<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HEALTHDYNE TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LOGO
HEALTHDYNE TECHNOLOGIES, INC.
1255 Kennestone Circle
Marietta, Georgia 30066
Dear Fellow Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Healthdyne Technologies, Inc. (the "Company"). The Annual Meeting will be
held on July 30, 1997, at 10:30 a.m. local time at 1850 Parkway Place, Suite
320, Marietta, Georgia 30067.
Your vote at this year's Annual Meeting is particularly important. As you
undoubtedly are aware, earlier this year Invacare Corporation commenced an
unsolicited tender offer for the Company's shares at $15.00 per share. Your
Board of Directors has determined that Invacare's tender offer is not in the
best interests of the Company's shareholders and should be rejected. In arriving
at this decision, your Board carefully considered numerous factors, including,
among other things, the opinion of the Company's financial advisor, Cowen &
Company, that Invacare's offer is grossly inadequate, from a financial point of
view, to the Company's shareholders (other than Invacare).
To ensure that the best interests of the Company's shareholders are served,
your Board of Directors is actively pursuing its strategic plan in an effort to
maximize shareholder value. We have been extremely pleased with the results of
our strategic plan to date: our first quarter of 1997 yielded a 30% revenue
increase to a record $35.7 million from $27.5 million in the first quarter of
1996; our new products have continued to perform especially well, with the
Quantum(TM) non-invasive ventilator, introduced in late 1995, selling at an
annualized rate of $25 million based on first quarter results; and we have made
a number of additional new product introductions this year and are on schedule
to introduce several more new products throughout 1997 and into 1998. As a
result, we remain committed to actively pursuing our strategic plan as an
alternative to Invacare's $15.00 offer.
Your Board of Directors recognizes that it is bound by its fiduciary
obligations to act in the best interests of all of the Company's shareholders,
not just Invacare. While reaffirming its decision not to sell or merge the
Company, the Board of Directors has instructed the Company's management and
financial advisors to explore alternatives to Invacare's offer, including having
discussions with certain parties which have expressed or may have an interest in
a possible merger with or acquisition of the Company and considering other
possible transactions employing leverage to deliver value to shareholders. In
contrast, the Board of Directors believes that Invacare's nominees, if elected,
will act in a manner consistent only with the interests of Invacare. The Board
believes that the Company should continue to be managed by its present directors
and officers, who will continue to execute its strategic plan, as well as
exploring alternatives to create value for shareholders, and not by Invacare's
nominees, none of whom, to the best of the Company's knowledge, has any
experience in managing a technology-oriented healthcare company such as
Healthdyne Technologies. See "Information Concerning the Invacare Offer and
Related Matters -- The Position of the Board of Directors."
At the Annual Meeting, Invacare is seeking to elect its own nominees to
fill all seven of the seats on your Company's Board and has submitted several
proposals to be considered by the Company's shareholders. Invacare says that its
nominees, if elected, will take action to allow Invacare to purchase your
Healthdyne Technologies shares at $15.00 per share in its tender offer.
Invacare's other proposals also are intended to facilitate its takeover of the
Company at this price.
<PAGE> 3
Your Board believes there are two compelling reasons why you should vote
for your Board's nominees and against Invacare's nominees and proposals.
First, your Board believes that the $15.00 per share Invacare is offering
does not reflect the true value of your Company. Indeed, Invacare's tender offer
price is below the current market price of your shares.
Second, for reasons set forth in the enclosed Proxy Statement, even if
Invacare's nominees are elected and its proposals are adopted, there can be no
assurance that Invacare will purchase any Healthdyne Technologies shares in its
tender offer. In other words, Invacare, through its nominees, could acquire
control over your Company without purchasing and paying for any of your shares.
ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE:
- FOR YOUR BOARD'S SEVEN NOMINEES FOR ELECTION AS DIRECTORS (PROPOSAL ONE),
- AGAINST INVACARE'S PROPOSAL TO FIX THE SIZE OF THE BOARD AT SEVEN
(PROPOSAL TWO),
- AGAINST INVACARE'S PROPOSAL CONCERNING THE COMPANY'S SHAREHOLDER RIGHTS
PLAN (PROPOSAL THREE),
- AGAINST INVACARE'S PROPOSAL TO REPEAL CERTAIN OF THE COMPANY'S BY-LAWS
(PROPOSAL FOUR) AND
- AGAINST INVACARE'S PROPOSAL TO AMEND THE COMPANY'S SPECIAL MEETING
REQUIREMENTS (PROPOSAL FIVE).
Enclosed you will find a Notice of Annual Meeting, Proxy Statement and BLUE
proxy card. The Proxy Statement sets forth your Board of Directors' position
with respect to Invacare, its nominees, its four proposals and its unsolicited
tender offer. Please review these materials carefully.
Your vote is most important regardless of the number of shares you own.
Whether or not you plan to attend the Annual Meeting, please sign, date and
return the enclosed BLUE proxy card as soon as possible in the postage-paid
envelope provided. This will not prevent you from voting in person at the Annual
Meeting or at any adjournment or postponement thereof, but will assure that your
vote is counted if you are unable to attend. The BLUE proxy card furnished by
the Board of Directors, if properly executed and delivered, will revoke all
prior proxies, including any prior proxy furnished to Invacare.
If you have any questions, please call M. Wayne Boylston, Chief Financial
Officer of the Company, at (800) 421-8754, extension 2336, or our proxy
solicitor, Morrow & Co., Inc. at (800) 662-5200. I look forward to seeing you on
July 30, 1997.
WE URGE YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD IN
THE POSTAGE-PAID ENVELOPE PROVIDED. WE URGE YOU NOT TO SIGN INVACARE'S GOLD
PROXY CARD.
Sincerely,
/s/ Parker H Petit
Parker H. Petit
Chairman of the Board
<PAGE> 4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders (the
"Annual Meeting") of Healthdyne Technologies, Inc. (the "Company") will be held
on July 30, 1997 at 10:30 a.m. local time at 1850 Parkway Place, Suite 320,
Marietta, Georgia 30067, for the following purposes:
1. To elect seven directors to hold office until the 1998 annual
meeting and until their successors have been duly elected and qualified;
2. To consider and vote upon a proposal made by Invacare Corporation
to amend the Company's By-Laws to fix the size of the Board of Directors at
seven members;
3. To consider and vote upon a proposal made by Invacare Corporation
concerning the Company's Shareholder Rights Plan;
4. To consider and vote upon a proposal made by Invacare Corporation
concerning certain of the Company's By-Laws;
5. To consider and vote upon a proposal made by Invacare Corporation
to amend the Company's Special Meeting requirements; and
6. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Pursuant to the By-Laws of the Company, the Board of Directors has fixed
June 23, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof. Only holders of common stock of record at the close of
business on that date are entitled to notice of and to vote at the Annual
Meeting and at any adjournment or postponement thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EACH
SHAREHOLDER, EVEN THOUGH HE OR SHE NOW PLANS TO ATTEND THE ANNUAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD WITHOUT DELAY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE. ANY SHAREHOLDER PRESENT AT THE ANNUAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF MAY REVOKE HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
I look forward to welcoming you at the meeting.
Sincerely,
/s/Leslie R. Jones
Leslie R. Jones
Secretary
Marietta, Georgia
June 24, 1997
<PAGE> 5
HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JULY 30, 1997
GENERAL INFORMATION
This Proxy Statement and the accompanying BLUE proxy card are being
furnished to shareholders of Healthdyne Technologies, Inc. (the "Company" or
"Healthdyne Technologies") in connection with the solicitation of proxies by the
Company's Board of Directors for use at the 1997 Annual Meeting of Shareholders
(the "Annual Meeting") to be held on July 30, 1997 at 10:30 a.m. local time at
1850 Parkway Place, Suite 320, Marietta, Georgia 30067, and at any adjournment
or postponement thereof. The purpose of the Annual Meeting is as stated in the
accompanying Notice of the Annual Meeting of Shareholders (the "Notice of
Meeting"). This Proxy Statement and the accompanying BLUE proxy card are first
being sent or given to shareholders on or about June 24, 1997.
At the Annual Meeting, shareholders will consider and vote upon the
proposals made by Invacare Corporation ("Invacare") and opposed by the Board
(collectively, the "Invacare Proposals") to replace all of the current members
of the Board with Invacare's own nominees (the "Invacare Nominees"), to amend
the Company's By-Laws to fix the size of the Board at seven members, to amend
the Company's shareholder rights plan (the "Shareholder Rights Plan") to remove
certain continuing director provisions (the "Continuing Director Provisions"),
to repeal certain of the Company's By-Laws designed to protect shareholders and
to amend the Company's Special Meeting requirements. The Invacare Proposals were
made by Invacare in furtherance of its attempt to take over the Company by means
of an unsolicited tender offer by I.H.H. Corporation ("I.H.H."), a wholly owned
subsidiary of Invacare, for all outstanding shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), at a net cash price of
$15.00 per share. THE BOARD UNANIMOUSLY URGES SHAREHOLDERS TO VOTE FOR THE
BOARD'S NOMINEES AND AGAINST INVACARE'S PROPOSALS. For information concerning
the tender offer commenced by Invacare on January 27, 1997, see "Information
Concerning the Invacare Offer and Related Matters."
VOTING AND REVOCATION OF PROXIES
The Board of Directors has fixed the close of business on June 23, 1997 as
the record date (the "Record Date") for the determination of the holders of the
Company's Common Stock entitled to receive notice of and to vote at the Annual
Meeting and at any adjournment or postponement thereof. Only holders of record
of Common Stock at the close of business on the Record Date will be entitled to
vote at the Annual Meeting and at any adjournment or postponement thereof. At
the close of business on the Record Date, there were 12,828,815 shares of Common
Stock issued and outstanding.
The holders of shares of Common Stock outstanding on the Record Date will
be entitled to one vote for each share held of record upon each matter properly
submitted at the Annual Meeting and at any adjournment or postponement thereof.
The presence, in person or by proxy, of at least a majority of the total number
of outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting and at any adjournment or postponement thereof. Shares which are
present in person or by proxy but abstain from voting with respect to one or
more proposals voted upon at the meeting will be included for purposes of
determining a quorum at the Annual Meeting and at any adjournment or
postponement thereof.
<PAGE> 6
A BLUE proxy card is enclosed for shareholder use. If the proxy card is
properly executed and returned to the Company in time to be voted, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED
(I) FOR THE BOARD'S SEVEN NOMINEES TO FILL THE SEVEN DIRECTORSHIPS WITH TERMS
EXPIRING AT THE ANNUAL MEETING, (II) AGAINST INVACARE'S PROPOSAL TO AMEND THE
COMPANY'S BY-LAWS TO FIX THE SIZE OF THE BOARD AT SEVEN DIRECTORS (THE "BOARD
RESTRICTION PROPOSAL"), (III) AGAINST INVACARE'S PROPOSAL CONCERNING THE
COMPANY'S SHAREHOLDER RIGHTS PLAN (THE "RIGHTS PLAN PROPOSAL"), (IV) AGAINST
INVACARE'S PROPOSAL TO REPEAL CERTAIN OF THE COMPANY'S BY-LAWS (THE "BY-LAW
RESCISSION PROPOSAL"), AND (V) AGAINST INVACARE'S PROPOSAL TO AMEND THE
COMPANY'S SPECIAL MEETING REQUIREMENTS (THE "SPECIAL MEETING PROPOSAL"). It is
not anticipated that any matters other than those set forth in the Notice of
Meeting will be brought before the Annual Meeting or at any adjournment or
postponement thereof. If any other matters properly come before the Annual
Meeting or at any adjournment or postponement thereof, the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in accordance with their best judgment.
The presence of a shareholder at the Annual Meeting or any adjournment or
postponement thereof will not automatically revoke such shareholder's proxy.
However, a shareholder may revoke a proxy at any time prior to its exercise by
(1) delivering a written notice of revocation to the Secretary of the Company,
(2) submitting a duly executed proxy bearing a later date, or (3) attending the
Annual Meeting or any adjournment or postponement thereof and voting in person.
The BLUE proxy card furnished by the Board of Directors, if properly executed
and delivered, will revoke all prior proxies, including any prior proxy
furnished to Invacare.
Regardless of the number of shares of Common Stock owned, it is important
that shareholders be represented by proxy or in person at the Annual Meeting and
at any adjournment or postponement thereof. Shareholders are requested to vote
by completing the enclosed BLUE proxy card and returning it in the enclosed
postage-paid envelope.
VOTE REQUIRED
Directors shall be elected by a plurality of votes cast. The holders of
Common Stock may not vote their shares cumulatively for the election of
directors. Approval of each of Invacare's Board Restriction Proposal, Invacare's
Rights Plan Proposal, Invacare's By-Law Rescission Proposal and Invacare's
Special Meeting Proposal requires that the number of votes cast in favor of such
proposal exceeds the number of votes cast against such proposal, assuming a
quorum is present or otherwise represented. Shares which abstain from voting
with respect to a particular proposal will be counted as shares represented.
Shares considered present at the Annual Meeting that are not voted for a
particular proposal (including broker non-votes and abstentions) will not be
counted either for or against the approval of such proposal.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following tables set forth certain information as to the beneficial
ownership of shares of the Company's Common Stock. Under the rules of the
Securities and Exchange Commission (the "Commission"), a person is deemed to be
a beneficial owner of a security if he or she has or shares the power to vote or
to direct the voting of such security, or the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities which that person has the right to acquire within sixty (60)
days, as well as any securities owned by such person's spouse, children or
relatives living in the same house. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities.
Security Ownership of Management. The following table sets forth certain
information as to the Common Stock beneficially owned as of March 31, 1997 by
each of the Company's directors and nominees for director, each executive
officer named in the Summary Compensation Table set forth under the caption
"Executive Compensation" and all directors and executive officers as a group.
Unless otherwise indicated in a
2
<PAGE> 7
footnote each person listed below possesses sole voting and investment power
with respect to the shares indicated as beneficially owned by him or her.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ --------------------------- --------
<S> <C> <C>
Parker H. Petit(2).......................................... 866,859(3) 6.8%
Craig B. Reynolds........................................... 165,507 1.3%
J. Terry Dewberry........................................... 125,979 *
Alexander H. Lorch.......................................... 13,824 *
J. Leland Strange........................................... 6,667 *
James J. Wellman, M.D....................................... 4,445 *
J. Paul Yokubinas........................................... 105,560 *
Robert M. Johnson........................................... 25,986 *
Leslie R. Jones............................................. 41,860 *
John L. Miclot.............................................. 19,848 *
Vincent J. Persano.......................................... 14,352 *
Robert E. Tucker............................................ 115,411 *
All directors and executive officers as a group (13
persons).................................................. 1,593,092 12.50%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended. Includes shares that
may be acquired through the exercise of stock options exercisable within
sixty (60) days for the following individuals: Mr. Petit -- 258,814 shares;
Mr. Reynolds -- 162,834 shares; Mr. Dewberry -- 106,333 shares; Mr.
Lorch -- 6,667 shares; Mr. Strange -- 6,667 shares; Dr. Wellman -- 4,445
shares; Mr. Yokubinas -- 70,922 shares; Mr. Johnson -- 25,986 shares; Ms.
Jones -- 41,475 shares; Mr. Miclot -- 19,667 shares; Mr. Persano -- 12,275
shares; Mr. Tucker -- 112,406 shares; all directors and executive officers
as a group -- 909,720 shares.
(2) Mr. Petit's address is c/o Matria Healthcare, Inc., 1850 Parkway Place, 12th
Floor, Marietta, Georgia 30067.
(3) Includes 575,510 shares owned by Mr. Petit, 32,535 shares held by Petit
Investments Limited Partnership and 258,814 shares that may be acquired
through the exercise of stock options exercisable within sixty (60) days.
Security Ownership of Certain Beneficial Owners. The following table sets
forth certain information with respect to all shareholders other than Mr. Petit,
whose beneficial interest is set forth under the caption "Security Ownership of
Management," known to the Company to beneficially own as of December 31, 1996
more than five percent (5%) of the outstanding shares of the Common Stock.
Except as otherwise indicated, the shareholders listed in the table have sole
voting and investment powers with respect to the Common Stock beneficially owned
by them.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK OUTSTANDING*
- ------------------------------------ ----------------------- ------------------
<S> <C> <C>
Wellington Management Company(1).......................... 1,325,587 10.5%
75 State Street
Boston, Massachusetts 02109
Cowen & Company(2)........................................ 647,493 5.1%
Financial Square
New York, New York 10005
</TABLE>
- ---------------
* Percentages are calculated based on the number of shares outstanding as of
March 31, 1997.
(1) Based on information set forth in a Schedule 13G dated January 24, 1997
providing information as of December 31, 1996. Wellington Management Company
("Wellington") may be deemed to be the
3
<PAGE> 8
beneficial owner of 1,325,587 shares owned by numerous investment counseling
clients. Wellington has shared voting power as to 254,349 of such shares and
shared dispositive power as to all of such shares.
(2) Based on information set forth in a Schedule 13G dated February 12, 1997,
and filed jointly on behalf of Cowen & Company, Cowen Incorporated and
Joseph M. Cohen, providing information as of December 31, 1996. Cowen &
Company in its capacity as a broker-dealer and investment advisor, has
shared voting power as to 638,660 of such shares and shared dispositive
power as to all of such shares. As of June 6, 1997, Cowen & Company reported
that it and its affiliates own 447,900 shares.
INFORMATION CONCERNING THE INVACARE OFFER AND RELATED MATTERS
The Invacare Offer
Over the past three years, Invacare has approached the Company on several
occasions to discuss possible business combination transactions, and on each
occasion after due consideration of the Invacare overture, the Company
determined not to pursue a transaction with Invacare.
In February 1996, following receipt by the Company from certain companies,
including Invacare, of indications of interest in pursuing a business
combination, the Board of Directors reviewed with management the Company's
strategic business plan and consulted with legal counsel concerning the Board of
Directors' fiduciary duties. The Board of Directors concluded that it was not in
the best interest of the Company or its shareholders to pursue a sale of the
Company at that time. Management was directed to respond to further exploratory
written requests by Invacare or other companies by communicating that the Board
of Directors had concluded that it was not in the Company's best interest to
pursue a sale of the Company and management was further instructed to keep the
Board of Directors informed of any such requests. Management was also directed
that any specific proposal for the acquisition of the Company should be brought
to the Board of Directors' attention immediately.
On January 2, 1997, A. Malachi Mixon, III, Chairman and Chief Executive
Officer of Invacare, sent a letter to Craig B. Reynolds, President and Chief
Executive Officer of the Company, indicating Invacare's persistent interest in a
combination with the Company and proposing to acquire the Company in a
negotiated merger transaction in which shareholders of the Company would receive
$12.50 in cash for each share of the Company's Common Stock (the "Invacare
Preliminary Proposal"). Mr. Reynolds sent a copy of the letter to each member of
the Board of Directors and, after consultation with certain directors, on
January 8, 1997, Mr. Reynolds sent a letter to Mr. Mixon, stating that the Board
of Directors of the Company planned to consider the Invacare Preliminary
Proposal at its next regularly scheduled Board of Directors meeting. Two days
later, on January 10, 1997, Invacare issued a press release disclosing the
unsolicited Invacare Preliminary Proposal to acquire all of the Company's
shares.
On January 15, 1997, the Company's Board of Directors met to discuss the
Invacare Preliminary Proposal and appointed Cowen & Company ("Cowen"), as
financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor
to the Board of Directors.
On January 23, 1997, the Board of Directors of the Company met again to
review the Company's financial performance and the Invacare Preliminary
Proposal. The Board of Directors was advised by management and by Cowen as to
the Company's strategic plans for new products, business expansion and potential
earnings growth. Cowen reviewed the current strategic and financial environment
in which the Company operates and summarized enterprise values and valuation
trends related to comparable companies in the respiratory products industry.
Cowen reviewed analyst estimates regarding the Company's potential earnings per
share and future prospects. Cowen reviewed the Company's financial projections,
including the Company's 1997 and 1998 business plans, as well as the potential
financial impact of management's estimates regarding the Company's market
penetration, product mix and the profitability of its various business lines.
Cowen reviewed the potential valuation implications of various earnings per
share projections relative to a range of industry price/earnings multiples.
Cowen also compared the multiples implied by the Invacare Preliminary Proposal
relative to other transactions in the respiratory products industry. In
addition, Cowen reviewed a discounted cash flow analysis of the Company based on
management's projections of future financial performance. In summary, Cowen
concluded that the Invacare Preliminary Proposal was grossly
4
<PAGE> 9
inadequate from a financial point of view. The Board of Directors was also
advised by its legal counsel as to its fiduciary duties and, among other things,
the merits of electing to be governed by Georgia's Fair Price Statute. Based on
this discussion and advice, the Board of Directors determined that the sale of
the Company was not in the best interests of its shareholders at such time and
issued a press release on January 24, 1997, rejecting the Invacare Preliminary
Proposal. Later that day, the Company filed with the Commission a Current Report
on Form 8-K which stated that on January 23, 1997, the Company's Board of
Directors had amended the Company's By-Laws to (i) elect that the Company be
governed by the Georgia Fair Price Statute and (ii) remove from the By-Laws a
provision requiring the annual meeting of shareholders to be held on the fourth
Tuesday in April unless a different date was set by the Board of Directors.
On January 27, 1997, Invacare commenced an unsolicited tender offer to
purchase any and all of the outstanding shares of Common Stock, including the
associated Preferred Stock Purchase Rights (the "Rights") (unless the Rights are
redeemed or Invacare is satisfied, in its sole discretion, that the Rights are
invalid) issued pursuant to the Shareholder Rights Plan, at $13.00 per share of
Common Stock and associated Right, net to the seller in cash (the "Invacare
Initial Offer Price"), upon the terms and subject to the conditions set forth in
the Offer to Purchase dated January 27, 1997 (the "Initial Invacare Offer to
Purchase") and the related Letter of Transmittal (which together constitute the
"Invacare Initial Offer"). The Invacare Initial Offer proposed that the tender
offer would be followed by a second-step merger in which holders of shares not
validly tendered would receive $13.00 per share. The Invacare Initial Offer also
disclosed that Invacare owned 600,000 shares (approximately 4.9%) of the
Company's Common Stock.
The Invacare Initial Offer was conditioned upon, among other things, (1)
the tender of a number of shares of Company Common Stock which, when added to
Invacare's 600,000 shares, would constitute at least 51% of the voting power of
all securities of the Company entitled to vote generally in the election of
directors and in a merger; (2) the Company's Rights having been redeemed by the
Company's Board or Invacare being satisfied, in its sole discretion, that the
Rights have been invalidated or are otherwise inapplicable to, or that certain
provisions thereof would not be triggered by, Invacare's tender offer or the
proposed merger of Invacare and the Company (the "Rights Plan Condition"); (3)
Invacare being satisfied, in its sole discretion, that the restrictions on
business combinations contained in Sections 14-2-1131 through 14-2-1133 (the
"Georgia Business Combination Statute") of the Georgia Business Corporation Code
(the "GBCC") would not apply to Invacare in connection with its tender offer or
proposed merger; and (4) Invacare being satisfied, in its sole discretion, that
the restrictions on business combinations contained in Sections 14-2-1110
through 14-2-1113 of the GBCC (the "Georgia Fair Price Statute") would not apply
to Invacare in connection with its tender offer or proposed merger or are
invalid or that the proposed merger may be consummated without any approval
required under the Georgia Fair Price Statute at a price per share not in excess
of the price per share to be paid in the offer (the "Georgia Fair Price Statute
Condition"). The Invacare Initial Offer was not conditioned on the receipt of
financing.
The Invacare Initial Offer also stated that if the Company's Board opposed
its tender offer and proposed merger, Invacare intended to nominate individuals
for election as directors of the Company, would consider making other proposals
at the Company's upcoming annual meeting and planned to solicit proxies from
shareholders for the purpose of electing Invacare's director candidates and
approving any of Invacare's proposals.
On January 30, 1997, the Company's Board of Directors convened a meeting at
which the Board of Directors, assisted by its financial and legal advisors,
reviewed the Invacare Initial Offer and its terms and conditions. The Board of
Directors reviewed again the Company's business strategy and strategic plan, and
considered the potential for benefits both with and without a merger with
Invacare. On January 30, 1997, Cowen updated its analysis to reflect the
Invacare Initial Offer and, using an analytical framework similar to that
presented to the Board of Directors on January 23, 1997, Cowen reviewed the
Invacare Initial Offer. In addition, Cowen reviewed the reaction of the
financial markets to the Invacare Initial Offer and potential implications for
the Company and its shareholders. In summary, Cowen concluded that the Invacare
Initial Offer was grossly inadequate from a financial point of view. After
lengthy discussions and presentations from the Company's legal and financial
advisors, the Board of Directors determined that the best means for providing
value to its shareholders was for the Company to continue to pursue its
strategic plan and not to be
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<PAGE> 10
put up for sale at this time. The Board of Directors unanimously concluded that,
given projected earnings and the new products planned for introduction in the
near future, the Invacare Initial Offer was grossly inadequate and not in the
best interests of the Company and its shareholders. In particular, the Board of
Directors determined that the Company's current strategic plan offered the
potential for greater benefits for the Company's shareholders than the Invacare
Initial Offer, based on, among other things, greater opportunities for business
expansion, revenue and earnings growth, and the introduction of new products and
product lines into the health care market.
On February 13, 1997, the Company issued a shareholder update (the
"Shareholder Update") regarding the strategic plans developed by the Company and
its Board of Directors. The Shareholder Update addressed, among other things,
the Company's plans for new product introductions in the coming year, the
historical performance of the Company's products and the Company's expectations
for the future performance of its existing product lines. The Shareholder Update
also disclosed the Company's strategic plans for positioning its product lines
and increasing its market share in the medical device market.
On February 25, 1997, Invacare issued a press release announcing the
extension of the Invacare Initial Offer, which had been scheduled to expire at
midnight eastern standard time on February 24, 1997, until 6:00 p.m. eastern
standard time on March 24, 1997. At that time, only 2 million shares
(approximately 16%) had been tendered to Invacare.
On March 20, 1997, the Company amended its By-Laws to provide for certain
procedures to govern the calling of special shareholder meetings and entered
into indemnification agreements with its executive officers and directors. See
"Employment Contracts, Termination of Employment, and Change in Control
Agreements with Executive Officers and Directors." Subsequently on March 20,
1997, the Company received Invacare's notice to the Company announcing its
intention to nominate the Invacare Nominees and to make the Invacare Proposals
at the Annual Meeting.
On March 24, 1997, Invacare issued a press release announcing another
extension of the Invacare Initial Offer, this time until 6:00 p.m. eastern
standard time on April 7, 1997. At that time, only 2.3 million shares
(approximately 18%) had been tendered to Invacare.
On March 31, 1997, Invacare revised the Invacare Initial Offer by
announcing that it would increase the price in its tender offer for all
outstanding shares of the Common Stock of the Company from $13.00 per share to
$13.50 per share (together, with the Invacare Initial Offer, the "Invacare
Revised Offer"). On such date, Invacare also announced another extension of the
Invacare Revised Offer, this time until 6:00 p.m. eastern standard time on April
28, 1997. At that time, only 2.1 million shares (approximately 17%) were
reported as tendered to Invacare.
On April 2, 1997, the Company issued a press release announcing that the
Board of Directors voted unanimously to reject the Invacare Revised Offer and to
recommend that shareholders of the Company not tender any of their shares
pursuant to the Invacare Revised Offer. The Board of Directors once again
considered the opinion of Cowen that the Invacare Revised Offer was still
grossly inadequate from a financial point of view, the nature of the markets in
which the Company competes, the Company's future business and financial
prospects, and the Board of Directors' familiarity with the financial condition,
business opportunities and current strategies of the Company.
On April 17, 1997, the Company issued a press release announcing that its
Board of Directors had designated July 30, 1997 as the date of the Annual
Meeting and June 23, 1997 as the record date for determining shareholders
entitled to vote at the Annual Meeting. The Company also noted in its press
release that, in setting the date for the Annual Meeting, the Board of Directors
had considered it important that the shareholders of the Company have the
benefit of the Company's second quarter financial results before deciding how to
vote their shares in the upcoming proxy contest.
On April 29, 1997, Invacare issued a press release announcing another
extension of the Invacare Revised Offer, this time until 6:00 p.m. eastern
standard time on May 27, 1997. At that time, only 2.58 million shares
(approximately 20%) were reported as tendered to Invacare.
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On May 28, 1997, Invacare issued a press release announcing another
extension of the Invacare Revised Offer, this time until 12:00 midnight eastern
standard time on June 20, 1997. At that time, only 1.61 million shares
(approximately 13%) were reported as tendered to Invacare.
On June 4, 1997, Invacare issued a press release announcing that it had
increased the price in its tender offer for all outstanding shares of the Common
Stock of the Company from $13.50 per share to $15.00 per share (together, with
the Invacare Revised Offer, the "Invacare Offer"). Invacare's June 4, 1997 press
release stated that the increased offer represented Invacare's "best and final
offer" but acknowledged that Invacare could raise its tender offer price again
if "Healthdyne management is able to substantiate additional value to our
satisfaction." Invacare's June 4, 1997 press release concluded that if the
Invacare Nominees are not elected at the Annual Meeting, Invacare may withdraw
the Invacare Offer and/or dispose of some or all of the shares of Common Stock
it owns.
On June 10, 1997, the Company's Board of Directors convened a meeting at
which the Board of Directors, assisted by its financial and legal advisors,
reviewed the Invacare Offer and its terms and conditions. The Board of Directors
reviewed again the Company's business strategy and strategic plan, and
considered the potential for benefits both with and without a merger with
Invacare. On June 10, 1997, Cowen updated its analysis to reflect the Invacare
Offer and, using an analytical framework similar to that presented to the Board
of Directors on January 23, January 30, and April 2, 1997, Cowen reviewed the
Invacare Offer. In addition, Cowen reviewed the reaction of the financial
markets to the Invacare Offer and potential implications for the Company and its
shareholders. Following such review, Cowen concluded that the Invacare Offer was
grossly inadequate from a financial point of view. After lengthy discussions and
presentations from the Company's financial and legal advisors, the Board of
Directors determined that the best means for providing value to its shareholders
was for the Company to continue to pursue its strategic plan.
In reaching these conclusions, the Board of Directors took into account a
variety of factors, including but not limited to the following:
(1) The Board of Directors' familiarity with the financial condition,
business opportunities and current strategies of the Company, the nature of
the markets in which the Company competes and the Board of Directors'
confidence in management and firm belief that the Invacare Offer does not
reflect the fair value of the Company. Specifically, the Board of Directors
determined that the Invacare Offer failed to reflect:
(a) The results of the Company's strategic plan to date: the
Company's first quarter of 1997 yielded a 30% revenue increase to a
record $35.7 million from $27.5 million in the first quarter of 1996.
(b) The Company's leading and innovative position in the
respiratory products industry.
(c) The number of significant new products recently introduced and
planned for introduction by the Company into the medical device market.
(d) The expected revenue and earnings growth based on such new
products, such as the Quantum(TM) non-invasive ventilator which sold at
an annualized rate of $25 million based on the first quarter results,
and the Company's competitive position in such markets.
(2) The Company's prospects for future growth and expansion based on
its strategic plans, the strategic alliances and other initiatives which
have been implemented and investments that have been made in an effort to
expand the Company's product lines and devices offered to the market, and
the continued development of new products as well as enhancements to
existing products currently offered by the Company.
(3) The opinion of Cowen to the effect that the $15 per share price
offered pursuant to the Invacare Offer is grossly inadequate from a
financial point of view to the shareholders of the Company (other than
Invacare). A copy of the written opinion of Cowen which sets forth the
assumptions made and matters considered is attached hereto as Appendix A.
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(4) The disruptive effect of the Invacare Offer and Invacare's proxy
solicitation on the Company's employees, suppliers and customers.
(5) The fact that the Common Stock traded as high as $15 per share on
June 3, 1997, the day prior to the announcement of Invacare's revised offer
and closed above Invacare's $15 offer price on each day from the date of
the announcement of the Invacare Offer on June 4, 1997 until June 9, 1997.
(6) The fact that, in the event that the Company decides to pursue a
sale at some future date, the Company may now enter into a tax-free pooling
transaction with other companies.
(7) The Board of Directors' commitment to protecting the best
interests of the Company's shareholders.
On June 11, 1997, the Company issued a press release announcing that its
Board of Directors had voted unanimously to recommend that its shareholders
reject the Invacare Offer by not tendering their shares to Invacare.
On June 20, 1997, the Company's Board of Directors met and reaffirmed its
decision not to sell or merge the Company. In the interest of exploring all
alternatives to Invacare's grossly inadequate offer, the Board instructed
management to talk with certain parties which have expressed or may have an
interest in a potential transaction with the Company, as well as considering
other possible transactions employing leverage to deliver value to shareholders.
See "-- The Position of the Board of Directors."
On June 23, 1997, the Company issued a press release announcing the Board
of Directors' decision to explore alternatives. On the same day, Mr. Petit sent
a letter to Mr. Mixon, inviting Invacare to participate in the same process
being afforded to other parties, including the requirement to agree not to
pursue any tender offer or proxy solicitation against the Company.
On June 23, 1997, Invacare issued a press release announcing another
extension of the Invacare Offer, this time until 6:00 p.m. eastern standard time
on August 1, 1997. At that time, 3.9 million shares (approximately 30%) were
reported as tendered to Invacare.
The Company's First Quarter Results
On April 8, 1997, the Company announced in a press release its financial
results for the first quarter ended March 31, 1997. The Company noted that
revenues increased 30%, from $27.5 million in the first quarter of 1996 to a
record $35.7 million for the first quarter of 1997. The Company also reported
net earnings for the first quarter of 1997 of $2.1 million (excluding an after
tax charge of $780,000 for expenses associated with Invacare's unsolicited
tender offer), up from $1.8 million for the first quarter of 1996, and operating
earnings of $4.0 million in the first quarter of 1997 as compared to $2.8
million for the first quarter of 1996. Revenues from the Company's non-invasive
ventilator, the Quantum, were $6.2 million for the first quarter of 1997
(compared to $12 million of Quantum revenues during all of 1996), and revenue
from the Company's asthma management product line grew 54% over comparable
revenues for the first quarter of 1996. Selling and administrative expenses as a
percentage of revenues decreased from 24% in the first quarter of 1996 to 22% in
the first quarter of 1997.
Litigation with Invacare
On January 27, 1997, Invacare and I.H.H. (collectively, the "Plaintiffs")
filed a complaint (the "Complaint") in the United States District Court for the
Northern District of Georgia, Atlanta Division (the "Court"). Named as
defendants in the Complaint are the Company and Craig B. Reynolds, J. Terry
Dewberry, Alexander H. Lorch, J. Leland Strange, James J. Wellman and J. Paul
Yokubinas, each of whom serves on the Company's Board of Directors
(collectively, the "Individual Defendants"). In the Complaint, Plaintiffs allege
that: (i) the Continuing Director Provision of the Company's Shareholder Rights
Plan violates the GBCC and the Supremacy and Commerce Clauses of the United
States Constitution; (ii) that the Company's Board of Directors and the
Individual Defendants breached their fiduciary duties in refusing to redeem or
amend the Company's Shareholder Rights Plan and in using the Shareholder Rights
Plan, the
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<PAGE> 13
Georgia Fair Price Statute, and the Georgia Business Combination Statute to
impede the Invacare Offer; (iii) that the Georgia Fair Price Statute violates
the Supremacy, Due Process and Commerce Clauses of the United States
Constitution and the Due Process Clause of the Georgia Constitution; (iv) that
the aggregate effect of the Georgia Fair Price Statute, the Georgia Business
Combination Statute and Section 14-2-624 of the GBCC ("Section 624") violates
the Supremacy and Commerce Clauses of the United States Constitution; and (v)
that the Company's Board of Directors breached its fiduciary duties in
attempting to impede the Invacare Offer.
On February 27, 1997 and March 7, 1997, the Company and the Individual
Defendants filed their respective answers (the "Answers") to the Complaint. In
the Answers, the Company and the Individual Defendants denied the material
allegations of the Complaint and made a number of averments including: (i) the
Board of Directors fully considered I.H.H.'s proposed acquisition before
rejecting it; (ii) the purchase price proposed pursuant to the Invacare Offer is
grossly inadequate; and (iii) the Board of Directors may in the future adopt
other defensive measures. By way of defenses, the Company and the Individual
Defendants alleged that Invacare and I.H.H. lacked standing to assert a claim of
breach of fiduciary duty and that the Complaint fails to state a claim for which
relief can be granted and, among other things, that the Court should dismiss the
Complaint with prejudice and enter judgment for the Company on all issues.
On April 7, 1997, the Plaintiffs served the Company with a motion for
preliminary injunction, which sought court intervention to set the date for the
Annual Meeting on June 30, 1997 or earlier. On April 21, 1997, the Company filed
a brief in opposition to the Plaintiffs' motion for preliminary injunction,
contending, in part, that Georgia law and the By-Laws of the Company do not
require the Company to hold the Annual Meeting by June 30, 1997 and that the
Plaintiffs cannot prove they will be irreparably injured if the Annual Meeting
is held on July 30, 1997.
On April 14, 1997, the Company filed its Motion to Amend to Add
Counterclaim (the "Motion to Amend"). With its Motion to Amend, the Company
sought leave to amend its Answer with a counterclaim (the "Counterclaim") that
would challenge the Rights Plan Proposal made by Invacare as violative of
Georgia law. The Company is thereby seeking a determination by the Court that
the Rights Plan Proposal is not a proper matter for consideration at the Annual
Meeting.
On April 28, 1997, the Court entered a consent order on Plaintiffs' motion
for preliminary injunction regarding the scheduling of the Company's Annual
Meeting (the "Consent Order"). Pursuant to the Consent Order, Invacare agreed to
withdraw its motion for preliminary injunction and Invacare and the Company
agreed that the Annual Meeting would be held as previously scheduled by the
Company's Board of Directors on July 30, 1997. The Consent Order provides that,
if Invacare changes the offer price or the form of consideration of the Invacare
Offer within fifteen calendar days of the date of the Annual Meeting, the
Company may postpone the Annual Meeting to a date not later than fifteen days
from the date of such change. The Consent Order further provides that, in the
event that such a postponement requires the setting of a new record date for the
Annual Meeting under applicable Georgia law, the Company may not postpone the
meeting but may instead adjourn the meeting to a date not later than fifteen
days from the date of the change in the Invacare Offer.
On May 1, 1997, the Court granted the Company's Motion to Amend its Answer
to add the Counterclaim and file its related motion for summary judgment with
respect to the invalidity of the Rights Plan Proposal (the "Motion for Summary
Judgment on the Rights Plan Proposal").
On May 16, 1997, Invacare filed a motion for preliminary injunction seeking
an order from the Court declaring the Continuing Director Provision invalid and
requiring the Individual Defendants to amend the Shareholder Rights Plan to
remove the Continuing Director Provision ("Invacare's Preliminary Injunction
Motion"). The Court scheduled a hearing for June 16, 1997 with respect to
Invacare's Preliminary Injunction Motion and the Company's Motion for Summary
Judgment on the Rights Plan Proposal.
On May 18, 1997, Invacare filed a reply to the Company's Counterclaim and
filed its own counterclaim seeking declaratory and injunctive relief in
connection with the Rights Plan Proposal ("Invacare's Rights Plan
Counterclaim"). Invacare's Rights Plan Counterclaim asks the Court to declare
that the Rights Plan Proposal
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(i) is valid under Georgia law, (ii) proposes an amendment to the By-Laws that,
if approved by the Company's shareholders, is valid, binding and enforceable
under Georgia law in accordance with its terms, (iii) shall be submitted to the
Company's shareholders for a vote at the Annual Meeting at a time and in a
manner such that, if adopted by the shareholders, will result in the elimination
of the Continuing Director Provision and (iv), if adopted, requires the Board of
Directors to eliminate immediately the Continuing Director Provision. Invacare's
Rights Plan Counterclaim also seeks to enjoin the Company from interfering with
consideration of the Rights Plan Proposal at the Annual Meeting.
On June 16, 1997, the Company filed its second counterclaim (the "Second
Counterclaim") with the Court, alleging that Invacare and its representatives
have engaged in unfair competition and tortious interference with business
relations under Georgia law and have violated O.C.G.A. Sections 10-1-370 through
375, the Georgia Uniform Deceptive Trade Practices Act, by disseminating false
and misleading statements to the Company's customers regarding the Company and
its products. These statements, which are designed to divert sales of oxygen
concentrators from the Company to Invacare and to adversely affect the Company's
second quarter results, are to the effect that Invacare will acquire the
Company, shut down its Marietta, Georgia facility, discontinue its oxygen
concentrator product line and cease providing parts and services necessary to
support oxygen concentrators purchased from the Company. The Second Counterclaim
also alleges that Invacare has violated federal securities laws by failing to
disclose in its filings with the Commission its intentions to close the
Company's Marietta, Georgia facility and to discontinue the Company's oxygen
concentrator product line. The Second Counterclaim seeks compensatory and
punitive damages, as well as permanent and preliminary injunctive relief.
On June 17, 1997, the Court held the hearing originally scheduled for June
16, 1997 (the "Hearing"). At the Hearing, the Court heard oral argument on
Invacare's Preliminary Injunction Motion as well as the motion for preliminary
injunction filed by the plaintiffs in the Stockholder Actions, the Motion for
Summary Judgment on the Rights Plan Proposal and Invacare's Rights Plan
Counterclaim. The Court has not yet ruled on these motions.
The Georgia Legislative Effort
On March 20, 1997, after consultation with the Company, Georgia state
Senator Steve Thompson introduced legislation as an amendment to an existing
bill (the "GBCC Bill") in the Georgia Senate which would afford protection to
publicly-held companies incorporated in Georgia and would prevent hostile
bidders from circumventing specific requirements of the GBCC designed to prevent
abusive takeover tactics (the "Georgia Corporation Protection Legislation"). The
Company, whose headquarters are located in Senator Thompson's district,
supported the Georgia Corporation Protection Legislation and Senator Thompson's
efforts to pass the amended bill.
Specifically, the Georgia Corporation Protection Legislation would have
amended the GBCC to provide, among other things, that: (i) every publicly-held
corporation incorporated in the State of Georgia, including the Company, would
automatically have a "staggered" board of directors in which approximately
one-third of the directors would stand for election each year and serve for a
three-year term; (ii) certain standards for the removal of directors would be
established; (iii) the board of directors would be responsible for fixing the
number of directors; and (iv) the authority of the shareholders of a Georgia
corporation to amend such corporation's by-laws would be clarified. The Georgia
Corporation Protection Legislation would have permitted the board of directors
of a publicly-held Georgia corporation to opt out of its provisions by
resolution of the board of directors at any time. After March 1, 1999,
shareholders of publicly-held Georgia corporations would have been able to opt
out of the Georgia Corporation Protection Legislation provisions upon a two-
thirds vote.
The Georgia State Senate adopted the Georgia Corporation Protection
Legislation amendment to the GBCC Bill on March 20, but on March 25, the House
of Representatives voted against the GBCC Bill. After a joint conference
committee was unable to resolve differences between the House and Senate
versions of the GBCC Bill, the joint conference committee removed the Georgia
Corporation Protection Legislation amendment from the GBCC Bill. The Georgia
General Assembly then passed the GBCC Bill without the
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Georgia Corporation Protection Legislation provisions and authorized the
appointment of a legislative committee to study the issues raised by the Georgia
Corporation Protection Legislation.
The Company supported the legislative effort in the Georgia General
Assembly in order to fulfill its fiduciary duties to oppose Invacare's grossly
inadequate offer. Under current Georgia law, it is possible that the holders of
a minority of the outstanding shares of the Company could elect directors in a
proxy contest who would thereafter cause the Company to accept an acquisition
proposal deemed grossly inadequate by the Company's current Board of Directors,
a majority of whom are independent directors. The Company believed this was a
flaw in the Georgia corporation law and was not in the best interest of the
Company or any other Georgia corporation. While the Board of Directors remains
hopeful that the Georgia General Assembly will decide in its next session to
pass the Georgia Corporation Protection Legislation, the Board of Directors
notes that such passage will be too late to assist it in its current efforts to
protect the Company's shareholders against Invacare's grossly inadequate offer
and hostile tactics, and therefore urges the Company's shareholders not to
tender their shares to Invacare.
Stockholder Litigation
On February 12, 1997, three suits (the "Stockholder Actions") were filed in
the United States District Court for the Northern District of Georgia, Atlanta
Division by three individuals (the "Stockholders") who allegedly are
stockholders of the Company and seek to act on behalf of the stockholders of the
Company as a class. Named as defendants in the Stockholder Actions are the
Company and the following directors of Healthdyne Technologies: Craig B.
Reynolds, Parker H. Petit, J. Terry Dewberry, Alexander H. Lorch, J. Leland
Strange, James J. Wellman, and J. Paul Yokubinas (collectively, the "Director
Defendants"). In the Stockholder Actions, the Stockholders allege that: (i) the
Director Defendants have wrongfully refused to take the steps necessary to
maximize stockholder value, including consideration of the Invacare Offer; (ii)
the Director Defendants are wrongfully using their fiduciary positions of
control over the Company and certain allegedly unreasonable defensive tactics to
thwart others in their attempts to acquire the Company; (iii) the Director
Defendants have wrongfully relied upon various anti-takeover devices, including
a Shareholder Rights Plan and the Georgia Business Combination Statute in an
attempt to block the Invacare Offer; (iv) the Company and the Director
Defendants have taken defensive actions in response to the Invacare Offer that
are unreasonable in light of any perceived threat posed by the Invacare Offer;
and (v) the Director Defendants are in violation of their fiduciary duties to
the stockholders of the Company.
The Stockholder Actions seek injunctive and/or declaratory relief: (i) to
force the Company and the Director Defendants to take steps to maximize
stockholder value, consistent with their fiduciary duties to shareholders; (ii)
to prevent the existing anti-takeover devices and other defensive measures of
the Company from impeding or delaying shareholder consideration of the Invacare
Offer and other offers in violation of Georgia law and the Director Defendants'
fiduciary duties; (iii) to prevent the application of certain Georgia
statutes -- such as the Georgia Fair Price Statute and the Georgia Business
Combination Statute -- to the Invacare Offer and other offers; and (iv) to
prevent the Director Defendants from otherwise taking further actions to impede
or delay shareholder consideration of the Invacare Offer or other offers. The
Stockholders state that they may assert damages claims at a later date.
The plaintiffs in the Stockholder Actions also filed a motion for
preliminary injunction substantially similar to Invacare's Preliminary
Injunction Motion and the Court heard argument on such motion at the Hearing.
On June 13, 1997, the plaintiffs in the Stockholder Actions filed a motion
for class certification (the "Certification Motion") and a memorandum of law in
support of such motion. On the same day, the plaintiffs in the Stockholder
Actions also filed their first consolidated class action complaint (the "Class
Action Complaint").
The Company and the Director Defendants have not yet filed an answer to the
Stockholder Actions, but they intend to deny all material allegations made by
the Stockholders and to vigorously defend against any and all claims asserted in
the Stockholder Actions.
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THE POSITION OF THE BOARD OF DIRECTORS
The Board of Directors has determined unanimously that the Invacare Offer
is not in the best interests of shareholders and is opposing Invacare's takeover
effort, including its proxy solicitation with respect to the Invacare Nominees
and the Invacare Proposals. The Board has determined that, from a financial
point of view, the consideration to be paid to shareholders pursuant to the
Invacare Offer is grossly inadequate and unfair. The Board's determination is
based upon, among other things, the opinion of Cowen that the $15.00 cash
consideration to be paid pursuant to the Invacare Offer is grossly inadequate,
from a financial point of view.
The Board of Directors opposes Invacare's tender offer and proxy
solicitation for another important reason -- even if the Invacare Nominees are
elected and the Invacare Proposals are adopted, there can be no assurance that
Invacare will purchase any shares in the Invacare Offer. In other words,
Invacare, through its hand-picked nominees, could acquire control over the
Company without having purchased and paid for any Healthdyne Technologies shares
in the Invacare Offer. The Board believes that the Company, if it is not
purchased by Invacare, should continue to be managed by its present directors
and officers, who will continue to execute its strategic plan, and not by
Invacare's Nominees, none of whom, to the best of the Company's knowledge, has
any experience in managing a technology-oriented healthcare company such as
Healthdyne Technologies. In this regard, the Board of Directors believes that
the interests of the Company and all of its shareholders, not just Invacare,
will be best served by retaining the Company's current directors, who will act
on behalf of the Company and its shareholders independently of the interests of
Invacare. If all of the current directors of the Company are removed, the Board
of Directors believes that the Invacare Nominees will act in a manner consistent
only with the interests of Invacare. The Board believes that Invacare's
interests are to acquire the Company at the lowest possible cost to Invacare by
paying the lowest possible price to the Company's shareholders.
To understand how Invacare could acquire control of the Company without
buying and paying for shares in the Invacare Offer, shareholders need to
remember that the Invacare Offer is subject to the Rights Plan Condition and the
Georgia Fair Price Statute Condition. If these conditions are not satisfied,
Invacare has reserved the right not to buy any shares in the Invacare Offer. The
Rights Plan and the Georgia statute provide that only "continuing directors" can
eliminate the Rights and render the statute inapplicable. If the Invacare
Nominees are elected, the Board of Directors believes there will no longer be
any "continuing directors" serving on the Company's Board of Directors. The
Company believes that the "continuing directors" provisions of the Rights Plan
and the Georgia statute are valid and cannot be eliminated by the shareholder
proposals or other actions proposed by Invacare, although Invacare takes a
contrary position in its litigation with the Company. Invacare also argues that
its nominees would be "continuing directors" under the Georgia Fair Price
Statute because they would be elected before Invacare becomes an "interested
shareholder" under that statute. An "interested shareholder" is defined for this
purpose as the beneficial owner of 10% of the outstanding Common Stock. The
Company disagrees with Invacare's interpretation of the definition of
"beneficial ownership" set forth in the Georgia Fair Price Statute. As the
Company interprets the statute's definition of "beneficial ownership," shares
tendered to Invacare, or shares as to which Invacare has been granted proxies to
vote at the Annual Meeting, would be deemed to be "beneficially owned" by
Invacare prior to the election of directors at the Annual Meeting. Accordingly,
Invacare would be an "interested shareholder" prior to the Annual Meeting for
purposes of the Georgia Statute. The definition of "beneficial ownership" under
the Georgia Fair Price Statute is subject to differing interpretations, and the
Company is not aware of any case in which a court has construed these
provisions. The dispute concerning the interpretation of these provisions
ultimately may have to be resolved by a court. If the Company's position is
correct, the Rights Plan Condition and the Georgia Fair Price Statute Condition
to the Invacare Offer cannot be satisfied by Invacare's proposed actions. See
"Information Concerning the Invacare Offer and Related Matters -- Litigation
With Invacare" above.
In light of the Company's excellent first quarter results and future
prospects, the Board of Directors believes that the Company's remaining
independent would be a superior alternative to the grossly inadequate Invacare
Offer. At a meeting held on June 20, 1997, the Board reaffirmed its decision not
to sell or merge the Company but instructed the Company's management and
financial advisors to explore alternatives to the
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Invacare Offer, including having discussions with certain companies which have
expressed or may have an interest in a possible merger with or acquisition of
the Company and considering other possible transactions employing leverage to
deliver value to shareholders. In conjunction with its decision, the Board has
authorized management to include Invacare in the same process being afforded to
other parties, including the requirement to agree not to pursue any tender offer
or proxy solicitation against the Company. There can be no assurance that any
such transaction will be proposed or consummated.
PROPOSAL ONE
ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The By-Laws of the Company provide that the number of directors shall be
fixed from time to time by the Board of Directors and may concurrently be fixed
by the shareholders. Currently, the number of directors is set at seven and the
Board of Directors has nominated seven candidates for election at the Annual
Meeting to serve as directors until the next annual meeting and until their
successors are duly elected and qualified (the "Board Nominees"). Each Board
Nominee has consented to being named in this Proxy Statement and to serve if
elected. However, if any Board Nominee should become unable to stand for
election, the proxies received in response to this solicitation that were voted
in favor of such Board Nominee will be voted for the election of such other
person as shall be designated by the Board of Directors.
There are no arrangements or understandings between the Company and any
person pursuant to which such person has been elected or nominated as a
director. There are no family relationships between any directors or nominees of
the Company or executive officers of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE BOARD NOMINEES FOR
ELECTION AS DIRECTORS.
NOMINEES AS DIRECTORS
The following is a brief description of each nominee's principal occupation
and business experience during the last five years, directorships of
publicly-held companies presently held by each nominee and certain other
information.
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, Inc. ("Healthdyne"), the former parent of the Company,
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.
PARKER H. PETIT, age 57, has served as a director of the Company since
January 1993. Mr. Petit was the founder of Healthdyne, and acted as its Chairman
of the Board and Chief Executive Officer from 1970 until March 1996. During 1994
and 1995, Healthdyne sold Home Nutritional Services, Inc., its home infusion
business, to W.R. Grace & Co. and spun off to its shareholders its interests in
the Company and Healthdyne Information Enterprises, Inc., a healthcare
information services company. Mr. Petit ceased acting as Chief Executive Officer
of Healthdyne in March, 1996, when Healthdyne merged its sole remaining business
unit, Healthdyne Maternity Management, with Tokos Medical Corporation (Delaware)
and Matria Healthcare, Inc. ("Matria Healthcare"), with Matria Healthcare as the
surviving corporation (the "Merger"). He is now the Chairman of the Board of
Matria Healthcare. Mr. Petit is also the Chairman of the Board of Healthdyne
Information Enterprises, Inc., a director of Atlantic Southeast Airlines, Inc.,
and a director of Intelligent Systems Corporation. He is also a director of the
Georgia Research Alliance, a coalition of government and industry leaders formed
to encourage development of high technology business in Georgia, and has been
elected to the Georgia Technology Hall of Fame. In 1996, Mr. Petit endowed the
Institute for BioEngineering and BioScience at the Georgia Institute of
Technology.
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<PAGE> 18
J. TERRY DEWBERRY, age 53, has served as a director of the Company since
January 1996. Mr. Dewberry was Vice Chairman of Healthdyne from March 1992 until
March 1996, when the Merger was completed. From September 1987 to March 1992,
Mr. Dewberry served as President and Chief Operating Officer of Healthdyne. Mr.
Dewberry served as Executive Vice President of Healthdyne from August 1984 until
September 1987. Mr. Dewberry is also a director of Healthdyne Information
Enterprises, Inc.
ALEXANDER H. LORCH, age 74, has been a director of the Company since March
1993. Mr. Lorch is retired as Executive Vice President of Lockheed-Georgia Co.,
a division of Lockheed Corporation, and Vice President of Lockheed Corporation,
an aerospace manufacturer, which positions he held from 1975 to February 1985.
He also was President of Lockheed-Georgia International Service, a subsidiary of
Lockheed Corporation, from 1980 to 1985, and Chairman of the Board of Murdock
Engineering Co., a subsidiary of Lockheed Corporation, from 1981 to February
1985. Mr. Lorch was also a member of the Board of Directors of Healthdyne until
March 1996 when the Merger was completed.
J. LELAND STRANGE, age 55, has served as a director of the Company since
March 1993. Mr. Strange is, and has been since December 1983, Chairman of the
Board, President and Chief Executive Officer of Intelligent Systems Corporation,
a diversified company with operations and investments in technology and health
care related products and services. Mr. Strange also is a director of IQ
Software Corporation and PaySys International, Incorporated.
JAMES J. WELLMAN, M.D., age 53, has served as a director of the Company
since July 1994. Dr. Wellman has been a physician since 1970 specializing in
sleep disorders. He founded Sleep Disorders Center of Georgia, the first sleep
disorders center in Georgia, in 1978, and continues as its Medical Director. Dr.
Wellman is Clinical Assistant Professor of Medicine (Pulmonary Diseases) at
Emory University, a position which he has held since 1976, and was previously an
Instructor of Medicine at Harvard Medical School from 1975 to 1976.
J. PAUL YOKUBINAS, age 59, has served as a director of the Company since
January 1993. Mr. Yokubinas served as President and Chief Operating Officer of
Healthdyne from March 1992 until March 1996, when the Merger was completed. From
May 1991 until March 1992, he served as Vice President of Business Development
of Healthdyne. Mr. Yokubinas was President and principal investor of C.Q.I.
International, Inc., a privately held holding company, from February 1987 to
January 1991 and was Executive Vice President of that company from July 1985 to
January 1987. Prior to that time, he served as Executive Vice President of
Healthdyne and was a director of Healthdyne from 1971 until March 1996 when the
Merger was completed.
BOARD OF DIRECTORS MEETINGS
During the year ended December 31, 1996, the Board of Directors held seven
meetings and took action by unanimous written consent on one occasion. Each of
the directors standing for re-election attended 100% of the total number of
board meetings and meetings of committees of which the director was a member
during 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established a Compensation
Committee, an Audit Committee, a Nominating Committee and a Stock Option
Committee, each as described below.
The Compensation Committee, consisting of Messrs. Petit, Strange and
Yokubinas, is responsible for the recommendation and approval of salaries of
executive officers. The Compensation Committee, in conjunction with the Board of
Directors, held one meeting during the year ended December 31, 1996.
The Audit Committee is composed of Messrs. Lorch, Strange and Wellman. The
Audit Committee has the authority to perform the following functions: review and
make recommendations annually to the Board of Directors with respect to the
retention or termination of the Company's independent auditors; review audit
fees and the scope and timing of audits; review with the independent auditors
their report or opinion on the Company's financial statements and related notes,
any changes in accounting principles and practices, any significant proposed
adjustments and any unresolved disagreements with management concerning
accounting or disclosure matters; review and report on the Company's internal
accounting and financial controls and the
14
<PAGE> 19
extent to which recommendations to management of a material nature made by the
independent auditors have been adequately considered and properly implemented;
perform such additional functions as are necessary or prudent to fulfill the
Committee's duties and responsibilities; and report its recommendations and
findings to the full Board of Directors. The Audit Committee met one time during
the year ended December 31, 1996.
The Nominating Committee, which is composed of Messrs. Petit, Lorch and
Reynolds, is responsible for nominating individuals to stand for election to the
Board at the annual meetings of the Company's shareholders, and to fill any
vacancies on the Board that may occur from time to time. The Nominating
Committee held no meetings during the year ended December 31, 1996.
The Stock Option Committee is composed of Messrs. Lorch, Strange and
Wellman. The Stock Option Committee is responsible for approving grants of stock
options under the Company's stock option plans. The Stock Option Committee met
two times during the year ended December 31, 1996 and took action by unanimous
consent three times.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's chief
executive officer, each of the four most highly compensated executive officers
of the Company serving as of December 31, 1996, and one individual who no longer
served as an executive officer as of December 31, 1996 (collectively, the "named
executive officers") for their services in all capacities to the Company during
the past three years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND ---------------------------- OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#)(1)(2)(3) COMPENSATION($)(4)
------------------ ---- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Craig B. Reynolds................... 1996 234,081 -- 40,000 2,425
President and 1995 195,147 -- 104,733 2,033
Chief Executive Officer 1994 170,853 -- 81,667 1,767
John L. Miclot...................... 1996 181,492 20,000(6) 24,000 63,127(7)
Senior Vice President -- 1995 25,557(5) 20,000(6) -- 9,293(7)
Sales and Marketing
Robert E. Tucker.................... 1996 183,127 -- 24,000 3,750
Senior Vice President -- 1995 139,133 -- 63,691 3,283
Operations 1994 122,435 -- 61,333 2,055
Leslie R. Jones..................... 1996 148,115 -- 24,000 3,750
Vice President, General 1995 95,089(8) -- 37,833 3,483
Counsel and Secretary
Robert M. Johnson................... 1996 144,869 -- 10,000 12,663(9)
Senior Vice President -- 1995 137,288 25,000(10) 14,944 11,628(9)
Business Development 1994 102,885 -- 23,333 --
Vincent J. Persano.................. 1996 125,423 26,000(11) 5,000 3,750
Vice President -- Sales 1995 107,250 41,399(11) 26,724 2,766
(former executive officer) 1994 100,000 20,942(11) 9,333 2,014
</TABLE>
- ---------------
(1) Includes options to purchase common stock of Healthdyne as follows: Mr.
Reynolds -- 15,000 shares in 1994; Mr. Tucker -- 12,000 shares in 1994; Mr.
Johnson -- 10,000 shares in 1994; Ms. Jones -- 15,000 shares in 1995.
15
<PAGE> 20
(2) Includes an adjustment to options to purchase the Company's Common Stock to
reflect the Company's Common Stock distribution resulting from a 4 for 3
stock split to shareholders of record on September 6, 1994.
(3) Includes options ("Adjustment Options") to purchase the Company's Common
Stock issued under the Company's Stock Option Plan II in connection with
the Spin-Off (as hereinafter defined) of the Company by Healthdyne in May
1995.
(4) All named executive officers except Mr. Miclot participated in Healthdyne's
or the Company's 401(K) plan. The amounts shown in this column represent
matching contributions made by the Company to the 401(K) plan on behalf of
these individuals.
(5) Mr. Miclot's 1995 compensation represents amounts earned since he commenced
employment with the Company in November of 1995.
(6) As an incentive for Mr. Miclot to enter into employment with the Company,
the Company agreed to pay Mr. Miclot a bonus in the amount of $40,000,
$20,000 of which was paid 30 days following commencement of employment,
with the remaining $20,000 paid upon completion of Mr. Miclot's relocation
to the Marietta, Georgia area.
(7) As an incentive for Mr. Miclot to enter into employment with the Company,
the Company agreed to reimburse Mr. Miclot for certain moving expenses.
(8) Ms. Jones became a full-time employee of the Company on May 22, 1995. Ms.
Jones' 1995 compensation includes compensation for services rendered to the
Company while she was an employee of Healthdyne.
(9) Includes forgiveness of a bridge loan made by the Company in connection
with Mr. Johnson's relocation to the Marietta, Georgia area in the amount
of $8,913 for both 1995 and 1996. See "Employment Contracts, Termination of
Employment, and Change in Control Agreements with Executive Officers and
Directors."
(10) Represents a bonus paid to Mr. Johnson at the time of his acceptance of
employment with the Company.
(11) Represents sales commissions paid to Mr. Persano and payable quarterly
pursuant to a sales incentive plan based upon the achievement by the
Company of certain sales goals established by the President and Chief
Executive Officer.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1993 Stock Option Plan and 1996 Stock Option Plan to
the named executive officers of the Company during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Craig B. Reynolds.............. 40,000 14.19% 10.06 4/17/06 253,068 641,320
John L. Miclot................. 24,000 8.51% 10.06 4/17/06 151,841 384,792
Robert E. Tucker............... 24,000 8.51% 10.06 4/17/06 151,841 384,792
Leslie R. Jones................ 24,000 8.51% 10.06 4/17/06 151,841 384,792
Robert M. Johnson.............. 10,000 3.55% 10.06 4/17/06 63,267 160,330
Vincent J. Persano............. 5,000 1.77% 10.06 4/17/06 31,633 80,165
</TABLE>
The options referred to above become exercisable in three annual
installments commencing on the first anniversary date of the option grant. The
options are not transferable, otherwise than by will or the laws of descent and
distribution. Except as provided in each of the option agreements, the options
may not be exercisable unless employment with the Company or an affiliate or
subsidiary of the Company continues. Prior to their scheduled expiration,
options granted under the plans will expire (i) immediately upon the employee's
16
<PAGE> 21
termination for good cause; (ii) three months after the date of termination for
reason other than good cause; (iii) three months after the employee's voluntary
termination; and (iv) one year after the employee's death or disability. The
optionees are obligated to reimburse the Company at the time of any exercise of
the options for any taxes required to be withheld by the Company under federal,
state or local law as the result of the exercise of the options. See "Employment
Contracts, Termination of Employment, and Change in Control Agreements with
Executive Officers and Directors."
STOCK OPTION EXERCISES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options for both the Company's
Common Stock and Healthdyne's common stock during the last fiscal year and the
value of unexercised options for the Company's Common Stock held as of the end
of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY -- END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR END (#) AT FISCAL YEAR END($)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Craig B. Reynolds (2)............ -- -- 140,611 96,474 112,228 2,081
(3)............ 23,334 168,321 -- -- -- --
John L. Miclot (2)............ -- -- 11,666 47,334 -- --
(3)............ -- -- -- -- -- --
Robert E. Tucker (2)............ -- -- 97,739 56,301 78,399 1,526
(3)............ 18,000 131,434 -- -- -- --
Leslie R. Jones (2)............ -- -- 33,474 32,556 19,523 --
(3)............ 27,002 185,015 -- -- -- --
Robert M. Johnson (2)............ -- -- 22,652 15,625 10,392 --
(3)............ 6,667 50,105 -- -- -- --
Vincent J.
Persano (2)............ 19,232 78,243 7,497 14,215 7,779 --
(3)............ 10,000 66,387 -- -- -- --
</TABLE>
- ---------------
(1) Represents the excess of the fair market value of the stock at the time of
exercise above the exercise price of the options.
(2) Represents options to purchase the Company's Common Stock only. The value of
unexercised in-the-money options is based on $8.88, the last sale price of
the Company's Common Stock on December 31, 1996.
(3) Represents options to purchase Healthdyne's common stock only.
PENSION PLAN
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under the Company's nonqualified
pension plan, which provides benefits based on remuneration that is covered
under the plan and years of service with the Company and its affiliates.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 75,000............................. $15,300 $22,950 $ 30,600 $ 30,600 $ 30,600 $ 30,600
100,000............................. 22,800 34,200 45,600 45,600 45,600 45,600
125,000............................. 30,300 45,450 60,600 60,600 60,600 60,600
150,000............................. 37,800 56,700 75,600 75,600 75,600 75,600
175,000............................. 45,300 67,950 90,600 90,600 90,600 90,600
200,000 52,800 79,200 105,600 105,600 105,600 105,600
</TABLE>
17
<PAGE> 22
Remuneration covered by the plan is based on the average base salary of the
executive for the three years in which his or her base salary is the highest.
This amount for each of the named executive officers participating in the plan
as of the end of the last fiscal year was $200,027, $178,246, $148,232,
$137,614, $128,347 and $110,891, respectively, for Mr. Reynolds, Mr. Miclot, Mr.
Tucker, Ms. Jones, Mr. Johnson and Mr. Persano. The estimated years of service
for each named executive officer as of the end of the last fiscal year was 16
years for Mr. Reynolds, one year for Mr. Miclot, 15 years for Mr. Tucker, 12
years for Ms. Jones, three years for Mr. Johnson and 11 years for Mr. Persano.
Years during which the named executive officers were employed by Healthdyne are
included in the years of service for such named executive officers under the
plan. Benefits shown are computed as a diminishing single life annuity beginning
at age 65 with annual reductions equal to the annual increases in primary social
security benefits. The base salary used to calculate covered compensation is the
same figure reported in the "Salary" column of the Summary Compensation Table,
except with respect to Ms. Jones, whose base salary for these purposes includes
compensation for services rendered to Healthdyne.
COMPENSATION OF DIRECTORS
Directors who are officers of the Company receive no additional
compensation for serving on the Board of Directors. Directors who are not
officers receive a fee of $12,000 per annum, plus $1,000 for each Board meeting
attended and $750 for each committee meeting attended, and are reimbursed for
any travel expenses incurred. As set forth below, in lieu of the $12,000
directors fee, Mr. Petit receives certain other compensation for his services as
Chairman of the Board of Directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Company has entered into separate Noncompetition Agreements with
certain executive officers, including Mr. Reynolds, Mr. Miclot, Mr. Tucker and
Ms. Jones. The terms and conditions of these Noncompetition Agreements are
identical for each of these individuals and provide that in the event the
individual's employment is terminated or the individual terminates employment
for good reason (e.g., loss or reduction of title, responsibility, pay or
benefits) within three years following a change in control as defined in the
Noncompetition Agreement, the individual agrees not to compete for a period of
12 months, as an owner, employee, consultant or agent of any entity which
competes in any material respect with the Company ("Competitor"). The
noncompetition provisions do not apply in the event (i) less than thirty percent
(30%) of the Competitor's revenue in the last fiscal year was related to
Competitor's product lines which compete with the Company ("Competing
Products"), or (ii) the individual provides services to a Competitor which are
unrelated to the Competitor's Competing Products. Pursuant to the Noncompetition
Agreements, these individuals will receive certain benefits in the event their
respective employment with the Company is terminated or the individual
terminates his or her employment for good cause (as defined in the
Noncompetition Agreements) within three years following a change in control of
the Company. In such event, the individual will receive three times his or her
average annual compensation (as reported on the applicable Forms W-2 from the
Company) for the five years ending prior to termination, a continuation of
health, life and disability benefits for three years, and use of a
Company-provided vehicle for three years (including the cost of repair,
maintenance and insurance).
On March 1, 1994, Robert M. Johnson became Senior Vice
President -- Business Development of the Company. Mr. Johnson and the Company
entered into a Letter of Agreement, dated January 27, 1994 and amended January
28, 1994, reflecting the terms of his employment with the Company. In an effort
to expedite Mr. Johnson's relocation to Marietta, Georgia, the Company advanced
a non-interest bearing bridge loan to Mr. Johnson in the amount of $50,800 on
April 25, 1994. Of that amount, $15,150 was repaid on June 26, 1994 and the
balance was converted into a non-interest bearing promissory note, payable in
four equal annual installments on March 1 of each year commencing in 1995 and
continuing through 1998. To the extent that Mr. Johnson is an active full-time
employee of the Company in good standing on such dates, the payments due
thereunder will be forgiven by the Company and reflected as compensation to Mr.
Johnson. Mr. Johnson and the Company entered into a Noncompetition Agreement in
April 1996 with substantially the same terms and conditions as the
Noncompetition Agreements described above, except that the period covered by the
no-
18
<PAGE> 23
compete clause is eight rather than 12 months, and the severance payment is two
times his average annual compensation for the five years ending prior to
termination.
On November 1, 1995, Mr. Miclot became Senior Vice President -- Sales and
Marketing of the Company. Mr. Miclot and the Company entered into a Letter of
Agreement dated October 12, 1995 and executed by Mr. Miclot on October 17, 1995,
reflecting the terms of his employment with the Company. The Letter of Agreement
provides, among other things, for a bonus in the amount of $40,000, $20,000 of
which was payable 30 days following commencement of employment and $20,000 of
which was payable following completion of Mr. Miclot's relocation to the
Marietta, Georgia area. The Company also agreed to reimburse Mr. Miclot for
certain relocation expenses. In addition, the Company agreed to reimburse Mr.
Miclot up to $25,000 in the event the confirmed sales price for his residence in
Powell, Ohio was less than Mr. Miclot's purchase price for such residence. Mr.
Miclot was required to repay certain relocation expenses in the event he
voluntarily elected to leave the employ of the Company within the 24 months
following commencement of his employment. The Letter of Agreement also provided
for 12 months severance in the event the Company terminated Mr. Miclot's
employment through no fault of Mr. Miclot. This special severance is not payable
in the event Mr. Miclot's termination is due to specific events, including but
not limited to, a change in control of the Company.
In January 1996, the Board of Directors authorized the Company to enter
into an Agreement to Purchase Promissory Note (the "Put") with Bank of America
Illinois (the "Bank") with respect to a $100,000 bridge loan from the Bank to
Mr. Miclot to assist in purchasing a residence in the Marietta, Georgia area.
Pursuant to the Put, the Bank has an option to sell the promissory note to the
Company upon the occurrence of an event of default.
On December 11, 1996, the Board of Directors of the Company agreed to pay
Mr. Petit $50,000 per year for his services as a director and as Chairman of the
Board of Directors. Mr. Petit ceased drawing a salary from the Company's former
parent and its former subsidiaries at the end of 1996, and each of the three
companies for which he serves as Chairman of the Board agreed to increase his
director's fees to reflect the duties and responsibilities he performs as
Chairman of the respective Boards. See "Compensation of Directors." In addition,
the Company agreed to reimburse Matria Healthcare 45% of the expenses associated
with Mr. Petit's office space and associated overhead, the cost and use of the
Matria Board Room for meetings and the cost of Mr. Petit's assistant and related
expenses. The Company's portion of these expenses is estimated to be
approximately $45,000 per year.
On March 20, 1997, the Board of Directors authorized the Company to enter
into indemnification agreements (the "Indemnity Agreements") with its directors
and executive officers. The Indemnity Agreements are consistent with and are
intended to implement the existing provisions of the Company's By-Laws. The
Indemnity Agreements provide for indemnification of directors and executive
officers to the full extent authorized or permitted by law for all expenses,
judgments, fines, penalties and settlement payments incurred by the indemnitee
in connection with any act taken in the indemnitee's capacity as a director or
executive officer of the Company. The Indemnity Agreements also provide for (i)
advancement by the Company of expenses incurred by the director or executive
officer in defending certain litigation, (ii) the appointment of independent
legal counsel to determine whether the director or officer is entitled to
indemnity after a change in control, and (iii) the continued maintenance by the
Company of the directors' and officers' liability insurance currently in effect
for so long as the indemnitee may be subject to any possible, threatened or
pending action, unless the cost of such insurance is more than 150% of the
annualized rate of premiums paid by the Company in fiscal year 1996.
Additionally, pursuant to the Indemnity Agreements, the Company retains
subrogation rights to recover any payments made to the indemnitee by a third
party. The Indemnity Agreements are binding on the Company and any successors
thereto and shall continue in effect regardless of whether an indemnitee
continues to serve as a director or executive officer of the Company.
Employees of the Company hold options to purchase shares of the Company's
Common Stock pursuant to the Stock Option Plan (the "Option Plan"), the 1996
Stock Option Plan (the "1996 Plan") and the Stock Option Plan II (the "Option
Plan II") (collectively the "Plans"). In May 1995, the Company notified the
holders of outstanding options granted under the Option Plan of acceleration of
the exercise date of such
19
<PAGE> 24
options conditioned upon a "Change of Control Event" defined as (i) any "person"
(as such term is used in Sections 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), becoming a "beneficial owner" (as
defined in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or
indirectly, of securities representing 50% or more of the combined voting power
of the Company's then outstanding securities, or (ii) as a result of, or in
combination with, any cash tender offer or exchange offer, merger or other
business combination, sale of assets or contested election, or any combination
of the foregoing transactions (a "Transaction"), the persons who are directors
of the Company before the Transaction ceasing to constitute a majority of the
Board of Directors of the Company or any successor to the Company. On January
30, 1997, the Board of Directors of the Company amended the Option Plan to
provide that the Stock Option Committee give at least ten days notice of the
potential Change of Control Event and the option will become fully vested on the
date of such notice.
The 1996 Plan also provides for the acceleration of the exercise date of
outstanding options granted under the 1996 Plan. In addition to the definition
set forth above, a Change of Control Event is also defined in the 1996 Plan as
approval by the Company's shareholders of the sale, transfer or other
disposition of all or substantially all of the assets of the Company.
Additionally, the option agreement provides that the Stock Option Committee give
at least ten days notice of the potential Change in Control Event and the
options will become fully vested upon the date of such notice. All options
granted under the Option Plan II are fully vested and therefore will not be
accelerated upon a Change of Control Event.
As of January 1, 1997, employees (or former employees), including executive
officers, held options under the Plans to purchase an aggregate of 1,244,282
shares of the Company's Common Stock at a weighted average exercise price of
$9.19 per share (based on exercise prices ranging from $6.04 to $11.88 per
share). Not included in the foregoing are options granted under the Option Plan
II to purchase 683,263 shares of the Company's Common Stock which are held by
officers, directors and employees (or former employees) of Healthdyne or its
successor Matria Healthcare.
The non-employee directors of the Company hold options to purchase the
Company's Common Stock pursuant to the Company's Non-Employee Director Stock
Option Plan (the "Director Plan"). Pursuant to the Director Plan, if an
optionee's service as a member of the Board of Directors is terminated or
discontinued as a result of any extraordinary proceeding which results in a
change in control of the Company, his option will become immediately exercisable
in full for 30 days prior to such proceeding. As of January 1, 1997, non-
employee directors held options under the Director Plan to purchase an aggregate
of 39,842 shares of the Company's Common Stock at a weighted average exercise
price of $8.05 per share (based on exercise prices ranging from $7.13 to $11.88
per share).
The Company's executive officers and certain other employees participate in
a Retirement Benefit Award Program. In the event of a "Change in Control" of the
Company, all benefits accrued to date under these Retirement Benefit Awards
immediately vest and each participant may require the Company to place in trust
for the participant's benefit an amount of money equal to the present value of
the vested benefits under the retirement program. Benefits upon a Change in
Control are calculated to include three additional years of service for
executive officers who are also parties to Noncompetition Agreements with the
Company.
The Company has entered into Split-Dollar Life Insurance Agreements
("Insurance Agreements") with the executive officers and certain other
employees. If an employee dies prior to termination of employment with the
Company and prior to his or her Security Release Date (as defined in the
Insurance Agreements), the employee's designated beneficiary will be entitled to
receive as a death benefit an amount equal to two and one-half times the
employee's annual base salary at the time of death. To the extent that the death
benefit under the Policy exceeds such amount, the balance of the death benefit
shall be payable to the Company. The Company retains a security interest in the
Policy until the employee's Security Release Date or until the employee
terminates his or her employment on account of a "Qualifying Termination." A
Qualifying Termination occurs if (i) an employee's employment with the employer
is terminated without cause or (ii) an employee terminates his or her employment
with the employer for "good reason" within one year of a "Change of Control."
After the employee is terminated as a result of a Qualifying Termination,
however, the employee is entitled to exercise all of his or her ownership in the
Policy without any limitation. Pursuant to the
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<PAGE> 25
Retirement Benefit Awards, as amended, the value of the Policy is then offset
against the Company's obligations under the Retirement Benefit Award under
certain circumstances.
The definition of Change of Control under the Insurance Agreements is
substantially the same as is set forth under the Plans discussed above except
that Change of Control under the Insurance Agreements also includes changes in
the effective control of the Company which occur on the date that either (i) any
one person, or more than one person acting as a group, acquires ownership of
stock of the Company possessing 20% or more of the total voting power of the
stock of the Company or (ii) a majority of members of the Company's Board of
Directors is replaced during any 12-month period by directors whose appointment
or election is not endorsed by a majority of the members of the Company's Board
of Directors who were directors prior to the date of the appointment or election
of the first of such new directors.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following report and the Stock Performance Graph shall not
be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Overall Objectives and Approach. In making its compensation
determinations, the Company's Compensation Committee evaluates, on both an
absolute and relative basis, a variety of factors, including the Company's
financial results (including sales, earnings, return on equity, return on assets
and balance sheet strength), market share and competitive position, the
potential for future growth, the overall importance of the individual to the
organization, the individual and group performance of senior management, and
compensation levels at comparable companies, especially within the health care
industry. In formulating its determinations, the Compensation Committee
recognizes and rewards achievements on an annual basis, while emphasizing the
value and importance of sustained long-term performance and recognition of
developing trends within the health care industry. The Compensation Committee
reviews information prepared or compiled by the Company and relies on the
business experience of the individual members of the Compensation Committee.
Cash Compensation. Officers and other employees are compensated within
salary ranges that are generally based on similar positions in companies of
comparable size and complexity to the Company. The actual base pay level for
each officer is based on a combination of experience, employment agreement
provisions, performance and the particular needs of the Company for the services
provided by the individual, and is reviewed annually in the first six months of
each year, with the amount of any increases based on factors such as Company
performance, general economic conditions, marketplace compensation trends and
individual performance.
Bonuses for executive officers are determined in accordance with, and paid
under, the Company's Incentive Plan. Under this Plan, which is established
periodically, an incentive pool established for the benefit of management,
including executive officers, is based upon a percentage of operating profit in
a given year in excess of the Company's Annual Business Performance Plan. Base
bonuses are then paid upon a percentage of the individual's base salary (for
1996, 35% in the case of Mr. Reynolds, 25% in the cases of Mr. Tucker, Mr.
Johnson, Mr. Miclot, Ms. Jones and Mr. Persano). Excess bonuses are paid to the
extent that funds remain in the incentive pool. Under this Incentive Plan,
bonuses are earned only to the extent that the Company's earnings performance
exceeds the Annual Business Performance Plan for the year in question.
Stock Options. The Company grants stock options to a number of its
employees, a policy followed since the Company first became a public company in
1993. Prior to that time, employees of the Company were eligible to and did
receive options from Healthdyne. The grants generally have been based on
guidelines that take salary level, tenure, individual performance rating, the
number of options previously granted to the individual and the individual's
importance to the Company into account. All stock options have been granted at
exercise prices equal to the market price on the date of grant, become
exercisable in three annual installments commencing on the first anniversary of
the grant, and expire on the tenth anniversary. The Company believes that
employee ownership of its Common Stock is an important element to its success.
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<PAGE> 26
CEO Compensation. The compensation of Mr. Reynolds, including stock
options, is based upon the performance of the Company and the important role Mr.
Reynolds plays within the Company as its spokesman and chief executive officer.
Mr. Reynolds' long and successful tenure with the Company and his success in
developing the current management team were taken into account, as well as the
fact that the Company achieved solid levels of performance in recent years.
COMPENSATION COMMITTEE
Parker H. Petit
J. Leland Strange
J. Paul Yokubinas
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For purposes of this section, references to Healthdyne shall include, where
appropriate, Healthdyne's successor, Matria Healthcare.
Mr. Petit, the Chairman of the Compensation Committee of the Board of
Directors, was the founder, Chairman of the Board and Chief Executive Officer of
Healthdyne, and Mr. Yokubinas, a member of the Compensation Committee, served as
President and Chief Operating Officer of Healthdyne. Healthdyne operated the
Company as a division of Healthdyne until the Company's June 1993 public
offering, after which Healthdyne owned an 81% interest in the Company until
Healthdyne distributed its shares of common stock of the Company to Healthdyne
shareholders as a dividend (the "Spin-Off"). Healthdyne provided the Company
with certain administrative and related services such as accounting, legal, tax,
data processing, human resources and certain other services, pursuant to an
Administrative Services Agreement dated March 31, 1993, as amended (the
"Services Agreement"). The Services Agreement was amended on April 21, 1995, in
anticipation of Healthdyne's Spin-Off of its interest in the Company, to reduce
the nature and amount of services to be provided by Healthdyne to the Company.
As a result of the Merger, Matria Healthcare is now the party to the Services
Agreement with the Company. The Services Agreement was extended on a
month-to-month basis effective January 1, 1997 and may be terminated upon 30
days prior written notice. Charges for services are made on a monthly basis in
an amount which is estimated to equal Matria Healthcare's cost, including
overhead, of providing the services. For the years ended December 31, 1994, 1995
and 1996, the Company reimbursed Healthdyne for the cost of the administrative
and personnel services provided by employees of Healthdyne 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 Healthdyne for the cost of various
insurance premiums paid by Healthdyne on behalf of the Company for the years
ended December 31, 1994, 1995 and 1996, respectively. The Company is under no
obligation to purchase services pursuant to the Services Agreement. In any
event, the amounts paid by the Company to Healthdyne for services in the past
may not be representative of the amount of services required by the Company in
the future.
The Company has an arrangement (originally with Healthdyne Maternity
Management and now with Matria Healthcare), under which the Company supplies the
System 37 Uterine Activity Monitor and certain other products and supplies to
Matria Healthcare at a price which is approximately 33% over the Company's
manufacturing cost. As a result of this arrangement, without the consent of
Matria Healthcare, 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 Healthcare to the Company for equipment purchased by
Matria Healthcare from the Company in 1996 was approximately $500,000. In 1996,
the Company also provided certain research and development services related to
the System 37 and certain other products for which Healthdyne paid the Company
$228,000.
It is the intention of the Company and Matria Healthcare that all
transactions between them, or between the Company and any affiliated party, will
be on an arm's length basis on terms no less favorable to the Company than could
be obtained from unaffiliated third parties. In addition, the Company intends
that any transactions between the Company and any other affiliated party,
including Matria Healthcare or its affiliates,
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<PAGE> 27
that are material to the Company must be approved by the vote of a majority of
the independent and disinterested members of the Board of Directors of the
Company. As previously indicated, Mr. Petit currently serves as Chairman of the
Board of Matria Healthcare.
PERFORMANCE GRAPH
The following performance graph shows a comparison of cumulative total
returns for the Company, the S&P 500 Index and the S&P Healthcare Composite
Index for the period beginning on June 22, 1993 (the date on which shares of the
Common Stock began trading publicly) through March 31, 1997, including December
31, 1996. The graph assumes that the value of the investment in the Company's
Common Stock and each index was $100 at June 22, 1993, and that all dividends
were reinvested.
<TABLE>
<CAPTION>
Measurement Period Healthdyne S&P Healthcare
(Fiscal Year Covered) Technologies, Inc. S&P 500 Index Composite Index
<S> <C> <C> <C>
June 1993 100 100 100
December 1993 100 105 105
December 1994 142 107 115
December 1995 161 146 181
December 1996 124 180 219
March 1997 197 185 229
</TABLE>
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<PAGE> 28
PROPOSAL TWO
INVACARE'S BOARD RESTRICTION PROPOSAL
Invacare has stated that it will introduce the following By-Law amendment
for consideration by the shareholders at the Annual Meeting:
To adopt, prior to the election of directors at the Annual Meeting, a
proposal to amend the By-Laws to fix the maximum number of directors of
Healthdyne [Technologies] at seven (7) and provide that, without the
approval of the shareholders, the Board of Directors may not thereafter
amend or repeal the section of the By-Laws governing the number of
directors or adopt any new By-Law provision which is inconsistent in any
manner with such section.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST INVACARE'S BOARD
RESTRICTION PROPOSAL FOR THE REASONS SET FORTH BELOW AND UNDER "THE POSITION OF
THE BOARD OF DIRECTORS" ABOVE.
The Board of Directors believes that the Board Restriction Proposal will
only hamper the efforts of the Board of Directors to manage the Company
effectively and in the best interests of the shareholders. The Board of
Directors has never considered "packing" the Board of Directors of the Company
or increasing the number of directors on the Board as a defensive measure to the
Invacare Offer. In fact, the Board of Directors may need to increase the size of
the Board for reasons unrelated to the Invacare Offer. As a result, the Board of
Directors believes that the Board Restriction Proposal needlessly limits the
flexibility of the Board of Directors by restricting its ability to change the
size of the Board for any reason.
The Board of Directors is already bound by its fiduciary duties to act in
the best interests of the Company and all of its shareholders, not just
Invacare. These fiduciary duties are broad enough to embrace any and all actions
taken by the Board of Directors in response to the grossly inadequate Invacare
Offer, including any defensive measures aimed at increasing the current size of
the Board of Directors, without further restrictions. As a result, the Board of
Directors believes the Board Restriction Proposal is an unnecessary measure and
is not in the best interests of the shareholders of the Company.
PROPOSAL THREE
INVACARE'S RIGHTS PLAN PROPOSAL
Invacare has stated that it will introduce the following Rights Plan
amendment for consideration by the shareholders at the Annual Meeting:
To adopt, prior to the election of directors at the Annual Meeting, a
proposal to amend the By-Laws to provide that the Board of Directors shall
have no authority to take any action, or omit to take any action, the
effect of which action or omission would be to impose, or permit to
continue or be imposed, any limitation (directly or indirectly, and
including any such limitation imposed by means of a requirement for
concurrence or other action by any particular director or particular type
of director), resulting from or becoming operative in light of, in whole or
in part, a change in the composition of the Board of Directors (whether or
not under specified circumstances), on the exercise by any future Board of
Directors of any power or authority that it would otherwise have, including
any such limitation on the ability of a Board of Directors to redeem or
amend any shareholder rights plan of Healthdyne [Technologies] which
limitation results from or becomes operative in light of, in whole or in
part, a change in the composition of the Board of Directors (whether or not
under specified circumstances). In particular, but not in limitation, such
amendment will also specifically provide that the incumbent Board of
Directors will be in violation of the By-Laws if such Board, including any
requisite group of "continuing directors," fails to immediately take all
necessary action (prior to the consideration of the election of directors
at the Annual Meeting) to amend any shareholder rights plan of Healthdyne
[Technologies] to remove all such limitations. Such amendment will further
provide that such By-Law may not be amended nor may any new By-Law
provision which is in any manner inconsistent there with be adopted,
without the approval of the shareholders.
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<PAGE> 29
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE RIGHTS PLAN PROPOSAL
FOR THE REASONS SET FORTH BELOW AND UNDER "THE POSITION OF THE BOARD OF
DIRECTORS" ABOVE.
The Board of Directors believes the Rights Plan Proposal is simply an
attempt by Invacare to dismantle the defensive measures established by the Board
of Directors to protect the Company's shareholders and to ensure fair
negotiations and a level playing field when the Company is confronted by hostile
bidders like Invacare. The Board of Directors believes the Continuing Director
Provision is a necessary measure designed to protect the Company and its
shareholders from certain non-negotiated takeover attempts which present a risk
of change of control on terms which may be less favorable to the Company's
shareholders than those which could be obtained in a transaction negotiated with
and approved by the Board of Directors. The Continuing Director Provision is
designed to: (i) reduce the risk of inadequate offers or coercive two-tiered
offers which may not offer fair value to shareholders; (ii) mitigate against
market accumulators who, through open market or private purchases, may achieve a
position of substantial influence or control without paying to selling or
remaining shareholders a fair control premium; (iii) deter market accumulators
who are simply interested in putting the Company "in play"; and (iv) ensure
continuity and fairness to the shareholders in the Board decision-making process
in an acquisition or takeover context.
Specifically, the Continuing Director Provision was adopted by the Board of
Directors to prevent a hostile acquirer, like Invacare, from being able to
replace the Company's Board of Directors with sympathetic nominees ready and
willing to accept its own grossly inadequate proposal. In light of Invacare's
repeated statements in its proxy materials that the Invacare Nominees are
already committed to taking all necessary steps to approving and effectuating
the Invacare Offer, the Board of Directors believes the Continuing Director
Provision is especially necessary to ensure that shareholders are not left
vulnerable to the coercive tactics of hostile bidders such as Invacare.
The Continuing Director Provision does not prevent a proxy contest or a
tender or exchange offer for all of the shares of the Company's Common Stock at
a price that is determined by a majority of the Continuing Directors to be fair
and otherwise in the best interests of the shareholders, nor will it deter a
serious bidder who wants to acquire the Company in a manner in which all
shareholders receive what the Continuing Directors believe to be full and fair
value for their shares. Furthermore, the continuation of the Continuing Director
Provision does not excuse or diminish the Continuing Directors' obligations to
discharge their fiduciary duties to act in the best interests of the
shareholders of the Company in any consideration of the Invacare Offer.
The Board of Directors believes that the Continuing Director Provision in
the Company's By-Laws is not a rare or unusual exercise of corporate power.
Instead, it is a relatively common component of the shareholder rights plans of
many publicly-held corporations, including one corporation of which an Invacare
Nominee serves as Chairman, President and Chief Executive Officer. The GBCC (in
both the Georgia Fair Price Statute and the Georgia Business Combination
Statute) and a host of other state codes specifically sanction the use of
provisions like the Continuing Director Provision by a board of directors to
ensure continuity and fairness to shareholders in the event that an outside
party attempts a hostile takeover of the corporation. In fact, the Board of
Directors notes that a survey by Associate Professor Donald G. Margotta of
Northeastern University found that, of the 1,371 corporations reviewed which had
shareholder rights plans, 253 companies, including six Georgia companies, have
provisions similar to the Continuing Director Provision. Dr. Margotta is acting
as an expert witness for the Company in its litigation with Invacare and has
consented to the reference to him in this Proxy Statement.
The Board of Directors also believes that the Rights Plan Proposal usurps
the Board of Directors' authority over the management of the Shareholder Rights
Plan and prevents the Board of Directors from effectively exercising their
fiduciary duties to you, the shareholders, by defending shareholder interests
from abusive takeover practices and grossly inadequate offers. Under GBCC
Section 624, the Board of Directors is clearly vested with the right, in its
sole discretion, to set and determine the terms and conditions of any
shareholder rights plan, subject to the fiduciary duties it owes to the
shareholders. This fundamental authority vested in the Board of Directors is
especially critical in the context of a hostile takeover because the Company's
Shareholder Rights Plan empowers the Board of Directors to negotiate on even
terms with hostile
25
<PAGE> 30
bidders for the Company's capital stock. The Rights Plan Proposal proposes to
usurp this authority granted by the GBCC to the Board of Directors by requiring
direct shareholder supervision of the management of the Company's Shareholder
Rights Plan and by handcuffing the Board of Directors in its efforts to ward off
coercive and unfair takeover tactics. In short, the Board of Directors believes
the Rights Plan Proposal, while purporting to champion shareholder rights, in
reality strips the Board of Directors of an essential defensive measure
necessary to protect shareholder interests from the inadequacy of the Invacare
Offer. Because the Board of Directors so strongly believes that the Rights Plan
Proposal is an outright infringement on the authority of the Board of Directors
and its ability to effectively perform its fiduciary obligations to the
shareholders of the Company, the Board of Directors and the Company have
challenged the legality of the Rights Plan Proposal in the United States
District Court for the Northern District of Georgia, Atlanta Division. The
Hearing on the validity of the Rights Plan Proposal was held on June 17, 1997.
See "Litigation with Invacare."
PROPOSAL FOUR
INVACARE'S BY-LAW RESCISSION PROPOSAL
Invacare has stated that it will introduce the following proposal to
rescind certain of the Company's By-Laws for consideration by the shareholders
at the Annual Meeting:
To adopt a proposal to repeal each and every provision of the By-Laws
of Healthdyne [Technologies] or amendments thereto which was adopted on or
after June 30, 1996 and prior to the date of adoption of such proposal,
other than those provisions which were fully disclosed and properly
reflected in the public filings made by Healthdyne [Technologies] with the
Commission prior to March 20, 1997 and those provisions which were duly
approved by the shareholders, and to propose that, without the approval of
the shareholders, the Board of Directors may not thereafter amend any
section of the By-Laws affected by such repeal or adopt any new by-law
provision in a manner which serves to reinstate any repealed provision or
any similar provision.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE BY-LAW RESCISSION
PROPOSAL FOR THE REASONS SET FORTH BELOW AND UNDER "THE POSITION OF THE BOARD OF
DIRECTORS" ABOVE.
The Board of Directors believes the By-Law Rescission Proposal represents a
maneuver by Invacare to remove the provisions your Board of Directors has
properly put in place to ensure efficient management of the Company and to
prevent hostile bidders from taking advantage of the Company's shareholders.
Since the Company received the Invacare Preliminary Proposal and determined it
(as well as the Invacare Initial Offer, the Invacare Revised Offer and the
Invacare Offer) to be grossly inadequate after careful review of their
respective terms and consultation with Cowen and the Company's legal advisors,
the Board of Directors has taken steps to meet its fiduciary obligations and
protect its shareholders from Invacare's coercive tactics aimed at acquiring the
Company at an unfair price. These steps have included a properly adopted By-Law
amendment to provide specific procedural and notice requirements for the calling
of special shareholder meetings. See "Information Concerning the Invacare Offer
and Related Matters." This By-Law amendment was aimed at conforming the
Company's By-Laws to applicable provisions of the GBCC. Furthermore, the Board
of Directors believes that this By-Law amendment is essential to maintaining a
level playing field in the proxy contest initiated by Invacare and is consistent
with shareholder rights and the continued efficient operation of the Company.
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<PAGE> 31
PROPOSAL FIVE
INVACARE'S SPECIAL MEETING PROPOSAL
Invacare has stated that it will introduce the following By-Law amendment
for consideration by the shareholders at the Annual Meeting:
To adopt a proposal to amend the By-Laws to (i) give the beneficial
owners and/or record holders of 10% or more of the outstanding shares the
right to demand a special meeting, (ii) require that any such meeting be
held on the date specified in the demand notice, so long as such date is
not less than forty-five (45) days after the calendar date such demand
notice is delivered to Healthdyne [Technologies], (iii) set the record date
for purposes of making such demand to the date the first such holder
executes the demand and the record date for the meeting to be the record
date specified in the demand notice, so long as such date is not less than
10 days after the date such demand notice is delivered to Healthdyne
[Technologies] and so long as such record date is otherwise in compliance
with Georgia law (without reference to other provisions of Healthdyne
[Technologies'] By-Laws), (iv) require the Board of Directors to give
notice of such meeting to the shareholders at the earliest possible time
following the record date for such meeting consistent with the requirements
of Georgia law, (v) provide that the only business to be conducted at such
meeting be the business set forth in the demand notice delivered to
Healthdyne [Technologies], (vi) provide that any such demands which on
their face appear to have been validly made by record holders, or by
beneficial owners providing documentation which on its face establishes
their beneficial ownership (including a certificate of their record holder
nominee), shall be accepted and not challenged by Healthdyne [Technologies]
unless there is an affirmative reasonable basis on which such validity
should be questioned, (vii) require Healthdyne [Technologies] to use its
best efforts to resolve any disputes regarding special meetings as
expeditiously as possible, and (viii) provide that, without the approval of
the shareholders, the Board of Directors may not further amend or repeal
the section of the By-Laws governing special meetings or adopt any new
by-law provision which is inconsistent in any manner with such section.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SPECIAL MEETING
PROPOSAL FOR THE REASONS SET FORTH BELOW AND UNDER "THE POSITION OF THE BOARD OF
DIRECTORS" ABOVE.
The Board of Directors believes that the Special Meeting Proposal poses the
risk of significant expense and disruption to the Company and its shareholders.
The By-Laws' current requirement that special shareholder meetings be called
only upon the demand of 60% of the shareholders of the Company is not a recently
adopted response to the Invacare Offer, but rather is a standing provision of
the original By-Laws of the Company designed to ensure the efficient operation
of the Company at minimal cost to the shareholders. The Board of Directors
believes that allowing special shareholder meetings to be called upon the demand
of only 10% of the shareholders of the Company creates the likelihood of
multiple proxy mailings, additional expenditures and increased disturbance of
the affairs of the shareholders and the Company. In short, the Board of
Directors believes that the Special Meeting Proposal is an inefficient and
costly way to manage the business of the Company.
Moreover, the Board of Directors amended the Company's By-Laws relating to
special shareholder meetings to ensure that acquisition proposals and tender
offers for the Company's stock, such as the Invacare Offer, proceed apace and on
an orderly and thoughtful basis. By amending the special shareholder meeting
provisions of the By-Laws to set up a specific timetable for consideration of
shareholder proposals, the Board of Directors sought to minimize the risk that
the shareholders would be forced to make hasty decisions on matters of critical
importance to the Company and its shareholders.
The Board of Directors believes that the Special Meeting Proposal is
designed to provide Invacare with the opportunity to call a hurried special
shareholder meeting in the event it fails to succeed in gaining control of the
Company's Board of Directors at the Annual Meeting. The Board of Directors
believes that the Special Meeting Proposal -- which allows only 45 days to
prepare proxy materials for a special meeting, file the proxy materials with the
Commission, respond to the comments of the Commission with respect to the proxy
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<PAGE> 32
materials, and mail the proxy materials to the shareholders in a manner
providing timely notice of the special meeting -- simply provides inadequate
time for shareholders to study the proxy materials and respond. The Board of
Directors further notes that approval of the Special Meeting Proposal would
constitute a departure from the Company's past practice of providing at least 30
days notice of shareholder meetings. Consequently, the Board of Directors
believes that approval of the Special Meeting Proposal is simply not in the best
interests of the Company's shareholders.
OTHER MATTERS
SOLICITATION OF PROXIES
The cost of solicitation of proxies for the Annual Meeting in the form
enclosed herewith will be borne by the Company. In light of the pending proxy
contest and although no precise estimate can be made at the present time, it is
currently estimated that the aggregate amount to be spent by the Company in
connection with the solicitation of proxies and related matters (excluding (i)
the salaries and fees of directors, officers and employees, (ii) the normal
expenses of an uncontested election and (iii) the expenses incurred in
connection with the Company's response to the Invacare Offer) will be
approximately $548,000, of which approximately $275,000 has been incurred to
date. The Company has retained Morrow & Co., Inc. ("Morrow"), a proxy soliciting
firm, to perform various proxy advisory and solicitation services for the
Company for a fee of $125,000 plus reimbursement of certain expenses. It is
anticipated that approximately 40 employees of Morrow and directors, officers
and other regular employees of the Company may solicit proxies by letter,
telephone, telecopy, telegraph or in person without additional compensation
therefor. The Company will also provide certain persons, firms, banks and
corporations holding shares in their names or in the names of nominees, which in
either case are beneficially owned by others, proxy materials for transmittal to
such beneficial owners and will reimburse such record owners for their expenses
in doing so.
The Company has retained Cowen to act as financial advisor and to assist in
its review of the Invacare Offer. As compensation for its services, Cowen is
entitled to compensation as follows: a retainer fee aggregating $350,000
(payable $50,000 upon the date of Cowen's engagement, $50,000 on April 1, 1997
and $250,000 on December 31, 1997); and a fee of one percent of the
consideration paid or payable in connection with certain transactions involving
a change of control of the Company. The retainer fee will be credited against
any transaction fee. The Company has also agreed to reimburse Cowen, from time
to time upon request, for its reasonable out-of-pocket expenses incurred in
connection with its activities as the Company's financial advisor. Cowen will
not receive any additional fee for or in connection with assisting in any
solicitation of proxies.
INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP to audit the
accounts of the Company and its subsidiaries for the fiscal year ending December
31, 1997. A representative of KPMG Peat Marwick LLP will be present at the
Annual Meeting and will have the opportunity to make a statement if he or she so
desires and will be available to respond to appropriate shareholder questions.
SHAREHOLDER PROPOSALS
Shareholders of the Company who intend to submit proposals at the Company's
1998 Annual Meeting of Shareholders must submit such proposals to the Company no
later than February 24, 1998, in order to be considered for inclusion in the
proxy statement and form of proxy to be distributed by the Board in connection
with that meeting. Shareholder proposals should be submitted to Healthdyne
Technologies, Inc., 1255 Kennestone Circle, Marietta, Georgia 30066, Attention:
Secretary.
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<PAGE> 33
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT; OTHER MATTERS
Section 16(a) of the Exchange 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 reports with the Commission 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 and written representations that no other reports were
required, during the fiscal year ended December 31, 1996, all officers,
directors and greater than ten percent beneficial owners complied with the
Section 16(a) filing requirements of the Exchange Act.
As of the date of this Proxy Statement, management does not know of any
other matters to be brought before the shareholders at the Annual Meeting. If,
however, any other matters not now known are properly brought before the
meeting, the persons named in the accompanying proxy will vote the shares
represented by all properly executed proxies on such matters in accordance with
their best judgment.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
The directors of the Company and the Company's nominees for director, and
certain officers and employees of the Company and its subsidiaries are
participants in the solicitation of proxies on behalf of the Company's Board of
Directors. Certain information with respect to such participants is set forth in
Appendix B hereto.
ANNUAL AND QUARTERLY REPORT
A copy of the Company's Annual Report containing audited financial
statements for the year ended December 31, 1996 prepared in conformity with
generally accepted accounting principles is being delivered to shareholders
concurrently with this Proxy Statement. A copy of Part I of the Company's
Quarterly Report on Form 10-Q containing unaudited financial statements for the
quarter ended March 31, 1997 is attached as Appendix C hereto.
The Company is also required to file with the Commission an Annual Report
on Form 10-K for its fiscal year ended December 31, 1996. Shareholders may
obtain, free of charge, a copy of the Annual Report to Shareholders or the
Annual Report on Form 10-K (excluding exhibits) by writing to:
Leslie R. Jones, Secretary
Healthdyne Technologies, Inc.
1255 Kennestone Circle
Marietta, Georgia 30066
By Order of the Board of Directors
/s/Leslie R. Jones
Leslie R. Jones
Secretary
Marietta, Georgia
June 24, 1997
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<PAGE> 34
APPENDIX A
[COWEN & COMPANY LETTERHEAD]
June 10, 1997
Board of Directors
Healthdyne Technologies, Inc.
1255 Kennestone Circle
Marietta, GA 30066
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the adequacy,
from a financial point of view, to the holders of the outstanding shares of
Common Stock, par value $0.01 per share of Healthdyne Technologies, Inc. (the
"Company") other than Invacare Corporation, of the terms of the Offer to
Purchase (as hereinafter defined). For purposes of this opinion, the "Offer to
Purchase" means the offer described below pursuant to that certain Offer to
Purchase included in the amendment to Schedule 14D-1 filed with the Securities
and Exchange Commission on June 4, 1997 by I.H.H. Corp. (the "Bidder"), a
wholly-owned subsidiary of Invacare Corporation (the "Schedule 14D-1").
As more specifically set forth in the Schedule 14D-1, the Bidder has
offered, subject to certain conditions set forth in the Offer to Purchase, to
purchase all of the outstanding shares of Common Stock of the Company, and the
associated Preferred Stock Purchase Rights issued pursuant to the Rights
Agreement, dated as of May 22, 1995 between the Company and Trust Company Bank,
as Rights Agent (the "Rights Agreement"), at a purchase price of $15.00 per
share (and associated Right) net to the seller in cash.
In the ordinary course of its services, Cowen & Company ("Cowen") is
regularly engaged in the valuation and pricing of businesses and their
securities and in advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years
ended December 31, 1994, 1995 and 1996 and for the fiscal quarter ended
March 31, 1997, and certain publicly available filings with the Securities
and Exchange Commission and certain other relevant financial and operating
data of the Company;
(2) reviewed the Schedule 14D-1;
(3) held meetings and discussions with management and senior personnel
of the Company to discuss the business, operations, historical financial
results and future prospects of the Company;
(4) reviewed financial projections furnished to us by management of
the Company relating to, among other things, the capital structure, sales,
net income, cash flow, capital requirements and other data of the Company
we deemed relevant;
(5) reviewed the valuation of the Company in comparison to other
similar publicly traded companies;
A-1
<PAGE> 35
(6) reviewed the historical prices and trading activity of the Common
Stock of the Company from June 22, 1993 through June 6, 1997 and compared
those trading histories with those of other companies which we deemed
relevant;
(7) compared the transaction contemplated by the Offer to Purchase
with other similar transactions, including the acquisition of control;
(8) compared the discount rate implied by the Offer to Purchase as
applied to the cash flows assumed by projections of the Company's
management, to the weighted average cost of capital of other similar
publicly traded companies; and
(9) conducted such other studies, analysis, inquiries and
investigations as we deemed appropriate.
Cowen was not requested to, and did not, solicit third party indications of
interest in acquiring the Company.
On June 6, 1997, the closing price of the Common Stock of the Company in
the last transaction reported by Nasdaq National Market was $15 3/4 per share.
In rendering this opinion, we relied upon the Company's management with
respect to the accuracy and completeness of the financial and other information
furnished to us as described above. We have not assumed any responsibility for
independent verification of such information, including financial information,
nor have we made an independent evaluation or appraisal of any of the properties
or assets of the Company.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Offer to Purchase and will receive a fee for our
services. We will also receive a fee for rendering this opinion. In the past,
Cowen and its affiliates have provided financial advisory and financing services
for the Company and have received fees for the rendering of these services.
Cowen served as the lead manager in the Company's June 1993 initial public
offering, advised the Company in its May 1995 spin-off from Healthdyne, Inc. and
advised the Company with respect to the May 1995 implementation of the Rights
Agreement. In addition, in the ordinary course of its business, Cowen trades the
equity securities of the Company for its own account and for the accounts of its
customers, and, accordingly, it may at any time hold a long or short position in
such securities. Moreover, as of June 6, 1997, Cowen and its affiliates own
447,900 shares of Common Stock of the Company.
On the basis of our review and analysis, as described above, it is our
opinion as investment bankers that, as of the date hereof, the financial terms
of the Offer to Purchase are grossly inadequate, from a financial point of view,
to the stockholders of the Company other than Invacare Corporation.
Very truly yours,
/s/ Cowen & Company
Cowen & Company
A-2
<PAGE> 36
APPENDIX B
ADDITIONAL INFORMATION REGARDING PARTICIPANTS
ADDITIONAL INFORMATION
Because of the nature of the proposals which are to be brought before the
Annual Meeting, the rules of the Securities and Exchange Commission (the "SEC")
require the Company to make available to the shareholders certain additional
information with respect to "participants" (as such term is defined in Rule
14a-11(b) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) in the Board of Directors' solicitation. Pursuant to the rules
of the SEC, the persons named below may be deemed to be participants (each, a
"Participant" and collectively, the "Participants") in the solicitation by the
Board of Directors in opposition to the proposals by Invacare to be made at the
Annual Meeting and in opposition to the nominees proposed by Invacare at the
Annual Meeting. As such, set forth below is certain information required
pursuant to the rules of the SEC with respect to Participants in such
solicitation.
The following information is with respect to Healthdyne Technologies
executive officers and directors who are deemed to be Participants in the
Board's solicitation.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND BUSINESS ADDRESS POSITION SHARES OWNED(1)
- ------------------------- -------- ---------------
<S> <C> <C>
Parker H. Petit Chairman of the Board 866,859(2)
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, GA 30067
Craig B. Reynolds(3) President, Chief Executive Officer and 165,507
Director
J. Terry Dewberry Director 125,979
1960 Allgood Road
Marietta, GA 30062
Alexander H. Lorch Director 13,824
4802 Lake Fjord Pass
Marietta, GA 30068
J. Leland Strange Director 6,667
Intelligent Systems, Inc.
4355 Shackleford Road
Norcross, GA 30093
James J. Wellman, M.D. Director 4,445
5505 Peachtree-Dunwoody
Suite 370
Atlanta, GA 30342
J. Paul Yokubinas Director 105,560
111 North Lakeside Drive
Kennesaw, GA 30144
John L. Miclot(3) Senior Vice President -- Sales and 19,848
Marketing
Robert M. Johnson(3) Senior Vice President -- Business 25,986
Development
Robert E. Tucker(3) Senior Vice President -- Operations 115,411
Leslie R. Jones(3) Vice President, General Counsel and 41,860
Secretary
</TABLE>
B-1
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER OF
NAME AND BUSINESS ADDRESS POSITION SHARES OWNED(1)
- ------------------------- -------- ---------------
<S> <C> <C>
M. Wayne Boylston(3) Vice President -- Finance, Chief 39,348
Financial Officer and Treasurer
Jeffrey A. North(3) Corporate Controller 47,448
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3 promulgated
under the Exchange Act. Includes shares that may be acquired through the
exercise of stock options exercisable within sixty (60) days for the
following individuals: Mr. Petit -- 258,814 shares; Mr. Reynolds -- 162,834
shares; Mr. Dewberry -- 106,333 shares; Mr. Lorch -- 6,667 shares; Mr.
Strange -- 6,667 shares; Dr. Wellman -- 4,445 shares; Mr.
Yokubinas -- 70,922 shares; Mr. Tucker -- 112,406 shares, Mr.
Johnson -- 25,986 shares; Mr. Miclot -- 19,667 shares; Ms. Jones -- 41,475
shares; Mr. Boylston -- 36,420 shares; Mr. North -- 44,811 shares.
(2) Includes 575,510 shares owned by Mr. Petit, 32,535 shares held by Petit
Investments Limited Partnership and 258,814 shares that may be acquired
through the exercise of stock options exercisable within sixty (60) days.
(3) Business address is the Company's address.
Set forth below is a summary of the securities of the Company purchased or
sold or otherwise acquired within the past two years by each of the
Participants.
<TABLE>
<CAPTION>
INDIVIDUAL SHARE ACTIVITY
- ---------- --------------
<S> <C>
J. Terry Dewberry............. None
Alexander H. Lorch............ None
Parker H. Petit............... Transferred 185,000 shares common stock on 6/26/96 to an
exchange fund limited partnership
Sold 159,926 shares in market transactions 5/7/96-5/31/96
J. Leland Strange............. None
James J. Wellman, M.D......... None
J. Paul Yokubinas............. None
M. Wayne Boylston............. None
Robert M. Johnson............. None
Leslie R. Jones............... Purchased 223 shares common stock through Employee Stock
Purchase Plan 3/31/97
Purchased 162 shares common stock through Employee Stock
Purchase Plan 2/13/97
John L. Miclot................ Purchased 181 shares common stock through Employee Stock
Purchase Plan 3/31/97
Jeffrey North................. Purchased 438 shares common stock through Employee Stock
Purchase Plan 2/13/97
Purchased 403 shares common stock through Employee Stock
Purchase Plan 11/8/96
Purchased 281 shares common stock through Employee Stock
Purchase Plan 8/8/96
Purchased 214 shares common stock through Employee Stock
Purchase Plan 5/15/96
</TABLE>
B-2
<PAGE> 38
<TABLE>
<CAPTION>
INDIVIDUAL SHARE ACTIVITY
- ---------- --------------
<S> <C>
Craig B. Reynolds............. Purchased 274 shares common stock through Employee Stock
Purchase Plan 3/31/97
Purchased 341 shares common stock through Employee Stock
Purchase Plan 2/13/97
Purchased 370 shares common stock through Employee Stock
Purchase Plan 11/8/96
Purchased 220 shares common stock through Employee Stock
Purchase Plan 8/8/95
Purchased 167 shares common stock through Employee Stock
Purchase Plan 5/15/96
Robert E. Tucker.............. None
</TABLE>
Healthdyne Technologies has retained Morrow & Co., Inc. to act as
information agent and proxy solicitor in connection with the Invacare offer for
customary fees. Although Cowen & Company ("Cowen"), which is acting as financial
advisor to Healthdyne Technologies in connection with the Invacare offer, does
not admit that it or any of its directors, officers, employees or affiliates is
a "participant," as defined in Schedule 14A promulgated by the SEC under the
Exchange Act, or that such Schedule 14A requires the disclosure of certain
information concerning them, the following employees of Cowen may assist
Healthdyne Technologies in such a solicitation: Robert D. Valdez (Managing
Director) and Edward M. Brown (Director). Cowen will receive customary financial
advisor fees, reimbursement and indemnification from Healthdyne Technologies in
connection with the Invacare offer. Cowen will not receive any additional fee
for or in connection with assisting in any solicitation of proxies. Cowen
engages in a full range of investment banking, research, sales, trading,
market-making, brokerage, asset management and correspondent clearing services
for institutional and individual clients. In the ordinary course of its
business, Cowen maintains customary arrangements and effects transactions in the
securities of Healthdyne Technologies for the accounts of its customers. As a
result of its engagement by Healthdyne Technologies, Cowen has restricted its
proprietary trading in the securities of Healthdyne Technologies (although it
may still execute trades for customers on an unsolicited agency basis). As of
June 6, 1997, Cowen beneficially owned 447,900 shares of the common stock of the
Company. The following summary provides information with respect to the common
stock of the Company purchased or sold or otherwise acquired by Cowen and its
affiliates for accounts they are deemed to beneficially own within the past two
years:
<TABLE>
<CAPTION>
MONTH SHARE ACTIVITY
----- --------------
<S> <C>
September 1995.............................. Purchased 5,000 shares
December 1995............................... Purchased 51,800 shares
January 1996................................ Purchased 98,000 shares
February 1996............................... Purchased 120,500 shares
Sold 5,000 shares
March 1996.................................. Purchased 24,600
April 1996.................................. Purchased 141,800
May 1996.................................... Purchased 225,800 shares
June 1996................................... Purchased 3,300 shares
Sold 29,000 shares
September 1996.............................. Purchased 7,000 shares
October 1996................................ Purchased 26,700 shares
Sold 42,500 shares
November 1996............................... Purchased 500 shares
December 1996............................... Purchased 14,200 shares
Sold 9,500 shares
January 1997................................ Purchased 2,900 shares
Sold 150,000 shares
</TABLE>
B-3
<PAGE> 39
None of the foregoing persons owns of record any securities of the Company
which are not also beneficially owned by them nor do they beneficially own,
directly or indirectly, any securities of any parent or subsidiary of the
Company. Except for the information disclosed herein and in the Proxy Statement,
none of the foregoing persons nor any associate of such person is or has been,
since May 31, 1995, a party to any contract, arrangement or understanding with
any person with respect to securities of the Company, including, but not limited
to, joint ventures, loan or option arrangements, puts or calls, guarantees
against loss or guarantees of profit, division of losses or profits, or the
giving or withholding of proxies. Except for information disclosed herein and in
the Proxy Statement, none of the foregoing persons nor any associate of such
persons has any arrangement or understanding with any person with respect to any
future employment by the Company or its affiliates or any future transactions to
which the Company or any of its affiliates will or may be a party, nor any
material interest, direct or indirect, in any transaction which has occurred
since January 1, 1996, or any currently proposed transaction, or series of
similar transactions, to which the Company or any of its affiliates was or is to
be a party and in which the amount involves exceeds $60,000.
B-4
<PAGE> 40
APPENDIX C
HEALTHDYNE TECHNOLOGIES, INC.
PART I OF THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
C-1
<PAGE> 41
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,229 3,041
Trade accounts and notes receivable, less allowances of
$1,312 at March 31, 1997 and $1,193 at December 31,
1996................................................... 38,409 36,164
Inventories:
Finished goods......................................... 7,836 7,862
Work in process........................................ 2,580 3,086
Raw materials.......................................... 7,937 7,645
-------- --------
Total inventories................................. 18,353 18,593
-------- --------
Deferred income taxes..................................... 1,660 1,523
Prepaid expenses and other current assets................. 1,802 2,296
-------- --------
Total current assets.............................. 63,453 61,617
-------- --------
Property and equipment...................................... 22,390 20,294
Less accumulated depreciation and amortization............ (11,796) (11,000)
-------- --------
Net property and equipment................................ 10,594 9,294
-------- --------
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $2,007 at March 31, 1997 and
$1,815 at December 31, 1996............................... 20,719 20,911
Intangible assets, less accumulated amortization of $3,055
at March 31, 1997 and $2,992 at December 31, 1996......... 5,978 5,410
Other assets................................................ 1,479 846
-------- --------
$102,223 98,078
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
C-2
<PAGE> 42
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
UNAUDITED
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 1,197 2,610
Accounts payable, principally trade....................... 13,615 12,375
Accrued liabilities....................................... 11,987 9,745
-------- -------
Total current liabilities......................... 26,799 24,730
Long-term debt, excluding current installments.............. 29,078 29,078
-------- -------
Total liabilities................................. 55,877 53,808
-------- -------
Shareholders' equity:
Preferred stock, without par value. Authorized 10,000
shares; issued none....................................... -- --
Common stock, $.01 par value. Authorized 50,000 shares;
issued and outstanding 12,740 and 12,628 shares at March
31, 1997 and December 31, 1996, respectively.............. 127 126
Additional paid-in capital.................................. 23,551 22,755
Retained earnings........................................... 22,668 21,389
-------- -------
Total shareholders' equity........................ 46,346 44,270
-------- -------
$102,223 98,078
======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
C-3
<PAGE> 43
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- ---------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $35,671 27,482
Cost of revenues............................................ 21,860 16,017
------- -------
Gross profit.............................................. 13,811 11,465
Selling and administrative expenses......................... 7,969 6,675
Research and development expenses........................... 1,873 1,350
------- -------
Operating profit.......................................... 3,969 3,440
Costs associated with an unsolicited offer to acquire the
Company................................................... (1,300) --
Interest expense............................................ (592) (577)
Interest income............................................. 81 88
Other expense, net.......................................... (26) (15)
------- -------
Earnings before income taxes.............................. 2,132 2,936
Income tax expense.......................................... 853 1,159
------- -------
Net earnings...................................... $ 1,279 1,777
======= =======
Net earnings per common share and common share
equivalent....................................... $ .10 .14
======= =======
Weighted average number of common shares and common share
equivalents outstanding................................... 13,270 12,950
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
C-4
<PAGE> 44
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------------
1997 1996
---------- ----------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $1,279 1,777
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 1,051 828
Deferred income taxes..................................... (137) 234
(Increase) decrease in:
Trade accounts and notes receivable....................... (2,245) 1,983
Inventories............................................... 240 (1,486)
Other assets.............................................. (139) 341
Increase (decrease) in:
Accounts payable.......................................... 1,240 (943)
Accrued liabilities....................................... 2,242 263
------ ------
Net cash provided by operating activities.............. 3,531 2,997
Cash flows from investing activities:
Purchase of product rights................................ (631) (198)
Purchases of property and equipment....................... (2,096) (702)
------ ------
Net cash used in investing activities.................. (2,727) (900)
------ ------
Cash flows from financing activities:
Net borrowings under revolving credit agreement........... $ -- 500
Principal repayments of long-term debt.................... (1,413) (912)
Proceeds from issuance of common stock.................... 797 558
------ ------
Net cash provided by (used in) financing activities.... (616) 146
------ ------
Net increase in cash and cash equivalents.............. 188 2,243
Cash and cash equivalents at beginning of period............ 3,041 287
------ ------
Cash and cash equivalents at end of period.................. $3,229 2,530
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
C-5
<PAGE> 45
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. GENERAL
The consolidated condensed financial statements as of March 31, 1997 and
for the three months ended March 31, 1997 and 1996 are unaudited. In the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary for the fair presentation of the consolidated financial position and
results of operations and cash flows for the periods presented have been
included. Results for interim periods are not necessarily indicative of results
that may be expected for the full fiscal year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Annual Report on Form 10-K of Healthdyne Technologies, Inc. (the
"Company") for the year ended December 31, 1996.
2. 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.
3. CREDIT AGREEMENT
In March 1997, the Company entered into an amendment to its revolving
credit and term loan agreement (the "Credit Agreement") which extended the
expiration date of the term loan portion to June 1999. Balances under the Credit
Agreement now will all be due at that time.
4. COSTS ASSOCIATED WITH AN UNSOLICITED OFFER TO ACQUIRE THE COMPANY
On January 2, 1997, A. Malachi Mixon, III, Chairman and Chief Executive
Officer of Invacare Corporation ("Invacare"), sent a letter to Craig B.
Reynolds, President and Chief Executive Officer of the Company, indicating
Invacare's interest in a combination with the Company and proposing to acquire
the Company in a negotiated merger transaction in which shareholders of the
Company would receive $12.50 in cash for each share of the Company's Common
Stock (the "Invacare Preliminary Proposal"). On January 10, 1997, Invacare
issued a press release disclosing the unsolicited Invacare Preliminary Proposal
and the Company issued a press release announcing that its Board would consider
the Invacare Preliminary Proposal in due course.
On January 15, 1997, the Company's Board of Directors met to discuss the
Invacare Preliminary Proposal and appointed Cowen & Company ("Cowen"), as
financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor
to the Board of Directors. On January 23, 1997, the Board of Directors of the
Company met again to review the Company's financial performance and the Invacare
Preliminary Proposal. The Board of Directors determined that the sale of the
Company was not in the best interests of its shareholders at such time and
issued a press release on January 24, 1997, rejecting the Invacare Preliminary
Proposal.
On January 27, 1997, Invacare commenced an unsolicited tender offer to
purchase all of the outstanding shares of Company Common Stock at $13.00 per
share in cash (the "Invacare Initial Offer Price"), upon certain terms and
subject to certain conditions (the "Invacare Initial Offer"), to be followed by
a second-step merger in which holders of shares not validly tendered would
receive the same per share price as in the Invacare Initial Offer. The Invacare
Initial Offer also disclosed that Invacare owned 600,000 shares (approximately
4.9%) of the Company's Common Stock.
C-6
<PAGE> 46
HEALTHDYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
On January 30, 1997, the Board of Directors reviewed the Invacare Initial
Offer and unanimously concluded that it was grossly inadequate and not in the
best interests of the Company and its shareholders. In particular, the Board of
Directors determined that the Company's current strategic plan offered the
potential for greater benefits for the Company's shareholders than the Invacare
Initial Offer, based on, among other things, greater opportunities for business
expansion, revenue and earnings growth, and the introduction of new products and
product lines into the health care market. The Board unanimously recommended
that shareholders reject the Invacare Initial Offer and not tender any of their
shares.
On February 25, 1997, the Invacare Initial Offer, which had been scheduled
to expire on February 24, 1997, was extended to March 24, 1997. On March 20,
1997, the Company received Invacare's notice to the Company announcing its
intention to nominate candidates for election to the Company's Board and to make
certain shareholder proposals at the Annual Meeting. On March 24, 1997, Invacare
again extended the Invacare Initial Offer to April 7, 1997.
On March 31, 1997, Invacare revised the Invacare Initial Offer by
announcing that it would increase the price in its tender offer from $13.00 per
share to $13.50 per share (together, with the Invacare Initial Offer, the
"Invacare Offer"). On such date, Invacare also announced another extension of
the Invacare Initial Offer, this time until April 28, 1997.
On April 2, 1997, the Company issued a press release announcing that the
Board of Directors voted unanimously to reject the Invacare Offer as grossly
inadequate and to recommend that shareholders of the Company not tender any of
their shares pursuant to the Invacare Offer. On April 29, 1997, Invacare again
extended the Invacare Offer until May 27, 1997.
The Company and certain of its Directors are also defendants in a lawsuit
brought by Invacare, as well as in certain class action lawsuits purportedly
brought on behalf of Company shareholders. The Company incurred $1,300 in
expense in the first quarter of 1997, primarily related to costs related to the
Invacare Offer and defending the litigation (see Part I, Item 3 "Legal
Proceedings" of the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1996).
C-7
<PAGE> 47
(HEALTHDYNE TECHNOLOGIES LOGO)
<PAGE> 48
APPENDIX D
HEALTHDYNE TECHNOLOGIES, INC.
1255 KENNESTONE CIRCLE
MARIETTA, GEORGIA 30066
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS, JULY 30, 1997
The undersigned hereby appoints M. WAYNE BOYLSTON and JEFFREY A. NORTH,
and each of them, proxies with full power of substitution, to represent and to
vote as set forth herein all the shares of Common Stock of Healthdyne
Technologies, Inc. held of record by the undersigned on June 23, 1997, at the
Annual Meeting of Shareholders of Healthdyne Technologies, Inc. to be held at
1850 Parkway Place, Suite 320, Marietta, GA 30067, at 10:30 a.m. local time, on
Wednesday, July 30, 1997, and any adjournment or postponement thereof.
EVEN IF YOU HAVE SOLD YOUR SHARES, YOU CAN STILL VOTE. YOUR BOARD OF
DIRECTORS ENCOURAGES YOU TO DO SO. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE OR FAX BOTH SIDES OF THIS
PROXY CARD TO MORROW & CO, INC. AT (212) 745-8300.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL MORROW & CO.,
INC. TOLL-FREE AT (800) 662-5200 OR COLLECT AT (212) 754-8000.
THE BOARD OF DIRECTORS OF HEALTHDYNE TECHNOLOGIES RECOMMENDS A VOTE "FOR"
PROPOSAL 1 AND "AGAINST" PROPOSALS 2, 3, 4 AND 5.
1. ELECTION OF DIRECTORS
Election of Craig B. Reynolds, Parker H. Petit, J. Terry Dewberry,
Alexander H. Lorch, J. Leland Strange, James J. Wellman, M.D. and
J. Paul Yokubinas as Directors:
[ ] FOR all nominees, except as marked below.
[ ] WITHHOLD vote from all nominees.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark FOR above and print the name(s) of the persons as to whom you are
withholding authority to vote in the space provided below.)
___________________________________________
The Board of Directors recommends a vote FOR all the nominees listed above.
THE BOARD OF DIRECTORS OF HEALTHDYNE TECHNOLOGIES RECOMMENDS A VOTE
AGAINST PROPOSALS 2, 3, 4 AND 5.
2. Invacare's Proposal to Amend the Company's By-Laws to Fix the Size
of the Board at Seven Directors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Invacare's Proposal Concerning the Company's Shareholder Rights Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 49
4. Invacare's Proposal to Repeal Certain of the Company's By-Laws
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Invacare's Proposal to Amend the Company's Special Meeting
Requirements.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE AS DESCRIBED
IN THE PROXY STATEMENT AND UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
This Proxy when properly executed will be voted in the manner
directed by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1 AND "AGAINST" PROPOSALS 2, 3, 4 AND 5.
Dated: ___________________, 1997 ________________________________________
Signature
________________________________________
Signature if Held Jointly
________________________________________
Title
TO VOTE IN ACCORDANCE WITH Please sign exactly as name appears on
THE BOARD OF DIRECTORS' Stock Certificate. If stock is held in
RECOMMENDATION, JUST SIGN the name of two or more persons, all
AND DATE THIS PROXY. NO should sign. When signing as attorney,
BOXES NEED TO BE CHECKED. executor, administrator, trustee, or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
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