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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the fiscal year ended December 31, 1996,
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the transition period
from __________________________ to __________________________
COMMISSION FILE NUMBER 0-21776
HEALTHDYNE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Georgia 52-1756497
(State or other Jurisdiction of (IRS Employer ID No.)
Incorporation or Organization)
1255 Kennestone Circle
Marietta, Georgia 30066
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (770) 499-1212
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock $.01
per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K: [ X ]
The aggregate market value of the registrant's common stock (based upon the
mean of the closing high and low sales price reported by NASDAQ and published
in the Wall Street Journal) held by non-affiliates as of March 14, 1997, was
approximately $154,528,241.
The registrant had 12,726,866 shares of its common stock outstanding as of
March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's proxy statement relating to the 1997 Annual
Meeting of Shareholders are incorporated by reference in Part III of this
Report.
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PART I
ITEM 1. BUSINESS
BACKGROUND; OVERVIEW OF BUSINESS
Healthdyne Technologies, Inc. (the "Company") designs, manufactures, and
markets technologically advanced medical devices for use in the home and
hospital as well as for specialized clinical settings such as subacute
facilities, neonatal intensive care units ("NICU"), sleep laboratories, clinics
and physician offices ("Alternate Care Sites"). The Company's principal
products include diagnostic and therapeutic devices for the evaluation and
treatment of sleep disorders, such as obstructive sleep apnea; peak flow meters
and drug delivery devices for the treatment of asthma; oxygen delivery systems,
medication nebulizers, and pressure support non-invasive ventilators for the
treatment of respiratory disorders; and monitoring devices for newborns and
infants at risk for critical disorders such as Sudden Infant Death Syndrome
("SIDS") and jaundice. The Company has established itself as one of the
leaders in sales of medical devices in the market for the diagnosis and
treatment of sleep disorders through its development of advanced technologies
which enable the analysis and treatment of sleep disorders in the home and in
sleep labs. In addition, the Company is one of the leaders in the respiratory
care market, based on its sales of products for treatment in the home of a
variety of respiratory disorders. The Company is also the leading supplier of
home monitoring devices for infants at risk for SIDS and is engaged in the
development and manufacture of several additional product lines complementary
to its focus on home care and Alternate Care Sites, including fetal monitoring
during labor and delivery and non-invasive detection of bilirubin.
The Company was originally established as part of Healthdyne, Inc.
("Healthdyne") to develop and manufacture technologically advanced medical
products primarily for the home care market. In 1978, the Company introduced
the first commercially available product for the home monitoring of infants at
risk for SIDS. Since then, the Company has continued to expand its product
lines through the development and acquisition of specialized medical
technologies which address home care and other Alternate Care Sites needs,
thereby promoting high quality, cost-effective care.
Since 1988, the Company has increasingly focused on the development of
innovative products for the sleep disorders and respiratory care
markets. It is currently estimated that over forty million adults in the
United States suffer from sleep disorders, including approximately six million
adults who suffer from severe obstructive sleep apnea, a chronic disorder with
potentially debilitating side effects. According to the National Commission on
Sleep Disorders Research, cardiovascular deaths attributable to obstructive
sleep apnea may be as high as 38,000 annually in the United States. The Company
is currently one of the leading providers of specialized devices to the sleep
disorders and respiratory care markets.
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The Company believes that the markets for home-based medical products and
health care services, particularly for sleep disorders, ventilation, and asthma
management, will continue to experience strong growth as a result of several
factors, including: (i) the increasing focus on health care cost containment;
(ii) the increasing application of advanced technologies to develop products
specifically designed for use in the home and Alternate Care Sites; and (iii)
the emerging preference among clinicians and payors to transition patients from
higher cost institutional care settings to lower cost settings, such as
subacute facilities and the home.
The Company is pursuing a strategy of leveraging its existing position as
a market leader to expand into related markets with products designed to
provide more cost-effective care in lower cost settings. This strategy
involves:
(1) acquiring and developing proprietary technologies that provide
solutions for chronic high cost diseases and costly medical procedures;
(2) recruiting or partnering with personnel and other companies with a
proven record of successful product and market development;
(3) strengthening and reorganizing its distribution in combination with
the formation of strategic distribution alliances where necessary; and
(4) transitioning products away from commodity-based applications and
toward innovative designs that would provide cost savings to customers and
higher gross margins to the Company.
The Company was incorporated in Georgia on January 11, 1993 as a
wholly-owned subsidiary of Healthdyne. Prior to that time, the Company
operated as the manufacturing division (the "Technologies Division") of
Healthdyne. On June 22, 1993, the Company consummated its initial public
offering, pursuant to which a 19% equity interest was sold, with Healthdyne
retaining an 81% interest in the Company.
On May 22, 1995, Healthdyne consummated a transaction pursuant to which
the 10,000,000 shares of the Company's Common Stock owned at that time
by Healthdyne were distributed to Healthdyne's shareholders as a tax-free
dividend (the "Spin-off"). Effective March 8, 1996, Healthdyne merged with
Tokos Medical Corporation to form Matria Healthcare, Inc. ( " Matria" ). All
references to Matria herein shall include reference to its predecessor,
Healthdyne. Except for certain agreements, including a Distribution
Agreement, a License Agreement for the continued use by the Company of the name
"Healthdyne", and Tax Sharing and Indemnification Agreements necessary to
accomplish the Spin-off and establish the respective rights and obligations of
the parties, and continued utilization at the Company's option of certain
administrative services and insurance programs, as well as the manufacture and
sale of obstetrical
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care products to Matria, the Company will conduct its business
separately from Matria in the future.
Unless the context otherwise requires, references herein to the "Company"
or Healthdyne Technologies include the Company, its subsidiaries, Healthdyne
International, S.A., Apreco Technologies, S.A., Healthdyne U.K. Limited,
HealthScan Products, Inc., Fiberoptic Medical Products, Inc., and the Company's
predecessor, the Technologies Division.
RECENT DEVELOPMENTS
Over the past three years, the Company has been approached by Invacare
Corporation ("Invacare") to discuss possible business combination transactions,
and, on each occasion and after due consideration of the Invacare overture, the
Company determined not to pursue a transaction with Invacare. Following the
Company's rejection of an unsolicited offer by Invacare to acquire the Company
for consideration of $12.50 per share, on January 27, 1997 Invacare, through its
wholly owned subsidiary I.H.H. Corporation, commenced a hostile tender offer to
purchase all outstanding shares of the Company's Common Stock for $13.00 cash
per share. In conjunction with its offer, Invacare commenced litigation against
the Company and certain of its directors, attacking the Company's Shareholder
Rights Plan, as well as the constitutionality of certain "business combinations"
and "fair price" provisions of the Georgia Business Corporation Code.
On January 30, 1997, the Board of Directors of the Company voted
unanimously to recommend that shareholders reject Invacare's offer and
reiterated that the Company was not for sale at that time. In recommending
rejection of the offer, the Board of Directors considered a variety of factors,
including the opinion of its investment advisor that the price per share
offered by Invacare is grossly inadequate, the nature of the markets in which
the Company competes, the Company's future business and financial prospects,
and the Board's familiarity with the financial condition, business
opportunities and current strategies of the Company.
Invacare's tender offer was initially scheduled to expire on February 24,
1997. The expiration date has twice been extended by Invacare, first to March
24, 1997 and most recently to April 7, 1997. As of March 24, 1997, owners of
only 18% of the Company's outstanding Common Stock had accepted the Invacare
offer.
On February 12, 1997, three class action lawsuits were filed by certain
individuals seeking injunctive and declaratory relief that would facilitate
Invacare's offer. In addition, Invacare has notified the Company of its
intention to nominate seven director candidates and to bring certain other
business before the Company's 1997 annual meeting of shareholders, which has
not yet been scheduled. The Company
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cannot predict what, if any, other actions may be taken by Invacare or other
parties with respect to the offer.
DESCRIPTION OF BUSINESS
PRODUCTS
The Company has developed and currently markets a broad range of
therapeutic and diagnostic medical products which address the following core
markets: sleep disorders therapeutic and diagnostic products; ventilation
products; respiratory therapy products; and infant management products. The
Company continues to expand its product lines in each core area to maintain a
leadership position in and address the full needs of each market segment it
serves.
The following table sets forth the amounts and percentages of the
Company's total revenues accounted for by each of its product lines for each of
the last three years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
REVENUE PERCENTAGE REVENUE PERCENTAGE REVENUE PERCENTAGE
================================================================================================================
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> C> <C> <C>
SLEEP DISORDERS PRODUCTS $ 42,963 36.3% $ 37,197 33.7% $27,988 31.4%
VENTILATION PRODUCTS 12,080 10.2 1,666 1.5 -- 0.0
RESPIRATORY THERAPY PRODUCTS 44,716 37.8 53,745 48.6 42,190 47.4
INFANT MANAGEMENT PRODUCTS 16,208 13.7 13,815 12.5 13,612 15.3
OTHER 2,351 2.0 4,071 3.7 5,222 5.9
-------- ----- -------- ----- ------- -----
TOTAL $118,318 100.0% $110,494 100.0% $89,012 100.0%
======== ===== ======== ====== ======= =====
</TABLE>
SLEEP DISORDERS PRODUCTS
Sleep disorders products constitute one of the Company's more significant
product lines. It is estimated that forty million adults in the United States
suffer from sleep disorders. The most prevalent of these disorders,
obstructive sleep apnea, affects up to twenty million adults, with
approximately six million of these individuals' conditions believed to be
severe. Based upon recent industry studies and reports, the Company believes
that up to 85 percent of all severe sleep apnea patients are, as yet,
unidentified. This low level of diagnosis results largely from a general lack
of public awareness and education regarding sleep disorders, limitations on the
number of available clinical facilities worldwide and, until recently, the lack
of suitable equipment to diagnose patients in the home.
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The diagnosis and treatment of sleep disorders such as sleep apnea have
expanded significantly in recent years. The diagnosis of these conditions is
often made through testing in a sleep disorders laboratory. Typically,
patients are referred to sleep labs by physicians, including pulmonologists,
neurologists, internists, family physicians and psychiatrists. The Company
estimates that in the United States there are currently approximately 1,500
sleep disorders laboratories where clinicians diagnose and treat obstructive
sleep apnea as well as other sleep disorders. These laboratories are the most
common source of referrals for the Company's Tranquility(R) CPAP system, and
comprise the primary customer base for the Company's sleep diagnostic products.
In addition to laboratory based studies, home-based sleep studies are beginning
to emerge as diagnostic aids.
Since 1988, the Company has developed a line of therapeutic devices,
including its Tranquility(R) CPAP system, and introduced its line of diagnostic
devices, including its NightWatch and Alice(R) systems, to address the sleep
disorders market, and the Company has plans to introduce several new products
in 1997.
Therapeutic Products
The Company's principal therapeutic product for sleep disorders is its
Tranquility(R) CPAP system, which is designed to treat obstructive sleep apnea.
Obstructive sleep apnea is the repeated cessation of breathing during sleep.
During obstructive sleep apnea, the upper airway becomes blocked due to the
collapse of the pharyngeal tissues into the airway. This collapse is either
caused by anatomic factors that may affect the size of the airway or by
neuromuscular factors that may decrease the underlying muscular tone of the
upper airway. This disorder is characterized by very loud, irregular snoring
or other labored breathing sounds of which the patient may not be aware. One
of the most significant symptoms for determining both the severity of the
disease and the need for treatment is excessive daytime sleepiness. This
symptom is a result of the sleep fragmentation caused by the repetitive
awakenings which terminate apneic events and may pose a threat not only to the
sleep apnea sufferer, but to others as well; recent industry studies indicate
that sleep-related accidents are the second leading cause of motor vehicle
deaths in the United States.
The sleep apnea patient also may be at risk for the development of stroke
and cardiovascular disease. Periodic apneas are associated with a decrease in
the level of blood oxygen saturation and place a strain on the cardiovascular
system. Doctors report that those who have severe sleep apnea may experience
threatening irregularities or pauses in heartbeat, as well as extremely
elevated blood pressure at night and general hypertension in the daytime.
The vast majority of obstructive sleep apnea patients are treated with
devices which use nasal continuous positive airway pressure (CPAP). The
Tranquility(R) CPAP system consists of a small, portable air pressurization
device, pressure controls and the Soft Series(R) nasal mask. Positive pressure
applied during sleep through a nasal mask
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acts as a pneumatic splint, preventing upper airway collapse or obstruction. A
patient using the Company's Tranquility(R) CPAP system should experience
immediate and, assuming the continued use of the device, continual relief from
obstructive sleep apnea.
The Company's fourth generation CPAP device, the Tranquility Quest(R) was
introduced nationally in November, 1994. Lightweight and compact, Tranquility
Quest(R) was designed to control costs and increase patient compliance. The
unit features a unique blower, which allows the patient to breath comfortably,
thereby promoting the use of the unit regularly.
The Tranquility(R) product line also includes an expanded clinical version,
which can assist the clinician in prescribing the appropriate pressure level.
The Company also markets a full range of accessories including nasal masks,
headgear, tubing and filters for use with each Tranquility(R) unit and as
replacement parts.
Diagnostic Products
The Company currently manufactures and distributes a wide range of
technologically advanced computer-based products for use in the diagnosis of
sleep related disorders. The Company develops products for patient testing in
the home which allow clinicians to expand the number of patients who can be
served by a traditional sleep disorders laboratory. The Company also provides
advanced, technically proficient clinical products for use in sleep disorders
laboratories.
Alice(R). In 1993, the Company acquired all rights to the Alice(R)
system, a product previously sold exclusively in Europe. Alice(R) is a
computer-based system for use in sleep laboratories and other clinical
settings. It is capable of recording up to 25 channels of physiological data,
including EEG (brain waves), EKG (cardiac signal), EOG (eye movement),
respiration, EMG (muscle activity), blood oxygen saturation, snoring sounds and
body position. This information is stored on either a desktop or portable
computer prior to permanent storage on optical cartridges.
In addition to acquiring and storing the patient's physiological data, the
Alice(R) system utilizes physician input and internal algorithms to provide a
comprehensive range of reports for clinical analysis. Alice(R) can be used on
either infants or adults. However, separate software programs were developed
specifically for each type of patient, providing the Company with a unique
advantage in the marketplace.
In sleep disorders laboratories, patients are usually studied for two
consecutive nights with a multi-channel recorder. Without the use of a
computer-based system such as Alice(R) each night of sleep recording produces a
paper record of up to 1,000 pages per patient. These recordings must then be
manually scored by a trained technician, a task that can take up to four hours.
The Company's Alice(R) products are designed to dramatically reduce the costs
associated with this process by utilizing computer assistance to eliminate the
need for a paper record and enhance the method
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of presentation, thereby substantially reducing the time involved in and
increasing the accuracy of the analysis.
Nightwatch. Introduced in 1992, Nightwatch is a portable sleep system
which monitors up to nine channels of physiological data for up to ten
hours per patient. Among other factors, Nightwatch is distinguished by a unique
software algorithm, developed by the Company in conjunction with a leading sleep
research center, for the analysis of sleep states. In addition, its
physiological sensors are specifically designed by the Company for use in the
home. These sensors record body position, eye movement, leg movement, heart
rate, airflow, chest effort, abdominal effort and blood oxygen saturation, as
well as the Tranquility(R) CPAP's pressure level, and transmit the information
to a base recording station located in the patient's room. The information is
subsequently sent automatically by modem to the sleep laboratory or other
clinical setting where it is monitored by a trained clinician. A single
Nightwatch system can be expanded economically to conduct sleep studies at
multiple locations by adding additional recorders to the central system in order
to collect data from several patients simultaneously.
The Company believes Nightwatch was the first sleep study recording system
that not only collected data in a remote site, but also intermittently
transmitted data to the medical center via modem. This feature allows the
technician in the medical center to observe the incoming data at selected
intervals. If a data collection problem occurs, the technician can contact the
patient by telephone to correct the problem and permit the study to continue.
The Company believes this feature increases the reliability and cost efficiency
of data collection from remote sites.
Remote site recordings are expected to enable sleep disorders laboratories
to increase the number of patients studied by allowing testing to be conducted
in the patient's home. The Company also believes remote site systems, such as
Nightwatch, will reduce the cost of studying patients.
Other Remote Site Products. The Company offers other remote site products
for the evaluation of sleep disorders, including the Infant Diagnostic System.
The Infant Diagnostic System consists of a six-channel portable recorder and
computer software for processing and printing overnight recordings from
infants. The system is used in conjunction with the Company's infant monitors
to study patients in the home, as well as in neonatal intensive care units and
hospital nurseries. Based upon the system's reports, physicians can decide
whether to prescribe or discontinue the use of a home monitor, and whether or
not to perform a complete sleep study.
Product Introductions and Related Developments
In 1997, the Company plans to introduce a new bi-level device, a next
generation "Auto" CPAP system, and next generation diagnostic products for the
hospital and home. The Company believes that, following introduction of these
new
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products, it will have the most comprehensive sleep disorders product line in
the market. To complement this growing product line, the Company has begun
distribution of the CNS Breathe Right(R) Nasal Strip - a noninvasive nasal
dilator - as an exclusive distributor for the professional medical market.
VENTILATION PRODUCTS
The ventilation market consists of acute care, portable and non-invasive
ventilators. The market is undergoing rapid technological and clinical change,
moving away from acute care ventilation in the hospital to lower cost settings
within the hospital and to Alternate Care Sites and the home. Because
ventilation technology has not changed significantly in many years, current
ventilation products do not include certain features required by the more acute
patients receiving care in these alternate settings.
In 1995, the Company entered the ventilation market with the launch of
Quantum(TM) a non-invasive ventilator which provides CPAP, as well as additional
inspiratory and expiratory pressure support therapy to adult patients who
require airway pressure support and airway patency. The Quantum(TM) has had an
enthusiastic reception, generating over $12 million of revenue in the first
full year of launch, and offers a unique set of features that allows the
therapy to be tailored to each patient's comfort level. Quantum(TM) was
introduced to the international market in 1997. Recently Quantum(TM) received
additional FDA marketing clearance under a new classification which supports
the marketing of the device for continuous ventilatory support of adults during
chronic or acute respiratory insufficiency.
In April 1996, the Company licensed proprietary technology for a subacute
ventilator, the first in a family of ventilators expected to be introduced by
the Company in 1997 and 1998.
Also, in November 1996, the Company entered into a strategic alliance
with Siemens Medical Systems to distribute Quantum(TM) in certain markets
throughout the United States and Canada. The Company recently entered into a
Letter of Intent to broaden its relationship with Siemens to provide for
strategic joint research and development efforts in the areas of subacute and
homecare ventilator products to be distributed by both companies. The Letter
of Intent also contemplates the Company's distribution of certain new
ventilator products of Siemens as well as patient monitoring products for the
homecare and alternate site markets. There can be no assurance that the
parties will enter into definitive agreements with respect to the matters
contemplated by the Letter of Intent, or, if entered into, that such
arrangements would be commercially successful.
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RESPIRATORY THERAPY PRODUCTS
The Company manufactures and distributes oxygen concentrators and
medication nebulizers for the treatment of respiratory and related disorders in
addition to peak flow meters and drug delivery devices for asthma and oximeter
products.
Oxygen Delivery Systems
The Company's principal respiratory therapy products are oxygen
concentrators, which provide a continuous flow of oxygen by separating it from
room air with a molecular sieve composed of an inorganic silicate. Oxygen
concentrators are generally used in the home by people who require supplemental
oxygen. Supplemental oxygen is prescribed for people with a variety of chronic
pulmonary disorders, such as lung cancer, emphysema, bronchitis or acute
pneumonia. These individuals generally rent an oxygen delivery system from a
home medical equipment dealer.
Typically, the treating physician or the dealer makes the selection of
which of three types of oxygen delivery systems is to be delivered to the
patient: oxygen concentrators, liquid oxygen systems or high pressure oxygen
cylinders. Although the three modalities are generally equivalent
therapeutically, a significant factor in selecting an oxygen delivery system is
ease of service and cost effectiveness to the dealer who is responsible for
delivery of the device and ongoing service at the patient's home.
Dealers choose from among oxygen concentrator manufacturers based upon
several factors, including product value, reliability, price, purchase finance
options and other sales service and support. The Company believes it is
currently one of the leaders in the manufacture and sale of oxygen
concentrators in the United States.
The Company offers four oxygen concentrator products, all of which produce
a continuous flow of up to 95% oxygen. The Alliance(R) 500 and 505
models offer dealers a system which is extremely easy to maintain and service.
These two devices, as well as the Healthaire(R) 5000 model, deliver oxygen at
the rate of five liters per minute and are suitable for chronic patients in the
advanced stages of illness. The less expensive and more compact Healthaire(R)
300 delivers oxygen at the rate of three liters per minute and is typically
utilized for the less severe respiratory patient.
The Company plans to leverage its current market position in oxygen
concentrators by entering the liquid oxygen market with the introduction in
1997 of a new liquid oxygen system. The Company also plans to introduce a
lower cost oxygen concentrator in 1997 in order to improve margins in a market
increasingly dominated by large national accounts and commodity pricing. The
combination of a competitive liquid oxygen product and a lower cost oxygen
concentrator will allow the Company to bundle the sale of its products to
national accounts and regional and local distributors.
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Medication Nebulizers
Medication nebulizers are devices which dispense medication in a fine mist
for inhalation deep into the lungs. The primary uses for nebulizers have been
in the treatment of respiratory diseases, such as emphysema and chronic
bronchitis, and conditions such as asthma or allergies. Over 50 million
patients suffer from such respiratory diseases or conditions and the number has
been increasing due, in part, to environmental pollution. An increase in the
number of available respiratory medications in recent years, coupled with the
cost and efficacy of aerosol delivery methods, also has contributed to the
growth of this market.
The Company entered the nebulizer market in 1992 and has achieved a
leading position in terms of unit sales in the domestic market for these
products. The Company manufactures and distributes several nebulizer models
under the trade name of Inspiration(R). These models utilize a compressor to
direct a flow of air through the nebulizer chamber which contains medication in
liquid form. The units are totally self-contained and are offered in several
voltage configurations, including battery operation. Since the pediatric
market comprises approximately 60% of the nebulizer market, the Company has
developed a specialized marketing program aimed at this group.
Healthdyne Technologies' successful nebulizer line, which includes the
Inspiration(R) 323 and 929 models will be expanded in 1997 with the planned
introduction of the Company's Inspiration(R) 626. This device will feature
enhanced cost efficiencies as well as numerous updated characteristics.
Asthma Management Devices
The asthma device market is comprised primarily of peak flow meters and
drug delivery systems, in particular spacer devices. A peak flow meter
provides an objective measure of lung function and is used by the patient at
home to assist in the management of asthma. A spacer, when used with a metered
dose inhaler (MDI), facilitates the delivery of asthma medications.
As a result of its 1994 acquisition of HealthScan Products, Inc., the
Company believes that it is currently the national leader in the sale of peak
flow meters, with products that include the ASSESS(R) peak flow meter and the
portable peak flow meter, PERSONAL BEST(R). The Company's MDI drug delivery
device, OptiHaler(R) is consistent with new medical reimbursement guidelines,
which give preference to devices of this type. The significance of this is
highlighted by the fact that an increasing number of asthma-related medications
are being designed for metered-dose delivery systems. The Company's peak flow
meters and OptiHaler(R) are creating heightened awareness and growth in the
home care and consumer markets. In addition, the revised National Asthma
Education and Prevention Program (NAEPP) Guidelines issued in March 1997 have
placed further emphasis on the use of peak flow meters and spacers to ensure
effective asthma management.
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The Company distributes its products to hospitals, home care dealers,
retail pharmacies and pharmaceutical companies. The Company sells to these
markets either directly or through a network of specialty distributors.
In early 1997, the Company expanded and strengthened its leadership
position in the asthma market by introducing the new OptiChamber(TM) spacer
product line as well as a number of other proprietary products. OptiChamber(TM)
represents an important growth area based upon the NAEPP's expanded indications
for MDI anti-inflammatory therapy, including new recommendations for use with
children under five years of age. The Company plans to distribute the new
spacer product line through an exclusive network of specialty hospital
distributors. In addition, the Company recently entered into an agreement with
Allegiance Healthcare that provides for the distribution of several of the
Company's asthma products.
Oximeter Products
Healthdyne Technologies' oximeter product line includes a full family of
products for home care. The 920/920M unit, which allows patients to take
readings of their blood oxygen levels and heart rate, features the capability
to store up to 18 hours of data. This data can be later downloaded via the
Company's technologically advanced software, which prints reports for
oximetry analysis.
The Company's recently added Finger Oximeter was designed to be one of the
most portable devices available. The unit, which can be worn around the neck,
weighs only two ounces.
INFANT MANAGEMENT PRODUCTS
The Company's infant management products line currently offers monitors
for infants at risk for SIDS and products for the treatment of jaundice. The
Company is planning to expand this line in 1997 and 1998 and has licensed
and/or has products under development for the non-invasive detection of
jaundice and fetal oximetry. Each of these current and planned products is
discussed below.
Infant Monitor Products
The Company's infant monitor products are designed for infants at risk for
SIDS. SIDS is the sudden unexpected death of an infant which remains
unexplained after investigation and is one of the leading causes of death in
the United States of infants between one month and one year of age. Despite
extensive research, the causes of SIDS remain unknown. High risk infants who
are prescribed home monitors include infants of low birth weight, those who are
premature, those who survive a serious cardiorespiratory episode, or those born
to a family with a SIDS incident history. There is no alternative therapy
generally available.
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The Company has developed and sells a broad range of monitoring and
recording products for the infant market. These home monitors sound an alarm
if the child's breathing ceases or if abnormal heart rates are detected. The
alerted parents then have the opportunity to respond to the infant with
physical stimulation, such as touching or gently moving the infant, if
necessary. In some cases, it is necessary to administer cardiopulmonary
resuscitation.
In 1978, the Company developed and introduced the first commercially
available product for the home monitoring of infants at risk for SIDS. In May
1989, the Company introduced the SmartMonitor(R) a fifth-generation,
microprocessor-based design which incorporated many aspects of a physiological
recorder into the traditional monitor. In addition to sounding an alarm to
alert the parents, the SmartMonitor(R) documents patient episodes with an
internal electronic memory system, enabling physicians to study up to six
channels of patient waveforms in order to assess the medical significance of
the alarm episodes and determine the need for continued monitoring or possible
hospitalization. The data collected by the SmartMonitor(R) can be transmitted
from the home to a clinical center over phone lines or can be extracted from
the SmartMonitor(R) using a memory transfer device such as a computer or "memory
module."
The Company believes it is currently the leader in terms of unit sales in
the manufacture and sale of infant monitoring products. The Company believes
that the technological advantages of the SmartMonitor(R) relative to competitive
devices, such as the SmartMonitor(R)'s ability to record an infant's complete
cardiac waveform, to change settings via modem, and to record six channels of
patient waveforms, have strengthened the Company's leadership position in this
market.
Jaundice Products
The Company believes that up to sixty percent of the babies born in the
United States exhibit jaundice, a condition which is caused by elevated
levels of bilirubin in the blood and which, in severe cases, can result in brain
damage. The Company's product line for the treatment of jaundice was acquired
in June 1996 and includes The Wallaby(R) II phototherapy system, a
cost-effective alternative to conventional overhead phototherapy bililights for
treating newborn jaundice.
The current method of diagnosing jaundice, the "heel stick", involves the
drawing of blood and is a painful, costly and time-consuming procedure. In
1996, the Company acquired the North American rights to patented technology
from SpectRx, Inc. for a non-invasive method of measuring the level of
bilirubin in the blood. This will allow detection and diagnosis of jaundice to
occur in the entire spectrum of infant care, from hospital to home. This
device is scheduled for introduction in late 1997 or early 1998.
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Fetal Oximetry
The current technology utilized in the United States for determining fetal
well-being during labor and delivery involves monitoring fetal heart rate. The
Company believes fetal heart rate is reliable as a measure of fetal distress
only about 50% of the time, and as a result, unnecessary cesarean deliveries
are performed and medical-legal exposure is increased. Once approved for use
in the United States, fetal oximetry will give clinicians valuable new oxygen
data related to fetal well being.
The Company plans to introduce its new fetal oximetry product in the
international market in 1997, with domestic introduction following premarket
approval by the Food and Drug Administration (the "FDA"). The Company's
product, which utilizes proprietary technology, will provide both fetal oxygen
and fetal heart rate information, thereby providing a more complete clinical
picture of the baby's status.
OTHER
The Company manufactures a line of obstetrical products, including the
System 37(R) Uterine Activity Monitor, which are sold exclusively to Matria, the
successor to Healthdyne, which is engaged in providing obstetrical care
services to patients in the home.
Healthdyne Technologies also offers out-of-warranty depot repair for its
complete line of products.
RESEARCH AND DEVELOPMENT
The Company believes that identifying emerging areas of cost effective
health care and incorporating the advanced technological innovations into its
medical products has been, and will continue to be, important to its success.
The Company's research and development efforts are focused on maintaining the
Company's technological leadership in its core product areas and exploiting
opportunities in expanding medical technology markets through upgrading the
design and technological sophistication of its current products, as well as
developing new products.
The Company conducts research and development for new products in its
manufacturing facilities in Marietta, Georgia and Indianapolis, Indiana, its
HealthScan subsidiary in New Jersey, and in its development facility in
Brussels, Belgium. The Company also provides engineering and manufacturing
support for existing products in the United States. The Company employs a
total of 67 persons in such activities, 46 of whom are engineers. Of the 67
staff members, 61 are employed in the United States.
The research and development staffs, in both the United States and
Belgium, perform development tasks ranging from concept development and design
to production documentation by employing persons skilled in software,
electrical, and
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<PAGE> 15
mechanical engineering. The Company utilizes an integrated team
approach for development staffing, which includes professionals in
manufacturing, marketing, and product design, thereby focusing group activities
for more timely and effective project completion. Other efficiencies are gained
through the use of Company-owned, technologically advanced computer aided design
(CAD) systems and environmental testing equipment, all of which represent
substantial Company investment and commitment.
When appropriate, the Company also utilizes outside resources for highly
specialized product development requirements. The Company also has an
aggressive business development program to pursue strategic alliances,
acquisitions, licenses and other partnerships to help in meeting its strategic
objectives and to capitalize on short and long term trends in the industry.
The Company spent approximately $3.8 million, $4.7 million, and $5.8
million on research and development in fiscal years 1994, 1995, and 1996,
respectively.
INDUSTRY RELATIONSHIPS
The Company, as part of its research and development strategy, maintains
formal contractual relationships with leading physicians and researchers and
academic institutions active in the medical devices field. The Company
utilizes these relationships in connection with the design, development, and
testing of its products. In addition, the Company maintains a number of
informal relationships with clinicians throughout the world, as well as with
leading organizations such as the American Sleep Apnea Association, the
National Association of Apnea Professionals and the Health Industry
Manufacturers Association. These relationships assist the Company in
identifying new market areas and developing technologies and products, as well
as maintaining open communications with prominent members of the industry.
MARKETING AND SALES
The Company markets its products through a field sales force comprised of
sales employees, independent manufacturers' representatives, and distributors.
The Company's field sales force markets its products to the home care and other
specialized markets, as well as to the hospital market for certain products.
The Company's home health care products are made available to patients through
approximately 3,500 dealer locations throughout the United States and Canada.
The Company selects its dealers on the basis of their technical and business
experience, reputation, and geographical coverage.
The Company commenced a re-alignment of its sales force in the second
quarter of 1996 in order to better address the home and hospital markets
through a combination of the Company's two primary sales forces, with sales
representatives located in geographic areas designed to enhance efficient sales
activity and growth.
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<PAGE> 16
The Company also enters into distributor arrangements, such as the recent
agreements with Siemens Medical Systems for distribution of the QuantumTM
ventilator and with Allegiance Healthcare for distribution of certain asthma
products. See "Ventilation Products" and "Respiratory Therapy Products -
Asthma Management Devices."
The Company also sells its products internationally, primarily in Europe,
the Far East, and Latin America. The Company seeks one major distributor for
each targeted country and currently has distribution arrangements in 30
countries. Typically, these distributors market the Company's products through
their own sales force. Export sales were approximately $14,677,000,
$21,285,000, and $26,692,000 in the years ended December 31, 1994, 1995, and
1996, respectively.
REIMBURSEMENT
The cost of a majority of medical care in the United States is funded by
government and private insurance programs, such as Medicare, Medicaid, and
corporate health insurance plans. Although the Company does not receive
payments for its products directly from these programs, the Company's success
is largely dependent upon the ability of its customers to obtain adequate
reimbursement from third-party payors, such as government and private insurance
programs, for procedures using the Company's products. The Company's products
are purchased primarily by home care dealers, clinics, hospitals, medical
practitioners, and other health care providers, who then bill third party
payors for the health care services provided to their patients. Government
agencies, private insurers, and other payors generally provide reimbursement
for medical care based on the treatment or procedure performed, although some
payments are also specific to the type of device provided to a patient.
The methods by which health care providers, including home care dealers,
hospitals, and physicians, are reimbursed for providing services to
beneficiaries of the federal Medicare and various state Medicaid programs are
subject to change by legislation and regulations at both the federal and state
levels. For example, Congress passed legislation in December 1995 (which was
vetoed by the President) which would have imposed a plan for balancing the
federal budget over a seven year period. The plan included major reductions in
Medicare and Medicaid expenditures and would have reduced Medicare payment
rates for oxygen by 20% beginning in 1996, gradually rising to 30% by 2002.
President Clinton's budget plan contained similar provisions, as well as
competitive bidding for selected items of equipment, which could include oxygen
delivery systems. Similar proposals could be enacted as part of future budget
legislation. Similarly, the Health Care Financing Administration ("HCFA") has
announced a plan to adjust Medicare payment amounts for oxygen and oxygen
equipment on the grounds that such amounts are not "inherently reasonable".
Before making any such adjustments, the HCFA will need to consider specific
economic factors and provide notice and an opportunity for public comment. To
implement the
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<PAGE> 17
inherent reasonableness process, the HCFA must find that the current
oxygen rates are "grossly excessive" and "not inherently reasonable". The HCFA
must consult with the industry likely to be affected by changes in the oxygen
reimbursement rate, issue a proposed rule in the Federal Register that
substantiates the finding that current Medicare rates for oxygen are "grossly
excessive", and issue a final rule that justifies lowering the oxygen
reimbursement rate. The inherent reasonableness process would be superseded if
Congress were to enact final budget legislation, adjusting payment rates for
oxygen.
The Company cannot predict what effect future changes in reimbursement,
coverage and other policies will have on its financial position and results of
operations, but hopes that the cost-effective nature of home health care, in
general, and the types of products manufactured and sold by the Company in
particular, will be recognized by any new government initiatives.
While private insurance companies have traditionally set their own
coverage and reimbursement policies, they are influenced by government payment
standards. Significant reductions or changes in reimbursement rates, or other
government proposals which limit health care expenditures, could have an
adverse effect on the overall growth of markets and the level of demand for the
Company's products.
In addition, third party payors may generally deny reimbursement if they
determine that the device used in a procedure has not received appropriate FDA
clearance or approval, is not used in accordance with cost-effective treatment
methods, or is experimental, unnecessary or inappropriate. Third party payors
are also increasingly seeking to reduce the amounts paid for medical products
and services, and some private insurers have initiated reimbursement systems
designed to slow escalating health care costs. There can be no assurance that
changes in payors' reimbursement policies for procedures performed using the
Company's products will not adversely affect the Company's ability to sell its
products on a profitable basis.
GOVERNMENT REGULATION
The Company and its diagnostic products are regulated by the FDA within
the framework of medical devices, pursuant to various statutes including the
Federal Food, Drug and Cosmetic Act (the "FDC Act") as amended and supplemented
by the Medical Device Amendments of 1976 (the "1976 Amendments") and the Safe
Medical Devices Act of 1990 ("SMDA"). Pursuant to the 1976 Amendments, the FDA
classifies medical devices intended for human use into three classes, Class I,
Class II and Class III. The controls applied to the different classifications
are those the FDA believes are necessary to provide reasonable assurance that a
device is safe and effective. Class I devices are non-critical products which
can be adequately regulated by "general controls" that include provisions
related to labeling, producer registration, defect notification, records and
reports and FDA Good Manufacturing Processes ("GMP"). GMP include
implementation of quality assurance programs, written manufacturing
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<PAGE> 18
specifications and processing procedures, written distribution
procedures and record keeping requirements (some Class I devices are exempt from
pre-market notification and GMP requirements). Class II devices are products
for which the general controls of Class I devices alone are not sufficient to
assure the safety and effectiveness of the device and require special controls.
The additional special controls for Class II devices include performance
standards, post-market surveillance patient registries and the use of FDA
guidelines. Standards may include both design and performance requirements.
Class III devices have the most restrictive controls and require pre-market
approval by the FDA. Generally, Class III devices are limited to
life-sustaining, life-supporting or implantable devices. The FDA inspects
medical device manufacturers and distributors and has broad authority to order
recalls of medical devices, to seize noncomplying medical devices, to enjoin
and/or impose civil penalties on manufacturers and distributors marketing
non-complying medical devices and to criminally prosecute violators.
Section 510(k) of the FDC Act requires individuals or companies
manufacturing medical devices intended for human use to file a notice with the
FDA at least ninety (90) days before introducing the product into the
marketplace. The notice (a "510(k) Notification") must identify the type of
classified device into which the product falls, the class of that type and the
specific marketed product to which the product claims to be "substantially
equivalent". In some cases the 510(k) notification must include data from
human clinical studies in order to establish "substantial equivalence." If the
registrant states the device is unclassified, but nonetheless claims
substantial equivalence to a marketed device or recognized diagnostic
procedure, it must explain the basis for that determination. Under the SMDA,
the FDA must affirmatively agree with the claim of substantial equivalence
before the device may be marketed. In addition, the FDA has announced that it
will undertake comprehensive compliance reviews of certain high priority device
categories, including possibly apnea monitors. These two developments may lead
to tighter controls by the FDA over Healthdyne's infant apnea monitor products.
If a product does not qualify for the 510(k) procedure (either because it
is not substantially equivalent to a legally marketed device or because it is a
Class III device), the FDA must approve a pre-market approval ("PMA")
application before marketing can begin. PMA applications must demonstrate,
among other matters, that the medical device is safe and effective.
Obtaining a PMA application clearance can take several years. Clearance
pursuant to a 510(k) Notification can be obtained in less time. In general,
clearance of a 510(k) Notification for a Class I or Class II device is obtained
by the registrant establishing that the new device is "substantially
equivalent" to another device of such Class that is already on the market.
This requires the new device to have the same intended use as a legally
marketed predicate device and have the same technological characteristics as
the predicate device. If the technological characteristics are different, the
new device can still be found to be "substantially equivalent" if information
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<PAGE> 19
submitted by the applicant (including clinical data if requested)
supports a finding that the new device is as safe and effective as a legally
marketed device and does not raise questions of safety and efficacy that are
different from the predicate device.
The FDA recently published for comment proposed performance standards for
infant apnea monitors (a process that began in 1988), but no final standards
have been promulgated to date. The Company is unable to predict whether, or in
what form, these performance standards will be adopted and, if adopted, what
effect the final standards might have on the sale, use or development of infant
apnea monitors for infants at risk for SIDS. The Company anticipates that it
should be able to design and manufacture products that will comply with any
such standards.
Sales of medical devices outside the United States are subject to
regulatory requirements that vary widely from country to country. The time
required to obtain approvals by foreign countries may be longer or shorter than
that required for FDA approval, and regulatory requirements in foreign
countries may differ significantly from those of the FDA. The receipt or
denial of FDA approval for a particular product may or may not have an effect
upon the receipt or denial of regulatory approval for that product in certain
other countries.
The exportation of both approved and unapproved medical devices is
regulated by the FDA. In light of passage of the FDA Export Reform Act of
1996, some of the obstacles to exportation of medical devices have been removed
or relaxed. However, because this legislation passed relatively recently,
there are still numerous questions regarding the actual implementation and
interpretation of this law by the FDA.
As a medical device manufacturer, the Company is subject to inspection on
a routine basis by the FDA for compliance with the FDA's current GMP
regulations. Under GMP regulations, the Company is subject to numerous
procedural and documentation requirements with respect to manufacturing and
quality control activities, as well as to periodic inspections of its
manufacturing facilities. The Company believes that the manufacturing and
quality control procedures it follows meet the requirements of these
regulations. If the FDA were to determine that the Company's products were not
manufactured in accordance with FDA regulations, in addition to less drastic
remedies, the FDA would have the authority to order the Company to cease
production of its products and to require that the Company recall products it
had already sold. The FDA conducts periodic inspections of the Company's
facilities in Marietta, Georgia, the most recent of which occurred in February
1997. At that time no significant issues were raised by the FDA concerning the
Company's compliance with GMP regulations. The Company must also comply with
other FDA regulations for medical device reporting and, possibly,
post-marketing surveillance and device tracking. If the FDA determines that
its regulations and other guidelines have not been followed, it may seek to
implement extensive enforcement powers, which were strengthened by the
enactment of the Safe Medical Devices Act of 1990 and modified by the Medical
Device Amendments of 1992. The FDA's powers include the ability to
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<PAGE> 20
ban products from the market, impose civil penalties, effect recalls of
previously sold products from customer locations and restrict the operation of
manufacturing facilities. Debarment is among the potential penalties that can be
levied by the FDA. Violation of GMPs can also trigger criminal sanctions. The
Company believes that it is in substantial compliance with applicable FDA
regulations.
GMP regulations have been significantly expanded by the FDA and the
revised regulations will go into effect in mid-1997. There are numerous
implementation issues raised by the new GMPs that could affect Healthdyne,
including tighter quality assurance procedures, greater design control, and
increased tracking requirements.
Manufacturers of medical equipment may also be subject to various federal
and state fraud and abuse laws which establish criminal and civil sanctions and
penalties for, among other things, the payment of remuneration to induce the
purchase or ordering of a company's products. The Company exercises care to
structure its sales and marketing practices to comply with these laws, but
there can be no assurance that future interpretations or changes in legislation
or regulation will not require the Company to change those practices. There is
a possibility that Congress will pass FDA reform legislation which could
significantly affect the regulation of Healthdyne and its products by the FDA.
The Company is pursuing recognition of ISO90001, EN46001, and Medical
Device Directive compliance, thereby enabling CE marking of our products. The
estimated date of third party audit is the third quarter of 1997; however there
is no assurance that recognition of compliance will be received or that if
received, will be received within the current time schedule.
COMPETITION AND CUSTOMERS
The markets for the Company's products are highly competitive. The
Company currently competes on a product-by-product basis with diagnostic
measurement and monitoring instruments and therapeutic devices offered by a
variety of companies, certain of which have more extensive financial,
technical, research and development and/or marketing resources than the
Company. In addition, other medical and electronic equipment companies, some
of which may have significantly greater resources than the Company, may, in the
future, enter the markets in which the Company competes. Such competitors may
take actions to meet the Company's new product introductions and other
initiatives. Some competitors may be willing to accept lower margins and to
reduce prices to compete with the Company. As a result, the Company could fail
to achieve anticipated sales increases, to realize anticipated price increases,
or otherwise fail to meet its anticipated results. Any of such circumstances
would likely have an adverse effect on future financial performance, which
effect could be material.
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Consolidation in the healthcare industry has and may continue to adversely
affect the Company's business, as customers of the Company merge and
competition for their business becomes more intense. The Company's two largest
home care dealer customers, both of which were publicly held and had branch
locations throughout the U.S., merged in August 1995. This entity, together with
similar large national healthcare dealers, have the capability of exerting
significant price pressure on manufacturers. Changing buying patterns may also
have a negative effect on the Company's business. The Company expects that
consolidation among home care dealers is likely to continue; however, the
Company cannot predict the effect of such mergers and consolidations on its
business.
BACKLOG
The amount of backlog at the Company was $2,056,000 and $700,000 as of
December 31, 1996 and 1995, respectively. The Company requires a sales forecast
on an ongoing basis from its marketing staff. These forecasts are adjusted on a
monthly basis. The Company attempts to ship its orders within two weeks of
receipt, and builds finished goods inventory to meet its sales forecasts. The
Company estimates that all of the backlog at December 31, 1996 will be completed
and shipped prior to the end of the current fiscal year.
PATENTS, TRADEMARKS AND LICENSES
The Company has depended, and will continue to depend, substantially on
its technological expertise in the development and manufacture of its current
and future products. In addition, the Company depends, and will likely
continue to depend, on trade secret protection and licensing arrangements and,
to a lesser extent, on various patents, to strengthen its proprietary position.
These licensing arrangements typically provide for a royalty or other payment,
consistent with industry norms, to be paid to the licensor based on sales by
the Company of products incorporating the licensed technology. The Company is
currently in the process of evaluating new technology and, in some cases, is
negotiating license agreements for product rights relating to potential new
product lines. There is no certainty that these negotiations will be
consummated, nor that the product rights, if obtained, will result in immediate
revenue to the Company. Trademark registrations have been issued for a variety
of the Company's products and registration applications are pending with
respect to the names of various other products. The Company typically requires
its employees to execute appropriate confidentiality agreements in connection
with their employment with the Company. There can be no assurance that these
arrangements will not be breached or that the Company will have adequate
remedies for such breach. Furthermore, no assurance can be given that
competitors will not independently develop substantially equivalent proprietary
information, that the Company can meaningfully protect its rights in unpatented
proprietary technology, or that licensing arrangements will be continued.
Litigation may be necessary to protect trade secrets or know-how owned by the
Company, to enforce patents or trademarks used by the
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Company. From time to time, Healthdyne and its subsidiaries receive
letters from patent holders alleging that one or more products manufactured or
under development by the Company infringe one or more patents of such patent
holders. It is the policy of the Company to investigate such allegations. At
present, none of such patent infringement claims have risen to the level of
pending litigation against the Company or its subsidiaries, although there can
be no assurance that such allegations will not lead to litigation involving the
Company or its subsidiaries. Any such litigation described herein could result
in substantial cost to, and might have a material adverse effect on, the
Company.
MANUFACTURING
The Company places importance on its ability to manufacture high quality,
cost effective and reliable products. Products are subject to stringent quality
control inspection and testing throughout the manufacturing process. The
Company's principal manufacturing facility is located in Marietta, Georgia.
Under certain circumstances, the Company utilizes subcontractors to manufacture
products on its behalf or to supply certain components, such as molded plastics
and sheet metal parts, if it is more cost-effective to do so. The Company
recently has decided to outsource its printed circuit board assembly due to
projected cost savings. There is no assurance, however, that these cost
savings will be realized or that the supply will continue to be available to
the Company as needed.. The Company believes that raw materials for all of its
products are readily available from various suppliers.
EMPLOYEES
As of February 1, 1997, the Company had approximately 577 full-time
employees. The Company believes that its employee relations are good. The
Company's employees are not currently represented by a labor organization.
RELATIONSHIP WITH MATRIA
Prior to April 21, 1995, Matria provided certain services to the Company
under the terms of an Administrative Services Agreement (the "Services
Agreement"). Pursuant to the Services Agreement, Matria agreed to provide
certain administrative and related services to the Company. These services
related to areas such as accounting, legal, tax, data processing, human
resources and certain other services, as well as insurance coverages. The
Company entered into a Revised Services Agreement (the "Revised Services
Agreement") on April 21, 1995 with Matria which provides for a reduced amount
of administrative services to the company from Matria, primarily relating to
tax, data processing, human resources and insurance. This Agreement was
extended on a month-to-month basis effective January 1, 1997 and may be
terminated upon thirty (30) days prior written notice. Charges for these
services are made on a monthly basis in amounts which are estimated to equal
Matria's cost, including overhead, of providing the services. For the years
ended December 31,
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1994, 1995, and 1996, the Company reimbursed Matria for the cost of the
administrative and personnel services provided by employees of Matria in the
amounts of $854,000, $918,000, and $235,000 respectively. In addition, the
Company paid $693,000, $637,000, and $289,000 to reimburse Matria for the cost
of various insurance premiums paid by Matria on behalf of the Company for the
years ended December 31, 1994, 1995, and 1996, respectively. The Company is
under no obligation to purchase such services from Matria. These amounts paid
by the Company to Matria for services, however, may not be representative of the
amount of services required by the Company in the future. The balance of such
services will be provided either by Company personnel or by third parties.
The Company has an arrangement with Matria under which the Company may
supply the System 37 Uterine Activity Monitor to Matria at a price which is
approximately 33% over the Company's manufacturing cost. As a result of this
arrangement, without the consent of Matria, the Company is prohibited from
selling the System 37 monitor and other competing obstetrical care products to
other parties. The aggregate amount paid by Matria, Matria's predecessor, to
the Company for equipment purchased by Matria from the Company in 1994, 1995,
and 1996 was approximately $4.1 million, $2.4 million, and $.5 million,
respectively. In those years, the Company has also provided certain research
and development services related to the System 37 and certain other products
for which Matria paid the Company $540,000, $309,000, and $228,000 in 1994,
1995 and 1996, respectively.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business include the following:
The Company has announced the planned introduction of numerous new
products in 1997 and 1998. These actions are scheduled to be completed on an
accelerated timetable. Timely introduction of products is dependent on several
factors, including but not limited to, timely completion of design and
engineering work, successful tested prototypes, clinical device testing,
clearance or approval where necessary by the FDA, intellectual property matters
and availability of materials and components from suppliers. There can be no
assurances that each of these products will be introduced, the products will be
introduced in accordance with planned schedules, or that, once introduced,
products will be commercially successful. The
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anticipated rapid development cycle also may result in higher than
anticipated warranty claims, which also could adversely affect future financial
performance.
The Company competes in a highly competitive environment with numerous
competitors which are financially strong and capable of competing effectively
with the Company in the marketplace. Such competitors may take actions to meet
the Company's new product introductions and other initiatives. Some
competitors may be willing to accept lower margins and to reduce prices to
compete with the Company. As a result, the Company could fail to achieve
anticipated sales increases, to realize anticipated price increases, or
otherwise fail to meet its anticipated results. Any of such circumstances
would likely have an adverse effect on future financial performance, which
effect could be material.
The Company anticipates achieving higher margins for certain of its new
products. The Company operates in a highly competitive industry, and its
ability to improve margins may be limited due to competitive pressures. A
failure to achieve better margins would likely have an adverse effect on future
financial performance, which effect could be material.
The Company's success is dependent to a large extent upon the ability of
its customers to obtain adequate reimbursement from third-party payors, such as
government and private insurance programs, for procedures using the Company's
products. As discussed herein and in previous reports filed with the SEC by the
Company, congressional and regulatory proposals for reducing reimbursement for
oxygen concentrators have adversely affected the Company's sales and margins for
oxygen concentrator products. Similar initiatives as a result of the
governmental focus on achieving cost-effective healthcare delivery could also
adversely affect the Company's business.
The Company's business may also be affected by changes in government
regulation to which the Company's products are subject or changes in the manner
in which such regulations are enforced or medical devices are approved. The
Food and Drug Administration ("FDA") has published for comment proposed
performance standards for monitors for infants at risk for SIDS. The Company
is unable to predict whether, or in what form, these performance standards
ultimately will be adopted, but anticipates that it should be able to design
and manufacture products that will comply with any such standards.
Consolidation in the healthcare industry has and may continue to adversely
affect the Company's business, as customers of the Company merge and
competition for their business becomes more intense. In August 1995, the
Company's two largest home care dealer-customers merged. The Company expects
that the consolidation among home care dealers is likely to continue; however,
the Company cannot predict the effect of such mergers and consolidations on its
business or distribution channels.
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The Company has in the past acquired other companies in an effort to
expand its product offerings and may continue to do so in the future.
No assurance can be given that any such acquisitions will be consummated by the
Company or if consummated that they will be financially or operationally
successful.
The Company enters into license agreements from time to time in connection
with the introduction of new products or enhancements of existing products.
These agreements generally do not require the expenditure of material sums;
however, if the commercial introduction of the licensed product is successful,
the licensed product may be important to future Company revenue and products.
No assurance may be given that any such license agreements will result in the
commercial introduction of a viable product or that the product, once
introduced, will be financially or operationally successful.
Other factors which could potentially have a material adverse effect on
the Company's business include the costs and other effects of legal and
administrative cases and proceedings (whether civil, such as environmental and
product related, or criminal), settlements and investigations, claims, and
changes in those items, and developments or assertions by or against the
Company relating to intellectual property rights and intellectual property
licenses.
The information contained herein is not intended to be an exhaustive
description of the risks and uncertainties inherent in the Company's business
or in its strategic plans. Please see sections entitled "Business - Recent
Developments", "Business - Patents, Trademarks and Licenses", and "Legal
Proceedings".
ITEM 2. PROPERTIES
The Company leases its warehouses, offices and manufacturing facilities
and believes these facilities to be well-maintained, adequately insured and
suitable for their present and intended uses. Information concerning certain
of the leased facilities of the Company is set forth in Note 13 to Consolidated
Financial Statements of the Company and the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Square Expiration
Location Feet Date of Lease Use
---------------- ------- -------------- -------------------------
Marietta, GA 127,098 December 1999 Manufacturing and offices
Marietta, GA 17,282 July 1997 Manufacturing and offices
Cedar Grove, NJ 6,000 Month to month Offices
Vista, CA 27,692 January 2001 Manufacturing and offices
Indianapolis, IN 27,700 January 2002 Warehouse and offices
</TABLE>
In addition to the facilities described above, the Company also maintains
smaller facilities in Allentown, Pennsylvania, Brussels, Belgium and Concord,
Ontario, Canada.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved, from time to time, in product liability
litigation relating to its products. The Company currently has in force
product liability insurance with coverage limits, subject to a self-insured
retention of $100,000 per occurrence, of $7.5 million per occurrence and
in the aggregate, annually. The Company's current insurance policies
provide coverage on a claims-made basis and are subject to annual renewal.
Based on discussions with its insurance advisors, the Company currently expects
to be able to obtain product liability insurance on satisfactory terms in the
immediate future. Product liability insurance, however, is expensive, can be
difficult to obtain, and at some point in the future may not be available on
acceptable terms, if at all. There can be no assurance that the coverage
limits of such policies will be adequate. Based upon the Company's prior
experience and its applicable product liability insurance coverage, the Company
does not expect such litigation to have a material adverse effect upon the
financial condition of the Company. From time to time, the Company is also
involved in various business and employee litigation. The Company cannot
predict whether such litigation will have a material adverse effect on the
financial condition of the Company.
As discussed in the section entitled "Business - Recent Developments", the
Company is currently involved in litigation related to Invacare Corporation's
unsolicited offer to acquire the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a brief description of the executive officers of the
Company at March 14, 1997:
CRAIG B. REYNOLDS, age 48, has served as President of the Company since
January 1987 and became Chief Executive Officer and a director of the Company
in March 1993. Previously, he served as President of the Healthdyne
Cardiovascular Division of Healthdyne, from January 1985 to December 1986 and
as Vice President of Business and Technology Development of the Technologies
Division of Healthdyne from January 1981 to December 1984. He joined
Healthdyne in 1981.
M. WAYNE BOYLSTON, age 39, joined the Company in May 1995 as its Vice
President - Finance, Chief Financial Officer and Treasurer. Prior to joining
the Company, Mr. Boylston was Vice President and Corporate Controller of
Healthdyne. Mr. Boylston joined Healthdyne in October 1982 and has held
various positions with
26
<PAGE> 27
Healthdyne, including Corporate Controller from March 1990 to February 1994 and
Vice President and Controller from February 1994 to May 1995.
ROBERT M. JOHNSON, age 49, is the Senior Vice President of Business
Development. Mr. Johnson was with Nellcor, Inc. prior to joining the Company
in March 1994. At Nellcor, Mr. Johnson held the position of Vice President and
General Manager, Perinatal Division. Prior to his position with Nellcor, Mr.
Johnson served as the President of Fiber Imaging, Inc., a fiberoptic company in
St. Louis, Missouri.
LESLIE R. JONES, age 40, has been Vice President, General Counsel and
Secretary of the Company since May 1995. Prior to that time, she held the
position of Vice President of Legal Affairs of Healthdyne. Ms. Jones joined
Healthdyne in 1985 as Associate Counsel. Ms. Jones served as Assistant General
Counsel of Healthdyne commencing in 1987, and became Vice President of Legal
Affairs in 1991.
JOHN L. MICLOT, age 38, has been Senior Vice President, Sales and
Marketing for the Company since November 1995. Prior to that time, he was Vice
President of Marketing of Medex, Inc. which he joined in February 1994. Mr.
Miclot previously held several senior positions of responsibility in marketing,
international activities and sales with Ohmeda Division of British Oxygen
Corporation, which he joined in November 1988.
JEFFREY A. NORTH, age 44, has been Vice President and Corporate Controller
since March 1996. Previously, Mr. North was Controller of the Company from
1984 until February 1996. Mr. North has been with the Company since 1983.
ROBERT E. TUCKER, age 47, has been Senior Vice President of Operations
since March 1994. Previously, Mr. Tucker was Vice President of Operations of
the Company from September 1985 until March 1994. Mr. Tucker joined the
Technologies Division of Healthdyne in 1982.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under
the symbol "HDTC". The following table sets forth, for the calendar periods
indicated, the high and low sales prices of the common stock from January 1,
1995 through December 31, 1996. The approximate number of holders of record of
the Company's common stock at March 14, 1997 was 1,966.
<TABLE>
<CAPTION>
Calendar Quarter Low High
---------------- --- ----
<S> <C> <C> <C>
1995 First 8.63 12.63
Second 9.88 12.13
Third 10.25 15.88
Fourth 9.63 13.75
1996 First 8.50 13.50
Second 9.88 14.88
Third 8.13 13.25
Fourth 7.63 10.00
</TABLE>
The Company has paid no dividends since the effective date of its initial
public offering and has no present intention to declare any dividends.
Pursuant to the terms of an Amended and Restated Secured Revolving Credit
Agreement, dated December 29, 1994, as amended, the Company is restricted from
the payment of certain dividends.
28
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues $118,318 110,494 89,012 68,598 54,384
Operating earnings 11,615 12,209 8,712 9,202 7,097
Net earnings 5,725 6,287 5,105 5,215 3,861
Net earnings per common share 0.44 0.50 0.41 0.47 0.39
Weighted average number
of common shares and common
share equivalents outstanding 12,919 12,694 12,401 11,184 10,000
</TABLE>
DECEMBER 31,
<TABLE> ------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $36,887 36,641 28,489 26,300 16,770
Total assets 98,078 82,876 69,412 44,629 28,392
Due to Healthdyne and affiliates, net -- -- -- -- 10,601
Long-term debt 29,078 26,250 20,900 4,500 --
Total liabilities 53,808 45,975 36,377 14,642 17,835
Redeemable preferred stock -- -- 3,500 5,500 6,000
Shareholders' equity 44,270 36,901 29,535 24,487 4,557
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Amounts in thousands)
Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as, but not limited to,
the sections entitled "Business - Recent Developments" and "Business - Forward
Looking Statements" herein, as well as factors discussed or identified from
time to time in the Company's filings with the Securities and Exchange
Commission.
29
<PAGE> 30
GENERAL
Healthdyne Technologies' revenues are derived from sales of
technologically advanced medical devices primarily for use in the home and
Alternate Care Sites. These products include diagnostic and therapeutic
devices for the evaluation and treatment of sleep disorders, oxygen delivery
systems, noninvasive ventilators, medication nebulizers, peak flow meters and
drug delivery systems for the treatment of respiratory disorders, and monitors
for infants at risk for SIDS, as well as a limited line of obstetrical care
products. The Company markets its products, both domestically and
internationally, through a dedicated sales force and a network of independent
manufacturers' representatives and distributors.
The Company is the subject of an unsolicited hostile tender offer from
Invacare Corporation. The offer, whether or not successful, may have a
material adverse effect on the operation of the Company. Please see the
section entitled "Business - Recent Developments".
The Company has announced the planned introduction of numerous new
products in 1997 and 1998. These actions are scheduled to be completed on an
accelerated timetable. Timely introduction of products is dependent on several
factors, including but not limited to, timely completion of design and
engineering work, successful tested prototypes, clinical device testing,
clearance or approval where necessary by the FDA, intellectual property matters
and availability of materials and components from suppliers. There can be no
assurances that each of these products will be introduced, the products will be
introduced in accordance with planned schedules, or that, once introduced,
products will be commercially successful. The anticipated rapid development
cycle also may result in higher than anticipated warranty claims, which also
could adversely affect future financial performance.
The Company competes in a highly competitive environment with numerous
competitors which are financially strong and capable of competing effectively
with the Company in the marketplace. Such competitors may take actions to meet
the Company's new product introductions and other initiatives. Some
competitors may be willing to accept lower margins and to reduce prices to
compete with the Company. As a result, the Company could fail to achieve
anticipated sales increases, to realize anticipated price increases, or
otherwise fail to meet its anticipated results. Any of such circumstances
would likely have an adverse effect on future financial performance, which
effect could be material.
The Company's present operations and future prospects may be influenced by
several factors, including developments in the healthcare industry,
third-party reimbursement policies and practices, and changes in regulatory
requirements with respect to approval and sale of medical devices. As a result
of the increasing cost of healthcare in the United States, government and
third-party payors are becoming increasingly focused on promoting cost-effective
healthcare services, and payors, in
30
<PAGE> 31
particular, have become more involved in decisions regarding diagnosis
and treatment to ensure that care is delivered in a cost-effective manner. As a
result of this focus on cost-effective healthcare delivery, the Company believes
that home-based healthcare services and medical products will continue to
provide a viable cost-effective alternative to treatment in traditional
institutional care settings in many instances.
The Company's success is dependent to a large extent upon the ability of
its customers to obtain adequate reimbursement from third-party payors, such as
government and private insurance programs, for procedures using the Company's
products. For example, Congress passed legislation in December 1995 (which was
vetoed by the President) which would have imposed a plan for balancing the
federal budget over a seven year period. The plan included major reductions in
Medicare and Medicaid expenditures and would have reduced Medicare payment
rates for oxygen by 20% beginning in 1996, gradually rising to 30% by 2002.
President Clinton's budget plan contained similar provisions, as well as
competitive bidding for selected items of equipment, which could include
oxygen. Similar proposals could be enacted as part of future budget
legislation. Similarly, the Health Care Financing Administration ("HCFA") has
announced a plan to adjust Medicare payment amounts for oxygen and oxygen
equipment on the grounds that such amounts are not "inherently reasonable".
Before making any such adjustments, HCFA will need to consider specific
economic factors and provide notice and an opportunity for public comment.
While this plan would be superseded if Congress were to enact final budget
legislation, HCFA intends to issue a proposed rule with potential reductions in
oxygen payments in the ranges contained in the budget legislation. Reductions
in the reimbursement rates that the Company's customers receive for services
rendered could have an adverse impact on the Company. The Company, however, is
hopeful that the overall cost-effective nature of diagnosis and treatment in
the home will be recognized by any new initiatives.
The Company's business also may be affected by changes in government
regulation to which the Company's products are subject or changes in the manner
in which such regulations are enforced or medical devices are approved.
Performance standards in proposed form for monitors for infants at risk for
SIDS recently have been published for comment by the FDA. The Company is
unable to predict whether, or in what form, these performance standards
ultimately will be adopted, but anticipates that it should be able to design
and manufacture products that will comply with any such standards.
A number of businesses within the healthcare industry, including in some
instances customers of the Company, recently have begun to consolidate
in order, among other things, to increase the size, efficiency and purchasing
power of the entities in question, to broaden the number and nature of products
and services offered to consumers or simply to better serve the changing
healthcare industry with its focus upon cost-effective medical care. The
Company's two largest home care dealer customers, both of which were publicly
held and had branch locations throughout the U.S., merged in August 1995. The
consolidated entity, which represents approximately
31
<PAGE> 32
20% of homecare dealers, together with similar large national healthcare
dealers, have the capability of exerting significant price pressure
on manufacturers. Changing buying patterns may also have a negative effect on
the Company's business. The Company expects that consolidation among home care
dealers is likely to continue; however, the Company cannot predict the effect of
such mergers and consolidations on its business.
The Company acquired HealthScan Products during 1994 and acquired
Fiberoptic Medical Products, Inc. and Trent Products Limited during 1996 in an
effort to broaden its product offerings and will continue to examine possible
candidates for acquisitions in the future should the opportunity arise. No
assurances, however, can be given that any such acquisitions will be
consummated by the Company or, if consummated, that they will be financially or
operationally successful.
On May 22, 1995, Healthdyne consummated a transaction pursuant to which
the 10,000 shares of the Company's Common Stock owned at that time by
Healthdyne were distributed to Healthdyne's shareholders as a tax-free dividend
(the "Spin-off"). In an effort to facilitate the Spin-off, the Board of
Directors of the Company adopted a special stock option plan pursuant to which
options to purchase 1,344 shares of the Company's common stock were granted to
option holders, including employees of the Company, of outstanding Healthdyne
stock options. The Company believes the Spin-off has been and will continue to
be beneficial to the Company in that, among other things, it will increase the
number of shares of common stock of the Company available for trading and is
expected to permit the Company to raise capital more economically and with less
restrictions than if it were a subsidiary of Healthdyne.
Although the Company derives a portion of its revenues from foreign
customers, substantially all of these sales have historically been invoiced in
U.S. Dollars and, therefore, the Company has not been exposed to any
significant foreign exchange rate risk. The Company does not expect that a
significant portion of its foreign sales in the future will be invoiced in
currencies other than U.S. Dollars and, therefore, does not anticipate that it
will be exposed to a material amount of exchange rate risk. However, no
assurance can be given that this will be the case.
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and related notes presented in another section of this
Form 10-K.
32
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues by line items in the Consolidated Statements of Earnings.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues 100% 100% 100%
Cost of Revenues 60 60 62
--- --- ---
Gross Profit 40 40 38
Selling & Administrative Expenses 25 24 24
Research & Development Expenses 5 5 4
--- --- ---
Operating Earnings 10 11 10
Interest Expense 2 2 1
Interest and Other Income -- -- 1
--- --- ---
Earnings Before Income Taxes 8 9 10
Income Tax Expense 3 3 4
--- --- ---
Net Earnings 5% 6% 6%
</TABLE>
Revenues for 1996 grew 7% to $118,318 from $110,494 in 1995. This
increase in revenues reflects strong growth in the Company's sleep disorders
and ventilation product lines, offset somewhat by a reduction in revenues from
the respiratory therapy and asthma management product lines. Revenues from the
sleep disorders product line were up 15% in 1996 over 1995, due principally to
unit sales growth of the Tranquility(TM) CPAP system. The Company introduced
Quantum(TM) its noninvasive ventilator, in late 1995 and sales of this product
grew to over $12,000 in 1996. Revenues from the respiratory therapy product
line decreased 17% in 1996 from 1995, due primarily to lower unit sales of
oxygen concentrators and asthma management products. The decrease in oxygen
concentrator volume was due to a significant reduction in sales to the
Company's largest domestic customer combined with a slowdown in purchases by
many smaller customers. The Company believes that these reductions in
purchases have resulted in part from changes in purchasing habits and concerns
over potential changes in government reimbursement for oxygen. The decrease in
volume in the asthma management product line was primarily due to customer
delays in the shipment of certain products. Excluding the effect of the
acquisition of Fiberoptic Medical Products in June, 1996, revenues from the
infant management product line increased 3% in 1996 over 1995, primarily due
to the achievement of greater market share.
Revenues for 1995 grew 24% to $110,494 from $89,012 in 1994. This increase
in revenues was led by sales of the Company's sleep disorders product line,
which increased 33% over the prior year, due principally to unit sales growth of
the Tranquility(R) CPAP system and the Alice(R) sleep diagnostic system.
Revenues from the Company's respiratory therapy product line, exclusive of
revenue associated with the acquisition of HealthScan Products, increased 9%
over the prior year. The infant management product line's revenue in 1995 was
approximately equal to that of 1994.
The Company's international sales grew in each of these periods due to
the growing acceptance of the Company's products in Europe , Canada and
the Far East. Export sales increased to $26,692 in 1996 (22.6% of revenues) from
$21,285 in 1995 (19.3% of revenues) and $14,677 in 1994 (16.5% of revenues).
33
<PAGE> 34
The Company's percentages of total revenues accounted for by its four main
product lines for the years ended December 31, 1996, 1995 and 1994,
respectively, were: sleep disorders products, 36%, 34% , and 31%, ventilation
products, 10%, 2% and 0%; respiratory therapy products 38%, 49%, and 47%, and
infant management products 14%, 13%, and 15%, respectively.
The Company's gross profit was 40% of revenues for 1996 and 1995, compared
to 38% for 1994. The increase in gross profit margin from 1994 to 1995 and
1996 is primarily attributable to increased sales of higher margin products.
Selling and administrative expenses increased slightly as a percentage of
revenues in 1996 from 1995 and 1994 due primarily to lower than expected
revenue combined with the expansion of the sales staff and expenses to support
the Company's entry into the noninvasive ventilation market.
Research and development expenses increased to $5,751 in 1996 from $4,705
in 1995 and $3,848 in 1994, primarily due to the addition of engineering staff
and engineering costs related principally to the development and introduction
of new products. As a percentage of revenues, these expenses have remained
relatively constant from 1994 through 1996.
Interest expense increased in 1996 and 1995 from 1994 primarily due to
higher average balances outstanding under the Company's bank credit agreement.
These higher average balances outstanding were primarily due to the acquisition
of HealthScan Products in the fourth quarter of 1994.
The effective tax rate remained relatively constant at 40% for 1996, 1995,
and 1994.
Until May 22, 1995, the Company's provision for income taxes was
determined based upon a tax sharing arrangement with Healthdyne due to the
inclusion of the Company's operating results in Healthdyne's consolidated tax
return. Under that arrangement, the Company's provision for income taxes has
been determined as if the Company had filed separate federal and state
corporate income tax returns. Such provision may not reflect the Company's
actual tax rate had it not been consolidated with Healthdyne for tax purposes.
The Company had deferred tax assets of $1,903 at December 31, 1996, which
resulted from allowances for uncollectible accounts and accruals and reserves
recorded for financial statement purposes but not yet deducted for income tax
purposes. Management believes such deferred tax assets will be recoverable
through reduced income taxes payable in the future.
34
<PAGE> 35
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $36,900 and $36,600 at
December 31, 1996 and 1995, respectively. This increase was due to the growth
of the Company's business. During the past two years, the Company has financed
its operations primarily through internally generated cash flow and amounts
available under its bank line of credit.
Net cash provided by operating activities was $10,968 in 1996, as compared
to net cash used in operating activities of $2,469 in 1995 and net cash
provided by operations of $1,842 in 1994. The improvement in operating cash
flow in 1996 from 1995 was due in part to improved inventory management and
increased accounts payable. The net use of cash during 1995 was due primarily
to increases in inventories and accounts receivable. This increase in
inventories was primarily due to the expansion of the Company's product
offerings and a shortfall from projected sales in the oxygen concentrator
product line. The increase in accounts receivable was due to international
sales (which typically have extended payment terms) growing at a faster rate
than total sales and to an increase in the amount of domestic sales that have
extended payment terms. Cash used in investing activities increased to $9,447
in 1996 from $4,168 in 1995, which was down from $15,537 in 1994. The increase
in 1996 was primarily due to the acquisition of Fiberoptic Medical Products and
Trent Products Limited and payments made pursuant to product right purchase
agreements.
The Company entered into a Secured Revolving Credit Agreement in June 1993
(the "Credit Agreement") with two commercial banks and in December 1994 entered
into an amendment to the Credit Agreement which increased the total commitment
from $15,000 to $25,000. During the last half of 1995, the Credit Agreement
was amended again to increase the total commitment to $35,000. The Credit
Agreement was further amended in June 1996 to add a term loan commitment of
$15,000. The revolving credit facility expires and is payable in full in June
1999 and the term loan matures on January 31, 1998. This facility may be used
for general corporate purposes and is secured by all accounts receivable,
inventory, deposit accounts and all intangible assets of the Company and
contains various covenants, including but not limited to, net worth and
financial ratio requirements. The Company had outstanding borrowings of
$28,500 under its Credit Agreement at interest rates ranging from 7.16% to 8.5%
as of December 31, 1996.
The Company believes that its existing cash balances, together with
internally generated funds and remaining amounts available under its
Credit Agreement, will be sufficient to meet the Company's operating capital
requirements for at least the next twelve months. Additional indebtedness
and/or equity, in all likelihood, would be needed to finance possible
acquisitions should the Company decide to pursue such transactions in the
future.
35
<PAGE> 36
As of December 31, 1996, the Company had outstanding commitments for
capital expenditures of approximately $700 relating primarily to manufacturing
tooling.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and its
subsidiaries and independent auditors' report thereon are included as pages F-1
through F-20 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets: December 31, 1996 and 1995 F-2
Consolidated Statements of Earnings:
Years ended December 31, 1996, 1995, and 1994 F-3
Consolidated Statements of Shareholders' Equity:
Years ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Cash Flows:
Years ended December 31, 1996, 1995, and 1994 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
37
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Healthdyne Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Healthdyne
Technologies, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Healthdyne
Technologies, Inc. and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 7, 1997
F-1
<PAGE> 39
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except per share amount)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 12) $3,041 287
Trade accounts and notes receivable, less allowances of $1,193
and $1,161 at December 31, 1996 and 1995, respectively 36,164 32,401
Inventories (note 4) 18,593 19,934
Deferred income taxes (note 8) 1,523 1,744
Prepaid expenses and other current assets 2,296 2,000
------- ------
Total current assets 61,617 56,366
Property and equipment, net (note 5) 9,294 7,104
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $1,815 and $1,138 at December 31,
1996 and 1995, respectively (note 3) 20,911 17,146
Intangible assets, less accumulated amortization of $2,992
and $2,744 at December 31, 1996 and 1995, respectively 5,410 2,053
Deferred income taxes (note 8) 380 -
Other assets 466 207
------- ------
$98,078 82,876
======= ======
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt (notes 6 and 12) $2,610 2,982
Accounts payable, principally trade 12,375 9,285
Accrued liabilities (note 7) 9,745 7,458
------- ------
Total current liabilities 24,730 19,725
Long-term debt, excluding current installments (notes 6 and 12) 29,078 26,250
------- ------
Total liabilities 53,808 45,975
------- ------
Shareholders' equity (notes 9 and 11):
Preferred stock, without par value. Authorized 10,000 shares;
none issued - -
Common stock, $.01 par value. Authorized 50,000 shares;
issued 12,628 and 12,455 shares at December 31, 1996
and 1995, respectively 126 125
Additional paid-in capital 22,755 21,112
Retained earnings 21,389 15,664
------- ------
Total shareholders' equity 44,270 36,901
Commitments and contingencies (notes 11, 13, and 14)
------- ------
$98,078 82,876
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 40
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995, and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Revenues (notes 2 and 15) $118,318 110,494 89,012
Cost of revenues (note 2) 70,981 66,692 55,441
-------- ------- ------
Gross profit 47,337 43,802 33,571
Selling and administrative expenses (note 2) 29,971 26,888 21,011
Research and development expenses 5,751 4,705 3,848
-------- ------- ------
Operating earnings 11,615 12,209 8,712
Interest income 368 318 305
Interest expense (2,398) (2,117) (634)
Other income (expense), net (55) (21) 105
-------- ------- ------
Earnings before income taxes 9,530 10,389 8,488
Income tax expense (note 8) 3,805 4,102 3,383
-------- ------- ------
Net earnings $ 5,725 6,287 5,105
======== ======= ======
Net earnings per common share and common
share equivalent (note 9) $ 0.44 0.50 0.41
======== ======= ======
Weighted average number of common shares
and common share equivalents outstanding (note 9) 12,919 12,694 12,401
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 41
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
Common stock Additional Total
-------------- paid-in Retained shareholders'
Shares Amount capital earnings equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 12,338 $ 123 20,092 4,272 24,487
Issuance of common stock pursuant
to exercise of options 7 - 48 - 48
Repurchase and retirement of common
stock (10) - (105) - (105)
Net earnings - - - 5,105 5,105
------ ------ ---------- -------- -------------
Balance, December 31, 1994 12,335 123 20,035 9,377 29,535
Income tax benefits arising from stock
option exercises - - 192 - 192
Issuance of common stock:
Exercise of options 119 2 876 - 878
Employee stock purchase plan 1 - 9 - 9
Net earnings - - - 6,287 6,287
------ ------ ---------- -------- -------------
Balance, December 31, 1995 12,455 125 21,112 15,664 36,901
Income tax benefits arising from stock
option exercises - - 316 - 316
Issuance of common stock:
Exercise of options 165 1 1,272 - 1,273
Employee stock purchase plan 8 - 55 - 55
Net earnings - - - 5,725 5,725
------ ------ ---------- -------- -------------
Balance, December 31, 1996 12,628 $ 126 22,755 21,389 44,270
====== ====== ========== ======== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,725 6,287 5,105
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,501 3,075 2,256
Deferred income taxes (159) (273) (234)
(Increase) decrease in:
Trade accounts and notes receivable (3,243) (6,848) (7,100)
Inventories 1,057 (5,285) (727)
Other assets (550) (1,283) (123)
Increase in:
Accounts payable 2,333 332 1,406
Accrued liabilities 2,304 1,526 1,259
-------- -------- --------
Net cash provided by (used in) operating activities 10,968 (2,469) 1,842
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (4,273) (3,315) (2,034)
Purchases of product rights (3,606) (853) (795)
Acquisition of businesses, net of cash acquired (1,568) - (12,708)
-------- -------- --------
Net cash used in investing activities (9,447) (4,168) (15,537)
-------- -------- --------
Cash flows from financing activities:
Borrowings under revolving line of credit 8,500 18,000 20,500
Repayments under revolving line of credit (5,500) (11,500) (6,000)
Proceeds from issuance of long-term debt 701 222 -
Principal repayments of long-term debt (3,796) (2,290) -
Net borrowings from (repayments to) Healthdyne
and affiliates - 985 (985)
Proceeds from issuance of shares of common stock 1,328 887 48
Purchase of treasury stock - - (105)
Redemption of redeemable preferred stock - - (2,000)
-------- -------- --------
Net cash provided by financing activities 1,233 6,304 11,458
-------- -------- --------
Net increase (decrease) in cash 2,754 (333) (2,237)
Cash and cash equivalents at beginning of year 287 620 2,857
-------- -------- --------
Cash and cash equivalents at end of year $ 3,041 287 620
======== ======== ========
</TABLE>
F-5
<PAGE> 43
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Supplemental disclosure of cash paid during the year for:
Income taxes $3,274 2,508 408
====== ===== =====
Interest $2,338 2,040 621
====== ===== =====
Noncash investing and financing activities:
Transfer of demonstration inventory to
property and equipment $ 478 - 611
====== ===== =====
Conversion of redeemable preferred stock
to note payable $ - 3,500 -
====== ===== =====
Debt issued in connection with business acquisitions $2,175 - 2,300
====== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 44
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
(In thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) Business
Healthdyne Technologies, Inc. (the "Company") was an 81% owned
subsidiary of Healthdyne, Inc. ("Healthdyne") from the date of its
initial public offering in June 1993 until May 22, 1995. On that date
Healthdyne distributed the 10,000 shares of common stock of the Company
owned by Healthdyne to the shareholders of Healthdyne in a tax-free
distribution (the "Spin-off"). The Company is a leading producer of
technologically advanced medical products designed for use in the home
and specialized clinical settings.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated balance sheets and
income and expenses for the periods. Actual results could differ from
those estimates.
As indicated above, prior to May 22, 1995, the Company operated as an
81%-owned subsidiary of Healthdyne. The Company's financial statements
for the years ended December 31, 1995 and 1994 include direct expenses
incurred on its behalf by Healthdyne, as well as its portion of common
expenses incurred by Healthdyne on behalf of all subsidiaries and
divisions of Healthdyne. Such allocation of common expenses was based
on various factors considered by management to best represent the costs
for the respective subsidiaries and divisions.
The consolidated financial statements include the accounts of Healthdyne
Technologies, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and interest-bearing deposits.
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(Continued)
F-7
<PAGE> 45
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method
over the estimated useful lives of the assets ranging from 3 to 15
years. Amortization of leasehold improvements is recorded over the
shorter of the lives of the related assets or the lease terms and is
included in depreciation expense.
(f) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straight-line method over periods ranging from
15 to 40 years. At each balance sheet date, the Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds.
(g) Intangible Assets
Intangible assets principally represent costs of purchased product
rights to manufacture and sell products consisting, in some cases, of
related patents and trademarks previously developed by others. These
costs are being amortized over the estimated lives of the respective
assets using the straight-line method of amortization.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on January 1, 1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(i) Revenues
Revenues are derived primarily from the sale of medical products and are
recognized as the related products are shipped.
(j) Interest Rate Swap Agreements
The differential to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements.
(Continued)
F-8
<PAGE> 46
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based Compensation
("SFAS 123"), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
earnings and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair value-based
method defined in SFAS 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure requirements of SFAS 123.
(l) Income Taxes
Until May 22, 1995 the Company's results of operations were included in
the consolidated Federal income tax returns filed by Healthdyne. Under
the tax sharing arrangement between the Company and Healthdyne, income
taxes were recorded by the Company as if it filed separate income tax
returns.
The Company accounts for income taxes using an asset and liability
approach in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"). Under SFAS 109, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Additionally, the effect on
deferred taxes of a change in tax rates is recognized in earnings in the
period that includes the enactment date.
(m) Earnings Per Share of Common Stock
Primary earnings per common share and common share equivalent are based
on the weighted average number of shares outstanding and common share
equivalents derived from dilutive stock options. Fully diluted earnings
per share are not significantly different from primary earnings per
share.
(2) Related Party Transactions
In 1995 and 1994, the Company sold uterine activity monitoring systems and
related equipment and supplies under a manufacturing arrangement to
Perinatal Services, Inc., a wholly owned subsidiary of Healthdyne doing
business as Healthdyne Maternity Management ("HMM"), at a price which was
approximately 33% above manufactured cost. These sales amounted to $2,425
and $4,111 for the years ended December 31, 1995 and 1994, respectively.
The Company also provided research and development services to HMM.
Amounts charged to HMM at cost related to such services for the years ended
December 31, 1995 and 1994 were $309 and $540, respectively.
(Continued)
F-9
<PAGE> 47
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1995 and 1994, Healthdyne provided certain legal, tax, data processing,
personnel, insurance, and accounting services to the Company. Amounts
charged to the Company related to such services which have been reflected
as selling and administrative expenses in the accompanying consolidated
statements of earnings for the years ended December 31, 1995 and 1994 were
$918 and $854, respectively. In 1995 and 1994, Healthdyne also paid
property and casualty and directors' and officers' insurance premiums on
the Company's behalf. Amounts charged to the Company for these premiums
and included in cost of revenues and selling and administrative expenses in
the accompanying consolidated statements of earnings for the years ended
December 31, 1995 and 1994 were $637 and $693, respectively. Charges for
services provided by Healthdyne to the Company were generally determined
based on estimates of actual time in providing such services to the Company
using actual costs without markup. To the extent that charges for such
services and for costs incurred by Healthdyne on the Company's behalf were
allocations of common expenses, such allocations were based on one or more
criteria such as asset or revenue size, relative transaction volume,
employee headcounts, facility size, and other relevant criteria.
Management believes that such allocation methods resulted in reasonable
approximations of the common expenses related to the Company.
On February 9, 1995, in connection with the Spin-off, the Company's Board
of Directors approved the 1995 Stock Option Plan II pursuant to which stock
options were granted to certain holders of stock options of Healthdyne in
an amount equal to 1,344 shares. Also, on April 21, 1995, the Company
redeemed the outstanding Series A redeemable preferred stock held by
Healthdyne through the issuance of an interest-bearing subordinated
promissory note in the principal amount of $3,500 (see notes 9 and 10).
(3) Business Acquisitions
In June 1996, the Company acquired all outstanding shares of Fiberoptic
Medical Products, Inc., a Pennsylvania-based medical technology company.
Consideration consisted of $1,400 in cash and $2,100 in promissory notes
and deferred payments. The acquisition was accounted for using the
purchase method of accounting with the results of operations of the
business acquired included from the effective date of the acquisition. The
acquisition resulted in excess of cost over net assets acquired of
approximately $3,800. Pro forma results of operations have not been
presented because the effects of this acquisition were not significant.
In October 1996, the Company acquired substantially all of the business
assets and assumed the associated debts and liabilities of Trent Products
Limited, an Indiana-based medical products manufacturing company.
Consideration consisted of $465 in cash and $75 in notes payable plus
additional consideration based on future performance. The acquisition was
accounted for using the purchase method of accounting with the results of
operations of the business acquired included from the effective date of the
acquisition. The acquisition resulted in excess of cost over net assets
acquired of approximately $600. Pro forma results of operations have not
been presented because the effects of this acquisition were not
significant.
(Continued)
F-10
<PAGE> 48
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In October 1994, the Company acquired HealthScan Products, Inc., a New
Jersey-based medical device company. Consideration consisted of $12,625 in
cash and $2,300 in deferred payments. The acquisition was accounted for
using the purchase method of accounting with the results of operations of
the business acquired included from the effective date of the acquisition.
The acquisition resulted in excess of cost over net assets acquired of
approximately $14,900.
(4) Inventories
<TABLE>
<CAPTION>
Inventories are summarized as follows:
December 31,
---------------
1996 1995
------- ------
<S> <C> <C>
Finished goods $ 7,862 8,539
Work in process 3,086 3,750
Raw materials 7,645 7,645
------- ------
$18,593 19,934
======= ======
</TABLE>
(5) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1996 1995
------- ------
<S> <C> <C>
Tooling and manufacturing equipment $12,416 10,371
Office furniture, machinery, and equipment 6,782 4,505
Leasehold improvements 1,096 957
------- ------
20,294 15,833
Less accumulated depreciation and amortization 11,000 8,729
------- ------
$9,294 7,104
======= ======
</TABLE>
(Continued)
F-11
<PAGE> 49
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1996 1995
------- ------
<S> <C> <C>
Payable to banks under revolving credit agreement
(see description following) $28,500 25,500
Unsecured promissory note incurred in connection
with business acquisition; interest at 6%; principal
with accrued interest payable in two annual
installments beginning June 1997 1,178 -
Unsecured, noninterest-bearing obligation incurred
in connection with business acquisition; payable
in 1997 900 -
Unsecured, noninterest-bearing obligation incurred
in connection with business acquisition; payable in
eight quarterly installments of $100 which began
January 1995 and two annual installments of $750
which began January 1996 750 1,900
Subordinated promissory note; interest at 7%; paid off
in 1996 - 1,750
Other debt 360 82
------- ------
31,688 29,232
Less current installments 2,610 2,982
------- ------
Long-term debt, excluding current installments $29,078 26,250
======= ======
</TABLE>
In June 1993, the Company entered into a revolving credit agreement (the
"Credit Agreement") totaling $15,000 with two banks and in December 1994
entered into an amendment to the Credit Agreement which increased the total
amount available to $25,000. During the last half of 1995, the Credit
Agreement was amended again to increase the total commitment to $35,000.
The Credit Agreement was further amended in June 1996 to add a term loan
commitment of $15,000. The revolving credit facility expires and is payable
in full in June 1999 and the term loan matures on January 31, 1998. The
Credit Agreement is secured by inventories, accounts receivable, and
certain intangible assets of the Company and certain of its subsidiaries.
The Credit Agreement bears an interest rate at either the Eurodollar
Interbank Rate plus 0.75% to 2.0%, or the higher of the agent bank's
reference rate or the federal funds rate plus 0.5%, plus up to 0.5%. The
total of $28,500 ($13,500 revolving credit facility; $15,000 term loan)
outstanding under the Credit Agreement at December 31, 1996 bears interest
at rates ranging from 7.16% to 8.50%. Under the Credit Agreement, the
Company has agreed to certain financial covenants, including net worth,
working capital, and financial ratio requirements. As of December 31,
1996, the Company was in compliance with these financial covenants.
(Continued)
F-12
<PAGE> 50
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating rate long-term debt.
At December 31, 1996, the Company had outstanding two interest rate swap
agreements with commercial banks, having a total notional principal amount
of $15,000. These agreements effectively change the Company's interest
rate exposure on its $15,000 term loan due January 31, 1998 to a fixed rate
of 6.33% for $7,500 of the term loan and 6.25% for the remaining $7,500.
The interest rate swap agreements mature at the time the related term loan
matures. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the
counterparties.
Approximate aggregate minimum annual payments due on long-term debt for the
years subsequent to December 31, 1996 are as follows: 1997, $2,610; 1998,
$15,578; 1999, $13,500; and thereafter, none.
(7) Accrued Liabilities
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Accrued salaries, bonuses, commissions, and payroll taxes $1,976 2,333
Accrued warranty expense 1,270 1,670
Income taxes payable 1,395 1,080
Customer deposit 2,100 -
Other accrued liabilities 3,004 2,375
------ ------
$9,745 7,458
====== ======
</TABLE>
(8) Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $3,502 3,743 3,079
State 462 632 538
Tax benefit arising from the exercise of
stock options (316) (192) -
------ ----- -----
3,648 4,183 3,617
------ ----- -----
Deferred:
Federal (145) (230) (210)
State (14) (43) (24)
------ ----- -----
(159) (273) (234)
------ ----- -----
Credit to additional paid-in capital for stock
option exercises 316 192 -
------ ----- -----
Income tax expense $3,805 4,102 3,383
====== ===== =====
</TABLE>
(Continued)
F-13
<PAGE> 51
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the expected income tax expense (based on the U.S.
Federal statutory tax rate of 35%) to the actual income tax expense is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed expected income tax expense $3,336 3,636 2,971
State income taxes, net of Federal income
tax benefit 291 383 334
Nondeductible expenses 292 302 163
Income tax rate differential (95) (100) (85)
Other, net (19) (119) -
-------- -------- -----
$3,805 4,102 3,383
======== ======== =====
At December 31, 1996 and 1995, the components of deferred tax assets are as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allowance for uncollectible accounts $ 466 443
Accruals and reserves not deducted for tax purposes 1,437 1,301
------ -----
$1,903 1,744
====== =====
</TABLE>
There were no valuation allowances for deferred tax assets at December 31,
1996 or 1995. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the temporary differences
become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods
in which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these
deductible differences through reduced income taxes payable.
(9) Shareholders' Equity
Stock Option Plans
In February 1996, the Board of Directors of the Company adopted the 1996
Stock Option Plan for officers, key employees, consultants, and advisors of
the Company and its subsidiaries, under which 750 shares of the Company's
common stock were reserved for future issuance. The options issued under
this Plan are exercisable at the fair market value of the common stock at
the date of grant and become exercisable ratably over a period of three
years from the date of grant.
(Continued)
F-14
<PAGE> 52
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1995, in connection with the Spin-off of the Company from
Healthdyne, the Company's Board of Directors approved the 1995 Stock
Option Plan II pursuant to which adjustment options to purchase 1,344
shares of the Company's common stock were issued to holders of stock
options of Healthdyne. The options issued under this plan are
exercisable at the fair market value of the common stock at the date of
original grant and become exercisable ratably over a period of three
years from the original date of grant.
In March 1993, the Board of Directors of the Company adopted the 1993
Stock Option Plan for officers, key employees, consultants, and advisors
of the Company and its subsidiaries and a 1993 Nonemployee Director Stock
Option Plan for nonemployee members of the Board of Directors of the
Company, under which 400 shares and 53 shares, respectively, of the
Company's common stock were reserved for future issuance. In February
1995, the Board of Directors of the Company approved an amendment to the
1993 Stock Option Plan to increase the number of shares of common stock
reserved for issuance by an additional 300 shares. The options issued
under these plans are exercisable at the fair market value of the common
stock at date of grant and become exercisable ratably over a period of
three years from the date of grant.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $4.40 and $4.45, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected volatility 39% 38%
Expected dividend yield none none
Risk-free interest rate 6.25% 6.00%
Expected life of stock options 5 years 5 years
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's net earnings and related per
share amounts would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Net earnings:
As reported $5,725 6,287
Pro forma 4,849 5,844
Net earnings per share:
As reported $ 0.44 0.50
Pro forma 0.38 0.46
</TABLE>
(Continued)
F-15
<PAGE> 53
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pro forma net earnings reflect only options granted in 1996 and 1995.
Therefore, the full effect of calculating compensation cost for stock
options under SFAS 123 is not reflected in the pro forma net earnings
and related per share amounts presented above because compensation cost
is reflected over the vesting period of the options and compensation cost
for options granted prior to January 1, 1995 is not considered.
A summary of stock option transactions under all stock option plans is
shown below:
<TABLE>
<CAPTION>
Option price per share
Number --------------------------------
of Weighted
shares Range average
------ ----- --------
<S> <C> <C> <C>
Options outstanding at December 31, 1993 212 $7.13 $ 7.13
Granted 203 8.72- 9.19 8.98
Exercised (7) 7.13 7.13
Canceled or expired (6) 7.13 7.13
------
Options outstanding at December 31, 1994 402 7.13- 9.19 8.06
Adjustment options issued in Spin-off 1,344 6.04-26.77 10.05
Granted 252 10.00-10.88 10.37
Exercised (119) 6.04- 8.84 7.35
Canceled or expired (5) 7.93-16.38 11.00
------
Options outstanding at December 31, 1995 1,874 6.04-26.77 9.71
Granted 295 9.13-13.25 10.06
Exercised (165) 6.04-10.38 7.65
Canceled or expired (222) 6.04-16.38 16.21
------
Options outstanding at December 31, 1996 1,782 6.04-26.77 9.14
======
Options exercisable at December 31, 1995 1,000 6.04-26.77 10.89
======
Options exercisable at December 31, 1996 1,268 6.04-26.77 8.79
======
</TABLE>
The following table summarizes information about options outstanding and
exercisable at December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------- ------------------------
Number Weighted- Number
outstanding average Weighted- exercisable Weighted-
Range of at remaining average at average
exercise December 31, contractual exercise December 31, exercise
prices 1996 life price 1996 price
- --------------- ------------ ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
$6.04 - 9.99 1,179 3.83 years $ 7.75 1,071 $ 7.61
10.00 - 14.75 518 8.67 years 10.36 112 10.73
14.76 - 26.77 85 3.08 years 22.10 85 22.10
</TABLE>
(Continued)
F-16
<PAGE> 54
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock Dividend
On August 25, 1994, the Company declared a four-for-three stock split
effected in the form of a 33% stock dividend to shareholders of record as
of September 6, 1994, which was distributed on September 14, 1994.
Shareholders' equity and all share and per share information in the
accompanying consolidated financial statements and related notes have
been restated to reflect this split.
Shareholder Rights Plan
In April 1995, the Company's Board of Directors declared a dividend
distribution of one purchase right for each share of the Company's common
stock outstanding as of May 22, 1995. If a person or group acquires
beneficial ownership of 15% or more of the Company's outstanding common
stock or announces a tender offer or exchange that would result in the
acquisition of a beneficial ownership of 20% or more of the Company's
outstanding common stock, the rights detach from the common stock and are
distributed to shareholders as separate securities. Each right entitles
its holder to purchase one one-hundredth of a share (a unit) of Series B
Cumulative Preferred Stock, at a purchase price of $50 per unit. The
rights, which do not have voting power, expire on May 22, 2005 unless
previously distributed and may be redeemed by the Company in whole at as
price of $.01 per right any time before and within 10 days after their
distribution. If the Company is acquired in merger or other business
combination transaction or 50% of its assets or earnings power are sold
at any time after the rights become exercisable, the rights entitle a
holder to buy a number of common shares of the acquiring company having a
market value of twice the exercise price of the right. If a person
acquires 20% of the Company's common stock or if a 15% or larger holder
merges with the Company and the common stock is not changed or exchanged
in such merger, or engages in self-dealing transactions with the Company,
each right not owned by such holder becomes exercisable for the number of
common shares of the Company having a market value of twice the exercise
price of the right.
(10) Series A Redeemable Preferred Stock
In connection with the Company's capitalization in 1993, the Company
approved the issuance of 1,000 shares of Series A redeemable preferred
stock to Healthdyne. These shares were recorded at the redemption value of
$6.00 per share. The Series A redeemable preferred stock were redeemable
at the option of Healthdyne, subject to certain restrictions, in amounts
not exceeding 83 shares per quarter. In April 1995, in connection with the
Spin-off, the Company redeemed the outstanding Series A redeemable
preferred stock held by Healthdyne through the issuance of an
interest-bearing subordinated promissory note in the principal amount of
$3,500.
(11) Employee Benefit Plans
During 1993, the Company established a nonqualified defined benefit
pension plan for the benefit of a certain select group of senior
management. The benefits are based on the employee's compensation during
the three calendar years in which the individual's base salary is the
highest and actual years of service. At December 31, 1996, the plan is
unfunded.
(Continued)
F-17
<PAGE> 55
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table sets forth the plan's funded status at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
December 31,
---------------
1996 1995
------ -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $869 and $653 at December 31,
1996 and 1995, respectively $ 951 785
====== =======
Projected benefit obligation for service rendered to date $2,475 2,289
Plan assets at fair value - -
------ -------
Projected benefit obligation in excess of plan assets 2,475 2,289
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (468) (698)
Prior service cost not yet recognized in net periodic pension cost (973) (1,021)
Additional liability - 215
------ -------
Accrued pension cost $1,034 785
====== =======
Net pension cost for 1996 and 1995 included the following components:
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Service cost $232 107
Interest cost on projected benefit obligation 160 88
Net amortization and deferral 73 34
------ ------
Net periodic pension cost $465 229
====== ======
</TABLE>
The weighted average assumed discount rate used to measure the accumulated
and projected benefit obligations was 7.5% and 7.0% for 1996 and 1995,
respectively. The weighted average rate of compensation increase used was
5.0% for both years.
The Company also maintains a 401(k) defined contribution plan for the
benefit of its employees. The Company's obligation for contributions under
the 401(k) plan is limited to the lesser of (i) one-half of each
participant's contributions but not more than 2.5% of the participant's
base salary or (ii) 20% of the Company's pretax earnings before
consideration of this contribution. Discretionary Company contributions
are allowed under the plan. Contributions to the plan for the years ended
December 31, 1996, 1995, and 1994 were approximately $215, $194, and $97,
respectively.
(Continued)
F-18
<PAGE> 56
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1995, the Board of Directors of the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan") to encourage ownership
of its common stock by employees. The Purchase Plan provides for the
purchase of up to 200 shares of the Company's common stock by eligible
employees of the Company and its subsidiaries. Under the Purchase Plan,
the Company may conduct an offering each fiscal quarter of its common stock
to eligible employees. The participants of the Purchase Plan can elect to
purchase common stock at the lower of 85% of the fair market value per
share on either the first or last business day of the quarter, limited to
10% of the employee's compensation. A participant immediately ceases to be
a participant in the Purchase Plan upon termination of his or her
employment for any reason. Approximately 8 and 1 shares of common stock
were issued under the Purchase Plan during 1996 and 1995, respectively.
Compensation cost related to this plan determined under SFAS 123 had an
insignificant effect on the pro forma net earnings and pro forma net
earnings per share for 1996 and 1995 disclosed in note 9.
(12) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
(a) Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) Long-Term Debt
The Company estimates that the carrying amount of the Company's
long-term debt approximates the fair value based on the borrowing
rates currently offered to the Company for debt of the same remaining
maturities.
(13) Commitments
The Company is committed under noncancelable operating lease agreements
for facilities and equipment. The future minimum annual lease payments
under these leases for the next five years and in the aggregate are
summarized as follows:
Year ending December 31,
- ------------------------
<TABLE>
<S> <C>
1997 $1,156
1998 1,153
1999 1,152
2000 518
2001 274
Thereafter 187
------
$4,440
======
</TABLE>
(Continued)
F-19
<PAGE> 57
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Rental expense for cancelable and noncancelable leases was approximately
$1,434, $1,215, and $975 for the years ended December 31, 1996, 1995, and
1994, respectively.
The Company has a standby letter of credit in the amount of $932 at
December 31, 1996 which collateralizes the Company's obligation to a third
party for the purchase of inventory.
(14) Contingencies
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's results of operations, financial position, or
liquidity.
In connection with a customer leasing program between the Company and an
independent leasing company, the Company is contingently liable to the
leasing company within certain limits for unpaid lease receivables
transferred to the leasing company in the event of customer default.
Revenues associated with these lease financing activities were $7,334,
$7,678, and $8,743 for the years ended December 31, 1996, 1995, and 1994,
respectively. The unpaid lease receivables for which the Company is
contingently liable, within certain limits, were approximately $7,973 and
$8,708 at December 31, 1996 and 1995, respectively.
(15) Revenues
Export sales approximated $26,692, $21,285, and $14,677 for the years
ended December 31, 1996, 1995, and 1994, respectively.
(16) Quarterly Financial Information - Unaudited
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Quarter
FourthThirdSecondFirst
1996:
<S> <C> <C> <C> <C>
Revenues $33,052 29,197 28,587 27,482
Gross profit 12,408 12,022 11,442 11,465
Net earnings 1,367 1,261 1,320 1,777
Net earnings per common share .11 .10 .10 .14
1995:
Revenues $28,965 25,671 28,194 27,664
Gross profit 12,014 10,437 10,849 10,502
Net earnings 1,780 1,270 1,690 1,547
Net earnings per common share .14 .10 .14 .12
</TABLE>
F-20
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
<PAGE> 59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated by
reference to the section entitled " I. Election of Directors" in the Proxy
Statement relating to the 1997 Annual Meeting of Shareholders of the Company
(hereinafter, the "1997 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the section entitled " Executive Compensation and Other Information"
contained in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section entitled " Beneficial Ownership of Common Stock" contained in the 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference to the section entitled " Compensation Committee
Interlocks and Insider Participation" contained in the 1997 Proxy Statement.
For purposes of determining the aggregate market value of the Company's
common stock held by non-affiliates, shares held by all directors and executive
officers of the Company have been excluded. The exclusion of such shares is
not intended to, and shall not, constitute a determination as to which persons
may be "affiliates" of the Company as defined by the Securities and Exchange
Commission.
Section 16 (a) of the Securities Exchange Act of 1934 as amended (the
"Act") requires the Company's directors and officers and persons who own more
than ten percent of a registered class of the Company's equity securities to
file with the SEC regarding beneficial ownership of Common Stock and other
equity securities of the Company. To the Company's knowledge, based solely on
a review of copies of such reports furnished to the Company, all officers,
directors and greater than ten percent beneficial owners complied with the
Section 16 (a) filing requirements of the Act in all instances.
39
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of the Company and
its subsidiaries and report of independent auditors thereon are included as
pages F-1 through F-20 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statements of Earnings:
Years ended December 31, 1996, 1995, and 1994 F-3
Consolidated Statements of Shareholders' Equity:
Years ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Cash Flows:
Years ended December 31, 1996, 1995, and 1994 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
(a)(2) The following supporting financial statement schedule and
report of independent auditors thereon are included as part of
this Annual Report on Form 10-K:
Independent Auditors' Report.
Schedule II - Valuation and Qualifying Accounts.
All other Schedules are omitted because the required information
is inapplicable or information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) Exhibits:
The following exhibits are incorporated by reference herein from
the Company's Registration Statement on Form S-1 (Registration No.
33-60708):
40
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
3.1(a) Articles of Incorporation of the Company.
3.1(b) Articles of Amendment to Articles of Incorporation of the Company.
10.1 Tax Sharing Agreement, dated March 31, 1993, between the Company and
Healthdyne, Inc.
10.2 Administrative Services Agreement, dated March 31, 1993, between the
Company and Healthdyne, Inc.
10.4 Stock Purchase Agreement, dated January 5, 1993, between Mr. Didier
Michel, Mr. Vincent Brisbois, Healthdyne International, S.A. and
Healthdyne, Inc.
10.8 1993 Stock Option Plan.
10.9 1993 Non-employee Director Stock Option Plan.
10.10 Secured Revolving Credit Agreement, dated June 11, 1993, between
Healthdyne Technologies, Inc. and Continental Bank, N.A., as agent.
The following exhibits are incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 as part of this
Report:
10.11 Termination of Lease Agreement, dated December 6, 1993, between MK
Management Company, Inc. and Healthdyne, Inc.
10.12 Termination of Lease Agreement, dated December 6, 1993, between Max L.
Kuniansky, David L. Kuniansky, Douglas S. Kuniansky, Amy Kuniansky Clark
and Healthdyne, Inc.
10.13 Lease Agreement, dated December 20, 1993, between Max L. Kuniansky,
David L. Kuniansky, Amy Kuniansky Clark, Douglas S. Kuniansky and the
Company.
The following exhibits are incorporated by reference herein from the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.14 Amended and Restated Secured Revolving Credit Agreement, dated
December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.15 Healthdyne Technologies, Inc. Stock Option Plan II, adopted by the Board
of Directors on February 9, 1995 and approved by the shareholders of the
Company on April 20, 1995.
</TABLE>
41
<PAGE> 62
The following exhibits are incorporated by reference herein from the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2(a) Stock Purchase Agreement, dated October 1, 1994, between the Company,
Health Scan Products, Inc., a New Jersey corporation, and Frank Gargano
and Frank Alvino, as shareholders, incorporated by reference from the
Company's Current Report on Form 8-K dated November 2, 1994.
3.1(c) Articles of Amendment to Articles of Incorporation of the Company.
10.18 Distribution Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's current report on Form 8-K dated April 20,
1995.
10.19 Tax Sharing Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.20 Tax Indemnity Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc., incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.21 Corporate Services Agreement dated as of April 23, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. by reference from the
Company's Current Report on Form 8-K dated April 20, 1995.
10.22 OEM Design and Manufacturing Agreement dated as of April 21, 1995 by and
between Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated
by reference from the Company's Current Report on Form 8-K dated April
20, 1995.
10.23 Tradename License Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc., incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.24 Amendment to Distribution Agreement dated May 4, 1995 between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the period
ending March 31, 1995.
42
<PAGE> 63
10.25 Management and Transition Agreement dated July 1, 1995 between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995.
10.26 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Craig Reynolds incorporated by reference for the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.27 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Bob Tucker incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.28 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Leslie Jones incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.29 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Wayne Boylston incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.30 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Jeff North incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.31 First Amendment to Amended and Restated Revolving Credit Agreement
dated December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.32 Second Amendment to Amended and Restated Revolving Credit Agreement dated
December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.33 Non-Competition Agreement dated November 6, 1995 between Healthdyne
Technologies, Inc. and John L. Miclot.
10.34 Agreement to Purchase Promissory Note dated January 8, 1996 between
Healthdyne Technologies, Inc. and John L. Miclot.
43
<PAGE> 64
The following exhibits are incorporated by reference herein from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996:
10.1 License Agreement dated April 4, 1996, between the Company and Metran
Medical Instrument Mfg., Co. Ltd.
10.2 Stock Purchase Agreement dated June 27, 1996, between the Company and
Pasquale J. Costa and Richard W. Holt.
10.3 Third Amendment to Amended and Restated Revolving Credit Agreement dated
December 19, 1994, between the Company and Bank of America National Trust
and Savings Association.
The following exhibits are incorporated by reference herein from Amendment
No. 4 dated March 20, 1997 to the Company's Schedule 14D-9:
20 Form of Indemnity Agreement of Director
30 Form of Indemnity Agreement of Executive Officer
The following exhibits are filed as part of this Report:
3 By-Laws of Healthdyne Technologies, Inc., as amended through March
20, 1997.
10.36 Fourth Amendment to Amended and Restated Revolving Credit Agreement
dated December 29, 1994 between the Company and Bank of America National
Trust and Savings Association.
11 Computation of Earnings per Common share for the Years Ended December 31,
1996, 1995 and 1994.
21 List of Subsidiaries.
23 Accountant's Consent to incorporation by reference in the Company's
Registration Statements Nos. 33-80692, 33-80694, 33-91510, 33-92332,
33-92924, and 333-14765 on Form S-8.
27 Financial Data Schedules
(b) Reports on Form 8-K.
The Company did not file any current reports on Form 8-K during the
quarter ended December 31, 1996.
44
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HEALTHDYNE TECHNOLOGIES, INC.
March 31, 1997 By: /s/ Craig B. Reynolds .
-----------------------------------
Craig B. Reynolds, President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig B. Reynolds and M. Wayne Boylston, and
each of them, his or her true lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same with all exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and to perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he or
she might or would do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Craig B. Reynolds President and Chief March 31, 1997
- ---------------------
Craig B. Reynolds Executive Officer
/s/ Parker H. Petit Director March 31, 1997
- ---------------------
Parker H. Petit
/s/ J. Terry Dewberry Director March 31, 1997
- ---------------------
J. Terry Dewberry
45
<PAGE> 66
/s/ Alexander H. Lorch Director March 31, 1997
- ----------------------
Alexander H. Lorch
/s/ J. Leland Strange Director March 31, 1997
- ----------------------
J. Leland Strange
/s/ James J. Wellman Director March 31, 1997
- ----------------------
James J. Wellman, M.D.
/s/ J. Paul Yokubinas Director March 31, 1997
- ----------------------
J. Paul Yokubinas
/s/ M. Wayne Boylston Vice President-Finance, March 31, 1997
- ---------------------- Chief Financial Officer, &
M. Wayne Boylston Treasurer (Principal
Financial & Accounting Officer)
46
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Healthdyne Technologies, Inc.
Under date of February 7, 1997, we reported on the consolidated balance sheets
of Healthdyne Technologies, Inc. and subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1996, as contained in the annual report on Form 10-K for the year 1996. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 7, 1997
<PAGE> 68
SCHEDULE II
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OPERATING END OF
DESCRIPTION OF PERIOD EXPENSE OTHER DEDUCTIONS PERIOD
------------ --------- ------- ----- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts
deducted from accounts receivable in
the consolidated balance sheets:
December 31, 1996 $1,161 895 191(1) 1,054(2) 1,193
December 31, 1995 898 460 -- 197(2) 1,161
December 31, 1994 514 460 -- 76(2) 898
Inventory reserves deducted from inventories
in the consolidated balance sheets:
December 31, 1996 $ 651 543 -- 289(3) 905
December 31, 1995 972 156 -- 477(3) 651
December 31, 1994 1,442 422 -- 892(3) 972
</TABLE>
(1) Represents allowance for uncollectible accounts of businesses acquired
(2) Write-off of uncollectible accounts, net of recoveries
(3) Write-off of inventories
<PAGE> 69
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of the Company and
its subsidiaries and report of independent auditors thereon are included as
pages F-1 through F-20 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statements of Earnings:
Years ended December 31, 1996, 1995, and 1994 F-3
Consolidated Statements of Shareholders' Equity:
Years ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Cash Flows:
Years ended December 31, 1996, 1995, and 1994 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
(a)(2) The following supporting financial statement schedule and
report of independent auditors thereon are included as part of
this Annual Report on Form 10-K:
Independent Auditors' Report.
Schedule II - Valuation and Qualifying Accounts.
All other Schedules are omitted because the required information
is inapplicable or information is presented in the Consolidated
Financial Statements or related notes.
(a)(3) Exhibits:
The following exhibits are incorporated by reference herein from
the Company's Registration Statement on Form S-1 (Registration No.
33-60708):
40
<PAGE> 70
The following exhibits are incorporated by reference herein from the
Company's Registration Statement on Form S-1 (Registration No. 33-60708):
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------
<S> <C>
3.1(a) Articles of Incorporation of the Company.
3.1(b) Articles of Amendment to Articles of Incorporation of the Company.
10.1 Tax Sharing Agreement, dated March 31, 1993, between the Company and
Healthdyne, Inc.
10.2 Administrative Services Agreement, dated March 31, 1993, between the
Company and Healthdyne, Inc.
10.4 Stock Purchase Agreement, dated January 5, 1993, between Mr. Didier
Michel, Mr. Vincent Brisbois, Healthdyne International, S.A. and
Healthdyne, Inc.
10.8 1993 Stock Option Plan.
10.9 1993 Non-employee Director Stock Option Plan.
10.10 Secured Revolving Credit Agreement, dated June 11, 1993, between
Healthdyne Technologies, Inc. and Continental Bank, N.A., as agent.
The following exhibits are incorporated by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 as part of this
Report:
10.11 Termination of Lease Agreement, dated December 6, 1993, between MK
Management Company, Inc. and Healthdyne, Inc.
10.12 Termination of Lease Agreement, dated December 6, 1993, between Max L.
Kuniansky, David L. Kuniansky, Douglas S. Kuniansky, Amy Kuniansky Clark
and Healthdyne, Inc.
10.13 Lease Agreement, dated December 20, 1993, between Max L. Kuniansky,
David L. Kuniansky, Amy Kuniansky Clark, Douglas S. Kuniansky and the
Company.
The following exhibits are incorporated by reference herein from the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.14 Amended and Restated Secured Revolving Credit Agreement, dated
December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.15 Healthdyne Technologies, Inc. Stock Option Plan II, adopted by the Board
of Directors on February 9, 1995 and approved by the shareholders of the
Company on April 20, 1995.
</TABLE>
<PAGE> 71
The following exhibits are incorporated by reference herein from the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2(a) Stock Purchase Agreement, dated October 1, 1994, between the Company,
Health Scan Products, Inc., a New Jersey corporation, and Frank Gargano
and Frank Alvino, as shareholders, incorporated by reference from the
Company's Current Report on Form 8-K dated November 2, 1994.
3.1(c) Articles of Amendment to Articles of Incorporation of the Company.
10.18 Distribution Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's current report on Form 8-K dated April 20,
1995.
10.19 Tax Sharing Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.20 Tax Indemnity Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc., incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.21 Corporate Services Agreement dated as of April 23, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc. by reference from the
Company's Current Report on Form 8-K dated April 20, 1995.
10.22 OEM Design and Manufacturing Agreement dated as of April 21, 1995 by and
between Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated
by reference from the Company's Current Report on Form 8-K dated April
20, 1995.
10.23 Tradename License Agreement dated as of April 21, 1995 by and between
Healthdyne, Inc. and Healthdyne Technologies, Inc., incorporated by
reference from the Company's Current Report on Form 8-K dated April 20,
1995.
10.24 Amendment to Distribution Agreement dated May 4, 1995 between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the period
ending March 31, 1995.
<PAGE> 72
10.25 Management and Transition Agreement dated July 1, 1995 between
Healthdyne, Inc. and Healthdyne Technologies, Inc. incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995.
10.26 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Craig Reynolds incorporated by reference for the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.27 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Bob Tucker incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.28 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Leslie Jones incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.29 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Wayne Boylston incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.30 Non-Competition Agreement dated May 22, 1995 between Healthdyne
Technologies, Inc. and Jeff North incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1995.
10.31 First Amendment to Amended and Restated Revolving Credit Agreement
dated December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.32 Second Amendment to Amended and Restated Revolving Credit Agreement dated
December 29, 1994, between the Company and Bank of America National
Trust and Savings Association.
10.33 Non-Competition Agreement dated November 6, 1995 between Healthdyne
Technologies, Inc. and John L. Miclot.
10.34 Agreement to Purchase Promissory Note dated January 8, 1996 between
Healthdyne Technologies, Inc. and John L. Miclot.
<PAGE> 73
The following exhibits are incorporated by reference herein from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996:
10.1 License Agreement dated April 4, 1996, between the Company and Metran
Medical Instrument Mfg., Co. Ltd.
10.2 Stock Purchase Agreement dated June 27, 1996, between the Company and
Pasquale J. Costa and Richard W. Holt.
10.3 Third Amendment to Amended and Restated Revolving Credit Agreement dated
December 19, 1994, between the Company and Bank of America National Trust
and Savings Association.
The following exhibits are incorporated by reference herein from Amendment
No. 4 dated March 20, 1997 to the Company's Schedule 14D-9:
20 Form of Indemnity Agreement of Director
30 Form of Indemnity Agreement of Executive Officer
The following exhibits are filed as part of this Report:
3 By-Laws of Healthdyne Technologies, Inc., as amended through March
20, 1997.
10.36 Fourth Amendment to Amended and Restated Revolving Credit Agreement
dated December 29, 1994 between the Company and Bank of America National
Trust and Savings Association.
11 Computation of Earnings per Common share for the Years Ended December 31,
1996, 1995 and 1994.
21 List of Subsidiaries.
23 Accountant's Consent to incorporation by reference in the Company's
Registration Statements Nos. 33-80692, 33-80694, 33-91510, 33-92332,
33-92924, and 333-14765 on Form S-8.
27 Financial Data Schedules
<PAGE> 1
EXHIBIT 3
BY-LAWS OF HEALTHDYNE TECHNOLOGIES, INC.
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Georgia, on such date and at such time as the Board of
Directors may by resolution provide. The Board of Directors may specify by
resolution prior to any special meeting of shareholders held within the year
that such meeting shall be in lieu of the annual meeting.
Section 2. Special Meeting; Call and Notice of Meetings. Special meetings
of the shareholders may be called at any time by the Board of Directors, the
Chairman of the Board of Directors or the President. The Corporation shall call
a special meeting of shareholders upon written request of the holders of at
least sixty percent (60%) of the outstanding Common Stock. Such meetings shall
be held at such place, either within or without the State of Georgia, as is
stated in the call and notice thereof. Written notice of each meeting of
shareholders, stating the time and place of the meeting, and the purpose of any
special meeting, shall be mailed to each shareholder entitled to vote at or to
notice of such meeting at his address shown on the books of the Corporation not
less than ten (10) nor more than fifty (50) days prior to such meeting unless
such shareholder waives notice of the meeting. Any shareholder may execute a
waiver of notice, in person or by proxy, either before or after any meeting, and
shall be deemed to have waived notice if he is present at such meeting in person
or by proxy. Neither the business transacted at, nor the purpose of, any meeting
need be stated in the waiver of notice of such meeting, except that, with
respect to a waiver of notice of a meeting at which a plan of merger or
consolidation is considered, information as
<PAGE> 2
required by the Georgia Business Corporation Code must be delivered to the
shareholder prior to his execution of the waiver of notice or the waiver itself
must conspicuously and specifically waive the right to such information.
Notice of any meeting may be given by the President, the Secretary or by
the person or persons calling such meeting. No notice need be given of the time
and place of reconvening of any adjourned meeting, if the time and place to
which the meeting is adjourned are announced at the adjourned meeting. Business
transacted at any special meeting shall be limited to the purposes set forth in
the notice.
Section 3. Quorum; Required Shareholder Vote. A quorum for the transaction
of business at any annual or special meeting of shareholders shall exist when
the holders of a majority of the outstanding shares entitled to vote are
represented either in person or by proxy at such meeting. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless a greater vote is required by law, by the Articles of
Incorporation or by these By-Laws. When a quorum is once present to organize a
meeting, the shareholders present may continue to do business at the meeting or
at any adjournment thereof notwithstanding the withdrawal of enough shareholders
to leave less than a quorum. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time.
Section 4. Proxies. A shareholder may vote either in person or by a proxy
which he has duly executed in writing. No proxy shall be valid after eleven (11)
months from the date of its execution unless a longer period is expressly
provided in the proxy.
Section 5. Action of Shareholders Without Meeting. Any action required to
be, or which may be, taken at a meeting of the shareholders, may be taken
without a meeting if written consent, setting forth the actions so taken, shall
be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof, except that, with respect to approval of a plan of
merger or consolidation by written consent, information as required by the
Georgia Business Corporation Code must be delivered to the shareholders prior to
their execution of the consent or the consent must conspicuously and
specifically waive the right to such information. Such consent shall
2
<PAGE> 3
have the same force and effect as a unanimous affirmative vote of the
shareholders and shall be filed with the minutes of the proceedings of the
shareholders.
Section 6. Notice of Business. No business may be transacted at an annual
meeting of shareholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any shareholder of the Corporation
(i) who is a shareholder of record on the date of the giving of the notice
provided for in this Section 6 and on the record date for the determination of
shareholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 6. The nomination by a
shareholder of any person for election as a director, other than the persons
nominated by the Board of Directors or any duly authorized committee thereof,
shall be considered business other than business specified in clauses (a) and
(b) above and shall be permitted only upon compliance with the requirements of
this Section 6.
In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the shareholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
3
<PAGE> 4
To be in proper written form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the annual
meeting (i) a brief description of the business described to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such shareholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of such shareholder in such
business, (v) a representation that such shareholder intends to appear in person
or by proxy at the annual meeting to bring such business before the meeting, and
(vi) in the case of the nomination of a person as a director, a brief
description of the background and credentials of such person including (A) the
name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number of
shares of the Corporation which are beneficially owned by such person, and (D)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or as otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected).
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 6; provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 6 shall be deemed to preclude discussion by any
shareholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
4
<PAGE> 5
Section 7. Special Meeting at Request of Shareholders.
(a) Any holder or holders of record of Common Stock requesting the
Corporation to call a special meeting of shareholders pursuant to Section 2 of
this ARTICLE I (collectively, the "Initiating Shareholder") shall deliver or
mail written notice of such request to the Secretary of the Corporation at its
principal executive offices (the "Notice"). The Notice shall contain all the
information that would be required in a notice to the Secretary given pursuant
to Section 6 of this ARTICLE I in connection with an annual meeting of
shareholders.
(b) If the Initiating Shareholder owns of record at least 60% of the
outstanding Common Stock, the Corporation shall be required to call the special
meeting of shareholders requested by the Initiating Shareholder.
(c) If the Initiating Shareholder does not own of record at least 60% of
the outstanding Common Stock, the provisions of this subsection (c) shall apply.
Within 14 days after the Secretary's receipt of the Notice from the Initiating
Shareholder containing all the information required by subsection (a) of this
Section 7, the Board of Directors shall fix a record date for determining the
shareholders of record entitled to join in the request for the calling of the
special meeting of shareholders. Such record date shall not be earlier than the
date on which the Board of Directors fixes the same and shall not be later than
30 days after such date. Only holders of record of Common Stock on the record
date shall be entitled to join in the request. The Corporation shall give prompt
written notice of the fixing of the record date to the Initiating Shareholder.
If shareholders of record on the record date owning of record on such date at
least 60% of the outstanding Common Stock deliver or mail written requests to
the Secretary of the Corporation at its principal executive offices that the
Corporation call the special meeting, the Corporation shall promptly appoint an
inspector to perform a ministerial review of, and render a report to the
Corporation and the Initiating Shareholder concerning, the validity of such
requests and any revocations thereof. The inspector will be instructed to
perform such review and render such report promptly. The Corporation shall not
be required to call the special meeting until the inspector has rendered such
report and certified in writing to the Corporation and the Initiating
5
<PAGE> 6
Shareholder that valid, unrevoked requests for the calling of the special
meeting were received from shareholders of record on the record date owning of
record on such date at least 60% of the outstanding Common Stock. Nothing
contained in this subsection (c) shall be construed to mean or imply that the
Board of Directors or any shareholder shall not be entitled to contest the
validity of any written request or revocation thereof, whether before or after
certification by the inspector, through court proceedings or otherwise. Any
dispute as to whether or not the Corporation is required to call the special
meeting of shareholders will be resolved through appropriate court proceedings,
in which the Corporation will request the court to resolve the dispute as
expeditiously as possible.
(d) Notwithstanding any other provision of these By-laws, no written
request to call a special meeting of shareholders shall be effective unless,
within 70 days after the record date fixed pursuant to subsection (c) of this
Section 7, the Corporation has received such written requests from shareholders
of record on such record date owning on such date at least 60% of the
outstanding Common Stock.
(e) The record date for determining the shareholders of record entitled to
vote at a special meeting called pursuant to this Section 7 shall be fixed by
the Board of Directors, but shall not be later than 14 days after it is
determined that the Corporation is required to call such meeting. Written notice
of the meeting shall be mailed by the Corporation to shareholders of record on
such record date within 10 days after the record date (or such longer period as
may be necessary for the Corporation to file its proxy materials with, and
receive and respond to the comments of, the Securities and Exchange Commission),
and the meeting will be held within 50 days after the date of mailing of the
notice, as determined by the Board of Directors.
(f) The business to be conducted at a special meeting called pursuant to
this Section 7 shall be limited to the business set forth in the Notice and such
other business or proposals as the Board of Directors shall determine and shall
be set forth in the notice of meeting. The Board of Directors or the Chairman of
the Board of Directors may determine rules and procedures for the conduct of the
meeting.
6
<PAGE> 7
ARTICLE II
DIRECTORS
Section 1. Power of Directors. The Board of Directors shall manage the
business of the Corporation and may exercise all powers of the Corporation,
subject to any restrictions imposed by law, by the Articles of Incorporation or
by these By-Laws.
Section 2. Composition of the Board. The size of the Board of Directors of
the Corporation shall be fixed from time to time by the Board of Directors and
shall consist of not less than three (3) or more than nine (9) natural persons
of the age of eighteen years or over, except that if all of the shares of the
Corporation are owned beneficially and of record by less than shareholders, the
number of directors may be less than three but not less than the number of
shareholders. Directors need not be residents of the State of Georgia or
shareholders of the Corporation. At each annual meeting of the shareholders, the
shareholders shall elect Directors who shall serve until their successors are
elected and qualified; provided that the shareholders may, by the affirmative
vote of the holders of a majority of the shares entitled to vote at an election
of Directors, increase or reduce the number of Directors or add or remove
Directors with or without cause at any time.
Section 3. Meetings of the Board; Notice; Notice of Meetings; Waiver of
Notice. The annual meeting of the Board of Directors for the purpose of electing
officers and transacting such other business as may be brought before the
meeting shall be held each year immediately following the annual meeting of
shareholders. The Board of Directors may by resolution provide for the time and
place of other regular meetings and no notice of such regular meetings need be
given. Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, by the President or by any two Directors, and written
notice of the time and place of such meetings shall be given to each Director by
first class or air mail at least two (2) days before the meeting or by
telephone, telegraph, cablegram or in person at least one (1) day before the
meeting. Any Director may execute a waiver of notice, either before or after any
meeting, and shall be deemed to have waived notice if he is present at such
meeting. Neither the business to be transacted at, nor the purpose of, any
meeting of
7
<PAGE> 8
the Board of Directors need be stated in the notice or waiver of notice of such
meeting. Any meeting may be held at any place within or without the State of
Georgia.
Section 4. Quorum; Vote Requirement. A majority of the Directors in office
at any time shall constitute a quorum for the transaction of business at any
meeting. When a quorum is present, the vote of a majority of the Directors
present shall be the act of the Board of Directors, unless a greater vote is
required by law, by the Articles of Incorporation or by these By-Laws.
Section 5. Action of Board Without Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if written consent, setting forth the
action so taken, is signed by all the Directors or committee members and filed
with the minutes of the proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous affirmative vote of
the Board of Directors or committee, as the case may be.
Section 6. Committees. The Board of Directors, by resolution adopted by a
majority of all of the Directors, may designate from among its members an
Executive Committee, and/or other committees, each composed of two (2) or more
Directors, which may exercise such authority as is delegated by the Board of
Directors, provided that no committee shall have the authority of the Board of
Directors in reference to (1) an amendment to the Articles of Incorporation or
By-Laws of the Corporation, (2) the adoption of a plan of merger or
consolidation, (3) the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation, or (4) a
voluntary dissolution of the Corporation or a revocation thereof.
Section 7. Vacancies. A vacancy occurring in the Board of Directors by
reason of the removal of a Director by the shareholders shall be filled by the
shareholders, or, if authorized by the shareholders, by the remaining Directors.
Any other vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors, or by the sole remaining Director, as the case
may be, or, if the vacancy is not so filled, or if no director remains, by the
shareholders. A Director elected to fill a vacancy shall serve for the unexpired
term of his predecessor in office.
8
<PAGE> 9
Section 8. Telephone Conference Meetings. Unless the Articles of
Incorporation otherwise provide, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board or committee by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 8 shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 1. Executive Structure of the Corporation. The officers of the
Corporation shall consist of a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Board of Directors. Each officer shall hold office for the term
for which he has been elected or appointed and until his successor has been
elected or appointed and has qualified, or until his earlier resignation,
removal from office or death. Any two or more offices may be held by the same
person, except that the same person shall not be both Chairman of the Board of
Directors and Secretary, or President and Secretary. The Board of Directors may
designate a Vice President as an Executive Vice President and may designate the
order in which other Vice Presidents may act.
Section 2. President. The President shall be the chief operating officer of
the Corporation and shall be in charge of the day-to-day affairs of the
Corporation, subject to the direction of the Board of Directors. He shall
preside at all meetings of the shareholders.
Section 3. Vice President. The Vice President shall act in the case of
absence or disability of the President.
Section 4. Secretary. The Secretary shall keep the minutes of the
proceedings of the shareholders and of the Board of Directors, and shall have
custody of and attest the seal of the Corporation.
9
<PAGE> 10
Section 5. Treasurer. The Treasurer shall be responsible for the
maintenance of proper financial books and records of the Corporation.
Section 6. Other Duties and Authority. Each officer, employee and agent of
the Corporation shall have such other duties and authority as may be conferred
upon him by the Board of Directors or delegated to him by the President.
Section 7. Removal of Officers. Any officer may be removed at any time by
the Board of Directors, and such vacancy may be filled by the Board of
Directors. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect upon
any cause of action which any officer may have as a result of removal in breach
of a contract of employment.
Section 8. Compensation. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE IV
STOCK
Section 1. Stock Certificates. The shares of stock of the Corporation shall
be represented by certificates in such form as may be approved by the Board of
Directors, which certificates shall be issued to the shareholders of the
Corporation in numerical order from the stock book of the Corporation, and each
of which shall bear the name of the shareholder, the number of shares
represented, and the date of issue; and which shall be signed by the Chairman of
the Board of Directors or President and the Secretary or an Assistant Secretary
of the Corporation; and which shall be sealed with the seal of the Corporation.
No share certificate shall be issued until the consideration for the shares
represented thereby has been fully paid.
Section 2. Transfer of Stock. Shares of stock of the Corporation shall be
transferred only on the books of the Corporation upon surrender to the
Corporation of the certificates or certificates representing the shares to be
transferred accompanied by an assignment in writing of such shares properly
executed by the shareholder of record or his duly authorized attorney-in-fact
and with all taxes on the transfer having been
10
<PAGE> 11
paid. The Corporation may refuse any requested transfer until furnished evidence
satisfactory to it that such transfer is proper. Upon the surrender of a
certificate for transfer of stock, such certificate shall at once be
conspicuously marked on its face "Canceled" and filed with the permanent stock
records of the Corporation. The Board of Directors may make such additional
rules concerning the issuance, transfer and registration of stock and
requirements regarding the establishment of lost, destroyed or wrongfully taken
stock certificates (including any requirement of an indemnity bond prior to
issuance of any replacement certificate) as it deems appropriate.
Section 3. Registered Shareholders. The Corporation may deem and treat the
holder of record of any stock as the absolute owner for all purposes and shall
not be required to take any notice of any right or claim of right of any other
person.
Section 4. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other purpose, the Board of
Directors of the Corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty (50) days, and in the case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken.
ARTICLE V
DEPOSITORIES, SIGNATURES AND SEAL
Section 1. Depositories. All funds of the Corporation shall be deposited in
the name of the Corporation in such bank, banks, or other financial institutions
as the Board of Directors may from time to time designate and shall be drawn out
on checks, drafts or other orders signed on behalf of the Corporation by such
person or persons as the Board of Directors may from time to time designate.
Section 2. Contracts and Deeds. All contracts, deeds and other instruments
shall be signed on behalf of the Corporation by the President or by such other
officer,
11
<PAGE> 12
officers, agent or agents as of the Board of Directors may from time to time by
resolution provide.
Section 3. Seal. The seal of the Corporation shall be as follows:
If the seal is affixed to a document, the signature of the Secretary or an
Assistant Secretary shall attest the seal. The seal and its attestation may be
lithographed or otherwise printed on any document and shall have, to the extent
permitted by law, the same force and effect as if it had been affixed and
attested manually.
ARTICLE VI
INDEMNITY
Any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Corporation), by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including reasonable attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation (and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful), to the maximum extent
permitted by, and in the manner provided by, the Georgia Business Corporation
Code.
12
<PAGE> 13
ARTICLE VII
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to alter, amend or repeal the
By-Laws or adopt new by-laws, but any by-laws adopted by the Board of Directors
may be altered, amended or repealed and new by-laws adopted by the shareholders.
The shareholders may prescribe that any by-law or by-laws adopted by them shall
not be altered, amended or repealed by the Board of Directors. Action by the
Directors with respect to the By-Laws shall be taken by an affirmative vote of a
majority of all of the Directors then in office. Action by the shareholders with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
all shares outstanding and entitled to vote.
ARTICLE VIII
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
In addition to any other provisions of law as may be applicable,
notwithstanding any other provisions of these By-Laws or the Corporation's
Articles of Incorporation to the contrary, the provisions of Section 14-2-1131
through 14-2-1133 of the Georgia Business Corporation Code (the "Code"), as the
same may be amended or supplemented from time to time, shall apply to and govern
those transactions of the Corporation which constitute "business combinations"
(as that term is defined in Section 14-2-1131 of the Code). The provisions of
this Article VIII of the By-Laws may not be repealed except in the manner set
forth in Section 14-2-1133 of the Code.
ARTICLE IX
FAIR PRICE REQUIREMENTS
In addition to any other provisions of law as may be applicable,
notwithstanding any other provisions of these By-Laws or the Corporation's
Articles of Incorporation to the contrary, the provisions of Sections 14-2-1110
through 14-2-1113 of the Georgia
13
<PAGE> 14
Business Corporation code (the "Code"), as the same may be amended or
supplemented from time to time, shall apply to and govern those transactions of
the Corporation which constitute "business combinations" (as that term is
defined in Section 14-2-1110 of the Code). The provisions of this Article IX of
the By-Laws may not be repealed except in the manner set forth in Section
14-2-1113 of the Code.
14
<PAGE> 1
EXHIBIT 10.36
EXECUTION COPY
FOURTH AMENDMENT TO
AMENDED AND RESTATED SECURED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This Agreement, dated as of December 31, 1996 (this "Amendment"), is
entered into by and among HEALTHDYNE TECHNOLOGIES, INC., a Georgia corporation
(the "Company"), the financial institutions parties to the Credit Agreement
referred to below (collectively, the "Banks"; individually, a "Bank"), and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent for the Banks (the
"Agent").
RECITALS
The Company, the Agent and the Banks are parties to an Amended and Restated
Secured Revolving Credit and Term Loan Agreement dated as of December 29, 1994
(as heretofore amended, supplemented or otherwise modified, the "Credit
Agreement"). Capitalized terms used and not otherwise defined or amended in this
Amendment shall have the respective meanings assigned to them in the Credit
Agreement.
The company and the Banks desire to amend the Credit Agreement in certain
respects as hereinafter set forth.
AGREEMENT
In consideration of the mutual covenants and agreement hereinafter set
forth, the parties hereto mutually agree as follows:
A. AMENDMENTS.
1. Amendment of Title. The title of the Credit Agreement appearing on the
cover page and on page 1 thereof is hereby amended by inserting the words "AND
TERM LOAN" immediately after the words "REVOLVING CREDIT".
2. Amendment of Section 1.1 (Definitions). Section 1.1 of the Credit
Agreement is hereby amended by:
(a) inserting the following new definitions in the proper alphabetical
order:
"'Revolving Commitment' means the portion of the Credit
consisting of the Banks' commitment to make Revolving Loans to the
Company in an aggregate principal amount not to exceed $35,000,000 under
the terms of this Agreement."
<PAGE> 2
"'Term Commitment' means the portion of the Credit consisting
of the Banks' commitment to make the Term Loan to the company in the
aggregate principal amount of $15,000,000 under the terms of the
Agreement."
"'Third Amendment' means the Third Amendment, dated as of June
28, 1996, to this Agreement."
"'Third Amendment Effective Date' means June 28, 1996."
(b) deleting the definition of "Applicable Margin" in its entirety and
substituting therefor the following:
"'Applicable Margin' shall mean, at any time, for Alternate
Reference Rate Loans ('ARR'), Eurodollar Loans ('Eurodollar') and for
the Non-Use Fee set forth in Section 3.2, the margin set forth below
opposite the applicable consolidated Interest Coverage Ratio and the
Maximum Debt to Cash Flow Ratio Levels:
<TABLE>
<CAPTION>
RATIOS MARGINS
- -------------------------------- ------------------------------
INTEREST MAX. DEBT
COVERAGE TO CASH EURO- NON-USE
RATIO FLOW RATIO DOLLAR ARP FEE
- ----------- ----------- ------- ---- -------
<S> <C> <C> <C> <C>
< 3.0 to 1.0 and > 3.00 to 1 2.00% 0.50% 0.50%
-
> 3.0 to 1.0 and < 3.00 to 1 1.50% 0.25% 0.375%
- -
< 5.0 to 1.0 > 2.00 to 1
-
> 5.0 to 1.0 and < 2.00 to 1 1.00% 0% 0.375%
- -
< 6.0 to 1.0 > 1.00 to 1
-
> 6.0 to 1.0 and < 1.00 to 1 0.75% 0% 0.250%;
- -
</TABLE>
provided that (i) in the event that the Company's ratios fall
between two of the levels set forth above, the applicable level
shall be that level which results in the higher margin being
applied; (ii) the Applicable Margin shall be increased by 0.5
percentage point as to the amount of outstanding Loans at any time
in excess of the Borrowing Base; and (iii) each change in the
Applicable Margin shall become effective on the first Business Day
of the fiscal quarter following required receipt of the quarterly
financial statements, except with respect to the fiscal year end,
in which case the change shall be applicable on the first Business
Day of the second fiscal quarter following the fiscal year end";
and
(c) deleting the definition of "Overadvance" in its entirety.
2. Amendment of Section 2.1 (Commitment of the Banks). Section 2.1 of the
Credit Agreement is hereby amended by deleting
-2-
<PAGE> 3
paragraph (a) thereof in its entirety and substituting therefor the following:
"(a) Revolving Loans. To make its Pro Rata Share of loans
(collectively called the 'Revolving Loans' and individually called a
'Revolving Loan') to the Company, which Revolving Loans the Company may
prepay and reborrow during the period from the date hereof to, but not
including, the Termination Date, in such amounts as the Company may from
time to time request, but not exceeding in the aggregate at any time
outstanding with respect to each Bank, an amount equal to the lesser of
(i) the amount set forth in the column 'Amount of Revolving Commitment'
opposite such Bank's name on the signature page hereof (or such reduced
amount as may be fixed by the company pursuant to Section 4.4), or (ii)
its Pro Rata Share of the Borrowing Base."
3. Amendment of Section 3.2 (Non-Use Fee). Section 3.2 of the Credit
Agreement is hereby amended by deleting the words "Revolving Loans" appearing in
the first sentence thereof and substituting therefor the words "Revolving
Commitment".
4. Amendment of Section 8.11 (Merger, Purchase and Sale). Section 8.11 of
the Credit Agreement is hereby amended by deleting clause (iv) in its entirety
and substituting therefor the following:
"(iv) expend for the purchase or other acquisition of any
capital stock or assets of any Person (each, an 'Acquisition') (A) for
the fiscal year ending December 31, 1996, an amount in excess of
$6,000,000 and (B) for each fiscal year thereafter, an amount in excess
of the sum of (1) $6,000,000 plus (2) 15% of any increase in the
tangible net worth of the Company, as reported at each fiscal year end,
from the tangible net worth of the Company as reported at the fiscal
1995 year end; provided, however, that (x) prior to making any
Acquisition, the Company shall have furnished to the Agent and the Banks
a certificate of the chief financial officer of the Company showing
compliance with the covenants set forth in Sections 8.12, 8.13, 8.14 and
8.15 before giving effect to such Acquisition and pro forma compliance
with such covenants after giving effect to such Acquisition and stating
that after giving effect to such Acquisition, no Event of Default or
Unmatured Event of Default shall have occurred and be continuing; and
(y) without the consent of all the Banks, neither the company nor any
Subsidiary shall make any Acquisition unless it has been consented to by
the Board of Directors of the Person that is the target thereof."
-3-
<PAGE> 4
5. Amendment of Section 8.24 (Overadvance). Section 8.24 of the Credit
Agreement is hereby amended by deleting such Section in its entirety and
substituting therefor the following:
"8.24 Overadvance. [Intentionally omitted]."
B. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Agent and Banks that:
1. No Event of Default or Unmatured Event of Default has occurred and is
continuing, and neither the Company nor any of its Subsidiaries is in material
violation of any law or governmental regulation or court order or decree;
2. The representations and warranties of the Company pursuant to Article 7
of the Credit Agreement are true and correct with the same effect as if made on
the date hereof (unless stated to relate solely to an earlier date in which case
such representations and warranties shall be true and correct as of such earlier
date);
3. The execution and delivery by the Company of this Amendment and the
performance by the Company of the Credit Agreement, as amended hereby, have been
duly authorized by all necessary corporate action; and
4. No consent, approval, authorization, permit or license from any federal
or state regulatory authority is required in connection with the making or
performance of the Credit Agreement, as amended hereby.
C. CONDITIONS PRECEDENT.
This Amendment will become effective as of the date first written above
upon execution by all of the Banks, provided that the Agent shall have received
in form and substance satisfactory to the Agent and the Banks, all of the
following:
1. Counterparts of this Amendment, duly executed by the Company and each
Bank, and duly acknowledged by the Agent.
2. A Consent of each Material Subsidiary in the form attached hereto as
Exhibit A.
3. A non-refundable amendment fee in the amount of $20,000, to be
distributed equally to each Bank.
-4-
<PAGE> 5
D. MISCELLANEOUS.
1. This Amendment shall be deemed to be an amendment to the Credit
Agreement, and the Credit Agreement, as amended hereby, shall remain in full
force and effect and is hereby ratified, approved and confirmed in each and
every respect. After the effectiveness of this Amendment in accordance with its
terms, all references to the Credit Agreement in the Loan Documents or in any
other document, instrument, agreement or writing shall be deemed to refer to the
Credit Agreement as amended hereby.
2. The parties hereto hereby acknowledge and agree that all of the
promissory notes executed and delivered in connection with the Third Amendment
to the Credit Agreement are deemed to have been dated June 28, 1996.
3. Any provision of this Amendment which is prohibited or unenforceable in
any jurisdiction shall, as to such provision and such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or affecting the
validity or enforceability of such provision in any other jurisdiction.
4. The various headings of this Amendment are inserted for convenience only
and shall not affect the meaning or interpretation of this Amendment or any
provision hereof.
5. This Amendment may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
HEALTHDYNE TECHNOLOGIES, INC.
BY: /S/ M. WAYNE BOYLSTON
-------------------------
TITLE: VP FINANCE, CFO
---------------------
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<PAGE> 6
BANK OF AMERICA ILLINOIS
BY: /S/ MICHAEL J. MCKENNEY
-------------------------
TITLE: VICE PRESIDENT
---------------------
FIRST UNION NATIONAL
BANK OF GEORGIA
BY: /S/ DANIEL KOMITOR
-------------------------
TITLE: VICE PRESIDENT
---------------------
ACKNOWLEDGED:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS AGENT
BY: /S/ MICHAEL J. MCKENNEY
-------------------------
TITLE: VICE PRESIDENT
---------------------
-6-
<PAGE> 7
EXHIBIT A
CONSENT
The undersigned hereby agrees and consents to the terms and provisions of
the foregoing Fourth Amendment to Amended and Restated Secured Revolving Credit
and Term Loan Agreement (the "Amendment"), and agrees that the Subsidiary
Guaranty and Loan Documents executed by the undersigned shall remain in full
force and effect notwithstanding the provisions of the Amendment.
DATED: AS OF DECEMBER 31, 1996
HEALTHSCAN PRODUCTS, INC.
BY: M. WAYNE BOYLSTON
-------------------------
TITLE: VP FINANCE, CFO
---------------------
<PAGE> 1
EXHIBIT (11)
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
Primary ---- ---- ----
- -------
<S> <C> <C> <C>
Net earnings $ 5,725 6,287 5,105
======= ====== ======
Shares:
Weighted average number of common shares
outstanding 12,577 12,369 12,340
Shares issuable from assumed exercise of
options and warrants 342 325 61
------- ------ ------
Weighted average number of common shares
and common share equivalents 12,919 12,694 12,401
======= ====== ======
Net earnings per common share
and common share equivalent $ .44 .50 .41
======= ====== ======
Fully Diluted
- -------------
Net earnings $ 5,725 6,287 5,105
======= ====== ======
Shares:
Weighted average number of common
shares outstanding as adjusted per
primary computation above 12,919 12,694 12,401
------- ------ ------
Additional shares issuable from assumed
exercise of options and warrants
computed on a fully diluted basis 26 -- 13
------- ------ ------
12,945 12,694 12,414
======= ====== ======
Net earnings per common share
and common share equivalent $ .44 .50 .41
======= ====== ======
</TABLE>
<PAGE> 1
Exhibit 21
HEALTHDYNE TECHNOLOGIES
SUBSIDIARIES
March 28, 1997
<TABLE>
<S> <C>
Name Jurisdiction of Incorporation
---- -----------------------------
Fiberoptic Medical Products, Inc. Pennsylvania
Healthdyne International, S. A. Belgium
Apreco Technologies, S.A. Belgium
HealthScan Products, Inc. New Jersey
Healthdyne U.K. Limited United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Healthdyne Technologies, Inc.
We consent to incorporation by reference in the registration statements (Nos.
33-80692, 33-80694, 33-91510, 33-92332, 33-92924 and 333-14765) on Form S-8 of
Healthdyne Technologies, Inc. of our reports dated February 7, 1997, relating
to the consolidated balance sheets of Healthdyne Technologies, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of earnings, shareholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended December 31,
1996, which reports appear in the December 31, 1996 annual report on Form 10-K
of Healthdyne Technologies, Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHDYNE TECHNOLOGIES, INC. AND
SUBSIDIARIES FOR THE PERIOD ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,041
<SECURITIES> 0
<RECEIVABLES> 37,357
<ALLOWANCES> 1,193
<INVENTORY> 18,593
<CURRENT-ASSETS> 61,617
<PP&E> 20,294
<DEPRECIATION> 11,000
<TOTAL-ASSETS> 98,078
<CURRENT-LIABILITIES> 24,730
<BONDS> 29,078
0
0
<COMMON> 126
<OTHER-SE> 44,144
<TOTAL-LIABILITY-AND-EQUITY> 98,078
<SALES> 118,318
<TOTAL-REVENUES> 118,318
<CGS> 70,981
<TOTAL-COSTS> 70,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,398
<INCOME-PRETAX> 9,530
<INCOME-TAX> 3,805
<INCOME-CONTINUING> 5,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,725
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
