SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 10, 1996
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Date of Report (Date of earliest event reported)
Protocol Systems, Inc.
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(Exact name of registrant as specified in its charter)
Oregon 0-19943 93-0913130
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
8500 S.W. Creekside Place, Beaverton, Oregon 97008
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(Address of principal executive offices)
(503) 526-8500
(Registrant's telephone number, including area code)
Not applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
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Pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of February 20, 1996 among Protocol Systems, Inc., an
Oregon corporation ("Protocol"), Protocol Merger Corporation, a Wisconsin
corporation and wholly owned subsidiary of Protocol ("Merger Sub") and Pryon
Corporation, a Wisconsin corporation ("Pryon"), Merger Sub was merged with and
into Pryon (the "Merger") effective as of July 10, 1996 (the "Effective
Time"). As a result of the Merger, Pryon became a wholly-owned subsidiary of
Protocol. The Merger will be accounted for as a pooling of interests.
At the Effective Time of the Merger, each share of capital stock of Pryon
outstanding immediately prior to the Effective Time was converted into and
exchanged for 5.645823 shares of Protocol Common Stock. The aggregate number
of shares of Common Stock of Protocol issued in accordance with the terms of
the Merger Agreement upon such conversion and exchange was 1,211,100 shares.
In addition, pursuant to the Merger Agreement, Protocol issued options to
purchase Protocol Common Stock in replacement of all options to purchase Pryon
Common Stock that were outstanding immediately prior to the Effective Time
based on the exchange ratio of 5.645823 shares of Protocol Common Stock for
each share of Pryon Common Stock, which options vest and become exercisable in
accordance with the terms of the original Pryon stock options. Replacement
stock options for a total of 121,385 shares of Protocol Common Stock were
issued upon consummation of the Merger.
The amount of consideration paid in connection with the Merger was determined
in arms-length negotiations between the officers of Protocol and Pryon. Prior
to the Merger, except for purchases by Protocol of Pryon products in the
ordinary course of business amounting to approximately $1.0 million, $1.0
million and $1.7 million in 1993, 1994 and 1995, respectively, no material
relationship existed between Protocol and Pryon or any of its affiliates, any
director or officer of Protocol, or any associate of any such director or
officer.
Pryon is a leading supplier of capnography products for medical
instrumentation manufacturers. Pryon will continue such business as a wholly
owned subsidiary of Protocol.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of Business Acquired.
The financial statements of Pryon required pursuant to Rule 3-05
of Regulation S-X were previously reported in Amendment No. 3 to
Protocol's Registration Statement on Form S-4, as filed with the
Securities and Exchange Commission on June 4, 1996, and pursuant
to General Instruction B.3. of Form 8-K are not additionally
reported herein.
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(b) Pro Forma Financial Information.
The pro forma financial information required pursuant to Article
11 of Regulation S-X was previously reported in Amendment No. 3
to Protocol's Registration Statement on Form S-4, as filed with
the Securities and Exchange Commission on June 4, 1996, and
pursuant to General Instruction B.3. of Form 8-K are not
additionally reported herein.
(c) Exhibits
Number Description
2.1 Agreement and Plan of Merger dated as of February 20,
1996 Among Protocol Systems, Inc., Protocol Merger
Corporation and Pryon Corporation
99.1 Press Release dated as of July 10, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTOCOL SYSTEMS, INC.
Date: July 23, 1996 By: /s/ Craig M. Swanson
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Craig M. Swanson
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of February 20, 1996
Among Protocol Systems, Inc., Protocol Merger Corporation
and Pryon Corporation (Incorporated by reference to Exhibit
2.1 to Protocol's Registration Statement on Form S-4 (File
No. 333-03316))
99.1 Press Release dated as of July 10, 1996
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Exhibit 99.1
Protocol Systems Inc., Pryon Corporation Stockholders Approve Merger
Beaverton, Ore. -- July 10, 1996 -- Protocol Systems Inc. and Pryon
Corporation today announced that the stockholders of both companies have
approved the merger of Pryon Corporation with a wholly-owned subsidiary
of Protocol Systems Inc. Pryon shareholders voted July 8 and Protocol
shareholders voted at the Protocol annual meeting held today. The
transaction closed today, July 10.
"The merger with Pryon not only grows our company and provides us a key
technology, but also gives us a pathway to expand our business by
becoming a significant provider of OEM technologies to the medical
device industry," said James B. Moon, Protocol Systems president and
chief executive officer. "Strategically, we expect this merger to
create immediate and long-term synergy in revenue and earnings growth.
Excluding transaction-related charges of approximately $1,800,000, we
expect earnings accretion in the first year."
Under the terms of the merger agreement, 1,332,485 shares of Protocol
common stock were exchanged for all of the outstanding capital stock of
Pryon, or an exchange ratio of approximately 5.65 Protocol shares for
each Pryon share. The merger is intended to qualify as a tax-free
reorganization and a pooling-of-interests for accounting and financial
reporting purposes. As of today, Protocol has a total market valuation
of approximately $176 million.
Since the merger agreement was announced February 20, 1996, the
companies have been working together to move distribution of Pryon's
standalone capnographs, the SC-210 and SC-300, to Protocol's worldwide
sales organization. Protocol will operate Pryon as a wholly-owned
subsidiary and will retain key management personnel and continue
engineering, manufacturing and OEM sales operations at Pryon's current
Menomonee Falls, Wisconsin facility. Daniel F. Carsten, 48, president
and chief executive officer of Pryon, has assumed a position on the
Protocol Systems board of directors. Protocol expects to selectively
market other proprietary vital signs technologies it owns through
Pryon's OEM channels. Protocol presently owns proprietary vital signs
technologies relating to electrocardiography (ECG), noninvasive and
invasive blood pressure, impedance respiration, and arrhythmia
detection.
Pryon is a leader in the design, manufacture and marketing of mainstream
and sidestream CO2 sensors and electronic subsystems primarily to OEM
customers which in turn package the Pryon technology in their own
monitoring instrumentation. Pryon's OEM customers consist of leading
worldwide manufacturers of various patient monitoring systems including
Nellcor Puritan Bennett, SpaceLabs Medical, Marquette Electronics, NEC
Medical Equipment and Nihon Kohden among others. Capnography refers to
the measurement and continuous graphical display of the carbon dioxide
(CO2) content in the patient's airway. CO2 concentration in a patient's
respiratory gases serves as an early and accurate indicator of
circulatory, pulmonary or metabolic distress.
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Protocol Systems Inc. (NASDAQ: PCOL) designs, manufactures and markets
patient monitoring instruments and systems utilizing innovative design,
advanced software concepts and leading electronic technology. Since
shipping its first Propaq monitor in 1988, Protocol has now shipped over
35,000 Propaq monitors to health care providers in more than 80
countries throughout the world. Based in Beaverton, Ore., Protocol
employs 270 people. Pryon Corporation employs 104 people in Menomonee
Falls, Wisconsin.
"Safe Harbor" Statement Under the Private Securities Litigation Reform
Act of 1995: the statements which are not historical facts contained in
this release are forward looking statements that involve risks and
uncertainties, including but not limited to, product demand and market
acceptance risk, the effect of economic conditions, the impact of
competitive products and pricing, product development, commercialization
and technological difficulties, capacity and supply constraints or
difficulties, the results of financing efforts, actual purchases under
agreements, the effects of the Company's accounting policies, and other
risks detailed in the Company's Securities and Exchange Commission
filings.
Protocol and Propaq are registered trademarks of Protocol Systems Inc.
Other product names mentioned herein are for identification purposes
only and may be the trademarks or registered trademarks of their
respective companies.
# # #
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CONSOLIDATED FINANCIAL HIGHLIGHTS
(dollars in thousands except per share amounts)
(unaudited)
Protocol/Pryon - Consolidated
1995 1996
Q-1 Q-2 Q-3 Q-4 1995 Q-1
<S> <C> <C> <C> <C> <C> <C>
Sales $12,944 $13,343 $15,222 $18,093 $59,602 $16,239
Gross Profit $6,838 $7,139 $7,860 $9,972 $31,809 $8,884
% of sales 52.8% 53.5% 51.6% 55.1% 53.4% 54.7%
R & D $2,064 $1,963 $1,848 $1,844 $7,719 $2,254
% of sales 15.9% 14.7% 12.1% 10.2% 13.0% 13.9%
S,G & A $3,993 $4,524 $4,569 $4,994 $18,080 $4,749
% of sales 30.8% 33.9% 30.0% 27.6% 30.3% 29.2%
Operating Income $781 $652 $1,443 $3,134 $6,010 $1,881
% of sales 6.0% 4.9% 9.5% 17.3% 10.1% 11.6%
Other Income $224 $220 $239 $233 $916 $267
Income Taxes $192 $207 $430 $699 $1,528 $595
Net Income $813 $665 $1,252 $2,668 $5,398 $1,553
Net Income per Share $ .09 $ .07 $ .14 $ .29 $ .60 $ .17
Weighted Average Shares 8,940 8,911 9,092 9,133 9,010 9,369
(in thousands)
Intercompany Eliminations
1995 1996
Q-1 Q-2 Q-3 Q-4 1995 Q-1
Sales ($291) ($520) ($485) ($445) ($1,741) ($685)
Gross Profit ($27) ($77) ($77) $83 ($98) $23
Net Income ($27) ($77) ($77) $83 ($98) $23
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Protocol Systems, Inc. - Historical
1995 1996
Q-1 Q-2 Q-3 Q-4 1995 Q-1
Sales $10,176 $10,761 $12,747 $15,383 $49,067 $13,789
Gross Profit $5,597 $5,905 $6,754 $8,617 $26,873 $7,481
% of sales 55.0% 54.9% 53.0% 56.0% 54.8% 54.3%
R & D $1,695 $1,556 $1,442 $1,497 $6,190 $1,795
% of sales 16.7% 14.5% 11.3% 9.7% 12.6% 13.0%
S,G & A $3,465 $3,905 $3,946 $4,272 $15,588 $4,083
% of sales 34.1% 36.3% 31.0% 27.8% 31.8% 29.6%
Operating Income $437 $444 $1,366 $2,848 $5,095 $1,603
% of sales 4.3% 4.1% 10.7% 18.5% 10.4% 11.6%
Other Income $257 $287 $287 $280 $1,111 $320
Income Taxes $192 $207 $430 $699 $1,528 $595
Net Income $502 $524 $1,223 $2,429 $4,678 $1,328
Net Income per Share $ .07 $ .07 $ .16 $ .31 $ .61 $ .17
Weighted Average Shares 7,632 7,603 7,794 7,810 7,701 8,042
(in thousands)
Pryon Corporation - Historical
1995 1996
Q-1 Q-2 Q-3 Q-4 1995 Q-1
Sales $3,059 $3,102 $2,960 $3,155 $12,276 $3,135
Gross Profit $1,268 $1,311 $1,183 $1,272 $5,034 $1,380
% of sales 41.5% 42.3% 40.0% 40.3% 41.0% 44.0%
R & D $369 $407 $406 $347 $1,529 $459
% of sales 12.1% 13.1% 13.7% 11.0% 12.5% 14.6%
S,G & A $528 $619 $623 $722 $2,492 $666
% of sales 17.3% 20.0% 21.0% 22.9% 20.3% 21.2%
Operating Income $371 $285 $154 $203 $1,013 $255
% of sales 12.1% 9.2% 5.2% 6.4% 8.3% 8.1%
Other Income (Expense) ($33) ($67) ($48) ($47) ($195) ($53)
Income Taxes $0 $0 $0 $0 $0 $0
Net Income $338 $218 $106 $156 $818 $202
Net Income per Share $ .26 $ .17 $ .08 $ .12 $ .63 $ .15
Weighted Average Shares 1,308 1,308 1,297 1,323 1,309 1,327
(in thousands)
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