<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 0-20046
RESOUND CORPORATION
(Exact name of Registrant as specified in its charter)
California 77-0019588
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
220 Saginaw Drive, Seaport Centre, Redwood City, California 94063
(Address, including zip code, of principal executive offices)
(650) 780-7800
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Registrant's common stock issued and outstanding
as of August 5, 1997 was 19,492,575 shares.
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<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets................................................3
Condensed Consolidated Statements of Operations......................................4
Condensed Consolidated Statements of Cash Flows......................................5
Notes to Condensed Consolidated Financial Statements...............................6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview...........................................................................7-8
Results of Operations.............................................................8-10
Liquidity and Capital Resources.....................................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risks.........................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................11
Item 2. Changes in Securities...............................................................11
Item 3. Defaults upon Senior Securities.....................................................11
Item 4. Submission of Matters to a Vote of Security Holders..............................11-12
Item 5. Other Information...................................................................12
Item 6. Exhibits and Reports on Form 8-K....................................................13
SIGNATURES.........................................................................................14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
RESOUND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
----------- ------------
1997 1996
----------- ------------
<S> <C> <C>
(Unaudited) (Note)
Current assets:
Cash and cash equivalents .......................... $ 10,947 $ 7,980
Accounts receivable, net ........................... 19,128 20,497
Inventories ........................................ 22,292 23,853
Prepaid expenses and other ......................... 3,759 4,218
----------- -----------
Total current assets ..................... 56,126 56,548
Property and equipment, net .............................. 11,768 13,494
Other assets ............................................. 3,685 4,899
Goodwill ................................................. 34,871 39,811
----------- -----------
$ 106,450 $ 114,752
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans and current debt ............................. $ 6,131 $ 4,717
Accounts payable ................................... 6,711 8,478
Accrued liabilities ................................ 17,398 17,976
----------- -----------
Total current liabilities ................ 30,240 31,171
Long-term debt ........................................... 18,121 19,515
Accrued pension .......................................... 4,191 5,110
Minority interest ........................................ 1,252 1,360
Commitments and contingencies ............................ -- --
Shareholders' equity:
Preferred stock .................................... 5,375 5,225
Common stock ....................................... 90,925 90,680
Accumulated deficit ................................ (41,746) (39,202)
Cumulative translation adjustment .................. (1,908) 893
----------- -----------
Total shareholders' equity ............... 52,646 57,596
----------- -----------
$ 106,450 $ 114,752
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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RESOUND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------- ----------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................................................ $ 32,230 $ 29,720 $ 64,442 $ 56,984
Cost of sales .................................................... 14,731 12,488 29,842 25,044
-------- -------- -------- --------
Gross profit ............................................ 17,499 17,232 34,600 31,940
Operating expenses
Research and development ................................... 3,882 3,491 8,199 6,559
Selling, general and administrative ........................ 14,441 11,542 26,999 22,416
-------- -------- -------- --------
Total operating expenses ......................... 18,323 15,033 35,198 28,975
-------- -------- -------- --------
Income (loss) from operations .................................... (824) 2,199 (598) 2,965
Interest expense, net ............................................ 384 526 782 1,121
Other (income) expense / minority interest, net .................. (83) 116 335 118
-------- -------- -------- --------
Income (loss) before income taxes ................................ (1,125) 1,557 (1,715) 1,726
Provision for income taxes (1) ................................... 374 465 680 516
-------- -------- -------- --------
Net income (loss) ................................................ $ (1,499) $ 1,092 $ (2,395) $ 1,210
======== ======== ======== ========
Net income (loss) applicable to common shareholders .............. $ (1,574) $ 1,092 $ (2,545) $ 1,210
======== ======== ======== ========
Net income (loss) per share (2) ................................. $ (0.08) $ 0.07 $ (0.13) $ 0.07
======== ======== ======== ========
Shares used in above calculation (2) ............................. 19,429 16,738 19,409 16,402
======== ======== ======== ========
</TABLE>
(1) Consists principally of state and foreign income taxes.
(2) See Exhibit 11.1 "Statement of Computation of Net Income (Loss) per
Share"
See notes to condensed consolidated financial statements.
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RESOUND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-------------------------
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ (2,395) $ 1,210
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization ..................................... 3,774 3,406
Changes in assets and liabilities:
Accounts receivable ............................................... 1,369 (2,736)
Inventories ....................................................... 1,561 483
Deposits and other assets ......................................... 1,847 36
Accounts payable .................................................. (1,767) (957)
Accrued liabilities ............................................... (1,245) 1,752
-------- --------
Net cash provided by operating activities .................... 3,144 3,194
Cash flows from investing activities:
Investment in Sonar Hearing Health ..................................... -- (25,443)
Change in translation adjustment ....................................... (335) (538)
Additions of property and equipment .................................... (1,218) (4,090)
-------- --------
Net cash used in investing activities ........................ (1,553) (30,071)
Cash flows from financing activities:
Borrowings (repayment) of debt ......................................... 1,782 (4,174)
Loans payable .......................................................... (651) --
Issuance of preferred stock ............................................ -- 5,000
Issuance of common stock .............................................. 245 34,039
-------- --------
Net cash provided by financing activities .................... 1,376 34,865
-------- --------
Net increase in cash and cash equivalents .................................... 2,967 7,988
Cash and cash equivalents at the beginning of the period ..................... 7,980 5,091
-------- --------
Cash and cash equivalents at the end of the period ........................... $ 10,947 $ 13,079
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .......................................................... $ 842 $ 1,641
Income taxes ...................................................... $ 667 $ 613
Supplemental schedule of non-cash investing and financing activities:
Accrual of preferred stock dividend .................................... $ 150 $ --
Conversion of convertible promissory notes to common stock ............ $ -- $ 2,000
</TABLE>
See notes to condensed consolidated financial statements.
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ReSound Corporation
Notes to Condensed Consolidated Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the audited consolidated financial
statements for the year ended December 31, 1996 and footnotes thereto included
in the Company's 1996 Annual Report on Form 10-K.
Earnings Per Share
Net income (loss) per share is computed using the net income (loss) applicable
to common shareholders and the weighted average number of shares outstanding.
For the three-month and six-month periods ended June 30, 1996, outstanding
options to purchase common shares are included in the calculation. The net
losses for the three-month and six-month periods ended June 30, 1997 are
increased by the dividend accrued on Series B Preferred Stock to arrive at net
loss applicable to common shareholders.
In February 1997, Statement of Financial Accounting Standard No. 128 was issued
and is required to be adopted for both interim and annual periods ending after
December 15, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements, the currently presented primary net
earnings per share will be replaced by basic earnings per share. The fundamental
difference is that basic earnings per share excludes the dilutive effect of
stock options. The computed basic earnings per share is not materially different
from earnings per share for the three-month and six-month periods ended June 30,
1997 and June 30, 1996. Additionally, fully diluted earnings per share will be
replaced by diluted earnings per share, which will be calculated on a similar
basis and will always be required to be presented on the consolidated statement
of operations. The computed diluted earnings per share is not materially
different from the earnings per share as reported for these periods.
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NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
components of inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
<S> <C> <C>
Raw materials $ 9,680 $ 9,934
Work in process 4,753 6,838
Finished products 7,859 7,081
------- -------
$22,292 $23,853
======= =======
</TABLE>
NOTE C - ACCOUNTING FOR INCOME TAXES
Income taxes have been provided for on a year-to-date basis and represent taxes
on profits earned at the Company's European subsidiaries in Ireland, Austria,
Germany, and Holland, plus California taxes.
NOTE D - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Information contained in this Form 10-Q that is not historical fact, including
any statements about expectations for the fiscal year and beyond, involve
certain risks and uncertainties. This Form 10-Q contains "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995, many of which can be identified by the use of forward-looking terminology
such as "may", "will", "believe", "expect", "anticipate", "estimate", "plan",
"intend", or "continue" or the negative thereof or other variations thereon or
comparable terminology. There are a number of important factors with respect to
such forward-looking statements that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Numerous
factors, such as economic and competitive conditions, incoming order levels,
timing of product shipments, product margins, new product development, and
reliance on key customers and international sales could cause actual results to
differ from those described in these statements, and prospective investors and
shareholders should carefully consider these factors in evaluating these
forward-looking statements.
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<PAGE> 8
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto, the Introductory Statement and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1996 contained in the Company's Annual Report on Form
10-K.
Founded in 1984, ReSound Corporation (the "Company" or "ReSound") is a hearing
health care company that designs, develops, manufactures and sells
technologically advanced hearing devices for the hearing impaired. The Company's
hearing device products utilize proprietary sound processing technology
originally developed by AT&T Bell Laboratories and subsequently enhanced and
refined by ReSound. ReSound's Multiband Full Dynamic Range Compression sound
processing technology enables ReSound(R) hearing devices to be individually
programmed to adjust the amplification of sound continuously in response to the
acoustic environment and each patient's residual range of hearing. ReSound's
current products are offered in In-the-Ear ("ITE"), Behind-the-Ear ("BTE") and
In-the-Canal ("ITC") versions.
RESULTS OF OPERATIONS
Three months ended June 30, 1997 and June 30, 1996
Net sales increased by 8 percent to $32.2 million in the quarter ended June 30,
1997, from $29.7 million in the quarter ended June 30, 1996. Sales in the U.S.
and Canada increased 30 percent in the current quarter to $16.9 million from
$12.9 million in the comparable prior year period. This increase was primarily
due to the inclusion of sales relating to products obtained through the
acquisition of certain assets of the Hearing Health business activity of 3M in
the second quarter of 1996 and increased sales of the Company's ITC and
Encore(TM) hearing device products partially offset by a decline in sales of the
Company's premium product series. International sales for the second quarter
were $15.4 million, a decrease of 8 percent from the same period last year. The
decrease in international sales was the result of several factors in Europe
including weaker European currencies compared to the U.S. dollar, increased
competition from digital sound processing product offerings, unfavorable changes
in governmental regulatory and reimbursement policies and continued adverse
economic conditions in certain key countries. These adverse European market
factors on international sales for the quarter were partially offset by sales to
the Asia Pacific - Latin America markets which increased 27 percent to $1.5
million from the comparable period last year. International sales accounted for
48 percent of ReSound's net sales in the second quarter of 1997, compared to 58
percent in the same quarter of 1996.
Gross profit was 54.3 percent of net sales in the second quarter of 1997,
compared to 58.0 percent of net sales for the same quarter of 1996. The
quarter-to-quarter decrease in gross profit was largely attributable to
increased sales of Sonar Hearing Health's hearing devices sold at lower margins
than ReSound-branded products, increased warranty and product return costs in
the U.S. reflecting a product mix shift to a larger proportion of custom
manufactured products (i.e., ITC and ITE products) and the impact of a stronger
U.S. dollar compared to European currencies.
8
<PAGE> 9
Research and Development ("R&D") spending during the second quarter of 1997 was
$3.9 million (12.0 percent of net sales) compared to $3.5 million (11.7 percent
of net sales) in the same quarter of 1996. The second quarter of 1997 included
approximately $1.4 million of R&D spending for ReSound's software-based digital
signal processing technology, Sonar Hearing Health R&D, and advanced development
programs (which in future will partially be jointly developed with Motorola,
Inc.) not included in the second quarter of 1996. In the second quarter of 1997,
the Company also incurred development expenses related to the future
introduction of ReSound's present sound processing technology in new product
configurations.
Selling, General and Administrative expenses ("SG&A") were $14.4 million (44.8
percent of net sales) for the second quarter of 1997, compared to $11.5 million
(38.8 percent of net sales) in the second quarter of 1996. This increase
includes approximately $1.4 million of SG&A at the Company's Sonar Hearing
Health subsidiary which was acquired in June 1996, expansion into certain Asian
and European markets, timing of key marketing and promotional activities in the
U.S., and higher business system implementation costs at the Company's
Viennatone subsidiary in Austria.
Net interest expense was $384,000 for the second quarter of 1997 compared to
$526,000 for the second quarter of 1996. This quarter-to-quarter decrease is
attributable to reduction of debt and the effect of a stronger U.S. dollar
compared to European currencies.
Income taxes have been provided for on a year-to-date basis and represent taxes
on profits earned at ReSound's European subsidiaries in Ireland, Austria,
Germany and Holland, plus California taxes.
The Company had a net loss of $1.5 million in the quarter ended June 30, 1997,
compared to net income of $1.1 million in the quarter ended June 30, 1996. The
decrease was primarily the result of lower gross margins and increased R&D and
SG&A costs which are largely attributable to the Company's Sonar Hearing Health
subsidiary which was acquired in June 1996. Additionally, SG&A costs increased
due to the expansion into certain Asian and European markets, incremental
marketing and promotional activities in the U.S., and higher business system
implementation costs in Europe. R&D spending also increased due to expenses
associated with new product development programs that were initiated subsequent
to the second quarter of 1996.
Six months ended June 30, 1997 and June 30, 1996
Net sales increased by 13 percent to $64.4 million in the six months ended June
30, 1997, from $57.0 million in the six months ended June 30, 1996. Sales in the
U.S. and Canada increased 43 percent for the six months ended June 30, 1997 to
$33.0 million from $23.0 million for the comparable prior year period primarily
due to the inclusion of sales relating to products obtained through the
acquisition of certain assets of the Hearing Health business activity of 3M in
the second quarter of 1996 and increased sales of the Company's ITC and
Encore(TM) hearing device products partially offset by a decline in sales of the
Company's premium product series. International sales for the six months ended
June 30, 1997 were $31.4 million, a decrease of 8 percent from the same period
last year. The decrease in international sales was the result of several factors
in Europe including weaker European currencies compared to the U.S. dollar,
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increased competition from digital sound processing product offerings,
unfavorable changes in governmental regulatory and reimbursement policies and
continued adverse economic conditions in certain key countries. These adverse
European market factors on international sales for the quarter were partially
offset by sales to the Asia Pacific - Latin America markets which increased 35
percent to $3.2 million from the comparable period last year. International
sales accounted for 49 percent of ReSound's net sales in the first six months of
1997, compared to 60 percent in the same period of 1996.
Gross profit was 54.6 percent of net sales in the first six months of 1997,
compared to 56.1 percent of net sales for the same period of 1996. The decrease
in gross profit was largely attributable to increased sales of Sonar Hearing
Health's hearing devices sold at lower margins than ReSound-branded products,
increased warranty and product return costs in the U.S. reflecting a product mix
shift to a larger proportion of custom manufactured products (i.e., ITC and ITE
products) and the impact of a stronger U.S. dollar compared to European
currencies.
Research and Development ("R&D") spending during the first six months of 1997
was $8.2 million (12.7 percent of net sales) compared to $6.6 million (11.5
percent of net sales) for the same period of 1996. The first six months of 1997
included approximately $3.3 million of R&D spending for ReSound's software-based
digital signal processing technology, Sonar Hearing Health R&D, and advanced
development programs (which in future will partially be jointly developed with
Motorola, Inc.) not included in the prior year. In the first six months of 1997,
the Company also incurred development expenses related to the future
introduction of ReSound's present sound processing technology in new product
configurations.
Selling, General and Administrative expenses ("SG&A") were $27.0 million (41.9
percent of net sales) for the first six months of 1997 compared to $22.4 million
(39.3 percent of net sales) in the first six months of 1996. This increase
includes approximately $2.6 million of SG&A at the Company's Sonar Hearing
Health subsidiary which was acquired in June 1996, expansion into certain Asian
and European markets, timing of key marketing and promotional activities in the
U.S., and higher business system implementation costs at the Company's
Viennatone subsidiary in Austria.
Net interest expense was $782,000 for the first six months of 1997 compared to
$1.1 million for the comparable period in 1996. This decrease is attributable to
reduction of debt and the effect of a stronger U.S. dollar compared to European
currencies.
Income taxes have been provided for on a year-to-date basis and represent taxes
on profits earned at ReSound's European subsidiaries in Ireland, Austria,
Germany and Holland, plus California taxes.
The Company had a net loss of $2.4 million in the six months ended June 30,
1997, compared to net income of $1.2 million in the six months ended June 30,
1996. The decrease was primarily the result of lower gross margins and increased
R&D and SG&A costs which are largely attributable to the Company's Sonar Hearing
Health subsidiary (acquired in June 1996). Additionally, SG&A costs increased
due to the expansion into certain Asian and European markets, incremental
marketing and promotional activities in the U.S., and higher business system
implementation costs in Europe. R&D spending also increased due to expenses
associated with new product development programs that were initiated subsequent
to the second quarter of 1996.
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LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1997 the Company generated $3.1 million in cash
from operations, compared to $3.2 million in cash generated from operations in
the first six months of 1996. Cash generated from operations in the first six
months of 1997 included non-cash charges of $3.8 million relating to
depreciation and amortization. In addition, positive cash flows from operations
were generally due to decreases in current assets of $4.8 million. These
positive cash flows from operations were partially offset by a net loss of $2.4
million, a decrease in accounts payable of $1.8 million and a decrease in
accrued liabilities of $1.2 million.
Net cash used in investing activities for the six months ended June 30, 1997 of
$1.6 million resulted primarily from additions of property and equipment and
software.
The primary financing activity in the six months ended June 30, 1997 was the net
increase in borrowings of $1.8 million by the Company's Viennatone subsidiary.
At June 30, 1997, the Company had available cash and cash equivalents of $10.9
million. The Company believes this will be sufficient to meet the Company's
operating expenses and capital requirements for at least the next twelve months.
From time to time, the Company may also consider the acquisition of, or evaluate
investments in, certain products and businesses complementary to the Company's
business. Any such acquisition or investment may require additional capital
resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on May 22,
1997.
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(b) The following directors were elected at the meeting:
<TABLE>
<CAPTION>
SHARES PRESENT
--------------
NOMINEE FOR WITHHELD ABSTAIN BUT NOT VOTING
------- --- -------- ------- --------------
<S> <C> <C> <C> <C>
Richard L. Goode 14,415,468 229,391 0 0
Donald M. Kendall 14,448,741 196,118 0 0
Eugene Kleiner 14,449,334 195,525 0 0
Rodney Perkins 14,449,641 195,218 0 0
Peter Riepenhausen 14,444,434 200,425 0 0
Philip S. Schlein 14,449,434 195,425 0 0
Robert C. Wilson 14,449,034 195,825 0 0
</TABLE>
(c) The shareholders voted to authorize the adoption of the Company's 1997
Stock Plan and the reservation of up to a maximum of 650,000 shares of
the Company's Common Stock for issuance thereunder. The results of
that vote were as follows:
<TABLE>
<CAPTION>
SHARES
PRESENT BUT
IN FAVOR OPPOSED ABSTAIN NOT VOTING
---------- --------- ------- -----------
<S> <C> <C> <C>
11,382,836 3,217,891 44,132 0
</TABLE>
(d) The shareholders voted to ratify and approve the selection of Ernst &
Young LLP as independent auditors for the Company for the fiscal year
ending December 31, 1997. The results of that vote were as follows:
<TABLE>
<CAPTION>
SHARES
PRESENT BUT
IN FAVOR OPPOSED ABSTAIN NOT VOTING
---------- --------- ------- -----------
<S> <C> <C> <C>
14,557,259 66,800 20,800 0
</TABLE>
ITEM 5. OTHER INFORMATION
The Company announced on June 23, 1997 the signing of an agreement with
the Land Mobile Products Sector, Radio Products Group of Motorola, Inc. for the
development of leading edge products designed to serve the hearing impaired and
communications markets. Under the agreement, both companies will contribute
existing technology and jointly develop new technology.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.1: Statement of computation of net income (loss) per
share
(b) Exhibit 27: Financial data schedule
(c) Reports on Form 8-K: None
(d) Exhibit 10.1: Separation Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOUND CORPORATION
/s/ Arthur T. Taylor
------------------------------------------------
Arthur T. Taylor
Sr. Vice President and Chief Financial Officer
Date: August 7, 1997
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
10.1 Separation Agreement
11.1 Statement of Computation of net income (loss) per share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
SEPARATION AGREEMENT
This Separation Agreement (the "Agreement") is entered into this 3rd
day of June, 1997, by and between ReSound Corporation ("Company"), and Vincent
Pluvinage ("Employee").
WHEREAS, Company and Employee have mutually agreed to terminate the
employment relationship and to establish a consulting arrangement between them;
NOW THEREFORE, the parties agree as follows:
1. Employee's resignation as Executive Vice President and an employee
of Company shall be effective on June 4, 1997 (the "Termination Date").
Employee's resignation from any other positions with any affiliate of the
Company shall also be effective on the Termination Date.
2. Company shall pay Employee One Hundred Eighty Thousand Dollars
($180,000), plus all personal time off and salary accrued as of the Termination
Date, less in all cases applicable withholding taxes (collectively, the
"Termination Payment"), within three (3) business days of the Termination Date.
Company will also repay Employee's loan of Thirty Thousand Dollars ($30,000)
under the Company's 401(k) plan, and will pay Employee an amount equal to the
amount of witholding taxes required to be reported by Company as a result of the
repayment of such loan.
3. Employee acknowledges and agrees that upon payment of the
Termination Payment he will have received all salary, accrued personal time off,
commissions, bonuses, compensation or other such sums due to him. In light
thereof, the parties acknowledge and agree that California Labor Code Section
206.5 is not applicable to the parties hereto. That section provides in
pertinent part as follows:
No employer shall require the execution of any release
of any claim or right on account of wages due, or to
become due, or made as an advance on wages to be earned,
unless payment of such wages has been made.
4. Employee's participation in Company's employee benefit programs,
including without limitation the long term and short term disability, 401(k),
and employee stock purchase plans, shall cease as of the Termination Date,
except as provided in Sections 5 and 6 below. No additional personal time off
shall accrue following the Termination Date.
5. Employee shall continue to receive Company's standard medical,
dental, vision and life insurance benefits, subject to normal payroll
deductions, until the earlier of the end of the Consulting Term (as defined in
Section 7) or the first date Employee becomes covered under another employer's
medical, dental, vision or life insurance program, as the case may be,
<PAGE> 2
providing substantially the same level of benefits. Employee agrees and
acknowledges that the qualifying event contemplated by COBRA shall be deemed to
be the Termination Date. Employee shall be entitled to continue to use, during
the Consulting Term, the computer, printer and fax provided to him during his
employment with Company.
6. Subject to the provisions of Section 12, vesting of options
granted to Employee under Company's 1988 Stock Option Plan shall continue
vesting pursuant to the normal vesting schedule during the one year period
commencing on the Termination Date, and all vested options shall be exercisable
during such one year period. All options not exercised during this period and
not expiring earlier by their express terms shall expire on the last day of the
period. For purposes of this Section 6, "options" shall include "Repriced
Options" as that term is defined in the Option Pricing Agreement effective April
25, 1997. Employee understands and agrees that as a result of the extension of
the vesting and exercise periods of his unexercised options, such options will
hereafter be treated for tax purposes as nonstatutory options.
7. Employee will make himself available to perform consulting
services for up to twenty (20) hours per month during the period beginning on
the Termination Date and ending twelve (12) months thereafter (the "Consulting
Term"). Employee will be paid a consulting fee of Two Thousand Five Hundred
Dollars ($2,500) per month, payable on the first day of each month (except that
the first payment shall be made on the date the Termination Payment is made).
All consulting assignments shall come from the Chief Executive Officer of
Company or his designee. Company will use reasonable efforts to provide written
notice of consulting assignments for any given month at the beginning of the
month, and to accommodate any other employment Employee may have.
8. Employee acknowledges and agrees: (a) that by reason of his
employment with Company he had, and by reason of his consulting services with
Company he may have, access to inventions, patents, patent applications,
original works of authorship, developments, concepts, improvements, techniques,
know-how, or trade secrets (collectively, "Inventions"), as well as Company's
other confidential information including without limitation financial records,
information about customers and suppliers, marketing plans, product development
plans, business plans and other confidential material and information which
derive independent economic value from not being generally known to the public
or to other persons who could obtain economic value from the disclosure or use
of these materials and information; and (b) that the foregoing constitute trade
secrets and/or confidential information respecting Company's business affairs.
Employee agrees that he will hold all such information strictly confidential
until it becomes publicly known otherwise than by act or collusion of Employee,
and that he will not use such information for any purpose other than providing
consulting services to Company, without the prior written consent of Company.
9. Employee represents that he has made full written disclosure to
Company of all Inventions which he solely or jointly conceived or caused to be
conceived, developed or reduced to practice during his employment with Company.
Employee agrees that he will promptly make full written disclosure to Company of
all Inventions which he solely or jointly conceives, develops or reduces to
practice, or causes to be conceived, developed or reduced to practice
<PAGE> 3
while performing consulting services pursuant to this Agreement. Employee also
agrees and acknowledges that he: (a) holds and will hold in trust for the sole
right and benefit of Company; (b) will execute patent applications relating to;
and (c) (except with respect to inventions which qualify fully under the
provisions of California Labor Code Section 2870) hereby assigns to Company or
its designee all his right, title, and interest in, any and all Inventions,
whether or not patentable or registrable under copyright or similar laws, which
he solely or jointly conceived or caused to be conceived, developed or reduced
to practice during his employment with Company, or which he solely or jointly
conceives, develops or reduces to practice or causes to be conceived, developed
or reduced to practice while performing a consulting assignment pursuant to this
Agreement.
10. Employee also agrees to disclose to Company any other invention
not covered under Section 9 solely or jointly conceived, developed or reduced to
practice by him which relates or might reasonably be deemed to relate to any
work to be performed pursuant to a consulting assignment under this Agreement.
11. Employee also agrees to notify Company in writing of any other
invention relevant to nonimplantable acoustic hearing devices not covered under
Section 9 solely or jointly conceived, developed or reduced to practice by him
during the Consulting Term. Company shall have the exclusive right, for a period
of sixty (60) days after Employee notifies Company in writing of such invention,
to enter into an exclusive or non-exclusive license or other business
relationship with Employee, on reasonable terms and conditions, with respect to
such invention.
12. During the Consulting Term Employee may engage in other
employment or businesses, provided such activity does not preclude him from
making himself available to provide consulting services to Company as provided
above. In order to protect Company's trade secrets, and to avoid claims that
Employee's consulting services for Company resulted in improper use of a
competitor's trade secrets, Employee agrees that during the Consulting Term he
will not, directly or indirectly, enter into a Restricted Relationship unless he
gives Company sixty (60) days prior written notice of his intent to do so, which
notice shall describe the nature of the proposed relationship. A "Restricted
Relationship" shall be deemed to exist if Employee becomes an employee, officer,
director, 5% or greater shareholder or partner of, or consultant to, any person,
firm, corporation or business that engages in any business activity which
involves the design, manufacture or sale of acoustic hearing devices (excluding
implantable hearing devices) subject, in the United States, to FDA approval
("Direct Competitor"). Upon receipt of notice that Employee intends to enter
into a Restricted Relationship the Consulting Term specified in Section 7 and
Employee's vesting and exercise rights as provided in Section 6 with respect to
options that had not vested as of April 25, 1997, shall terminate, and all such
options that had not expired earlier by their terms shall expire.
Employee also agrees that he will not, at any time before March 15, 1998,
directly or indirectly, have an interest in or business relationship of any kind
with Nokia Telecommunications Oy ("Nokia") or Telefonaktiebolaget LM Ericcson
("Ericcson") or any affiliated company of either (whether as an employee, 5% or
greater shareholder, proprietor, officer, director, agent, 5% or
<PAGE> 4
greater partner, consultant or otherwise). For purposes of this Section 12,
neither Nokia nor Ericcson shall be considered to be a Direct Competitor.
13. During the Consulting Term Employee will not: (a) divert or
attempt to divert, directly or indirectly, any business of Company; (b) induce
or attempt to induce directly or indirectly, any person to terminate his or her
employment or consulting arrangement with Company or to provide consulting
services involving the design, manufacture, or sale of acoustic hearing devices
to Employee or any other party; or (c) induce or attempt to induce any customer,
supplier, licensor or other business partner of Company to cease doing business
with Company or in any way interfere with the existing business relationship
between any such customer, supplier, licensor or business partner and Company.
14. Employee will make himself available at reasonable times and upon
reasonable notice to give deposition and trial testimony and otherwise to assist
Company's attorneys in the prosecution or defense of legal proceedings involving
Company. During the Consulting Term time spent by Employee on such matters shall
be considered consulting time. Company will make reasonable efforts to
accomodate any other employment Employee may have. Employee shall receive an
additional fee of One Hundred Twenty-Five Dollars ($125) for each hour of time
spent in such matters in excess of twenty hours per month during the Consulting
Term, or for each hour of time spent in such matters after the Consulting Term.
15. Employee represents that he has returned to Company all
confidential or proprietary information of Company, including without limit all
records, data, notes, reports, correspondence, specifications, drawings,
blueprints, sketches, materials, and other documents, and all copies thereof,
and all equipment and other property of Company, except as otherwise permitted
in Section 5 above.
16. Employee will cooperate with Company in filing all reports with
the Securities and Exchange Commission required as a result of his employment
with or resignation from Company.
17. Each party agrees to refrain from (and Company shall cause its
executive officers and directors to refrain from) any disparagement or criticism
of the other party (and in the case of Company, its officers, directors and
employees).
18. The parties agree to use their best efforts to maintain in
confidence the existence and terms of this Agreement, except as may be disclosed
in a press release and except for disclosures required by law or necessary to
effectuate the terms of this Agreement. (Employee understands and acknowledges
that Company may be required to file a copy of this Agreement with the
Securities and Exchange Commission and to disclose its terms in Company's next
proxy statement.) Notwithstanding the foregoing, each party shall be permitted
to discuss the provisions of this Agreement in confidence with its attorneys,
accountants, tax advisors and, in the case of Employee, his spouse. Company will
issue a press release, mutually acceptable to Employee, announcing his
resignation within a reasonable time after the Termination Date but not later
than the date Company issues a press release announcing that it has entered into
a
<PAGE> 5
development agreement with another company. Employee agrees not to disclose that
he has resigned or is going to resign, until Company makes an announcement
thereof. Notwithstanding the foregoing, Employee shall be permitted to
disclose his resignation to selected individuals if and only to the extent
necessary to enable Employee to solicit new employment, provided any such person
agrees in writing not to disclose such information. Under no circumstances will
Employee make any such disclosure to any Company employee, consultant, customer,
supplier or present or prospective Company business partner prior to the date
Company makes such announcement.
19. Except as otherwise provided in this Agreement, Employee hereby
and forever releases and discharges Company and each of its past and present
directors, shareholders, agents, employees, attorneys, successors and assigns
("Releasees") from any and all claims, causes of action, obligations, and
liabilities of any nature whatsoever, known or unknown, that Employee ever had,
now has or may hereafter claim to have against any of the Releasees relating to
Employee's employment or nonemployment by Company, to the termination of
Employee's employment, to any status, term or condition of such employment, or
any physical or mental harm or distress from such employment or from conditions
of such employment, including without limitation:
(a) any and all claims under federal anti-discrimination
laws (including, but not limited to Title VII of the
Civil Rights Act of 1964 and the Americans With
Disabilities Act);
(b) any and all claims under California statutory or
decisional law pertaining to wrongful discharge,
discrimination, or breach of public policy (including
but not limited to the California Fair Employment and
Housing Act);
(c) any and all claims for employment benefits,
including without limitation, wages, severance payments,
fringe benefits, bonuses, or disability payments, except
for rights accrued through the date of termination of
Employee's employment;
(d) any and all claims of age discrimination under the
Age Discrimination in Employment Act; and
(e) any and all claims relating to Employee's right to
purchase, or the actual purchase of shares of stock of
the Company.
Except as otherwise provided in this Agreement, Company hereby fully and forever
releases Employee, his heirs and executors, of and from any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown that Company may possess arising from any omissions,
acts or facts that have occurred up until and including the effective date of
this Agreement.
<PAGE> 6
20. Employee and Company expressly waive all rights under section
1542 of the Civil Code of California which provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the debtor.
Employee and Company understand and agree that they may not know or suspect the
existence of some claims covered by the terms of this Agreement, the nature of
which they have not yet discovered. Future claims covered by the terms of this
release shall be limited to acts or events which have occurred on or prior to
the final date of execution of this Agreement. It is expressly understood and
agreed that the possibility that such unknown claims exist was explicitly taken
into account by Employee and Company in determining the amount of consideration
to be paid or accepted for the giving of this Agreement.
21. Employee and Company covenant and agree that they will never,
individually or with any person or in any way, commence, aid in any way, except
as required by due legal process, prosecute or cause or permit to be commenced
or prosecuted against any Releasee, any action or other proceeding based upon
any claim which is released by the Agreement. This Agreement shall be deemed
breached and a cause of action shall be deemed to have accrued immediately upon
the commencement or prosecution of any action or proceeding contrary to this
Agreement.
In the event of any breach of this Section 21 the aggrieved Releasee shall be
entitled to recover from the breaching party not only the amount of any judgment
which may be awarded against such Releasee, but also all such other damages,
costs and expenses, taxable or otherwise, in preparing the defense of or
defending against, or seeking or obtaining an abatement of or injunction against
any action or proceeding brought in violation of this Section 21, and in
prosecuting any claim, counterclaim or cross-claim based on this Agreement.
22. Employee represents and warrants that no other person had or has
any claims in the claims referred to in Section 19 above; that he has the sole
right and exclusive authority to execute this Agreement; that he has the sole
right to receive the consideration paid therefor; and that he has not sold,
assigned, transferred, conveyed or otherwise disposed of any claim or demand
released by this Agreement. Company represents and warrants that the undersigned
has the authority to act on behalf of Company and to bind Company to this
Agreement.
23. Employee acknowledges that upon breach of the provisions
contained in Sections 8, 9, 10, 11, 12, 13, 14, or 17 of this Agreement, Company
would sustain irreparable harm from such breach, and, therefore, Employee agrees
that in addition to any remedies which the Company may have under this Agreement
or otherwise, Company shall be entitled to obtain equitable relief, including
specific performance and injunctions, restraining Employee from committing or
continuing any such violation of this Agreement. Employee understands and agrees
that upon his material or intentional breach of any provision of this Agreement,
in addition to and without limiting any other remedies the Company may have
under this Agreement or otherwise,
<PAGE> 7
Employee's benefits as provided in Section 5, his consulting fees as
provided in Section 7, and his option vesting and exercise rights as
provided in Section 6, shall immediately terminate.
24. Each party represents that it has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party which are
not specifically set forth in this Agreement.
25. The parties shall each bear their own costs, attorneys' fees and
other fees incurred in connection with this Agreement.
26. In the event that any provision hereof becomes or is declared by
a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision.
27. This Agreement represents the entire agreement and understanding
between Company and Employee concerning Employee's separation from Company and
supersedes and replaces any and all prior agreements and understandings
concerning Employee's relationship with and compensation by Company.
28. This Agreement may only be amended in writing signed by Employee
and a duly authorized officer of Company.
29. This Agreement shall be governed by the laws of the State of
California.
30. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
31. This Agreement is executed voluntarily and without any duress or
undue influence on the part or behalf of the parties hereto, with the full
intent of releasing all claims. The parties acknowledge that:
(a) They have read this Agreement;
(b) They have had full opportunity to consult with legal
counsel of their own choice or that they have
voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this
Agreement and of the releases it contains; and
(d) They are fully aware of the legal and binding effect
of this Agreement.
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the respective dates set forth below.
RESOUND CORPORATION
By: /s/ Peter Riepenhausen
-------------------------
Title: President and CEO
----------------------
Dated: June 3, 1997
/s/ Vincent Pluvinage
----------------------------
VINCENT PLUVINAGE
Dated: June 3, 1997
<PAGE> 1
Exhibit 11.1
RESOUND CORPORATION
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------ -------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shareholders $ (1,574) $ 1,092 $ (2,545) $ 1,210
======== ======== ======== ========
Average common shares outstanding (1) 19,429 15,860 19,409 15,758
Net effect of dilutive stock options (based on treasury stock method) -- 878 -- 644
-------- -------- -------- --------
Total shares for primary and fully diluted net income per share (2) 19,429 16,738 19,409 16,402
======== ======== ======== ========
Net income (loss) per share $ (0.08) $ 0.07 $ (0.13) $ 0.07
======== ======== ======== ========
</TABLE>
Notes:
(1) Actual shares issued and outstanding as of June 30, 1997 were
19,437,302.
(2) Fully diluted amounts do not differ materially.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,947
<SECURITIES> 0
<RECEIVABLES> 19,128
<ALLOWANCES> 0
<INVENTORY> 22,292
<CURRENT-ASSETS> 56,126
<PP&E> 36,710
<DEPRECIATION> (24,942)
<TOTAL-ASSETS> 106,450
<CURRENT-LIABILITIES> 30,240
<BONDS> 0
0
5,375
<COMMON> 90,925
<OTHER-SE> (43,654)
<TOTAL-LIABILITY-AND-EQUITY> 106,450
<SALES> 64,442
<TOTAL-REVENUES> 64,442
<CGS> 29,842
<TOTAL-COSTS> 29,842
<OTHER-EXPENSES> 35,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782
<INCOME-PRETAX> (1,715)
<INCOME-TAX> 680
<INCOME-CONTINUING> (2,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,395)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
