-----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, ToeQ/pcziAKtYMwzoFVfZY+FclE135ul+a+sMnKjOM+kgsiU/oiz1B6HzJj3X1h1 UA4A+k/gywv9Rctx+RWAbw== 0000950135-00-005572.txt : 20010101 0000950135-00-005572.hdr.sgml : 20010101 ACCESSION NUMBER: 0000950135-00-005572 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZOLL MEDICAL CORPORATION CENTRAL INDEX KEY: 0000887568 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042711626 STATE OF INCORPORATION: MA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20225 FILM NUMBER: 798900 BUSINESS ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 BUSINESS PHONE: 7812290020 MAIL ADDRESS: STREET 1: 32 SECOND AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-4420 10-K405 1 b37665zoe10-k405.txt ZOLL MEDICAL CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 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 NUMBER 0-20225 ZOLL MEDICAL CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2711626 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 32 Second Avenue, Burlington, Massachusetts 01803 ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 229-0020 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.02 Par Value ---------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 21, 2000 was $306,747,909 based on closing sales price of $35-11/16 per share as reported for the NASDAQ-composite transactions. The number of shares of the registrant's classes of common stock outstanding, as of December 21, 2000 was 8,805,133. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2000 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV. Portions of the definitive Proxy statement dated January 8, 2001 to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held February 8, 2001 are incorporated by reference into Part III. 2 PART I ITEM 1. BUSINESS OVERVIEW We design, manufacture and market an integrated line of proprietary, noninvasive cardiac resuscitation devices, our external defibrillators/pacemakers, as well as disposable electrodes and emergency medical system software data management solutions. Our cardiac resuscitation products are designed to improve survival rates from sudden cardiac arrest, which is a leading cause of death in the United States. Sudden cardiac arrest claims over 250,000 victims each year in the United States alone. For victims of sudden cardiac arrest, time is the most critical element for survival. According to the American Heart Association, more than 95% of victims with sudden cardiac arrest die, in many cases because life saving defibrillators arrive on the scene too late, if at all. The importance of immediate treatment creates an annual worldwide market for external defibrillator products, which we estimate to have been $580 million in 2000. We divide this market into three principal areas: the hospital, pre-hospital and public access defibrillation markets. The hospital market consists of doctors, nurses and other medical personnel who use defibrillators in hospital settings. The pre-hospital market consists of care providers such as paramedics, ambulance operators, emergency medical technicians, medically-trained firefighters and other emergency medical personnel. The public access market includes non-traditional providers such as police, non-medically trained firefighters and other non-medically trained personnel. We currently sell our products in the hospital and pre-hospital markets and plan to enter the public access defibrillation market during calendar year 2001. We believe we are currently the second largest company in the world in external defibrillator product sales. From fiscal 1999 to fiscal 2000, our revenues increased 35%, making us the fastest growing worldwide external defibrillator company. In that time, our revenues in the hospital market increased 31%. Comparatively, we estimate that the overall hospital market grew at a rate of only 3% to 5%. Our newest line of defibrillators is the M Series, which we began shipping with the conventional monophasic waveform in September 1998. M Series defibrillators are smaller and lighter than competitive products, making them easier to use, carry and transport. We recently began shipping M Series defibrillators equipped with our proprietary biphasic waveform that provides improved defibrillation efficacy as compared to conventional monophasic waveforms. We have received clearance from the U.S. Food and Drug Administration, or the FDA, to label our M Series defibrillators equipped with our biphasic waveform as being clinically superior to defibrillators with a monophasic waveform for particular uses. We are the only company to have received a claim of superiority on its biphasic waveform. We believe the clinical superiority of our biphasic waveform combined with product advantages including small size, light weight and relative ease-of-use offer compelling reasons for customers to choose our products. OUR BUSINESS STRATEGY The cardiac resuscitation market is a large and growing market driven by a demonstrated and increasing clinical need. Our business strategy is to continue to gain an increased share in both the domestic and international markets by offering superior products through direct sales distribution. While we plan to increase our share in markets that we currently serve, we also seek future growth by entering into new markets with significant opportunities. We believe that the following elements of our strategy may provide current and longer-term growth to our business: -CONTINUE TO EXPAND SUCCESSFUL SALES OF M SERIES DEFIBRILLATORS. A major element of our business strategy is to capitalize on the success of the M Series defibrillators in order to increase our market share in the hospital and pre-hospital markets. To date, the M Series is our best selling defibrillator, representing more than 80% of our capital equipment device sales in fiscal 2000. We plan to increase our profits in this segment by doing the following: 3 -- improving on the M Series platform by adding more optional features and new technologies, which will increase revenues from each M Series defibrillator sold with such features; -- expanding our presence in both the domestic and international markets by hiring additional salespeople; and -- decreasing our cost of production for the M Series defibrillators through improved engineering of the defibrillator and more cost-effective manufacturing. - ESTABLISH A PRE-EMINENT CLINICAL POSITION IN BIPHASIC DEFIBRILLATION. We plan to capitalize on the industry-wide move towards biphasic waveforms. We believe that this trend will give customers a compelling reason to replace their monophasic defibrillators with biphasic defibrillators. Thus, we expect that the size of the external defibrillator market will increase. We are currently the only company to have received clearance from the FDA to label our M Series biphasic defibrillators as clinically superior to monophasic defibrillators for particular uses. We believe that the demonstrated clinical superiority of our proprietary biphasic waveform will offer a significant reason for customers to choose our biphasic defibrillator over the biphasic defibrillators of our competitors. We intend to capitalize on our clinically superior biphasic defibrillators to allow us to capture a larger percentage of the growing external defibrillator market. -ENTER THE PUBLIC ACCESS DEFIBRILLATION MARKET WITH A WELL-DIFFERENTIATED DEVICE. We are developing a device for the large and relatively unpenetrated public access defibrillation market, also referred to as the AED market. Our device will be relatively low-cost and easy to operate. We believe we will be able to leverage our experience selling to EMS personnel in our efforts to sell our device to police and fire departments. We also intend to market our device to other non-traditional providers of care. -SEEK ADDITIONAL GROWTH OPPORTUNITIES IN THE EMS DATA MANAGEMENT MARKET. We believe that the market for EMS data management solutions is significant and relatively unpenetrated. We are currently selling several products to this market. We are developing an integrated dispatch, clinical information, data collection, data transfer, billing and quality assurance software solution for sale to the EMS market. We intend to leverage our existing relationships with purchasing decision-makers in this market to sell our data management solutions. We believe our software solution will be differentiated by our ability to offer a complete data management solution that incorporates the clinical information collected by our defibrillators. OVERVIEW OF SUDDEN CARDIAC ARREST AND RESUSCITATION THERAPIES Sudden cardiac death results from the unresuscitated, sudden, abrupt loss or disruption of heart function. This loss of heart function, also known as sudden cardiac arrest, is caused by the heart beating too rapidly and/or chaotically. The American Heart Association, or AHA, estimates that sudden cardiac arrest claims more than 250,000 lives each year in the United States alone, making it a leading cause of death in the United States. According to the AHA, early defibrillation is the single most critical factor in rescuing a victim of sudden cardiac arrest. Each minute of delay in returning the heart to its normal pattern of beating decreases the chance of survival by 7% to 10%. The Human Heart. The normal human heart has four chambers and expands and contracts over 100,000 times each day. The two smaller, upper chambers are the atria and the two larger, lower chambers are the ventricles. The walls of the atria and the ventricles are made up of cardiac muscle which contracts rhythmically when stimulated by an electrical current. Normally, the heartbeat starts in the right atrium when a specialized group of cells sends an electrical signal. This signal spreads though the atria and then 4 moves to the ventricles. As a result, the atria contract a fraction of a second before the ventricles. This exact pattern must be followed to ensure that the heart beats properly. This contraction and relaxation of the four chambers pumps blood to the lungs and the rest of a body. Arrhythmias are abnormal rhythms of the heart caused by insufficient circulation of oxygenated blood, drugs, electrical shock, mechanical injury, disease or other causes. The three types of arrhythmias that our devices treat are ventricular fibrillation, atrial fibrillation and bradycardia. It is possible for a patient to experience more than one type of arrhythmia during a sudden cardiac arrest. In these situations, it is important to have resuscitation equipment that has both defibrillation and pacing capabilities. Ventricular Fibrillation. Ventricular fibrillation is a condition in which disordered electrical activity causes the ventricles to contract in a rapid, unsynchronized and uncoordinated fashion. When this occurs, an insufficient amount of blood is pumped from the heart. Ventricular fibrillation is the most common arrhythmia that causes sudden cardiac arrest. The onset of ventricular fibrillation often occurs without warning and causes the heart to stop abruptly. This sudden stopping of the heart is known as cardiac arrest, and is the cause of sudden cardiac death. The only accepted treatment of ventricular fibrillation is defibrillation, in which a powerful electric shock is delivered to the heart to stop the fibrillation and permit the return of coordinated cardiac contractions. In emergency situations, external defibrillation has conventionally been administered through hand-held paddles placed on the patient's chest. However, external defibrillation can also be administered through disposable adhesive electrodes, which we believe are safer and easier to use than paddles. Atrial Fibrillation. The AHA estimates that close to 2 million Americans suffer from atrial fibrillation. Atrial fibrillation is a condition in which disordered electrical activity causes the atria to contract in a rapid, unsynchronized and uncoordinated fashion. This inefficient contraction results in a smaller amount of blood entering the ventricles, which in turn results in an insufficient level of circulation. Since blood is not pumped completely out of the atria, the blood can pool and clot. While not immediately life threatening, atrial fibrillation can lead to significant health threats such as stroke. Over time, poorly functioning atria can also cause the ventricles to work harder, wear out sooner and eventually lead to cardiac arrest. Common forms of treatment for atrial fibrillation include cardioversion and drug therapies. During cardioversion, a defibrillator delivers an electric shock that is synchronized with a patient's heartbeat in order to return the atria to a normal rhythm. Cardioversion is usually an elective therapy, scheduled and performed in a controlled environment. All of our manual defibrillators include cardioversion capability. Bradycardia. Bradycardia is a condition in which the heart beats too slowly. The principal therapies for the emergency treatment of bradycardia are drugs and temporary cardiac pacing, either or both of which may be used to stimulate effective cardiac contractions and restore circulation. Cardiac pacing utilizes an electrical pulse to stimulate the patient's heartbeat. For the emergency treatment of bradycardia, there are two primary techniques for temporary pacing: invasive endocardial pacing, in which a wire is inserted directly into the heart to provide the electrical stimulus; and noninvasive temporary pacing, which uses gelled electrodes applied to the patient's chest to conduct an electrical stimulus. Noninvasive temporary pacing is an option on most of our defibrillators and is recommended as the first intervention for bradycardia in the AHA's resuscitation protocols. OUR CARDIAC RESUSCITATION PRODUCTS M SERIES DEFIBRILLATORS In September 1998, we shipped the first M Series defibrillators. The M Series is a new line of defibrillators for both the hospital and pre-hospital markets. For fiscal 2000, our M Series defibrillators represented over 80% of our capital equipment device sales. The M Series defibrillator has quickly become our best selling product to date and has been recently selected as the standard device in such places as The Mayo Clinic, 5 Scripps Health System, The Johns Hopkins Hospitals and the White House. We believe the clinical superiority of our biphasic waveform combined with product advantages including portability, ease-of-use and the vivid screen display offer compelling reasons for customers to choose our M Series defibrillators. Our M Series is a standardized platform that allows for expandable features. As a result, we believe that this will help maximize customer retention by reducing the need for operator retraining and enhancing operator confidence. We believe that our standard M Series defibrillators offer the following competitive advantages: - PORTABILITY. The M Series defibrillator is the smallest, lightest full-featured external defibrillator. It is approximately one-half the weight and less than one-half of the size of the other leading devices in this class. This allows M Series defibrillators to be easily used, carried and transported with patients. - EASE-OF-USE WITH SIMPLE CONTROLS. The M Series defibrillators enable users to efficiently configure each unit, allowing local operating preferences to be individually programmed into each unit. Additionally, M Series defibrillators offer multiple language labeling as well as multiple language voice prompts to meet both domestic and international needs. - VIVID SCREEN DISPLAY. One of the distinguishing features included in M Series defibrillators is their high contrast screen. Our screen incorporates the most technologically advanced defibrillator display with a wider viewing angle than any LCD display. The following chart summarizes the features of the M Series as compared to the primary competitive products. PRODUCT COMPARISONS
------------------------ ---------------------------- ---------------------------- ------------------------- ZOLL PHYSIO-CONTROL AGILENT (PHILLIPS) ------------------------ ---------------------------- ---------------------------- ------------------------- M SERIES LIFEPAK 12 HEARTSTREAM XL ------------------------ ---------------------------- ---------------------------- ------------------------- ------------------------ ---------------------------- ---------------------------- ------------------------- SIZE 574 cubic in. 1680 cubic in. 1531 cubic in. ------------------------ ---------------------------- ---------------------------- ------------------------- ------------------------ ---------------------------- ---------------------------- ------------------------- WEIGHT 11 lbs. 22 lbs. 14 lbs. ------------------------ ---------------------------- ---------------------------- ------------------------- ------------------------ ---------------------------- ---------------------------- ------------------------- FUNCTIONS Multiple Multiple Limited ------------------------ ---------------------------- ---------------------------- ------------------------- ------------------------ ---------------------------- ---------------------------- ------------------------- 12 LEAD Integrated Integrated Add-On ------------------------ ---------------------------- ---------------------------- -------------------------
The M Series defibrillators are designed to be upgradable, allowing customers to add features depending upon their individual needs. The M Series defibrillators use our unique pacing technology, which has been clinically shown to provide superior capture rates, lower mean capture thresholds, less muscle impact and better patient tolerance. The M Series defibrillators are also available with our patented biphasic waveform. Some of the features that we currently offer include: - DIAGNOSTIC 12 LEAD ECG WITH INTERPRETIVE ALGORITHM. In October 1999, we received clearance from the FDA to include the GE Marquette Medical Systems 12SL analysis program, or 12 lead, in our M Series line of defibrillators. The 12 lead feature enables a user to see a diagnostic electrocardiogram, or ECG, tracing consisting of 12 leads, or views, of the heart's electrical activity. 12 lead is used to provide rapid and early identification of myocardial infarction, commonly called a heart attack, in the pre-hospital setting. We pay royalties on each 12SL analysis program we sell. - PULSE OXIMETRY. Pulse oximeters determine the oxygen saturation levels in blood, allowing a rapid identification of potential problems in the cardiopulmonary system. Since pulse oximeters can help 6 detect the onset of cardiovascular incidents, pulse oximetry is now widely used in both hospital and pre-hospital settings when monitoring patients' vital signs. While conventional pulse oximeters do not perform well in motion or in intense light, we use Masimo Corporation's patented technology that is designed to overcome these technical problems. We have received 510(k) clearance to incorporate this pulse oximetry technology into our M Series defibrillators. The new pulse oximetry technology adds a new monitoring parameter that is essential during the transport and monitoring of critical patients. We purchase circuit boards and sensors from Masimo Corporation. We have a non-exclusive license to use the patented technology incorporated in these parts that we then incorporate into our products. - CODE MARKERS WITH COMPLETE DATA MANAGEMENT. Our new code marker system follows protocols established by the AHA and allows complete documentation of an event with our unique "one touch" data annotation feature. The record made of the event includes all information collected by the defibrillator and can be upgraded to include an optional voice recording. All of this data is stored on a removable data card. - CAPNOGRAPHY. Capnography, also known as EtCO(2), is the measurement of the amount of carbon dioxide being exhaled, allowing for rapid identification of potential problems in the cardio-pulmonary system. We purchase circuit boards and sensors from Novametrix Medical Systems Inc. to provide this feature and received 510(k) clearance to incorporate EtC0(2) into our M Series defibrillators. - NONINVASIVE BLOOD PRESSURE MEASUREMENT. We developed a noninvasive blood pressure, also known as NiBP, measurement capability and integrated it into our M Series defibrillators. The technology encompassing this product is licensed from a third party. We have received 510(k) clearance to incorporate NiBP into our M Series defibrillators and began shipments in December 2000. BIPHASIC WAVEFORM External defibrillators deliver current over time to the heart, which results in a defined waveform shape. The waveform in general use today is monophasic, meaning that current is delivered in a single pulse that flows in one direction. A biphasic waveform, in contrast, delivers current that first flows in a positive direction for a period of time and then reverses direction so that it flows in a negative direction. Typical biphasic waveforms such as those used by our competitors appear to achieve the same defibrillation success rates as monophasic waveforms but at significantly lower current levels. Since less current is used, potential injury to the heart and skin is reduced with a biphasic shock compared to a monophasic shock. All of the major manufacturers of external defibrillators are beginning to produce devices that use biphasic waveforms. Biphasic waveforms are the first major advance in defibrillation technology since the current monophasic waveform was adopted in the early 1960's. Although there have been feature enhancements that make new monophasic defibrillators easier to use and maintain, they have not proven to make defibrillators more clinically effective or safer and thus have not rendered the older models obsolete. At present, users generally replace existing defibrillators for mechanical and other reasons unrelated to any clinical superiority of a new defibrillator. Based on our sales and marketing experience, we estimate that users replace defibrillators after approximately seven to ten years of service. In light of the demonstrated clinical superiority of biphasic technology, however, we believe that the introduction of biphasic waveforms could accelerate the replacement of the large installed base of monophasic defibrillators. We believe this accelerated replacement will increase the size of the market for our defibrillators. OUR BIPHASIC WAVEFORM Our two primary competitors offer biphasic waveforms using the same general shape. We have developed a uniquely shaped biphasic waveform, however, which achieves higher efficacy at lower current levels than monophasic waveforms. We have received clearance from the FDA to market this new technology. Our new biphasic waveform reduces the heart's exposure to high peak current. In addition, our biphasic waveform 7 keeps the waveform shape and duration constant over a wide range of patients whose differing physiologies impact the transmittal of current. Our M Series defibrillator equipped with our biphasic waveform is the only device cleared by the FDA to be labeled clinically superior to monophasic defibrillators for conversion of ventricular fibrillation in high-impedance patients, those patients who are difficult to defibrillate, and for cardioversion of atrial fibrillation. We therefore believe that our proprietary biphasic waveform is superior to the biphasic waveform utilized by any of our competitors. Moreover, we are able to achieve the highest reported efficacy with lower current levels than utilized by our competitors. We believe that our proprietary biphasic waveform will offer compelling clinical benefits that should give customers a reason to choose our biphasic defibrillators over those of our competitors. We have sponsored two clinical trials that have demonstrated that our proprietary biphasic waveform provides improved efficacy compared to conventional monophasic waveforms. In a randomized study for ventricular fibrillation of 184 patients, our biphasic waveform converted 99% of patients on the first shock compared to 93% of patients converted with the monophasic waveform. This compares favorably with the results obtained by other parties in similar trials. These studies also showed that our waveform required less than half the current for converting ventricular and atrial fibrillation than the conventional monophasic waveform. A second randomized trial of 165 patients compared the efficacy of our biphasic waveform to a conventional monophasic waveform for cardioversion of atrial fibrillation. Our investigators reported a 68% first shock efficacy for our waveform compared to just 21% for a conventional monophasic waveform. Overall, 94% of the patients randomized to our biphasic waveform were successfully cardioverted as compared to 79% of the patients treated with a monophasic waveform. To our knowledge, no other competitor has published results relating to their biphasic waveform in atrial fibrillation. We have received seven U.S. patents covering various aspects of our novel biphasic waveform technology. Several corresponding foreign patents are still pending. DISPOSABLE ELECTRODES We offer a variety of single-patient-use, proprietary disposable electrodes for use with our resuscitation devices. Among our primary competitors, we are the only company to engineer and manufacture our own electrodes. We have continually innovated and upgraded our electrode product line, and in 1999 we introduced pro-padz(TM) Cardiology Specialty Multi-function Electrodes that utilize a new conductive liquid gel to carry the energy from a conductive plate to the patient. Our sales of electrodes in the North American market grew 17% from 1998 to 1999 and 8% from 1999 to 2000. Our margins for electrodes are generally higher than our margins for devices. We hope to sell more disposable electrodes in the future as more customers recognize the benefits of electrodes, which are safer for an operator of a defibrillator than traditional paddles. Another factor that might lead to higher electrode sales is the use of interpretive algorithms for automated defibrillation. The monitoring required to assess the patient's condition can only be achieved with electrodes and not with the traditional defibrillation paddles. Accordingly, we believe that the defibrillator industry is moving toward a greater relative use of electrodes. OTHER EXTERNAL DEFIBRILLATORS/PACEMAKERS We also manufacture and sell four other product lines of portable and stand-alone defibrillators with advisory capability, semi-automatic and manual operation as well as ancillary accessories and chargers. MARKET OVERVIEW We divide the market for noninvasive cardiac resuscitation equipment into three principal markets: the hospital, pre-hospital and public access defibrillation markets. The hospital market consists of doctors, nurses 8 and other medical personnel who use defibrillators in a hospital setting. The pre-hospital market consists of care providers such as paramedics, ambulance operators, emergency medical technicians, medically-trained firefighters and other "first response" emergency medical personnel. The public access defibrillation market includes non-traditional providers such as police, non-medically trained firefighters, security officers, and other non-medically trained first responders. We estimate that the size of the worldwide market for external defibrillator products was approximately $580 million in 2000. OUR CURRENT MARKET U.S. Hospital Market. The U.S. hospital market consists of approximately 6,000 acute care community hospitals and 1,000 additional hospitals. Presently, Zoll defibrillators are used at each of the top 12 cardiac hospitals in the United States as listed by U.S. News and World Report in July 2000. Hospitals have traditionally been the largest users of cardiac resuscitation equipment, both for patients admitted with sudden cardiac arrest and for patients at risk of sudden cardiac arrest undergoing other treatments. Many hospital procedures such as surgery, cardiac catheterization, stress testing and general anesthesia may induce arrhythmias or sudden cardiac arrest, and hospitals frequently use cardiac resuscitation devices on a standby basis in connection with these procedures. Since immediate treatment is the critical factor for successful cardiac resuscitation, hospitals typically place resuscitation devices throughout their facilities, including the cardiac and critical care units, emergency rooms, operating rooms, electrophysiology laboratories and, increasingly, general wards. Hospitals also use portable devices during in-hospital transportation of cardiac patients. We believe that the M Series defibrillators have allowed us to significantly increase our market share in the U.S. hospital market. Our revenues in the capital equipment device market in 2000 increased at a rate of 37% compared to the market's growth which we estimate to be between 3% and 5%. We hope to capitalize on the success of our M Series defibrillators to further expand our share of the U.S. hospital market. U.S. Pre-hospital Market. Most sudden cardiac arrests and heart attacks occur outside of the hospital. Due to the importance of immediate treatment, there is a substantial market for portable cardiac resuscitation equipment designed for use by various emergency responders. The most highly trained segment of the pre-hospital market is comprised of paramedics, who are all authorized and trained to use defibrillators to treat sudden cardiac arrest. In addition, paramedics are becoming increasingly aware of external pacing as a standard of care for the treatment of bradycardia. We believe that as noninvasive temporary pacing becomes more widely accepted in the hospital market, the use of combination pacemakers/defibrillators will become more widespread in the pre-hospital setting as well. Paramedics are also able to use more advanced diagnostics, such as diagnostic 12 lead. Emergency medical technicians, who are authorized to use automated external defibrillators, comprise a significant portion of the potential pre-hospital market as well. We believe the opportunity for growth in the underpenetrated pre-hospital market is large. Presently, approximately 60% of the estimated 35,000 ambulances in the United States are equipped with defibrillators. We believe that the percentage of ambulances equipped with defibrillators will grow, and that ambulances and other first response emergency vehicles will represent an increasingly important market for cardiac resuscitation equipment as the medical community places increased priority on providing such equipment and the necessary training to all first responders. Additionally, we believe that growth of our sales in the pre-hospital market has been constrained in the recent past due to the absence of 12 lead technology in our defibrillators. With our recent introduction of diagnostic 12 lead in the M Series defibrillators, we intend to increase our sales in the pre-hospital market and take greater market share within the paramedic segment of the pre-hospital market. International Market. The international market for defibrillators is less developed than the market in the United States. In some international markets, unlike the U.S. market, the administration of pacing and defibrillation in hospitals is generally viewed as a skill reserved for physicians. Few other staff members are 9 trained to administer such treatment, although this is slowly beginning to change. The international market for defibrillators for use outside of hospitals varies considerably from country to country and is somewhat less developed than the market in North America. We believe that the international market for defibrillators will grow for a number of reasons. - The international hospital market for defibrillators is expected to grow as more hospitals are built and existing hospitals modernize and update their approaches to cardiac and emergency care. - Emerging standards of care and the acceptance of automated equipment could result in increased use of cardiac resuscitation equipment by a broader range of health care personnel in the international market. - The European Resuscitation Council, the British Heart Foundation and virtually all cardiac- oriented organizations in Europe as well as the Australian Resuscitation Council have strongly supported initiatives to expand the availability of defibrillators as a major public health initiative. - External pacing is used much less frequently in Europe and other parts of the world than it is in the United States, but many countries are beginning to implement cardiac life support protocols which incorporate external pacing as a standard component. Because most international defibrillators do not presently feature external pacing, the move to defibrillators with external pacing could drive the international demand for defibrillators generally. We believe that we are positioned to take advantage of the growth in the international market for defibrillators, based on the recent success of the M Series defibrillators, our superior biphasic waveform, and the multiple language and other capabilities of the M Series defibrillators. We believe that there are significant opportunities to increase sales in the international market through the use of direct sales. Historically, we have used distributors instead of a direct sales force to sell our products internationally. We believe using a direct sales force could increase our revenues and market share in many countries. For example, we doubled our sales in the United Kingdom in 1999, which we believe was at least partially due to the efforts of our direct sales force established four years ago. In addition, Germany, which is second only to the United States in market size, may be a strong market for future growth. We have established a direct sales force in Germany and expect to expand this sales force in the coming year. In addition, we have begun to fulfill our largest sales contract ever, a multi-year agreement with the German Army to supply up to 1,500 defibrillators. We intend to further expand our direct selling efforts in the coming years. OUR MARKET OPPORTUNITIES PUBLIC ACCESS DEFIBRILLATION USING AEDS Public access defibrillation, or PAD, involves providing low cost automated external defibrillators, or AEDs, to persons outside a hospital setting who are not medically trained. Automated defibrillators use an algorithm to determine if a patient's heart requires defibrillation and prompt the operator to deliver the shock. Although we presently offer AEDs in the hospital and pre-hospital markets, we are seeking to develop a low cost AED specifically targeted to the needs of the PAD market. Traditionally, defibrillators have only been used by personnel in hospitals and trained emergency medical service personnel in the pre-hospital market. As mentioned above, time from onset of sudden cardiac arrest to defibrillation is the most important factor in successfully treating sudden cardiac arrest. Victims are likely to die if they are not defibrillated within four to eight minutes of the onset of sudden cardiac arrest. This need for immediate treatment of cardiac arrest suggests that if more automated defibrillators can be deployed outside of the hospital setting, the likelihood of defibrillating a victim in the critical time frame will increase. Potential customers for such devices in this 10 broad market include police and fire departments, office buildings and any other location where a large number of people congregate. Ultimately, AEDs could be marketed to private homes, where approximately 70% of cardiac arrests occur. In addition, we expect that demand for AEDs could increase as public awareness of the time constraints inherent in treating cardiac arrest grows and as more AEDs are introduced into highly visible, public places. Some of our competitors offer cardiac resuscitation equipment in the PAD market. We have not yet entered the PAD market due to its early stage of development and the high selling costs inherent to such a market. We do not believe the current AED manufacturers have generated significant profitable operations from the PAD market in the past. We believe, however, that this market is now expanding to the point where AEDs can be profitably sold. More distributors are requesting and selling AEDs. In addition, the recent passage of federal good samaritan legislation increases the likelihood that non-medically trained personnel will be providing care to victims of sudden cardiac arrest. Good samaritan legislation generally protects persons who render emergency assistance to others from liability for negligence in connection with their rendering of assistance. At least one state, Massachusetts, has amended its good samaritan law to specifically cover the use of AEDs by the general public. In addition, the AHA has begun to actively advocate PAD as a critical link in the "Chain of Survival," which refers to the four crucial links in the treatment of cardiac arrest. The AHA and virtually all corresponding international organizations have established programs to try to bring early defibrillation to every community. Early defibrillation is now included in AHA CPR training for all healthcare personnel and some lay persons. We believe that these developments, together with the introduction of AEDs in highly visible places, will lead to a larger market for AEDs. Because we expect the PAD market to mature, we intend to produce and sell low-cost AEDs in this market. We estimate that in calendar year 2000 the market for low-cost AEDs will exceed $63 million. We expect to introduce our low-cost AED during calendar 2001. The device will monitor the patient's ECG and automatically prompt the operator throughout the defibrillation process. We intend to use a direct sales force to sell our AEDs wherever it proves cost effective to do so, and will sell through alternate distribution, such as distributors or manufacturers' representatives, in those markets that are too small to support a direct sales force. In addition, we expect that this market can be serviced by other alternative distribution methods, such as e-commerce, that can supplement and reduce our need for an expensive sales force. We also intend to use our experience of selling to emergency medical service personnel in our future efforts to sell AEDs to police and fire departments. EMS DATA MANAGEMENT SOLUTIONS We are developing a product called RescueNet(TM) to address what we consider to be a growing need in the EMS market for an integrated data management system. RescueNet(TM) will combine existing technologies developed by two of our subsidiaries with data collected from our cardiac resuscitation devices. This will allow our customers to purchase a single data management system that integrates dispatch, resuscitation information, data collection, data transfer, billing and quality assurance functions. Today, most EMS data is entered by hand on clipboards and then distributed or reentered manually into databases or to meet regulatory and insurance reporting requirements. The timeliness, accuracy and efficiency of this process is a key factor in the receipt of payments from third party payors. Nevertheless, a significant amount of revenue is lost due to data entry errors, misplaced paperwork or data, and additional time is lost duplicating data entries. As a result, we believe that the market for electronic field data collection is significant and relatively unpenetrated. Of the estimated 35,000 ambulances in the United States today, we estimate that less than 5,000 of them have any type of computer in place for the routine entry of data. Based upon our experience market interest in electronic field data collection is very high in part because EMS organizations are increasingly pressured to become more efficient. Using RescueNet(TM), caller information collected by the dispatcher would first be organized and compared to existing databases in the system. Almost immediately, useful information on the patient such as the patient's previous medical history, the closest ambulance to the patient's address, the patient's insurance numbers from previous service, and the patient's personal physician would be provided to the ambulance or EMS system 11 through the use of wireless communications and radio links that already exist in most EMS systems. Data collected by EMS personnel on the road, including simple data such as arrival time at a scene or transport time to the hospital, as well as clinical data derived from our defibrillators such as the number of shocks given, when those shocks were given and at what energy levels, could be immediately shared via wireless connection with the hospital to which the patient is being brought. Information regarding services provided to the patient could be stored electronically for billing and record-keeping purposes. Such seamless information sharing would allow for better integration of information with the dispatcher and with the hospital to which the patient is being transported, while eliminating duplicative information collection. Ease-of-use and the need for efficiency in the use of information in billing, case review, training and operations analysis are the fundamental factors that we believe could drive the market for an integrated data management system in the pre-hospital market. Although we plan to sell RescueNet(TM) through a dedicated sales force, we intend to utilize our existing relationships with purchasing decision-makers in the EMS market who have purchased our defibrillators in the past and to obtain sales efficiencies and synergies through cross-selling. Our competition in dispatch, billing and mobile computing solutions consists of mostly smaller software companies. We believe we have a competitive advantage over other software companies due to our familiarity with the information collected and stored by our defibrillators. Our ability to analyze, store and retrieve this clinically important data could make our electronic field data collection products more attractive. We expect that the EMS data management business will be a significant part of our long-term growth strategy. We believe that this market could expand rapidly and that we are particularly well-positioned to become a significant competitor in this business. COMPETITION Our principal competitors in the United States are Physio-Control Corporation and Agilent Technologies, Inc. Physio-Control is a subsidiary of Medtronic, Inc., a leading medical technology company, and Agilent, which now includes Heartstream, Inc., whose Healthcare Solutions Group is currently in the process of being acquired by Royal Phillips Electronics. Both Physio-Control and Agilent compete across our entire defibrillator product line. We also compete with Medical Research Labs, Inc. and SurVivaLink, Inc. in specific geographic areas and markets. In the international market we compete with both Physio-Control and Agilent, as well as approximately 12 other companies depending upon the country. Physio-Control is generally the market leader in the industry. We believe that the principal competitive factors in the hospital market for cardiac resuscitation equipment are clinical efficacy, reliability, portability, ease-of-use and standardization. In the pre-hospital market, in addition to the foregoing considerations, durability, a reliable battery system, and availability of 12 lead ECG capability are significant competitive factors. We believe that our products compete favorably with respect to each of these factors. Noninvasive temporary pacemakers and external defibrillators, such as those we sell, are used in emergency situations and, accordingly, do not compete with permanent, implantable pacemakers or defibrillators that are used to treat chronic arrhythmias. In fact, the products are complementary, because emergency cardiac resuscitation is often required during the implantation of a permanent device. The business of developing and marketing software for data collection, billing and management in the EMS market is competitive. Competitors in this business include PAD Systems, Healthware Technologies, Inc., Tritech Software Systems, Sweet Computer Services, Inc., RAM Software Systems, Inc., Intergraph Corporation and AmbPac, Inc. None of these competitors currently have a product that provides an integrated solution comparable to the RescueNet(TM) product currently in development. RESEARCH AND DEVELOPMENT 12 Our research and development strategy is to improve and expand our product line through the application of our proprietary technology to both devices and electrodes. We pursue a multi-disciplinary approach to product design. We are currently focusing our research and development program in mechanical, software and electronic engineering, including both digital (microprocessor) and analog (high voltage) design. We hope to develop an inexpensive, easy-to-operate AED for the PAD market. We are also seeking to expand the M Series features and parameters and to develop further efficiencies in our M Series production, leading to lower costs. In addition, we are continuing our work on the development of the RescueNet(TM) product. MANUFACTURING Our facilities are located in Burlington, Massachusetts and Pawtucket, Rhode Island. Our executive headquarters are located at the Burlington facility, where we also conduct our device manufacturing operations and all of our research and development other than electrode and EMS data management research and development. We generally assemble our devices from components produced to our specifications by our suppliers. We own a 33,000 square foot building in Rhode Island, where we manufacture our electrode products and conduct related research and development. We own a 17,500 square foot building in Boulder, Colorado where our data management software business offices are located. We lease approximately 90,000 square feet of office and assembly space in Burlington under a lease expiring in August 2003, and 2,685 square feet of office space in Vancouver, British Columbia, under a lease expiring in 2002. We also have administrative offices in Manchester, England, Dodewaard, The Netherlands, Cologne, Germany, and in Mississauga, Canada. PATENTS AND PROPRIETARY INFORMATION Seven U.S. patents have now been issued covering various aspects of our unique biphasic waveform technology. Several corresponding foreign patents relating to this waveform technology are still pending. During fiscal 1999, we filed several U.S. and foreign patent applications covering novel technology related to our pacing and defibrillation electrodes. These patents supplement other electrode patents issued in the United States, Europe and Japan. A number of U.S. patents covering technologies incorporated into our other products have been issued. Foreign patents related to some of these technologies are pending. EMPLOYEES As of September 30, 2000, we employed 524 people on a full-time basis, 491 in the United States and 33 internationally. We also employed 15 part-time employees. None of our employees are subject to collective bargaining agreements. We believe that our relations with our employees are excellent. MARKETING AND SALES We use a direct sales force in the United States. In 1998, we split our sales force into dedicated groups, focused on the hospital and pre-hospital markets. Our total sales force has increased by 20% in each of the last three fiscal years. We sell our RescueNet(TM) product through a separate dedicated sales force. In the United States, we currently have 59 sales representatives calling on hospitals, 44 calling on pre-hospital accounts and 6 selling our data management products. We have 7 sales representatives in Canada, 4 in the United Kingdom and 5 in Germany. 13 GOVERNMENT REGULATION The manufacture and sale of our products are subject to extensive regulation by numerous governmental authorities, principally by the FDA and corresponding foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder. We are subject to the standards and procedures with respect to the manufacture of medical devices and are subject to inspection by the FDA for compliance with such standards and procedures. The FDA classifies medical devices into one of three classes depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Our manual defibrillation and pacing products have been classified by the FDA as Class II devices. Our AED products have been classified as Class III devices. These devices must secure either a 510(k) pre-market notification clearance or an approved pre-market approval application before they can be introduced into the United States market. The process of obtaining 510(k) clearance typically takes several months and may involve the submission of limited clinical data supporting assertions that the product is substantially equivalent to another medical device on the market prior to 1976. The pre-market approval process typically requires substantially more time than does 510(k) clearance and requires the submission of significant quantities of clinical data and supporting information. Every company that manufactures or assembles medical devices is required to register with the FDA and to adhere to certain "good manufacturing practices (per the FDA's Quality System Regulation)" which regulate the manufacture of medical devices and prescribe record keeping procedures and provide for the routine inspection of facilities for compliance with such regulations. The FDA also has broad regulatory powers in the areas of clinical testing, marketing and advertising of medical devices. Medical device manufacturers are routinely subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating in compliance with applicable laws and regulations, it can: - place the company under observation and reinspect the facilities; - issue a warning letter apprising of violative conduct; - detain or seize products; - mandate a recall; - enjoin future violations; and - assess civil and criminal penalties against the company, its officers or its employees. We are also subject to regulation in each of the foreign countries in which we sell our products. Many of the regulations applicable to our products in such countries are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be qualified before they can be marketed in those countries. RISK FACTORS IF WE FAIL TO COMPETE SUCCESSFULLY IN THE FUTURE AGAINST EXISTING OR POTENTIAL COMPETITORS, OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED Our principal global competitors with respect to our entire cardiac resuscitation equipment product line are Physio-Control Corporation and Agilent Technologies, Inc. Physio-Control is a subsidiary of Medtronic, Inc., a leading medical technology company, and Agilent, which includes Heartstream, Inc., whose Healthcare Solutions Group is currently in the process of being acquired by Royal Phillips Electronics. Physio-Control 14 has been the market leader in the defibrillator industry for over twenty years and has a broader line of product offerings and accessories than we do. As a result of Physio-Control's dominant position in this industry, many potential customers have relationships with Physio-Control that could make it difficult for us to continue to penetrate the markets for our products. In addition, Physio-Control, its parent and Agilent and other competitors each have significantly greater resources than we do. Accordingly, Physio-Control, Agilent and other competitors could substantially increase the resources they devote to the development and marketing of products that are competitive with ours. Moreover, these and other competitors may develop and successfully commercialize medical devices that directly or indirectly accomplish what our products are designed to accomplish in a superior and/or less expensive manner. For example, we expect our competitors to develop and sell devices in the future that will compete directly with our M Series product line and our biphasic waveform technology. As a consequence, such competing medical devices may render our products obsolete. In addition to external defibrillation and external pacing with cardiac resuscitation equipment, it is possible that other alternative therapeutic approaches to the treatment of sudden cardiac arrest may be developed. These alternative therapies or approaches, including pharmaceutical or other alternatives, could prove to be superior to our products. Moreover, there is significant competition in the business of developing and marketing software for data collection, billing and data management in the emergency medical system market. Our principal competitors in this business include PAD Systems, Healthware Technologies, Inc., Tritech Software Systems, Inc., Sweet Computer Services, Inc., RAM Software Systems, Inc., Intergraph Corporation and AmbPac, Inc., some of which have greater financial, technical, research and development and marketing resources than we do. In addition, because the barriers to entry in this business are relatively low, additional competitors may easily enter this market in the future. It is possible that systems developed by competitors could be superior to our data management system. Consequently, our ability to sell our data management system could be materially impacted and our financial results could be materially and adversely affected. OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE WHICH COULD CAUSE OUR STOCK PRICE TO BE VOLATILE, AND THE ANTICIPATION OF A VOLATILE STOCK PRICE CAN CAUSE GREATER VOLATILITY Our quarterly and annual operating results have fluctuated and may continue to fluctuate. Various factors have and may continue to affect our operating results, including: o high demand for our products which could disrupt our normal factory utilization and cause shipments to occur in uneven patterns; o variations in product orders; o timing of new product introductions; o temporary disruptions on buying behavior due to changes in technology (e.g. shift to biphasic technology) o changes in distribution channels; o actions taken by our competitors such as the introduction of new products or the offering of sales incentives; o the ability of our sales force to effectively market our products; o supply interruptions from our single source vendors; o regulatory actions, including actions taken by the U.S. Food and Drug Administration; and 15 o delays in obtaining domestic or foreign regulatory approvals. Based on these factors, period-to-period comparisons should not be relied upon as indications of future performance. In addition, in anticipation of less successful quarterly results, parties may take short positions in our stock. The actions of parties shorting our stock might cause even more volatility in our stock price. The volatility of our stock may cause the value of a stockholder's investment to decline rapidly. WE MAY BE REQUIRED TO IMPLEMENT A COSTLY PRODUCT RECALL In the event that any of our products proves to be defective, we can voluntarily recall, or the U.S. Food and Drug Administration, the FDA, could require us to redesign or implement a recall of, any of our products. We and our competitors have voluntarily recalled products in the past, and based on this experience, we believe that future recalls could result in significant costs to us and significant adverse publicity which could harm our ability to market our products in the future. Though it is not possible to quantify the economic impact of a recall, it could have a material adverse effect on our business, financial condition and results of operations. WE CAN BE SUED FOR PRODUCING DEFECTIVE PRODUCTS AND WE MAY BE REQUIRED TO PAY SIGNIFICANT AMOUNTS TO THOSE HARMED IF WE ARE FOUND LIABLE, AND OUR BUSINESS COULD SUFFER FROM ADVERSE PUBLICITY The manufacture and sale of medical products such as ours entail significant risk of product liability claims. Our quality control standards comply with FDA requirements and we believe that the amount of product liability insurance we maintain is adequate based on past product liability claims in our industry. We cannot assure you, however, that the amount of such insurance will be sufficient to satisfy claims made against us in the future or that we will be able to maintain insurance in the future at satisfactory rates or in adequate amounts. Product liability claims could result in significant costs or litigation. In addition, a successful claim brought against us in excess of our available insurance coverage or any claim that results in significant adverse publicity against us could have a material adverse effect on our business, financial condition and results of operations. OUR DEPENDENCE ON SOLE AND SINGLE SOURCE SUPPLIERS EXPOSES US TO SUPPLY INTERRUPTIONS THAT COULD RESULT IN PRODUCT DELIVERY DELAYS AND SUBSTANTIAL COSTS TO REDESIGN OUR PRODUCTS Although we use many standard parts and components for our products, some key components are purchased from sole or single source vendors for which alternative sources are not currently readily available. For example, we currently purchase proprietary components, including capacitors, screens, gate arrays and integrated circuits, for which there are no direct substitutes. Our inability to obtain sufficient quantities of these components may result in future delays or reductions in product shipments which could cause a fluctuation in our results of operations. These components could be replaced with alternatives from other suppliers, which could involve a redesign of our products. Such redesign could involve considerable time and expense. For example, in 1999, one of our vendors was unable to provide sufficient quantities of screens that were used in our M Series products. To keep up with the demand for our products, we sought alternative screens from another supplier and redesigned our product accordingly. Redesigning our products resulted in additional costs and delays in the shipment of some of our products. Although we believe we have solved this supply problem, we cannot assure you that we will not have similar supply problems in the future. OUR RELIANCE ON INDEPENDENT MANUFACTURERS CREATES SEVERAL RISKS THAT COULD RESULT IN PRODUCT DELIVERY DELAYS, INCREASED COSTS AND OTHER ADVERSE EFFECTS ON OUR BUSINESS We currently engage a small number of independent manufacturers to manufacture several components for our products, including circuit boards, molded plastic components, cables and high voltage assemblies. Our 16 reliance on these independent manufacturers involves a number of risks, including the potential for inadequate capacity, unavailability of, or interruptions in access to, process technologies, and reduced control over delivery schedules, manufacturing yields and costs. If our manufacturers are unable or unwilling to continue manufacturing our components in required volumes, we will have to transfer manufacturing to acceptable alternative manufacturers whom we have identified, which could result in significant interruptions of supply. Moreover, the manufacture of these components is complex, and our reliance on the suppliers of these components exposes us to potential production difficulties and quality variations, which could negatively impact the cost and timely delivery of our products. Accordingly, any significant interruption in the supply, or degradation in the quality, of any component would have a material adverse effect on our business, financial condition and results of operations. FAILURE TO PRODUCE NEW PRODUCTS OR OBTAIN MARKET ACCEPTANCE FOR OUR NEW PRODUCTS IN A TIMELY MANNER COULD HARM OUR BUSINESS Because substantially all of our revenue comes from the sale of cardiac resuscitation devices and related products, our financial performance will depend upon market acceptance of, and our ability to deliver and support, new products such as upgrades to the M Series defibrillator, a product for the public access defibrillation market and an integrated product for the emergency medical system data management market. We cannot assure you that we will be able to produce viable products in the time frames we currently estimate. Factors which could cause delay in these schedules or even cancellation of our projects to produce and market these new products include research and development delays, the actions of our competitors producing competing products and the actions of other parties who may provide alternative therapies or solutions which could reduce or eliminate the markets for pending products. The degree of market acceptance of any of our products will depend on a number of factors, including: o our ability to develop and introduce new products in the time frames we currently estimate; o our ability to successfully implement new product technologies; o the market's readiness to accept new products such as our M Series defibrillators and data management products; o the standardization of an automated platform for data management systems; o having adequate financial and technical resources for future product development and promotion; o the efficacy of our products; and o the prices of our products compared to the prices of our competitors' products. If our new products do not achieve market acceptance, our financial performance will be adversely affected. WE MAY NOT BE ABLE TO OBTAIN APPROPRIATE REGULATORY APPROVALS FOR OUR NEW PRODUCTS The manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act, as amended, and the rules and regulations promulgated thereunder. Some of our products have been classified by the FDA as Class II devices and others, such as our automated external defibrillators, have been classified as Class III devices. All of these devices must secure either a 510(k) pre-market notification clearance or an approved pre-market approval application before they can be introduced 17 into the U.S. market. The process of obtaining 510(k) clearance typically takes several months and may involve the submission of limited clinical data supporting assertions that the product is substantially equivalent to another medical device on the market prior to 1976. The pre-market approval process typically requires substantially more time than does 510(k) clearance and requires the submission of significant quantities of clinical data and supporting information. Delays in obtaining either 510(k), or if necessary, pre-market approval clearance could have an adverse effect on the introduction of future products. Moreover, approvals, if granted, may limit the uses for which a product may be marketed, which could reduce or eliminate the commercial benefit of manufacturing any such product. We are also subject to regulation in each of the foreign countries in which we sell products. Many of the regulations applicable to our products in such countries are similar to those of the FDA. However, the national health or social security organizations of certain countries require our products to be qualified before they can be marketed in those countries. We cannot assure you that such clearances will be obtained. IF WE FAIL TO COMPLY WITH APPLICABLE REGULATORY LAWS AND REGULATIONS, THE FDA COULD EXERCISE ANY OF ITS REGULATORY POWERS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS Every company that manufactures or assembles medical devices is required to register with the FDA and to adhere to certain good manufacturing practices, which regulate the manufacture of medical devices and prescribe record keeping procedures and provide for the routine inspection of facilities for compliance with such regulations. The FDA also has broad regulatory powers in the areas of clinical testing, marketing and advertising of medical devices. To ensure that manufacturers adhere to good manufacturing practices, medical device manufacturers are routinely subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating in compliance with applicable laws and regulations, it could take any of the following actions: o place the company under observation and reinspect the facilities; o issue a warning letter apprising of violative conduct; o detain or seize products; o mandate a recall; o enjoin future violations; and o assess civil and criminal penalties against the company, its officers or its employees. We, like most of our U.S. competitors, have received warning letters from the FDA in the past, and may receive warning letters in the future. We have always complied with the warning letters we have received. However, our failure to comply with FDA regulations could result in sanctions being imposed on us, including restrictions on the marketing or recall of our products. These sanctions could have a material adverse effect on our business. WE ARE DEPENDENT UPON LICENSED AND PURCHASED TECHNOLOGY FOR UPGRADEABLE FEATURES IN OUR PRODUCTS, AND WE MAY NOT BE ABLE TO RENEW THESE LICENSES OR PURCHASE AGREEMENTS IN THE FUTURE We license and purchase technology from third parties for upgradeable features in our products, including 12 lead analysis program and pulse oximetry technologies. We anticipate that we will need to license and purchase additional technology to remain competitive. We may not be able to renew our existing licenses and purchase agreements or to license and purchase other technologies on commercially reasonable terms or at all. If we are unable to renew our existing licenses and purchase agreements or we are unable to license or purchase new technologies, we may not be able to offer competitive products. FUTURE CHANGES IN APPLICABLE LAWS AND REGULATIONS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS 18 Although we are not aware of any pending changes in applicable laws and regulations, we cannot assure you that federal, state or foreign governments will not change existing laws or regulations or adopt new laws or regulations that regulate our industry. Changes in or adoption of new laws or regulations could result in the following consequences that would have an adverse effect on our business: o regulatory clearance previously received for our products could be revoked; o costs of compliance could increase; or o we may be unable to comply with such laws and regulations so that we would be unable to sell our products. CHANGES IN THE HEALTH CARE INDUSTRY MAY REQUIRE US TO DECREASE THE SELLING PRICE FOR OUR PRODUCTS OR COULD RESULT IN A REDUCTION IN THE SIZE OF THE MARKET FOR OUR PRODUCTS, EACH OF WHICH COULD HAVE A NEGATIVE IMPACT ON OUR FINANCIAL PERFORMANCE Trends toward managed care, health care cost containment, and other changes in government and private sector initiatives in the United States and other countries in which we do business are placing increased emphasis on the delivery of more cost-effective medical therapies which could adversely affect the sale and/or the prices of our products. For example: o major third-party payers of hospital services, including Medicare, Medicaid and private health care insurers, have substantially revised their payment methodologies during the last few years which has resulted in stricter standards for reimbursement of hospital charges for certain medical procedures; o Medicare, Medicaid and private health care insurer cutbacks could create downward price pressure in the cardiac resuscitation pre-hospital market; o proposals were adopted recently that will change the reimbursement procedures for the capital expenditure portion of the cost of providing care to Medicare patients; o numerous legislative proposals have been considered that would result in major reforms in the U.S. health care system that could have an adverse effect on our business; o there has been a consolidation among health care facilities and purchasers of medical devices in the United States who prefer to limit the number of suppliers from whom they purchase medical products, and these entities may decide to stop purchasing our products or demand discounts on our prices; o there is economic pressure to contain health care costs in international markets; o there are proposed and existing laws and regulations in domestic and international markets regulating pricing and profitability of companies in the health care industry; and o there have been recent initiatives by third party payers to challenge the prices charged for medical products which could affect our ability to sell products on a competitive basis. Both the pressure to reduce prices for our products in response to these trends and the decrease in the size of the market as a result of these trends could adversely affect our levels of revenues and profitability of sales, which could have a material adverse effect on our business. UNCERTAIN CUSTOMER DECISION PROCESSES MAY RESULT IN LONG SALES CYCLES WHICH COULD RESULT IN UNPREDICTABLE FLUCTUATIONS IN REVENUES AND DELAY THE REPLACEMENT OF CARDIAC RESUSCITATION DEVICES 19 Many of the customers in the pre-hospital market consist of municipal fire and emergency medical systems departments. As a result, there are numerous decision-makers and governmental procedures in the decision-making process. In addition, decisions at hospitals concerning the purchase of new medical devices are sometimes made on a department-by-department basis. Accordingly, we believe the purchasing decisions of many of our customers may be characterized by long decision-making processes, which have resulted in and may continue to result in long sales cycles for our products. For example, the sales cycles for cardiac resuscitation products typically have been between six to nine months, although some sales efforts have taken as long as two years. OUR INTERNATIONAL SALES EXPOSE OUR BUSINESS TO A VARIETY OF RISKS THAT COULD RESULT IN SIGNIFICANT FLUCTUATIONS IN OUR RESULTS OF OPERATIONS Approximately 20% of our sales in fiscal 2000 were made to foreign purchasers, particularly in countries located in Europe and Asia, and we plan to increase the sale of our products to foreign purchasers in the future. As a result, a significant portion of our sales is and will continue to be subject to the risks of international business, including: o fluctuations in foreign currencies; o trade disputes; o changes in regulatory requirements, tariffs and other barriers; o the possibility of quotas, duties, taxes or other changes or restrictions upon the importation or exportation of the products being implemented by the United States or these foreign countries; o timing and availability of import/export licenses; o political and economic instability; o difficulties in accounts receivable collections; o difficulties in managing laws; o increased tax exposure if our revenues in foreign countries are subject to taxation by more than one jurisdiction; o accepting customer purchase orders governed by foreign laws which may differ significantly from U.S. laws and limit our ability to enforce our rights under such agreements and to collect damages, if awarded; and o the general economies of these countries in which we transact business. As international sales become a larger portion of our total sales, these risks could create significant fluctuations in our results of operations. In addition, these risks could affect our ability to resell trade-in products to domestic distributors, who in turn often resell the trade-in products in international markets. Our inability to sell trade-in products might require us to offer lower trade-in values, which might impact our ability to sell new products to customers desiring to trade in older models and then purchase newer products. FLUCTUATIONS IN CURRENCY EXCHANGE RATES MAY ADVERSELY AFFECT OUR INTERNATIONAL SALES 20 Our revenue from international operations can be denominated in or significantly influenced by the currency and general economic climate of the country in which we make sales. A decrease in the value of such foreign currencies relative to the U.S. dollar could result in downward price pressure for our products or losses from currency exchange rate fluctuations. As we continue to expand our international operations, downward price pressure and exposure to gains and losses on foreign currency transactions may increase. We may choose to limit such exposure by entering into forward-foreign exchange contracts or engaging in similar hedging strategies. We cannot assure you that any currency exchange strategy would be successful in avoiding losses due to exchange rate fluctuations, or that the failure to manage currency risks effectively would not have a material adverse effect on our business, financial condition, cash flows, and results of operations. WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR SECURE RIGHTS TO THIRD PARTY PATENTS, AND OUR COMPETITORS CAN USE SOME OF OUR PREVIOUSLY PROPRIETARY TECHNOLOGY Our success will depend in part on our ability to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. To date, we have been issued 22 U.S. patents for our various inventions and technologies. Additional patent applications have been filed with the U.S. Patent and Trademark Office and are currently pending. The patents that have been granted to us are for a definitive period of time and will expire. We have filed certain corresponding foreign patent applications and intend to file additional foreign and U.S. patent applications as appropriate. We cannot assure you as to: o the degree and range of protection any patents will afford against competitors with similar products; o if and when patents will be issued; o whether or not others will obtain patents claiming aspects similar to those covered by our patent applications; o whether or not competitors will use information contained in our expired patents, such as our U.S. pacing system patent which will expire in 2000; o whether or not others will design around our patents or obtain access to our know-how; or o the extent to which we will be successful in avoiding any patents granted to others. For example, we have patents and pending patent applications for our proprietary biphasic technology. Our competitors could develop biphasic technology that has comparable or superior clinical efficacy to our biphasic technology if our patents do not adequately protect our technology, our competitors are able to obtain patents claiming aspects similar to our biphasic technology or our competitors can design around our patents. If certain patents issued to others are upheld or if certain patent applications filed by others issue and are upheld, we may be: o required to obtain licenses or redesign our products or processes to avoid infringement; o prevented from practicing the subject matter claimed in those patents; or o required to pay damages. Litigation or administrative proceedings, including interference proceedings before the U.S. Patent and Trademark Office, related to intellectual property rights could be brought against us or be initiated by us. Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent or patent application could materially and adversely affect our business, financial condition and results of 21 operations. In addition, the costs of any such proceeding may be substantial whether or not we are successful. Our success is also dependent upon the skills, knowledge and experience, none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all employees, consultants and advisors to enter into confidentiality agreements, which prohibit the disclosure of confidential information to anyone outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. We cannot assure you, however, that these agreements will provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of the lawful development by others of such information. RELIANCE ON OVERSEAS VENDORS FOR SOME OF THE COMPONENTS FOR OUR PRODUCTS EXPOSES US TO INTERNATIONAL BUSINESS RISKS, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS Some of the components we use in our products are acquired from foreign manufacturers, particularly countries located in Europe and Asia. As a result, a significant portion of our purchases of components is subject to the risks of international business. The failure to obtain these components as a result of any of these risks can result in significant delivery delays of our products, which could have an adverse effect on our business. WE RELY HEAVILY ON SEVERAL EMPLOYEES WHO MAY LEAVE, AND TIGHT LABOR MARKETS MAY MAKE IT DIFFICULT TO RECRUIT EMPLOYEES Our future operating results will depend in part upon the contributions of the persons who will serve in senior management positions and the continued contributions of key technical personnel, some of who would be difficult to replace. In addition, our future success will depend in part upon our ability to attract and retain highly qualified personnel, particularly product design engineers. Increasingly tight labor markets could make it more difficult and/or expensive to recruit and retain employees in a cost effective manner. There can be no assurance that such key personnel will remain in our employment or that we will be successful in hiring qualified personnel. Any loss of key personnel or the inability to hire or retain qualified personnel could have a material adverse effect on our business, financial condition and results of operations. WE MAY ACQUIRE OTHER BUSINESSES, AND WE MAY HAVE DIFFICULTY INTEGRATING THESE BUSINESSES OR GENERATING AN ACCEPTABLE RETURN FROM ACQUISITIONS We may attempt to acquire or make strategic investments in businesses and other assets. Such acquisitions will involve risks, including: o the inability to achieve the strategic and operating goals of the acquisition; o the inability to raise the required capital to fund the acquisition; o difficulty in assimilating the acquired operations and personnel; o disruption of our ongoing business; and o inability to successfully incorporate acquired technology into our existing product lines and maintain uniform standards, controls, procedures and policies. PROVISIONS IN OUR CHARTER DOCUMENTS, OUR SHAREHOLDER RIGHTS AGREEMENT AND STATE LAW MAY MAKE IT HARDER FOR OTHERS TO OBTAIN CONTROL OF ZOLL EVEN THOUGH SOME STOCKHOLDERS MIGHT CONSIDER SUCH A DEVELOPMENT TO BE FAVORABLE Our board of directors has the authority to issue up to 1,000,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of such shares without further vote or action 22 by our stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could have the effect of making it more difficult for third parties to acquire a majority of our outstanding voting stock. In addition, our restated articles of organization provide for staggered terms for the members of the board of directors which could delay or impede the removal of incumbent directors and could make a merger, tender offer or proxy contest involving the Company more difficult. Our restated articles of organization, restated by-laws and applicable Massachusetts law also impose various procedural and other requirements that could delay or make a merger, tender offer or proxy contest involving us more difficult. In addition, we have implemented a so-called poison pill by adopting our shareholders rights agreement. This poison pill significantly increases the costs that would be incurred by an unwanted third party acquirer if such party owns or announces its intent to commence a tender offer for more than 15% of our outstanding common stock. The existence of this poison pill could delay, deter or prevent a takeover of ZOLL. All of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock which could preclude our shareholders from recognizing a premium over the prevailing market price of our stock. WE HAVE ONLY ONE MANUFACTURING FACILITY FOR EACH OF OUR MAJOR PRODUCTS AND ANY DAMAGE OR INCAPACITATION OF EITHER OF THE FACILITIES COULD IMPEDE OUR ABILITY TO PRODUCE THESE PRODUCTS We have only one manufacturing facility, which produces defibrillators and one separate manufacturing facility which produces electrodes. Damage to either facility could render us unable to manufacture the relevant product or require us to reduce the output of products at the damaged facility. This could materially and adversely impact our business, financial condition and results of operations. OUR CURRENT AND FUTURE INVESTMENTS MAY LOSE VALUE IN THE FUTURE We have made a $2.0 million investment in LifeCor, Inc., a development stage company, and may in the future invest in the securities of other companies and participate in joint venture agreements. This investment and future investments are subject to the risks that the entities in which we invest will become bankrupt or lose money. Investing in securities involves risks and no assurance can be made as to the profitability of any investment. Our inability to identify profitable investments could adversely affect our financial condition and results of operations. Unless we hold a majority position in an investment or joint venture, we will not be able to control all of the activities of the companies in which we invest or the joint ventures in which we are participating. Because of this, such entities may take actions against our wishes and not in furtherance of, and even opposed to, our business plans and objectives. These investments are also subject to the risk of impasse if no one party exercises ultimate control over the business decisions. WE MAY EXPERIENCE SHORT TERM OPERATING FLUCTUATIONS AS WE INTRODUCE OUR NEW BIPHASIC TECHNOLOGY While we believe our biphasic technology offers substantial opportunity for future growth, there can be no guarantee that this will occur. In addition, in the short term, an industry shift towards biphasic technology could cause a lengthening of buying cycles, take additional sales time, and reduce the salability of existing inventory and trade-in products. This risk related to a shift towards biphasic technology could also be affected by uncertainty of the governing bodies' recommendations of biphasic technology. ITEM 2. PROPERTIES Our facilities are located in Burlington, Massachusetts and Pawtucket, Rhode Island. Our executive headquarters are located at the Burlington facility, along with our research and development and our device manufacturing operations. We own a 33,000 square foot building in Rhode Island, where we manufacture our 23 electrode products and conduct related research and development. We own a 17,500 square foot building in Boulder, Colorado where our data management software business offices are located. We lease approximately 90,000 square feet of office and assembly space in Burlington under a lease expiring in August 2003, and 2,685 square feet of office space in Vancouver, British Columbia, under a lease expiring in 2002. We also have administrative offices in Manchester, England, Dodewaard, The Netherlands, Cologne, Germany, and in Mississauga, Canada. ITEM 3. LEGAL PROCEEDINGS In the course of normal operations, we are involved in litigation arising from commercial disputes, claims of former employees, and other matters. We do not believe any of these current claims will have a material impact on our financial position or results of operations. 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER Not Applicable. EXECUTIVE OFFICERS OF REGISTRANT Name Age Position - ------------------ ------- ------------------------------------------------- Richard A. Packer 43 Chairman, Chief Executive Officer and President A. Ernest Whiton 39 Vice President of Administration and Chief Financial Officer Steven K. Flora 49 Vice President, North American Sales E.J. Jones 58 Vice President, International Sales Donald R. Boucher 48 Vice President, Research and Development Ward M. Hamilton 53 Vice President, Marketing John P. Bergeron 48 Vice President and Corporate Treasurer Mr. Packer joined the Company in 1992 and in November 1999, was appointed Chief Executive Officer. Mr. Packer served as President, Chief Operating Officer and director from May 1996 to his appointment as CEO. Since 1992 he has served as Chief Financial Officer and Vice President of Operations of the Company. Prior to this time, Mr. Packer served from 1987 to 1992 as Vice President of various functions for Whistler Corporation, a consumer electronics company. Prior to this, Mr. Packer was a manager with the consulting firm of PRTM/KPMG, specializing in operations of high technology companies. Mr. Packer has received B.S. and M. Eng. degrees from the Rensselaer Polytechnic Institute and a M.B.A. from the Harvard Graduate School of Business Administration. Mr. Whiton joined the Company as Vice President of Administration and Chief Financial Officer in January 1999. Prior to joining the Company, Mr. Whiton was Vice President and Chief Accounting Officer of Ionics, Inc., a global separations technology company, which he joined in 1993. Prior to Ionics, he was a manager at Price Waterhouse. Mr. Whiton has received a B.S. in Accounting from Bentley College and a M.B.A. from the Harvard Graduate School of Business Administration. Mr. Flora joined the Company as Vice President of North American Sales in September 1999. Prior to joining the Company, Mr. Flora served from 1981 to 1998 in various positions with Marquette Medical systems, a manufacturer of cardiovascular and physiological monitoring systems, most recently as Vice President of Sales. Mr. Flora received his B.S. in Biology from the University of Illinois. Mr. Jones joined the Company as Vice President of International Sales in November 1999. Prior to joining the Company, Mr. Jones was Vice President of Operations with Apple Medical Corporation. He also spent 15 years with Millipore Corporation, holding various positions in Domestic and International Sales. Mr. Jones holds a B.S. in Microbiology/Biochemistry from the University of Illinois and is a graduate of the Advanced Management Program (AMP) from the Harvard Graduate School of Business Administration. Mr. Boucher joined the Company as Vice President of Research and Development in December 1993. Prior to joining the Company, Mr. Boucher served from 1977 to 1993, with Corometrics Medical Systems, Inc., a manufacturer of fetal and neonatal monitors, most recently as Vice President of Engineering. Mr. Boucher received a M.B.A. from the University of Connecticut, an M.S.E. in bioengineering from the University of Pennsylvania, and a B.S. in engineering from Northeastern University. 25 Mr. Hamilton joined the Company as Vice President of Marketing in February 1992. Prior to this time, Mr. Hamilton served from 1985 to 1991 as Director of New Business Development and Director of Marketing for ACLS products for Laerdal Medical Corporation, a manufacturer of portable automated defibrillators, and from 1977 to 1985 as Marketing Manager for defibrillators and noninvasive blood pressure monitors for Datascope Corporation. Mr. Hamilton received a B.A. in political science from Hartwick College and an M.P.A. in public administration from the University of Southern California. Mr. Bergeron joined the Company as Vice President and Corporate Treasurer in August 2000. Prior to joining the Company, Mr. Bergeron was Vice President at Ionics Corporation, a global separations technology company, where he also served as Corporate Treasurer and Tax Director. Prior to joining Ionics in 1988, Mr. Bergeron served in a variety of tax positions at other multinational corporations. Mr. Bergeron received a B.B.A. from the University of Massachusetts at Amherst and a M.S. in Taxation from Bentley College. 26 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information regarding the market price of Common Stock appearing under the caption "Market for Registrant's Common Equity and Related Stockholder Matters" on page 24 of the Company's 2000 Annual Report ("Annual Report") is incorporated herein by this reference. The Company has never declared or paid cash dividends on its capital stock. The Company currently intends to retain any future earnings to finance the growth and development of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. As of September 30, 2000, there were 102 stockholders of record of the Company's Common Stock. The Company believes there were substantially in excess of 4,500 beneficial holders of the Common Stock. ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data set forth under the caption "Five Year Financial Summary" on page 8 of the Annual Report are incorporated herein by this reference and are qualified in their entirety by reference to the more fully detailed consolidated financial statements and the report of the independent auditors thereon which are included in the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 9 through 10 of the Annual Report is incorporated herein by this reference and should be read in conjunction with "Business" (Item 1) "Selected Consolidated Financial Data" (Item 6). Except for the historical information contained herein and the above referenced "Management's Discussion and Analysis of Financial Condition and Results of Operations," the matters set forth herein and herein are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements set forth our current view with respect to future events and are based on assumptions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements. Such risks and uncertainties include, but are not limited to: product demand and market acceptance risks, the effect of economic conditions, results of pending or future litigation, the impact of competitive products and pricing, product development and commercialization, technological difficulties, the government regulatory environment and actions, trade environment, capacity and supply constraints or difficulties, the results of financing efforts, actual purchases under agreements, those risk and uncertainties set forth above under "Risk Factors", and the effect of the Company's accounting policies and those risk and uncertainties set forth. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have cash equivalents and marketable securities that primarily consist of U.S. Treasuries, short-term repurchase agreements, and asset-backed corporate securities. The majority of these investments have maturities within one year, with 25% to 35% maturing in one to five years. We believe that our exposure to 27 interest rate risk is minimal due to the short-term nature of our investments and that fluctuations in interest rates would not have a material adverse effect on our results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, Notes thereto, Independent Auditors Report and Quarterly Financial Data (Unaudited) on pages 11 through 24 of the Annual Report and listed below in item 14 are incorporated herein by this reference. ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information appearing in our Proxy Statement for our 2001 Annual Meeting of Stockholders (the "Proxy Statement") under the caption "Proposal I - Election of a Class of Directors" is incorporated herein by this reference. Information regarding Executive Officers of the Company called for by Item 10 is set forth at the end of Part I of this Report under the caption "Executive Officers of Registrant." ITEM 11. EXECUTIVE COMPENSATION The information appearing in the Proxy Statement under the captions "Proposal I - - Election of a Class of Directors" and "Executive Compensation" is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing in the Proxy Statement under the captions "Proposal I - - Election of a Class of Directors" and "Other Matters - Principal Stockholders" is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing in the Proxy Statement under the captions "Proposal I - - Election of a Class of Directors" and "Certain Relationships" is incorporated herein by this reference. PART IV 28 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following Consolidated Financial Statements, Notes thereto and Independent Auditors' Report on pages 11 through 24 of the Annual Report are incorporated by reference in Item 8: Report of Independent Auditors Consolidated Balance Sheets Consolidated Income Statements Consolidated Statements of Stockholders' Equity and Comprehensive Income Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a)(2) The following Consolidated Financial Statement Schedule is included herein: Schedule II - Valuation Accounts S-1 All other schedules have been omitted since the required information is not presented, the amounts are not sufficient to require submission of the schedules or because the information is included in the consolidated financial statements. (a)(3) The following is a complete list of Exhibits filed or incorporated by reference as part of this Report: 3.1 Restated Articles of Organization.* 3.2 Amended and Restated By-laws.* 3.3 Shareholders Rights Plan**** 10.1 1992 Stock Option Plan.* 10.2 1983 Incentive Stock Option Plan, as amended and restated February 6, 1990.* 10.3 Revolving Loan and Security Agreement dated March 9, 1992 between the Company and Brown Brothers Harriman & Co.* 10.4.1 License Agreement dated as of November 21, 1984 between the Company and S&W Medico Teknik A/S.* 10.4.2 License Agreement dated as of April 8, 1987 between the Company and S&W Medico Teknik A/S.* 10.4.3 Amendment to License Agreement dated January 1, 1990 between the Company and S&W Medico Teknik A/S.* 10.5 Stock Purchase Agreement dated July 1, 1985, as amended as of May 24, 1991, among the Company and certain purchasers of the Company's Common Stock and Preferred Stock.* 10.8 Distributorship Agreement dated as of June 15, 1992 between the Company and Fukuda Denshi Co., Ltd.* 10.10 Employment Agreement dated July 19, 1996 between the Company and Richard A. Packer regarding Mr. Packer's employment. ** 10.11 Non Employee Directors' Stock Option Plan***** 10.12 Senior Executive Severance Agreement dated January 21, 2000 between the Company and Richard A. Packer.*** 10.13 Executive Severance Agreement dated January 26, 2000 between the Company and A. Ernest Whiton.*** 13.1 Portions of the Annual Report incorporated by reference.*** 21.1 Subsidiaries of the Company.*** 23.1 Consent of Ernst & Young LLP.*** 27.1 Financial Data Schedule for 2000 *** 29 A report on Form 8-K was filed by the Company on September 15, 2000 regarding the change of it's fiscal year to end on the Sunday closest to September 30 beginning in fiscal year 2001. * Incorporated by reference from the Company's Registration Statement on Form S-1, as amended, under the Securities Act of 1933 (Registration Statement No. 33-47937). ** Incorporated by reference from the Company's Annual Report for 1996 Form 10-K, as amended, filed with the Securities and Exchange Commission on December 27, 1996. *** Filed herewith. **** Incorporated by reference from the Company's 8-K filed with the Securities and Exchange Commission on June 11, 1998. ***** Incorporated by reference from the Company's Registration Statement on Form S-8, under the Securities Act of 1933 (Registration Statement No. 33-368401). 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 29, 2000. ZOLL MEDICAL CORPORATION By: /s/ Richard A. Packer --------------------------------------------- Richard A. Packer Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Richard A. Packer Chairman, Chief Executive Officer and December 29, 2000 - ------------------------------------ President (Principal Executive Officer) Richard A. Packer /s/ A. Ernest Whiton Chief Financial Officer (Principal December 29, 2000 - ------------------------------------ Financial and Accounting Officer) A. Ernest Whiton /s/ Willard M. Bright Director December 29, 2000 - ------------------------------------ Willard M. Bright /s/ Thomas M. Claflin, II Director December 29, 2000 - ------------------------------------ Thomas M. Claflin, II /s/ Dr. James W. Biondi Director December 29, 2000 - ------------------------------------ Dr. James W. Biondi /s/ M. Stephen Heilman, M.D. Director December 29, 2000 - ------------------------------------ M. Stephen Heilman, M.D. /s/ Daniel M. Mulvena Director December 29, 2000 - ------------------------------------ Daniel M. Mulvena /s/ Benson F. Smith Director December 29, 2000 - ------------------------------------ Benson F. Smith
31 FINANCIAL STATEMENT SCHEDULE PAGE S-1 EXHIBIT INDEX 3.1 Restated Articles of Organization.* 3.2 Amended and Restated By-laws.* 3.3 Shareholders Rights Plan**** 10.1 1992 Stock Option Plan.* 10.2 1983 Incentive Stock Option Plan, as amended and restated February 6, 1990.* 10.3 Revolving Loan and Security Agreement dated March 9, 1992 between the Company and Brown Brothers Harriman & Co.* 10.4.1 License Agreement dated as of November 21, 1984 between the Company and S&W Medico Teknik A/S.* 10.4.2 License Agreement dated as of April 8, 1987 between the Company and S&W Medico Teknik A/S.* 10.4.3 Amendment to License Agreement dated January 1, 1990 between the Company and S&W Medico Teknik A/S.* 10.5 Stock Purchase Agreement dated July 1, 1985, as amended as of May 24, 1991, among the Company and certain purchasers of the Company's Common Stock and Preferred Stock.* 10.8 Distributorship Agreement dated as of June 15, 1992 between the Company and Fukuda Denshi Co., Ltd.* 10.10 Employment Agreement dated July 19, 1996 between the Company and Richard A. Packer regarding Mr. Packer's employment.** 10.11 Non Employee Directors' Stock Option Plan***** 10.12 Senior Executive Severance Agreement dated January 21, 2000 between the Company and Richard A. Packer.*** 10.13 Executive Severance Agreement dated January 26, 2000 between the Company and A. Ernest Whiton.*** 13.1 Portions of the Annual Report incorporated by reference.*** 21.1 Subsidiaries of the Company.*** 23.1 Consent of Ernst & Young LLP.*** 27.1 Financial Data Schedule for 2000. *** A report on Form 8-K was filed by the Company on September 15, 2000 regarding the change of it's fiscal year to end on the Sunday closest to September 30 beginning in fiscal year 2001. * Incorporated by reference from the Company's Registration Statement on Form S-1, as amended, under the Securities Act of 1933 (Registration Statement No. 33-47937). ** Incorporated by reference from the Company's Annual Report for 1996 Form 10-K, as amended, filed with the Securities and Exchange Commission on December 27, 1996. *** Filed herewith. **** Incorporated by reference from the Company's 8-K filed with the Securities and Exchange Commission on June 11, 1998. ***** Incorporated by reference from the Company's Registration Statement on Form S-8, under the Securities Act of 1933 (Registration Statement No. 33-368401). 32 S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Charged Balance to Costs Beginning of and Balance At Classifications Period Expenses Deductions End of Period - ---------------------------------------------------------------- -------------- --------------- ----------------- Year Ended September 30, 2000 Allowance for doubtful accounts $2,096,000 $302,000 $503,000 $1,895,000 =============== ============== =============== ================= Year Ended October 2, 1999 Allowance for doubtful accounts $940,000 $1,294,000 $138,000 $2,096,000 =============== ============== =============== ================= Year Ended September 26, 1998 Allowance for doubtful accounts $1,209,000 $244,000 $513,000 $940,000 =============== ============== =============== =================
EX-10.12 2 b37665zoex10-12.txt SENIOR EXECUTIVE SEVERANCE AGMT. - RICHARD PACKER 1 Exhibit 10.12 SENIOR EXECUTIVE SEVERANCE AGREEMENT AGREEMENT made as of this 21 day of January, 2000 by and between Zoll Medical Corporation, a Massachusetts corporation with its principal place of business in Burlington, Massachusetts (the "Company"), and Richard A. Packer of Westborough, Massachusetts (the "Executive"). 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the uncertainty and questions which may arise among management in connection with a Change in Control (as defined in Section 2 hereof) may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have occurred in any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities") or (B) the then outstanding shares of Stock of the Company (in either such case other than as a result of an acquisition of securities directly from the Company); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered as Incumbent Director provided, however, that there shall be excluded for consideration as Incumbent Director any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of 2 directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board of Directors; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50% of the voting shares 2 of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Stock or other Voting Securities outstanding, increases (x) the proportionate number of shares of Stock beneficially owned by any person to 25% or more of the shares of Stock then outstanding or (y) the proportionate voting power represented by the Voting Securities beneficially owned by any person to 25% or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional shares of Stock or other Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3. TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason; or (b) termination by the Executive of the Executive's employment with the Company for any reason. 4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within thirty-six (36) months after a Change in Control: (a) the Company shall pay to the Executive an amount equal to two and one-half (2.5) times the sum of (i) the Executive's base salary immediately prior to the Terminating 3 Event (or immediately prior to the Change in Control, if higher) and (ii) the Executive's most recent bonus paid prior to the Change in Control, payable in one lump-sum payment on the Date of Termination; (b) the Company shall continue to provide health and dental insurance coverage to the Executive, on the same terms and conditions as though the Executive had remained an active employee, for thirty (30) months after the Terminating Event; and (c) the Company shall pay to the Executive all reasonable legal and arbitration fees and expenses incurred by the Executive in obtaining or enforcing any right or benefit provided by this Agreement, except in cases involving frivolous or bad faith litigation. 5. ADDITIONAL BENEFITS (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Severance Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Severance Payments, any Federal, state and local income tax, employment tax and Excise Tax upon the payment provided by this subsection, and any interest and/or penalties assessed with respect to such Excise Tax, shall be equal to the Severance Payments. 3 (b) Subject to the provisions of Section 5(c), all determinations required to be made under this Section 5, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Ernst & Young LLP or any other nationally recognized accounting firm selected by the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. The initial Gross-Up Payment, if any, as determined pursuant to this Section 5(b), shall be paid to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Company shall furnish the Executive with an opinion of the Accounting Firm that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 5(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, consistent with the calculations required to be made hereunder, and any such Underpayment, and any interest and penalties imposed on the Underpayment and required to be paid by the Executive in connection with the proceedings described in Section 5(c), shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. Such notification shall be given as soon as practicable but no later than thirty (30) business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company, (iii) cooperate with the Company in good faith in order to contest effectively such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 5(c), the Company shall control all proceedings taken in connection 5 with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any 4 administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 5(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 5(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon by the Internal Revenue Service or any other taxing authority after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 5(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 6. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earlier of (a) the resignation or termination of the Executive for any reason prior to a Change in Control, or (b) the date which is thirty-six (36) months after a Change in Control if the Executive is still employed by the Company. 7. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 8. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 8. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the Date of Termination. (b) Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean 30 days after the Notice of Termination is given (provided, that if the Executive's employment is terminated for disability, the Executive shall not have returned to the full-time performance of the Executive's duties during such 30-day period). In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a Terminating Event for purposes of Section 3(a) of this Agreement. (c) No Mitigation. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Sections 4(a), (b) and (c) hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or 5 otherwise. (d) Settlement and Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled exclusively by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Company, one by the Executive and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association for commercial arbitrations, except with respect to the selection of arbitrators which shall be as provided in this Section 8(d). Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9. SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Section 4(a), (b) and (c) of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). 10. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 12. NOTICES. Any notices, requests, demands and other communications provided for by this agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 13. EFFECT ON OTHER PLANS. An election by the Executive to resign after a Change in Control under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company's benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies except as otherwise provided in Section 5 hereof, and except that the Executive shall have no rights to any severance benefits under any severance pay plan. 14. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 15. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts . 16. OBLIGATIONS OF SUCCESSORS. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 17. CONFIDENTIAL INFORMATION. The Executive shall never use, publish or disclose in a manner adverse to the Company's interests, any proprietary or confidential information relating to (a) the business, operations or 6 properties of the Company or any subsidiary or other affiliate of the Company, or (b) any materials, processes, business practices, technology, know-how, research, programs, customer lists, customer requirements, or other information used in the manufacture, sale or marketing of any of the respective products or services of the Company or any subsidiary or other affiliate of the Company; provided, however, that no breach or alleged breach of this Section 17 shall entitle the Company to fail to comply fully and in a timely manner with any other provision hereof. Nothing in this Agreement shall preclude the Company from seeking money damages, or equitable relief by injunction or otherwise without the necessity of proving actual damage to the Company, for any breach by the Executive hereunder. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by its duly authorized officer, and by the Executive, as of the date first above written. ZOLL MEDICAL CORPORATION By: /s/ Daniel M. Mulvena ----------------------------------------- Name: Daniel M. Mulvena Title: Chairman, Compensation Committee /s/ Richard A. Packer ----------------------------------------- Richard A. Packer EX-10.13 3 b37665zoex10-13.txt EXECUTIVE SEVERANCE AGREEMENT - ERNEST WHITON 1 Exhibit 10.13 EXECUTIVE SEVERANCE AGREEMENT AGREEMENT made as of this day of January 26, 2000 by and between Zoll Medical Corporation, a Massachusetts corporation with its principal place of business in Burlington, Massachusetts (the Company"), and A. Ernest Whiton of Middleton, Massachusetts (the "Executive"). 1. PURPOSE. The Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. The Board of Directors of the Company (the "Board") recognizes, however, that, as is the case with many publicly held corporations, the uncertainty and questions which may arise among management in connection with a Change in Control (as defined in Section 2 hereof) may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 2. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have occurred in any one of the following events: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors ("Voting Securities") or (B) the then outstanding shares of Stock of the Company (in either such case other than as a result of an acquisition of securities directly from the Company); or (b) persons who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors shall, for purposes of this Agreement, be considered as Incumbent Director provided, however, that there shall be excluded for consideration as Incumbent Director any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board of Directors; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company or any Subsidiary where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50% of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. 2 Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Stock or other Voting Securities outstanding, increases (x) the proportionate number of shares of Stock beneficially owned by any person to 25% or more of the shares of Stock then outstanding or (y) the proportionate voting power represented by the Voting Securities beneficially owned by any person to 25% or more of the combined voting power of all then outstanding Voting securities; provided, however, that if any person referred to in clause (x) or (y) of this sentence shall thereafter become the beneficial owner of any additional shares of Stock or other Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction), then a "Change in Control" shall be deemed to have occurred for purposes of the foregoing clause (a). 3.TERMINATING EVENT. A "Terminating Event" shall mean any of the events provided in this Section 3 occurring subsequent to a Change in Control as defined in Section 2: (a) termination by the Company of the employment of the Executive with the Company for any reason other than (A) a willful act of dishonesty by the Executive with respect to any material matter involving the Company or any subsidiary or affiliate, or (B) conviction of the Executive of a crime involving moral turpitude, or (C) the gross or willful failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure after Executive gives notice of termination for good reason), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; or (D) the failure by the Executive to perform his full-time duties with the Company by reason of his death, disability or retirement; provided, however, that a Terminating Event shall not be deemed to have occurred pursuant to this Section 3(a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control. For purposes of clauses (A) and (C) of this Section 3(a), no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and its subsidiaries and affiliates. For purposes of clause (D) of this Section 3(a), Section 6 and Section 8(b) hereof, "disability" shall mean the Executive's incapacity due to physical or mental illness which has caused the Executive to be absent from the full-time performance of his duties with the Company for a period of six (6) consecutive months if the Company shall have given the Executive a Notice of Termination and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of his duties. For purposes of clause (D) of this Section 3(a) and Section 6, "retirement" shall mean termination of the Executive's employment in accordance with the Company's normal retirement policy, not including early retirement, generally applicable to its salaried employees, as in effect immediately prior to the Change in Control, or in accordance with any retirement arrangement established with respect to the Executive with the Executive's express written consent; (b) termination by the Executive of the Executive's employment with the Company for Good Reason. Good Reason shall mean the occurrence of any of the following events: (i) a substantial adverse change, not consented to by the Executive, in the nature or scope of the Executive's responsibilities, authorities, powers, functions or duties from the nature or scope of the responsibilities, authorities, powers, functions or duties exercised by the Executive immediately prior to the Change in Control; or (ii) a reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all or substantially all management employees; or (iii) the relocation of the Company's offices at which the Executive is principally employed 3 immediately prior to the date of a Change in Control to a location more than 50 miles from such offices, or the requirement by the Company for the Executive to be based anywhere other than the Company's offices at such location, except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations immediately prior to the Change in Control; or (iv) the failure by the Company to pay to the Executive any portion of his compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within 15 days of the date such compensation is due without prior written consent of the Executive; or (v) the failure by the Company to obtain an effective agreement from any successor to assume and agree to perform this Agreement, as required by Section 16. 4. SEVERANCE PAYMENT. In the event a Terminating Event occurs within twelve (12) months after a Change in Control, (a) the Company shall pay to the Executive an amount equal to one (1) times the sum of (i) the Executive's base salary immediately prior to the Terminating Event (or immediately prior to the Change in Control, if higher) and (ii) the Executive's most recent bonus paid prior to the Change in Control, payable in one lump-sum payment on the Date of Termination; (b) the Company shall continue to provide health and dental insurance coverage to the Executive, on the same terms and conditions as though the Executive had remained an active employee, for twelve (12) months after the Terminating Event; and (c) the Company shall pay to the Executive all reasonable legal and arbitration fees and expenses incurred by the Executive in obtaining or enforcing any right or benefit provided by this Agreement, except in cases involving frivolous or bad faith litigation. 5. ADDITIONAL BENEFITS. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, (the "Severance Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the following provisions shall apply: (i) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes payable by the Covered Employee on the amount of the Severance Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, the Executive shall be entitled to the full benefits payable under this Agreement. (ii) If the Threshold Amount is less than (x) the Severance Payments, but greater than (y) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the benefits payable under this Agreement shall be reduced (but not below zero) to the extent necessary so that the maximum Severance Payments shall not exceed the Threshold Amount. To the extent that there is more than one method of reducing the payments to bring them within the Threshold Amount, the Executive shall determine which method shall be followed; provided that if the Executive fails to make such determination within 45 days after the Company has sent the Executive written notice of the need for such reduction, the Company may determine the amount of such reduction in its sole discretion. 4 For the purposes of this Section 5, "Threshold Amount" shall mean three times the Executive's "base amount" within the meaning of Section 280G(b)(3) of the Code and the5regulations promulgated thereunder less one dollar ($1.00); and "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, or any interest or penalties incurred by the Executive with respect to such excise tax. (b) The determination as to which of the alternative provisions of Section 5(a) shall apply to the Executive shall be made by Ernst & Young LLP or any other nationally recognized accounting firm selected by the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determining which of the alternative provisions of Section 5(a) shall apply, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. 6. TERM. This Agreement shall take effect on the date first set forth above and shall terminate upon the earlier of (a) the termination by the Company of the employment of the Executive because of (A) a willful act of dishonesty by the Executive with respect to any material matter involving the Company or any subsidiary or affiliate, or (B) conviction of the Executive of a crime involving moral turpitude, or (C) the gross or willful failure by the Executive to substantially perform the Executive's duties with the Company, or (D) the failure by the Executive to perform his full-time duties with the Company by reason of his death, disability (as defined in Section 3(a)) or retirement (as defined in Section 3(a)), (b) the resignation or termination of the Executive for any reason prior to a Change in Control, (c) the resignation of the Executive after a Change in Control for any reason other than the occurrence of any of the events enumerated in Section 3(b)(i)-(v) of this Agreement, or (d) the date which is twelve (12) months after a Change in Control if the Executive is still employed by the Company. 7. WITHHOLDING. All payments made by the Company under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law. 8. NOTICE AND DATE OF TERMINATION; DISPUTES; ETC. (a) NOTICE OF TERMINATION. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 8. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and the Date of Termination. Further, a Notice of 6 Termination pursuant to one or more of clauses (A) through (C) of Section 3(a) hereof is required to include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria set forth in one or more of clauses (A) through (C) of Section 3(a) hereof. (b) DATE OF TERMINATION. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for disability, 30 days after the Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such 30-day period) and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination. In the case of a termination by the Company other than a termination pursuant to one or more of clauses (A) through (C) of Section 3(a) (which may be effective immediately), the Date of Termination shall be 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a 5 Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a Terminating Event for purposes of Section 3(a) of this Agreement. (c) NO MITIGATION. The Company agrees that, if the Executive's employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Sections 4(a), (b) and (c) hereof. Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. (d) SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled exclusively by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Company, one by the Executive and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston. Such arbitration shall be conducted in the City of Boston in accordance with the rules of the American Arbitration Association for commercial arbitrations, except with respect to the selection of arbitrators which shall be as provided in this Section 8(d). Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9. SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executive's death after a Terminating Event but prior to the completion by the Company of all payments due him under Section 4(a), (b) and (c) of this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation). 10. ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 12. NOTICES. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors. 13. EFFECT ON OTHER PLANS. An election by the Executive to resign after a Change in Control under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company's benefit plans, programs or policies. Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company's benefit plans, programs or policies except as otherwise provided in Section 5 hereof, and except that the Executive shall have no rights to any severance benefits under any severance pay plan. 14. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company. 6 15. GOVERNING LAW. This is a Massachusetts contract and shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts . 16. OBLIGATIONS OF SUCCESSORS. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 17. CONFIDENTIAL INFORMATION. The Executive shall never use, publish or disclose in a manner adverse to the Company's interests, any proprietary or confidential information relating to (a) the business, operations or properties of the Company or any subsidiary or other affiliate of the Company, or (b) any materials, processes, business practices, technology, know-how, research, programs, customer lists, customer requirements or other information used in the manufacture, sale or marketing of any of the respective products or services of the Company or any subsidiary or other affiliate of the Company; provided, however, that no breach or alleged breach of this Section 17 shall entitle the Company to fail to comply fully and in a timely manner with any other provision hereof. Nothing in this Agreement shall preclude the Company from seeking money damages, or equitable relief by injunction or otherwise without the necessity of proving actual damage to the Company, for any breach by the Executive hereunder. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company by its duly authorized officer, and by the Executive, as of the date first above written. ZOLL MEDICAL CORPORATION By: /s/ Daniel M. Mulvena ----------------------------------------- Name: Daniel M. Mulvena Title: Chairman, Compensation Committee /s/ A. Ernest Whiton ------------------------- A. Ernest Whiton EX-13.1 4 b37665zoex13-1.txt PORTIONS OF THE ANNUAL REPORT 1 Exhibit 13 ZOLL MEDICAL CORPORATION FIVE YEAR FINANCIAL SUMMARY
YEAR ENDED SEPT. 30, OCT. 2, SEPT. 26, SEPT. 27, SEPT. 28, (000's omitted, except per share data) 2000 1999 1998 1997(1) 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Income Statement Data: Net sales $106,336 $78,682 $57,520 $57,833 $55,700 Cost of goods sold 46,351 32,486 24,268 25,372 24,545 ------------------------------------------------------------------------- Gross profit 59,985 46,196 33,252 32,461 31,155 Expenses: Selling and marketing 31,238 24,364 20,152 18,484 16,773 General and administrative 8,606 7,422 6,239 6,749 4,809 Research and development 7,973 6,916 6,583 6,430 4,464 ------------------------------------------------------------------------- Total expenses 47,817 38,702 32,974 31,663 26,046 ------------------------------------------------------------------------- Income from operations 12,168 7,494 278 798 5,109 Net investment income (expense) 1,803 (45) 413 355 278 ------------------------------------------------------------------------- Income before income taxes 13,971 7,449 691 1,153 5,387 Provision for income taxes 5,169 2,010 18 266 1,758 ------------------------------------------------------------------------- Net income $8,802 $5,439 $673 $887 $3,629 ========================================================================= Basic earnings per common share $1.11 $0.82 $0.10 $0.13 $0.55 Weighted average common shares outstanding 7,930 6,656 6,602 6,602 6,562 ------------------------------------------------------------------------- Diluted earnings per common and equivalent share $1.07 $0.79 $0.10 $0.13 $0.55 Weighted average common and equivalent shares outstanding 8,231 6,893 6,647 6,650 6,635 ========================================================================= Pro forma information(2): Historical income before taxes $7,449 Pro forma incremental operating costs 272 ------ Pro forma income before income taxes 7,177 Pro forma provision for income taxes 2,402 ------ Pro forma net income $4,775 ------ Pro forma diluted earnings per share $0.69 Balance Sheet Data: Working capital $101,991 $26,728 $21,678 $24,361 $25,303 Total assets $137,808 $59,687 $46,656 $45,013 $42,507 Total long-term debt, excluding current portion -- $2,069 $446 $565 $713 Stockholders' equity $122,416 $41,222 $34,787 $34,463 $33,614
(1) For the year ended September 27,1997, excluding a one-time charge taken in Q1 aggregating $2,300, net income would have been $2,405 and earnings per common and equivalent share would have been $0.36. (2) Pro forma information reflects the effect of (i) incremental operating costs expected to be incurred by the Company as a result of the Pinpoint merger and (ii) the provision for corporate income taxes on the previously untaxed Subchapter S corporation earnings of Pinpoint. See Note B to the consolidated financial statements. 8 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with our financial statements and related notes included herein. All prior year results have been restated to account for the Pinpoint Technologies, Inc. acquisition on October 15, 1999, as a pooling of interests. 2000 COMPARED TO 1999 Net sales reached record levels, increasing 35% from the prior year to $106.3 million, reflecting continued acceptance and increased penetration of the full featured M Series platform across each of our markets. Our continued sales growth reflects an increase in the size of the North American sales force as well as strong shipments to the International market. We experienced 30% annual sales growth over 1999 in the North American market as sales reached $84.7 million. Within North America, equipment sales to the prehospital and hospital markets increased 46% and 31%, to $27.9 million and $40.6 million, respectively. Sales in the International market increased 58% from the prior year to a record level of $21.6 million, reflecting continued widespread geographic growth. International sales in 2000 benefited from shipments related to a significant contract to provide AED's to the Germany Army. Gross margin of 56.4% decreased from 1999 reflecting volume pricing on Germany Army shipments. In addition, gross margin was also reduced as the rate of capital equipment revenue growth exceeded that of higher margin electrodes and data management products. This decrease was partially offset by increased sales of new monitoring parameters, which we have added to our M Series platform. Selling and marketing costs increased 28% over the prior year due to the increase in size of our North American and International sales forces. Selling and marketing costs as a percentage of sales decreased from 31% to 29.4%. In the North American market, sales productivity increased as a result of increasing our total number of sales people and reducing the size of individual sales territories. Our International expenses increased primarily reflecting the expansion of our direct sales force in Europe, including Germany, the Netherlands and Scotland. General and administrative expenses decreased as a percentage of sales, from 9% to 8%, due to emphasis on expense controls and absorption of relatively fixed expenses by higher sales. Research and development expenses increased 15.3% from the prior year, reflecting continued development of our cardiac resuscitation equipment. Significant initiatives included spending on our biphasic technology, new monitoring parameters for our M Series platform as well as new product development for the public access market. Research and development expenses, as a percentage of sales, decreased from 9% to 8%, reflecting our higher level of sales. We recognized net investment income in 2000 compared to net interest expense in 1999, due to the increase in average cash and investment balances from 1999 to 2000, largely reflecting investments in short-term debt and equity securities during the year. During 2000, we generated net proceeds of approximately $67 million from our secondary offering. Our effective income tax rate increased from 34% in 1999 to 37% in 2000. During 1999, our effective tax rate was reduced by the utilization of certain foreign net operating loss carryforwards. 1999 COMPARED TO 1998 Net sales increased 37% from the prior year to $78.7 million, reflecting the rapid market acceptance of the M Series platform introduced to the market during the fourth quarter of 1998. Sales growth also reflected the reorganization and enlargement of the North American sales force to allow for a market-focused structure. Selling teams were changed to focus on each of North America's markets: hospital and prehospital. We experienced significant growth in all major geographies and segments of our business. During 1999, North American sales increased 36% to $65.0 million. Within North America, equipment sales to the hospital and prehospital markets increased 55% and 28%, to $30.9 million and $19.1 million, respectively. Sales in the International market increased 39% from the prior year. Gross margin increased approximately 1% over the prior year. We experienced an improvement in costs reflecting the M Series introduction and higher margins from information management products, primarily Pinpoint products. Selling and marketing costs increased 21% over the prior year, due to the increase in size of the North American sales force. Additionally, we established a direct sales force in Germany during the fourth quarter of 1999. Selling and marketing costs as a percentage of sales decreased from 35% to 31%, reflecting revenues that increased more rapidly than these costs as a result of the reorganization of the North American sales force. General and administrative expenses decreased as a percentage of sales, from 11% to 9%, due to emphasis on expense controls and absorption of relatively fixed expenses by higher sales. Research and development expenses decreased as a percentage of sales, from 11% to 9%. Total expenses increased slower than revenues, reflecting the completion of development of the initial M Series platform and the related transfer of available resources to the biphasic project and other initiatives. We incurred net interest expense in 1999, as compared to net investment income in 1998, due to the decrease in average cash balances from 1998 to 1999. 9 3 LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents at September 30, 2000 totaled $4.0 million compared to $1.8 million at October 2, 1999. In addition, we had short-term investments amounting to $51.8 million at September 30, 2000. This significant increase in liquidity reflects the proceeds from our secondary stock offering of 1,725,000 shares of common stock during the second quarter of 2000. Cash used for operating activities totaled $7.9 million in 2000, while cash used over the same period in 1999 totaled $0.3 million. Significant uses of cash included increases in our accounts receivable and inventory levels. Both increases reflected the significant domestic and international sales growth of our Company. The increase in inventory levels reflected a dramatic increase in the number of product combinations, which our customers can now purchase as a result of our introduction of new monitoring parameters to our M Series platform. In addition, our prepaid expenses increased over the prior year, reflecting excess payments of income taxes during the year ended September 30, 2000. The amount of cash used to fund investing activities increased from the prior year by $55.9 million. This increase reflected investment of the proceeds of our secondary stock offering in short-term investments and an increase in capital expenditures. Significant capital expenditures included the purchase of our new Enterprise Wide Resource Planning (ERP) System and the expansion of our Burlington, Massachusetts factory. The increase in cash provided by financing activities of $69.4 million primarily results from our secondary stock offering and the exercise of stock options. We also used $2.2 million to repay long-term debt. We maintain a working capital line of credit with our bank. Borrowings under this line bear interest at the bank's base rate (8.59% at September 30, 2000). The full amount of the line was available to us at September 30, 2000. Currently, we may borrow up to $12.0 million on a demand basis. We expect that the combination of existing funds, cash generated from operations and our existing line of credit will be adequate to meet our operational liquidity and capital requirements for the foreseeable future. SAFE HARBOR STATEMENTS Except for the historical information contained herein, the matters set forth herein are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements. Such risks and uncertainties include, the following general risks: product demand and market acceptance risks, the effect of economic conditions, results of pending or future litigation, the impact of competitive products and pricing, product development and commercialization, technological difficulties, the government regulatory environment and actions, trade environment, capacity and supply constraints or difficulties, the results of financing efforts, actual purchases under agreements, potential warranty issues and the effect of the Company's accounting policies. In addition, we are subject to the following specific risks, which are described in greater detail in our Form 10K which we expect to file with the Securities and Exchange Commission on or about December 29, 2000. If we fail to compete successfully in the future against existing or potential competitors, our operating results may be adversely affected; our operating results are likely to fluctuate which could cause our stock price to be volatile and the anticipation of a volatile stock price can cause greater volatility. We may be required to implement a costly product recall. We can be sued for producing defective products and we may be required to pay significant amounts to those harmed if we are found liable and our business could suffer from adverse publicity. Our dependence on sole and single source suppliers exposes us to supply interruptions that could result in product delivery delays and substantial costs to redesign our products. Our reliance on independent manufacturers creates several risks that could result in product delivery delays, increased costs and other adverse effects on our business. Failure to produce new products or obtain market acceptance for our new products in a timely manner could harm our business. We may not be able to obtain appropriate regulatory approvals for our products. If we fail to comply with applicable regulatory laws and regulations, the FDA or other regulatory bodies could exercise any of their regulatory powers that could have a material adverse effect on our business. We are dependent upon licensed and purchased technology for upgradeable features in our products and we may not be able to renew these licenses or purchase agreements in the future. Future changes in applicable laws and regulations could have an adverse effect on our business. Changes in the health care industry may require us to decrease the selling price for our products or could result in a reduction in the size of the market for our products, each of which could have a negative impact on our financial performance. Uncertain customer decision processes may result in long sales cycles which could result in unpredictable fluctuations in revenues and delays in replacement of cardiac resuscitation devices. Our international sales expose our business to a variety of risks that could result in significant fluctuations in our results of operations. Fluctuations in currency exchange rates may adversely affect our international sales. We may fail to adequately protect or enforce our intellectual property rights or secure rights to third party patents, and our competitors can use some of our previously proprietary technology. Reliance on overseas vendors for some of the components for our products exposes us to international business risks, which could have an adverse effect on our business. We rely heavily on several employees who may leave, and tight labor markets may make it difficult to recruit employees. We may acquire other businesses and we may have difficulty integrating these businesses or generating an acceptable return from acquisitions. Provisions in our charter documents, our stockholders rights agreement and state law may make it harder for others to obtain control of ZOLL even though some stockholders might consider such a development to be favorable. We have only one manufacturing facility for each of our major products and any damage or incapacitation of either of the facilities could impede our ability to produce these products. Our current and future investments may lose value in the future. We may experience short-term operating fluctuations as we introduce our new biphasic technology. 10 4 REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS AND STOCKHOLDERS ZOLL MEDICAL CORPORATION We have audited the accompanying consolidated balance sheets of ZOLL Medical Corporation as of September 30, 2000 and October 2, 1999, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ZOLL Medical Corporation at September 30, 2000 and October 2, 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. [ERNST & YOUNG LLP] November 11, 2000 Boston, Massachusetts 11 5 ZOLL MEDICAL CORPORATION CONSOLIDATED BALANCE SHEETS
SEPT. 30, OCT. 2, (000's omitted) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $4,025 $1,821 Marketable securities 51,823 -- Accounts receivable, less allowances of $1,895 at September 30, 2000 and $2,096 at October 2, 1999 37,325 25,464 Inventories: Raw materials 7,762 5,332 Work-in-process 2,749 2,623 Finished goods 9,787 5,241 -------------------------- 20,298 13,196 Prepaid expenses and other current assets 3,489 2,296 -------------------------- Total current assets 116,960 42,777 Property and equipment at cost: Land and building 3,434 3,432 Machinery and equipment 18,247 15,382 Construction in progress 1,647 1,077 Tooling 5,268 2,695 Furniture and fixtures 1,203 883 Leasehold improvements 1,194 737 -------------------------- 30,993 24,206 Less accumulated depreciation 14,647 10,875 -------------------------- Net property and equipment 16,346 13,331 Other assets, net of accumulated amortization of $1,011 at September 30, 2000 and $711 at October 2, 1999 4,502 3,579 -------------------------- $137,808 $59,687 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $8,140 $8,404 Accrued expenses and other liabilities 6,809 7,481 Current maturities of long-term debt 20 164 -------------------------- Total current liabilities 14,969 16,049 Deferred income taxes 423 347 Long-term debt -- 2,069 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, authorized 1,000 shares, none issued and outstanding Common stock, $.02 par value, authorized 19,000 shares, 8,798 and 6,772 issued and outstanding at September 30, 2000 and October 2, 1999, respectively 176 136 Capital in excess of par value 94,799 22,439 Accumulated other comprehensive income 177 -- Retained earnings 27,264 18,647 -------------------------- Total stockholders' equity 122,416 41,222 -------------------------- $137,808 $59,687 ==========================
See notes to consolidated financial statements. 12 6 ZOLL MEDICAL CORPORATION CONSOLIDATED INCOME STATEMENTS
YEAR ENDED SEPT. 30, OCT. 2, SEPT. 26, (000's omitted, except per share data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $106,336 $78,682 $57,520 Cost of goods sold 46,351 32,486 24,268 ------------------------------------------------ Gross profit 59,985 46,196 33,252 Expenses: Selling and marketing 31,238 24,364 20,152 General and administrative 8,606 7,422 6,239 Research and development 7,973 6,916 6,583 ------------------------------------------------ Total expenses 47,817 38,702 32,974 ------------------------------------------------ Income from operations 12,168 7,494 278 Investment income 2,015 124 487 Interest expense 212 169 74 ------------------------------------------------ Income before income taxes 13,971 7,449 691 Provision for income taxes 5,169 2,010 18 ------------------------------------------------ Net income $8,802 $5,439 $673 ================================================ Basic earnings per common share $1.11 $0.82 $0.10 Weighted average common shares outstanding 7,930 6,656 6,602 ------------------------------------------------ Diluted earnings per common and equivalent share $1.07 $0.79 $0.10 Weighted average common and equivalent shares outstanding 8,231 6,893 6,647 ================================================ Unaudited pro forma information (Note B): Historical income before taxes $7,449 Pro forma incremental operating expenses 272 ------ Pro forma income before income taxes 7,177 Pro forma provision for income taxes 2,402 ------ Pro forma net income $4,775 ------ Pro forma diluted earnings per share $0.69 ======
See notes to consolidated financial statements. 13 7 ZOLL MEDICAL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
CAPITAL IN ACCUMULATED TOTAL COMMON EXCESS OF COMPREHENSIVE RETAINED STOCKHOLDERS' (000's omitted) SHARES AMOUNT PAR VALUE INCOME EARNINGS EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Balance at September 27, 1997 6,561 $131 $20,635 -- $13,697 $34,463 Issuance of common stock by Pinpoint Technologies, Inc 41 1 48 49 Adjustments to conform to pooled companies fiscal year-ends (140) (140) Distributions by Pinpoint Technologies, Inc (258) (258) Net income 673 673 -------------------------------------------------------------------------------- Balance at September 26, 1998 6,602 132 20,683 -- 13,972 34,787 Exercise of stock options 147 3 1,129 1,132 Tax benefit realized upon exercise of stock options 628 628 Initial capitalization of Pinpoint Property Management, LLC 23 1 (1) -- Contributions by Pinpoint Technologies, Inc shareholders 550 550 Distributions by Pinpoint Technologies, Inc (1,314) (1,314) Net income 5,439 5,439 -------------------------------------------------------------------------------- Balance at October 2, 1999 6,772 136 22,439 -- 18,647 41,222 Exercise of stock options 298 6 2,143 2,149 Tax benefit realized upon exercise of stock options 3,096 3,096 Stock compensation 3 77 77 Proceeds from sale of common stock, net of expenses 1,725 34 67,044 67,078 Distributions by Pinpoint Technologies, Inc (185) (185) Comprehensive income: Net income 8,802 8,802 Unrealized gain on available-for-sale securities $177 177 -------- Total Comprehensive income 8,979 -------------------------------------------------------------------------------- Balance at September 30, 2000 8,798 $176 $94,799 $177 $27,264 $122,416 ================================================================================
14 8 ZOLL MEDICAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPT. 30, OCT. 2, SEPT. 26, (000's omitted) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Activities: Net income $8,802 $5,439 $673 Charges not affecting cash: Depreciation and amortization 4,283 3,035 1,478 Issuance of common stock for services 77 -- 49 Accounts receivable allowances (201) 1,294 243 Inventory reserve 372 129 53 Provision for warranty expense 178 180 (43) Deferred income taxes 195 (339) 188 Changes in current assets and liabilities: Accounts receivable (11,660) (12,129) 114 Inventories (7,474) (3,920) (1,982) Prepaid expenses and other current assets (1,312) 1,358 (1,715) Accounts payable and accrued expenses (1,114) 4,686 1,212 -------------------------------------------------- Cash provided by (used for) operating activities (7,854) (267) 270 Investing Activities: Additions to property and equipment, net (7,006) (3,530) (4,493) Purchase of marketable securities (59,646) (419) (2,675) Proceeds from sales and maturities of marketable securities 8,000 419 2,953 Other assets, net (1,215) (402) (62) Acquisition of assets from Westech Information Systems, Inc. -- -- (3) -------------------------------------------------- Cash used for investing activities (59,867) (3,932) (4,280) Financing Activities: Proceeds from sale of common stock, net of expenses 67,078 -- -- Exercise of stock options, including income tax benefits 5,245 1,760 -- Distributions to stockholders (185) (1,314) (258) Contributions from stockholders -- 550 -- Repayment of long-term debt (2,213) (497) (127) -------------------------------------------------- Cash provided by (used for) financing activities 69,925 499 (385) -------------------------------------------------- Net increase (decrease) in cash 2,204 (3,700) (4,395) Cash and cash equivalents at beginning of year 1,821 5,521 9,916 -------------------------------------------------- Cash and cash equivalents at end of year $4,025 $1,821 $5,521 ==================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year: Income taxes $4,243 $555 $1,002 Interest 212 169 74 Non-cash transaction: Long-term debt incurred in purchase of assets -- $1,800 --
See notes to consolidated financial statements. 15 9 ZOLL MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A-SIGNIFICANT ACCOUNTING POLICIES Description of Business: ZOLL Medical Corporation (the Company) designs, manufactures and markets an integrated line of proprietary, non-invasive cardiac resuscitation devices, disposable electrodes and accessories used for the emergency resuscitation of cardiac arrest victims. The Company also designs and markets software, which automates collection and management of both clinical and non-clinical data for emergency medical service providers. Business Combination: As described in Note B, on October 15, 1999, the Company acquired Pinpoint Technologies, Inc. and Pinpoint Property Management LLC (Pinpoint, individually and collectively) in a business combination accounted for as a pooling of interests. The accompanying consolidated financial statements reflect the combined historical results of the Company and of Pinpoint for the periods ended October 2, 1999 and September 26, 1998. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Fiscal Year: The Company's fiscal year ends on the Saturday closest to September 30. The year ended October 2, 1999 included 53 weeks and the years ended September 30, 2000 and September 26, 1998 included 52 weeks. In October of 2000 the Company changed its fiscal year end to the Sunday closest to September 30. Cash and Cash Equivalents: The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Substantially all cash and cash equivalents are invested in a money market investment account. These amounts are stated at cost, which approximates market. Marketable Securities: The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115). FAS 115 establishes the accounting and reporting requirements for all debt securities and for investments in equity securities that have readily determinable fair values. All marketable securities must be classified as one of the following: held-to-maturity, available-for-sale, or trading. The Company classifies its marketable securities as available-for-sale and, as such, carries the investments at fair value, with unrealized holding gains and losses reported as a separate component of stockholders' equity. Concentration of Risk: The Company sells its products primarily to hospitals, emergency care providers and universities. The Company performs periodic credit evaluations of its customers' financial condition and does not require collateral. In addition, the Company sells its products to the international market. Although the Company does not foresee a credit risk associated with these receivables, repayment is dependent upon the financial stability of the national economies of the customers to which it sells. In order to hedge the risk of loss in geographical areas with historical credit risks, in some cases the Company requires letters of credit from its foreign customers. Export sales accounted for 26%, 19% and 18% of the Company's total revenues in 2000, 1999, and 1998, respectively. The Company maintains reserves for potential trade receivable credit losses, and such losses have been within management's expectations. Certain materials and components used in the Company's devices and electrodes are purchased from various single sources. Although the Company believes that alternative sources of supply for such materials and components could be developed over a relatively short period of time, the failure to secure such alternative sources when needed could have a material adverse effect on the Company's business. Financial Instruments: The fair value of the Company's financial instruments, which include cash and cash equivalents, marketable securities, accounts receivable, and accounts payable, are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. The carrying value of these financial instruments approximated their fair value at September 30, 2000 and at October 2, 1999 due to the short-term nature of these instruments. Inventories: Inventories, principally purchased parts, are valued at the lower of first-in, first-out (FIFO) cost or market. Market is replacement value for raw materials and net realizable value, after allowance for estimated costs of completion and disposal, for work-in-process and finished goods. Intangible Assets: Patents are stated at cost and amortized using the straight-line method over five years. Prepaid license fees are amortized over the term of the related contract, once commercialization of the related product begins. The excess of cost over fair value of the acquired net assets of the mobile computing business of Westech Information Systems, Inc. is amortized on a straight-line basis over 15 years. The acquisition was accounted for as a purchase, and the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. Property and Equipment: Property and equipment are stated at cost. In general, depreciation is computed on a straight-line basis over the estimated economic useful lives of the assets (forty years for buildings, three to ten years for machinery and equipment and five years for tooling, furniture, fixtures, and software). Leasehold improvements are being amortized over the life of the related lease. Revenue Recognition: Revenue from product sales is recognized upon shipment of the product and recorded net of estimated returns. The Company licenses software under non-cancelable license agreements and provides services including training, installation, consulting and maintenance, consisting of product support services and periodic updates. Revenue from the sale of software is recognized in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition. License fee revenues are generally recognized when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. For customer license agreements, which meet these recognition criteria, the portion of the fees related to software licenses will generally be recognized in the current period, while the portion of the fees related to services is recognized as the services 16 10 are performed. The Company allocates a portion of contractual license fees to post-contract support activities covered under the contract including first year maintenance, installation assistance and limited training services. In addition, the Company also allocates a portion of the contractual license fees to future unspecified upgrade rights. Revenues from maintenance agreements and upgrade rights are recognized ratably over a three-month period, and a one-year period, respectively. Advertising Costs: Advertising costs are expensed as incurred and totaled $757,000, $481,000 and $409,000 in 2000, 1999 and 1998 respectively. Product Warranty: Expected future product warranty costs, included in accrued expenses and other liabilities, are recognized at the time of sale for all products covered under warranty. Warranty periods range from one to five years. Foreign Currency: The financial position and results of operations of the company's foreign subsidiaries are measured using the U.S. dollar as the functional currency. All material translation and transaction gains and losses are recorded in the income statement. Earnings Per Share: In 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," which requires the presentation of basic and diluted earnings per share amounts. All periods presented have been restated to reflect adoption of this statement. The shares used for basic earnings per common share and diluted earnings per common share are reconciled as follows:
(000's omitted) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Average shares outstanding for basic earnings per share 7,930 6,656 6,602 Dilutive effect of stock options 301 237 45 --------------------------------------------- Average shares outstanding for diluted earnings per share 8,231 6,893 6,647 =============================================
Reclassifications: Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 2000 presentation. Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock Option Plans: As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company measures compensation expense for its stock-based compensation plans using the intrinsic method prescribed by Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees." In accordance with SFAS 123, the Company has provided, in Note J, the pro forma disclosures of the effect on net income and earnings per share as if SFAS 123 had been applied in measuring compensation expense for all periods presented. Segment Reporting: Effective October 2, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS 131). This statement supersedes Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for disclosures about products and services, geographic areas and major customers. The adoption of SFAS 131 did not affect results of operations or financial position, but did affect the disclosure of segment information (see Note L). Comprehensive Income: The Company computes comprehensive income in accordance with Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources, such as unrealized gains and losses on available-for-sale securities. Comprehensive income was equal to net income for the years ended October 2, 1999 and September 26, 1998 since there were no other elements of comprehensive income. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities," which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133, effective for years beginning after June 15, 2000, is not expected to have a material effect on the Company's financial statements. In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, which must be adopted no later than the fourth fiscal quarter of the fiscal year beginning after December 15, 1999. The Company is currently evaluating the effects of implementing this SAB, but it is not expected to have a material effect on the Company's financial statements. 17 11 In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25). Interpretation 44 clarifies guidance for certain issues that arose in the application of APB 25. Areas of focus within Interpretation 44 include repricings, modifications to extend the option term, change of grantee status, modifications to accelerate vesting and options exchanged in a purchase business combination. Interpretation 44 will be applied prospectively to new awards, modifications to outstanding awards, and changes in employee status on or after October 1, 2000. NOTE B-MERGER On October 15, 1999, the Company acquired Pinpoint in a business combination accounted for as a pooling of interests. Pinpoint, which creates, develops and manufactures advanced information technology software, exclusively focused on the emergency medical services (EMS) market, became a wholly owned subsidiary of the Company through the exchange of approximately 433,000 shares of the Company's common stock for all of the outstanding stock of Pinpoint. In January 1999, Pinpoint distributed cash to the stockholders of Pinpoint. All of the cash distributed was contributed to newly formed Pinpoint Property Management LLC, and used to fund the equity needed to acquire an office building (see Note G). Summarized results of operations of the separate companies for the preceding two years are as follows (in thousands):
ZOLL PINPOINT COMBINED - ------------------------------------------------------------------------------------------------------------------------------------ Year ended October 2, 1999 Net sales $73,977 $4,705 $78,682 Net income 4,081 1,358 5,439 Year ended September 26, 1998 Net sales $55,080 $2,440 $57,520 Net income 43 630 673
An adjustment of $140,000 is reflected in the consolidated Statements of Stockholders' Equity to eliminate the effect of including Pinpoint's results of operations for the three months ended December 31, 1997, in both the years ended September 27, 1997 and September 26, 1998. The following unaudited pro forma information has been prepared assuming Pinpoint had been acquired as of the beginning of the periods presented. The pro forma information is presented for informational purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of those dates. In addition, the pro forma information is not intended to be a projection of future results and does not reflect synergies resulting from the integration of Pinpoint and the Company's Westech business.
(000's omitted, except per share data) 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $78,682 Net income $4,775 Basic earnings per common share $0.72 Diluted earnings per common share $0.69
The following table reconciles the combined net income of the Company and Pinpoint to the pro forma net income:
(000's omitted) 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Combined net income $5,439 Pro forma income tax adjustment on Pinpoint's S Corporation earnings 392 Pro forma incremental operating costs 272 ------ Pro forma net income $4,775 ======
The pro forma income tax adjustment assumes Pinpoint was a taxable entity subject to tax at ZOLL's incremental tax rate for the periods presented. The pro forma operating expenses were incurred as a result of the merger. 18 12 NOTE C-MARKETABLE SECURITIES Marketable securities and debt securities are classified as available-for-sale at September 30, 2000. There were no investments in marketable securities at October 2, 1999. At September 30, 2000, available-for-sale securities consisted of:
(000's omitted) - ----------------------------------------------------------------------------------------------------------- US Treasury Bonds $17,566 Corporate Obligations 16,708 Repurchase Agreements 17,549 ------- $51,823 =======
The securities are carried at fair value, with unrealized gains and losses reported in a separate component of stockholders' equity. At September 30, 2000, the difference between the cost basis and the estimated market value on the security portfolio amounted to a $177,000 gain. The maturity periods on the majority of securities held is within one year, with $16,352,000 maturing in one to five years. The cost of securities sold is based on the specific identification method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income. NOTE D-INVESTMENTS During 1996, the Company invested $2 million in the common stock of Lifecor, Inc. As of September 30, 2000 and October 2, 1999, this investment represented approximately 3.8% and 6.0% of Lifecor's outstanding common stock, respectively. The Company accounts for this investment at cost, which approximates market. This investment is included in other assets on the balance sheet. NOTE E-PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of:
SEPT. 30, OCT. 2, (000's omitted) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ Deferred income taxes-Note H $1,403 $1,522 Prepaid income taxes 1,399 -- Other 687 774 ------------------- Total prepaid expenses and other current assets $3,489 $2,296 ===================
NOTE F-ACCRUED EXPENSES AND OTHER LIABILITIES Accrued liabilities consist of:
SEPT. 30, OCT. 2, (000's omitted) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- Accrued salaries and wages and related expenses $2,820 $2,588 Accrued warranty expense 1,311 1,133 Accrued income taxes -- 1,164 Other accrued expenses 2,678 2,596 ------------------- Total accrued expenses and other liabilities $6,809 $7,481 ===================
19 13 NOTE G-INDEBTEDNESS The Company maintains an unsecured working capital line of credit with its bank. This line of credit bears interest at the bank's base rate of 8.59% at September 30, 2000. The full amount of the line ($12.0 million) was available to the Company at September 30, 2000. In 1994, the Company purchased land and building, which replaced leased operating facilities, for $900,000. The land and building were mortgaged under a $900,000 bank note bearing interest at 8.2%. During the year ended September 30, 2000, the Company repaid the entire balance of the outstanding mortgage note payable. Also included in long-term debt is a promissory note (the Note) entered into in March 1999 by Pinpoint in order to acquire an office building. The Note bears interest at 7.95% per annum, is due in monthly installments of approximately $18,000 with final payment due March 2014. During the year ended September 30, 2000, the Company repaid the entire balance of the Note. At October 2, 1999, long-term debt consisted of:
(000's omitted) - -------------------------------------------------------------------------------------------------------- Mortgage notes payable $2,233 Less current portion 164 ------ $2,069 ======
NOTE H-INCOME TAXES The provision for income taxes consists of the following:
(000's omitted) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Federal: Current $4,262 $1,941 $(277) Deferred 167 (58) 194 ------------------------------------------ 4,429 1,883 (83) ------------------------------------------ State: Current 712 370 107 Deferred 28 (18) (6) ------------------------------------------ 740 352 101 Foreign: Current -- 37 -- Deferred -- (262) -- ------------------------------------------ -- (225) -- ------------------------------------------ $5,169 $2,010 $18 ==========================================
The following table shows income (loss) before taxes:
(000's omitted) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Domestic $14,433 $6,479 $821 Foreign (462) 970 (130) ------------------------------------------- $13,971 $7,449 $691 ===========================================
The income taxes recorded differed from the statutory federal income tax rate due to:
(000's omitted) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Statutory income taxes $4,896 $2,132 $21 Tax credits, federal and state (299) (48) -- State income taxes, net of federal benefit 500 229 32 Unbenefited (benefited) foreign loss -- (262) -- Permanent differences (25) 35 35 Other 97 (76) (70) ------------------------------------------ $5,169 $2,010 $18 ==========================================
20 14 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follow:
SEPT. 30, OCT. 2, (000's omitted) 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Accounts receivable and inventory $898 $999 Net operating loss carryforwards -- 68 Product warranty accruals 506 408 Purchased research and development 279 297 Other liabilities 445 258 --------------------------- Total deferred tax assets 2,128 2,030 Deferred tax liabilities: Accelerated tax depreciation 867 712 Prepaid expenses 281 143 --------------------------- Total deferred tax liabilities 1,148 855 --------------------------- Net deferred tax asset $980 $1,175 ===========================
Prior to the merger Pinpoint elected to be taxed under the Subchapter S provisions of the Internal Revenue Code. Accordingly, Pinpoint's income or loss was included in the stockholders' individual income tax returns. NOTE I-COMMITMENTS AND CONTINGENCIES In the course of normal operations, the Company is involved in litigation arising from commercial disputes and claims from former employees which management believes will not have a material impact on the Company's financial position or its results of operations. The Company leases certain office and manufacturing space under operating leases. Listed below are the future minimum rental payments required under operating leases with non-cancelable terms in excess of one year at September 30, 2000. 2001 $431 2002 404 2003 323 2004 38 2005 32 --------------------- $1,228
The Company's office leases are subject to adjustments based on actual floor space occupied. The leases also require payment of real estate taxes and operating costs. In addition to the office leases, the Company leases automobiles for business use by a portion of the sales force. Total rental expense under operating leases for 2000, 1999, and 1998 was approximately $1,059,000, $907,000 and $728,000, respectively. NOTE J-STOCKHOLDER'S EQUITY Preferred Stock: The Board of Directors is authorized to fix the designations, relative rights, preferences and limitations on the Preferred Stock at the time of issuance. On June 8, 1998, the Company's Board of Directors adopted a Shareholder Rights Plan. In connection with the Shareholder Rights Plan, the Board of Directors declared a dividend distribution of one Preferred Stock purchase right for each outstanding share of Common Stock to stockholders of record as of the close of business day on June 9, 1998. Initially, these rights are not exercisable and trade with the shares of ZOLL's Common Stock. Under the Shareholder Rights Plan, the rights generally become exercisable if a person becomes an "acquiring person" by acquiring 15% or more of the Common Stock of ZOLL, if a person who owns 10% or more of the Common Stock of ZOLL is determined to be an "adverse person" by the Board of Directors or if a person commences a tender offer that would result in that person owning 15% or more of the Common Stock of ZOLL. Under the Shareholder Rights Plan, a shareholder of ZOLL who beneficially owns 15% or more of the Company's Common Stock as of June 9, 1998 generally will be deemed an "acquiring person" if such shareholder acquires additional shares of the Company's Common Stock. In the event that a person becomes an "acquiring person" or is declared an "adverse person" by the Board, each holder of a right (other than the acquiring person or the adverse person) would be entitled to acquire such number of shares of Preferred Stock which are equivalent to ZOLL Common Stock having a value of twice the then-current exercise price of the right. If ZOLL is acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company's Common Stock having a value twice the exercise price of the right. Sale of Common Stock: During 2000, the Company completed a secondary offering of 1,725,000 shares of common stock in exchange for net proceeds of approximately $67 million, net of $5 million for underwriters discounts and other expenses incurred with the offering. 21 15 Stock Purchase Rights: On September 25, 1995, Pinpoint granted employee stock purchase rights which entitled the employee to obtain 3% of the then existing shares at a nominal price. The stock purchase rights vest 25% at the end of one year of employment, another 25% vesting over the next three years, and the remaining 50% vesting over the next six years. The rights to purchase 12,650 shares of common stock automatically vested upon the acquisition of Pinpoint. As of September 30, 2000, the rights to purchase 3,650 shares of common stock had not been exercised. Stock Option Plans: The Company's 1983 and 1992 stock option plans provide for the granting of options to officers and other key employees to purchase the Company's Common Stock at a purchase price, in the case of incentive stock options, at least equal to the fair market value per share of the outstanding Common Stock of the Company at the time the option is granted, as determined by the Compensation Committee of the Board of Directors. Options are no longer granted under the 1983 plan. The options become exercisable ratably over two or four years and have maximum duration of 10 years. The Company's Non-employee Director Stock Option Plan provides for the granting of options to purchase shares of Common Stock to Directors of the Company who are not also employees of the Company or any subsidiary of the Company. The options vest in four equal annual installments over a four year period. The options may be exercised at a price equal to the fair market value of the Common Stock on the date the option is granted. The number of shares authorized for these plans was 2,545,000. Approximately 1,244,000 shares of Common Stock are reserved for issuance under the Company's stock option plans as of September 30, 2000. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized with respect to the Company's stock option grants. Had compensation cost for this plan been determined based on the fair value methodology prescribed by FAS 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below.
(000's omitted, except per share data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Net income-as reported $8,802 $5,439 $ 673 Net income pro forma $7,618 $4,956 $ 313 Basic earnings per common share-as reported $ 1.11 $ 0.82 $0.10 Diluted earnings per common and equivalent share-as reported $ 1.07 $ 0.79 $0.10 Basic earnings per common share-pro forma $ 0.96 $ 0.74 $0.05 Diluted earnings per common and equivalent share-pro forma $ 0.93 $ 0.72 $0.05
The above pro forma amounts may not be representative of the effects on reported net earnings for future years. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998:
(000's omitted) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Dividend yield 0% 0% 0% Expected volatility 5.86% 6.56% 6.48% Risk-free interest rate 6.21% 5.11% 4.53% Expected lives 5 years 5 years 5 years
Activity as to stock options under the two plans is as follows:
2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE (000's omitted, except per share data) SHARES PRICE SHARES PRICE SHARES PRICE - ------------------------------------------------------------------------------------------------------------------------- Outstanding at the beginning of the year 866 $ 7.98 909 $ 7.23 793 $11.02 Granted during the year 368 32.41 253 10.11 214 7.08 Exercised during the year (298) 7.16 (147) 7.70 -- -- Cancelled during the year (103) 12.51 (149) 6.06 (98) 9.05 -------------------------------------------------------------------------------- Outstanding at the end of the year 833 $19.94 866 $ 7.98 909 $ 7.23 ================================================================================ Available for grant at the end of the year 411 341 145 Weighted-average fair value of options granted during the year $17.87 $6.83 $4.12 Weighted-average exercise price of options exercisable at the end of the year $ 7.71 $7.14 $7.20
22 16 The following table summarizes information about stock options outstanding at September 30, 2000.
(000's omitted, except per share data) OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------------ $0.020 4 9.04 years $ 0.02 -- -- $3.690-$8.750 334 6.79 years $ 7.29 246 $ 7.18 $9.000-$12.313 144 8.49 years $11.01 38 $10.90 $25.875 170 9.04 years $25.88 -- -- $32.188-$38.250 136 9.80 years $37.02 -- -- $43.125 30 9.89 years $43.13 -- -- $51.250 15 9.57 years $51.25 -- -- - ------------------------------------------------------------------------------------------------------------------------ 833 284 ========================================================================================================================
Under the Company's 1992 stock option plan, 417,850 options ranging in option price from $10.00 to $14.75 per share were repriced to $6.88 per share during 1998. This repricing was accomplished by canceling the existing options and issuing new options at new prices with vesting schedules recommencing as of the date of reprice. The purpose of this transaction was to restore the incentive effect of such options. In all other respects, the Plan remained unchanged. NOTE K-EMPLOYEE BENEFIT PLAN Defined contribution retirement plan--ZOLL has a defined contribution retirement plan which contains a "401 (k)" program for all employees with three months of service who have attained 21 years of age. Participants in the Plan may contribute up to 15% of their eligible compensation. Effective January 1, 2000, the Plan was amended to provide for an employer match of 25% of the employee contribution up to 7% of eligible compensation. Prior to January 1, 2000, the Company made discretionary contributions. The Company contributed $125,000 to the Plan in 2000 and $100,000 in 1999 and 1998. 401 (k) Salary Deferral Plan--Beginning in 1998, Pinpoint has maintained a retirement savings plan (the Plan) pursuant to which eligible employees may defer compensation for income tax purposes under section 401 (k) of the Internal Revenue code of 1986. Participants in the Plan may contribute up to 15% of their eligible compensation which are matched by the company at 50% of the employee contribution up to 6% of eligible compensation. Pinpoint may make discretionary matching contributions to the Plan in an amount determined by its Board of Directors. Pinpoint recorded expense related to the Plan of approximately $55,000, $29,000 and $11,000 in 2000, 1999 and 1998, respectively. NOTE L-SEGMENT AND GEOGRAPHIC INFORMATION Segment Information: The Company reports revenue information to the chief operating decision maker for four operating segments, determined on the type of customer or product. These segments consist of (1) the sale of cardiac resuscitation devices and accessories to the North American hospital market, (2) the sale of the same items and data collection management software to North American prehospital market, (3) the sale of disposable/other products in North America, (4) the sale of cardiac resuscitation devices and accessories and disposable electrodes to the international market. Each of these segments has similar characteristics, manufacturing processes, distribution and marketing strategies, as well as a similar regulatory environment. In order to make operating and strategic decisions, ZOLL's chief operating decision maker evaluates revenue performance based on the worldwide revenues of each segment and, due to shared infrastructures, profitability based on an enterprise-wide basis. Net sales by segment were as follows:
(000's omitted) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Hospital Market-North America devices $ 40,555 $30,868 $19,962 Prehospital Market-North America devices 27,930 19,115 14,914 Other-North America 16,254 15,035 12,841 International Market-excluding North America 21,597 13,664 9,803 ------------------------------------------- $106,336 $78,682 $57,520 ===========================================
The Company reports assets on a consolidated basis to the chief operating decision maker. 23 17 Geographic information: Net sales by major geographical area, determined on the basis of destination of the goods, are as follows:
(000's omitted, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- United States $ 79,143 $63,838 $46,952 Foreign 27,193 14,844 10,568 -------------------------------------------- $106,336 $78,682 $57,520 ============================================
In each of the years in the three year period ended September 30, 2000, no single customer represented over 10% of the Company's consolidated net sales. NOTE M-QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 2000 and 1999 is as follows:
QUARTER ENDED JAN. 1, APRIL 1, JUL. 1, SEPT. 30, (000's omitted, except per share data) 2000 2000 2000 2000 - ------------------------------------------------------------------------------------------------------------------------- 2000 Net sales $24,435 $25,654 $27,442 $28,805 Gross profit 13,592 14,525 15,115 16,753 Income from operations 2,235 2,622 3,260 4,051 Net income 1,364 1,783 2,543 3,112 Basic earnings per common share $ 0.20 $ 0.24 $ 0.29 $ 0.35 Diluted earnings per common and equivalent share $ 0.19 $ 0.23 $ 0.28 $ 0.34
JAN. 2, APRIL 3, JUL. 3, OCT. 2, (000's omitted, except per share data) 1999* 1999 1999 1999 - ------------------------------------------------------------------------------------------------------------------------- 1999 Net sales $16,056 $17,941 $20,812 $23,872 Gross profit 9,524 10,502 12,314 13,856 Income from operations 876 1,283 2,073 3,262 Net income 702 936 1,534 2,267 Basic earnings per common share $ 0.11 $ 0.14 $ 0.23 $ 0.34 Diluted earnings per common and equivalent share $ 0.10 $ 0.14 $ 0.22 $ 0.32 Pro forma diluted earnings per common share and share equivalent** $ 0.09 $ 0.12 $ 0.19 $ 0.30
*Quarter contains 14 weeks **Pro forma adjustments have been made to the historical results to include operating costs which are expected to be incurred as a result of the Pinpoint merger and income tax expense, assuming that Pinpoint was a taxable entity subject to ZOLL's incremental tax rate. ================================================================================ Market for Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System under the symbol "ZOLL." The following table sets forth the high and low sales prices during the fiscal quarters specified:
SALES PRICES 2000 1999 HIGH LOW HIGH LOW - ------------------------------------------------------------------------------------------------------------------------- First Quarter $ 41-3/8 $ 22-5/8 $ 11-7/16 $ 7-1/16 Second Quarter 63-3/4 33-3/16 12-3/4 8-1/2 Third Quarter 59-1/16 37 12-7/8 9 Fourth Quarter 54 32-3/16 31-13/16 11-7/8
The Company has never declared or paid cash dividends on its capital stock. The Company currently intends to retain any future earnings to finance the growth and development of its business, and therefore does not anticipate paying any cash dividends in the foreseeable future. 24 18 EXECUTIVE OFFICERS AND DIRECTORS RICHARD A. PACKER Chairman of the Board & Chief Executive Officer A. ERNEST WHITON Vice President of Administration & Chief Financial Officer WARD M. HAMILTON Vice President, Marketing E. J. JONES Vice President, International Sales DONALD R. BOUCHER Vice President, Research & Development STEVEN K. FLORA Vice President, North American Sales JOHN BERGERON Vice President & Corporate Treasurer WILLARD M. BRIGHT Director & Chairman Emeritus THOMAS M. CLAFLIN(1) Director M. STEPHEN HEILMAN, M.D.(1) Director DANIEL M. MULVENA(2) Director DR. JAMES W. BIONDI(2) Director BENSON F. SMITH(1) Director (1) Member of the Audit Committee (2) Member of the Compensation Committee STOCKHOLDER INFORMATION STOCK LISTING ZOLL Medical Corporation Common Stock is traded on the NASDAQ National Market System under the symbol "ZOLL." TRANSFER AGENT State Street Bank and Trust Company C/O Equiserve P.O. Box 9187 Canton, Massachusetts 02021-9187 1-877-282-1169 GENERAL COUNSEL Goodwin, Procter & Hoar LLP Boston, Massachusetts INDEPENDENT AUDITORS Ernst & Young LLP Boston, Massachusetts ANNUAL MEETING The annual meeting of stockholders will be held at 10 a.m. on February 8, 2001 at Goodwin, Procter and Hoar LLP, Conference Center, Exchange Place, 53 State Street, Boston, Massachusetts 02110. INFORMATION REQUESTS A copy of our Form 10-K, as filed with the Securities & Exchange Commission, may be obtained upon written request to the Company at: Stockholder Relations ZOLL Medical Corporation 32 Second Avenue Burlington, Massachusetts 01803-4420 ZOLL and Westech are registered trademarks of ZOLL Medical Corporation. EX-21.1 5 b37665zoex21-1.txt SUBSIDIARIES OF THE COMPANY 1 Exhibit 21.1 LIST OF SUBSIDIARIES Bio-Detek, Incorporated, incorporated in Massachusetts ZMI France, S.A.R.L., incorporated in France ZMD Corporation, incorporated in Delaware ZOLL International, Inc., incorporated in U.S. Virgin Islands ZOLL Medical (U.K.) Ltd, incorporated in United Kingdom Westech Mobile Solutions. Inc., incorporated in Vancouver, B.C., Canada ZOLL Medical Deutchland (GmbH), incorporated in Germany ZOLL Medical Canada, incorporated in Canada. Pinpoint Technologies, Inc., incorporated in Delaware. EX-23.1 6 b37665zoex23-1.txt CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of ZOLL Medical Corporation of our report dated November 11, 2000, included in the 2000 Annual Report to Shareholders of ZOLL Medical Corporation. Our audit also included the financial statement schedule of ZOLL Medical Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements pertaining to the ZOLL Medical Corporation 1992 Stock Option Plan (Form S-8 No. 333-68403, Form S-8 No. 33-90764 and Form S-8 No. 33-56244), the Non-Employee Directors' Stock Option Plan (Form S-8 333-68401) and the 401(k) Saving Plan (Form S-8 333-38048) of our report dated November 11, 2000, with respect to the consolidated financial statements of ZOLL Medical Corporation incorporated by reference in its Annual Report (Form 10-K) for the year ended September 30, 2000, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of ZOLL Medical Corporation. ERNST & YOUNG LLP Boston, Massachusetts December 29, 2000 EX-27.1 7 b37665zoex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 US YEAR SEP-30-2000 OCT-03-1999 SEP-30-2000 1 4,025 51,823 39,220 1,895 20,298 116,960 30,993 14,647 137,808 14,969 0 0 0 176 122,240 137,808 106,336 106,336 46,351 46,351 47,817 302 0 13,971 5,169 8,802 0 0 0 8,802 1.11 1.07
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