<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. (NO FEE REQUIRED)
For the quarterly period ended March 31, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. (NO FEE REQUIRED)
For the transition period from to
----------- -----------
Commission file number 34-
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IVAC MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3177311
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10221 WATERIDGE CIRCLE 92121-2733
SAN DIEGO, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 458-7000
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:
----- -----
As of May 10, 1996, registrant had 100 shares of its Common Stock ($0.01 par
value) outstanding.
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<PAGE>
IVAC MEDICAL SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PAGE
- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995 3
Condensed Consolidated Statement of Operations for the three months
ended March 31, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 10
Item 2. Changes in Securities. 10
Item 3. Defaults Upon Senior Securities. 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 11,900 $ 18,308
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . 49,697 54,133
Current portion of contract receivables, net . . . . . . . . . . . . . . 5,668 5,414
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,705 34,625
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 2,334 3,143
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 107,304 115,623
Long-term contract receivables, net . . . . . . . . . . . . . . . . . . . . 18,672 19,957
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 50,485 48,277
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,184 30,893
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068 1,245
-------- --------
$206,713 $215,995
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued warranty . . . . . . . . . . . . . . . . . . $ 24,539 $ 21,355
Accrued employee liabilities. . . . . . . . . . . . . . . . . . . . . . . 5,768 9,528
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 16,496 8,091
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 36,816 34,869
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 83,619 73,843
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,466 123,733
Other non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,964 5,043
Shareholder's equity:
Common stock, $.01 par value; 1,000 shares authorized;
100 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 63,333 63,333
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,763) (51,804)
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . 1,094 1,847
-------- --------
Total shareholder's equity . . . . . . . . . . . . . . . . . . . . . 14,664 13,376
-------- --------
$206,713 $215,995
-------- --------
-------- --------
</TABLE>
3
<PAGE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,014 $ 58,548
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,067 49,426
-------- --------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,947 9,122
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,429 11,342
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 5,444 5,618
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . 2,135 3,784
Purchased research and development . . . . . . . . . . . . . . . . . . . . . - 19,883
-------- --------
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . 5,939 (31,505)
Interest income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 751
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,672) (5,630)
-------- --------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . 2,980 (36,384)
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . 939 (2,727)
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,041 $(33,657)
-------- --------
-------- --------
</TABLE>
5
<PAGE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
IVAC MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . $ 10,573 $ 4,541
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired . . . . . . . . . - (185,055)
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . . . . . (6,022) (2,409)
--------- ---------
Net cash used by investing activities . . . . . . . . . . . . . (6,022) (187,464)
Cash flows from financing activities:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . - 50,000
Borrowings under term loan and revolving credit arrangements . . . . . . . - 68,500
Proceeds from bridge notes . . . . . . . . . . . . . . . . . . . . . . . . - 80,000
Repayment of term loan and revolving debt . . . . . . . . . . . . . . . . (5,500) (4,000)
Payment of other debt obligations . . . . . . . . . . . . . . . . . . . . (4,533) -
Debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (6,566)
Capital lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . (173) (82)
--------- ---------
Net cash (used) provided by financing activities. . . . . . . . (10,206) 187,852
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . (753) 962
--------- ---------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . (6,408) 5,891
Cash and cash equivalents at the beginning of the period . . . . . . . . . . 18,308 0
--------- ---------
Cash and cash equivalents at the end of the period . . . . . . . . . . . . . $ 11,900 $ 5,891
--------- ---------
--------- ---------
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock . . . . . . . . . . . . . . . . . . . - $ 13,333
---------
---------
</TABLE>
7
<PAGE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(unaudited)
NOTE 1-BUSINESS
IVAC Medical Systems, Inc. ("IVAC" or the "Company"), formerly known as
IVAC Corporation, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe. IVAC is a
wholly owned subsidiary of IVAC Holdings, Inc. ("Holdings").
In management's opinion, the accompanying unaudited condensed
consolidated financial statements of the Company for the three months ended
March 31, 1996 and 1995 have been prepared in accordance with generally accepted
accounting principles for interim financial statements and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position, results of operations and cash flows for
all periods presented. All such financial statements are unaudited except for
the December 31, 1995 balance sheet. The unaudited condensed consolidated
financial statements include the accounts and results of operations of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated. Interim operating
results are not necessarily indicative of operating results for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K filed for the year ended December 31, 1995.
NOTE 2-EARNINGS PER SHARE
Due to the fact that IVAC is a wholly owned subsidiary of Holdings,
earnings per share data is not considered meaningful and, therefore, is not
presented.
NOTE 3-INVENTORIES
Inventories at March 31, 1996 and December 31, 1995 consisted of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,573 $ 14,998
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . 5,711 3,472
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,111 17,867
--------- ---------
39,395 36,337
Less reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,690) (1,712)
--------- ---------
$ 37,705 $ 34,625
--------- ---------
--------- ---------
</TABLE>
9
<PAGE>
IVAC MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(unaudited)
NOTE 4-LONG-TERM DEBT
On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility") which
matures on March 29, 1999, provides for borrowings of up to $40,000 and is
secured by substantially all of the Company's domestic assets. Borrowings under
the Facility bear interest at a rate equal to the Alternate Base Rate (as
defined in the Facility) plus 0.25% or Adjusted LIBOR plus 1.50%, at the option
of the Company. The interest rate is also subject to change quarterly based
upon certain debt and interest coverage ratios.
NOTE 5-INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset or liability is computed for
the expected future impact of differences between the financial reporting and
tax basis of assets and liabilities as well as the expected future tax benefit
to be derived from tax loss and tax credit carryforwards. Deferred income tax
expense (benefit) is determined as the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount "more likely than
not" to be realized in future tax returns. Tax rate changes are reflected in
income during the period such changes are enacted.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Net income increased by $35.7 million from a net loss of $33.7 million for
the three months ended March 31, 1995 to net income of $2.0 million for the
three months ended March 31, 1996 due to (i) the 1995 one time charges for
certain acquisition purchase accounting adjustments, (ii) the benefits of lower
interest expense as a result of the Company's actions to restructure and repay
debt through the offering of $100 million Senior Notes and the sale of the San
Diego facility in the fourth quarter 1995, and (iii) reduced overall spending as
a result of workforce restructurings and other cost savings programs.
Adjusted EBITDA (as defined below) increased $2.6 million, or 32.1%, from
$8.1 million for the three months ended March 31, 1995 to $10.7 million for the
three months ended March 31, 1996. Adjusted EBITDA margin increased from 13.8%
for the three months ended March 31, 1995 to 19.8% for the three months ended
March 31, 1996. Adjusted EBITDA represents operating profit (loss) before net
interest expense, income taxes, certain purchase accounting adjustments and
depreciation and amortization. Adjusted EBITDA does not represent net income or
cash flows from operations, as these terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash flows
as a measure of liquidity. The Company has included information concerning
Adjusted EBITDA herein because it understands that such information is used by
certain investors as one measure of the Company's historical ability to service
debt.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
NET SALES. Net sales decreased $4.5 million, or 7.7%, from $58.5 million
for the three months ended March 31, 1995 to $54.0 million for the three
months ended March 31, 1996. U.S. sales, which comprised 67.0% of net sales
for the three months ended March 31, 1996, decreased $3.6 million, or 9.2%,
from $39.2 million for the three months ended March 31, 1995 to $35.6 million
for the three months ended March 31, 1996. The Company has been impacted by
the market trend of increasing concentration of buying power among healthcare
providers. Within the U.S. infusion therapy business, sales decreased for
the three months ended March 31, 1996 as compared to the three months ended
March 31, 1995 as a result of (i) shipment in 1995 of the MedSystem III
product backlog which had resulted from the discontinuation of production due
to product design and manufacturing process problems during the fourth
quarter 1994 and (ii) attrition in the installed base of older technology
products. These factors were partially offset by sales of the Company's new
Signature Edition product line. International sales decreased $0.9 million,
or 4.7%, from $19.3 million for the three months ended March 31, 1995 to
$18.4 million for the three months ended March 31, 1996, primarily as a
result of the conversion from direct sales operations to new distributor
sales organizations in Italy and Eastern Europe during the second half of
1995.
GROSS PROFIT. Gross profit increased $13.8 million, or 151.6%, from $9.1
million for the three months ended March 31, 1995 to $22.9 million for the three
months ended March 31, 1996 due to (i) a one time charge in 1995 for the
acquisition purchase price allocation to inventories in excess of historical
costs and (ii) the ongoing benefit of lower manufacturing costs associated with
restructuring of the manufacturing workforce in 1995. These factors were offset
in part by decreased net sales, which reduced the Company's economies of scale.
Excluding the 1995 effect of the one time purchase accounting adjustment, gross
profit as a percent of net sales improved from 40.9% for the three months ended
March 31, 1995 to 42.4% for the three months ended March 31, 1996.
SELLING AND MARKETING. As a percent of net sales, selling and marketing
expenses decreased from 19.3%, or $11.3 million, for the three months ended
March 31, 1995 to 17.4%, or $9.4 million, for the three months ended March
31, 1996, primarily as a result of cost savings derived from restructuring
the Company's hospital field sales force during 1995 and lower international
spending due to replacement in 1996 of certain services provided by Eli
Lilly, the Company's former parent (at the Company's expense) during 1995.
11
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$0.2 million, or 3.6%, from $5.6 million for the three months ended March 31,
1995 to $5.4 million for the three months ended March 31, 1996. As a percent of
net sales, general and administrative expenses increased from 9.6% for the three
months ended March 31, 1995 to 10.1% for the same period in 1996 primarily
reflecting lower expenses resulting from the 1995 restructuring of the
organization spread over a reduced sales base.
RESEARCH AND DEVELOPMENT. As a percent of net sales, research and
development expenses decreased from 6.5%, or $3.8 million, for the three months
ended March 31, 1995 to 3.9%, or $2.1 million, for the three months ended March
31, 1996, primarily as a result of 1995 headcount reductions and elimination of
certain non-strategic research projects.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased $37.4
million from a loss of $31.5 million for the three months ended March 31, 1995
to income from operations of $5.9 million for the three months ended March 31,
1996. Excluding 1995's one time acquisition purchase accounting charges of
$34.7 million, of which $14.8 million was included in cost of sales and $19.9
million in purchased research and development, income from operations increased
$2.7 million, or 84.4%, from $3.2 million for the three months ended March 31,
1995 to $5.9 million for the three months ended March 31, 1996, reflecting the
significant reduction in production and operating costs attributed to the
Company's restructuring and cost savings actions initiated in 1995 and
continuing in 1996.
INTEREST INCOME/EXPENSE. Net interest expense for the three months ended
March 31, 1995 was $4.9 million, consisting of interest income of $0.7 million
and interest expense of $5.6 million, compared to net interest expense for the
three months ended March 31, 1996 of $3.0 million, consisting of interest income
of $0.7 million and interest expense of $3.7 million. Interest income during
both periods included interest income related to NCA contracts, which allow
hospitals to acquire instruments at no initial cost by paying a premium (a
portion of which is recorded by the Company as interest income) for subsequent
purchases of disposables. The term of these contracts is generally three to
five years, with interest at rates of 9% to 15%. Interest expense was lower for
the three months ended March 31, 1996 as a result of refinancing and repayment
of debt during the fourth quarter of 1995. See "Liquidity and Capital
Resources."
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The benefit from income taxes was
$2.7 million for the three months ended March 31, 1995 compared to income tax
expense of $0.9 million for the three months ended March 31, 1996. The 1995
benefit reflects the write-off of purchased research and development partially
offset by foreign taxes. The Company has recorded a valuation allowance against
its deferred tax assets based on an assessment that it is more likely than not
that the deferred tax assets will not be realized.
NET INCOME (LOSS). Excluding the effect of pre-tax 1995 acquisition purchase
accounting adjustments of $34.7 million, net income increased $1.0 million, or
100.0%, from net income of $1.0 million for the three months ended March 31,
1995 to net income of $2.0 million for the three months ended March 31, 1996,
reflecting the cost savings discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1996, cash and cash equivalents
decreased to $11.9 million from $18.3 million at December 31, 1995, due
primarily to (i) the prepayment of $5.5 million of bank term loans (concurrent
with the amendment and restatement of the Bank Credit Facility), (ii) the
payment of additional consideration of $4.5 million related to the 1993
acquisition of the MiniMed product line, and (iii) $6.0 million of capital
expenditures inclusive of leasehold improvements associated with the Company's
relocation of its corporate and primary instrument manufacturing facilities
located in San Diego; all of the above being offset in part by $10.6 million of
cash provided by operating activities (resulting from operating profitability
and reductions in net working capital levels).
12
<PAGE>
At March 31, 1996, the Company had working capital of $23.7 million, a
decrease of $18.1 million, or 43.3%, from the level at December 31, 1995 of
$41.8 million. The decrease in working capital was due primarily to (i) the
impact of the $5.5 million prepayment of the bank term loan and the conversion
of the loan to a revolving credit facility which resulted in a reclassification
from long-term debt to current debt and (ii) an increase in accounts payable
resulting from leasehold improvements made to the newly leased facilities during
the first quarter of 1996.
The Company amended and restated its Bank Credit Facility on March 29, 1996.
The amended and restated Facility matures on March 29, 1999 and provides for
borrowings of up to $40 million, secured by substantially all of the Company's
domestic assets. Borrowings under the Facility bear interest at a rate equal to
the Alternate Base Rate (as defined in the Facility) plus 0.25% or Adjusted
LIBOR plus 1.50%, at the option of the Company. The interest rate is also
subject to change quarterly based upon certain debt and interest coverage
ratios.
The Company believes that, based on current levels of operations, its cash
flow from operations, together with borrowings under the amended and restated
senior credit Facility, will be adequate, at least through the next 12 months,
to finance contemplated operations and make required payments of interest and
principal on its debt and planned capital expenditures. However, the Company's
ability to finance its operations, to make interest payments on such
indebtedness, to repay such indebtedness at maturity and to make capital
expenditures will be dependent on the Company's future operating performance.
At March 31, 1996 the Company had $25.4 million of available revolving
borrowings under the amended and restated Facility and cash and cash equivalents
of $11.9 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
By written consent dated January 24, 1996, the Company's sole shareholder,
IVAC Holdings, Inc., approved an amendment of the Company's Certificate of
Incorporation changing the name of the Company to "IVAC Medical Systems, Inc."
ITEM 5. OTHER INFORMATION.
None.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1* Certificate of Amendment of Certificate of Incorporation of IVAC
Corporation
10.1** Amendment, Consent and Waiver Agreement, dated March 29, 1996, by
and among IVAC Holdings, Inc., IVAC Medical Systems, Inc., Chemical
Bank, as Administrative and Collateral Agent and Fronting Bank, and
the Lenders named therein.
10.2 Agreement dated April 1, 1996, by and between Bernard C-B Lim and
others, and IVAC UK Limited.
27.1 Financial Data Schedule
* Incorporated herein by reference to Exhibit 3.3 to the Company's report on
Form 10-K for the year ended December 31, 1995.
** Incorporated herein by reference to the Company's report on Form 8-K filed
on May 3, 1996 with respect to an event dated March 29, 1996
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVAC MEDICAL SYSTEMS, INC.
Date: May 10, 1996 By: /s/ William J. Mercer
--------------------------
William J. Mercer
Chief Executive Officer and
President
Date: May 10, 1996 By: /s/ Debra P. Crawford
--------------------------
Debra P. Crawford
Chief Financial Officer and
Vice President of Finance
and Administration
15
<PAGE>
DATED 1st APRIL, 1996
BERNARD C-B LIM AND OTHERS (1)
and
IVAC UK LIMITED (2)
-------------------------
AGREEMENT
-------------------------
NORTON ROSE
London
<PAGE>
CONTENTS
CLAUSE HEADING PAGE
1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Amendments to calculation of IRT Benchmark Payments . . . . . . . 2
3 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Schedule - The Managers. . . . . . . . . . . . . . . . . . . . . . . . . 4
<PAGE>
THIS AGREEMENT is dated 1st April, 1996 and is made BETWEEN:
(1) the persons whose names and addresses are stated in the Schedule: and
(2) IVAC UK LIMITED a company incorporated in England under number 2973117,
whose registered office is at Beechwood, Chineham Business Park,
Basingstoke RG24 8WA ("IVAC")
WHEREAS:
(A) Pursuant to the Welmed Acquisition Agreement the Manager and others sold
the entire issued share capital of Welmed Limited in Lilly Industries
Limited ("LILLY").
(B) On 25th April, 1995 an agreement was entered into between Lilly (1) and
IVAC (2) pursuant to which, inter alia, the business carried out by Lilly
under the name "Welmed" (the "BUSINESS") was sold by Lilly to IVAC. As
part of these arrangements the benefit of, and Lilly's obligations under
the Welmed Acquisition Agreement were transferred to IVAC.
(C) It has been agreed between the managers and IVAC that the calculation of
the IBT Benchmark Payments provided for in the Welmed Acquisition
Agreement will be varied as set out in this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
1.1 In this Agreement:
(a) the following expressions have the following meanings:
"BUSINESS PLAN" shall have the meaning set out in the Welmed
Acquisition Agreement.
"WELMED ACQUISITION AGREEMENT" means the agreement entered into
between the Manager and others (1), Lilly (2) and Eli Lilly and
Company.
"WELMED PRODUCTS" means a syringe pump or any other product of
IVAC which was either envisaged in the Business Plan or approved
by Lilly or by Lilly's representative member of the board of
Welmed Limited when it owned the Business and any other products
introduced or proposed to be introduced by any member of the
IVAC Group;
(b) references to clauses, sub-clauses and schedules are to clauses
and sub clauses of and schedules to this Agreement;
(c) the headings to the clauses are for convenience only and shall
not affect the construction or interpretation of this Agreement.
<PAGE>
2 AMENDMENTS TO CALCULATION OF IBT BENCHMARK PAYMENTS
The parties agree that the calculation of the IBT Benchmark Payment for
the period ending 31st December 1996 (the "CALCULATION") shall be made in
accordance with the provisions of clause 3 ("CLAUSE 3") of the Welmed
Acquisition Agreement except as varied below:
2.1 (a) the Cost of Products Sold ("COPS") to be taken into account in
the Calculation shall be whichever is the lower of the actual
COPS percentage for the period ending 31st December 1996 as
calculated in accordance with Clause 3, or actual COPS
percentage COPS percentage for the period ended 31st December
1995 as calculated in accordance with Clause 3;
(b) the Operating Expenses ("OPEX") to be taken into account in the
Calculation shall be the lower of actual OPEX spending for the
period ending 31st December 1996 as calculated in accordance
with clause 3, or actual OPEX spending for the period ended 31st
December 1995 as calculated in accordance with Clause 3:
(c) the Average Selling Price ("ASP") to be taken into account in
the calculation shall be the higher of actual ASP for the period
ending 31st December 1996, calculated in accordance with Clause
3 or actual ASP for the period ended 31st December 1995,
calculated in accordance with Clause 3; and
2.2 if IVAC incurs any costs, claims, liabilities, damages or other expenses
whatsoever ("ADDITIONAL COSTS") during the period ending 31st December
1996 as a result of defects in the Welmed Products in excess of two per
cent of the Net Sales (as defined in the Welmed Acquisition Agreement) of
the Welmed Products, then such excess amount shall be added to the OPEX
spending to be taken into account in the Calculation subject to a maximum
adjustment that does not exceed 2% of Net Sales.
2.3 such other adjustments shall be made to the Calculation and IBT as IVAC
deems necessary provided that such adjustments are confirmed in writing
as being reasonable by an accounting firm appointed as set out in clause
3(G) of the Welmed Acquisition Agreement but for the avoidance of doubt
nothing in this Agreement shall affect the rights of the Managers under
clause 3(G) of the Welmed Acquisition Agreement.
3 COSTS
Each party to this Agreement shall be responsible for its/his respective
legal and other costs incurred in relation to the negotiation,
preparation and completion of this Agreement and all ancillary documents.
4. GOVERNING LAW
<PAGE>
This Agreement shall be governed by and construed in accordance with
English law and the parties to this Agreement hereby submit to the
exclusive jurisdiction of the High Court of Justice in England.
IN WITNESS whereof this Agreement has been entered into as a Deed the date and
year first above written
<PAGE>
SCHEDULE
THE MANAGERS
Peter Lloyd 11 Brickfield Close
Basingstoke,
Hampshire RG24 8UX
Paul Wadham 41 Harrow Down
Badger Farm
Winchester,
Hampshire SO22 4LZ
John Paul Entwistle The Fold,
Dellands,
Overton,
Hampshire RG25 3LD
Bernard Ching Bing Lim 46 Guildford Drive
Chandler's Ford,
Eastleigh,
Hampshire SO53 3BT
<PAGE>
EXECUTED and DELIVERED )
as a deed by the said )
Bernard Ching-Bing Lim )
in the presence of: ) S/S Bernard Ching-Bing Lim
--------------------------
EXECUTED and DELIVERED )
as a deed by the said )
Peter Lloyd )
in the presence of: ) S/S Peter Lloyd
----------------
EXECUTED and DELIVERED )
as a deed by the said )
Paul Wadham )
in the presence of: ) S/S Paul Wadham
----------------
EXECUTED and DELIVERED )
as a deed by the said )
John Paul Entwistle )
in the presence of: ) S/S John Paul Entwistle
------------------------
EXECUTED as a deed )
by IVAC UK Limited )
in the presence of: ) S/S Richard M. Mirando
-----------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 11,900
<SECURITIES> 0
<RECEIVABLES> 53,972
<ALLOWANCES> (4,275)
<INVENTORY> 37,705
<CURRENT-ASSETS> 107,304
<PP&E> 67,104
<DEPRECIATION> (16,619)
<TOTAL-ASSETS> 206,713
<CURRENT-LIABILITIES> 83,619
<BONDS> 105,466
0
0
<COMMON> 0
<OTHER-SE> 14,664
<TOTAL-LIABILITY-AND-EQUITY> 206,713
<SALES> 54,014
<TOTAL-REVENUES> 54,014
<CGS> 31,067
<TOTAL-COSTS> 31,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,672
<INCOME-PRETAX> 2,980
<INCOME-TAX> 939
<INCOME-CONTINUING> 2,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,041
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
