<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 5, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
RESPIRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3842 25-1304989
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
-------------------
1501 ARDMORE BOULEVARD
PITTSBURGH, PENNSYLVANIA 15221
(412) 731-2100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
DENNIS S. METENY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RESPIRONICS, INC.
1501 ARDMORE BOULEVARD
PITTSBURGH, PENNSYLVANIA 15221
(412) 733-0202
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:
ROBERT K. MORRIS, ESQ. JAMES L. SMITH, III, ESQ. RICHARD J. GROSSMAN, ESQ.
REED SMITH SHAW & MCCLAY TROUTMAN SANDERS LLP SKADDEN, ARPS, SLATE,
LLP 600 PEACHTREE STREET NE, MEAGHER & FLOM LLP
435 SIXTH AVENUE SUITE 5200 919 THIRD AVENUE
PITTSBURGH, PA 15230 ATLANTA, GA 30308 NEW YORK, NY 10022
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE AND ALL OTHER CONDITIONS TO THE MERGER (THE "MERGER") OF RIGA, INC.,
A WHOLLY OWNED SUBSIDIARY OF THE REGISTRANT, WITH AND INTO HEALTHDYNE
TECHNOLOGIES, INC. PURSUANT TO THE MERGER AGREEMENT DESCRIBED IN THE ENCLOSED
JOINT PROXY STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(4).. 14,000,000 18.2186 $255,060,760 $77,291
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The number of shares to be registered is based upon 12,996,727, the
maximum number of shares of common stock, par value $.01 per share,
("Healthdyne Common Stock") of Healthdyne Technologies, Inc.
("Healthdyne") presently outstanding and subject to outstanding stock
options multiplied by the exchange ratio of .9220 shares of the
Registrant's Common Stock for each share of Healthdyne Common Stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended. The
registration fee was calculated pursuant to Rule 457(f) and Rule 457(c)
under the Securities Act of 1933, as amended, based on $19.625, the
average of the high and low sales prices of Healthdyne Common Stock, as
reported by the NASDAQ National Market System on December 30, 1997.
(3) In accordance with Rule 457(b), the total registration fee of $77,291 has
been reduced by $51,851 which was paid on December 12, 1997, at the time
of the filing under the Securities Exchange Act of 1934, as amended, of
preliminary copies of the Registrant's and Healthdyne's proxy materials
included herein. Therefore, the registration fee payable upon filing of
this Registration Statement is $25,440.
(4) Rights to purchase units representing fractional shares of Common Stock of
the Registrant, which are attached to and trade with the shares of the
Registrant's Common Stock, are being registered hereby. Value attributed
to such rights, if any, is reflected in the market price of the
Registrant's Common Stock. Prior to the occurrence of certain events,
these rights will not be exercisable or evidenced separately from the
Common Stock.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
RESPIRONICS, INC.
CROSS-REFERENCE SHEET BETWEEN
ITEMS OF FORM S-4
AND CAPTIONS IN JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<CAPTION>
FORM S-4 ITEM CAPTION(S) OR LOCATION IN
NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------- -----------------------------------------
<S> <C> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Outside Front Cover Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside front cover page of Joint Proxy
Statement/Prospectus; Available
Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Selected Historical Financial
Data; Cautionary Statement Regarding
Forward-Looking Statements; Risk Factors;
Respironics and Healthdyne Unaudited
Summary Pro Forma Combined Selected
Financial Data; Unaudited Comparative Per
Share Net Income, Cash Dividend and Book
Value Data; Unaudited Pro Forma Combined
Condensed Financial Statements; The
Merger; Market Prices of Respironics
Common Stock and Healthdyne Common Stock
4. Terms of the Transaction................. Summary; The Merger; Comparison of
Stockholders' Rights
5. Pro Forma Financial Information.......... Summary; Respironics and Healthdyne
Unaudited Summary Pro Forma Combined
Selected Financial Data; Unaudited
Comparative Per Share Net Income, Cash
Dividend and Book Value Data; Unaudited
Pro Forma Combined Condensed Financial
Statements; Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
6. Material Contacts with the Company Being
Acquired................................. Summary; The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Available Information; Incorporation of
Registrants.............................. Certain Documents by Reference; The
Companies-Respironics
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM CAPTION(S) OR LOCATION IN
NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------- -----------------------------------------
<S> <C> <C>
11. Incorporation of Certain Information Incorporation of Certain Documents by
by Reference............................. Reference
12. Information with Respect to S-2
or S-3 Registrants....................... Not Applicable
13. Incorporation of Certain Information
by Reference............................. Not Applicable
14. Information with Respect to Registrants
Other
than S-2 or S-3 Registrants.............. Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Available Information; Incorporation of
Companies................................ Certain Documents by Reference; The
Companies-Healthdyne
16. Information with Respect to S-2
or S-3 Companies......................... Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies.......... Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Incorporation of Certain Documents by
Reference; Summary; The Respironics
Meeting; The Healthdyne Meeting; The
Merger-Appraisal and Dissenters' Rights;
The Respironics Meeting-Solicitation of
Proxies and Expenses; The Healthdyne
Meeting-Solicitation of Proxies and
Expenses
19. Information if Proxies, Consents or
Authorizations are Not to be Solicited
in an Exchange Offer..................... Not Applicable
</TABLE>
<PAGE>
RESPIRONICS, INC.
1501 ARDMORE BOULEVARD
PITTSBURGH, PENNSYLVANIA 15221
January 7, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders (the
"Respironics Meeting") of Respironics, Inc. ("Respironics") to be held on
February 6, 1998, at Two Mellon Bank Center, in the Auditorium on the Tenth
Floor, at 501 Grant Street, Pittsburgh, Pennsylvania, commencing at 10:00
a.m., local time.
At the Respironics Meeting, you will be asked to consider and vote upon a
proposal to approve the issuance of shares of common stock, par value $0.01
per share, of Respironics ("Respironics Common Stock") pursuant to the
Agreement and Plan of Reorganization and related Agreement and Plan of Merger,
each dated as of November 10, 1997, as amended (collectively, the "Merger
Agreement"), by and among Respironics, Healthdyne Technologies, Inc., a
Georgia corporation ("Healthdyne"), and RIGA, Inc., a Georgia corporation
which is a wholly owned subsidiary of Respironics ("Merger Subsidiary").
Pursuant to the Merger Agreement (i) Merger Subsidiary will merge with and
into Healthdyne (the "Merger"), with Healthdyne becoming a wholly owned
subsidiary of Respironics, and (ii) each outstanding share of common stock,
$0.01 par value, of Healthdyne ("Healthdyne Common Stock") will be converted
into the number of shares of Respironics Common Stock described below.
The number of shares of Respironics Common Stock to be issued for each share
of Healthdyne Common Stock will depend on the weighted average of the closing
prices of the Respironics Common Stock as reported on the NASDAQ National
Market System for a period of 20 consecutive trading days ending on the third
trading day prior to the closing date of the Merger but will not be less than
approximately .7734 shares nor more than approximately .9220 shares of
Respironics Common Stock.
If such weighted average price were equal to the closing price of
Respironics Common Stock on January 6, 1998 of $ per share, a holder of
Healthdyne Common Stock would receive of one share of Respironics Common
Stock for each share of Healthdyne Common Stock. Based on such price, and
based on the capitalization of Respironics and Healthdyne as of December 31,
1997, the approximately shares of Respironics Common Stock to be issued in
the Merger, together with shares of Respironics Common Stock subject to stock
options held by current and former Healthdyne employees, would represent
approximately % of the shares of Respironics Common Stock outstanding or
subject to options immediately following the Merger.
THE RESPIRONICS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ISSUANCE OF
SHARES OF RESPIRONICS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
RESPIRONICS AND THE RESPIRONICS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS A
VOTE FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF THE SHARES OF RESPIRONICS
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
The accompanying Joint Proxy Statement/Prospectus, which you are urged to
read carefully, provides detailed information concerning the proposed Merger
and additional information concerning Respironics and Healthdyne. The complete
text of the Merger Agreement is attached as Appendix I to the Joint Proxy
Statement/Prospectus.
<PAGE>
The required vote of Respironics stockholders for the approval of the
issuance of shares of Respironics Common Stock pursuant to the terms of the
Merger Agreement is a majority of the shares of Respironics Common Stock
present or represented by proxy and entitled to vote at the Respironics
Meeting.
It is important that your shares of Respironics Common Stock be represented
at the Respironics Meeting, regardless of the number of shares you hold.
THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. You may
revoke your proxy at any time prior to its exercise by filing a written notice
of such revocation with the Secretary of Respironics or by signing and
delivering to such Secretary a proxy bearing a later date. In addition, you
may attend the Respironics Meeting and vote your shares in person if you wish,
even though you have previously returned your proxy.
On Behalf of the Board of
Directors,
/s/ Dennis S. Meteny
DENNIS S. METENY
President and Chief Executive
Officer
2
<PAGE>
RESPIRONICS, INC.
1501 ARDMORE BOULEVARD
PITTSBURGH, PENNSYLVANIA 15221
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders:
A Special Meeting of Stockholders of Respironics, Inc. will be held on
Friday, February 6, 1998 at 10:00 a.m., local time, at Two Mellon Bank Center,
in the Auditorium on the Tenth Floor, at 501 Grant Street, Pittsburgh,
Pennsylvania (including any adjournments or postponements thereof, the
"Respironics Meeting"), for the purpose of: (1) voting on a proposal to
approve the issuance of shares of Respironics common stock, par value $0.01
per share, pursuant to an Agreement and Plan of Reorganization and related
Agreement and Plan of Merger, each dated as of November 10, 1997, as amended
(collectively, the "Merger Agreement"), by and among Respironics, Inc.
("Respironics"), Healthdyne Technologies, Inc. ("Healthdyne") and RIGA, Inc.,
a wholly owned subsidiary of Respironics ("Merger Subsidiary"), pursuant to
which Merger Subsidiary would be merged with and into Healthdyne, and
Healthdyne would become a wholly owned subsidiary of Respironics (the
"Merger"); and (2) transacting such other business as may properly come before
the Respironics Meeting.
The Board of Directors has fixed the close of business on Friday, January 2,
1998 as the record date (the "Respironics Record Date") for the determination
of stockholders entitled to notice of and to vote at the Respironics Meeting.
Only stockholders of record at the close of business on the Respironics Record
Date are entitled to notice of and to vote at the Respironics Meeting. A list
of such stockholders will be available for inspection at the offices of
Respironics located at 1501 Ardmore Boulevard, Pittsburgh, Pennsylvania 15221,
at least ten days prior to the Respironics Meeting.
The accompanying Joint Proxy Statement/Prospectus contains more detailed
information with respect to the matters to be considered at the Respironics
Meeting, including, attached as Appendix I, the Merger Agreement.
YOU ARE CORDIALLY INVITED TO ATTEND THE RESPIRONICS MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE RESPIRONICS MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED AS SOON AS POSSIBLE.
By Order of the Board of
Directors,
/s/ Dorita A. Pishko
Dorita A. Pishko
Secretary
January 7, 1998
<PAGE>
HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
January 7, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Healthdyne Meeting") of Healthdyne Technologies, Inc., a Georgia corporation
("Healthdyne"), to be held on February 6, 1998, at 10:00 a.m., local time, at
the offices of Matria Healthcare, 1850 Parkway Place, Suite 320, Marietta,
Georgia 30067.
At the Healthdyne Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Reorganization and
related Agreement and Plan of Merger, each dated as of November 10, 1997, as
amended (collectively, the "Merger Agreement"), by and among Healthdyne,
Respironics, Inc., a Delaware corporation ("Respironics"), and RIGA, Inc., a
Georgia corporation and wholly owned subsidiary of Respironics ("Merger
Subsidiary"), providing for the merger (the "Merger") of Merger Subsidiary
with and into Healthdyne. Under the Merger Agreement, (i) each share of common
stock, par value $0.01 per share, of Healthdyne ("Healthdyne Common Stock")
outstanding immediately prior to the consummation of the Merger, together with
its associated preferred stock purchase right, will be converted into common
stock, par value $0.01 per share, of Respironics ("Respironics Common Stock"),
as more fully described below with cash in lieu of any fractional shares and
(ii) Healthdyne will become a wholly owned subsidiary of Respironics.
The number of shares of Respironics Common Stock to be issued for each share
of Healthdyne Common Stock will be determined by dividing $24.00 by the
weighted average of the closing prices of the Respironics Common Stock as
reported on the NASDAQ National Market System for a period of 20 consecutive
trading days ending on the third trading day prior to the closing date of the
Merger, but will not be less than approximately .7734 shares nor more than
approximately .9220 shares of Respironics Common Stock.
If such weighted average price were equal to the closing price of
Respironics Common Stock on January 6, 1998 of $ per share, a holder of
Healthdyne Common Stock would receive of one share of Respironics Common
Stock for each share of Healthdyne Common Stock. Based on such price, and
based on the capitalization of Respironics and Healthdyne as of December 31,
1997, the approximately shares of Respironics Common Stock to be issued in
the Merger, together with shares of Respironics Common Stock subject to stock
options held by current and former Healthdyne employees, would represent
approximately % of the shares of Respironics Common Stock outstanding or
subject to options immediately following the Merger.
After careful consideration, the Board of Directors of Healthdyne has
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The Board unanimously recommends that you vote for the Merger. We
urge you to review carefully the Joint Proxy Statement/Prospectus and
accompanying appendices, including the discussions therein concerning
Healthdyne's reasons for the Merger and factors which should be carefully
considered in connection with your vote on the Merger.
We hope that you will attend the Healthdyne Meeting. However, whether or not
you plan to attend the Healthdyne Meeting, it is important that your shares
are represented at the Healthdyne Meeting. Please complete, sign and date the
enclosed proxy and promptly return it in the enclosed prepaid envelope. If you
are present at the Healthdyne Meeting you may, of course, vote in person.
Very truly yours,
PARKER H. PETIT
Chairman of the Board
<PAGE>
HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 6, 1998
----------------
To the Shareholders of
Healthdyne Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Healthdyne Meeting") of Healthdyne Technologies, Inc., a Georgia corporation
("Healthdyne"), will be held at the offices of Matria Healthcare, 1850 Parkway
Place, Suite 320, Marietta, Georgia 30067 at 10:00 a.m., local time, on
February 6, 1998, to consider and act upon:
1. A proposal (the "Healthdyne Merger Proposal") to approve and adopt the
Agreement and Plan of Reorganization and related Agreement and Plan of
Merger, each dated as of November 10, 1997, as amended (collectively,
the "Merger Agreement"), by and among Healthdyne, Respironics, Inc., a
Delaware corporation ("Respironics"), and RIGA, Inc., a Georgia
corporation and wholly owned subsidiary of Respironics ("Merger
Subsidiary"), providing for the merger (the "Merger") of Merger
Subsidiary with and into Healthdyne. Under the Merger Agreement, (i)
each share of common stock, par value $0.01 per share, of Healthdyne
("Healthdyne Common Stock") outstanding immediately prior to the
consummation of the Merger will be converted into a number of shares of
common stock, par value $0.01 per share, of Respironics ("Respironics
Common Stock"), determined by dividing $24.00 by the weighted average of
the closing prices of the Respironics Common Stock as reported on the
NASDAQ National Market System for a period of 20 consecutive trading
days ending on the third trading day prior to the closing date of the
Merger, but not more than approximately .9220 shares nor less than
approximately .7734 shares, with cash in lieu of any fractional shares
and (ii) Healthdyne will become a wholly owned subsidiary of
Respironics.
2. Such other business as properly may come before the Healthdyne Meeting
or any adjournment or postponement thereof.
The Merger and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus and Appendices thereto, which
form a part of this Notice.
The Board of Directors of Healthdyne has fixed the close of business on
January 2, 1998 as the record date (the "Healthdyne Record Date") for the
determination of shareholders entitled to notice of and to vote at the
Healthdyne Meeting or any adjournment or postponement thereof. Only
shareholders of record at the close of business on the Healthdyne Record Date
are entitled to notice of and to vote at the Healthdyne Meeting and any
adjournments or postponements thereof. A list of such shareholders will be
available for inspection at the Healthdyne Meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF HEALTHDYNE HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER. WE
URGE YOU TO REVIEW CAREFULLY THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS
WHICH INCLUDES DISCUSSIONS OF HEALTHDYNE'S REASONS FOR THE MERGER AND FACTORS
WHICH SHOULD BE CAREFULLY CONSIDERED IN CONNECTION WITH YOUR VOTE ON THE
MERGER.
<PAGE>
Whether or not you plan to attend the Healthdyne Meeting, please execute and
return promptly the enclosed form of proxy. A return envelope is enclosed for
your convenience and requires no postage for mailing in the United States.
By Order of the Board of Directors,
Leslie R. Jones
Secretary
January 7, 1998
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
2
<PAGE>
JOINT PROXY STATEMENT
[LOGO of Respironics Inc.] [LOGO of Healthdyne Technologies, Inc.]
RESPIRONICS, INC.
AND
HEALTHDYNE TECHNOLOGIES, INC.
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 6, 1998
PROSPECTUS
RESPIRONICS, INC.
UP TO SHARES
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
This Joint Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $0.01 per share ("Respironics Common Stock"), of Respironics,
Inc., a Delaware corporation ("Respironics"), in connection with the
solicitation of proxies by the Board of Directors of Respironics (the
"Respironics Board") for use at a Special Meeting of Stockholders of
Respironics to be held at 10:00 a.m., local time, on Friday, February 6, 1998
at Two Mellon Bank Center, in the Auditorium on the Tenth Floor, at 501 Grant
Street, Pittsburgh, Pennsylvania, and at any adjournments or postponements
thereof (the "Respironics Meeting"). This Joint Proxy Statement/Prospectus is
also being furnished to holders of common stock, par value $0.01 per share
("Healthdyne Common Stock"), of Healthdyne Technologies, Inc., a Georgia
corporation ("Healthdyne"), in connection with the solicitation of proxies by
the Board of Directors of Healthdyne (the "Healthdyne Board") for use at a
Special Meeting of Shareholders of Healthdyne to be held at 10:00 a.m., local
time, on Friday, February 6, 1998 at the offices of Matria Healthcare, 1850
Parkway Place, Suite 320, Marietta, Georgia 30067, and at any adjournments or
postponements thereof (the "Healthdyne Meeting"). At the Respironics Meeting,
the holders of Respironics Common Stock will consider and vote upon a proposal
to approve the issuance of shares of Respironics Common Stock (the "Merger
Shares") pursuant to an Agreement and Plan of Reorganization and related
Agreement and Plan of Merger, each dated as of November 10, 1997, as amended
(collectively the "Merger Agreement"), by and among Respironics, Healthdyne,
and RIGA, Inc., a wholly owned subsidiary of Respironics ("Merger Subsidiary"),
pursuant to which, among other things, Merger Subsidiary will merge with and
into Healthdyne and Healthdyne will become a wholly owned subsidiary of
Respironics (the "Merger"). At the Healthdyne Meeting, the holders of
Healthdyne Common Stock will consider and vote upon a proposal to approve and
adopt the Merger Agreement.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Respironics with respect to the Merger Shares. Unless otherwise required by the
context, all references herein to shares of Respironics Common Stock, including
the Merger Shares, shall include the Respironics Rights described under
"Comparison of Stockholders' Rights--Rights Agreements--The Respironics Rights
Plan" and all references herein to shares of Healthdyne Common Stock shall
include the Healthdyne Rights described under "Comparison of Stockholders'
Rights--Rights Agreements--The Healthdyne Rights Plan."
The outstanding shares of Respironics Common Stock are, and the Merger Shares
offered hereby will be, approved for quotation on the National Association of
Securities Dealers ("NASD") National Market System ("NASDAQ NMS"). The last
reported sale price of Respironics Common Stock reported on the NASDAQ NMS on
January 6, 1998 was $ per share.
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to stockholders of Respironics and Healthdyne on or about
January 7, 1998.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Joint Proxy Statement/Prospectus is January 7, 1998.
<PAGE>
AVAILABLE INFORMATION
Each of Respironics and Healthdyne is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder, and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Respironics has filed
with the SEC a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder, covering the
Merger Shares. The Registration Statement and the exhibits thereto, as well as
the reports, proxy statements and other information filed with the SEC by each
of Respironics and Healthdyne under the Exchange Act, may be inspected and
copied at prescribed rates at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the SEC located at 7 World Trade
Center, Thirteenth Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Such material may
also be accessed electronically by means of the SEC's home page on the
Internet at http://www.sec.gov. The Respironics Common Stock and Healthdyne
Common Stock are quoted on the NASDAQ NMS and all materials filed by
Respironics and Healthdyne should also be available for inspection at the
offices of NASD Operations, 1735 K Street, N.W., Washington, D.C.
Statements contained herein or in any document incorporated herein by
reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document incorporated
herein by reference. Each such statement is qualified in its entirety by such
reference. Capitalized terms used and not defined in this Joint Proxy
Statement/Prospectus have the respective meanings ascribed to such terms in
the Merger Agreement.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS) ARE
AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED, IN
THE CASE OF RESPIRONICS DOCUMENTS, TO RESPIRONICS, INC., 1501 ARDMORE
BOULEVARD, PITTSBURGH, PENNSYLVANIA 15221, ATTENTION: DORITA A. PISHKO,
SECRETARY, TELEPHONE: (412) 733-0209, AND, IN THE CASE OF HEALTHDYNE
DOCUMENTS, TO HEALTHDYNE TECHNOLOGIES, INC., 1255 KENNESTONE CIRCLE, MARIETTA,
GEORGIA 30066, ATTENTION: LESLIE R. JONES, SECRETARY, TELEPHONE: (770) 499-
1212. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE RESPIRONICS MEETING OR
HEALTHDYNE MEETING, RESPECTIVELY.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, all of which were previously filed with the SEC by
Respironics pursuant to the Exchange Act, are hereby incorporated by reference
in this Joint Proxy Statement/Prospectus.
(1) Respironics' Annual Report on Form 10-K for the year ended June 30,
1997;
(2) Respironics' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997;
(3) Respironics' Current Reports on Form 8-K dated May 19, 1997 and
September 2, 1997;
(4) Respironics' Proxy Statement dated October 17, 1997 relating to
Respironics' November 19, 1997 Annual Meeting of Stockholders;
(5) The description of the Respironics Common Stock contained in the
Registration Statement on Form 8-A filed by Respironics with the SEC, File No.
000-16723, including any amendments or reports filed for the purpose of
updating such description; and
<PAGE>
(6) The description of the Respironics Rights Plan contained in the
Registration Statement on Form 8-A filed by Respironics with the SEC, File No.
000-16723, including any amendments or reports filed for the purpose of
updating such description.
The following documents, all of which were previously filed with the SEC by
Healthdyne pursuant to the Exchange Act, are hereby incorporated by reference
in this Joint Proxy Statement/Prospectus.
(1) Healthdyne's Annual Report on Form 10-K, as amended, for the year ended
December 31, 1996, as amended by Form 10K-A dated April 29, 1997;
(2) Healthdyne's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997, and September 30, 1997; and
(3) Healthdyne's Current Reports on Form 8-K dated January 24, 1997,
February 3, 1997, July 22, 1997, October 31, 1997, and November 10, 1997.
The information relating to Respironics and Healthdyne contained in the
Joint Proxy Statement/Prospectus does not purport to be comprehensive and
should be read together with the information in the documents incorporated by
reference herein.
All documents filed by Respironics and Healthdyne, respectively, under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Respironics
Meeting and the Healthdyne Meeting shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be a part hereof
from the date of filing such documents. Any statement contained herein or in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which is also incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY RESPIRONICS OR HEALTHDYNE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF RESPIRONICS OR HEALTHDYNE OR ANY OF THEIR RESPECTIVE SUBSIDIARIES
SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
Information in this Joint Proxy Statement/Prospectus regarding Respironics
and its subsidiaries has been prepared and/or supplied by Respironics and
information regarding Healthdyne and its subsidiaries has been prepared and/or
supplied by Healthdyne.
<PAGE>
RESPIRONICS, INC.
AND
HEALTHDYNE TECHNOLOGIES, INC.
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
Introduction............................................................ 1
The Companies........................................................... 1
Respironics........................................................... 1
Healthdyne............................................................ 1
Background of and Reasons for the Merger................................ 2
Background of the Merger.............................................. 2
Reasons for the Merger; Respironics................................... 2
Reasons for the Merger; Healthdyne.................................... 2
Recommendations of the Boards of Directors.............................. 3
Respironics........................................................... 3
Healthdyne............................................................ 3
Opinions of Financial Advisors.......................................... 3
Respironics........................................................... 3
Healthdyne............................................................ 3
Interests of Certain Persons in the Merger.............................. 4
Terms of the Merger..................................................... 4
General............................................................... 4
Conversion of Healthdyne Common Stock................................. 4
Conditions to the Merger.............................................. 5
No Solicitations...................................................... 5
Termination........................................................... 5
Waiver and Amendment.................................................. 6
Regulatory Approvals.................................................. 6
Nominees to Respironics Board......................................... 6
Transition Team....................................................... 6
Certain Federal Income Tax Consequences of the Merger................... 7
Accounting Treatment of the Merger...................................... 7
Appraisal Rights and Dissenters' Rights................................. 7
Comparison of Stockholders Rights....................................... 7
Risk Factors............................................................ 8
The Respironics Meeting and the Healthdyne Meeting...................... 8
MARKET PRICES OF RESPIRONICS COMMON STOCK AND
HEALTHDYNE COMMON STOCK.................................................. 10
SELECTED HISTORICAL FINANCIAL DATA........................................ 11
RESPIRONICS AND HEALTHDYNE UNAUDITED SUMMARY PRO FORMA COMBINED SELECTED
FINANCIAL DATA........................................................... 13
UNAUDITED COMPARATIVE PER SHARE NET INCOME, CASH DIVIDEND AND BOOK VALUE
DATA..................................................................... 14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................. 15
RISK FACTORS.............................................................. 15
Risks Related to the Merger............................................. 15
Uncertainties Associated with the Integration of Businesses........... 15
Substantial Dilution of Ownership Interest of Current Respironics
Stockholders......................................................... 15
Dilution to Historical Earnings and Historical Book Value Caused by
Merger............................................................... 16
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shares Eligible for Future Sale; Possible Volatility of Stock Prices.. 16
Uncertainty Concerning Number and Value of Respironics Shares to be
Issued in the Merger................................................. 16
Certain Anti-Takeover Provisions...................................... 17
Dependence on Key Personnel........................................... 17
Risks Related to the Combined Businesses................................ 17
Pricing Pressure/Health Care Reform................................... 17
Dependence on Third Parties........................................... 17
Uncertain Impact of Growth of Managed Care Organizations.............. 18
Cost and Uncertainty of Regulatory Compliance......................... 18
Uncertainty Related to Patents and Proprietary Rights................. 18
Intense Competition; Rapid Technological and Market Changes........... 18
Dependence on New Product Development................................. 19
Product Liability Exposure............................................ 19
Impact of Currency Fluctuations; Importance of Foreign Sales and
Operations........................................................... 19
INTRODUCTION.............................................................. 19
THE RESPIRONICS MEETING................................................... 19
Date, Time and Place.................................................... 19
Purpose................................................................. 20
Record Date and Outstanding Shares...................................... 20
Quorum; Vote Required................................................... 20
Solicitation of Proxies and Expenses.................................... 20
THE HEALTHDYNE MEETING.................................................... 21
Date, Time and Place.................................................... 21
Purpose................................................................. 21
Record Date and Outstanding Shares...................................... 21
Quorum; Vote Required................................................... 21
Solicitation of Proxies and Expenses.................................... 22
THE COMPANIES............................................................. 23
Respironics............................................................. 23
Healthdyne.............................................................. 23
THE MERGER................................................................ 24
General................................................................. 24
Background of and Reasons for the Merger................................ 24
Background of the Merger.............................................. 24
Reasons for the Merger--Respironics; Recommendation of the Respironics
Board................................................................ 28
Opinion of Respironics Financial Advisor.............................. 29
Analysis of Selected Public Companies................................. 30
Analysis of Recent Mergers and Acquisitions........................... 30
Discounted Cash Flow Analysis......................................... 31
Premiums Paid Analysis................................................ 31
Historical Exchange Ratio Analysis.................................... 31
Contribution Analysis................................................. 31
Pro Forma Merger Analysis............................................. 32
Other Analyses........................................................ 32
Reasons for the Merger--Healthdyne; Recommendation of the Healthdyne
Board................................................................ 33
Opinion of Healthdyne Financial Advisor............................... 35
Analysis of Certain Mergers........................................... 36
Analysis of Certain Publicly Traded Companies......................... 37
Pro Forma Earnings Analysis........................................... 38
Contribution Analysis................................................. 38
Pro Forma Ownership Analysis of the Combined Company.................. 38
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Stock Trading History................................................. 38
Premiums Paid Analysis................................................ 38
Interests of Certain Persons in the Merger.............................. 39
New Employment Agreements............................................. 39
Non-Competition Agreements............................................ 40
Consulting Agreements................................................. 41
Retirement Benefits................................................... 41
Insurance Agreements.................................................. 42
Stock Option Plans.................................................... 42
Certain Employee Benefits............................................. 43
Indemnification and Insurance......................................... 43
Board of Directors.................................................... 43
Voting Agreements..................................................... 44
Conversion of Healthdyne Common Stock; Effect on Respironics
Stockholders........................................................... 44
Conversion of Healthdyne Common Stock................................. 44
Effect on Respironics Stockholders.................................... 44
No Fractional Shares of Respironics Common Stock to be Issued......... 44
Procedure for Exchange of Certificates.................................. 45
Manner of Exchange.................................................... 45
Lost, Stolen or Destroyed Certificates................................ 45
Conduct of Healthdyne's Business Pending the Merger..................... 45
Conduct of Respironics' Business Pending the Merger..................... 46
Transition Team......................................................... 46
No Solicitations........................................................ 46
Healthdyne Acquisition Proposal....................................... 46
Respironics Acquisition Proposal...................................... 47
Best Efforts to Consummate the Merger................................... 48
Conditions to the Merger................................................ 48
Regulatory Approvals.................................................... 50
Effects of the Merger on Healthdyne Employee Benefits................... 50
Healthdyne Stock Options.............................................. 50
Termination of the Merger Agreement..................................... 51
Termination........................................................... 51
Termination Fee....................................................... 52
Waiver and Amendment.................................................... 54
Quotation of Respironics Common Stock on NASDAQ NMS..................... 54
Certain Federal Income Tax Consequences of the Merger................... 54
Backup Withholding.................................................... 55
Accounting Treatment of the Merger...................................... 56
Resales by Affiliates of Respironics Common Stock Received in the
Merger................................................................. 56
Appraisal and Dissenters' Rights........................................ 56
Respironics Stockholders.............................................. 56
Healthdyne Shareholders............................................... 56
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 57
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 65
Changes in Control and Business Combinations............................ 65
Certain Voting Requirements............................................. 66
Rights Agreements....................................................... 68
The Respironics Rights Plan........................................... 68
The Healthdyne Rights Plan............................................ 69
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Number and Election of Directors....................................... 71
Liability of Directors................................................. 71
Indemnification of Directors and Officers.............................. 72
Amendment of Certificate or Articles of Incorporation and By-Laws...... 72
Dividends.............................................................. 73
Special Meetings....................................................... 73
Action by Shareholders or Stockholders Without Meeting................. 73
Advance Notice for Nomination of Directors and Stockholder Proposals... 74
Shareholder or Stockholder Inspection Rights........................... 74
Dissenters' or Appraisal Rights........................................ 74
Preemptive Rights...................................................... 75
DESCRIPTION OF CAPITAL STOCK............................................. 75
LEGAL OPINIONS........................................................... 75
EXPERTS.................................................................. 75
STOCKHOLDER PROPOSALS.................................................... 76
OTHER MATTERS............................................................ 76
APPENDICES
Appendix I--Agreement and Plan of Reorganization and related Agreement
and Plan of Merger, each Dated as of November 10, 1997, as amended
Appendix II--Opinion of Respironics Financial Advisor
Appendix III--Opinion of Healthdyne Financial Advisor
</TABLE>
-iv-
<PAGE>
SUMMARY
The following discussion is intended to summarize certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is
not intended to be complete and is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the appendices hereto and the documents referred to and
incorporated by reference herein. Certain capitalized terms used in this
summary and not defined herein have the meanings ascribed to them elsewhere in
this Joint Proxy Statement/Prospectus.
INTRODUCTION
The Respironics Board has unanimously approved the issuance of the Merger
Shares pursuant to the Merger Agreement, and the Healthdyne Board has
unanimously adopted and approved the Merger Agreement, pursuant to which Merger
Subsidiary will be merged with and into Healthdyne if the requisite stockholder
approvals are obtained, certain regulatory approvals are received and certain
other conditions are satisfied. Healthdyne will be the surviving corporation in
the Merger with Merger Subsidiary and will be a wholly owned subsidiary of
Respironics. As a result of the Merger, each share of Healthdyne Common Stock
issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive between approximately .7734 and .9220
shares of Respironics Common Stock (depending on the Transaction Share Price
specified in the Merger Agreement). If the Transaction Share Price is greater
than or equal to $26.03 and less than or equal to $31.03, each issued and
outstanding share of Healthdyne Common Stock will be converted into a number of
shares of Respironics Common Stock having a value equal to $24.00 divided by
the Transaction Share Price. If the Transaction Share Price is less than
$26.03, each issued and outstanding share of Healthdyne Common Stock will be
converted into approximately .9220 shares of Respironics Common Stock. If the
Transaction Share Price is greater than $31.03, each issued and outstanding
share of Healthdyne Common Stock will be converted into approximately .7734
shares of Respironics Common Stock. Holders in any case will receive cash in
lieu of fractional shares of Respironics Common Stock. The Transaction Share
Price is the weighted average of the closing prices of the Respironics Common
Stock as reported by the NASDAQ NMS for the 20 consecutive trading day period
ending on the third trading day prior to the Closing Date.
THE COMPANIES
Respironics. Respironics is a leading developer, manufacturer and marketer of
medical devices used for the treatment of patients suffering from respiratory
disorders. Respironics' products are technologically advanced, are designed to
improve the effectiveness of patient care and are used primarily in the home
and hospitals, as well as in emergency medical settings and alternative care
facilities. Respironics' principal products include: (i) continuous positive
airway pressure devices and bi-level positive airway pressure devices for the
treatment of obstructive sleep apnea; (ii) ventilation devices, including bi-
level non-invasive ventilatory support units and portable invasive volume
ventilator units; and (iii) patient mask products and related accessories. Over
90% of Respironics' sales are made to the home care market. Respironics markets
its products through a sales organization consisting of approximately 100
direct and independent sales representatives, who sell to a network of over
2,500 medical product dealers and to hospitals. In certain foreign countries,
Respironics' products are sold directly to end users. See "The Companies--
Respironics." The mailing address of Respironics' principal executive offices
is 1501 Ardmore Boulevard, Pittsburgh, Pennsylvania 15221, and its telephone
number is (412) 731-2100.
Healthdyne. Healthdyne is a leading designer, manufacturer and marketer of
technologically advanced medical devices for use in the home and hospital as
well as for specialized clinical settings such as subacute facilities, neonatal
intensive care units, sleep laboratories, clinics and physician offices
("Alternate Care Sites"). Healthdyne's principal products include diagnostic
and therapeutic devices for the evaluation and treatment of sleep disorders,
such as obstructive sleep apnea; non-invasive ventilators, oxygen delivery
systems, asthma
1
<PAGE>
management devices such as peak flow meters, drug delivery systems and
medication nebulizers for the treatment of respiratory disorders; monitoring
devices for newborns and infants at risk for critical disorders such as Sudden
Infant Death Syndrome ("SIDS"); and fiberoptic phototherapy devices for the
treatment of neonatal jaundice. Healthdyne is a significant global competitor
in the rapidly growing business of diagnosing and treating sleep disorders, is
one of the leaders in the United States in respiratory care devices, including
asthma management, and is also the leading supplier of home monitoring devices
for infants at risk for SIDS. Healthdyne is also engaged in the development and
manufacture of several additional product lines complementary to its focus on
home care and Alternate Care Sites, including fetal monitoring during labor and
delivery and non-invasive detection of bilirubin. Healthdyne's principal
offices are located at 1255 Kennestone Circle, Marietta, Georgia 30066, and its
telephone number is (770) 499-1212. See "The Companies--Healthdyne."
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. On January 27, 1997, Invacare Corporation
("Invacare") commenced an unsolicited tender offer to purchase any and all
outstanding shares of Healthdyne Common Stock at $13.00 per share, which was
subsequently increased to $13.50 per share and then $15.00 per share. Although
Invacare solicited proxies for the purpose of electing Invacare's nominees at
Healthdyne's July 30, 1997 annual meeting, all of Healthdyne's nominees were
re-elected to the Healthdyne Board. On August 1, 1997, Invacare terminated its
tender offer.
Following Healthdyne's 1997 annual meeting, the Healthdyne Board determined
that it would be advisable to establish a process to seek proposals from third
parties for a strategic business combination which would provide value to
Healthdyne's shareholders. As a result, Respironics made a proposal to acquire
the shares of Healthdyne Common Stock for $20.00 per share, which it
subsequently increased to $24.00 per share, payable in Respironics Common
Stock, subject to a customary "collar." Upon completion of due diligence by
both companies and negotiation of a definitive Merger Agreement, the Healthdyne
Board and the Respironics Board unanimously approved the proposed Merger
Agreement and authorized the execution and delivery of the Merger Agreement and
related documents. For further information and details concerning the
background of the proposed Merger, see "The Merger--Background of and Reasons
for the Merger--Background of the Merger."
Reasons for the Merger--Respironics. The Respironics Board has determined
that the Merger will further Respironics' mission to be first and best in
anticipating and solving problems in the cardiopulmonary market place and will
further its corporate strategies of strengthening customer partnerships,
expanding geographic markets, and improving its innovative capabilities. In
addition, the Merger will enable Respironics to better meet the needs of its
home care and hospital customers, strengthen global product development,
manufacturing and distribution capabilities and broaden its product lines. The
recommendation of the Respironics Board to approve the issuance of the Merger
Shares pursuant to the Merger Agreement is based upon a number of factors,
including, but not limited to, the following: its knowledge of the business,
operations, properties, assets, financial condition, operating results and
prospects of Respironics and Healthdyne; current industry, economic and market
conditions; presentations by Respironics management with respect to
Respironics, Healthdyne and the Merger; the financial presentation and opinion
of BT Alex. Brown Incorporated ("BT Alex. Brown"), financial advisor to
Respironics in connection with the Merger, to the effect that, as of the date
of such opinion and based upon and subject to certain matters stated therein,
the Exchange Ratio was fair, from a financial point of view, to Respironics;
the terms of the Merger Agreement and the nature and amount of the termination
fees that may be payable under certain circumstances; the accounting and tax
treatment of the Merger; and the opportunity for Respironics stockholders to
participate in a larger and more diverse company. For a further description of
the factors and information considered by the Respironics Board and the reasons
for the Merger, see "The Merger--Background of and Reasons for the Merger--
Respironics; Recommendation of the Respironics Board."
Reasons for the Merger--Healthdyne. At a meeting held on November 10, 1997,
the Healthdyne Board unanimously approved the Merger Agreement, the Merger and
the transactions contemplated thereby. The
2
<PAGE>
recommendation of the Healthdyne Board to approve the Merger Agreement, the
Merger and the transactions contemplated thereby is based upon a number of
factors, including, but not limited to, the following: the business and
financial condition of, and prospects for, Healthdyne and Respironics; the fact
that Cowen & Company ("Cowen"), Healthdyne's financial advisor, implemented
procedures to solicit proposals from third parties to merge with or acquire
Healthdyne, and that discussions had been conducted with likely interested
parties in the context of a process intended to maximize shareholder value
through the solicitation of proposals from third parties; the financial
presentation and opinion from Cowen to the effect that the financial terms of
the transaction contemplated by the Merger Agreement are fair, from a financial
point of view, to the Healthdyne shareholders; the fact that Healthdyne's
shareholders would have the opportunity to participate in the potential
appreciation of the Respironics Common Stock following the Merger; the
excellent strategic fit between the two companies in view of their respective
product lines, markets and distribution channels and the potential synergies
that could be realized as a result of the Merger; the composition of the Board
of Directors and management team of Respironics following the Merger; and the
terms and conditions of the Merger Agreement. For a further description of the
factors and information considered by the Healthdyne Board and the reasons for
the Merger, see "The Merger--Background of and Reasons for the Merger--Reasons
for the Merger; Recommendation of the Healthdyne Board."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Respironics. THE RESPIRONICS BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE OF
SHARES OF RESPIRONICS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
RESPIRONICS AND THE RESPIRONICS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS A VOTE
FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF THE MERGER SHARES PURSUANT TO THE
MERGER AGREEMENT. For a discussion of the factors considered by the Respironics
Board in reaching its decision, see "The Merger--Background of and Reasons for
the Merger--Reasons for the Merger--Respironics; Recommendation of the
Respironics Board."
Healthdyne. THE HEALTHDYNE BOARD HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, HEALTHDYNE AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT HEALTHDYNE'S SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY. For a discussion of the factors considered by the
Healthdyne Board in reaching its decision, see "The Merger--Background of and
Reasons for the Merger--Reasons for the Merger--Healthdyne; Recommendation of
the Healthdyne Board."
OPINIONS OF FINANCIAL ADVISORS
Respironics. BT Alex. Brown, financial advisor to Respironics in connection
with the Merger, has delivered to the Respironics Board a written opinion dated
November 10, 1997 to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Exchange Ratio was
fair, from a financial point of view, to Respironics. The full text of the
written opinion of BT Alex. Brown dated November 10, 1997, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Appendix II to this Joint Proxy Statement/Prospectus and should
be read carefully in its entirety. THE OPINION OF BT ALEX. BROWN IS DIRECTED TO
THE RESPIRONICS BOARD, ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW TO RESPIRONICS, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
RESPIRONICS MEETING. See "The Merger--Background of and Reasons for the
Merger--Opinion of Respironics Financial Advisor."
3
<PAGE>
Healthdyne. In deciding to approve the Merger, the Healthdyne Board
considered, among other things, the opinion of Cowen, who acted as financial
advisor to Healthdyne in connection with its consideration of the Merger
Agreement, the Merger and the other transactions contemplated thereby. On
November 10, 1997, Cowen delivered its opinion to the Healthdyne Board to the
effect that the financial terms of the transactions contemplated by the Merger
Agreement are fair, from a financial point of view, to the Healthdyne
shareholders. The full text of the written opinion of Cowen, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Appendix III
and is incorporated herein by reference. HOLDERS OF HEALTHDYNE COMMON STOCK ARE
URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. THE OPINION OF COWEN
IS DIRECTED TO THE HEALTHDYNE BOARD, ADDRESSES ONLY THE FAIRNESS OF THE MERGER
FROM A FINANCIAL POINT OF VIEW TO HEALTHDYNE'S SHAREHOLDERS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE HEALTHDYNE MEETING. See "The Merger--Background of and
Reasons for the Merger--Opinion of Healthdyne Financial Advisor" for a further
description of Cowen's opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Healthdyne Board with respect to the
approval by the Healthdyne shareholders of the proposal to adopt the Merger
Agreement and the transactions contemplated thereby, shareholders should be
aware that certain members of Healthdyne's management and the Healthdyne Board
have certain interests in the Merger that are in addition to the interests of
shareholders of Healthdyne generally. These interests arise from, among other
things, certain employee benefit plans, indemnification and insurance
arrangements and employment agreements among Respironics, Healthdyne and
directors and certain executive officers of Healthdyne. In addition, three
members of the Healthdyne Board will become members of the Respironics Board
after the Merger and four members of the Healthdyne Board will continue to be
members of the Healthdyne Board after the Merger. See "The Merger--Interests of
Certain Persons in the Merger" and "--Effects of the Merger on Healthdyne
Employee Benefits."
TERMS OF THE MERGER
General. Pursuant to the Merger Agreement, at the Effective Time, Merger
Subsidiary, a wholly owned subsidiary of Respironics, will be merged with and
into Healthdyne, and Healthdyne will become a wholly owned subsidiary of
Respironics. See "The Merger--General."
Conversion of Healthdyne Common Stock. At the Effective Time, if the
Transaction Share Price specified in the Merger Agreement is greater than or
equal to $26.03 and less than or equal to $31.03, each issued and outstanding
share of Healthdyne Common Stock will be converted into a number of shares of
Respironics Common Stock having a value equal to $24.00 divided by the
Transaction Share Price. If the Transaction Share Price is less than $26.03,
each issued and outstanding share of Healthdyne Common Stock will be converted
into approximately .9220 shares of Respironics Common Stock. If the Transaction
Share Price is greater than $31.03, each issued and outstanding share of
Healthdyne Common Stock will be converted into approximately .7734 shares of
Respironics Common Stock. Holders of Healthdyne Common Stock in any case will
receive cash in lieu of fractional shares of Respironics Common Stock. The
Transaction Share Price is the weighted average of the closing prices of the
Respironics Common Stock as reported by the NASDAQ NMS for the 20 consecutive
trading day period ending on the third trading day prior to the Closing Date of
the Merger. Each share of Respironics Common Stock issued and outstanding at
the Effective Time will continue as one share of Respironics Common Stock. See
"The Merger--Conversion of Healthdyne Common Stock; Effect on Respironics
Stockholders," and "Comparison of Stockholders' Rights."
4
<PAGE>
Conditions to the Merger. Consummation of the Merger is conditioned upon the
satisfaction of certain conditions specified in the Merger Agreement,
including, among others, (i) approval of the issuance of the Merger Shares
pursuant to the Merger Agreement by the requisite vote of holders of shares of
Respironics Common Stock and approval and adoption of the Merger Agreement by
the requisite vote of holders of shares of Healthdyne Common Stock; (ii) the
expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
which has occurred, and receipt of all other necessary approvals for the Merger
by governmental regulatory agencies, without, in each case, imposition of
conditions which Respironics in its reasonable business judgment considers to
be materially adverse to the best interests of the combined entities; (iii)
receipt by each of Respironics and Healthdyne of a favorable tax opinion from
their legal counsel; and (iv) receipt by Respironics of a letter from Ernst &
Young LLP, Respironics' independent auditors, to the effect that the Merger
qualifies for pooling of interests accounting treatment, and receipt by
Healthdyne of a letter from KPMG Peat Marwick LLP, Healthdyne's independent
auditors, to the effect that Healthdyne is eligible for pooling of interests
accounting treatment.
No Solicitations. Under the Merger Agreement, unless the Healthdyne Board
determines on the basis of advice from outside counsel that certain actions are
necessary in order for the Healthdyne Board to act in a manner consistent with
its fiduciary obligation under applicable law, neither Healthdyne nor any of
its officers, directors, employees, agents or representatives may initiate,
solicit or encourage, directly or indirectly, any inquiries or the making of
any proposal or offer with respect to a merger, consolidation or similar
transaction involving, or any purchase of any substantial portion of the equity
securities or assets of, Healthdyne or any subsidiary of Healthdyne. See "The
Merger--No Solicitations."
Under the Merger Agreement, unless the Respironics Board determines on the
basis of advice from outside counsel that certain actions are necessary in
order for the Respironics Board to act in a manner consistent with its
fiduciary obligation under applicable law, neither Respironics nor any of its
officers, directors, employees, agents or representatives may initiate, solicit
or encourage, directly or indirectly, any inquiries or the making of any
proposal or offer with respect to a merger, consolidation or similar
transaction involving, or any purchase of any substantial portion of the equity
securities or assets of, Respironics or any subsidiary of Respironics. See "The
Merger--No Solicitations."
Termination. The Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time, whether before or after the approval of
the issuance of the Merger Shares pursuant to the Merger Agreement by the
stockholders of Respironics and the approval and adoption of the Merger
Agreement by shareholders of Healthdyne, (i) by mutual agreement of Respironics
and Healthdyne or by either of them in the event of a material breach by the
other party, the failure of stockholders of Respironics to approve the issuance
of the Merger Shares pursuant to the Merger Agreement or the failure of
shareholders of Healthdyne to approve the Merger, the denial of a required
regulatory approval, the failure to satisfy conditions to the Merger by May 10,
1998, or if the weighted average closing price of Respironics Common Stock as
reported by the NASDAQ NMS for the 20 consecutive trading day period ending on
the third trading day prior to the Closing Date, or the third trading day after
stockholder approval and regulatory clearance or expiration of regulatory
waiting periods, is less than $20.00 per share; (ii) by Healthdyne if the
Healthdyne Board approves certain business combinations or acquisitions based
on advice of outside counsel that such action is necessary in order to act in a
manner consistent with its fiduciary duty, or if Healthdyne delivers its
statement of intention to terminate after receiving notice by Respironics that
Respironics intends to enter into a merger, consolidation or share exchange
agreement; or (iii) by Respironics if the Respironics Board approves certain
business combinations or acquisitions based on advice of outside counsel that
such action is necessary in order to act in a manner consistent with its
fiduciary duty.
Pursuant to the Merger Agreement, under certain circumstances after
termination of the Merger Agreement, Healthdyne would be required to pay
Respironics a fee of $12,000,000 upon the entering into by Healthdyne or any of
its significant subsidiaries of certain types of agreements with other parties
relating to business
5
<PAGE>
combinations or the acquisition of all or substantially all of its assets or
35% or more of its outstanding Common Stock or the approval by the Healthdyne
Board of any such agreement or the withdrawal or modification of the Healthdyne
Board's recommendation that Healthdyne shareholders approve the Merger
Agreement. Pursuant to the Merger Agreement, under certain circumstances after
termination of the Merger Agreement, Respironics would be required to pay
Healthdyne a fee of $12,000,000 upon the entering into by Respironics or any of
its significant subsidiaries of certain types of agreements with other parties
relating to business combinations or the acquisition of all or substantially
all of its assets or 35% or more of its outstanding Common Stock or the
approval by the Respironics Board of any such agreement or the withdrawal or
modification of the Respironics Board's recommendation that Respironics
stockholders approve the issuance of the Merger Shares pursuant to the Merger
Agreement. See "The Merger--Termination of the Merger Agreement."
Waiver and Amendment. Notwithstanding prior stockholder approval, the Merger
Agreement may generally be amended in any respect other than the ratio for
converting Healthdyne Common Stock into Respironics Common Stock. Either party
may extend the time for performance of any of the obligations of the other
party, waive any inaccuracies in the representations and warranties of the
other party, waive compliance by the other party with any of its covenants or
agreements contained in the Merger Agreement, and waive the fulfillment of any
conditions to its obligations with certain exceptions.
Regulatory Approvals. Consummation of the Merger is conditioned upon the
receipt of all necessary approvals by government agencies without imposition of
conditions which Respironics in its reasonable business judgment considers to
be materially adverse to the best interests of the combined entities and the
expiration or termination of the applicable waiting period under the HSR Act.
Respironics and Healthdyne filed notifications pursuant to the HSR Act on
November 18, 1997 and the applicable waiting period expired on December 18,
1997. If Respironics terminates the Merger Agreement by virtue of its
determination in its reasonable business judgment that conditions imposed in
connection with regulatory approvals are materially adverse to the best
interests of the combined entities, and Healthdyne timely contests such
determination, the Merger Agreement provides for an arbitration procedure to
determine whether the conditions would have been materially adverse to the best
interests of the combined entities. If the arbitrator determines that such
conditions would not have been materially adverse, and that Healthdyne has
sustained significant damages as a result of such determination, Respironics
would be obligated to pay Healthdyne a fee of $12,000,000.
Nominees to Respironics Board. As of the Effective Time, the Respironics
Board will increase the size of the Respironics Board by three persons and will
appoint the following directors of Healthdyne to fill the new directorships
created thereby: Parker H. Petit (Class of 1998), J. Terry Dewberry (Class of
1999) and Craig B. Reynolds (Class of 2000) (collectively, the "Healthdyne
Continuing Directors"). In connection with the election of directors to be held
at the annual meeting of the stockholders of Respironics in November of 1998,
the Nominating Committee of the Respironics Board will nominate Mr. Petit for
reelection to the Class of 2001 of the Respironics Board. If any of these three
individuals are unwilling or are unable to serve as a director as of the
Effective Time or shall cease to serve as a member of the Respironics Board
during his initial term by reason of resignation, removal, death or disability,
or if Mr. Petit is unwilling or unable to be nominated for reelection to the
Respironics Board at the 1998 annual meeting of stockholders, the Healthdyne
Continuing Directors are entitled to designate the person to be nominated in
such person's stead, subject to reasonable approval of such person by the
Respironics Board.
Transition Team. The Merger Agreement provides that Respironics and
Healthdyne will establish a team (the "Transition Team") consisting of
employees from both entities for the purpose of integrating the two entities.
The Chief Executive Officer of Respironics, Dennis S. Meteny, will lead the
team and the following persons will be members of the team: Craig B. Reynolds,
President and Chief Executive Officer of Healthdyne; Robert D. Crouch, Senior
Vice President--Sales and Marketing of Respironics; Daniel J. Bevevino, Chief
Financial Officer of Respironics; and John L. Miclot, Senior Vice President--
Sales and Marketing of Healthdyne. The Transition Team will choose one or more
consultants to assist it in meeting its objective, which
6
<PAGE>
will be to ensure that a proper process is in place and is used for integrating
the two organizations and structuring the combined companies. Following the
consummation of the Merger, Mr. Meteny will provide progress reports to the
Respironics Board and the Transition Team will remain in place for such period
as deemed necessary by the Respironics Board.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
No ruling has been (or will be) sought from the Internal Revenue Service
("IRS") as to the anticipated U.S. federal income tax consequences of the
Merger. It is a condition to the consummation of the Merger that Healthdyne
receive an opinion from its counsel, Troutman Sanders LLP, and that Respironics
receive an opinion from its counsel, Reed Smith Shaw & McClay LLP, to the
effect that, based upon certain facts, representations and assumptions, the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). However, Healthdyne
is entitled to waive the condition to the consummation of the Merger that it
receive such an opinion from Troutman Sanders LLP, and Respironics is entitled
to waive the condition to the consummation of the Merger that it receive such
an opinion from Reed Smith Shaw & McClay LLP. In the event that both Healthdyne
and Respironics waive such conditions, Healthdyne intends to recirculate
revised proxy materials and resolicit the vote of its shareholders. The
issuance of such opinions is conditioned on, among other things, the receipt by
such tax counsel of representation letters from each of Healthdyne,
Respironics, and Merger Subsidiary, in each case in form and substance
reasonably satisfactory to each such counsel. Assuming the Merger qualifies as
a reorganization within the meaning of Section 368(a) of the Code, no gain or
loss will be recognized for U.S. federal income tax purposes by Healthdyne,
Respironics or Merger Subsidiary as a result of the Merger, and a holder of
Healthdyne Common Stock will not recognize gain or loss for U.S. federal income
tax purposes with respect to the exchange of Healthdyne Common Stock for
Respironics Common Stock (except to the extent that such holder receives cash
in lieu of fractional shares of Respironics Common Stock). See "The Merger--
Certain Federal Income Tax Consequences of the Merger" and "The Merger--
Conditions to the Merger."
ACCOUNTING TREATMENT OF THE MERGER
Consummation of the Merger is conditioned upon receipt by Respironics of a
letter from Ernst & Young LLP, independent auditors for Respironics, that the
Merger will meet the requirements for pooling of interests accounting treatment
and receipt by Healthdyne of a letter from KPMG Peat Marwick LLP, independent
auditors for Healthdyne, that Healthdyne will be eligible for pooling of
interests accounting treatment. See "The Merger--Accounting Treatment of the
Merger."
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS
Respironics stockholders will not have appraisal rights under the Delaware
General Corporation Law (the "DGCL") with respect to the Merger. Healthdyne
shareholders will not have dissenters' rights under the Georgia Business
Corporation Code (the "GBCC") with respect to the Merger.
COMPARISON OF STOCKHOLDERS RIGHTS
The rights of Healthdyne shareholders currently are governed by Georgia law,
the Healthdyne Articles of Incorporation and the By-Laws of Healthdyne. Upon
consummation of the Merger, shareholders of Healthdyne will become stockholders
of Respironics, which is a Delaware corporation, and their rights as
stockholders of Respironics will be governed by Delaware law, the Respironics
Restated Certificate of Incorporation and the Respironics By-laws.
Additionally, certain features of the Healthdyne Rights Plan are different from
those contained in the Respironics Rights Plan, including the provisions of the
Healthdyne Rights Plan (i) providing that in certain circumstances, the
approval of a majority of the Continuing Directors is required to redeem the
Healthdyne Rights and (ii) allowing a bidder, if it satisfies certain
conditions, to call a special meeting of
7
<PAGE>
shareholders to vote on a binding resolution to redeem the Healthdyne Rights.
See "Comparison of Stockholders' Rights" for a summary of certain differences
between the rights of the holders of Healthdyne Common Stock and Respironics
Common Stock.
RISK FACTORS
Holders of Respironics Common Stock and Healthdyne Common Stock, in voting on
the proposals contained herein, should consider, among other factors, the
following: (i) uncertainties associated with the integration of businesses;
(ii) substantial dilution of ownership interest of current Respironics
stockholders; (iii) dilution to historical earnings and historical book value
caused by the Merger; (iv) shares eligible for future sale and possible
volatility of stock prices; (v) uncertainty concerning the number and value of
Respironics shares to be issued in the Merger; (vi) certain anti-takeover
provisions; (vii) dependence on key personnel; (viii) pricing pressure and
health care reform; (ix) dependence on third parties; (x) uncertain impact of
growth of managed care organizations; (xi) cost and uncertainty of regulatory
compliance; (xii) uncertainty related to patents and proprietary rights; (xiii)
intense competition and rapid technological and market changes; (xiv)
dependence on new product development; (xv) product liability exposure; and
(xvi) impact of currency fluctuations and importance of foreign sales and
operations. See "Risk Factors."
THE RESPIRONICS MEETING AND THE HEALTHDYNE MEETING
Dates, Times and Places......... The Respironics Meeting will be held on
February 6, 1998, commencing at 10:00 a.m.,
local time, at Two Mellon Bank Center, in the
Auditorium on the Tenth Floor, at 501 Grant
Street, Pittsburgh, Pennsylvania. The
Healthdyne Meeting will be held on February
6, 1998, commencing at 10:00 a.m., local
time, at the offices of Matria Healthcare,
1850 Parkway Place, Suite 320, Marietta,
Georgia 30067. See "The Respironics Meeting--
Date, Time and Place" and "The Healthdyne
Meeting--Date, Time and Place."
Purposes of Meetings............ The purpose of the Respironics Meeting is to
vote on a proposal to approve the issuance of
the Merger Shares pursuant to the Merger
Agreement. The purpose of the Healthdyne
Meeting is to vote on a proposal to approve
and adopt the Merger Agreement, pursuant to
which Healthdyne will become a wholly owned
subsidiary of Respironics, and each share of
Healthdyne Common Stock issued and
outstanding immediately prior to the
Effective Time will be converted into the
right to receive between approximately .7734
and approximately .9220 shares of Respironics
Common Stock (depending on the Transaction
Share Price specified in the Merger
Agreement). See "The Respironics Meeting--
Purpose" and "The Healthdyne Meeting--
Purpose."
Record Date and Outstanding Shares of Respironics Common Stock are the
Shares.......................... only shares entitled to notice of and to vote
at the Respironics Meeting. Shares of
Healthdyne Common Stock are the only shares
entitled to notice of and to vote at the
Healthdyne Meeting. January 2, 1998 is the
record date for the Respironics Meeting (the
"Respironics Record Date"); on that date
there were shares of Respironics Common
Stock outstanding.
8
<PAGE>
January 2, 1998 is the record date for the
Healthdyne Meeting (the "Healthdyne Record
Date"); on that date there were 12,996,727
shares of Healthdyne Common Stock
outstanding. See "The Respironics Meeting--
Record Date and Outstanding Shares" and "The
Healthdyne Meeting--Record Date and
Outstanding Shares."
Quorum; Votes Required.......... The presence in person or by proxy of
stockholders holding a majority of the shares
of Respironics Common Stock outstanding is
required for a quorum at the Respironics
Meeting. The presence in person or by proxy
of shareholders holding a majority of the
shares of Healthdyne Common Stock outstanding
is required for a quorum at the Healthdyne
Meeting. The affirmative vote of a majority
of the shares of Respironics Common Stock
present in person or represented by proxy and
entitled to vote at the Respironics Meeting,
a quorum being present, is required to
approve the issuance of the Merger Shares
pursuant to the Merger Agreement. The
affirmative vote of a majority of the issued
and outstanding shares of Healthdyne Common
Stock is required to approve and adopt the
Merger Agreement at the Healthdyne Meeting.
All of the executive officers and directors
of Respironics have agreed with Healthdyne in
their individual capacities as stockholders
of Respironics to vote all shares of
Respironics Common Stock owned by them
(1,943,354 shares or % of the outstanding
Respironics Common Stock on the Respironics
Record Date) in favor of the issuance of the
Merger Shares pursuant to the Merger
Agreement at the Respironics Meeting.
All of the executive officers and directors
of Healthdyne have agreed with Respironics in
their individual capacities as shareholders
of Healthdyne to vote all shares of
Healthdyne Common Stock owned by them
(682,673 shares or 5.3% of the outstanding
Healthdyne Common Stock on the Healthdyne
Record Date) in favor of the Healthdyne
Merger Proposal. See "The Respironics
Meeting--Quorum; Vote Required," "The
Healthdyne Meeting--Quorum; Vote Required"
and "The Merger--Interests of Certain Persons
in the Merger."
9
<PAGE>
MARKET PRICES OF RESPIRONICS COMMON STOCK
AND HEALTHDYNE COMMON STOCK
Respironics Common Stock and Healthdyne Common Stock are listed and traded on
the NASDAQ NMS. The table below sets forth, for the calendar quarters
indicated, the high and low closing sales prices per share of Respironics
Common Stock and Healthdyne Common Stock, as reported by the NASDAQ NMS.
<TABLE>
<CAPTION>
RESPIRONICS HEALTHDYNE
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995
First Quarter..................................... $16.88 $11.63 $12.63 $ 8.63
Second Quarter.................................... 17.00 10.50 12.13 9.88
Third Quarter..................................... 19.75 13.75 15.88 10.25
Fourth Quarter.................................... 22.25 17.00 13.75 9.63
1996
First Quarter..................................... $24.75 $17.00 $13.50 $ 8.50
Second Quarter.................................... 23.50 17.25 14.88 9.88
Third Quarter..................................... 25.00 17.25 13.25 8.13
Fourth Quarter.................................... 25.00 13.50 10.00 7.63
1997
First Quarter..................................... $22.25 $16.75 $14.63 $ 9.06
Second Quarter.................................... 21.50 17.75 17.25 13.88
Third Quarter..................................... 28.13 21.00 18.75 16.38
Fourth Quarter.................................... -- -- -- --
1998
First Quarter..................................... $ $ $ $
</TABLE>
On November 10, 1997, the last business day before the first public
announcement of the Merger on November 11, 1997, the closing sales prices of
Respironics Common Stock and Healthdyne Common Stock, as reported by the NASDAQ
NMS, were $26.63 per share and $19.88 per share, respectively.
On January 6, 1998, the closing sales prices of Respironics Common Stock and
Healthdyne Common Stock as reported by the NASDAQ NMS were $ per share and
$ per share, respectively. Based on using the January 6, 1998 closing sales
price for Respironics Common Stock as the Transaction Share Price of
Respironics Common Stock, subject to the minimum and maximum Transaction Share
Price specified in the Merger Agreement, the result would be an Exchange Ratio
of approximately shares of Respironics Common Stock for each share of
Healthdyne Common Stock in the Merger. Because the market price of Respironics
Common Stock is subject to fluctuation, the Transaction Share Price and the
Exchange Ratio may change prior to the Merger. No assurance can be given as to
the market price of Respironics Common Stock if and at the time the Merger is
consummated.
On January 2, 1998, there were holders of record of Respironics Common
Stock and holders of record of Healthdyne Common Stock.
No dividends have been declared or paid on Respironics Common Stock or
Healthdyne Common Stock since the respective dates of incorporation of
Respironics and Healthdyne, nor does Respironics anticipate paying cash
dividends on Respironics Common Stock in the foreseeable future following the
Merger.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth certain historical financial information for
Respironics and Healthdyne. This information has been derived from the
historical financial statements of Respironics and Healthdyne incorporated
herein by reference and should be used in conjunction with such statements and
information and related notes. The Respironics historical financial data as of
and for the three months ended September 30, 1997 and 1996 and the Healthdyne
historical financial data as of and for the nine months ended September 30,
1997 and 1996 have been derived from unaudited financial statements of
Respironics or Healthdyne, as the case may be, and have been prepared on the
same basis as the historical information derived from audited financial
statements. In the opinion of the managements of Respironics and Healthdyne,
respectively, the unaudited financial statements of Respironics or Healthdyne,
as the case may be, from which such data have been derived contain all
adjustments, consisting of normal recurring accruals, necessary for the fair
presentation of the results of, and as of the end of, such periods. See
"Available Information" and "Incorporation of Certain Documents by Reference."
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share data)
RESPIRONICS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, FISCAL YEAR ENDED JUNE 30,
------------------- -----------------------------------------
1997 1996 1997 1996 1995 1994 1993
--------- --------- -------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Net sales............. $ 51,918 $ 34,112 $178,560 $125,766 $99,450 $78,171 $69,286
Income from
operations........... 9,077 6,381 32,364 23,742 17,550 13,449 10,722
Net income............ 5,501 4,454 20,316 15,339 11,677 4,741 7,379
PER COMMON SHARE DATA:
Earnings.............. 0.27 0.22 1.00 0.84 0.67 0.27 0.43
Book value at end of
period............... 7.44 6.53 7.16 6.30 3.49 2.71 2.41
Cash dividends
declared............. -0- -0- -0- -0- -0- -0- -0-
HISTORICAL BALANCE SHEET
DATA:
Working capital....... 74,048 103,566 71,038 99,435 39,413 31,032 25,172
Total assets.......... 191,313 149,709 184,232 143,947 78,039 58,917 54,331
Total long-term debt.. 17,869 4,892 17,985 4,966 5,538 4,854 4,288
Shareholders' equity.. 147,244 126,044 141,578 121,545 58,369 44,224 39,148
HEALTHDYNE
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- -------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Net sales............. $ 112,566 $85,266 $118,318 $110,494 $89,012 $68,598 $54,384
Income from
operations........... 14,363 8,831 11,615 12,209 8,712 9,202 7,097
Net income............ 5,835 4,358 5,725 6,287 5,105 5,215 3,861
PER COMMON SHARE DATA:
Earnings.............. 0.43 0.34 0.44 0.50 0.41 0.47 0.39
Book value at end of
period............... 4.03 3.37 3.51 2.96 2.39 1.98 0.46
Cash dividends
declared............. -0- -0- -0- -0- -0- -0- -0-
HISTORICAL BALANCE SHEET
DATA:
Working capital....... 45,847 37,960 36,887 36,641 26,489 26,300 16,770
Total assets.......... 114,426 91,552 98,078 82,876 69,412 44,629 28,392
Total long-term debt.. 35,000 29,578 29,078 26,250 20,900 4,500 10,601
Redeemable Preferred
Stock................ -- -- -- -- 3,500 5,500 6,000
Shareholders' equity.. 52,069 42,564 44,270 36,901 29,535 24,487 4,557
</TABLE>
12
<PAGE>
RESPIRONICS AND HEALTHDYNE
UNAUDITED SUMMARY PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following summary pro forma combined selected financial data are
presented as if the Merger had been effective July 1, 1994. For the purpose of
the unaudited pro forma combined statement of operations data, Respironics'
financial data for each of the three fiscal years in the period ended June 30,
1997 and the unaudited three months ended September 30, 1997 and September 30,
1996 have been combined with Healthdyne's financial data for each of the three
fiscal years in the period ended June 30, 1997 and the unaudited three months
ended September 30, 1997 and September 30, 1996, respectively. Because
Healthdyne's actual fiscal year ends on December 31, unaudited quarterly
financial data was utilized to develop Healthdyne's financial data for fiscal
years ended June 30, 1997, 1996 and 1995 and for the three month periods ended
September 30, 1997 and 1996. Healthdyne's financial data for the period from
January 1, 1997 through June 30, 1997 that are included in its financial data
for the fiscal year ended June 30, 1997 have not been audited. For the purpose
of the unaudited pro forma combined balance sheet data, Respironics' financial
data at September 30, 1997 were combined with Healthdyne's financial data at
September 30, 1997. These summary pro forma combined selected financial data
are presented for informational purposes only and are not necessarily
indicative of the results of operations that actually would have occurred if
the Merger had been effective on July 1, 1994 nor are such data necessarily
indicative of future operating results or financial position. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, FISCAL YEAR ENDED JUNE 30,
------------------- --------------------------
1997 1996 1997 1996 1995
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA:
Net sales..................... $ 90,750 $ 63,309 $314,543 $236,471 $203,704
Income from operations........ 14,347 9,070 46,930 35,944 27,250
Net income.................... 7,855 5,715 26,425 21,486 16,921
Income per common share....... 0.24 0.18 0.82 0.71 0.58
Shares used to compute income
per common share (1)......... 33,117 32,037 32,353 30,285 29,008
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital......................... $102,395
Total assets............................ 305,739
Total long-term debt.................... 52,869
Shareholders' equity.................... 181,813
</TABLE>
- --------
(1) Based upon an assumed Exchange Ratio of .9220 shares of Respironics Common
Stock for each share of Healthdyne Common Stock.
13
<PAGE>
UNAUDITED COMPARATIVE PER SHARE NET INCOME,
CASH DIVIDEND AND BOOK VALUE DATA
Based upon an Exchange Ratio of .9220 shares of Respironics Common Stock for
each share of Healthdyne Common Stock outstanding immediately prior to the
Merger, the following table sets forth unaudited comparative net income per
share, cash dividends declared per share and book value per share data of: (a)
Respironics, (b) Respironics Pro Forma adjusted to give effect to the Merger as
if the Merger had occurred at July 1, 1994, (c) Healthdyne and (d) the pro
forma equivalent of one share of Healthdyne Common Stock. The pro forma
equivalent data for Healthdyne are calculated by multiplying the Respironics
pro forma combined amounts by such Exchange Ratio. The following information
should be used in conjunction with the historical financial statements of
Respironics and Healthdyne incorporated by reference in this Joint Proxy
Statement/Prospectus and the Unaudited Pro Forma Combined Condensed Financial
Statements giving effect to the Merger appearing elsewhere herein. See
"Available Information," "Incorporation of Certain Documents by Reference" and
"Unaudited Pro Forma Combined Condensed Financial Statements." The following
data are presented for informational purposes only and are not necessarily
indicative of the results that actually would have occurred if the Merger had
been in effect during the periods presented nor are such data necessarily
indicative of future operating results or financial position. There is no
assurance that the actual Exchange Ratio will be equivalent to the Exchange
Ratio assumed for the purposes of this table. Under the Merger Agreement, the
Exchange Ratio could be as high as approximately .9220 shares of Respironics
Common Stock for each share of Healthdyne Common Stock or as low as
approximately .7734 shares of Respironics Common Stock for each share of
Healthdyne Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
THREE MONTHS ENDED -----------------
SEPTEMBER 30, 1997 1997 1996 1995
------------------ ----- ----- -----
<S> <C> <C> <C> <C>
RESPIRONICS:
NET INCOME PER COMMON SHARE
Historical.............................. $0.27 $1.00 $0.84 $0.67
Pro forma combined...................... 0.24 0.82 0.71 0.58
CASH DIVIDEND
Historical.............................. -0- -0- -0- -0-
BOOK VALUE PER SHARE AT END OF PERIOD
Historical.............................. 7.44 7.16 6.30 3.49
Pro forma combined...................... 5.74 5.49 4.69 2.62
HEALTHDYNE:
NET INCOME PER COMMON SHARE
Historical.............................. 0.17 0.47 0.47 0.42
Pro forma equivalent.................... 0.22 0.76 0.65 0.53
CASH DIVIDEND
Historical.............................. -0- -0- -0- -0-
Pro forma equivalent.................... -0- -0- -0- -0-
BOOK VALUE PER SHARE AT END OF PERIOD
Historical.............................. 4.03 3.85 3.26 2.66
Pro forma equivalent.................... 5.80 5.57 4.85 2.99
</TABLE>
14
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Risk Factors" and "The Merger--Background
of and Reasons for the Merger" as well as possible or assumed future results
of operations of Respironics and Healthdyne set forth under "The Merger--
Background of and Reasons for the Merger--Opinion of Respironics Financial
Advisor" and"The Merger--Background of and Reasons for the Merger--Opinion of
Healthdyne Financial Advisor," including any forecasts, projections and
synergies referred to therein, and certain statements incorporated by
reference from documents filed with the SEC by Respironics and Healthdyne,
including any statements contained herein or incorporated by reference herein
regarding the development of Respironics' and Healthdyne's businesses, the
markets for Respironics' and Healthdyne's services and products, anticipated
capital expenditures, regulatory reform and the effects of the Merger, and
other statements contained or incorporated by reference herein regarding
matters that are not historical facts, are or may constitute forward-looking
statements (as such term is defined in the Private Securities Litigation
Reform Act of 1995). Because such statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
under "Risk Factors."
RISK FACTORS
Holders of Respironics Common Stock and Healthdyne Common Stock should
consider carefully all of the information contained in this Joint Proxy
Statement/Prospectus, including the following factors:
RISKS RELATED TO THE MERGER
Uncertainties Associated with the Integration of Businesses. The Merger
involves the combination of two companies that have previously operated
independently. Among the factors considered by the Respironics Board and the
Healthdyne Board in connection with their approval of the Merger Agreement
were the opportunities for operating efficiencies that they expect will
ultimately result from the Merger. The integration of the companies'
operations following the Merger will require the dedication of management
resources in order to achieve the anticipated operating efficiencies of the
Merger. While Respironics and Healthdyne expect to achieve savings in
operating costs as a result of the Merger, no assurance can be given that
difficulties encountered in integrating the operations of Respironics and
Healthdyne will be overcome or that the benefits expected from such
integration will be realized. The difficulties of combining the companies'
operations include the necessity of coordinating geographically separated
organizations, integrating personnel with diverse business backgrounds and
combining different corporate cultures. The process of integrating operations
could cause an interruption of, or loss of momentum in, the activities of
either or both of the combined companies' businesses. The diversion of
management's attention and any difficulties encountered in connection with the
Merger and the integration of the two companies' operations could have an
adverse effect on the business, results of operations or financial condition
of the combined companies.
Subsequent to the Merger, Respironics expects to incur one-time charges and
related adjustments in the quarter in which the Merger takes place, currently
estimated to be in the range of $20 million to $25 million, to reflect
transaction-related expenses, as well as expenses relating to integration of
the two companies, including costs relating to severance, contractual
obligations and employee relocation, the elimination of duplicate systems and
facilities, asset write-downs and other integration costs. This amount is a
preliminary estimate only and is therefore subject to change. In addition,
there can be no assurance that Respironics will not incur additional charges
in subsequent quarters to reflect costs associated with the Merger.
Substantial Dilution of Ownership Interest of Current Respironics
Stockholders. Based on the capitalization of Respironics and Healthdyne as of
December 31, 1997, the current stockholders of Respironics will own securities
representing approximately % of the outstanding Respironics Common Stock on
a fully diluted basis following consummation of the Merger, assuming that all
outstanding Healthdyne stock options are
15
<PAGE>
exercised, without adjustment in either case for shares acquired by
Respironics stockholders in their capacities as shareholders of Healthdyne.
This represents substantial dilution of the ownership interest in Respironics
of the current Respironics stockholders.
Dilution to Historical Earnings and Historical Book Value Caused by the
Merger. The Merger and the transactions contemplated thereby have a dilutive
effect on historical net income per share on a pro forma combined basis for
the year ended June 30, 1997 and the three months ended September 30, 1997.
The "Unaudited Pro Forma Combined Condensed Statements of Income" illustrate
the effect of the Merger on historical net income per share for the year ended
June 30, 1997 and the three months ended September 30, 1997. On a historical
basis for Respironics, and assuming an Exchange Ratio of .9220, net income per
share was $1.00 for the year ended June 30, 1997 and $0.27 for the three
months ended September 30, 1997, as compared to $0.82 and $0.24 for the year
ended June 30, 1997 and the three months ended September 30, 1997,
respectively, on a pro forma basis for the combined companies. Furthermore,
the Merger, which will be recorded using the pooling of interests accounting
method, will result in an initial decline in book value per share of
Respironics Common Stock as a result of the Exchange Ratio and the
transaction-related expenses to be incurred in connection with the Merger. As
indicated in "Unaudited Comparative Per Share Net Income, Cash Dividend and
Book Value Data," had the Merger been completed July 1, 1994 and the $17.5
million after-tax merger expenses been recorded, the historical book value per
share of Respironics Common Stock as of September 30, 1997 would have
decreased from $7.44 to a pro forma book value per share of $5.74.
Shares Eligible for Future Sale; Possible Volatility of Stock Prices. After
the Merger and assuming the conversion of the 12,996,727 shares of Healthdyne
Common Stock outstanding on the Healthdyne Record Date to shares of
Respironics Common Stock, approximately 11,353,558 of the shares of
Respironics Common Stock issued to Healthdyne shareholders will be freely
tradeable and an additional 629,424 shares of Respironics Common Stock will be
tradeable under Rules 144 and 145 under the Securities Act following a
restricted period ending at such time as financial results covering at least
30 days of post-Merger combined operations have been published (required for
pooling of interests accounting treatment). As a result, substantial sales of
Respironics Common Stock could occur after the Merger. Sales of a substantial
number of such shares of Respironics Common Stock could adversely affect or
cause substantial fluctuations in the market price of Respironics Common Stock
and impair Respironics' ability to raise additional capital through the sale
of its equity securities. As of the Respironics Record Date, Respironics had
outstanding options to purchase approximately shares of Respironics
Common Stock. As of the Healthdyne Record Date, Healthdyne had outstanding
options to purchase approximately 1,585,555 shares of Healthdyne Common Stock,
which, if outstanding upon consummation of the Merger, will convert into
options to purchase an aggregate of approximately 1,461,881 shares of
Respironics Common Stock, assuming an Exchange Ratio of .9220.
The market prices of Respironics Common Stock and Healthdyne Common Stock
are, and are expected to continue to be, subject to significant fluctuations
in response to variations in quarterly operating results, announcements of
products and developments by competitors, trends in the health care industry
in general and the medical device industry in particular, and certain other
factors beyond the control of Respironics and Healthdyne. In addition, broad
market fluctuations, as well as general economic or political conditions and
initiatives, such as health care and reimbursement related initiatives, may
adversely affect the market price of Respironics Common Stock, regardless of
the operating performance of Respironics after the Merger.
Uncertainty Concerning Number and Value of Respironics Shares to be Issued
in the Merger. The Exchange Ratio for the Merger is determined by dividing
$24.00 by the weighted average of the closing prices of Respironics Common
Stock for a period consisting of 20 consecutive trading days ending on the
third trading day prior to the Closing Date (the "Transaction Share Price")
(provided that, if such weighted average is less than $26.03 per share of
Respironics Common Stock, then the Transaction Share Price shall be $26.03 per
share, and if such weighted average is more than $31.03 per share of
Respironics Common Stock, then the Transaction Share Price shall be $31.03 per
share of Respironics Common Stock). Accordingly, the number of shares of
Respironics Common Stock to be issued in the Merger will be affected by
fluctuations in the market price of Respironics Common Stock between $26.03
and $31.03 per share during the Transaction Share Price
16
<PAGE>
determination period, and the value of the Respironics shares to be issued in
the Merger will be affected by any fluctuations outside of that range.
Furthermore, if the weighted average of the closing sales prices of
Respironics Common Stock for a period consisting of 20 consecutive trading
days ending on the trading day prior to a day which is three trading days
after the date upon which stockholder and regulatory approvals have been
obtained or three trading days prior to the Closing Date is less than $20.00,
either Respironics or Healthdyne may terminate the Merger Agreement. See "The
Merger--Conversion of Healthdyne Common Stock; Effect on Respironics
Stockholders."
Certain Anti-Takeover Provisions. The Respironics Rights Plan and certain
provisions of the Restated Certificate of Incorporation of Respironics may
make an unsolicited acquisition of control of Respironics more difficult or
expensive than would otherwise be the case. The Healthdyne Rights Plan and
certain provisions of the Articles of Incorporation of Healthdyne and By-Laws
of Healthdyne, including the provision adopting the Georgia Fair Price Statute
and the Georgia Business Combination Statute, may make an unsolicited
acquisition of control of Healthdyne more difficult or expensive than would
otherwise be the case if the Merger is not consummated. See "Comparison of
Stockholders' Rights."
Dependence on Key Personnel. The success of the combined companies is
dependent upon the retention, training and management of qualified employees,
including key employees. Competition for qualified sales, technical and other
personnel is intense, and there can be no assurance that the combined
companies will be able to attract, assimilate or retain highly qualified
employees in the future. If the combined companies are unable to retain and
hire such personnel, particularly those in key positions, their business,
operating results and financial condition would be materially adversely
affected. Additions of new and departures of existing personnel, particularly
in key positions, can be disruptive and have a material adverse effect on the
combined companies' business, operating results and financial condition. See
"--Uncertainties Associated with the Integration of Businesses." See
"Interests of Certain Persons in the Merger--New Employment Agreements" for a
description of employment agreements to be entered into in connection with the
Merger.
RISKS RELATED TO THE COMBINED BUSINESSES
Pricing Pressure/Health Care Reform. The health care industry in the United
States is experiencing a period of extensive change. Changes in the law or new
interpretations of existing laws may have a dramatic effect on the definition
of permissible or impermissible activities, the relative costs associated with
doing business, the extent of coverage and the amount of reimbursement by both
government and third party payors. In addition, economic forces, regulatory
influences and political initiatives are subjecting the health care industry
to fundamental change. The health care industry is experiencing market-driven
reforms from forces within the industry that are exerting pressure on health
care companies to reduce health care costs. These market-driven changes are
resulting in industry-wide consolidation that is expected to increase the
downward pressure on health care product margins, as larger buyer and supplier
groups exert pricing pressure on providers of medical devices and other health
care products. In addition, health care reform proposals have been formulated
by the current administration and members of Congress and state legislatures
periodically consider various health care reform proposals. Federal, state and
local governments will, in all likelihood, continue to review and assess
alternative health care delivery systems and payment methodologies, and
ongoing public debate of these issues can be expected. The ultimate timing or
effect of legislative efforts and market driven reforms cannot be predicted,
and short-term cost containment initiatives may vary substantially from long-
term reforms and may impact the business of the combined companies. No
assurance can be given that any such efforts or reforms will not have an
adverse effect on the business, results of operations or financial condition
of the combined companies.
Dependence on Third Parties. The businesses of Respironics and Healthdyne
depend upon relationships with durable medical equipment distributors,
hospitals, hospital groups, purchasing organizations, physicians, physician
groups, home health care organizations, long-term care facilities, and other
institutional health care providers. There can be no assurance that the
combined companies will be able successfully to maintain and develop the third
party relationships that will be required after the Merger, or that certain
relationships will not be adversely affected by the Merger. The loss of or
damage to existing relationships, or the failure to continue to
17
<PAGE>
develop relationships of these kinds, could have a material adverse effect on
the business, results of operations and financial condition of the combined
companies after the Merger.
The businesses of Respironics and Healthdyne are also dependent to a large
extent upon the ability of customers to obtain adequate reimbursement from
third party payors, such as government and private insurance programs, for
reselling and renting products and performing procedures using the products,
of the two companies. Governmental initiatives focused on achieving cost-
effective health care delivery could adversely affect the business of the
combined companies. For example, recent changes in governmental regulations
reducing government reimbursment amounts for oxygen purchases may adversely
affect dealers who are customers for products produced by Respironics and
Healthdyne, which in turn could adversely affect the business of Respironics
and Healthdyne.
Uncertain Impact of Growth of Managed Care Organizations. Managed care
organizations have grown substantially in terms of the percentage of the
population in the United States that receives medical benefits through such
organizations and in terms of the influence and control that such
organizations are able to exert over an increasingly large portion of the
health care industry. In addition, these organizations are continuing to
consolidate, and such consolidation may increase the ability of such
organizations to influence the practices and pricing involved in the purchase
of medical devices, including those sold by the combined companies after the
Merger.
Cost and Uncertainty of Regulatory Compliance. There has been a trend in
recent years both in the United States and outside the United States toward
more stringent regulation of, and enforcement of requirements applicable to,
medical device manufacturers. The continuing trend of more stringent
regulatory oversight in product clearance and enforcement activities, while
not inhibiting growth or competition in the industry, has tended to cause
medical device manufacturers to experience longer approval cycles, more
uncertainty, greater risk and higher expenses. At the present time, there are
no meaningful indications that this trend will change in the near-term or the
long-term, either in the United States or abroad.
Uncertainty Related to Patents and Proprietary Rights. From time to time,
Respironics and Healthdyne have received, and in the future may receive,
notices of claims with respect to possible infringement of the intellectual
property rights of others or notices of challenges to their intellectual
property rights. In some instances such notices have given rise to, or may
give rise to, litigation. Any litigation involving the intellectual property
rights of the combined companies may be resolved by means of a negotiated
settlement or by contesting the claim through the judicial process. There can
be no assurance that the business, results of operations or the financial
condition of the combined companies will not suffer an adverse impact as a
result of intellectual property claims that may be commenced against the
combined companies in the future.
Intense Competition; Rapid Technological and Market Changes. The medical
device industry is characterized by rapidly evolving technology and increased
competition. Competitors of Respironics and Healthdyne include large medical
companies, some of which have greater financial and technical resources and
broader product lines than Respironics and Healthdyne, even on a combined
basis. Respironics and Healthdyne believe that the principal competitive
factors in their respective markets are product features, price, quality,
customer service, performance, market reputation, breadth of product offerings
and effectiveness of sales and marketing efforts. There are a number of
companies that currently offer, or are in the process of developing, products
that compete with products offered by Respironics and Healthdyne. Some of
these competitors may have greater capital resources, research and development
staffs and experience in the medical device industry, including with respect
to regulatory compliance in the development, manufacturing and sale of medical
products similar to those offered by Respironics and Healthdyne. There can be
no assurance that some of these competitors will not succeed in developing
technologies and products that are more effective than those currently used or
produced by Respironics and Healthdyne or that would render some products
offered by Respironics and Healthdyne obsolete or non-competitive.
Competition based upon price is expected to become an increasingly important
factor in customer purchasing patterns as a result of cost containment
pressures on, and consolidation in, the health care industry.
18
<PAGE>
Such competition has exerted, and is likely to continue to exert, downward
pressure on the prices Respironics and Healthdyne are able to charge for their
products. There can be no assurance that after the Merger the combined
companies will be able to offset such downward price pressure through
corresponding cost reductions. Any failure to offset such pressure could have
an adverse effect on the business, results of operations or financial
condition of the combined companies.
Dependence on New Product Development. As existing products of Respironics
and Healthdyne become more mature and their existing markets become saturated,
the importance to the combined companies after the Merger of developing or
acquiring new products will increase. The development of any such products
will entail considerable time and expense, including research and development
costs or acquisition costs and the time and expense required to obtain
necessary regulatory approvals, which could adversely affect the business,
results of operations or financial condition of the combined companies. There
can be no assurance that such development activities will yield products that
can be commercialized profitably or that any product acquisitions can be
consummated on commercially reasonable terms or at all. Any failure to acquire
or develop new products to supplement more mature products could have an
adverse effect on the business, results of operations or financial condition
of the combined companies.
Product Liability Exposure. Because many of the products of both Respironics
and Healthdyne are intended to be used in health care settings on patients who
may be seriously or critically ill, both companies are exposed to potential
product liability claims. From time to time, patients using Respironics and
Healthdyne products may suffer serious injury or death, which may lead to
product liability claims against both Respironics and Healthdyne. Although
both companies currently maintain significant levels of product liability
insurance coverage and Respironics plans to continue such coverage after the
Merger, there can be no assurance that such product liability insurance will
continue to be available or that product liability claims will not have an
adverse effect on the business, results of operations or financial condition
of the combined companies.
Impact of Currency Fluctuations; Importance of Foreign Sales and
Operations. Because sales of products by Respironics and Healthdyne outside
the United States may sometimes be denominated in local currencies, the
results of operations of the combined companies may be affected by changes in
exchange rates between certain foreign currencies and the United States
dollar. There can be no assurance that, after the Merger, the combined
companies will not experience currency fluctuation effects in future periods,
which could have an adverse effect on the operating results of the combined
companies. In addition, Respironics has foreign manufacturing operations in
the Peoples Republic of China, Hong Kong, the Philippines and Germany.
Consequently, the operations and financial results of the combined companies
after the Merger may be significantly affected by other international factors,
including changes in governmental regulations or import and export
restrictions, and foreign economic and political conditions generally.
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Respironics Board for use at the
Respironics Meeting to be held on February 6, 1998, and in connection with the
solicitation of proxies by the Healthdyne Board for use at the Healthdyne
Meeting to be held on February 6, 1998. This Joint Proxy Statement/Prospectus
also serves as a prospectus of Respironics for the Merger Shares.
THE RESPIRONICS MEETING
DATE, TIME AND PLACE
The Respironics Meeting will be held on February 6, 1998, commencing at
10:00 a.m., local time, at Two Mellon Bank Center, in the Auditorium on the
Tenth Floor, at 501 Grant Street, Pittsburgh, Pennsylvania, and at any
adjournments or postponements thereof.
19
<PAGE>
PURPOSE
At the Respironics Meeting, stockholders of Respironics will be asked to
approve the issuance of the Merger Shares pursuant to the Merger Agreement.
The Merger Agreement is attached hereto as Appendix I. See "The Merger."
RECORD DATE AND OUTSTANDING SHARES
The close of business on January 2, 1998 has been fixed by the Respironics
Board as the record date for the determination of holders of shares of
Respironics Common Stock entitled to notice of and to vote at the Respironics
Meeting. At the close of business on the Respironics Record Date, there were
shares of Respironics Common Stock issued and outstanding held by
holders of record. At the Respironics Meeting, holders of Respironics Common
Stock will be entitled to one vote per share held as of the Respironics Record
Date and are not entitled to appraisal rights. See "Appraisal and Dissenters'
Rights--Respironics Stockholders."
QUORUM; VOTE REQUIRED
The required quorum for the transaction of business at the Respironics
Meeting is a majority of the shares of Respironics Common Stock outstanding on
the Respironics Record Date, either present in person or represented by proxy.
Abstentions and broker non-votes (i.e., shares held by a broker or nominee
which are represented at the meeting but with respect to which such broker or
nominee is not empowered to vote on a particular proposal) will be included in
determining the number of shares present at the Respironics Meeting.
Approval of the issuance of the Merger Shares pursuant to the Merger
Agreement requires the affirmative vote of a majority of the shares of
Respironics Common Stock present in person or represented by proxy and
entitled to vote at the Respironics Meeting. Abstentions will be equivalent to
"no" votes at the Respironics Meeting. Broker non-votes, as described above,
are not considered as shares "entitled to vote" and have no effect on approval
of the issuance of the Merger Shares pursuant to the Merger Agreement.
Approval of any proposal to adjourn the Respironics Meeting to allow for
additional solicitation of proxies or votes requires the affirmative vote of a
majority of the shares present or represented at the Respironics Meeting and
entitled to vote.
As of the Respironics Record Date, Respironics' directors, executive
officers and their affiliates owned and were entitled to vote an aggregate of
1,943,354 shares of Respironics Common Stock at the Respironics Meeting,
representing % of the total number of Respironics shares outstanding on the
Respironics Record Date. Pursuant to letter agreements entered into in
connection with the Merger Agreement, Respironics directors and executive
officers have agreed to vote all shares of Respironics Common Stock owned by
them (representing approximately % of the outstanding Respironics Common
Stock as of the Respironics Record Date) in favor of the issuance of the
Merger Shares pursuant to the Merger Agreement.
SOLICITATION OF PROXIES AND EXPENSES
The Respironics proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Respironics Board for use at the Respironics
Meeting. Respironics stockholders are requested to complete, date and sign the
accompanying proxy and promptly return it in the enclosed envelope or
otherwise mail it to Respironics. All properly executed proxies received by
Respironics prior to the vote at the Respironics Meeting that are not revoked
will be voted at the Respironics Meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve the
Merger Agreement. A Respironics stockholder who has given a proxy may revoke
it at any time before it is exercised at the Respironics Meeting by (i)
delivering to the Secretary of Respironics (by any means, including facsimile)
a written notice, bearing a date later than the date of the proxy, stating
that the proxy is revoked, (ii) signing and so delivering a proxy relating to
the same
20
<PAGE>
shares and bearing a later date prior to the vote at the Respironics Meeting,
or (iii) attending the Respironics Meeting and voting in person (although
attendance at the Respironics Meeting will not, by itself, revoke a proxy).
It is not anticipated that any matter not referred to herein will be
presented for action at the Respironics Meeting. If any other matters are
properly brought before the Respironics Meeting, the persons named in the
proxies will have discretion to vote on such matters in accordance with their
best judgment.
Respironics will bear the cost of the solicitation of proxies in the
enclosed form from its stockholders. In addition to solicitation by mail, the
directors, officers and employees of Respironics may solicit proxies from
stockholders by telephone, telegram, letter or in person. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for out-of-pocket expenses incurred in connection with such
solicitation.
In addition, Respironics has retained D.F. King & Company ("D.F. King") to
assist in the solicitation of proxies. D.F. King may contact stockholders of
Respironics by mail, telephone, facsimile, telegraph and personal interviews
and may request brokers, dealers and other nominee stockholders to forward
materials to beneficial owners of Respironics Common Stock. D.F. King will
receive reasonable and customary compensation for its services (estimated at
$ ), will be reimbursed for certain reasonable out-of-pocket expenses and
will be indemnified against certain liabilities and expenses in connection
therewith, including liabilities under the federal securities laws.
THE HEALTHDYNE MEETING
DATE, TIME AND PLACE
The Healthdyne Meeting will be held on February 6, 1998 at 10:00 a.m., local
time, at the offices of Matria Healthcare, 1850 Parkway Place, Suite 320,
Marietta, Georgia 30067, and at any adjournments or postponements thereof.
PURPOSE
At the Healthdyne Meeting, shareholders of Healthdyne at the close of
business on the Healthdyne Record Date will be asked to approve and adopt the
Healthdyne Merger Proposal. The Merger Agreement is attached hereto as
Appendix I. See "The Merger."
RECORD DATE AND OUTSTANDING SHARES
The close of business on January 2, 1998 has been fixed by the Healthdyne
Board as the record date for the determination of holders of shares of
Healthdyne Common Stock entitled to notice of and to vote at the Healthdyne
Meeting. At the close of business on the Healthdyne Record Date, there were
12,996,727 shares of Healthdyne Common Stock issued and outstanding held by
[ ] holders of record. At the Healthdyne Meeting, holders of Healthdyne
Common Stock will be entitled to one vote per share of Healthdyne Common Stock
held as of the Healthdyne Record Date and are not entitled to dissenters'
rights. See "Appraisal and Dissenters' Rights--Healthdyne Shareholders."
QUORUM; VOTE REQUIRED
The required quorum for the transaction of business at the Healthdyne
Meeting is a majority of the shares of Healthdyne Common Stock outstanding on
the Healthdyne Record Date, either present in person or represented by proxy.
Abstentions and broker non-votes (i.e., shares held by a broker or nominee
which are represented at the meeting but with respect to which such broker or
nominee is not empowered to vote on a particular proposal) will be included in
determining the number of shares present at the Healthdyne Meeting.
Approval of the Merger Agreement requires the affirmative vote of at least a
majority of the outstanding shares of Healthdyne Common Stock entitled to vote
at the Healthdyne Meeting, voting together as a single class.
21
<PAGE>
Since the required vote of the Healthdyne shareholders is based upon the
number of outstanding shares of Healthdyne Common Stock rather than upon the
shares actually voted in person or by proxy at the Healthdyne Meeting, the
failure by the holder of any such shares to submit a proxy or to vote in
person at the Healthdyne Meeting (including abstentions and broker non-votes,
as described above) will have the same effect as a vote against approval and
adoption of the Merger Agreement. Approval of any proposal to adjourn the
Healthdyne Meeting to allow for additional solicitation of proxies or votes
requires the affirmative vote of at least a majority of the total shares
present or represented at the Healthdyne Meeting.
As of the Healthdyne Record Date, Healthdyne directors, executive officers
and their affiliates owned and were entitled to vote an aggregate of 682,673
shares of Healthdyne Common Stock at the Healthdyne Meeting, representing 5.3%
of the total number of Healthdyne shares outstanding on the Healthdyne Record
Date. Pursuant to letter agreements entered into in connection with the Merger
Agreement, Healthdyne's directors and executive officers have agreed to vote
all shares of Healthdyne Common Stock owned by them (representing
approximately 5.3% of the outstanding Healthdyne Common Stock as of the
Healthdyne Record Date) in favor of the Healthdyne Merger Proposal.
SOLICITATION OF PROXIES AND EXPENSES
The Healthdyne proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Healthdyne Board for use at the Healthdyne Meeting.
Healthdyne shareholders are requested to complete, date and sign the
accompanying proxy and promptly return it in the enclosed envelope or
otherwise mail it to Healthdyne. All properly executed proxies received by
Healthdyne prior to the vote at the Healthdyne Meeting that are not revoked
will be voted at the Healthdyne Meeting in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve and
adopt the Merger Agreement. A Healthdyne shareholder who has given a proxy may
revoke it at any time before it is exercised at the Healthdyne Meeting by (i)
delivering to the Secretary of Healthdyne (by any means, including facsimile)
a written notice, bearing a date later than the date of the proxy, stating
that the proxy is revoked, (ii) signing and so delivering a proxy relating to
the same shares and bearing a later date prior to the vote at the Healthdyne
Meeting, or (iii) attending the Healthdyne Meeting and voting in person
(although attendance at the Healthdyne Meeting will not, by itself, revoke a
proxy).
It is not anticipated that any matter not referred to herein will be
presented for action at the Healthdyne Meeting. If any other matters are
properly brought before the Healthdyne Meeting, the persons named in the
proxies will have discretion to vote on such matters in accordance with their
best judgment.
Healthdyne will bear the cost of the solicitation of proxies in the enclosed
form from its shareholders. In addition to solicitation by mail, the
directors, officers and employees of Healthdyne may solicit proxies from
shareholders by telephone, telegram, letter or in person. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for out-of-pocket expenses incurred in connection with such
solicitation.
In addition, Healthdyne has retained Morrow & Co., Inc. ("Morrow") to assist
in the solicitation of proxies. Morrow may contact shareholders of Healthdyne
by mail, telephone, facsimile, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials
to beneficial owners of Healthdyne Common Stock. Morrow will receive
reasonable and customary compensation for its services (estimated at $10,000),
will be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including liabilities under the federal securities laws.
22
<PAGE>
THE COMPANIES
RESPIRONICS
Respironics is incorporated under the laws of Delaware, and is a leading
developer, manufacturer and marketer of medical devices used for the treatment
of patients suffering from respiratory disorders. Respironics' products are
technologically advanced, are designed to improve the effectiveness of patient
care and are used primarily in the home and hospitals, as well as in emergency
medical settings and alternative care facilities. Respironics' primary product
lines are: (i) continuous positive airway pressure devices and bi-level
positive airway pressure devices for the treatment of obstructive sleep apnea,
a serious disorder characterized by the repeated cessation of breathing during
sleep; (ii) ventilation devices, including bi-level non-invasive ventilatory
support units and portable invasive volume ventilator units; and (iii) patient
mask products.
Respironics' research and development efforts are focused on understanding
the problems faced by cardiopulmonary physicians and their patients' needs and
on maintaining technological leadership in its core product areas. Respironics
maintains both formal and informal relationships with physician practitioners
and researchers (including sleep laboratories) to supplement these research
and development efforts. Respironics' research and development efforts enable
it to capitalize on opportunities in the respiratory medical product business
through upgrading its current products as well as developing new products.
Respironics markets its products through a sales organization consisting of
approximately 100 direct and independent sales representatives, who sell to a
network of over 2,500 medical product dealers. In certain foreign markets,
Respironics' products are sold directly to end users. Respironics also rents
its products, primarily to distributors. Respironics' sales are currently
comprised of 63% equipment and 37% consumable and single-use products.
Respironics' principal executive offices are located at 1501 Ardmore
Boulevard, Pittsburgh, Pennsylvania 15221 and its telephone number is (412)
731-2100. Additional information regarding Respironics is contained in its
filings with the SEC pursuant to the Exchange Act. See "Available Information"
and "Incorporation of Certain Documents by Reference."
HEALTHDYNE
Healthdyne is incorporated under the laws of Georgia, and is a leading
designer, manufacturer, and marketer of technologically advanced medical
devices for use in the home and hospital as well as for specialized clinical
settings such as subacute facilities, neonatal intensive care units, sleep
laboratories, clinics and physician offices ("Alternate Care Sites").
Healthdyne's principal products include diagnostic and therapeutic devices for
the evaluation and treatment of sleep disorders, such as obstructive sleep
apnea; non-invasive ventilators, oxygen delivery systems, asthma management
devices such as peak flow meters, drug delivery systems and medication
nebulizers for the treatment of respiratory disorders; monitoring devices for
newborns and infants at risk for critical disorders such as SIDS; and
fiberoptic phototherapy devices for the treatment of neonatal jaundice.
Healthdyne is a significant global competitor in the rapidly growing business
of diagnosing and treating sleep disorders, is one of the leaders in the
United States in respiratory care devices, including asthma management, and is
also the leading supplier of home monitoring devices for infants at risk for
SIDS. Healthdyne is also engaged in the development and manufacture of several
additional product lines complementary to its focus on home care and Alternate
Care Sites, including fetal monitoring during labor and delivery and non-
invasive detection of bilirubin.
Healthdyne's research and development efforts are focused on strengthening
its technological position in its core product areas and taking advantage of
opportunities in expanding medical technology markets through upgrading the
design and technological sophistication of its current products, as well as
developing new products. Healthdyne conducts research and development for new
products in its manufacturing facilities in Marietta, Georgia; Indianapolis,
Indiana; and Vista, California; its HealthScan subsidiary in New Jersey; and
its
23
<PAGE>
development facility in Brussels, Belgium. Healthdyne provides engineering and
manufacturing support for existing products in the United States and utilizes
outside resources for highly specialized product development requirements.
Healthdyne has also pursued an aggressive business development program to
enter into strategic alliances, acquisitions, licenses and other partnerships
to help in meeting its strategic objectives and to capitalize on short and
long term trends in the industry.
Healthdyne markets its products through a field sales force comprised of
sales employees, independent manufacturers' representatives, and distributors.
Healthdyne's field sales force markets its products to the home care and other
specialized markets, as well as to the hospital market for certain products.
Healthdyne's home health care products are made available to patients through
approximately 3,500 dealer locations throughout the United States and Canada.
Healthdyne also sells its products internationally, primarily in Europe, the
Far East, and Latin America. Healthdyne seeks one major distributor for each
targeted country and currently has distribution arrangements in 30 countries,
which typically market Healthdyne's products through their own sales force.
For certain products, Healthdyne enters into separate distributor
arrangements.
Healthdyne's principal executive offices are located at 1255 Kennestone
Circle, Marietta, Georgia 30066, and its telephone number is (770) 499-1212.
Additional information regarding Healthdyne is contained in its filings with
the SEC pursuant to the Exchange Act. See "Available Information" and
"Incorporation of Certain Documents by Reference."
THE MERGER
This portion of the Joint Proxy Statement/Prospectus describes various
aspects of the Merger, including all aspects deemed material by Respironics
and Healthdyne. The following description does not purport to be complete and
is qualified in its entirety by reference to the Merger Agreement attached
hereto as Appendix I and incorporated herein by reference. All stockholders of
Respironics and shareholders of Healthdyne are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides that, subject to the satisfaction of certain
conditions (including, among other things, approval of the issuance of the
Merger Shares pursuant to the Merger Agreement by the stockholders of
Respironics, approval and adoption of the Merger Agreement by the shareholders
of Healthdyne and receipt of certain regulatory approvals), Merger Subsidiary,
a wholly owned subsidiary of Respironics, will be merged into and with
Healthdyne. Upon consummation of the Merger, Healthdyne will become a wholly
owned subsidiary of Respironics, and the shareholders of Healthdyne will
become stockholders of Respironics.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. During the period 1994-1996, Invacare approached
Healthdyne on several occasions to discuss possible business combination
transactions, and on each occasion after due consideration of the Invacare
overture, Healthdyne determined not to pursue a transaction with Invacare.
On January 2, 1997, Invacare sent a letter to Healthdyne indicating
Invacare's persistent interest in a combination with Healthdyne and proposing
to acquire Healthdyne in a negotiated merger transaction in which shareholders
of Healthdyne would receive $12.50 in cash for each share of Healthdyne Common
Stock. On January 8, 1997, Healthdyne sent Invacare a letter stating that the
Healthdyne Board planned to consider Invacare's $12.50 per share proposal at
the next regularly scheduled Board meeting. On January 10, 1997, Invacare
issued a press release disclosing its initial proposal to acquire all
Healthdyne shares.
On January 27, 1997, Invacare commenced an unsolicited tender offer (the
"Invacare Offer") to purchase any and all of the outstanding shares of
Healthdyne Common Stock, including the associated preferred stock
24
<PAGE>
purchase rights of Healthdyne, at $13.00 per share. The Invacare Offer was
subject to various conditions. The Invacare Offer also stated that if the
Healthdyne Board opposed the Invacare Offer, Invacare intended to nominate
individuals for election as directors of Healthdyne, would consider making
shareholder proposals and planned to solicit proxies from shareholders for the
purpose of electing Invacare's nominees and approving Invacare's proposals at
Healthdyne's 1997 annual meeting.
On January 30, 1997, the Healthdyne Board considered the Invacare Offer and
unanimously concluded that the Invacare Offer was grossly inadequate and
recommended that Healthdyne's shareholders reject the Invacare Offer and not
tender their Healthdyne shares in the Invacare Offer.
From time to time during the pendency of the Invacare Offer, there were
discussions between BT Alex. Brown, Respironics' financial advisor, and Cowen,
Healthdyne's financial advisor, as to a possible business combination
transaction with Respironics. At such time, both Healthdyne and Respironics
had determined that it was not in their best interests to further pursue
discussions regarding a possible business combination transaction.
On March 31, 1997, Invacare announced that it was increasing the price in
its tender offer from $13.00 per share to $13.50 per share. On April 2, 1997,
Healthdyne issued a press release announcing that the Healthdyne Board had
unanimously rejected the revised offer from Invacare and continued to
recommend that Healthdyne's shareholders reject the revised Invacare Offer.
On June 4, 1997, Invacare again increased the price in its tender offer from
$13.50 per share to $15.00 per share, which it described as its "best and
final" offer. On June 19, 1997, Healthdyne announced that the Healthdyne Board
had rejected Invacare's $15.00 per share offer as grossly inadequate and
recommended that Healthdyne shareholders not tender their shares in the
Invacare Offer.
On June 20, 1997, the Healthdyne Board met and reaffirmed its decision not
to sell or merge Healthdyne. However, in the interest of exploring
alternatives to Invacare's $15.00 per share offer, the Healthdyne Board
instructed Healthdyne's management to contact certain parties which had
expressed or may have an interest in a potential transaction with Healthdyne,
as well as considering other possible transactions employing leverage to
deliver value to Healthdyne's shareholders.
On July 3, 1997, the Federal District Court in Atlanta upheld the
"continuing directors" provision of the Healthdyne Rights Plan which had been
challenged by Invacare. (See "Comparison of Stockholders' Rights--The
Healthdyne Rights Plan"). Thereafter, the United States Court of Appeals for
the Eleventh Circuit denied Invacare's request for an expedited appeal of the
District Court's decision and Invacare determined to seek the election of only
four out of seven directors at Healthdyne's 1997 annual meeting.
On July 11, 1997, Respironics announced that it had filed a patent
infringement lawsuit against Healthdyne in the Federal District Court in
Pittsburgh alleging unlawful use of Respironics' patented bi-level technology.
On July 19, 1997, Healthdyne and Respironics entered into a confidentiality
agreement in connection with Respironics' consideration of a possible
acquisition of or merger with Healthdyne. In addition, Healthdyne entered into
similar confidentiality agreements with several other parties. On July 21,
1997, representatives of Respironics and its financial advisor met with
representatives of Healthdyne and its financial advisor to preliminarily
discuss the possibility of pursuing a business combination between the
companies following Healthdyne's 1997 annual meeting.
On July 23, 1997, Healthdyne announced that it had received an indication of
interest from a major corporation to acquire Healthdyne at a price higher than
Invacare's $15.00 per share offer. Healthdyne also stated that it would accept
the best proposal to acquire or merge Healthdyne as long as such proposal
reflected Healthdyne's true value. At Healthdyne's 1997 annual meeting on July
30, 1997, all of Healthdyne's nominees were re-elected to the Healthdyne Board
and Invacare's shareholder proposals were adopted. On August 1, 1997, Invacare
terminated the Invacare Offer.
25
<PAGE>
Following Healthdyne's 1997 annual meeting, the Healthdyne Board determined
that it would be advisable to continue exploring a possible strategic business
combination or other transaction which would provide value to Healthdyne's
shareholders. On or about September 19, 1997, Cowen sent letters to all of the
third parties which had expressed an interest in Healthdyne (including
Respironics), and advised such interested parties that they should submit
proposals for a business combination with Healthdyne by October 2, 1997.
On September 24, 1997, the Respironics Board met with management and
Respironics' financial advisor, BT Alex. Brown, and reviewed various matters
concerning Healthdyne's business and potential acquisition strategies. The
Respironics Board authorized the submission of a proposal for a business
combination with Healthdyne.
On October 2, 1997, the Healthdyne Board met with its financial and legal
advisors to consider the proposals received by Cowen. Respironics submitted a
proposal to merge with Healthdyne in a tax-free, pooling of interests
transaction in which Healthdyne shareholders would receive $20.00 per share
payable in Respironics Common Stock, subject to a customary "collar" and
completion of due diligence. Respironics included a draft merger agreement
with its proposal. Healthdyne also received a proposal from a third party (the
"Third Party") for a similar merger transaction in which the Healthdyne
shareholders would receive $19.50 per share payable in common stock of the
Third Party. The Healthdyne Board then directed Cowen to negotiate better
proposals from both Respironics and the Third Party.
On October 10, 1997, the Third Party increased its proposal to $20.50 per
Healthdyne share, conditioned on Healthdyne's agreement to negotiate
exclusively with the Third Party for a one week period. Thereafter, following
a meeting of the Healthdyne Board, Healthdyne advised the Third Party that it
would negotiate exclusively with the Third Party until Friday, October 17,
1997.
On October 15, 1997, the Respironics Board met with management and
Respironics' financial advisor and authorized the submission of a revised
proposal for a business combination with Healthdyne.
On October 17, 1997, Respironics submitted a revised proposal to the
Healthdyne Board indicating that Respironics was prepared to increase its
proposal to $24.00 per Healthdyne share, payable in Respironics Common Stock.
The revised proposal from Respironics was subject to completion of financial,
legal and operational due diligence and requested Healthdyne to agree to a
fifteen day exclusive negotiating period.
On October 18, 1997, counsel to the Third Party delivered to Healthdyne and
its counsel a draft merger agreement and proposed "lock-up" stock option
agreement.
On Monday, October 20, 1997, the Healthdyne Board met to receive an update
from its financial and legal advisors. At such meeting, Cowen provided the
Board with a financial analysis of the two proposals and counsel provided the
Board with a comparison of the draft merger agreements proposed by each of
Respironics and the Third Party, recognizing that neither of such agreements
had been negotiated. The Healthdyne Board instructed management and Cowen to
pursue negotiations with both parties, including advising Respironics that
Healthdyne was not in a position to agree to negotiate exclusively with
Respironics. In addition, the Healthdyne Board requested that counsel advise
the Board with respect to the prospects of receiving regulatory approval for a
merger with either Respironics or the Third Party.
On October 21, 1997, representatives of the Third Party and its financial
advisor conducted due diligence at Healthdyne's offices. On October 22, 1997,
Healthdyne's counsel furnished the Third Party's counsel with comments on the
draft merger agreement.
On October 23, 1997, Respironics submitted another letter to the Healthdyne
Board reaffirming its $24.00 per share proposal and again advising Healthdyne
that it would require a fifteen day exclusive negotiating period. Respironics
indicated that it was prepared to commence due diligence on Monday, October
27, 1997 and that such due diligence could be completed by November 5, 1997.
26
<PAGE>
On Friday, October 24, 1997, Healthdyne and the Third Party terminated their
discussions.
On Monday, October 27, 1997, Respironics and its financial advisor and legal
counsel commenced due diligence at the offices of Healthdyne and, later that
week and the following week, at certain of Healthdyne's manufacturing
facilities. Also, on that date, Healthdyne received a letter from the Third
Party formally withdrawing its proposal to merge with Healthdyne. Later in the
day on October 27, 1997, the Healthdyne Board held a meeting to receive an
update on the status of Healthdyne's discussions with Respironics and the
Third Party. Also, on that day, Healthdyne agreed to the exclusive negotiating
period requested by Respironics.
Representatives of Respironics and its legal counsel continued to conduct
due diligence during the week of October 27, 1997. During that week, counsel
for Healthdyne and Respironics began negotiating the terms and conditions of
the draft merger agreement which had been submitted with Respironics' initial
proposal.
During the week of November 2, 1997, Healthdyne, its legal counsel and
representatives of Cowen conducted due diligence with respect to Respironics
at the offices of Respironics' counsel in Pittsburgh, Pennsylvania. Counsel
for Respironics and Healthdyne continued, their negotiations on the proposed
merger agreement and Healthdyne conducted due diligence at certain of
Respironics' facilities. In addition, certain members of Healthdyne's senior
management commenced negotiations with representatives of Respironics
regarding the terms of their employment agreements following the proposed
Merger. Negotiations between Healthdyne and Respironics and their respective
counsel and between certain members of Healthdyne's senior management and
Respironics continued through Monday, November 10, 1997.
During a meeting of the Respironics Board on November 7, 1997, the
Respironics Board was updated as to the status of the proposed transaction,
including the status of negotiations on the proposed merger agreement, and
Respironics' counsel presented a written summary of the terms of the proposed
merger agreement. BT Alex. Brown rendered to the Respironics Board its oral
opinion (which was subsequently confirmed by delivery of a written opinion
dated November 10, 1997, the date of execution of the Merger Agreement) to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Exchange Ratio was fair to Respironics
from a financial point of view, and reviewed for the Board the financial
analyses performed by BT Alex. Brown in connection therewith (see "--Opinion
of Respironics Financial Advisor"). The Respironics Board unanimously approved
the proposed merger agreement, and authorized Mr. Meteny to finalize the terms
of the merger agreement.
On Sunday, November 9, 1997, the Healthdyne Board met to receive an update
on the pending negotiations between Healthdyne and Respironics. At such
meeting, Cowen provided the Healthdyne Board with a financial analysis of the
proposed Merger (see "--Opinion of Healthdyne Financial Advisor") and counsel
to Healthdyne reviewed the terms and provisions of the proposed merger
agreement and the issues that still needed to be resolved. At such meeting,
Messrs. Petit, Dewberry and Yokubinas were given the responsibility to
negotiate and attempt to resolve the remaining issues relating to the proposed
merger agreement and to facilitate the resolution of the remaining issues in
the proposed new employment agreements between certain members of Healthdyne's
senior management and Respironics.
During the evening of Sunday, November 9, 1997 and on Monday, November 10,
1997, various discussions and negotiations were held by certain members of the
Healthdyne Board and representatives of Respironics, during which the terms of
the proposed merger agreement and the employment agreements were finalized.
During the evening of November 10, 1997, the Healthdyne Board met with its
financial and legal advisors to consider the proposed merger agreement and the
transactions contemplated thereby. At such meeting, Healthdyne's financial and
legal advisors updated their presentations to the Healthdyne Board from the
previous day concerning the proposed transaction and Cowen rendered to the
Healthdyne Board an opinion to the effect that the financial terms of the
transaction contemplated by the Merger Agreement are fair, from a financial
point of view, to Healthdyne's shareholders. Following the Healthdyne Board's
review of the proposed transaction,
27
<PAGE>
the Healthdyne Board unanimously approved the proposed Merger Agreement and
authorized the execution and delivery of the Merger Agreement and related
documents.
During the late evening of November 10, 1997, the Merger Agreement was
executed and delivered by all parties thereto. On the morning of November 11,
1997, Respironics and Healthdyne issued a joint press release announcing the
execution of the Merger Agreement.
At the annual meeting of the Respironics Board on November 19, 1997, the
final, executed version of the Merger Agreement was presented to the
Respironics Board and the Respironics Board unanimously ratified and approved
the Merger Agreement.
Reasons for the Merger--Respironics; Recommendation of the Respironics
Board. The Respironics Board has concluded that the proposed Merger is in the
best interests of Respironics and its stockholders because, among other
reasons, the Merger would further Respironics' mission to be first and best at
anticipating and solving problems in the cardiopulmonary marketplace and would
further its corporate strategies of strengthening customer partnerships,
expanding geographic markets, and improving its innovation capabilities.
The Respironics Board concluded that the proposed Merger will further such
mission and strategies because of its belief that, among other things:
1. The combination of Respironics and Healthdyne will result in a company
focused on customer satisfaction and positioned to meet the needs of home care
and hospital customers;
2. Respironics' global product development, manufacturing, and distribution
capabilities will be strengthened;
3. Respironics' product line will be significantly broadened with the
addition of Healthdyne's existing complementary product offerings in infant
monitoring, sleep diagnostics, oxygen, and asthma management as well as
Healthdyne's new products currently under development;
4. Respironics' "critical mass" of revenues, profits, and assets will be
increased significantly; and
5. The retention of key Healthdyne executives will strengthen Respironics'
already experienced management team.
In reaching its conclusion that the proposed Merger is fair to, and in the
best interests of, Respironics and its stockholders, the Respironics Board
also considered a number of factors, including, but not limited to, the
following:
(i) Its knowledge of the business, operations, properties, assets, financial
condition, operating results, and prospects of Respironics and Healthdyne;
(ii) Current industry, economic and market conditions;
(iii) Presentations by Respironics management with respect to Respironics,
Healthdyne and the Merger;
(iv) The financial presentation and opinion of BT Alex. Brown to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair to Respironics from a
financial point of view (see "--Opinion of Respironics Financial Advisor");
(v) The terms of the Merger Agreement and the nature and amount of the
termination fees that may be payable under certain circumstances;
(vi) The accounting and tax treatment of the Merger; and
28
<PAGE>
(vii) The opportunity for Respironics stockholders to participate in a
larger and more diverse company.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Respironics Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Respironics Board may have given different weights to different
factors.
FOR THE REASONS DESCRIBED ABOVE, THE RESPIRONICS BOARD HAS UNANIMOUSLY
APPROVED THE ISSUANCE OF SHARES OF RESPIRONICS COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, RESPIRONICS AND THE RESPIRONICS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE ISSUANCE OF THE MERGER
SHARES PURSUANT TO THE MERGER AGREEMENT.
Opinion of Respironics Financial Advisor. Respironics engaged BT Alex. Brown
to act as its exclusive financial advisor in connection with the Merger. On
November 7, 1997, at a meeting of the Respironics Board held to evaluate the
proposed Merger, BT Alex. Brown rendered to the Respironics Board an oral
opinion (which opinion was subsequently confirmed by delivery of a written
opinion dated November 10, 1997, the date of execution of the Merger
Agreement) to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Exchange Ratio was fair
from a financial point of view to Respironics. No limitations were imposed by
the Respironics Board upon BT Alex. Brown with respect to the investigations
made or the procedures followed by it in rendering its opinion.
The full text of the written opinion of BT Alex. Brown dated November 10,
1997, which sets forth the assumptions made, matters considered and
limitations of the review undertaken, is attached as Appendix II to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. BT ALEX.
BROWN'S OPINION IS DIRECTED TO THE RESPIRONICS BOARD, ADDRESSES ONLY THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO RESPIRONICS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE RESPIRONICS MEETING. The summary of the opinion
of BT Alex. Brown in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In connection with its opinion, BT Alex. Brown reviewed certain publicly
available financial information and other information concerning Respironics
and Healthdyne and certain internal analyses and other information furnished
to BT Alex. Brown by Respironics and Healthdyne. BT Alex. Brown also held
discussions with members of the senior managements of Respironics and
Healthdyne regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, BT Alex.
Brown (i) reviewed the reported prices and trading activity for Respironics
Common Stock and Healthdyne Common Stock, (ii) compared certain financial and
stock market information for Respironics and Healthdyne with similar
information of certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations
which BT Alex. Brown deemed comparable in whole or in part, (iv) reviewed the
terms of the Merger Agreement, and (v) performed such other studies and
analyses and considered such other factors as BT Alex. Brown deemed
appropriate.
As described in its opinion, BT Alex. Brown assumed and relied upon, without
independent verification, the accuracy, completeness and fairness of the
information furnished to or otherwise reviewed by or discussed with BT Alex.
Brown for purposes of its opinion. With respect to the information relating to
the prospects of Respironics or Healthdyne, BT Alex. Brown assumed that such
information reflected the best currently available judgments and estimates of
the managements of Respironics and Healthdyne as to the likely future
financial performances of their respective companies and of the combined
company. BT Alex. Brown also assumed that the Merger would qualify for
pooling-of-interests accounting treatment and as a tax-free transaction. BT
Alex. Brown did not make nor was it provided with an independent evaluation or
appraisal of the assets or liabilities of Respironics and Healthdyne. BT Alex.
Brown's opinion does not constitute an opinion as to the price at which the
Respironics Common Stock will actually trade at any time. BT Alex. Brown's
opinion was based on market,
29
<PAGE>
economic and other conditions as they existed and could be evaluated as of the
date of its opinion. Although BT Alex. Brown evaluated the Exchange Ratio from
a financial point of view, the type and amount of consideration payable in the
Merger was determined through negotiation between Respironics and Healthdyne.
The following is a summary of the material analyses and factors considered
by BT Alex. Brown in connection with its opinion to the Respironics Board
dated November 10, 1997:
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for Respironics and Healthdyne with
similar information for the following selected publicly held companies in the
medical devices industry: (i) in the case of Respironics: Allied Healthcare
Products, Inc., Ballard Medical Products, Graham-Field Health Products, Inc.,
Invacare Corporation, Mallinckrodt Group Inc., ResMed Inc., Sunrise Medical
Inc. and Vital Signs, Inc. (the "Respironics Selected Companies") and (ii) in
the case of Healthdyne, the Respironics Selected Companies and Respironics
(the "Healthdyne Selected Companies"). BT Alex. Brown calculated equity market
values relative to each company's net income for the latest 12 months and
earnings per share ("EPS") for calendar years 1997, 1998 and 1999, and
adjusted market values (equity market value, plus debt, less cash and
equivalents) relative to each company's latest 12 months revenues, earnings
before interest, taxes, depreciation and amortization ("EBITDA"), and earnings
before interest and taxes ("EBIT"). All multiples were based on closing stock
prices on November 5, 1997. EPS estimates for the Healthdyne Selected
Companies were based on analysts' estimates as reported by I/B/E/S, a market
research database, and EPS estimates for Healthdyne were based on analysts'
estimates as reported by I/B/E/S as revised by the management of Respironics.
This analysis indicated multiples for the Respironics Selected Companies of
latest 12 months net income and estimated calendar 1997, 1998 and 1999 EPS of
15.2x to 25.9x (with a mean of 21.1x), 14.2x to 28.9x (with a mean of 20.3x),
12.3x to 22.7x (with a mean of 17.4x) and 9.8x to 15.6x (with a mean of
12.7x), respectively, and latest 12 months revenues, EBITDA and EBIT of 0.8x
to 5.3x (with a mean of 2.2x), 7.8x to 14.7x (with a mean of 10.3x) and 8.9x
to 18.6x (with a mean of 13.3x), respectively. This analysis indicated
multiples for the Healthdyne Selected Companies of latest 12 months net income
and estimated calendar 1997, 1998 and 1999 EPS of 15.2x to 27.1x (with a mean
of 22.0x), 14.2x to 28.9x (with a mean of 21.0x), 12.3x to 22.7x (with a mean
of 17.8x) and 9.8x to 16.9x (with a mean of 13.3x), respectively, and latest
12 months revenues, EBITDA and EBIT of 0.8x to 5.3x (with a mean of 2.3x),
7.8x to 14.7x (with a mean of 10.7x) and 8.9x to 18.6x (with a mean of 13.7x),
respectively. These multiples compare with multiples of latest 12 months net
income and estimated calendar 1997, 1998 and 1999 EPS and latest 12 months
revenues, EBITDA and EBIT for Respironics of 27.1x, 25.1x, 20.5x, 16.9x, 2.9x,
13.0x and 16.5x, respectively. Based on the closing stock price of Respironics
Common Stock on November 5, 1997, the Exchange Ratio equated to implied
multiples for Healthdyne of latest 12 months net income and estimated calendar
1997, 1998 and 1999 EPS of 37.9x, 30.0x, 22.2x and 16.9x, respectively, and
latest 12 months revenues, EBITDA and EBIT of 2.5x, 17.5x and 21.7x,
respectively.
Analysis of Recent Mergers and Acquisitions. BT Alex. Brown reviewed the
purchase price, implied transaction multiples and premiums paid in 13 selected
merger and acquisition transactions announced or effected in the medical
devices industry (the "Selected Transactions"). All multiples were based on
publicly available information at the time of announcement of such
transaction. This analysis indicated (i) implied equity market value multiples
for the Selected Transactions of latest 12 months net income and one-year
forward net income of 11.4x to 40.1x (with a mean of 29.8x) and 18.5x to 30.4x
(with a mean of 24.0x), respectively; (ii) implied adjusted market value
multiples for the Selected Transactions of latest 12 months revenues, EBITDA
and EBIT of 1.0x to 5.0x (with a mean of 2.4x), 9.9x to 23.6x (with a mean of
15.0x) and 7.9x to 26.6x (with a mean of 18.5x), respectively; and (iii) a
range of premiums, based on the target company's stock price one-month prior,
and one-day prior, to public announcement of the transaction of approximately
4.9% to 89.5% (with a mean of 50.3%) and 9.7% to 48.8% (with a mean of 34.8%),
respectively. Based on the closing stock price of Respironics Common Stock on
November 5, 1997, the Exchange Ratio equated to (i) implied equity market
value multiples of Healthdyne's latest 12 months net income and one-year
forward net income of 37.9x and 22.3x, respectively; (ii) implied adjusted
market value multiples of Healthdyne's latest 12 revenues, EBITDA and EBIT of
2.5x, 17.5x and 21.7x, respectively; and (iii) premiums payable in the Merger
based on the closing stock price of
30
<PAGE>
Healthdyne Common Stock one-month prior, and one-day prior, to public
announcement of the Merger of approximately 28.9% and 20.0%, respectively.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis of Respironics and Healthdyne to estimate the present value of
the stand-alone, unlevered, after-tax free cash flows that Respironics and
Healthdyne could generate over the years 1998 through 2002 based, in the case
of Respironics, on extrapolated analysts' estimates as reported by I/B/E/S
and, in the case of Healthdyne, on extrapolated analysts' estimates as
reported by I/B/E/S as revised by the management of Respironics. The stand-
alone discounted cash flow analysis was determined by (i) adding (x) the
present value at December 31, 1997 of the projected free cash flows of
Respironics and Healthdyne over the period 1998 through 2002 and (y) the
present value at December 31, 1997 of the estimated terminal values of
Respironics and Healthdyne in year 2002 and (ii) subtracting the current net
debt of Respironics and Healthdyne at September 30, 1997. The range of
estimated terminal values for Respironics and Healthdyne was calculated by
applying terminal value multiples ranging from 8.0x to 12.0x to the projected
2002 EBITDA of Respironics and Healthdyne. The cash flows and terminal values
of Respironics and Healthdyne were discounted to present value using discount
rates ranging from 12% to 16%. This analysis yielded equity reference ranges
for Respironics Common Stock and Healthdyne Common Stock of approximately
$24.59 to $40.62 per share and approximately $24.44 to $42.39 per share,
respectively.
Premiums Paid Analysis. BT Alex. Brown reviewed the range of premiums paid
in 94 change of control transactions with transaction values of $250 million
to $500 million involving non-finance companies. These transactions indicated
a range of premiums, based on the target company's stock price one-month
prior, and one-day prior, to public announcement of the transaction of
approximately (1.1)% to 118.2% (with a mean of 44.1%) and (16.1%) to 105.5%
(with a mean of 32.8%), respectively. BT Alex. Brown also reviewed the range
of premiums paid in 20 change of control transactions with transaction values
of $250 million to $500 million involving health care companies. These
transactions indicated a range of premiums, based on the target company's
stock price one-month prior, and one-day prior, to public announcement of the
transaction of approximately (1.1%) to 84.6% (with a mean of 39.4%) and
(16.1%) to 80.5% (with a mean of 23.6%), respectively. The premiums payable in
the Merger based on the closing stock price of Healthdyne Common Stock one-
month prior, and one-day prior, to public announcement of the Merger were
approximately 28.9% and 20.0%, respectively.
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed the historical
ratio of the daily per share market closing prices of Healthdyne Common Stock
divided by the corresponding prices of Respironics Common Stock over 180
trading days, 30 trading days, one month prior to, and as of, November 5,
1997. Such average exchange ratios for the aforementioned time periods and as
of such dates were 0.712, 0.666, 0.631, and 0.711, respectively, as compared
to the Exchange Ratio (based on Respironics' share price during the 20 trading
days prior to November 5, 1997) of 0.853.
Contribution Analysis. BT Alex. Brown analyzed the relative contributions of
Respironics and Healthdyne to the estimated revenues, EBITDA, EBIT and net
income of the pro forma combined company for the latest 12 months ended
September 30, 1997, to the estimated net income of the pro forma combined
company for calendar years 1997, 1998 and 1999 based, in the case of
Respironics, on analysts' estimates as reported by I/B/E/S and, in the case of
Healthdyne, on analysts' estimates as reported by I/B/E/S as revised by the
management of Respironics, and to the estimated book value of the pro forma
combined company as of September 30, 1997, and compared such contributions to
the pro forma ownership of the holders of Respironics Common Stock in the pro
forma combined company. This analysis indicated that (i) for the latest 12
months ended September 30, 1997, Respironics would have contributed
approximately 57.4% of the revenues, 67.7% of the EBITDA, 67.2% of the EBIT
and 70.6% of the net income of the pro forma combined company; (ii) in
calendar years 1997, 1998 and 1999, Respironics would contribute approximately
68.1%, 65.1% and 62.4%, respectively, of the net income of the pro forma
combined company; and (iii) as of September 30, 1997, Respironics would
contribute approximately 73.9% of the book value of the pro forma combined
company. Based on the Exchange Ratio (based on Respironics' share price during
the 20 trading days prior to November 5, 1997), current holders of
31
<PAGE>
Respironics Common Stock would own approximately 63.2% of the pro forma
combined company upon consummation of the Merger.
Pro Forma Merger Analysis. BT Alex. Brown analyzed the pro forma effects of
the Merger on the EPS of Respironics in calendar years 1998 and 1999 based, in
the case of Respironics, on analysts' estimates as reported by I/B/E/S and, in
the case of Healthdyne, on analysts' estimates as reported by I/B/E/S as
revised by the management of Respironics, both before and after giving effect
to certain cost savings and other potential synergies anticipated by the
managements of Respironics and Healthdyne to result from the Merger (excluding
non-recurring costs resulting from the Merger). This analysis indicated that
the Merger could be dilutive to the EPS of Respironics in calendar years 1998
and 1999 before giving effect to such potential cost savings and synergies
(excluding non-recurring costs resulting from the Merger), and could be
accretive to the EPS of Respironics in calendar years 1998 and 1999 after
giving effect to such potential cost savings and synergies (excluding non-
recurring costs resulting from the Merger). The actual operating or financial
results achieved by the pro forma combined company may vary from projected
results and variations may be material as a result of business and operational
risks, the timing and amount of synergies, the costs associated with achieving
such synergies and other factors.
Other Analyses. In rendering its opinion, BT Alex. Brown also reviewed and
considered, among other things: (i) historical market prices for Respironics
Common Stock and Healthdyne Common Stock relative to the S&P 500 Index and
(ii) selected analysts' reports on Respironics and Healthdyne, including
growth rate estimates of such analysts for Respironics and Healthdyne.
The summary set forth above does not purport to be a complete description of
the opinion of BT Alex. Brown to the Respironics Board or the financial
analyses performed and factors considered by BT Alex. Brown in connection with
its opinion. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. BT Alex. Brown believes that its analyses
and the summary set forth above must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or
selecting portions of the above summary, without considering all factors and
analyses, could create a misleading or incomplete view of the processes
underlying such analyses and opinion. In performing its analyses, BT Alex.
Brown made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Respironics and Healthdyne. No company,
transaction or business used in such analyses as a comparison is identical to
Respironics, Healthdyne, or the proposed Merger, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject
to substantial uncertainty. BT Alex. Brown's opinion and financial analyses
were only one of many factors considered by the Respironics Board in its
evaluation of the proposed Merger and should not be viewed as determinative of
the views of the Board of Directors or management of Respironics with respect
to the Exchange Ratio or the Merger.
BT Alex. Brown is an internationally recognized investment banking firm and,
as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
estate, corporate and other purposes. Respironics selected BT Alex. Brown to
serve as its exclusive financial advisor based on BT Alex. Brown's reputation,
expertise and familiarity with Respironics and its business. BT Alex. Brown
previously has provided various financing and financial advisory services to
Respironics, for which services BT
32
<PAGE>
Alex. Brown has received customary compensation. BT Alex. Brown maintains a
market in Respironics Common Stock and regularly publishes research reports
regarding the health care industry and the businesses and securities of
Respironics and other publicly traded companies in the health care industry.
In the ordinary course of business, BT Alex. Brown may actively trade the
securities of both Respironics and Healthdyne for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or
short position in securities of Respironics and Healthdyne.
Pursuant to the terms of BT Alex. Brown's engagement, Respironics has agreed
to pay BT Alex. Brown, upon consummation of the Merger, an aggregate financial
advisory fee of $3.0 million. In addition, Respironics has agreed to reimburse
BT Alex. Brown for its out- of-pocket expenses, including fees and
disbursements of counsel, and to indemnify BT Alex. Brown and certain related
parties against certain liabilities, including certain liabilities under the
federal securities laws, relating to, or arising out of, its engagement.
Reasons for the Merger--Healthdyne; Recommendation of the Healthdyne
Board. The Healthdyne Board has unanimously determined that the Merger and
related transactions are fair to, and in the best interests of, Healthdyne and
its shareholders. In reaching its decision, the Healthdyne Board consulted
with senior management; Healthdyne's legal counsel with respect to the legal
duties of the Board, regulatory matters, the Merger Agreement and issues
related thereto; and with Cowen with respect to the financial aspects and
fairness of the Merger and the fairness of the consideration to be received by
Healthdyne's shareholders.
Prior to approving the Merger, the Healthdyne Board received information
regarding, and analyzed and carefully considered, among other things, a number
of factors, including, but not limited to, the following:
(i) Information concerning the business, financial condition, earnings,
results of operations, cash flows, as well as the management, competitive
position, prospects, capital levels and asset quality of Healthdyne and
Respironics, both historically and as a combined entity, and the influence of
current industry, economic and market conditions;
(ii) The strategic alternatives available to Healthdyne (including remaining
as an independent company), particularly in view of the statement made by the
Healthdyne Board during the pendency of the Invacare Offer that it would
accept the best proposal to acquire or merge Healthdyne as long as such
proposal reflected Healthdyne's true value;
(iii) The fact that Cowen implemented procedures to solicit proposals from
third parties to merge with or acquire Healthdyne, and that discussions had
been conducted with likely interested parties in the context of a process
intended to maximize shareholder value through the solicitation of proposals
from those parties believed to have the most significant interest in acquiring
or merging with Healthdyne and that Respironics' proposal was the best offer
received in such process;
(iv) The financial presentation and opinion from Cowen to the effect that
the financial terms of the transaction contemplated by the Merger Agreement
are fair, from a financial point of view, to the Healthdyne shareholders (see
"--Opinion of Healthdyne Financial Advisor");
(v) The risks of remaining as an independent company, including, among
others, the risks of being unable to meet or exceed projections and current
growth rates due to increasing competitive pressures in the markets in which
Healthdyne operates;
(vi) Historical market prices and trading information with respect to the
Healthdyne Common Stock and the Respironics Common Stock and the formula set
forth in the Merger Agreement which would be used as a basis for determining
the Exchange Ratio;
(vii) The fact that Healthdyne's shareholders would maintain a significant
ownership stake in the combined company and would have the opportunity for
potential appreciation in the value of the shares of Respironics Common Stock
to be received in the Merger. In addition, the Healthdyne Board noted that
33
<PAGE>
Respironics expected the Merger to be accretive to Respironics' earnings in
the first full fiscal year following the Merger;
(viii) The fact that the Merger was structured so that Healthdyne
shareholders would receive Respironics Common Stock in an exchange that would
be non-taxable for federal income tax purposes;
(ix) The intended treatment of the Merger as a "pooling of interests" for
financial reporting and accounting purposes;
(x) The compatibility of the businesses and operating philosophies of both
companies;
(xi) The excellent strategic fit between the two companies in view of their
respective product lines, markets and distribution channels and the potential
synergies that could be realized given that Respironics' worldwide
manufacturing operations would complement and enhance Healthdyne's global
distribution network of specialty sales forces and manufacturers'
representatives. The strategic fit of Respironics' sleep apnea, portable
ventilation and patient interface products with Healthdyne's monitoring,
diagnostic and therapeutic devices for various respiratory disorders would
expand the combined entity's array of products in the international
respiratory industry, where distribution coverage, reach and product breadth
are crucial;
(xii) The opportunity to realize economies of scale and increased
efficiencies of operations and synergies to the benefit of shareholders and
customers. In addition, the combined company would have increased market
capitalization and financial strength, as well as increased product breadth,
better distribution, enhanced research and development capabilities, and
access to new respiratory and monitoring opportunities;
(xiii) The establishment of a transition team, as provided for in the Merger
Agreement, consisting of selected senior management from both companies and at
least one independent consultant for the purpose of facilitating the Merger
and integrating the two companies;
(xiv) The continued presence of three Healthdyne directors on the
Respironics Board following the Merger and the continuation of certain members
of the senior management of Healthdyne in the management of the combined
company;
(xv) The regulatory approvals required to consummate the Merger and the
prospects for obtaining such approvals;
(xvi) The terms and conditions of the Merger Agreement, including, among
others, the fact that the Merger Agreement permits the Healthdyne Board, in
the exercise of its fiduciary duties, to engage in negotiations with or to
furnish information to third parties in response to unsolicited takeover
proposals and to terminate the Merger Agreement in order to enter into a
definitive agreement relating to an alternative takeover proposal, upon
payment of a $12 million termination fee; and
(xvii) The fact that if the Merger were consummated, Respironics' patent
infringement lawsuit against Healthdyne would be terminated.
The foregoing discussion of the information and factors considered by the
Healthdyne Board is not intended to be exhaustive. Following consideration of
such information and factors described above, the Healthdyne Board concluded
that the Merger is fair to, and in the best interests of, the Healthdyne
shareholders. In reaching this conclusion, the Healthdyne Board did not find
it practicable to, and did not, quantify or otherwise assign relative or
specific weights to the above information and factors or determine that any
information or factor was of particular importance. Rather, the Healthdyne
Board viewed its decision and recommendation as being based on the totality of
information and factors presented to and considered by it and considered such
information collectively in connection with its review of the Merger Agreement
and the proposed transaction. In addition, individual members of the
Healthdyne Board may have given different weight to different information and
34
<PAGE>
factors. For a discussion of the interests of certain members of Healthdyne's
management and directors in the Merger, see "--Interests of Certain Persons in
the Merger."
FOR THE REASONS DESCRIBED ABOVE, THE HEALTHDYNE BOARD HAS DETERMINED THAT
THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF,
HEALTHDYNE AND ITS SHAREHOLDERS. ACCORDINGLY, THE HEALTHDYNE BOARD UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, THE MERGER AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND UNANIMOUSLY RECOMMENDS THAT HEALTHDYNE'S SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
Opinion of Healthdyne Financial Advisor. Pursuant to the engagement letter,
dated January 13, 1997 (the "Cowen Engagement Letter"), the Board retained
Cowen to serve as its financial advisor to assist Healthdyne in evaluating
strategic business alternatives including the possible sale of Healthdyne. As
part of this engagement, Cowen was asked to render an opinion to the
Healthdyne Board as to the fairness, from a financial point of view, to the
holders of Healthdyne Common Stock of the financial terms of the Merger
Agreement.
On November 9 and 10, 1997, Cowen delivered certain of its written analyses
and on November 10, 1997 delivered its opinion to the Healthdyne Board, to the
effect that, as of such date, the financial terms of the Merger were fair,
from a financial point of view, to the holders of Healthdyne Common Stock. THE
FULL TEXT OF THE WRITTEN OPINION OF COWEN, DATED NOVEMBER 10, 1997, IS
ATTACHED HERETO AS APPENDIX III AND IS INCORPORATED BY REFERENCE. HOLDERS OF
HEALTHDYNE COMMON STOCK ARE URGED TO, AND SHOULD, READ THE OPINION IN ITS
ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS
CONSIDERED AND LIMITS OF THE REVIEW BY COWEN. THIS SUMMARY OF THE WRITTEN
OPINION OF COWEN, SET FORTH HEREIN, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION. COWEN'S ANALYSES AND OPINION WERE PREPARED
FOR AND ADDRESSED TO THE BOARD AND ARE DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE FINANCIAL TERMS OF THE MERGER, AND DO NOT
CONSTITUTE AN OPINION AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO
ANY HOLDERS OF HEALTHDYNE COMMON STOCK AS TO HOW TO VOTE AT THE HEALTHDYNE
MEETING.
Cowen was selected by the Board as its financial advisor, to render an
opinion to the Board, because Cowen is a nationally recognized investment
banking firm and because the principals of Cowen have substantial experience
in transactions similar to the Merger and are familiar with Healthdyne and its
businesses. As part of its investment banking business, Cowen is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and valuations for corporate and other purposes.
Cowen served as the lead manager for Healthdyne's June 1993 initial public
offering, advised Healthdyne in its May 1995 spin-off from Healthdyne, Inc.
and advised Healthdyne with respect to the May 1995 implementation of the
Healthdyne Rights Plan. Cowen also served as a co-manager for a public equity
offering for Respironics in April 1996. Cowen received customary fees for such
services. Pursuant to the Cowen Engagement Letter, Cowen also provided
financial advisory services to Healthdyne in connection with the unsolicited
acquisition proposals made by Invacare. See "--Background of the Merger." In
addition, in the ordinary course of its business, Cowen and its affiliates
trade the equity securities of Healthdyne and Respironics for their own
account and for the accounts of their customers, and accordingly, may at any
time hold a long or short position in such securities.
In arriving at its opinion, Cowen has, among other things: (i) reviewed
Healthdyne's financial statements for the fiscal years ended December 31,
1994, 1995 and 1996 and for the fiscal quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, certain publicly available filings with the SEC
and certain other relevant financial and operating data of Healthdyne; (ii)
reviewed Respironics' financial statements for the fiscal years ended June 30,
1995, 1996 and 1997 and for the fiscal quarter ended September 30, 1997,
certain publicly available filings with the SEC and certain other relevant
financial and operating data of Respironics; (iii) reviewed the Merger
Agreement; (iv) held meetings and discussions with management and senior
personnel of both Healthdyne and Respironics to discuss the business,
operations, historical financial results and future prospects of Healthdyne
and Respironics following the Merger; (v) reviewed with the managements of
Healthdyne and Respironics First Call consensus earnings per share estimates
of financial institutions for
35
<PAGE>
Healthdyne and Respironics, respectively, and reviewed financial projections
furnished to Cowen by the management of Healthdyne, including, among other
things, the capital structure, sales, net income, cash flow, capital
requirements and other data of Healthdyne which Cowen deemed relevant; (vi)
reviewed the valuation of Healthdyne and Respironics in comparison to other
similar publicly traded companies; (vii) reviewed the historical prices and
trading activity of Healthdyne Common Stock from June 22, 1993 through
November 7, 1997 and compared those trading histories with those of other
companies which Cowen deemed relevant; (viii) based on First Call estimates,
analyzed the potential pro forma financial effects of the Merger; (ix)
compared the Merger with other similar transactions in which control of an
entity was acquired; and (x) conducted such other studies, analyses, inquiries
and investigations as Cowen deemed appropriate. At the request of Healthdyne,
Cowen solicited third party indications of interest in acquiring all or
substantially all of the stock or assets of Healthdyne. See "--Background of
the Merger."
In rendering its opinion, Cowen relied upon Healthdyne's management with
respect to the accuracy and completeness of financial and other information
concerning Healthdyne furnished to Cowen as described above, other than the
First Call estimates referred to above. Cowen has not assumed any
responsibility for independent verification of such information, including
financial information and First Call estimates, nor has Cowen made an
independent evaluation or appraisal of any of the properties or assets of
Healthdyne or Respironics.
Cowen's opinion is necessarily based on general economic, market, financial
and other conditions as they exist on, and can be evaluated as of, the date
thereof, as well as the information then currently available to Cowen. It
should be understood that, although subsequent developments may affect Cowen's
opinion, Cowen does not have any obligation to update, revise or reaffirm its
opinion. Cowen's opinion does not constitute a recommendation to any holder of
Healthdyne Common Stock as to how such holder should vote on the proposed
Merger. The opinion does not imply any conclusion as to the likely trading
range for the Respironics Common Stock following consummation of the Merger,
which may vary depending on numerous factors that generally influence the
price of securities. The opinion is limited to the fairness, from a financial
point of view, of the terms of the Merger. Cowen expresses no opinion with
respect to any other reasons, legal, business or otherwise, that may support
the decision of the Healthdyne Board to approve, or Healthdyne's decision to
consummate, the Merger.
For purposes of rendering its opinion, Cowen has assumed in all respects
material to its analysis that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger will be satisfied without waiver thereof. Cowen has also assumed that
all governmental, regulatory or other consents and approvals contemplated by
the Merger Agreement will be obtained and that in the course of obtaining any
of those consents no restrictions will be imposed or waivers made that would
be materially adverse to the best interests of the combined companies.
The following is a brief summary of certain financial analyses performed by
Cowen to arrive at its opinion with respect to the Merger. Cowen performed
certain procedures, including each of the financial analyses described below,
and reviewed with the management of Healthdyne the assumptions on which such
analyses were based and other factors, including the projected financial
results of the combined company. No limitations were imposed by the Healthdyne
Board with respect to the investigations made or procedures followed by Cowen
in rendering its opinion. The amount of consideration exchanged in the Merger
was not determined by Cowen, but through negotiations between Healthdyne and
Respironics.
Analysis of Certain Mergers. Cowen reviewed the financial terms, to the
extent publicly available, of 14 selected transactions (collectively, the
"Selected Mergers") involving the acquisition of companies in the respiratory
products industry, which were announced or completed since April 16, 1992.
Cowen reviewed the market capitalization of common stock plus total debt less
cash and equivalents ("Enterprise Value") paid in the Selected Mergers as a
multiple of latest reported twelve month ("LTM") revenues, earnings before
interest expense, income, taxes, depreciation, and amortization ("EBITDA") and
earnings before interest expense and
36
<PAGE>
income taxes ("EBIT") and also examined the multiples of equity value paid in
the Selected Mergers to LTM earnings.
Such analysis indicated that, for the Selected Mergers, (i) the median
values of Enterprise Value as a multiple of LTM revenue, EBITDA and EBIT were
1.63 times, 14.4 times and 22.4 times, respectively; and (ii) the
corresponding multiple of LTM earnings was 36.6 times.
The corresponding multiples of LTM revenues, LTM EBITDA and LTM EBIT for
Healthdyne implied by the Merger are 2.54 times, 17.2 times and 21.6 times,
respectively. The corresponding multiple of LTM earnings implied by the Merger
is 37.8 times. In addition, the $24.00 per share value implied by the Merger
represented premiums of 19.0% and 25.8%, respectively, over Healthdyne's
Common Stock closing price one week and four weeks prior to November 10, 1997.
Although the Selected Mergers were used for comparison purposes, none of
such transactions is directly comparable to the Merger, and none of the
companies in such transactions is directly comparable to Healthdyne or
Respironics. Accordingly, an analysis of the results of such a comparison is
not purely mathematical but instead involves complex considerations and
judgments concerning differences in historical and projected financial and
operating characteristics of the companies involved and other factors that
could affect the acquisition value of such companies or Healthdyne to which
they are being compared.
Analysis of Certain Publicly Traded Companies. To provide contextual data
and comparative market information, Cowen compared selected historical
operating and financial ratios for Healthdyne to the corresponding data and
ratios of three public respiratory products companies (the "Selected
Respiratory Companies") whose securities are publicly traded and which Cowen
believes have operating, market valuation and trading valuations similar to
what might be expected of Healthdyne. These companies were: Novametrix Medical
Systems, Inc.; ResMed, Inc.; and Vital Signs, Inc. Additionally, Cowen
reviewed other selected medical technology companies with certain operations
deemed to be comparable to Healthdyne (the "Selected Other Comparable Industry
Players" and, together with the Selected Respiratory Companies, the "Selected
Companies"). These companies include: Ballard Medical Products, Inc.; Invacare
Corporation; Mallinckrodt, Inc.; Marquette Medical Systems, Inc.; and Thermo
Electron Corporation. Such data and ratios include the Enterprise Value of
such Selected Companies as multiples of revenues, EBITDA and EBIT for the LTM
period, and the market capitalization of common stock of such Selected
Companies as a multiple of the book value of common shareholders' equity.
Cowen also examined the ratios of the current prices of the Selected Companies
to the LTM earnings per share ("EPS"), estimated calendar year 1997 EPS (as
estimated by First Call) and estimated EPS for the following calendar year
1998 (as estimated by First Call) for these companies.
Such analysis indicated that, for the Selected Companies, (i) the median
values of Enterprise Value as a multiple of LTM revenue, EBITDA and EBIT were
2.19 times, 14.1 times and 15.7 times, respectively; (ii) the median of market
capitalization of common stock as a multiple of the book value of common
shareholders' equity was 3.28 times; and (iii) the median values of price per
share as a multiple of LTM EPS and estimated EPS for the calendar years 1997
and 1998 were 22.6 times, 19.5 times and 16.4 times, respectively.
The corresponding multiples of LTM revenues, EBITDA, and EBIT for Healthdyne
implied by the Merger are 2.54 times, 17.2 times and 21.6 times, respectively.
The corresponding multiple of market capitalization of common stock as a
multiple of the book value of common shareholders' equity for Healthdyne
implied by the Merger is 6.45 times. In addition, the corresponding multiples
of the LTM EPS and estimated EPS for the 1997 and 1998 calendar years for
Healthdyne implied by the Merger are 36.6 times, 30.8 times and 22.6 times,
respectively.
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to Healthdyne. Accordingly, an analysis
of the results of such a comparison is not purely mathematical but instead
involves complex considerations and judgments concerning differences in
historical and
37
<PAGE>
projected financial and operating characteristics of the Selected Companies
and other factors that could affect the public trading value of the Selected
Companies or Healthdyne to which they are being compared.
Pro Forma Earnings Analysis. Cowen analyzed the potential effect of the
Merger on the projected combined income statement of Healthdyne and
Respironics for Respironics' fiscal and calendar years ending June 30, 1998
and December 31, 1998, respectively. This analysis was based on: a) third-
party estimates for earnings of Healthdyne and Respironics; and b)
Respironics' prevailing market price of $26.75 per share as of November 7,
1997. This analysis concluded that the Merger would not be materially
accretive or dilutive to projected EPS for the combined company for the fiscal
year ending June 30, 1998. Cowen's pro forma earnings analysis excluded the
possible effect of cost savings and synergies that could result from the
Merger, as no such information was provided to Cowen.
Contribution Analysis. Cowen analyzed the respective financial and other
contributions of Healthdyne and Respironics to the combined company's
revenues, EBIT, net income, cash, total assets, long-term debt and equity
(book value) for LTM ended September 30, 1997. This analysis showed that
Healthdyne contributed to the combined company 42.6% of revenues, 33.4% of
EBIT, and 29.3% of net income for LTM ended September 30, 1997, and 8.4% of
cash, 37.4% of total assets, 66.1% of long-term debt and 26.1% of equity (book
value) on September 30, 1997.
Pro Forma Ownership Analysis of the Combined Company. Cowen analyzed pro
forma ownership in the combined company by shareholders of Healthdyne. Cowen's
analysis concluded that holders of Healthdyne Common Stock would own
approximately 38% of the combined company if the Merger is consummated
assuming a Respironics stock price of $26.75, which price reflects the closing
price of Respironics stock as reported on the NASDAQ NMS on November 7, 1997.
Stock Trading History. To provide contextual data and comparative market
data, Cowen reviewed the historical market prices and trading volumes of
Healthdyne Common Stock from June 22, 1993 (the first trading day of
Healthdyne Common Stock) to November 7, 1997 and of Respironics Common Stock
from November 7, 1996 to November 7, 1997. Cowen noted that over the indicated
periods the high and low prices for shares of Healthdyne Common Stock were
$21.13 and $5.63, respectively.
Premiums Paid Analysis. Cowen reviewed 20 selected transactions announced
between April 16, 1992 and August 25, 1997 in the respiratory and medical
technology industries (based on data provided by Cowen's proprietary Mergers &
Acquisitions database). With respect to these transactions, Cowen analyzed the
percentage premium of equity value paid above closing equity value one trading
day and four weeks prior to the announcement of the transaction. The one
trading day premiums paid median for transactions within the respiratory and
the medical technology sectors were 29.5% and 28.9%, respectively. The four
week premiums paid median for transactions within the respiratory and medical
technology sectors were 51.5% and 45.1%, respectively. The corresponding
premiums implied by the terms of the one trading day and four weeks prior to
the announcement of the Merger are 18.9% and 27.6%, respectively.
The summary set forth above does not purport to be a complete description of
the analyses performed by Cowen. The preparation of a fairness opinion is a
complex process and involves various determinations as to the most appropriate
and relevant methods of financial analyses and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to partial analysis or summary description. Cowen did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, notwithstanding the separate factors
summarized above, Cowen believes, and has advised the Healthdyne Board, that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the process underlying its
opinion. In performing its analyses, Cowen made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Healthdyne and Respironics.
These analyses performed by Cowen are not necessarily indicative of actual
values
38
<PAGE>
or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty and none of
Healthdyne, Respironics, Cowen or any other person assumes responsibility for
their accuracy or responsibility if future results are materially different
from those forecast. As mentioned above, the analyses supplied by Cowen and
its opinion were among many factors taken into consideration by the Healthdyne
Board in making its determination to approve the Merger Agreement. The
analyses of Cowen and its opinion should not be considered as determinative of
the decision of Healthdyne to consummate the Merger. See "Reasons for the
Merger--Healthdyne; Recommendation of the Healthdyne Board."
Pursuant to the Cowen Engagement Letter, Healthdyne has agreed to pay
certain fees to Cowen for its financial advisory services provided in
connection with the Merger, all of which are contingent upon consummation
thereof. If the Merger is consummated, Cowen will be entitled to receive a
transaction fee equal to approximately 1% of the aggregate consideration to
Healthdyne shareholders in the Merger, depending on the actual amount of such
aggregate consideration, payable upon consummation of the Merger. Assuming the
Respironics Common Stock issued in the Merger is valued at $22.375 per share,
such transaction fee is estimated to be approximately $2.9 million.
Additionally, Healthdyne has agreed to reimburse Cowen for its out-of-pocket
expenses (including the reasonable fees and expenses of its counsel) incurred
or accrued during the period of, and in connection with, Cowen's engagement.
Healthdyne has also agreed to indemnify Cowen against certain liabilities,
including liabilities under the federal securities laws, relating to or
arising out of services performed by Cowen as financial advisor to the
Healthdyne Board in connection with the Merger, unless it is finally
judicially determined that such liabilities arose out of Cowen's gross
negligence or willful misconduct. The terms of the fee arrangement with Cowen,
which are customary in transactions of this nature, were negotiated at arm's
length between Healthdyne and Cowen, and the Healthdyne Board is aware of such
arrangement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Healthdyne Board, shareholders
should be aware that certain officers and directors of Healthdyne have
interests in the Merger that are in addition to the interests of shareholders
of Healthdyne generally. Additionally, the summary of the agreements described
in this Joint Proxy Statement/Prospectus is qualified in its entirety by the
full text of such agreements, which text will govern the contractual rights
and obligations of the parties.
New Employment Agreements. In connection with the execution of the Merger
Agreement, and as contemplated therein, Healthdyne and Respironics entered
into a new employment agreement (the "New Agreements") with each of the
following executive officers of Healthdyne: Mr. Craig B. Reynolds, President
and Chief Executive Officer; Mr. John L. Miclot, Senior Vice-President--Sales
and Marketing; Mr. Robert E. Tucker, Senior Vice-President--Operations; and
Mr. Jeffrey A. North, Vice-President and Corporate Controller, (the "Subject
Executives"). Under their respective New Agreements, the Subject Executives
will provide services to Respironics in the following capacities: Mr.
Reynolds--Senior Vice President, New Product Development; Mr. Miclot--Vice
President, International Operations; Mr. Tucker--Vice President, New Product
Development; and Mr. North--Controller for the Marietta, Georgia Facility. The
New Agreements, which take effect only if and at the time that the Merger
becomes effective, will supersede Non-Competition Agreements (as described
below) to which each of the Subject Executives was a party and, upon the New
Agreements becoming effective, each such Non-Competition Agreement with
respect to the applicable Subject Executive will become null and void without
any payment being due or owing to the Subject Executive except as may be
provided in the New Agreements.
The New Agreements have a three-year term, subject to automatic one-year
extensions, absent notice of intention not to renew from one party to the
other. The Subject Executives' initial base salaries after March 1, 1998 (Mr.
Reynolds--$251,538; Mr. Miclot--$203,679; Mr. Tucker--$203,679; and Mr.
North--$130,200) and benefit entitlements are set forth in the respective New
Agreements. Under the provisions of the New Agreements, each Subject Executive
will, upon a termination of the Subject Executive's employment by
39
<PAGE>
Respironics without "cause" or by the Subject Executive for certain specified
reasons, be entitled for a period of the greater of the balance of the term or
two years (except that, in the case of Mr. Reynolds the applicable period will
be three years), to continuation of (i) W-2 wages (except that Mr. Reynolds
will be entitled to a lump sum payment, in lieu of wage continuation, in an
amount equal to his W-2 wages over the past three years), (ii) Respironics
paid health insurance and (iii) the Subject Executive's car allowance
(collectively "the Continuation Benefits"). In general, if a Subject Executive
terminates his employment, except for certain specified reasons, he will not
be entitled to any additional compensation or benefits (other than vested
benefits). However, if a Subject Executive terminates his employment, except
for certain specified reasons, between 18 and 24 months after the Closing Date
of the Merger (between 18 and 30 months in Mr. Reynolds' case), he will
receive for a period of 12 months (36 months in the case of Mr. Reynolds) (i)
W-2 wages (averaged over the past three years), (ii) Respironics paid health
insurance and (iii) the Subject Executive's car allowance. If, following a
"change of control" of Respironics (as defined in the New Agreements) not
approved by a majority of disinterested directors of the Respironics Board,
the Subject Executive's employment is terminated by Respironics without cause
or by the Subject Executive for any reason, the Subject Executive will be
entitled to a lump sum payment equal to three times the Subject Executive's
average W-2 wages over the past three years and to receive the other
Continuation Benefits for a period of three years. The Subject Executive will
also be entitled to an additional gross-up payment (the "Gross-Up Payment") if
any excise taxes on the Subject Executive pursuant to Code Sections 280G and
4999 are imposed. The New Agreements contain restrictive covenants applicable
to the Subject Executives, pertaining to competition, solicitation and
confidentiality, which run for a period of up to three years (indefinitely, in
the case of the confidentiality covenant as it relates to confidential
information that constitutes a trade secret, or for three years as it relates
to confidential information that does not constitute a trade secret) following
termination of employment. Under the New Agreements, Messrs. Reynolds, Miclot,
Tucker and North would be entitled to receive approximately $1,333,000 (lump-
sum payment), $634,000 (paid out over three years), $1,103,000 (paid out over
three years), and $501,000 (paid out over three years), respectively, upon
termination of employment by Respironics without cause or by the Subject
Executive for certain specified reasons assuming termination immediately
following the Merger.
Also, pursuant to the Merger Agreement and subject to the Merger becoming
effective, each Subject Executive entered into a Supplemental Employment
Agreement with Respironics (the "Supplemental Agreements"). The Supplemental
Agreements principally provide that in consideration for the access the
Subject Executive will have to confidential or proprietary information of
Respironics and Respironics' willingness to grant stock options to acquire
shares of Respironics Common Stock (Mr. Reynolds--40,000 shares, Mr. Miclot--
20,000 shares, Mr. Tucker--20,000 shares and Mr. North--7,500 shares) to the
Subject Executive in connection with the commencement of the Subject
Executive's employment, the Subject Executive covenants and agrees among other
things (i) to hold and safeguard specified proprietary "property" of
Respironics and not to disclose confidential information, and (ii) to disclose
and assign to Respironics any inventions, discoveries and improvements
authored, conceived or made by the Subject Executive as well as his rights
therein.
Non-Competition Agreements. Each of Ms. Leslie R. Jones, Vice President,
General Counsel and Secretary of Healthdyne, and Mr. M. Wayne Boylston, Vice
President--Finance, Chief Financial Officer and Treasurer of Healthdyne, is a
party to an individual Non-Competition Agreement, each dated May 22, 1995 (the
"Non-Competition Agreements") with Healthdyne. The Non-Competition Agreements
provide that in the event of a termination of employment by Healthdyne without
"cause" or by the executive for "good reason" following a "change of control"
(each as defined therein), the executive will be entitled to a lump sum
payment (the "Termination Payment"), equal to approximately three times the
executive's average annual W-2 compensation for the five-year period ending
prior to the date of such termination. In addition, for a period of three
years following the executive's date of termination (the "Three-Year Period"),
the executive, along with his or her eligible dependents, will be entitled to
continued participation in Healthdyne's applicable health and welfare plans.
The executive will also be entitled, during the Three-Year Period, to the
continued use of the executive's (or an equivalent) company-leased automobile
along with reimbursement for all associated costs. The Non-Competition
Agreements provide that if payments and benefits provided thereunder result in
the executive becoming subject to any excise tax imposed under Sections 4999
and 280G of the Code, the executive will
40
<PAGE>
receive a Gross-Up Payment relating to such excise tax. The Gross-Up Payment
will be payable simultaneously with the Termination Payment.
In return for the compensation and benefits payable to the executive under
the Non-Competition Agreement, the executive has covenanted therein that, for
a period of twelve months commencing on the executive's date of termination,
the executive will not (within specified scope and geographic limitations)
compete with Healthdyne or enter into any of certain proscribed relationships
with any entity that does compete with Healthdyne (a "Competitor"). The
noncompetition provisions will not apply in the event that (i) less than
thirty percent (30%) of the Competitor's revenue in the last fiscal year was
related to the Competitor's product lines which compete with Healthdyne
("Competing Products"), or (ii) the individual provides services to a
Competitor which are unrelated to the Competitor's Competing Products.
Pursuant to the Merger Agreement, Respironics will honor, and will cause
Healthdyne, as the surviving corporation in the Merger, to honor, the terms
and provisions of the Non-Competition Agreements, and acknowledges that the
Merger constitutes a "change of control" for purposes of such agreements.
Under the Non-Competition Agreements, Ms. Jones would be entitled to receive
approximately $694,000 and Mr. Boylston would be entitled to receive
approximately $599,000, in the event that his or her employment is terminated
by Respironics or is terminated by the employee for "Good Reason" in 1998
after the Merger.
Consulting Agreements. The Merger Agreement provides that, at or prior to
the Closing, Respironics and Healthdyne will enter into Consulting Agreements
(the "Consulting Agreements") with each of Ms. Jones and Mr. Boylston and with
Paul Yokubinas, a director of Healthdyne, the form of which will be reasonably
satisfactory to Respironics. The Consulting Agreements (i) will be for a term
of six (6) months, (ii) will provide that the consultant will provide
Respironics and Healthdyne various consulting services, as may be requested
from time to time during such six (6) month period not to exceed five hours
per week, to assist Respironics and Healthdyne in the integration of
Healthdyne and its business with Respironics following the Merger, and (iii)
will provide for compensation to the consultant based on the consultant's
normal and customary hourly rate in connection with the consulting services
requested to be performed by Respironics or Healthdyne, together with
reimbursement to the consultant of actual out-of-pocket expenses incurred by
the consultant in performing services.
Retirement Benefits. Healthdyne's executive officers participate in a
Retirement Benefit Award Program. The Retirement Benefit Award Program is
intended to provide Healthdyne's executive officers with a "target retirement
income" upon normal retirement (age sixty-five (65)) that is equal to
approximately sixty percent (60%) of an executive's average base annual salary
(computed by averaging the executive's base annual salary for the three (3)
years in which it was the highest). Except as otherwise provided below, an
executive must generally complete a minimum of ten (10) years of service to
become "vested" in the Retirement Benefit Award, and a total of twenty (20)
years of service to accrue the full benefits thereunder. Retirement Benefit
Awards are offset by other benefits an executive may receive from other
sources (e.g., social security benefits or other retirement benefits as
defined in the Retirement Benefit Award Program). Retirement Benefit Awards
are paid out of general corporate assets, or a trust established specifically
for such purpose. In the event of a "change in control" of Healthdyne or
termination of the Retirement Benefit Award Program, the benefits accrued to
date under these Retirement Benefit Awards cease to be forfeitable upon
certain specified events and each executive officer may require the combined
company to place in trust for the executive officer's benefit an amount of
money equal to the present value of the executive officer's accrued retirement
benefit. The Merger Agreement provides that Respironics acknowledges that the
Merger will constitute a "change of control" for purposes of the Retirement
Benefit Awards. Benefits are calculated to include three additional years of
service for executive officers who are entitled to compensation under a Non-
Competition Agreement with Healthdyne or any successor or replacement
arrangement thereto. The executive officers who participate in this retirement
program and the approximate amounts that Healthdyne would be required to place
in trust for each such executive officer as of March 1, 1998 based on
information available as of December 31, 1997, if requested thereunder, are as
follows:
41
<PAGE>
Mr. Reynolds--$407,000; Mr. Miclot--$23,000; Mr. Tucker--$253,000; Mr. North--
$98,000; Ms. Jones--$86,000; and Mr. Boylston--$68,000.
Insurance Agreements. Healthdyne has entered into Split-Dollar Life
Insurance Agreements ("Insurance Agreements") with its executive officers. If
an executive officer dies prior to termination of employment with Healthdyne
and prior to his or her Security Release Date (as defined in the Insurance
Agreements), the executive officer's designated beneficiary will be entitled
to receive as a death benefit an amount equal to two and one-half times the
executive officer's annual base salary at the time of death. To the extent
that the death benefit under the policy exceeds such amount, the balance of
the death benefit shall be payable to Healthdyne. By making continued premium
payments under the Insurance Agreements, Healthdyne retains a security
interest in the policy until the executive officer's Security Release Date or
until the executive officer terminates his or her employment on account of a
"Qualifying Termination." If an executive's employment is terminated for
"cause" (as that term is defined in the Insurance Agreements), or if the
executive voluntarily terminates employment before the Security Release Date
without good reason, such executive shall forfeit all rights to benefits under
the Insurance Agreement, and, to the extent required by the Insurance
Agreement, shall withdraw any available benefits provided thereunder and
transfer them to Healthdyne. A Qualifying Termination occurs if an executive
officer's employment is terminated without "cause", or the executive
terminates employment for "good reason" within one year of a "change of
control," (as those terms are defined in the Insurance Agreements). After the
executive officer is terminated as a result of a Qualifying Termination,
however, the executive officer is entitled to exercise all of his or her
ownership in the policy without any limitation. Pursuant to the Retirement
Benefit Awards, as amended, the value of the policy is then offset against
Healthdyne's obligations under the Retirement Benefit Award under certain
circumstances.
The Merger Agreement provides that Respironics acknowledges that the Merger
will constitute a "change of control," and consequently a "Qualifying
Termination," for purposes of the Insurance Agreements.
As of November 30, 1997, the policies that would be released to Mr.
Reynolds, Mr. Miclot, Mr. Tucker, Mr. North, Ms. Jones, and Mr. Boylston under
the Insurance Agreements upon such Qualifying Termination had cash surrender
values of approximately $111,000, $23,000, $85,000, $44,000, $46,000, and
$33,000, respectively. Any such policy value that is released to an executive
officer will be offset against retirement benefits payable as described above.
Stock Option Plans. Pursuant to the Merger Agreement, as of the Effective
Time, each outstanding stock option for Healthdyne Common Stock (the
"Healthdyne Options") under Healthdyne's 1993 Stock Option Plan, 1993
Nonemployee Director Stock Option Plan, 1995 Stock Option Plan II, and 1996
Stock Option Plan (the "Healthdyne Option Plans"), whether vested or unvested,
will be deemed to constitute an option (a "Substitute Option") to acquire, on
the same terms and conditions as were applicable under such Healthdyne Option
(which Substitute Option has become vested and exercisable in accordance with
its terms and the terms of the applicable Healthdyne Option Plan), the same
number of shares of Respironics Common Stock as the holder of such Healthdyne
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time
(rounded down to the nearest whole number), at a price per share (rounded up
to the nearest whole cent) equal to (y) the aggregate exercise price for the
shares of Healthdyne Common Stock otherwise purchasable pursuant to such
Healthdyne Option divided by (z) the number of full shares of Respironics
Common Stock deemed purchasable pursuant to such Healthdyne Option in
accordance with the foregoing; provided, however, that in the case of any
Healthdyne Option to which Section 422 of the Code applies, the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option will be determined in accordance with
the foregoing, subject to such adjustments as are necessary in order to
satisfy the requirements of Section 424(a) of the Code. At or prior to the
Effective Time, Respironics will make all necessary arrangements with respect
to the Healthdyne Option Plans to permit the assumption of the unexercised
Healthdyne Options by Respironics pursuant to the Merger Agreement.
42
<PAGE>
Certain Employee Benefits. As soon as administratively practicable following
the Effective Time, Respironics will take appropriate actions so that
employees of Healthdyne and its subsidiaries who become employees of
Respironics or remain employees of Healthdyne or its subsidiaries shall be
entitled to participate in generally applicable Respironics employee benefit
plans on the same basis as other similarly situated employees of Respironics
and its subsidiaries. Prior service of such employees with Healthdyne or its
subsidiaries (including service with predecessor entities to the extent
recognized under analogous Healthdyne employee benefit plans) will be counted
in determining eligibility to participate in such plans and for purposes of
vesting of benefits. Respironics will use reasonable best efforts to waive (i)
any preexisting condition restriction which was waived under the terms of an
analogous Healthdyne employee benefit plan immediately prior to the Effective
Time and (ii) any waiting period limitation which would otherwise be
applicable to a Healthdyne employee on or after the Effective Time to the
extent such Healthdyne employee had satisfied any similar waiting period
limitation under an analogous Healthdyne employee benefit plan prior to the
Effective Time.
Indemnification and Insurance. Under the terms of the Merger Agreement,
Respironics is required to indemnify and advance expenses to current and
former officers and directors of Healthdyne or any Healthdyne subsidiary (the
"Indemnified Parties"), to the fullest extent permitted under applicable law,
Healthdyne's Articles of Incorporation or By-laws and the indemnification
agreements in effect between Healthdyne and each of its officers and
directors, against all losses, claims, damages, liabilities, costs and
expenses (including reasonable attorneys' fees), judgments, fines, and amounts
paid in settlement in connection with any action, suit, claim, proceeding or
investigation arising out of or based on (i) the fact that such person is or
was an officer or director of Healthdyne or any Healthdyne subsidiary or is or
was serving as an officer or director of another entity at the request of
Healthdyne or a Healthdyne subsidiary or (ii) the Merger Agreement or the
transactions contemplated by the Merger Agreement. In addition, Respironics is
obligated for a period of six years after the Effective Time not to amend the
provisions of the articles of incorporation or by-laws of Healthdyne providing
for exculpation of director and officer liability and indemnification to the
extent such rights are consistent with the GBCC. The Merger Agreement further
provides that Respironics will honor the indemnification agreements between
Healthdyne and each of its directors and officers and that any determination
as to whether an Indemnified Party met the standard of conduct required for
indemnification under the GBCC shall be made by independent legal counsel in
accordance with the GBCC and the indemnification agreements. For a period of
six years after the Effective Time, Respironics is obligated to maintain in
effect policies of directors' and officers' liability insurance that are
substantially no less advantageous to the Indemnified Parties than the
policies presently covering such individuals.
Board of Directors. The Merger Agreement requires that, as of the Effective
Time, Respironics shall increase the size of the Respironics Board by three
persons and shall appoint three existing directors of Healthdyne to fill the
vacancies created thereby, as follows: Parker H. Petit (Class of 1998), J.
Terry Dewberry (Class of 1999) and Craig B. Reynolds (Class of 2000). Mr.
Petit is the Chairman of the Board, and Mr. Reynolds is the President and
Chief Executive Officer of Healthdyne. Respironics has also agreed that, in
connection with the election of directors to be held at the annual meeting of
stockholders of Respironics in November 1998, the Nominating Committee of the
Respironics Board will nominate Mr. Petit for reelection to the Class of 2001.
In addition, the Merger Agreement provides that if any of the Healthdyne
Continuing Directors shall be unwilling or unable to serve as a director as of
the Effective Time or shall cease to serve as a member of the Respironics
Board during his initial term by reason of resignation, removal, death or
disability, or if Mr. Petit shall be unwilling or unable to be nominated for
reelection to the Respironics Board at the 1998 annual meeting, the Healthdyne
Continuing Directors will be entitled to designate the person to be nominated
in such person's stead, subject to reasonable approval of such person by the
Respironics Board. The Merger Agreement also provides that, at the Effective
Time, Mr. Petit shall be appointed to the Nominating Committee of the
Respironics Board. [The Merger Agreement also provides that the following
Healthdyne directors will continue as directors of Healthdyne after the
Merger: Alexander H. Lorch; J. Leland Strange; James J. Wellman, M.D.; and J.
Paul Yokubinas.]
43
<PAGE>
Voting Agreements. All members of the Healthdyne Board and Healthdyne
executive officers have agreed with Respironics, pursuant to letters dated
November , 1997, that in their individual capacities as shareholders of
Healthdyne, they will vote, at any meeting of the shareholders of Healthdyne
called for the purpose of voting upon the Merger, all of their shares of
Healthdyne Common Stock in favor of the Merger. All of such persons have also
agreed that until the Merger Agreement is terminated, they will not vote their
shares in favor of any merger, consolidation, plan of liquidation, sale of
assets, reclassification or other transaction which would have the effect of
any person other than Respironics, or an affiliate thereof, acquiring control
over Healthdyne or any substantial portion of its assets. All members of the
Respironics Board and Respironics executive officers have agreed with
Healthdyne pursuant to letters dated November , 1997, that in their
individual capacities as stockholders of Respironics, they will vote, at any
meeting of the stockholders of Respironics called for the purpose of approving
the issuance of shares of Respironics Common Stock pursuant to the Merger, all
of their shares of Respironics Common Stock in favor of the issuance of the
Merger Shares pursuant to the Merger. All of such persons have also agreed
that until the Merger Agreement is terminated, they will not vote their shares
in favor of any merger, consolidation, plan of liquidation, sale of assets,
reclassification or other transaction which would have the effect of any
person acquiring control over Respironics or any of its subsidiaries or any
substantial portion of its assets or any of its subsidiaries.
CONVERSION OF HEALTHDYNE COMMON STOCK; EFFECT ON RESPIRONICS STOCKHOLDERS
Conversion of Healthdyne Common Stock. At the Effective Time, if the
Transaction Share Price specified in the Merger Agreement is greater than or
equal to $26.03 and less than or equal to $31.03, each issued and outstanding
share of Healthdyne Common Stock will be converted into a number of shares of
Respironics Common Stock having a value equal to $24.00 divided by the
Transaction Share Price. If the Transaction Share Price is less than $26.03,
each issued and outstanding share of Healthdyne Common Stock will be converted
into approximately .9220 shares of Respironics Common Stock. If the
Transaction Share Price is greater than $31.03, each issued and outstanding
share of Healthdyne Common Stock will be converted into approximately .7734
shares of Respironics Common Stock. Holders in any case will receive cash in
lieu of fractional shares of Respironics Common Stock. The Transaction Share
Price is the weighted average of the closing prices of the Respironics Common
Stock as reported by the NASDAQ NMS for the 20 consecutive trading day period
ending on the third trading day prior to the Closing Date.
Effect on Respironics Stockholders. At the Effective Time, each share of
Respironics Common Stock then issued and outstanding will continue as one
share of Respironics Common Stock. The Merger, which will be recorded under
the pooling of interests accounting method, will result in an initial decline
in book value per share of Respironics Common Stock as a result of the
Exchange Ratio and the merger expenses to be incurred in connection with the
Merger. As indicated in "Unaudited Comparative Per Share Net Income, Cash
Dividend and Book Value Data," had the Merger been completed July 1, 1994, the
historical book value per share of Respironics Common Stock at September 30,
1997 would have decreased from $7.44 to a pro forma book value per share of
$6.29.
No Fractional Shares of Respironics Common Stock to be Issued. No
certificates for fractional shares of Respironics Common Stock shall be issued
in connection with the Merger. In lieu thereof, Respironics shall issue to any
holder of Healthdyne Common Stock certificates otherwise entitled to a
fractional share, upon surrender of such certificates in accordance with the
instructions furnished by Respironics, a check for an amount of cash equal to
the fraction of a share of Respironics Common Stock represented by the
certificates so surrendered multiplied by the closing sale price of the
Respironics Common Stock as reported by NASDAQ NMS on the last trading day
prior to the Closing Date. After the Effective Time, there shall be no
transfer on the stock transfer books of Healthdyne or Respironics of shares of
Healthdyne Common Stock. If old certificates for Healthdyne Common Stock are
presented for transfer after the Effective Time, they shall be canceled and
certificates representing whole shares of Respironics Common Stock (and a
check in lieu of any fractional share) shall be issued in exchange therefor as
provided herein. At or prior to the Effective Time, Respironics shall deposit
with
44
<PAGE>
a bank or trust company selected by Respironics and reasonably acceptable to
Healthdyne (the "Exchange Agent"), for the benefit of the holders of the
certificates of Healthdyne Common Stock, for exchange in accordance with the
terms of the Merger Agreement, certificates representing the shares of
Respironics Common Stock and the cash in lieu of fractional shares to be
issued pursuant to the Merger Agreement in exchange for outstanding shares of
Healthdyne Common Stock.
See "The Merger--Certain Federal Income Tax Consequences of the Merger."
PROCEDURE FOR EXCHANGE OF CERTIFICATES
Manner of Exchange. The Exchange Agent will effect the exchange of
certificates representing shares of Healthdyne Common Stock in connection with
the Merger. Promptly after the Effective Time, the Exchange Agent will mail to
each holder of record of certificates, which immediately prior to the
Effective Time represented outstanding shares of Healthdyne Common Stock, a
notice advising the holder of the effectiveness of the Merger accompanied by a
transmittal form (the "Transmittal Form"). The Transmittal Form will contain
instructions with respect to the surrender of certificates representing
Healthdyne Common Stock to be exchanged for shares of Respironics Common Stock
(together with cash in lieu of any fractional share) and will specify that
delivery will be effected, and risk of loss and title to such certificates
will pass, only upon delivery of the certificates to the Exchange Agent. Upon
surrender, in accordance with the instructions contained in the Transmittal
Form, to the Exchange Agent of certificates representing shares of Healthdyne
Common Stock, the holder thereof will be entitled to receive in exchange
therefor a certificate(s) representing the appropriate number of shares of
Respironics Common Stock to which such holder is entitled and cash in lieu of
any fractional share of Respironics Common Stock.
HEALTHDYNE STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL A HEALTHDYNE SHAREHOLDER HAS RECEIVED A TRANSMITTAL FORM AND
CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY. NO ACTION IS
REQUIRED OF ANY HOLDER OF RESPIRONICS COMMON STOCK.
Lost, Stolen or Destroyed Certificates. Any Healthdyne shareholder whose
certificate for any of his shares of Healthdyne Common Stock has been lost,
stolen or destroyed should immediately call SunTrust Bank, Atlanta, Transfer
Agent, at (404) 588-7817 for information regarding the procedures to be
followed for replacing the certificate. Until a replacement certificate is
obtained, the Healthdyne shareholder will be unable to properly submit the
Transmittal Form.
CONDUCT OF HEALTHDYNE'S BUSINESS PENDING THE MERGER
Healthdyne has agreed in the Merger Agreement that pending consummation of
the Merger, except as consented to by Respironics, Healthdyne and each of its
subsidiaries will conduct their businesses only in the ordinary course and use
commercially reasonable efforts to preserve their business organization and
assets intact and their goodwill with their customers and others having
business relations with them and will not (i) amend their certificate or
articles of incorporation or by-laws or the Healthdyne Rights Plan; (ii)
declare, pay or set aside any dividend or other distribution in respect of
their stock; (iii) issue, sell, purchase, redeem, or otherwise dispose of,
acquire or grant any shares of their capital stock or any securities
convertible into their capital stock, options, warrants or other rights to
purchase or acquire such stock, except pursuant to the Healthdyne Employee
Stock Purchase Plan or the Healthdyne Rights Plan or existing stock options;
(iv) make certain changes in the compensation or benefits payable to
employees; (v) merge or consolidate with, or acquire control over, any other
corporation or other organization or acquire or dispose of any material assets
outside the ordinary course of business; (vi) make capital expenditures or
lease assets in excess of certain limits; (vii) take any action which would
constitute a material breach of any representation or warranty in the Merger
Agreement; (viii) settle or compromise any material claims or litigation or
amend or terminate any material contracts or waive, release or
45
<PAGE>
assign any material rights or claims except in the ordinary and usual course
of business, except for certain shareholder litigation which is covered by
insurance; (ix) make any tax election or permit any insurance policy naming
them as beneficiary or payee to be cancelled or terminated; (x) take or omit
to take any action that would prevent the Merger from qualifying for pooling
of interests accounting treatment or as a tax free reorganization under the
Code; or (xi) enter into any agreement, commitment or understanding relating
to actions prohibited by the Merger Agreement.
CONDUCT OF RESPIRONICS' BUSINESS PENDING THE MERGER
Respironics has agreed in the Merger Agreement that pending consummation of
the Merger, except as consented to by Healthdyne, Respironics and its
subsidiaries will not (i) amend their certificate or articles of incorporation
or by-laws or the Respironics Rights Plan; (ii) declare, pay or set aside any
dividend or other distribution in respect of their capital stock; (iii) issue,
sell, purchase, redeem or otherwise dispose of or acquire or grant any shares
of their capital stock or options or other rights to acquire such stock,
except the issuance of shares representing not more than three percent of the
shares of Respironics Common Stock outstanding on the date of the Merger
Agreement, or except pursuant to Respironics' stock option plans in the
ordinary course of business consistent with past practice, Respironics'
employee stock purchase plan, 401(k) plan or the Respironics Rights Plan; (iv)
acquire control over or an equity interest in any other corporation or other
organization, or liquidate, purchase, acquire, sell or otherwise dispose of
any assets otherwise than in the ordinary course of business or for
consideration in excess of $10,000,000; (v) take any action which would
constitute a material breach of any representation or warranty contained in
the Merger Agreement; or (vi) take or omit to take any action that would
prevent the Merger from qualifying for pooling of interests accounting
treatment or as a tax-free reorganization under the Code.
TRANSITION TEAM
Pursuant to the Merger Agreement, Respironics and Healthdyne have
established a team consisting of employees from both entities for the purpose
of integrating the two entities. The Chief Executive Officer of Respironics,
Dennis S. Meteny, leads the Transition Team and the following persons are
members of the team: Craig B. Reynolds--President and Chief Executive Officer
of Healthdyne, Robert D. Crouch--Senior Vice-President--Sales and Marketing of
Respironics, Daniel J. Bevevino--Vice President and Chief Financial Officer of
Respironics and John L. Miclot--Senior Vice-President--Sales and Marketing of
Healthdyne. The Transition Team will choose one or more consultants to assist
it in meeting its objective, which will be to ensure that a proper process is
in place and is used for integrating the two organizations and structuring the
combined company. Following the consummation of the Merger, Mr. Meteny will
provide progress reports to the Respironics Board and the Transition Team will
remain in place for such period as deemed necessary by the Respironics Board.
NO SOLICITATIONS
Healthdyne Acquisition Proposal. Healthdyne has agreed in the Merger
Agreement that, except as described below, neither Healthdyne nor any of its
officers, directors, employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by any of
them) may initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal or offer with respect to a merger,
consolidation or similar transaction involving, or any purchase of any
substantial portion of the assets or the equity securities of, Healthdyne or
any subsidiary of Healthdyne (a "Healthdyne Acquisition Proposal"). For these
purposes, a Healthdyne Acquisition Proposal includes any proposal or
arrangement, whether oral or in writing, providing for, requiring, or having
the effect of requiring Healthdyne to, or contemplating that Healthdyne would,
abandon, terminate or fail to consummate the Merger or any of the other
transactions contemplated by the Merger Agreement.
46
<PAGE>
To the extent that the Healthdyne Board determines on the basis of advice
from outside counsel that the following actions are necessary in order for the
Healthdyne Board to act in a manner consistent with its fiduciary obligation
under applicable law, (i) Healthdyne may furnish or cause to be furnished
information concerning Healthdyne and its business, properties or assets to a
third party, (ii) Healthdyne may engage in discussions or negotiations with a
third party and (iii) following receipt of a Healthdyne Acquisition Proposal,
the Healthdyne Board may withdraw or modify its recommendation to Healthdyne
shareholders that they adopt the Merger Agreement. Also, following receipt of
a Healthdyne Acquisition Proposal, the Healthdyne Board may take and disclose
to its shareholders a position contemplated by Rule 14e-2 or Rule l4d-9 under
the Exchange Act or otherwise make a disclosure to Healthdyne shareholders.
If Healthdyne receives a Healthdyne Acquisition Proposal or furnishes
information to or engages in discussions or negotiations with a third party,
Healthdyne must promptly inform Respironics of the material details of the
Healthdyne Acquisition Proposal and/or its actions in response thereto or its
furnishing of information or engaging in discussions or negotiations with the
third party and thereafter must keep Respironics reasonably and promptly
informed of all material facts and circumstances relating to the Healthdyne
Acquisition Proposal and Healthdyne's actions relating thereto. For these
purposes, Healthdyne's actions include the actions of its advisors, agents and
representatives.
Respironics Acquisition Proposal. Respironics has agreed in the Merger
Agreement that, except as described below, neither Respironics nor any of its
officers, directors, employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by any of
them) may initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal or offer with respect to a merger,
consolidation, or similar transaction involving, or any purchase of any
substantial portion of the assets or the equity securities of, Respironics or
any subsidiary of Respironics (a "Respironics Acquisition Proposal"). For
these purposes, a Respironics Acquisition Proposal includes any proposal or
arrangement, whether oral or in writing, providing for, requiring, or having
the effect of requiring Respironics to, or contemplating that Respironics
would, abandon, terminate or fail to consummate the Merger or any of the other
transactions contemplated by the Merger Agreement.
To the extent that the Respironics Board determines on the basis of advice
from outside counsel that the following actions are necessary in order for the
Respironics Board to act in a manner consistent with its fiduciary obligation
under applicable law, (i) Respironics may furnish or cause to be furnished
information concerning Respironics and its business, properties or assets to a
third party, (ii) Respironics may engage in discussions or negotiations with a
third party and (iii) following receipt of a Respironics Acquisition Proposal,
the Respironics Board may take and disclose to its stockholders a position
contemplated by Rule 14e-2 or Rule 14d-9 under the Exchange Act or otherwise
make a disclosure to Respironics stockholders.
If Respironics receives a Respironics Acquisition Proposal or furnishes
information to or engages in discussions or negotiations with a third party,
Respironics must promptly inform Healthdyne of the material details of the
Respironics Acquisition Proposal and/or its actions in response thereto or its
furnishing of information or engaging in discussions or negotiations with the
third party and thereafter must keep Healthdyne reasonably and promptly
informed of all material facts and circumstances relating to the Respironics
Acquisition Proposal and Respironics' actions relating thereto. For these
purposes, Respironics' actions include the actions of its advisors, agents and
representatives.
Respironics has agreed in the Merger Agreement that at least seven days
prior to its execution and delivery of an agreement for a merger,
consolidation or share exchange with or into any other person in which the
capital stock of Respironics is changed, exchanged or converted into any other
security or form of consideration and in which the surviving or resulting
corporation or ultimate parent shall have agreed in writing to be bound by the
terms of the Merger Agreement, Respironics will notify Healthdyne of
Respironics' intention to enter into such an agreement. Healthdyne has the
right to inform Respironics, not later than the fifth business day following
47
<PAGE>
delivery of such notice, that Healthdyne intends to terminate the Merger
Agreement if Respironics enters into such agreement. If such notice is timely
given, Healthdyne has the right to terminate the Merger Agreement if
Respironics enters into such an agreement within eighteen months after
Healthdyne's delivery of its statement of intention.
BEST EFFORTS TO CONSUMMATE THE MERGER
Each of Respironics and Healthdyne has agreed to use its reasonable best
efforts to do all things necessary, proper or advisable to consummate the
transactions contemplated by the Merger Agreement as promptly as practicable.
In particular, Healthdyne and Respironics, subject to Respironics' reasonable
business judgment, have agreed to diligently pursue and obtain the regulatory
clearances and approvals required and to lift or rescind any injunction or
other order adversely affecting the consummation of the Merger. Subject to
their fiduciary obligations, each party has agreed to use all reasonable
efforts to fulfill all conditions necessary to consummation of the Merger, and
use its reasonable best efforts to obtain all consents of third parties
required in connection with the Merger Agreement. However, Respironics is not
required to agree to any conditions imposed in connection with any regulatory
approvals which Respironics in its reasonable business judgment considers to
be materially adverse to the best interests of the combined companies. See
"Termination of the Merger Agreement--Termination Fee."
CONDITIONS TO THE MERGER
The respective obligations of Respironics and Healthdyne to effect the
Merger are subject to the fulfillment, at or prior to the Closing, of certain
conditions, including, but not limited to, the following significant
conditions:
(a)the transactions contemplated by the Merger Agreement shall have been
approved by each governmental regulatory authority whose approval is
required to permit consummation of such transactions, without the
imposition of any condition or requirement which Respironics in its
reasonable business judgment considers to be materially adverse to the best
interest of the combined entities; and all waiting periods arising under
the HSR Act, or any other applicable law shall have expired or been
terminated. See "--Regulatory Approvals;"
(b)neither Respironics nor Healthdyne shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins, prohibits or materially adversely affects the Merger or to any
pending or threatened litigation or proceeding by a governmental authority
or agency which seeks to enjoin or prohibit the Merger or to impose
material damages on either party or any of the directors or officers of
either Respironics or Healthdyne;
(c)the representations and warranties of the other party set forth or
referred to in the Merger Agreement shall be true and correct both
individually and in the aggregate in all material respects as of the date
of the Merger Agreement and as of the Closing, except for any
representations and warranties made as of a specified date, which shall be
true and correct in all material respects as of such date, and except as
otherwise expressly contemplated or permitted by the Merger Agreement. For
these purposes, a representation or warranty will be deemed to be correct
in all material respects unless a breach, if any, thereof (excluding for
these purposes any materiality limitations therein), has (i) a material
adverse effect on the business, operations, assets (taken as a whole),
condition (financial or otherwise) or results of operation of Respironics
or Respironics' ability to consummate the transactions contemplated by the
Merger Agreement (a "Respironics Material Adverse Effect") or (ii) a
material adverse effect on the business, operations, assets (taken as a
whole), condition (financial or otherwise) or results of operation of
Healthdyne or Healthdyne's ability to consummate the transactions
contemplated by the Merger Agreement (a "Healthdyne Material Adverse
Effect") (as the case may be). For these purposes, in determining whether a
48
<PAGE>
Respironics Material Adverse Effect or a Healthdyne Material Adverse Effect
has occurred, no effect or consequence shall be given as to whether
Respironics or Healthdyne, as the case may be, has been awarded a contract
in response to a request for proposal submitted by Apria Healthcare. The
representations and warranties will be deemed in the aggregate to be true
and correct in all material respects unless the breaches of all the
representations and warranties, if any (excluding, for these purposes, any
materiality limitations therein) have, as a whole, a Respironics Material
Adverse Effect or a Healthdyne Material Adverse Effect (as the case may
be);
(d)the agreements, covenants and conditions of the other party to be
performed and complied with pursuant to the Merger Agreement prior to the
Closing shall have been duly performed and complied with by it in all
material respects;
(e)the stockholders of Respironics shall have approved the issuance of
shares of Respironics Common Stock in connection with the Merger and the
shareholders of Healthdyne shall have approved the Merger Agreement, as and
to the extent required by law and by the provisions of any governing
instruments;
(f)Respironics shall have received a letter from Ernst & Young LLP, and
Healthdyne shall have received a letter from KPMG Peat Marwick LLP, to the
effect that (i) in the case of the letter to Respironics, the Merger will
meet the requirements for pooling of interests accounting treatment under
generally accepted accounting principles and under the accounting rules of
the SEC, and (ii) in the case of the letter to Healthdyne, Healthdyne shall
be eligible as of the date of the Closing for pooling of interests
accounting treatment under generally accepted accounting principles and
under the accounting rules of the SEC. See "--Accounting Treatment of the
Merger;"
(g)each party shall have received a tax opinion addressed to it from its
outside counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, no gain or
loss will be recognized by Respironics, Merger Subsidiary, or Healthdyne as
a result of the Merger, except for cash received in lieu of fractional
shares, no gain or loss will be recognized by the shareholders of
Healthdyne who receive solely Respironics Common Stock on the exchange of
their shares of Healthdyne Common Stock for shares of Respironics Common
Stock, the basis of the shares of Respironics Common Stock to be received
by the shareholders of Healthdyne will be the same as the basis of the
shares of Healthdyne Common Stock exchanged therefor, and the holding
period of the shares of Respironics Common Stock to be received by the
shareholders of Healthdyne will include the period during which the
Healthdyne Common Stock surrendered in exchange therefor was held by the
Healthdyne shareholder, provided such Healthdyne Common Stock was held as a
capital asset in the hands of the Healthdyne shareholder at the time of the
exchange. See "--Certain Federal Income Tax Consequences of the Merger;"
(h)the Registration Statement shall be effective under the Securities Act
and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
initiated before or threatened by the SEC. The Merger Shares shall be duly
registered or qualified under the securities laws of all states in which
such action is required for purposes of the initial issuance and
distribution to the Healthdyne shareholders. The Merger Shares shall also
have been approved for quotation on the NASDAQ NMS upon official notice of
issuance;
(i)each of the Employment Agreements and related agreements executed on
or before the date of the Merger Agreement by the individuals identified in
Appendix B to the Merger Agreement shall not have been terminated,
repudiated or breached by the individual party thereto, except in the case
of termination due to death or disability of the individual party thereto
as provided in the applicable Employment Agreement and related agreements;
and
(j)the letter agreement executed on or before the date of the Merger
Agreement by Matria Healthcare, Inc. ("Matria"), identified in Appendix D
to the Merger Agreement and relating to the Tradename License Agreement
between Matria and Healthdyne dated April 21, 1995 and the Corporate
49
<PAGE>
Services Agreement between Matria and Healthdyne dated April 21, 1995 shall
not have been terminated, repudiated or breached by Matria.
REGULATORY APPROVALS
Consummation of the Merger is conditioned on the receipt by Respironics and
Healthdyne of all necessary approvals by governmental regulatory agencies.
Consummation of the Merger is also conditioned on the expiration or
termination of the applicable waiting period under the HSR Act. Respironics
and Healthdyne filed pre-merger notifications with the United States
Department of Justice and the Federal Trade Commission on November 18, 1997
pursuant to the HSR Act and the applicable waiting period expired on December
18, 1997.
EFFECTS OF THE MERGER ON HEALTHDYNE EMPLOYEE BENEFITS
The Merger Agreement provides that as soon as administratively practicable
following the Merger, Respironics will take appropriate actions so that
employees of Healthdyne and its subsidiaries who become employees of
Respironics or remain employees of Healthdyne or its subsidiaries are entitled
to participate in generally applicable Respironics employee benefit plans on
the same basis as other similarly situated employees of Respironics and its
subsidiaries. Prior service of employees with Healthdyne or its subsidiaries
(including service with predecessor entities to the extent recognized under
analogous Healthdyne employee benefit plans) will be counted in determining
eligibility to participate in such plans and for purposes of vesting of
benefits. Respironics will also use reasonable best efforts to waive any
preexisting condition restriction which was waived under the terms of
analogous Healthdyne employee benefit plans immediately prior to the Effective
Time or waiting period limitations which would otherwise be applicable to a
Healthdyne employee on or after the Effective Time to the extent such
Healthdyne employee had satisfied any similar waiting period limitation under
an analogous Healthdyne employee benefit plan prior to the Effective Time.
After consummation of the Merger, Respironics shall have the right to amend or
terminate any Healthdyne employee benefit plan or combine any such plan with
the plan offered by Respironics or any of its subsidiaries, provided that such
amendment, termination or combination is accomplished in accordance with terms
of the applicable plan and laws. Respironics shall honor, and shall cause the
surviving corporation to honor, without modification, the terms and provisions
of the Indemnification Agreements, the Non-Competition Agreements, except as
modified or terminated as contemplated in connection with the New Agreements,
the Insurance Agreements and the Retirement Benefit Award agreements in effect
on the date of the Merger Agreement between Healthdyne and the employees or
directors of Healthdyne identified on Appendix F to the Merger Agreement.
Respironics also acknowledges that the Merger will constitute a "Change of
Control" for purposes of such agreements and agrees to abide by the provisions
of any such agreement which relate to a Change of Control, including the
accelerated vesting and/or payment of benefits. Respironics or the surviving
corporation may terminate or cease payments under such agreements to the
extent permitted by the terms thereof, except as prohibited by the Merger
Agreement.
Healthdyne Stock Options. Under the Merger Agreement, at the Effective Time
each Healthdyne Option under the Healthdyne Option Plans, whether vested or
unvested, shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such option (which substitute
option has become vested and exercisable in accordance with its terms and the
terms of the applicable Healthdyne Option Plan), the same number of shares of
Respironics Common Stock as the holder of such option would have been entitled
to receive pursuant to the Merger, had the holder exercised the option in full
immediately prior to the Effective Time (rounded down to the nearest whole
number) at a price per share (rounded up to the nearest whole cent) equal to
the aggregate exercise price for the shares otherwise purchasable pursuant to
the option divided by the number of full shares of Respironics Common Stock
deemed purchasable pursuant to the option. In the case of any Healthdyne
Option to which Section 422 of the Code applies, the option price, the number
of shares purchasable and the terms and conditions of exercise shall be
subject to such adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code. Immediately following the
Effective Time of the
50
<PAGE>
Merger, Respironics shall file a Registration Statement on Form S-8 or another
appropriate form with respect to the shares of Respironics Common Stock
subject to such options and shall use its reasonable best efforts to maintain
the effectiveness of such Registration Statement for so long as such options
remain outstanding. With respect to those individuals who subsequent to the
Merger are subject to the reporting requirements under Section 16(a) of the
Exchange Act, Respironics shall administer the Healthdyne Option Plans in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent that Healthdyne Option Plans complied with such rule prior to the
Merger.
TERMINATION OF THE MERGER AGREEMENT
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, as follows:
(a) by the mutual consent of Respironics and Healthdyne;
(b) by either Respironics or Healthdyne in the event of a material breach
by the other party of representations, warranties or covenants contained in
the Merger Agreement that would give rise to a failure of a condition to
Closing and which has not been cured within 10 days after written notice to
the party committing such breach;
(c) by either Respironics or Healthdyne, if the shareholders of Healthdyne
fail to approve the Merger Agreement or the stockholders of Respironics
fail to approve the issuance of shares of Respironics Common Stock pursuant
to the Merger;
(d) by either Respironics or Healthdyne at any time after a final judicial
or regulatory determination (as to which all periods for appeal have
expired and no appeal shall be pending) denying any regulatory clearance
and/or approval required by the Merger, or by Respironics at any time after
it delivers to Healthdyne a notice that Respironics considers any condition
or requirement contained or imposed by any regulatory clearance or approval
necessary to the consummation of the Merger, including without limitation,
requirements relating to divestitures of product lines, manufacturing
operations, one or more subsidiaries or divisions or any other material
assets or requiring Respironics to sell or license any rights to any
tangible or intangible properties or those of the combined entities, to be
in Respironics' reasonable business judgment materially adverse to the best
interests of the combined entities;
(e) by Healthdyne or Respironics at any time after May 10, 1998, in the
event of failure to satisfy any of the conditions to the obligations of a
party electing to terminate, if such failure occurred despite the good
faith effort of such party to perform all agreements and covenants and to
satisfy all conditions required to be performed or satisfied by it;
(f) by Healthdyne if the Healthdyne Board has approved a proposal or offer
with respect to a merger, consolidation or similar transaction involving,
or any purchase of any substantial portion of the assets or any substantial
portion of the equity securities of, Healthdyne or any of its material
subsidiaries, after determining, upon the basis of advice of outside
counsel, that such approval is necessary in order for the Healthdyne Board
to act in a manner consistent with its fiduciary obligation under
applicable law;
(g) by Healthdyne if Healthdyne shall have delivered in response to a
notice given by Respironics, a statement in which Healthdyne shall have
indicated its intention to terminate the Merger Agreement if Respironics
were to enter into an agreement for a merger, consolidation or share
exchange with or into any other person in which the capital stock of
Respironics is changed, exchanged or converted into any other security or
form of consideration, referred to in the notice and Respironics shall have
entered into an agreement within 18 months after delivery of the
Healthdyne's statement of intention;
51
<PAGE>
(h) by Respironics if the Respironics Board has approved an agreement, a
proposal or offer with respect to a merger, consolidation or similar
transaction involving, or any purchase of any substantial portion of the
assets or any substantial portion of the equity securities of, Respironics
or any of its material subsidiaries after determining, upon the basis of
advice of outside counsel, that such approval is necessary in order for the
Respironics Board to act in a manner consistent with its fiduciary
obligation under applicable law; or
(i) by Healthdyne or Respironics within two business days after a date
either (i) three business days following stockholder approval and
expiration of certain regulatory waiting periods or (ii) three business
days prior to Closing (the "Determination Date") if the weighted average
closing price of the Respironics Common Stock as reported on the NASDAQ NMS
for the period consisting of 20 consecutive trading days ending on the
trading day prior to the Determination Date is less than $20.00.
Termination Fee. Pursuant to the Merger Agreement, Respironics is entitled
to payment of a fee of $12,000,000 by Healthdyne upon the occurrence of any of
the following events:
(i) The Healthdyne Board shall fail to recommend approval of the Merger,
or withdraws, modifies or changes its recommendation in a manner adverse to
Respironics or shall have resolved to do any of the foregoing;
(ii) Healthdyne shall terminate the Merger Agreement pursuant to section
(f) under "Termination" above;
(iii) Healthdyne shall execute and deliver a definitive agreement for, or
the Healthdyne Board shall approve, a Healthdyne Business Combination (as
defined in the Merger Agreement) within 18 months following the termination
of the Merger Agreement if such termination is by Respironics pursuant to
section (b) under "Termination" above;
(iv) Healthdyne shall execute and deliver a definitive agreement for, or
the Healthdyne Board shall approve, a Healthdyne Business Combination (as
defined in the Merger Agreement) within 18 months following the termination
of the Merger Agreement if such termination is by Respironics or Healthdyne
pursuant to section (c) under "Termination" above after the shareholders of
Healthdyne shall have failed to approve the Merger Agreement and prior to
such termination either (A) Healthdyne or the shareholders of Healthdyne
shall have received an offer or proposal from any person or group of
persons (other than Respironics or any Respironics subsidiary) to enter
into a Healthdyne Business Combination or (B) any person or group of
persons (other than Respironics or any Respironics subsidiary) shall have
purchased, after the date of the Merger Agreement and prior to such
termination, securities which, when added to the securities already owned
by such person or group, represent 10% or more of the voting power of
Healthdyne and such person or group of persons shall have failed to deliver
a written agreement to the effect that such person or group will not sell,
pledge, transfer or otherwise dispose of any shares of Respironics Common
Stock held by such person or group during the period commencing 30 days
prior to the Effective Time and ending at such time as financial results
covering at least 30 days of post-Merger combined operations have been
published; or
(v) Healthdyne shall execute and deliver a definitive agreement for, or
the Healthdyne Board shall approve, a Healthdyne Business Combination
within 18 months following the termination of the Merger Agreement in
accordance with its terms and the Healthdyne Board shall have failed to
call its shareholders meeting after a determination, based on advice of
outside counsel, that such action was required in order to act in a manner
consistent with its fiduciary obligations under applicable law.
"Healthdyne Business Combination" means a merger or consolidation or any
similar transaction involving Healthdyne or certain significant Healthdyne
subsidiaries, a purchase, lease or other acquisition of all or substantially
all of the assets of Healthdyne or certain significant Healthdyne
subsidiaries, or a purchase or other
52
<PAGE>
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 35% or more of the voting power of
Healthdyne or certain significant Healthdyne subsidiaries (other than, in the
case of the transfer of securities of any such Healthdyne subsidiary, transfers
between Healthdyne and/or one or more of certain significant Healthdyne
subsidiaries).
Pursuant to the Merger Agreement, Healthdyne is entitled to payment of a fee
of $12,000,000 by Respironics upon the occurrence of any of the following
events:
(i) The Respironics Board shall fail to recommend approval of issuance of
shares of Respironics Common Stock pursuant to the Merger, or withdraws,
modifies or changes its recommendation in a manner adverse to Healthdyne or
shall have resolved to do any of the foregoing;
(ii) Healthdyne shall terminate the Merger Agreement pursuant to section
(g) under "Termination" above;
(iii) Respironics shall terminate the Merger Agreement pursuant to section
(h) under "Termination" above;
(iv) Respironics shall execute and deliver a definitive agreement for, or
the Respironics Board shall approve, a Respironics Business Combination (as
defined in the Merger Agreement) within 18 months following the termination
of the Merger Agreement if such termination is by Healthdyne pursuant to
section (b) under "Termination" above;
(v) Respironics shall execute and deliver a definitive agreement for, or
the Respironics Board shall approve, a Respironics Business Combination (as
defined in the Merger Agreement) within 18 months following the termination
of the Merger Agreement if such termination is by Healthdyne or Respironics
pursuant to section (c) under "Termination" above after the stockholders of
Respironics shall have failed to approve the issuance of the Merger Shares
pursuant to the Merger Agreement and prior to such termination either (A)
Respironics or the stockholders of Respironics shall have received an offer
or proposal from any person or group of persons (other than Healthdyne or
any Healthdyne Subsidiary) to enter into a Respironics Business Combination
(as defined in the Merger Agreement) or (B) any person or group of persons
(other than Healthdyne or any Healthdyne subsidiary) shall have purchased,
after the date of the Merger Agreement and prior to such termination,
securities which, when added to the securities already owned by such person
or group, represent 10% or more of the voting power of Respironics and such
person or group of persons shall have failed to deliver a written agreement
to the effect that such person or group will not sell, pledge, transfer or
otherwise dispose of any shares of Respironics Common Stock held by such
person or group during the period commencing 30 days prior to the Effective
Time and ending at such time as financial results covering at least 30 days
of post-Merger combined operations have been published; or
(vi) Respironics shall execute and deliver a definitive agreement for, or
the Respironics Board shall approve, a Respironics Business Combination
within eighteen months following the termination of the Merger Agreement in
accordance with its terms and the Respironics Board shall have failed to
call its stockholders meeting after a determination, based on advice of
outside counsel, that such action was required in order to act in a manner
consistent with its fiduciary obligations under applicable law.
"Respironics Business Combination" means a merger or consolidation or any
similar transaction involving Respironics or certain significant Respironics
subsidiaries, a purchase, lease or other acquisition of all or substantially
all of the assets of Respironics or certain significant Respironics
subsidiaries, or a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 35% or
more of the voting power of Respironics or certain significant Respironics
subsidiaries (other than, in the case of the transfer of securities of any such
Respironics subsidiary, transfers between Respironics and/or one or more of
certain significant Respironics subsidiaries).
53
<PAGE>
If Respironics delivers a notice to Healthdyne that Respironics considers
any condition or requirement contained or imposed by any regulatory clearance
or approval necessary to the consummation of the Merger to be in Respironics'
reasonable business judgment materially adverse to the best interests of the
combined entities, and if Healthdyne exercising reasonable business judgment
notifies Respironics within five business days of delivery of such notice that
Healthdyne believes that the applicable condition or requirement would not
have been materially adverse, and Respironics terminates the Merger Agreement,
then Healthdyne has the right to have the issue of whether the applicable
condition or requirement would have been materially adverse to the combined
entities submitted to binding arbitration. The arbitrator for any such binding
arbitration shall be a partner or principal in a "Big Six" accounting firm not
retained by either Healthdyne or Respironics. Binding arbitration shall be
commenced within ten business days of the delivery of notice to the arbitrator
and the arbitrator shall render a written decision on the issue within 30 days
of completion of the arbitration proceedings. All fees, costs and expenses of
the arbitrator will be borne by the party which does not prevail on the issue
in binding arbitration and each party shall bear its own fees, costs and
expenses in connection with the binding arbitration. If the arbitrator
determines that the applicable condition or requirement would not have been
materially adverse to the best interest of the combined entities and that
Healthdyne has suffered or sustained significant damages as a result of
Respironics' notice and termination of the Merger Agreement, then Respironics
shall pay $12,000,000 to Healthdyne. The significant damages need not equal
$12,000,000 in order to trigger the payment, and the payment is Healthdyne's
sole and exclusive remedy with respect to (i) any notice given by Respironics
relating to such a regulatory condition or requirement, (ii) the termination
of the Merger Agreement by Respironics pursuant to such notice and (iii) the
issue of whether the condition or requirement would have been materially
adverse.
WAIVER AND AMENDMENT
Notwithstanding prior stockholder or shareholder approval, the Merger
Agreement may generally be amended in any respect other than to change the
ratio for converting Healthdyne Common Stock into Respironics Common Stock.
Either party may extend the time for performance of any of the obligations of
the other party, waive any inaccuracies in the representations and warranties
of the other party, waive compliance by the other party with any of its
covenants or agreements contained in the Merger Agreement, and waive the
fulfillment of any conditions to its obligations with certain exceptions.
QUOTATION OF RESPIRONICS COMMON STOCK ON THE NASDAQ NMS
Under the Merger Agreement, it is a condition precedent that the shares of
Respironics Common Stock to be issued in the Merger be approved for quotation
on the NASDAQ NMS upon official notice of issuance. Respironics intends to
file an application for approval of such quotation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinions of Troutman Sanders LLP, counsel to Healthdyne, and Reed
Smith Shaw & McClay LLP, counsel to Respironics, the following discussion,
subject to the qualifications set forth below and contained herein, fairly and
accurately describes the material U.S. federal income tax consequences of the
Merger to holders of Healthdyne Common Stock that exchange such stock for
Respironics Common Stock pursuant to the Merger. The discussion below
addresses only such shareholders who hold their Healthdyne Common Stock as a
capital asset, and such discussion does not address all of the U.S. federal
income tax considerations that may be relevant to particular shareholders in
light of their individual circumstances or to shareholders that are subject to
special rules, such as financial institutions, tax-exempt organizations,
insurance companies, dealers in securities, foreign holders, or holders who
acquired their shares pursuant to the exercise of employee stock options or
otherwise as compensation. Such opinions are not binding on the Internal
Revenue Service ("IRS"). This discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), regulations, rulings and decisions in
effect as of the date hereof, all of which are subject to change possibly with
retroactive effect. Tax consequences under state, local, and other foreign
laws are not addressed herein. EACH SHAREHOLDER IS
54
<PAGE>
STRONGLY ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH SHAREHOLDER AND ALSO AS TO
ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSIDERATIONS ARISING OUT OF
THE MERGER.
No ruling has been (or will be) sought from the IRS as to the U.S. federal
income tax consequences of the Merger. It is a condition to the consummation
of the Merger that Healthdyne receive an opinion from its counsel, Troutman
Sanders LLP, and that Respironics receive an opinion from its counsel, Reed
Smith Shaw & McClay LLP, to the effect that, based upon certain facts,
representations and assumptions, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code. However, Healthdyne is
entitled to waive the condition to the consummation of the Merger that it
receive such an opinion from Troutman Sanders LLP, and Respironics is entitled
to waive the condition to the consummation of the Merger that it receive such
an opinion from Reed Smith Shaw & McClay LLP provided that, in the event that
both Healthdyne and Respironics waive such conditions, Healthdyne intends to
recirculate revised proxy materials and resolicit the vote of its
shareholders. The issuance of such opinions shall be conditioned, among other
things, on the receipt by such tax counsel of representation letters from each
of Healthdyne, Respironics, and Merger Subsidiary, in each case, in form and
substance reasonably satisfactory to each such counsel. Assuming the Merger
qualifies as a reorganization within the meaning of Section 368(a) of the
Code, no gain or loss will be recognized for U.S. federal income tax purposes
by Healthdyne, Respironics or Merger Subsidiary as a result of the Merger.
In addition, assuming that the Merger qualifies as a reorganization within
the meaning of Section 368(a) of the Code, no gain or loss will be recognized
by a holder of Healthdyne Common Stock upon the exchange of its shares solely
for Respironics Common Stock, pursuant to the Merger, except with respect to
cash, if any, received by a holder of Healthdyne Common Stock in lieu of a
fractional share of Respironics Common Stock.
Any holder of Healthdyne Common Stock who receives cash in lieu of a
fractional share of Respironics Common Stock will be treated as having
received such fractional share and then having received such cash in
redemption of such fractional share. Under Section 302 of the Code, provided
that such deemed distribution is "not essentially equivalent to a dividend"
with respect to such holder after giving effect to the constructive ownership
rules of the Code, the holder will generally recognize capital gain or loss
equal to the difference between the amount of cash received and the holder's
adjusted tax basis in the fractional share of Respironics Common Stock.
The aggregate tax basis of the shares of Respironics Common Stock received
solely in exchange for shares of Healthdyne Common Stock pursuant to the
Merger (including fractional shares of Respironics Common Stock for which cash
is received) will be the same as the aggregate tax basis of the shares of
Healthdyne Common Stock surrendered in exchange therefor. The holding period
for shares of Respironics Common Stock received in exchange for shares of
Healthdyne Common Stock pursuant to the Merger will include the holding period
of the shares of Healthdyne Common Stock surrendered in exchange therefor.
Backup Withholding. Unless an exemption applies, the Exchange Agent will be
required to withhold, and will withhold, 31% of any cash payments to which a
shareholder or other payee is entitled pursuant to the Merger, unless the
shareholder or other payee provides his or her taxpayer identification number
(social security number or employer identification number) and certifies that
such number is correct. Each shareholder and, if applicable, each other payee
is required to complete and sign the Form W-9 that will be included as part of
the transmittal letter to avoid backup withholding, unless an applicable
exemption exists and is proved in a manner satisfactory to Respironics and the
Exchange Agent.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE BASED UPON
PRESENT LAW, ARE FOR GENERAL INFORMATION ONLY AND DO NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS WHICH MAY APPLY TO A
HOLDER OF HEALTHDYNE COMMON STOCK. THE TAX EFFECTS AS APPLICABLE TO A
PARTICULAR HOLDER OF HEALTHDYNE COMMON STOCK MAY BE DIFFERENT FROM
55
<PAGE>
THE TAX EFFECTS AS APPLICABLE TO OTHER HOLDERS OF HEALTHDYNE COMMON STOCK,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS, AND THUS, HOLDERS OF HEALTHDYNE COMMON STOCK ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS.
ACCOUNTING TREATMENT OF THE MERGER
The Merger, if consummated as proposed, will qualify as a pooling of
interests for accounting and financial reporting purposes. Accordingly, under
generally accepted accounting principles, the assets and liabilities of
Healthdyne will be combined with those of Respironics and carried forward at
book values. In addition, the statements of operations of Healthdyne will be
combined with the statements of operations of Respironics on a retroactive
basis. The obligation of Respironics to consummate the Merger is conditioned,
among other matters, upon the receipt by Respironics of a letter from Ernst &
Young LLP, Respironics' independent auditor, to the effect that the Merger
will meet the requirements for pooling of interests accounting treatment. The
obligation of Healthdyne to consummate the Merger is conditioned, among other
matters, upon the receipt by Healthdyne of a letter from KPMG Peat Marwick
LLP, Healthdyne's independent auditor, to the effect that Healthdyne will be
eligible for pooling of interests accounting treatment. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
RESALES BY AFFILIATES OF RESPIRONICS COMMON STOCK RECEIVED IN THE MERGER
All shares of Respironics Common Stock received by Healthdyne shareholders
in the Merger will be freely transferable, except that shares of Respironics
Common Stock received by persons who are "affiliates" (as such term is defined
under the Securities Act) of Healthdyne prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of Respironics) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Healthdyne or
Respironics generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal shareholders
of such party. In order that the Merger may qualify for pooling of interests
accounting treatment, an affiliate of either Respironics or Healthdyne may not
sell (subject to certain de minimis exceptions), or in any other way reduce
such affiliate's relative risk with respect to, the shares of Respironics
Common Stock owned by him until after such time as Respironics publishes
results covering at least 30 days of combined operations of Respironics and
Healthdyne. See "--Accounting Treatment of the Merger."
The Merger Agreement requires Healthdyne to use its best efforts to cause
each of its affiliates to enter into an agreement to the effect that such
person will comply with the above-described transferability restrictions.
APPRAISAL AND DISSENTERS' RIGHTS
Respironics Stockholders. Respironics stockholders will not have appraisal
rights under the DGCL with respect to the Merger.
Healthdyne Shareholders. Healthdyne shareholders will not have dissenters'
rights under the GBCC with respect to the Merger.
56
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger accounted for as a pooling of interests and are
based upon the respective historical financial statements and notes thereto of
Respironics and Healthdyne, which are incorporated by reference in this Joint
Proxy Statement/Prospectus. The unaudited pro forma combined condensed balance
sheet combines Respironics' September 30, 1997 unaudited consolidated balance
sheet with Healthdyne's September 30, 1997 unaudited consolidated balance
sheet. The unaudited pro forma combined condensed statements of income combine
Respironics' historical results for each of the three fiscal years in the
period ended June 30, 1997 and the unaudited three months ended September 30,
1997 and September 30, 1996 with Healthdyne's historical results for each of
the three fiscal years in the period ended June 30, 1997 and the unaudited
three months ended September 30, 1997 and September 30, 1996. Because
Healthdyne's actual fiscal year ends on December 31, unaudited quarterly
financial data was utilized to develop Healthdyne's historical results for
fiscal years ended June 30, 1997, 1996 and 1995 and for the three month
periods ended September 30, 1997 and 1996. Healthdyne's historical results for
the period from January 1, 1997 through June 30, 1997 that are included in its
historical results for the fiscal year ended June 30, 1997 have not been
audited.
The unaudited balance sheet of Respironics at September 30, 1997 and
Healthdyne at September 30, 1997, the unaudited statements of income for the
three months ended September 30, 1997 and 1996 of Respironics and of
Healthdyne, and the unaudited statement of income that includes the historical
results of Healthdyne for the period from January 1, 1997 through June 30,
1997 have been prepared on the same basis as the historical information
derived from audited financial statements. In the opinion of the managements
of Respironics and Healthdyne, respectively, the unaudited financial
statements of Respironics and Healthdyne referred to above from which such
data have been derived contain all adjustments, consisting of normal recurring
accruals, necessary for the fair presentation of the results of, and as of the
end of, such periods.
The unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have occurred if the
Merger had been consummated at the beginning of the earliest period presented,
nor are they necessarily indicative of the future operating results or
financial position.
These unaudited pro forma combined condensed financial statements are based
on, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of Respironics and
Healthdyne incorporated by reference in this Joint Proxy Statement/Prospectus.
57
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
HISTORICAL PRO FORMA
---------------------- ----------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term
investments.................. $ 20,347 $ 1,857 $ 22,204
Trade accounts receivable..... 38,949 43,404 82,353
Inventories................... 31,777 24,039 55,816
Other current assets.......... 8,571 3,904 12,475
-------- -------- --------
TOTAL CURRENT ASSETS........ 99,644 73,204 172,848
PROPERTY, PLANT AND EQUIPMENT
(NET).......................... 35,309 11,660 46,969
OTHER ASSETS.................... 3,741 9,111 12,852
COST IN EXCESS OF NET ASSETS
OF BUSINESS ACQUIRED........... 52,619 20,451 73,070
-------- -------- -------- --------
$191,313 $114,426 0 $305,739
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses..................... $ 24,933 $ 26,259 $ 17,500(3) $ 68,692
Current portion of long-term
obligations.................. 663 1,098 1,761
-------- -------- --------
TOTAL CURRENT LIABILITIES... 25,596 27,357 70,453
LONG-TERM OBLIGATIONS........... 17,869 35,000 52,869
MINORITY INTEREST............... 604 -- 604
SHAREHOLDERS' EQUITY............ 147,244 52,069 (17,500) 181,813
-------- -------- -------- --------
$191,313 $114,426 $ 0 $305,739
======== ======== ======== ========
</TABLE>
58
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.......................... $51,918 $38,832 $90,750
Cost of goods sold................. 23,517 22,211 45,728
------- ------- -------
28,401 16,621 45,022
Selling, general and administrative
expenses.......................... 16,389 8,870 25,259
Research and development expense... 2,935 2,481 5,416
------- ------- -------
INCOME FROM OPERATIONS........... 9,077 5,270 14,347
Nonrecurring charges............... 0 650 650
Interest expense................... 243 788 1,031
Other income....................... (335) (90) (425)
------- ------- -------
INCOME BEFORE INCOME TAXES....... 9,169 3,922 13,091
Income taxes....................... 3,668 1,568 5,236
------- ------- -------
NET INCOME....................... $ 5,501 $ 2,354 $ 7,855
======= ======= =======
Earnings per share................. $ 0.27 $ 0.17 $ 0.24
======= ======= =======
Weighted Average Number of Shares
Used in Computing Earnings Per
Share............................. 20,485 13,700 (1,068) 33,117
======= ======= ====== =======
</TABLE>
59
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.......................... $34,112 $29,197 $63,309
Cost of goods sold................. 15,043 17,175 32,218
------- ------- -------
19,069 12,022 31,091
Selling, general and administrative
expenses.......................... 10,196 7,743 17,939
Research and development expense... 2,492 1,590 4,082
------- ------- -------
INCOME FROM OPERATIONS........... 6,381 2,689 9,070
Nonrecurring charges............... 0 0 0
Interest expense................... 47 634 681
Other income....................... (967) (62) (1,029)
------- ------- -------
INCOME BEFORE INCOME TAXES....... 7,301 2,117 9,418
Income taxes....................... 2,847 856 3,703
------- ------- -------
NET INCOME..................... $ 4,454 $ 1,261 $ 5,715
======= ======= =======
Earnings per share................. $ 0.22 $ 0.10 $ 0.18
======= ======= =======
Weighted Average Number of Shares
Used in Computing Earnings Per
Share............................. 20,208 12,830 (1,001) 32,037
======= ======= ====== =======
</TABLE>
60
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
-------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales......................... $178,560 $135,983 $314,543
Cost of goods sold................ 79,554 81,730 161,284
-------- -------- --------
99,006 54,253 153,259
Selling, general and
administrative expenses.......... 55,874 32,621 88,495
Research and development expense.. 10,768 7,066 17,834
-------- -------- --------
INCOME FROM OPERATIONS.......... 32,364 14,566 46,930
Nonrecurring charges.............. 0 2,150 2,150
Interest expense.................. 616 2,492 3,108
Other income...................... (2,040) (273) (2,313)
-------- -------- --------
INCOME BEFORE INCOME TAXES...... 33,788 10,197 43,985
Income taxes...................... 13,472 4,088 17,560
-------- -------- --------
NET INCOME.................... $ 20,316 $ 6,109 $ 26,425
======== ======== ========
Earnings per share................ $ 1.00 $ 0.47 $ 0.82
======== ======== ========
Weighted Average Number of Shares
Used in
Computing Earnings Per Share..... 20,272 13,101 (1,020) 32,353
======== ======== ====== ========
</TABLE>
61
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
-------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales......................... $125,766 $110,705 $236,471
Cost of goods sold................ 55,249 65,347 120,596
-------- -------- --------
70,517 45,358 115,875
Selling, general and
administrative expenses.......... 37,447 27,917 65,364
Research and development expense.. 9,328 5,239 14,567
-------- -------- --------
INCOME FROM OPERATIONS.......... 23,742 12,202 35,944
Nonrecurring charges.............. 0 0 0
Interest expense.................. 200 2,314 2,514
Other income...................... (1,616) (282) (1,898)
-------- -------- --------
INCOME BEFORE INCOME TAXES...... 25,158 10,170 35,328
Income taxes...................... 9,819 4,023 13,842
-------- -------- --------
NET INCOME.................... $ 15,339 $ 6,147 $ 21,486
======== ======== ========
Earnings per share................ $ 0.84 $ 0.47 $ 0.71
======== ======== ========
Weighted Average Number of Shares
Used in Computing Earnings Per
Share............................ 18,325 12,972 (1,012) 30,285
======== ======== ====== ========
</TABLE>
62
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
-------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------
RESPIRONICS HEALTHDYNE ADJUSTMENTS COMBINED
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net sales......................... $99,450 $104,254 $203,704
Cost of goods sold................ 43,077 65,717 108,794
------- -------- --------
56,373 38,537 94,910
Selling, general and
administrative expenses.......... 31,746 24,501 56,247
Research and development expense.. 7,077 4,336 11,413
------- -------- --------
INCOME FROM OPERATIONS.......... 17,550 9,700 27,250
Nonrecurring charges.............. 0 0 0
Interest expense.................. 194 1,431 1,625
Other income...................... (1,179) (440) (1,619)
------- -------- --------
INCOME BEFORE INCOME TAXES...... 18,535 8,709 27,244
Income taxes...................... 6,858 3,465 10,323
------- -------- --------
NET INCOME.................... $11,677 $ 5,244 $ 16,921
======= ======== ========
Earnings per share................ $ 0.67 $ 0.42 $ 0.58
======= ======== ========
Weighted Average Number of Shares
Used in Computing Earnings Per
Shares........................... 17,532 12,447 (971) 29,008
======= ======== ==== ========
</TABLE>
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial statements of
Respironics and Healthdyne give retroactive effect to the Merger using the
pooling of interests method of accounting and, as a result, the unaudited pro
forma combined condensed balance sheet and statements of income are presented
as if the combining companies had been combined for all periods presented. The
unaudited pro forma combined condensed financial statements will become the
historical financial statements of Respironics upon issuance of financial
statements for a period that includes the date of the acquisition. The
unaudited pro forma combined condensed financial statements reflect the
issuance of .9220 shares of Respironics Common Stock for each share of
Healthdyne Common Stock to effect the Merger. The actual Exchange Ratio could
be as high as approximately .9220 shares of Respironics Common Stock for each
share of Healthdyne Common Stock or as low as approximately .7334 shares of
Respironics Common Stock for each share of Healthdyne Common Stock. The actual
number of shares of Respironics Common Stock to be issued will be determined
at the effective time of the Merger based on the Exchange Ratio and the number
of shares of Healthdyne Common Stock then outstanding. The unaudited pro forma
combined condensed financial statements, including the notes thereto, should
be read in conjunction with the historical consolidated financial statements
of Respironics and Healthdyne incorporated by reference in this Joint Proxy
Statement/Prospectus.
2. The unaudited pro forma combined condensed balance sheet combines
Respironics' September 30, 1997 unaudited consolidated balance sheet with
Healthdyne's September 30, 1997 unaudited consolidated balance sheet. The
unaudited pro forma combined condensed statements of income combine
Respironics' historical results for each of the three fiscal years in the
period ended June 30, 1997 and the unaudited three months ended September 30,
1997 and September 30, 1996 with Healthdyne's historical results for each of
the three fiscal years in the period ended June 30, 1997 and the unaudited
three months ended September 30, 1997 and September 30, 1996. Because
Healthdyne's actual fiscal year ends on December 31, unaudited quarterly
financial data was utilized to develop Healthdyne's historical results for
fiscal years ended June 30, 1997, 1996 and 1995 and for the three month
periods ended September 30, 1997 and 1996. Healthdyne's historical results for
the period from January 1, 1997 through June 30, 1997 that are included in its
historical results for the fiscal year ended June 30, 1997 have not been
audited.
3. The unaudited pro forma data are presented for informational purposes
only and do not give effect to any synergies that may occur due to the
combining of Respironics' and Healthdyne's existing operations. Respironics
expects to incur one-time charges and related adjustments of between $20
million and $25 million in the quarter of the closing of the Merger to reflect
transaction costs and other onetime charges related to the Merger. An
estimated charge, at the midpoint of the above range, after giving effect to
estimated tax benefits, of $17.5 million is reflected in the unaudited pro
forma combined condensed balance sheet and is not included in the unaudited
pro forma combined condensed statements of income. This range is a preliminary
estimate only and therefore is subject to change.
4. There were no material differences between the accounting policies of
Respironics and Healthdyne during the periods presented.
64
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
Healthdyne is incorporated under the laws of the State of Georgia and
Respironics is incorporated under the laws of the State of Delaware.
Healthdyne's shareholders, whose rights as shareholders currently are governed
by Georgia law, the Healthdyne Articles of Incorporation, as amended (the
"Healthdyne Articles") and the Healthdyne By-Laws, will become, upon
consummation of the Merger, stockholders of Respironics, and their rights as
stockholders of Respironics will then be governed by Delaware law, the
Respironics Restated Certificate of Incorporation, as amended (the
"Respironics Charter"), and the Respironics By-Laws.
The following summary sets forth the material differences between the rights
of Healthdyne shareholders and Respironics stockholders. This summary does not
purport to be a complete description of the differences between the rights of
such holders, and is subject, and qualified in its entirety by reference, to
the Respironics Charter, the Respironics By-Laws, the Healthdyne Articles, the
Healthdyne By-Laws, the GBCC and the DGCL.
CHANGES IN CONTROL AND BUSINESS COMBINATIONS
Certain provisions of the Healthdyne Articles and the Healthdyne By-Laws,
and the Respironics Charter and the Respironics By-Laws, as well as certain
provisions of the GBCC and the DGCL, may have the effect of discouraging
certain transactions that involve an actual or threatened change in control of
Healthdyne or Respironics.
The GBCC contains provisions that restrict certain business combinations
with interested shareholders (the "Georgia Business Combination Statute") and
require that certain fair price criteria be satisfied with respect to certain
business combinations with interested shareholders (the "Georgia Fair Price
Statute"), as summarized below. In accordance with the provisions of these
statutes, the restrictions imposed by these statutes do not apply unless a
company elects to be covered by such statutes. Healthdyne has elected to be
covered by both such statutes.
Under the Georgia Business Combination Statute, any person who is (a) the
beneficial owner of 10% or more of the voting power of a Georgia corporation's
outstanding voting stock or (b) is an affiliate of the corporation and, at any
time within the two-year period immediately prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the corporation's
then outstanding voting stock (an "interested shareholder") generally may not
engage in certain business combinations with that corporation for a period of
five years following the time such person became an interested shareholder.
The prohibitions do not apply if (i) prior to the time such person became an
interested shareholder, the corporation's board of directors approved either
the business combination or the transaction which resulted in such person
becoming an interested shareholder, (ii) in the transaction which resulted in
such person becoming an interested shareholder, the person became the
beneficial owner of at least 90% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (x)
directors or officers of the corporation or their affiliates or associates,
(y) subsidiaries of the corporation and (z) any employee stock plan of the
corporation under which participants do not have the right (as determined
exclusively by reference to the terms of such plan and any trust which is part
of such plan) to determine confidentially the extent to which shares held
under such plan will be tendered in a tender or exchange offer (any such
holder described in clause (ii)(x), (y) or (z) being referred to herein as an
"Excluded Holder") or (iii) subsequent to becoming an interested shareholder
(x) such person acquired additional shares resulting in such person being the
beneficial owner of at least 90% of the outstanding voting stock of the
corporation, excluding any shares owned by the Excluded Holders and (y) the
business combination was approved by the holders of a majority of the voting
stock entitled to vote thereon (excluding voting stock beneficially owned by
the interested shareholder or by the Excluded Holders). The restrictions in
the Georgia Business Combination Statute do not apply if a person (i) becomes
an interested shareholder inadvertently, (ii) as soon as practicable divests
sufficient shares so that such person ceases to be an interested shareholder
and (iii) would not, at any time within the five-year period immediately prior
to a business combination between the corporation and such
65
<PAGE>
person, have been an interested shareholder but for the inadvertent
acquisition. The law restricting business combinations is broad in its scope
and is designed to inhibit unfriendly acquisitions.
In addition, the Georgia Fair Price Statute prohibits certain business
combinations between a Georgia corporation and an interested shareholder,
unless certain requirements are met. The Georgia Fair Price Statute would
permit a business combination to be effected if (i) the business combination
is unanimously approved by the "continuing directors" of the corporation
(generally, directors who served prior to the time the person became an
interested shareholder and who are unaffiliated with the interested
shareholder), (ii) the business combination is recommended by at least two-
thirds of the continuing directors and approved by a majority of the votes
entitled to be cast by holders of voting shares, other than voting shares
beneficially owned by the interested shareholder or (iii) certain fair price
criteria and dividend requirements are met, and the interested shareholder has
neither increased the percentage of his ownership by more than 1% in any 12-
month period nor received certain benefits from the corporation. The Georgia
Fair Price Statute is designed to inhibit unfriendly acquisitions that do not
satisfy the specified "fair price" requirements.
Section 203 of the DGCL is similar to the Georgia Business Combination
Statute, but is, in some ways, less restrictive. A Delaware corporation will
be subject to the provisions of Section 203 of the DGCL unless it specifically
elects to opt out of Section 203 of the DGCL. Pursuant to a provision in its
By-Laws, Respironics is not subject to Section 203 of the DGCL. This provision
of the Respironics By-Laws may not be amended by the Respironics Board.
Section 203 of the DGCL provides that an "interested stockholder" is any
person who acquires beneficial ownership of 15% (rather than 10% under the
Georgia Business Combination Statute) or more of the voting power of a
corporation's voting stock. Additionally, the prohibition on specified
business combinations does not apply if (i) upon consummation of the
transaction which resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (ii) on or subsequent to the date the interested stockholder
became an interested stockholder, the transaction is approved by the board and
authorized at a meeting of stockholders by the affirmative vote of at least
two-thirds of the voting stock not owned by the interested stockholder.
Moreover, the mandatory waiting period for such business combinations under
Section 203 is three years instead of five years under the Georgia Business
Combination Statute.
See "Certain Voting Requirements" below regarding special voting
requirements contained in the Respironics Charter.
CERTAIN VOTING REQUIREMENTS
In general, the GBCC requires a majority of the outstanding shares entitled
to vote thereon to approve certain mergers. Under the GBCC, a board of
directors need not submit a plan of merger to the shareholders of the
surviving corporation if: (a) the merger does not amend the articles of
incorporation of the surviving corporation; (b) each share of stock of the
surviving corporation outstanding immediately prior to the effectiveness of
the merger is to be an identical outstanding or reacquired share immediately
after the merger; and (c) the number and kind of shares outstanding after the
merger will not exceed the total number and kind of shares of the surviving
corporation authorized before the merger.
The DGCL requires the affirmative vote of the holders of at least a majority
of the outstanding shares entitled to vote thereon to approve certain mergers.
Under Delaware law, the stockholders of the surviving corporation are not
required to approve a merger if certain conditions, similar to those required
under Georgia law, are satisfied, except that with respect to (c) above, such
merger need not be approved by such stockholders where either no new shares of
common stock of the surviving corporation or securities convertible into such
stock are to be issued under the plan of merger, or any such shares to be
issued in the merger plus the shares initially issuable upon conversion of any
such convertible securities issued in the merger will not exceed 20% of the
number of shares outstanding immediately prior to the merger. The DGCL further
provides that no stockholder approval is required in a merger of a corporation
with or into a single direct or indirect wholly-owned subsidiary of such
corporation for the purpose of effecting a holding company reorganization, if
certain
66
<PAGE>
conditions are met, including (a) as a result of the merger, the corporation
or its successor becomes a direct or indirect wholly-owned subsidiary of the
new holding company, (b) stockholders of the corporation receive in the merger
the same number of shares of the new holding company as they owned in the
corporation prior to the merger, which stock has the same designations,
rights, powers and preferences, and the qualifications, limitations and
restrictions thereof, with respect to the holding company as such stock had
with respect to the corporation prior to the merger, (c) the certificate of
incorporation and by-laws of the new holding company contain provisions
identical to the certificate of incorporation and by-laws of the corporation
immediately prior to the effective time of the merger (except for provisions
that could have been amended or deleted without stockholder approval), (d) the
directors of the new holding company will be the same as the directors of the
corporation immediately prior to the merger, (e) the certificate of
incorporation of the corporation or its successor immediately following the
merger is identical in all substantive respects to the certificate of
incorporation of the corporation immediately prior to the merger, provided
that the certificate of incorporation of the corporation or its successor
shall be amended in the merger to contain a provision requiring that any act
or transaction by or involving such corporation that requires for its adoption
under the DGCL or its certificate of incorporation the approval of the
stockholders of such corporation shall require, in addition, the approval of
the stockholders of the new holding company or any successor thereto by merger
and (f) the merger is tax-free for U.S. federal income tax purposes to the
stockholders of the corporation.
The Respironics Charter contains a provision that requires the affirmative
vote of (a) the holders of at least 66 2/3% of the voting power of all then
outstanding shares of Voting Stock (as defined therein), voting together as a
single class, and (b) the holders of at least a majority of the voting power
of the then outstanding shares of Voting Stock which are not beneficially
owned by Interested Shareholders (as defined below), voting together as a
single class, to approve any Business Combination (as defined therein) between
or otherwise involving Respironics and an Interested Shareholder, unless the
Business Combination has been approved by the affirmative vote of a majority
of the Disinterested Directors (as defined therein) then in office. A
"Business Combination" is defined to mean: (i) any merger, consolidation or
share exchange involving Respironics or a subsidiary; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition by Respironics or
any subsidiary of 10% or more of Total Assets (as defined therein); (iii) the
issuance or transfer by Respironics or any subsidiary of any securities of
Respironics or any subsidiary having an aggregate fair market value of 10% or
more of Total Assets; (iv) the adoption of any plan for the liquidation or
dissolution of Respironics; (v) any recapitalization of Respironics or
reclassification of its securities which would have the effect of increasing
the voting power of an Interested Shareholder; and (vi) any other agreement,
contract or other arrangement providing for any transaction or series of
transactions similar in purpose or effect to the foregoing.
As used in the Respironics Charter, "Interested Shareholder" means any
person who or which, at a particular time:
(1) is the beneficial owner of more than 20% of the voting power of the
outstanding Voting Stock; or
(2) is a director or an Affiliate (as defined) of Respironics and at any
time within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of more than 20% of the
voting power of the then outstanding Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Shareholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act.
"Disinterested Director" means a director of Respironics who is not an
Interested Shareholder or affiliated with an Interested Shareholder and either
(i) was a Respironics director immediately prior to the time the Interested
Shareholder became an Interested Shareholder or (ii) is a successor to a
Disinterested Director and is
67
<PAGE>
or was recommended or elected to succeed a Disinterested Director by the
affirmative vote of a majority of the Disinterested Directors then in office.
RIGHTS AGREEMENTS
The following sections summarize the shareholder rights plans of Respironics
and Healthdyne. Unless otherwise defined, capitalized terms used in the
section entitled "The Respironics Rights Plan" have the meanings ascribed to
such terms in the Respironics Rights Plan, and capitalized terms used in the
section entitled "The Healthdyne Rights Plan" have the meanings ascribed to
such terms in the Healthdyne Rights Plan.
The Respironics Rights Plan. On June 28, 1996, Respironics entered into a
Rights Plan (the "Respironics Rights Plan") with respect to shares of
Respironics Common Stock, with Chase Mellon Shareholder Services, LLC acting
as rights agent. Under the Respironics Rights Plan, each Respironics Right
entitles the registered holder of Respironics Common Stock to purchase from
Respironics 1/100 of a share (a "Respironics Unit") of Respironics Common
Stock at a price of $110 per Respironics Unit, subject to adjustment (the
"Respironics Purchase Price"). The Respironics Rights are attached to all
certificates representing shares of Respironics Common Stock, including those
shares issued pursuant to the Merger Agreement, and no separate certificates
were distributed with respect to any Respironics Rights. The Respironics
Rights will separate from the Respironics Common Stock and the distribution
date (the "Respironics Distribution Date") will occur on the earlier of (i)
ten business days following the public announcement (the "Respironics Stock
Acquisition Date") that a person or group of affiliated or associated persons
(other than Respironics, any Subsidiary of Respironics or any employee benefit
plan of Respironics or such Subsidiary of Respironics) (a "Respironics
Acquiring Person") has acquired or obtained the right to acquire beneficial
ownership of 20% or more of the then outstanding shares of Respironics Common
Stock and (ii) ten business days (or such later date as may be determined by
action of a majority of the Independent Directors prior to such time as any
person becomes a Respironics Acquiring Person) following the commencement of a
tender offer or exchange offer that would result in a person or group owning
beneficially 20% or more of the then outstanding shares of Respironics Common
Stock.
Until the Respironics Distribution Date, (i) the Respironics Rights will be
evidenced by Respironics Common Stock certificates and will be transferred
with and only with such certificates, (ii) new certificates issued after July
26, 1996 will contain a notation incorporating the Respironics Rights Plan by
reference and (iii) the surrender for transfer of any certificates
representing outstanding Respironics Common Stock will also constitute the
transfer of the Respironics Rights associated with the Respironics Common
Stock represented by such certificates. Accordingly, each share of Respironics
Common Stock issued in the Merger will have one Respironics Right attached to
it.
The Respironics Rights are not exercisable until the Respironics
Distribution Date and will expire at the close of business on the tenth
anniversary of the Respironics Rights Plan unless earlier redeemed by
Respironics. In the event that (i) Respironics is the surviving corporation in
a merger with a Respironics Acquiring Person and shares of Respironics Common
Stock shall remain outstanding, (ii) a Person becomes the beneficial owner of
20% or more of the then outstanding shares of Respironics Common Stock, (iii)
a Respironics Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Respironics Rights Plan, or (iv) during such
time as there is a Respironics Acquiring Person, an event occurs which results
in such Respironics Acquiring Person's ownership interest being increased by
more than 1% by means of a reverse stock split or recapitalization, then in
each such case, each holder of a Respironics Right will thereafter have the
right to receive, upon payment of the Respironics Purchase Price, that number
of shares of Respironics Common Stock, cash, property or other securities of
Respironics with a value equal to two times the Purchase Price. All
Respironics Rights that are or were beneficially owned by any Respironics
Acquiring Person at such time will be null and void.
In the event that, at any time following the Respironics Stock Acquisition
Date, (i) Respironics is acquired in a merger or other business combination
transaction and Respironics is not the surviving corporation (other
68
<PAGE>
than a merger described above), (ii) any Person consolidates or merges with
Respironics and all or part of the Respironics Common Stock is converted or
exchanged for securities, cash or any property of any other Person or (iii)
50% or more of Respironics' assets or earning power is sold or transferred,
each holder of a Respironics Right shall thereafter have the right to receive
upon payment of the Respironics Purchase Price, Common Stock of the
Respironics Acquiring Person having a value equal to two times the Respironics
Purchase Price.
At any time until ten business days following the Respironics Stock
Acquisition Date, a majority of the Independent Directors may redeem the
Respironics Rights, in whole, but not in part, at a price of $.01 per
Respironics Right (the "Respironics Redemption Price") payable at the election
of such majority of Independent Directors in cash or shares of Respironics
Common Stock. Immediately upon the action of a majority of the Independent
Directors ordering the redemption of the Respironics Rights, the Respironics
Rights will terminate and the only right of the holders of Respironics Rights
will be eligible to receive the Respironics Redemption Price.
The Healthdyne Rights Plan. On April 20, 1995, the Healthdyne Board declared
a dividend distribution of one Healthdyne Right for each outstanding share of
Healthdyne Common Stock to shareholders of record at the close of business on
May 22, 1995. Each Right entitles the registered holder to purchase from
Healthdyne a unit consisting of one one-hundredth of a share (a "Healthdyne
Unit") of Series B Cumulative Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), at a purchase price of $50 per Unit, subject to adjustment
(the "Healthdyne Purchase Price").
The Healthdyne Rights will be attached to all Healthdyne Common Stock
certificates representing shares then outstanding, and no separate rights
certificates will be distributed. The Healthdyne Rights will separate from the
Healthdyne Common Stock and a "Healthdyne Distribution Date" will occur upon
the earlier of (i) ten days following a public announcement that a person or
group of affiliated or associated persons (a "Healthdyne Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of Healthdyne Common Stock (the "Healthdyne
Stock Acquisition Date"), or (ii) at such time, as Healthdyne's Board of
Directors may designate, after the date that a tender or exchange offer by any
Person (other than Healthdyne, any Subsidiary of Healthdyne, any employee
benefit plan of Healthdyne or of any Subsidiary of Healthdyne, or any Person
or entity organized, appointed or established by Healthdyne for or pursuant to
the terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, if upon consummation thereof, such Person would be the
Beneficial Owner of 20% or more of the shares of Healthdyne Common Stock then
outstanding. Until the Healthdyne Distribution Date, (i) the Healthdyne Rights
will be evidenced by the Healthdyne Common Stock certificates and will be
transferred with and only with such Healthdyne Common Stock certificates, (ii)
new Healthdyne Common Stock issued after May 22, 1995 will contain a notation
incorporating the Healthdyne Rights Plan by reference and (iii) the surrender
for transfer of any certificates for Healthdyne Common Stock outstanding will
also constitute the transfer of the Healthdyne Rights associated with the
Healthdyne Common Stock represented by such certificates.
The Healthdyne Rights are not exercisable until the Healthdyne Distribution
Date and will expire at the close of business on May 22, 2005, unless earlier
redeemed by Healthdyne as described below. The Healthdyne Rights will not be
applicable to the Merger and will be terminated at the Effective Time.
In the event that, at any time following the Healthdyne Distribution Date,
(i) Healthdyne is the surviving corporation in a merger with a Healthdyne
Acquiring Person or an associate or affiliate of a Healthdyne Acquiring Person
and Healthdyne's Common Stock is not changed or exchanged, or (ii) a person or
group of affiliated or associated persons becomes the beneficial owner of 20%
or more of the then outstanding shares of Healthdyne Common Stock (except
pursuant to a tender offer or exchange offer for all outstanding shares of
Healthdyne Common Stock approved by a majority of the Healthdyne Board who are
not associated with a Healthdyne Acquiring Person), or (iii) during such time
as there is a Healthdyne Acquiring Person, an event occurs which results in
such Healthdyne Acquiring Person's ownership interest being increased by more
than 1% (e.g., a reverse stock split), or (iv) in the event of certain
transactions between a Healthdyne Acquiring Person
69
<PAGE>
or an Affiliate of a Healthdyne Acquiring Person and Healthdyne, each holder
of a Healthdyne Right will thereafter have the right to receive, upon
exercise, Healthdyne Common Stock (or, in certain circumstances, cash,
property or other securities of Healthdyne) having a value equal to two times
the exercise price of the Healthdyne Right. Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph, all Healthdyne Rights that are, or (under certain circumstances
specified in the Healthdyne Rights Plan) were, beneficially owned by any
Healthdyne Acquiring Person will be null and void. Moreover, the Healthdyne
Rights shall not be exercisable, and shall be null and void so long as held by
a holder in any jurisdiction where the requisite qualification for the
issuance to such holder, or the exercise by such holder, of the Healthdyne
Rights in such jurisdiction shall not have been obtained or be obtainable.
However, Healthdyne Rights are not exercisable following the occurrence of any
of the events set forth above until such time as the Healthdyne Rights are no
longer redeemable by Healthdyne as set forth below.
In the event that, at any time following the Healthdyne Stock Acquisition
Date, (i) Healthdyne is acquired in a merger or other business combination
transaction in which Healthdyne is not the surviving corporation (other than a
merger described in the preceding paragraph), (ii) Healthdyne is the surviving
corporation in a merger or consolidation with another person and all or part
of Healthdyne's Common Stock is changed or exchanged, or (iii) 50% or more of
Healthdyne's assets or earning power is sold or transferred, each holder of a
Healthdyne Right (except Healthdyne Rights which previously have been voided
as set forth above) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
exercise price of the Healthdyne Right. The events set forth in this paragraph
and in the preceding paragraph are referred to as the "Healthdyne Triggering
Events."
At any time until ten days following the Healthdyne Stock Acquisition Date
(as such period may be extended by Healthdyne pursuant to the Healthdyne
Rights Plan), Healthdyne may redeem the Rights in whole, but not in part, at a
price of $.01 per Right provided that in certain circumstances such redemption
will require the concurrence of a majority of the Continuing Directors. After
this ten day period has expired, this right of redemption may be reinstated if
a Healthdyne Acquiring Person reduces his beneficial ownership to 10% or less
of the outstanding shares of Healthdyne Common Stock in a transaction or
series of transactions not involving Healthdyne and there are no other
Healthdyne Acquiring Persons. After the above ten day period expires and prior
to the occurrence of a Healthdyne Triggering Event, Healthdyne may redeem the
Healthdyne Rights provided that such redemption is incidental to a merger,
consolidation or other business combination involving Healthdyne or a
reorganization or restructuring of Healthdyne which is approved by a majority
of the Continuing Directors. Immediately upon the action of the Healthdyne
Board ordering redemption of the Healthdyne Rights, the Healthdyne Rights will
terminate and the only right of the holders of Healthdyne Rights will be to
receive the $.01 redemption price.
The Healthdyne Rights Plan was amended October 31, 1997 to provide that the
Healthdyne Board shall call a special meeting for the purpose of voting on an
Offer made by an Offeror which (i) provides for the acquisition of all of the
outstanding shares of Healthdyne Common Stock held by any Person other than
the Offeror and its Affiliates for cash at the same price and at a price which
is at least 15% higher than the "current market price" per share of Healthdyne
Common Stock on the day immediately preceding the date on which the Offeror's
proposal is delivered to Healthdyne, (ii) states that the Offeror has obtained
written financing commitments from recognized financing sources, and/or has on
hand cash or cash equivalents, for the full amount of all financing necessary
to consummate the Offer (including amounts necessary to refinance any
indebtedness of Healthdyne or its subsidiaries which will become due upon
consummation of the Offer) and (iii) requests Healthdyne to call a special
meeting of the holders of Healthdyne Common Stock for the purpose of voting on
a resolution requiring the Healthdyne Board to redeem the Healthdyne Rights
and contains a written agreement of the Offeror to pay certain of Healthdyne's
costs of such special meeting. Such special meeting shall be held on a date
selected by the Healthdyne Board, which date shall be not less than 90 and not
more than 120 days after the later of (A) the date such Offer is received by
Healthdyne (the "Offer Date") and (B) the date of any meeting of shareholders
already scheduled as of the Offer Date; provided, however, that if (x) such
other meeting shall have been called for the purpose of voting on a resolution
with respect to another Offer and (y) the Offer Date shall be not later
70
<PAGE>
than fifteen days after the date such other Offer was received by Healthdyne,
then both the resolution and such other resolution shall be voted on at such
meeting and such meeting shall be deemed to be the special meeting.
NUMBER AND ELECTION OF DIRECTORS
Under both the GBCC and the DGCL, a board of directors must consist of one
or more individuals with the number specified in or fixed in accordance with
the articles of incorporation or by-laws. In both Georgia and Delaware, a
corporation's board of directors may be divided into classes with staggered
terms of office, if so provided by the corporation's articles or by-laws.
The Healthdyne By-Laws specify that the board shall consist of not less than
three nor more than seven persons, the exact size to be fixed from time to
time by the Board of Directors. The Healthdyne Board is currently comprised of
seven members who are elected annually to one-year terms. Directors may be
removed at any time with or without cause by the affirmative vote of the
holders of a majority of the shares entitled to vote at an election of
directors. Any vacancy on the board of directors created by the removal of a
director by the shareholders must be filled by the shareholders, or, if
authorized by the shareholders, by the board of directors. The Healthdyne By-
Laws further provide that any other vacancy may be filled by the affirmative
vote of the remaining directors, even if less than a quorum, or by the sole
remaining director, or, if no director remains, by the shareholders. Under
Georgia law, shareholders do not have cumulative voting rights for the
election of directors unless the articles of incorporation so provide. The
Healthdyne Articles do not provide for cumulative voting.
The number of directors on the Respironics Board is determined from time to
time by the Board and is presently fixed at nine members. The Respironics
Charter creates a staggered Board, with directors divided into three classes
as nearly equal in number as possible. At each annual meeting, stockholders
elect directors of the class whose term expires to hold office until the third
succeeding annual meeting. Under the DGCL, unless otherwise provided in the
certificate of incorporation, directors serving on a classified board may only
be removed by the stockholders for cause. The Respironics Charter does not
provide otherwise. Under the Respironics By-Laws, a vacancy resulting from
such a removal for cause may but need not be filled by the stockholders at the
same meeting at which such removal occurred or at a special meeting called for
that purpose. Any vacancy in the Respironics Board shall, unless filled as
provided in the preceding sentence, be filled by a majority of the remaining
members of the Board, whether or not a quorum. Under Delaware law,
stockholders do not have cumulative voting rights unless the certificate of
incorporation so provides. The Respironics Charter does not provide for
cumulative voting.
LIABILITY OF DIRECTORS
Both the GBCC and the DGCL allow a corporation to limit the personal
liability of directors with certain similar exceptions. As permitted by the
GBCC, the Healthdyne Articles provide that no director shall be personally
liable to Healthdyne or its shareholders for monetary damages for breach of
duty of care or other duty as a director, except for liability (a) for any
appropriation, in violation of his duties, of any business opportunity of
Healthdyne, (b) for acts or omissions which involve intentional misconduct or
a knowing violation of law, (c) for unlawful distributions or (d) for any
transaction from which the director derived an improper personal benefit.
The Respironics Charter provides that, to the fullest extent permitted by
the DGCL, no director of Respironics shall be personally liable to Respironics
or its stockholders for monetary damages for breach of fiduciary duty as a
director. The DGCL allows a corporation to limit in this manner the personal
liability of a director, except for liability for (a) any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) acts or
omissions not in good faith which involve intentional misconduct or a knowing
violation of law, (c) an unlawful payment of a dividend or an unlawful stock
purchase or redemption or (d) any transaction from which the director derived
an improper personal benefit.
71
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The GBCC permits a corporation to indemnify any director or officer for any
liability and reasonable expense that may be incurred in connection with or
resulting from any threatened, pending or completed civil, criminal,
administrative or investigative action, suit or proceeding (whether brought by
or in the right of the corporation or otherwise), in which he may become
involved by reason of his being or having been a director or officer of the
corporation; provided, that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Under the GBCC, absent
shareholder approval, directors may not be indemnified in connection with (a)
any proceeding by or in the right of the corporation in which such individual
is adjudged liable to the corporation or (b) any other proceeding in which
such individual is adjudged liable on the basis that such individual received
an improper personal benefit. The Healthdyne By-Laws, and the indemnification
agreements entered into by Healthdyne with each of its directors and officers,
provide that directors and officers shall be indemnified to the maximum extent
permitted by and in the manner provided by the GBCC.
Under the DGCL, a corporation generally may indemnify its officers and
directors for expenses, judgments or settlements actually and reasonably
incurred by them in connection with suits and other legal proceedings if they
acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe their conduct was
unlawful. If the action is brought by or in the right of the corporation, the
DGCL limits indemnification to the expenses (including attorneys' fees)
reasonably incurred and provides that no such indemnification can be made when
the individual is adjudged liable to the corporation, unless and only to the
extent the Delaware Court of Chancery deems such indemnification fair and
reasonable under the circumstances. The Respironics Charter provide that
Respironics shall indemnify, to the fullest extent permitted by applicable
law, any person who is or was a director or officer of Respironics for any
liability and expense in connection with any actual or threatened claim,
action, suit or proceeding, whether civil or criminal, administrative or
investigative (including, without limitation, any action, suit or proceeding
by or in the right of Respironics to procure a judgment in its favor) by
reason of the fact that such person is or was a director or officer of
Respironics.
Under both Georgia and Delaware law, a corporation may advance expenses to
directors and officers as long as any director or officer receiving an advance
undertakes to repay the amounts advanced if it is ultimately determined that
such director or officer was not entitled to be indemnified. The Healthdyne
indemnification agreements and the Respironics Charter require advancement of
expenses upon receipt by Healthdyne or Respironics, as the case may be, of
such a written undertaking to repay.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION AND BY-LAWS
Generally, the GBCC requires a majority vote of the outstanding shares of
each voting group entitled to vote to amend the articles of incorporation of a
Georgia corporation. Under Georgia law, shareholder action is generally not
necessary to amend the by-laws, unless the articles of incorporation provide
otherwise. The shareholders do, however, have the right to amend, repeal or
adopt by-laws (except for by-laws that restrict the power of the board to
manage the business) and may restrict the right of the board of directors to
amend, alter or repeal a particular by-law. The Healthdyne By-Laws may be
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of directors then in office or by the affirmative vote of a majority
of all shares outstanding and entitled to vote. In addition, the shareholders
may prescribe that any by-law adopted by them may not be altered, amended or
repealed by the Healthdyne Board. The Healthdyne By-Laws provide that the
Healthdyne Board may not, without shareholder approval, alter, amend, repeal
or adopt (i) any by-law relating to special meetings of shareholders, or (ii)
any other by-law if such action would have the effect of reinstating any by-
law that was repealed by the shareholders at the 1997 Annual Meeting of
Shareholders of Healthdyne.
72
<PAGE>
The DGCL also generally requires a majority vote of the outstanding shares
entitled to vote to amend a Delaware corporation's certificate of
incorporation, although the certificate of incorporation may require a
greater-than-majority shareholder vote. As previously noted under "Certain
Voting Requirements," the Respironics Charter would require a supermajority
vote if an amendment to the Charter were to come within the definition of a
Business Combination involving an Interested Shareholder. Delaware law
provides that a corporation's by-laws may be amended by the stockholders or,
if so provided in the corporation's certificate of incorporation, the power to
amend the corporation's by-laws may also be conferred on the corporation's
directors. The Respironics Charter authorizes the Respironics Board to make,
alter or repeal the Respironics By-Laws. By-laws which would have the effect
of limiting in any way the rights to indemnification provided by the
Respironics Charter or increasing director liability may operate only
prospectively.
DIVIDENDS
The ability of Healthdyne and Respironics to pay dividends is governed by
different standards. Under the GBCC, Healthdyne is permitted to pay dividends
or make other distributions with respect to its stock unless, after giving
effect to the dividend or other distribution, either Healthdyne would not be
able to pay its debts as they become due in the usual course of business, or
Healthdyne's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if Healthdyne were to be dissolved at
the time of the dividend or other distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the dividend or other distribution. The Healthdyne Articles
contain no provisions restricting dividends on Healthdyne Common Stock except
to the extent Healthdyne Preferred Stock has preference as to dividends.
A Delaware corporation, unless otherwise restricted by its certificate of
incorporation, may pay dividends out of surplus or, if no surplus exists, out
of net profits for the fiscal year in which the dividend is declared and/or
for the preceding fiscal year (but the directors may not declare and pay
dividends out of such net profits if the capital of the corporation shall have
diminished to an amount less than the aggregate amount of capital represented
by the issued and outstanding stock of all classes having preference upon the
distribution of assets). The Respironics Charter contains no provisions
restricting dividends on Respironics Common Stock.
SPECIAL MEETINGS
Under Georgia and Delaware law, special meetings of shareholders may be
called by the board of directors or by such other persons as are authorized by
the by-laws or articles or certificate of incorporation, as the case may be.
The Healthdyne By-Laws provide that special meetings of the shareholders may
be called at any time by the Healthdyne Board, the Chairman of the Healthdyne
Board or the President of Healthdyne. The Healthdyne By-Laws also provide that
a special meeting shall be called upon the written demand of the holders of at
least 10% of the outstanding Healthdyne Common Stock. With respect to special
meetings of shareholders called upon demand of the shareholders, the
Healthdyne By-Laws provide that only such business as is specified in the
demand shall come before the meeting. The Respironics By-Laws provide that
special meetings of the stockholders may only be called by the President or by
the Respironics Board, for the purposes set forth in the call.
ACTION BY SHAREHOLDERS OR STOCKHOLDERS WITHOUT MEETING
The GBCC permits shareholders of a Georgia corporation to act without a
meeting only by unanimous written consent of all shareholders entitled to vote
on the action, unless otherwise provided by the articles of incorporation. The
Healthdyne Articles do not provide for shareholder action by less than
unanimous written consent.
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, stockholders of a Delaware corporation may take any action
without a meeting by written consent signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or
73
<PAGE>
take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of any action by less than
unanimous consent must be given to stockholders who did not consent to such
action. The Respironics Charter does not limit stockholder action by written
consent, and the Respironics By-Laws authorize stockholder action by less than
unanimous consent.
ADVANCE NOTICE FOR NOMINATION OF DIRECTORS AND STOCKHOLDER PROPOSALS
The Healthdyne By-Laws provide that a shareholder desiring to propose
business at an annual meeting of shareholders, including the nomination of any
person for election as a director, must give written notice to the Secretary
of Healthdyne setting forth (i) a brief description of the business to be
brought before the meeting and the reasons therefor, (ii) the shareholder's
name and address, (iii) the amount and type of securities owned by the
shareholder, (iv) a description of certain arrangements or understandings
between the shareholder and any other persons with respect to the proposed
business and any material interest of the shareholder in such business, (v) a
representation of the shareholder's intent to bring such business before the
annual meeting and (vi) in the case of nominees for director, specified
information regarding such nominees. To be timely, the shareholder's notice
must be delivered to Healthdyne not less than 60 days nor more than 90 days
prior to the anniversary date of the immediately preceding annual meeting;
however, in the event the annual meeting is to be held on a date that is not
within 30 days before or after such anniversary date, notice by the
shareholder must be received not later than the tenth day following the day
notice of the date of the annual meeting was first mailed or publicly
disclosed. The Respironics By-Laws do not contain specific provisions
addressing advance notice for nominations of directors or the bringing of
stockholder proposals.
SHAREHOLDER OR STOCKHOLDER INSPECTION RIGHTS
The GBCC provides that a shareholder, after giving advance notice, is
entitled to inspect and copy, among other things, the corporation's articles
of incorporation, by-laws, certain board of directors' and shareholders'
resolutions, minutes of shareholders' meetings by right, and, among other
things, the corporation's minutes of board of directors' meetings and
accounting records only if (a) its demand is made in good faith and for a
proper purpose that is reasonably relevant to its legitimate interest as a
shareholder, (b) it describes with reasonable particularity its purpose and
the records it desires to inspect, (c) the records are directly connected with
its purpose and (d) the records are to be used only for the stated purpose;
provided, however, that the right to inspect the latter set of records may be
limited by a corporation's articles of incorporation or by-laws for
shareholders owning two percent or less of the corporation's outstanding
shares. Neither the Healthdyne Articles nor the Healthdyne By-Laws contain
such a limitation.
Under the DGCL, upon written demand under oath, any stockholder of record
may inspect the stock ledger, a list of the stockholders and the other books
and records of a corporation so long as such inspection is for a purpose
reasonably related to such person's interest as a stockholder.
DISSENTERS' OR APPRAISAL RIGHTS
Subject to the exception provided below, under the GBCC, shareholders who
comply with certain procedural requirements of the GBCC are entitled to assert
dissenters' rights with respect to such shareholder's shares upon the merger
of a corporation, the consummation of a plan of share exchange to which the
corporation is the acquired party, the sale or other disposition of all or
substantially all of the corporation's assets, an amendment of the articles of
incorporation of the corporation that materially and adversely affects rights
in respect of such shareholder's shares in ways specified in the GBCC, or any
corporate action taken pursuant to a shareholder vote to the extent that the
articles of incorporation, by-laws or a resolution of the board of directors
of the corporation provides that shareholders are entitled to rights of
appraisal. The Healthdyne Articles do not currently provide for dissenters'
rights in any situation other than those enumerated above. Unless the articles
of incorporation or resolution of the board of directors of the corporation
provides otherwise, however, holders of any class of shares which are listed
on a "national securities exchange" or are held of record by more than
74
<PAGE>
2,000 shareholders are not entitled to assert dissenters' rights under Georgia
law if the shareholder receives shares of the surviving corporation or another
corporation whose shares are listed on a national securities exchange (defined
to include the NASDAQ NMS) or are held of record by at least 2,000
shareholders.
Like the GBCC, the DGCL provides stockholders of a Delaware corporation with
appraisal rights in connection with mergers and consolidations generally, but
does not provide appraisal rights for holders of any class or series of stock
which, at the record date fixed to determine stockholders entitled to receive
notice of and to vote at the meeting to act upon the agreement of merger or
consolidation, were either (a) listed on a national securities exchange or
designated as a national market security on an inter-dealer quotation system by
the National Association of Securities Dealers, Inc., or (b) held of record by
more than 2,000 stockholders, so long as, in either case, such stockholders are
not required by the terms of the agreement of merger or consolidation to
receive as consideration in such merger or consolidation anything other than
shares of stock of the surviving corporation or another corporation whose
shares are so listed or designated or held of record by more than 2,000
stockholders. In addition, the DGCL does not provide appraisal rights for
stockholders of the surviving corporation, or for stockholders of the subject
corporation, as applicable, for mergers for which the DGCL does not require
stockholder approval described under "Certain Voting Rights" above.
PREEMPTIVE RIGHTS
Neither Delaware nor Georgia law provides for preemptive rights to acquire a
corporation's unissued stock. However, such right may be expressly granted to
the shareholders in a corporation's certificate or articles of incorporation.
Neither the Healthdyne Articles nor the Respironics Charter provide for
preemptive rights.
DESCRIPTION OF CAPITAL STOCK
Respironics is authorized to issue 100,000,000 shares of Respironics Common
Stock having one vote per share. Stockholders do not have preemptive,
conversion or redemption rights with respect to Respironics Common Stock. The
outstanding shares of Respironics Common Stock are, and the shares offered by
Respironics hereby will be, when issued and paid for, validly issued, fully
paid and nonassessable. All shares of Respironics Common Stock are entitled to
receive such dividends, if any, as may be declared from funds legally available
therefor and to receive pro rata all assets of Respironics for distribution to
stockholders upon liquidation or dissolution after payment or provision for
payment of all of Respironics' obligations. The transfer agent and registrar
for the Respironics Common Stock is Chemical Mellon Shareholder Services, LLC
See "Comparison of Stockholders' Rights--Rights Agreements--The Respironics
Rights Plan" for a description of the Respironics Rights Plan.
LEGAL OPINIONS
The validity of the Respironics Common Stock to be issued by Respironics
under the Merger Agreement will be passed upon by Respironics' counsel, Reed
Smith Shaw & McClay LLP, 435 Sixth Avenue, Pittsburgh, Pennsylvania 15219.
Certain tax matters relating to the Merger will be passed upon for Respironics
by its counsel, Reed Smith Shaw & McClay LLP, 435 Sixth Avenue, Pittsburgh,
Pennsylvania 15219. Certain tax matters relating to the Merger will be passed
upon for Healthdyne by its counsel, Troutman Sanders LLP, 600 Peachtree Street,
N.E., Suite 5200, Atlanta, Georgia 30308-2216.
EXPERTS
The consolidated financial statements and schedule of Respironics, included
in Respironics' Annual Report (Form 10-K) for the year ended June 30, 1997,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
75
<PAGE>
The consolidated financial statements of Healthdyne as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December
31, 1996, have been incorporated by reference herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
Representatives of Ernst & Young LLP are expected to be present at the
Respironics Meeting, and representatives of KPMG Peat Marwick LLP are expected
to be present at the Healthdyne Meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Respironics intended to be presented at
Respironics' annual meeting of stockholders to be held in 1998 must be
received by Respironics no later than May 31, 1998 to be considered for
inclusion in the Respironics proxy statement and form of proxy related to the
Respironics 1998 annual meeting.
If the Merger is not consummated, proposals of shareholders of Healthdyne
intended to be presented at Healthdyne's next annual meeting of shareholders
must be received by Healthdyne no later than February 24, 1998 to be
considered for inclusion in the Healthdyne proxy statement and form of proxy
related to such meeting.
OTHER MATTERS
The managements of Respironics and Healthdyne do not know of any other
matters intended to be presented for stockholder action at their respective
meetings. If any other matter does properly come before either of the meetings
and is put to a stockholder vote, the proxies solicited hereby will be voted
in accordance with the judgment of the proxyholders named thereon.
76
<PAGE>
APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
RESPIRONICS, INC.,
RIGA, INC.
AND
HEALTHDYNE TECHNOLOGIES, INC.
DATED AS OF NOVEMBER 10, 1997
AS AMENDED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE MERGER........................................................ 7
1.1. The Merger.......................................................... 7
ARTICLE II CONDITIONS....................................................... 7
2.1. Mutual Conditions................................................... 7
2.2. Respironics Conditions.............................................. 8
2.3. Healthdyne Conditions............................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HEALTHDYNE.................... 11
3.1. Organization........................................................ 11
3.2. Capitalization...................................................... 11
3.3. Subsidiaries........................................................ 11
3.4. Joint Ventures, etc................................................. 12
3.5. Corporate Authority; Absence of Violation........................... 12
3.6. Exchange Act Reports and Financial Statements....................... 13
3.7. Absence of Certain Changes.......................................... 13
3.8. Taxes............................................................... 13
3.9. Employee Contracts and Plans........................................ 13
3.10. Material Contracts and Activities Since September 30, 1997.......... 14
3.11. Litigation and Other Proceedings.................................... 14
3.12. Compliance with Laws; Regulatory Matters............................ 14
3.13. Environmental Matters............................................... 15
3.14. Insurance........................................................... 15
3.15. Intellectual Property............................................... 15
3.16. Takeover Statutes................................................... 16
3.17. Healthdyne Rights Agreements........................................ 16
3.18. Accounting and Tax Matters.......................................... 17
3.19. Proxy Statement/Prospectus, etc..................................... 17
3.20. Investment Banker's Opinion......................................... 17
3.21. Investigation by Healthdyne......................................... 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF RESPIRONICS.................... 17
4.1. Organization........................................................ 18
4.2. Capitalization...................................................... 18
4.3. Subsidiaries........................................................ 18
4.4. Corporate Authority; Absence of Violation........................... 18
4.5. Exchange Act Reports and Financial Statements....................... 19
4.6. Absence of Certain Changes.......................................... 19
4.7. Taxes............................................................... 19
4.8. Employee Contracts and Plans........................................ 20
4.9. Litigation and Other Proceedings.................................... 21
4.10. Compliance with Laws; Regulatory Matters............................ 21
4.11. Environmental Matters............................................... 21
4.12. Insurance........................................................... 21
4.13. Intellectual Property............................................... 21
4.14. Accounting and Tax Matters.......................................... 22
4.15. Proxy Statement/Prospectus, etc..................................... 22
4.16. Investment Banker's Opinion......................................... 23
4.17. Investigation by Respironics........................................ 23
</TABLE>
I-2
<PAGE>
<TABLE>
<S> <C>
ARTICLE V CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME................... 23
5.1. Conduct of Business in Ordinary Course............................. 23
5.2. Conduct of Respironics Business in Ordinary Course................. 24
ARTICLE VI COVENANTS AND ACTIONS PENDING THE EFFECTIVE TIME................ 25
6.1. Securities Registration and Disclosure............................. 25
6.2. Regulatory Clearances and Approvals................................ 25
6.3. Shareholders' Meetings............................................. 26
6.4. Affiliates' Agreements............................................. 26
6.5. Public Announcements............................................... 26
6.6. Notice of Certain Events........................................... 26
6.7. All Reasonable Best Efforts........................................ 27
6.8. Healthdyne Acquisition Proposals................................... 27
6.9. Transactions Involving Respironics................................. 28
6.10. Access and Information............................................. 29
ARTICLE VII AMENDMENT, WAIVER AND TERMINATION.............................. 29
7.1. Amendment.......................................................... 29
7.2. Waiver............................................................. 29
7.3. Termination........................................................ 29
7.4. Effect of Termination.............................................. 30
7.5. Respironics Fee.................................................... 31
7.6. Healthdyne Fee..................................................... 32
7.7. Arbitration of Disputes Regarding Adverse Regulatory Condition
Notice.................................................................... 33
ARTICLE VIII MISCELLANEOUS PROVISIONS...................................... 34
8.1. Closing and Effective Time......................................... 34
8.2. Confidentiality.................................................... 34
8.3. Entire Agreement................................................... 34
8.4. Counterparts; Headings............................................. 34
8.5. Further Assurances................................................. 34
8.6. Communications..................................................... 34
8.7. Expenses........................................................... 35
8.8. Brokers............................................................ 35
8.9. Survival........................................................... 36
8.10. Successors and Assigns; No Third Party Beneficiaries............... 36
8.11. Governing Law...................................................... 36
ARTICLE IX POST-EFFECTIVE TIME COVENANTS................................... 36
9.1. Indemnification of Healthdyne Directors and Officers............... 36
9.2. Healthdyne Stock Option............................................ 37
9.3. Respironics Benefit Plans.......................................... 38
9.4. Transition Team.................................................... 39
9.5. Nominees to Respironics Board...................................... 39
9.6. Stipulation Regarding Litigation................................... 39
9.7. Directors and Officers Letters..................................... 39
Appendix A Agreement and Plan of Merger
Appendix B Individuals to Enter Into Employment Agreements
Appendix C Form of Employment Agreements
</TABLE>
I-3
<PAGE>
<TABLE>
<S> <C>
Appendix D Form of Matria Letter
Appendix E Individuals to Enter Into Consulting Agreements
Appendix F Employees and Directors Whose Agreements will be Honored After
Effective Time
Appendix G Form of Stipulation Regarding Litigation
Appendix H Form of Healthdyne Directors and Officers Letter
Appendix I Form of Respironics Directors and Officers Letter
</TABLE>
I-4
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------------
<S> <C>
AAA Rules......................................................... 7.7(a)
Adverse Regulatory Condition Notice............................... 6.6
Agreement......................................................... Para 1
Apria Contract.................................................... 3.1
Arbitrator........................................................ 7.7(b)
Binding Arbitration............................................... 7.7(a)
Claim............................................................. 9.1(a)
Closing........................................................... 8.1
Code.............................................................. Para 4
Confidentiality Agreements........................................ 6.10
Consulting Agreements............................................. 9.2(d)
D&O Insurance..................................................... 9.1(d)
Determination Date................................................ 7.3
Effective Time.................................................... 8.1
ERISA............................................................. 3.9
Exchange Act...................................................... 3.6
Exchange Ratio.................................................... 1.1
Former Property................................................... 3.13
GBCC.............................................................. 3.16
Hazardous Substances.............................................. 3.13 and 4.11
Healthdyne........................................................ Para 1
Healthdyne Acquisition Proposal................................... 6.8
Healthdyne Affiliates............................................. 6.4
Healthdyne Business Combination................................... 7.5
Healthdyne Common Stock........................................... 1.1
Healthdyne Continuing Directors................................... 9.5
Healthdyne Disclosure Letter...................................... Art III
Healthdyne Employee Benefit Plans................................. 3.9
Healthdyne Entity................................................. 3.13
Healthdyne Fee.................................................... 7.6
Healthdyne Intellectual Property Rights........................... 3.15
Healthdyne Joint Ventures......................................... 3.4
Healthdyne Material Adverse Effect................................ 3.1
Healthdyne Option Plans........................................... 3.2
Healthdyne Preferred Stock........................................ 3.2
Healthdyne Reports................................................ 3.6
Healthdyne Rights Plan............................................ 3.2
Healthdyne Section 6.9(a) Statement of Intention.................. 6.9
Healthdyne Subsidiaries........................................... 3.3
Healthdyne Third-Party Intellectual Property Rights............... 3.15
HSR Act........................................................... 2.1(b)
Issue............................................................. 7.7(a)
Indemnified Party................................................. 9.1(a)
Matria............................................................ 2.2
Matria Letter..................................................... 2.2
Matria License Agreement.......................................... 2.2
Matria Services Agreement......................................... 2.2
Merger............................................................ 1.1
Merger Agreement.................................................. 1.1
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------------
<S> <C>
Merger Shares..................................................... 6.4
Merger Subsidiary................................................. Para 1
Merger Subsidiary Common Stock.................................... 1.1
NASD.............................................................. 2.1
NMS............................................................... 2.1
Notice of Dispute................................................. 7.7(a)
Outstanding Healthdyne Options.................................... 3.2
Outstanding Respironics Options................................... 5.2
Participation Facility............................................ 3.11 and 4.11
Present Property.................................................. 3.13
Proxy Statement/Prospectus........................................ 2.1
Registration Statement............................................ 6.1
Regulatory Condition or Requirement............................... 1.1(b)
Respironics....................................................... Para 1
Respironics Acquisition Proposal.................................. 6.9
Respironics Affiliates............................................ 6.4
Respironics Business Combination.................................. 7.6
Respironics Common Stock.......................................... 1.1
Respironics Disclosure Letter..................................... Art IV
Respironics Employee Benefit Plans................................ 4.8
Respironics Entity................................................ 4.11
Respironics Fee................................................... 7.5
Respironics Intellectual Property Rights.......................... 4.13
Respironics Material Adverse Effect............................... 4.1
Respironics Option Plans.......................................... 5.2
Respironics Reports............................................... 4.5
Respironics Rights Agreement...................................... 5.2
Respironics Subsidiaries.......................................... 4.3
Respironics Third-Party Intellectual Property Rights.............. 4.13
Restricted Period................................................. 6.4
SEC............................................................... 2.1
Section 6.9(a) Agreement.......................................... 6.9
Section 6.9(a) Notice............................................. 6.9
Securities Act.................................................... 2.1
Shareholders' Meetings............................................ 6.3
Significant Healthdyne Subsidiary................................. 7.3
Significant Respironics Subsidiary................................ 7.6
Significant Subsidiary............................................ 7.5
Stock Option Exchange Agreement................................... 9.2(b)
Substitute Option................................................. 9 2(a)
Surviving Corporation............................................. 1.1
Takeover Statute.................................................. 3.16
Transition Team................................................... 9.4
Unexercisable Option.............................................. 9.2(b)
</TABLE>
I-6
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT dated as of November 10, 1997 (the "Agreement") by and among
RESPIRONICS, INC., a Delaware corporation ("Respironics"), RIGA, INC., a
Georgia corporation ("Merger Subsidiary"), and HEALTHDYNE TECHNOLOGIES, INC.,
a Georgia corporation ("Healthdyne"),
W I T N E S S E T H :
WHEREAS, Merger Subsidiary and Healthdyne desire to merge in the manner
provided for herein;
WHEREAS, the respective Boards of Directors of Respironics, Merger
Subsidiary and Healthdyne have determined that the merger of Merger Subsidiary
with and into Healthdyne (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, would be fair to and in the best
interest of their respective stockholders;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling-of-interests";
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements herein contained and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. The reorganization contemplated by this Agreement is the
merger of Merger Subsidiary with and into Healthdyne (the "Merger") pursuant
to the Agreement and Plan of Merger attached hereto as Appendix A (the "Merger
Agreement"). As provided in the Merger Agreement, at the Effective Time (as
defined in Section 8.1 hereof) Merger Subsidiary will be merged with and into
Healthdyne, which will be the surviving corporation (the "Surviving
Corporation"). In the Merger, (a) each outstanding share of Common Stock, par
value $0.01 per share, of Healthdyne ("Healthdyne Common Stock") will be
converted into shares of Common Stock, par value $0.01 per share, of
Respironics ("Respironics Common Stock") (with cash in lieu of any fractional
share) as provided in the Merger Agreement (the number of shares of
Respironics Common Stock into which shares of Healthdyne Common Stock will be
converted being referred to as the "Exchange Ratio") and (b) each outstanding
share of Common Stock, par value $0.01 per share, of Merger Subsidiary
("Merger Subsidiary Common Stock") will be converted into one share of Common
Stock, par value $0.01 per share, of the Surviving Corporation, which shall be
held by Respironics.
ARTICLE II
CONDITIONS
2.1. Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Closing of
the following conditions:
(a) Shareholder Approval. This Agreement and the Merger Agreement shall
have been approved by the affirmative vote of the holders of at least a
majority of the issued and outstanding shares of Healthdyne Common Stock
and the issuance of shares of Respironics Common Stock in connection with
I-7
<PAGE>
the Merger shall have been approved by the holders of at least a majority
of the shares of Respironics Common Stock present in person or represented
by proxy and entitled to vote at the Respironics Shareholders' Meeting
described in Section 6.3, a quorum being present.
(b) Regulatory Clearances and Approvals. The waiting period applicable to
the consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") shall have expired or
been terminated; any other Federal, state, local or foreign regulatory
clearances and approvals necessary to the consummation of the Merger shall
have been obtained; and all other waiting periods imposed by any Federal,
state, local and foreign governmental authority in connection therewith
shall have expired. None of such regulatory clearances or approvals shall
contain or impose any conditions or requirements, including without
limitation requirements relating to divestiture of product lines,
manufacturing operations, one or more subsidiaries or divisions or any
other material assets or require Respironics to sell or license any rights
to any of its tangible or intangible properties or those of the combined
entities (a "Regulatory Condition or Requirement"), which Respironics in
its reasonable business judgment considers to be materially adverse to the
best interests of the combined entities. No action or suit to enjoin or
prohibit the Merger shall have been filed by any Federal, state, local or
foreign governmental authority under Federal, state, local or foreign
antitrust or similar laws, which action or suit has not been dismissed or
otherwise terminated in a manner reasonably satisfactory to Respironics.
(c) Securities Act Registration. The Registration Statement contemplated
by Section 6.1 hereof shall have been filed by Respironics with the
Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended (the "Securities Act"), and shall have been declared
effective prior to the time the joint proxy statement/prospectus contained
therein (the "Proxy Statement/Prospectus") is first mailed to the
shareholders of Healthdyne and Respironics, and no stop order with respect
to the effectiveness of the Registration Statement shall have been issued
nor any proceeding therefor initiated or threatened. In addition, the
shares of Respironics Common Stock to be issued pursuant to the Merger
Agreement shall be duly registered or qualified under the securities or
"blue sky" laws of all states in which such action is required for purposes
of the initial issuance of such stock and its distribution to the
shareholders of Healthdyne entitled to receive it.
(d) NASD Quotation. The National Association of Securities Dealers, Inc.
("NASD") shall have approved for quotation on the NASD National Market
System ("NMS"), upon official notice of issuance, all of the shares of
Respironics Common Stock to be issued in the Merger.
2.2. Respironics Conditions. The obligations of Respironics to effect the
Merger shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties; Performance of Obligations. Except as
otherwise consented to in writing by Respironics or contemplated by this
Agreement, the representations and warranties of Healthdyne contained
herein shall be true and correct as of the date hereof and as of the date
of the Closing as though made on such date, except that any representation
or warranty which specifically relates to an earlier date shall be true and
correct in all material respects as of such earlier date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the
aggregate reasonably be expected to have a Target Material Adverse Effect;
Healthdyne shall have performed or complied in all material respects with
all agreements, covenants and conditions under this Agreement and the
Merger Agreement required to be performed or complied with by Healthdyne at
or prior to the Closing; and Respironics shall have received a certificate
to each of the foregoing effects signed by the principal executive officer
and the principal accounting and financial officers of Healthdyne.
(b) Accounting Treatment. The Merger shall as of the date of the Closing
meet the requirements for pooling-of-interests accounting treatment under
generally accepted accounting principles and under the
I-8
<PAGE>
accounting rules of the SEC, and Respironics shall have received a letter
from Ernst & Young LLP in form and substance reasonably satisfactory to
Respironics as to the foregoing matters.
(c) Affiliates' Agreements. Respironics shall have received from each of
the persons identified by Healthdyne pursuant to Section 6.4(a) hereof an
executed counterpart of an affiliate's agreement in the form contemplated
by such Section.
(d) Legal Opinion. Respironics shall have received from Skadden, Arps,
Slate, Meagher & Flom LLP and/or Troutman Sanders LLP, counsel for
Healthdyne, one or more customary opinions dated the date of the Closing
and in form and substance reasonably satisfactory to Respironics as to such
matters related to this Agreement, the Merger Agreement and the
transactions contemplated thereby as Respironics may reasonably request.
(e) Orders, etc. Neither Respironics nor Healthdyne shall be subject to
any order, decree or injunction of any court or agency of competent
jurisdiction which enjoins, prohibits or materially adversely affects the
Merger or to any pending or threatened litigation or proceeding by
governmental authority or agency which seeks to enjoin or prohibit the
Merger or to impose material damages on either party or any of Respironics
directors or officers by reason thereof.
(f) Employment Agreements and Related Agreements. Each of the Employment
Agreements and related agreements executed on or before the date of this
Agreement by the individuals identified on Appendix B attached hereto in
substantially the forms attached hereto as Appendix C shall not have been
terminated, repudiated or breached by the individual party thereto, except
in the case of termination due to death or disability of the individual
party thereto as provided in the applicable Employment Agreement and
related agreements.
(g) Matria Agreement. The letter agreement substantially in the form of
Appendix D attached hereto executed on or before the date of this Agreement
(the "Matria Letter") by Matria Healthcare, Inc., successor to Healthdyne,
Inc. ("Matria") relating to the Tradename License Agreement between Matria
and Healthdyne dated April 21, 1995 (the "Matria License Agreement") and
the Corporate Services Agreement between Matria and Healthdyne dated April
21, 1995 (the "Matria Services Agreement") shall not have been terminated,
repudiated or breached by Matria.
(h) Federal Tax Opinion. There shall have been received by Respironics an
opinion of Reed Smith Shaw & McClay LLP, to the effect that:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and Respironics, Merger Subsidiary and
Healthdyne will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Respironics, Merger
Subsidiary or Healthdyne as a result of the Merger;
(iii) Except for cash received in lieu of fractional shares, no gain
or loss will be recognized by the shareholders of Healthdyne who
receive solely Respironics Common Stock on the exchange of their shares
of Healthdyne Common Stock for shares of Respironics Common Stock;
(iv) The basis of the shares of Respironics Common Stock to be
received by the shareholders of Healthdyne will be the same as the
basis of the shares of Healthdyne Common Stock exchanged therefor; and
(v) The holding period of the shares of Respironics Common Stock to
be received by the shareholders of Healthdyne will include the period
during which the Healthdyne Common Stock surrendered in exchange
therefor was held by the Healthdyne shareholder, provided such
Healthdyne
I-9
<PAGE>
Common Stock was held as a capital asset in the hands of the Healthdyne
shareholder at the time of the exchange.
2.3. Healthdyne Conditions. The obligations of Healthdyne to effect the
Merger shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties; Performance of Obligations. Except as
otherwise consented to in writing by Healthdyne or contemplated by this
Agreement, the representations and warranties of Respironics contained
herein shall be true and correct as of the date hereof and as of the date
of the Closing as though made on such date, except that any representation
or warranty which specifically relates to an earlier date shall be true and
correct in all material respects as of such earlier date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the
aggregate reasonably be expected to have a Respironics Material Adverse
Effect; Respironics shall have performed or complied in all material
respects with all agreements, covenants and conditions under this Agreement
and the Merger Agreement required to be performed or complied with by
Respironics at or prior to the Closing; and Healthdyne shall have received
a certificate to each of the foregoing effects signed by the principal
executive officer and the principal accounting and financial officers of
Respironics.
(b) Accounting Treatment. Healthdyne shall be eligible as of the date of
the Closing for pooling-of-interests accounting treatment under generally
accepted accounting principles and under the accounting rules of the SEC,
and Healthdyne shall have received a letter from KPMG Peat Marwick LLP in
form and substance reasonably satisfactory to Healthdyne as to the
foregoing matters.
(c) Affiliates' Agreements. Healthdyne shall have received from each of
the persons identified by Respironics pursuant to Section 6.4(b) hereof an
executed counterpart of an affiliate's agreement in the form contemplated
by such Section.
(d) Legal Opinion. Healthdyne shall have received from Reed Smith Shaw &
McClay LLP, counsel for Respironics, a customary opinion dated the date of
the Closing and in form and substance reasonably satisfactory to Healthdyne
as to such matters related to this Agreement, the Merger Agreement and the
transactions contemplated thereby as Healthdyne may reasonably request.
(e) Orders, etc. Neither Respironics nor Healthdyne shall be subject to
any order, decree or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits the Merger or to any pending or
threatened litigation or proceeding by any government authority or agency
which seeks to enjoin or prohibit the Merger or to impose material damages
on either party or any of Healthdyne's directors or officers by reason
thereof.
(f) Federal Tax Opinion. There shall have been received by Healthdyne an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP or Troutman Sanders
LLP, to the effect that:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Respironics, Merger Subsidiary and
Healthdyne will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Respironics, Merger
Subsidiary or Healthdyne as a result of the Merger;
(iii) Except for cash received in lieu of fractional shares, no gain
or loss will be recognized by the shareholders of Healthdyne who
receive solely Respironics Common Stock on the exchange of their shares
of Healthdyne Common Stock for shares of Respironics Common Stock;
I-10
<PAGE>
(iv) The basis of the shares of Respironics Common Stock to be
received by the shareholders of Healthdyne will be the same as the
basis of the shares of Healthdyne Common Stock exchanged therefor; and
(v) The holding period of the shares of Respironics Common Stock to
be received by the shareholders of Healthdyne will include the period
during which the Healthdyne Common Stock surrendered in exchange
therefor was held by the Healthdyne shareholder, provided such
Healthdyne Common Stock was held as a capital asset in the hands of the
Healthdyne shareholder at the time of the exchange.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HEALTHDYNE
Healthdyne represents and warrants to Respironics that, except in each case
as disclosed in a letter delivered to Respironics on the date of this
Agreement (the "Healthdyne Disclosure Letter"):
3.1. Organization. Healthdyne is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia and is
duly qualified to do business and in good standing in the United States of
America and foreign jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified and the failure
to be so qualified would, individually or in the aggregate, have a material
adverse effect on the business, operations, assets (taken as a whole),
condition (financial or otherwise) or results of operation of Healthdyne and
the Healthdyne Subsidiaries, taken as a whole, or Healthdyne's ability to
consummate the transactions contemplated by this Agreement (a "Healthdyne
Material Adverse Effect"); provided, however, in determining whether a
Healthdyne Material Effect shall have occurred, no effect or consequence shall
be given as to whether Healthdyne is awarded a contract ("Apria Contract") in
response to the request for proposal submitted by Apria Healthcare. Healthdyne
has full corporate power and legal authority (including all material licenses,
franchises, permits and other governmental authorizations which are legally
required) to own its assets and to transact the business in which it is
presently engaged.
3.2. Capitalization. (a) The authorized capital stock of Healthdyne consists
as of the date of this Agreement of (i) 50,000,000 shares of Healthdyne Common
Stock, of which 12,869,615 shares were issued and outstanding as of August 1,
1997 and no shares were held in treasury, and (ii) 10,000,000 shares of
preferred stock, no par value per share (the "Healthdyne Preferred Stock"), of
which no shares are issued or outstanding. All of such issued and outstanding
shares are duly and validly authorized and issued, fully paid and
nonassessable.
(b) Except for (i) stock options for 1,621,096 shares of Healthdyne
Common Stock outstanding as of October 31, 1997 under Healthdyne's 1993
Stock Option Plan, 1993 Nonemployee Director Stock Option Plan, 1995 Stock
Option Plan II and 1996 Stock Option Plan (the "Healthdyne Option Plans"),
(ii) stock options exercisable under Healthdyne's 1995 Employee Stock
Purchase Plan (together with the options outstanding under the Healthdyne
Option Plans, the "Outstanding Healthdyne Options"), and (iii) the Rights
Agreement, dated as of May 22, 1995 by and between Healthdyne and SunTrust
Bank, Atlanta, as Rights Agent (as amended, the "Healthdyne Rights Plan"),
Healthdyne is not a party to or bound by any option, call, warrant,
conversion privilege or other agreement obligating Healthdyne at present,
at any future time or upon the occurrence of any event to issue or sell any
shares of Healthdyne Common Stock or other capital stock of Healthdyne. At
the Effective Time, the Outstanding Healthdyne Options shall be treated as
provided in Section 9.2 hereof.
3.3. Subsidiaries. (a) Except as set forth in the Healthdyne Disclosure
Letter, Healthdyne owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of the corporations listed in the
Healthdyne Disclosure Letter (collectively, the "Healthdyne Subsidiaries") and
such Healthdyne Subsidiaries
I-11
<PAGE>
constitute all of the material subsidiaries of Healthdyne. Healthdyne has no
other direct or indirect subsidiaries. All of the issued and outstanding
capital stock of the Healthdyne Subsidiaries is duly and validly authorized
and issued, fully paid and nonassessable and is owned by Healthdyne or a
Healthdyne Subsidiary free and clear of any liens, security interests,
encumbrances, restrictions or other rights of any third person with respect
thereto. There are no options, calls, warrants, conversion privileges or other
agreements obligating any Healthdyne Subsidiary at present or upon the
occurrence of any event to issue or sell any shares of its capital stock.
(b) Each Healthdyne Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its state or country of
incorporation or formation. Each Healthdyne Subsidiary is duly qualified to
do business and in good standing in the United States of America and
foreign jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and the failure to
be so qualified would, individually or in the aggregate, have a Healthdyne
Material Adverse Effect. Each Healthdyne Subsidiary has full corporate
power and legal authority (including all material licenses, franchises,
permits and other governmental authorizations which are legally required)
to own its assets and to transact the business in which it is presently
engaged.
3.4. Joint Ventures, etc. Except as set forth in the Healthdyne Disclosure
Letter, neither Healthdyne nor any Healthdyne Subsidiary is a party to any
joint venture, a general or limited partner of any partnership or the owner of
any equity or similar interest in any other person (including without
limitation any interest pursuant to which Healthdyne or a Healthdyne
Subsidiary has or may in any circumstance have an obligation to make a capital
contribution to, or be liable for or on account of the liabilities, acts or
omissions of, such other person) except (i) Healthdyne's ownership of all the
issued and outstanding capital stock of the Healthdyne Subsidiaries, (ii) the
ownership of marketable equity securities held as investments in the ordinary
course of business and not exceeding 5% of the outstanding shares of any class
and (iii) joint venture or other interests disclosed to Respironics in writing
on the date hereof (the "Healthdyne Joint Ventures").
3.5. Corporate Authority; Absence of Violation. (a) The Board of Directors
of Healthdyne has authorized the execution and delivery by Healthdyne of this
Agreement and the Merger Agreement, has authorized the performance by
Healthdyne of this Agreement, has directed or will direct that this Agreement
and the Merger Agreement be submitted to the shareholders of Healthdyne for
their approval and, subject to such approval, has authorized the performance
by Healthdyne of the Merger Agreement.
(b) Healthdyne has the full power, authority and legal right to enter
into this Agreement and the Merger Agreement, to perform its obligations
hereunder and, subject to the approval of its shareholders and regulatory
authorities, to perform its obligations under the Merger Agreement. This
Agreement and the Merger Agreement have been duly and validly executed and
delivered by Healthdyne, and this Agreement constitutes, and subject to the
approval of its shareholders and approval and/or clearance from regulatory
authorities the Merger Agreement constitutes, a valid and binding
obligation of Healthdyne enforceable against Healthdyne in accordance with
its terms, except to the extent enforcement is limited by bankruptcy,
insolvency, moratorium, conservatorship, receivership or other similar laws
of general application affecting creditors' rights or by the application by
a court of equitable principles.
(c) Except as set forth in the Healthdyne Disclosure Letter, neither the
execution and delivery by Healthdyne of this Agreement or the Merger
Agreement, compliance by Healthdyne with any provision hereof nor, subject
to the approval of its shareholders and regulatory authorities, compliance
by Healthdyne with any provision of the Merger Agreement will (i) violate
any provision of the Articles of Incorporation or By-Laws of Healthdyne,
(ii) conflict with or result in a breach of or default under any agreement,
obligation or instrument to which Healthdyne or any Healthdyne Subsidiary
is a party or by which any of them is bound or to which any of their
properties or assets is subject or (iii) violate any order or decree of any
court or governmental authority or any statute, rule or regulation
applicable to Healthdyne, any Healthdyne Subsidiary or any of their
properties or assets other than, in the case of clauses (ii) and (iii), any
such conflicts, breaches, defaults or violations which would not reasonably
be expected to have a Healthdyne Material Adverse Effect.
I-12
<PAGE>
3.6. Exchange Act Reports and Financial Statements. Healthdyne has delivered
to Respironics (i) Healthdyne's Annual Report on Form 10-K for the year ended
December 31, 1996 containing consolidated balance sheets of Healthdyne at
December 31, 1996 and 1995 and consolidated statements of earnings,
shareholders' equity and cash flows of Healthdyne for the three years ended
December 31, 1996, all certified by KPMG Peat Marwick LLP, independent
auditors, (ii) Healthdyne's Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1997 containing unaudited consolidated balance
sheets of Healthdyne as of such dates and unaudited consolidated statements of
earnings and cash flows of Healthdyne for the interim periods reflected
therein and (iii) any Current Reports on Form 8-K filed by Healthdyne since
June 30, 1997 (collectively, the "Healthdyne Reports"). All Healthdyne Reports
as of their respective dates (i) comply in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the SEC thereunder, (ii) do not contain
any untrue statement of a material fact and (iii) do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All such financial statements, including the related notes and
schedules, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as indicated therein) and
fairly present the consolidated financial condition, assets and liabilities of
Healthdyne at the dates thereof and the consolidated results of operations,
shareholders' equity and cash flows of Healthdyne for the periods stated
therein, subject, in the case of the interim financial statements, to normal
and recurring year-end audit adjustments and except that the interim financial
statements do not contain all of the notes required by generally accepted
accounting principles.
3.7. Absence of Certain Changes. Since September 30, 1997 there has not been
any material adverse change in the condition, financial or otherwise, or in
the assets, liabilities or business of Healthdyne and the Healthdyne
Subsidiaries taken as a whole.
3.8. Taxes. (a) The Federal income tax returns of Healthdyne and the
Healthdyne Subsidiaries have either been audited by the Internal Revenue
Service or closed by statute for all periods beginning prior to January 1,
1993. All taxes, deficiencies, interest and penalties which are reflected as
due under such returns or which have been assessed as a result of such audits
have been paid in full, and there are no outstanding agreements to extend
periods during which additional assessments may be made.
(b) Federal income tax returns of Healthdyne and the Healthdyne
Subsidiaries for all periods beginning before January 1, 1997 have been
timely filed. Such returns are accurate in all material respects, and to
the best of Healthdyne's knowledge there is no material proposed
deficiency, assessment, penalty or delinquency with respect to any of such
returns or any of the taxes reflected as due and payable thereby. All
taxes, deficiencies, interest and penalties which are reflected as due
under such returns or which have been assessed as a result of audits
thereof have either been paid in full or have been accrued or adequately
reserved against in the financial statements contained in Healthdyne's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
(c) All required Federal income tax returns of any Healthdyne Joint
Venture and all returns in respect of all other Federal, state and local
taxes of any kind required to be filed by Healthdyne, any Healthdyne
Subsidiary or any Healthdyne Joint Venture have been timely filed, and all
taxes, interest and penalties due in respect thereof have been paid. Such
returns are accurate in all material respects, and to the best of
Healthdyne's knowledge there is no material proposed deficiency,
assessment, penalty or delinquency with respect to any of such returns or
any of the taxes reflected as due and payable thereby.
3.9. Employee Contracts and Plans. (a) Except as disclosed in the Healthdyne
Reports or the Healthdyne Disclosure Letter, neither Healthdyne nor any U.S.
Healthdyne Subsidiary (i) is as of the date hereof a party or subject to any
contract of employment with any person who earns a base salary in excess of
$50,000 per year which is not terminable at will without penalty (other than
standard severance policies offered to all employees generally) or any
collective bargaining agreement or (ii) maintains or contributes to any profit
sharing, pension, retirement, thrift, savings, incentive compensation,
deferred compensation, bonus, stock option, stock purchase, restricted stock,
stock appreciation right, performance share, performance unit, severance,
salary
I-13
<PAGE>
continuation, holiday, vacation, disability, insurance, medical or other
employee benefit, incentive or welfare plan, policy, material contract or
material arrangement (collectively, the "Healthdyne Employee Benefit Plans").
Healthdyne has heretofore made available to Respironics copies of all
Healthdyne Employee Benefit Plans of Healthdyne and the Healthdyne
Subsidiaries, including individual employment contracts and stock option
agreements. Except as disclosed in the Healthdyne Reports or the Healthdyne
Disclosure Letter, consummation of the Merger will not accelerate the rights
of any third party consultant under a consulting agreement with Healthdyne or
any Healthdyne Subsidiary or terminate the rights of Healthdyne or any
Healthdyne Subsidiary under any such consulting agreement.
(b) There are no pending or threatened strikes or labor stoppages
involving any employees of Healthdyne or any Healthdyne Subsidiary, nor is
Healthdyne or any U.S. Healthdyne Subsidiary aware of any organizing
activity seeking to certify a collective bargaining unit or representative
for any of such employees.
(c) All retirement and employee benefit or welfare plans of Healthdyne or
any Healthdyne Subsidiary have been maintained and operated in accordance
with their terms in all material respects, and all such plans which are
subject to the Employee Retirement Income Security Act of 1974 ("ERISA")
and/or the Code have been maintained and operated in material compliance
with all applicable provisions of ERISA and the Code and the regulations
thereunder and are not subject to any accumulated funding deficiency within
the meaning of ERISA and the regulations thereunder or to any outstanding
liability to the Pension Benefit Guaranty Corporation (other than for
routine premium payments). No "prohibited transaction" has occurred and is
continuing with respect to any such plan, nor has any "reportable event"
occurred in respect thereof (with respect to which the 30-day notice period
has not been waived), as such terms are defined in ERISA and the
regulations thereunder, and, except as set forth in the Healthdyne
Disclosure Letter, no such plan is a "Multiemployer Plan" or a "Multiple
Employer Plan", as such terms are defined in ERISA and the regulations
thereunder.
(d) The current value of the assets of each Healthdyne Employee Benefit
Plan that is subject to Title IV of ERISA equals or exceeds the present
value of the accrued benefits under such plan based upon the actuarial
assumptions (to the extent reasonable) presently used by such plan for
financial disclosure purposes, and there is no complete or partial
withdrawal liability within the meaning of Sections 4205 and 4203 of ERISA
(and there would be no such liability assuming a complete or partial
withdrawal from all Healthdyne Employee Benefit Plans at the Effective
Time) with respect to any such plan. There are no pending or, to the
knowledge of Healthdyne, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the
Healthdyne Employee Benefit Plans or any trusts related thereto.
3.10. Material Contracts and Activities Since September 30, 1997. Except as
disclosed in the Healthdyne Reports or the Healthdyne Disclosure Letter, since
September 30, 1997 neither Healthdyne nor any Healthdyne Subsidiary has become
a party or subject to any other contract or agreement or taken or omitted to
take any other action which, if entered into, taken or omitted to be taken
after the date hereof, would require the consent of Respironics under Section
5.1 hereof.
3.11. Litigation and Other Proceedings. Except as disclosed in the
Healthdyne Reports or the Healthdyne Disclosure Letter, neither Healthdyne nor
any Healthdyne Subsidiary is a party or subject to any pending, or to the
knowledge of Healthdyne is likely to become a party or subject to any
threatened, action, suit, arbitration, administrative proceeding or
investigation, or judicial or administrative order, judgment or decree, which
individually or in the aggregate will have, or could reasonably be expected to
have, a Healthdyne Material Adverse Effect.
3.12. Compliance with Laws; Regulatory Matters. Healthdyne and the
Healthdyne Subsidiaries are in compliance with all Federal, state, local and
foreign laws, rules and regulations, all clearances, approvals, orders,
directives and supervisory letters of, and all agreements, memoranda of
understanding or similar arrangements
I-14
<PAGE>
with, Federal, state, local and foreign regulatory authorities and all other
legal requirements applicable to them or their businesses except where the
failure to so comply would not have a Healthdyne Material Adverse Effect.
Neither Healthdyne nor any Healthdyne Subsidiary is subject to any order,
directive, warning letter or supervisory letter of, or agreement, memorandum
of understanding or similar arrangement (including board resolutions adopted
at the request of a regulatory authority) with, any Federal, state, local or
foreign regulatory authority restricting its operations, restricting it from
taking any action or requiring that certain actions be taken, and Healthdyne
has no knowledge that any such order, directive, supervisory letter,
agreement, memorandum of understanding or similar arrangement is threatened,
contemplated or under consideration by any such regulatory authority.
3.13. Environmental Matters. To the knowledge of Healthdyne, (a) no
Hazardous Substances (as hereinafter defined) have been stored, treated,
dumped, spilled, disposed of, discharged, released or deposited in violation
of any law or regulation or in a manner which would subject Healthdyne or any
Healthdyne Subsidiary to liability under any law or regulation at, under or on
(i) any property now owned, occupied or leased ("Present Property") by
Healthdyne, any Healthdyne Subsidiary, any former subsidiary of Healthdyne or
any Healthdyne Joint Venture (each, a "Healthdyne Entity"), (ii) any property
previously owned, occupied or leased ("Former Property") by any Healthdyne
Entity during the time of such previous ownership, occupancy or lease or (iii)
any Participation Facility (as hereinafter defined) during the time that any
Healthdyne Entity participated in the management of, or may be deemed to be or
to have been an owner or operator of, such Participation Facility; and (b) no
Healthdyne Entity has disposed of, or arranged for the disposal of, Hazardous
Substances in violation of any law or regulation or in a manner which would
subject Healthdyne or any Healthdyne Subsidiary to liability under any law or
regulation from any Present Property, Former Property or Participation
Facility, and no owner or operator of a Participation Facility disposed of, or
arranged for the disposal of, Hazardous Substances in violation of any law or
regulation or in a manner which would subject Healthdyne or any Healthdyne
Subsidiary to liability under any law or regulation from a Participation
Facility during the time that any Healthdyne Entity participated in the
management of, or may be deemed to be or to have been an owner or operator of,
such Participation Facility.
As used in this Section 3.13, (a) "Participation Facility" shall mean any
property or facility of which any Healthdyne Entity (i) has at any time
participated in the management or (ii) may be deemed to be or to have been an
owner or operator and (b) "Hazardous Substances" shall mean (i) any flammable
substances, explosives, radioactive materials, hazardous materials, hazardous
substances, hazardous wastes, toxic substances, pollutants, contaminants or
any related materials or substances specified in any applicable Federal or
state law or regulation relating to pollution or protection of human health or
the environment (including, without limitation, ambient or indoor air, surface
water, groundwater, land surface or subsurface strata) and (ii) friable
asbestos, polychlorinated biphenyls, urea formaldehyde, and petroleum and
petroleum-based fuels.
3.14. Insurance. Healthdyne has heretofore made available to Respironics a
summary of all insurance coverages maintained by Healthdyne and the Healthdyne
Subsidiaries.
3.15. Intellectual Property. (a) Healthdyne and/or each Healthdyne
Subsidiary owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks, trade names, service marks, copyrights
and any applications therefor, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information
or materials that are used in the business of Healthdyne and the Healthdyne
Subsidiaries as currently conducted, except for any such failures to own, be
licensed or possess (i) that, individually or in the aggregate, are not
reasonably likely to have a Healthdyne Material Adverse Effect or (ii) that
relate to claims of Respironics.
(b) Except as disclosed in the Healthdyne Reports or the Healthdyne
Disclosure Letter or as is not reasonably likely to have a Healthdyne
Material Adverse Effect:
(i) Healthdyne and each Healthdyne Subsidiary is not, nor will it be
as a result of the execution and delivery of this Agreement or the
performance of Healthdyne's obligations hereunder, in violation
I-15
<PAGE>
of any licenses, sublicenses and other agreements as to which
Healthdyne or any Healthdyne Subsidiary is a party and pursuant to
which any of them is authorized to use any third-party patents,
trademarks, service marks, and copyrights ("Healthdyne Third-Party
Intellectual Property Rights");
(ii) no claims with respect to the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, any applications therefor owned by Healthdyne or any Healthdyne
Subsidiary (the "Healthdyne Intellectual Property Rights"), any trade
secret material to Healthdyne or any Healthdyne Subsidiary, or
Healthdyne Third-Party Intellectual Property Rights to the extent
arising out of any use, reproduction or distribution of such Healthdyne
Third Party Intellectual Property Rights by or through Healthdyne or
any Healthdyne Subsidiary, are currently pending or, to the knowledge
of Healthdyne, are overtly threatened by any person;
(iii) Healthdyne does not know of any valid grounds for any bona fide
claims (A) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale
or license by Healthdyne or any Healthdyne Subsidiary, infringes on any
copyright, patent, trademark, service mark or trade secret of any third
party other than Respironics; (B) against the use by Healthdyne or any
Healthdyne Subsidiary, of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs
and applications of any third party other than Respironics used in the
business of Healthdyne or any Healthdyne Subsidiary as currently
conducted or as proposed to be conducted; (C) challenging the
ownership, validity or effectiveness of any Healthdyne Intellectual
Property Rights or other trade secret material to Healthdyne; or (D)
challenging the license or legally enforceable right to the use of the
Healthdyne Third-Party Intellectual Rights by Healthdyne or any of
Healthdyne Subsidiary;
(iv) to the knowledge of Healthdyne, all patents, registered
trademarks and service marks, and copyrights held by Healthdyne and the
Healthdyne Subsidiaries are valid, enforceable and subsisting; and
(v) to the knowledge of Healthdyne, there is no material unauthorized
use, infringement or misappropriation of any Healthdyne Intellectual
Property Rights by any third party, including any employee or former
employee of Healthdyne or any Healthdyne Subsidiary.
3.16. Takeover Statutes. The Board of Directors of Healthdyne has taken all
necessary action, if any, to exempt the Merger and the other transactions
contemplated by this Agreement from the provisions of Sections 14-2-1110 et
seq. and 14-2-1131 et seq. of the Georgia Business Corporation Code ("GBCC").
No "business combination," "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statue or regulation (each a
"Takeover Statute") or any other applicable anti-takeover provision in
Healthdyne's Articles and By- laws is, or at the Effective Time will be,
applicable to Healthdyne, the Healthdyne Common Stock, the Respironics Common
Stock, the Merger or the other transactions contemplated by this Agreement.
All such actions have been duly and validly taken by the Healthdyne Board of
Directors and are binding on and enforceable against Healthdyne, except to the
extent enforcement is limited by bankruptcy, insolvency, moratorium,
conservatorship, receivership or other similar laws of general application
affecting creditors' rights or by the application by a court of equitable
principles.
3.17. Healthdyne Rights Agreements. Healthdyne has taken all necessary
actions, if any, to ensure that, for the purposes of the Healthdyne Rights
Agreement, the execution of this Agreement does not, and the consummation of
the Merger and the other transactions contemplated hereby and thereby will
not, result in the grant of any rights to any person under the Healthdyne
Rights Agreement, or enable or require any outstanding rights to be exercised,
distributed or triggered, and that the Rights (as defined in the Healthdyne
Rights Agreement) will expire without any further force or effect as of the
Effective Time. All such actions have been duly and validly taken by the
Healthdyne Board of Directors and are binding on and enforceable against
Healthdyne, except to the extent enforcement is limited by bankruptcy,
insolvency, moratorium, conservatorship,
I-16
<PAGE>
7receivership or other similar laws of general application affecting
creditors' rights or by the application by a court of equitable principles.
3.18. Accounting and Tax Matters. As of the date hereof, neither Healthdyne
nor any of its affiliates has taken or agreed to take any action, nor does
Healthdyne have any knowledge of any fact or circumstance, that would prevent
Healthdyne from accounting for the business combination to be effected by the
Merger as a "pooling-of-interests" or prevent the Merger and the other
transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
3.19. Proxy Statement/Prospectus, etc. None of the information relating to
Healthdyne or any Healthdyne Subsidiary contained in the Proxy
Statement/Prospectus or in any amendment or supplement thereto, at the time
the Registration Statement is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of Healthdyne and
Respironics or at the dates of the Shareholders' Meetings of Healthdyne and
Respironics to consider the Merger, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading. All documents which Healthdyne is
responsible for filing with the SEC or any regulatory agency in connection
with the Merger will comply as to form in all material respects with the
requirements of applicable law, and all of the information relating to
Healthdyne and the Healthdyne Subsidiaries in any document filed with the SEC
or any other regulatory agency in connection with this Agreement, the Merger
Agreement or the transactions contemplated thereby shall be true and correct
in all material respects.
3.20. Investment Banker's Opinion. The Board of Directors of Healthdyne has
received the opinion of Cowen & Company, dated the date hereof, to the effect
that, as of the date of such opinion, the terms of the Merger are fair, from a
financial point of view, to Healthdyne's shareholders.
3.21. Investigation by Healthdyne. Healthdyne has conducted its own
independent review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, technology and
prospects of Respironics and its subsidiaries and acknowledges that Healthdyne
has been provided access to the personnel, properties, premises and records of
Respironics and its subsidiaries for such purpose. In entering into this
Agreement, Healthdyne has relied solely upon its own investigation and
analysis and the representations and warranties contained herein, and
Healthdyne: (a) acknowledges that none of Respironics or any of its respective
directors, officers, shareholders, employees, affiliates, controlling persons,
agents, advisors or representatives makes or has made any representation or
warranty, either express or implied, as to the accuracy of completeness of any
of the information provided or made available to Healthdyne or its directors,
officers, employees, affiliates, controlling persons, agents or
representatives; and (b) agrees, to the fullest extent permitted by law, that
none of Respironics or any of its directors, officers, employees,
shareholders, affiliates, controlling persons, agents, advisors or
representatives shall have any liability or responsibility whatsoever to
Healthdyne or its directors, officers, employees, affiliates, controlling
persons, agents or representatives on any basis (including, without
limitation, in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or
statements made, to Healthdyne or its directors, officers, employees,
affiliates, controlling persons, advisors, agents or representatives (or any
omissions therefrom), except that the foregoing limitations shall not apply
(i) to the extent Respironics makes the specific representations and
warranties set forth in this Agreement and (ii) in the case of fraud, willful
misrepresentation or willful nondisclosure, but always subject to the
limitations and restrictions contained herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RESPIRONICS
Respironics represents and warrants to Healthdyne that, except in each case
as disclosed in a letter delivered to Healthdyne on the date of this Agreement
(the "Respironics Disclosure Letter"):
I-17
<PAGE>
4.1. Organization. Respironics is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware is duly
qualified to do business and in good standing in the United States of America
and foreign jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and the failure to be
so qualified would, individually or in the aggregate, have a material adverse
effect on the business, operations, assets (taken as a whole), condition
(financial or otherwise) or results of operation of Respironics and the
Respironics Subsidiaries, taken as a whole, or the ability of Respironics to
consummate the transactions contemplated by this Agreement (a "Respironics
Material Adverse Effect"); provided, however, in determining whether a
Respironics Material Adverse Effect shall have occurred, no effect or
consequence shall be given to whether Respironics is awarded or denied an
Apria Contract. Respironics has full corporate power and legal authority
(including all material licenses, franchises, permits and other governmental
authorizations which are legally required) to own its assets and to transact
the business in which it is presently engaged.
4.2. Capitalization. As of the date of this Agreement, the authorized
capital stock of Respironics consists of 100,000,000 shares of Respironics
Common Stock, of which 19,776,855 shares were issued and outstanding as of
August 31, 1997. All of such issued and outstanding shares are, and upon
consummation of the Merger the shares of Respironics Common Stock to be issued
pursuant to the Merger Agreement will be, duly and validly authorized and
issued, fully paid and nonassessable.
4.3. Subsidiaries. (a) Respironics owns, directly or indirectly, all of the
issued and outstanding shares of capital stock of the corporations listed in
the Respironics Disclosure Letter (collectively, the "Respironics
Subsidiaries") and such Respironics Subsidiaries constitute all of the
material subsidiaries of Respironics. All of the issued and outstanding
capital stock of the Respironics Subsidiaries is duly and validly authorized
and issued, fully paid and nonassessable and is owned by Respironics free and
clear of any liens, security interests, encumbrances, restrictions on transfer
or other rights of any third person with respect thereto. There are no
options, calls, warrants, conversion privileges or other agreements obligating
any Respironics Subsidiary at present or upon the occurrence of any event to
issue or sell any shares of its capital stock.
(b) Each Respironics Subsidiary (including Merger Subsidiary) is a
corporation duly organized, validly existing and in good standing under the
laws of its state or country of incorporation or formation. Each
Respironics Subsidiary is duly qualified to do business and in good
standing in the United States of America and foreign jurisdictions where
its ownership or leasing of property or the conduct of its business
requires it to be so qualified and the failure to be so qualified would,
individually or in the aggregate, have a Respironics Material Adverse
Effect. Each Respironics Subsidiary has full corporate power and legal
authority (including all material licenses, franchises, permits and other
governmental authorizations which are legally required) to own its assets
and to transact the business in which it is presently engaged. Prior to the
date hereof, Merger Subsidiary has not engaged in any activities other than
activities related to its formation and approval of this Agreement, the
Merger Agreement and the transactions contemplated hereby.
4.4. Corporate Authority; Absence of Violation. (a) The Board of Directors
of each of Respironics and Merger Subsidiary and the sole shareholder of
Merger Subsidiary has authorized the execution and delivery by Respironics and
Merger Subsidiary, respectively, of this Agreement and the Merger Agreement
and has authorized the performance by each of Respironics and Merger
Subsidiary of this Agreement, and the Board of Directors of Respironics has
directed or will direct that the issuance of shares of Respironics Common
Stock pursuant to the Merger be submitted to the shareholders of Respironics
for their approval and, subject to such approval and to the clearance and/or
approval of regulatory authorities, has authorized the performance by
Respironics and Merger Subsidiary of the Merger Agreement.
(b) Each of Respironics and Merger Subsidiary has the full power,
authority and legal right to enter into this Agreement and the Merger
Agreement to perform its obligations hereunder and, subject to the approval
of its shareholders and approval and/or clearance of regulatory
authorities, to perform its obligations under the Merger Agreement. This
Agreement and the Merger Agreement have been duly and validly executed and
delivered by each of Respironics and Merger Subsidiary, and this Agreement
I-18
<PAGE>
constitutes, and subject to the approval of its shareholders and approval
and/or clearance of regulatory authorities the Merger Agreement
constitutes, a valid and binding obligation of each of Respironics and
Merger Subsidiary enforceable against Respironics and Merger Subsidiary in
accordance with its terms, except to the extent enforcement is limited by
bankruptcy, insolvency, moratorium, conservatorship, receivership or other
similar laws of general application affecting creditors' rights or by the
application by a court of equitable principles.
(c) Except as set forth in the Respironics Disclosure Letter, neither the
execution and delivery by Respironics or Merger Subsidiary of this
Agreement or the Merger Agreement or compliance by Respironics or Merger
Subsidiary with any provision hereof nor, subject to the approval of its
shareholders and approval and/or clearance of regulatory authorities,
compliance by Respironics or Merger Subsidiary with any provision of the
Merger Agreement will (i) violate any provision of the Articles of
Incorporation or By-Laws of Respironics or Merger Subsidiary, as the case
may be, (ii) conflict with or result in a breach of or default under any
agreement, obligation or instrument to which Respironics or any Respironics
Subsidiary is a party or by which any of them is bound or to which any of
their properties or assets is subject or (iii) violate any order or decree
of any court or governmental authority or any statute, rule or regulation
applicable to Respironics, any Respironics Subsidiary or any of their
properties or assets other than, in the case of clauses (ii) and (iii), any
such conflicts, breaches, defaults or violations which would not reasonably
be expected to have a Respironics Material Adverse Effect.
4.5. Exchange Act Reports and Financial Statements. Respironics has
delivered to Healthdyne (i) Respironics' Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 containing consolidated statements of
condition of Respironics at June 30, 1997 and 1996 and consolidated statements
of income, changes in shareholders' equity and cash flows of Respironics for
the three fiscal years ended June 30, 1997, all certified by Ernst & Young
LLP, independent auditors and (ii) any Current Reports on Form 8-K filed by
Respironics since June 30, 1997 (collectively, the "Respironics Reports"). All
Respironics Reports as of their respective dates (i) comply in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, (ii) do not contain any untrue statement of
a material fact and (iii) do not omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All such financial
statements, including the related notes and schedules, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as indicated therein) and fairly present the
consolidated financial condition, assets and liabilities of Respironics at the
dates thereof and the consolidated results of operations and changes in
shareholders' equity and cash flows of Respironics for the periods stated
therein, subject, in the case of the interim financial statements, to normal
and recurring year-end audit adjustments and except that the interim financial
statements do not contain all of the notes required by generally accepted
accounting principles.
4.6. Absence of Certain Changes. Since September 30, 1997, there has not
been any material adverse change in the consolidated financial condition,
results of operations or business of Respironics and its Subsidiaries taken as
a whole.
4.7. Taxes. (a) The Federal income tax returns of Respironics and the
Respironics Subsidiaries have either been audited by the Internal Revenue
Service or closed by statute for all periods beginning prior to July 1, 1992.
All taxes, deficiencies, interest and penalties which are reflected as due
under such returns or which have been assessed as a result of such audits have
been paid in full, and there are no outstanding agreements to extend periods
during which additional assessments may be made.
(b) Federal income tax returns of Respironics and the Respironics
Subsidiaries for all periods beginning before July 1, 1996 have been timely
filed. Such returns are accurate in all material respects, and to the best
of Respironics' knowledge there is no material proposed deficiency,
assessment, penalty or delinquency with respect to any of such returns or
any of the taxes reflected as due and payable thereby. All taxes,
deficiencies, interest and penalties which are reflected as due under such
returns or which have been assessed as a result of audits thereof have
either been paid in full or have been accrued or adequately
I-19
<PAGE>
reserved against in the financial statements contained in Respironics'
Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
(c) All required Federal income tax returns of any Respironics Joint
Venture and all returns in respect of all other Federal, state and local
taxes of any kind required to be filed by Respironics, any Respironics
Subsidiary or any Respironics joint venture have been timely filed, and all
taxes, interest and penalties due in respect thereof have been paid. Such
returns are accurate in all material respects, and to the best of
Respironics' knowledge there is no material proposed deficiency,
assessment, penalty or delinquency with respect to any of such returns or
any of the taxes reflected as due and payable thereby.
4.8. Employee Contracts and Plans. (a) Except as disclosed in the
Respironics Reports or the Respironics Disclosure Letter, neither Respironics
nor any U.S. Respironics Subsidiary (i) is as of the date hereof a party or
subject to any contract of employment with any person who earns a base salary
in excess of $50,000 per year which is not terminable at will without penalty
(other than standard severance policies offered to all employees generally),
or any collective bargaining agreement or (ii) maintains or contributes to any
profit sharing, pension, retirement, thrift, savings, incentive compensation,
deferred compensation, bonus, stock option, stock purchase, restricted stock,
stock appreciation right, performance share, performance unit, severance,
salary continuation, holiday, vacation, disability, insurance, medical or
other employee benefit, incentive or welfare plan, policy, material contract
or material arrangement (collectively, the "Respironics Employee Benefit
Plans"). Respironics has heretofore made available to Healthdyne copies of all
Respironics Employee Benefit Plans of Respironics and the Respironics
Subsidiaries, including individual employment contracts and stock option
agreements. Except as disclosed in the Respironics Reports or the Respironics
Disclosure Letter, consummation of the Merger will not accelerate the rights
of any third party to a consulting agreement with Respironics or any
Respironics Subsidiary or terminate the rights of Respironics or any
Respironics Subsidiary under any such consulting agreement. The Respironics
Employee Benefit Plans are competitive with the employee benefit plans of
other public companies in the medical device industry.
(b) There are no pending or threatened strikes or labor stoppages
involving any employees of Respironics or any Respironics Subsidiary, nor
is Respironics or any U.S. Respironics Subsidiary aware of any organizing
activity seeking to certify a collective bargaining unit or representative
for any of such employees.
(c) All retirement and employee benefit or welfare plans of Respironics
or any Respironics Subsidiary have been maintained and operated in
accordance with their terms in all material respects, and all such plans
which are subject to ERISA and/or the Code have been maintained and
operated in material compliance with all applicable provisions of ERISA and
the Code and the regulations thereunder and are not subject to any
accumulated funding deficiency within the meaning of ERISA and the
regulations thereunder or to any outstanding liability to the Pension
Benefit Guaranty Corporation (other than routine premium payments). No
"prohibited transaction" has occurred and is continuing with respect to any
such plan, nor has any "reportable event" occurred in respect thereof (with
respect to which the 30-day notice period has not been waived), as such
terms are defined in ERISA and the regulations thereunder, and no such plan
is a "Multiemployer Plan" or a "Multiple Employer Plan", as such terms are
defined in ERISA and the regulations thereunder.
(d) The current value of the assets of each Respironics Employee Benefit
Plan that is subject to Title IV of ERISA equals or exceeds the present
value of the accrued benefits under such plan based upon the actuarial
assumptions (to the extent reasonable) presently used by such plan for
financial disclosure purposes, and there is no complete or partial
withdrawal liability within the meaning of Sections 4205 and 4203 of ERISA
(and there would be no such liability assuming a complete or partial
withdrawal from all Respironics Employee Benefit Plans at the Effective
Time) with respect to any such plan. There are no pending or, to the
knowledge of Respironics, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the
Respironics Employee Benefit Plans or any trusts related thereto.
I-20
<PAGE>
4.9. Litigation and Other Proceedings. Except as disclosed in the
Respironics Reports or the Respironics Disclosure Letter, neither Respironics
nor any of its subsidiaries is a party or subject to any pending, or to the
knowledge of Respironics is likely to become a party or subject to any
threatened, action, suit, arbitration, administrative proceeding or
investigation, or judicial or administrative order, judgment or decree, which
individually or in the aggregate will have, or could reasonably be expected to
have, a Respironics Material Adverse Effect.
4.10. Compliance with Laws; Regulatory Matters. Respironics and its
subsidiaries are in compliance in all material respects with all laws, rules
and regulations, all clearances, approvals, orders, directives and supervisory
letters of, and all agreements, memoranda of understanding or similar
arrangements with, regulatory authorities and all other legal requirements
applicable to them or their businesses except where the failure to so comply
would not have a Respironics Material Adverse Effect. Neither Respironics nor
any of its Subsidiaries is subject to any order, directive, warning letter or
supervisory letter of, or agreement, memorandum of understanding or similar
arrangement (including board resolutions adopted at the request of a
regulatory authority) with, any regulatory authority restricting its
operations, restricting it from taking any action or requiring that certain
actions be taken, and Respironics has no knowledge that any such order,
directive, supervisory letter, agreement, memorandum of understanding or
similar arrangement is threatened, contemplated or under consideration by any
regulatory authority.
4.11. Environmental Matters. To the knowledge of Respironics, (a) no
Hazardous Substances (as hereinafter defined) have been stored, treated,
dumped, spilled, disposed of, discharged, released or deposited in violation
of any law or regulation or in a manner which would subject Respironics or any
Respironics Subsidiary to liability under any law or regulation at, under or
on (i) any Present Property by Respironics or any Respironics Subsidiary or
former subsidiary of Respironics (each, a "Respironics Entity"), (ii) any
Former Property by any Respironics Entity during the time of such previous
ownership, occupancy or lease; or (iii) any Participation Facility (as
hereinafter defined) during the time that any Respironics Entity participated
in the management of, or may be deemed to be or to have been an owner or
operator of, such Participation Facility; and (b) no Respironics Entity has
disposed of, or arranged for the disposal of, Hazardous Substances in
violation of any law or regulation or in a manner which would subject
Respironics or any Respironics subsidiary to liability under any law or
regulation from any Present Property, Former Property or Participation
Facility, and no owner or operator of a Participation Facility disposed of, or
arranged for the disposal of, Hazardous Substances in violation of any law or
regulation or in a manner which would subject Respironics or any Respironics
Subsidiary to liability under any law or regulation from a Participation
Facility during the time that any Respironics Entity participated in the
management of, or may be deemed to be or to have been an owner or operator of,
such Participation Facility.
As used in this Section 4.11, (a) "Participation Facility" shall mean any
property or facility of which any Respironics Entity (i) has at any time
participated in the management or (ii) may be deemed to be or to have been an
owner or operator and (b) "Hazardous Substances" shall mean (i) any flammable
substances, explosives, radioactive materials, hazardous materials, hazardous
substances, hazardous wastes, toxic substances, pollutants, contaminants or
any related materials or substances specified in any applicable Federal or
State law or regulation relating to pollution or protection of human health or
the environment (including, without limitation, ambient or indoor air, surface
water, groundwater, land surface or subsurface strata) and (ii) friable
asbestos, polychlorinated biphenyls, urea formaldehyde, and petroleum and
petroleum-based fuels.
4.12. Insurance. Respironics has heretofore made available to Healthdyne a
summary of all insurance coverages maintained by Respironics and the
Respironics Subsidiaries.
4.13. Intellectual Property. (a) Respironics and/or each Respironics
Subsidiary owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks, trade names, service marks, copyrights
and any applications therefor, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information
or materials that are used in the business of Respironics and
I-21
<PAGE>
the Respironics Subsidiaries as currently conducted, except for any such
failures to own, be licensed or possess that, individually or in the
aggregate, are not reasonably likely to have a Respironics Material Adverse
Effect.
(b) Except as disclosed in the Respironics Reports or the Respironics
Disclosure Letter or as is not reasonably likely to have a Respironics
Material Adverse Effect:
(i) Respironics and each Respironics Subsidiary is not, nor will it
be as a result of the execution and delivery of this Agreement or the
performance of Respironics' obligations hereunder, in violation of any
licenses, sublicenses and other agreements as to which Respironics or
any Respironics Subsidiary is a party and pursuant to which any of them
is authorized to use any third-party patents, trademarks, service
marks, and copyrights ("Respironics Third-Party Intellectual Property
Rights");
(ii) no claims with respect to the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, any applications therefor owned by Respironics or any
Respironics Subsidiary (the "Respironics Intellectual Property
Rights"), any trade secret material to Respironics or any Respironics
Subsidiary, or Respironics Third-Party Intellectual Property Rights to
the extent arising out of any use, reproduction or distribution of such
Respironics Third Party Intellectual Property Rights by or through
Respironics or any Respironics Subsidiary, are currently pending or, to
the knowledge of Respironics, are overtly threatened by any person;
(iii) Respironics does not know of any valid grounds for any bona
fide claims (A) to the effect that the manufacture, sale, licensing or
use of any product as now used, sold or licensed or proposed for use,
sale or license by Respironics or any Respironics Subsidiary, infringes
on any copyright, patent, trademark, service mark or trade secret of
any third party other than Respironics; (B) against the use by
Respironics or any Respironics Subsidiary, of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications of any third party used in
the business of Respironics or any Respironics Subsidiary as currently
conducted or as proposed to be conducted; (C) challenging the
ownership, validity or effectiveness of any Respironics Intellectual
Property Rights or other trade secret material to Respironics; or (D)
challenging the license or legally enforceable right to the use of the
Respironics Third-Party Intellectual Rights by Respironics or any of
Respironics Subsidiary; and
(iv) to the knowledge of Respironics, all patents, registered
trademarks and service marks, and copyrights held by Respironics and
the Respironics Subsidiaries are valid, enforceable and subsisting.
(c) The parties hereby acknowledge that Respironics is party to various
lawsuits and proceedings described in the Respironics Reports and bilevel
positive airway pressure patent enforcement proceedings against AirSep
Corporation and Healthdyne. The foregoing representations and warranties in
this Section 4.13 do not address matters at issue in such lawsuits and
proceedings.
4.14. Accounting and Tax Matters. As of the date hereof, neither Respironics
nor any of its affiliates has taken or agreed to take any action, nor does
Respironics have any knowledge of any fact or circumstance, that would prevent
Respironics from accounting for the business combination to be effected by the
Merger as a "pooling-of-interests" or prevent the Merger and the other
transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
4.15. Proxy Statement/Prospectus, etc. Except for information relating to
Healthdyne and the Healthdyne Subsidiaries, neither the Registration
Statement, the Proxy Statement/Prospectus nor any amendment or supplement
thereto, at the time the Registration Statement is declared effective, at the
time the Proxy Statement/Prospectus is mailed to the shareholders of
Healthdyne and Respironics or at the dates of the Shareholders' Meetings of
Healthdyne and Respironics to consider the Merger, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. All documents
I-22
<PAGE>
which Respironics is responsible for filing with the SEC or any regulatory
agency in connection with the Merger will comply as to form in all material
respects with the requirements of applicable law, and all of the information
relating to Respironics and its subsidiaries in any document filed with the
SEC or any other regulatory agency in connection with this Agreement, the
Merger Agreement or the transactions contemplated thereby shall be true and
correct in all material respects.
4.16. Investment Banker's Opinion. The Board of Directors of Respironics has
received the opinion of BT Alex. Brown Incorporated, dated the date of the
Agreement, to the effect that, as of the date of such opinion, the Exchange
Ratio is fair, from a financial point of view, to Respironics.
4.17. Investigation by Respironics. Respironics has conducted its own
independent review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, technology and
prospects of Healthdyne and its subsidiaries and acknowledges that Respironics
has been provided access to the personnel, properties, premises and records of
Healthdyne and its subsidiaries for such purpose. In entering into this
Agreement, Respironics has relied solely upon its own investigation and
analysis and the representations and warranties contained herein, and
Respironics: (a) acknowledges that none of Healthdyne or any of its respective
directors, officers, shareholders, employees, affiliates, controlling persons,
agents, advisors or representatives makes or has made any representation or
warranty, either express or implied, as to the accuracy of completeness of any
of the information provided or made available to Respironics or its directors,
officers, employees, affiliates, controlling persons, agents or
representatives; and (b) agrees, to the fullest extent permitted by law, that
none of Healthdyne or any of its directors, officers, employees, shareholders,
affiliates, controlling persons, agents, advisors or representatives shall
have any liability or responsibility whatsoever to Respironics or its
directors, officers, employees, affiliates, controlling persons, agents or
representatives on any basis (including, without limitation, in contract or
tort, under federal or state securities laws or otherwise) based upon any
information provided or made available, or statements made, to Respironics or
its directors, officers, employees, affiliates, controlling persons, advisors,
agents or representatives (or any omissions therefrom), except that the
foregoing limitations shall not apply (i) to the extent Healthdyne makes the
specific representations and warranties set forth in this Agreement and (ii)
in the case of fraud, willful misrepresentation or willful nondisclosure, but
always subject to the limitations and restrictions contained herein.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME
5.1. Conduct of Healthdyne's Business in Ordinary Course. Pending the
Effective Time, except as otherwise consented to in writing by Respironics or
as contemplated by this Agreement, (a) Healthdyne will and will cause each
Healthdyne Subsidiary to (i) conduct its business only in the ordinary course
thereof as conducted on the date hereof and (ii) use its commercially
reasonable efforts to preserve its business organization and assets intact and
to preserve its good will with its customers and others having business
relations with it; and (b) Healthdyne will not and, except in the case of
clause (ii) below, will not permit any Healthdyne Subsidiary to:
(i) amend its Articles of Incorporation or By-Laws or the Healthdyne
Rights Agreement;
(ii) declare, pay or set aside any dividend or other distribution in
respect of its capital stock;
(iii) except for the issuance and sale of Healthdyne Common Stock
upon exercise of the Outstanding Healthdyne Options or pursuant to
Healthdyne's Employee Stock Purchase Plan or pursuant to Healthdyne's
Rights Agreement, issue, sell, purchase, redeem or otherwise dispose of
or acquire, or grant any shares of its capital stock or options,
warrants or other rights to purchase or acquire, or combine, split or
reclassify, any shares of its capital stock or any securities
convertible into its capital stock, or modify or amend any Healthdyne
Option Plans or Outstanding Healthdyne Options;
I-23
<PAGE>
(iv) adopt or modify to increase the compensation or benefits under
any Healthdyne Employee Benefit Plan or otherwise increase the
compensation payable to its employees, except for modifications or
increases required by law or existing contract or involving merit
increases in accordance with past practices, normal cost-of-living
increases, regular bonuses (including under Healthdyne's executive
incentive plan) and normal increases related to promotions or increased
job responsibilities;
(v) subject to the proviso to the first sentence of Section 6.8,
merge or consolidate with or into any other corporation, acquire
control over, or acquire any equity interest in, any other corporation,
firm, entity or organization; liquidate; or purchase or acquire or sell
or otherwise dispose of any material assets otherwise than in the
ordinary course of business;
(vi) make any material expenditure for a capital asset or lease any
real property, except for capital expenditures and leases in accordance
with Healthdyne's capital expenditure budget or similar plans
applicable to leases approved by Healthdyne's Board of Directors;
(vii) take any action which if taken as of the date hereof would
constitute a material breach of any representation or warranty
contained herein;
(viii) settle or compromise any material claims or litigation or,
except, in the ordinary and usual course of business modify, amend or
terminate any of its material contracts or waive, release or assign any
material rights or claims (other than shareholder litigation in
connection with this Agreement or the attempted acquisition of
Healthdyne by Invacare Corporation or any of its affiliates, provided
that in the case of such litigation or attempted acquisition,
Respironics shall have the right to consent to any settlement or
compromise (unless such litigation is covered by insurance and a full
release of Healthdyne and Respironics, if applicable, and the other
named parties is obtained in connection therewith), but such consent
shall not be unreasonably withheld or delayed);
(ix) make any tax election or permit any insurance policy naming it
as a beneficiary or loss-payable payee to be cancelled or terminated,
except in the ordinary and usual course of business;
(x) take any action or omit to take any action that would prevent the
Merger from qualifying for "pooling-of-interests" accounting treatment
or as a "reorganization" within the meaning of Section 368(a) of the
Code; or
(xi) enter into any agreement, commitment or understanding with any
person relating to any action prohibited by this Agreement, subject the
proviso to the first sentence of Section 6.8.
5.2. Conduct of Respironics' Business in Ordinary Course. Pending the
Effective Time, except as otherwise consented to in writing by Healthdyne or
as contemplated by this Agreement, Respironics will not and, except in the
case of clause (ii) below, will not permit any Respironics Subsidiary to:
(i) amend its Articles of Incorporation or By-Laws or the Respironics
Rights Agreement;
(ii) declare, pay or set aside any dividend or other distribution in
respect of its capital stock;
(iii) except for (A) the issuance and sale of Respironics Common
Stock upon exercise of the Outstanding Respironics Options or pursuant
to Respironics' Employee Stock Purchase Plan or 401(k) plan or pursuant
to the Respironics Rights Agreement, (B) the grant of options under
Respironics Option Plans in the ordinary course of business consistent
with past practice and (C) issuances of shares of Respironics Common
Stock representing not more than 3% of the shares of Respironics Common
Stock outstanding on the date hereof, issue, sell, purchase, redeem or
otherwise dispose of or acquire, or grant any shares of its capital
stock or options, warrants or other rights to purchase or acquire, or
combine, split or reclassify, any shares of its capital stock or any
securities convertible into its capital stock, or modify or amend any
Respironics Option Plans or Outstanding Respironics Options;
I-24
<PAGE>
(iv) acquire control over, or acquire any equity interest in, any
other corporation, firm, entity or organization; liquidate; or purchase
or acquire or sell or otherwise dispose of any assets otherwise than in
the ordinary course of business or for consideration in excess of
$10,000,000;
(v) take any action which if taken as of the date hereof would
constitute a material breach of any representation or warranty
contained herein; or
(vi) take any action or omit to take any action that would prevent
the Merger from qualifying for "pooling-of-interests" accounting
treatment or as a "reorganization" within the meaning of Section 368(a)
of the Code.
As used herein, "Respironics Option Plans" shall mean the Amended and
Restated Incentive Stock Option Plan, the Agreements between Respironics and
Gerald E. McGinnis dated October 28, 1983, the Consulting Agreement dated July
1, 1988 with Dr. Mark Sanders, the 1991 Non-Employee Directors' Stock Option
Plan, the 1992 Incentive Stock Option Plan and the 1997 Employee Stock
Purchase Plan; "Outstanding Respironics Options" shall mean all stock options
outstanding under the Respironics Option Plans; and "Respironics Rights
Agreement" shall mean the Rights Agreement between Respironics and Chase
Mellon Shareholders Services L.L.C. dated as of June 28, 1996.
ARTICLE VI
COVENANTS AND ACTIONS PENDING THE EFFECTIVE TIME
6.1. Securities Registration and Disclosure. (a) As soon as practicable
after the date hereof, Respironics and Healthdyne will file the preliminary
Proxy Statement/Prospectus with the SEC under the Exchange Act and following
receipt of and response to the comments of the SEC, Respironics will file with
the SEC under the Securities Act a registration statement for the registration
of the shares of Respironics Common Stock to be issued pursuant to the Merger
Agreement (the "Registration Statement"). The parties shall cooperate in the
preparation of the Proxy Statement/Prospectus and any amendments or
supplements thereto, and each party shall be responsible for providing all
information concerning itself and its subsidiaries required to be included
therein.
(b) Respironics shall take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the
issuance of shares of Respironics Common Stock pursuant to the Merger
Agreement, and Healthdyne shall furnish Respironics all information
concerning Healthdyne as Respironics may reasonably request in connection
with any such action.
(c) Each party will promptly provide the other with copies of all
correspondence, comment letters, notices or other communications to or from
the SEC relating to the Registration Statement, the Proxy
Statement/Prospectus or any amendment or supplement thereto, and
Respironics will advise Healthdyne promptly after it receives notice
thereof, of the effectiveness of the Registration Statement, of the
issuance of any stop order with respect to the effectiveness thereof, of
the suspension of the qualification of the Respironics Common Stock
issuable in connection with the Merger for offering or sale in any
jurisdiction, or of the initiation or threat of any proceeding for any such
purpose.
6.2. Regulatory Clearances and Approvals. As soon as practicable after the
date hereof, the parties shall prepare and file (i) all filings and
applications required under the HSR Act and (ii) all filings and applications
with any Federal, state, local and foreign regulatory authorities having
jurisdiction for any other clearances, approvals or consents which may be
necessary for the consummation of the Merger. Subject to the limitations
herein provided, the parties will take or cause to be taken all actions
necessary for such applications to be cleared, approved and/or consented to,
and each party will promptly provide the other with copies of all
correspondence, notices or other communications to or from such authorities
relating to such applications to the extent permitted
I-25
<PAGE>
by law; provided that nothing contained herein shall require disclosure of any
confidential or privileged information to the other party.
6.3. Shareholders' Meetings. Subject to the fiduciary duties of its Board of
Directors, Healthdyne and Respironics will each take appropriate action to
call a meeting of its shareholders (the "Shareholders' Meetings"), to be held
not more than forty-five (45) days following the effective date of the
Registration Statement or such other date as Healthdyne and Respironics shall
agree, to consider, in the case of Healthdyne, approval of this Agreement and
the Merger Agreement and, in the case of Respironics, the issuance of shares
of Respironics Common Stock pursuant to the Merger. Subject to the fiduciary
duties of its Board of Directors, the Board of Directors of Healthdyne and
Respironics will recommend to their respective shareholders the approval of
the foregoing matters and Healthdyne and Respironics will each use its
reasonable best efforts to secure such approval. In connection with its
Shareholders' Meeting, Healthdyne and Respironics will duly solicit, in
compliance with Section 14(a) of the Exchange Act and the proxy rules of the
SEC thereunder, the vote of its shareholders by mailing or delivering to each
such shareholder, as soon as practicable after the effectiveness of the
Registration Statement, the Proxy Statement/Prospectus, and as soon as
practicable thereafter, any amendments or supplements thereto as may be
necessary to assure that at the date of its Shareholders' Meeting the Proxy
Statement/Prospectus shall conform to the requirements of Sections 3.19 and
4.15 hereof.
6.4. Affiliates' Agreements.
(a) Healthdyne Affiliates' Agreement. At or prior to the date the Proxy
Statement/Prospectus is first mailed to shareholders, Healthdyne will
furnish to Respironics a list of all persons known to Healthdyne who at the
date of the Healthdyne Shareholders' Meeting may be deemed to be
"affiliates" of Healthdyne within the meaning of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for "pooling-of-
interests" accounting treatment ("Healthdyne Affiliates"). Healthdyne will
use its reasonable best efforts to cause each Healthdyne Affiliate to
deliver to Respironics prior to the date the Proxy Statement/Prospectus is
first mailed to shareholders a written agreement providing that such person
will not sell, pledge, transfer or otherwise dispose of (i) the shares of
Respironics Common Stock to be received by such person in the Merger (the
"Merger Shares") or any other shares of Respironics Common Stock or
Healthdyne Common Stock held by such person during the period commencing 30
days prior to the Effective Time and ending at such time as financial
results covering at least 30 days of post-Merger combined operations have
been published within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies (the "Restricted Period") or
(ii) the Merger Shares except in compliance with the applicable provisions
of the Securities Act and the rules and regulations thereunder.
(b) Respironics Pooling Affiliates' Agreement. At or prior to the date
the Proxy Statement/Prospectus is first mailed to shareholders, Respironics
will furnish to Healthdyne a list of all persons known to Respironics who
at the date of the Respironics Shareholders' Meeting may be deemed to be
"affiliates" of Respironics for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment ("Respironics Affiliates").
Respironics will use its reasonable best efforts to cause each Respironics
Affiliate to deliver to Respironics and Healthdyne prior to the date the
Proxy Statement/Prospectus is first mailed to shareholders a written
agreement providing that such person will not sell, pledge, transfer or
otherwise dispose of any shares of Respironics Common Stock held by such
person during the period commencing 30 days prior to the Effective Time and
ending at such time as financial results covering at least 30 days of post-
Merger combined operations have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies.
6.5. Public Announcements. The parties will consult with each other as to
the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby.
6.6. Notice of Certain Events. Pending the Effective Time, each party will
promptly notify the other of (i) any material change in the normal course of
its business or in the operation of its properties, (ii) any event
I-26
<PAGE>
which would cause any of its representations and warranties hereunder to be
inaccurate in any material respect as of the time of the Closing and (iii) any
actions, claims or legal, administrative or arbitration proceedings or
investigations threatened or commenced against it or its subsidiaries which
are or may be material to their business or assets or to the consummation of
the Merger and the transactions contemplated hereby. Respironics shall
promptly notify Healthdyne if Respironics considers any Regulatory Condition
or Requirement to be in Respironics' reasonable business judgment materially
adverse to the best interests of the combined entities (an "Adverse Regulatory
Condition Notice").
6.7. All Reasonable Best Efforts. Subject to the terms and conditions herein
provided, each of the parties agrees to use all reasonable best efforts to
take, or cause to be taken, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Merger Agreement, including, without limitation, using reasonable
efforts to diligently pursue and obtain the regulatory clearances and
approvals referred to in Section 2.1(b) hereof (including responding to any
requests or second requests for information in connection therewith) and to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the Merger; provided,
however, that nothing contained herein shall require Respironics to agree to
any Regulatory Condition or Requirement which Respironics in its reasonable
business judgment considers to be materially adverse to the best interests of
the combined entities. Each party agrees to use all reasonable efforts to
fulfill, or cause to be fulfilled, all conditions provided hereunder to the
obligations of the other party to consummate the Merger; provided that nothing
contained herein shall obligate a party or any of its directors or officers to
breach their fiduciary obligations owed to the shareholders of such party.
Each party will, and will cause its subsidiaries to, use its reasonable best
efforts to obtain all consents of third parties required in connection with
this Agreement or the transactions contemplated hereby under any other
contract or agreement of such party or its subsidiaries.
6.8. Healthdyne Acquisition Proposals. Healthdyne agrees that neither it nor
any of its officers, directors, employees, agents or representatives
(including, without limitation, any investment banker, attorney or accountant
retained by any of them) shall initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal or offer with respect
to a merger, consolidation or similar transaction involving, or any purchase
of any substantial portion of the assets or any substantial portion of the
equity securities of Healthdyne or any Healthdyne Subsidiary (any such
proposal or offer being hereinafter referred to as a "Healthdyne Acquisition
Proposal"); provided, however, that (i) Healthdyne may furnish or cause to be
furnished information concerning Healthdyne and its business, properties or
assets to a third party, (ii) Healthdyne may engage in unsolicited discussions
or negotiations with a third party, (iii) following receipt of a Healthdyne
Acquisition Proposal, Healthdyne may take and disclose to its stockholders a
position contemplated by Rule 14e-2 or Rule 14d-9 under the Exchange Act or
otherwise make a disclosure to Healthdyne's stockholders and/or (iv) following
receipt of a Healthdyne Acquisition Proposal, Healthdyne's Board of Directors
may fail to make, withdraw or modify its recommendation referred to in Section
6.3, but in each case referred to in the foregoing clauses (i), (ii) and (iv),
only to the extent that the Board of Directors of Healthdyne shall determine
on the basis of advice from outside counsel that such action is necessary in
order for the Board of Directors to act in a manner consistent with its
fiduciary obligations under applicable law. Healthdyne will take the necessary
steps to inform the appropriate individuals or entities referred to in the
first sentence hereof of the obligations undertaken in this Section 6.8. For
purposes of this Section 6.8, a Healthdyne Acquisition Proposal shall include
any proposal or arrangement whether oral or in writing, providing for,
requiring, or having the effect of requiring Healthdyne to, or contemplating
that Healthdyne would, abandon, terminate or fail to consummate the Merger or
any of the other transactions contemplated under this Agreement. In the event
that Healthdyne shall receive a Healthdyne Acquisition Proposal or take any
action described in clause (i) or (ii) above, Healthdyne shall promptly inform
Respironics of the material details of such Healthdyne Acquisition Proposal
and/or its actions in response thereto or its actions described in clauses (i)
and (ii) and shall thereafter keep Respironics reasonably and promptly
informed of all material facts and material circumstances relating to said
Healthdyne Acquisition Proposal and Healthdyne's actions relating thereto (for
purposes of this sentence, Healthdyne's actions shall include the actions
I-27
<PAGE>
of its advisors, agents and representatives). Healthdyne is not currently in
discussions with any third party in connection with a transaction covered by
this Section 6.8.
6.9. Transactions Involving Respironics. (a) Subject to Sections 6.9(b),
7.3(g) and 7.6(b)(ii) hereof, Respironics shall not enter into any agreement
(a "Section 6.9(a) Agreement") for a merger, consolidation or share exchange
with or into any other person in which the capital stock of Respironics is
changed, exchanged or converted into any other security or form of
consideration, unless the surviving or resulting corporation or ultimate
parent shall have agreed in writing to be bound by the terms of this Agreement
and the Merger Agreement. At least seven (7) days prior to the execution and
delivery by Respironics of a Section 6.9(a) Agreement, Respironics shall
notify (a "Section 6.9(a) Notice") Healthdyne of Respironics' intention to
enter into such Section 6.9(a) Agreement. The Section 6.9(a) Notice shall
include the name of the other party thereto and the material terms and
conditions of the transaction contemplated thereby, and Respironics shall use
its reasonable best efforts to provide to Healthdyne such other information
concerning the proposed transaction as Healthdyne shall reasonably request,
subject to the execution of a customary confidentiality agreement. Not later
than the fifth business day following delivery of the Section 6.9(a) Notice by
Respironics, Healthdyne shall inform Respironics in writing of whether or not
Healthdyne intends to exercise its right to terminate this Agreement pursuant
to Section 7.3(g) hereof if Respironics were to enter into the proposed
Section 6.9(a) Agreement (a "Healthdyne Section 6.9(a) Statement of
Intention"). If the Healthdyne Section 6.9(a) Statement of Intention shall
state that Healthdyne does not intend to exercise its right to terminate this
Agreement if Respironics were to enter into the proposed Section 6.9(a)
Agreement, then Healthdyne shall be deemed to have waived its right to
terminate this Agreement pursuant to Section 7.3(g) hereof if Respironics
enters into such Section 6.9(a) Agreement. Healthdyne acknowledges that
Respironics will be relying on the statement of intention set forth in the
Healthdyne Section 6.9(a) Statement of Intention and Healthdyne agrees that it
shall be bound by the statement of intention set forth therein. Nothing
contained in this Agreement or in any Section 6.9(a) Notice or Healthdyne
Section 6.9(a) Statement of Intention shall obligate Respironics to enter into
a Section 6.9(a) Agreement. In the event that under the terms of any Section
6.9(a) Agreement the outstanding Respironics Common Stock is converted into or
exchanged for other securities of any person, cash or other property, the
terms of this Agreement and the Merger Agreement shall be appropriately
amended so that the shareholders of Healthdyne shall receive in the Merger,
for each share of Healthdyne Common Stock, the consideration per share
received by the holders of Respironics Common Stock in such transaction
multiplied by the Exchange Ratio (as appropriately adjusted to reflect such
event), provided that fractional shares or fractional units of other
securities or property may be paid in cash based on the closing sale price of
the Respironics Common Stock as reported on the NASD NMS on the last trading
day prior to the closing date of such transaction. It is understood that the
condition contained in Section 2.2(h) shall not prevent Respironics from
entering into any Section 6.9(a) Agreement, but Healthdyne shall not be
required to amend or waive the condition set forth in Section 2.3(f).
Respironics shall obtain the consent of Healthdyne, which consent shall not
unreasonably be withheld, before entering into an agreement for any such
transaction which would result in the acquisition by Respironics of a business
for which Respironics would be required under Rule 3-05(b)(2) of SEC
Regulation S-X to include separate financial statements in a registration
statement of Respironics under the Securities Act. Respironics is not
currently in discussions with any third party in connection with a transaction
covered by this Section 6.9(a).
(b) Respironics agrees that neither it nor any of its officers,
directors, employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by any
of them) shall initiate, solicit or encourage, directly or indirectly, any
inquiries or proposal or offer with respect to a merger, consolidation or
similar transaction involving, or any purchase of any substantial portion
of the assets or any substantial portion of the equity securities of
Respironics or any Respironics Subsidiary (any such proposal or offer being
hereinafter referred to as a "Respironics Acquisition Proposal"); provided,
however, that (i) Respironics may furnish or cause to be furnished
information concerning Respironics and its business, properties or assets
to a third party, (ii) Respironics may engage in unsolicited discussions or
negotiations with a third party, (iii) following receipt of a Respironics
Acquisition Proposal, Respironics may take and disclose to its stockholders
a position contemplated by Rule 14e-2 or
I-28
<PAGE>
Rule 14d-9 under the Exchange Act or otherwise make a disclosure to
Respironics' stockholders and/or (iv) following receipt of a Respironics
Acquisition Proposal, Respironics' Board of Directors may fail to make,
withdraw or modify its recommendation referred to in Section 6.3, but in
each case referred to in the foregoing clauses (i), (ii) and (iv), only to
the extent that the Board of Directors of Respironics shall determine on
the basis of advice from outside counsel that such action is necessary in
order for the Board of Directors to act in a manner consistent with its
fiduciary obligations under applicable law. Respironics will take the
necessary steps to inform the appropriate individuals or entities referred
to in the first sentence hereof of the obligations undertaken in this
Section 6.9(b). For purposes of this Section 6.9(b), a Respironics
Acquisition Proposal shall include any proposal or arrangement whether oral
or in writing, providing for, requiring, or having the effect of requiring
Respironics to, or contemplating that Respironics would, abandon, terminate
or fail to consummate the Merger or any of the other transactions
contemplated under this Agreement. In the event that Respironics shall
receive a Respironics Acquisition Proposal or take any action described in
clause (i) or (ii) above, Respironics shall promptly inform Healthdyne of
the material details of such Respironics Acquisition Proposal and/or its
actions in response thereto or its actions described in clauses (i) and
(ii) and shall thereafter keep Healthdyne reasonably and promptly informed
of all material facts and material circumstances relating to said
Respironics Acquisition Proposal and Respironics' actions relating thereto
(for purposes of this sentence, Respironics' actions shall include the
actions of its advisors, agents and representatives).
6.10. Access and Information. Pending the Effective Time, Healthdyne and
Respironics will each afford the other party and its authorized
representatives reasonable access during normal business hours to its
properties, books and records and personnel and those of its subsidiaries and
will furnish promptly to the other party such financial and operating data and
other information relating to its and its subsidiaries' business, assets and
personnel as the other party may reasonably request. All such information
shall remain subject to the Confidentiality Agreements between Healthdyne and
Respironics dated July 19, 1997, the Confidentiality and Secrecy Agreement for
Discussion of Business Arrangement dated June 6, 1997 between Respironics,
MiCRA and David Eisenstadt and the Confidentiality and Secrecy Agreement for
Discussion of Business Arrangement dated September 21, 1997 between
Healthdyne, Respironics, MiCRA, Skadden, Arps, Slate, Meagher & Flom LLP, Reed
Smith Shaw & McClay LLP and Troutman Sanders LLP (the "Confidentiality
Agreements").
ARTICLE VII
AMENDMENT, WAIVER AND TERMINATION
7.1. Amendment. Subject to applicable law, this Agreement or the Merger
Agreement may be amended in any respect by an instrument in writing signed by
an authorized officer of each of the parties, whether before or after the
Shareholders' Meetings, except that no such amendment after the Healthdyne
Shareholders' Meeting shall affect the rate of exchange of Healthdyne Common
Stock for Respironics Common Stock provided in the Merger Agreement or change
the form of such consideration or to affect the tax-free nature of the
transaction.
7.2. Waiver. Respironics or Healthdyne may (i) extend the time for
performance of any of the obligations of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party, (iii)
waive compliance by the other party with any of its covenants or agreements
contained herein or in the Merger Agreement and (iv) waive the fulfillment of
any condition to its obligations hereunder other than those set forth in
Section 2.1 hereof, all of the foregoing to the fullest extent permitted by
law. No such extension or waiver shall be effective unless contained in a
writing signed by an authorized officer of the party against which it is
asserted.
7.3. Termination. Notwithstanding prior approval by the shareholders of
Healthdyne or Respironics, this Agreement may be terminated and the Merger
abandoned:
(a) by mutual written consent of each of the parties hereto at any time
prior to the Effective Time; or
I-29
<PAGE>
(b) by Healthdyne or Respironics in the event of a material breach of a
representation and warranty or covenant of the other party contained herein
which would give rise to a failure of a condition to Closing, which breach,
if curable, has not been cured within 10 days after written notice of such
breach is given to the breaching party by the party electing to terminate;
or
(c) by Healthdyne or Respironics at any time after the shareholders of
Healthdyne or Respironics shall fail to approve this Agreement and the
Merger Agreement, in the case of Healthdyne, or the issuance of shares of
Respironics Common Stock pursuant to the Merger, in the case of
Respironics, in a vote taken at a meeting duly convened for that purpose,
provided that the party electing to terminate shall have performed its
obligations under Section 6.3 hereof; or
(d) (i) by Healthdyne or Respironics at any time after a final judicial
or regulatory determination (as to which all periods for appeal have
expired and no appeal shall be pending) denying any regulatory clearance
and/or approval required for the Merger or (ii) by Respironics at any time
after Respironics delivers to Healthdyne an Adverse Regulatory Condition
Notice; or
(e) by Healthdyne or Respironics at any time after the date which is six
(6) months after the date hereof in the event of failure to satisfy any of
the conditions to the obligations of the party electing to terminate, if
such failure occurred despite the good faith effort of such party to
perform all agreements and covenants and to satisfy all conditions required
to be performed or satisfied by it; or
(f) by Healthdyne if Healthdyne's Board of Directors shall have approved
a Healthdyne Acquisition Proposal after determining, upon the basis of
advice of outside counsel that such action is necessary in order for the
Board of Directors to act in a manner consistent with its fiduciary
obligation under applicable law; or
(g) by Healthdyne if Healthdyne shall have delivered, in response to a
Section 6.9(a) Notice, a Healthdyne Section 6.9(a) Statement of Intention
in which Healthdyne shall have indicated its intention to terminate this
Agreement pursuant to this Section 7.3(g) if Respironics were to enter into
the Section 6.9(a) Agreement referred to in such Section 6.9(a) Notice and
Respironics shall have entered into such Section 6.9(a) Agreement within
eighteen (18) months after delivery of the Healthdyne Section 6.9(a)
Statement of Intention; or
(h) by Respironics if Respironics' Board of Directors shall have approved
a Respironics Acquisition Proposal after determining, upon the basis of
advice of outside counsel that such action is necessary in order for the
Board of Directors to act in a manner consistent with its fiduciary
obligation under applicable law; or
(i) by Healthdyne or Respironics within two (2) business days after the
Determination Date if, on the Determination Date, the weighted average
closing price of the Respironics Common Stock as reported on the NASD NMS
for the period consisting of 20 consecutive trading days ending on the
trading day prior to the Determination Date, in each case as reported in
The Wall Street Journal, is less than $20.00.
As used herein, "Determination Date" shall mean the business day on which
the conditions set forth in Sections 2.1(a) and 2.1(b) have been satisfied.
Termination pursuant to subparagraphs (b) through (i) of this Section 7.3
shall be effected by written notice provided by the terminating party in
accordance with Section 8.6 hereof.
7.4. Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.3, this Agreement and the Merger Agreement shall
forthwith become void, and there shall be no liability on the part of either
party or their respective officers or directors except (i) as set forth in
Sections 7.5, 7.6, 7.7, 8.2, 8.7 and 8.8 hereof or (ii) in the event of a
willful breach of this Agreement.
I-30
<PAGE>
7.5. Respironics Fee. (a) Healthdyne hereby agrees to pay Respironics,
subject to the terms and conditions of this Section 7.5, upon the occurrence
of the events specified in this Section, a fee (the "Respironics Fee") of
$12,000,000.
(b) Respironics shall be entitled to payment of the Respironics Fee if:
(i) The Board of Directors of Healthdyne shall fail to recommend, or
withdraw, modify or change its recommendation referred to in Section
6.3 hereof in a manner adverse to Respironics or shall have resolved to
do any of the foregoing;
(ii) Healthdyne shall terminate this Agreement pursuant to Section
7.3(f) hereof;
(iii) Healthdyne shall execute and deliver a definitive agreement
for, or Healthdyne's Board of Directors shall approve, a Healthdyne
Business Combination (as hereinafter defined) within eighteen (18)
months following the termination of this Agreement if such termination
is by Respironics pursuant to Section 7.3(b) hereof;
(iv) Healthdyne shall execute and deliver a definitive agreement for,
or Healthdyne's Board of Directors shall approve, a Healthdyne Business
Combination within eighteen (18) months following the termination of
this Agreement if such termination is by Respironics or Healthdyne
pursuant to Section 7.3(c) hereof after the shareholders of Healthdyne
shall have failed to approve this Agreement and the Merger Agreement
and prior to such termination either (A) Healthdyne or the shareholders
of Healthdyne shall have received an offer or proposal from any person
or group of persons (other than Respironics or any Respironics
Subsidiary) to enter into a Healthdyne Business Combination or (B) any
person or group of persons (other than Respironics or any Respironics
Subsidiary) shall have purchased, after the date hereof and prior to
such termination, securities which, when added to the securities
already owned by such person or group, represent 10% or more of the
voting power of Healthdyne and such person or group of persons shall
have failed to deliver a written agreement of the type described in
Section 6.4(b) hereof; or
(v) Healthdyne shall execute and deliver a definitive agreement for,
or Healthdyne's Board of Directors shall approve, a Healthdyne Business
Combination within eighteen (18) months following the termination of
this Agreement in accordance with its terms and Healthdyne's Board of
Directors shall have failed to call its Shareholders Meeting after a
determination, based on advice of outside counsel, that such action was
required in order to act in a manner consistent with its fiduciary
obligations under applicable law.
As used herein, "Healthdyne Business Combination" shall mean (i) a merger or
consolidation, or any similar transaction, involving Healthdyne or any
Significant Healthdyne Subsidiary, (ii) a purchase, lease or other acquisition
of all or substantially all of the assets of Healthdyne or any Significant
Healthdyne Subsidiary or (iii) a purchase or other acquisition (including by
way or merger, consolidation, share exchange or otherwise) of securities
representing 35% or more of the voting power of Healthdyne or any Significant
Healthdyne Subsidiary (other than, in the case of the transfer of securities
of any Significant Healthdyne Subsidiary, transfers between Healthdyne and/or
one or more Healthdyne Subsidiaries). "Significant Healthdyne Subsidiary"
shall mean each Healthdyne Subsidiary which in the most recent fiscal year of
Healthdyne accounted for more than 35% of the consolidated assets of
Healthdyne and the Healthdyne Subsidiaries or which accounted for more than
35% of the consolidated income of Healthdyne and the Healthdyne Subsidiaries
for each of the most recent three fiscal years of Healthdyne; provided,
however, that with respect to Healthdyne Subsidiaries created or acquired
after the date hereof, if thereafter such entity, in a fiscal year, accounts
for more than 35% of the consolidated assets of Healthdyne and the Healthdyne
Subsidiaries in such fiscal year or accounts for more than (x) 35% of the
consolidated income of Healthdyne and the Healthdyne Subsidiaries in the year
of creation or acquisition, (y) 35% of the consolidated income of Healthdyne
and the Healthdyne Subsidiaries for each of the two most recent fiscal years
in the two years following creation or acquisition and (z) thereafter, 35% of
the consolidated income
I-31
<PAGE>
of Healthdyne and the Healthdyne Subsidiaries for each of the most recent
three fiscal years, it shall be deemed to be a Significant Healthdyne
Subsidiary for such fiscal year.
(c) The Respironics Fee shall be payable in immediately available funds
within five (5) business days after the occurrence of the event giving rise
to such payment.
7.6. Healthdyne Fee. (a) Respironics hereby agrees to pay Healthdyne,
subject to the terms and conditions of this Section 7.6, upon the occurrence
of the events specified in this Section, a fee (the "Healthdyne Fee") of
$12,000,000.
(b) Healthdyne shall be entitled to payment of the Healthdyne Fee if:
(i) The Board of Directors of Respironics shall fail to recommend, or
withdraw, modify or change its recommendation referred to in Section
6.3 hereof in a manner adverse to Healthdyne or shall have resolved to
do any of the foregoing;
(ii) Healthdyne shall terminate this Agreement pursuant to Section
7.3(g) hereof;
(iii) Respironics shall terminate this Agreement pursuant to Section
7.3(h) hereof;
(iv) Respironics shall execute and deliver a definitive agreement
for, or Respironics' Board of Directors shall approve, a Respironics
Business Combination (as hereinafter defined) within eighteen (18)
months following the termination of this Agreement if such termination
is by Healthdyne pursuant to Section 7.3(b) hereof;
(v) Respironics shall execute and deliver a definitive agreement for,
or Respironics' Board of Directors shall approve, a Respironics
Business Combination within eighteen (18) months following the
termination of this Agreement if such termination is by Healthdyne or
Respironics pursuant to Section 7.3(c) hereof after the shareholders of
Respironics shall have failed to approve this Agreement and the Merger
Agreement and prior to such termination either (A) Respironics or the
shareholders of Respironics shall have received an offer or proposal
from any person or group of persons (other than Healthdyne or any
Healthdyne Subsidiary) to enter into a Respironics Business Combination
or (B) any person or group of persons (other than Healthdyne or any
Healthdyne Subsidiary) shall have purchased, after the date hereof and
prior to such termination, securities which, when added to the
securities already owned by such person or group represent 10% or more
of the voting power of Respironics and such person or group of persons
shall have failed to deliver a written agreement of the type described
in Section 6.4(b) hereof; or
(v) Respironics shall execute and deliver a definitive agreement for,
or Respironics' Board of Directors shall approve, a Respironics
Business Combination within eighteen (18) months following the
termination of this Agreement in accordance with its terms and
Respironics' Board of Directors shall have failed to call its
Shareholders Meeting after a determination, based on advice of outside
counsel, that such action was required in order to act in a manner
consistent with its fiduciary obligations under applicable law.
As used herein, "Respironics Business Combination" shall mean (i) a merger or
consolidation, or any similar transaction, involving Respironics or any
Significant Respironics Subsidiary, (ii) a purchase, lease or other
acquisition of all or a substantial portion of the assets of Respironics or
any Significant Respironics Subsidiary or (iii) a purchase or other
acquisition (including by way or merger, consolidation, share exchange or
otherwise) of securities representing 35% or more of the voting power of
Respironics or any Significant Respironics Subsidiary (other than, in the case
of any transfer of any Significant Respironics Subsidiary, transfers between
Respironics and/or one or more Respironics Subsidiaries). "Significant
Respironics Subsidiary" shall mean each Respironics Subsidiary which in the
most recent fiscal year of Respironics accounted for more than 35% of the
I-32
<PAGE>
consolidated assets of Respironics and the Respironics Subsidiaries or which
accounted for more than 35% of the consolidated income of Respironics and the
Respironics Subsidiaries for each of the most recent three fiscal years of
Respironics; provided, however, that with respect to Respironics Subsidiaries
created or acquired after the date hereof, if thereafter such entity, in a
fiscal year, accounts for more than 35% of the consolidated assets of
Respironics and the Respironics Subsidiaries in such fiscal year or accounts
for more than (x) 35% of the consolidated income of the Borrower and its
Subsidiaries in the year of creation or acquisition, (y) 35% of the
consolidated income of Respironics and the Respironics Subsidiaries for each
of the two most recent fiscal years in the two years following creation or
acquisition and (z) thereafter, 35% of the consolidated income of Respironics
and the Respironics Subsidiaries for each of the most recent three fiscal
years, it shall be deemed to be a Significant Respironics Subsidiary for such
fiscal year
(c) The Healthdyne Fee shall be payable in immediately available funds
within five (5) business days after the occurrence of the event giving rise
to such payment.
7.7. Arbitration of Disputes Regarding Adverse Regulatory Condition Notice.
(a) If (i) Respironics delivers to Healthdyne an Adverse Regulatory
Condition Notice, (ii) Healthdyne exercising reasonable business judgment
notifies Respironics within five (5) business days of delivery of such
Notice that Healthdyne believes that the applicable Regulatory Condition or
Requirement would not have been materially adverse to the best interests of
the combined entities and (iii) this Agreement shall be terminated by
Respironics pursuant to Section 7.3(d)(ii) hereof, then Healthdyne shall
have the right, by giving written notice to Respironics within three (3)
business days of such termination (a "Notice of Dispute") to have the issue
(the "Issue") of whether the applicable Regulatory Condition or Requirement
would have been materially adverse to the best interests of the combined
entities submitted to binding arbitration ("Binding Arbitration") pursuant
to the procedures set forth in this Section 7.7 and, to the extent not
inconsistent with Section 7.7, pursuant to the Commercial Arbitration Rules
of the American Arbitration Association (as amended from time to time, the
"AAA Rules"). Binding Arbitration shall be the sole means of resolving any
Issue.
(b) The arbitrator ("Arbitrator") for any Binding Arbitration of the
Issue shall be a partner or principal in a "Big Six" accounting firm not
retained by Healthdyne or Respironics reasonably acceptable to Healthdyne
and Respironics (or, if the parties cannot agree, drawn by lot if necessary
from the "Big Six" accounting firms not retained by Healthdyne or
Respironics). Healthdyne's Notice of Dispute shall be timely made (as
specified above) and shall set forth the nature of the Issue. A copy of the
Notice of Dispute shall also be given to the American Arbitration
Association as required by the AAA Rules.
(c) Binding Arbitration of the Issue shall be commenced within ten (10)
business days of the delivery of the Notice of Dispute to the Arbitrator.
The Arbitrator shall render a written decision on the Issue within thirty
(30) days of completion of the arbitration proceedings.
(d) If the Arbitrator determines that (i) the applicable Regulatory
Conditions or Requirement would not have been materially adverse to the
best interest of the combined entities and (ii) Healthdyne has suffered or
sustained significant damages as a result of Respironics' Adverse
Regulatory Condition Notice and termination of this Agreement by
Respironics pursuant to Section 7.3(d)(ii), then Respironics shall pay to
Healthdyne $12,000,000, it being understood that such significant damages
need not equal $12,000,000 to trigger such payment. Any such payment shall
be Healthdyne's sole and exclusive remedy with respect to the Issue, the
Adverse Regulatory Condition Notice and termination of this Agreement by
Respironics pursuant to Section 7.3(b)(ii) hereof.
(e) The decision of the Arbitrator with respect to the Issue shall be
conclusive, final and binding on Healthdyne and Respironics and shall be
enforceable in any court having jurisdiction over a proceeding brought to
seek such enforcement.
I-33
<PAGE>
(f) All fees, costs and expenses of the Arbitrator shall be borne by the
party which does not prevail on the Issue in the Binding Arbitration. Each
party shall bear its own fees, costs and expenses in connection with the
Binding Arbitration.
(g) Nothing contained in this Section 7.7 shall restrict the ability of
Respironics to terminate this Agreement pursuant to Section 7.3(d)(ii).
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1. Closing and Effective Time. The closing of the transactions
contemplated by this Agreement and the Merger Agreement (the "Closing") shall
take place at the offices of Reed Smith Shaw & McClay LLP, 435 Sixth Avenue,
Pittsburgh, Pennsylvania at 10:00 a.m., local time, on the third business day
following the fulfillment of all conditions set forth in Section 2.1 hereof,
or at such other place, time and date as the parties shall agree. Subject to
the fulfillment or waiver at or prior to the Closing of all other conditions
to its obligations to consummate the Merger, each party shall execute and
deliver for filing with the Secretary of State of the State of Georgia a
Certificate of Merger specifying that the Merger shall become effective at the
close of business on the date of the Closing or at such other time and date as
the parties shall agree (the "Effective Time") and containing such other
information as is required by the GBCC.
8.2. Confidentiality. Each party hereto shall cause all information obtained
by it or its subsidiaries or representatives from the other party and its
subsidiaries and representatives under or in connection with this Agreement or
the negotiation hereof to be treated as confidential information subject to
the terms, conditions and restrictions set forth in the Confidentiality
Agreements and the letter dated September 21, 1997 relating to certain
litigation between Healthdyne and Respironics.
8.3. Entire Agreement. This Agreement, together with the Merger Agreement
and any other agreements signed between the parties on the date hereof, sets
forth the entire understanding of the parties with respect to the subject
matter hereof and supersedes all previous agreements or understandings between
the parties with respect thereto.
8.4. Counterparts; Headings. This Agreement may be executed in several
counterparts, and by the parties hereto on separate counterparts, each of
which will constitute an original. The headings and captions contained herein
are for reference purposes only and do not constitute a part hereof.
8.5. Further Assurances. Each party will execute and deliver such
instruments and take such other actions as the other party hereto may
reasonably request in order to carry out the intent and purposes hereof and of
the Merger Agreement.
8.6. Communications. All notices and other communications hereunder shall be
in writing and will be deemed to have been given if delivered by hand or
express carrier, telecopied with acknowledgment of receipt, or mailed by
first-class or by registered or certified mail, postage prepaid, addressed as
follows:
If to Respironics or Merger Subsidiary:
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
Attention: Steven P. Fulton, Esquire
Telecopier: 412-473-5021
I-34
<PAGE>
With a copy to:
Reed Smith Shaw & McClay LLP
James H. Reed Building
435 Sixth Avenue
Pittsburgh, PA 15219-1886
Attention: Arlie R. Nogay, Esquire
Telecopier: 412-288-3063
If to Healthdyne:
Healthdyne Technologies, Inc.
1225 Kennestone Circle
Marietta, GA 30066
Attention: Leslie R. Jones, Esquire
Telecopier: 770-429-2978
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Blaine V. Fogg, Esquire
Telecopy: 212-735-2000
and
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attention: James L. Smith III, Esquire
Telecopy: 404-885-3900
or at such other address or addresses as may hereafter be furnished by the
addressee party. All such notices and other communications shall be deemed to
have been duly given as follows: when delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if delivered by mail; when receipt acknowledged, if telecopied; and
the next business day after being delivered to an overnight delivery service.
8.7. Expenses. Each party shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and to the consummation of
the Merger, including fees of its accountants, attorneys and investment
advisors, except that it is agreed that (i) each party shall pay the cost of
printing and mailing the final Proxy Statement/Prospectus and other proxy
materials to the shareholders of such party and (ii) the cost of printing and
filing the Registration Statement and any blue sky materials and the costs of
preparing and filing the applications for the regulatory clearances and/or
approvals referred to in Section 2.1(b) hereof are expenses of Respironics.
8.8. Brokers. Respironics and Healthdyne each represents and warrants that
except as disclosed in the Respironics Disclosure Letter and Healthdyne
Disclosure Letter, respectively, neither it nor any of its subsidiaries is
obligated to pay any brokerage commissions, finder's fees or other like
payments in connection with the transactions contemplated hereby. Each party
agrees to pay or discharge, and to indemnify and hold the other and its
subsidiaries harmless from and against, any and all claims or liabilities for
brokerage commissions, finder's fees and other like payments incurred by such
party or its subsidiaries in connection with the transactions contemplated
hereby.
I-35
<PAGE>
8.9. Survival. The representations and warranties of the parties contained
herein or in any document, schedule or certificate delivered in connection
herewith will not survive the Closing and Effective Time but will expire with
and be terminated and extinguished by the consummation of the Merger
contemplated hereby.
8.10. Successors and Assigns; No Third Party Beneficiaries. Neither this
Agreement nor the Merger Agreement, nor any of the rights or obligations of
the parties hereunder or thereunder, may be assigned by either party, whether
by operation of law or otherwise, without the prior written consent of the
other party. Subject to the preceding sentence, this Agreement and the Merger
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns. Except as
provided in Sections 9.1 and 9.2 hereof, this Agreement is not intended to
confer any right or benefit upon any person other than the parties hereto, and
no provision hereof shall be enforceable other than by the parties hereto and
their successors and permitted assigns.
8.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
principles of conflicts of laws thereof, except as to matters governed by the
GBCC.
ARTICLE IX
POST-EFFECTIVE TIME COVENANTS
9.1. Indemnification of Healthdyne Directors and Officers.
(a) From and after the Effective Time, Respironics shall indemnify,
defend and hold harmless any person who is now, or has been at any time
prior to the date hereof, or who becomes prior to the Effective Time of the
Merger, an officer or director (the "Indemnified Party") of Healthdyne or
any Healthdyne Subsidiary against all losses, claims, damages, liabilities,
costs and expenses (including reasonable attorney's fees and expenses),
judgments, fines, losses, and amounts paid in settlement in connection with
any actual or threatened action, suit, claim, proceeding or investigation
(each a "Claim") to the extent that any such Claim is based on, or arises
out of, (i) the fact that such person is or was a director or officer of
Healthdyne or any Healthdyne subsidiary or is or was serving at the request
of Healthdyne or any Healthdyne Subsidiary as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
or (ii) this Agreement, or any of the transactions contemplated hereby, in
each case to the extent that any such Claim pertains to any matter or fact
arising, existing, or occurring prior to or at the Effective Time of the
Merger, regardless of whether such Claim is asserted or claimed prior to,
at or after the Effective Time of the Merger, to the full extent permitted
under the GBCC or Healthdyne's Articles of Incorporation, By-laws or
indemnification agreements in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of
any action or suit. Without limiting the foregoing, in the event any
Indemnified party becomes involved in any capacity in any Claim, then from
and after the Effective Time of the Merger Respironics shall, periodically
advance to such Indemnified Party its legal and other expenses (including
the cost of any investigation and preparation incurred in connection
therewith), subject to the provision by such Indemnified Party of a written
affirmation in accordance with GBCC Section 14-2-853.
(b) Respironics and Healthdyne agree that all rights to indemnification
and all limitations of liability existing in favor of the Indemnified Party
as provided in Healthdyne's Articles of Incorporation and By-laws as in
effect as of the date hereof shall survive the Merger and shall continue in
full force and effect, without any amendment thereto, for a period of six
years from the Effective Time of the Merger to the extent such rights are
consistent with the GBCC; provided that, in the event any claim or claims
are asserted or made within such six year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims; provided further, that any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under
I-36
<PAGE>
the GBCC, Healthdyne's Articles of Incorporation or By-laws, as the case
may be, shall be made by independent legal counsel in accordance with the
GBCC and the indemnification agreements and; provided further, that nothing
in this Section 9.1 shall impair any rights or obligations of any present
or former directors or officers of Healthdyne.
(c) In the event Respironics or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 9.1, proper
provision shall be made so that the successors and assigns of Respironics
assume the obligations set forth in this Section 9.1, and none of the
actions described in clauses (i) or (ii) shall be taken until such
provision is made.
(d) Respironics shall maintain Healthdyne's existing officers' and
directors' liability insurance policy ("D&O Insurance") for a period of not
less than six years after the Effective Time of the Merger; provided, that
Respironics may substitute therefor policies of substantially similar
coverage and amounts containing terms no less advantageous to such former
directors and officers; provided, further, if the existing D&O Insurance
expires or is cancelled during such period, Respironics will use its best
efforts to obtain substantially similar D&O Insurance.
9.2. Healthdyne Stock Option.
(a) At the Effective Time, each Healthdyne Option under the Healthdyne
Option Plans, whether vested or unvested, shall be deemed to constitute an
option (a "Substitute Option") to acquire, on the same terms and conditions
as were applicable under such Healthdyne Option (which Substitute Option
has become vested and exercisable in accordance with its terms and the
terms of the applicable Healthdyne Option Plan), the same number of shares
of Respironics Common Stock as the holder of such Healthdyne Option would
have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time
(rounded down to the nearest whole number), at a price per share (rounded
up to the nearest whole cent) equal to (y) the aggregate exercise price for
the Shares otherwise purchasable pursuant to such Healthdyne Option divided
by (z) the number of full shares of Respironics Common Stock deemed
purchasable pursuant to such Healthdyne Option in accordance with the
foregoing; provided, however, that in the case of any Healthdyne Option to
which Section 422 of the Code applies, the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in accordance with the
foregoing, subject to such adjustments as are necessary in order to satisfy
the requirements of Section 424(a) of the Code. At or prior to the
Effective Time, Respironics shall make all necessary arrangements with
respect to the Healthdyne Option Plans to permit the assumption of the
unexercised Healthdyne Options by Respironics pursuant to this Section 9.2.
(b) [This section intentionally left blank.]
(c) Respironics shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Respironics Common Stock for
delivery upon exercise of Healthdyne Options. Immediately following the
Effective Time of the Merger, Respironics shall file a registration
statement on Form S-8 or another appropriate form with respect to the
shares of Respironics Common Stock subject to such options and shall use
its reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
such options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements
under Section 16(a) of the Exchange Act, where applicable, Respironics
shall administer Healthdyne Option Plan in a manner that complies with Rule
16b-3 promulgated under the Exchange Act to the extent Healthdyne Option
Plans complied with such rule prior to the Merger.
I-37
<PAGE>
(d) At or prior to the Closing, Respironics and Healthdyne will enter
into Consulting Agreements with the persons listed on Appendix E hereto
(the "Consulting Agreements"), the form of which shall be reasonably
satisfactory to Respironics. The Consulting Agreements (x) will be for a
term of six (6) months, (y) will provide that the Consultant will provide
Respironics and Healthdyne various consulting services, as may be requested
from time to time during such six (6) month period not to exceed five hours
per week, to assist Respironics and Healthdyne in the integration of
Healthdyne and its business with Respironics following the Merger, and (z)
will provide for compensation to the Consultant based on the Consultant's
normal and customary hourly rate in connection with the consulting services
requested to be performed by Respironics or Healthdyne, together with
reimbursement to the Consultant of actual out-of-pocket expenses incurred
by the Consultant in performing the consulting services.
9.3. Respironics Benefit Plans. (a) As soon as administratively practicable
following the Merger, Respironics shall take appropriate actions so that
employees of Healthdyne and the Healthdyne Subsidiaries who become employees
of Respironics or remain employees of Healthdyne or a Healthdyne Subsidiary
shall be entitled to participate in generally applicable Respironics Employee
Benefit Plans on the same basis as other similarly situated employees of
Respironics and the Respironics Subsidiaries. Prior service of such employees
with Healthdyne or a Healthdyne Subsidiary (including service with predecessor
entities to the extent recognized under analogous Healthdyne Employee Benefit
Plans) shall be counted in determining eligibility to participate in such
plans and for purposes of vesting of benefits. Respironics shall use
reasonable best efforts to waive (i) any preexisting condition restriction
which was waived under the terms of analogous Healthdyne Employee Benefit Plan
immediately prior to the Effective Time or (ii) waiting period limitation
which would otherwise be applicable to a Healthdyne employee on or after the
Effective Time to the extent such Healthdyne employee had satisfied any
similar waiting period limitation under an analogous Healthdyne Employee
Benefit Plan prior to the Effective Time.
(b) After consummation of the Merger, Respironics shall have the right to
amend or terminate any Healthdyne Employee Benefit Plan or combine any
Healthdyne Employee Benefit Plan with a plan offered by Respironics or any
Respironics Subsidiary, provided that such amendment, termination or
combination is accomplished in accordance with the terms of the applicable
plan(s) and all applicable laws.
(c) Respironics shall honor, and shall cause the Surviving Corporation to
honor, without modification, the terms and provisions of the
Indemnification Agreements, the Non-Competition Agreements (except as
modified or terminated as contemplated hereby in connection with the
Employment Agreements referred to in Section 2.2(f) hereof), the Split-
Dollar Life Insurance Agreements and the Retirement Benefit Award
Agreements in effect as of the date hereof, in each case between Healthdyne
and the employees or directors of Healthdyne identified on Appendix F
hereto. Respironics hereby acknowledges that the Merger will constitute a
"Change of Control" for purposes of such Agreements, and agrees to abide by
the provisions of any such Agreement which relate to a Change of Control,
including the accelerated vesting and/or payment of benefits. Nothing
contained herein shall prevent Respironics or the Surviving Corporation
from terminating or ceasing payments under such Agreements to the extent
permitted by the terms and provisions thereof except as prohibited by
Section 9.1 hereof.
9.4. Transition Team. Upon the execution and delivery of this Agreement,
Respironics and Healthdyne will establish a team consisting of employees from
both entities for the purpose of integrating the two entities (the "Transition
Team"). The Chief Executive Officer of Respironics, Dennis S. Meteny, will
lead the Transition Team and the following persons will be members of the
Transition Team: Craig B. Reynolds, Robert D. Crouch, Daniel J. Bevevino and
John L. Miclot. The Transition Team will choose one or more consultants to
assist it in meeting its objective. The objective of the Transition Team will
be to ensure that a proper process is in place and is used for integrating the
two organizations and structuring the combined company. Mr. Meteny will
provide progress reports to the Board of Directors of Respironics and Mr.
Reynolds will provide progress reports to Healthdyne. Following consummation
of the Merger, Mr. Meteny will provide progress reports to the Board of
Directors of Respironics and the Transition Team will remain in place for such
period as shall be deemed necessary by the Board of Directors of Respironics.
I-38
<PAGE>
9.5. Nominees to Respironics Board.
(a) As of the Effective Time, the Board of Directors of Respironics shall
increase the size of Respironics Board of Directors by three persons and
shall appoint Parker H. Petit (Class of 1998), J. Terry Dewberry (Class of
1999) and Craig B. Reynolds (Class of 2000) to fill the vacancies created
thereby (the "Healthdyne Continuing Directors"). In connection with the
election of Directors to be held at the Annual Meeting of the shareholders
of Respironics to be held in November 1998 and at any adjournment or
postponement thereof, the Nominating Committee of the Board of Directors of
Respironics shall nominate for reelection to the Class of 2001 of the
Respironics Board of Directors Mr. Petit. If any of the Healthdyne
Continuing Directors shall be unwilling or unable to serve as a Director as
of the Effective Time or shall cease to serve as members of the Respironics
Board of Directors during his initial term by reason of resignation,
removal, death or disability, or if Mr. Petit shall be unwilling or unable
to be nominated for reelection to the Respironics Board of Directors at the
1998 Annual Meeting of Shareholders, the Healthdyne Continuing Directors
shall be entitled to designate the person to be nominated in such person's
stead, subject to reasonable approval of such person by the Respironics
Directors.
(b) At the Effective Time, Mr. Petit shall be appointed to the Nominating
Committee of the Respironics Board of Directors.
9.6. Stipulation Regarding Litigation. Contemporaneously with the execution
and delivery of this Agreement, Respironics and Healthdyne shall enter into a
Stipulation in the form of Appendix G hereto in the matter pending in the
United States District Court for the Western District of Pennsylvania
captioned Respironics, Inc. v. Healthdyne Technologies, Inc., C.A. No. 97-1156
(Judge Lancaster).
9.7. Directors and Officers Letters. As soon as practicable and in any event
within one (1) week of the date hereof, Healthdyne and Respironics shall use
their best efforts to cause each of their respective directors and executive
officers who have not done so as of the date of this Agreement to execute the
letter attached hereto as Appendices H and I, respectively.
I-39
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[CORPORATE SEAL]
Attest: HEALTHDYNE TECHNOLOGIES, INC.
..................................... By...................................
Leslie R. Jones Craig B. Reynolds
Secretary President and CEO
[CORPORATE SEAL]
Attest: RESPIRONICS, INC.
..................................... By...................................
Dorita A. Pishko, Dennis S. Meteny
Secretary President and CEO
[CORPORATE SEAL]
Attest: RIGA, INC.
..................................... By...................................
Dorita A. Pishko Dennis S. Meteny
Secretary President
I-40
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AS AMENDED
THIS AGREEMENT dated as of November 10, 1997 by and among RIGA, INC., a
Georgia corporation ("Merger Subsidiary"), Healthdyne Technologies, Inc., a
Georgia corporation ("Healthdyne"), and Respironics, Inc., a Delaware
corporation ("Respironics")
W I T N E S S E T H:
WHEREAS, Merger Subsidiary, Healthdyne and Respironics have entered into an
Agreement and Plan of Reorganization of even date herewith (the
"Reorganization Agreement") which provides, among other things, for the merger
of Merger Subsidiary with and into Healthdyne (the "Merger");
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein and in the Reorganization Agreement, and for the purpose of stating the
method, terms and conditions of the Merger, including the rights of the
shareholders of Healthdyne, and such other details and provisions as are
deemed desirable, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. The Merger. Subject to the terms and conditions of this Agreement and the
Reorganization Agreement, and in accordance with the laws of the State of
Georgia, at the Effective Time (as defined in Section 8.1 of the
Reorganization Agreement) Merger Subsidiary shall be merged with and into
Healthdyne, which shall be the surviving corporation (the "Surviving
Corporation").
2. Articles of Incorporation and By-Laws. Upon the Merger becoming
effective, the Articles of Incorporation and By-Laws of Merger Subsidiary as
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation and By-Laws, respectively, of the Surviving Corporation;
provided, that such Articles or By-Laws shall be modified, if necessary, to
conform to the obligations of Respironics pursuant to Section 9.1 of the
Reorganization Agreement with respect to the provisions relating to
indemnification and limitation of liability.
3. Board of Directors and Officers. Upon the Merger becoming effective, the
Board of Directors of the Surviving Corporation shall consist of Dennis S.
Meteny, Daniel J. Bevevino, Steven P. Fulton, Alexander H. Lorch, J. Leland
Strange, James J. Wellman, M.D., J. Paul Yokubinas, and , and the
Officers shall consist of the persons listed on Schedule I hereto.
4. Conversion of Healthdyne Shares. (a) Subject to the provisions of Section
5 hereof with respect to the payment of fractional shares in cash, upon the
Merger becoming effective, each share of Common Stock, par value $0.01 per
share, of Healthdyne ("Healthdyne Common Stock") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become a right to receive such number (the "Exchange Ratio") of
shares of Common Stock, par value $0.01 per share, of Respironics
("Respironics Common Stock") determined by dividing $24.00 by the Transaction
Share Price (as hereinafter defined). No change will be made by reason of the
Merger in the shares of Respironics Common Stock outstanding immediately prior
to the Effective Time.
(b) "Transaction Share Price" shall mean the weighted average of the
closing prices of the Respironics Common Stock as reported on the National
Market System ("NMS") of the National Association of Securities Dealers,
Inc. ("NASD") for a period consisting of 20 consecutive trading days ending
on the third trading day prior to the Closing Date, in each case as
reported in The Wall Street Journal; provided, that if such weighted
average closing sales price is less than $26.03 per share of Respironics
Common Stock, then the Transaction Share Price shall be $26.03 per share;
and, provided
I-41
<PAGE>
further, that if such weighted average closing sales price is greater than
$31.03 per share of Respironics Common Stock, then the Transaction Share
Price shall be $31.03.
5. Surrender and Exchange of Healthdyne Certificates; No Fractional
Shares. (a) As promptly as practicable after the Effective Time but in any
event within seven (7) business days, Respironics shall cause to be sent to
each person who immediately prior to the Effective Time was a holder of record
of Healthdyne Common Stock transmittal materials and instructions for
surrendering certificates for Healthdyne Common Stock ("Old Certificates") in
exchange for a certificate or certificates for the number of whole shares of
Respironics Common Stock to which such person is entitled under Section 4
hereof.
(b) No certificates for fractional shares of Respironics Common Stock
shall be issued in connection with the Merger. In lieu thereof, Respironics
shall issue to any holder of Healthdyne Common Stock certificates otherwise
entitled to a fractional share, upon surrender of such certificates in
accordance with the instructions furnished by Respironics, a check for an
amount of cash equal to the fraction of a share of Respironics Common Stock
represented by the certificates so surrendered multiplied by the closing
sale price of the Respironics Common Stock as reported on the NASD NMS on
the last trading day prior to the Closing Date, as reported in The Wall
Street Journal.
(c) After the Effective Time, there shall be no transfer on the stock
transfer books of Healthdyne or Respironics of shares of Healthdyne Common
Stock. If Old Certificates are presented for transfer after the Effective
Time, they shall be canceled and certificates representing whole shares of
Respironics Common Stock (and a check in lieu of any fractional share)
shall be issued in exchange therefor as provided herein.
(d) At or prior to the Effective Time, Respironics shall deposit with a
bank or trust company selected by Respironics and reasonably acceptable to
Healthdyne (the "Exchange Agent"), for the benefit of the holders of the
certificates of Healthdyne Common Stock, for exchange in accordance with
the terms of this Section 5, certificates representing the shares of
Respironics Common Stock and the cash in lieu of fractional shares to be
issued pursuant to Section 4 hereof and paid pursuant to Section 5(b)
hereof in exchange for outstanding shares of Healthdyne Common Stock.
6. Conversion of Merger Subsidiary Shares. Upon the Merger becoming
effective, each share of Common Stock, par value $0.01 per share, of Merger
Subsidiary ("Merger Subsidiary Common Stock") shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into
and become a right to receive one (1) share of Common Stock, par value $0.01
per share, of the Surviving Corporation.
7. Termination and Amendment. Notwithstanding prior approval by the
shareholders of Healthdyne, Merger Subsidiary or Respironics, this Agreement
shall be terminated and the Merger shall be abandoned in the event that prior
to the Effective Time the Reorganization Agreement is terminated as provided
therein. Notwithstanding prior approval by the shareholders of Healthdyne,
Merger Subsidiary or Respironics, this Agreement may be amended in any respect
in the manner and subject only to the limitations set forth in Section 7.1 of
the Reorganization Agreement.
8. Counterparts; Headings. This Agreement may be executed in several
counterparts, and by the parties hereto on separate counterparts, each of
which will constitute an original. The headings and captions contained herein
are for reference purposes only and do not constitute a part hereof.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
I-42
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[CORPORATE SEAL]
Attest: HEALTHDYNE TECHNOLOGIES, INC.
..................................... By...................................
Leslie R. Jones Craig B. Reynolds
Secretary President and CEO
[CORPORATE SEAL]
Attest: RIGA, INC.
..................................... By...................................
Dorita A. Pishko Dennis S. Meteny
Secretary President
[CORPORATE SEAL]
Attest: RESPIRONICS, INC.
..................................... By...................................
Dorita A. Pishko, Dennis S. Meteny
Secretary President and CEO
I-43
<PAGE>
[Logo of BT Alex.Brown
Incorporated]
[Logo of Bankers Trust
Architects of Value]
November 10, 1997
Board of Directors
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
Members of the Board:
Respironics, Inc. ("Respironics"), Healthdyne Technologies, Inc.
("Healthdyne") and RIGA, Inc., a Georgia corporation and wholly owned subsidiary
of Respironics ("Merger Subsidiary"), have proposed to enter into an Agreement
and Plan of Reorganization dated as of November 10, 1997 (together with the
Agreement and Plan of Merger attached as Appendix A thereto, the "Merger
Agreement"). Pursuant to the Merger Agreement, the implementation of which is
contingent on approval by the stockholders of Respironics and Healthdyne, Merger
Subsidiary will be merged with and into Healthdyne (the "Merger") pursuant to
which each outstanding share of the common stock, par value 0.01 per share, of
Healthdyne (the "Healthdyne Common Stock") will be converted into the right to
receive that number of shares of the common stock, par value $0.01 per share, of
Respironics (the "Respironics Common Stock") determined by dividing $24.00 by
the weighted average of the closing prices of the Respironics Common Stock as
reported on the Nasdaq National Market for the 20 consecutive trading days
ending on the third trading day prior to the closing date for the Merger (the
"Transaction Share Price") and, the number of shares of Respironics Common Stock
into which shares of Healthdyne Common Stock will be so converted, the "Exchange
Ratio"); provided that if such weighted average closing sales price is less than
$26.03 per share of Respironics Common Stock, then the Transaction Share Price
will be $26.03, and if such weighted average closing sales price is greater than
$31.03 per share of Respironics Common Stock, then the Transaction Share Price
will be $31.03. We have assumed, with your consent, that the Merger will qualify
for pooling-of-interests accounting treatment and as a tax-fee transaction. You
have requested our opinion as to whether the Exchange Ratio is fair, from a
financial point of view, to Respironics.
<PAGE>
Respironics, Inc.
Page 2
November 10, 1997
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of
Respironics in connection with this opinion and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger and a portion of which is payable upon delivery of this opinion. We
previously have provided various financing and financial advisory services to
Respironics, for which services we have received compensation. BT Alex. Brown
maintains a market in Respironics Common Stock and regularly publishes research
reports regarding the health care industry and the businesses and securities of
Respironics and other publicly owned companies in the health care industry. In
the ordinary course of business, BT Alex. Brown may actively trade the
securities of both Respironics and Healthdyne for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in securities of Respironics and Healthdyne.
In connection with this opinion, we have reviewed certain publicly
available financial information and other information concerning Respironics and
Healthhyne and certain internal analyses and other information furnished to us
by Respironics and Healthdyne. We have also held discussions with the members of
the senior managements of Respironics and Healthdyne regarding the businesses
and prospects of Respironics and Healthdyne and the joint prospects of a
combined company. In addition, we have (i) reviewed the reported prices and
trading activity for Respironics Common Stock and Healthdyne Common Stock, (ii)
compared certain financial and stock market information for Respironics and
Healthdyne with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which we deemed comparable in whole or in part, (iv)
reviewed the terms of the Merger Agreement, and (v) performed such other studies
and analyses and considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of
Respironics and Healthdyne, we have assumed that such information reflects the
best currently available judgments and estimates of the managements of
Respironics and Healthdyne as to the likely future financial performance of
their respective companies and of the combined company. In addition, we have not
made an independent evaluation or appraisal of the assets or liabilities of
Respironics and Healthdyne, nor have we been furnished with any such evaluations
or appraisals. We are expressing no opinion as to the price at which the
Respironics Common Stock actually will trade at any time. Our opinion is based
on market, economic and other conditions as they exist and can be evaluated as
of the date of this letter.
II-2
<PAGE>
Respironics, Inc.
Page 2
November 10, 1997
Our advisory services and the opinion expressed herein were prepared for
the use of the Board of Directors of Respironics and do not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to matters relating to the proposed Merger. We hereby consent, however,
to the inclusion of this opinion in its entirety as an exhibit to the proxy
statement or registration statement of Respironics and Healthdyne relating to
the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of view,
to Respironics.
Very truly yours,
/s/ BT Alex. Brown Incorporated
BT ALEX. BROWN INCORPORATED
II-3
<PAGE>
APPENDIX III
[LOGO OF COWEN & COMPANY]
November 10, 1997
Board of Directors
Healthdyne Technologies, Inc.
1255 Kennestone Circle
Marietta, GA 30066
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the holders of the outstanding shares of Common
Stock, par value $0.01 per share (the "Company Common Stock"), of Healthdyne
Technologies, Inc. (the "Company"), of the financial terms of the Transaction
(as hereinafter defined) with Respironics, Inc. ("Respironics"). For the
purposes of this opinion, the "Transaction" means the transaction described
below pursuant to that certain Agreement and Plan of Reorganization among the
Company, Respironics and a wholly-owned subsidiary of Respironics ("Merger
Sub"), dated November 10, 1997 (the "Agreement").
As more specifically set forth in the Agreement, and subject to certain terms
and conditions thereof, the Company has agreed to be acquired by Respironics
through the merger of Merger Sub with and into the Company (the "Merger"). In
the Merger, each then outstanding share of Company Common Stock shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and become a right to receive such number of shares of
Common Stock, par value $0.01 per share (the "Respironics Common Stock"), of
Respironics determined by dividing $24.00 by the Transaction Share Price
(defined as the weighted average of the closing prices of the Respironics
Common Stock as reported on the National Market System ("NMS") of the National
Association of Securities Dealers, Inc. for a period consisting of 20
consecutive trading days ending on the third trading day prior to the closing
date of the Merger in each case as reported in the Wall Street Journal),
provided that if such weighted average closing sales price is less than $26.03
per share, then the Transaction Share Price shall be $26.03, and provided
further that if such weighted average closing sales price is greater than
$31.03 per share, then the Transaction Share Price shall be $31.03.
In the ordinary course of its services, Cowen & Company ("Cowen") is regularly
engaged in the valuation and pricing of businesses and their securities and in
advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years ended
December 31, 1994, 1995 and 1996 and for the fiscal quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, certain publicly
available filings with the Securities and Exchange Commission and
certain other relevant financial and operating data of the Company;
(2) reviewed Respironics' financial statements for the fiscal years ended
June 30, 1995, 1996 and 1997 and for the fiscal quarter September 30,
1997, certain publicly available filings with the Securities and
Exchange Commission and certain other relevant financial and operating
data of Respironics;
(3) reviewed the Agreement;
(4) held meetings and discussions with management and senior personnel of
both the Company and Respironics to discuss the business, operations,
historical financial results and future prospects of the Company,
Respironics and Respironics following the Transaction (the "Combined
Entity");
III-1
<PAGE>
(5) reviewed with the managements of the Company and Respironics First Call
consensus earnings per share estimates of financial institutions for
the Company and Respironics, respectively, and reviewed financial
projections furnished to us by the management of the Company,
including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of the Company
we deemed relevant;
(6) reviewed the valuation of the Company and Respironics in comparison to
other similar publicly traded companies;
(7) reviewed the historical prices and trading activity of the Company
Common Stock from June 22, 1993 through November 7, 1997 and compared
those trading histories with those of other companies which we deemed
relevant;
(8) based on First Call estimates, analyzed the potential pro forma
financial effects of the Transaction;
(9) compared the Transaction with other similar transactions in which
control of an entity was acquired; and
(10) conducted such other studies, analysis, inquiries and investigations
as we deemed appropriate.
At the request of the Company, Cowen solicited third party indications of
interest in acquiring all or substantially all of the stock or assets of the
Company.
On November 10, 1997 the closing price of the Common Stock of the Company in
the last transaction report by NMS was $19 7/8 per share.
In rendering our opinion, we relied upon the Company's management with respect
to the accuracy and completeness of financial and other information concerning
the Company furnished to us as described above, other than the First Call
estimates referred to above. We have not assumed any responsibility for
independent verification of such information, including financial information,
nor have we made an independent evaluation or appraisal of any of the
properties or assets of the Company or Respironics.
Our opinion is necessarily based on general economic, market, financial and
other conditions as they exist on, and can be evaluated as of, the date
hereof, as well as the information currently available to us. It should be
understood that, although subsequent developments may affect our opinion, we
do not have any obligation to update, revise or reaffirm our opinion. Our
opinion does not constitute a recommendation to any holder of Company Common
Stock as to how such holder should vote on the proposed Transaction. Our
opinion does not imply any conclusion as to the likely trading range for the
Respironics Common Stock following consummation of the Transaction, which may
vary depending on numerous factors that generally include the price of
securities. Our opinion is limited to the fairness, from a financial point of
view, of the terms of the Transaction. We express no opinion with respect to
any other reasons, legal, business or otherwise, that may support the decision
of the Board of Directors to approve, or the Company's decision to consummate,
the Transaction.
For purposes of rendering our opinion we have assumed in all respects material
to our analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Transaction will
be satisfied without waiver thereof. We have also assumed that all
governmental, regulatory or other consents and approvals contemplated by the
Agreement will be obtained and that in the course of obtaining any of those
consents no restrictions will be imposed or waivers made that would be
materially adverse to the best interests of the Combined Entity.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the Transaction and will receive a fee for our services,
including rendering this opinion, which is contingent upon the consummation of
the Transaction. In the past, Cowen and its affiliates have provided financial
advisory and
III-2
<PAGE>
financing services to the Company and Respironics and have received customary
fees for the rendering of these services. Cowen served as the lead manager for
the Company's June 1993 initial public offering, advised the Company in its
May 1995 spin-off from Healthdyne, Inc. and advised the Company with respect
to the May 1995 implementation of the Company's Rights Agreement. Cowen also
served as a co-manager for a public equity offering for Respironics in April
1996. In addition, in the ordinary course of its business, Cowen trades the
securities of the Company and Respironics for its own account and for the
accounts of its customers, and, accordingly, it may at any time hold a long or
short position in such securities. Moreover, Cowen and its affiliates own
372,767 shares of the Company Common Stock and are short 387 shares of the
Respironics Common Stock.
On the basis of our review and analysis, as described above, and subject to
the limitations and assumptions set forth herein, it is our opinion as
investment bankers that, as of the date hereof, the financial terms of the
Transaction are fair, from a financial point of view, to the holders of the
Company Common Stock.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
III-3
<PAGE>
RESPIRONICS, INC.
1501 ARDMORE BOULEVARD
PITTSBURGH, PENNSYLVANIA 15221
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS, FEBRUARY 6, 1998
The undersigned hereby appoints Gerald E. McGinnis, Dennis S. Meteny and
Dorita A. Pishko, or any of them, proxies with full power of substitution, to
represent and to vote as set forth herein all the shares of Common Stock of
Respironics, Inc. held of record by the undersigned on January 2, 1998, at the
Special Meeting of Stockholders of Respironics, Inc. to be held at Two Mellon
Bank Center, in the Auditorium on the Tenth Floor, at 501 Grant Street,
Pittsburgh, Pennsylvania, at 10:00 a.m. local time, on Friday, February 6,
1998, and any adjournment or postponement thereof, with all the powers the
undersigned would possess if personally present, upon all matters set forth in
the Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus, each dated January 7, 1998.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such stock, and hereby ratifies and confirms all that said proxies, or their
substitutes, may do by virtue hereof. If only one proxy shall be present and
acting, then that one shall have and may exercise all the powers of said
proxies.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL DORITA A. PISHKO,
CORPORATE SECRETARY at 1 (800) 638-8208.
THE BOARD OF DIRECTORS OF RESPIRONICS, INC. RECOMMENDS A VOTE "FOR" PROPOSAL
1.
1. The proposal to approve the issuance of shares of Respironics Common
Stock pursuant to the Agreement and Plan of Reorganization and the related
Agreement and Plan of Merger, each dated as of November 10, 1997, and each by
and among Respironics, Inc., Healthdyne Technologies, Inc., and RIGA, Inc., as
amended.
[_] FOR [_] AGAINST [_] ABSTAIN
(continued on reverse side)
<PAGE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy when properly executed will be voted in the manner directed by
the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and the Joint Proxy Statement/Prospectus with respect to the
Special Meeting.
Dated:
--------------- ---------------------------------------
Signature
---------------------------------------
Signature if Held Jointly
---------------------------------------
Title
TO VOTE IN ACCORDANCE WITH THE Please sign exactly as name appears on
BOARD OF DIRECTORS' Stock Certificate. If stock is held in
RECOMMENDATION, JUST SIGN AND the name of two or more persons, all
DATE THIS PROXY. NO BOX NEEDS should sign. When signing as attorney,
TO BE CHECKED. executor, administrator, trustee, or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized person.
<PAGE>
PROXY HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS, FEBRUARY 6, 1998
The undersigned hereby appoints Parker H. Petit and Craig B. Reynolds, and
each of them, proxies with full power of substitution, to represent and to
vote as set forth herein all the shares of Common Stock of Healthdyne
Technologies, Inc. held of record by the undersigned on January 2, 1998, at
the Special Meeting of Shareholders of Healthdyne Technologies, Inc. to be
held at 1850 Parkway Place, Suite 320, Marietta, GA 30067, at 10:00 a.m. local
time, on Friday, February 6, 1998, and any adjournment or postponement
thereof, with all the powers the undersigned would possess if personally
present, upon all matters set forth in the Notice of Special Meeting of
Shareholders and the Joint Proxy Statement/Prospectus, each dated January 7,
1998.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such stock, and hereby ratifies and confirms all that said proxies, or their
substitutes, may do by virtue hereof. If only one proxy shall be present and
acting, then that one shall have and may exercise all the powers of said
proxies.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL MORROW & CO., INC.
TOLL-FREE AT (800) 662-5200 OR COLLECT AT (212) 754-8000.
THE BOARD OF DIRECTORS OF HEALTHDYNE TECHNOLOGIES, INC. RECOMMENDS A VOTE
"FOR" PROPOSAL 1.
1. The proposal to approve and adopt the Agreement and Plan of
Reorganization and the related Agreement and Plan of Merger, each dated as of
November 10, 1997, as amended, and each by and among Healthdyne Technologies,
Inc., Respironics, Inc. and RIGA, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
(continued on reverse side)
<PAGE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy when properly executed will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders and the Joint Proxy Statement/Prospectus with respect to the
Special Meeting.
Dated: ___________________ , 1998 -------------------------------------
Signature
-------------------------------------
Signature if Held Jointly
-------------------------------------
Title
Please sign exactly as name appears
on Stock Certificate. If stock is
held in the name of two or more
persons, all should sign. When
signing as attorney, executor,
administrator, trustee, or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION, JUST SIGN
AND DATE THIS PROXY. NO BOX NEEDS TO BE CHECKED.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Section 145 of Delaware General Corporation Law. Section 145 of the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law") provides that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expense (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon plea of nolo contendre or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 145 also provides that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in a view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Any such indemnification (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct
set forth above. Such determination shall be made.
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding; or
(2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion; or
(3) by the stockholders.
II-1
<PAGE>
In accordance with Section 145, the Registrant's Certificate of
Incorporation provides that the Registrant shall indemnify its directors,
officers, employees and agents against claims arising out of their actions as
agents of the Registrant and will advance expenses of defending against such
claims. The Certificate of Incorporation requires the Registrant to advance
litigation expenses in the case of shareholder derivative or other actions
against an undertaking by the officer or director to repay such advances if it
is ultimately determined that the officer or director is not entitled to
indemnification.
In addition, pursuant to Section 145(g) of the Delaware Corporation Law,
Article 3.4 of the Registrant's Certificate of Incorporation provides that the
Registrant may obtain and the Registrant has purchased director and officer
liability insurance on such terms and conditions acceptable to Registrant. The
insurance also provides additional coverage for the directors and officers
against other liability even though such liability would not be subject to
indemnification.
2. Section 102(b)(7) of Delaware General Corporation Law. In accordance with
Section 102(b)(7) of the Delaware General Corporation Law Article 7 of the
Registrant's Certificate of Incorporation provides that the Registrant, to the
fullest extent permitted under Delaware General Corporation Law, may eliminate
or limit the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for the unlawful payment of dividends or approval of stock repurchases or
redemptions and (iv) for any transaction from which the director derived an
improper personal benefit. Such provision does not eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision became effective (in the case of the Registrant, May 8,
1987). This provision does not eliminate the duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief available under Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The exhibits filed with this Registration Statement, are
listed in the Exhibit Index hereto and are incorporated herein by reference.
(b) Financial Statement Schedules. All financial statement schedules have
been omitted because they are not applicable or the required information is
shown in the financial statements or related notes thereto incorporated by
reference in the Joint Proxy Statement/Prospectus.
(c) Report, Opinion or Appraisal. Information provided pursuant to Item 4(b)
of Form S-4 (Opinions of Financial Advisors) is furnished as Appendices II and
III to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registrant Statement or any
material change to such information in the Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes as follows:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the Registration Statement shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(2) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(3) that every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
under Item 20 above, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) to respond to requests for information that is incorporated by
reference into the Joint Proxy Statement/Prospectus pursuant to Items 4,
10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(6) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE>
SIGNATURES
RESPIRONICS, INC.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PITTSBURGH, COMMONWEALTH
OF PENNSYLVANIA, ON THE 2ND DAY OF JANUARY, 1998.
RESPIRONICS, INC.
/s/ Dennis S. Meteny
By:----------------------------------
Dennis S. Meteny
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON THE 2ND DAY OF JANUARY, 1998.
/s/ Dennis S. Meteny
----------------------------------
Dennis S. Meteny
President and Chief Executive
Officer
/s/ Daniel J. Bevevino
----------------------------------
Daniel J. Bevevino
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
SIGNATURE TITLE
/s/ Daniel P. Barry Director
- -------------------------------------
Daniel P. Barry
/s/ Donald H. Jones Director
- -------------------------------------
Donald H. Jones
/s/ Joseph C. Lawyer Director
- -------------------------------------
Joseph C. Lawyer
/s/ Gerald E. McGinnis Director
- -------------------------------------
Gerald E. McGinnis
/s/ Douglas A. Cotter Director
- -------------------------------------
Douglas A. Cotter
II-4
<PAGE>
SIGNATURE TITLE
/s/ James H. Hardie Director
- -------------------------------------
James H. Hardie
/s/ George J. Magovern Director
- -------------------------------------
George J. Magovern
/s/ Dennis S. Meteny Director
- -------------------------------------
Dennis S. Meteny
II-5
<PAGE>
RESPIRONICS, INC.
FORM S-4
REGISTRATION STATEMENT
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <C> <S>
2.1 -- 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 previously filed as
Exhibit 10.17 to Respironics, Inc. Form 10-Q (File No. 000-16723)
dated November 14, 1997.
2.2 -- 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
herewith.
3.1 -- Amended and Restated Certificate of Incorporation of Respironics,
Inc., previously filed as Exhibit 3.2 to Amendment No. 1 to the
Respironics, Inc. Registration Statement on Form S-1 (File No. 33-
20899) dated May 9, 1988, and incorporated herein by reference.
3.2 -- Articles of Amendment to Amended and Restated Certificate of
Incorporation of Respironics, Inc. previously filed as Exhibit 4.2
to the Respironics, Inc. Registration Statement on Form S-8 (File
No. 33-36459) dated November 13, 1990, and incorporated herein by
reference.
3.3 -- Bylaws of Respironics, Inc. previously filed as Exhibit 3.4 to
Amendment No. 2 to the Respironics, Inc. Registration Statement on
Form S-1 (File No. 33-20899) dated May 9, 1988, and incorporated
herein by reference.
4.1 -- Respironics Rights Plan, previously filed as Exhibit 1 to the
Respironics, Inc. Registration Statement on Form 8-A (File No.
000-16723) dated June 28, 1996, and incorporated herein by
reference.
5.1 -- Opinion of Reed Smith Shaw & McClay LLP regarding the legality of
the shares of Common Stock being registered, filed herewith.
8.1 -- Opinion of Reed Smith Shaw & McClay LLP as to certain tax matters,
filed herewith.
8.2 -- Opinion of Troutman Sanders LLP as to certain tax matters, filed
herewith.
23.1 -- Consent of Reed Smith Shaw & McClay LLP (included in Exhibit 5.1).
23.2 -- Consent of Reed Smith Shaw & McClay LLP (included in Exhibit 8.1).
23.3 -- Consent of Troutman Sanders LLP (included in Exhibit 8.2).
23.4 -- Consent of Ernst & Young, LLP, filed herewith.
23.5 -- Consent of KPMG Peat Marwick, LLP, filed herewith.
99.1 -- Form of Proxy, for use by stockholders of Respironics, Inc.,
included with the Joint Proxy Statement/Prospectus.
99.2 -- Form of Proxy, for use by shareholders of Healthdyne Technologies,
Inc., included with the Joint Proxy Statement/Prospectus.
</TABLE>
II-6
<PAGE>
Exhibit 2.2
AMENDMENT NUMBER 1 TO AGREEMENT AND PLAN OF REORGANIZATION
----------------------------------------------------------
THIS AMENDMENT NUMBER 1, dated as of December , 1997 (the "Amendment"),
by and among Respironics, Inc., a Delaware corporation ("Respironics"), RIGA,
Inc., a Georgia corporation ("Merger Subsidiary"), and Healthdyne Technologies,
Inc., a Georgia corporation ("Healthdyne"),
WITNESSETH:
-----------
WHEREAS, the parties hereto are parties to an Agreement and Plan of
Reorganization dated as of November 10, 1997 (the "Reorganization Agreement")
and an Agreement and Plan of Merger dated as of November 10, 1997, attached as
Appendix A to the Reorganization Agreement (the "Merger Agreement"); and
WHEREAS, the parties hereto wish to amend the Reorganization Agreement and
the Merger Agreement in the manner hereinafter specified;
NOW THEREFORE, the parties hereto in consideration of their mutual
covenants and agreements herein contained and intending to be legally bound
hereby, covenant and agree as follows:
1. Reorganization Agreement Section 7.3. Section 7.3(i) of the
------------------------------------
Reorganization Agreement is hereby amended to be read as follows:
"by Healthdyne or Respironics within two (2) business days after the
Determination Date if, on the Determination Date, the weighted average
closing price of the Respironics Common Stock as reported on the NASD NMS
for the period consisting of 20 consecutive trading days ending on the
trading day prior to the Determination Date, in each case as reported in
The Wall Street Journal, is less than $20.00."
-----------------------
The first sentence of the last paragraph of Section 7.3 of the Reorganization
Agreement is hereby amended to read as follows:
"As used herein, "Determination Date" shall mean the day on which the
conditions set forth in Sections 2.1(a) and 2.1(b) have been satisfied."
2. Reorganization Agreement Section 9.2(b). Section 9.2(b) of the
---------------------------------------
Reorganization Agreement is hereby deleted in its entirety.
3. Merger Agreement Section 3. Section 3 of the Merger Agreement is
---------------------------
hereby amended to read as follows:
"Upon the Merger becoming effective, the Board of Directors of the
Surviving Corporation shall consist of
<PAGE>
Dennis S. Meteny, Daniel J. Bevevino, Steven P. Fulton,
____________________, ________________________,
_______________________, ________________________,
________________________, and ________________________.
4. Agreements Unaffected. Except as amended hereby, the Reorganization
----------------------
Agreement and the Merger Agreement shall continue in full force and effect as
originally entered into.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[CORPORATE SEAL] HEALTHDYNE TECHNOLOGIES INC.
Attest:
- ------------------------- -------------------------
Leslie R. Jones, Craig B. Reynolds,
Secretary President and CEO
[CORPORATE SEAL] RESPIRONICS, INC.
Attest:
- ------------------------- -------------------------
Dorita A. Pishko, Dennis S. Meteny,
Secretary President and CEO
[CORPORATE SEAL] RIGA, INC.
Attest:
- ------------------------- -------------------------
Dorita A. Pishko, Dennis S. Meteny,
Secretary President
-2-
<PAGE>
Exhibit 5.1
Reed Smith Shaw & McClay LLP
Writer's Direct Numbers: 435 Sixth Avenue
Phone 412-288-3126 Pittsburgh, Pennsylvania 15219-1886
Fax 412-288-3063 Phone: 412-288-3131
[email protected] Fax: 412-288-3063
January 2, 1998
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
Dear Sirs:
We have acted as counsel for Respironics, Inc., a Delaware Corporation (the
"Corporation") in connection with the preparation of a Registration Statement on
Form S-4 (the "Registration Statement") relating to the registration of the
shares of the Corporation's Common Stock, par value $.01 per share (the "Common
Stock") to be issued pursuant to the Agreement and Plan of Reorganization and
related Agreement and Plan of Merger, each dated as of November 10, 1997, as
amended (collectively, the "Merger Agreement") by and among the Corporation,
Healthdyne Technologies, Inc., and RIGA, Inc., a wholly owned subsidiary of the
Corporation. This opinion is being furnished pursuant to the requirements of
Form S-4 and Item 601 of Regulation S-K.
In furnishing this opinion we have examined the Registration Statement, as
well as the Joint Proxy Statement/Prospectus included therein (the "Joint Proxy
Statement/Prospectus"), to be filed with the Securities and Exchange Commission,
in connection with which this opinion is to be filed as an Exhibit. In addition,
we have examined such other documents, legal opinions and precedents, corporate
and other records of the Corporation and certificates of public officials and
officers of the Corporation as we have deemed necessary or appropriate to
provide a basis for the opinions set forth herein. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that:
(1) The Corporation has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware;
Harrisburg, PA McLean, VA Newark, NJ New York, NY Philadelphia, PA
Princeton, NJ Washington, DC
<PAGE>
Reed Smith Shaw & McClay LLP
Respironics, Inc. -2- January 2, 1998
(2) The Registration Statement has been duly authorized by all necessary
corporate action of the Corporation; and
(3) When the Registration Statement has become effective under the Act and the
shares of Common Stock have been issued and delivered pursuant to the terms
of the Merger Agreement, the shares of Common Stock will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Joint Proxy
Statement/Prospectus under the heading "Legal Opinions". By giving such consent,
we do not hereby admit that we are within the category of persons whose consents
are required under Section 7 of the Act.
This opinion is being rendered solely for your benefit in connection with
the Registration Statement. You may not rely on this opinion for any other
purpose without our express written consent. This opinion is rendered as of the
date hereof, and we are under no obligation to update it or to advise you of any
subsequent event which could affect it. This opinion may not be assigned, quoted
or used without our express written consent.
Your truly,
REED SMITH SHAW & McCLAY LLP
RKM:JGA
<PAGE>
Exhibits 8.1 and 23.2
[LETTERHEAD OF REED SMITH SHAW & MCCLAY LLP]
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219-1886
Phone: 412-288-3131
Fax: 412-288-3063
January 2, 1998
Respironics, Inc.
1501 Ardmore Boulevard
Pittsburgh, Pennsylvania 15221
Ladies and Gentlemen:
We have acted as counsel to Respironics, Inc., a Delaware corporation
("Respironics"), in connection with the proposed merger (the "Merger") of RIGA,
Inc., a wholly-owned subsidiary of Respironics ("Merger Subsidiary"), with and
into Healthdyne Technologies, Inc., a Georgia corporation ("Healthdyne").
Healthdyne will be the surviving corporation and will become a wholly-owned
subsidiary of Respironics. Except for cash issued in lieu of fractional shares,
all shareholders of Healthdyne will receive shares of Common stock of
Respironics in the Merger. The Merger will be effected pursuant to the Agreement
and Plan of Reorganization by and between Respironics, Merger Subsidiary, and
Healthdyne, dated as of November 10, 1997 (the "Agreement").
In our capacity as counsel to Respironics, our opinion has been requested
with respect to certain of the federal income tax consequences of the Merger.
All capitalized terms used herein and not otherwise defined shall have the
meanings specified in the Agreement.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the Agreement, the Joint Proxy Statement/Prospectus filed
with the Securities and Exchange Commission regarding the Merger, the form of
Registration Statement to be filed with the Securities and Exchange Commission
regarding the Merger (the "Registration Statement"), and such other documents,
corporate records, agreements and other instruments, certificates, opinions, and
correspondence as we have deemed necessary or appropriate for the purposes of
rendering this opinion. In such examination we have assumed the genuineness of
all signatures on the documents which we have examined, the conformity with the
originals (and the authenticity of such originals) of all documents submitted to
us as copies, and where applicable, the future execution of such
Harrisburg, PA McLean, VA Newark, NJ New York, NY
Philadelphia, PA Princeton, NJ Washington, DC
<PAGE>
[LETTERHEAD OF REED SMITH SHAW & MCCLAY LLP]
Respironics, Inc. -2- January 2, 1998
documents in the same form as that reviewed by us. We have also assumed that all
transactions will occur as described in the examined documents and that all
statements in such documents are accurate. In addition, in rendering this
opinion, we have relied on representations made by each of Respironics and
Healthdyne in letters of even date herewith. We have assumed with respect to
each such letter that any representation made "to the best of the knowledge of"
any party is a true statement notwithstanding the qualification and that all
representations will be true and correct as of the Effective Time.
Based upon and subject to the foregoing, we are of the opinion that the
Merger will constitute a reorganization within the meaning of section 368(a) (2)
(E) of the Internal Revenue Code of 1986, as amended and in effect (the "Code").
At your request, we have reviewed the discussion of the federal income tax
issues in the Registration Statement. We believe that such discussion fairly
presents the current federal income tax law applicable to the Merger and the
material federal income tax consequences to Respironics, Merger Subsidiary,
Healthdyne, and the Healthdyne shareholders.
Our opinion is limited to the foregoing federal income tax consequences of
the Merger. Further, our opinion is based on the Code, Treasury Regulations,
case law, and Internal Revenue Service announcements and rulings as of the date
of this opinion. All such authorities are subject to change, which change may be
retroactive and may affect the conclusions rendered in this opinion.
This opinion is being delivered solely for the purpose of being included
as an exhibit to the Registration Statement; it may not be relied upon or
utilized for any other purpose or by any other person or entity, and may not be
made available to any other person or entity, without prior written consent. We
consent to the use of our name in the Registration Statement.
Very truly yours,
REED SMITH SHAW & MCCLAY LLP
RKM:CDD:WJS
<PAGE>
Exhibits 8.2 and 23.3
[LETTERHEAD OF TROUTMAN SANDERS LLP]
January 2, 1998
Healthdyne Technologies, Inc.
1225 Kennestone Circle
Marietta, Georgia 30066
Re: Proposed Merger Involving Respironics, Inc., RIGA, Inc.,
and Healthdyne Technologies, Inc.
Ladies and Gentlemen:
We have acted as counsel to Healthdyne Technologies, Inc.
("Healthdyne"), in connection with the proposed merger of RIGA, Inc. ("Merger
Subsidiary"), a wholly-owned subsidiary of Respironics, Inc. ("Respironics"),
with and into Healthdyne (the "Merger"). Healthdyne will be the surviving
corporation and will become a wholly-owned subsidiary of Respironics. The Merger
will be effected pursuant to the Agreement and Plan of Reorganization by and
between Respironics, Merger Subsidiary, and Healthdyne dated as of November 10,
1997, as amended (the "Agreement").
In our capacity as counsel to Healthdyne, our opinion has been requested
with respect to certain of the federal income tax consequences of the proposed
Merger. All capitalized terms used herein without definition shall have the
respective meanings specified in the Agreement and, unless otherwise specified,
all section references herein are to the Internal Revenue Code of 1986, as
amended (the "Code").
In rendering the opinion expressed herein, we have examined such
documents as we have deemed appropriate, including: the Agreement; the Joint
Proxy Statement/Prospectus filed with the Securities and Exchange Commission
regarding the Merger (the "Joint Proxy Statement/Prospectus"); the form of
Registration Statement to be filed with the Securities and Exchange Commission
regarding the Merger (the "Registration Statement"); and such additional
documents as we have considered relevant. In addition, we have relied upon the
representations set forth in certain letters of representation to us from
Respironics and Healthdyne. In connection with such letters, we assume, with
your consent, that any representation or statement made "to the best knowledge
of" or otherwise similarly qualified, is true and correct without such
qualification, and that all statements and representations, whether or not
qualified, will be true at
<PAGE>
[LETTERHEAD OF TROUTMAN SANDERS LLP]
Healthdyne Technologies, Inc.
January 2, 1998
Page 2
the Effective Time and date hereof. We have also assumed, with your consent,
that the Merger will be effected in accordance with the Agreement.
In our examination, we have assumed, with your consent, the genuineness of
all signatures, the legal capacity of natural persons, that all documents
submitted to us as photocopies faithfully reproduce the originals thereof, that
such originals are authentic, that all such documents have been or will be duly
executed to the extent required, and that all statements set forth in such
documents are accurate. Finally, we have assumed, with your consent, that the
Agreement and the documents, agreements and other matters specifically
identified therein represent the entire understanding of Respironics, Merger
Subsidiary and Healthdyne with respect to the Merger.
Based upon and subject to the foregoing, we are of the opinion that under
current federal income tax law the Merger will constitute a reorganization
within the meaning of section 368(a)(2)(E) of the Code. At your request, we have
reviewed the discussion of the federal income tax issues in the Registration
Statement. We believe that such discussion fairly presents the current federal
income tax law applicable to the Merger and the material federal income tax
consequences to Respironics, Merger Subsidiary, Healthdyne, and the Healthdyne
shareholders.
The opinion expressed herein is based upon existing statutory, regulatory,
and judicial authority, any of which may be changed at any time with retroactive
effect. In addition, our opinion is based solely on the documents that we have
examined, the additional information that we have obtained, and the statements
set out herein, which we have assumed and you have confirmed to be true on the
date hereof and the Effective Time. Our opinion cannot be relied upon if any of
the facts contained in such documents or if such additional information is, or
later becomes, inaccurate, or if any or of the statements set out herein is, or
later becomes, inaccurate. Finally, our opinion is limited to the federal income
tax matters specifically covered thereby, and we have not been asked to address,
nor have we addressed, any other tax consequences of the proposed Merger whether
federal, state, local or foreign.
This opinion is being provided solely for the use of Healthdyne and the
shareholders of Healthdyne in connection with the Merger. No other person or
party shall be entitled to rely on this opinion. This opinion is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission, except as may be required for compliance with disclosure
requirements under federal and state securities laws. In that regard, we hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name
<PAGE>
[LETTERHEAD OF TROUTMAN SANDERS LLP]
Healthdyne Technologies, Inc.
January 2, 1998
Page 3
in the Prospectus/Joint Proxy Statement under the captions "Summary - Certain
Federal Income Tax Consequences of the Merger" and "The Merger - Certain Federal
Income Tax Consequences of the Merger."
Sincerely,
/s/ Troutman Sanders LLP
SHH:bjs TROUTMAN SANDERS LLP
<PAGE>
Exhibit 23.4
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Summary - Terms of
the Merger," "Summary - Accounting Treatment of the Merger," "The Merger -
Conditions of the Merger," "The Merger - Accounting Treatment of the Merger" and
"Experts" in the Joint Proxy Statement of Respironics, Inc. and Healthdyne
Technologies, Inc. that is made a part of the Registration Statement (Form S-4)
and Prospectus of Respironics, Inc. for the registration of its common stock and
to the incorporation by reference therein of our report dated September 10,
1997, with respect to the consolidated financial statements and schedule of
Respironics, Inc. included in its Annual Report (Form 10-K) for the year ended
June 30, 1997, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 2, 1998
<PAGE>
Exhibit 23.5
Independent Auditors' Consent
The Board of Directors
Healthdyne Technologies, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
-----------------------------
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 2, 1998
