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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-20225
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ZOLL MEDICAL CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2711626
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
32 Second Avenue, Burlington, Massachusetts 01803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 229-0020
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 20, 1996: $68,401,830
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (December 20, 1996):
6,182,534
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PART I
ITEM 1. BUSINESS
GENERAL
Zoll Medical Corporation designs, manufactures and markets an integrated
line of proprietary, noninvasive cardiac resuscitation devices and disposable
electrodes which provide both types of electrical cardiac resuscitation --
pacing and defibrillation. The Company's product line includes combination
pacemaker/defibrillators, stand-alone pacemakers and defibrillators and
disposable multi-function electrodes that permit cardiac monitoring, pacing and
defibrillation through a single pair of electrodes.
The principal markets for cardiac resuscitation equipment are hospitals and
pre-hospital care providers such as paramedics, ambulance operators, emergency
medical technicians ("EMTs"), firefighters, police and other "first response"
emergency personnel.
MARKET BACKGROUND
Cardiac arrest accounts for approximately one-quarter of all deaths in the
United States. Cardiac arrest can result from a heart attack or from many other
causes. Victims of cardiac arrest may experience two basic types of
"arrhythmia's," which are abnormal rhythms of the heart caused by insufficient
circulation of oxygenated blood, drugs, electrical shock, mechanical injury,
disease or other causes. In one class of arrhythmia, the heart beats too slowly
(bradycardia) or stops (asystole). Pacing is a method of electrical therapy used
to treat bradycardia and asystole. In the other class of arrhythmia, the heart
beats chaotically (fibrillation) or too quickly (tachycardia). The definitive
treatment for these conditions is defibrillation. The Company estimates that
approximately 40% of cardiac arrest patients initially suffer from
bradycardia/asystole and 60% suffer from fibrillation/tachycardia. It is
possible for a patient to experience both types of arrhythmia's during a cardiac
arrest. In these situations, it is important to have resuscitation equipment
with both pacing and defibrillation capabilities available.
The most important factor in treating cardiac arrest successfully is time.
Unless treatment is begun within four to eight minutes of the onset of cardiac
arrest, the victim is likely to die. The importance of immediate treatment
creates a need for cardiac resuscitation equipment specifically designed for
emergency use. Noninvasive temporary pacemakers and defibrillators, such as
those sold by the Company, are used in emergency situations. Therefore, they do
not compete with permanent, implantable pacemakers or defibrillators that are
used to treat chronic arrhythmia's. In fact, the products are complementary,
because emergency cardiac resuscitation is often required during the
implantation of a permanent device.
Bradycardia/Pacing
The principal therapies for the emergency treatment of bradycardia are
drugs and temporary cardiac pacing, either or both of which may be used to
stimulate effective cardiac contractions and restore circulation. Drugs utilized
in treating bradycardia include isoproterenol and atropine, which are injected
into the patient to stimulate the heartbeat. Cardiac pacing utilizes an
electrical pulse to stimulate the patient's heartbeat. For the permanent
treatment of chronic arrhythmia's, a pacemaker may be surgically implanted. For
the emergency treatment of bradycardia, there are two primary techniques for
temporary pacing -- invasive endocardial pacing, in which a wire is inserted
directly into the heart to provide the
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electrical stimulus; and noninvasive temporary pacing, which uses gelled
electrodes applied to the patient's chest to conduct an electrical stimulus.
The American Heart Association ("AHA") has established standard protocols
for the emergency treatment of cardiac arrest, including bradycardia. These
Advanced Cardiac Life Support ("ACLS") protocols are widely followed by
practicing physicians. In 1992, the AHA released new ACLS protocols recommending
noninvasive pacing as the initial treatment method for certain serious cardiac
conditions.
Fibrillation/Defibrillation
The other type of life-threatening cardiac arrhythmia is fibrillation, in
which the heart's normal, regular electrical impulses become chaotic and the
heart ceases to pump blood. The only accepted emergency treatment of
fibrillation is defibrillation, in which a powerful electric shock is delivered
to the heart to stop the fibrillation and permit the return of coordinated
cardiac contractions. In emergency situations, defibrillation has conventionally
been administered through hand-held paddles placed on the patient's chest.
However, defibrillation can also be administered through disposable adhesive
electrodes as well, which the Company believes are safer and easier to use than
paddles.
In the hospital, most physicians and many nurses are trained and certified
to operate defibrillators. Outside the hospital, these persons, as well as
paramedics and other highly-trained personnel, were traditionally the only
persons authorized to provide defibrillation. However, a number of jurisdictions
now permit the use of automated defibrillators by less extensively-trained EMTs
and other emergency response personnel, following a brief course in the use of
the device.
Cardioversion is a type of defibrillation used to treat tachycardias which
have not degenerated into fibrillation. During cardioversion, the defibrillator
delivers an electric shock which is synchronized to the patient's heartbeat in
order to slow the heart to a normal rhythm. The Company's defibrillators include
cardioversion capability.
CARDIAC RESUSCITATION EQUIPMENT MARKETS
The principal markets for cardiac resuscitation equipment can be divided
between the hospital and pre-hospital markets.
Hospital Market. The hospital market for cardiac resuscitation equipment in
the United States consists of approximately 6,000 acute care community hospitals
and 1,000 other hospitals. Hospitals have traditionally been the largest users
of cardiac resuscitation equipment, both for patients admitted for cardiac
arrest and for patients undergoing treatment for other reasons. Many hospital
procedures such as surgery, cardiac catheterization, stress testing and general
anesthesia may induce arrhythmia's or cardiac arrest. Hospitals frequently use
cardiac resuscitation devices on a standby basis in connection with these
procedures. Since immediate treatment is the critical factor for successful
cardiac resuscitation, hospitals typically place resuscitation devices
throughout their facilities, including the cardiac and critical care units,
emergency rooms, operating rooms, electrophysiology laboratories and,
increasingly, in general wards. Hospitals also use portable devices during
in-hospital transportation of cardiac patients.
The hospital market outside of the United States is less developed and is
expected to grow as more hospitals are built and existing hospitals modernize
and update their approaches to cardiac and emergency care. In the international
market, unlike the United States market, the administration of pacing and
defibrillation is generally viewed as a skill reserved for physicians. Few other
staff members are
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trained or certified to administer such treatment. It is expected that emerging
standards of care and the acceptance of automated equipment will eventually
result in increased use of cardiac resuscitation equipment by a broader range of
health care personnel in the international market.
Pre-Hospital Market. Most cardiac arrests occur outside of the hospital.
Due to the importance of immediate treatment, there is a substantial market for
portable cardiac resuscitation equipment designed for use by various emergency
responders. The most highly-trained segment of this pre-hospital market is
comprised of paramedics, who are generally authorized to use defibrillators.
Although paramedics are currently not as likely to be trained in pacing as in
defibrillation, the Company believes that as noninvasive temporary pacing
becomes more widely accepted in the hospital market, the use of combination
pacemaker/defibrillators will become more widespread in the pre-hospital setting
as well.
In addition to paramedics, there are numerous other first responders such
as EMTs, ambulance operators, firefighters, police and other emergency
personnel, many of whom are currently authorized to use automated
defibrillators. The Company believes that these first responders and their
emergency vehicles will represent an increasingly important market for cardiac
resuscitation equipment as the medical community places increased priority on
providing such equipment and the necessary training to all first responders.
PRODUCTS
<TABLE>
The Company designs, manufactures and markets an integrated line of
noninvasive cardiac resuscitation devices and single-use disposable electrodes
to meet the needs of health care providers treating cardiac arrest in a variety
of settings. The following table summarizes the Company's principal products. In
addition, the Company provides a full line of cables and other accessories.
<CAPTION>
Target Date First
Product Description Market Shipped
- ------- ----------- ------ -------
<S> <C> <C> <C>
Resuscitation Devices
NTP 1000 Stand-alone pacemaker Hospital September 1984
PD 1200 Combination pacemaker/ Hospital September 1988
defibrillator
PD 1210 Combination pacemaker/ Electro-
defibrillator physiology lab August 1989
D 900 Stand-alone defibrillator Hospital December 1991
PD 1400 Portable combination Pre-hospital February 1992
pacemaker/defibrillator and hospital
</TABLE>
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<TABLE>
<CAPTION>
Target Date First
Product Description Market Shipped
- ------- ----------- ------ -------
<S> <C> <C> <C>
D 1400 Portable stand-alone Pre-hospital October 1994
defibrillator and hospital
PD 2000 Combination pacemaker/ Hospital October 1994
defibrillator with
advisory capability
D 2000 Stand-alone defibrillator Hospital October 1994
with advisory capability
1600 Semi-automatic pacemaker/ Pre-hospital April 1995
efibrillator
Disposable Electrodes and Accessories
NTP 2000 Adult pacing electrodes Pre-hospital September 1984
(12-pair case) and hospital
NTP 2100 Pediatric pacing Pre-hospital March 1987
electrodes (6-pair case) and hospital
PD 2200 Multi-function electrodes Pre-hospital November 1989
(12-pair case) and hospital
Stat Padz Multi-function electrodes Pre-hospital March 1994
(12-pair case) and hospital
Sterile Stat Padz Multi-function electrodes Hospital December 1995
(6-pair case)
Radiolucent Stat Padz
Multi-function electrodes Hospital November 1996
(12-pair case)
PD 4420 Battery support system Pre-hospital February 1992
for PD 1400 (includes and hospital
two lead-acid batteries)
AC Power Charger AC and battery support Pre-hospital September 1994
system module for PD 1400 and hospital
and 1600(includes lead-acid
batteries)
4x4
Base Powercharger Battery support system Pre-hospital November 1995
module for PD 1400 and 1600 and hospital
(includes lead-acid
batteries)
</TABLE>
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NTP 1000. The NTP 1000, the Company's first commercial product,
incorporates the Company's patented technology into a noninvasive temporary
pacemaker. The NTP 1000 has become a less important component of the Company's
product line as customers opt to purchase combination pacemaker/defibrillators
such as the PD 1200 and the PD 1400 rather than a stand-alone pacer.
PD 1200/1210. The PD 1200 combines pacing and defibrillation capability in
a single device. The PD 1200 is targeted to the hospital market, where it can be
used in the cardiac and critical care units, operating rooms and emergency rooms
as well as on general floors. The operator of the PD 1200 may select between
monitoring, pacing and defibrillation by turning a single control knob. The PD
1210 is a modified version of the PD 1200 specifically designed for use in
electrophysiology labs.
D 900. The D 900 was introduced to meet the needs of hospitals which seek
to purchase a defibrillator only. The D 900 incorporates the basic design of the
PD 1200, but without pacing capabilities.
PD 1400. The PD 1400 is a portable combination pacemaker/defibrillator
designed primarily for pre-hospital use by paramedics and during the transport
of patients either in the ambulance or within the hospital. In pre-hospital
applications, where patients may be difficult to reach and treat, the weight,
size and reliability of the resuscitation device (including the battery system)
are important purchase considerations. The PD 1400 weighs only 13 to 15 pounds
depending on the electrode configuration, while retaining all of the pacing and
defibrillation capabilities and the standardized design of the PD 1200. The PD
1400 incorporates a reliable, rechargeable lead-acid battery system.
D 1400. The D 1400 resuscitation system is an entry level device that can
be upgraded to include the advisory feature and ZOLL non-invasive external
pacing capability as hospital needs expand in the future. The D 1400
incorporates the basis design of the PD 1400, but without pacing capability.
PD 2000. The PD 2000 product responds specifically to American Heart
Association initiatives recommending early defibrillation. This resuscitation
system includes an advisory algorithm that detects ventricular fibrillation, a
life threatening arrhythmia for which rapid defibrillation is the only effective
treatment. The PD 2000 device is designed for use by non-critical care staff to
deliver defibrillation within one to two minutes of cardiac arrest in accordance
with the latest American Heart Association guidelines. The PD 2000 is a complete
resuscitation system designed to be used by either the first person to arrive at
the patient's side or the ACLS team after a "code" is initiated in the hospital.
Additionally, the unit provides monitoring, external pacing, and documentation
of all treatment during both BLS and ACLS use.
D 2000. The D 2000 was introduced to meet the needs of hospitals which seek
to purchase a defibrillator only. The D 2000 incorporates the basic design of
the PD 2000, but without pacing capabilities.
1600. The 1600 models comprise four semi-automatic defibrillators combined
with optional features including strip chart recorder, voice recording, manual
override, and external pacing. All units incorporate a sophisticated data
collection system utilizing a removable solid state memory. A standard computer,
with ZOLL proprietary software programs, provides data review, collection and
archiving. The four models are designed for use by many levels of pre-hospital
care providers. Their optional features and configurable operation and design
allow the use of one 1600 model to be used by personnel trained at different
skill levels, such as first responders and paramedics.
Disposable Electrodes. The Company offers a variety of single-patient-use,
proprietary disposable electrodes for use with its resuscitation devices. The
Company's PD 2200 multi-function disposable electrode, introduced in late 1989,
permits monitoring, pacing and defibrillation through a single pair of
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electrodes. In the conventional electrode configuration, three ECG electrodes
are required for monitoring, two electrodes are required for pacing and two
electrodes or paddles were required for defibrillation, all with accompanying
cables. By reducing the number of electrodes and cables required for emergency
treatment, the multi-function electrodes increase the ease and the speed of use.
If simultaneous pacing and monitoring is required, a separate set of ECG-only
electrodes can be used in addition to the multi-function electrodes.
The disposable multi-function electrodes allow the user to select
monitoring, pacing or defibrillation by turning a single control knob on the
Company's resuscitation devices. The electrodes are pre-gelled, which saves
critical time in the treatment of cardiac arrest and permits "hands-off"
therapy. Conventional paddle electrodes for defibrillation must be manually
gelled for each use, which increases the risk of electrical shock to the
operator.
In 1994, the Company began selling the Stat Padz multi-function electrodes.
The Stat Padz electrode expands the Company's disposable product line to meet
the need for speed in defibrillation and specialized requirements in
disposables. Stat Padz are supplied in a new Zoll Speed Pack that eliminates
unnecessary packaging, reduces application steps and provides an organized means
to apply lifesaving electrical therapy to the patient.
In 1996, the Company introduced both radiolucent and sterile Stat Padz
multi-function electrodes. The radiolucent and sterile Stat Padz are a further
diversification of the Company's disposable product line. Radiolucent Stat Padz
are made from a specially formulated conductive material which is virtually
invisible to X-ray. The Sterile Stat Padz are specially packaged and sterilized
allowing for use in surgical and other sterile environments.
In addition to the disposable multi-function electrodes, the Company sells
both a pacing-only electrode for use on adults and children (NTP 2000 and 2100)
and standard ECG electrodes. The Company expects that the growing installed base
of its pacing and defibrillation devices will generate increased demand for its
disposable electrodes.
PRODUCT DESIGN AND NEW PRODUCT DEVELOPMENT
The Company's strategy has been to improve and expand its product line
through the application of its proprietary technology to both devices and
disposable electrodes. The Company pursues a multi-disciplinary approach to
product design. The primary disciplines comprising the Company's current
research and development program are mechanical, software and electronic design,
which includes both digital (microprocessor) and analog (high voltage) design.
The Company plans to focus its research and development efforts on the
design of safer, more clinically efficacious, user friendly and cost effective
manual and semi-automatic defibrillators. The company also intends to continue
its research and development with respect to noninvasive pacing and
defibrillation technologies. The Company also intends to continue its research
and development with respect to disposable electrodes and electrode materials,
which includes all phases of electrode design, testing and manufacture.
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SALES AND MARKETING
The Company employs a direct North American sales force consisting of 62
full-time sales people as of September 28, 1996, including eight regional
managers for North American Sales. In addition, the Company uses three
distributors to service certain less accessible geographic areas. The Company's
North American marketing efforts are directed from its headquarters in
Burlington, Massachusetts, with the sales force calling on hospitals and
ambulance/paramedic services across the United States. Significant involvement
by the sales person is generally required to establish new customers. A sales
person must call on multiple parties within a hospital, including both the
primary decision maker for the hospital area in which the device is to be used
(e.g., cardiac care unit or emergency room) and the hospital administrators or
equipment purchasing committees. By employing a direct sales force, the Company
retains greater flexibility and control of its marketing efforts. The sales
force reinforces its ties to its customers by training the users of the products
in their operation. The Company has recruited an experienced EMS specialist
sales team to provide coordination, special knowledge, and customer service in
the Zoll 1600 sales program.
Beginning in 1990, the Company began an aggressive effort to penetrate the
international market. The Company has established a network of approximately 63
distributors in targeted international markets. International operations are
based in the Netherlands, with regional managers in Europe, Latin America and
the Far East. The company has established a direct sales subsidiary in the
United Kingdom. In 1992 the Company entered into a distributorship agreement
with a Japanese company for the sale of the Company's products in Japan. In
1994, the Company entered into an agreement with a German company to be the
exclusive distributor of Zoll products to the hospital market in Germany. The
Company believes that there is significant growth potential in the international
market.
MANUFACTURING
Each of the Company's devices are assembled by the Company from components
which are manufactured by outside vendors to Company specifications. Detailed
vendor qualification requirements are set and verified by the Company. Many
critical components are manufactured and tested by such vendors utilizing the
Company's own tooling and test stations. The completed devices are tested by the
Company to determine compliance with its engineering and quality assurance
specifications.
All of the Company's disposable electrodes are manufactured by the Company
from raw material which is purchased in bulk. Each step of the manufacturing
process is qualified and validated so that the units produced consistently meet
performance requirements.
Certain materials and components used in the Company's devices and
electrodes are purchased from various single sources. Although the Company
believes that alternative sources of supply for such materials and components
could be developed over a relatively short period of time, the failure to secure
such alternative sources when needed could have a material adverse effect on the
Company's business.
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COMPETITION
The domestic and international markets for the Company's products are
highly competitive. Some of the Company's competitors have significantly greater
financial, technical, research and development or marketing resources than the
Company.
The Company's principal competitor is Physio-Control Corporation
("Physio"), formerly a subsidiary of Eli Lilly and Company. Management believes
that Physio has a dominant position in the cardiac resuscitation equipment
industry. Physio is the only competitor that competes across the Company's
entire product line and also offers automated portable defibrillators.
The Company believes that the principal competitive factors in the hospital
market for cardiac resuscitation equipment are clinical efficacy, reliability,
safety, ease of use and standardization. In the pre-hospital market, in addition
to the foregoing considerations, portability (small size and light weight),
durability and a reliable battery system are significant competitive factors.
The Company believes that its products compete favorably with respect to each of
these factors.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's United States pacing system patent, which expires in 1999,
covers the combination of the duration and shape of the pacing pulse and the
characteristics of the electrodes. Corresponding patents have been issued in
Canada, France, United Kingdom and Japan. Several additional U.S. patents have
been issued relating to other techniques for non-invasive cardiac pacing.
Corresponding patents are pending internationally.
Additionally, several United States patents related to features of the
1400, 1600 and 2000 pacer/defibrillators, Powercharger and Stat Padz[trademark]
electrodes have recently been issued. Foreign patents relating to the
1400/1600/2000 pacer/defibrillators, and Stat Padz[trademark] electrodes are
pending.
Although the validity of the Company's United States pacing system patent
has been upheld by the United States Court of Appeals for the Federal Circuit,
there can be no assurance that any other patents will prove to be enforceable,
that any patents will be issued as a result of pending or future application, or
that competitors will not develop functionally similar devices outside the
protection of any patents the Company has or may obtain. The Company intends to
protect its proprietary technology aggressively and may incur in the future,
substantial expenses relating to the protection of its patents or other
intellectual property.
The Company also relies on trade secrets and proprietary know-how,
particularly with respect to its disposable electrodes. Although the Company
seeks to protect such information, in part through the use of confidentiality
agreements, there can be no assurance that the Company's trade secrets and
proprietary know-how will not become known to or independently developed by
competitors.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to extensive
regulation by numerous governmental authorities, principally by the United
States Food and Drug Administration (the "FDA") and corresponding foreign
agencies. The FDA administers the Federal Food, Drug and Cosmetic Act, as
amended (the "FDA Act"). The Company is subject to the standards and procedures
respecting the manufacture of medical devices contained in the FDA Act and the
regulations promulgated thereunder and is subject to inspection by the FDA for
compliance with such standards and procedures.
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The Company's products have been classified by the FDA as Class II devices
(defibrillation only), and as Class III devices (pacing /defibrillation). These
devices must secure either a 510(k) pre-market notification clearance or an
approved Pre-Market Approval Application ("PMA") before they can be introduced
into the United States market. The process of obtaining 510(k) clearance
typically takes several months and involves the submission of limited clinical
data supporting assertions that the product is substantially equivalent to
another medical device on the market prior to 1976. The PMA process typically
requires substantially more time than does 510(k) clearance and requires the
submission of significant quantities of clinical data and supporting
information. Delays in obtaining either 510(k) or if necessary, PMA clearance
could have an adverse effect on the introduction of future products.
Every company that manufactures or assembles medical devices is required to
register with the FDA and to adhere to certain "good manufacturing practices,"
which regulate the manufacture of medical devices and prescribe record keeping
procedures and provide for the routine inspection of facilities for compliance
with such regulations. The FDA also has broad regulatory powers in the areas of
clinical testing, marketing and advertising of medical devices. The Company
believes that the FDA has increased its scrutiny of the medical device market
over the past several years.
The Company is also subject to regulation in each of the foreign countries
in which it sells its products. Many of the regulations applicable to the
Company's products in such countries are similar to those of the FDA. However,
the national health or social security organizations of certain countries
require the Company's products to be qualified before they can be marketed in
those countries. No assurance can be given that such clearances will be
obtained.
Regulations regarding the manufacture and sale of products such as the
Company's are subject to change. The Company cannot predict what impact, if any,
such changes might have on its business. Compliance with domestic and foreign
government regulations, which are stringent and subject to change, and delays in
regulatory approvals, may have a material adverse impact on the Company.
EMPLOYEES
As of September 28, 1996, the Company had 307 full-time and 11 part-time
employees. The Company expects to employ additional personnel as it expands its
operations. Management believes that its relations with its employees are
excellent.
ITEM 2. PROPERTIES
The Company's facilities are located in Burlington, Massachusetts and
Pawtucket, Rhode Island. The Company's executive headquarters are located at the
Burlington facility, along with its research and development and its device
manufacturing operations. The Company owns a 33,000 square foot building in
Rhode Island which it uses to manufacture its disposable products. The Company
leases approximately 70,000 square feet of office and assembly space in
Burlington under a lease expiring August 2003. The Company believes that its
current facilities will be adequate for its current needs.
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ITEM 3. LEGAL PROCEEDINGS
In the course of normal operations, the Company is involved in litigation
arising from commercial disputes and claims of former employees which management
believes will not have a material impact on the Company's financial position or
its results of operations.
In addition, the Company and certain present and former officers are
defendants in a lawsuit regarding shareholder claims. In light of the inherent
uncertainties of the litigation, it is not possible to predict with absolute
certainty the likely outcome of the litigation. The Company expects that if the
litigation is brought to trial, the cost of defense may be significant. However,
the Company believes it has meritorious defenses to the lawsuit, and that
therefore the disposition of the lawsuit will not have a material impact on the
Company's financial position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF REGISTRANT
Name Age Position
Rolf S. Stutz 47 Chairman of the Board and Chief Executive Officer
Richard A. Packer 39 President, Chief Operating Officer and Director
William J. Knight 47 Vice President - Administration and Chief
Financial Officer
Patrick A. Maley 46 Vice President - Sales & Marketing
Frits J. Borst 54 Vice President - International Operations
Donald Boucher 44 Vice President - Research and Development
Ward M. Hamilton 49 Vice President - Marketing
Mr. Stutz joined the Company as President, Chief Executive Officer and
director in 1983. From 1978 to 1983, Mr. Stutz held a variety of domestic and
international management positions with Millipore Corporation, a manufacturer of
high technology membrane filtration and purification products for the analytical
pharmaceutical and microelectronics markets. Mr. Stutz received an A.B. from the
University of North Carolina and an M.B.A. from the Harvard Graduate School of
Business Administration. He is a director of Hemasure Corporation, Cambridge
Heart, Inc. , and Lifecor, Inc.
Mr. Packer joined the Company in 1992 and has served as President, Chief
Operating Officer and director since May 1996. Since 1992 he has served as Chief
Financial Officer and Vice President of Operations of the Company. Prior to this
time, Mr. Packer served from 1987 to 1992 as Vice President of various functions
for Whistler Corporation, a consumer electronics company. Mr. Packer has
received B.S. and M. Eng. degrees from the Rensselaer Polytechnic Institute and
an M.B.A. from the Harvard Graduate School of Business Administration.
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Mr. Knight joined the Company in August 1996 as the Vice President of
Administration and Chief Financial Officer. From 1989 to 1996, Mr. Knight served
as Vice President and Corporate Controller of Analytical Technology, Inc., a
manufacturer of scientific instrumentation. Prior to that Mr. Knight was Vice
President, Chief Financial Officer and one of the founders of Mattson
Instruments, Inc., a manufacturer of scientific instrumentation.
Mr. Maley joined the Company as Vice President of Sales & Marketing in
January 1996. From 1992 to 1995 Mr. Maley served as Vice President of Marketing
for one of Boston Scientific's cardiology divisions. Prior to that he held
various vice president and management positions with Advance Surgical
Intervention and Alcon Surgical , manufacturers of medical devices in urology
and ophthalmic specialties, respectively. Mr. Maley has received an M.B.A. from
the University of California.
Mr. Borst joined the Company as Vice President of International Operations
in October 1993. Prior to joining the Company, Mr. Borst served from 1978 to
1993 with Datascope Corporation, most recently as Director of Sales & Marketing
for their international division.
Mr. Boucher joined the Company as Vice President of Research and
Development in December 1993. Prior to joining the Company, Mr. Boucher served
from 1977 to 1993, with Corometrics Medical Systems, Inc., a manufacturer of
fetal and neonatal monitors most recently as Vice President of Engineering.
Mr. Hamilton joined the Company as Vice President of Marketing in February
1992. Prior to this time, Mr. Hamilton served from 1985 to 1991 as Director of
New Business Development and Director of Marketing for ACLS products for Laerdal
Medical Corporation, a manufacturer of portable automated defibrillators, and
from 1977 to 1985 as Marketing Manager for defibrillators and noninvasive blood
pressure monitors for Datascope Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
The Company's common stock is traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System under the
symbol "ZOLL." The following table sets forth the high and low sales prices
during the calendar quarters specified:
<CAPTION>
SALES PRICE
---------------------------------------------------
1996 1995
----------------------- -------------------------
HIGH LOW HIGH LOW
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
FIRST QUARTER $ 9-3/4 $ 7-1/2 $16-1/4 $ 9
SECOND QUARTER 13-1/4 8-1/2 16-1/2 10-1/8
THIRD QUARTER 18-1/4 11-1/2 15-1/4 10-1/4
FOURTH QUARTER 17-1/4 10-1/2 14 9-1/4
</TABLE>
12
<PAGE> 13
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future.
As of September 28, 1996, there were 209 stockholders of record of the
Company's Common Stock. The Company believes there were substantially in excess
of 1,000 beneficial holders of the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following selected consolidated financial data for fiscal years 1992 through 1996 are
qualified in their entirety by reference to the more fully detailed consolidated financial
statements and the report of independent auditors thereon which are included elsewhere herein.
<CAPTION>
SELECTED FINANCIAL DATA
YEAR ENDED
-----------------------------------------------------
SEPT. 28, SEPT. 30, OCT. 1, SEPT. 25, SEPT. 26,
1996 1995 1994 1993 1992
--------- --------- ------- --------- ---------
(000's omitted, except in per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $54,762 $45,664 $47,533 $38,060 $21,301
Cost of goods sold 24,390 20,384 19,943 15,619 8,764
------- ------- ------- ------- -------
Gross profit 30,372 25,280 27,590 22,441 12,537
Expenses:
Selling and marketing 16,709 15,553 12,876 10,497 6,871
General administrative 4,423 4,151 4,075 3,143 1,872
Research and development 4,355 4,360 5,253 3,047 1,522
------- ------- ------- ------- -------
Total expenses 25,487 24,064 22,204 16,687 10,265
------- ------- ------- ------- -------
Income from operations 4,885 1,216 5,386 5,754 2,272
Net investment income 286 243 289 215 (172)
------- ------- ------- ------- -------
Income before taxes 5,171 1,459 5,675 5,969 2,100
Provision for income taxes 1,758 496 2,043 2,148 504
------- ------- ------- ------- -------
Net income $ 3,413 $ 963 $ 3,632 $ 3,821 $ 1,596
======= ======= ======= ======= =======
Earnings per share $ 0.55 $ 0.16 $ 0.58 $ 0.61 $ 0.33
Weighted average common and
equivalent shares outstanding 6,243 6,203 6,274 6,257 4,836
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $25,150 $23,850 $23,415 $20,118 $15,383
Total assets 42,089 36,139 35,621 30,494 22,173
Total long-term debt, excluding current
portion 661 767 894 18 54
Stockholders' equity 33,422 29,590 28,337 24,070 18,014
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion as follows should be read in conjunction with "Business"
(Item 1), "Selected Consolidated Financial Data" (Item 6) and the Consolidated
Financial Statements and Notes (Item 8).
1996 COMPARED TO 1995
The Company's net sales increased 20% to $54,762,000 for the year ended
September 28, 1996 from $45,664,000 for the year ended September 30, 1995. The
increase was primarily attributable to a 127% increase in domestic defibrillator
sales to the pre-hospital market, a 51% increase in sales to international
markets and a 9% increase in disposable electrode sales.
Gross profit as a percentage of sales remained at 55%
Selling and marketing expenses decreased as a percentage of sales to 30% from
34%. Selling and marketing expenses increased 7% to $16,709,000 from
$15,553,000. Of this increase, $903,000 was due to higher payroll related costs
and travel expenditures due to higher staffing levels in North America; $525,000
was due to higher international selling expenditures and $170,000 was due to
increased product services and support. These amounts were partially offset by a
$400,000 decline in marketing related expenses for promotion and advertising
activities, including the costs associated with new product introductions during
1995.
General and administrative expenses decreased as a percentage of sales to 8%
from 9%. General and administrative expenses increased 7% to $4,423,000 from
$4,151,000. This increase was due to increases in general operating expenses.
Research & development expenses decreased as a percentage of sales to 8% from
10%. Research and development expenses were essentially unchanged at $4,355,000
vs. $4,360,000 for 1995.
Net investment income increased to $287,000 from $243,000. The increase was due
primarily to higher returns generated on the investment portfolios.
At September 28, 1996, the Company has available tax loss carryforwards of
approximately $1,271,000 of which $753,000 expire at various dates through 2002
and $518,000 of which have an indefinite life. Approximately $1,118,000 of the
tax loss tax loss carryforward is attributable to the Company's foreign
operations and is not available to offset domestic taxable income.
14
<PAGE> 15
1995 COMPARED TO 1994
The Company's net sales decreased 4% to $45,664,000 for the year ended September
30, 1995 from $47,553,000 for the year ended October 1, 1994. The decline was
primarily attributable to a 21% decline in the volume of equipment sales to the
domestic hospital market as a result of the nationwide trend toward
consolidation and restructuring of health care providers. This decline was
partially offset by a 44% increase in international sales and a 9% increase in
disposable electrode sales.
Gross profit as a percentage of sales decreased to 55% from 58%, primarily due
to changes in the mix of products sold and lower inventory production levels.
Selling and marketing expenses increased as a percentage of sales to 34% from
27%. Selling and marketing expenses increased 21% to $15,553,000 from
$12,876,000. Of this increase, $1,203,000 was due to higher payroll related
costs and travel expenditures because of higher staffing levels in North
America; $587,000 was due to increased product service and support; $540,000 was
due to higher international selling expenditures; $245,000 was due to higher
marketing related activities for promotion and advertising activities related to
the introduction of two new lines of products during the year.
General and administrative expenses as a percentage of sales remain at 9%.
General and administrative expenses increased to $4,151,000 from $4,075,000.
This increase was due primarily to increased payroll and related costs.
Research and development expenses as a percentage of sales decreased to 10% from
11%. Research and development expenses decreased to $4,360,000 from $5,253,000.
The decrease was due the substantial completion of research and development
activities related to the release of new products in 1995.
Net investment income decreased to $243,000 from $289,000. This reduction was
due primarily to a $65,000 increase in interest expense, due to higher average
long term debt outstanding during the year.
The Company's effective tax rate for the year ended September 30, 1995 decreased
to 34% from 36%. This was due to a decrease in the Company's marginal tax rate,
which was partially offset by an increase in tax expense from unanticipated
foreign losses. At September 30, 1995, the Company had available tax loss
carryforwards of approximately $1,132,000 which expire at various dates through
2002. Approximately $935,000 of the tax loss carryforward is attributable to the
Company's foreign operations and is not available to offset domestic taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments at September 28, 1996 was $7,927,000 compared
to $6,645,000 at September 30, 1995, an increase of $1,282,000. Cash provided by
operating activities for the year ended September 28, 1996 increased $4,438,000
over the same period in 1995. This increase was due to increased earnings.
The amount of cash required to fund investing activities was $5,852,000 higher
for the year ended September 28, 1996 compared to the same period in 1995. The
increase was primarily due to increased investments, including the Company's
$2,000,000 investment in the common stock of Lifecor, Inc.
Cash provided by financing activities increased $188,000 for the year ended
September 28, 1996 primarily due to an increase in the exercise of stock options
in 1996 as compared to 1995.
15
<PAGE> 16
The Company maintains a line of credit with its bank. Under this working capital
line, the Company may borrow up to $3,000,000 on a demand basis, and bears
interest at the bank's base rate (8.25% at September 28, 1996). The full amount
of the line was available to the Company at September 28, 1996.
The Company expects that the combination of existing funds, cash generated from
operations and its existing line of credit will be adequate to meet its
liquidity and capital requirements, including its purchase of Westech Mobile
Solutions, Inc. for the foreseeable future.
SAFE HARBOR STATEMENTS
Except for the historical information contained herein, the matters set forth
herein are forward looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward looking statements. Such risks and uncertainties
include, but are not limited to: product demand and market acceptance risks, the
effect of economic conditions, results of pending or future litigation, the
impact of competitive products and pricing, product development and
commercialization, technological difficulties, the government regulatory
environment, trade environment, capacity and supply constraints or difficulties,
the results of financing efforts, actual purchases under agreements, and the
effect of the Company's accounting policies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Notes thereto, Independent Auditors
Report, Quarterly Financial Data (Unaudited) and Supplementary Schedule are
listed under Part IV, Item 14, in this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders (the "Proxy Statement") under the caption
"Proposal I - Election of a Class of Directors" is incorporated herein by this
reference. Information regarding Executive Officers of the Company called for by
Item 10 is set forth at the end of Part I of this Report under the caption
"Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions
"Proposal I - Election of a Class of Directors" and "Executive Compensation" is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the captions
"Proposal I - Election of a Class of Directors" and "Other Matters -- Principal
Stockholders" is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the captions
"Proposal I - Election of a Class of Directors" and "Certain Relationships" is
incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) The following Consolidated Financial Statements, Notes
thereto and Independent Auditors' Report of the company are
filed on the pages listed below, as part of Part II, Item 8
of this report:
Page
----
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Income Statements F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-12
(a)(3) The following Consolidated Financial Statement
Schedules are included herein:
17
<PAGE> 18
Schedule VIII - Valuation Accounts S-1
All other schedules have been omitted since the required information is not
presented, the amounts are not sufficient to require submission of the schedules
or because the information is included in the consolidated financial statements.
(a)(3) The following is a complete list of Exhibits filed or incorporated
by reference as part of this Report:
3.1 Restated Articles of Organization.*
3.2 Amended and Restated By-laws.*
10.1 1992 Stock Option Plan.*
10.2 1983 Incentive Stock Option Plan, as amended and restated
February 6, 1990.*
10.3 Revolving Loan and Security Agreement dated March 9, 1992
between the Company and Brown Brothers Harriman & Co.*
10.4.1 License Agreement dated as of November 21, 1984 between the
Company and S&W Medico Teknik A/S.*
10.4.2 License Agreement dated as of April 8, 1987 between the
Company and S&W Medico Teknik A/S.*
10.4.3 Amendment to License Agreement dated January 1, 1990 between
the Company and S&W Medico Teknik A/S.*
10.5 Stock Purchase Agreement dated July 1, 1985, as amended as of
May 24, 1991, among the Company and certain purchasers of the
Company's Common Stock and Preferred Stock.*
10.8 Distributorship Agreement dated as of June 15, 1992 between the
Company and Fukuda Denshi Co., Ltd.*
10.9 Employment Agreement dated July 19, 1996 between the Company
and Rolf S. Stutz regarding Mr. Stutz's employment. **
10.10 Employment Agreement dated July 19, 1996 between the Company
and Richard A. Packer regarding Mr. Packer's employment. **
10.11 Non Employee Directors' Stock Option Plan dated April 23, 1996
21.1 Subsidiaries of the Company.**
23.1 Consent of Ernst & Young LLP.**
27 Financial Data Schedule **
(b) No reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this Report.
* Incorporated by reference from the Company's Registration Statement on
Form S-1, as amended, under the Securities Act of 1933 (Registration
Statement No. 33-47937).
** Filed herewith.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on December 27, 1996.
ZOLL MEDICAL CORPORATION
By: /s/ Rolf S. Stutz
---------------------
Rolf S. Stutz
Chairman and Chief
Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the dates
indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rolf S. Stutz Chairman and Chief December 27, 1996
- ----------------------------- Executive Officer
Rolf S. Stutz (Principal Executive Officer)
/s/ William J. Knight Chief Financial Officer December 27, 1996
- ----------------------------- (Principal Financial
William J. Knight and Accounting Officer)
/s/ Richard A. Packer President, Chief Operating December 27, 1996
- ----------------------------- Officer and Director
Richard A. Packer
/s/ Willard M. Bright Director December 27, 1996
- -----------------------------
Willard M. Bright
/s/ Thomas M. Claflin Director December 27, 1996
- -----------------------------
Thomas M. Claflin, II
/s/ C. William Zadel Director December 27, 1996
- -----------------------------
C. William Zadel
/s/ Noah T. Herndon Director December 27, 1996
- -----------------------------
Noah T. Herndon
/s/ M. Stephen Heilman Director December 27, 1996
- -----------------------------
M. Stephen Heilman
</TABLE>
19
<PAGE> 20
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Zoll Medical Corporation
We have audited the accompanying consolidated balance sheets of Zoll
Medical Corporation as of September 28, 1996 and September 30, 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended September 28, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ZOLL Medical Corporation at September 28, 1996 and September 30, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 28, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
November 21, 1996
<PAGE> 21
F-2
Z O L L M E D I C A L C O R P O R A T I O N
<TABLE>
C O N S O L I D A T E D B A L A N C E S H E E T S
<CAPTION>
(000's omitted)
SEPT. 28, SEPT. 30,
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,962 $ 5,595
Investments 2,965 1,050
Accounts receivable, less allowance of $888 16,271 13,996
at September 28, 1996; $786 at September 30, 1995
Inventories:
Raw materials 2,319 3,059
Work-in-process 1,951 1,192
Finished goods 3,096 3,077
------- -------
7,366 7,328
Prepaid expenses and other current assets 1,203 1,228
------- -------
TOTAL CURRENT ASSETS 32,767 29,197
Property and equipment at cost:
Land and building 997 986
Machinery and equipment 8,313 6,705
Tooling 2,327 2,172
Furniture and fixtures 584 502
Leasehold improvements 710 694
------- -------
12,931 11,059
Less accumulated depreciation 6,141 4,699
------- -------
Net property and equipment 6,790 6,360
Other assets, net 2,532 582
======= =======
$42,089 $36,139
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,832 $ 2,112
Accrued expenses and other liabilities 4,671 3,123
Current maturities of long-term debt 114 112
------- -------
Total current liabilities 7,617 5,347
Deferred income taxes 389 435
Long-term debt 661 767
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value, authorized 1,000 shares,
none issued and outstanding
Common stock, $.02 par value, authorized 19,000 shares,
6,174 and 6,117 issued and outstanding at
September 28, 1996 and September 30, 1995, respectively 124 122
Capital in excess of par value 20,540 20,123
Retained earnings 12,758 9,345
------- -------
Total stockholders' equity 33,422 29,590
------- -------
$42,089 $36,139
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 22
F-3
Z O L L M E D I C A L C O R P O R A T I O N
<TABLE>
C O N S O L I D A T E D I N C O M E S T A T E M E N T S
<CAPTION>
YEAR ENDED
----------------------------------
SEPT. 28, SEPT. 30, OCT. 1,
(000's omitted, except per share amounts) 1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Net sales $54,762 $45,664 $47,533
Cost of goods sold 24,390 20,384 19,943
------- ------- -------
Gross profit 30,372 25,280 27,590
Expenses:
Selling and marketing 16,709 15,553 12,876
General administrative 4,423 4,151 4,075
Research and development 4,355 4,360 5,253
------- ------- -------
Total expenses 25,487 24,064 22,204
Income from operations 4,885 1,216 5,386
Investment income 378 336 315
Interest expense 92 93 26
------- ------- -------
Income before income taxes 5,171 1,459 5,675
Provision for income taxes 1,758 496 2,043
------- ------- -------
Net income $ 3,413 $ 963 $ 3,632
======= ======= =======
Earnings per share $ 0.55 $ 0.16 $ 0.58
======= ======= =======
Weighted average common and
equivalent shares outstanding 6,243 6,203 6,274
</TABLE>
See notes to consolidated financial statements.
<PAGE> 23
F-4
Z O L L M E D I C A L C O R P O R A T I O N
<TABLE>
C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ' E Q U I T Y
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
(000's omitted) SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 25, 1993 6,005 $120 $19,200 $ 4,750 $24,070
Exercise of stock options 66 1 213 214
Tax benefit realized upon exercise
of stock options 421 421
Net income 3,632 3,632
----- ---- ------- ------- -------
Balance at October 1, 1994 6,071 121 19,834 8,382 28,337
Exercise of stock options 46 1 153 154
Tax benefit realized upon exercise
of stock options 136 136
Net income 963 963
----- ---- ------- ------- -------
Balance at September 30, 1995 6,117 122 20,123 9,345 29,590
Exercise of stock options 57 2 344 346
Tax benefit realized upon exercise
of stock options 73 73
Net income
3,413 3,413
----- ---- ------- ------- -------
Balance at September 28, 1996 6,174 $124 $20,540 $12,758 $33,422
===== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 24
F-5
Z O L L M E D I C A L C O R P O R A T I O N
<TABLE>
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W
<CAPTION>
YEAR ENDED
--------------------------------
SEPT. 28, SEPT. 30, OCT. 1,
(000's omitted) 1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Operating Activities: $ 3,413 $ 963 $ 3,632
Net income
Changes not affecting cash:
Depreciation and amortization 1,539 1,416 1,250
Accounts receivable allowances 102 123 648
Provision for warranty expense 121 53 378
Deferred income taxes 133 3 (83)
Loss on disposal of property and equipment -- 7 147
Changes in assets and liabilities:
Accounts receivable (2,377) (1,822) (3,747)
Inventories (38) 297 (3,484)
Prepaid expenses and other current assets (154) (93) (243)
Accounts payable and accrued expenses 2,147 (499) (590)
------- ------- -------
Cash provided by (used for) operating activities 4,886 448 (2,092)
Investing Activities:
Additions to property and equipment (1,872) (2,196) (2,954)
Additions to investments (4,674) (2,482) (4,981)
Redemption of investments 2,759 4,662 7,045
Other assets (47) 34 (161)
Investment in common stock of Lifecor, Inc. (2,000) -- --
------- ------- -------
Cash provided by (used for) investing activities (5,834) 18 (1,051)
Financing Activities:
Exercise of stock options, including income tax benefit 419 290 635
Repayment of long-term debt (104) (163) (59)
Proceeds from long-term debt -- -- 900
------- ------- -------
Cash provided financing activities 315 127 1,476
------- ------- -------
Net increase (decrease) in cash (633) 593 (1,667)
Cash and cash equivalents at beginning of year 5,595 5,002 6,669
------- ------- -------
Cash and cash equivalents at end of year $ 4,962 $ 5,595 $ 5,002
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 1,556 $ 469 $ 1,549
Interest 92 93 26
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING ACTIVITIES:
Capital lease obligations -- $ 20 $ 114
</TABLE>
See notes to consolidated financial statements.
<PAGE> 25
F-6
ZOLL MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Description of Business: ZOLL Medical Corporation (the Company) designs,
manufactures and markets an integrated line of proprietary, noninvasive cardiac
resuscitation devices and disposable electrodes. The Company's products are used
for the emergency resuscitation of cardiac arrest victims.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Fiscal Year: The company's fiscal year ends on the Saturday closest to
September 30. The year ended September 28, 1996 and September 30, 1985 included
52 weeks while the year ended October 1, 1994 included 53 weeks.
Cash and Cash Equivalents: The Company considers all highly liquid
instruments with an original maturity of three months or less to be cash
equivalents. Substantially all cash and cash equivalents are invested in a money
market investment account. These amounts are stated at cost which approximates
market.
Inventories: Inventories, principally purchased parts, are valued at the
lower of first-in, first-out (FIFO) cost or market. Market is replacement value
for raw materials and net realizable value, after allowance for estimated costs
of completion and disposal, for work-in-process and finished goods.
Property and Equipment: The Company provides depreciation using the
straight-line method over the useful life of the assets, which is three to forty
years. Leasehold improvements and equipment under capital leases are being
amortized over the life of the lease.
Product Warranty: Expected future product warranty liability, included in
accrued expenses and other liabilities, are recognized at the time of sale for
all products covered under warranty. Warranty periods range from one to five
years.
Earnings Per Share: Earnings per share data are computed using the weighted
average number of shares of Common Stock outstanding and common equivalent
shares (using the treasury stock method).
Long-Lived Assets: In 1996, 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" (FAS 121). FAS 121 requires
that a loss be recognized whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
this statement had no material impact on the financial position or results of
operations of the Company.
Reclassifications: Certain reclassifications have been made to the prior
year's consolidated financial statements to conform to the 1996 presentation.
Stock Option Plans: The Company accounts for its stock compensation awards
under the provisions of APB No. 25 "Accounting for Stock Issued to Employees"
and will continue to do so in the future.
<PAGE> 26
F-7
NOTE B - INVESTMENTS
Investments in equity securities and debt securities are classified as
available for sale at September 28, 1996. Available for sale securities
consisted of $1,250,000 of money market preferred stock, $1,105,000 of federal
obligations and $610,000 of state and local municipal securities at September
28, 1996. The securities are carried at fair value, with unrealized gains and
losses, net of tax, reported in a separate component of stockholders' equity. At
September 28, 1996, there was no difference between the cost basis and the
estimated market value on the security portfolio. The maturity periods on the
securities held were all due within one year.
The cost of securities sold is based on the specific identification method.
Realized gains and losses and declines in value judged to be other than
temporary are included in investment income.
During 1996 the Company invested $2 million in the common stock of Lifecor,
Inc., which represents approximately 6% of their outstanding common stock. The
Company accounts for this investment at cost, which approximates market. This
investment is included in other assets on the balance sheet.
NOTE C - STOCKHOLDERS' EQUITY
Preferred Stock: The Board of Directors is authorized to fix the
designations, relative rights, preferences, and limitations on the Preferred
Stock at the time of issuance.
Stock Option Plans: The Company's 1983 and 1992 stock option plans provide
for the granting of options to officers and other key employees to purchase the
Company's Common Stock at a purchase price, in the case of incentive stock
options, at least equal to the fair market value per share of the outstanding
common stock of the Company at the time the option is granted, as determined by
the Compensation committee of the Board of Directors. The number of shares
originally authorized for these plans was 1,610,000. Options are no longer
granted under the 1983 plan. Options become exercisable ratable over four years
and have a maximum duration of 10 years. Approximately 772,000 shares of Common
Stock are reserved for issuance under the Company's stock option plan as of
September 28, 1996.
<TABLE>
Activity as to stock options under the two plans is as follows:
<CAPTION>
YEAR ENDED
----------------------------------------
SEPT. 28, SEPT. 30, OCT. 1,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at the beginning of the year 623 550 544
Granted during the year 230 197 80
Exercised during the year (57) (46) (66)
Canceled during the year (65) (78) (8)
----------- ----------- -----------
Outstanding at the end of the year 731 623 550
=========== =========== ===========
Price range per share of outstanding options $.50-14.75 $.31-38.25 $.31-38.25
=========== =========== ===========
Average price per share of outstanding options $ 11.31 $ 16.73 $ 16.87
Price range per share of exercised options $.31-14.00 $.31-10.00 $.31-21.75
=========== =========== ===========
Exercisable at the end of the year 129 264 213
=========== =========== ===========
Available for grant at the end of the year 41 206 22
=========== =========== ===========
</TABLE>
<PAGE> 27
F-8
Under the Company's 1992 stock option plan 166,900 options ranging in option
price from $14.00 to $14.50 per share were repriced to $8.75 per share and
227,750 options ranging in price from $21.75 to $38.25 were repriced to $14.50
per share, during 1996. These transactions occurred by cancelling the existing
options and granting new options at the fair market value at the date of
repricing. The purpose of these transactions was to restore the incentive effect
of such options.
NOTE D - ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consist of:
<CAPTION>
SEPT. 28, SEPT. 30,
1996 1995
--------- ---------
<S> <C> <C>
Accrued salaries and wages $2,086 $ 984
Accrued warranty expense 721 600
Accrued income taxes 394 224
Other accrued expenses 1,470 1,315
------ ------
Total accrued expenses and other liabilities $4,671 $3,123
====== ======
</TABLE>
NOTE E - INDEBTEDNESS
The Company maintains an unsecured line of credit with its bank. Under this
working capital line, the Company may borrow up to $3,000,000 on a demand basis.
This line of credit bears interest at 3/4% above the bank's base rate (8.25% at
September 28, 1996). The full amount of the line was available to the Company at
September 28, 1996.
In 1994, the Company purchased land and building, which replaced leased
operating facilities, for $900,000. The land and building are mortgaged under a
$900,000 bank note bearing interest at 8.2%. The mortgage requires equal monthly
principal payments of $7,500 plus interest over seven years, with a final
payment of $270,000 due in July 2001. The mortgage contains various convenants
including minimum levels of net worth, working capital and pre-tax earnings. The
Company is in compliance with all covenants of the agreement.
<TABLE>
Long-term debt consisted of:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mortgage note payable $712 $795
Capital lease obligations 63 84
---- ----
Total long-term debt 775 879
Less current portion 114 112
---- ----
$661 $767
==== ====
</TABLE>
<TABLE>
The schedule of principal payments on long-term debt is as follows:
<S> <C>
1997 $114
1998 115
1999 103
2000 90
2001 353
----
$775
====
</TABLE>
<PAGE> 28
F-9
NOTE F- INCOME TAXES
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $1,288 $462 $1,812
Deferred 144 3 (35)
------ ---- ------
1,432 465 1,777
State:
Current 337 31 314
Deferred (11) -- (48)
------ ---- ------
326 31 266
------ ---- ------
$1,758 $496 $2,043
====== ==== ======
</TABLE>
<TABLE>
The effective income tax rate differed from the statutory federal income
tax rate due to:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
Tax credits, federal and state (2.6) (6.2) (9.0)
State income taxes, net of federal benefit 4.2 4.8 7.3
Unbenefited foreign losses 1.1 3.8 1.7
Other (2.7) (2.4) 2.0
---- ---- ----
Effective income tax rate 34.0% 34.0% 36.0%
==== ==== ====
</TABLE>
At September 28, 1996, the Company has available tax loss carryforwards of
approximately $1,3271,000 of which $753,000 expire at various dates through 2002
and $518,000 of which have an indefinite life. Approximately $1,118,000 of the
tax loss tax loss carryforward is attributable to the Company's foreign
operations and is not available to offset domestic taxable income.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The valuation allowance
increased $53,000 as a result of foreign losses incurred in 1996.
<PAGE> 29
F-10
<TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory losses $ 523 $ 509
Net operating loss carryforwards 423 397
Product warranty accruals 282 282
Other liabilities 103 77
Valuation allowance for deferred tax assets (371) (318)
----- -----
Total deferred tax assets 960 947
Deferred tax liabilities:
Accelerated tax depreciation 635 498
Prepaid expenses 198 189
----- -----
Total deferred tax liabilities 833 687
----- -----
Net deferred tax asset $ 127 $ 260
===== =====
</TABLE>
NOTE G - LEASES
<TABLE>
The Company leases certain office and manufacturing space and equipment
under capital and operating leases. Listed below are the future minimum rental
payments required under capital leases and operating leases with noncancellable
terms in excess of one year at September 28, 1996, together with the present
value of net minimum lease payments.
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------ --------- -----
<S> <C> <C> <C>
1997 $28 $ 344 $ 372
1998 27 303 330
1999 14 306 320
2000 -- 338 338
2001 -- 338 338
--- ------ ------
Net minimum lease payments 69 $1,629 $1,698
====== ======
Less interest payments 6
---
Present value of net minimum lease payments $63
===
</TABLE>
<PAGE> 30
F-11
Included in machinery and equipment at September 28, 1996 and September 30, 1995
are certain items recorded as capital leases with a book value of $134,000 and
related accumulated depreciation of $68,000 and $43,000 in 1996 and 1995,
respectively.
The Company's office lease is subject to adjustments based on actual floor
space occupied. The lease also requires payment of real estate taxes and
operating costs. Total rental expense for 1996, 1995, and 1994 was approximately
$508,000, $418,000, and $419,000, respectively.
NOTE H - EMPLOYEE BENEFIT PLAN
During 1992, the Company established a defined contribution retirement plan
which contains a "401(k)" program for all employees with one year of service who
have attained 21 years of age. The Company may contribute a discretionary
percentage of the employee's contribution. The Company may make an additional
discretionary profit sharing contribution. The Company made no contributions to
the plan in fiscal 1996, 1995 or 1994.
NOTE I - CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to hospitals and universities,
predominately in the United States. The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral. Credit losses associated with these customers historically have been
small, which is consistent with management's expectations. The Company entered
the pre-hospital market segment recently, and as a result the Company believes
it will face a greater degree of credit risks as sales to this market segment
expand.
The Company had export sales of approximately $11,649,000, $7,730,000, and
$5,617,000 in 1996, 1995 and 1994 respectively.
NOTE J - CONTINGENCIES
In the course of normal operations, the Company is involved in litigation
arising from commercial disputes and claims of former employees which management
believes will not have a material impact on the Company's financial position or
its results of operations.
In addition, the Company and certain present and former officers are
defendants in a lawsuit regarding shareholder claims. In light of the inherent
uncertainties of the litigation, it is not possible to predict with absolute
certainty the likely outcome of the litigation. The Company expects that if
litigation is brought to trial, the cost of defense may be significant. However,
the Company believes it has meritorious defenses to the lawsuit, and that
therefore the disposition of the lawsuit will not have a material impact on the
Company's financial position or its results of operations.
NOTE K - ACQUISITION
On November 6, 1996 the Company acquired the assets of the mobile computing
business of Westech Information Systems, Inc. for approximately $1,500,000 in
cash. The purchase price was primarily attributable to software development and
other intangible assets.
<PAGE> 31
F-12
NOTE L - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Summarized quarterly financial data for 1996 and 1995 is as follows:
<CAPTION>
QUARTER ENDED
------------------------------------------
DEC. 30, MAR. 30, JUN. 29, SEPT. 28,
1995 1996 1996 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
1996
Net sales $12,331 $13,106 $13,971 $15,35453
Gross profit 6,994 7,429 7,882 8,067
Income from operations 826 1,123 1,396 1,640
Net income 594 746 931 1,103
Earnings per share $ 0.10 $ 0.12 $ 0.15 $ 0.18
<CAPTION>
QUARTER ENDED
-------------------------------------------
DEC. 31, APRIL 1, JULY 1, SEPT. 30,
1994 1995 1995 1995
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
1995
Net sales $10,723 $11,027 $10,818 $13,096
Gross profit 6,232 6,522 5,898 6,628
Income (loss) from operations 622 (434) 430
598
Net income (loss) 405 495 (230) 293
Earnings (loss) per share $ 0.07 $ 0.08 $ (0.04) $ 0.05
</TABLE>
<PAGE> 32
S-1
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Balance Additions Balance
Beginning Charged to Costs at End
Classifications of Period and expenses Deductions of Period
--------------- --------- ---------------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended September 28, 1996
Allowance for doubtful
accounts $786,000 $102,000 $ -- $888,000
======== ======== ========= ========
Accrued warranty expense $600,000 $121,000 $ -- $721,000
======== ======== ========= ========
Year Ended September 30, 1995
Allowance for doubtful
accounts $663,000 $123,000 $ -- $786,000
======== ======== ========= ========
Accounts warranty expense $547,000 $ 53,000 $ -- $600,000
======== ======== ========= ========
Year Ended October 1, 1994
Allowance for doubtful
accounts $510,000 $648,000 $(495,000) $663,000
======== ======== ========= ========
Accrued warranty expense $169,000 $378,000 $ -- $547,000
======== ======== ========= ========
</TABLE>
<PAGE> 33
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
3.1 Restated Articles of Organization.*
3.2 Amended and Restated By-laws.*
10.1 1992 Stock Option Plan.*
10.2 1983 Incentive Stock Option Plan, as amended and restated
February 6, 1990.*
10.3 Revolving Loan and Security Agreement dated March 9, 1992
between the Company and Brown Brothers Harriman & Co.*
10.4.1 License Agreement dated as of November 21, 1984 between the
Company and S&W Medico Teknik A/S.*
10.4.2 License Agreement dated as of April 8, 1987 between the
Company and S&W Medico Teknik A/S.*
10.4.3 Amendment to License Agreement dated January 1, 1990 between
the Company and S&W Medico Teknik A/S.*
10.5 Stock Purchase Agreement dated July 1, 1985, as amended as of
May 24, 1991, among the Company and certain purchasers of the
Company's Common Stock and Preferred Stock.*
10.8 Distributorship Agreement dated as of June 15, 1992 between the
Company and Fukuda Denshi Co., Ltd.*
10.9 Employment Agreement dated July 19, 1996 between the Company
and Rolf S. Stutz regarding Mr. Stutz's employment. **
10.10 Employment Agreement dated July 19, 1996 between the Company
and Richard A. Packer regarding Mr. Packer's employment. **
10.11 Non Employee Directors' Stock Option Plan dated April 23, 1996
21.1 Subsidiaries of the Company.**
23.1 Consent of Ernst & Young LLP.**
27 Financial Data Schedule **
* Incorporated by reference from the Company's Registration Statement on
Form S-1, as amended, under the Securities Act of 1933 (Registration
Statement No. 33-47937).
** Filed herewith.
<PAGE> 1
Exhibit 10.9
Employment Agreement Between the Company and Rolf S. Stutz
ZOLL MEDICAL CORPORATION
32 Second Avenue
Burlington, MA 01803
July 19, 1996
Rolf S. Stutz
15 Ash Street
Cambridge, MA 02138
Dear Rolf:
This Employment Agreement (the "Agreement") is entered into by and between
you, Rolf Stutz, and Zoll Medical Corporation, a Massachusetts company (the
"Company") with its principal place of business at 32 Second Avenue, Burlington,
Massachusetts. In consideration of the mutual promises set forth in this
Agreement, the parties agree:
1. You shall be employed by the Company as its Chairman of the Board of
Directors and Chief Executive Officer, effective June 4, 1996, and
shall have all powers and duties consistent with those positions,
subject to the direction of the Company's Board of Directors.
2. You will devote your best efforts, business judgment, skill and
knowledge to the advancement of the business and interests of the
Company and its affiliates, and to the discharge of your duties and
responsibilities hereunder.
3. Your salary shall initially be $250,000 per year, subject to increase
from time to time as determined by the Board of Directors. In addition,
you shall be entitled to receive stock options which may be awarded
from time to time. All options (the "Options") to purchase common stock
of the Company which you may be awarded under the Company's stock
option plans shall vest fully upon the occurrence of a "Change of
Control" (as such term is defined in the 1992 Stock Incentive Plan).
4. You shall be entitled to the number of paid vacation days specified by
the Company's normal vacation policy, to be taken at such times and
intervals as shall be determined by you, subject to the reasonable
business needs of the Company. You shall be entitled to participate in
and enjoy the benefit of the Company's employee benefit plans generally
available to the Company's management from time to time. Participation
shall be subject to the terms of the applicable plan documents and the
discretion of the Board of Directors or any administrative or other
committee provided for in or contemplated by such plan. The Company may
alter, modify, add to or delete its employee benefit plans as they
apply to the Company's management at such times and in such manner as
the Company determines to be appropriate, without recourse by you.
5. Your employment shall automatically terminate upon your death or may be
terminated by the Company on account of your total disability from
performing your duties for the Company for a period of thirteen
consecutive weeks. Either you or the Company may
20
<PAGE> 2
terminate your employment upon 30 days notice. If the Company
terminates your employment without "Cause" (as hereafter defined), it
shall continue to pay the salary in effect at the time of your
termination for a period of twelve months following such 30 day notice
period and shall provide you with reasonable and customary outplacement
services for one year or, if shorter, until a new position is accepted
by you. Any Options which may be outstanding shall continue to vest
during such twelve-month period as if you were employed for such
period. For purposes of this Agreement, "Cause" shall mean: (1)
material breach of this Agreement, (2) conviction of a crime involving
moral turpitude or dishonesty, or (3) conduct on your part which is
reasonably determined in good faith by the Board of Directors of the
Company other than you to demonstrate gross unfitness to serve.
6. In the event that your employment is terminated for any reason, you
agree that for a period of three years after termination you will not
(i) directly or indirectly, be employed by, affiliated with, direct the
business of or act on behalf of a business that competes with the
Company or its affiliates; (ii) solicit, induce, or attempt to solicit
or induce any person employed by the Company; or (iii) accept
employment with a competing business.
7. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
Very truly yours,
ZOLL MEDICAL CORPORATION
By: /s/ Thomas M. Claflin
----------------------
The foregoing is accepted:
/s/ Rolf S. Stutz
- -----------------
Rolf S. Stutz
21
<PAGE> 1
Exhibit 10.10
Employment Agreement Between the Company and Richard A. Packer
ZOLL MEDICAL CORPORATION
32 Second Avenue
Burlington, MA 01803
July 19, 1996
Richard A. Packer
6 Longfellow Road
Westborough, MA 01581
Dear Rick:
This Employment Agreement (the "Agreement") is entered into by and between
you, Richard A. Packer, and Zoll Medical Corporation, a Massachusetts company
(the "Company") with its principal place of business at 32 Second Avenue,
Burlington, Massachusetts. In consideration of the mutual promises set forth in
this Agreement, the parties agree:
1. You shall be employed by the Company as its President and Chief
Operating Officer, effective June 4, 1996, and shall have all powers
and duties consistent with those positions, subject to the direction of
the Company's Board of Directors.
2. You will devote your best efforts, business judgment, skill and
knowledge to the advancement of the business and interests of the
Company and its affiliates, and to the discharge of your duties and
responsibilities hereunder.
3. Your salary shall initially be $180,000 per year, subject to increase
from time to time as determined by the Board of Directors. In addition,
you shall be entitled to receive stock options which may be awarded
from time to time. All options (the "Options") to purchase common stock
of the Company which you may be awarded under the Company's stock
option plans shall vest fully upon the occurrence of a "Change of
Control" (as such term is defined in the 1992 Stock Incentive Plan).
4. You shall be entitled to the number of paid vacation days specified by
the Company's normal vacation policy, to be taken at such times and
intervals as shall be determined by you, subject to the reasonable
business needs of the Company. You shall be entitled to participate in
and enjoy the benefit of the Company's employee benefit plans generally
available to the Company's management from time to time. Participation
shall be subject to the terms of the applicable plan documents and the
discretion of the Board of Directors or any administrative or other
committee provided for in or contemplated by such plan. The Company may
alter, modify, add to or delete its employee benefit plans as they
apply to the Company's management at such times and in such manner as
the Company determines to be appropriate, without recourse by you.
22
<PAGE> 2
5. Your employment shall automatically terminate upon your death or may be
terminated by the Company on account of your total disability from
performing your duties for the Company for a period of thirteen
consecutive weeks. Either you or the Company may terminate your
employment upon 30 days notice. If the Company terminates your
employment without "Cause" (as hereafter defined), it shall continue to
pay the salary in effect at the time of your termination for a period
of twelve months following such 30 day notice period and shall provide
you with reasonable and customary outplacement services for one year
or, if shorter, until a new position is acceptable by you. Any Options
which may be outstanding shall continue to vest during such
twelve-month period as if you were employed for such period. For
purposes of this Agreement, "Cause" shall mean: (1) material breach of
this Agreement, (2) conviction of a crime involving moral turpitude or
dishonesty, or (3) conduct on your part which is reasonably determined
in good faith by the Board of Directors of the Company other than you
to demonstrate gross unfitness to serve.
6. In the event that your employment is terminated for any reason, you
agree that for a period of three years after termination you will not
(i) directly or indirectly, be employed by, affiliated with, direct the
business of or act on behalf of a business that competes with the
Company or its affiliates; (ii) solicit, induce, or attempt to solicit
or induce any person employed by the Company; or (iii) accept
employment with a competing business.
7. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
Very truly yours,
ZOLL MEDICAL CORPORATION
By: /s/ Thomas M. Claflin
----------------------
The foregoing is accepted:
/s/ Richard A. Packer
- ---------------------
Richard A. Packer
23
<PAGE> 1
Exhibit 10.11
ZOLL MEDICAL CORPORATION
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purpose of this Non-Employee Directors' Stock Option Plan (the "Plan")
is to promote the interests of Zoll Medical Corporation (the "Company") by
providing an incentive to obtain and retain the services of highly qualified
persons who are not employees of the Company to serve as members of the Board of
Directors of the Company through the granting of options, as herein provided, to
acquire shares of its Common Stock, $.02 par value (the "Common Stock"). The
effective date of the Plan shall be April 23, 1996 (the "Effective Date").
Options granted under the Plan are not intended to qualify and shall not be
treated as "incentive stock options" under Internal Revenue Code Section 422.
1. Shares of Stock Subject to the Plan
The stock that may be issued and sold pursuant to options granted under the
Plan shall not exceed, in the aggregate, 100,000 shares of the Common Stock of
the Company, which may be (i) authorized but unissued shares, (ii) treasury
shares or (iii) shares previously reserved for issuance upon the exercise of
options under the Plan, which options have expired or been terminated; provided,
however, that the number of shares subject to the Plan shall be subject to
adjustment as provided in Section 6.
2. Eligibility
Options will be granted only to persons who are Directors of the Company on
the date of grant of options hereunder and who are not also employees of the
Company or any subsidiary of the Company ("non-employee Directors").
3. Grant of Options -- Purchase Price
a. Initial Grant. Each non-employee Director shall on the Effective Date
automatically be granted an option to purchase 10,000 shares of Common Stock on
such date. Thereafter, each non-employee Director who is first elected to the
Board of Directors of the Company after the Effective Date shall automatically
be granted an option to purchase 10,000 shares of Common Stock on the date such
non-employee Director is initially elected to the Board of Directors of the
Company.
b. Vesting. All options granted under this Plan shall vest in four equal
annual installments over a four-year period beginning on the first anniversary
of the date of grant. Except as set forth in Section 7 or otherwise determined
by the Board of Directors, no unvested options may be exercised by the holder
thereof.
c. Purchase Price. The purchase price of shares which may be purchased
under each option shall be equal to the Fair Market Value of the Common Stock on
the date the option is granted. Fair Market Value shall mean the last reported
sale price of the Common Stock on the Nasdaq National Market on any given day,
or if no sales of Common Stock were made on that day, the last reported sale
price of the Common Stock on the next preceding day on which sales were made.
24
<PAGE> 2
d. Limitations. All grants of options hereunder shall be subject to the
availability of shares hereunder, and no option shall be granted under this Plan
except as provided in this Section 3.
4. Period of Option and Certain Limitations on Right to Exercise.
a. Period. Each option shall vest and become exercisable as provided in
Section 3c hereof, but in no event shall any such option be exercisable after
the earlier of (a) the date ten years after the date such option is granted or
(b) with respect to unvested options, the date on which the Director to whom
such option was granted ceases for any reason to serve as a Director of the
Company and with respect to vested options, the date three months after the date
on which the Director ceases for any reason to serve as a Director of the
Company; PROVIDED, HOWEVER, that in the event of termination as a result of
disability or death, the Director or the Director's personal representative may
exercise any outstanding options not theretofore exercised, to the extent
exercisable on the date of such disability or death, during the twelve month
period following such disability or death.
b. Exercise. The delivery of certificates representing shares under any
option will be contingent upon receipt by the Company from the optionee (or a
purchaser acting in the optionee's stead in accordance with the provisions of
the option) of the full purchase price for such shares by one or more of the
methods specified below and the fulfillment of any other requirements provided
in the option or under applicable provisions of law; and until such receipt of
the purchase price and fulfillment of such other requirements no optionee or
person entitled to exercise the option shall be, or shall be deemed to be, a
holder of any shares subject to the option for any purpose.
Options may be exercised in whole or in part, by giving written notice of
exercise to the Company, specifying the number of shares to be purchased.
Payment instruments will be received subject to collection. Payment of the
purchase price may be made by one or more of the following methods:
(A)In cash, by certified or bank check or other instrument acceptable to
the Board of Directors or its authorized committee;
(B) In the form of shares of Common Stock that are not then subject to
restrictions under any Company plan, if such shares have been held for at
least six months prior to the exercise date and permitted by the Board or
its authorized committee, in its discretion. Such surrendered shares shall
be valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to
the Company to pay the purchase price; provided that in the event the
optionee chooses to pay the purchase price as so PROVIDED, the optionee and
the broker shall comply with such procedures and enter into such agreements
of indemnity and other agreements as the Company shall prescribe as a
condition of such payment procedure.
5. Non-Transferability of Option
When otherwise determined by the Board of Directors, each option granted
under the Plan shall provide that it is personal to the optionee, is not
transferable by the optionee in any manner otherwise than by will or the laws of
descent and distribution and is exercisable, during the optionee's lifetime,
only by the optionee. However, the rights and obligations of the Company under
the Plan and any option may be assigned by the Company to a successor to the
whole or any substantial part of its business provided that such successor
assumes in writing all of such rights and obligations.
6. Dilution or Other Adjustment
25
<PAGE> 3
The terms of the options and the number of shares subject to this Plan
shall be equitably adjusted in such manner as to prevent dilution or enlargement
of option rights in the following instances:
a. The declaration of a dividend payable to the holders of Common Stock in
stock of the same class;
b. A split-up of the Common Stock or a reverse split thereof; or
c. A recapitalization of the Company under which shares of one or more
different classes of stock are distributed in exchange for or upon the Common
Stock without payment of any valuable consideration by the holders thereof.
The terms of any such adjustment shall be conclusively determined by the
Board. No fractional shares of Common Stock shall be issued under the Plan
resulting from any such adjustment.
7. Effect of Certain Transactions
In the case of (a) the dissolution or liquidation of the Company, (b) a
merger, reorganization or consolidation in which the Company is acquired by
another person or in which the Company is not the surviving corporation, or (c)
the sale of all or substantially all of the assets of the Company to another
corporation, the Plan and options issued thereunder shall terminate on the
effective date of such dissolution, liquidation, merger, reorganization,
consolidation or sale, unless provision is made in such transaction for the
assumption of options theretofore granted under the Plan or the substitution for
such options of a new stock option of the successor corporation or a parent or
subsidiary thereof, with appropriate adjustment as to the number and kind of
shares and the per share exercise price, as provided in Section 6 of the Plan.
In the event of any transaction which will trigger such termination, the Company
shall give written notice thereof to the Optionees at least twenty days prior to
the effective date of such transaction or the record date on which shareholders
of the Company entitled to participate in such transaction shall be determined,
whichever comes first. In the event of such termination, any unexercised portion
of outstanding options, whether or not vested and exercisable at that time,
shall be exercisable not later than the date of such termination; PROVIDED,
HOWEVER, that in no event shall options be exercisable after the applicable
expiration date for an option.
8. Administration and Amendment of the Plan
The Plan shall be administered by the Board or an authorized committee
thereof (in which case all reference to the Board shall refer to such committee
while such committee administers this Plan), which shall make any determination
under or interpretation of any provision of the Plan and any option. Any of the
foregoing actions taken by the Board shall be final and conclusive. The Board
may amend and make such changes in and additions to the Plan (and, with the
consent of the applicable optionee, any outstanding option) as it may deem
proper and in the best interest of the Company; PROVIDED, HOWEVER, that no such
action shall adversely affect or impair any options theretofore granted under
the Plan without the consent of the applicable optionee.
26
<PAGE> 4
9. Expiration and Termination of the Plan.
Options may be granted under the Plan as provided herein during the ten
years from the Effective Date, as long as the total number of shares purchased
under the Plan and subject to outstanding options under the Plan does not exceed
100,000 shares of the Common Stock of the Company, subject to adjustment as
provided in Section 6. The Plan may be abandoned or terminated at any time by
the Board, except with respect to any options then outstanding under the Plan.
27
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
Bio-Detek, Incorporated, incorporated in Massachusetts
ZMI France, S.A.R.L., incorporated in France
ZMD Corporation, incorporated in Delaware
Zoll International, Inc., incorporated in U.S. Virgin Islands
Zoll (U.K.) Ltd, incorporated in United Kingdom
Westech Mobile Solutions. Inc., incorporated in Vancouver, B.C., Canada
28
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-90764) pertaining to the 1992 Stock Option Plan of Zoll Medical
Corporation of our report dated November 21, 1996, with respect to the
consolidated financial statements and schedule of Zoll Medical Corporation
included in this Annual Report (Form 10-K) for the year ended September 28,
1996.
ERNST & YOUNG LLP
Boston, Massachusetts
December 24, 1996
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