SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] For the fiscal
year ended September 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
----
Commission File Number 0-18793
VITAL SIGNS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2279807
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
20 Campus Road,
Totowa, New Jersey 07512
(201) 790-1330
(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: none.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, no par value
Indicate by checkmark 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
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting stock held by non-affiliates as of
December 1, 1996 was approximately $129,000,000. Number of shares of Common
Stock outstanding as of December 1, 1996: 13,071,383.
Documents incorporated by reference: Definitive Proxy Statement for 1997
Annual Meeting of Shareholders (Part III).
<PAGE>
VITAL SIGNS, INC.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 2
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 4A. Executive Officers of the Registrant 16
Part II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 20
Item 8. Financial Statements and Supplementary
Data* 25
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 25
Part III
Item 10. Directors of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management 26
Item 13. Certain Relationships and Related
Transactions 26
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 27
Signatures 29
*Financial Statements follow page 25.
<PAGE>
PART I
Item 1. Business
Introduction
Vital Signs, Inc. was initially incorporated in New York in 1972. On
December 19, 1988, Vital Signs, Inc. reincorporated in New Jersey through a
merger with a then newly formed New Jersey corporation. Unless otherwise
indicated, all references in this Annual Report to the "Company" refer to Vital
Signs, Inc., its predecessor New York corporation and their consolidated
subsidiaries. References to "Vital Signs" refer solely to the parent company.
Vital Signs' principal executive offices are located at 20 Campus Road, Totowa,
New Jersey 07512; its telephone number at that location is (201) 790-1330.
Vital Signs and its subsidiaries design, manufacture and market
single-patient use medical products for anesthesia, respiratory, critical care
and emergency. Single-patient use products have captured an increasing share of
the medical products market from reusable products, primarily because of their
cost advantages and improved patient care features, including reducing the
potential of transmitting infections from one patient to another.
The Company has pioneered the development and introduction of a variety of
single-patient use products. In 1975, the Company commenced the marketing of
clear, non-conductive anesthesia breathing circuits. The first clear plastic,
single-use air-filled cushion face mask for anesthesia delivery and
resuscitation was launched by the Company in 1981. In 1984, the Company was the
first organization to introduce a single-patient use manual resuscitator. The
first single- patient use laryngoscope system for use in anesthesia and the
critical care arenas was developed and launched by the Company in 1988. The
Company has developed a general anesthesia kit (1989), which can combine over 20
disposable items in one convenient, cost-effective package; and the first single
patient use infant resuscitation circuit with an adjustable pressure limiting
valve (1992), used to protect the infant's lung against over pressurization. In
the last three years the Company has developed a stylet-tracheal tube for the
removal of meconium during high risk deliveries; a pediatric emergency kit
utilizing a unique color coded measuring tape to select the proper sized
equipment; and a device for measuring the effect of neuromuscular blockage
during anesthesia. In October, 1996, the Company introduced its new flexible
face mask ("Flexmask(TM)"), a flush device for vascular access catheters
("Vasceze(TM)") and a closed suction system designed for ventilated patients
("Isocath(TM)").
For additional information regarding these products, see
"Business-Products."
The Company's strategy is to sell its principal products to hospitals
through its own sales force and third-party distributors. The worldwide sales
force consisted of 102 sales employees at October 1, 1996 compared with 104
sales employees at October 1, 1995.
<PAGE>
This Annual Report on Form 10-K contains, and from time to time the Company
expects to make, certain forward-looking statements regarding its business,
financial condition and results of operations. In connection with the "Safe
Harbor" provisions of the Private Securities Reform Act of 1995 (the "Reform
Act"), the Company intends to caution investors that there are several important
factors that could cause the Company's actual results to differ materially from
those projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. The Company
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to comply with the
terms of the safe harbor provided by the Reform Act. Accordingly, the Company
has set forth a list of important factors that could cause the Company's actual
results to differ materially from those expressed in forward-looking statements
or predictions made herein and from time to time by the Company. Specifically,
the Company's business, financial condition and results of operations could be
materially different from such forward-looking statements and predictions as a
result of (i) competitive factors that could affect the Company's primary
markets, including the results of competitive bidding procedures implemented by
Group Purchasing Organizations, interruptions or delays in manufacturing and/or
sources of supply, and increased market acceptance of competitors' existing or
new products, (ii) adverse determinations arising in the context of regulatory
matters (see "--Regulation") or legal proceedings (see Item 3 of this Annual
Report on Form 10K) and (iii) legislative changes impacting the healthcare
market.
Acquisitions - Current Fiscal Year
In January 1996, the Company acquired the outstanding stock of HealthStar
Pharmaceutical Services, Inc., a contract manufacturer utilizing blow-fill-seal
technology for use in the pharmaceuti cal and medical fields. See "--Services"
and Note 2 to the Company's Consolidated Financial Statements.
In fiscal 1996, the Company acquired the remaining 50% interest in Coast
Medical, Inc, a manufacturer of OEM medical products. The Company had acquired
its initial 50% interest in Coast Medical Inc., in April 1992. On December 4,
1995 the Company acquired the MistyOx product line. That product line consists
of three sets of products used in the delivery of hydration to patients.
Historically, the Company has made both product and business acquisitions.
Although no assurances can be given with respect to future acquisitions, the
Company's acquisition strategy currently is focused upon the following
objectives: (i) identification and acquisition of companies and/or products in
the anesthesia, respiratory and critical care fields with the goal of expanding
the products that can be sold by the Company's direct sales force, (ii)
expansion of sales and marketing capabilities to international markets, and
(iii) unique research and development capabilities.
<PAGE>
Products
Principal Products.
The Company markets a wide variety of single-patient use anesthesia, respiratory
and related critical care products. Its principal products are described below:
Anesthesia Products:
Face Masks. In 1981, the Company introduced the first clear plastic
air-filled cushion face mask for single-patient anesthesia and respiratory use.
The soft air-filled cushion face mask has been clinically documented to provide
a better seal on most patients than other face masks, thus improving the
delivery of anesthetic gases and oxygen to the patient. A clear face mask also
permits the clinician to better observe certain patient problems, such as
life-threatening aspiration. The Company offers various sizes and types of face
masks. The Company anticipates that the usage of single patient use face masks
in surgical procedures internationally will continue to expand as single-patient
use products become increasingly accepted in foreign hospitals. In October 1996
the Company introduced a flexible face mask product (Flexmask(TM)).
Anesthesia Breathing Circuits. The Company offers a wide variety of
single-patient use anesthesia breathing circuits, which are used to connect the
patient to the anesthesia machine and to various patient monitors. Each
breathing circuit consists of at least two flexible hoses, a breathing bag, and
a "Y" and elbow attachment. Since the breathing circuit needs of hospitals vary
significantly, the Company offers a large variety of circuits designed to be
compatible with anesthesia equipment manufactured by numerous other companies.
Technological advances in the areas of gas sampling, temperature monitoring and
humidification have provided the Company with an opportunity to develop many
additional varieties of circuits.
INFUSABLE(R) Disposable Pressure Infusor. Invasive pressure monitoring has
been used since the early 1970's as a means of monitoring blood and other fluid
pressures of patients in certain critical care situations. The monitoring
process involves inserting a catheter, usually into the artery or vein of the
patient, connecting the catheter to a transducer (a device which converts the
pressure impulse from the patient's blood into an electrical signal), and
transmitting the electrical signal to a monitoring screen. The monitoring
process uses a fluid-filled conduit to connect the catheter to the transducer.
The fluid generally is a saline solution forced into the system by a pressure
infusor. A company acquired by Vital Signs introduced its patented INFUSABLE(R)
disposable pressure infusor to the market in late 1986 and early 1987. The
Company's infusor, which is used in invasive pressure monitoring and rapid
infusion of fluids, consists of an inflatable bladder, a bulb to pump air
into the bladder and a pressure gauge. The infusor also has a mesh netting
into which a package of sterile fluid or "solution bag" is placed. The fluid is
connected to the monitoring system and the pressure on the solution bag is set
at a pressure level designed to maintain the pressure required by the monitoring
system.
General Anesthesia Systems. The Company assembles and markets General
Anesthesia System customized anesthesia kits, which can include more than 20
products, such as air-filled cushion face masks, breathing circuits, blood
pressure cuffs and temperature monitoring probes. In marketing the General
Anesthesia System kits, the Company's sales representatives use detailed
questionnaires to assist in determining the particular products the hospital
desires in its anesthesia kits. The Company then manufactures a General
Anesthesia System kit to meet the hospital's specific needs.
<PAGE>
Thermadrape(R) Heat Retentive and Insulating Drape is a patented heat
retentive surgical covering designed to be a safe, effective and affordable
alternative to the active warming blanket. The Thermadrape(R) drape minimizes
perioperative heat loss and allows patients to avoid (i) the increased metabolic
rate and oxygen uptake associate with post-operative shivering, (ii)
vasoconstriction, (iii) delayed drug clearance and other side effects of "cold
stress" and (iv) needless discomfort. Configurations include blankets, head
covers, leggings and wraps. Sizes range from pediatric to adult.
Temp Probe(TM) Temperature Probes. The Company offers a variety of
temperature probes (esophageal, tympanic, skin and general purpose) to monitor
patients undergoing anesthetic procedures. The Company has expanded its
temperature line to accommodate the various physiological patient monitors found
in hospitals. The Company's esophageal stethoscope monitors temperature, while
also providing the clinician with the patient's heart and lung sounds. In 1995,
the ESG(TM) esophageal stethoscope with gastric suction was introduced. This
stethoscope adds a gastric suction function to the measurement of temperature
and amplification of heart and lung sounds.
Vital View(TM) Single-Patient Use Fiberoptic Laryngoscope System is
designed to assist the anesthesiologist in correctly placing an endotracheal
tube within the trachea of the patient. This system has several advantages over
traditional metal blade laryngoscope systems, including lowering the risk to
both the patient and physician of infection associated with reusable metal
blades and handles. In addition, hospital capital outlays for stocking emergency
crash carts can be reduced by purchasing the Vital View(TM) system rather than a
reusable Fiberoptic system.
ParaGraph(R) Neuromuscular Blockade Monitor. The ParaGraph(R) neuromuscular
blockade monitor and related ParaStim(TM) single-use sensor products provide a
simple, accurate and cost-effective means of assessing the level of
neuromuscular blockade, a common procedure in anesthetic practice. The Company
acquired rights with respect to these patented products during Fiscal 1993 and
began sale of these products during Fiscal 1994.
The Vital Pak(TM) Procedural Delivery System bundles together all of the
anesthesia supplies used in a specific procedure (for example, coronary artery
bypass grafts) including complementary products manufactured by others, for
example sterile pulmonary artery catheter kits. The Company sources these
products directly from the manufacturer for the Vital Pak. Each hospital
customizes the contents of the Vital Pak(TM) system to match their patient care
needs and protocols. This standardization enables the hospital to develop highly
efficient processes for utilization and patient charge accounting.
Respiratory and Critical Care Products:
Manual Resuscitator Products. Manual resuscitators are ventilation devices
which are squeezed by hand to force oxygen into a patient's lungs. They are used
throughout the hospital in a variety of settings. For example, patients on a
ventilator require the use of a resuscitator prior to tracheal suctioning
procedures. Another use is in providing oxygen while transporting the patient
between the operating room and other critical care units. In addition,
resuscitators are typically placed strategically throughout the hospital to
provide assistance to patients who have stopped breathing and require
resuscitation.
<PAGE>
The Company was the first to offer single-patient use manual resuscitators.
The Company's CODE BLUE(TM) and VITAL BLUE(TM) resuscitators are used in
emergency situations and in a variety of medical procedures. CODE BLUE(TM)
resuscitators are sold in different sizes for infants, children and adults. Both
resuscitators alleviate certain problems involved in mouth-to-mouth emergency
resuscitation, including the risk to both the rescuer and the individual of
transmitting infections. Most reusable manual resuscitators are costly to
sterilize and difficult to fully reassemble. In contrast, CODE BLUE(TM) and
VITAL BLUE(TM) resuscitators are relatively inexpensive, and already fully
assembled. The Company also offers a specialized line of infant resuscitation
products (BabySafe(TM), PediBlue(TM) and BabyBlue(TM) resuscitators) used in
labor and delivery rooms and in neonatal intensive care units, where controlling
the spread of infection is particularly critical. BabySafe(TM) resuscitators
offer the ability to adjust and limit the level of pressure that can be
delivered during resuscitation. Oxygen can be delivered without the risk of
barotrauma. Baby Safe(TM), PediBlue(TM) and BabyBlue(TM) resuscitators are
available in a variety of configurations and sizes to meet the needs of infants
and children.
CleenCuff(TM), Flufficuff(TM), and CUFF-ABLE(R) Blood Pressure Cuffs. The
Company manufactures and sells single-patient use blood pressure cuffs which
provide hospitals with an alternative to traditional reusable blood pressure
cuffs that can become contaminated with blood and other body fluids. While all
patients admitted to hospitals are candidates for their own dedicated blood
pressure cuff, the Company believes that to date the primary market for
disposable cuffs has been for cases where infection control is a high priority.
The Company's cuffs are sold in a variety of sizes (including neonatal) and are
adaptable to all manual and electronic blood pressure monitors that utilize
blood pressure cuffs.
ACTAR(R) and INFANTRY(R) CPR Training Manikins. The Company manufactures a
product line of patented cardiopulmonary resuscitation ("CPR") training
manikins. ACTAR(R) manikins are made from four basic components--a head, chest
plate, compression piston and disposable lung. The Company also sells the
INFANTRY(R) infant-size CPR training manikins. While maintaining the necessary
features and anatomical landmarks for CPR practices, ACTAR(R) and INFANTRY(R)
manikins are far smaller and less expensive than the full size manikins
typically used for CPR training. The smaller size and affordable pricing enable
each person in a CPR training class to practice with his or her own manikin
rather than sharing a single demonstration model.
Continuous Positive Airway Pressure ("CPAP") Systems. The Company's face
mask CPAP systems provide a less invasive and more comfortable way of providing
oxygen to certain patients than conventional ventilator-based systems. The
Company's face mask CPAP systems eliminate the need to insert an endotracheal
tube into the patient's trachea and attach the patient to a ventilator. The
Company believes that its CPAP systems generally represent a significant advance
in the treatment of Adult Respiratory Distress Syndrome (ARDS) and have been
found to be clinically effective in the treatment of certain traumatic chest
injuries and postoperative atelectasis (collapse of the air sacs in the lungs
and other disease states). The system consists of a compact flow generator
connected to a dual-valved, air-filled cushion face mask. The face mask is
attached to a single-patient use PEEP (positive end expiratory pressure) valve
designed to maintain positive airway pressure in the lung, thus allowing for
more oxygen to diffuse into the patient's blood system.
<PAGE>
HCH(TM) Heat and Moisture Exchangers are designed to ensure proper
humidification and reduce heat loss for patients either during anesthesia or
while attached to mechanical ventilators. These products also eliminate the
problems associated with heated humidifiers and heated wire systems which can be
hazardous to patients by overheating and causing burns to the respiratory
system. Single-patient use heat and moisture exchangers also reduce the risk of
infection associated with reusable heated humidifiers.
Broselow/Hinkle(TM) Pediatric Emergency System. The Broselow/Hinkle(TM)
pediatric emergency system is the product of extensive clinical efforts by Dr.
James Broselow and Dr. Alan Hinkle which takes advantage of the direct
correlation between a pediatric patient's body length and the proper size of
emergency supplies and correct drug dosages. This patented system, licensed to
the Company, consists of: a tape measure having seven color zones, a
corresponding series of color-coded single-patient use emergency kits or modules
and a nylon organizer bag cus tom-designed to hold all the supplies needed in
either a trauma, cardiac or respiratory pediatric emergency. With this system,
emergency room and EMS personnel can be confident that all the supplies
necessary to manage a pediatric emergency are readily identified, available and
organized in a manner that minimizes reaction time. The Broselow/Hinkle(TM)
pediatric emergency system may also be sold by the Company in the pediatrician
office market.
Kurtis MSD(TM) Meconium Suction Device. The Kurtis MSD(TM) meconium suction
device was developed by a practicing neonatalogist, Peter Kurtis, M.D.. When an
infant shows signs of having aspirated meconium, the device provides rapid,
controlled intubation and meconium suctioning of newborns in the delivery room.
The Kurtis MSD(TM) meconium suction device combines three (3) devices which are
normally used in the procedure and, therefore, makes the procedure less
cumbersome.
Misty Ox(R) Respiratory Products. The MistyOx (R) line consists of three
respiratory product lines that deliver hydration to a patient. The first is a
pre-filled bubble humidifier to deliver low flow and low concentration of oxygen
to patients, the second is a nebulizer to deliver medium to high flow and high
concentrations of oxygen to patients, and the third is the addition of a
regulated heater to the nebulizer. These products may be used on infants,
children and adults in many areas of the hospital, including emergency, recovery
and critical care.
Isocath(TM). In October 1996, the Company introduced its Isocath(TM) closed
suction system, designed for hospital patients on a ventilator. Isocath(TM) is
used when an endotracheal tube is inserted in a patient located in the intensive
care setting of a hospital. Additionally, suctioning, one of the most common
procedures in intensive care, is performed to keep the patient's lungs free of
secretions. Isocath(TM) allows the suction catheter to be advanced into the
endotracheal tube without disconnecting the patient from the ventilator. Isocath
was designed with an "isolation" chamber to isolate the catheter from the
patient's airway while permitting cleaning of the catheter without inadvertently
lavaging the patient.
Vasceze(TM). In October 1996, the Company introduced a needleless,
disposable, pre-filled vascular catheter flush device used with IV sets in the
home care and hospital market. Vasceze(TM) is a one piece design manufactured
using the "blow-fill-seal" process. Vasceze(TM) is filled with either sodium
chloride or heparin solutions. The product is uniquely designed to deliver a
flush solution at pressures less than that of 10.cc syringes and other flush
devices.
<PAGE>
Services
HealthStar Pharmaceutical Services, Inc. ("HealthStar") was acquired in
January 1996. HealthStar's principal focus is utilization of the Company's
expertise in blow-fill-seal technology for contract packaging customers that
need sterile packaging (primarily pharmaceutical and medical device
manufacturers). HealthStar can also build blow-fill-seal machines for sale to
customers that desire to manufacture in their own plants.
The Validation Group provides consulting services to companies engaged in
the manufacture of medical devices and pharmaceuticals, mainly in the area of
compliance with regulations promulgated by the Food and Drug Administration
("FDA").
Market Data
The following table sets forth, for each of the past three fiscal years,
the dollar amount and approximate percentage of net sales--continuing product
lines represented by the Company's anesthesia products, respiratory and critical
care products, and other products.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- -----------------
Amount % Amount % Amount %
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Anesthesia $ 49.9 60.2 $ 54.1 61.7 $ 56.4 62.7
Respiratory and Critical Care 32.8 39.6 33.6 38.3 31.7 35.3
Services / Other .2 .2 .0 .0 1.8 2.0
------ ----- ------ ------- ------ ------
Total $ 82.9 100.0% $ 87.7 100.0% $ 89.9 100.0%
====== ===== ======= ======= ====== ======
</TABLE>
Sales, Marketing and Customers
Historically, the Company's strategy has been to sell its anesthesia and
respiratory products to hospitals in the United States through its own sales
force and third-party distributors. Given the increased use of national supply
distributors by hospitals over the last few years, the Company's sales through
these national distributors, such as Baxter and Owens & Minor, have increased to
36% of sales--continuing product lines for Fiscal 1996. The Company's sales
force participates with these national distributors in making sales to the
hospital. The Company believes this strategy provides it with an advantage over
many of its competitors, including competitors who have larger sales forces but
whose salespersons do not focus solely upon anesthesia and respiratory products.
Vital Signs' sales force, which focuses primarily upon anesthesia and
respiratory products, consisted of 84 salespersons in the United States and 18
salespersons internationally at October 1, 1996.
The Company utilizes an independent distributor for its Actar(R) CPR
training manikins and other pre-hospital and emergency care products. The
Company has begun to allocate resources to the development of a distributor
network for the home care market.
As new products are developed which can be sold by the Company's sales
force, management educates and trains the sales force in the need, use,
application and advantages of the Company's products. The Company also holds
quarterly training sessions for all salespersons and conducts additional
training as it deems appropriate.
<PAGE>
The Company's marketing staff, which works closely with its sales force,
collects and analyzes customer responses to new and existing products,
participates in the Company's product development program and assists in product
training. In addition, the Company's marketing staff develops and helps
implement various internal and external promotional activities.
As have other providers within the medical and healthcare industries, the
Company has been confronted with the rising purchasing power of buying groups
such as Premier Purchasing Partners, Tenet, Columbia Healthcare and others.
While the Company has been successful in signing an agreement with Premier for a
broad range of anesthesia products, no assurances can be given of the Company's
ability to secure other contracts. The buying power exerted by these entities
will have a negative impact on the Company's margins. Industry wide estimates
are that such buying groups will continue to exert their power to decrease
prices.
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier") covering a broad range
of anesthesia products, including breathing circuits and face masks. Premier is
the largest healthcare buying group in the United States. As part of Premier's
group purchasing commitment program, the agreement features savings for Premier
hospitals and systems which agree to buy 90 percent of the products covered by
the agreement from Vital Signs or one other supplier. Pricing for the five-year
agreement is effective February 1, 1997.
International Operations
For the year ended September 30, 1996, international sales accounted for
approximately 8% of net sales--continuing product lines, as compared with
approximately 5% during 1995 and approximately 3% during 1994.
Historically, the Company has sold its products in European and other
international markets through distributors. However, approximately three years
ago the Company sought expansion in Europe by establishing direct sales
organizations in the United Kingdom and Germany. In November 1995, the German
operations were closed and the sales force was replaced by a distributor.
In November 1995, the Company announced an exclusive three-year agreement
with the Baxter Respiratory Therapy division of Baxter Europe to distribute the
Company's anesthesia, respiratory and critical care products in France, Ireland,
Belgium, Holland, Spain and Portugal where Baxter has a significant direct sales
force. Under the agreement, the Company's UK subsidiary will serve as the
exclusive distributor of certain of Baxter's respiratory products in Britain
where the Company's UK subsidiary maintains a direct sales organization.
Beginning in August 1995, Mediziv, a subsidiary of the company located in
Israel, assumed responsibility for certain of the assembly and logistics
requirements for the Company's European operations. In September 1996 the
operations of Mediziv were refocused by discontinuing the manufacture of certain
product lines and concentrating on manufacturing Vital Signs' products for the
International market.
In January 1996, the Company opened a sales office in Beijing to support
sales development in the Peoples Republic of China and Hong Kong through
distributors. The Company's sales in China for fiscal 1996 are not significant.
<PAGE>
In September 1996, the Company announced the execution of agreements with
Teva Medical, Ltd., a subsidiary of Teva Pharmaceuticals, a leading Israeli
provider of healthcare products. Teva Medical will be the Company's exclusive
distributor in Israel, Egypt and Jordan and will manufacture certain of the
Company's products. The Company will also distribute certain of Teva's products
in the United States and United Kingdom.
It is the Company's intention to augment the international sales effort
through strategic alliances wherever possible, although no assurance can be made
that any such alliances can be completed.
Research and Development
The Company regards the element of innovation in its product lines to be an
essential part of its overall strategy. The principal focus of the Company's
research and development effort is to develop product solutions to problems
experienced by health care professionals. The Company's principal development
activities are directed toward expanding clinical applications of the Company's
existing products, resulting in improvements to the anesthesia products (such as
the face mask, breathing circuits and anesthesia kits) where the Company
maintains a substantial market position. Moreover, the internal R&D staff
maintains collaborative relationships with external professionals.
During Fiscal 1996 the Company's principal R & D focus was on two new
product opportunities. Both products were launched in October 1996. The first
product, a flush device for vascular access catheters (Vasceze(TM)), will be
utilized in both the hospital setting and in the rapidly expanding homecare
field. In December 1995, the Company received 510k clearance by the FDA to
market this new device for both saline and heparin applications. Manufacturing
of Vasceze(TM) is being performed in Germany and was in full production by the
end of December, 1996.
The other addition to the Company's products is the Isocath(TM) closed
suction system designed for use on ventilated patients. The Isocath(TM) system
has already received FDA 510k clearance for marketing the system in the United
States. The single-use system reduces the risk of infection for both patient and
care giver. Although initial marketing of Isocath(TM) started in October, 1996,
full production is planned for January, 1997. The Company's statement regarding
its plans for full production constitutes a forward-looking statement under the
Reform Act. Actual commencement of full production could be delayed
substantially beyond January 1997 as a result of unanticipated difficulties in
the manufacturing process.
The Company expects to continue to rely in part on its internal staff and
in part on outside professionals to perform research and development on
anesthesia and respiratory products. The Company's research and development
expenses aggregated approximately $4,493,000, $3,865,000 and $3,595,000
respectively, for Fiscal 1994, 1995 and 1996.
Medical Advisor
The Company has retained the services of Bernard Wetchler, M.D., as the
Company's Medical Director in order to provide the Company with medical
expertise in all facets of the delivery of anesthesia services. Dr. Wetchler is
Clinical Professor of Anesthesiology at the University of Illinois College of
Medicine, as well as Chair, Executive Committee, World Federation of Societies
of Anesthesiologists; past President of the American Society for Ambulatory
Anesthesia; and past President, Illinois Society of Anesthesiologists.
<PAGE>
EchoCath, Inc.
The Company owns a minority interest in EchoCath, Inc., ("EchoCath"), a
publically held corporation organized to develop, produce and sell certain
catheter products that utilize ultrasound guided technology. Terence D. Wall,
the Company's President and Chief Executive Officer, and Anthony J. Dimun, the
Company's Chief Financial Officer, also own minority interests in EchoCath. The
Company's interest in EchoCath is accounted for under the equity method through
which the Company's entire investment has been charged to operations.
Product Liability Exposure
As with other health care product suppliers, the Company is exposed to
potential product liability resulting from the use of the Company's products.
The Company presently carries product liability insurance coverage which
generally protects the Company against claims of bodily injury or property
damage arising out of any products manufactured, sold or distributed by the
Company. If a product liability suit were filed and a judgment entered against
the Company or the Company entered into a settlement agreement, the business,
results of operations and financial condition of the Company could be materially
adversely affected if such judgment or settlement exceeded the limits of the
Company's coverage.
There can be no assurance that the Company's insurance will be sufficient
to cover product liability claims that could arise or that such coverage will
remain available to the Company on satisfactory terms, if at all.
Manufacturing and Quality Control
General
The Company's facilities in Totowa, New Jersey; Burnsville, Minnesota;
Malvern, Pennsylvania; Orange, California; Riviera Beach, Florida; Barkan,
Israel and Kuala Lumpur, Malaysia are the principal manufacturing locations for
certain of the Company's products, including anesthesia breathing circuits,
filters, blood pressure cuffs, infusables, manual resuscitators and catheters,
and are utilized for the assembly, testing and packaging of many of its
products. Plastic components incorporated in certain products are molded to the
Company's specifications by outside custom injection molders who utilize molds
that are designed and, in most instances, owned by the Company. The Company's
suppliers typically are presented with written specifications to assure that
components are manufactured in conformity with the Company's design.
Given the ultimate use of many of the Company's products within the
operating room and critical care units of hospitals, the Company conducts
quality control testing in its various facilities. Substantially all such
testing is subject to governmental regulation. Pursuant to United States Food
and Drug Administration ("FDA") regulations, the Company is required to maintain
records of all raw materials received, tested and used in the manufacturing
process. See "Regulation."
<PAGE>
Re-engineering Efforts
During Fiscal 1994, 1995 and 1996, in light of the cost sensitive
environment resulting from various health care reform proposals, the Company
implemented productivity improvement programs with the help of an independent
consultant. This program resulted in cost efficiencies in manufacturing,
administration and other operating functions with a reduction in the Company's
work force by approximately ten percent. The management of the Company continues
to monitor and challenge processes and costs across its operations with the
objective of continuous cost reduction/productivity improvement.
Significant Suppliers
In 1980, the Company acquired the rights to its air-filled cushion face
mask--the Company's highest volume product--through a collaboration arrangement
with Respironics, Inc. ("Respironics"). The Company purchases its face masks
from Respironics, a single source which manufactures the face mask from sites in
Hong Kong and the People's Republic of China. The Company's supply agreement
with Respironics requires Respironics to supply air-filled, cushion face masks
of various specifications to the Company on an exclusive basis for anesthesia
purposes, and obligates the Company to purchase all of its anesthesia face masks
from Respironics as long as Respironics is the low cost supplier. The Company
has had a series of supply agreements with Respironics since June 1980; the
current supply agreement will govern the supply of anesthesia face masks by
Respironics to the Company through June 1997. Discussions are ongoing concerning
the extension of this agreement.
If the supply of face masks from Respironics should be interrupted or cease
for any reason, the Company would seek to find alternative developers and
suppliers of face masks. In such event, the Company would experience disruption
in its business. No assurance can be given that, in the event of such an
interruption or cessation, the Company could, in fact, maintain its required
supply of face masks in a quantity and at a cost that would not have a material
adverse effect on the business and operating results of the Company. The
Company's policy is to maintain a sufficient stock of face masks to lessen the
impact of any temporary production or supply disruption. The Company's agreement
with Respironics provides certain protections to the Company with respect to
molds utilized by Respironics.
The Company's new Vasceze(TM) product is manufactured in Germany. Because
of the complicated manufacturing process involved, a disruption in the
manufacturing procedure would impact the Company's abilities to fill orders for
Vasceze(TM) in the short term. For substantially all other products, the Company
believes that alternative sources of supply are available for such components
and that the loss of any such supplier would not have a material adverse effect
upon the Company's financial condition.
Sales Backlog
The Company does not believe that backlog is a meaningful measure of its
business, since its objective is to ship all orders within relatively short time
frames.
<PAGE>
Competition
The principal competitive factors in the Company's markets include
innovative product design, product quality, established customer relationships,
name recognition, distribution and price. The Company believes that its products
compete favorably with respect to these factors, although certain of the
Company's competitors may have greater financial and marketing resources or
broader product lines.
The Company's competitive environment can be characterized as fragmented,
often with as many as twelve different companies competing with regard to a
specific product. As a result, the Company's competition varies from product to
product. The Company's primary competitors include Intertech Resources Inc., a
subsidiary of Smith Industries (face masks, breathing circuits, resuscitators
and anesthesia kits), Baxter International Inc., (breathing circuits and
anesthesia kits), King Systems (face masks and anesthesia circuits), Stat Labs
(pressure infusors) and Critikon (blood pressure cuffs). The Company's newly
introduced Vasceze product faces competition from Solopak, Sanofi-Winthrop and
Wyeth/Ayerst, who provide pre-filled syringe catheter devices. The primary
competitors for the Company's Isocath product are Ballard Medical and Smith
Industries.
Regulation
As a manufacturer of medical devices, the Company is subject to regulation
by, among other governmental entities, the FDA and the corresponding agencies of
the states and foreign countries in which the Company sells its products. The
Company must comply with a variety of regulations, including the Current Good
Manufacturing Practice ("CGMP") regulations of the FDA, and is subject to
periodic inspections by the FDA and applicable state and foreign agencies.
Enforcement of CGMP requirements has increased significantly in recent years,
and the FDA has publicly stated that compliance would be more strictly
scrutinized. If the FDA believes that its regulations have not been fulfilled,
it may invoke extensive enforcement powers. Noncompliance with applicable
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure to receive premarket clearances or approvals,
withdrawal of approvals and criminal prosecution. The FDA also has the authority
to request repair, replacement or refund of the cost of any device manufactured
or distributed by the Company.
Medical devices are classified by the FDA into three classes that determine
the degree of regulatory control to which the manufacturer of the device is
subject. In general, Class I devices involve compliance with CGMP requirements
and are subject to other general controls including premarket notification
(510k). Class II devices are subject to the same controls as Class I and also
may be subject to specific controls (e.g., performance standards, postmarket
surveillance, patient registries and FDA guidelines) and are subject to
pre-market notification (510k). Class III devices are those devices for which
pre-market approval ("PMA") (as distinct from pre-market notification) is
required before commercial marketing to assure the products' safety and
effectiveness.
<PAGE>
To date, all of the Company's products are classified as either Class I or
Class II. Many new medical devices and some modifications to existing medical
devices, including most of the Company's products, are subject to a pre-market
notification process pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act. Further, current FDA enforcement policy prohibits the marketing of
approved or cleared medical devices for unapproved or uncleared uses. Products
which do not receive clearance through the FDA's 510(k) notification process are
subject to much lengthier and more complex pre-marketing approval ("PMA")
procedures.
No assurance can be given that the FDA or foreign regulatory agencies will
give on a timely basis, if at all, the requisite clearances or approvals for any
of the Company's medical devices which are under development. Moreover, after
clearance or approval is given, these agencies may have the power to withdraw
clearances or approvals or require the Company to change the device or its
manufacturing process or labeling, to supply additional proof of its safety and
effectiveness or to recall, repair, replace or refund the cost of the medical
device, if it is shown to be hazardous or defective. The process of obtaining
clearances or approvals to market products can be costly and time consuming and
can delay the marketing and sale of the Company's products.
The FDA has recently finalized changes to its CGMP regulations, including
design controls, which will likely increase the cost of compliance with CGMP
requirements. Federal, state and foreign regulations regarding the manufacture
and sale of medical devices are subject to additional change. In the future, the
Company cannot predict what impact, if any, such changes might have on its
business.
Over the past several years, the public and the federal government have
focused considerable attention on reforming the health care system in the United
States. The Clinton Administration pledged to bring about a reform of the
nation's health care system and, in September 1993, President Clinton outlined
the Clinton Administration's plan for health care reform. Included in the
proposal were calls to control or reduce public and private spending on health
care, to reform the payment methodology for health care goods and services by
both the public (Medicare and Medicaid) and private sectors, which could include
overall limitations on federal spending for health care benefits, and to provide
universal access to health care. While the political climate appears to have
changed with respect to sweeping health care reform, health care reforms on an
issue by issue basis have been reported to be a focus in the new Clinton
Presidential term, and such reforms may ultimately be enacted. No assurance can
be given that any such reforms will not have a material adverse effect on the
Company. Any such effect may be magnified by the advent of "managed care," which
may render sales to hospitals more cost sensitive and which has already had an
impact within the medical industry and related fields.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, environmental protection
and fire hazard control. There can be no assurance that the Company will not be
required to incur significant expenses to comply with such laws and regulations
in the future.
<PAGE>
Patents
While the Company possesses certain patents, has filed certain patent
applications and has increased its efforts to acquire and develop patented
products, the Company believes that the ownership of patents is not critical to
its ability to compete with respect to most of the products in its product line.
The Company has, however, pursued patent protection when in the reasonable
judgement of management such efforts may tend to provide the Company with
competitive advantages.
Employees
At September 30, 1996, the Company had 647 full-time employees and 11
part-time employees. The Company believes that its relations with its employees
are satisfactory.
Item 2. Properties
The Company's executive offices, principal manufacturing plant and
principal warehouse facilities are located in Totowa, New Jersey. These
facilities, consisting of approximately 154,000 square feet, are owned by the
Company. The Company's other substantial facilities -- approximately 35,000
square feet in Burnsville, Minnesota; 14,348 square feet in Malvern,
Pennsylvania; 39,600 square feet in Riviera Beach, Florida; 17,756 square feet
in Orange, California and 17,690 square feet in Barkan, Israel are leased by the
Company. The Company also leases office, assembly and warehouse space in England
and Malaysia.
Item 3. Legal Proceedings
In September 1994, two separate complaints were filed against the Company
(one in U.S. District Court for the Northern District of Illinois and the other
in U.S. District Court for the Western District of Louisiana), each of which
allege patent infringement with respect to certain of the Company's resuscitator
products and seek money damages and injunctive relief. The Louisiana matter was
withdrawn by the plaintiff and the suit was dismissed in 1996. In the Illinois
action discovery will close shortly and the matter will be placed on the court's
trial calendar awaiting a trial date. The Company denies the material
allegations of the Illinois complaint and intends to vigorously defend this
matter.
The Company is involved in other legal proceedings arising in the ordinary
course of business. The Company cannot predict the outcome of all of its legal
proceedings with certainty. However, based upon its review of pending legal
proceedings, the Company does not believe that its pending legal proceedings are
material to its financial condition, its results of operations or its liquidity.
Predictions regarding the impact of pending legal proceedings constitute
forward-looking statements under the Reform Act. The actual impact of such
proceedings could differ materially from the impact anticipated, primarily as a
result of uncertainties involved in the proof of facts in legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
Item 4A. Executive Officers of the Registrant
The Company's executive officers are as follows:
Positions with
Name Age* the Company
Terence D. Wall 55 President, Chief Executive
Officer and Director
Anthony J. Dimun 53 Executive Vice President,
Chief Financial Officer,
Treasurer, Secretary and
Director
Dennis Fenstermaker 50 Vice President - Manufacturing
and General Manager
Barry Wicker 56 Executive Vice President -
Sales and Marketing, and Director
* As of September 30, 1996.
Terence D. Wall founded the Company in 1972 and has been President, Chief
Executive Officer and a director of the Company since that time. He has also
invested in and serves on the Board of Directors of EchoCath and certain health
care businesses, including Sonokinetics Corp., a manufacturer of an ultrasonic
orthopedic cement removal device ("Sonokinetics"), Bionix Inc., a manufacturer
of biosorbable medical devices for orthopedic and other applications ("Bionix"),
and Exogen, a manufacturer of an ultrasonic bone healing device. Prior to
founding the Company, he held various sales and marketing positions with The
Foregger Co. (a manufacturer of anesthesia products and a division of Air
Products and Chemicals, Inc.), the medical division of Westinghouse Corporation
and the medical division of American Optical Corporation. He received a Bachelor
of Science degree in 1963 from the University of Maryland and a Master of
Business Administration degree from Pace University in 1975. For the foreseeable
future, the Company will remain dependent upon the efforts of Mr. Wall. The
Company does not maintain key man life insurance on Mr. Wall's life.
Anthony J. Dimun, a certified public accountant, has been a director of the
Company since August 1987. On March 1, 1991, Mr. Dimun became an Executive Vice
President and the Chief Financial Officer of the Company and on December 1, 1991
he became the Secretary and Treasurer of the Company. Mr. Dimun is also a
shareholder and Board member of EchoCath and Bionix. From July 1989 through
February 1991, he served as Senior Vice President of First Atlantic Capital
Ltd., a United States affiliate of an international merchant banking group. From
August 1987 until December 1987, he served as Executive Vice President, Chief
Financial Officer and Treasurer of the Company. From 1978 until August 1987, he
was a partner in the accounting firm of Goldstein Golub Kessler & Company, P.C.,
which has examined the Company's financial statements for more than the past
five years. He served as a senior audit manager with Ernst & Whinney (a
predecessor of Ernst & Young) prior to joining Goldstein Golub Kessler &
Company, P.C. in 1976. He received a Bachelor of Science degree from Rider
University in 1965.
Dennis Fenstermaker joined the Company in June 1992 as Director of
Manufacturing and became Vice President - Manufacturing and General Manager in
<PAGE>
October 1993. Prior to joining the Company, he held various manufacturing and
engineering management positions with Sterling Drug Inc. (a pharmaceutical
manufacturer and distributor) for more than ten years, including Director of
Engineering Services and Plant Manager, and with Johnson & Johnson (a
manufacturer and distributor of health care products) for more than ten years.
Mr. Fenstermaker earned a Bachelor of Science degree in Commerce and Engineering
Sciences from Drexel University in 1969 and a Master of Business Administration
degree from Rider University in 1973.
Barry Wicker has served as a director and an Executive Vice President of
the Company since 1985 (with primary responsibility for sales and marketing).
Mr. Wicker joined the Company in 1978 as National Sales Manager and became Vice
President - Sales in 1981. Prior to joining the Company, he held various
marketing and sales positions with The Foregger Co. over a 20 year period.
Each of the Company's executive officers serves as such at the pleasure of
the Board.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock (the "Common Stock") is traded in the
over-the-counter market and quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
following table sets forth the high and low closing sales prices of the Common
Stock on the NASDAQ National Market System, and the cash dividends declared per
share of Common Stock, for the periods indicated:
<TABLE>
<CAPTION>
Dividend
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
Fiscal Year Ended September 30, 1995:
Quarter ended December 31, 1994 $11-7/8 $10-1/8 $ .02
Quarter ended March 31, 1995 14-1/4 10-7/8 .02
Quarter ended June 30, 1995 17-1/4 13 .02
Quarter ended September 30, 1995 22-3/4 16-1/8 .03
Fiscal Year Ended September 30, 1996:
Quarter ended December 31, 1995 $26-3/8 $ 17-3/8 $ .03
Quarter ended March 31, 1996 31-5/8 23-5/8 .03
Quarter ended June 30, 1996 25-1/2 18-1/2 .03
Quarter ended September 30, 1996 23-1/2 18-3/4 .03
</TABLE>
As of September 30, 1996, there were approximately 475 holders of record of
the Common Stock.
During Fiscal 1996, the Company declared and paid cash dividends of $0.12
per share. Payment of cash dividends in the future will depend upon the
financial condition, capital requirements, loan agreement restrictions and
earnings of the Company, as well as such other factors as the Board of Directors
may deem relevant.
Item 6. Selected Financial Data
The following selected consolidated financial data have been derived from
the Company's audited consolidated financial statements. The information below
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K.
Certain acquisitions occurring on or before September 30, 1996, including
HealthStar Pharmaceutical Services, Inc. (acquired in January 1996), Misty Ox
(acquired in December 1995), Coast Medical, Inc. (acquired in October, 1995),
Mediziv Medical Products, Ltd. (acquired in July 1995), Actar Airforce, Inc.
(acquired in June 1992), Thomas Medical Products, Inc. (acquired in September
1992), and O.R. Concepts, Inc. (acquired in November 1992), have been accounted
for as purchases and, accordingly, are only reflected herein for dates and
periods on and after the respective acquisition dates. See the Notes to the
Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
_______________________________________________________________________
1992 1993 1994 1995 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales--continuing product lines $ 65,661 $ 77,182 $ 82,937 $ 87,651 $ 89,922
Net sales--product line disposed 2,696 2,187 1,902 808
Cost of goods sold (27,019) (34,247) (37,594) (38,279) (38,418)
-------- -------- -------- -------- --------
Gross profit 38,642 45,631 47,530 51,274 52,312
-------- -------- -------- ------- --------
Operating expenses:
Selling, general and administrative 20,463 23,685 27,317 23,629 23,491
Research and development 2,963 3,856 4,493 3,865 3,595
Interest income (585) (773) (781) (2,406) (2,508)
Merger and litigation expenses 1,167
Interest expense 611 640 555 382 346
Special charges 10,643
Other (income) expense (1,156) (731) (969) 162 (1,635)
Goodwill amortization 381 462 354 643
-------- -------- -------- ------- --------
23,463 27,058 41,720 25,986 23,932
-------- -------- -------- ------ --------
Income before provision for
income taxes 15,179 18,573 5,810 25,288 28,380
Provision for income taxes 4,776 5,899 4,132 9,154 9,591
------- -------- ------- --------- ----------
Net income $ 10,403 $ 12,674 $ 1,678 $ 16,134 $ 18,789
========= ======== ======== ======== ==========
Net income per share $ .81 $ .98 $ .13 $ 1.24 $ 1.44
========= ========= ========= ======== ==========
Dividends per share $ $ $ .02 $ .09 $ .12
========= ========= ========= ======== ==========
Weighted average number of
shares outstanding 12,876 12,990 12,994 12,991 13,045
========= ========= ========= ========= ===========
September 30,
____________________________________________________________________
1992 1993 1994 1995 1996
(In thousands)
Balance Sheet Data:
Working capital $ 45,529 $ 46,869 $ 50,409 $ 32,885 $ 44,820
Total assets 78,950 92,200 91,773 110,421 123,756
Long-term debt, excluding
current installments 6,433 5,829 3,700 3,200 2,700
Total stockholders' equity 63,814 76,138 77,658 92,645 110,239
</TABLE>
- --------
1 The Company disposed of its endoscopic product line during Fiscal 1996,
has reflected net sales of that product line as a separate line item in the
table set forth above and has included in other (income) expense for Fiscal
1996 a $174,000 gain on the sale of that product line. Expenses of that product
line were not material to the Company's results of operations (other than
expenses included in a special charge for Fiscal 1994). Accordingly, such
expenses are included within cost of goods sold and operating expenses in the
table set forth above.
2 The reduction in working capital in Fiscal 1995 is primarily attributable
to the acquisition of certain marketable securities which are not classified
as current assets and the acquisition of Mediziv. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Introduction
The Company disposed of its endoscopic product line during Fiscal 1996. See
Item 6 of this Annual Report on Form 10-K. In its analysis of the Company's
results of operations, management views net sales from continuing product lines
(i.e., excluding the revenues derived from its endoscopic product line) as the
relevant revenue base from which to make analytic comparisons. Since the
expenses of the endoscopic product line were not material to the Company's
results of operations (other than expenses included in a special charge for
Fiscal 1994) and did not vary substantially prior to the discontinuation of that
product line, management's analysis below includes within all line items other
than sales the results of operations of both the Company's continuing product
lines and the Company's discontinued endoscopic product line.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
increase or decrease of certain items included in the Company's consolidated
statements of income.
Increase (Decrease) from Previous Year (1)
Fiscal 1995 Fiscal 1996
Compared with Compared with
Fiscal 1994 Fiscal 1995
---------------- -----------
Net sales--continuing product lines 5.7% 2.6%
Cost of good sold 1.8 .4
Gross profit 7.9 2.0
Selling, general and
administrative expenses (13.5) (.6)
Research and development
expenses (14.0) (7.0)
Income before provision
for income taxes 335.2 12.2
Provision for income taxes 121.5 4.8
Net income 861.5 16.5
______________
(1) Percentage changes with respect to certain line items in the Company's
consolidated statements of income have been omitted since they are not
meaningful. The substantial changes from Fiscal 1994 to Fiscal 1995 in
the last three line items above relate primarily to special charges
taken during the fourth quarter of Fiscal 1994.
<PAGE>
Fiscal 1996 Compared to Fiscal 1995 (See "Introduction")
Net sales--continuing product lines for the year ended September 30, 1996
increased by 2.6% compared with the same period last year. The increase was due
primarily to an increase in unit sales and the acquisition of the Misty Ox(R)
product line and HealthStar Pharmaceutical Services. Prices did not have a
material effect on net sales during these periods.
Sales of anesthesia products (representing 62.7% of net sales -- continuing
product lines), grew 4.3% from the year ended September 30, 1995 to the year
ended September 30, 1996. Sales of critical care and respiratory products
(representing 35.3% of net sales -- continuing product lines) decreased by 5.7%.
Other products, accounting for 2.0% of net sales -- continuing product lines,
increased by 100% from the comparable period in Fiscal 1995, reflecting the
Company's acquisition of HealthStar Pharmaceutical Services.
Gross profit increased by 2% in absolute dollar amount, primarily due to
the Company's re-engineering and cost reduction efforts offset by sales of
certain products with gross margins below the Company's average gross margin, as
well as the sales price pressure that is evident within the cost conscious
health care industry today. Such re-engineering efforts consisted of a revuew of
material business processes with the goal of assuring that business objectives
were being met on a cost-efficient basis.
Selling, general and administrative expenses decreased as a percentage of
sales--continuing product lines from 27.0% of sales to 26.1% of sales. Total
selling, general and administrative expenses decreased by .6%, as the result of
the Company's re-engineering efforts, offset by increases in freight and sales
costs to support international sales growth and the acquisitions of Coast
Medical, Inc., and HealthStar Pharmaceutical Services.
Research and development (R&D) expenses decreased by approximately 7.0% in
dollar volume, as the result of re-engineering. The Company continues to make a
commitment to new product development as evidenced by its recent announcement of
two new products (a single-use flush device and a single-use closed suction
catheter). See "Business-Research and Development".
Other income/expense primarily includes dividend income earned on
investments, gain on the sales of cash investments and the gain on sale of the
Company's O.R. Concepts' endoscopic product line, offset by charitable
contributions of inventory. In addition, during the fourth quarter the Company
recognized other income of $1,000,000 relating to the sale of its interest in
Cardiologics, L.L.C., a joint venture engaged in the early stage development of
cardiovascular products. The sale, made to a related party, was completed in
order to enable the Company to focus its efforts upon its core product lines,
anesthesia and critical care.
The Company's effective tax rates were 33.8% and 36.2% for Fiscal 1996 and
1995, respectively. The 1996 rate was less than the combined Federal and State
statutory rates primarily as a result of the utilization of capital loss carry
forwards.
<PAGE>
On November 18, 1996, the Company announced it won a dual source supply
agreement with Premier Purchasing Partners LP ("Premier"), an affiliate of the
largest healthcare purchasing group in the United States (see page 9). This
agreement covers a variety of anesthesia products and provides for favorable
pricing in exchange for committed purchasing volume (90%) of usage from the
member hospitals. The agreement covers a five year term and begins February 1,
1997. Based on current membership data, management anticipates that the effect
on operating income and gross margin contribution (dollars) will not be dilutive
in spite of lower pricing and gross margin percentages. This statement
constitutes a forward-looking statement under the Reform Act. The effects of the
contract could differ materially from these estimates as the contract is
implemented, if the volume of purchases is less than anticipated, if the Company
is required to incur unanticipated selling expenses or if the product mix
purchased does not result in anticipated manufacturing efficiencies.
Fiscal 1995 Compared to Fiscal 1994 (see "Introduction")
Net sales--continuing product lines for the year ended September 30, 1995
increased by 5.7% compared with the same period last year. The increase was due
primarily to an increase in unit sales and the introduction of certain new
products. Prices did not have a material effect on net sales during these
periods.
Sales of anesthesia products (representing 61.7% of net sales -- continuing
product lines) grew 8.4% from the year ended September 30, 1994 to the year
ended September 30, 1995. Sales of critical care and respiratory products
(representing 38.3% of net sales -- continuing product lines) increased by 2.4%.
Gross profit increased by 7.9% in absolute dollar amount, primarily due to
the Company's re-engineering and cost reduction efforts commenced in the fourth
quarter of Fiscal 1994.
Selling, general and administrative expenses decreased as a percentage of
sales--continuing product lines from 32.9% of sales to 27.0% of sales. Total
selling, general and administrative expenses decreased by 13.5%, largely
attributable to direct sales force reductions in Germany and O.R. Concepts as
the Company moved from direct sales to sales through dealers. The Company also
commenced (in Fiscal 1994) a broad-based re-engineering process in its operating
areas which accounted for a large portion of the reduction in such expenses.
Research and development (R&D) expenses decreased by 14.0% in dollar
volume, primarily due to reduced activity in O.R. Concepts due to the
anticipated future sale of that business. On a percentage of sales -- continuing
product lines basis, these expenses decreased by 1%.
Other income/expense primarily includes dividend income earned on
investments, offset by charitable contributions of inventory. Dividend income in
Fiscal 1995 decreased by $1.4 million, primarily due to a shift to interest
bearing investments.
<PAGE>
Net earnings for both the September 1994 fourth quarter and year end were
impacted by special charges in the fourth quarter which aggregated $10,643,000
before tax. These special charges included the following:
(i) German Operations. The Company's activities in Germany through
September 30, 1994 consisted of a direct sales force of seven persons and an
administrative, distribution and assembly facility that serviced local German
customers and distributors throughout Europe. Through September 30, 1994, costs
associated with such efforts were disproportionate to anticipated revenues. A
decision was made to restructure the manner in which the Company's German
operations function both as to marketing and distribution. This decision
resulted in a special charge to operations of $1.3 million.
(ii) O.R. Concepts. Sales and operating results of the Company's O.R.C.
subsidiary have been disappointing since the acquisition in Fiscal 1993.
Accordingly, in the fourth quarter, a decision was made to write down a portion
of the goodwill initially recognized with respect to this acquisition and to
record reserves relating to severance costs and other aspects of O.R.C.'s
reduced operations. The total fourth quarter special charges relating to O.R.C.
was $3.9 million.
(iii) Cost Reduction Program. During Fiscal 1994, the Company implemented a
program to reduce costs and improve operating efficiencies. The fourth quarter
special charges include $.9 million attributable to (i) fees paid to a
consultant for recommendations made relating to the Company's manufacturing,
administrative and other internal functions and (ii) associated severance costs.
(iv) Investment Portfolio Losses. During the fourth quarter of fiscal 1994,
the Board of Directors revised its investment strategies and retained three
consultants to manage the Company's marketable securities. As a result of these
actions, the Company was required to recognize losses of $3.0 million,
reflecting declines in the market value of certain debt securities (none of
which were derivative securities) held by the Company.
(v) Other. The Company made other reevaluations, relating to various assets
and liabilities on its balance sheet, which resulted in aggregate special
charges of $1.6 million.
The Company's effective tax rates were 36.2% and 71.1% for Fiscal 1995 and
1994, respectively. The 1995 rate was less than the combined Federal and State
statutory rates primarily as a result of the utilization of capital loss carry
forwards, R & D and other tax credits and a reduced tax rate on capital gains
and dividend income.
<PAGE>
Liquidity and Capital Resources
The Company continues to rely upon cash flow from its operations (which
produced $15.7 million of cash in fiscal 1996) as well as the funds generated
from its initial and second public offerings and certain bank borrowings. The
combined net carrying value of marketable securities, cash and cash equivalents
and long-term marketable securities was approximately $46,536,000 at September
30, 1996, an increase of $1,520,000 over the prior year. The increase resulted
primarily from the sale of the O.R. Concepts endoscopic product line and cash
from operations, offset by acquisitions of property, plant and equipment,
dividend payments, principal payments on the Company's long-term debt and the
acquisitions of Coast Medical, Inc., HealthStar Pharmaceutical Services, Inc.,
and the Misty Ox product line.
At September 30, 1996, the Company had working capital of $44.8 million and
its current ratio was 6.1 to 1, as compared to $32.9 million and 3.6 to 1 at
September 30, 1995. The Company continues to maintain a substantial working
capital position. Its current policy is to retain such working capital and
earnings for use in its business, subject to the payment of certain cash
dividends. Such funds may be used for product development, product acquisitions
and business acquisitions, among other things. The Company regularly evaluates
and negotiates with domestic and foreign medical device companies regarding
potential business or product line acquisitions or licensing arrangements by the
Company.
The Company has a $10 million line of credit with Chase Manhattan Bank
("Chase"). Chase has also expressed its intention to provide additional funds
for the Company's future acquisitions, provided that each such acquisition meets
certain criteria. The terms for any borrowing would be negotiated at the date of
origination.
Management believes that the funds generated from operations, along with
the Company's current working capital position and bank credit, will be
sufficient to satisfy the Company's capital requirements for the foreseeable
future.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements and related report
are set forth in this Annual Report on the following pages:
Page
Independent Auditor's Report F-1
Consolidated Balance Sheet as of
September 30, 1995 and 1996 F-2
Consolidated Statement of Income
for the years ended
September 30, 1994, 1995 and 1996 F-3
Consolidated Statement of Stockholders'
Equity for the years ended
September 30, 1994, 1995 and 1996 F-4
Consolidated Statement of Cash
Flows for the years ended
September 30, 1994, 1995 and 1996 F-5
Notes to Consolidated Financial Statements F-6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Vital Signs, Inc.
We have audited the accompanying consolidated balance sheets of Vital Signs,
Inc. and Subsidiaries as of September 30, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vital Signs, Inc. and
Subsidiaries as of September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
November 14, 1996
F-1
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
1996 1995
(in thousands)
Current Assets:
Cash and cash equivalents (Note 1) $ 17,747 $ 8,334
Marketable securities (Notes 1 and 5) 602 3,757
Accounts receivable, less allowance
for doubtful accounts of $169
and $285, respectively (Notes 15 and 16) 13,887 15,300
Inventory (Notes 1 and 3) 13,013 11,325
Prepaid expenses and other
current assets (Note 4) 8,279 6,936
---------- -------
Total current assets 53,528 45,652
Property, Plant and Equipment - net (Notes 1 and 6) 21,131 12,674
Marketable Securities (Notes 1 and 5) 28,187 32,925
Goodwill (Notes 1 and 2) 16,619 15,419
Other Assets 4,291 3,751
---------- ---------
Total Assets $ 123,756 $110,421
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,066 $ 3,017
Current portion of long-term debt (Note 7) 500 500
Accrued expenses 2,406 4,936
Amounts payable relating to acquisitions 236 2,911
Deferred income taxes payable (Notes 1 and 13) 1,500 1,403
--------- -------
Total current liabilities 8,708 12,767
Deferred Income Taxes Payable (Notes 1 and 13) 1,334 993
Long-term Debt (Note 7) 2,700 3,200
Other liabilities 775 816
---------- ---------
Total Liabilities 13,517 17,776
---------- ---------
Commitments and Contingencies (Notes 2, 10 and 11)
Stockholders' Equity (Note 12)
Common stock - no par value;
authorized 40,000,000 shares,
issued 13,062,701 and 12,999,078
shares, respectively 29,666 29,015
Allowance for aggregate unrealized loss on1
marketable securities (Notes 1 and 5) (426) (100)
Retained earnings 80,999 63,730
------------ ----------
Stockholders' equity 110,239 92,645
------------ ----------
Total Liabilities and Stockholders' Equity $ 123,756 $ 110,421
============ =========
See notes to consolidated financial statements
F-2
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended
September 30,
------------------------------
1996 1995 1994
---- ---- ----
(in thousands except per share amounts)
Net sales-continuing product
lines(Notes 1 and 16) $ 89,922 $ 87,651 $ 82,937
Net sales-product line disposed 808 1,902 2,187
Cost of goods sold (38,418) (38,279) (37,594)
-------- -------- --------
Gross profit 52,312 51,274 47,530
-------- -------- ---------
Operating expenses:
Selling, general and administrative 23,491 23,629 27,317
Research and development 3,595 3,865 4,493
Interest income (2,508) (2,406) (781)
Interest expense (Note 7) 346 382 555
Special charges (Note 9) 10,643
Other (income) expense (Notes 1, 8 and 14)(1,635) 162 (969)
Goodwill amortization 643 354 462
---------- --------- ----------
23,932 25,986 41,720
---------- ---------- ----------
Income before provision for income taxes 28,380 25,288 5,810
Provision for income taxes (Notes 1 and 13) 9,591 9,154 4,132
--------- ---------- ----------
Net income $ 18,789 $ 16,134 $ 1,678
========== ========= ==========
Net income per share (Note 1) $ 1.44 $ 1.24 $ .13
=========== ========= ----------
Weighted average number of shares 13,045 12,991 12,994
=========== ======== ==========
See notes to consolidated financial statements
F-3
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Allowance for
Aggregate Unrealized
Loss on
Common Stock Marketable Retained Stockholders'
Shares Amount Securities Earnings Equity
------ ------ ---------- -------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 13,000,116 $ 29,081 $ (313) $ 47,370 $ 76,138
Purchase of treasury
stock net of reissuance (9,554) (115) (21) (136)
Adjustment to the allowance for aggregate
unrealized loss on marketable securities 238 238
Dividends paid ($.02 per share) (260) (260)
Net income 1,678 1,678
----------- --------- -------- ---------- ---------
Balance at September 30, 1994 12,990,562 28,966 (75) 48,767 77,658
Purchase of treasury
stock net of reissuance (459) (6) (1) (7)
Exercise of stock options 8,975 55 55
Adjustment to the allowance for aggregate
unrealized loss on marketable securities (25) (25)
Dividends paid ($.09 per share) (1,170) (1,170)
Net income 16,134 16,134
----------- ---------- -------- --------- --------
Balance at September 30, 1995 12,999,078 29,015 (100) 63,730 92,645
Reissuance of treasury
stock net of purchase 4,129 (8) 45 37
Exercise of stock options 59,494 659 659
Adjustment to the allowance for aggregate
unrealized loss on marketable securities (326) (326)
Dividends paid ($.12 per share) (1,565) (1,565)
Net income 18,789 18,789
---------- --------- ------- ---------- ---------
Balance at September 30, 1996 13,062,701 $ 29,666 $ (426) $ 80,999 $ 110,239
========== ========= ======== ========== =========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended
September 30,
--------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $ 18,789 $ 16,134 $ 1,678
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,322 1,535 1,315
Deferred income taxes 438 674 (931)
Amortization of goodwill 643 354 462
Amortization of deferred credit (100) (100) (100)
Net (gain) loss on sales of available-
for-sale securities (608) (429) 774
Net gain on sale of product line (174)
Write down of goodwill 3,000
Write down of fixed assets 213
Debt issue costs 124
Changes in operating assets and
liabilities:
(Increase) decrease in
marketable securities 2,768 (1,517)
(Increase) decrease in
accounts receivable 2,319 (3,323) 242
(Increase) in inventory (1,963) (967) (1,040)
(Increase) decrease in
prepaid expenses and
other current assets (1,481) 1,509 (1,686)
(Increase) decrease in other assets (431) 639 75
Increase (decrease) in accounts payable
and accrued expenses (4,068) 367 2,916
------- ------ --------
Net cash provided by
operating activities 15,686 19,161 5,525
------- ------ --------
Cash flows from investing activities:
Acquisition of property, plant
and equipment (8,611) (2,026) (2,278)
Cash received for the sale of product line 2,786
Proceeds from the maturity of a held-
to-maturity security 1,020
Purchases of available-for-sale securities(44,882) (68,864) (16,870)
Proceeds from sales of available-
for-sale securities 53,057 41,221 12,342
Payment for purchase of subsidiaries,
net of cash acquired (7,254) (2,237) (766)
------- ------- --------
Net cash used in investing activities (4,904) (31,906) (6,552)
------- ------- --------
Cash flows from financing activities:
Dividends paid (1,565) (1,170) (260)
(Purchase) reissuance of treasury stock 37 (7) (136)
Proceeds from exercise of stock
options and warrants 659 55
Debt issue costs (22)
Principal payments of long-term
debt and notes payable (500) (1,211) (2,454)
------- -------- -------
Net cash used in financing activities (1,369) (2,333) (2,872)
------- -------- --------
Net increase (decrease) in cash
and cash equivalents 9,413 (15,078) (3,899)
Cash and cash equivalents at beginning of year 8,334 23,412 27,311
------ -------- --------
Cash and cash equivalents at end of year $ 17,747 $ 8,334 $ 23,412
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 394 $ 389 $ 611
Income taxes $ 9,306 $ 6,058 $ 6,575
Supplemental schedule of noncash
investing activities:
Accrued amounts relating to purchase
of subsidiaries $ 125 $ 3,336
Settlement of disputed amounts in
connection with the purchase
of a subsidiary $ 707
Forgiveness of note receivable as
payment for purchase of subsidiary $ 333
See notes to consolidated financial statements
F-5
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies:
Business Activity:
Vital Signs, Inc. ("VSI") and its subsidiaries (collectively the "Company")
design, manufacture and market single-patient use respiratory, anesthesia and
related critical care products to hospitals and other health care facilities.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Depreciation:
Depreciation and amortization of property, plant and equipment is provided
for by the straight-line method over the estimated useful lives of the related
assets.
Income Taxes:
Income taxes are based upon amounts included in the consolidated statement
of income. Deferred income taxes result from differences between the time
certain expenses are recognized for financial reporting purposes and the time
when the items are actually reported for income tax purposes.
Revenue Recognition:
Revenue from sales of products is recognized at the date of shipment to
customers.
Amortization of Goodwill:
Goodwill arising from business acquisitions accounted for under the
purchase method is amortized over 40 years using the straight-line method.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company believes
it is not exposed to any significant credit risk with respect to its highly
liquid investments in money market securities and its commercial banking
facilities.
F-6
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies (continued):
Income Per Share of Common Stock:
Income per share of common stock has been computed using the weighted
average number of shares of common stock outstanding during each period. The
dilutive effect of common stock equivalents is not material.
Marketable Securities:
Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and discounts to maturity. Such amortization is included in investment income.
Interest on securities classified as held-to-maturity is included in investment
income.
Certain marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and discounts to maturity. Such amortization is included in investment
income.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-forsale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Dividends on securities classified as available-for-sale are included in
other (income) expenses.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements. Actual
results could differ from those estimates.
Accounting for the Impairment of Long-Lived Assets:
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", on October 1, 1996. Management believes this change will not be
significant to the consolidated financial statements.
Accounting for Stock-Based Compensation:
The Company intends to elect to continue to measure compensation cost using
APB Opinion No. 25 as is permitted by the Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The
disclosure required by SFAS No. 123 is effective for financial statements with
fiscal years beginning after December 15, 1995 (the Company's fiscal 1997).
F-7
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions/Dispositions:
1995 Acquisition:
In July 1995, the Company acquired, in a purchase transaction, an 85%
ownership interest in Mediziv Medical Products, Ltd., ("Mediziv") a closely held
Israeli company primarily engaged in the business of developing, assembling and
selling single use products for use in anesthesia and critical care. VSI paid
$2,200,000, consisting of a cash payment to the sellers and refinancing of
Mediziv's funded indebtedness. The sellers are also eligible to receive
contingent payments based on sales of Mediziv's products through the fiscal year
ending in 2000, including minimum payments of $790,000 (present value $500,000).
The estimated fair value of the assets acquired amounted to $1,175,000 and
liabilities assumed amounted to $2,550,000 with goodwill of $1,686,000 reflected
at the date of acquisition.
1996 Acquisitions/Disposition
In January 1996, the Company acquired, in a purchase transaction, all of
the outstanding stock of HealthStar Pharmaceutical Services, Inc.,
("HealthStar") a company engaged in both the manufacture of equipment and
contract manufacturing services utilizing specialized blow-fill-seal
manufacturing technology for the pharmaceutical and medical industry. The
Company paid $1,595,000 at closing. The sellers are also eligible to receive
contingent payments based on earnings before taxes, as defined, in each year
ending December 31, 1996, 1997 and 1998. Management does not believe these
targets will be achieved for the year ending December 31, 1996. The estimated
fair value of the assets acquired approximated $2,850,000 and liabilities
assumed approximated $1,550,000 with goodwill of approximately $1,300,000
reflected at the date of acquisition.
In December 1995 the Company entered into a purchase agreement for all of
the net assets related to the Misty Ox product line. The purchase price paid at
closing by the Company was $2,025,000. The estimated fair value of the assets
acquired amounted to $2,014,000 and liabilities assumed amounted to $113,000
with goodwill of $250,000 reflected at the date of acquisition.
During fiscal 1996, the Company sold its O.R. Concepts endoscopic product
line and recognized a gain of $174,000 (Note 8).
The effect of the operations of HealthStar and the Misty Ox product line
from October 1, 1995 to the dates of acquisition on the Company's results of
operations for the year ended September 30, 1996 was immaterial. In addition,
the effect of the operations of Mediziv from October 1, 1994 to the date of
acquisition and the effect of the operations of HealthStar and the Misty Ox
product line on the Company's results of operations for the year ended September
30, 1995 was immaterial. Accordingly, proforma financial information regarding
these transactions has not been presented.
F-8
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Inventory:
Inventory consists of the following:
September 30,
-----------------
1996 1995
---- ----
(in thousands)
Raw materials $ 9,617 $ 8,274
Finished goods 3,396 3,051
--------- ----------
$ 13,013 $ 11,325
========= ==========
Note 4 - Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist of the following:
September 30,
_____________________
1996 1995
---- ----
(in thousands)
Prepaid employee fringe benefits $ 3,964 $ 4,155
Notes and interest receivable (see Note 14) 1,919 882
Prepaid income taxes 1,330 1,038
Prepaid insurance 270 310
Other 796 551
------ --------
$ 8,279 $ 6,936
======= ========
Note 5 - Marketable Securities:
The following is a summary of available-for-sale securities and
held-to-maturity securities:
<TABLE>
<CAPTION>
Available-for-Sale-Securities
______________________________________________________________
September 30, 1996 September 30, 1995
(in thousands)
Gross Gross
Unrealized Unrealized
Fair Holding Fair Holding
Value Cost Losses Value Cost Losses
----- ---- ----------- ----- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations 19,412 19,835 (423) $ 19,167 $ 19,160 $ 7
Corporate obligations 3,314 3,404 (90) 2,161 2,168 (7)
Federal mortgage
obligations 6,063 6,272 (209) 14,709 14,879 (170)
---------- -------- ---------- --------- --------- ---------
$ 28,789 $ 29,511 $ (722) $ 36,037 $ 36,207 $ (170)
========== ======== ========== ========= ========= =========
F-9
</TABLE>
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1996 investments in debt securities classified as
available-for-sale securities mature as follows:
<TABLE>
<CAPTION>
Maturity
(in thousands)
0 - 1 Year 1 - 5 Years 5 - 10 Years 10 - 30 Years
---------- ----------- ------------ -------------
<S> <C> <C>
U.S. Government obligations $ 200 $ 19,212
Corporate obligations 402 2,912
Federal mortgage obligations 160 $ 1,182 $ 4,721
--------- ----------- ------- --------
$ 602 $ 22,284 $ 1,182 $ 4,721
========= ========== ======== ========
Held-To-Maturity Securities
September 30, 1996 September 30, 1995
---------------------------------------- ----------------------------------
(in thousands)
Gross Gross
Unrealized Unrealized
Fair Amortized Holding Fair Amortized Holding
Value Cost Gain Value Cost Gain
----- --------- -------- --------- --------- ----------
Private export fund --- --- --- $ 664 $ 645 $ 19
========== ========= ========= ========= ========= ========
Total $ 28,789 $ 36,682
========== =========
</TABLE>
At September 30, 1995 investments in debt securities classified as
held-to-maturity mature in 1 - 5 years.
Realized gains and losses are determined on the basis of specific
identification. During the year ended September 30, 1996 sales proceeds and
gross realized gains and losses on securities classified as available-for-sale
securities were $53,056,643, $652,000 and ($44,000) respectively. During the
year ended September 30, 1995 sales proceeds and gross realized gains and losses
on securities classified as availablefor-sale securities were $41,221,076,
$448,000 and ($19,000) respectively. During the year ended September 30, 1994,
sales proceeds and gross realized gains and losses on securities classified as
available for sale securities were $12,342,000, $19,000 and ($793,000)
respectively.
During the year ended September 30, 1994, gross losses included in results
of operations resulting from transfers of securities from the
available-for-sales category into the trading category were $1,486,000. The
decision to transfer the securities was based on the Company's change in
investment philosophy which required the Company to liquidate substantially all
of its portfolio.
Results of operations for the years ended September 30, 1995 and September
30, 1994, respectively, include charges of $4,000 and $1,730,000 for unrealized
losses on trading securities. There were no unrealized gains or losses during
the year ended September 30, 1996. Stockholders equity at September 30, 1996,
1995 and 1994 includes an unrealized holding loss on available-for-sale
securities of $426,000, $100,000 and $75,000 respectively.
F-10
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Property, Plant and Equipment:
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------- Estimated
1996 1995 Useful Life
---- ---- -----------
(in thousands)
<S> <C> <C>
Land $ 1,631 $ 690
Building and building improvements 10,784 8,457 30 to 40 years
Equipment and molds 14,790 8,243 5 to 10 years
Fixtures and office equipment 3,183 2,653 5 to 15 years
Transportation equipment 278 43 5 years
----------- -------
30,666 20,086
Less accumulated depreciation
and amortization 9,535 7,412
----------- -------
$ 21,131 $ 12,674
=========== =========
</TABLE>
Substantially all of the Company's property, plant and equipment is
pledged as collateral for the Company's long-term debt (see Note 7).
Note 7 - Long-term Debt:
Long-term debt consists of the following:
September 30,
1996 1995
(in thousands)
Industrial Revenue Bonds ("IRB") payable $ 3,200 $ 3,700
Less current portion 500 500
--------- ----------
$ 2,700 $ 3,200
========= ==========
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of the long-term debt
approximates the carrying amount.
The Company entered into the IRB payable in varying installments with
interest at rates ranging from 6.75% to 8.625% per annum through December 2009.
The IRB, among other matters, contains certain financial covenants, limits
the payment of dividends to any class of stock and restricts the incurrence of
additional debt, as defined in the agreement. For the year ended September 30,
1996, the Company was in compliance with all of the required financial
covenants.
Maturities of long-term debt are as follows:
Year ending September 30, (in thousands)
------------
1997 $ 500
1998 200
1999 200
2000 200
2001 200
Thereafter 1,900
______
$ 3,200
===========
F-11
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1996, the Company has a $10,000,000 line of credit with a
bank which expires December 31, 1996. No balance was outstanding under this line
of credit at September 30, 1996.
Note 8 - Other (Income) Expense:
Other (income) expense consists of the following:
<TABLE>
<CAPTION>
For the Year Ended
September 30,
----------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Dividend income $ (75) $ (90) $ (1,441)
Amortization of deferred credit (100) (100) (100)
Charitable contributions of inventory 563 161 452
Net capital gain on sale of marketable securities (609) (166)
Gain on sale of endoscopic product line (174)
Gain on sale of Cardiologics (Note 15) (1,000)
Other (240) 357 120
--------- -------- ----------
$(1,635) $ 162 $ (969)
========== ======== ===========
</TABLE>
Note 9 - Special Charges:
During the fourth quarter of Fiscal 1994, the Company changed its
investment philosophy, reassessed the carrying values of certain assets and
liabilities and made several decisions to streamline the Company's operations in
order to position the Company to be more competitive within the cost sensitive
healthcare industry. The effect of these decisions was a charge to fourth
quarter operations as follows:
(in thousands)
O.R. Concepts Inc.:
Goodwill write-down $ 3,000
Severance costs and other asset write-downs 865
European operations restructuring costs 1,331
U.S. operations cost reduction program 869
Investment losses 2,962
Asset and liability re-evaluations 1,616
----------
$ 10,643
==========
These charges include: (i) costs associated with the Company's decision to
reduce its German operations, (ii) the write-down of a portion of the goodwill
recorded in connection with the acquisition of O.R. Concepts, Inc., together
with other cost reductions relating to the operations of O.R. Concept, Inc.,
(iii) consulting fees and severance costs relating to cost reductions and
operating efficiencies implemented by the Company, and (iv) losses recognized
within the Company's investment portfolio resulting from a change in the
Company's investment strategy whereby the Company recognized current unrealized
losses in connection with certain securities transferred from available-for-sale
securities to trading securities (see Note 5). Additionally, certain of these
securities were sold prior to September 30, 1994. This change was recommended to
protect the investment portfolio from further unrealized losses. Additionally,
asset and liability re-evaluations include a reserve for tax assessment
($600,000) and other miscellaneous amounts.
F-12
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments:
Leases:
The Company has entered into noncancelable operating leases providing for
the lease of office and warehouse facilities, equipment and certain other
assets. The equipment leases require the Company to make monthly rental payments
of approximately $30,000 for 72 months and grant the Company a purchase option
to acquire such assets at fair market value (as defined) at the end of the 48th,
60th, and 72nd months. Rent expense, aggregating $724,000, $992,000, and
$760,000 respectively, has been charged to operations for the years ended
September 30, 1996, 1995 and 1994, respectively. The Company's commitment under
such leases is as follows:
Year ending September 30, (in thousands)
1997 $ 638
1998 622
1999 93
2000 10
----------
$ 1,363
==========
Employment Agreements:
The Company has entered into employment agreements, aggregating $1,007,000
annually which expire at various dates through April, 2000.
Note 11 - Litigation:
In September 1994, two separate complaints were filed against the Company
(one in U.S. District Court for the Northern District of Illinois and the other
in U.S. District Court for the Western District of Louisiana), each of which
allege patent infringement with respect to certain of the Company's resuscitator
products and seek money damages and injunctive relief. The Louisiana matter has
been withdrawn by the plaintiff and the suit has been dismissed. In the Illinois
action discovery will close shortly and the matter will be placed on the court's
trial calendar awaiting a trial date. The Company denies the material
allegations of the Illinois complaint and intends to vigorously defend this
matter.
The Company is involved in other legal proceedings arising in the ordinary
course of business. The Company cannot predict the outcome of all of its legal
proceedings with certainty. However, based upon its review of pending legal
proceedings, the Company does not believe that its pending legal proceedings are
material to its financial condition, its results of operations or its liquidity.
Note 12 - Stockholders' Equity:
Preferred Stock:
The Company has authorized 10,000,000 shares of no par value preferred
stock. No shares were issued or outstanding at September 30, 1996 or 1995.
F-13
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (continued):
Stock Options:
Transactions relating to stock options are as follows:
<TABLE>
<CAPTION>
Number Price
of Shares Per Share
<S> <C> <C> <C>
Balance September 30, 1993 587,639 $ 5.55 - $ 24.25
Granted 122,313 $ 9.25 - $ 14.75
Exercised
Expired (36,955) $ 14.25 - $ 23.50
-----------
Balance September 30, 1994 672,997 $ 5.55 - $ 24.25
Granted 20,142 $ 10.50 - $ 17.87
Exercised (8,975) $ 6.09 - $ 6.09
Expired (143,029) $ 9.25 - $ 24.25
-----------
Balance September 30, 1995 541,135 $ 5.55 - $ 22.00
Granted 409,044 $ 21.25 - $ 22.25
Exercised (59,494) $ 5.55 - $ 22.00
Expired/cancelled (274,225) $ 9.25 - $ 22.00
----------
Balance September 30, 1996 616,460 $ 5.55 - $ 22.25
========= ======== =========
</TABLE>
At September 30, 1996, 221,223 options were exercisable at prices ranging
from $5.55 to $22.25 per share.
The Company's Board of Directors and stockholders have approved the
adoption of a stock option plan for employees, a stock option plan for directors
and a stock option plan for two executive officers which provide for the grant
of options to purchase a maximum of 775,000 shares, 100,000 shares and 200,000
shares, respectively, of the Company's common stock. Options may be granted at
prices not less than fair value at the date of grant. The Company has also
granted options pursuant to contractual arrangements.
During 1994, a new stock option and investment plan (covering a maximum of
300,000 shares) was adopted. Under this plan, participants were granted two
stock options for each share of the Company's common stock that they acquired.
The options are granted at fair value at date of grant. Such stock options are
subject to a defined vesting schedule. Shares purchased by employees may be
financed by payroll deductions.
Options covering 571,654 shares (excluding lapsed shares) have been granted
in connection with these plans through September 30, 1996.
F-14
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Income Taxes:
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
For the Year Ended
September 30,
-----------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 8,130 $ 7,371 $ 4,068
State 1,004 1,064 894
Foreign 19 38 101
Deferred:
Federal 383 615 (817)
State 55 66 (114)
-------- -------- ---------
$ 9,591 $ 9,154 $ 4,132
========== ========= ==========
</TABLE>
The tax effects of temporary differences that give rise to the net deferred
tax liabilities are presented below:
September 30,
--------------------
1996 1995
---- ----
(in thousands)
Prepaid expenses 1,567 $ 1,513
Accelerated depreciation 762 874
Undistributed DISC earnings 808 912
Accrued liabilities (303) (903)
Capital losses 500 1,254
Valuation allowance attributable to
capital loss carry forward (500) (1,254)
--------- ---------
$ 2,834 $ 2,396
========= =========
The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes. The reasons for these differences are as follows:
For the Year Ended
September 30,
-----------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Statutory federal income tax rate 35.0% 35.0 % 34.0
O.R. Concepts goodwill write down 17.6
Net capital losses (gains) on investments (2.0) (.2) 17.4
State income taxes net of federal
tax benefit 2.4 2.9 8.9
Dividend exclusion/tax exempt interest (.3) (.2) (5.9)
Other (1.3) (1.3) (.9)
----- ----- ------
Effective income tax rate 33.8% 36.2% 71.1%
===== ===== ======
F-15
<PAGE>
VITAL SIGNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's capital losses may be carried forward to offset future
capital gains. Such capital loss carryforwards aggregate $2.3 million for
federal income tax purposes, expiring at various dates through 2000, and $1.3
million for financial reporting purposes.
Note 14 - Related Party Transactions:
During fiscal 1996, the Company entered into a joint venture arrangement
(Cardiologics, L.L.C.) with the objective to develop specialized cardio-vascular
products ("Cardiologics"). Approximately $100,000 of research and development
expense was incurred by the Company in fiscal 1996. During fiscal 1996, the
Company's management made a decision to sell its equity interest in the joint
venture for several business reasons, including the time frame to commercially
introduce the product, the research, development and clinical costs that are
likely to be incurred, as well as that the primary market focus of the product
is outside of the core anesthesia and critical care product focus of the
Company.
During September 1996, the Company sold its interest for a note receivable
of $1,000,000 plus repayment of expenses paid on Cardiologics behalf which
resulted in a gain of $1,000,000. The investment was sold to a private venture
capital fund whose primary investor is the President and principal stockholder
of the Company. The note is due during the year ended September 30, 1997. The
Company has received a payment on this note amounting to $500,000 subsequent to
September 30, 1996 and reimbursement of the $100,000 of research and development
costs.
Note 15 - Allowance for Doubtful Accounts:
Information relating to the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- ---------- ----------- ---------- ---------
(in thousands)
Allowance for doubtful accounts:
Year ended September 30,
<S> <C> <C> <C> <C> <C>
1994 $ 100 $ 145 $ 95 (A) $ 150
======= ======= ====== =======
1995 $ 150 $ 302 $ 167 (A) $ 285
======= ======= ====== =======
1996 $ 285 $ 45 $ 161 (A) $ 169
======= ======= ====== =======
</TABLE>
(A) Write-off of uncollectible accounts receivable.
Note 16 - Significant Customers:
A portion of the Company's hospital customers are serviced via national and
regional medical supply distributors. During fiscal 1996, 36% of the Company's
sales were made in this distribution channel. One of the large national
distributors represented approximately 14% of net sales--continuing product
lines. The same customer represents approximately 11% of outstanding accounts
receivable at September 30, 1996.
F-16
<PAGE>
PART III
Item 10. Directors of the Registrant.
The registrant incorporates by reference herein information to be set forth
in its definitive proxy statement for its 1997 annual meeting of stockholders
that is responsive to the information required with respect to this Item. If
such proxy statement is not mailed to stockholders and filed with the Securities
and Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The registrant incorporates by reference herein information to be set forth
in its definitive proxy statement for its 1997 annual meeting of stockholders
that is responsive to the information required with respect to this Item. If
such proxy statement is not mailed to stockholders and filed with the Securities
and Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The registrant incorporates by reference herein information to be set forth
in its definitive proxy statement for its 1997 annual meeting of stockholders
that is responsive to the information required with respect to this Item. If
such proxy statement is not mailed to stockholders and filed with the Securities
and Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The registrant incorporates by reference herein information to be set forth
in its definitive proxy statement for its 1997 annual meeting of stockholders
that is responsive to the information required with respect to this Item. If
such proxy statement is not mailed to stockholders and filed with the Securities
and Exchange Commission within 120 days after the end of the registrant's most
recently completed fiscal year, the registrant will provide such information by
means of an amendment to this Annual Report on Form 10-K.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The financial statements listed in the index set forth in Item
8 of this Annual Report on Form 10-K are filed as part of this
Annual Report.
(b) All schedules have been omitted because they are not
applicable or the required informa tion is included in the
financial statements or notes thereto.
(c) The following exhibits are incorporated by reference herein or
annexed to this Annual Report:
Exhibit Description
3.1 Restated Certificate of Incorporation is incorporated by
reference to Exhibit 3.1 to the Company's annual report on Form
10-K for the year ended September 30, 1995.
3.2 By-laws, as amended, are incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1
(No. 33-35864) initially filed with the Commission on July 13,
1990.
4.1 1984 Economic Development Authority Loan Agreement is
incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (No. 33-35864) initially
filed with the Commission on July 13, 1990.
4.2 Amended and Restated Loan Agreement between the Company and
the New Jersey Economic Development Authority, dated as of
November 1, 1990, is incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-1 (No.
33-34107) initially filed with the Commission on February 21,
1991.
4.3 Letter of Credit and Reimbursement Agreement, dated August 27,
1993, between the Company and Chemical Bank New Jersey N.A. is
incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended September 30,
1993.
10.1 1990 Employee Stock Option Plan, as amended, is incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended September 30, 1993.
10.2 1991 Director Stock Option Plan, as amended, is incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended September 30, 1993.
10.3 1993 Executive Stock Option Plan is incorporated by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1993.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued).
Exhibit Description
10.4 Agreement between the Company and Respironics, Inc., dated
effective as of July 1, 1993, is incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1993.
10.5 Forms of Option Agreements with various employees of the
Company is incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (No. 33-39107)
initially filed with the Commission on February 21, 1991.
10.6 Agreement, dated November 6, 1992, among the Company and certain
shareholders of O.R. Concepts, Inc., is incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K filed
with the Commission on November 30, 1992.
10.7 Vital Signs Investment Plan, as amended.
10.8 Stock Option Grants to Terence D. Wall and Barry Wicker,
replacing stock options granted to Messrs. Wall and Wicker
pursuant to the 1993 Executive Stock Option Plan.
10.9 Agreement to sell the Registrant's 51% interest in Cardiologics,
L.L.C., including the related promissory note, security agreement
and guarantee.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goldstein Golub Kessler & Company, P.C.
24.1 Power of Attorney
27.1 Financial Data Schedule
(d) During the quarter ended September 30, 1996, the Company did not
file any Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 27th day of
December, 1996.
VITAL SIGNS, INC.
By:/s/ Anthony J. Dimun
_________________________________________
Anthony J. Dimun,
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Terence D. Wall* President, Chief December 27, 1996
- --------------------
Terence D. Wall Executive Officer
and Director
/s/ David J. Bershad* Director December 27, 1996
- ---------------------
David J. Bershad
/s/ Anthony J. Dimun Executive Vice President, December 27, 1996
Anthony J. Dimun Chief Financial Officer,
Treasurer (Chief Financial
and Accounting Officer)
and Director
/s/ Joseph J. Thomas* Director December 27, 1996
- ---------------------
Joseph J. Thomas
/s/ John Toedtman* Director December 27, 1996
- ----------------------
John Toedtman
/s/ Barry Wicker* Executive Vice President December 27, 1996
- ----------------- and Director
Barry Wicker
* By: /s/ Anthony J. Dimun
_____________________
Anthony J. Dimun
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Description
10.7 Option and Investment Plan as amended.
10.8 Stock Option Grants to Terence D. Wall and Barry Wicker,
replacing stock options granted to Messrs. Wall and Wicker
pursuant to the 1993 Executive Stock Option Plan.
10.9 Agreement to sell the Registrant's 51% interest in
Cardiologics, L.L.C., including the related promissory
note, security agreement and guarantee.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goldstein Golub Kessler & Company, P.C.
24.1 Power of Attorney
27.1 Financial Data Schedule
Exhibit 10.7
VITAL SIGNS INVESTMENT PLAN
(as amended and restated through October 23, 1996)
(Note: unless and until the shareholders of the
Corporation approve this amended and restated plan,
any stock options granted to directors pursuant to
this plan shall be granted subject to shareholder
approval)
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. Vital Signs, Inc., a New Jersey corpor-
ation (hereinafter referred to as the "Company"), pursuant to authorization by
its Board of Directors, hereby establishes a stock purchase and stock option
plan to be known as the "Vital Signs Investment Plan" (hereinafter referred to
as the "Plan"), as set forth in this document. The Plan permits the grant of
options to eligible Employees and Directors upon the purchase of Plan Shares.
Subject to approval of appropriate regulatory authorities, the Plan shall
become effective as of January 21, 1994 (the "Effective Date"), and shall remain
in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success,
and enhance the value, of the Company by linking the personal interests of
Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants upon whose
judgment, interest, and special effort the successful conduct of its business
largely is dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 12 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. In the absence of an amendment
adopted by the Board to extend the Plan, the Plan shall end ten years and one
day after the Effective Date.
ARTICLE 2. DEFINITIONS
Wherever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
(a) "Award Agreement" means an agreement to be entered into by and between
the Company and each Participant, setting forth the terms and
conditions applicable to each purchase of Plan Shares under the Plan,
and of the corresponding grant of Options.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Base Salary" with respect to a particular Window Period means (i) in
the case of an Employee who has been employed by the Company or its
subsidiaries for at least one year prior to the first day of such
Window Period, the aggregate amount of income set forth on the Form
W-2 provided to a Participant by the Company or its subsidiaries for
the calendar year prior to the calendar year in which the Window
Period occurs, and (ii) in the case of an Employee who has not been
employed by the Company or its subsidiaries for at least one year
prior to the first day of such Window Period, the annual salary of
such Employee at the commencement of such Window Period.
Determinations of Base Salary shall be made by the Committee in its
sole discretion or, upon delegation by the Committee, by the Plan
Administrator.
(d) "Change in Control" shall mean any of the following events:
(i) the acquisition by any one person, or more than
one person acting as a group, of ownership of
stock of the Company, other than any person or
group of persons who held such total voting
power on the date that this Plan was first
adopted by the Board, possessing 33-1/3% or more
more of the total voting power of the capital
stock of the Company;
(ii) the approval by the stockholders of the Company
of (i) any consolidation or merger of the
Company in which the holders of voting stock of
the Company immediately before the consolidation
or merger will not own 50% or more of the voting
shares of the continuing or surviving corpora-
tion immediately after such consolidation or
merger, or (ii) any sale, lease, exchange or
other transfer (in one transaction or series
of related transactions) of all or substantially
all of the assets of the Company; or
(iii) a change of 50% (rounded to the next whole
percent) in the membership of the Board of
Directors within a 12-month period, unless the
election or nomination for election by stock-
holders of each new director within such period
was approved by the vote of 80% (rounded to the
next whole person) of the directors then still
in office who were in office at the beginning of
the 12-month period.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means a committee of the Board of Directors
consisting of Terence D. Wall and Barry Wicker or such other
individuals as the Board shall designate from time to time.
(g) "Company" means Vital Signs, Inc., a New Jersey corporation,
or any successor thereto as provided in Article 15 hereof.
(h) "Director" means any individual who is a member of the Board
of Directors of the Company.
(i) "Disability" shall mean total and permanent disability as
determined by the Committee.
(j) "Disqualifying Termination" for the purposes of this Plan
shall be determined by the Committee, and shall mean a
termination of employment of an Employee or termination of
service as a Director for: (i) an act or acts of dishonesty
committed by a Participant; or (ii) violations by a
Participant of the policies and procedures of the Company
applicable to the Participant's employment or job category
or status as a Director which are: (A) grossly negligent or
(B) willful and deliberate.
(k) "Employee" means any employee of the Company or any of its
subsidiaries. The term "Employee" shall include any
employee who is also a Director.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(m) "Fair Market Value" means the closing sales price for Shares
as quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System
on the relevant date, or if there were no sales on such
date, the closing sales price for Shares as quoted on the
National Market System of the National Association of
Securities Dealers Automated Quotation System on the first
immediately preceding date on which such price is quoted.
(n) "Fully Paid" means that a Participant has satisfied the full
purchase price for Plan Shares by either (i) paying cash in
one lump sum to the Plan Administrator or (ii) by paying in
full, as determined by the Plan Administrator in accordance
with any payroll deduction program as shall be implemented
by the Plan Administrator with the approval of the
Committee. All such determinations shall be subject to the
provisions of Section 6.4 hereof.
(o) "Option" means an option to purchase Shares granted under
Article 7 hereof. It is intended that Options under this
Plan shall not be incentive stock options for federal income
tax purposes.
(p) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(q) "Participant" means an Employee or Director of the Company
who has purchased Plan Shares and who has outstanding an
Option granted under the Plan.
(r) "Plan Administrator" means the individual or committee desig-
nated by the Committee to administer this Plan; or the
Committee if no such designation has been made.
(s) "Plan Shares" means Shares purchased by Participants
pursuant to the terms of Article 6 hereof.
(t) "Retirement" shall have the same meaning herein as under the
Company's 401(k) plan.
(u) "Shares" means the shares of common stock of the Company.
(v) "Window Period" means the time period designated by the
Board, during which eligible Employees and Directors may
purchase Plan Shares, pursuant to the terms of Article 6
hereof. The initial Window Period shall begin January 21,
1994, and end February 7, 1994. Subsequent Window Periods
shall last approximately fifteen days each, and shall occur,
at times designated by the Board; it is currently intended
that Window Periods will occur at six months intervals.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee, or by a
Plan Administrator appointed by the Committee. The Plan Administrator shall be
appointed from time to time by, and shall serve at the discretion of, the
Committee. The Committee and the Plan Administrator shall, in turn, retain
independent agents to purchase Shares in the market for purposes of the Plan
unless the Committee determines from time to time that such Shares shall be
issued directly by the Company.
3.2 Authority of the Committee. The Committee shall have the power to
establish performance measures which will govern the number of Options available
in connection with purchases of Plan Shares, to determine the degree to which
the predesignated performance measures are attained by the Company, and to
determine the terms and conditions applicable to purchases of Plan Shares and
grants of Options in a manner consistent with the Plan; to construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
to establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 12 hereof) to amend
the terms and conditions of any outstanding Plan Share or Option to the extent
such terms and conditions are within the discretion of the Committee as provided
in the Plan. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan. The Committee
may delegate its authority as identified hereunder to a Plan Administrator or
such other persons as it may deem appropriate.
3.3 Decisions Binding. All interpretations of the Plan, determinations and
decisions made by the Committee pursuant to the provisions of the Plan and all
related orders or resolutions of the Board of Directors shall be final,
conclusive, and binding on all Participants.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
hereof, the total number of Shares available for purchase as Plan Shares and for
grant under Options pursuant to the Plan may not exceed 300,000. These 300,000
Shares may be either authorized but unissued, or reacquired, Shares. The
following rules will apply for purposes of the determination of the number of
Shares available for grant under the Plan:
(a) the sale of plan shares shall reduce the shares
available for purchase and/or grant under the plan
plan by the number of shares sold; and
(b) unless and until an Option is canceled, lapses,
expires, or terminates, it shall be counted against
the authorized pool of Shares.
4.2 Lapsed Awards. If any Plan Share purchase or Option grant under this
Plan is canceled, terminates, expires, or lapses for any reason, any Plan Shares
and/or any Shares subject to such Option shall again be available for purchase
and/or grant under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be purchased or delivered under the
Plan, and in the number and class of and/or price of outstanding Plan Shares and
Shares subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided that the
number of Plan Shares and the Shares subject to any Option shall always be a
whole number.
ARTICLE 5. PARTICIPATION
All persons who are Employees or Directors during a Window Period shall be
given the opportunity to purchase Plan Shares during such Window Period,
provided that such purchases are within the limits set forth in Section 6.2
hereof and provided that in the event that the Board terminates the Plan, no
Employee or Director shall have the right to purchase Plan Shares pursuant to
Article 6 hereof in any Window Period commencing subsequent to such termination.
Each Participant's eligibility for grants of Options pursuant to Article 7
hereof shall be contingent upon the Participant's purchasing Plan Shares, as set
forth in Article 6 hereof.
ARTICLE 6. PURCHASES OF PLAN SHARES
6.1 Plan Share Purchases. An Employee or Director shall only be entitled to
purchase Plan Shares during a Window Period if such Employee or Director is an
Employee or Director, as the case may be, during such Window Period. Each Plan
Share purchased by a Participant under this Plan shall entitle the Participant
to be granted an Option to purchase a specified number of Shares, as set forth
in Article 7 herein. Purchases of Shares by Participants other than pursuant to
this Plan shall not entitle Participants to receive option grants under Article
7 herein.
6.2 Maximum and Minimum Plan Share Purchases. All Plan Share purchases
shall occur during a Window Period. The Fair Market Value of the Plan Shares
purchased shall be determined pursuant to the provisions of Section 6.3 hereof.
For each Window Period, the maximum aggregate Fair Market Value of Plan Shares
which may be purchased by an Employee or Director is $50,000, unless the
Committee approves a higher limit on a case-by-case basis with respect to
specific Employees or Directors. For any Window Period, no Employee shall be
permitted to purchase Plan Shares having an aggregate Fair Market Value equal to
less than one half of one percent of Base Salary for that Window Period. For any
Window Period, there shall be no minimum number of Plan Shares which must be
purchased by Directors, provided that the number of shares purchased by any
Director must be a whole number.
6.3 Purchase Price. The price of each Plan Share purchased under this Plan
shall equal the Fair Market Value of a Share on the last trading day of the
applicable Window Period.
6.4 Procedure for Purchasing Plan Shares. A Participant who desires to
purchase Plan Shares shall notify the Plan Administrator, in writing, of the
number of Plan Shares to be purchased, and of the desired manner of paying for
the Plan Shares. Subject to Section 6.2 hereof, all applicable rules and
regulations of the United States Securities and Exchange Commission, and the
Plan Administrator's ability to reduce the number of Plan Shares to be purchased
to a whole number, the Plan Administrator shall cause to be issued from the
Company or shall purchase, on behalf of the Participant, the number of Plan
Shares indicated by the Participant, within thirty (30) days after the end of
the applicable Window Period. The Plan Administrator shall establish an account
in the name of each Participant, for the purpose of administering the Plan
Shares purchased by each Participant. The Plan Administrator shall have the
discretion to establish rules and procedures for purchasing Plan Shares on
behalf of Participants, and for administering the Plan Share accounts of
Participants.
In addition, the Plan Administrator shall provide each Participant who
purchases Plan Shares with an Award Agreement, setting forth the terms and
provisions applicable to the Plan Shares purchased, and the Options granted to
the Participant in connection with the purchase of Plan Shares. Purchases
requested by Employees or Directors who fail to execute the Award Agreement
tendered by the Plan Administrator may be voided by the Plan Administrator.
Subject to the terms of the Plan and any terms approved by the Committee, and to
the conditions placed on each Plan Share purchase opportunity, each Participant
shall satisfy the purchase price for Plan Shares by paying cash in one lump sum
to the Plan Administrator. If permitted by the Plan Administrator, an Employee
may satisfy the purchase price for Plan Shares by a combination of paying cash
and payroll deductions.
In the event that any Participant whom the Plan Administrator permits to
pay for Plan Shares through payroll deductions subsequently directs the Plan
Administrator to cease making payroll deductions before all Plan Shares which
the Participant previously indicated he desired to purchase are Fully Paid, then
(i) the Participant will forfeit all Plan Shares which are not then Fully Paid,
(ii) the Participant will forfeit all Options related to any Plan Shares which
are not then Fully Paid and (iii) all Options related to any Fully Paid Plan
Shares will be subject to the Option forfeiture provisions contained in Article
8 hereof. The Participant's Award Agreement will be revised to indicate the
forfeited Plan Shares and Options and the Option forfeiture requirements
described in Article 8 applicable to any other Options.
6.5 Holding Period for Plan Shares. Subject to the terms of this Plan, all
Plan Shares which have been purchased shall be delivered two (2) years from the
date of purchase, provided that such Shares are Fully Paid. To the extent that a
Plan Share is Fully Paid prior to the end of the two (2) year holding period,
and subject to the option forfeiture provisions set forth in Article 8 hereof, a
Participant who is an Employee or Director at the time of the requested
transfer, shall be entitled to sell or otherwise transfer or convey the Plan
Shares (it being understood that the Plan Administrator shall have sole
discretion to determine the extent to which a Plan Share is Fully Paid during
the two (2) year holding period subject to Section 6.4 hereof).
Participants desiring to sell, transfer, or otherwise convey a Fully Paid
Plan Share prior to the end of the two (2) year holding period shall submit a
request in writing to the Plan Administrator for delivery of a Share certificate
representing such Plan Share. Such request shall be accompanied by the
Participant's Award Agreement, representing the grant of Options in connection
with the purchase of the Plan Share. If the Plan Administrator determines that
the Plan Share is Fully Paid, then the Plan Administrator shall deliver to the
Participant a fully executed Share certificate, representing such Plan Share,
and shall document in the Award Agreement of the Participant the corresponding
change in Option forfeiture requirements of the Plan (as set forth in Article 8
hereof).
In the event that prior to the end of the two (2) year holding period, a
Participant's employment with the Company or service as a Director of the
Company terminates, as the case may be, the terms of Article 9 hereof shall
govern the treatment of outstanding Plan Shares.
6.6 Voting Rights. During the two (2) year holding period described in
Section 6.5 hereof and until such Shares are transferred and/or sold,
Participants who have purchased Plan Shares shall be entitled to exercise full
voting rights with respect to such Plan Shares.
6.7 Dividends and Other Distributions. During the two (2) year holding
period described in Section 6.5 hereof, Participants who have purchased Plan
Shares shall be entitled to receive all dividends and other distributions (if
any) paid with respect to such Plan Shares while they are so held, provided that
any such distributions or dividends may be subject to the terms of any
outstanding purchase loan programs. If any such dividends or distributions are
paid in Shares, the Shares shall be converted into additional Plan Shares, and
shall be subject to the same restrictions on transferability and forfeitability
as the Plan Shares with respect to which they were paid.
6.8 Award Agreement. Each purchase of Plan Shares shall be evidenced by an
Award Agreement, setting forth relevant terms and provisions applicable to the
Plan Shares and to the corresponding grant of Options.
ARTICLE 7. STOCK OPTIONS
7.1 Option Grants. Subject to the terms and provisions of the Plan, Options
shall be granted to Participants upon the purchase of Plan Shares as of the last
day of the Window Period during which such Plan Shares have been purchased. The
number of Options to be granted in connection with each purchase of Plan Shares
shall be a function of the degree to which the Company attains predesignated
performance goals.
The Board's or the Committee's determination with respect to the degree of
achievement of the predesignated performance goals shall govern the number of
Shares under option which shall be granted in connection with each Plan Share
purchased. The minimum number of Shares to be granted under option in connection
with the purchase of each Plan Share shall be one (1), and the maximum number
shall be three (3).
The multiple selected by the Board or the Committee shall apply to all Plan
Share purchases during the applicable Window Period. Prior to or at the
beginning of the relevant Window Period, the multiple shall be communicated to
all Employees and Directors.
7.2 Option Price. The Option Price for each option granted under this Plan
shall equal the Fair Market Value of a Share on the last trading day of the
Window Period during which the Option shall have been granted.
7.3 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
option shall be exercisable later than ten years and one day from the date on
which the Option was granted.
7.4 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and shall be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Participant; provided, however, that no
Option shall be exercisable within two years after the date of its grant other
than in connection with a Change in Control; and provided further that the
exercise provisions of each Option shall be consistent with Article 8 hereof.
7.5 Payment. Options shall be exercised by the delivery of a written notice
of exercise to the Plan Administrator, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price, or (c) by a combination of both such
approaches.
The Committee also may allow cashless exercises as permitted under the
Federal Reserve Board's Regulation T, subject to applicable legal restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purposes and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount, based upon the
number of Shares purchased under the Option(s).
7.6 Restrictions on Share Transferability. The Committee shall impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
the Plan as it may deem advisable, including, without limitation, restrictions
under applicable Federal securities laws, under the requirements of NASDAQ or
any stock exchange or market upon which such Shares are then listed and/or
traded, and under any blue sky or state securities laws applicable to such
Shares.
7.7 Nontransferability of Options. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. During a
Participant's lifetime, all Options granted to a Participant under the Plan
shall be exercisable only by such Participant, except as set forth in Section
7.9 hereof.
7.8 No Rights as a Shareholder. Prior to the purchase of Shares pursuant to
an Option, a Participant shall not have the rights of a shareholder with respect
to such Shares.
7.9 Exercise of Options With Respect to Incapacitated Participants. If a
Participant, who has met the holding period described in Section 6.5 hereof or
has completed five (5) years of continuous employment or service as a Director
subsequent to the purchase of Plan Shares, is under a legal disability or in the
Committee's opinion incapacitated in any way so as to be unable to manage his or
her financial affairs, the Committee may allow such Participant's legal
representative to exercise the Participant's Options on behalf of the
Participant. Actions taken pursuant to this Section by the Committee shall
discharge all liabilities under the Plan.
ARTICLE 8. PREMATURE DISPOSITION OF PLAN SHARES
Except as otherwise provided in Section 9.1, in the event a Plan
Participant (i) sells, transfers or otherwise conveys a Fully Paid Plan Share
prior to the end of the two (2) year holding period described in Section 6.5
hereof or (ii) directs the Plan Administrator to cease making payroll deductions
before all Plan Shares which the Participant previously indicated he desired to
purchase are Fully Paid, then in each such case, the right to exercise the
Options granted in connection with the purchase of a Fully Paid Plan Share shall
be contingent upon the Participant's completion of five (5) years continuous (a)
employment with the Company or any of its subsidiaries or (b) service as a
Director of the Company subsequent to the last day of the Window Period in which
the Participant agreed to purchase such Plan Share.
ARTICLE 9. TERMINATION OF EMPLOYMENT
OR SERVICE AS A DIRECTOR
9.1 Termination by Reason of Death, Disability or Retirement. In the event
the employment or service as a Director of a Participant is terminated by reason
of death, Disability, or Retirement, the following provisions shall apply:
(a) Treatment of Plan Shares. The Participant will be
credited with all Plan Shares which are Fully Paid
as of the date of employment termination or termination
of service as a Director (in the case of Disability,
the Plan Administrator shall determine the date that
employment or service as a Director is deemed to have
terminated). If, at the time of employment termination
or termination of service as a Director, the Participant
has not Fully Paid all outstanding Plan Shares purchased,
the number of Plan Shares which shall be deemed Fully
Paid shall be determined at the sole discretion of the
Plan Administrator, subject to Section 6.4 hereof.
All outstanding Plan Shares which are not Fully Paid
as of the date of employment termination or termination
of service as a Director (as determined by the Plan
Administrator, subject to Section 6.4) shall be forfeited
to the Company, and shall once again become available
for purchase under the Plan.
If a Participant's death, Disability, or Retirement
occurs after the delivery of Plan Shares to him or her,
such Plan Shares shall not be affected by the employment
termination or termination of service as a Director.
(b) Treatment of Stock Options. All outstanding Options
granted to the Participant corresponding to Plan Shares
Fully Paid for prior to the Participant's termination
of employment or termination of service as a Director
which are then exercisable (and, accordingly, which have
been held at least two years from the grant date)
(collectively, the "Covered Options"), shall not be
forfeitable pursuant to Article 8 (if applicable) in
the event of death or Disability, but shall be forfeit-
able pursuant to Article 8 (if applicable) in the event
of Retirement and, if not so forfeitable, shall remain
exercisable at any time prior to their expiration date,
or for one (1) year after the date of death, Disability,
or Retirement, whichever period is shorter, by the
Participant or by such person or persons that have
acquired the Participant's rights under the Option by
will or by the laws of descent and distribution. The
Plan Administrator shall, in all cases, determine the
date of employment termination or termination of
service as a Director. All Options granted to the
Participant pursuant to the Plan other than the Covered
Options shall be forfeited and shall once again be
available for grant under the Plan.
(c) Amounts Subject to Dispute. If at the time of a
Participant's death, the Plan Administrator is unable
to determine what person, persons or entity is
entitled to exercise Options on behalf of the
Participant, the Plan Administrator shall not be
required to implement any directions to exercise such
Options or deliver Plan Shares to any such person,
persons or entity during the pendency of such dispute.
Neither the Plan Administrator, the Committee or the
Company shall be responsible for a failure to implement
such exercise instructions or to deliver such Plan
Shares during the pendency of such dispute, notwith-
standing the fact that such Plan Shares or Options may
diminish in value or expire during the pendency of such
dispute.
9.2 Disqualifying Termination. In the event that the Company or its
subsidiaries terminates the employment or service as a Director of a Participant
as a result of a Disqualifying Termination, the following provisions shall
apply:
(a) Treatment of Plan Shares. The Participant will be
credited with all Plan Shares which are Fully Paid
as of the date of termination. The number of Plan
Shares which are Fully Paid for as of such date shall
be determined according to the guidelines set forth
in Section 9.1(a) hereof. All outstanding Plan
Shares which are not Fully Paid as of the date of
termination shall be forfeited to the Company and
shall once again become available for purchase under
the Plan.
Plan Shares which have been delivered to a Participant
prior to termination shall not be affected by this
provision.
(b) Treatment of Stock Options. Upon such a termination,
a Participant shall forfeit all Options, which Options
shall thereafter once again become available for grant
under the Plan.
9.3 Other Termination. In the event a Participant's employment or service
as a Director is terminated for reasons other than death, Disability, Retirement
or Disqualifying Termination, the following provisions shall apply:
(a) Treatment of Plan Shares. The Participant will be
credited with all Plan Shares which are Fully Paid
as of the date of employment termination or termination
of service as a Director. The number of Plan Shares
which are Fully Paid for as of such date shall be
determined according to the guidelines set forth in
Section 9.1(a) hereof. All outstanding Plan Shares
which are not Fully Paid as of the date of employment
termination or termination of service as a Director
shall be forfeited to the Company and shall once again
become available for purchase under the Plan.
Plan Shares which have been delivered to a Participant
prior to employment termination or termination of
service as a Director shall not be affected by this
provision.
(b) Treatment of Stock Options. Upon such a termination,
a Participant shall forfeit (i) all Options for which
the requirements of Article 8 (if applicable) have not
been met, and (ii) all other Options granted to the
Participant under the Plan which do not constitute
Covered Options.
Covered Options for which the requirements of Article
8 (if applicable) have been met may be exercised by the
Participant within the period beginning on the effective
date of employment termination or termination of service
as a Director, and ending three (3) months after such
date.
ARTICLE 10. RIGHTS OF PARTICIPANTS
Nothing in the Plan shall interfere with or limit in any way the right of
the Company to terminate any participating Employee's employment at any time or
to dismiss any participating Director at any time, nor confer upon any
Participant any right to continue in the employ of the Company or as a Director
of the Company.
ARTICLE 11. CHANGE IN CONTROL
If the Board so determines at any time, the following provisions shall
apply if a Change in Control occurs after such determination:
(a) Any and all Options granted hereunder
corresponding to Fully Paid Shares (as
determined by the Plan Administrator) shall
become immediately exercisable (and shall
remain exercisable throughout their entire
term); all other Options granted hereunder
shall be forfeited to the Company;
(b) The Company shall deliver all Plan Shares
which are Fully Paid as of the effective
date of the Change in Control (the Plan
Administrator shall have the authority to
determine the number of Plan Shares which
are Fully Paid as of such date subject to
Section 6.4 hereof, and to establish
procedures for the delivery of such Shares
to Participants), and all remaining Plan
Shares shall be forfeited to the Company;
and
(c) Subject to the other provisions of this
Plan, the Committee shall have the authority
to make any modifications to the Plan Shares
and Options as are determined by the
Committee to be appropriate before the
effective date of the Change in Control.
ARTICLE 12. AMENDMENT, MODIFICATION AND TERMINATION
12.1 Amendment. Modification and Termination. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan. Any such termination shall be effective with respect to all
subsequent Window Periods.
12.2 Awards Previously Granted. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Plan Share previously
purchased or Option previously granted under the Plan, without the written
consent of the Participant holding such Plan Share or Option.
ARTICLE 13. WITHHOLDING
13.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising as a result of this Plan.
13.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the purchase of Plan Shares, or upon any other taxable
event hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All elections shall be irrevocable, made in writing,
signed by the Participant, and comply with all procedures established by the
Committee for Share withholding.
In addition, subject to the approval of the Committee, Participants may
satisfy the tax withholding obligation arising as a result of any taxable event
occurring hereunder, by remitting to the Plan Administrator previously held
Shares having an aggregate Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction; provided, however, that any Shares which are so tendered must
have been beneficially owned by the Participant for at least six (6) months
prior to the date of their tender.
ARTICLE 14. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, the Board,
or the Plan Administrator, and each agent retained by the Plan Administrator,
shall be, indemnified and held harmless by the Company against and from any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken in good faith or any good faith
failure to act under the Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
ARTICLE 15. SUCCESSORS
All obligations of the Company under the Plan, with respect to Plan Shares
purchased and Options granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
ARTICLE 16. LEGAL CONSTRUCTION
16.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
16.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
16.3 Requirements of Law. The purchase of Plan Shares, the granting of
Options, and the issuance of Shares under the Plan, shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
16.4 Governing Law. To the extent not pre-empted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of New Jersey.
Exhibit 10.8
VITAL SIGNS, INC.
20 CAMPUS ROAD
TOTOWA, NEW JERSEY 07512
May 23, 1996
Mr. Terence D. Wall
Vital Signs, Inc.
20 Campus Road
Totowa, NJ 07512
Dear Terry:
In consideration of your agreeing to cancel the stock option
previously granted to you pursuant to the Vital Signs, Inc. 1993 Executive
Officer Stock Option Plan to purchase 120,000 shares of this Corporation's
Common Stock (the "Prior Option"), on May 23, 1996, you were granted an option
to purchase 120,000 shares of this Corporation's Common Stock, at an exercise
price of $22.25 per share. The terms of your stock option are as follows:
1. Vesting. This option shall vest as follows:
(a) 25% (30,000 shares) on May 23, 1998, another 25% (30,000
shares) on May 23, 1999, another 25% (30,000 shares) on May 23, 2000 and another
25% (30,000 shares) on May 23, 2001.
(b) Notwithstanding any provision herein to the contrary, this
option shall automatically vest and be fully exercisable at such time as a
"Change in Control Event" occurs. For purposes of this option, a "Change in
Control Event" shall mean any of the following events:
(i) the acquisition by any one person, or more than one
person acting as a group, of ownership of stock of the
Corporation, other than any person or group of persons
who held such total voting power on May 23, 1996,
possessing 33-1/3% or more of the total voting power
of the capital stock of the Corporation;
(ii) the approval by the stockholders of the Corporation of
(i) any consolidation or merger of the Corporation, in
which the holders of voting stock of the Corporation
immediately before the consolidation or merger will
not own 50% or more of the voting shares of the
continuing or surviving corporation immediately after
such consolidation or merger, or (ii) any sale, lease,
exchange or other transfer (in one transaction or
series of related transactions) of all or
substantially all of the assets of the Corporation; or
(iii) a change of 50% (rounded to the next whole percent) in
the membership of the Board of Directors within a
<PAGE>
12-month period, unless the election or nomination for
election by stockholders of each new director within
such period was approved by the vote of 80% (rounded
to the next whole person) of the directors then still
in office who were in office at the beginning of the
12-month period.
2. Non-Qualified. Your option constitutes a non-qualified stock option, as
distinct from an "incentive stock option".
3. Expiration. Except as otherwise provided in Section 7 hereof, this
option will expire and cease to be exercisable on May 23, 2006.
4. Exercise. Unless the exercise date of this option is accelerated upon
the occurrence of a Change in Control Event, as set forth in Section 1(b)
hereof, or pursuant to Section 9 hereof, this option shall become exercisable
only to the extent set forth in Section 1(a) hereof.
5. Exercise Price. The price at which shares of Common Stock may be
purchased upon exercise of this options is $22.25.
6. Method of Exercise. To the extent permitted by Section 4 hereof, you may
exercise this option from time to time by giving written notice to the
Corporation. The date of exercise shall be the date on which the Corporation
receives such notice. Such notice shall be on a form furnished by the
Corporation and shall state the number of shares to be purchased and the desired
closing date, which date shall be at least fifteen days after the giving of such
notice, unless an earlier date shall have been mutually agreed upon. At the
closing, the Corporation shall deliver to you (or other person entitled to
exercise the option) at the principal office of the Corporation, or such other
place as shall be mutually acceptable, a certificate or certificates for such
shares against payment in full of the exercise price for the number of shares to
be delivered, such payment to be by a certified or bank cashier's check and/or
by transfer to the Corporation of capital stock of the Corporation having a
"Fair Market Value" (as defined below) on the date of exercise equal to the
excess of the purchase price for the shares purchased over the amount (if any)
of the certified or bank cashier's check. If you (or other person entitled to
exercise the option) shall fail to accept delivery of and pay for all or any
part of the shares specified in your notice when the Corporation shall tender
such shares to you, your right to exercise the option with respect to such
unpurchased shares may be terminated. For purposes of this option, "Fair Market
Value" shall mean the fair market value of the Common Stock on the relevant
date. If on such date the Common Stock is listed on a stock exchange or is
quoted on the automated quotation system of NASDAQ, the Fair Market Value shall
be the closing sale price (or if such price is unavailable, the average of the
high bid price and the low asked price) on such date. If no such closing sale
price or bid and asked prices are available, the Fair Market Value shall be
determined in good faith by the Board of Directors of the Corporation in
accordance with generally accepted valuation principles and such other factors
as the Board reasonably deems relevant.
<PAGE>
7. Termination of Employment. In the event that you cease to be employed by
the Corporation for any reason other than cause, death or disability, your
option shall automatically terminate three months after the date on which such
employment terminates, but in any event not later than the date on which such
options would terminate pursuant to Section 3 hereof. In the event that your
employment is terminated by means of a resolution which recites that you are
being removed solely for cause, your option shall automatically terminate on the
date such termination is effective. In the event that you cease to be employed
by the Corporation by reason of death or disability, your option, to the extent
exercisable by you, shall terminate one year after the date of your death or
disability, but in any event not later than the date on which such option would
terminate pursuant to Section 3 hereof. During such time after death, this
option may only be exercised by your representative, executor or administrator,
as the case may be. No exercise permitted by this Section 7 shall entitle you or
your personal representative, executor or administrator to exercise any portion
of the option beyond the extent to which such option is exercisable pursuant to
Section 4 hereof on the date you ceased to be employed by the Corporation.
8. Changes in Capital Structure. In the event that, by reason of a stock
dividend, recapitalization, reorganization, merger, consolidation,
reclassification, stock split-up, combination of shares, exchange of shares, or
comparable transaction occurring on a date subsequent to May 23, 1996, the
outstanding shares of Common Stock of the Corporation are hereafter increased or
decreased, or changed into or exchanged for a different number or kind of shares
or other securities of the Corporation or of any other corporation, then the
Board of Directors of the Corporation shall make appropriate adjustments to the
number and kind of shares subject to this option, and the purchase price per
share under this option shall be appropriately adjusted consistent with such
change. In no event shall fractional shares be issued or issuable pursuant to
any adjustment made under this Section 8. The determination of the Board as to
any such adjustment shall be final and conclusive.
9. Mandatory Exercise. Notwithstanding anything to the contrary set forth
herein, in the event the Corporation should adopt a plan of complete
liquidation, the Corporation may give you written notice thereof requiring you
either (a) to exercise this option (as to all shares covered hereby, including
those not yet vested) within thirty days after receipt of such notice, or (b) to
surrender this option or any unexercised portion thereof. If the Corporation
requests that this option be exercised and if it shall not have been exercised
in accordance with such 30-day period, then this option shall automatically
lapse irrevocably and you shall have no further rights with respect to this
option.
10. Documents. The Board of Directors may require you, as a condition to
the exercise of your option or the issuance or delivery of shares upon the
exercise of your option or the payment therefor, to make such representations
and warranties and to execute and deliver such notices of exercise and other
documents as the Board may deem consistent with the terms and conditions of this
option. Not in limitation of any of the foregoing, in any such case referred to
in the preceding sentence the Board may also require you to execute and deliver
documents (including the investment letter described in Section 11), containing
such representations, warranties and agreements as the Board or counsel to the
<PAGE>
Corporation shall deem necessary or advisable to comply with any exemption from
registration under the Securities Act of 1933, as amended, any applicable State
securities laws, and any other applicable law, regulation or rule.
11. Investment Letter. If required by the Board, you shall agree to execute
a statement directed to the Corporation, upon each and every exercise by you of
any part of this option, that shares issued thereby are being acquired for
investment purposes only and not with a view to the redistribution thereof, and
containing an agreement that such shares will not be sold or transferred unless
either (1) registered under the Securities Act of 1933, as amended, or (2)
exempt from such registration in the opinion of Corporation counsel. If required
by the Board, certificates representing shares of Common Stock issued upon
exercise of your option shall bear a restrictive legend summarizing the
restrictions on transferability applicable thereto.
12. Requirements of Law. The issuance of shares upon the exercise of your
option and the delivery of shares upon the payment therefor shall be subject to
compliance with all applicable laws, rules, and regulations. Without limiting
the generality of the foregoing, the Corporation shall not be obligated to sell,
issue or deliver any shares unless all required approvals from governmental
authorities and stock exchanges shall have been obtained and all applicable
requirements of governmental authorities and stock exchanges shall have been
complied with.
13. Tax Withholding. The Corporation, as and when appropriate, shall have
the right to require you to pay any federal, state, or local taxes required by
law to be withheld.
14. Nonassignability. This option shall not be assignable or transferable
by you except by will or the laws of descent and distribution, in which event
the terms of this option, including all restrictions and limitations set forth
herein, shall continue to apply to the transferee. During your lifetime, no
person other than you may exercise this option.
15. Your Rights as a Shareholder and Board Member. You shall have no rights
as a shareholder of the Corporation with respect to any shares subject to this
option until the option has been exercised and the certificate with respect to
the shares purchased upon exercise of the option has been duly issued and
registered in your name. Nothing in this option shall be deemed to give you any
right to a continued position on the Board nor shall it be deemed to give you or
any other person any right not specifically and expressly provided herein.
16. Termination and Amendment. The Board may at any time terminate or amend
this option as it may deem advisable, except that no such termination or
amendment shall adversely affect you with respect to any right which has accrued
under this option prior to such termination or amendment.
17. Sunday or Holiday. In the event that the time for the performance of
any action or the giving of any notice is called for under this option within a
period of time which ends or falls on a Sunday or legal holiday, such period
shall be deemed to end or fall on the next date following such Sunday or legal
holiday which is not a Sunday or legal holiday.
<PAGE>
18. Condition. This option is granted subject to approval by the
shareholders of the Corporation prior to May 23, 1998.
If you have any questions concerning this option, please do not hesitate to
contact me. If you desire to exercise this option in the future, please contact
Liz Greenberg to obtain the necessary exercise form. Please acknowledge the
cancellation of your Prior Option and your acceptance of the terms of this
option by signing below.
Of course, I want to congratulate you on your receipt of this stock option.
Very truly yours,
/s/ Anthony J. Dimun
_____________________________
Anthony J. Dimun
Executive Vice President
I hereby agree to the cancellation all rights which I may have under the Prior
Option, and accept the terms and provisions of the option described above,
effective May 23, 1996.
/s/ Terence D. Wall
_______________________
Terence D. Wall
VITAL SIGNS, INC.
20 CAMPUS ROAD
TOTOWA, NEW JERSEY 07512
May 23, 1996
Mr. Barry Wicker
Vital Signs, Inc.
20 Campus Road
Totowa, NJ 07512
Dear Barry:
In consideration of your agreeing to cancel the stock option previously
granted to you pursuant to the Vital Signs, Inc. 1993 Executive Officer Stock
Option Plan to purchase 80,000 shares of this Corporation's Common Stock (the
"Prior Option"), on May 23, 1996, you were granted an option to purchase 80,000
shares of this Corporation's Common Stock, at an exercise price of $22.25 per
share. The terms of your stock option are as follows:
1. Vesting. This option shall vest as follows:
(a) 25% (20,000 shares) on May 23, 1998, another 25% (20,000
shares) on May 23, 1999, another 25% (20,000 shares) on May 23, 2000 and
another 25% (20,000 shares) on May 23, 2001.
(b) Notwithstanding any provision herein to the contrary, this
option shall automatically vest and be fully exercisable at such time as a
"Change in Control Event" occurs. For purposes of this option, a "Change in
Control Event" shall mean any of the following events:
(i) the acquisition by any one person, or more than
one person acting as a group, of ownership of
stock of the Corporation, other than any person or
group of persons who held such total voting power on
May 23, 1996, possessing 33-1/3% or more of the
total voting power of the capital stock of the
Corporation;
(ii) the approval by the stockholders of the Corporation
of (i) any consolidation or merger of the
Corporation, in which the holders of voting stock of
the Corporation immediately before the consolidation
or merger will not own 50% or more of the voting
shares of the continuing or surviving corporation
immediately after such consolidation or merger, or
(ii) any sale, lease, exchange or other transfer
(in one transaction or series of related transactions)
of all or substantially all of the assets of the
Corporation; or
(iii) a change of 50% (rounded to the next whole percent)
in the membership of the Board of Directors within
a 12-month period, unless the election or nomination
for election by stockholders of each new director
within such period was approved by the vote of 80%
(rounded to the next whole person) of the directors
then still in office who were in office at the
beginning of the 12-month period.
2. Non-Qualified. Your option constitutes a non-qualified stock option, as
distinct from an "incentive stock option".
3. Expiration. Except as otherwise provided in Section 7 hereof, this
option will expire and cease to be exercisable on May 23, 2006.
4. Exercise. Unless the exercise date of this option is accelerated upon
the occurrence of a Change in Control Event, as set forth in Section 1(b)
hereof, or pursuant to Section 9 hereof, this option shall become exercisable
only to the extent set forth in Section 1(a) hereof.
5. Exercise Price. The price at which shares of Common Stock may be
purchased upon exercise of this options is $22.25.
6. Method of Exercise. To the extent permitted by Section 4 hereof, you may
exercise this option from time to time by giving written notice to the
Corporation. The date of exercise shall be the date on which the Corporation
receives such notice. Such notice shall be on a form furnished by the
Corporation and shall state the number of shares to be purchased and the desired
closing date, which date shall be at least fifteen days after the giving of such
notice, unless an earlier date shall have been mutually agreed upon. At the
closing, the Corporation shall deliver to you (or other person entitled to
exercise the option) at the principal office of the Corporation, or such other
place as shall be mutually acceptable, a certificate or certificates for such
shares against payment in full of the exercise price for the number of shares to
be delivered, such payment to be by a certified or bank cashier's check and/or
by transfer to the Corporation of capital stock of the Corporation having a
"Fair Market Value" (as defined below) on the date of exercise equal to the
excess of the purchase price for the shares purchased over the amount (if any)
of the certified or bank cashier's check. If you (or other person entitled to
exercise the option) shall fail to accept delivery of and pay for all or any
part of the shares specified in your notice when the Corporation shall tender
such shares to you, your right to exercise the option with respect to such
unpurchased shares may be terminated. For purposes of this option, "Fair Market
Value" shall mean the fair market value of the Common Stock on the relevant
date. If on such date the Common Stock is listed on a stock exchange or is
quoted on the automated quotation system of NASDAQ, the Fair Market Value shall
be the closing sale price (or if such price is unavailable, the average of the
high bid price and the low asked price) on such date. If no such closing sale
price or bid and asked prices are available, the Fair Market Value shall be
determined in good faith by the Board of Directors of the Corporation in
accordance with generally accepted valuation principles and such other factors
as the Board reasonably deems relevant.
7. Termination of Employment. In the event that you cease to be employed by
the Corporation for any reason other than cause, death or disability, your
option shall automatically terminate three months after the date on which such
employment terminates, but in any event not later than the date on which such
options would terminate pursuant to Section 3 hereof. In the event that your
employment is terminated by means of a resolution which recites that you are
being removed solely for cause, your option shall automatically terminate on the
date such termination is effective. In the event that you cease to be employed
by the Corporation by reason of death or disability, your option, to the extent
exercisable by you, shall terminate one year after the date of your death or
disability, but in any event not later than the date on which such option would
terminate pursuant to Section 3 hereof. During such time after death, this
option may only be exercised by your representative, executor or administrator,
as the case may be. No exercise permitted by this Section 7 shall entitle you or
your personal representative, executor or administrator to exercise any portion
of the option beyond the extent to which such option is exercisable pursuant to
Section 4 hereof on the date you ceased to be employed by the Corporation.
8. Changes in Capital Structure. In the event that, by reason of a stock
dividend, recapitalization, reorganization, merger, consolidation,
reclassification, stock split-up, combination of shares, exchange of shares, or
comparable transaction occurring on a date subsequent to May 23, 1996, the
outstanding shares of Common Stock of the Corporation are hereafter increased or
decreased, or changed into or exchanged for a different number or kind of shares
or other securities of the Corporation or of any other corporation, then the
Board of Directors of the Corporation shall make appropriate adjustments to the
number and kind of shares subject to this option, and the purchase price per
share under this option shall be appropriately adjusted consistent with such
change. In no event shall fractional shares be issued or issuable pursuant to
any adjustment made under this Section 8. The determination of the Board as to
any such adjustment shall be final and conclusive.
9. Mandatory Exercise. Notwithstanding anything to the contrary set forth
herein, in the event the Corporation should adopt a plan of complete
liquidation, the Corporation may give you written notice thereof requiring you
either (a) to exercise this option (as to all shares covered hereby, including
those not yet vested) within thirty days after receipt of such notice, or (b) to
surrender this option or any unexercised portion thereof. If the Corporation
requests that this option be exercised and if it shall not have been exercised
in accordance with such 30-day period, then this option shall automatically
lapse irrevocably and you shall have no further rights with respect to this
option.
10. Documents. The Board of Directors may require you, as a condition to
the exercise of your option or the issuance or delivery of shares upon the
exercise of your option or the payment therefor, to make such representations
and warranties and to execute and deliver such notices of exercise and other
documents as the Board may deem consistent with the terms and conditions of this
option. Not in limitation of any of the foregoing, in any such case referred to
in the preceding sentence the Board may also require you to execute and deliver
documents (including the investment letter described in Section 11), containing
such representations, warranties and agreements as the Board or counsel to the
Corporation shall deem necessary or advisable to comply with any exemption from
registration under the Securities Act of 1933, as amended, any applicable State
securities laws, and any other applicable law, regulation or rule.
11. Investment Letter. If required by the Board, you shall agree to execute
a statement directed to the Corporation, upon each and every exercise by you of
any part of this option, that shares issued thereby are being acquired for
investment purposes only and not with a view to the redistribution thereof, and
containing an agreement that such shares will not be sold or transferred unless
either (1) registered under the Securities Act of 1933, as amended, or (2)
exempt from such registration in the opinion of Corporation counsel. If required
by the Board, certificates representing shares of Common Stock issued upon
exercise of your option shall bear a restrictive legend summarizing the
restrictions on transferability applicable thereto.
12. Requirements of Law. The issuance of shares upon the exercise of your
option and the delivery of shares upon the payment therefor shall be subject to
compliance with all applicable laws, rules, and regulations. Without limiting
the generality of the foregoing, the Corporation shall not be obligated to sell,
issue or deliver any shares unless all required approvals from governmental
authorities and stock exchanges shall have been obtained and all applicable
requirements of governmental authorities and stock exchanges shall have been
complied with.
13. Tax Withholding. The Corporation, as and when appropriate, shall have
the right to require you to pay any federal, state, or local taxes required by
law to be withheld.
14. Nonassignability. This option shall not be assignable or transferable
by you except by will or the laws of descent and distribution, in which event
the terms of this option, including all restrictions and limitations set forth
herein, shall continue to apply to the transferee. During your lifetime, no
person other than you may exercise this option.
15. Your Rights as a Shareholder and Board Member. You shall have no rights
as a shareholder of the Corporation with respect to any shares subject to this
option until the option has been exercised and the certificate with respect to
the shares purchased upon exercise of the option has been duly issued and
registered in your name. Nothing in this option shall be deemed to give you any
right to a continued position on the Board nor shall it be deemed to give you or
any other person any right not specifically and expressly provided herein.
16. Termination and Amendment. The Board may at any time terminate or amend
this option as it may deem advisable, except that no such termination or
amendment shall adversely affect you with respect to any right which has accrued
under this option prior to such termination or amendment.
17. Sunday or Holiday. In the event that the time for the performance of
any action or the giving of any notice is called for under this option within a
period of time which ends or falls on a Sunday or legal holiday, such period
shall be deemed to end or fall on the next date following such Sunday or legal
holiday which is not a Sunday or legal holiday.
18. Condition. This option is granted subject to approval by the
shareholders of the Corporation prior to May 23, 1998.
If you have any questions concerning this option, please do not hesitate to
contact me. If you desire to exercise this option in the future, please contact
Liz Greenberg to obtain the necessary exercise form. Please acknowledge the
cancellation of your Prior Option and your acceptance of the terms of this
option by signing below.
Of course, I want to congratulate you on your receipt of this stock option.
Very truly yours,
/s/Anthony J. Dimun
_______________________
Anthony J. Dimun
Executive Vice President
I hereby agree to the cancellation all rights which I may have under the
Prior Option, and accept the terms and provisions of the option described above,
effective May 23, 1996.
/s/ Barry Wicker
______________________
Barry Wicker
EXHIBIT 10.9
AGREEMENT
This AGREEMENT, dated as of the 20th of September, 1996, by and between
Ridgewood Investment Associates ("Ridgewood"), and Vital Signs, Inc. ("VSI"),
WITNESSETH:
WHEREAS, VSI owns the shares of capital stock of Cardiologics LLC,
described in Exhibit A annexed hereto (the "Shares" and desires to sell the
Shares to Ridgewood; and
WHEREAS, Ridgewood desires to purchase the Shares from VSI in accordance
with the terms set forth herein,
NOW, THEREFORE, in consideration of the mutual convenants set forth herein,
the parties hereto hereby agree as follows:
1. Purchase and Sale. At a closing to be held concurrent with the execution
of this Agreement, VSI hereby sells to Ridgewood the Shares as indicated on
Exhibit A annexed hereto for the purchase price of $1,000,000. In addition,
Ridgewood shall reimburse VSI for the amounts described in Section 3.
Concurrently with the execution of this Agreement, Ridgewood hereby delivers to
VSI promissory notes as indicated in Exhibit B in full satisfaction of the
purchase price of the Shares.
2. Ridgewood hereby agrees to assume all commitments, representations and
warranties set forth in the Investment Agreement dated January 19, 1996 between
VSI and Steven Kontos ("the Agreement") reflecting the understanding between
such parties as to their relationship with respect to Cardiologics LLC.
Ridgewood hereby agrees to indemnify and hold VSI harmless for any and all
liabilities relating to the Agreement.
3. Ridgewood hereby agrees to reimburse VSI for all funds expended by VSI
through the closing date pursuant to the Agreement. Furthermore, Ridgewood
andVSI agree to an orderly transition period whereby the activities of
Cardiologics will be permitted to continue under the relationship with VSI
established in January 1996. Ridgewood agrees to reimburse VSI for all fully
documented expenditures paid by VSI on behalf of Cardiologics beyond the closing
date. VSI and Ridgewood shall mutually agree on the time table for an orderly
transition period.
4. Warranties and Representations. VSI hereby warrants and represents to
Ridgewood that it owns the Shares, and is hereby transferring the Shares, free
and clear of all liens, security interests, pledges, encumbrances and
restrictions whatsoever.
5. Assignment. VSI hereby assigns to Ridgewood, all such rights that VSI
has as a shareholder of Cardiologics LLC, including without limitation, all such
rights that exist pursuant to the Agreement described in Section 2 above. If,
for any reason, such agreements and/or applicable instruments or laws preclude
VSI from transferring record ownership of the Shares, VSI shall use its best
efforts to effect appropriate amendments to any such amendable agreements or
instruments and, in any event, shall confer upon Ridgewood all economic and
other rights and benefits associated with ownership of the Shares.
6. Further Assurances. VSI shall, at its expense, take any and all further
steps as shall be required to effect the transfer of the Shares in the manner
contemplated by this Agreement.
In WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
/s/ Terence D. Wall
_________________________
Terence D. Wall, President
Vital Signs, Inc.
/s/ Frank DeBernardis
_________________________
Frank DeBernardis
General Partner
Ridgewood Investment Associates
/s/ Anthony J. Dimun
__________________________
Witness Anthony J. Dimun
Executive Vice President &
Secretary, Vital Signs, Inc.
EXHIBIT A
Shares Description
5,100 units representing Cardiologics LLC, a limited
51% of the total LLC liability company organized
membership units and under the laws of the State of
capital. New Jersey in January, 1996.
Exhibit B
SECURED PROMISSORY NOTE
Principal Amount: $1,000,000.00 September 20, 1996
Ridgewood Investment Associates promises to pay, in lawful monies of the
United States of America, to the order of Vital Signs, Inc. (the"Holder"), the
principal sum of One Million Dollars ($1,000,000), together with interest, at 20
Campus Road, Totowa, New Jersey 07512 or such other place as the Holder may
designate.
1. Interest. Interest will accrue on the unpaid principal balance from today's
date at the rate of eight percent (8%) per annum and will be due and
payable on the due dates. If the Obligor fails to make payment in full on
the Due Date, then interest will accrue on the unpaid balance from the Due
Dates, at the Default Rate which shall be equal to the lesser of: (i)
twelve percent (12%) per year, or (ii) the maximum rate of interest allowed
by applicable law.
2. Security. As security for the Obligor's obligation under this Note and
other indebtedness of the Obligor to the Holder, the Obligor is granting
the holder a security interest in certain investments as described in a
Security Agreement between the Obligor and the Holder dated today's date.
If the Obligor fails to pay this Note on the due date, the Holder may
exercise all of the Obligor's rights and remedies afforded a secured
creditor under the Security Agreement in accordance with New Jersey law.
3. Due Dates. The "Due Dates" shall be the dates of repayment of amounts due
hereunder or such other date specified for repayment in writing by the
Holder. Such Due Dates are as follows:
a) On or before January 2, 1997 - $500,000
On or before April 1, 1997 - $500,000
b) Amounts due pursuant to Section 3 of the Agreement dated
September 20, 1996 shall be due on demand as demanded by the
Holder.
4. Collection Costs and Expenses. The Obligor agrees to pay all costs and
expenses, including reasonable attorneys' fees, incurred by the Holder in
effecting collection of all amounts due under this Note or in enforcing the
Security Agreement. All such costs and expenses shall be added to the
principal amount due under this Note, and shall bear interest at the
Default Rate provided for in Paragraph 1 of this Note.
<PAGE>
5. No Waiver by Lender. Any delay or failure by the Holder in taking any
action or exercising any remedy shall not prevent the Holder from doing so
later, and shall not act as a waiver of any of the Holder's rights under
this Note.
6. Borrower' Waivers. The Obligor waives presentment for payment, demand,
notice of protest, notice of dishonor and any other notices or demands in
connection with the delivery, acceptance, payment, performance or
enforcement of this Note, except for demands for payment pursuant to
paragraph 3 above. In any action or proceeding brought by the Holder to
collect any amount due under this Note or otherwise arising out of or in
connection with this Note or the Security Agreement, the Obligor waives
trial by jury and the Holder by acceptance of this Note also waives trial
by jury.
7. Governing Law. This Note is made and delivered in accordance with New
Jersey (U.S.A.) law and New Jersey (U.S.A.) law controls with respect to
any interpretation and/or enforcement. For purposes of this Note, Obligor
(i) agrees to accept personal jurisdiction in New Jersey (U.S.A.), (ii)
agrees that exclusive venue for any and all litigation shall be in New
Jersey (U.S.A.), (iii) waives any claim of lack of jurisdiction or
inconvenient forum, and (iv) agrees that any judgement rendered in favor of
the Holder may be enforced where the Maker's assets are located.
RIDGEWOOD INVESTMENT ASSOCIATES
By: /s/Frank DeBernardis
________________________
Frank DeBernardis
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made as of the 20th day of
September, 1996 by and between Ridgewood Investment Associates, a partnership
organized and existing under the laws of New Jersey (the "Debtor"), and Vital
Signs, Inc. (the "Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor has executed in favor of Secured Party that certain
Promissory Note dated the date hereof in the original principal amount of U.S.
$1,000,000.00 (the "Note"); and
WHEREAS, to secure the punctual payment of the principal and interest
payable under the Note and any other sums owed from the Debtor to the Secured
Party (such principal, interest and other sums being hereunder referred to as
the "Obligations"), the Secured Party has requested, and the Debtor has agreed
to grant, a security interest in the collateral (as hereinafter defined);
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. As collateral security for the due and punctual
payment in full of the Obligations, the Debtor hereby grants and conveys to
the Secured Party a first perfected interest in investments set forth in
Exhibit A (hereafter referred to as the "Collateral"). The security
interest granted hereby shall terminate upon the payment in full of all of
the Obligations.
2. Representations, Warranties and Covenants. The Debtor represents, warrants
and covenants to and with the Secured Party as follows:
(a) Except for the security interest granted hereunder, all of
existing Collateral is owned by Debtor free and clear of all liens and
encumbrances and Debtor will keep the collateral free and clear
of all liens and encumbrances so long as this Agreeemnt is in force
with respect thereto.
(b) Debtor shall pay and discharge when due all taxes, assessments and
governmental charges of every kind upon it or its properties which, if
unpaid, might by law become a lien or charge upon its respective
properties.
(c) Debtor shall not sell, transfer or otherwise dispose of, or remove any
of the items of property which comprise the Collateral without the
prior written consent of the Secured party.
<PAGE>
3. Default, Rights and Remedies. If any default (including any failure to pay
timely when due, at maturity, by acceleration or otherwise) shall occur
hereunder or under the Note, or then Secured Party shall have the right
upon written notice to Debtor to declare this Agreement to be in default
and thereafter shall have (i) all rights and remedies provided by law,
including those of a secured party under the Uniform Commercial Code, in
addition to the rights and remedies provided for herein or in any other
agreement between Debtor and Secured Party, (ii) the right to declare any
or all of the Obligations due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
(iii) the right to dispose of the Collateral and exercise any and all
rights and remedies afforded Secured Party under any and all applicable
provisions of the law, (iv) the right to notify account debtors to make
payments directly to the Secured Party and/or (v) the right to enter upon
the premises on which the Collateral is located, inspect the Collateral, to
take possession thereof and any records related thereto, demand and receive
such possession from the Debtor or any person or organization which has
possession thereof, and to take such measures as the Secured Party may deem
necessary or proper for the care of protection thereof, including the right
to remove all or any portion, to sell or cause to be sold, at public or
private sales, in one or more sales or parcels, all or any portion of the
Collateral without notice of intention to sell or of time or place of sale;
provided, however, that Secured Party shall give the Debtor ten days' prior
written notice of the time and place of any proposed sale or sales and such
other notice as may be required by applicable laws. Any disposition of the
Collateral pursuant hereto shall be made in a manner which is commercially
reasonable within the meaning of the Uniform Commercial Code as in effect
in the jurisdiction or jurisdictions where the Collateral is located. All
of Secured Party's rights, remedies and benefits herein expressly specified
shall be cumulative and not exclusive of any other rights, remedies or
benefits which the Secured Party may have under this Agreement, at law or
otherwise.
4. Application of Proceeds. All proceeds from the sale of the Collateral by
Secured Party hereunder shall be applied first, against the cost of such
sale or collection, second, against any amounts due and owing under the
Notes or the Fee Agreement, third, to any other sums due by Debtor to
Secured Party, and fourth, to Debtor or as a court of competent
jurisdiction may otherwise direct.
5. Notices. Any notice, request, demand or other communication required or
permitted hereunder shall be given in writing, by certified or registered
mail, postage prepaid, or delivered to the last known addresses of the
parties hereto (or at such other address or in care of such other person as
hereafter shall be designated in writing by any party to the other party).
6. Miscellaneous. This Agreement contains the entire agreement of the parties
hereto respecting the subject matter thereof. Every provision of this
Agreement is intended to be severable, and, if any term or provision is
determined to be illegal or invalid for any reasons whatsoever, such
illegality or invalidity shall not affect the validity of the remainder of
this Agreement. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. This Agreement shall be goverened
by and construed in accordance with the laws of the State of New Jersey.
Any failure or delay by the Secured Party to require strict performance by
Debtor of any of the provisions, warranties, terms and conditions contained
herein or in any other agreement, document or instrument shall not affect
Secured Party's right to demand strict compliance and performance
therewith, and any waiver of any default shall not affect or constitute
waiver of any other default.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date and year first above written.
RIDGEWOOD INVESTMENT ASSOCIATES
By: /s/Frank DeBernardis By: /s/Terence D. Wall
______________________________ _____________________
Frank DeBernardis Terence D. Wall,
President
Vital Signs, Inc.
Witnessed By:
/s/Anthony J. Dimun
__________________________
Anthony J. Dimun
Executive Vice President
Vital Signs, Inc.
<PAGE>
GUARANTEE
THIS GUARANTEE ("Guarantee"), dated as of ____________, 1996, given by
Terence D. Wall, residing at 160 Lloyd Road, Montclair, New Jersey 07042
("Wall") to Vital Signs, Inc., a New Jersey corporation having its principal
place of business at 20 Campus Road, Totowa, New Jersey 07512 ("VSI"),
WITNESSETH THAT:
WHEREAS, Ridgewood Investment Associates ("Ridgewood") has previously
delivered to VSI a secured promissory note, dated September 20, 1996, in the
principal amount of $1,000,000 (the "Note"), in connection with VSI's sale to
Ridgewood of all of its equity interest in Cardilogics, LLC ("Cardilogics");
WHEREAS, Wall has agreed to guarantee Ridgewood's obligations under the
Note;
NOW THEREFORE, Wall agrees as follows:
1. SCOPE OF THE GUARANTEE. Wall hereby guarantees the performance by
Ridgewood of all of the terms of the Note.
2. IRREVOCABILITY. This Guarantee shall be irrevocable at all times through
and including such time as the Note is fully paid in accordance with its terms,
regardless of any defense, offset or counterclaim which may at any time be
available to or be asserted by Ridgewood, it being the purpose and intent of
Wall that this Guarantee and his obligations hereunder shall remain in full
force and effect and be binding on Wall and his successors until such Note is
fully paid in accordance with its terms.
3. SECONDARY LIABILITY. Wall's liability hereunder shall be secondary to
Ridgewood's liability under the Note. Wall shall be required to perform any and
all obligations of Ridgewood under the Note upon receipt of written notice from
VSI, stating that Ridgewood has failed to perform such obligation and has failed
to cure such obligation within ten days after written notice to Ridgewood.
4. GOVERNING LAW. This Guarantee shall be governed by the laws of the State
of New Jersey excluding the application of conflicts of laws principles.
5. WAIVER. Wall hereby waives any right of notice that he would otherwise
have with respect to any amendment to the Note that may be agreed upon in
writing by Ridgewood and VSI subsequent to the date hereof.
IN WITNESS WHEREOF, Wall has executed this Guarantee as of the date first
set forth above.
/s/ Terence D. Wall
_______________________________
Terence D. Wall
EXHIBIT 21.1
Name of Subsidiary Jurisdiction of Incorporation
Actar Airforce, Inc. Canada
Coast Medical, Inc. Delaware
EchoCath, Inc. New Jersey
(20% owned)
HealthStar Pharmaceutical Services, Inc. Delaware
Mediziv Medical Products, Inc. Israel
Thomas Medical Products, Inc. Pennsylvania
Vital Signs California California
Vital Signs Sales Corporation Delaware
Vital Signs GmbH Germany
Vital Signs Limited United Kingdom
Vital Signs MN, Inc.
(formerly Biomedical
Dynamics Corporation) Minnesota
Vital Signs (N) FDM BBO Malaysia
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated November 14, 1996
included in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (Nos. 33-40586, 33-43702, 33-47298, 33-73800 and
333-9705).
Goldstein Golub Kessler & Company, P.C.
New York, New York
December 27, 1996
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Vital Signs, Inc. desire
to authorize Terence D. Wall, Anthony J. Dimun and Barry Wicker, to act as their
attorneys-in-fact and agents, for the purpose of executing and filing the
Corporation's Annual Report on Form 10-K for the year ended September 30, 1996,
including all amendments thereto,
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Terence D. Wall, Anthony J. Dimun and Barry
Wicker and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to sign the Corporation's Annual
Report on Form 10-K for the year ended September 30, 1996, including any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney in
the following capacities on this 23rd day of December, 1996.
SIGNATURE TITLE
/s/Terence D. Wall
_____________________ President, Chief Executive Officer and Director
Terence D. Wall
/s/David J. Bershad
_____________________ Director
David J. Bershad
/s/Anthony J. Dimun
_____________________ Executive Vice President, Chief Financial
Anthony J. Dimun Officer, Treasurer and Director (Chief
Financial and Accounting Officer)
/s/Joseph J. Thomas
_____________________ Director
Joseph J. Thomas
/s/John Toedtman
_____________________ Director
John Toedtman
/s/ Barry Wicker
_____________________ Executive Vice President and Director
Barry Wicker
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's Balance Sheet at September 30, 1996 and Twelve Months
income statement ending September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<PERIOD-TYPE> YEAR
<CASH> 17,747
<SECURITIES> 602
<RECEIVABLES> 14,056
<ALLOWANCES> 169
<INVENTORY> 13,013
<CURRENT-ASSETS> 53,528
<PP&E> 30,666
<DEPRECIATION> 9,535
<TOTAL-ASSETS> 123,756
<CURRENT-LIABILITIES> 8,708
<BONDS> 2,700
0
0
<COMMON> 29,666
<OTHER-SE> 80,573
<TOTAL-LIABILITY-AND-EQUITY> 123,756
<SALES> 90,730
<TOTAL-REVENUES> 90,730
<CGS> 38,418
<TOTAL-COSTS> 38,418
<OTHER-EXPENSES> 4,238
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> 28,380
<INCOME-TAX> 9,591
<INCOME-CONTINUING> 18,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,789
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
</TABLE>
