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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 13
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
HEALTHDYNE TECHNOLOGIES, INC.
(Name of Subject Company)
HEALTHDYNE TECHNOLOGIES, INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
422206102
(CUSIP Number of Class of Securities)
---------------------
LESLIE R. JONES, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
(770) 499-1212
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing the statement)
---------------------
COPY TO:
BLAINE V. FOGG, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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This Amendment No. 13 amends and supplements the Schedule 14D-9 filed with
the Securities and Exchange Commission on January 31, 1997 (as amended, the
"Schedule 14D-9") by Healthdyne Technologies, Inc., a Georgia corporation
("Healthdyne"), relating to the proposed tender offer by I.H.H. Corporation, a
Delaware corporation ("IHH") and a wholly owned subsidiary of Invacare
Corporation, an Ohio corporation ("Invacare"), to purchase for cash all
outstanding shares of Common Stock, par value $.01 per share, of Healthdyne.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Item 4 of the Schedule 14D-9 is hereby amended to read as follows:
On Wednesday, June 4, 1997, Invacare issued a press release announcing
that it had increased the price in its tender offer to $15 per share.
Invacare's June 4, 1997 press release stated that the increased offer
represented Invacare's "best and final offer" but acknowledged that
Invacare could raise its offer price again if "Healthdyne management is
able to substantiate additional value to our satisfaction." Invacare's June
4, 1997 press release concluded that if Invacare's nominees are not elected
at Healthdyne's July 30 Annual Meeting, Invacare may withdraw its offer
and/or dispose of some or all of its shares of Healthdyne stock.
On June 10, 1997, Healthdyne's Board of Directors convened a meeting
at which the Board of Directors, assisted by its financial and legal
advisors, reviewed Invacare's revised offer and its terms and conditions.
The Board of Directors reviewed again Healthdyne's business strategy and
strategic plan, and considered the potential for benefits both with and
without a merger with Invacare. On June 10, 1997, Cowen updated its
analysis to reflect Invacare's revised offer and, using an analytical
framework similar to that presented to the Board of Directors on January 27
and January 30, 1997, Cowen reviewed Invacare's revised offer. In addition,
Cowen reviewed the reaction of the financial markets to Invacare's revised
offer and potential implications for Healthdyne and its shareholders.
Following such review, Cowen concluded that Invacare's revised offer was
grossly inadequate from a financial point of view. After lengthy
discussions and presentations from Healthdyne's financial and legal
advisors, the Board of Directors determined that the best means for
providing value to its shareholders was for Healthdyne to continue to
pursue its strategic plan. A copy of a letter to shareholders communicating
the Board of Directors' recommendation is filed as Exhibit 46 hereto and is
incorporated herein by reference.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
HEALTHDYNE'S SHAREHOLDERS REJECT INVACARE'S REVISED OFFER AND NOT TENDER THEIR
SHARES OF HEALTHDYNE COMMON STOCK PURSUANT TO SUCH OFFER.
Factors Considered
In reaching the conclusions stated above, the Board of Directors took into
account a variety of factors, including but not limited to:
(1) The Board of Directors' familiarity with the financial condition,
business opportunities and current strategies of Healthdyne, the nature of
the markets in which Healthdyne competes and the Board of Directors'
confidence in management and firm belief that Invacare's revised offer does
not reflect the fair value of Healthdyne. Specifically, the Board of
Directors determined that Invacare's revised offer failed to reflect:
(a) The results of Healthdyne's strategic plan to date:
Healthdyne's first quarter of 1997 yielded a 30% revenue increase to a
record $35.7 million from $27.5 million in the first quarter of 1996.
(b) Healthdyne's leading and innovative position in the respiratory
products industry.
(c) The number of significant new products recently introduced and
planned for introduction by Healthdyne into the medical device market.
<PAGE> 3
(d) The expected revenue and earnings growth based on such new
products, such as the Quantum(TM) non-invasive ventilator which sold at
an annualized rate of $25 million based on first quarter results, and
Healthdyne's competitive position in such markets.
(2) Healthdyne's prospects for future growth and expansion based on
its strategic plans, the strategic alliances and other initiatives which
have been implemented and investments that have been made in an effort to
expand Healthdyne's product lines and devices offered to the market, and
the continued development of new products as well as enhancements to
existing products currently offered by Healthdyne.
(3) The opinion of Cowen to the effect that the $15 per share price
offered pursuant to Invacare's revised offer is grossly inadequate from a
financial point of view to the shareholders of Healthdyne (other than
Invacare). A copy of the written opinion of Cowen which sets forth the
assumptions made and matters considered is attached hereto as Exhibit 47.
(4) The disruptive effect of Invacare's revised offer and Invacare's
proxy solicitation on Healthdyne's employees, suppliers and customers.
(5) The fact that Healthdyne Common Stock traded as high as $15 per
share on June 3, 1997, the day prior to the announcement of Invacare's
revised offer and closed above Invacare's $15 offer price on each day from
the date of the announcement of Invacare's revised offer on June 4, 1997
until June 9, 1997.
(6) The fact that, in the event that Healthdyne decides to pursue a
sale at some future date, Healthdyne may now enter into a tax-free pooling
transaction with other companies.
(7) The Board of Directors' commitment to protecting the best
interests of the Healthdyne shareholders.
In light of the numerous factors evaluated in connection with its
consideration of Invacare's revised offer, the Healthdyne Board of Directors
determined that Invacare's revised offer was not in the best interests of
Healthdyne's shareholders.
The foregoing discussion of the information and factors considered by the
Healthdyne Board of Directors is not intended to be exhaustive but includes all
material factors considered by the Healthdyne Board of Directors. In reaching
its determination to recommend rejection of Invacare's revised offer, the
Healthdyne Board of Directors did not assign any relative or specific weight to
the foregoing factors, and individual directors may have given differing weights
to different factors. Throughout its deliberations, the Healthdyne Board of
Directors received the advice of legal and financial advisors retained to
provide advice and counsel to the Board of Directors.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 of the Schedule 14D-9 is hereby amended and supplemented by adding
the following:
On June 9, 1997, Healthdyne and the Individual Defendants filed their brief
in opposition to Invacare's motion for preliminary injunction. Healthdyne also
filed a brief in opposition to the Stockholder Actions Plaintiffs' motion for
preliminary injunction. In their briefs, Defendants argue that Section 624
authorizes the Healthdyne Board of Directors to adopt the Continuing Director
Provision of the Healthdyne Shareholder Rights Plan. Defendants further argue
that the "Continuing Director" concept is endorsed by Georgia as a matter of
public policy because both the Fair Price and Business Combination Statutes have
"Continuing Director" provisions. Defendants' brief in opposition to Invacare's
motion for preliminary injunction was filed under seal pursuant to a court
order, and a redacted version is attached hereto as Exhibit 48. Defendants'
brief in opposition to the Stockholder Actions plaintiffs' motion for
preliminary injunction is attached hereto as Exhibit 49.
On June 11, 1997, Healthdyne issued a press release announcing that its
Board of Directors voted unanimously to recommend that shareholders of
Healthdyne reject the revised unsolicited tender offer by
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Invacare and that shareholders not tender any of their shares pursuant to
Invacare's revised tender offer. The June 11, 1997 press release stated that
among the factors considered by the Board in rejecting Invacare's revised offer
was the opinion of Cowen that the $15 per share price offered by Invacare was
grossly inadequate. A copy of the June 11, 1997 press release is attached hereto
as Exhibit 50.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
* Exhibit 46 -- Letter to Healthdyne Shareholders dated June 11, 1997.
* Exhibit 47 -- Opinion dated June 10, 1997 of Cowen & Company.
Exhibit 48 -- Defendants' brief in opposition to Invacare's motion for
preliminary injunction.
Exhibit 49 -- Defendants' brief in opposition to the Stockholder Actions
Plaintiffs' motion for preliminary injunction.
Exhibit 50 -- Press Release issued by Healthdyne on June 11, 1997.
</TABLE>
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* Included in copy mailed to shareholders
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
HEALTHDYNE TECHNOLOGIES, INC.
By: /s/ M. WAYNE BOYLSTON
------------------------------------
Name: M. Wayne Boylston
Title: Vice President -- Finance,
Chief Financial Officer and
Treasurer
Dated: June 11, 1997
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EXHIBIT 46
(HEALTHDYNE TECHNOLOGIES LOGO)
June 11, 1997
Dear Fellow Shareholder:
For about six months, Invacare Corporation has been trying to take control
of your Company by making tender offers for your shares. Invacare started at
$12.50 per share, then went to $13 and then to $13.50. Now, Invacare has made
what it calls its "best and final" offer for your shares -- $15 per share.
$15 IS STILL TOO LOW!
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY REJECTED INVACARE'S $15 PER SHARE
OFFER AS GROSSLY INADEQUATE AND NOT REFLECTIVE OF THE TRUE VALUE OF YOUR
COMPANY. The Board reached this decision after careful consideration and after
receiving an extensive presentation and advice from Cowen & Company, our
financial advisors.
In rejecting Invacare's latest offer, the Board considered a variety of
factors, including the opinion of Cowen & Company that the $15 per share price
offered by Invacare is grossly inadequate. After reviewing the progress
Healthdyne Technologies is making on its strategic plan and receiving input from
the Company's financial advisors, the Board feels that Invacare's increased
offer has failed to keep up with Healthdyne Technologies' exceptional
performance and does not reflect an acquisition premium. Healthdyne
Technologies' stock has traded within this range in the last year even prior to
the announcement of its new strategic plan. Your Board believes that $15 is
still too low and does not represent the fair value of your Company.
INDEPENDENT SECURITIES ANALYSTS WHO FOLLOW HEALTHDYNE TECHNOLOGIES HAVE
COME TO THE SAME CONCLUSION.(1)
"Given how strong Healthdyne's business has been over the past five
months, our valuation analysis indicates that $15 is still too low a price
for Healthdyne."
Dillon, Read & Co. Inc., First Call, June 4, 1997.
"Invacare's latest [$15] bid has touched the low end of our target
takeout valuation but does not fully reflect a strong pipeline of new
products and improved fundamentals, in our opinion."
Tucker Anthony, First Call, June 4, 1997.
DO NOT TENDER TO INVACARE!
Invacare will not be able to buy any of your Healthdyne Technologies shares
until July 30, 1997 at the earliest. There is no need to decide whether to
tender your shares at this time. If you have already tendered, we urge you to
withdraw your tender.
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(1)Permission for use of analysts' quotes was sought and granted.
(LOGO)
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Healthdyne Technologies plans to publicly announce its results for the
second quarter of 1997 by mid-July. Please wait and review those results. Then,
DECIDE FOR YOURSELF WHETHER YOU AGREE WITH YOUR BOARD'S CONCLUSION THAT $15 IS
TOO LOW A PRICE FOR YOUR COMPANY.
Attached hereto is an amendment to Healthdyne Technologies' Schedule 14D-9,
which sets forth in more detail the factors considered by your Board of
Directors. We urge you to read it carefully and in its entirety so that you will
be fully informed as to the Board's recommendation.
We appreciate your continued interest and support.
Sincerely,
<TABLE>
<S> <C>
/s/ Craig B. Reynolds /s/ Parker H. Petit
Craig B. Reynolds Parker H. Petit
President and Chief Executive Officer Chairman of the Board
</TABLE>
If you have already tendered your shares to Invacare and wish to change
your mind, you can withdraw your shares at any time on or before the expiration
of the tender offer. For information on withdrawing your shares, please call
Morrow & Co., Inc. at (800) 662-5200.
PARTICIPANT INFORMATION
In addition to Healthdyne Technologies, other participants in any proxy
solicitation by Healthdyne Technologies in connection with its 1997 annual
meeting may include the following directors and executive officers of Healthdyne
Technologies: Parker H. Petit, Chairman of the Board; Craig B. Reynolds,
President, Chief Executive Officer and Director; J. Terry Dewberry, Director;
Alexander H. Lorch, Director; J. Leland Strange, Director; James J. Wellman,
M.D., Director; J. Paul Yokubinas, Director; Robert M. Johnson, Senior Vice
President -- Business Development; John L. Miclot, Senior Vice
President -- Sales and Marketing; Robert E. Tucker, Senior Vice
President -- Operations; M. Wayne Boylston, Vice President -- Finance, Chief
Financial Officer and Treasurer; Leslie R. Jones, Vice President, General
Counsel and Secretary; and Jeffrey A. North, Corporate Controller. The
above-referenced individuals beneficially own an aggregate of 1,593,092 shares
of Healthdyne Technologies' common stock (including shares underlying vested
options). Healthdyne Technologies has retained Morrow & Co., Inc. to act as
information agent and proxy solicitor in connection with the Invacare offer for
customary fees. Although Cowen & Company ("Cowen"), which is acting as financial
advisor to Healthdyne Technologies in connection with the Invacare offer, does
not admit that it or any of its directors, officers, employees or affiliates is
a "participant," as defined in Schedule 14A promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
that such Schedule 14A requires the disclosure of certain information concerning
them, the following employees of Cowen may assist Healthdyne Technologies in
such a solicitation: Robert D. Valdez (Managing Director) and Ned Brown
(Managing Director). Cowen will receive customary financial advisor fees,
reimbursement and indemnification from Healthdyne Technologies in connection
with the Invacare offer. Cowen will not receive any additional fee for or in
connection with assisting in any solicitation of proxies. Cowen engages in a
full range of investment banking, research, sales, trading, market-making,
brokerage, asset management and correspondent clearing services for
institutional and individual clients. In the ordinary course of its business,
Cowen maintains customary arrangements and effects transactions in the
securities of Healthdyne Technologies for the accounts of its customers. As a
result of its engagement by Healthdyne Technologies, Cowen has restricted its
proprietary trading in the securities of Healthdyne Technologies (although it
may still execute trades for customers on an unsolicited agency basis).
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EXHIBIT 47
(Cowen Logo)
June 10, 1997
Board of Directors
Healthdyne Technologies, Inc.
1255 Kennestone Circle
Marietta, GA 30066
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the adequacy,
from a financial point of view, to the holders of the outstanding shares of
Common Stock, par value $0.01 per share of Healthdyne Technologies, Inc. (the
"Company") other than Invacare Corporation, of the terms of the Offer to
Purchase (as hereinafter defined). For purposes of this opinion, the "Offer to
Purchase" means the offer described below pursuant to that certain Offer to
Purchase included in the amendment to Schedule 14D-1 filed with the Securities
and Exchange Commission on June 4, 1997 by I.H.H. Corp. (the "Bidder"), a
wholly-owned subsidiary of Invacare Corporation (the "Schedule 14D-1").
As more specifically set forth in the Schedule 14D-1, the Bidder has
offered, subject to certain conditions set forth in the Offer to Purchase, to
purchase all of the outstanding shares of Common Stock of the Company, and the
associated Preferred Stock Purchase Rights issued pursuant to the Rights
Agreement, dated as of May 22, 1995 between the Company and Trust Company Bank,
as Rights Agent (the "Rights Agreement"), at a purchase price of $15.00 per
share (and associated Right) net to the seller in cash.
In the ordinary course of its services, Cowen & Company ("Cowen") is
regularly engaged in the valuation and pricing of businesses and their
securities and in advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years
ended December 31, 1994, 1995 and 1996 and for the fiscal quarter
ended March 31, 1997, and certain publicly available filings with
the Securities and Exchange Commission and certain other relevant
financial and operating data of the Company;
(2) reviewed the Schedule 14D-1;
(3) held meetings and discussions with management and senior personnel
of the Company to discuss the business, operations, historical
financial results and future prospects of the Company;
(4) reviewed financial projections furnished to us by management of
the Company relating to, among other things, the capital
structure, sales, net income, cash flow, capital requirements and
other data of the Company we deemed relevant;
(5) reviewed the valuation of the Company in comparison to other
similar publicly traded companies;
(LOGO)
<PAGE> 8
Healthdyne Technologies, Inc.
June 10, 1997
Page 2
(6) reviewed the historical prices and trading activity of the Common
Stock of the Company from June 22, 1993 through June 6, 1997 and
compared those trading histories with those of other companies
which we deemed relevant;
(7) compared the transaction contemplated by the Offer to Purchase
with other similar transactions, including the acquisition of
control;
(8) compared the discount rate implied by the Offer to Purchase as
applied to the cash flows assumed by projections of the Company's
management, to the weighted average cost of capital of other
similar publicly traded companies; and
(9) conducted such other studies, analysis, inquiries and
investigations as we deemed appropriate.
Cowen was not requested to, and did not, solicit third party indications of
interest in acquiring the Company.
On June 6 1997, the closing price of the Common Stock of the Company in the
last transaction reported by Nasdaq National Market was $15 3/4 per share.
In rendering this opinion, we relied upon the Company's management with
respect to the accuracy and completeness of the financial and other information
furnished to us as described above. We have not assumed any responsibility for
independent verification of such information, including financial information,
nor have we made an independent evaluation or appraisal of any of the properties
or assets of the Company.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Offer to Purchase and will receive a fee for our
services. We will also receive a fee for rendering this opinion. In the past,
Cowen and its affiliates have provided financial advisory and financing services
for the Company and have received fees for the rendering of these services.
Cowen served as the lead manager in the Company's June 1993 initial public
offering, advised the Company in its May 1995 spin-off from Healthdyne, Inc. and
advised the Company with respect to the May 1995 implementation of the Rights
Agreement. In addition, in the ordinary course of its business, Cowen trades the
equity securities of the Company for its own account and for the accounts of its
customers, and, accordingly, it may at any time hold a long or short position in
such securities. Moreover, as of June 6, 1997, Cowen and its affiliates own
447,900 shares of Common Stock of the Company.
On the basis of our review and analysis, as described above, it is our
opinion as investment bankers that, as of the date hereof, the financial terms
of the Offer to Purchase are grossly inadequate, from a financial point of view,
to the stockholders of the Company other than Invacare Corporation.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
2
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EXHIBIT 48
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
INVACARE CORPORATION and :
I.H.H. CORP., :
:
Plaintiffs, :
:
v. : Civil Action No. 1:97-CV-0205
:
HEALTHDYNE TECHNOLOGIES, :
INC., CRAIG B. REYNOLDS, :
J. TERRY DEWBERRY, :
ALEXANDER H. LORCH, :
J. LELAND STRANGE, :
JAMES J. WELLMAN, and :
J. PAUL YOKUBINAS, :
:
Defendants. :
DEFENDANTS' BRIEF IN OPPOSITION
TO PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION
TROUTMAN SANDERS LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
(404) 885-3000
OF COUNSEL:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
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PRELIMINARY STATEMENT
Invacare's motion for a preliminary injunction challenges the
validity of one limited aspect of Healthdyne's Rights Plan, known as the
continuing director feature. That motion is based on two things -- inapplicable
authority from New York and baseless rhetoric.
The rhetoric starts with the colorful and utterly inapplicable
"dead hand" label Invacare attempts to pin on the continuing director feature.
In specifically approving such features in two separate statutes, the Georgia
legislature used the term "continuing director," and authorized such directors
to play an important role in responding to the tactics of hostile acquirors.
That decision of the Georgia legislature should be respected here, and the "dead
hand" label should be recognized for what it is -- a transparent effort to
replace substance with rhetoric.
Invacare's heavy reliance on the Bank of New York decision
also clearly signals the fact that Invacare would prefer that New York law
applied and that this Court was a New York Court. That case is simply
inapplicable. The Bank of New York court concluded that continuing director
features were "evil" under New York law -- while the Georgia
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legislature reached exactly the opposite conclusion in approving such provisions
under Georgia law. Bank of New York also concluded that, to be valid, a
continuing director provision had to be included in a corporation's certificate
of incorporation -- while the Georgia legislature again reached the opposite
conclusion in approving the Georgia rights plan statute (which gives directors
the "sole discretion" to determine the contents of rights plans, and emphasizes
that the terms need not be set forth in the articles).
Invacare's attempts to explain away the clear intent of the
Georgia legislature simply do not work. The Georgia legislature has created a
set of statutory tools to be used by directors of target corporations which are
clear, concise, and modern. There is no reason to measure cutting edge Georgia
statutes against a throwback 1980's version of New York law.
As set forth more fully below, Invacare's motion for a
preliminary injunction should be denied.
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STATEMENT OF FACTS
A. BACKGROUND.
Healthdyne is a Georgia corporation with its principal place
of business in Marietta, Georgia. Healthdyne has emerged as an innovator and
industry leader in the development and manufacture of proprietary respiratory
and sleep disorder products. Among other things, the Company designs,
manufactures and distributes high technology diagnostic and therapeutic devices,
particularly sleep disorder products, respiratory therapy products and infant
and obstetrical monitoring products. (Reynolds Aff., filed 4/21/97, P. 2)
Healthdyne's growth over the years has been impressive, due
largely to the timely development of numerous new products, most of which
ultimately have achieved leadership in their respective markets. Revenues have
grown from approximately $11 million in 1986 to approximately $118 million in
1996. Id.
REDACTED
4
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Invacare, an Elyria, Ohio based corporation, has approached
Healthdyne on several occasions over the past three years to discuss possible
business combination transactions, and on each occasion, after due consideration
of the Invacare overture, Healthdyne determined not to pursue a transaction with
Invacare. (Reynolds Aff. P. 3)
B. THE GROSSLY INADEQUATE INVACARE OFFERS.
On January 2, 1997, Invacare's chairman sent a letter to
Healthdyne's president, Mr. Craig Reynolds, indicating Invacare's continuing
interest in a combination and proposing to acquire Healthdyne in a negotiated
merger transaction in which shareholders of Healthdyne would receive $12.50 in
cash for each share of Healthdyne Common Stock. Following careful consideration
and an extensive presentation by Healthdyne's financial advisor, Cowen &
Company, the Healthdyne Board on January 23, 1997, concluded that Invacare's
offer was grossly inadequate from a financial point of view. (Reynolds Aff. P.
4)
On the following Monday, January 27, 1997, Invacare commenced
an unsolicited tender offer for all outstanding shares of Healthdyne Common
Stock at $13 per share and began litigation against Healthdyne and all of its
directors (except Chairman Petit who was at the time personally represented by
Invacare's counsel). (Reynolds Aff. P. 5) Invacare also announced its intention
to eliminate any Healthdyne shareholders who did not tender by means of a
second-step merger. After further financial advice from Cowen and additional
discussions, the Healthdyne
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Board, on January 30, 1997, again concluded that the Invacare offer was grossly
inadequate from a financial point of view. (Id.)
On March 31, 1997, Invacare increased its offer to $13.50 per
share. That offer was also rejected, after careful consideration and advice from
Healthdyne's financial advisors that the price was grossly inadequate. (Reynolds
Aff. P. 7) The Board, which is composed of a majority of independent directors,
unanimously concluded that the Invacare offer did not reflect the long-term
value of Healthdyne and that the shareholders' interests would best be served by
Healthdyne remaining independent. (Id.) The correctness of this strategy has
been confirmed by Healthdyne's outstanding results for the first quarter of
1997. (See Dillon Reed report 4/8/97, Bowler Aff. Ex. A.)
The market also concluded that Invacare's lowball $13.50 bid
did not reflect the value of Healthdyne. The market price of Healthdyne's stock
remained significantly higher than that offer for months. (Valdez Aff. Ex. C) In
addition, independent third-party analysts criticized Invacare's $13.50 bid as
"awkwardly low." (Tucker Anthony report, 4/9/97, Bowler Aff. Ex. B. See also
Dillon Reed report, 4/8/97, Bowler Aff. Ex. A.) In addition, despite the fact
that Invacare's offer has been outstanding since January, only about 17 percent
of Healthdyne's shares have been tendered into it.
Invacare itself conceded that $13.50 was not its best offer.
Invacare argued, in response to Healthdyne's recent
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motion to compel, that any suggestion that it had put its final offer on the
table was "frivolous." (Inv. Surreply To Healthdyne's Motion To Compel at 6-7)
Thus, Invacare has conceded that it has conducted a lowball bidding strategy.
Nevertheless, from the outset, Invacare represented to this
Court in its complaint that its offer was "fully-priced," and that Healthdyne
had taken "precipitous and unjustified" defensive steps. See, e.g., Complaint P.
P. 1-2. Invacare's subsequent track record shows beyond question that these
allegations were false -- its offers obviously were never fully priced, and
Healthdyne's responses were appropriate in every respect.
Now, on the eve of the hearing on the motions before the
Court, Invacare has again raised its price and has again said that its offer is
fully priced, this time claiming that its offer represents its "best and final"
offer. Specifically, on June 4, 1997, Invacare announced that it was raising its
offer to $15.00 per share. At the same time, Invacare suggests in its press
release that it just might pay more if Healthdyne is able to substantiate
greater value. Invacare also says that it will evaluate its options if the
Healthdyne shareholders refuse to elect its nominees. See Bowler Affidavit, Ex.
M.
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Invacare's latest $15 price still does not exceed the upper
level at which Healthdyne's stock had traded prior to the increase. One of the
financial analysts who had criticized Invacare's earlier offers, also promptly
pointed out that the $15 price was at the "low end" of its valuation, and did
"not fully reflect a strong pipeline of new products and improved fundamentals"
at Healthdyne. Another described the $15 offer as "still too low." Bowler Aff.
Exs. D and E. Thus, the need for an active role by the Healthdyne board of
directors remains critical.
C. THE HEALTHDYNE RIGHTS PLAN.
The Healthdyne Board is able to protect Healthdyne's
shareholders from Invacare's hostile tender offer due to Healthdyne's
shareholders rights plan (the "Rights Plan"). A rights plan, which is sometimes
called a "poison pill," is a common takeover defense. (See Margotta Aff. P. 12)
Even Invacare has a rights plan. Among other things, a rights plan makes
consummation of a tender offer prohibitively expensive until such time as the
rights are redeemed, and thereby enables corporate directors to control whether
a hostile offer can proceed, which gives the board of directors the ability to
properly respond to the offer. (Margotta Aff. P. P. 11-14)
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Recent judicial decisions have confirmed that a board of
directors acts properly when it refuses to redeem a rights plan on the grounds
that the board "reasonably believed that the shareholders were entitled to
protection from what they considered to be a `low ball' offer." Moore Corp. Ltd.
v. Wallace Computer Servs., Inc., 907 F. Supp. 1545, 1563 (D. Del. 1995). See
also Unitrin Inc. v. American Gen. Corp., 651 A.2d 1361, 1384-85 (Del. 1995).
Thus, the Healthdyne Board's refusal to redeem the Rights Plan in response to
Invacare's indisputably low ball offers is entirely consistent with the
directors' obligation to protect the interests of shareholders. Invacare has not
challenged the Board's decision not to redeem the rights with this motion for
preliminary injunction.
D. GEORGIA LAW EXPRESSLY ENDORSES RIGHTS PLANS.
The Georgia legislature has recognized the important role
rights plans play in protecting shareholder interests. Georgia corporation law
specifically authorizes boards of directors to adopt shareholders rights plans
and to determine, in the board's "sole discretion," the terms of those rights
plans. See O.C.G.A. ss. 14-2-624(a).
E. RIGHTS PLANS HAVE BECOME ALMOST UNIVERSALLY RECOGNIZED AS
BENEFICIAL TO SHAREHOLDERS' INTERESTS.
Courts and commentators have been virtually unanimous in their
approval of rights plans as a fair and effective response to a hostile
takeover.(1) Invacare's expert witness, Wil-
- -----------------------
(1) For cases upholding rights plans, see Moran v. Household Int'l Inc.,
490 A.2d 1059 (Del. Ch.), aff'd, 500 A.2d 1346
9
<PAGE> 18
liam J. Carney, has written:
Shareholder rights plans are now a widely accepted strategy for
enabling corporate boards to deal with hostile offers from a position
of strength. Shareholder rights plans place the board of directors in a
position to represent shareholder interests effectively in bargaining
with prospective purchasers of the corporation to assure that the
shareholders receive full value for their holdings and will be treated
equitably in a purchase transaction. Where a board has a reasoned
long-term plan that requires continuing independence, it can use a
rights plan to "just say no" to a bidder, if it believes its long-term
plan will be more valuable to shareholders.
(William J. Carney & Leonard A. Silverstein, New Developments In Takeover
Defenses and Poison Pills, 14 (1997), Bowler Aff. Ex. F).
The practical effectiveness of rights plans in achieving
benefits for shareholders is evidenced by their widespread use. Indeed, more
than 1,600 American companies, including many
(..continued)
(Del. 1985); In re Fort Howard Corp. Shareholders Litig., C.A. No.
9991-NC, 1988 WL 83147 (Del. Ch. Aug 8, 1988); Gilbert v. El Paso Co.,
C.A. Nos. 7078-NC, 7079-NC, 1988 WL 124325 (Del. Ch. Nov. 21, 1988),
aff'd, 575 A.2d 1131 (Del. 1990); Facet Enters., Inc. v. Prospect
Group, Inc., C.A. No. 9746-NC, 1988 WL 36140 (Del. Ch. Apr. 15, 1988);
BNS Inc. v. Koppers Co., 683 F. Supp. 458 (D. Del. 1988); Tate & Lyle,
PLC v. Staley Continental, Inc., C.A. No 9813-NC, 1988 WL 46064 (Del.
Ch. May 9, 1988); MAI Basic Four, Inc. v. Prime Computer, Inc., C.A.
No. 10424-NC, 1988 WL 140221 (Del. Ch. Dec. 20, 1988); A. Copeland
Enters. v. Guste, 706 F. Supp. 1283 (W.D. Tex. 1989) (applying Texas
law); Clarendon Group, Ltd. v. Smith Lab.,Inc., 741 F. Supp. 1449 (S.D.
Cal. 1990) (applying Illinois law); Amanda Acquisition Corp. v.
Universal Foods Corp., 708 F. Supp. 984 (E.D. Wis.) (applying Wisconsin
law), aff'd, 877 F.2d 496 (7th Cir.), cert. denied, 493 U.S. 955
(1989); Gelco Corp. v. Coniston Partners, 652 F. Supp. 829, 847-50 (D.
Minn. 1986), aff'd in part and vacated in part on other grounds, 811
F.2d 414 (8th Cir. 1987) (applying Minnesota law); Georgia-Pacific
Corp. v. Great Northern Nekoosa Corp., 728 F. Supp. 807 (D. Me. 1990)
(applying Maine law).
10
<PAGE> 19
companies organized under Georgia law, have adopted rights plans. (Margotta Aff.
P. 12) According to one source, 35% of all of the firms listed on the New York
and American Stock Exchanges are protected by a rights plan. (See The Economist,
Poison Pills to Die For, Feb. 24, 1996, U.S. edition, Bowler Aff. Ex. G.)
Empirical evidence has demonstrated that the rights plan, which ten years ago
was attacked as an usurpation of shareholder rights, has proved to be very
beneficial to shareholders. (See Margotta Aff. P. 13) As one source reports:
[T]here is evidence that pills, far from damaging shareholder value,
may have done it some good. Frederic Escherich of J.P. Morgan, a bank,
has studied takeover premiums -- the gap between acquiring firms' final
offers and targets' pre-bid share prices. He looked at 245 deals of
$500 m[illion] or more between 1988 and 1995 in which a bidder
purchased a majority stake. The medium premium for a firm with a poison
pill was just above 51%. For firms that did not have a pill, it was
only 35%.
Economist, supra, at 80 (emphasis added). The same article notes that this
advantage held good regardless of whether bids were hostile and whether the bids
were big or small. "This helps to explain Wall Street's enthusiasm for renewing
pills: they seem a good way of getting a better price for the shares of acquired
firms." Id. Other empirical studies that have come to similar conclusions about
the benefits of rights plans are discussed in the Affidavit of Professor Donald
G. Margotta.
F. THE CONTINUING DIRECTOR FEATURE.
As with many rights plans, the Healthdyne Rights Plan
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includes what is known as a "continuing director" feature.(2) In general, the
continuing director feature requires that, in order for the Board to redeem the
rights, the redemption must be approved by one or more directors who were
members of the Board prior to the adoption of the plan, or who were subsequently
elected to the Board with the recommendation and approval of the other
continuing directors.
The purpose of the continuing director feature, in general, is
to ensure that the hostile bidder who simultaneously conducts a proxy contest to
support its hostile offer will have to negotiate at arms length with independent
fiduciaries rather than insurgent directors of its own choosing. (Margotta Aff.
P. 16) Thus, the continuing director feature of a rights plan is fully
consistent with the general purpose of a rights plan, which is to give the
ability to respond to a hostile offer to independent fiduciaries who will
represent the interests of shareholders rather than to leave the disaggregated
shareholders who cannot effectively bargain for themselves to respond to the
offer on their own. (Id.)
Georgia law explicitly endorses the continuing director
concept in both the Georgia Fair Price statute, O.C.G.A. ss. 14-2-1110, and the
Georgia Business Combination statute, O.C.G.A. ss. 14-2-1132. The "continuing
director" features of these stat-
- --------------------
(2) For example, Bill R. Sanford, one of Invacare's nominees for the
Healthdyne Board, is the CEO of a company that has a rights plan with a
continuing director provision. (STERIS rights plan, Bowler Aff.
Ex. H)
12
<PAGE> 21
utes recognize that stockholders benefit where a hostile bidder cannot acquire a
corporation by replacing an independent board of directors with its own hand
picked nominees, who would then dismantle the corporation's takeover defenses
without shopping the company or forcing the bidder to make its best offer. The
Georgia legislature has thus repeatedly affirmed the importance from the
standpoint of public policy of protecting shareholder interests by leaving the
authority to remove takeover defenses in the hands of continuing directors
rather than insurgent directors who serve at the behest of the hostile acquiror.
G. INVACARE'S INSURGENT SLATE OF DIRECTORS.
The continuing director feature of the Rights Plan is at issue
here because Invacare seeks to elect a slate of seven hand picked nominees who
would fill all of the seats on Healthdyne's board of directors. Invacare says
that its nominees, if elected, will take all actions necessary to allow Invacare
to acquire Healthdyne. (Invacare Proxy at 1, 3, Bowler Aff. Ex. I)
Invacare's nominees' unwillingness to bargain against Invacare
on behalf of Healthdyne's shareholders is readily apparent. Although Invacare
had admitted that its $13.50 offer was not its best offer, Invacare's nominees
nevertheless committed to accept it. Moreover, Invacare provided notice of its
intention to present a slate of nominees on March 20, 1997, the Invacare
nominees had already announced their intention to take all actions necessary to
allow Invacare to acquire Healthdyne at
13
<PAGE> 22
Invacare's then allegedly "fully priced" offer of only $13.00 per share. (Notice
of Business to be Brought Before the 1997 Annual Meeting at 3 (3/20/97), Bowler
Aff. Ex. J)
H. INVACARE'S ATTACK ON THE CONTINUING DIRECTOR FEATURE.
The Continuing Director feature of the Rights Plan stands in
the way of Invacare's plan to have its nominees redeem the Rights Plan without
first obtaining a full price for Healthdyne's shares. Thus, Invacare seeks an
order that will invalidate the Continuing Directors feature of the Rights Plan,
which would permit the Invacare nominees, if elected, to redeem the rights.
Invacare would then acquire Healthdyne with its lowball offer.
Invacare wants to avoid bargaining with independent directors
who, instead of immediately accepting Invacare's offer, may take other actions
in order to maximize shareholder value. For example, if the current directors of
Healthdyne decide to sell the company, they will not approve a cash sale of the
company to Invacare (or any other party) without first soliciting competing
offers designed to obtain the highest value reasonably available for
shareholders.(3)
- --------------------
(3) The Healthdyne Board has determined that the Company is not for sale at
the present time because the Board believes that management's strategic
plan will provide outstanding results for the shareholders over the
next few years. (Reynolds Aff. passim) The Chairman has stated,
however, that if management does not perform as expected under the
strategic plan, then the Board will consider other alternatives in
order to maximize shareholder value, including a sale of the company.
(Letter of Parker H. Petit to Shareholders, Feb. 13, 1997 at 3, Bowler
Aff. Ex. L)
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<PAGE> 23
Invacare's acquisition strategy, which includes its proxy
contest and this lawsuit, is expressly designed to avoid an auction.
REDACTED
Invacare's Preliminary Proxy Materials admit that "it is not expected that the
Invacare Nominees would actively solicit additional offers for Healthdyne."
(Invacare Prelim. Proxy at 5, Bowler Aff. Ex. I)
It is clear that Invacare wants to avoid circumstances that
would require it to pay a fair price for Healthdyne. With this motion, Invacare
seeks this Court's assistance to further its strategy of acquiring Healthdyne at
an unfair price.
15
<PAGE> 24
ARGUMENT
I. A FINAL MANDATORY INJUNCTION SHOULD NOT BE GRANTED WITHOUT A TRIAL ON
THE MERITS.
Invacare has moved for a mandatory injunction requiring
Healthdyne's board of directors to amend the Continuing Director feature of the
Rights Plan prior to the annual meeting of shareholders or otherwise declaring
the provision invalid. Invacare's motion is procedurally defective. Invacare
ostensibly seeks "preliminary" relief, but does not request an order that
preserves the status quo until a trial. Rather, Invacare requests a mandatory
injunction, which is in effect final relief because "a result after trial could
not practically reverse the grant of preliminary relief...." Stahl v. Apple
Bancorp, Inc., 579 A.2d 1115, 1120 (Del. Ch. 1990).
Because it is final relief, a mandatory preliminary injunction
"should not be granted except in rare instances in which the facts and law are
clearly in favor of the moving party." Exhibitors Poster Exch., Inc. v. National
Screen Serv. Corp., 441 F.2d 560, 561 (5th Cir. 1971) (quotation omitted),
accord Harris v. Wilters, 596 F.2d 678, 680 (5th Cir. 1979). This is not such a
"rare instance." Both the facts and the law are bitterly disputed.
In order to grant the mandatory relief Invacare requests, the
Court would have to accept the statements in the five affidavits submitted by
Invacare and reject the affidavits sub-
16
<PAGE> 25
mitted by Healthdyne in opposition to Invacare's motion.(4) The Court cannot
assess the credibility of these witnesses on a paper record. The Eleventh
Circuit has held that it is an abuse of discretion for a trial court to rule on
an injunction without an evidentiary hearing "[w]here the injunction turns on
the resolution of bitterly disputed facts...." All Care Nursing Serv., Inc. v.
Bethesda Mem'l Hosp., Inc., 887 F.2d 1535, 1538 (11th Cir. 1989). Indeed, in the
last hostile takeover case heard by this District Court, the Court denied a
request for a preliminary injunction of the Georgia Anti-Takeover statute
because the parties had presented expert affidavits that were in "sharp and
critical conflict" and the Court "ha[d] not had an opportunity to assess the
credibility of the evidence...." West Point-Pepperell, Inc. v. Farley Inc., 711
F. Supp. 1088, 1096 (N.D. Ga. 1988); see also Dynamics Corp. of Am. v. WHX
Corp., No. 3:97 CV702(GLG), slip op. at 4 (D. Conn. Apr. 29, 1997) (denying
preliminary injunction because of conflicting affidavits). Here, the Court must
hold a trial in order to grant Invacare the final relief it seeks.
Additionally, Invacare asks the Court to immediately rule on a
complex issue of first impression under Georgia law. The short time frame for
the Court's consideration of this issue results from Invacare's tactical delay.
Invacare filed suit in
- ----------------------
(4) The affidavit of William J. Carney may be the exception. That
"affidavit" contains no factual statements, rather it repeats
Invacare's legal arguments. This second (and largely duplicative)
memorandum of law adds nothing to the record and should be ignored by
the Court.
17
<PAGE> 26
January challenging the Continuing Director provision but waited until May 16 to
file its preliminary injunction motion.
The Court should decline Invacare's request for an immediate
decision awarding final relief on this complex issue of law. Where "complexity
and novelty of the issues which have been raised and are apparent, this alone
may constitute appropriate grounds to exercise the Court's discretion not to
grant a preliminary injunction." Western Elec. Co. v. Milgo Elec. Corp., 450 F.
Supp. 835, 841-42 (S.D. Fla. 1978) (citing Carat, Inc. v. McCory Corp., 438 F.2d
281 (2d Cir. 1971).(5) Thus, Invacare cannot establish, as it must to obtain a
mandatory injunction, that the facts and the law are clearly in its favor. See
Exhibitors Poster, 441 F.2d at 561.
Invacare cannot satisfy the other requirements of equitable
relief either. As Invacare notes in its brief (Inv. Brief at 15, citing Cate v.
Oldham, 707 F.2d 1176, 1185 (11th Cir. 1983)), Invacare cannot obtain injunctive
relief without demonstrating the presence of imminent irreparable harm and that
the balance of harms favors granting a mandatory injunction. As shown below,
Invacare has made no showing of imminent irreparable harm and the balance of
harms favors denial of the requested relief. Invacare's motion for preliminary
injunctive relief
- ------------------------
(5) See also Dymo Indus. v. Tapeprinter, Inc., 326 F.2d 141 (9th Cir.
1964); Charles Simkin & Sons, Inc. v. Massiah, 289 F.2d 26 (3d Cir.
1961); General Elec. Co. v. American Wholesale Co., 235 F.2d 606 (7th
Cir. 1956). Rather than decide this complex issue in just a few days,
the Court should postpone the decision until after the July 30 meeting.
Depending upon the outcome of the election, the issue may become moot.
18
<PAGE> 27
should be denied.
II. INVACARE'S APPLICATION FOR INJUNCTIVE RELIEF WITH RESPECT TO
THE CONTINUING DIRECTOR FEATURE SHOULD BE DENIED ON THE MERITS.
As part of its strategy to acquire Healthdyne with a lowball
offer, Invacare filed suit requesting an order from this Court that would have
directed the Healthdyne Board immediately to redeem Healthdyne's Rights Plan.
(Compl. P. P. 50-54) In implicit concession to the correctness of the Board's
conduct thus far, Invacare brings only a narrow attack that attempts to isolate
the Continuing Director feature from the rest of the Rights Plan and the Board's
good faith use of that tool in order to protect shareholder interests. Invacare
attacks the Healthdyne Board's adoption of the Continuing Director feature of
the Rights Plan as a violation of O.C.G.A. ss. 14-2-801(b) and a breach of
fiduciary duty as a matter of law.
Section 14-2-624 expressly grants the Healthdyne Board the
"sole discretion" to set the terms and conditions of the Rights Plan, including
the Continuing Director feature. O.C.G.A. ss. 14-2-624(c). Accordingly,
Invacare's claim that the Healthdyne Board exceeded its authority in adopting a
Rights Plan with a Continuing Director feature is meritless.
In its fiduciary duty claim, Invacare claims that the
Healthdyne Board's adoption of a Rights Plan with a Continuing Director feature
violates the director's fiduciary duties as a matter of law, regardless of the
manner in which the Board uses the Continuing Director feature. Invacare plainly
couches its
19
<PAGE> 28
argument as a per se rule in order to avoid discussing the Healthdyne Board's
use of the Rights Plan and its Continuing Director feature under the
circumstances -- i.e., in response to Invacare's attempt to acquire Healthdyne
with concededly lowball bids by electing its own directors who will not
negotiate with Invacare or conduct an auction. The adoption of a Continuing
Director feature of the Rights Plan does not violate the standards of fiduciary
duty under Georgia law. Rather, the Continuing Director feature is consistent
with the public policy of Georgia. In enacting both the Georgia Fair Price and
the Georgia Business Combination statutes, the Georgia legislature has
specifically embraced the "continuing director" concept about which Invacare so
bitterly complains.
A. GEORGIA LAW AUTHORIZES THE HEALTHDYNE BOARD TO ADOPT A RIGHTS
PLAN WITH A CONTINUING DIRECTOR FEATURE.
1. PURSUANT TO SS. 14-2-624, THE BOARD HAS THE SOLE
DISCRETION TO ADOPT A RIGHTS PLAN WITH A CONTINUING
DIRECTOR FEATURE.
Invacare argues that the Continuing Director feature of the
Rights Plan violates ss. 14-2-801 because it limits the power of insurgent
directors to redeem the Rights Plan. The short and easy answer to Invacare's
contention is that ss. 14-2-624 expressly provides the Healthdyne Board with the
"sole discretion" tO set the terms or conditions of the Rights Plan and, in the
exercise of that discretion, the Healthdyne Board adopted the Continuing
Director feature. O.C.G.A. ss. 14-2-624 provides:
(a) A corporation may issue rights, options, or warrants with
respect to the shares of the corporation whether or not in
connection with the issu-
20
<PAGE> 29
ance and sale of any of its shares or other securities. The
board of directors shall determine the terms upon which the
rights, options, or warrants are issued, their form and
content the consideration for which they are to be issued, and
the terms and conditions relating to their exercise, including
the time or times, the conditions precedent, and the prices at
which and the holders by whom the rights, options, or warrants
may be exercised.
Subpart (c) of that same section emphasizes that:
[n]othing contained in Code Section 14-2-601 shall be deemed to limit
the board of directors' authority to determine, in its sole discretion,
the terms and conditions of the rights, options, or warrants issuable
pursuant to [ss. 624], and [s]uch terms and conditions need not be set
forth in the articles of incorporation.
O.C.G.A. ss. 14-2-624(c) (emphasis added). Finally the Comment to Section 624
further explains that, "the discretion granted to the board of directors to
issue rights ... and set their terms under subsection (a) is intended to be
limited only by the directors' fiduciary obligations to the corporation."
O.C.G.A. ss. 14-2-624, Comment (emphasis added).
Thus, the clear mandate of the Georgia legislature is that
there is no statutory limitation on the "sole discretion" of a board of
directors to adopt a rights plan and establish the terms and conditions of the
rights.(6) In the exercise of its "sole discretion," the Healthdyne Board
adopted the Rights Plan and established the Continuing Director feature as one
of the
- --------------------------
(6) The two old cases cited by Invacare, Wheeler v. Layman Foundation, 3
S.E.2d 645 (Ga. 1939), and Milton Frank Allen Publications, Inc. v.
Georgia Ass'n of Petroleum Retailers, Inc., 162 S.E.2d 724 (Ga. 1968),
cert. denied, 393 U.S. 1025 (1969), were decided decades before ss.
14-2-624 was enacted and therefore provide no insight into its
interpretation.
21
<PAGE> 30
terms and conditions of the rights.
Nor is Georgia alone among the states in granting wide
discretion to directors in establishing the terms of rights plans. In
Pennsylvania, for example, 15 Pa. C.S. ss. 1525(b) provides that rights plans
"may contain such terms as are fixed by the board of directors...." The
Committee Comment to Section 1525(b) states that "In particular, subsection (b)
validates the type of provision common in shareholder rights plans that requires
the approval of directors not affiliated with a major shareholder before certain
actions can be taken under, or changes made in, the rights plan." Thus, the
comments to Pennsylvania counterpart to ss. 14-2-624 make clear that one of the
terms directors may include in a rights plan is a continuing director provision.
In the face of the straightforward statutory authority cited
above, Invacare responds that the true purpose of ss. 14-2-624 is narrower than
the meaning derived from the plain language of the statute and the official
Comment. Invacare contends that the Court should read an exception into ss.
14-2-624 that precludes a board of directors from adopting a continuing director
feature as one of the terms and conditions of a rights plan. In support of its
narrow interpretation of ss. 14-2-624, Invacare does not cite case authority.
Instead, Invacare cites an affidavit from a law professor, William J. Carney,
who explains his personal view of Georgia law. (See Inv. Brief at 24.)
Healthdyne respectfully submits that the Court should not consider Mr. Carney's
affidavit
22
<PAGE> 31
but should follow the plain meaning of the language of ss. 14-2-624.(7)
However, should the Court wish to consider Mr. Carney's supplemental legal
arguments on behalf of Invacare, then Healthdyne respectfully requests that the
Court consider the counteraffidavit from Mr. George L. Cohen, who was Chairman
of the Georgia Business Corporation Code Revision Committee of the Section of
Corporate and Banking Law of the State Bar of Georgia at the time the 1989
amendments to ss. 14-2-624 were adopted, which rebuts Mr. Carney's affidavit.
In any case, Invacare and Mr. Carney present no reason for the
Court not to follow the plain meaning of ss. 14-2-624, which requires a holding
that the Healthdyne Board has the statutory authority to adopt the terms and
conditions of the Rights Plan, including the Continuing Director feature, at its
sole discretion, and that discretion is limited solely by the directors'
fiduciary duties.
2. INVACARE'S CONTENTION THAT THE CONTINUING DIRECTOR
FEATURE UNLAWFULLY RESTRICTS THE POWERS OF INSUR-
- ------------------------
(7) Although the Carney affidavit is labeled an "affidavit," it is really
a supplemental brief. Most of it just repeats the arguments made in
Invacare's opening brief. In order to give added credibility to this
supplemental brief, Invacare identifies Carney as the Reporter for the
Corporate Code Revision Committee of the State Bar of Georgia from 1986
to 1989. Carney, however, does not mention that experience because such
testimony is not probative of legislative intent. See Jackson v. Delk,
361 S.E.2d 370, 372 (Ga. 1987) (holding testimony of legislator as to
legislative intent is inadmissible); Southern Ry. v. A.O. Smith Corp.,
213 S.E.2d 903 (Ga. Ct. App. 1975) (affidavit from attorney who drafted
legislation cannot be considered in determining legislative intent).
Thus, the Carney affidavit is just 30 pages of duplicative legal
argument and adds nothing to the record before the Court.
23
<PAGE> 32
GENT DIRECTORS IS BASED ON THE LAW OF NEW YORK, NOT
GEORGIA.
In support of its argument that the Continuing Director
feature of the Rights Plan is an illegal limitation on the authority of
insurgent directors, Invacare relies heavily on an older decision applying New
York law, Bank of New York Co. v. Irving Bank Corp., 528 N.Y.S.2d 482 (N.Y. Sup.
Ct. 1988). Important differences between the corporation statutes of Georgia and
New York make Invacare's reliance on the Bank of New York decision misplaced.
In Bank of New York, the New York court held that the "evil"
of a continuing director provision was that it discriminated between continuing
directors and insurgent directors. Id. at 485. The Court held that New York
statutory law requires that any restriction on the powers of the insurgent
directors be placed in the certificate of incorporation. Id. at 485.
The reasoning of the Bank of New York decision provides no
guidance as to interpretation of Georgia law. First, as is explained above,
Section 624 specifically provides that the terms and conditions of a rights plan
need not be set forth in the articles of incorporation. See O.C.G.A.
14-2-624(c).
Second, unlike New York, the public policy of Georgia, as
expressed in its corporate law statutes, does not consider discrimination
against insurgent directors to be "evil." Georgia's Fair Price and Business
Combination statutes expressly endorse discrimination between continuing
directors and insurgent directors as a means of protecting shareholders from
unfair
24
<PAGE> 33
hostile takeover tactics.
Third, corporations in other states, such as Pennsylvania,
have properly concluded post-Bank of New York that directors may include
continuing director provisions in rights plans. Hundreds of companies not
incorporated in New York have adopted such continuing director provisions since
Bank of New York was decided.
a. GEORGIA LAW ENDORSES THE "CONTINUING
DIRECTOR" CONCEPT IN THE FAIR PRICE AND
BUSINESS COMBINATION STATUTES.
Georgia corporate law specifically endorses the "continuing
director" concept in the context of the Georgia Fair Price Statute, O.C.G.A. ss.
14-2-1110, and the Georgia Business Combination Statute, O.C.G.A. ss. 14-2-1133.
Specifically, the Fair Price Statute, at ss. 14-2-1110(6), defines the term
"continuing director"8 and provides that where a vote is needed to approve a
business combination, that business combination must be "(1) [u]nanimously
approved by the continuing directors provided that the continuing directors
constitute at least three members of the board of directors at the time of such
approval; or (2) [r]ecommended by at least two-thirds of the continuing
directors
- ----------------------
(8) "Continuing director" means any member of the board of directors who is
not an affiliate or associate of an interested shareholder or any of
its affiliates, other than the corporation or any of its affiliates or
subsidiaries, and who was a director of the corporation prior to the
determination date, and any such successor to such director who is not
an affiliate or an associate of an interested shareholder or any of its
affiliates, other than the corporation or its subsidiaries, and is
recommended by a majority of all the continuing directors. O.C.G.A. ss.
14-2-1110(6).
25
<PAGE> 34
and approved by a majority of the votes entitled to be cast by holders
of voting shares, other than voting shares beneficially owned by the interested
shareholder who is, or whose affiliate is, a party to the business combination."
O.C.G.A. ss. 14-2-1111. Alternatively, the merger must meet each of the four
conditions specified at ss. 14-2-1112(b). Thus, in the Fair Price Statute, the
Georgia legislature dispelled any notion that the continuing director concept is
somehow violative of Georgia public policy.
The Georgia Business Combination Statute similarly provides
that a by-law opting into the statute cannot be repealed without "the
affirmative vote of at least two-thirds of the continuing directors...." Thus,
the Georgia legislature has repeatedly affirmed the importance from the
standpoint of public policy of the continuing director concept as a means of
protecting shareholder rights.(9)
Invacare argues that the Continuing Director feature of the
Rights Plan differs from the Georgia statutes because the Georgia statutes do
not preclude a proxy contest which would allow the stockholders to replace the
board. The short answer is that the Rights Plan also permits a proxy contest to
replace the entire board, so long as no participant has announced an inten-
- ------------------------
(9) The Business Combination Statute prohibits a business combination with
an interested stockholder, except under designated circumstances, for a
period of five years. The definition of continuing director is the same
for both the Fair Price and Business Combination statutes, although
differences in the definition of "beneficial owner" in the statutes may
lead to different results. See O.C.G.A.
ss.ss. 14-2-1110(4), (6); 14-2-1131(1).
26
<PAGE> 35
tion to become an Acquiring Person. (Margotta Aff. P. 29) If an Acquiring Person
is involved, the Rights Plan then allows the Continuing Directors to play a role
in assuring fairness to all. Moreover, even if an Acquiring Person is involved,
a majority of the directors can still be replaced, thereby allowing control to
pass to the Acquiring Person. (Rights Plan P. 23, Bowler Aff. Ex. N)
Invacare also argues that the continuing director provisions
of the statutes were adopted by the legislature while Healthdyne's Rights Plan
was adopted by its Board. (Inv. Brief at 25) The flaw in this argument has
already been discussed at length. Section 14-2-624 grants the Board the
authority to set the terms and conditions of a Rights Plan in its sole
discretion.
None of these purported distinctions alter the conclusion that
Georgia corporation law, as a matter of policy, embraces the "continuing
director" concept. The common purpose of the statutory continuing director
provisions and the Continuing Director feature of the Rights Plan is obvious --
both recognize that the decision to remove takeover defenses should be made by
independent "continuing directors" instead of the hostile acquiror's insurgent
directors.
Invacare further contends that its nominees will be continuing
directors for the purposes of the Fair Price and Business Combination Statutes.
Invacare is not only wrong in its interpretation of the Fair Price Statute, but
its contention is beside the point. No party has requested a ruling regarding
the
27
<PAGE> 36
application of either of these statutes to the Invacare Proposal. Healthdyne
cites these statutes only to show that the general policy of Georgia corporate
law embraces the "continuing director" concept. This holds true even under
Invacare's interpretation of the statutes. For example, Invacare would agree
that where a hostile acquiror indisputably owns 11% of a corporation's stock,
the Fair Price and Business Combination Statutes discriminate against that
hostile acquiror's insurgent directors in favor of continuing directors, even if
the insurgent directors receive overwhelming support from the other 89% of the
shareholders. Thus, as a policy matter, the Fair Price and Business Combination
Statutes do not reject the benefits of the "continuing director" concept where
the insurgent directors are voted into office by a majority of the public
shareholders.
Invacare argues that under the present circumstances, the Fair
Price Statute does not apply to its proposal because it will not become an
"interested shareholder" (as that term is defined in ss. 14-2-1110(11)) until
after its nominees are elected (assuming for the purposes of argument that
Invacare successfully elects its nominees). Therefore, according to Invacare,
its directors will be "continuing directors" under the Fair Price Statute.
Invacare's interpretation of the Fair Price Statute is demonstrably incorrect.
Section 14-2-1110(11)(1) defines an "interested shareholder"
as any person that is "the beneficial owner of 10 percent or more of the voting
power of the outstanding voting shares of
28
<PAGE> 37
the corporation." Pursuant to ss. 14-2-1110(4), Invacare will be considered the
"beneficial owner" of all of the shares tendered to it in its tender offer and
all of the shares for which it holds proxies because it will have the "right to
acquire" or the "right to vote" those shares. See O.C.G.A. ss.
14-2-1110(4)(B)(i), (ii). There is no exception for stock tendered pursuant to a
tender offer prior to its acceptance for purchase, or for voting rights arising
solely from revocable proxies. In contrast, the Business Combination Statute
adopts the definition of "beneficial owner" in the Fair Price Statute, but
explicitly carves out shares held pursuant to revocable proxies and tender
offers from the definition for its purposes. O.C.G.A. ss. 14-2-1131(1). Thus,
under the Fair Price Statute's definitions, Invacare will be an interested
shareholder if and when its nominees are elected, and its nominees will not be
continuing directors.(10)
- ------------------------
(10) Invacare contends that the explicit differences between the definition
of "beneficial owner" in the Fair Price and Business Combination
Statutes should be ignored and the definition treated the same for both
statutes. (See Inv. Brief at 26 n.7) Invacare provides no authority for
reading the explicit distinction between the two statutes out of the
GBCC. Instead, Invacare makes several convoluted arguments. Invacare
cites cases that define the term "beneficial owner" in different
contexts, such as a federal statute adopted for a different purpose.
(See id.) Invacare may also argue in reply that the inclusion of
proxies and tendered shares within the definition of "beneficial owner"
would mean that virtually no hostile acquiror can satisfy the Fair
Price exception of ss. 14-2-1112(b) because that exception requires
that an interested shareholder's "percentage ownership of any class or
series of shares of the corporation" cannot increase by more than 1
percent in any 12 month period. This is simply incorrect. The statutory
definitions of beneficial ownership with respect to revocable proxies
focus on the "right to vote." The holder of a revocable proxy would not
acquire the "right to vote" the proxy until the
29
<PAGE> 38
In short, the "continuing director" provision of the Fair
Price Statute and the Continuing Director feature of the Rights Plan serve the
same purpose: they both ensure that where a hostile offeror conducts a proxy
contest in support of its tender offer, its insurgent directors cannot remove
the corporation's takeover defenses without the support of independent
continuing directors.
III. THE HEALTHDYNE BOARD'S USE OF THE CONTINUING DIRECTOR FEATURE OF THE
RIGHTS PLAN DOES NOT VIOLATE ITS FIDUCIARY DUTIES AS A MATTER OF LAW.
(..continued)
time of a stockholders meeting. Thus, for example, if Invacare appeared
at the meeting with valid proxies for 60% of the stock (which is
unlikely), it would be prohibited thereafter from going above 61%
ownership. However, various statutory options available under the Fair
Price statute would still exist.
Similarly, the definition of beneficial ownership relating to stock
tendered focuses upon the "right to acquire" the stock. A tender
offeror would possess the "right to acquire" tendered shares once it
was in a position to promptly satisfy or waive the material conditions
to its tender offer. Thus, for example, if Invacare were to accept
tenders of 60% of the stock (which is unlikely), it could not
thereafter acquire ownership of 61%. Again, however, various options
under the Fair Price statute would still exist.
In short, Invacare's attempts to distinguish away the work of the
Georgia legislation is plainly ineffective. The conclusion is
inescapable -- continuing director features are lawful, enforceable,
and fully consistent with the law of Georgia.
30
<PAGE> 39
Invacare claims that the Healthdyne Board's adoption of a
Rights Plan with a Continuing Director feature violates the directors' fiduciary
duties as a matter of law, regardless of the manner in which the Board uses the
Continuing Director feature. Invacare's attempt to fashion a per se rule that a
continuing director feature of a rights plan violates Georgia's standards of
fiduciary duty is meritless.
Under Georgia law, directors satisfy their fiduciary duties
when they make a good faith decision in an informed and deliberate manner. In re
Munford, Inc., 98 F.3d 604, 611 (11th Cir. 1996). See also O.C.G.A. ss.
14-2-830. The Healthdyne Board has satisfied that standard here. After hearing
detailed presentations from its financial and legal advisors, the Board decided
to leave the Rights Plan and its Continuing Director feature in place in
response to Invacare's grossly inadequate offers. (See Reynolds Aff. P. P. 4-8;
Valdez Aff. passim.)
Invacare does not attempt to rebut the evidence showing that
the Board has acted in good faith and in the best interests of the corporation.
Instead, Invacare contends that the Board's adoption of the Continuing Director
feature violates the directors' fiduciary duties as a matter of law even if the
directors acted in good faith. (See Inv. Brief at 29.) Invacare ignores the
Georgia standard for conduct of directors, which "focus[es] on the manner in
which the director performs his duties, not the correctness of his decisions."
O.C.G.A. ss. 14-2-830, Comment. The Western District of Virginia has determined
that a
31
<PAGE> 40
very similar Virginia statute, Va. Code ss. 13.1-690,(11) establishes a
process-oriented standard for director conduct, not the substantive standard
formulated by the Delaware Supreme Court in Unocal Corp. v. Mesa Petroleum Co.,
493 A.2d 946, 954-55 (Del. 1985). WLR Foods, Inc. v. Tyson Foods, Inc., 857 F.
Supp. 492, 493-94 (W.D. Va. 1994), aff'd, 65 F.3d 1172 (4th Cir. 1995), cert.
denied, 116 S. Ct. 921 (1996). Thus, ss. 14-2-830(a) compels the Court to
respect the Board's good faith business judgment that the Continuing Director
feature of the Rights Plan serves the best interests of the corporation. See
O.C.G.A. ss. 14-2-830(a)(1); Munford, 98 F.3d at 611.
- -------------------------
(11) Section 13.1-690 of the Virginia Code provides: "A director shall
discharge his duties as a director, including his duties as a member of
a committee, in accordance with his good faith business judgment of the
best interests of the corporation."
32
<PAGE> 41
Relying on Delaware cases, Invacare argues that the Board must
show a "compelling justification" for its actions because they allegedly
infringe upon shareholder voting rights;(12) and that the Board's decision is
invalid because the Continuing Director feature of the Rights Plan is allegedly
"coercive and preclusive."(13) The Delaware cases relied upon by Invacare are
inconsistent with the standard for director conduct set forth in ss. 14-2-830
and have never been adopted by a Georgia court. Even assuming those cases apply
in Georgia, the Continuing Director feature does not infringe on shareholder
voting rights nor is it coercive or preclusive.
A. THE CONTINUING DIRECTOR FEATURE OF THE RIGHTS PLAN DOES NOT
INFRINGE ON SHAREHOLDER VOTING RIGHTS.
Invacare's argument that the Continuing Director feature
infringes on shareholder voting rights is based on a false premise. The
Continuing Director feature does not prevent the shareholders from expressing
their desire to change the management direction of the corporation by replacing
the board of directors. The Continuing Director feature merely limits the
authority of insurgent directors in one capacity -- they cannot redeem the
Rights Plan without the support of the continuing directors. As noted above,
Georgia law endorses the "continuing director" concept as a means of protecting
shareholder interests.
- ---------------------------
(12) See Blasius Indus. v. Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988).
(13) See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
33
<PAGE> 42
Despite Invacare's rhetoric, the shareholders are not forced
into re-electing the old board of directors in order to avoid electing a weak
new board that could never redeem the Rights Plan. Invacare could have proposed
(and still can propose) a slate of directors to replace a majority of the board,
which would have given the insurgent directors the opportunity to acquire
management control of the corporation while leaving a minority of Continuing
Directors in place so that the Rights Plan could be redeemed. Those Continuing
Directors would not be allowed to obstinately refuse to redeem the Rights Plan
- -- their fiduciary duties would require them to redeem the rights if they
determined that a sale of the Company would be in the best interest of
stockholders. In all likelihood, the principal effect of the presence of the
continuing directors would be to cause Invacare to put its best price on the
table or to force Invacare's nominees to shop the Company in order to obtain a
fair price despite their allegiance to Invacare.
34
<PAGE> 43
The case Invacare relies upon, Blasius Indus., 564 A.2d at
659, does not support its contention that rights plans with continuing director
provisions are per se violations of fiduciary duty. Blasius involved a board's
actions which prevented the shareholders from changing the management direction
of the corporation by electing a new majority to the board of directors. Id. at
658. Here, the shareholders are free to change the majority of the board of
directors while still leaving Continuing Directors in place who have the
authority to redeem the Rights Plan. In fact, the shareholders can replace the
entire board if they choose, although that would limit the new board's ability
to approve a sale of the Company. In light of the support for the continuing
director concept in the public policy of Georgia, as expressed in Georgia's
statutory corporation law, a Delaware decision based on entirely different
factual circumstances provides no grounds for a ruling that the Continuing
Director feature of the Rights Plan is a per se violation of Georgia law.
B. THE CONTINUING DIRECTOR PROVISION SERVES THE BEST
INTERESTS OF THE SHAREHOLDERS AND IS NEITHER COERCIVE
NOR PRECLUSIVE.
35
<PAGE> 44
Invacare's final argument is that the Continuing Director
feature of the Rights Plan is coercive and preclusive (regardless of how it is
applied) and therefore its very adoption was a breach of fiduciary duty. Once
again, Invacare's contention is based on a false premise. Invacare's nominees
can take control of the Healthdyne Board while still leaving Continuing
Directors in place to redeem the Rights Plan. If and when the Continuing
Directors decide to redeem the Rights Plan, then the barrier to a takeover will
be removed. In addition, if, under the circumstances, the Continuing Directors'
refusal to redeem the Rights Plan is undertaken in bad faith, then a court can
order the Continuing Directors to redeem the Rights Plan and the barrier to a
takeover would be removed.(14) The Continuing Director feature poses no
permanent bar to an Invacare-Healthdyne combination.
The record reveals that the Board has used the Rights Plan and
its Continuing Director feature to serve the interests of Healthdyne's
shareholders. The Board's conduct has thus far prevented Invacare from
succeeding with its lowball bargaining strategy. If elected, the Invacare
nominees admit that they would remove all obstacles to Invacare's offer without
soliciting bids from any other potentially interested party. Thus, without
- --------------------------
(14) In the unlikely event that the Invacare nominees are elected at the
shareholders meeting, and assuming the continuing directors thereafter
refuse to redeem the Rights Plan, Invacare may challenge the Continuing
Directors' decision in court. That claim is based on hypothetical
circumstances and is certainly not ripe.
36
<PAGE> 45
the protections provided by the Rights Plan and its Continuing Director feature,
Invacare stands a chance to acquire Healthdyne if Invacare's proxy contest
succeeds through shareholder ignorance or mistaken belief as to the value of
Healthdyne. The Board's good faith response to Invacare's plan -- reliance on
the Continuing Director feature of the Rights Plan -- ensures that Healthdyne
will not be sold for less than its full value.
37
<PAGE> 46
In summary, the Healthdyne Board has appropriately protected
shareholder interests in adopting and employing the Rights Plan and its
Continuing Director feature.
IV. THE LACK OF IRREPARABLE HARM AND THE BALANCE OF THE EQUITIES
FAVOR DENIAL OF INVACARE'S REQUEST FOR MANDATORY INJUNCTIVE RELIEF.
Invacare contends that it will be irreparably harmed unless
the Continuing Director feature is enjoined. In support of this contention,
Invacare submits the affidavit of Thomas R. Miklich, Invacare's General Counsel
and CFO, who explains that the opportunity to acquire Healthdyne is "a unique
opportunity for Invacare." (Miklich Aff. at P. 4) While Healthdyne concurs that
Invacare will greatly benefit if its scheme to acquire Healthdyne at a bargain
price succeeds, that assertion does not provide support for a preliminary
injunction against Healthdyne's Board. The Board does not owe fiduciary duties
to Invacare as a tender offeror. See Newell Co. v. Vermont Am. Corp., 725 F.
Supp. 351, 368 (N.D. Ill. 1989). To the contrary, Invacare's interests are
adverse to the interests of the shareholders for whom the Board serves --
Invacare wants to acquire Healthdyne at the lowest possible price while the
shareholders want to maximize the value of their investment. Invacare does not
need this Court's intervention to avoid losing its "unique opportunity" to
acquire Healthdyne -- it only has to make a fair offer.
Healthdyne's shareholders other than Invacare do not face any
risk of injury if Invacare's request for relief is denied. First, any
shareholder who wants to recover a "premium"
38
<PAGE> 47
price for his investment has had the option of selling into the market at a
price that has been consistently higher than Invacare's offers -- in fact the
shareholders have had that option for months. Second, any shareholder who wants
to change the management direction of the corporation can do so by voting in
favor of the Invacare nominees instead of the incumbent directors. Because
Invacare wants the upcoming election to look unfair, the present slate of
Invacare nominees would replace the entire Board, thereby removing from the
Board the power to redeem the Rights Plan. Nevertheless, Invacare could have
proposed a slate of nominees that would allow the shareholders to change
management control of the Board but still leave a minority of Continuing
Directors in place so that the Rights Plan could be redeemed. If that
hypothetical situation occurs, the Continuing Directors would continue to serve
the interests of shareholders by acting as independent fiduciaries with the
responsibility of representing the disaggregated shareholders in their arms
length bargaining with Invacare.
Finally, the public interest favors denial of the requested
mandatory injunction. The public policy of Georgia, as expressed in its
corporation statutes, contemplates an active role for the board of directors in
responding to a hostile takeover and endorses the "continuing director" concept
as a means to protect shareholder interests. An order invalidating the
Continuing Director feature of the Rights Plan would be inconsistent with the
public policy of Georgia.
39
<PAGE> 48
CONCLUSION
For all the reasons stated herein, Invacare's motion for a
preliminary injunction should be denied.
Respectfully submitted,
TROUTMAN SANDERS LLP
/s/ Winifred D. Simpson
---------------------------
Winifred D. Simpson
Georgia Bar No. 648275
John M. Bowler
Georgia Bar No. 071770
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
(404) 885-3000
ATTORNEYS FOR DEFENDANTS
Of Counsel
Edward P. Welch
Andrew J. Turezyn
Paul J. Lockwood
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
40
<PAGE> 49
EXHIBIT 49
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
- --------------------------------x
IN RE HEALTHDYNE TECHNOLOGIES, Civil Action No.
INC. SHAREHOLDER LITIGATION 1-97-CV-0349-CC
- --------------------------------x Civil Action No.
THIS DOCUMENT RELATES TO: 1-97-CV-0349-CC
1-97-CV-0351-CC
1-97-CV-0381-CC
- --------------------------------x
DEFENDANTS' MEMORANDUM OF LAW IN
OPPOSITION TO THE CLASS ACTION PLAINTIFFS'
MOTION FOR PRELIMINARY INJUNCTION
INTRODUCTION
Plaintiffs in the class actions claim to be shareholders of
Healthdyne. They say that they will represent the class of Healthdyne
shareholders, but have never taken any action to seek class certification. More
importantly, however, the arguments they make in their memorandum of law appear
to be directly contrary to the interests of the other Healthdyne shareholders.
In the first paragraph of their brief, they complain that they
have been deprived of the opportunity to "realize fully" the benefits of their
investment in the company. Perhaps they refer to Invacare's $12.50
<PAGE> 50
offer that the Healthdyne board rejected. Presumably, however, the other
shareholders in the class would have preferred the $13 offer that the Healthdyne
board next received because the Rights Plan was there to prevent unfairness. The
other Healthdyne shareholders no doubt would also have favored the $13.50 offer
that was next made, again because the Rights Plan -- and the Healthdyne board --
stood in the way of unfair offers.
It is important to keep in mind that all of the colorful
rhetoric and claims of breach of duty generated in plaintiffs' memorandum were
produced prior to the $15 offer which Invacare next made on June 4, 1997. Again,
one would assume that the other Healthdyne shareholders would prefer the $15
offer, rather than the lower offer which was in effect when plaintiffs' brief
was filed demanding that the Healthdyne board surrender to Invacare.
In short, the demand by plaintiffs that Healthdyne be ordered
to dismantle its defenses and surrender to Invacare makes no sense and is
contrary to the interests of the class they purport to represent. The motion
should be denied.
2
<PAGE> 51
ARGUMENT
THE MOTION FOR PRELIMINARY INJUNCTION SHOULD
BE DENIED.
Because the plaintiffs' brief does not raise any legal issues
not already raised by Invacare, defendants primarily rely on their Opposition
Brief in Civil Action No. 97-CV-0205 ("Opp. Brief") as their response to
plaintiffs' brief. However, a number of points do require a short response.
The record in this litigation underscores the undisputable
success of the Healthdyne board of directors in using its Rights Plan to prevent
unfair offers and in generating ever greater offers. Moreover, the process is
not over. Invacare's June 4 press release, a copy of which is attached to the
Bowler Affidavit, suggests that Invacare may pay even more if Healthdyne is able
to substantiate greater value. (Bowler Aff. Ex. C) That will only happen if the
Healthdyne board continues to use the Rights Plan, including the challenged
Continuing Director feature, to benefit the interests of shareholders.
Plaintiffs' rhetoric is particularly heavy-handed with respect
to the colorful and utterly inappli-
3
<PAGE> 52
cable "dead hand" label they attempt to pin on the Continuing Director feature
in the Rights Plan. In specifically approving such features in two separate
statutes, the Georgia legislature used the term "Continuing Director," and
authorized such directors to play an important role in responding to the tactics
of hostile acquirors. See the Georgia Fair Price Statute, O.C.G.A. ss.
14-2-1110, and the Georgia Business Combination Statute, O.C.G.A. 14-2-1133.
That decision of the Georgia legislature should be respected here, and the "dead
hand" label should be recognized for what it is -- a transparent effort to
replace substance with rhetoric.
The plaintiffs' heavy reliance on the Bank of New York
decision also clearly signals the fact that they would prefer that New York law
applied and that this Court was a New York court. See Bank of New York Co. v.
Irving Bank Corp., 528 N.Y.S.2d 482 (N.Y. Supr. Ct. 1988) That case is simply
inapplicable. The Bank of New York court concluded that Continuing Director
features were "evil" under New York law -- while the Georgia legislature reached
exactly the opposite conclusion in approving such provisions under Georgia law.
Bank of New York also concluded that, to be valid, a Continuing Director
provision had to be included in a corporation's Certificate of
4
<PAGE> 53
Incorporation -- while the Georgia legislature again reached the opposite
conclusion in approving the Georgia Rights Plan Statute (which gives directors
the "sole discretion" to determine the contents of Rights Plans, and emphasizes
that the terms need not be set forth in the Articles of Incorporation).
The plaintiffs' attempts to explain away the clear intent of
the Georgia legislature simply do not work. The Georgia legislature has created
a set of statutory tools to be used by directors of target corporations which
are clear, concise and modern. There is no reason to measure cutting edge
Georgia statutes against a throw-back 1980's version of New York law.
Plaintiffs' claim that the directors of Healthdyne somehow
benefit by "entrenching" themselves in office also makes no sense. As a group,
the directors of Healthdyne own 12.5 percent of the outstanding stock.
(Healthdyne 1996 Form 10-KA Amendment No. 1 at 11, Bowler Aff. Ex. O) They have
a large personal financial stake in the decision to accept or reject the
Invacare offer.(1)
- ------------------------
(1) Each director of Healthdyne would receive the following amounts of
money from Invacare's $13.50 offer (and even more from the revised
$15.00 offer):
Parker H. Petit $11,702,597
Craig Reynolds 2,234,345
5
<PAGE> 54
Parker H. Petit, the Chairman of Healthdyne, is the second largest shareholder
of Healthdyne, with a 6.8 percent interest in the Company. (Id. at 11, 12) In
contrast to his large interest in Healthdyne as a shareholder, Mr. Petit draws
only $50,000 per year for his services as Chairman of Healthdyne plus office
expenses. (Id. at 8) The remaining directors, with the exception of Craig
Reynolds, who receives a salary as CEO, receive only directors' fees of $12,000
per annum plus $1,000 for each board meeting and $750 for each committee meeting
attended. (Id. at 7) Thus, as a result of their legal duties to the shareholders
and their own self interest, the directors of Healthdyne have every interest in
maximizing the value of Healthdyne's stock.
Plaintiffs, however, do not appear interested in maximizing
the return on their investment, since they have advocated surrender to Invacare
at $13.50, well below Invacare's current offer. Moreover, they did not
(..continued)
J. Terry Dewberry 1,700,717
Alexander H. Lorch 186,624
J. Leland Strange 90,005
James J. Wellman, M.D. 60,008
J. Paul Yokubinas 1,425,060
(Source: Beneficial ownership reported in 1996 Form
10-KA times $13.50)
6
<PAGE> 55
have to sue to sell their investment in Healthdyne for $13.50. Since January,
with the exception of a few days, they could have sold into the market for
significantly more than $13.50. (See Valdez Aff. Ex. C (chart of Healthdyne's
stock price since January 10, 1997)) On May 23, they could have sold for as much
as $15.00. (Id.) And on June 4, they could have sold for $15.50, even more than
Invacare's current offer. Thus, plaintiffs' demand for an order enjoining the
Continuing Director feature of the Rights Plan in order to allow them to accept
the below market $13.50 offer (at the time of the filing of their brief) is
simply irrational.(2)
Plaintiffs' actions are obviously not designed to maximize the
return on their investments or advance the interests of the class. It is
understandable that Invacare would want to buy Healthdyne as cheaply as
possible, but there is no logical reason why Healthdyne's
- ------------------------
(2) The Delaware Court of Chancery, which has extensive experience with
shareholder litigation, has noted that such suits are often settled for
"a peppercorn and a fee." Solomon v. Pathe Communications Corp., C.A.
No. 12563, 1995 WL 250374, at *4 (Del. Ch. Apr. 21, 1995), aff'd, 672
A.2d 35 (Del. 1996). Similar concerns led Congress to pass the Private
Securities Litigation Reform Act of 1995. S. REP. NO. 104-98, at 4
(1995), reprinted in 1995 U.S.C.C.A.N. 679, 683; H.R. CONF. REP. NO.
104-369, at 31-32 (1995), reprinted in 1995 U.S.C.C.A.N 730, 730-31.
7
<PAGE> 56
shareholders would want to sell out at a low price. As set forth above and in
Healthdyne's brief in opposition to Invacare's motion, none of the claims they
raise are supported under Georgia law, and none make any sense from the
standpoint of the Healthdyne stockholders. Should any motion for class
certification ever be filed, these plaintiffs should not be certified as
representatives. In any event, the motion for a preliminary injunction should be
denied.
CONCLUSION
For the reasons set forth herein and in Defendants' Brief In
Opposition To Plaintiffs' Motion For Preliminary Injunction in Civil Action No.
97-CV-0205, Plaintiffs' motion should be denied.
Respectfully submitted this 9th day of July, 1997.
TROUTMAN SANDERS LLP
/s/ Winifred D. Simpson
------------------------------------
Winifred D. Simpson
Georgia Bar No. 648275
John M. Bowler
Georgia Bar No. 071770
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
(404) 885-3000
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
8
<PAGE> 57
(SIGNATURES CONTINUED FROM PREVIOUS PAGE)
Of Counsel
Edward P. Welch
Andrew J. Turezyn
Paul J. Lockwood
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
ATTORNEYS FOR DEFENDANTS
9
<PAGE> 58
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
- --------------------------------x
IN RE HEALTHDYNE TECHNOLOGIES, Civil Action No.
INC. SHAREHOLDER LITIGATION 1-97-CV-0349-CC
- --------------------------------x Civil Action No.
THIS DOCUMENT RELATES TO: 1-97-CV-0349-CC
1-97-CV-0351-CC
1-97-CV-0381-CC
- --------------------------------x
CERTIFICATE OF SERVICE
I hereby certify that I have this day served a copy of the
foregoing DEFENDANTS' MEMORANDUM OF LAW IN OPPOSITION TO THE CLASS ACTION
PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION upon the interested parties by the
following means addressed as follows:
VIA TELECOPY AND HAND DELIVERY
Martin Chitwood
Christi C. Mobley
APPEL, CHITWOOD & HARLEY
400 Resurgens Plaza
45 East Paces Ferry Road
Atlanta, Georgia 30326
This 9th day of June, 1997.
/s/ John M. Bowler
------------------------
John M. Bowler
10
<PAGE> 59
EXHIBIT 50
HEALTHDYNE TECHNOLOGIES, INC.
CONTACT: M. WAYNE BOYLSTON
(770) 499-1212
HEALTHDYNE TECHNOLOGIES REJECTS
INVACARE'S LATEST OFFER
FOR IMMEDIATE RELEASE
Marietta, Georgia, June 11, 1997 -- Healthdyne Technologies, Inc.
(Nasdaq: HDTC) announced today that its Board of Directors has unanimously
rejected the latest unsolicited offer by Invacare Corporation (Nasdaq: IVCR) to
purchase Healthdyne Technologies.
In rejecting Invacare's latest offer, the Board considered a variety of
factors, including the opinion of Cowen & Company that the $15.00 per share
price offered by Invacare is grossly inadequate. "After reviewing the progress
we are making on our strategic plan and receiving input from our financial
advisors, the Board feels that Invacare's increased offer has failed to keep up
with our exceptional performance and does not reflect an acquisition premium,"
commented Parker H. Petit, Healthdyne Technologies' Chairman of the Board. "Our
stock has traded within this range in the last year even prior to the
announcement of our new strategic plan. We believe that $15 is still too low and
does not represent the fair value of our Company, as evidenced by recent reports
from analysts who follow the Company."
Healthdyne Technologies' Board also reaffirmed its decision not to sell
or merge the Company, maintaining that the Company offers greater growth
potential for shareholders on a stand-alone basis.
Healthdyne Technologies designs, manufactures and markets
technologically advanced medical devices for use in the home, as well as other
specialized clinical settings. The Company's products include diagnostic and
therapeutic devices for the evaluation and treatment of sleep disorders,
non-invasive ventilators, oxygen concentrators and medication nebulizers for the
treatment of respiratory disorders, monitors for infants at risk for SIDS, and
products for asthma management.
<PAGE> 60
This press release contains forward-looking statements that involve
risks and uncertainties, including developments in the healthcare industry,
development and introduction of new products on a timely basis, favorable
resolution of intellectual property matters, third-party reimbursement policies
and practices and regulatory requirements affecting the approval and sale of
medical devices, as well as other risks detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission, including
its Reports on Form 10-K, 8-K and 10-Q.
PARTICIPANT INFORMATION
In addition to Healthdyne Technologies, other participants in any proxy
solicitation by Healthdyne Technologies in connection with its 1997 annual
meeting may include the following directors and executive officers of Healthdyne
Technologies: Parker H. Petit, Chairman of the Board; Craig B. Reynolds,
President, Chief Executive Officer and Director; J. Terry Dewberry, Director;
Alexander H. Lorch, Director; J. Leland Strange, Director; James J. Wellman,
M.D., Director; J. Paul Yokubinas, Director; Robert M. Johnson, Senior Vice
President-Business Development; John L. Miclot, Senior Vice President-Sales and
Marketing; Robert E. Tucker, Senior Vice President-Operations; M. Wayne
Boylston, Vice President-Finance, Chief Financial Officer and Treasurer; Leslie
R. Jones, Vice President, General Counsel and Secretary; and Jeffrey A. North,
Corporate Controller. The above-referenced individuals beneficially own an
aggregate of 1,593,092 shares of Healthdyne Technologies' common stock
(including shares underlying vested options). Healthdyne Technologies has
retained Morrow & Co., Inc. to act as information agent and proxy solicitor in
connection with the Invacare offer for customary fees. Although Cowen & Company
("Cowen"), which is acting as financial advisor to Healthdyne Technologies in
connection with the Invacare offer, does not admit that it or any of its
directors, officers, employees or affiliates is a "participant," as defined in
Schedule 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, or that such Schedule 14A requires
the disclosure of certain information concerning them, the following employees
of Cowen may assist Healthdyne Technologies in such a solicitation: Robert D.
Valdez (Managing Director) and Ned Brown (Managing Director). Cowen will receive
customary financial advisor fees, reimbursement and indemnification from
Healthdyne Technologies in connection with the Invacare offer. Cowen will not
receive any additional fee for or in connection with assisting in any
solicitation of proxies. Cowen engages in a full range of investment banking,
research, sales, trading, market-making, brokerage, asset management and
correspondent clearing services for institutional and individual clients. In the
ordinary course of its business, Cowen maintains customary arrangements and
effects transactions in the securities of Healthdyne Technologies for the
accounts of its customers. As a result of its engagement by Healthdyne
Technologies, Cowen has restricted its proprietary trading in the securities of
Healthdyne Technologies (although it may still execute trades for customers on
an unsolicited agency basis).
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