
TERMINATION
-----------
2.01. Illness, Incapacity. If, during the Term of Executive's
-------------------
employment hereunder, the Board of Directors of the Company shall determine that
Executive shall be prevented from effectively performing all his duties
hereunder by reason of illness or disability, confirmed by a physician mutually
acceptable to Executive and the Company, and such failure so to perform shall
have continued for a period of not less than six months, then the Company may,
by written notice to Executive, terminate Executive's employment hereunder
effective at any time after such six month period. Upon delivery to Executive of
such notice, together with payment of any salary accrued and unpaid under
Section 1.03 hereof, Executive's employment and all obligations of the Company
under Article I (except any obligation for vested benefits) hereof shall
forthwith terminate. The obligations of Executive under Articles III and IV
Section 4.01-4.04, 4.06, and 4.07 hereof shall continue notwithstanding
termination of Executive's employment pursuant to this Section 2.01.
2.02. Death. If Executive dies during the Term of his employment
-----
hereunder, Executive's employment hereunder shall terminate and all obligations
of the Company hereunder, other than any obligations with respect to the payment
of accrued, unpaid salary and vested benefits, shall terminate.
2
<PAGE>
2.03. Company Termination. (a) For Cause. In the event that, in the
-------------------
reasonable judgment of the Board of Directors of the Company after a meeting at
which Executive is given reasonable notice and afforded an opportunity to
attend, be heard and be accompanied by a lawyer, Executive shall have (a) been
guilty of any act of dishonesty material with respect to the Company, (b) been
convicted of a crime involving moral turpitude, (c) intentionally disregarded
the material provisions of this Agreement or d) intentionally disregarded
express instructions of the Board of Directors of the Company with respect to
material matters of policy continuing (in the case of clause (d)) for a period
of not less than thirty (30) days after notice of such disregard, the Company
may terminate this Agreement effective at such date as it shall specify in a
written notice to Executive. Any such termination by the Company shall be deemed
to be termination "for cause". Upon delivery to Executive of such notice of
termination, together with payment of any salary accrued and unpaid under
Section 1.03 hereof and vested benefits for which the Company is obligated,
Executive's employment and all obligations of the Company under Article I hereof
shall forthwith terminate. The obligations of Executive under Articles III and
IV hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(a).
(b) Without Cause. Executive's employment hereunder may be terminated
-------------
at any time by the Company without cause if the Board of Directors of the
Company, by resolution duly adopted by the Board, so determines. Except as set
forth in Section 2.05 hereof, all obligations of the Company under Article I
cease upon termination. The obligations of Executive under Articles III and IV
hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(b).
2.04. Executive Termination. (a) Executive agrees to give the Company
---------------------
ninety (90) days prior written notice of the termination of his employment with
the Company. Simultaneously with such notice, Executive shall inform the Company
in writing as to his employment plans following the termination of his
employment with the Company. In the event Executive has terminated his
employment with the Company because there has been: (i) a material downgrading
in Executive's duties, titles or responsibilities for the Company, (ii) a change
in Executive's principal place of business to a location not within 30 miles of
its present location, (iii) any significant and prolonged increase in the
traveling requirements applicable to the discharge of Executive's
responsibilities, (iv) he has been removed from or not reelected to the Board of
Directors of the Company, (v) any breach of the Company of its duties or
obligations pursuant to this Agreement which has not been cured within thirty
(30) days after notice of such breach, (vi) any failure of any successors to the
Company after a Change of Control (as defined herein) to assume the obligations
of the Company hereunder, (vii) if the Company imposes as a condition to any
renewal or extension of this Agreement any adverse change in any material term
or provision of this Agreement or (viii) any other significant material adverse
change in working conditions, responsibilities or prestige, Executive shall be
entitled to the compensation provided for in Section 2.05 upon such termination.
(b) In the event Executive has terminated his employment for other
reasons, Executive will receive nothing (other than vested benefits) if he
terminates within 18 months of the Closing Date or he terminates more than 30
months after the Closing Date. Executive will receive W-2 wages (averaged over
the past three years), Company-paid health insurance continuation, and car
allowance continuation for 36 months if he terminates between 18 and 30 months
after the Closing Date and provides 30 days notice. Any such payment under this
section will constitute the sole and complete amount owed to Executive under
this Agreement (other than vested benefits) and he shall be entitled to no other
payments under this Agreement which may have been otherwise due with the
exception of accrued salary.
(c) All obligations of the Company under Article I shall cease upon
termination, except for the payment of any salary accrued and unpaid under
Section 1.03 hereof other than vested benefits. The obligations of Executive
under Articles III and IV hereof shall continue notwithstanding termination of
Executive's employment pursuant to this Section 2.04.
3
<PAGE>
2.05. Termination Payments - Discharge Without Cause. If the Company
----------------------------------------------
terminates Executive's employment without cause pursuant to Section 2.03(b),
Executive shall be entitled to a lump sum payment in an amount equal to his W-2
wages over the past three years, to be paid within sixty (60) days of
termination and Company-paid health insurance continuation, and car allowance
continuation for three years.
2.06. Termination Payments - After Certain Changes of Control. (a) If
-------------------------------------------------------
Executive or the Company (except pursuant to Section 2.03(a) hereof) terminates
this Agreement during the Term upon or after the occurrence of a Business
Combination not approved by a majority of Disinterested Directors then in
office, as those terms are defined in Article Ninth of the Company's Certificate
of Incorporation, Executive shall be paid an amount equal to three times
Executive's average W-2 wages over the past three years, such payment to be made
in a lump sum within sixty (60) days of termination. Executive also shall be
entitled to Company paid health insurance continuation and car allowance
continuation for three (3) years.
(b) As used herein a "Change of Control" shall be deemed to have
occurred if (a) there shall be consummated (i) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's common stock would be converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Company's common stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (b) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company, or (c) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 30% of the Company's outstanding common stock, or (d)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors of the Company shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period; provided, however, that, in
the absence of a majority vote of the directors to the contrary, the sale,
lease, exchange or other disposition (in one transaction or a series of related
transactions) of less than 70% of the total fair market value of all of the
assets of the Company immediately prior to such transaction or transactions
shall not be deemed to be a Change in Control and provided further that the
transaction or transactions which involve the sale, lease, exchange or other
disposition of 70% or more of the total fair market value of all of the assets
of the Company immediately prior to such transaction or transactions shall be
deemed to be a Change in Control even if approved by the Board of Directors of
the Company.
2.07. Termination Payments - Taxes. The parties hereto agree that the
----------------------------
Termination Payments are reasonable compensation in consideration of the
Executive's adherence to the terms of Article IV hereof. Neither party shall
contest the payment of such benefits as constituting an "excess parachute
payment" within the meaning of Section 280G(b)(I) of the Internal Revenue Code
of 1986, as amended (the "Code"). In the event that Executive becomes entitled
to the Termination Payments and Executive becomes subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax") as a result of the Compensation
Payments and any other benefits or payments required to be taken into account
under Code Section 280G(b)(2)("Parachute Payments"), the Company shall pay to
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of any Excise Tax on the Parachute
Payments and any Federal, state and local income tax and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the Parachute Payments
determined prior to the application of this paragraph. For purposes of
determining the amount of the Parachute Payments, no payments or benefits shall
be included if, in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to Executive, such payments or benefits (in
whole or in part) do not constitute Parachute Payments, or such payments (in
whole or in part) represent reasonable compensation for services
4
<PAGE>
actually rendered within the meaning of Section 280G(b)(4) of the Code. The
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors. For purposes of determining
the amount of the Gross-Up-Payment, Executive shall be deemed to pay Federal
income taxes at the highest marginal rate of Federal income taxation in the
calendar year in which the Gross-Up-Payment is to be made and state and local
income taxes at the highest marginal rates of taxation in the state and locality
of Executive's residence on the date of termination, net of the maximum
reduction in Federal income taxes which could be obtained from deduction of such
state and local taxes. In the event that the Excise Tax payable by Executive is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of Executive's employment, Executive shall repay to
the Company at the time that the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided for
in Section 1274(b)(2)(B) of the Code ("Repayment Amount"). In the event that the
Excise Tax payable by Executive is determined to exceed the amount taken into
account thereunder at the time of the termination of Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess is
finally determined ("Additional Gross-up"). The obligation to pay any Repayment
Amount or Additional Gross-up shall remain in effect under this Agreement for
the entire period during which the Executive remains liable for the Excise Tax,
including the period during which any applicable statute of limitation remains
open.
ARTICLE III
EXECUTIVE'S ACKNOWLEDGMENTS
---------------------------
Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute a violation of this Agreement or the Company's
policies with respect to such Property. Executive agrees to hold in trust and
confidence for the Company and to not to disclose to any third party, without
prior written consent of the Company, said Property and information, whether it
is tangible or intangible. Executive further agrees not to use any such
confidential information or trade secrets to his/her personal benefit or for the
benefit of any third party.
Executive further acknowledges that for purposes of interpreting
Articles III and IV of this Employment Agreement, covenants and obligations of
Executive with respect to the Company apply equally with respect to its
affiliates. Executive also acknowledges
5
<PAGE>
that Property belongs to the Company and agrees to return to the Company all
such information and Property which is tangible upon the termination of the
Employment.
Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(section) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE IV
EXECUTIVE'S COVENANTS AND AGREEMENTS
------------------------------------
4.01. Non-Disclosure of Property. Executive agrees to hold and
--------------------------
safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
4.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Executive shall disclose promptly to the Company or its
- ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
4.03. Duties. Executive agrees to devote his best efforts full time to
------
the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement, Executive shall not, directly or indirectly, engage in any
business which would detract from Executive's ability to apply his best efforts
to the performance of his duties
6
<PAGE>
hereunder. Executive also agrees that he shall not usurp any corporate
opportunities of the Company.
4.04. Return of Materials. Upon the termination of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, Executive shall promptly
deliver to the Company all correspondence, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers or concerning products or processes
used by the Company and, without limiting the foregoing, will promptly deliver
to the Company any and all other documents or materials containing or
constituting Property.
4.05. Restrictions on Competition. Executive acknowledges that as
---------------------------
Senior Vice President of New Product Development he will be a "high impact"
person in the Company's business who is in possession of selective and
specialized skills, learning abilities, supplier and customer contacts, and
supplier and customer information as a result of his relationship with the
Company, and agrees that the Company has a substantial business interest in the
covenant described below. Executive further acknowledges that he is involved at
the highest level of the Company in the development of strategy and products,
and is responsible for new product development nationally and internationally,
serves on the Leadership Council of the Company with responsibility for
strategic planning, has significant and regular contact with customers and
suppliers of the Company, and that he has access to and responsibility for trade
secret and confidential information pertaining to the business of the Company,
its products and plans. In recognition of that status, Executive covenants and
agrees that during the period of Executive's employment hereunder plus a period
of two years (or such longer period, not in excess of three years, to the extent
termination payments are paid to Executive pursuant to (sections) 2.04, 2.05 or
2.06 in an amount representing a period in excess of two years) following the
termination of Executive's employment, including without limitation termination
by the Company for cause or without cause (excepting a termination pursuant to
Section 2.01) Executive shall not, in the United States of America engage,
directly or indirectly, whether as principal or as agent, officer, director,
employee, consultant, shareholder (other than as a shareholder owning up to 5%
of the outstanding stock of any company whose stock is publicly traded and
listed on a national securities exchange or included in NASDAQ), alone or in
association with any other person, corporation or other entity, in any Competing
Business. For purposes of this Agreement, the term "Competing Business" shall
mean and include any person, corporation or other entity which develops,
manufactures, sells, markets or attempts to develop, manufacture, sell or market
any product or services which are the same as or similar to the Products and
services sold by the Company at any time and from time to time during the last
two years prior to the termination of Executive's employment hereunder;
provided, however, that for purposes of determining what constitutes a Competing
Business there shall not be included (x) any product or service of any entity
which product or service Executive determines is not material to the business or
prospects of the Company and which product or service the Company's Board,
having been requested to do so by Executive, also so determines; the parties
agree that any product which has been marketed in the United States for five
years and has not achieved a five percent revenue level for the Company is not
material for purposes of this provision or (y) any product or service of any
entity so long as the Executive and such entity can demonstrate to the
reasonable satisfaction of the Company that Executive is and will continue to be
effectively isolated from, and not participate in the development, manufacture,
sale or marketing of, such product or service, but only so long as Executive is
effectively so isolated and does not so participate. To trigger this provision,
the Executive and entity must perform the following: (i) the Executive must
provide the Company with a letter pledging that he will abide by this Agreement,
and (ii) the prospective/new employer must provide a letter acknowledging that
it is aware of the Executive's obligations hereunder. The letter also must
contain a pledge by the new/prospective employer that it will abide by those
obligations. In the event the employment of Executive terminates at the
conclusion of the Term before Executive obtains the age of 65 and because the
Company has elected not to further extend the Term pursuant to (section) 1.02,
then the provisions of this (section) 4.05 and (section's) 4.06 and 4.07 shall
not be applicable after the conclusion of the Term unless the Company advises
Executive at least six months prior to conclusion of the Term that it will
continue to pay the
7
<PAGE>
Base Salary in effect at conclusion of the Term for such two-year period or such
shorter portion thereof as the Company may specify (which specification shall
foreshorten such two-year period accordingly) and the Company pays such amounts
during such two-year or shorter period.
4.06. Non-Solicitation of Customers and Suppliers. Executive agrees
-------------------------------------------
that during his employment with the Company he shall not, directly or
indirectly, solicit the trade of, or trade with, any customer, prospective
customer, supplier, or prospective supplier of the Company for any business
purpose other than for the benefit of the Company, with respect to any products
competitive with those of the Company. Executive further agrees that for two
years following termination of his employment with the Company, including
without limitation termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit the trade of, or trade
with, any customers or suppliers of the Company with respect to any products
competitive with those of the Company.
4.07. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE V
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
5.01. No Prior Agreements. Executive represents and warrants that he is
-------------------
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article IV hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
5.02. Executive's Abilities. Executive acknowledges that it would cause
---------------------
the Company serious and irreparable injury and cost if Executive were to use his
ability and knowledge in competition with the Company or to otherwise breach the
obligations contained in Article IV.
5.03. Remedies. In the event of a breach by Executive of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE VI
MISCELLANEOUS
-------------
6.01. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of Article IV hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement
8
<PAGE>
shall be deemed amended to delete or modify, as necessary, the offending
provision or provisions and to alter the bounds thereof in order to render it
valid and enforceable.
6.02. Entire Agreement. This Agreement along with the offer letter
----------------
represent the entire agreement of the parties with respect to the employment of
Executive by the Company and may be amended only by a writing signed by each of
them.
6.03. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania.
6.04. Consent to Jurisdiction; Venue. Executive hereby irrevocably
------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania in any action or proceeding arising out of or relating to
this Agreement that cannot be finally resolved by arbitration pursuant to
Section 6.05 hereof (and for enforcement of any such arbitration decision), and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any objection on the ground that any such action or proceeding
in either of such Courts has been brought in an inconvenient forum. Nothing in
this Section 6.04 shall affect the right of the Company to bring any action or
proceeding against Executive or his property in the courts of other
jurisdictions where the Executive resides or has his principal place of business
or where such property is located.
6.05. Arbitration. Unless the party seeking relief is seeking relief
-----------
not available through arbitration hereunder (see Section 6.04), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
6.06. Agreement Binding. The obligations of Executive under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
6.07. Counterparts, Section Headings. This Agreement may be executed in
------------------------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
6.08. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered
9
<PAGE>
or (b) mailed, registered mail, first class postage paid, return receipt
requested, or (c) sent via overnight delivery service or courier, delivery
acknowledgment requested, or (d) via any other delivery service with proof of
delivery:
if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
6.09. Attorneys Fees. The Company shall pay, or reimburse Executive for
--------------
reasonable attorneys fees incurred by Executive in connection with the
negotiation of this Agreement.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable. IN WITNESS
WHEREOF, the parties hereto have executed this Agreement or caused this
Agreement to be executed the day and year first above written.
Witness: CRAIG REYNOLDS
/s/ John L. Miclot /s/ Craig B. Reynolds
- ----------------------------------- -----------------------------------------
Address: 1255 Kennestone Circle
-------------------------------
Marietta, Ga, 30067
-------------------------------
Attest
RESPIRONICS, INC.
/s/ Dorita A. Pishko By: /s/ Dennis S. Meteny
- ----------------------------------- -------------------------------------
Secretary Title: President & CEO
----------------------------------
[Corporate Seal]
HEALTHDYNE TECHNOLOGIES, INC.
By: /s/ Robert E. Tucker
-------------------------------------
Title: Sr. V.P. Operations
----------------------------------
[Corporate Seal]
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Exhibit 10.23
SUPPLEMENTAL EMPLOYMENT AGREEMENT
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THIS AGREEMENT, made as of November 11, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), and Craig Reynolds
("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) the willingness of the Company to
grant 40,000 stock options to Executive on or about the commencement of his
employment.
NOW, THEREFORE, intending to be legally bound and in consideration of
the stock options made available by Company to Executive, the Company and
Executive agree as follows.
ARTICLE I
EXECUTIVE'S ACKNOWLEDGMENTS
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Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute a violation of this Agreement or the Company's
policies with respect to such Property. Executive agrees to hold in trust and
confidence for the Company and to not to disclose to any third party, without
prior written consent of the Company, said Property and information, whether it
is tangible or intangible. Executive further agrees not to use any such
confidential information or trade secrets to his/her personal benefit or for the
benefit of any third party.
Executive further acknowledges that for purposes of interpreting
Articles I and II of this Agreement, covenants and obligations of Executive with
respect to the Company apply equally with respect to its affiliates. Executive
also acknowledges that Property belongs to the Company and agrees to return to
the Company all such information and Property which is tangible upon the
termination of the Employment.
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Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(section) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE II
EXECUTIVE'S COVENANTS AND AGREEMENTS
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2.01. Non-Disclosure of Property. Executive agrees to hold and
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safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
2.02. Disclosure of Works and Inventions/Assignment of Patents and
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Other Rights. (a) Executive shall disclose promptly to the Company or its
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nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
2.03. Duties. Executive agrees to devote his best efforts full time to
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the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement, Executive shall not, directly or indirectly, engage in any
business which would detract from Executive's ability to apply his best efforts
to the performance of his duties hereunder. Executive also agrees that he shall
not usurp any corporate opportunities of the Company.
2.04. Return of Materials. Upon the termination of Executive's
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employment with the Company for any reason, including without limitation
termination by the Company for
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cause or without cause, Executive shall promptly deliver to the Company all
correspondence, drawings, blueprints, manuals, letters, notes, notebooks,
reports, flow-charts, programs, proposals and any documents concerning the
Company's customers or concerning products or processes used by the Company and,
without limiting the foregoing, will promptly deliver to the Company any and all
other documents or materials containing or constituting Property.
2.05. Non-Solicitation of Employees. Executive agrees that, during his
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employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE III
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
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3.01. No Prior Agreements. Executive represents and warrants that he is
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not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article II hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
3.02. Remedies. In the event of a breach by Executive of the terms of
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this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE IV
MISCELLANEOUS
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4.01. Authorization to Modify Restrictions. It is the intention of the
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parties that the provisions of Article II hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Governing Law. This Agreement shall be governed by and construed
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in accordance with the laws of the Commonwealth of Pennsylvania.
4.03. Consent to Jurisdiction; Venue. Executive hereby irrevocably
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submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania any action or proceeding arising out of or relating to this
Agreement that cannot be finally resolved by arbitration pursuant to Section
4.04 hereof (and for enforcement of any such arbitration decision), and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any
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objection on the ground that any such action or proceeding in either of such
Courts has been brought in an inconvenient forum. Nothing in this Section 4.03
shall affect the right of the Company to bring any action or proceeding against
Executive or his property in the courts of other jurisdictions where the
Executive resides or has his principal place of business or where such property
is located.
4.04. Arbitration. Unless the party seeking relief is seeking relief
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not available through arbitration hereunder (see Section 4.03), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
4.05. Agreement Binding. The obligations of Executive under this
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Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
4.06. Counterparts, Section Headings. This Agreement may be executed in
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any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.07. Notices. All notices, requests, demands and other communications
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hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered or (b) mailed, registered mail, first class postage paid, return
receipt requested, or (c) sent via overnight delivery service or courier,
delivery acknowledgment requested, or (d) via any other delivery service with
proof of delivery:
if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed the day and year first above written.
Witness: CRAIG REYNOLDS
/s/ John L. Miclot /s/ Craig B. Reynolds
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Address: 1255 Kennestone Circle
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Marietta, Ga, 30067
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Attest
RESPIRONICS, INC.
/s/ Dorita A. Pishko By: /s/ Dennis S. Meteny
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Secretary Title: President & CEO
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Exhibit 10.24
EMPLOYMENT AGREEMENT
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THIS AGREEMENT, made as of November 10, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), Healthdyne
Technologies, Inc., a Georgia Corporation ("Healthdyne") and John Miclot
("Executive"). This Employment Agreement will be null and void in its entirety
if the Company's currently contemplated acquisition of Healthdyne does not
occur. Furthermore, if future benefits provided to Vice Presidents (other than
base salary) become more favorable than those contained herein, Executive will
receive the benefit of those changes.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of the design,
development, manufacture, marketing and sale principally of respiratory and
other medical equipment;
WHEREAS, Executive has been employed by Healthdyne and will be employed
by the Company after the Company acquires Healthdyne (the "Merger");
WHEREAS, Healthdyne and Executive agree that their Non-Competition
Agreement will become null and void in all respects effective upon the Closing
of the Merger (the "Closing Date"), so that no "Change of Control" occurs for
purposes of said Non-Competition Agreement, in consideration of the acquisition
and Executive's employment with the Company;
WHEREAS, Healthdyne and Executive further agree that neither Healthdyne
nor the Company will owe Executive any monies as a result of Executive's change
in employment from Healthdyne to the Company other than as expressly set forth
or referred to herein;
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) Executive's receipt of compensation
from time to time by the Company; and
WHEREAS, the Company desires to retain the services of Executive, and
Executive is willing to accept employment with the Company, upon the terms
contained in the attached offer letter and subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Executive, and Executive hereby agrees to be employed by the Company,
upon the following terms and conditions:
ARTICLE I
EMPLOYMENT
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1.01. Office. Effective at the Closing Date, Executive will be employed
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as Vice President, International Operations of the Company, having such duties
and responsibilities as are commensurate with such position and title. Executive
shall report to the President and Chief Executive Officer of the Company and
shall also perform such other duties unrelated to his title and position as may
be mutually agreed upon by the Executive of the Company. In such capacity or
capacities Executive shall use his best energies or abilities in the performance
of his duties hereunder and as prescribed in the By-Laws of the Company.
1.02. Term. Subject to the terms and provisions of Article II hereof,
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Executive shall be employed by the Company for a period of three years (the
"Term"), commencing
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on the Closing Date. Subject to the terms and provisions of Article II hereof,
the Term shall automatically be extended for an additional year unless, not less
than ninety (90) days prior to the expiration of the then-current first year of
the Term, either Executive or the Company shall advise the other that the Term
will not be further extended. "Term" shall also include any extension or
renewals of the original Term.
1.03. Base Salary. After March 1, 1998, compensation shall be paid to
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Executive by the Company at the rate of $203,679 per annum (the "Base Salary"),
payable bi-weekly. The Base Salary to be paid to Executive may be adjusted
upward by the Board of Directors of the Company at any time (but not less
frequently than annually) based upon Executive's contribution to the success of
the Company and on such other factors as the Board of Directors of the Company
shall deem appropriate. Executive's first annual review shall occur in November
1998 with any resulting salary increase becoming effective in February 1999.
1.04. Executive Benefits. At all times during the Term, Executive shall
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have the right to participate in and receive benefits under and in accordance
with the then-current provisions of all incentive, profit sharing, retirement,
stock option or purchase plans, life, health and accident insurance,
hospitalization and other incentive and benefit plans or programs (except for
any such plan in which Executive may not participate pursuant to the terms of
such plan or Executive's geographic location) which the Company may at any time
or from time to time have in effect for executive employees of the Company or
its subsidiaries, Executive's participation to be on a basis commensurate with
other executive employees considering their respective responsibilities and
compensation. Prior service of Executive with Healthdyne or a Healthdyne
Subsidiary (including service with predecessor entities to the extent recognized
under analogous Healthdyne benefit plans) shall be counted in determining
eligibility to participate in Company plans and for purposes of vesting.
Executive shall also be entitled to be reimbursed for all reasonable expenses
incurred by him in the performance of his duties hereunder. For the period from
January 1, 1998 through the Closing Date, Executive shall be entitled to a pro
rata normal and customary bonus from Healthdyne's bonus plan in accordance with
the terms of that plan as of the date hereof. Also, the Company will pay
Executive within 30 days after the Closing Date for all accrued, but unpaid,
vacation pay due Executive by Healthdyne through the Closing Date.
1.05. Principal Place of Business. The headquarters and principal place
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of business of the Company is located in Pittsburgh, Pennsylvania. Executive's
principal place of business will be in Marietta, Georgia, and he will reside
within a reasonable distance thereof. If Executive moves to Pittsburgh, such
move will not constitute a change in location for purposes of Section
2.04(a)(ii).
ARTICLE II
TERMINATION
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2.01. Illness, Incapacity. If, during the Term of Executive's
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employment hereunder, the Board of Directors of the Company shall determine that
Executive shall be prevented from effectively performing all his duties
hereunder by reason of illness or disability, confirmed by a physician mutually
acceptable to Executive and the Company, and such failure so to perform shall
have continued for a period of not less than six months, then the Company may,
by written notice to Executive, terminate Executive's employment hereunder
effective at any time after such six month period. Upon delivery to Executive of
such notice, together with payment of any salary accrued and unpaid under
Section 1.03 hereof, Executive's employment and all obligations of the Company
under Article I (except any obligation for vested benefits) hereof shall
forthwith terminate. The obligations of Executive under Articles III and IV
Section 4.01-4.04, 4.06, and 4.07 hereof shall continue notwithstanding
termination of Executive's employment pursuant to this Section 2.01.
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2.02. Death. If Executive dies during the Term of his employment
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hereunder, Executive's employment hereunder shall terminate and all obligations
of the Company hereunder, other than any obligations with respect to the payment
of accrued, unpaid salary and vested benefits, shall terminate.
2.03. Company Termination. (a) For Cause. In the event that, in the
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reasonable judgment of the Board of Directors of the Company after a meeting at
which Executive is given reasonable notice and afforded an opportunity to attend
, be heard and be accompanied by a lawyer, Executive shall have (a) been guilty
of any act of dishonesty material with respect to the Company, (b) been
convicted of a crime involving moral turpitude, (c) intentionally disregarded
the material provisions of this Agreement or d) intentionally disregarded
express instructions of the Board of Directors of the Company with respect to
material matters of policy continuing (in the case of clause (d)) for a period
of not less than thirty (30) days after notice of such disregard, the Company
may terminate this Agreement effective at such date as it shall specify in a
written notice to Executive. Any such termination by the Company shall be deemed
to be termination "for cause". Upon delivery to Executive of such notice of
termination, together with payment of any salary accrued and unpaid under
Section 1.03 hereof and vested benefits for which the Company is obligated,
Executive's employment and all obligations of the Company under Article I hereof
shall forthwith terminate. The obligations of Executive under Articles III and
IV hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(a).
(b) Without Cause. Executive's employment hereunder may be terminated
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at any time by the Company without cause if the Board of Directors of the
Company, by resolution duly adopted by the Board, so determines. Except as set
forth in Section 2.05 hereof, all obligations of the Company under Article I
cease upon termination. The obligations of Executive under Articles III and IV
hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(b).
2.04. Executive Termination. (a) Executive agrees to give the Company
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ninety (90) days prior written notice of the termination of his employment with
the Company. Simultaneously with such notice, Executive shall inform the Company
in writing as to his employment plans following the termination of his
employment with the Company. In the event Executive has terminated his
employment with the Company because there has been: (i) a material downgrading
in Executive's duties, titles or responsibilities for the Company, (ii) a change
in Executive's principal place of business to a location not within 30 miles of
its present location, (iii) any significant and prolonged increase in the
traveling requirements applicable to the discharge of Executive's
responsibilities, (iv) any breach of the Company of its duties or obligations
pursuant to this Agreement which has not been cured within thirty (30) days
after notice of such breach, (v) any failure of any successors to the Company
after a Change of Control (as defined herein) to assume the obligations of the
Company hereunder, (vi) if the Company imposes as a condition to any renewal or
extension of this Agreement any adverse change in any material term or provision
of this Agreement or (vii) any other significant material adverse change in
working conditions, responsibilities or prestige, Executive shall be entitled to
the compensation provided for in Section 2.05 upon such termination.
(b) In the event Executive has terminated his employment for other
reasons, Executive will receive nothing (other than vested benefits) if he
terminates within 18 months of the Closing Date or he terminates more than 24
months after the Closing Date. Executive will receive W-2 wages (averaged over
the past three years), Company-paid health insurance continuation, and car
allowance continuation for 12 months if he terminates between 18 and 24 months
after the Closing Date upon 30 days notice. Any such payment under this section
will constitute the sole and complete amount owed to Executive under this
Agreement (other than vested benefits) and he shall be entitled to no other
payments under this Agreement which may have been otherwise due.
(c) All obligations of the Company under Article I shall cease upon
termination, except for the payment of any salary accrued and unpaid under
Section 1.03 hereof other than vested benefits. The obligations of Executive
under Articles III and IV hereof
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shall continue notwithstanding termination of Executive's employment pursuant to
this Section 2.04.
2.05. Termination Payments - Discharge Without Cause. If the Company
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terminates Executive's employment without cause pursuant to Section 2.03(b),
Executive shall for the greater of two years or the balance of the Term be
entitled to W-2 wages (averaged over the past three years), Company-paid health
insurance continuation, and car allowance continuation.
2.06. Termination Payments - After Certain Changes of Control. (a) If
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Executive or the Company (except pursuant to Section 2.03(a) hereof) terminates
this Agreement during the Term upon or after the occurrence of a Business
Combination not approved by a majority of Disinterested Directors then in
office, as those terms are defined in Article Ninth of the Company's Certificate
of Incorporation, Executive shall be paid an amount equal to three times
Executive's average W-2 wages over the past three years, such payment to be made
in a lump sum within sixty (60) days of termination. Executive also shall be
entitled to Company paid health insurance continuation and car allowance
continuation for three (3) years.
(b) As used herein a "Change of Control" shall be deemed to have
occurred if (a) there shall be consummated (i) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's common stock would be converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Company's common stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (b) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company, or (c) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 30% of the Company's outstanding common stock, or (d)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors of the Company shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period; provided, however, that, in
the absence of a majority vote of the directors to the contrary, the sale,
lease, exchange or other disposition (in one transaction or a series of related
transactions) of less than 70% of the total fair market value of all of the
assets of the Company immediately prior to such transaction or transactions
shall not be deemed to be a Change in Control and provided further that the
transaction or transactions which involve the sale, lease, exchange or other
disposition of 70% or more of the total fair market value of all of the assets
of the Company immediately prior to such transaction or transactions shall be
deemed to be a Change in Control even if approved by the Board of Directors of
the Company.
2.07. Termination Payments - Taxes The parties hereto agree that the
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Termination Payments are reasonable compensation in consideration of the
Executive's adherence to the terms of Article IV hereof. Neither party shall
contest the payment of such benefits as constituting an "excess parachute
payment" within the meaning of Section 280G(b)(I) of the Internal Revenue Code
of 1986, as amended (the "Code"). In the event that Executive becomes entitled
to the Termination Payments and Executive becomes subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax") as a result of the Compensation
Payments and any other benefits or payments required to be taken into account
under Code Section 280G(b)(2)("Parachute Payments"), the Company shall pay to
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of any Excise Tax on the Parachute
Payments and any Federal, state and local income tax and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the Parachute Payments
determined prior to the application of this paragraph. For purposes of
determining the amount of the Parachute Payments, no payments or benefits shall
be included if, in the opinion of
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tax counsel selected by the Company's independent auditors and acceptable to
Executive, such payments or benefits (in whole or in part) do not constitute
Parachute Payments, or such payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code. The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors.
For purposes of determining the amount of the Gross-Up-Payment, Executive shall
be deemed to pay Federal income taxes at the highest marginal rate of Federal
income taxation in the calendar year in which the Gross-Up-Payment is to be made
and state and local income taxes at the highest marginal rates of taxation in
the state and locality of Executive's residence on the date of termination, net
of the maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise Tax
payable by Executive is subsequently determined to be less than the amount taken
into account hereunder at the time of termination of Executive's employment,
Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided for in Section 1274(b)(2)(B) of the Code
("Repayment Amount"). In the event that the Excise Tax payable by Executive is
determined to exceed the amount taken into account thereunder at the time of the
termination of Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at the time
that the amount of such excess is finally determined ("Additional Gross-up").
The obligation to pay any Repayment Amount or Additional Gross-up shall remain
in effect under this Agreement for the entire period during which the Executive
remains liable for the Excise Tax, including the period during which any
applicable statute of limitation remains open.
ARTICLE III
EXECUTIVE'S ACKNOWLEDGMENTS
---------------------------
Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute a violation of this Agreement or the Company's
policies with respect to such Property. Executive agrees to hold in trust and
confidence for the Company and to not to disclose to any third party, without
prior written consent of the Company, said Property and information, whether it
is tangible or intangible. Executive further agrees not to use any such
confidential information or trade secrets to his/her personal benefit or for the
benefit of any third party.
5
<PAGE>
Executive further acknowledges that for purposes of interpreting
Articles III and IV of this Employment Agreement, covenants and obligations of
Executive with respect to the Company apply equally with respect to its
affiliates. Executive also acknowledges that Property belongs to the Company and
agrees to return to the Company all such information and Property which is
tangible upon the termination of the Employment.
Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(S) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE IV
EXECUTIVE'S COVENANTS AND AGREEMENTS
------------------------------------
4.01. Non-Disclosure of Property. Executive agrees to hold and
--------------------------
safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
4.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Executive shall disclose promptly to the Company or its
- ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
4.03. Duties. Executive agrees to devote his best efforts full time to
------
the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement, Executive shall not, directly or indirectly, engage in any
business which would detract
6
<PAGE>
from Executive's ability to apply his best efforts to the performance of his
duties hereunder. Executive also agrees that he shall not usurp any corporate
opportunities of the Company.
4.04. Return of Materials. Upon the termination of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, Executive shall promptly
deliver to the Company all correspondence, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers or concerning products or processes
used by the Company and, without limiting the foregoing, will promptly deliver
to the Company any and all other documents or materials containing or
constituting Property.
4.05. Restrictions on Competition. Executive acknowledges that as Vice
---------------------------
President, International, he will be a "high impact" person in the Company's
business who is in possession of selective and specialized skills, learning
abilities, supplier and customer contacts, and supplier and customer information
as a result of his relationship with the Company, and agrees that the Company
has a substantial business interest in the covenant described below. Executive
further acknowledges that he is involved at the highest level in the development
and marketing of existing products and new products, and works directly with the
President and CEO. He also has regular and significant contact with customers
and suppliers of the Company nationally and internationally, and that he has
access to and responsibility for trade secret and confidential information
pertaining to the business of the Company, its products, and plans. In
recognition of that status, Executive covenants and agrees that during the
period of Executive's employment hereunder plus a period of two years (or such
longer period, not in excess of three years, to the extent termination payments
are paid to Executive pursuant to (S) 2.04, 2.05 or 2.06 for a period in
excess of two years) following the termination of Executive's employment,
including without limitation termination by the Company for cause or without
cause (excepting a termination pursuant to Section 2.01 and also excepting an
Executive termination under 2.04(b) for which the non compete is coextensive
with the length of payments herein for which this non-competition period is one
(1) year), Executive shall not, in the United States of America or in any other
country in which Executive has represented the interests of the Company engage,
directly or indirectly, whether as principal or as agent, officer, director,
employee, consultant, shareholder (other than as a shareholder owning up to 5%
of the outstanding stock of any company whose stock is publicly traded and
listed on a national securities exchange or included in NASDAQ), alone or in
association with any other person, corporation or other entity, in any Competing
Business. For purposes of this Agreement, the term "Competing Business" shall
mean and include any person, corporation or other entity which develops,
manufactures, sells, markets or attempts to develop, manufacture, sell or market
any product or services which are the same as or similar to the Products and
services sold by the Company at any time and from time to time during the last
two years prior to the termination of Executive's employment hereunder;
provided, however, that for purposes of determining what constitutes a Competing
Business there shall not be included (x) any product or service of any entity
which product or service Executive determines is not material to the business or
prospects of the Company and which product or service the Company's Board,
having been requested to do so by Executive, also so determines; the parties
agree that any product which has been marketed in the United States for five
years and has not achieved a five percent revenue level for the Company is not
material for purposes of this provision or (y) any product or service of any
entity so long as the Executive and such entity can demonstrate to the
reasonable satisfaction of the Company that Executive is and will continue to be
effectively isolated from, and not participate in the development, manufacture,
sale or marketing of, such product or service, but only so long as Executive is
effectively so isolated and does not so participate. To trigger this provision,
the Executive and entity must perform the following: (i) the Executive must
provide the Company with a letter pledging that he will abide by this Agreement,
and (ii) the prospective/new employer must provide a letter acknowledging that
it is aware of the Executive's obligations hereunder. The letter also must
contain a pledge by the new/prospective employer that it will abide by those
obligations. In the event the employment of Executive terminates at the
conclusion of the Term before Executive obtains the age of 65 and because the
Company has elected not to further extend the
7
<PAGE>
Term pursuant to (S) 1.02, then the provisions of this (S) 4.05 and (S)'s
4.06 and 4.07 shall not be applicable after the conclusion of the Term unless
the Company advises Executive at least six months prior to conclusion of the
Term that it will continue to pay the Base Salary in effect at conclusion of the
Term for such two-year period or such shorter portion thereof as the Company may
specify (which specification shall foreshorten such two-year period accordingly)
and the Company pays such amounts during such two-year or shorter period.
4.06. Non-Solicitation of Customers and Suppliers. Executive agrees
-------------------------------------------
that during his employment with the Company he shall not, directly or
indirectly, solicit the trade of, or trade with, any customer, prospective
customer, supplier, or prospective supplier of the Company for any business
purpose other than for the benefit of the Company, with respect to any products
competitive with those of the Company. Executive further agrees that for two
years following termination of his employment with the Company, including
without limitation termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit the trade of, or trade
with, any customers or suppliers of the Company with respect to any products
competitive with those of the Company.
4.07. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE V
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
5.01. No Prior Agreements. Executive represents and warrants that he is
-------------------
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article IV hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
5.02. Executive's Abilities. Executive acknowledges that it would cause
---------------------
the Company serious and irreparable injury and cost if Executive were to use his
ability and knowledge in competition with the Company or to otherwise breach the
obligations contained in Article IV.
5.03. Remedies. In the event of a breach by Executive of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE VI
MISCELLANEOUS
-------------
6.01. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of Article IV hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement
8
<PAGE>
shall be deemed amended to delete or modify, as necessary, the offending
provision or provisions and to alter the bounds thereof in order to render it
valid and enforceable.
6.02. Entire Agreement. This Agreement along with the offer letter
----------------
represent the entire agreement of the parties with respect to the employment of
Executive by the Company and may be amended only by a writing signed by each of
them.
6.03. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania.
6.04. Consent to Jurisdiction; Venue. Executive hereby irrevocably
-------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania in any action or proceeding arising out of or relating to
this Agreement that cannot be finally resolved by arbitration pursuant to
Section 6.05 hereof (and for enforcement of any such arbitration decisions) and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any objection on the ground that any such action or proceeding
in either of such Courts has been brought in an inconvenient forum. Nothing in
this Section 6.04 shall affect the right of the Company to bring any action or
proceeding against Executive or his property in the courts of other
jurisdictions where the Executive resides or has his principal place of business
or where such property is located.
6.05. Arbitration. Unless the party seeking relief is seeking relief
-----------
not available through arbitration hereunder (see Section 6.04), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
6.06. Agreement Binding. The obligations of Executive under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
6.07. Counterparts, Section Headings. This Agreement may be executed in
------------------------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
6.08. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered
9
<PAGE>
or (b) mailed, registered mail, first class postage paid, return receipt
requested, or (c) sent via overnight delivery service or courier, delivery
acknowledgment requested, or (d) via any other delivery service with proof of
delivery: if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
6.09. Attorneys Fees. The Company shall pay, or reimburse Executive for
--------------
reasonable attorneys fees incurred by Executive in connection with the
negotiation of this Agreement.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed the day and year first above written.
Witness: John Miclot
/s/ M. Wayne Boylston /s/ John L. Miclot
- ------------------------------------ ---------------------------------------
Address: 7290 Sentinel Chase Drive
-----------------------------
Roswell, GA 30076
-----------------------------
Attest: RESPIRONICS, INC.
/s/ Dorita A. Pishko By:
- ------------------------------------- /s/ Dennis S. Meteny
---------------------------------------
Secretary
[Corporate Seal] Title: CEO
---------------------------------
HEALTHDYNE TECHNOLOGIES, INC.
By:
/s/ Craig B. Reynolds
---------------------------------------
Title: CEO
---------------------------------
[Corporate Seal]
10
<PAGE>
Exhibit 10.25
SUPPLEMENTAL EMPLOYMENT AGREEMENT
---------------------------------
THIS AGREEMENT, made as of November 10, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), and John Miclot
("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) the willingness of the Company to
grant 20,000 stock options to Executive on or about the commencement of his
employment.
NOW, THEREFORE, intending to be legally bound and in consideration of
the stock options made available by Company to Executive, the Company and
Executive agree as follows.
ARTICLE I
EXECUTIVE'S ACKNOWLEDGMENTS
---------------------------
Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute a violation of this Agreement or the Company's
policies with respect to such Property. Executive agrees to hold in trust and
confidence for the Company and to not to disclose to any third party, without
prior written consent of the Company, said Property and information, whether it
is tangible or intangible. Executive further agrees not to use any such
confidential information or trade secrets to his/her personal benefit or for the
benefit of any third party.
Executive further acknowledges that for purposes of interpreting
Articles I and II of this Agreement, covenants and obligations of Executive with
respect to the Company apply equally with respect to its affiliates. Executive
also acknowledges that Property belongs to the Company and agrees to return to
the Company all such information and Property which is tangible upon the
termination of the Employment.
<PAGE>
Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(S) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE II
EXECUTIVE'S COVENANTS AND AGREEMENTS
------------------------------------
2.01. Non-Disclosure of Property. Executive agrees to hold and
--------------------------
safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
2.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Executive shall disclose promptly to the Company or its
- ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
2.03. Duties. Executive agrees to devote his best efforts full time to
------
the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement, Executive shall not, directly or indirectly, engage in any
business which would detract from Executive's ability to apply his best efforts
to the performance of his duties hereunder. Executive also agrees that he shall
not usurp any corporate opportunities of the Company.
2.04. Return of Materials. Upon the termination of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for
2
<PAGE>
cause or without cause, Executive shall promptly deliver to the Company all
correspondence, drawings, blueprints, manuals, letters, notes, notebooks,
reports, flow-charts, programs, proposals and any documents concerning the
Company's customers or concerning products or processes used by the Company and,
without limiting the foregoing, will promptly deliver to the Company any and all
other documents or materials containing or constituting Property.
2.05. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE III
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
3.01. No Prior Agreements. Executive represents and warrants that he is
-------------------
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article II hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
3.02. Remedies. In the event of a breach by Executive of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE IV
MISCELLANEOUS
-------------
4.01. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of Article II hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania.
4.03. Consent to Jurisdiction; Venue. Executive hereby irrevocably
------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania any action or proceeding arising out of or relating to this
Agreement that cannot be finally resolved by arbitration pursuant to Section
4.04 hereof (and for enforcement of any such arbitration decision), and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any
3
<PAGE>
objection on the ground that any such action or proceeding in either of such
Courts has been brought in an inconvenient forum. Nothing in this Section 4.03
shall affect the right of the Company to bring any action or proceeding against
Executive or his property in the courts of other jurisdictions where the
Executive resides or has his principal place of business or where such property
is located.
4.04. Arbitration. Unless the party seeking relief is seeking relief
-----------
not available through arbitration hereunder (see Section 4.03), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
4.05. Agreement Binding. The obligations of Executive under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
4.06. Counterparts, Section Headings. This Agreement may be executed in
------------------------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.07. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered or (b) mailed, registered mail, first class postage paid, return
receipt requested, or (c) sent via overnight delivery service or courier,
delivery acknowledgment requested, or (d) via any other delivery service with
proof of delivery:
if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed the day and year first above written.
Witness: JOHN MICLOT
/s/ Jeffrey A. North /s/ John L. Miclot
- ---------------------------------- --------------------------------------
Address: 7290 Sentinel Chase Drive
----------------------------
Roswell, GA 30076
----------------------------
Attest
RESPIRONICS, INC.
/s/ Dorita A. Pishko By:
- ------------------------------------- /s/ Dennis S. Meteny
Secretary --------------------------------------
Title: President & CEO
--------------------------------
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Exhibit 10.35
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made as of November 10, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), Healthdyne
Technologies, Inc., a Georgia Corporation ("Healthdyne") and Robert Tucker
("Executive"). This Employment Agreement will be null and void in its entirety
if the Company's currently contemplated acquisition of Healthdyne does not
occur. Furthermore, if future benefits provided to Vice Presidents (other than
base salary) become more favorable than those contained herein, Executive will
receive the benefit of those changes.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of the design,
development, manufacture, marketing and sale principally of respiratory and
other medical equipment;
WHEREAS, Executive has been employed by Healthdyne and will be employed
by the Company after the Company acquires Healthdyne (the "Merger");
WHEREAS, Healthdyne and Executive agree that their Non-Competition
Agreement will become null and void in all respects effective upon the Closing
of the Merger (the "Closing Date"), so that no "Change of Control" occurs for
purposes of said Non-Competition Agreement, in consideration of the acquisition
and Executive's employment with the Company;
WHEREAS, Healthdyne and Executive further agree that neither Healthdyne
nor the Company will owe Executive any monies as a result of Executive's change
in employment from Healthdyne to the Company other than as expressly set forth
or referred to herein;
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) Executive's receipt of compensation
from time to time by the Company; and
WHEREAS, the Company desires to retain the services of Executive, and
Executive is willing to accept employment with the Company, upon the terms
contained in the attached offer letter and subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Executive, and Executive hereby agrees to be employed by the Company,
upon the following terms and conditions:
ARTICLE I
EMPLOYMENT
----------
1.01. Office. Effective at the Closing Date, Executive will be employed
------
as Vice President, New Product Development of the Company, having such duties
and responsibilities as are commensurate with such position and title. Executive
shall report to the Senior Vice President, New Product Development of the
Company and shall
<PAGE>
also perform such other duties unrelated to his title and position as may be
mutually agreed upon by Executive and the Company. In such capacity or
capacities Executive shall use his best energies or abilities in the performance
of his duties hereunder and as prescribed in the By-Laws of the Company.
1.02. Term. Subject to the terms and provisions of Article II hereof,
----
Executive shall be employed by the Company for a period of three years (the
"Term"), commencing on the Closing Date. Subject to the terms and provisions of
Article II hereof, the Term shall automatically be extended for an additional
year unless, not less than ninety (90) days prior to the expiration of the then-
current first year of the Term, either Executive or the Company shall advise the
other that the Term will not be further extended. "Term" shall also include any
extensions or renewals of the original Term.
1.03. Base Salary. After March 1, 1998, compensation shall be paid to
-----------
Executive by the Company at the rate of $203,679 per annum (the "Base Salary"),
payable bi-weekly. The Base Salary to be paid to Executive may be adjusted
upward by the Board of Directors of the Company at any time (but not less
frequently than annually) based upon Executive's contribution to the success of
the Company and on such other factors as the Board of Directors of the Company
shall deem appropriate. Executive's first annual review shall occur in November
1998 with any resulting salary increase becoming effective in February 1999.
1.04. Executive Benefits. At all times during the Term, Executive shall
------------------
have the right to participate in and receive benefits under and in accordance
with the then-current provisions of all incentive, profit sharing, retirement,
stock option or purchase plans, life, health and accident insurance,
hospitalization and other incentive and benefit plans or programs (except for
any such plan in which Executive may not participate pursuant to the terms of
such plan or Executive's geographic location) which the Company may at any time
or from time to time have in effect for executive employees of the Company or
its subsidiaries, Executive's participation to be on a basis commensurate with
other executive employees considering their respective responsibilities and
compensation. Prior service of Executive with Healthdyne or a Healthdyne
Subsidiary (including service with predecessor entities to the extent recognized
under analogous Healthdyne benefit plans) shall be counted in determining
eligibility to participate in Company plans and for purposes of vesting.
Executive shall also be entitled to be reimbursed for all reasonable expenses
incurred by him in the performance of his duties hereunder. For the period from
January 1, 1998 through the Closing Date, Executive shall be entitled to a pro
rata normal and customary bonus from Healthdyne's bonus plan in accordance with
the terms of that plan as of the date hereof. Also, the Company will pay
Executive within 30 days after the Closing Date for all accrued, but unpaid,
vacation pay due Executive by Healthdyne through the Closing Date.
1.05. Principal Place of Business. The headquarters and principal place
---------------------------
of business of the Company is located in Pittsburgh, Pennsylvania. For
Executive's convenience, Executive's principal place of business will be in
Marietta, Georgia, and he will reside within a reasonable distance thereof.
ARTICLE II
TERMINATION
-----------
2.01. Illness, Incapacity. If, during the Term of Executive's
-------------------
employment hereunder, the Board of Directors of the Company shall determine that
Executive shall be prevented from effectively performing all his duties
hereunder by reason of illness or disability, confirmed by a physician mutually
acceptable to Executive and the Company, and such failure so to perform shall
have continued for a period of not less than six months, then the Company may,
by written notice to Executive, terminate Executive's employment hereunder
effective at any time after such six month period. Upon delivery to Executive of
such notice, together with payment of any salary accrued and unpaid under
Section 1.03 hereof, Executive's employment and all obligations of the
2
<PAGE>
Company under Article I (except any obligation for vested benefits) hereof shall
forthwith terminate. The obligations of Executive under Articles III and IV
Section 4.01-4.04, 4.06, and 4.07 hereof shall continue notwithstanding
termination of Executive's employment pursuant to this Section 2.01.
2.02. Death. If Executive dies during the Term of his employment
-----
hereunder, Executive's employment hereunder shall terminate and all obligations
of the Company hereunder, other than any obligations with respect to the payment
of accrued, unpaid salary and vested benefits, shall terminate.
2.03. Company Termination. (a) For Cause. In the event that, in the
-------------------
reasonable judgment of the Board of Directors of the Company after a meeting at
which Executive is given reasonable notice and afforded an opportunity to
attend, be heard and be accompanied by a lawyer, Executive shall have (a) been
guilty of any act of dishonesty material with respect to the Company, (b) been
convicted of a crime involving moral turpitude, (c) intentionally disregarded
the material provisions of this Agreement or d) intentionally disregarded
express instructions of the Board of Directors of the Company with respect to
material matters of policy continuing (in the case of clause (d)) for a period
of not less than thirty (30) days after notice of such disregard, the Company
may terminate this Agreement effective at such date as it shall specify in a
written notice to Executive. Any such termination by the Company shall be deemed
to be termination "for cause". Upon delivery to Executive of such notice of
termination, together with payment of any salary accrued and unpaid under
Section 1.03 hereof and vested benefits for which the Company is obligated,
Executive's employment and all obligations of the Company under Article I hereof
shall forthwith terminate. The obligations of Executive under Articles III and
IV hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(a).
(b) Without Cause. Executive's employment hereunder may be terminated
-------------
at any time by the Company without cause if the Board of Directors of the
Company, by resolution duly adopted by the Board, so determines. Except as set
forth in Section 2.05 hereof, all obligations of the Company under Article I
cease upon termination. The obligations of Executive under Articles III and IV
hereof shall continue notwithstanding termination of Executive's employment
pursuant to this Section 2.03(b).
2.04. Executive Termination. (a) Executive agrees to give the Company
---------------------
ninety (90) days prior written notice of the termination of his employment with
the Company. Simultaneously with such notice, Executive shall inform the Company
in writing as to his employment plans following the termination of his
employment with the Company. In the event Executive has terminated his
employment with the Company because there has been: (i) a material downgrading
in Executive's duties, titles or responsibilities for the Company, (ii) a change
in Executive's principal place of business to a location not within 30 miles of
its present location, (iii) any significant and prolonged increase in the
traveling requirements applicable to the discharge of Executive's
responsibilities, (iv) any breach of the Company of its duties or obligations
pursuant to this Agreement which has not been cured within thirty (30) days
after notice of such breach, (v) any failure of any successors to the Company
after a Change of Control (as defined herein) to assume the obligations of the
Company hereunder, (vi) if the Company imposes as a condition to any renewal or
extension of this Agreement any adverse change in any material term or provision
of this Agreement or (vii) any other significant material adverse change in
working conditions, responsibilities or prestige, Executive shall be entitled to
the compensation provided for in Section 2.05 upon such termination.
(b) In the event Executive has terminated his employment for other
reasons, Executive will receive nothing (other than vested benefits) if he
terminates within 18 months of the Closing Date or he terminates more than 24
months after the Closing Date. Executive will receive W-2 wages (averaged over
the past three years), Company-paid health insurance continuation, and car
allowance continuation for 12 months if he terminates between 18 and 24 months
after the Closing Date upon 30 days notice. Any such payment under this section
will constitute the sole and complete amount owed to Executive under this
Agreement (other than vested benefits) and he shall
3
<PAGE>
be entitled to no other payments under this Agreement which may have been
otherwise due.
(c) All obligations of the Company under Article I shall cease upon
termination, except for the payment of any salary accrued and unpaid under
Section 1.03 hereof other than vested benefits. The obligations of Executive
under Articles III and IV hereof shall continue notwithstanding termination of
Executive's employment pursuant to this Section 2.04.
2.05. Termination Payments - Discharge Without Cause. If the Company
----------------------------------------------
terminates Executive's employment without cause pursuant to Section 2.03(b),
Executive shall for the greater of two years or the balance of the Term be
entitled to W-2 wages (averaged over the past three years), Company-paid health
insurance continuation, and car allowance continuation.
2.06. Termination Payments - After Certain Changes of Control. (a) If
-------------------------------------------------------
Executive or the Company (except pursuant to Section 2.03(a) hereof) terminates
this Agreement during the Term upon or after the occurrence of a Business
Combination not approved by a majority of Disinterested Directors then in
office, as those terms are defined in Article Ninth of the Company's Certificate
of Incorporation, Executive shall be paid an amount equal to three times
Executive's average W-2 wages over the past three years, such payment to be made
in a lump sum within sixty (60) days of termination. Executive also shall be
entitled to Company-paid health insurance continuation and car allowance
continuation for three (3) years.
(b) As used herein a "Change of Control" shall be deemed to have
occurred if (a) there shall be consummated (i) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's common stock would be converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Company's common stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (b) the stockholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company, or (c) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 30% of the Company's outstanding common stock, or (d)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors of the Company shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period; provided, however, that, in
the absence of a majority vote of the directors to the contrary, the sale,
lease, exchange or other disposition (in one transaction or a series of related
transactions) of less than 70% of the total fair market value of all of the
assets of the Company immediately prior to such transaction or transactions
shall not be deemed to be a Change in Control and provided further that the
transaction or transactions which involve the sale, lease, exchange or other
disposition of 70% or more of the total fair market value of all of the assets
of the Company immediately prior to such transaction or transactions shall be
deemed to be a Change in Control even if approved by the Board of Directors of
the Company.
2.07. Termination Payments - Taxes The parties hereto agree that the
----------------------------
Termination Payments are reasonable compensation in consideration of the
Executive's adherence to the terms of Article IV hereof. Neither party shall
contest the payment of such benefits as constituting an "excess parachute
payment" within the meaning of Section 280G(b)(I) of the Internal Revenue Code
of 1986, as amended (the "Code"). In the event that Executive becomes entitled
to the Termination Payments and Executive becomes subject to the tax imposed by
Section 4999 of the Code (the "Excise Tax") as a result of the Compensation
Payments and any other benefits or payments required to be taken into account
under Code Section 280G(b)(2)("Parachute Payments"), the Company
4
<PAGE>
shall pay to Executive an additional amount (the "Gross-Up Payment") such that
the net amount retained by Executive, after deduction of any Excise Tax on the
Parachute Payments and any Federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph, shall be equal to the Parachute
Payments determined prior to the application of this paragraph. For purposes of
determining the amount of the Parachute Payments, no payments or benefits shall
be included if, in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to Executive, such payments or benefits (in
whole or in part) do not constitute Parachute Payments, or such payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code. The value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors. For purposes of determining the amount of the
Gross-Up-Payment, Executive shall be deemed to pay Federal income taxes at the
highest marginal rate of Federal income taxation in the calendar year in which
the Gross-Up-Payment is to be made and state and local income taxes at the
highest marginal rates of taxation in the state and locality of Executive's
residence on the date of termination, net of the maximum reduction in Federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax payable by Executive is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of Executive's employment, Executive shall repay to the Company
at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
plus interest on the amount of such repayment at the rate provided for in
Section 1274(b)(2)(B) of the Code ("Repayment Amount"). In the event that the
Excise Tax payable by Executive is determined to exceed the amount taken into
account thereunder at the time of the termination of Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess is
finally determined ("Additional Gross-up"). The obligation to pay any Repayment
Amount or Additional Gross-up shall remain in effect under this Agreement for
the entire period during which the Executive remains liable for the Excise Tax,
including the period during which any applicable statute of limitation remains
open.
ARTICLE III
EXECUTIVE'S ACKNOWLEDGMENTS
---------------------------
Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute
5
<PAGE>
a violation of this Agreement or the Company's policies with respect to such
Property. Executive agrees to hold in trust and confidence for the Company and
to not to disclose to any third party, without prior written consent of the
Company, said Property and information, whether it is tangible or intangible.
Executive further agrees not to use any such confidential information or trade
secrets to his/her personal benefit or for the benefit of any third party.
Executive further acknowledges that for purposes of interpreting
Articles III and IV of this Employment Agreement, covenants and obligations of
Executive with respect to the Company apply equally with respect to its
affiliates. Executive also acknowledges that Property belongs to the Company and
agrees to return to the Company all such information and Property which is
tangible upon the termination of the Employment.
Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(S) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE IV
EXECUTIVE'S COVENANTS AND AGREEMENTS
------------------------------------
4.01. Non-Disclosure of Property. Executive agrees to hold and
--------------------------
safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
4.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Executive shall disclose promptly to the Company or its
- ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
6
<PAGE>
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
4.03. Duties. Executive agrees to devote his best efforts full time to
------
the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement, Executive shall not, directly or indirectly, engage in any
business which would detract from Executive's ability to apply his best efforts
to the performance of his duties hereunder. Executive also agrees that he shall
not usurp any corporate opportunities of the Company.
4.04. Return of Materials. Upon the termination of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, Executive shall promptly
deliver to the Company all correspondence, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers or concerning products or processes
used by the Company and, without limiting the foregoing, will promptly deliver
to the Company any and all other documents or materials containing or
constituting Property.
4.05. Restrictions on Competition. Executive acknowledges that as Vice
---------------------------
President, New Product Development, he will be a "high impact" person in the
Company's business who is in possession of selective and specialized skills,
learning abilities, supplier and customer contacts, and supplier and customer
information as a result of his relationship with the Company, and agrees that
the Company has a substantial business interest in the covenant described below.
Executive further acknowledges that he is involved at the highest level in the
development of improvements and innovations in existing products and new
products, and works directly with the Senior Vice President for New Product
Development, and thereby has regular and significant contact with customers and
suppliers of the Company nationally and internationally, and that he has access
to and responsibility for trade secret and confidential information pertaining
to the business of the Company, its products, and plans. In recognition of that
status, Executive covenants and agrees that during the period of Executive's
employment hereunder plus a period of two years (or such longer period, not in
excess of three years, to the extent termination payments are paid to Executive
pursuant to (S) 2.04, 2.05 or 2.06 for a period in excess of two years)
following the termination of Executive's employment, including without
limitation termination by the Company for cause or without cause (excepting a
termination pursuant to Section 2.01 and also excepting an Executive termination
under 2.04(b) for which the non compete is coextensive with the length of
payments herein for which this non-competition period is one (1) year),
Executive shall not, in the United States of America engage, directly or
indirectly, whether as principal or as agent, officer, director, employee,
consultant, shareholder (other than as a shareholder owning up to 5% of the
outstanding stock of any company whose stock is publicly traded and listed on a
national securities exchange or included in NASDAQ), alone or in association
with any other person, corporation or other entity, in any Competing Business.
For purposes of this Agreement, the term "Competing Business" shall mean and
include any person, corporation or other entity which develops, manufactures,
sells, markets or attempts to develop, manufacture, sell or market any product
or services which are the same as or similar to the Products and services sold
by the Company at any time and from time to time during the last two years prior
to the termination of Executive's employment hereunder; provided, however, that
for purposes of determining what constitutes a Competing Business there shall
not be included (x) any product or service of any entity which product or
service Executive determines is not material to the business or prospects of the
Company and which product or service the Company's Board, having been requested
to do so by Executive, also so determines; the parties agree that any product
which has been marketed in the United States for five years and has not achieved
a five percent revenue level for the Company is not material for purposes of
this provision or (y) any product or service of any entity so long as the
Executive and such entity can demonstrate to the reasonable satisfaction of the
Company that Executive is and will continue to be effectively
7
<PAGE>
isolated from, and not participate in the development, manufacture, sale or
marketing of, such product or service, but only so long as Executive is
effectively so isolated and does not so participate. To trigger this provision,
the Executive and entity must perform the following: (i) the Executive must
provide the Company with a letter pledging that he will abide by this Agreement,
and (ii) the prospective/new employer must provide a letter acknowledging that
it is aware of the Executive's obligations hereunder. The letter also must
contain a pledge by the new/prospective employer that it will abide by those
obligations. In the event the employment of Executive terminates at the
conclusion of the Term before Executive obtains the age of 65 and because the
Company has elected not to further extend the Term pursuant to (S) 1.02, then
the provisions of this (S) 4.05 and (S)'s 4.06 and 4.07 shall not be
applicable after the conclusion of the Term unless the Company advises Executive
at least six months prior to conclusion of the Term that it will continue to pay
the Base Salary in effect at conclusion of the Term for such two-year period or
such shorter portion thereof as the Company may specify (which specification
shall foreshorten such two-year period accordingly) and the Company pays such
amounts during such two-year or shorter period.
4.06. Non-Solicitation of Customers and Suppliers. Executive agrees
-------------------------------------------
that during his employment with the Company he shall not, directly or
indirectly, solicit the trade of, or trade with, any customer, prospective
customer, supplier, or prospective supplier of the Company for any business
purpose other than for the benefit of the Company, with respect to any products
competitive with those of the Company. Executive further agrees that for two
years following termination of his employment with the Company, including
without limitation termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit the trade of, or trade
with, any customers or suppliers of the Company with respect to any products
competitive with those of the Company.
4.07. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE V
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
5.01. No Prior Agreements. Executive represents and warrants that he is
-------------------
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article IV hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
5.02. Executive's Abilities. Executive acknowledges that it would cause
---------------------
the Company serious and irreparable injury and cost if Executive were to use his
ability and knowledge in competition with the Company or to otherwise breach the
obligations contained in Article IV.
5.03. Remedies. In the event of a breach by Executive of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this
8
<PAGE>
Agreement may be inadequate and that the Company shall be entitled to injunctive
relief against him in the event of any breach.
ARTICLE VI
MISCELLANEOUS
-------------
6.01. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of Article IV hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
6.02. Entire Agreement. This Agreement along with the offer letter
----------------
represent the entire agreement of the parties with respect to the employment of
Executive by the Company and may be amended only by a writing signed by each of
them.
6.03. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania.
6.04. Consent to Jurisdiction; Venue. Executive hereby irrevocably
------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania in any action or proceeding arising out of or relating to
this Agreement that cannot be finally resolved by arbitration pursuant to
Section 6.05 hereof (and for enforcement of any such arbitration decision), and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any objection on the ground that any such action or proceeding
in either of such Courts has been brought in an inconvenient forum. Nothing in
this Section 6.04 shall affect the right of the Company to bring any action or
proceeding against Executive or his property in the courts of other
jurisdictions where the Executive resides or has his principal place of business
or where such property is located.
6.05. Arbitration. Unless the party seeking relief is seeking relief
------------
not available through arbitration hereunder (see Section 6.04), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
9
<PAGE>
6.06. Agreement Binding. The obligations of Executive under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
6.07. Counterparts, Section Headings. This Agreement may be executed in
------------------------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
6.08. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered or (b) mailed, registered mail, first class postage paid, return
receipt requested, or (c) sent via overnight delivery service or courier,
delivery acknowledgment requested, or (d) via any other delivery service with
proof of delivery:
if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
6.09. Attorneys Fees. The Company shall pay, or reimburse Executive for
--------------
reasonable attorneys fees incurred by Executive in connection with the
negotiation of this Agreement.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed the day and year first above written.
Witness: Robert Tucker
/s/ Jeff A. North /s/ Robert E. Tucker
- ------------------------------------ -------------------------------------
Address: 7675 Treeridge Court
----------------------------
Atlanta, GA 30350
----------------------------
Attest:
RESPIRONICS, INC.
/s/ Dorita A. Pishko By: /s/ Dennis S. Meteny
- ------------------------------------- ---------------------------------
Secretary Title: President & CEO
------------------------------
[Corporate Seal]
HEALTHDYNE TECHNOLOGIES, INC.
By: /s/ Craig B. Reynolds
---------------------------------
Title: CEO
------------------------------
[Corporate Seal]
10
<PAGE>
Exhibit 10.36
SUPPLEMENTAL EMPLOYMENT AGREEMENT
---------------------------------
THIS AGREEMENT, made as of November 10, 1997, by and between
RESPIRONICS, INC., a Delaware corporation (the "Company"), and Robert Tucker
("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business;
WHEREAS, the Company and Executive have agreed to execute and deliver
this Agreement in consideration, among other things, of (i) the access Executive
will have to confidential or proprietary information of the Company, (ii) the
access Executive will have to confidential or proprietary information to be
acquired hereafter by the Company, and (iii) the willingness of the Company to
grant 20,000 stock options to Executive on or about the commencement of his
employment.
NOW, THEREFORE, intending to be legally bound and in consideration of
the stock options made available by Company to Executive, the Company and
Executive agree as follows.
ARTICLE I
EXECUTIVE'S ACKNOWLEDGMENTS
---------------------------
Executive recognizes and acknowledges that in the course of Executive's
employment by the Company: (a) he will be privy to certain confidential and
proprietary information which constitutes trade secrets as defined in the
Uniform Trade Secrets Act and as adopted by the various states (the "Act"); and
(b) he will be privy to certain other confidential and/or proprietary
information that may not constitute trade secrets as defined in the Act.
Executive acknowledges that the Company must protect both above kinds
of information from disclosure or misappropriation, and Executive further
acknowledges that the processes, machines, technical documentation, computer
programs, customer lists, business plans, marketing plans and techniques,
pricing data, financial data, marketing programs, customer files, financial
institution files, technical expertise and know how, and other information and
trade secrets, whether as defined in the Act or which may lie beyond it
(collectively the "Property"), which have been or will be provided to Executive
by the Company, are unique, confidential and proprietary Property of the Company
and by the provision of such Property to Executive, the Company is not conveying
any ownership or other interest to Executive. Executive acknowledges that such
confidential and proprietary information derives independent, actual, and
potential commercial value from not being generally, readily ascertainable
through independent development and is the subject of efforts by the Company
that are reasonable under the circumstances to maintain its secrecy. Property
shall not include any information that is in the public domain, so long as such
information is not in the public domain as a result of any action or inaction by
Executive which would constitute a violation of this Agreement or the Company's
policies with respect to such Property. Executive agrees to hold in trust and
confidence for the Company and to not to disclose to any third party, without
prior written consent of the Company, said Property and information, whether it
is tangible or intangible. Executive further agrees not to use any such
confidential information or trade secrets to his/her personal benefit or for the
benefit of any third party.
Executive further acknowledges that for purposes of interpreting
Articles I and II of this Agreement, covenants and obligations of Executive with
<PAGE>
respect to the Company apply equally with respect to its affiliates. Executive
also acknowledges that Property belongs to the Company and agrees to return to
the Company all such information and Property which is tangible upon the
termination of the Employment.
Executive acknowledges that the use, misappropriation, or disclosure of
the Property would constitute a breach of trust and could cause irreparable
injury to the Company, and it is essential to the protection of the Company's
good will and to the maintenance of the Company's competitive position that the
Property be kept secret and that Executive not disclose the Property to others
or use the property to Executive's own advantage or the advantage of others.
Executive further recognizes and understands that his duties at the
Company may include the preparation of materials, including written or graphic
materials, and that any such materials conceived or written by him shall be done
as "work made for hire" as defined and used in the Copyright Act of 1976, 17 USC
(S) 1 et seq. In the event of publication of such materials, Executive
-- ---
understands that since the work is a "work made for hire", the Company will
solely retain and own all rights in said materials, including right of
copyright, and that the Company may, at its discretion, on a case-by-case basis,
grant Executive by-line credit on such materials as the Company may deem
appropriate.
ARTICLE II
EXECUTIVE'S COVENANTS AND AGREEMENTS
------------------------------------
2.01. Non-Disclosure of Property. Executive agrees to hold and
--------------------------
safeguard the Property in trust for the Company, its successors and assigns and
agrees that he shall not, without the prior written consent of the Company,
misappropriate or disclose or make available to anyone for use outside the
Company's organization at any time, either during his employment with the
Company or subsequent to the termination of his employment with the Company for
any reason, including without limitation termination by the Company for cause or
without cause, any confidential information that constitutes trade secrets,
whether or not developed by Executive, except as required in the performance of
Executive's duties to the Company. Executive and the Company agree that
Executive's obligations under the above non-disclosure provision as it relates
to confidential information that does not constitute trade secrets shall apply
for a period of three (3) years following the termination of the Executive.
2.02. Disclosure of Works and Inventions/Assignment of Patents and
------------------------------------------------------------
Other Rights. (a) Executive shall disclose promptly to the Company or its
- ------------
nominee any and all works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Executive shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters Patent or Copyrights of the United
States or any foreign country or to otherwise protect the Company's interest
therein. Such obligations shall continue beyond the termination of employment
with respect to works, inventions, discoveries and improvements authored,
conceived or made by Executive during the period of employment, and shall be
binding upon Executive's assigns, executors, administrators and other legal
representatives.
(b) Executive agrees that in the event of publication by Executive of
written or graphic materials the Company will retain and own all rights in said
materials, including right of copyright.
2.03. Duties. Executive agrees to devote his best efforts full time to
------
the performance of his duties for the Company, to give proper time and attention
to furthering the Company's business, and to comply in all material respects
with all rules, regulations and instruments established or issued by the Company
and made known to Executive. Executive further agrees that during the term of
this Agreement,
2
<PAGE>
Executive shall not, directly or indirectly, engage in any business which would
detract from Executive's ability to apply his best efforts to the performance of
his duties hereunder. Executive also agrees that he shall not usurp any
corporate opportunities of the Company.
2.04. Return of Materials. Upon the termination of Executive's
-------------------
employment with the Company for any reason, including without limitation
termination by the Company for cause or without cause, Executive shall promptly
deliver to the Company all correspondence, drawings, blueprints, manuals,
letters, notes, notebooks, reports, flow-charts, programs, proposals and any
documents concerning the Company's customers or concerning products or processes
used by the Company and, without limiting the foregoing, will promptly deliver
to the Company any and all other documents or materials containing or
constituting Property.
2.05. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for two years following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of the Company to leave the Company for any reason whatsoever, or hire
any employee of the Company without permission from the Company.
ARTICLE III
EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
3.01. No Prior Agreements. Executive represents and warrants that he is
-------------------
not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Article II hereof. Executive further represents
and warrants that his employment with the Company will not require him to
disclose or use any confidential information belonging to prior employers or
other persons or entities other than Healthdyne.
3.02. Remedies. In the event of a breach by Executive of the terms of
--------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by Executive and to enjoin Executive
from any further violation of this Agreement and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of this Agreement may be inadequate and that the Company
shall be entitled to injunctive relief against him in the event of any breach.
ARTICLE IV
MISCELLANEOUS
-------------
4.01. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of Article II hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania.
3
<PAGE>
4.03. Consent to Jurisdiction; Venue. Executive hereby irrevocably
------------------------------
submits to the personal jurisdiction of the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas of Allegheny
County, Pennsylvania any action or proceeding arising out of or relating to this
Agreement that cannot be finally resolved by arbitration pursuant to Section
4.04 hereof (and for enforcement of any such arbitration decision), and
Executive hereby irrevocably agrees that all claims in respect of any such
action or proceeding may be heard and determined in either such court. Executive
hereby irrevocably waives any objection which he now or hereafter may have to
the laying of venue of any action or proceeding arising out of or relating to
this Agreement brought in the United States District Court for the Western
District of Pennsylvania or the Court of Common Pleas of Allegheny County,
Pennsylvania and any objection on the ground that any such action or proceeding
in either of such Courts has been brought in an inconvenient forum. Nothing in
this Section 4.03 shall affect the right of the Company to bring any action or
proceeding against Executive or his property in the courts of other
jurisdictions where the Executive resides or has his principal place of business
or where such property is located.
4.04. Arbitration. Unless the party seeking relief is seeking relief
-----------
not available through arbitration hereunder (see Section 4.03), any dispute
related to this Agreement shall be referred to arbitration by three arbitrators
selected from a list of arbitrators affiliated with American Arbitration
Association ("AAA") who are familiar with executive employment matters, with one
arbitrator being selected by the Company, one arbitrator being selected by
Executive, and the third arbitrator being selected jointly by the two
arbitrators selected by the Company and by Executive. The decision of a majority
of the arbitrators shall constitute the arbitral decision. The arbitration
hereunder, shall be conducted pursuant to the rules and procedures of AAA then
in effect and otherwise in such manner as the arbitrator or arbitrators shall
determine and shall be conducted in Pittsburgh, Pennsylvania. All parties shall
cooperate with each other to expedite the arbitration process as much as
possible so that the dispute can be resolved as quickly as possible and with as
little cost as possible. The arbitral decision shall be final, binding and
conclusive on the parties and may be entered, if necessary, in a court of
competent jurisdiction with the same force and effect as a final and binding
judgment. The arbitrators shall further be authorized to allocate or assess the
costs of arbitration, including attorneys' fees, between the respective parties.
If the arbitrators do not award costs and expenses, then each party shall bear
its own costs and expenses, including attorneys' fees, and the cost of the
arbitration shall be paid by the party whose position in the arbitration does
not prevail.
4.05. Agreement Binding. The obligations of Executive under this
-----------------
Agreement shall continue after the termination of his employment with the
Company for any reason, with or without cause, and shall be binding on his
heirs, executors, legal representatives and assigns and shall inure to the
benefit of any successors and assigns of the Company.
4.06. Counterparts, Section Headings. This Agreement may be executed in
------------------------------
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.07. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
hand delivered or (b) mailed, registered mail, first class postage paid, return
receipt requested, or (c) sent via overnight delivery service or courier,
delivery acknowledgment requested, or (d) via any other delivery service with
proof of delivery:
4
<PAGE>
if to the Company:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, PA 15221-4401
Attn: President
if to Executive, at the address set forth on the signature page hereof
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
Executive acknowledges that he has read and understands the foregoing
provisions and that such provisions are reasonable and enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed the day and year first above written.
Witness: ROBERT TUCKER
/s/Jeff A. North /s/ Robert E. Tucker
- -------------------------------------- -----------------------------------
Address: 7675 Treeridge Ct.
--------------------------
Atlanta, GA 30350
--------------------------
Attest
RESPIRONICS, INC.
/s/ Dorita A. Pishko By: /s/ Dennis S. Meteny
- --------------------------------------- ----------------------------------
Secretary
Title: President & CEO
----------------------------
5
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
State or Country of
Name Incorporation
- ---- -------------
Respironics Colorado, Inc. Colorado
Respironics Georgia, Inc. Georgia
RIC Investments, Inc. Delaware
Respironics (HK) Ltd. Hong Kong
Respironics Medical Products Shen Zhen Ltd. Peoples Republic of China
Wegot Investments Ltd. Hong Kong
Respironics Technologies Ltd. Hong Kong
Respironics Europe France
Respironics France France
Respironics Deutschland GmbH Germany
Health Scan Products, Inc. New Jersey
RCM Manufacturing, Inc. Philippines
Sigma Manufacturing Limited Hong Kong
Respironics Verwaltungsgesellschaft Germany
Respironics Technologies (Guangzhou) Ltd. Peoples Republic of China
Stimotron Medizinische Gerate GmbH* Germany
Respironics International, Inc. Delaware
* Merged into Respironics Deutschland after June 30, 1998.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Post Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-43703)
pertaining to the Healthdyne Technologies, Inc. 1996 Stock Option Plan,
Healthdyne Technologies, Inc. Stock Option Plan, Healthdyne Technologies, Inc.
Nonemployee Director Stock Option Plan, and Healthdyne Technologies, Inc. Stock
Option Plan II; (Form S-8 No. 333-22639) pertaining to the 1997 Employee Stock
Purchase Plan; (Form S-8 No. 333-16721) pertaining to the Respironics, Inc.
Retirement Savings Plan; (Form S-8 No. 33-89308) pertaining to the 1992 Stock
Incentive Plan; (Form S-8 No. 33-44716) pertaining to the 1991 Nonemployee
Directors' Stock Option Plan; and (Form S-8 No. 33-36459) pertaining to the
Amended and Restated Incentive Stock Option Plan of Respironics, Inc. and Gerald
E. McGinnis and the Consulting Agreement dated July 1, 1988 between Respironics,
Inc. and Mark H. Sanders M.D. of our report dated September 28, 1998, with
respect to the consolidated financial statements and schedule of Respironics,
Inc. and Subsidiaries included in the Annual Report Form 10-K for the year
June 30, 1998.
/s/Ernst & Young, LLP
Pittsburgh, Pennsylvania
September 28, 1998
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 14,874,753 18,630,657
<SECURITIES> 0 0
<RECEIVABLES> 99,231,120 85,108,383
<ALLOWANCES> 8,246,000 7,012,000
<INVENTORY> 58,897,764 56,008,256
<CURRENT-ASSETS> 194,683,705 168,692,492
<PP&E> 99,331,653 78,382,241
<DEPRECIATION> 50,408,095 36,287,759
<TOTAL-ASSETS> 328,102,130 298,769,375
<CURRENT-LIABILITIES> 57,133,944 58,126,654
<BONDS> 0 0
0 0
0 0
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<SALES> 351,576,443 314,541,736
<TOTAL-REVENUES> 351,576,443 314,541,736
<CGS> 180,650,363 161,283,031
<TOTAL-COSTS> 180,650,363 161,283,031
<OTHER-EXPENSES> 164,386,145 108,479,708
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,188,740 3,173,497
<INCOME-PRETAX> 3,864,486 43,984,246
<INCOME-TAX> 5,689,220 17,559,494
<INCOME-CONTINUING> (1,824,734) 26,424,752
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> (1,824,734) 26,424,752
<EPS-PRIMARY> (0.06) 0.84
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