-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBu8ucqbWkAwY3GtxRhutmRi4XuoKMcKgU3Fx5qd1AlFDbjltZwA46XYovCKXw9f JSgE5trJoEYi412tqKP+DQ== /in/edgar/work/0000950132-00-000836/0000950132-00-000836.txt : 20001114 0000950132-00-000836.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950132-00-000836 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPIRONICS INC CENTRAL INDEX KEY: 0000780434 STANDARD INDUSTRIAL CLASSIFICATION: [3842 ] IRS NUMBER: 251304989 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16723 FILM NUMBER: 761182 BUSINESS ADDRESS: STREET 1: 1501 ARDMORE BOULEVARD CITY: PITTSBURGH STATE: PA ZIP: 15221-4401 BUSINESS PHONE: 4127312100 MAIL ADDRESS: STREET 1: 1501 ARDMORE BOULEVARD CITY: PITTSBURGH STATE: PA ZIP: 15221-4401 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X Quarterly Report pursuant to section 13 or 15(d) of the Securities --- Exchange Act of 1934 for the quarterly period ended September 30, 2000 ------------------ or ___ Transition Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ----------- -------------- Commission File No. 000-16723 RESPIRONICS, INC. (Exact name of registrant as specified in its charter) Delaware 25-1304989 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 1501 Ardmore Blvd. Pittsburgh, Pennsylvania 15221 (Address of principal executive offices) (Zip Code) (Registrant's Telephone Number, including area code) 412-731-2100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No . --- --- As of October 31, 2000, there were 33,273,460 shares of Common Stock of the registrant outstanding, of which 3,748,852 were held in treasury. INDEX RESPIRONICS, INC. PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited). Independent Accountants' Review Report Consolidated balance sheets -- September 30, 2000 and June 30, 2000. Consolidated statements of operations -- Three months ended September 30, 2000 and 1999. Consolidated statements of cash flows -- Three months ended September 30, 2000 and 1999. Notes to consolidated financial statements - September 30, 2000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings. Item 2. Changes in Securities. Item 3. Defaults Upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. SIGNATURES - ---------- 1 Independent Accountants' Review Report Board of Directors Respironics, Inc. and Subsidiaries We have reviewed the accompanying condensed consolidated balance sheet of Respironics, Inc. and Subsidiaries as of September 30, 2000, and the related condensed consolidated statements of operations for the three month periods ended September 30, 2000 and 1999, and the condensed consolidated statements of cash flows for the three month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Respironics, Inc. and Subsidiaries as of June 30, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended not presented herein and in our report dated July 25, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2000, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania October 24, 2000 2 CONSOLIDATED BALANCE SHEETS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
September 30 June 30 2000 2000 ------------------------------------------- ASSETS CURRENT ASSETS Cash and short-term investments $ 19,669,200 $ 19,594,484 Trade accounts receivable, less allowance for doubtful accounts of $17,659,000 and $17,975,000 95,069,205 96,733,695 Inventories 68,474,887 67,769,192 Prepaid expenses and other 7,253,275 6,568,646 Deferred income tax benefits 18,229,782 18,229,780 ----------------- ----------------- TOTAL CURRENT ASSETS 208,696,349 208,895,797 PROPERTY, PLANT AND EQUIPMENT Land 3,061,203 3,061,203 Building 11,680,067 12,292,111 Machinery and equipment 73,161,950 67,293,530 Furniture, office and computer equipment 51,312,652 49,142,950 Leasehold improvements 3,330,762 2,613,240 ----------------- ----------------- 142,546,634 134,403,034 Less allowances for depreciation and amortization 72,485,188 67,618,053 ----------------- ----------------- 70,061,446 66,784,981 OTHER ASSETS 14,539,444 14,558,526 GOODWILL 62,614,869 62,762,589 ----------------- ----------------- $ 355,912,108 $ 353,001,893 ================= =================
See notes to consolidated financial statements. 3
September 30 June 30 2000 2000 ----------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 26,388,607 $ 27,302,609 Accrued expenses and other 23,336,068 25,091,742 Current portion of long-term obligations 1,332,331 1,406,556 ---------------- ---------------- TOTAL CURRENT LIABILITIES 51,057,006 53,800,907 LONG-TERM OBLIGATIONS 107,831,563 108,095,093 COMMITMENTS 0 0 SHAREHOLDERS' EQUITY Common Stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 33,251,515 shares at September 30, 2000 and 33,182,565 shares at June 30, 2000 332,515 331,826 Additional capital 111,367,938 110,795,650 Accumulated other comprehensive loss (4,107,615) (3,131,703) Retained earnings 132,752,889 126,462,237 Treasury stock (43,322,188) (43,352,117) ---------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 197,023,539 191,105,893 ---------------- ---------------- $ 355,912,108 $ 353,001,893 ================ ================
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
Three months ended September 30 September 30 2000 1999 ------------------------------------------------ Net sales $ 92,064,204 $ 80,599,327 Cost of goods sold 48,661,952 43,436,198 Cost of goods sold - restructuring charges 0 4,576,352 ---------------- ---------------- GROSS MARGIN 43,402,252 32,586,777 General and administrative expenses 10,869,663 10,156,392 Sales, marketing and commission expenses 16,823,393 14,681,396 Research and development expenses 3,371,149 4,325,772 Restructuring charges 0 10,102,426 Interest expense 2,149,124 1,425,615 Other income (295,498) (514,259) ---------------- ---------------- 32,917,831 40,177,342 ---------------- ---------------- INCOME (LOSS) BEFORE INCOME TAXES 10,484,421 (7,590,565) Income taxes 4,193,769 (3,036,226) ---------------- ---------------- NET INCOME (LOSS) $ 6,290,652 $ (4,554,339) ================ ================ Basic earnings (loss) per share $ 0.21 $ (0.15) ================ ================ Basic shares outstanding 29,477,044 30,261,516 Diluted earnings (loss) per share $ 0.21 $ (0.15) ================ ================ Diluted shares outstanding 30,289,365 30,261,516
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES
Three Months Ended September 30 2000 1999 -------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 6,290,652 $ (4,554,339) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,718,669 6,751,065 Asset write-offs 0 6,755,563 Changes in operating assets and liabilities: Decrease in accounts receivable 1,664,491 2,998,922 Increase in inventories (705,695) (3,841,421) Change in other operating assets and liabilities (5,066,577) (3,781,575) ---------------- ---------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,901,540 4,328,215 INVESTING ACTIVITIES Purchase of property, plant and equipment (8,304,395) (6,977,678) Additional purchase price for acquired business (787,580) (1,085,407) ---------------- ---------------- NET CASH USED BY INVESTING ACTIVITIES (9,091,975) (8,063,085) FINANCING ACTIVITIES Net (decrease) increase in borrowings (337,755) 559,053 Issuance of common stock 572,977 39,921 Acquisition of treasury stock, net 29,929 (1,330,185) Decrease in minority interest 0 (766,035) ---------------- ---------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 265,151 (1,497,246) ---------------- ---------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 74,716 (5,232,116) Cash and short-term investments at beginning of period 19,594,484 23,651,401 ---------------- ---------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 19,669,200 $ 18,419,285 ================ ================
See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) RESPIRONICS, INC. AND SUBSIDIARIES September 30, 2000 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended June 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2000. NOTE B -- INVENTORIES The composition of inventory is as follows:
September 30 June 30 2000 2000 ----------- ----------- Raw materials $21,254,000 $21,561,000 Work-in-process 5,279,000 5,825,000 Finished goods 41,942,000 40,383,000 ----------- ----------- $68,475,000 $67,769,000 =========== ===========
NOTE C -- CONTINGENCIES As previously disclosed, the Company is party to actions filed in a Federal District Court in January 1995 and June 1996 in which a competitor alleges that the Company's manufacture and sale in the United States of certain products infringes four of the competitor's patents. In its response to these actions, the Company has denied the allegations and has separately sought judgment that the claims under the patents are invalid or unenforceable and that the Company does not infringe upon the 7 patents. The January 1995 and June 1996 actions have been consolidated, and discovery is ongoing. The Court has granted the Company's various motions for summary judgment and held that the Company does not infringe any of the competitor's four patents at issue. The competitor may seek an appeal of those decisions. In any event, the Company intends to continue to pursue its claims that the competitor's patents are invalid or unenforceable. The Company is, as a normal part of its business operations, a party to other legal proceedings in addition to those previously described by filings of the Company. Legal counsel has been retained for each proceeding and none of these proceedings is expected to have a material adverse impact on the Company's results of operations or financial condition. NOTE D -- RESTRUCTURING CHARGES In July 1999, the Company announced a major restructuring of its U.S. operations. The major components of the restructuring included the closing of the Westminster, Colorado manufacturing facility, the closing of 19 customer satisfaction centers throughout the United States, the downsizing of the Marietta, Georgia manufacturing facilities, the opening of a centralized distribution and repair center in Youngwood, Pennsylvania, the realignment of the Company into four divisions with a corresponding management realignment, and a workforce reduction of approximately 10% associated with the facility changes and the realignment. The facility changes and workforce reduction were completed during fiscal year 2000, and the divisional realignment is currently in place. RECONCILIATION OF RESTRUCTURING RESERVES
Employee Lease Buyouts Severance Asset & Other Direct Total Costs Write-Downs Expenses Restructuring ------------- ----------- ------------ ------------ Balance at July 1, 1999 $ - $ - $ - $ - Restructuring charges (net) 6,300,000 8,900,000 14,000,000 29,200,000 Cash expenditures (3,100,000) - (12,900,000) (16,000,000) Noncash expenditures - (1,700,000) - (1,700,000) -------------- ------------ ------------- ------------- Balance at June 30, 2000 3,200,000 7,200,000 1,100,000 11,500,000 -------------- ------------ ------------- ------------- Restructuring charges (net) - - - - Cash expenditures (400,000) - (400,000) (800,000) Noncash expenditures - (700,000) - (700,000) -------------- ------------ ------------- ------------- Balance at September 30, 2000 $ 2,800,000 $ 6,500,000 $ 700,000 $ 10,000,000 ============== ============ ============= =============
During fiscal year 2000, the Company incurred a total of $29,200,000 in charges related to this restructuring. The primary components of these charges were severance and employment related costs ($6,300,000), asset write-downs to reflect decisions made regarding product, facility, and systems rationalization ($8,900,000), and lease buyouts related to facility rationalizations and other direct expenses of the restructuring ($14,000,000). Restructuring costs incurred but not yet paid have been credited to accrued expense and asset write-downs have been credited against the applicable asset accounts. Substantially all of the remaining restructuring accruals as of September 30, 2000 will be paid out during the next two years. 8 NOTE E - COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss), net of tax, were as follows: Three Months Ended September 30, September 30, 2000 1999 ----------- ------------- Net income (loss) $ 6,291,000 $ (4,554,000) Foreign currency translation losses (976,000) (165,000) ------------- ------------- Comprehensive income (loss) $ 5,315,000 $ (4,719,000) ============= ============= NOTE F - SPECIAL ITEMS As previously disclosed, in February 2000, the parent company of one of the Company's major customers filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The Company's customer was one of the entities included in the filing. According to press releases issued in connection with the filing and discussions with the customer, the election to seek court protection was made in order to facilitate the restructuring of the parent company's capital and lease obligations and normal business operations of the Company's customer are continuing. The Company's total balance due from the customer at the date of the filing was approximately $4,500,000, and accordingly, the Company has recorded a $4,500,000 special increase to the allowance for doubtful accounts during fiscal year 2000. In November 2000, the Company reached a settlement with the customer under which the customer will pay a portion of the petition-date balance in monthly installments over six months. The remaining petition-date balance will constitute a claim in the continuing bankruptcy case. NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," FASB No. 133 was required to be adopted as of the first quarter of fiscal year 2001. The Company adopted FASB No. 133 on July 1, 2000. The statement required, among other things, derivative instruments to be recorded at market value, with changes in fair value reflected in earnings to the extent the derivative instruments do not qualify as hedges in accordance with the statement. Because of the Company's minimal use of derivative instruments, the adoption of FASB No. 133 on July 1, 2000 had no financial impact on the Company, and management believes that FASB No. 133 will not have a material impact on earnings during fiscal year 2001. 9 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES REFORM ACT OF 1995. The statements contained in this Quarterly Report on Form 10-Q, specifically those contained in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations", along with statements in other reports filed with the Securities and Exchange Commission, external documents and oral presentations which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. Results actually achieved may differ materially from expected results included in these statements. Those factors include, but are not limited to, the following: foreign currency fluctuations, regulations and other factors affecting operations and sales outside the United States including potential future effects of the change in sovereignty of Hong Kong, customer consolidation and concentration, increasing price competition and other competitive factors in the sale of products, the success of programs, interest rate fluctuations, intellectual property and related litigation, other litigation, FDA and other government regulation, third party reimbursement, restructuring activities, and anticipated cost savings. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net sales for the quarter ended September 30, 2000 were $92,064,000 representing a 14% increase over the sales of $80,599,000 recorded for the quarter ended September 30, 1999. Increases in unit and dollar sales for the Company's sleep apnea therapy devices (the Company's largest product line) and oxygen concentrator devices, as well as increases in the sales of masks and other accessories, helped to drive the increase in sales for the quarter. These product lines, along with ventilation devices, comprise the major part of the Company's homecare division established as part of the July 1999 restructuring plan. Sales of the Company's hospital products also increased during the current quarter, including unit and dollar increases for the Company's BiPAP/R/ Vision/TM/ and Esprit/R/ ventilators. Partially offsetting this increase in sales was a decrease in domestic sales, compared to prior year levels, of the Company's non-invasive ventilatory support devices for use in the home. These sales decreases were caused by the previously disclosed October 1, 1999 implementation of revised government insurance coverage guidelines for the home use of these products in the United States and the corresponding reduction in purchases of these units by the Company's dealer customers. For the quarter ended September 30, 2000, sales of non-invasive ventilatory support units for home use in the United States accounted for approximately four percent of total sales. The Company's gross profit was 47% of net sales for the quarter ended September 30, 2000 compared to 46% of net sales, excluding the impact of restructuring charges, for the quarter ended September 30, 1999. This gross profit percentage increase was due primarily to higher revenue levels, sales mix and the positive impact of the Company's restructuring activities in the manufacturing area. General and administrative expenses were $10,870,000 (12% of net sales) for the quarter ended September 30, 2000 as compared to $10,156,000 (13% of net sales) for the quarter ended September 30, 1999. The increase in absolute dollars of general and administrative expenses was due primarily to an increase in information technology department expenses and other spending consistent with the growth of the Company's business. Partially offsetting these increases in expenses were lower operating expenses due to the Company's restructuring. Sales, marketing and commission expenses were $16,823,000 (18% of net sales) for the quarter ended September 30, 2000 as compared to $14,681,000 (18% of net sales) for the quarter ended September 30, 1999. The increase in absolute dollars of expense for the current quarter was due primarily to increased sales and activity 11 levels in the Company's homecare and hospital product lines in the first quarter, partially offset by lower operating expenses due to the Company's restructuring. Research and development expenses were $3,371,000 (4% of net sales) for the quarter ended September 30, 2000 as compared to $4,326,000 (5% of net sales) for the quarter ended September 30, 1999. The decrease in absolute dollars of expense for the current quarter was due primarily to the timing of certain research and development projects and the impact of certain new products transitioning from development into production. Significant product development efforts are ongoing and a variety of new products were introduced during the current quarter, including two upgrades to the Company's Esprit/R/ ventilator. New product launches in many of the Company's major product lines are scheduled for the remainder of fiscal year 2001. Additional development work and clinical trials are being conducted in certain product areas outside the Company's current core products. During the three months ended September 30, 1999, the Company incurred charges of $14,700,000 related to a previously disclosed restructuring. The primary components of these costs were severance and employment related costs, asset write-downs to reflect decisions made regarding product, facility, and systems rationalization, and lease buyouts related to facility rationalizations and other direct expenses of the restructuring. Approximately $4,600,000 of these charges related to inventory write-offs in connection with product rationalizations and have been reported as a separate component of cost of goods sold. See Note D to the Consolidated Financial Statements for additional information about the restructuring charges. The Company's effective income tax rate was 40% for all periods presented. As a result of the factors described above, the Company's net income was $6,291,000 (7% of net sales) or $0.21 per diluted share for the quarter ended September 30, 2000 as compared to a net loss of ($4,554,000) (6% of net sales) or ($0.15) per diluted share for the quarter ended September 30, 1999. Excluding the impact of the restructuring charges, the Company's net income for the quarter ended September 30, 1999 was $4,253,000 (5% of net sales) or $0.14 per diluted share. Earnings per share amounts for the quarters ended September 30, 2000 and 1999 reflect the impact of shares repurchased under the Company's stock buyback program which is described below. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $157,639,000 at September 30, 2000 and $155,095,000 at June 30, 2000. Net cash provided by operating activities was $8,902,000 for the three months ended 12 September 30, 2000 as compared to $4,328,000 for the three months ended September 30, 1999. The increase in cash provided by operating activities for the current quarter was primarily due to higher earnings and reduced inventory growth as compared to the prior year. Net cash used by investing activities was $9,092,000 for the three months ended September 30, 2000 as compared to $8,063,000 for the three months ended September 30, 1999. Cash used by investing activities for both periods include capital expenditures, including the purchase of leasehold improvements, production equipment, computer hardware and software, and telecommunications and office equipment. In addition, cash used by investing activities in the periods described includes additional purchase price paid for a previously acquired business pursuant to the terms of that acquisition agreement. The funding for investment activities in both periods was provided by positive cash flow from operating activities, accumulated cash and short-term investments, and borrowings under long-term obligations. Net cash provided by financing activities includes borrowings and repayments under the Company's various long-term obligations, proceeds from the issuance of common stock under the Company's stock option plans, and the acquisition of treasury stock. The Company has been repurchasing shares of its outstanding common stock since August 1998 pursuant to a series of Board of Directors' actions that have authorized stock buy backs totaling 4,000,000 shares. During the three months ended September 30, 1999, the Company's buy back activity resulted in net use of cash of $1,330,000. No shares were repurchased during the three months ended September 30, 2000. Through September 30, 2000, the Company repurchased, net of share usage, a total of 3,680,000 shares under these buybacks. Shares that are repurchased are added to treasury shares pending future use and reduce the number of shares outstanding used in calculating earnings per share. In July 1999, the Company announced a major restructuring of its U.S. operations that included facility closings and downsizings, a divisional and management realignment, and an approximate ten percent workforce reduction associated with those changes. The restructuring activities have been completed and restructuring charges totaling $29,200,000 were recorded during the fiscal year ended June 30, 2000. See Note D to the Consolidated Financial Statements for an analysis of these charges, including the reserve balances relating to these charges that remain at September 30, 2000. The reserves shown for employee severance, lease buyouts, and other direct expenses will require corresponding cash expenditures in future periods. The Company does not expect to incur additional charges in respect to this restructuring. As previously disclosed, annualized savings associated with the restructuring are expected to be approximately $10,000,000. These savings began to be realized primarily during the third quarter of fiscal year 2000. These cost savings are expected to positively impact cost of sales, general and administrative 13 expenses, and sales and marketing expenses, and will be offset to some extent by planned increases in those expenses consistent with expected increases in sales in future periods and the Company's continuing investment in the business. The Company believes that projected positive cash flow from operating activities, the availability of additional funds (totaling approximately $20,000,000 at September 30, 2000) under its revolving credit facility, and its accumulated cash and short-term investments will be sufficient to meet its current and presently anticipated future needs for the remainder of fiscal year 2001 for operating activities (including payments against restructuring accruals), investing activities, and financing activities (primarily consisting of payments on long-term debt). Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Company is exposed to market risk from changes in interest rates and foreign exchange rates. Interest Rates: The Company's primary interest rate risk relates to its long-term debt obligations. At September 30, 2000, the Company had total long- term debt obligations, including the current portion of those obligations, of $109,164,000. Of that amount, $2,904,000 was in fixed rate obligations and $106,260,000 was in variable rate obligations. Assuming a 10% increase in interest rates on the Company's variable rate obligations (i.e. an increase from the September 30, 2000 weighted average interest rate of 7.32% to a weighted average interest rate of 8.05%), annual interest expense would be approximately $778,000 higher based on the September 30, 2000 outstanding balance of variable rate obligations. The Company has no interest rate swap or exchange agreements. Foreign Exchange Rates: Information relating to the sensitivity to foreign currency exchange rate changes is omitted because foreign exchange exposure risk has not materially changed from that disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2000. Inflation Inflation has not had a significant effect on the Company's business during the periods discussed. 14 Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," FASB No. 133 was required to be adopted as of the first quarter of fiscal year 2001. The Company adopted FASB No. 133 on July 1, 2000. The statement required, among other things, derivative instruments to be recorded at market value, with changes in fair value reflected in earnings to the extent the derivative instruments do not qualify as hedges in accordance with the statement. Because of the Company's minimal use of derivative instruments, the adoption of FASB No. 133 on July 1, 2000 had no financial impact on the Company, and management believes that FASB No. 133 will not have a material impact on earnings during fiscal year 2001. In December 1999, the Staff of the Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to provide guidance on the recognition, presentation, and disclosure of revenues in financial statements. This statement will become effective during the fourth fiscal quarter of fiscal year 2001. PART 2 OTHER INFORMATION Item 1: Legal Proceedings - ------- ----------------- The Company is, as a normal part of its business operations, a party to other legal proceedings in addition to those previously described by filings of the Company. Legal counsel has been retained for each proceeding and none of these proceedings is expected to have a material adverse impact on the Company's results of operations or financial condition. Item 2: Changes in Securities - ------- --------------------- (a) Not applicable (b) Not applicable (c) Not applicable 15 Item 3: Defaults Upon Senior Securities - ------- ------------------------------- (a) Not applicable (b) Not applicable Item 4: Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- Not applicable. Item 5: Other Information - ------- ----------------- Not applicable Item 6: Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits Exhibit 10.43 Amendment to the Employment Agreements between the Company and Craig B. Reynolds dated August 8, 2000, filed as Exhibit 10.43 to this Form 10-Q for the quarter ended September 30, 2000. Exhibit 10.44 Amendment to the Employment Agreements between the Company and Craig B. Reynolds dated August 16, 2000, filed as Exhibit 10.44 to this Form 10-Q for the quarter ended September 30, 2000. Exhibit 10.45 Third Amendment to the Credit Agreement by and among RESPIRONICS, INC. as the Borrower, THE BANKS PARTY HERETO, as the Lenders hereunder, PNC BANK, NATIONAL ASSOCIATION as the Issuing bank, PNC BANK, NATIONAL ASSOCIATION, as the Administrative Agent, BANK of AMERICA, N.A. as the Syndication Agent and FIRST UNION NATIONAL BANK as the Documentation Agent, dated as of July 7, 2000, filed as Exhibit 10.45 to this Form 10-Q for the quarter ended September 30, 2000. Exhibit 15 Acknowledgement of Ernst & Young, LLP. (b) Reports on Form 8-K Not applicable 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESPIRONICS, INC. Date: November 13, 2000 /s/ Daniel J. Bevevino ------------------------- ------------------------- Daniel J. Bevevino Vice President, and Chief Financial and Principal Accounting Officer Signing on behalf of the registrant and as Chief Financial and Principal Accounting Officer 17 EX-10.43 2 0002.txt AMENDMENT TO EMPLOYMENT AGREEMENT AUGUST 8, 2000 Exhibit 10.43 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Amendment to Employment Agreement (the "Amendment") is made and entered into as of the 8th day of August, 2000 between Craig B. Reynolds, an individual residing at 1046 Middlebrook Way, Kennesaw, Georgia 30152 (the "Executive"), and Respironics, Inc., a Delaware corporation with its principal place of business at 1501 Ardmore Boulevard, Pittsburgh, Pennsylvania 15221 (the "Company"). RECITALS -------- A. The Company and Executive are parties to that certain Employment Agreement made as of November 11, 1997 (as previously amended on February 11, 1998 and June 29, 2000, the "Employment Agreement"). B. The Company and Executive desire to further amend certain provisions of the Employment Agreement, as set forth herein. NOW THEREFORE, intended to be legally bound, the Company and Executive agree as follows: 1. Amendment to Section 2.04(b). Section 2.04(b) of the Employment ---------------------------- Agreement is hereby amended by deleting the term "31 months" in each of the first and second sentences thereof and replacing it with "31 months and 5 days", it being the intention of the parties that Executive shall have until on or before August 16, 2000 to give notice to the Company pursuant to Section 2.04(b) of the Employment Agreement of Executive's intent to terminate the Employment Agreement and receive the benefits set forth in Section 2.04(b). 2. Miscellaneous. The parties agree that the execution of this ------------- Amendment and the matters contemplated hereby and by the prior amendments to the Employment Agreement were mutually agreed upon and do not and did not trigger any termination rights or compensation provision in the Employment Agreement, including without limitation any right for Executive to terminate the Employment Agreement pursuant to Section 2.04(a) thereof and receive the payments contemplated thereby. Except as amended hereby, the Employment Agreement is hereby ratified and confirmed in all respects. This Amendment shall be governed by and construed in accordance with laws of the Commonwealth of Pennsylvania. [Remainder of this Page Intentionally Left Blank] Any dispute concerning this Amendment shall be subject to the arbitration provisions set forth in Section 6.05 of the Employment Agreement. IN WITNESS WHEREOF, the parties hereto executed this Amendment or caused this Amendment to be duly executed as of the day and year first written above. WITNESS: CRAIG B. REYNOLDS By: /s/ James W. Liken /s/ Craig B. Reynolds ------------------------------ --------------------------------- Title:--------------------------- ATTEST: RESPIRONICS, INC. Secretary: /s/ Dorita A. Pishko By: /s/ James W. Liken ----------------------- ------------------------------ Corporate Seal: Title: PRESIDENT --------------------------- EX-10.44 3 0003.txt AMENDMENT TO EMPLOYMENT AGREEMENT AUGUST 16, 2000 Exhibit 10.44 CONFIDENTIAL AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Amendment to Employment Agreement (the "Amendment") is made and entered into as of the 16th day of August, 2000 between Craig B. Reynolds, an individual residing at 1046 Middlebrook Way, Kennesaw, Georgia 30152 (the "Executive"), and Respironics, Inc., a Delaware corporation with its principal place of business at 1501 Ardmore Boulevard, Pittsburgh, Pennsylvania 15221 (the "Company"). RECITALS -------- A. The Company and Executive are parties to that certain Employment Agreement made as of November 11, 1997 (as amended by that certain Amendment No. 1 to the Employment Agreements between Respironics, Inc. and Craig B. Reynolds dated as of February 11, 1998 and that certain Amendment to Employment Agreement dated as of June 29, 2000 and that certain Amendment to Employment Agreement dated August 8, 2000, the "Employment Agreement"). B. The Company and Executive desire to further amend the Employment Agreement, as set forth herein. C. As part of the amendments to be made to the Employment Agreement pursuant to this Amendment, Executive has agreed to forego the exercise of certain rights set forth in Section 2.04(b) of the Employment Agreement and remain in the employ of the Company in accordance with the terms and conditions of the Employment Agreement (as amended hereby). D. As partial consideration for Executive's agreement to forego the exercise of certain rights set forth in Section 2.04(b) of the Employment Agreement and remain in the employ of the Company in accordance with the terms and conditions of the Employment Agreement (as amended hereby), the Company has agreed (i) to pay to Executive certain additional amounts upon termination or expiration of the Employment Agreement (as amended hereby), (ii) to provide for the continued employment of Executive by the Company for a period following termination or expiration of Executive's employment under the Employment Agreement (as amended hereby) and (iii) to guaranty a $300,000 loan obtained by Executive, to reimburse Executive for interest payable on such loan and to gross-up one time Executive's income to account for any additional federal and state income tax payable by Executive as a result of the Company's reimbursement of Executive for interest payable on such loan. NOW THEREFORE, intending to be legally bound, the Company and Executive agree as follows: 1. Section 1.01. The parties hereby acknowledge and agree that, ------------ notwithstanding the first sentence of Section 1.01 or the first sentence of Section 4.05 of the Employment Agreement, Executive's current title and position is Executive Vice President and Chief Operating Officer of the Company. The parties agree that this change in title and position were agreed upon and that it did not and does not trigger any termination or other compensation provision in the Employment Agreement, including without limitation any right for Executive to terminate the Employment Agreement pursuant to Section 2.04(a) thereof and receive the payments contemplated thereby. 2. Clause (b) of Section 2.03(a). Clause (b) of Section 2.03(a) of ----------------------------- the Employment Agreement is hereby amended to read in its entirety as follows: "(b) been convicted of a crime involving moral turpitude which affects Executive's ability to perform his duties under this Agreement or which materially adversely affects the Company". 3. Section 2.04(b). Section 2.04(b) of the Employment Agreement is --------------- hereby deleted in its entirety, it being the intention of the parties that Executive shall have foregone the right to terminate the Employment Agreement between the 18th month and the 31st month and 5th day after the Closing Date and receive the benefits under Section 2.04(b). 4. New Section 2.08. A new Section 2.08 is hereby added to the ---------------- Employment Agreement, such Section 2.08 to read in its entirety as follows: "2.08. Extended Employment Period and Additional Payments Upon ------------------------------------------------------- Termination or Expiration of Agreement. (a) Commencing -------------------------------------- simultaneously upon expiration of this Agreement or upon termination of this Agreement by the Company or Executive for any reason (other than termination due to the death of Executive in accordance with Section 2.02 hereof), Executive shall remain in the employ of the Company for the Extended Employment Period (as defined below) in accordance with the terms of this Section 2.08. (b) As used herein, the "Extended Employment Period" shall mean (x) if this Agreement expires or if Executive terminates this Agreement for reasons other than pursuant to Section 2.04(a)(i) - (viii) or 2.06 or if the Company terminates this Agreement for cause pursuant to Section 2.03(a), two (2) years from the date of termination or expiration; or (y) if Executive terminates this Agreement pursuant to Section 2.04(a)(i) - (viii) or 2.06 or the Company terminates this Agreement for any reason other than for cause pursuant to Section 2.03(a) or due to the death of Executive in accordance with Section 2.02 hereof, the later of (A) two (2) years from the date of termination or (B) November 30, 2005. (c) During the Extended Employment Period, the Company shall pay to Executive an aggregate amount equal to one hundred and fifty percent (150%) of his Base Salary in effect immediately prior to termination or expiration of this Agreement and commencement of the Extended Employment Period, payable in equal bi-weekly installments during the Extended Employment Period (the "Additional Employment Payments"). In addition, during the Extended Employment Period, Executive will be entitled to full benefits (e.g., health, dental, car, disability, life and other benefit plans and programs) as were in effect with respect to Executive immediately prior to termination or expiration of this -2- Agreement and commencement of the Extended Employment Period, subject to changes made by the Company in such benefits from time to time during the Extended Employment Period for all employees similarly situated to Executive immediately prior to termination or expiration of this Agreement and commencement of the Extended Employment Period. The Company shall withhold all amounts required with respect to the Additional Employment Payments. (d) During the Extended Employment Period, Executive shall perform general advisory duties for the Company for a minimum of one (1) eight (8) hour day per calendar month or as mutually agreed upon by Executive and the Company. It is acknowledged and agreed that Executive shall not be an executive officer of the Company during the Extended Employment Period, and shall not be subject to the Company's policy restricting the sale of securities by the Company's officers and employees; provided, however, that Executive shall comply with all trading restrictions as may be applicable under federal and state securities laws. During the Extended Employment Period, Executive will not be required to travel from his place of employment in Marietta, Georgia (or such other location as Executive may designate in writing from time to time) on Company business without Executive's consent. Executive shall receive the Additional Employment Payments and the benefits provided for in this Section 2.08 during the Extended Employment Period regardless of whether the Company requests Executive to perform advisory services. Executive shall voluntarily resign from the Board of Directors of the Company effective as of the commencement of the Extended Employment Period. (e) It is the intention of the parties that Executive shall remain an employee of the Company during the Extended Employment Period and that, accordingly, the Company represents and warrants that any and all stock options or awards granted to Executive (collectively, "Options") under any stock option plan, stock incentive plan or similar plan or program maintained by the Company or any of its predecessors (collectively, "Option Plans") which were outstanding immediately prior to termination or expiration of this Agreement and commencement of the Extended Employment Period shall remain in full force and effect during the Extended Employment Period and shall continue to vest and become exercisable during the Extended Employment Period, and that the Options shall be exercisable after the expiration of the Extended Employment Period in accordance with the terms of the respective Option Plans. The Company further represents and warrants that the number of shares of Common Stock covered by the Options and the exercise price thereof shall not be affected by any change in tax treatment of such Options and that such Options shall remain in full force and effect notwithstanding any change in tax treatment of such Options. The Company makes no representation and warranty with respect to the tax treatment of the Options upon the exercise of such Options by Executive; however, the Company agrees that it will at all times recognize and treat Executive as an employee during the term of the Extended Employment Period. The Company agrees that it will take any and all actions necessary to insure that -3- the Option Plans are consistent with the Company's obligations under this Section 2.08, and the Company agrees that no provision of the Option Plans will preclude the Company from meeting its obligations hereunder. (f) If this Agreement is terminated pursuant to Section 2.02 as a result of the death of Executive, or if Executive dies during the Extended Employment Period, then the Company shall pay or continue to pay the Additional Employment Payments to Executive's estate in equal bi-weekly installments for the remainder of the Extended Employment Period. In addition, all Options outstanding on the date of Executive's death shall immediately vest and shall be exercisable by his estate for a period of one (1) year from the date of his death. (g) The parties agree and acknowledge that a breach by the Company of its obligations under this Section 2.08 will result in significant damages to Executive that will be difficult to quantify. Accordingly, in order to provide certainty with respect to Executive's ability to receive the benefit of his bargain by entering into the Amendment to this Agreement dated August 16, 2000, Executive, in the event of a breach by the Company of its covenants, representations and warranties in this Section 2.08, shall either, at Executive's sole option, be entitled to (i) specific performance of the covenants, representations and warranties of this Section 2.08, or (ii) liquidated damages in the amount of One Million Seven Hundred Thousand Dollars ($1,700,000) less (A) all Additional Employment Payments paid ---- by the Company and (B) the Value (as defined below) of those Options which were granted to Executive on or after February 12, 1998 and which were unvested as of August 16, 2000 (the "Applicable Options"); provided that for purposes clause (B) above, the Value of the -------- Applicable Options shall not exceed One Million Two Hundred Thousand Dollars ($1,200,000). As used herein, the "Value" of the Applicable Options shall mean the difference (if positive) between (x) the fair market value of the Company's Common Stock on the date of the breach of this Section 2.08 by the Company giving rise to Executive's claim for liquidated damages or the sale price of such Common Stock if sold prior to such breach and (y) the exercise price of the Applicable Options. The parties agree and acknowledge that the liquidated damages set forth above are a good faith estimate of the damages that Executive would incur and not a penalty. (h) In the event that Executive is entitled to receive monetary benefits upon termination of this Agreement in accordance with Sections 2.01, 2.03(b), 2.04(a), 2.05, 2.06 and/or 2.07 hereof (if applicable), such monetary benefits shall be paid in full as if Executive's employment had not been continued for the Extended Employment Period in accordance with this Section 2.08. If Executive is entitled to continuation of health insurance and other benefits as a result of the termination of this Agreement (e.g, benefits are continued in accordance with Sections 2.04, 2.05 and/or 2.06 hereof), such continuation shall commence at the end of the Extended Employment Period, it being the intention of the parties that Executive shall receive full COBRA benefits commencing upon the later of -4- termination of the benefits provided to Executive (i) under this Agreement or (ii) the Extended Employment Period, as the case may be. (i) This Section 2.08 shall survive termination or expiration of this Agreement for any reason. Executive may terminate his employment during the Extended Employment Period by giving the Company at least ninety (90) days prior written notice of his intent to terminate the Extended Employment Period; provided that if Executive terminates his -------- employment during the Extended Employment Period, all obligations of the Company under this Section 2.08 shall terminate effective as of the date of termination. The Company may not terminate Executive during the Extended Employment Period for any reason whatsoever other than upon the death of Executive. In the event of any conflict between the provisions of this Section 2.08 and the other provisions of this Agreement, the provisions of Section 2.08 shall prevail." 5. Guaranty of PNC Loan and Related Provisions. (a) The parties ------------------------------------------- hereby acknowledge and agree that, pursuant to that certain Guaranty Agreement dated May 31, 2000 from the Company to PNC Bank, National Association (the "Guaranty"), the Company has agreed to guaranty the $300,000 loan made by PNC Bank, National Association to Executive (the "PNC Loan"). The Company will keep the Guaranty in place until the earlier of (i) expiration of the Extended Employment Period, (ii) termination of the Extended Employment Period by the Executive or (iii) repayment of the PNC Loan. Executive shall notify the Company promptly upon repayment of the PNC Loan. (b) The Company shall reimburse Executive on a monthly basis for, or advance to Executive, an amount equal to the interest payable by Executive on the PNC Loan. (c) For each calendar year during the Term of Employment Agreement and the Extended Employment Period, the Company shall gross-up one time Executive's income to account for any additional federal and state income tax payable by Executive as a result of the Company's reimbursement of Executive for interest payable on the PNC Loan. Such gross-up shall be paid at the maximum applicable rate on an annual basis at such time as Executive has determined his tax liability with respect to such interest reimbursement for the prior year. (d) As security for the Guaranty, Executive shall execute and deliver to the Company, simultaneously with the execution and delivery of this Amendment, a Security Agreement pursuant to which Executive shall grant to the Company a security interest in and pledge of 30,159 shares of the Company's Common Stock, together with stock powers and certificates representing such shares of the Company's Common Stock. The Company shall cooperate with Executive to permit Executive to sell the shares of Common Stock and use the proceeds thereof to repay the PNC Loan, including, but not limited to, forwarding the pledged shares to the broker involved in the sale of the shares of Common Stock within three (3) business days of notice of the sale of such shares, provided Executive provides instructions and the broker agrees to forward the proceeds of the transaction to PNC to repay the loan. In addition, the Company will forward the pledged shares of Common Stock to a broker designated by Executive within three (3) business days of notice (confirmed by PNC Bank or other satisfactory evidence) of repayment of the PNC Loan. -5- 6. Extension of Term of Employment Agreement. The Company hereby ----------------------------------------- irrevocably waives its right to advise Executive pursuant to Section 1.02 of the Employment Agreement that the Term of the Employment Agreement shall not be extended effective February 11, 2001, it being the intent of the parties that, unless the Employment Agreement is further extended or is otherwise terminated in accordance with its terms, Executive's Term of employment shall continue until February 11, 2004. The Company further agrees it shall take any and all actions necessary to effect such extension. 7. Miscellaneous. Except as amended hereby, the Employment Agreement ------------- is hereby ratified and confirmed in all respects, including without limitation the obligations of Executive under Article IV of the Employment Agreement. The parties agree and acknowledge that the provisions contained in Article VI of the Employment Agreement shall also be applicable to this Amendment and during the Extended Employment Agreement. Executive also ratifies and confirms his obligations under the Supplemental Employment Agreement dated as of November 11, 1997. [Remainder of this page left intentionally blank] -6- IN WITNESS WHEREOF, the parties hereto executed this Amendment or caused this Amendment to be duly executed as of the day and year first written above. WITNESS: CRAIG B. REYNOLDS By: /s/ James C. Woll /s/ Craig B. Reynolds ------------------------------ ---------------------------------- Title: VP & CONTROLLER -------------------------- ATTEST: RESPIRONICS, INC. Secretary: /s/ Dorita A. Pishko By: /s/ James W. Liken ----------------------- ------------------------------- Corporate Seal: Title: PRESIDENT & CEO ---------------------------- -7- EX-10.45 4 0004.txt THIRD AMENDMENT TO THE CREDIT AGREEMENT Exhibit 10.45 THIRD AMENDMENT TO CREDIT AGREEMENT This THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of July 7, 2000 (this "Third Amendment"), is entered into by and among RESPIRONICS, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), the financial institutions listed on the signature pages hereto, and each other financial institution which from time to time becomes a party hereto in accordance with Subsection 9.6a of the Original Credit Agreement, as defined below (individually a "Lender" and collectively the "Lenders"), PNC BANK, NATIONAL ASSOCIATION as the issuer of Letters of Credit (in such capacity, the "Issuing Bank") PNC BANK, NATIONAL ASSOCIATION as the administrative agent (in such capacities, the "Administrative Agent"), BANK OF AMERICA, N.A. (formerly known as "Bank of America National Trust and Savings Association") as the syndication agent (in such capacity, the "Syndication Agent") and FIRST UNION NATIONAL BANK as the documentation agent (in such capacity, the "Documentation Agent") (the Administrative Agent, the Syndication Agent and the Documentation Agent are herein collectively referred as the "Agents") and amends that certain Credit Agreement dated as of May 8, 1998, as previously amended by the First Amendment to Credit Agreement dated as of August 19, 1998, and the Second Amendment to Credit Agreement dated as of December 9, 1998 (the Credit Agreement, as amended by the First Amendment and the Second Amendment, together with the exhibits and schedules thereto and all amendments, supplements, extensions, renewals, modifications or replacements thereto or thereof, is hereinafter referred to as the "Original Credit Agreement") entered into by and among the Borrower, the Lenders, the Issuing Bank, the Administrative Agent, PNC Bank, National Association as the syndication agent and Bank of America National Trust and Savings Association as the documentation agent. WITNESSETH: WHEREAS, the BOrrower has requested that the Lenders agree to certain modifications to the Original Credit Agreement. NOW THEREFORE, in consideration of the foregoing recitals (each of which is incorporated herein and made a material part hereof), the mutual covenants and agreements contained herein and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, and with the intent to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1 AMENDMENTS TO ORIGINAL CREDIT AGREEMENT --------------------------------------- Section 1.01. Amendments to Section 1.1 of the Original Credit Agreement. ---------------------------------------------------------- The following defined terms and the definitions therefor are hereby added to Section 1.1 of the Original Credit Agreement and are inserted in correct alphabetical order: Third Amendment. The Third Amendment to Credit Agreement dated as of --------------- July 7, 2000. Third Amendment Effective Date. The date on which the ------------------------------ Administrative Agent shall have determined that each of the conditions set forth in Article III of the Third Amendment have either been satisfied by the Borrower or waived by the Lenders. Section 1.02. Amendment to Section 5.1 of the Original Credit ----------------------------------------------- Agreement. Section 5.1 of the Original Credit Agreement is hereby amended in its - --------- entirety to read as follows: Indebtedness. The Borrower shall not and shall not permit its ------------ Subsidiaries to create, incur, assume or permit to exist or remain outstanding any Indebtedness, except for: (i) The Indebtedness owed by the Borrower to the Lenders or the issuing Bank hereunder; (ii) Consolidated Indebtedness of the Borrower and its Subsidiaries existing on the Closing Date (exclusive of obligations under Recourse Repurchase Agreements) to remain outstanding and unpaid after the Closing Date and listed on Schedule 5.1 and any extensions, ------------ renewals or refinancings thereof, in outstanding principal amounts not greater than those shown on Schedule 5.1; ------------ (iii) Consolidated Indebtedness represented by obligations, whether contingent or actual, under Recourse Repurchase Agreements not to exceed $40,000,000 at any one time outstanding; (iv) Guarantees of the Borrower, guaranteeing the Indebtedness of its Subsidiaries permitted pursuant to this Section 5.1; and (v) Additional Consolidated Indebtedness, including without limitation purchase money indebtedness and Capitalized Lease Obligations, of the Borrower and its Subsidiaries in an amount not to exceed $12,500,000 at any one time outstanding. Section 1.03. No Other Amendments. The amendments to the Original ------------------- Credit Agreement set forth in Sections 1.01 and 1.02 above do not either implicitly or explicitly waive, alter or amend, except as expressly provided in this Third Amendment, the provisions of the Original Credit Agreement. The amendments set forth in Sections 1.01 and 1.02 hereof do not waive, now or in the future, compliance with any other covenant, term or condition to be performed or complied with nor do they impair any rights or remedies of the Lenders and the Agents under the Original Credit Agreement with respect to any such violation. 2 ARTICLE II BORROWER'S SUPPLEMENTAL REPRESENTATIONS --------------------------------------- Section 2.01. Incorporation by Reference. As an inducement to the -------------------------- Lenders and the Agents to enter into this Third Amendment, except as previously disclosed in writing by the Borrower to the Lenders and the Agents, the Borrower hereby repeats herein for the benefit of the Lenders and the Agents the representations and warranties made by the Borrower in Article 3 of the Original Credit Agreement, except that for purposes hereof such representations and warranties shall be deemed to extend to and cover this Third Amendment. Section 2.02. Supplemental Representations. As a further inducement to ---------------------------- the Lenders and the Agents to enter into this Third Amendment, the Borrower hereby represents and warrants as follows: (A) no petition by or against the Borrower or any Subsidiary has, at any time since the date of the Original Credit Agreement, been filed under the United States Bankruptcy Code or under any similar act; (B) except those matters which have previously been disclosed to the Lenders in writing, no Material Adverse Change in the properties, business, operations, financial condition or prospects of the Borrower or any Subsidiary has occurred; and (C) the Borrower and each Restricted Subsidiary has in all material respects performed all agreements, covenants and conditions required to be performed on or prior to the date hereof under the Original Credit Agreement and the other Loan Documents, except to the extent waived by the Lenders on or before the Third Amendment Effective Date. ARTICLE III CONDITIONS PRECEDENT -------------------- Section 3.01. Conditions Precedent. Each of the following shall be a -------------------- condition precedent to the effectiveness of this Third Amendment: The Lenders and the Agents shall have received, on or before the Third Amendment Effective Date, the following items, each, unless otherwise indicated, dated on or before the Third Amendment Effective Date and in form and substance satisfactory to the Lenders, the Agents and the Administrative Agent's special counsel, Tucker Arensberg, P.C.. (A) Duly executed counterpart originals of this Third Amendment, executed by the Borrower, the Agents, and all of the Lenders; (B) A certification from the Borrower that its certificate of incorporation and its by-laws which were delivered to the Administrative Agent on May 8, 1998 continue to remain complete and correct and in full force and effect and have not been amended, supplemented or otherwise modified on or after such date (except as set forth in such certificate), which certification states the names of the Persons authorized to sign this Third Amendment and all other documents, instruments and certificates delivered hereunder, together with the true signatures of such Persons; 3 (C) Consents from each Guarantor existing as of the Third Amendment Effective Date to the execution by the Borrower of the Third Amendment; and (D) Such other instruments, documents and opinions of counsel as the Lenders and the Agents shall reasonably require, all of which shall be satisfactory in form and substance to the Lenders and Agents and the Administrative Agent's special counsel. ARTICLE IV GENERAL PROVISIONS ------------------ Section 4.01. Ratification of Terms. Except as expressly amended by this --------------------- Third Amendment, the Original Credit Agreement and each and every representation, warranty, covenant, term and condition contained therein is specifically ratified and confirmed. The Lenders are not obligated to make further amendments, supplements, extensions or renewals thereto or thereof. Section 4.02. References. All notices, communications, agreements, ---------- certificates, documents or other instruments executed and delivered after the execution and delivery of this Third Amendment in connection with the Original Credit Agreement, any other Loan Document or the transactions contemplated thereby may refer to the Original Credit Agreement without making specific reference to this Third Amendment, but nevertheless all such references shall include this Third Amendment unless the context requires otherwise. From and after the Third Amendment Effective Date, all references in the Original Credit Agreement and each of the other Loan Documents to the "Agreement" shall be deemed to be references to the Original Credit Agreement, as amended hereby. Section 4.03. Counterparts. This Third Amendment may be executed in ------------ different counterparts, each of which when executed by the Borrower and the Lenders shall be regarded as an original, and all such counterparts shall constitute one Third Amendment. Section 4.04. Capitalized Terms. Except for proper nouns and as otherwise ----------------- defined herein, capitalized terms used herein as defined terms shall have the meanings ascribed to them in the Original Credit Agreement, as amended hereby. Section 4.05. Taxes. The Borrower shall pay any and all stamp and other ----- taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Third Amendment and such other documents and instruments as are delivered in connection herewith and agrees to save the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. Section 4.06. Costs and Expenses. The Borrower will pay all reasonable ------------------ costs and expenses of the Lenders and the Agents (including, without limitation, the reasonable fees and the disbursements of special counsel, Tucker Arensberg, P.C.) in connection with the preparation, execution and delivery of this Third Amendment and the other documents, instruments and certificates delivered in connection herewith. SECTION 4.07. GOVERNING LAW. THIS THIRD AMENDMENT AND THE RIGHTS AND ------------- OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAW. 4 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Third Amendment to Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. RESPIRONICS, INC., a Delaware corporation By: /s/ James W. Liken (SEAL) ------------------------------------ Name: James W. Liken Title: President and CEO PNC BANK, NATIONAL ASSOCIATION, as a Lender and in its capacities as Administrative Agent and Issuing Bank By: _____________________________________(SEAL) Name: Title: BANK OF AMERICA, N.A. (formerly known as "Bank of America National Trust and Savings Association"), as a Lender and in its capacity as Syndication Agent By: _____________________________________(SEAL) Name: Title: FIRST UNION NATIONAL BANK, as a Lender and in its capacity as Documentation Agent By: _____________________________________(SEAL) Name: Title: [SIGNATURES CONTINUED ON THE NEXT PAGE] 5 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Third Amendment to Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. RESPIRONICS, INC., a Delaware corporation By: _____________________________________(SEAL) Name: Title: PNC BANK, NATIONAL ASSOCIATION, as a Lender and in its capacities as Administrative Agent and Issuing Bank By: /s/ Enrico A. Della Corna (SEAL) ------------------------------------- Name: Enrico A. Della Corna Title: Vice President BANK OF AMERICA, N.A. (formerly known as "Bank of America National Trust and Savings Association"), as a Lender and in its capacity as Syndication Agent By: _____________________________________(SEAL) Name: Title: FIRST UNION NATIONAL BANK, as a Lender and in its capacity as Documentation Agent By: _____________________________________(SEAL) Name: Title: [SIGNATURES CONTINUED ON THE NEXT PAGE] 5 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Third Amendment to Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. RESPIRONICS, INC., a Delaware corporation By: _____________________________________(SEAL) Name: Title: PNC BANK, NATIONAL ASSOCIATION, as a Lender and in its capacities as Administrative Agent and Issuing Bank By: _____________________________________(SEAL) Name: Title: BANK OF AMERICA, N.A. (formerly known as "Bank of America National Trust and Savings Association"), as a Lender and in its capacity as Syndication Agent By: /s/ William C. Nelson (SEAL) ------------------------------------- Name: William C. Nelson Title: Managing Director FIRST UNION NATIONAL BANK, as a Lender and in its capacity as Documentation Agent By: _____________________________________(SEAL) Name: Title: [SIGNATURES CONTINUED ON THE NEXT PAGE] 5 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Third Amendment to Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. RESPIRONICS, INC., a Delaware corporation By: _____________________________________(SEAL) Name: Title: PNC BANK, NATIONAL ASSOCIATION, as a Lender and its capacities as Administrative Agent and Issuing Bank By: _____________________________________(SEAL) Name: Title: BANK OF AMERICA, N.A. (formerly known as "Bank of America National Trust and Savings Association"), as a lender and in its capacity as Syndication Agent By: _____________________________________(SEAL) Name: Title: FIRST UNION NATIONAL BANK, as Lender and in its capacity as Documentation Agent By: /s/ Keith S. Law (SEAL) ------------------------------------- Name: Keith S. Law Title: Vice President [SIGNATURES CONTINUED ON THE NEXT PAGE] 5 [CONTINUATION OF SIGNATURES RE: THIRD AMENDMENT TO CREDIT AGREEMENT] FLEET NATIONAL BANK By: /s/ Edward F McKenney (SEAL) -------------------------- Name: EDWARD F. McKENNEY Title: V.P. NORWEST BANK COLORADO, NATIONAL ASSOCIATION By: __________________________(SEAL) Name: Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: __________________________(SEAL) Name: Title: [GUARANTOR ACCEPTANCE ON THE NEXT PAGE] 6 [CONTINUATION OF SIGNATURES RE: THIRD AMENDMENT TO CREDIT AGREEMENT] FLEET NATIONAL BANK By: __________________________(SEAL) Name: Title: NORWEST BANK COLORADO, NATIONAL ASSOCIATION By: /s/ Susan K. Petri (SEAL) -------------------------- Name: Susan K. Petri Title: Vice President SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: __________________________(SEAL) Name: Title: [GUARANTOR ACCEPTANCE ON THE NEXT PAGE] 6 GUARANTOR ACCEPTANCE The terms of the foregoing Third Amendment to Credit Agreement are hereby acknowledged, accepted and consented and agreed to by each of the undersigned as guarantors under those certain Subsidiary Guaranty Agreements, each dated as of May 8, 1998 and made by each of the undersigned guarantors in favor of PNC Bank, National Association. All of the terms of each such Subsidiary Guaranty Agreement shall maintain and persist and all of the rights and liabilities of the undersigned guarantors and PNC Bank, National Association under each such Guaranty Agreement shall continue unimpaired notwithstanding any such amendment. A copy of the foregoing Third Amendment and this Guarantor Acceptance may be attached to each of the Subsidiary Guaranty Agreements and deemed an amendment thereto and a confirmation and ratification thereof. This Guarantor Acceptance shall be deemed delivered by each of the undersigned guarantors as of the date of their respective signatures below, but effective as of July 7, 2000. Agreed to and Accepted this RESPIRONICS COLORADO, INC.: 7th day of July, 2000 By: /s/ James W. Liken ---------------------------- Name: James W. Liken Title: President and CEO Agreed to and Accepted this RESPIRONICS GEORGIA, INC.: 7th day of July, 2000 By: /s/ James W. Liken ---------------------------- Name: James W. Liken Title: President and CEO Agreed to and Accepted this RIC INVESTMENTS, INC.: 7th day of July, 2000 By: /s/ James C. Woll ---------------------------- Name: James C. Woll Title: President and Treasurer Agreed to and Accepted this RESPIRONICS DEUTSCHLAND GmbH & Co. by ____day of ____, 2000 Respironics Verwaltungsgesellschaft mbH, its General Partner By: ___________________________ Name: Title: Agreed to and Accepted this RESPIRONICS (HK) LTD.: ___ day of ____, 2000 By: ___________________________ Name: Title: 7 GUARANTOR ACCEPTANCE The terms of the foregoing Third Amendment to Credit Agreement are hereby acknowledged, accepted and consented and agreed to by each of the undersigned as guarantors under those certain Subsidiary Guaranty Agreements, each dated as of May 8, 1998 and made by each of the undersigned guarantors in favor of PNC Bank, National Association. All of the terms of each such Subsidiary Guaranty Agreement shall maintain and persist and all of the rights and liabilities of the undersigned guarantors and PNC Bank, National Association under each such Guaranty Agreement shall continue unimpaired notwithstanding any such amendment. A copy of the foregoing Third Amendment and this Guarantor Acceptance may be attached to each of the Subsidiary Guaranty Agreements and deemed an amendment thereto and a confirmation and ratification thereof. This Guarantor Acceptance shall be deemed delivered by each of the undersigned guarantors as of the date of their respective signatures below, but effective as of July 7, 2000. Agreed to and Accepted this RESPIRONICS COLORADO, INC.: ____ day of ________________, 2000 By: __________________________________________ Name: Title: Agreed to and Accepted this RESPIRONICS GEORGIA, INC.: ____ day of ________________, 2000 By: __________________________________________ Name: Title: Agreed to and Accepted this RIC INVESTMENTS, INC.: ____ day of ________________, 2000 By: __________________________________________ Name: Title: Agreed to and Accepted this RESPIRONICS DEUTSCHLAND GmbH & 7th day of July, 2000 Co. by Respironics Verwaltungsgesellschaft mbH, its General Partner By: /s/ Geoffrey C. Waters ------------------------------------------ Name: Geoffrey C. Waters Title: President, International Division Agreed to and Accepted this RESPIRONICS (HK) LTD.: ____ day of ________________, 2000 By: __________________________________________ Name: Title:
7 GUARANTOR ACCEPTANCE The terms of the foregoing Third Amendment to Credit Agreement are hereby acknowledged, accepted and consented and agreed to by each of the undersigned as guarantors under those certain Subsidiary Guaranty Agreements, each dated as of May 8, 1998 and made by each of the undersigned guarantors in favor of PNC Bank, National Association. All of the terms of each such Subsidiary Guaranty Agreement shall maintain and persist and all of the rights and liabilities of the undersigned guarantors and PNC Bank, National Association under each such Guaranty Agreement shall continue unimpaired notwithstanding any such amendment. A copy of the foregoing Third Amendment and this Guarantor Acceptance may be attached to each of the Subsidiary Guaranty Agreements and deemed an amendment thereto and a confirmation and ratification thereof. This Guarantor Acceptance shall be deemed delivered by each of the undersigned guarantors as of the date of their respective signatures below, but effective as of July 7, 2000. Agreed to and Accepted this RESPIRONICS COLORADO, INC.: ___ day of ____, 2000 By: _____________________________ Name: Title: Agreed to and Accepted this RESPIRONICS GEORGIA, INC.: ___ day of ____, 2000 By: _____________________________ Name: Title: Agreed to and Accepted this RIC INVESTMENTS, INC.: ___ day of ____, 2000 By: _____________________________ Name: Title: Agreed to and Accepted this RESPIRONICS DEUTSCHLAND GmbH & Co. by ____day of ____, 2000 Respironics Verwaltungsgesellschaft mbH, its General Partner By: _____________________________ Name: Title: Agreed to and Accepted this RESPIRONICS (HK) LTD.: 7th day of July, 2000 By: /s/ David Iwinski, Jr. ------------------------------ Name: David Iwinski, Jr. Title: Managing Director 7 RESPIRONICS, INC. SECRETARY'S CERTIFICATE ----------------------- I, DORITA A. PISHKO, hereby certify that I am the duly elected, qualified and acting Secretary of Respironics, Inc., a Delaware corporation (the "Corporation") and that: 1. The Certificate of Incorporation and all amendments thereto as delivered to the Administrative Agent on May 8, 1998 continue to remain complete and correct and in full force and effect and have not been amended, supplemented or otherwise modified on or after such date; 2. The By-Laws and all amendments thereto as delivered to the Administrative Agent on May 8, 1998 continue to remain complete and correct and in full force and effect and have not been amended, supplemented or otherwise modified on or after such date; and 3. The following named persons have been duly elected to and currently hold the offices in the Corporation set forth opposite their names, and their signatures set forth opposite their names are their genuine signatures:
Name Office Signature ---- ------ --------- James W. Liken President and CEO /s/ James W. Liken -------------------------- Daniel J. Bevevino Vice President and Chief /s/ Daniel J. Bevevino -------------------------- Financial Officer James C. Woll Vice President and Corporate /s/ James C. Woll -------------------------- Controller and Treasurer Dorita A. Pishko Secretary /s/ Dorita A. Pishko -------------------------- Steven P. Fulton Vice President and General /s/ Steven P. Fulton -------------------------- Counsel
IN WITNESS WHEREOF, I have hereunder set my hand and the seal of the Corporation on this 7th day of July, 2000. RESPIRONICS, INC. By: /s/ Dorita A. Pishko -------------------------- Name: Dorita A. Pishko Title: Secretary EX-15 5 0005.txt ACKNOWLEDGEMENT OF ERNST & YOUNG, LLP. Exhibit 15 Acknowledgement of Ernst & Young, LLP Board of Directors Respironics, Inc. and Subsidiaries We are aware of the incorporation by reference in the Registration Statements (Post Effective Amendment No.1 on Form S-8 to Form S-4 No. 333-43703) pertaining to the Healthdyne Technologies, Inc. 1996 Stock Option Plan, Healthdyne Technologies, Inc. Stock Option Plan, Healthdyne Technologies, Inc. Nonemployee Director Stock Option Plan, and Healthdyne Technologies, Inc. Stock Option Plan II; (Form S-8 No. 333-22639) pertaining to the 1997 Employee Stock Purchase Plan; (Form S-8 No. 333-16721) pertaining to the Respironics, Inc. Retirement Savings Plan; (Form S-8 No. 33-89308) pertaining to the 1992 Stock Incentive Plan; (Form S-8 No. 33-44716) pertaining to the 1991 Nonemployee Directors' Stock Option Plan; (Form S-8 No. 33-36459) pertaining to the Amended and Restated Incentive Stock Option Plan of Respironics, Inc. and Gerald E. McGinnis and the Consulting Agreement dated July 1, 1988 between Respironics, Inc. and Mark H. Sanders, M.D.; and (Form S-8 No. 333-87335) pertaining to the Respironics, Inc. 1997 Non-Employee Directors' Fee Plan of our report dated October 24, 2000 relating to the unaudited condensed consolidated interim financial statements of Respironics, Inc. and Subsidiaries that are included in its Form 10-Q for the quarter ended September 30, 2000. Pittsburgh, Pennsylvania November 13, 2000 EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 2000 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 3-MOS JUN-30-2001 JUN-30-2000 JUL-01-2000 JUL-01-1999 SEP-30-2000 SEP-30-1999 19,669,200 18,419,285 0 0 112,728,205 109,972,285 17,659,000 13,718,000 68,474,887 60,072,356 208,696,349 193,098,172 142,546,634 115,237,448 72,485,188 52,381,231 355,912,108 334,040,986 51,057,006 45,874,716 0 0 0 0 0 0 332,515 330,059 196,691,024 188,181,923 355,912,108 334,040,986 92,064,204 80,599,327 92,064,204 80,599,327 48,661,952 43,436,198 48,661,952 48,012,550 31,064,205 38,751,728 0 0 2,149,124 1,425,615 10,484,421 (7,590,565) 4,193,769 (3,036,226) 6,290,652 (4,554,339) 0 0 0 0 0 0 6,290,652 (4,554,339) 0.21 (0.15) 0.21 (0.15)
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