<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1998
Commission file number: 0-18724
MARQUETTE MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1046671
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification No.)
8200 West Tower Avenue, Milwaukee, Wisconsin 53223
(Address of Principal Executive Offices) (Zip Code)
(414)355-5000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $0.10 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.
X Yes _______ 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.
Approximate aggregate market value of the registrant's Common Shares held
by non-affiliates (based on the closing sales price of such stock as reported in
the NASDAQ National Market System) on July 1, 1998 was $323,029,409.00.
As of July 1, 1998, the number of shares of Common Shares $0.10 par value,
outstanding was 17,928,798.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Part
-------- --------------
1. Annual Report to Shareholders for fiscal year ended
April 30, 1998 II
2. Proxy Statement for Annual Meeting of Shareholders
scheduled to be held on July 15, 1998 III
_______________
* Excludes, among other shares, 3,417,368 Common shares held by officers and
directors at June 1, 1998. Exclusion of such shares should not be
construed to indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under common control
with the registrant.
<PAGE>
FORWARD-LOOKING STATEMENTS
--------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Competition. The Company encounters and expects to continue to encounter
-----------
significant competition in the sale of its products and services. The Company's
competitors include a number of large multinational corporations, some of which
may be able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion and sale
of their products than the Company. Competition could increase if new companies
enter the market or if existing competitors expand their product lines or
intensify efforts within existing product lines. There can be no assurance that
the Company's current products, products under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively.
Risks Associated with International Operations. International revenues
----------------------------------------------
account for a substantial portion of the Company's revenues, and the Company
intends to continue to expand its presence in international markets.
International revenues are subject to a number of risks, including the
following: fluctuations in exchange rates may affect product demand and
adversely affect the profitablity in U.S. dollars of products and services
provided by the Company in foreign markets where payment for the Company's
products and services is made in the local currency; agreements may be difficult
to enforce and receivables difficult to collect through a foreign country's
legal system; foreign customers may have longer payment cycles; foreign
countries may impose additional withholding taxes or otherwise tax the Company's
foreign income, impose tariffs, or adopt other restrictions on foreign trade;
U.S. export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to enforce.
There can be no assurance that any of these factors will not have a material
adverse impact on the Company's business and results of operations.
Rapid and Significant Technological Change and New Products. The markets
-----------------------------------------------------------
for the Company's products are characterized by rapid and significant
technological change, evolving industry standards
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and frequent new product introductions and enhancements. Many of the Company's
products and products under development are technologically innovative and
require significant planning, design, development, and testing at the
technological, product, and manufacturing-process levels. These activities
require significant capital commitments and investment by the Company. In
addition, products that are competitive in the Company's markets are
characterized by rapid and significant technological change due to industry
standards that may change on short notice and by the introduction of new
products and technologies that render existing products and technologies
uncompetitive or obsolete. There can be no assurance that any of the products
currently being developed by the Company, or those to be developed in the
future, will be technologically feasible or accepted by the marketplace, that
any such development will be completed in any particular time frame, or that the
Company's products or proprietary technologies will not become uncompetitive or
obsolete.
Government Regulation; No Assurance of Regulatory Approvals. Many of the
-----------------------------------------------------------
Company's products are subject to pre-marketing clearance or approval by the
U.S. Food and Drug Administration (FDA) and similar agencies in foreign
countries. The use or sale of certain of the Company's products under
development may require approvals by other government agencies. The process of
obtaining clearance and approval from the FDA and other government agencies is
time-consuming and expensive. Furthermore, there can be no assurance that the
necessary clearances or approvals for the Company's products, services, and
products and services under development will be obtained on a timely basis, if
at all.
FDA regulations also require continuing compliance with specific standards
in conjunction with the maintenance and marketing of products and services that
have been approved or cleared. Failure to comply with applicable regulatory
requirements can result in, among other things, civil and criminal penalties,
suspension of approvals, recalls, or seizures of products, injunctions, and
criminal prosecutions.
Risks Associated with Dependence on Capital Spending Policies and
-----------------------------------------------------------------
Government Funding. The Company's customers include hospitals, laboratories,
- ------------------
universities, health care providers, government agencies, and public and private
research institutions. The capital spending of these entities can have a
significant effect on the demand for the Company's products. Such spending is
based on a wide variety of factors, including the resources available to make
purchases, the spending priorities among various types of equipment, public
policy, and the effects of different economic cycles. Any decrease in capital
spending by any of the customer groups that account for a significant portion of
the Company's
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sales could have a material adverse effect on the Company's business and results
of operations.
Effect of Laws. Changes in the law or new interpretations of existing laws
--------------
may have a significant effect on the definition of permissible or impermissible
activities, the relative costs associated with doing business and the amount of
reimbursement by both government and third party payers. In addition, economic
forces, regulatory influences and political initiatives are subjecting the
health care industry to fundamental changes. Health care reform proposals have
been formulated by the current administration and by members of Congress.
Federal, state and local government representatives are likely to continue to
review and assess alternative health care delivery systems and payment methods
and ongoing public debate of these issues can be expected. There can be no
assurance that any such efforts or reforms will not have an adverse affect on
the business, results of operations or financial condition of the Company.
Potential Impact of Year 2000 on Processing of Date-Sensitive Information.
-------------------------------------------------------------------------
The Company is currently assessing the potential impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased from key
suppliers by the Company. The Company believes that its internal information
systems and current products are either year 2000 compliant or will be so prior
to the year 2000 without incurring material costs. There can be no assurance,
however, that the Company will not experience unexpected costs and delays in
achieving year 2000 compliance for its internal information systems and current
products, which could result in a material adverse effect on the Company's
future results of operations.
The Company is presently assessing the effect that the year 2000 problem
may have on its previously sold products. The Company has not completed its
analysis and is unable to conclude at this time whether the year 2000 problem as
it relates to its previously sold products is likely to have a material adverse
effect on the Company's future operations.
ITEM 1. BUSINESS
OVERVIEW
Marquette Medical Systems, Inc. (including its subsidiaries, the "Company"
or "Marquette") is a worldwide leader in the
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development and manufacture of medical equipment and integrated systems for
patient monitoring and diagnostic cardiology applications. Marquette also
develops clinical information systems, designed to be integrated with medical
equipment, consisting of hardware and software used by integrated health care
delivery networks and individual hospitals to electronically acquire, record,
store, analyze and distribute patient medical data. The Company believes that
its ability to offer integrated clinical information systems and patient
monitoring and diagnostic cardiology equipment provides it with significant
competitive advantages over companies that market only equipment or clinical
information systems. The Company has made a substantial commitment to research
and development and is well known for its technological innovation and quality,
dating back to 1965 when it introduced the first centralized ECG processing and
storage system.
The following table shows certain information relating to the
Company's products (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended April 30
- -----------------------------------------------------------------------------------------
1996 1997 1998
- -----------------------------------------------------------------------------------------
Percentage Percentage Percentage
Net of net Net of net Net of net
Sales Sales Sales Sales Sales Sales
----- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cardiology 124,413 29.9% 178,321 32.8% 182,621 31.6
Group
Monitoring 208,321 50.0% 260,953 48.0% 294,054 50.9
Group
Supplies 83,559 20.1% 104,042 19.1% 101,586 17.6%
and Service -------------------- --------------------- --------------------
416,293 100% 543,317 100% 578,260 100%
==================== ===================== ====================
</TABLE>
The Company's products are sold in more than 65 countries throughout the world,
with the U.S. and international markets accounting for approximately 64% and
36%, respectively, of net sales for Fiscal 1998. The Company's products are used
principally in critical and intensive care units, operating and recovery rooms,
step-down units, labor and delivery units, the cardiology department, the Cath
Lab and related areas of acute care hospitals. In addition, Marquette products
increasingly are being used in smaller hospitals, medical clinics, outpatient
surgery centers, physician offices and the home.
The Company estimates that the worldwide market for patient monitoring
systems is approximately $1.65 billion, of which approximately $850 million is
attributable to the U.S. Marquette's patient monitoring systems continuously
acquire, analyze, store,
6
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display and print patient physiological information, providing attending medical
personnel a means to continuously evaluate a patient's condition. Patient
monitoring systems include bedside, telemetry, anesthetic and respiratory gas,
maternal/fetal, neonatal and home care and clinical information systems. The
Company believes it is one of the leading manufacturers of maternal/fetal,
bedside and telemetry monitoring systems. The Company offers fully integrated,
networked, open architecture clinical information systems that process
information obtained from patient monitors and various other sources, including
Marquette's and other companies' products, to create an interactive electronic
patient medical record.
The Company estimates that the worldwide market for diagnostic
cardiology products is approximately $1 billion, of which approximately $430
million is attributable to the U.S. Marquette's diagnostic cardiology products
are used to diagnose cardiac disorders through the detection, recording and
analysis of electrical signals and other information relating to the heart.
These include resting, exercise testing and Holter (ambulatory) ECG equipment,
cardiovascular information systems, cardiac defibrillators, cardiac
catheterization laboratory monitors, and photo image and digital image
processing equipment. The Company believes it is one of the leading
manufacturers of cardiovascular information systems and cardiac catheterization
laboratory monitors. The Company offers an open architecture cardiovascular
information system that accepts and stores data from electrocardiographs and
other diagnostic cardiology products to create a patient-specific cardiology
database for comparative and other purposes. Addressing Market Needs Health
care providers are increasingly differentiating medical equipment vendors based
on their ability to provide clinical management and patient administration
systems that deliver better quality care at lower costs. Marquette is
addressing these market needs with a total systems approach based on a
combination of its broad product lines, open architecture Unity Network and its
clinical process expertise.
Marquette's Unity Network is an integrated system which enables a wide
range of patient monitoring, diagnostic cardiology and clinical information
systems to be interconnected and to interface with hospital information systems
maintained by its customers. Reports can be generated that provide the data in
both clinical and administrative form to aid in improving the quality of care in
the most cost effective manner. The Unity Network is designed to (i)
communicate patient information from bedside and telemetry monitors to central
nurses' stations, (ii) allow clinicians to view patient information from various
areas of the hospital or from remote locations via telephone lines and modems,
and (iii) electronically transfer patient information to care units, outpatient
facilities or physicians' offices.
Marquette differentiates itself from other medical equipment vendors by
addressing market needs with a total solutions approach:
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First, Marquette offers its customers a broad product line and the ability
to equip and supply multiple areas along the continuum of care, thereby enabling
integrated health care delivery networks and hospitals to gain efficiencies
through standardization with a single vendor.
Second, Marquette offers its customers the ability to construct an
information network infrastructure and clinical information systems to enhance
the utilization and clinical value of the Company's patient monitoring and
diagnostic cardiology products as well as other medical equipment vendors'
products to which the Unity Network can be interfaced.
Third, Marquette provides its customers expertise in clinical problem
solving, systems integration and process improvement to customize the
configuration of the Company's products and systems to optimize clinical
applications for the customers' various care areas and patient management needs.
BUSINESS STRATEGY
The Company's objective is to be the premier provider of medical systems
for patient monitoring and diagnostic cardiology across the continuum of care.
The elements of the Company's strategy to achieve this objective are identified
below.
Enter New Care Areas. The Company seeks to capitalize on the shift from
critical care to subacute care, physician offices and home care through the
introduction of newly designed patient monitoring and diagnostic cardiology
products aimed specifically at these evolving care areas. The Company believes
that there is a greater potential for growth in these care areas than in the
hospital market in which the Company's products have historically been sold.
The Company is developing new products that address the functional needs of
these lower acuity care areas based on the Company's technological expertise
developed in connection with its hospital products.
Broaden and Enhance Existing Product Lines. The Company is adding depth to
its product lines by introducing products at lower price points. The Company has
implemented this strategy by developing products internally, forming strategic
alliances and through acquisitions. For example, as part of the E for M
acquisition, the Company obtained Hellige's development efforts relating to a
high performance, compact, portable, battery-powered, multiparameter patient
monitor.
Continue Development of Clinical Information Systems. The networking of
the Company's products through clinical information systems enhances the value
of the Company's products to customers and will continue to be a focus of the
Company's product development
8
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efforts. The Company believes that the development of expanded clinical
information systems capabilities is an important element of Marquette's
competitive advantage in the patient monitoring and diagnostic cardiology
markets.
Penetration of International Markets. International sales have decreased
from approximately 39% of net sales for the year ended April 30, 1997 ("Fiscal
1997") to approximately 36% of net sales for Fiscal 1998 primarily due to the
effects of the strengthening U.S. Dollar, which results in negative currency
conversions. The Company will continue to seek greater penetration of the
European market, where the E for M acquisition has substantially broadened the
Company's distribution network. The Asia/Pacific market accounted for
approximately 6% of the Company's net sales for Fiscal 1998 and has been
identified by the Company as an area for potential growth.
Increase Recurring Revenue Streams. The Company is focused on increasing
its recurring revenue by actively developing the disposable supplies market for
the products it sells. The Company seeks to continue to leverage its installed
based to further increase sales of supplies and services related to its
equipment. Additionally, the Company seeks to leverage the brand-name
recognition generated through its equipment sales to increase sales of
technology-distinguished supplies related to a broad range of medical products
manufactured by the Company and others.
Enhance Profit Margins. The Company continually seeks to improve gross
margins by increasing capacity utilization at existing manufacturing facilities
and utilizing global purchasing contracts to reduce material and component
costs. Additionally, the Company seeks to control operating costs such as
engineering and general and administrative expenses relative to sales growth in
order to increase operating margins.
Patient Monitoring
------------------
Marquette's patient monitoring systems continuously acquire, analyze,
store, display and print patient physiological information such as ECGs, pulse
rate, blood pressure, temperature, gas measurements, respiration rate and oxygen
saturation in the blood. This information provides attending medical personnel a
means to continuously evaluate a patient's condition.
The Company estimates the worldwide market for patient monitoring is
approximately $1.65 billion, of which approximately $850 million is attributable
to the U.S. Recent market growth has been driven principally by demographic
trends resulting in larger numbers of ill and elderly patients. Future market
growth is also expected to result from emerging monitoring demand in new care
areas which previously did not use or require monitoring. As health care
providers seek to
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reduce costs, significant portions of patient care are being delivered in lower
acuity care areas. Many patients who in the past would have remained in the
intensive care unit and received care with a 1:1 patient-to-nurse ratio for
extended periods of time are being moved to lower acuity care areas with a 4:1
or 6:1 patient-to-nurse ratio in which portable monitors or telemetry is used.
These areas, which include step-down and subacute areas of hospitals,
outpatient care facilities and home care, are expected to provide significant
growth opportunities.
Marquette has leveraged its expertise in microprocessor design, advanced
circuit development and software programming to establish itself as a global
leader in physiological data acquisition and analysis. The Company has well
known core competencies in ECG signal acquisition and analysis, pulse oximetry
monitoring, invasive and non-invasive blood pressure measurement, cardiac output
determination and respiratory gas analysis, and is actively involved in the
advancement of measurement techniques and algorithms in these areas.
In May, 1994 the Company acquired Corometrics Medical Systems, Inc.
("Corometrics"), a designer and manufacturer of fetal and neonatal monitoring
systems, and one of the leading providers of clinical information systems for
labor and delivery applications. The Corometrics acquisition allowed the
Company to expand its product offerings to the labor and delivery care area with
a well recognized trade name and an established market position. The Company
believes that its Corometrics and Marquette brand names are widely recognized
for excellence and innovation in the patient monitoring sector.
The following table provides information with respect to the Company's
principal patient monitoring systems:
10
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<TABLE>
<CAPTION>
Approximate Intro-
List Principal duction Care
Product Category Price Range Product Date Areas
- ---------------- ----------- --------- -------- -----
<S> <C> <C> <C> <C>
Modular Bedside $13,000- Solar 8000 1995 Intensive Care,
Monitors $25,000 Solar 9500 1998 Acute Care
Configured Bedside $ 6,500- Eagle 3000 1995 Intensive Care,
Monitors $20,000 Eagle 4000 1995 Acute Care, General
Eagle Dash 1000(Portable) 1996 Care, Portable and
Transport
Telemetry $ 6,500 per CD - Telemetry LAN 1991 Ambulatory Care and
Monitoring bed System 1995 Sub Acute Care
Systems APEX Transmitter
Anesthetic and $10,000- RAMS Mass Spectrometer 1995 Intensive Care,
Respiratory Gas $60,000 SAM IR Anesthetic Agent 1995 Acute Care
Monitoring Module
Equipment
Maternal/Fetal $ 4,800- Model 150/Antepartum 1992 Labor and Delivery
Monitoring $18,000 Model 151/Intrapartum 1994
Equipment Model 118/Intrapartum 1994
Model 155/Antepartum 1996
Model 340 Telemetry 1996
/Intrapartum
Model 120 Series 1997
Neonatal $ 8,000- Eagle 4000N 1993 Intensive Care
Monitoring $20,000 Model 556 (color) 1994
Equipment Eagle 3000N 1996
Solar 8000N 1996
Home Care $ 1,500- 500E 1986 Home Care
Monitoring $ 3,800 500EXL 1995
Equipment 510/511 1996
Event-Link 1996
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Clinical Information $ 40,000- QS System 1996 All care areas
Systems $1,500,000
Portable/Transport $ 4,000- Dash 1000 1997 Transport
Monitors $ 9,000
Central Stations/ $ 10,000- PRISM Clinical 1998 Intensive Care,
Clinical $ 60,000 Information Center Ambulatory Care,
Workstations Sub Acute Care
</TABLE>
Modular Bedside Monitors are used to continuously acquire, analyze and
monitor physiological information from critically ill patients located in
intensive and critical care units and operating rooms. These devices use
multiple software modules for separate physiological parameters to adjust
the device configuration at the point of care to meet the monitoring needs
and acuity of any particular patient.
The Solar 8000, the Company's principal modular bedside monitor, has
been designed for use in virtually any care setting --from low acuity areas
through the most sophisticated patient care environments. It features a
hardware platform which offers the user the flexibility to mix-and-match
screen sizes, display types (CRT or flat-panel), and networks (standalone,
hard-wired or wireless), and to choose among various features and
capabilities, including acquisition and analysis of 12-lead ECGs, through
the addition of software modules. A complete library of both single-
parameter-modules and TRAM(R) multi-parameter modules allows for bedside
device configuration at the point-of-care to meet any monitoring need or
acuity of any particular patient.
Marquette recently introduced the first in a new class of monitors
that maximizes modular monitoring capabilities and options, the SOLAR 9500
Information Monitor. The SOLAR 9500 Information Monitor is a powerful real-
time, modular, vital signs monitor that combines the accuracy and
reliability of a medical instrument with the information accessibility of a
PC to create a system that simplifies access to, and management of, patient
information. Using standard, non-proprietary network protocols and
technologies developed for the worldwide web, the SOLAR 9500 will interface
with other hospital record keeping systems and databases. It features a
highly-customizable graphical user interface (GUI) that gives the user the
freedom to design and "build" their own displays, placing information on
screen in whatever configuration that specifically meets their ever-
changing needs.
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Configured Bedside Monitors are very similar to modular bedside
monitors in their continuous vital signs monitoring capabilities. However,
configured monitors do not permit point-of-care configurability. In most
cases, these devices are used to monitor patients in places other than the
intensive care area such as, the emergency department, the general purpose
operating room, post-anesthesia care/recovery units or where general
purpose monitoring is needed.
The Company offers the EAGLE 4000, EAGLE 3000 and EAGLE/DASH 1000
configured bedside monitors.
The EAGLE 4000 is the most advanced of these products and is capable
of monitoring ECG with arrhythmia detection and alarm, respiration, non-
invasive and invasive blood pressure, temperature, oxygen saturation (using
the pulse oximetry), cardiac output and end tidal carbon dioxide levels in
its most highly configured form. The device can be purchased with either a
color TFT LCD or monochrome EL display. The EAGLE 4000 also accepts an
optional software module that provides for the acquisition and analysis of
12-lead ECGs. A battery operation and wireless LAN capabilities are
available as options.
The EAGLE 3000 is a lower priced instrument that offers fewer features
and a slightly smaller display than the EAGLE 4000. During 1997, the EAGLE
3000 expanded its capabilities by interfacing and integrating its SAM Smart
Anesthesia Multi-gas analysis module into the device. Through this
integration, patient information, vital signs values, data trends, alarms,
waveforms and gas analysis information now appear in one place on a single
display. The Company believes that this enhancement, together with the
device's feature set and price point, should enable the EAGLE 3000 to
further penetrate the configured bedside market segment.
The DASH 1000, or EAGLE 1000 as it is labeled outside the U.S., is the
first in a family of battery-powered portable monitors to be offered by the
Company. The device is a low-cost device available in a variety of
configurations and is especially well suited to compete in the cost-
sensitive markets outside the U.S.
In addition to bedside patient monitoring devices and systems, the
Company also offers Telemetry Monitoring Systems. Telemetry Monitoring
Systems continuously collect ECGs using small, battery-powered patient-worn
devices that transmit collected data via VHF or UHF radio frequency to
receiver units a central viewing station. Telemetry systems are designed
for patients who require at minimum ECG monitoring, but who are not
confined to their beds. In general, the patient populations requiring this
type of monitoring would consist of suspect cardiac patients, patients
recovering from a cardiac event, post surgical patients, or others in the
diagnostic or recovery process. Telemetry monitoring systems
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represent an increasing share of the market for monitoring equipment
because it allows patients to be ambulatory, which facilitates earlier
discharge from the hospital.
The Company competes in this category with its CD-Telemetry LAN System
and Apex-S Telemetry Transmitter. The Apex-S is a true multi-lead
transmitter capable of providing simultaneous multi-lead transmission and
display of any of seven standard leads (I, II, III, V, a VR, a VL, a VF).
In addition to multi-lead ECG transmission, the Apex-S also provides for
multi-parameter telemetry transmission. The Apex-S transmitter compliments
modular multi-parameter telemetry by interfacing to secondary pulse
oximetry and non-invasive blood pressure devices.
Centralized display of waveforms and other patient information
telemetry devices and bedside monitors is accomplished using the Company's
recently introduced PRISM Clinical Information Center (CIC). Using a
standard PC-Intel Pentium platform and Microsoft(R) Windows NT, the device
is capable of displaying information from 16 patients simultaneously. The
hardware platform provides the user the flexibility to mix-and-match screen
sizes and display types (CRT or flat-panel). The use of the Windows control
and display interface allows the user to access additional patient
information instantaneously.
Anesthetic and Respiratory Gas Monitoring Equipment are used in tandem
with the Company's other vital sign monitors and diagnostic products for
cardiopulmonary monitoring in anesthesia, post-operative recovery, critical
care and pulmonary function laboratories. Gas monitoring products are used
to verify the accuracy of anesthetic gas vaporizers and delivery systems
before, during and after surgery, and measure pulmonary functions such as
oxygenation and ventilation. Gas monitors also detect potentially life-
threatening conditions such as hyperventilation (excessive pulmonary gas
exchange), hypoventilation (inadequate pulmonary gas exchange), pulmonary
air embolus (air bubbles in the pulmonary blood stream), and equipment
malfunction during surgery.
The Company offers products using two methodologies for multiple gas
detection and analysis: mass spectrometry and infrared spectroscopy. The
Company's mass spectrometry product, the RAMS, provides a comprehensive
analysis of gases administered/monitored during surgery. The Company's
infrared spectroscopy product, consisting of the SAM IR Anesthetic Agent
Modules, allows for cost-effective intraoperative monitoring of anesthetic
agents, carbon dioxide, and oxygen.
Maternal/Fetal Monitoring Equipment provides electronic monitoring of
the fetal heart rate and uterine activity as well as maternal parameters
such as ECG, non-invasive blood pressure and pulse oximetry. The Company
offers a broad line of Corometrics
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brand perinatal products used in hospitals, physician offices and other
clinical settings for care of mother and child during pregnancy
(antepartum) and delivery (intrapartum).
The antepartum monitors, Models 145, 150 and 155 offer a full range of
non-invasive fetal surveillance throughout high risk pregnancies. The
ability to offer dual ultrasound heart rate for twin monitoring, external
uterine contraction monitoring and electronic fetal movement detection
allows flexibility in assessing fetal well-being during pregnancy.
The intrapartum monitors, Models 151, 118 and 340 Telemetry allow for
both non-invasive and invasive fetal ECG monitoring and uterine
contractions. In addition, the Model 118 was the first product to combine
fetal monitoring with maternal vital signs, non-invasive blood pressure and
oxygen saturation. This combined maternal/fetal monitor allows assessment
of the maternal and fetal response to labor events which may affect the
intrauterine environment, including anesthesia, induction of labor and
recovery of the mother. The Model 118 is ideally suited to the new concept
in obstetrical care of providing labor, delivery, recovery and postpartum
(LDRP) in one room. The Model 120 series expands the capability of the
Model 118 and provides a display of maternal ECG waveforms. This feature
allows the clinician advanced monitoring capability. The Model 340
Telemetry system allows ambulatory patients to be monitored during labor.
Neonatal Monitoring Equipment provides continuous monitoring of
neonates and allows clinicians to record, analyze and react to a neonate's
changing conditions. The Company's neonatal product line meets the
monitoring requirements of the less critical to the most critically ill
neonate. These monitors are capable of displaying multiple measurements
such as ECG, respiration, invasive pressures, temperatures, pulse oximetry
and non-invasive blood pressure. Using the Eagle and Solar monitoring
platforms, the Corometrics brand products have added neonatal features such
as superior respiration detection algorithms and trending, thereby
customizing these monitors to the needs of the neonate in the neonatal
intensive care unit. In addition, the more compact and cost effective Model
556 monitor is designed for lower acuity nurseries.
Home Care Monitoring Equipment incorporates the technological advances
of the Corometrics brand hospital based monitors with the simplicity that
home use requires. Corometrics introduced the first battery backup and
internal memory apnea monitor in the 1980s. In 1995, the Model 510/511
became the first apnea monitor with integrated pulse oximetry cleared by
the FDA for use in the home, and the Company believes the Model 510/511
remains the only monitor of its kind on the market today. The 500 series of
apnea products and Event-Link software allows home care clinicians to
15
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collect, store and analyze monitoring data to provide objective
documentation of alarm cause and effect, allowing more cost efficient care
of the patient in the home.
Clinical Information Systems integrate and store data coming from
multiple patient care areas. The data can be charted, reviewed and
presented in hospital selected formats that provide clinicians with a
comprehensive overview of patient status. Reports can then be generated
that provide the data in both clinical and administrative form to aid in
improving the quality of care in the most effective manner.
The Company's product platform, the QS System, is designed to
integrate data from all care areas, including labor and delivery, the
neonatal intensive care unit, general floor, intensive care unit, critical
care unit, operating room and perioperative unit. Interfaces also exist for
most lab and hospital information systems as well as for all Company
patient monitoring systems and the patient monitoring products of other
companies. Integrated clinical applications can include remote site access
that enables satellite hospitals, clinics and physicians to be linked to
the centrally-located system. The QS System can be customized to meet the
most basic entry level requirements to the most complex whole hospital
solutions involving wide area networks. The Company believes that one of
the primary advantages of the QS System is its ability to interconnect and
interface with hospital information systems through the Unity Network.
DIAGNOSTIC CARDIOLOGY
Marquette's diagnostic cardiology products are used to diagnose
cardiac disorders through the detection, recording and analysis of
electrical signals and other information relating to the heart. Coronary
artery disease is the leading cause of death of adult Americans today, and
accounts for over 20 percent of the national health care budget.
The Company estimates the worldwide market in which it participates
for diagnostic cardiology products is approximately $1 billion, of which
approximately $430 million is attributable to the U.S. An aging population,
the increasing trend towards preventative rather than corrective medicine
and a general preference for less invasive procedures are the factors
expected to generate increased demand for the Company's diagnostic
cardiology products.
Marquette believes its cardiovascular information solution, the MUSE
CV/TM/ information system, is one of the leading products used to store,
manage, process and deliver an entire cardiology patient file. The system
delivers advances in clinical decisions, process efficiency and information
access through hospital
16
<PAGE>
information system interfaces, network connectivity, internet technology,
and health care protocol standards.
In January 1996, the Company acquired E for M Corporation ("E for M").
Through the acquisition, Marquette added new cardiac imaging capabilities,
broadened its diagnostic cardiology product line and expanded its customer
base for cardiology systems. E for M's product lines also include high
quality cineangiography film and digital imaging products. Also, the E for
M acquisition, which included all of the stock in Hellige GmbH ("Hellige"),
added European manufacturing, marketing and distribution facilities. The
acquisition of E for M allowed the Company's MUSE CV cardiovascular
information system to expand its functionality into image and
electrophysiology management. Management believes Marquette has the only
complete Cath Lab solution providing electrophysiology and hemodynamic
monitoring, digital imaging and cardiology patient information management.
The following table provides information with respect to the Company's
principal diagnostic cardiology products:
<TABLE>
<CAPTION>
Approximate Intro-
List Principal duction Care
Product Category Price Range Products Date Area
- ---------------- ----------- --------- -------- -----
<S> <C> <C> <C> <C>
Resting ECG $ 1,800- Mac PC 1985 Intensive Care,
Equipment $ 15,000 Mac 6 1989 Acute Care,
Mac VU 1991 General Purpose,
Mac 8 1993 Emergency Care,
CardioSmart 1994 Sub Acute
MicroSmart 1996
QT Guard 1998 Research Applications
Exercise Testing $ 4,000- MAX 1 1989 General Purpose,
ECG Systems $ 23,000 CASE 16 1994 Sub Acute
MAX Personal 1995
CardioSys XT 1996
CardioSmart ST 1997
Holter (Ambulatory) $ 21,000- CENTRA 1989 Ambulatory Care,
ECG Equipment $ 60,000 SXP 1991 Home Care
Memoport 1995
MARS 1996
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cardiovascular $ 30,000- MUSE CV 1996 Intensive Care,
Information $1,000,000 Acute Care,
Systems General Purpose,
Emergency Care,
Sub Acute Care
Cardiac $ 2,000- Marquette Responder 1000 1998 Intensive Care,
Defibrillators $ 14,500 Marquette Responder 1100 1998 Acute Care,
GeneralPurpose,
CardioServ 1993 Emergency Care,
Marquette Responder 3000 1998 Portable and
Transport,
Sub Acute Care
Cardiac $ 90,000- MacLab 1990 Intensive Care
Catheterization $ 125,000 E for M 6000 1996 Cardiac Cath Lab
Equipment $ 160,000 E for M 8000 1996
Photo Image and $ 100,000- AccuVision Series 1995 Cardiac Cath Lab
Digital Image $ 125,000
Processing
Equipment
</TABLE>
Resting ECG Equipment is designed to record an ECG of a patient who is
at rest, and are generally mounted on a wheeled cart for movement to the
patient's bedside or elsewhere as needed. The Company's electrocardiographs
permit as many as 14 lead wires to be attached to patients, maximizing the
amount of data that can be acquired.
The Company's extensive line of resting electrocardiographs is
designed for use across the spectrum of care areas, including acute care
hospitals, outpatient surgery centers, ambulances and physicians' offices.
The Company's resting electrocardiographs perform immediate analysis
of ECGs, store ECGs for further analysis and can communicate ECGs
electronically to other electrocardiographs or other equipment, including
cardiovascular information systems, for storage and comparison.
Exercise Testing ECG Systems are used to diagnose cardiac disease and
assess its severity by stressing the heart through physical exercise to
elevate its blood flow requirement. While this stress exists, any
significant obstruction in the coronary
18
<PAGE>
arteries limits the flow of blood and results in cardiac dysfunction, which
can be detected by a physician using electrocardiography. The Company's
exercise testing ECG systems are predominantly used in physician offices
and hospitals. The Company's CardioSys/TM/ system is capable of
communicating ECGs electronically to other electrocardiographs or other
equipment, including cardiovascular information systems, for storage and
comparison.
Holter (Ambulatory) ECG Equipment is designed to provide ECG
information from an ambulatory patient who experiences intermittent
symptoms such as palpitations, angina or loss of consciousness through a
small recording device over the course of an extended period (usually 24
hours), in or out of the hospital. The Company has recently introduced MARS
(Multiparameter Analysis Review Station), a new generation of Holter
(ambulatory) ECG equipment. It combines the ability to analyze signals
acquired from the Company's line of intensive care or telemetry monitors
with those of a traditional Holter monitor, thus reducing the length of
stay for many patients who might otherwise be delayed in the hospital
waiting for tests to be performed or interpreted.
Cardiovascular Information Systems are designed to accept data from
outlying electrocardiographs via telephone line, diskette or direct
connection, store hundreds of thousands of ECGs and quickly retrieve them
for comparison with ECGs currently being reviewed.
The Company's latest cardiovascular information system, the MUSE
CV/TM/, is an open architecture system designed for hospitals. In addition
to storing, analyzing and retrieving ECGs taken at rest, MUSE CV provides
similar capability for Holter ECGs, exercise testing ECGs, and other
testing procedures and integrates all of the Company's diagnostic
cardiology products together through networking and computer processing,
creating a complete cardiology patient file. MUSE CV also provides an
interface to the hospital's information system. MUSE CV can generate
billing, activity and results reports which can assist a hospital or other
user in cost control and decrease of both unbilled and inaccurately billed
tests.
Many MUSE CV systems serve more than one hospital, with outlying
hospitals employing workstations connected to the central MUSE CV by
telephone lines, permitting cardiologists at the central hospital to assist
in treating large numbers of patients in wide geographical areas.
Cardiac Defibrillators are designed to restart the heart of victims of
sudden cardiac arrest, a severe form of heart attack. Cardiac arrest is
among the leading causes of death in the U.S. The highest incidence of
cardiac arrest occurs outside the hospital. The Company markets a number of
defibrillator models for
19
<PAGE>
pre-hospital and hospital use. The Company's hospital line of
defibrillators can be used in all care areas, including the exercise
testing lab, patient transport and the emergency department.
Cardiac Catheterization Equipment is used in various cardiovascular
procedures performed in the Cath Lab and the EP Lab. In vascular or
"hemodynamic" studies, the catheter, with attached physiological sensors,
is used to measure temperature and blood pressure in various parts of the
heart and the surrounding circulatory system, as well as determining the
volume of blood being pumped by the heart. Electrophysiology studies are
performed to evaluate the process of the conduction of electricity through
the heart as the heart contracts and to diagnose the mechanisms of abnormal
heart rhythm. The Company's E for M System 8000 is the only system that
combines complete electrophysiology and hemodynamics into one workstation,
maximizing the utilization of the workstation. The system is specially
configured to assist cardiologists with fast, accurate collection and
analysis of physiological data.
Photo Image and Digital Image Processing Equipment is used to view the
performance and function of a patient's coronary vasculature to assist in
the detection, diagnosis, treatment and prevention of cardiac diseases and
injuries, particularly in connection with cardiac catheterization and
echocardiography. The Company's photographic and digital imaging systems
allow the capture, storage and review of these images. The Company's
photographic systems utilize a variety of 35mm high grade films produced
under the Company's label by third-party manufacturers and offer a number
of different processing chemistries. The Company's digital image processing
systems capture analog images from X-ray, and convert them to digital
images. These systems then manage the digitized images so they can be
enhanced, quantified, reviewed in real-time, transmitted over networks
and/or archived on CD-R media. The Company does not manufacture or sell the
X-ray or other imaging source associated with this process.
SUPPLIES AND DISPOSABLES
The Company manufactures, markets and distributes a broad spectrum of
disposable supplies and disposables used primarily in conjunction with the
Company's large installed base of patient monitoring systems and diagnostic
cardiology products. These products include ECG and other recording paper,
monitoring and diagnostic electrodes, patient belts and straps, disposable
and reusable blood pressure cuffs, disposable water traps, temperature
probes, pulse oximetry probes and ambulatory ECG/telemetry hookup kits. In
addition, the Company utilizes its product expertise and manufacturing
capacity to produce private label products for third parties.
20
<PAGE>
The Company seeks to continue to leverage its installed base to further
increase sales of supplies and services related to its equipment.
Additionally, the Company seeks to leverage the brand-name recognition
generated through its equipment sales to increase sales of technology-
distinguished supplies related to a broad range of medical products manufactured
by the Company and others. To implement this strategy the Company recently
created supplies and disposable products as a separate division of the Company
and devoted additional management resources to the division.
CUSTOMER SERVICE
The Company's service operations are responsible for equipment installation
at customers' sites and for the fulfillment of the Company's warranty and
maintenance commitments. Most equipment sold by the Company is fully warranted
for all parts and labor for one year or on a 90 days labor, 3 years parts basis.
The Company offers a variety of post-warranty service agreements permitting
customers to contract for the level of equipment maintenance and repair they
require.
In addition to warranty and post-warranty maintenance service, the Company
performs circuit board and modular component repairs on a 48-hour return basis,
and manufactures and markets replacement parts to the Company's dealers and
equipment users. The Company offers repair and maintenance training classes
throughout the year for customers and dealers. In addition, the Company
supports customers, dealers and the Company's field personnel by providing
telephone assistance on service problems.
The Company has a national network of approximately 179 service technicians
and 5 project managers located throughout the U.S., and approximately 125
service technicians located in Europe. At its operations in Germany, the Company
operates a parts and support center for European service. In some foreign
countries, if direct Company field engineers and technicians are not
conveniently located, employees of local dealers provide warranty and field
maintenance service.
RESEARCH AND DEVELOPMENT
Marquette has made a substantial commitment to product research and
development throughout its history and has introduced major new products in each
of its product lines during the past three years. The Company expended $37.3
million, $48.1 million and $52.6 million on research and development, which
represented approximately 9.0%, 8.9% and 9.1% of net sales for the fiscal years
21
<PAGE>
ending April 30, 1996, 1997, and 1998, respectively. Marquette has leveraged
its expertise in microprocessor design, advanced circuit development and
software programming to establish itself as a global leader in physiological
data acquisition and analysis.
The Company has well-known core competencies in ECG signal acquisition and
analysis, pulse oximetry monitoring, invasive and non-invasive blood pressure
measurement, cardiac output determination and respiratory gas analysis, and is
actively involved in the advancement of measurement techniques and algorithms
associated with each area. The Company's primary product development efforts
are carried out at the division level. In addition, the Company maintains a
17,000 square foot dedicated Research and Development Center approximately one
mile from its corporate offices in Milwaukee, Wisconsin.
The Company's research and development strategy is to improve and expand
its product line through innovative engineering and to create diagnostic and
monitoring technologies that address problems brought to its attention by
contacts in the medical community, particularly those technologies which improve
quality of care and reduce costs. For example, Marquette's telemetry products
improve the quality of care by tracking ambulatory patients and alerting the
nurse at the central control station if the patient has an event. Additionally,
the Solar 8000 modular bedside monitor was recently redesigned to reduce
production costs by reducing the number of circuit boards from three to one and
by utilizing an off-the-shelf display. In addition, the Company seeks to be
first to market with new products, to enter new markets and to respond to market
trends.
The Company's product engineers work closely with the Company's sales force
and customers to modify and improve current products. In addition, these
engineers assist with the integration of components or technologies across
several Company product lines to enhance product competitiveness.
SALES, DISTRIBUTION AND MARKETING
The Company's products are used principally in the critical and intensive
care units, operating and recovery rooms, step-down units and related areas of
acute care hospitals, particularly those institutions specializing in the
diagnosis and treatment of heart disease, together with labor and delivery
units. Marquette products increasingly are also being used in medical clinics,
outpatient surgery centers, physician offices and the home.
The U.S. has been the principal geographic market for the Company's
products. Over the past ten years, the Company has sought to develop its
international market standing. International sales decreased from approximately
39% in fiscal 1997 to
22
<PAGE>
approximately 36% in fiscal 1998, such decrease being principally attributable
to the effects of the strengthening U.S. Dollar.
The Company has a direct sales force in the U.S. of approximately 277 sales
representatives, clinical specialists, and managers, as well as 7 national
account managers. In addition, the Company has approximately 120 and 10 direct
sales employees in Europe and Australia, respectively, as well as numerous
dealers in both markets. The remaining international markets, primarily Japan,
China, Southeast Asia, India, Latin America and Canada, are served by
distributorship arrangements under which a local dealer buys products from the
Company at a discount for resale within its own territory.
Because most Company products are highly technical requiring extensive
training in their application and operation, the Company's sales organization is
organized along divisional product lines, including technical support groups
which consist primarily of nurses, biomedical engineers and clinicians. In
addition, the Company believes its reputation in diagnostic cardiology enables
it to obtain an entry to patient monitoring systems sales. The Company has also
designated certain senior sales personnel to act as "Unity Team Managers" to
coordinate multiple product line sales to the same customer. The Company
maintains demonstration equipment so that sales personnel can make on-site
clinical demonstrations for equipment sales. The Company offers technical
seminars and training sessions on a worldwide basis, and furnishes instruction
manuals, maintenance manuals, operator guides, application information and
software in foreign languages, as required.
In recent years, many hospitals have joined buying groups or have been
acquired by large hospital chains permitting them to negotiate with suppliers of
hospital equipment to obtain more favorable pricing on large quantity purchases.
In addition, some large hospitals, chains and buying groups prefer to negotiate
with a limited number of vendors who can provide a broad range of products used
by the hospital or group.
While the Company believes that the existence of these groups will present
a marketing opportunity for the Company, there can be no assurance that the
Company will be able to negotiate purchasing arrangements with all of these
groups or on terms that are favorable to the Company. The Company currently has
purchasing arrangements in place with many national and regional hospital
systems, including Columbia/HCA Healthcare Corporation, Tenet Healthcare, Inc.,
and many purchasing groups, including MAGNET, AmeriNet, and CMMA (Catholic
Materials Management Alliance), as well as with various subdivisions of the
federal government.
23
<PAGE>
The Company has an arrangement with a third party leasing company which
provides customer financing. Under this arrangement, the Company is paid in
full for its products, and the leasing company assumes credit risks. The
Company also directly provides lease financing in certain circumstances and
equipment rentals.
The Company also offers a Managed Use Program, permitting hospitals to make
payments to the Company based upon the frequency of use of equipment by the
hospital. Under the Managed Use Program, the Company has the right to increase
or reduce the number of equipment units deployed at the hospital to correlate
with the degree of use of the units at the hospital.
The Company believes that the program is being well received by the market
and will further facilitate distribution of the Company's products by permitting
hospitals to better correlate their equipment to their needs.
The Company markets and distributes its supplies in the U.S. through an in-
house telemarketing group, its national direct sales force and a number of
dealers. The Company distributes its supplies outside of the U.S. through its
direct sales force in Europe, its Australian subsidiary and through independent
dealers.
MANUFACTURING
Marquette internally controls all critical manufacturing processes,
including state-of-the-art circuit board assembly and thick film hybrid and
multichip module assembly, utilizing advanced assembly and subassembly burn-in
systems. The Company partners with major suppliers by locating supplier
inventories on Marquette premises, thereby reducing Company inventory costs and
improving access to technical components.
The Company believes that its facilities are modern, well maintained and
adequate for its present needs. (See Item 2-Properties).
COMPETITION
The markets for the Company's products have historically been highly
competitive. The consolidation of health care providers in the U.S. and the
national effort to curtail increases in medical care costs have increased the
level of competition. Although the Company competes directly with other
providers of medical equipment, no one company or group of companies competes
with the Company across its full line of products. The Company's primary
competitors in patient information monitoring include Hewlett-Packard
Corporation, Siemens Medical Systems, Inc.,
24
<PAGE>
SpaceLabs Medical, Inc. and Datex Company, and in diagnostic cardiology include
Hewlett-Packard Corporation, Schiller AG and Quinton Instrument Company, a
subsidiary of American Home Products Corporation. Certain of these competitors
are larger and have greater financial and marketing resources than Marquette.
The principal competitive factors that differentiate one manufacturer from
another in the market are a manufacturer's reputation for producing accurate,
reliable and technically advanced products, product features, product line
breadth, price, expected medical cost savings and effectiveness of sales and
marketing efforts.
The Company believes that it has a reputation for technological leadership
and product reliability, which, with its working relationship with physicians at
teaching and research hospitals as well as the breadth of its product line, have
provided it with a strong competitive position.
The Company's competitive position is strongest with respect to its
cardiology product line and fetal and neonatal monitoring products, where the
Company has been selling its products for the longest period of time, has the
greatest name recognition and competes primarily on the basis of product
features and technological advances.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are subject to
extensive and rigorous regulation by the FDA and, in many instances, by state
and foreign governments. Under the FDC Act, the FDA regulates, among other
things, the testing, manufacturing, labeling, distribution and promotion of
medical devices in the U.S. To facilitate compliance with the FDC Act and
regulations promulgated thereunder, the Company, from time to time, may
institute voluntary compliance actions such as product recalls when it believes
it advisable to do so. The failure of the Company to comply with FDA
requirements could result in warning letters, injunctions, civil penalties,
mandatory recall or seizure of products, total or partial suspension of
production, the government's refusal to grant, or withdrawal of, marketing
authorizations, and criminal prosecution.
In general, before a new medical device may be marketed in the U.S., the
manufacturer must obtain marketing authorization from the FDA through either
clearance of a pre-market notification submission (a "510(k) submission") or
approval of a pre-market approval application. In addition, changes to a
medical device that significantly affect the safety or efficacy of a marketed
device are subject to FDA review and clearance or approval.
25
<PAGE>
The Company's products have not generally been subject to the comprehensive
pre-market approval requirements, but are generally subject to pre-market
notification requirements. The FDA may grant marketing clearance of a new
medical device pursuant to a 510(k) submission if it determines that the device
is substantially equivalent to a predicate device that did not require pre-
market approval. A 510(k) submission must be supported by information
demonstrating substantial equivalence. The FDA recently has been requiring more
rigorous demonstration of substantial equivalence than in the past, including
the submission of clinical data in some cases. It generally takes from four to
12 months from submission to obtain clearance of a 510(k) submission, but it may
take longer. The FDA has no specific time limit by which it must respond to a
pre-market notification submission.
As a manufacturer of medical devices, the Company is also subject to
certain other FDA regulations, including compliance with current good marketing
practices ("GMPs") and similar regulations in other countries, which include
testing, control and documentation requirements, and medical device reporting
requirements. The FDA recently revised its medical device GMP regulation, and
the new regulation, which goes into effect later this year, permit the FDA to
regulate the design as well as manufacture of medical devices and make a number
of other significant changes in regulatory requirements. Ongoing compliance
with GMP and other applicable regulatory requirements is monitored through
periodic inspections by federal and state agencies, including the FDA, and by
comparable agencies in other countries.
Federal, state and foreign regulations regarding the development,
manufacture and sale of medical devices are subject to change. The Company
cannot predict what impact, if any, such changes might have on its business.
The Company also seeks, where appropriate, to comply with safety standards of
Underwriters Laboratories, the Canadian Standards Association, the European
Economic Community and other countries in which it markets products.
The Company's products are used by health care providers for diagnostic
testing services and other services for which the providers may seek
reimbursement under the federal Medicare and Medicaid programs or from other
governmental and private payers. Such reimbursement is subject to federal
regulations and policies and regulations of other payers. For example, the
Medicare program, which reimburses hospitals and physicians for services
provided to a significant percentage of hospital patients, places certain
limitations on the methods and levels of reimbursement of hospitals for
procedure costs and for capital expenditures made to purchase equipment such as
that sold by the Company. The Medicare program also limits the level of
reimbursement to physicians for diagnostic tests and recently has instituted
changes that may
26
<PAGE>
further limit the amount of such reimbursement of both facilities and physicians
for services provided in connection with diagnostic and clinical procedures.
Federal and state regulations regarding the amount and manner of reimbursement
are subject to change. National health remains a priority item on its
legislative agenda and there are a number of bills presently being considered in
both Houses of Congress. The Company is unable to predict the impact, if any,
that such change or legislation might have on its business.
In addition to laws and regulations enforced by the FDA, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Resource Conservation and Recovery Act and
other present and potential future federal, state and local regulations.
PRODUCT LIABILITY AND INSURANCE
The use of the Company's products in the delivery of medical services
involves the possibility of adverse effects that could expose the Company to
product liability claims. A recent U.S. Supreme Court decision held that
product liability may exist despite FDA approval and future court decisions may
also increase the Company's risk of product liability. The Company is involved
in various legal proceedings, including product liability suits of a nature
considered normal to its business. The Company's products are used by health
care providers in connection with the treatment of patients, who will, on
occasion, sustain injury or die as a result of their condition or medical
treatment. If a lawsuit is filed because of that occurrence, the Company, along
with physicians and nurses, hospitals and other medical suppliers, may be named
as a defendant, and whether or not the Company is ultimately determined to be
liable, the Company may incur significant legal expenses. In addition, such
litigation could damage the Company's reputation and therefore impair its
ability to market its products, and impair its ability to obtain product
liability insurance or cause the premiums for such insurance to increase. The
Company carries product liability insurance coverage under several policies with
an aggregate loss coverage which the Company believes is sufficient.
However, in the future the Company may be unable to obtain adequate product
liability coverage on acceptable terms, if at all. A successful product
liability claim or series of claims brought against the Company that are not
covered by insurance or exceed policy limits could have a material adverse
effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
27
<PAGE>
At April 30, 1998, the Company had approximately 2,371 employees in the
U.S. and approximately 754 employees outside the U.S., including approximately
832 employees engaged primarily in sales, approximately 959 employees engaged
primarily in manufacturing, approximately 540 employees engaged primarily in
research and product development and approximately 595 employees primarily
engaged in service. Management considers employee relations to be excellent.
The Company believes that high levels of employee support and participation
significantly contribute to the Company's business success. Therefore, the
Company has implemented various employee benefit programs and work-related
policies. Employees are permitted to personalize their work areas and determine
their own flexible work schedules. The Company also provides many of its
employees with day care facilities, exercise facilities, and a tuition
reimbursement program. It also encourages direct and individual ownership by
employees of Common Stock through its 401(k)- Profit Sharing Plan and grants of
stock options.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding executive officers who are not
also directors.
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Mary M. Kabacinski 48 Senior Vice President,
Chief Financial Officer
and Treasurer
Steven G. Books 48 Senior Vice President
Gerald J. Lentz 51 Senior Vice
President-Service
Gary Close 46 Senior Vice President-
Monitoring
P. Michael Breedlove 54 Vice President-Business
Development-Imaging
Louis P. Scafuri 46 Chief Operating
Officer, President-
Cardiology Group
Diagnostics
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
Mark R. Tauscher 46 Senior Vice President-
Supplies
Kevin Lindsey 41 Vice President and
Comptroller
</TABLE>
Mary M. Kabacinski became a Senior Vice President of the Company in August,
1996, Vice President and Chief Financial Officer of the Company in July, 1991
and Treasurer of the Company in 1989. Prior to her employment with the Company,
Mrs. Kabacinski was a tax manager at Arthur Andersen LLP.
Steven G. Books became a Senior Vice President of the Company in February,
1998. Mr. Books was Division President-Cardiology from May, 1996 to February,
1998. Mr. Books was Vice President-Cardiology Division from June, 1994 to May,
1996 and a manager in the Company's manufacturing and engineering departments
from 1982 to June, 1994.
Gerald J. Lentz became Senior Vice President-Service in February, 1998.
Mr. Lentz was Division President-Service from May, 1996 to February, 1998. Mr.
Lentz was a Product Manager from June, 1994 to May, 1996 and National Service
Manager from February, 1977 to June, 1994.
P. Michael Breedlove became Vice President-Business Development-Imaging in
May, 1998. Mr. Breedlove was Division President-E for M Imaging Services from
May, 1996 until February, 1998 when he was named Senior Vice President-
Cardiology. Mr. Breedlove was Division President-E For M Imaging Services from
May, 1996 to February, 1998, Vice President-Field Operations for E For M from
October, 1995 to May, 1996, and a Vice President of Cerner Corporation from 1993
until October, 1995 and Managing Director of Cerner Corporation PTY LTD from
1991 until 1993. Mr. Breedlove was Vice President-Sales and Marketing of Cerner
Corporation from 1984 to 1991.
Louis P. Scafuri became Chief Operating Officer and President-Cardiology
Group in February, 1998 and was Division President-Corometrics Medical Systems,
from May, 1996 to February, 1998. Mr. Scafuri has also been President of
Corometrics since September, 1995. Mr. Scafuri was a Vice President of Aspect
Medical Systems, Inc. from September, 1992 to August, 1995. Mr. Scafuri was
Director of Sales, Western Hemisphere, for the Company from May, 1991 to
September, 1992 and held various field sales management positions throughout the
Company prior to May, 1991.
Mark R. Tauscher became Senior Vice President-Supplies in February, 1998.
Mr. Tauscher was Division President-Supplies from
29
<PAGE>
November, 1996 to February, 1998. Mr. Tauscher was General Manager of Medical
Supplies for Hewlett Packard Corporation from 1994 to November, 1996. Prior to
joining the Company, Mr. Tauscher was employed at Hewlett Packard for 21 years,
where he also held the positions of Director of National Accounts and Marketing
Manager for medical customer service.
Kevin Lindsey became Comptroller of the Company in 1985 and a Vice
President of the Company in August, 1997. From 1982 until 1985, Mr. Lindsey
served as Tax Manager of the Company.
Gary Close became Senior Vice President-Monitoring of the Company in May,
1998. Mr. Close was Vice President of Marketing-Monitoring Division from July,
1996 until May, 1998, Director of Marketing-Monitoring Division in June, 1995
until July, 1996, and as Marketing Manager from September, 1994 until June,
1995. Prior to joining the Company, Mr. Close was Vice President of Marketing
and Sales of Digital Ocean, Inc., a WLAN manufacturer, from March, 1994 until
September, 1994. He was Vice President-Marketing and Engineering of Criticare
Systems, Inc. from September, 1991 until March, 1994.
ITEM 2. PROPERTIES
The following table sets forth certain information as of April 30, 1998,
relating to the Company's principal real estate facilities:
<TABLE>
<CAPTION>
Location
(Owned or Approximate
Leased) Square Feet Principal Uses
- ------------- --------------- --------------
<S> <C> <C>
Freiburg, Germany
(owned) 140,000 Engineering, research and development,
marketing and manufacturing of
diagnostic and monitoring products,
primarily for European distribution.
Freiburg, Germany 35,100 Research and development, marketing and
(leased until sale and purchasing until for Hellige
September 30, 2006) manufactured products
</TABLE>
30
<PAGE>
Jupiter, Florida 180,000 Manufacturing, engineering and marketing
of supplies and (owned) cardiac
catheterization products and repair and
maintenance of products
Milwaukee, 295,000 Corporate offices, engineering, research
and Wisconsin development, and marketing
and (owned) manufacturing of diagnostic
and adult monitoring products
Paris, France 8,000 Marketing and sales, general
(leased until administration
February, 1999)
Torrance, California 65,500 Engineering, research and development
(leased until December, and marketing and manufacturing of
2004) imaging systems
Wallingford, CT 180,000 Engineering, research and development
(owned) and marketing and manufacturing of fetal
and neo-natal monitoring and diagnostic
products
The Company believes that its manufacturing facilities are sufficient for
its current needs. Because approximately 75% of its manufacturing capacity is
presently being utilized, the Company believes that such facilities are
sufficient for the next three years based on the Company's expected rate of
growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding other than
ordinary routine litigation incident to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
31
<PAGE>
None
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Security
Holder Matters
The section labeled "General Information" appearing on page 49 of the
Company's 1998 Annual Report to Shareholders is incorporated herein by
reference.
The Registrant has two classes of stock, Common Shares, $0.10 par value,
and Preferred Shares, without par value. There are no Preferred Shares
outstanding.
ITEM 6. Selected Financial Data
The section labeled "Five Year Summary of Selected Financial Data"
appearing on page 5 of the Company's 1998 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section labeled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 42 through 47 of the
Company's 1998 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. Financial Statements and Supplementary Data
The Report of Independent Public Accountants appearing on page 41 and the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
appearing on pages 20 through 40 of the Company's 1998 Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. Changes in, and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
32
<PAGE>
ITEM 10. Directors and Executive Officers of the Registrant
(a) The section labeled "Nominees" appearing on page 2 of the
Company's Proxy Statement dated June 25, 1998 is incorporated herein by
reference.
(b) Information concerning the Company's executive officers who are
not directors is set forth in Part I of this Form 10-K.
(c) Section 16(a) Beneficial Ownership Reporting Compliance. Section
-------------------------------------------------------
16(a) of the Securities Exchange Act of 1934 requires the Company's Directors
and Executive Officers, and persons who own more than 10% of a registered class
of the Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
equity securities of the Company. Officers, directors and greater than 10%
shareholders are required by regulation to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that its officers, directors and
greater than 10% beneficial owners complied with all applicable Section 16(a)
filing requirements, except for the omission to reflect on the Form 4 (Statement
of Changes in Beneficial Ownership) by Frederick A. Robertson for the month of
December, 1997, the purchase of 2,000 shares of the Company's equity securities.
An amended Form 4 was filed by Dr. Robertson for April, 1998 correcting the
omission.
ITEM 11. Executive Compensation
The sections labeled "Executive Officer Compensation" and "Report of the
Human Resources Committee" appearing on pages 6 through 10 of the Company's
Proxy Statement dated June 25, 1998 is incorporated herein by reference to the
extent necessary to be responsive to the requirements of this Item.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Stock Ownership of Management and Others" appearing on
pages 5 and 6 of the Company's Proxy Statement dated June 25, 1998 is
incorporated herein by reference.
33
<PAGE>
ITEM 13. Certain Relationships and Related Transactions
The subsection labeled "Certain Transactions" appearing on pages 11 and 12
of the Company's Proxy Statement dated June 25, 1998 is incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements
The following Financial Statements
are included in the Company's
1998 Annual Report to Shareholders Page in 1998
and are incorporated herein by Annual Report
reference pursuant to Item 8: to Shareholders
Consolidated Balance Sheets at 2
April 30, 1998 and 1997
Consolidated Statements of Income 22
for the years ended April 30, 1998,
1997 and 1996
Consolidated Statements of Cash Flows 23
for the years ended April 30, 1998,
1997 and 1996
Consolidated Statements of Shareholders' 24
Equity for the years ended April 30,
1998, 1997 and 1996
Notes to Consolidated Financial 25
Statements
Selected Quarterly Data (Unaudited) 40
Report of Independent Public Accountants 41
2. Index to Financial Statement Schedules
The following schedule is filed as part of this Report on Form 10-K
and is covered by the "Report of Independent Public Accountants on Supplementary
Schedule" included herein.
34
<PAGE>
Schedule
Number Description
------ -----------
II Valuation and Qualifying Accounts
All other financial statement schedules not listed have been omitted since
the required information is included in the consolidated statements or the notes
thereto, or is not applicable or required under the rules of Regulation S-X.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To the Shareholders of Marquette Medical Systems, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Marquette Medical Systems, Inc.'s Annual
Report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated June 1, 1998. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedule listed
in the index at item 14(a)(2) is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin,
June 1, 1998
36
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance Additions Additions Write-Offs Balance
Beginning Charged Due to Net of End
of Year to Income Acquisitions Recoveries of Year
<S> <C> <C> <C> <C> <C>
Year ended
April 30,
1996 $1,066 $817 $5,427 $880 $6,430
Year ended
April 30,
1997 $6,430 $398 $ -0- $2,664 $4,164
Year ended
April 30,
1998 $4,164 $ 89 $ -0- $ ( 30) $4,283
</TABLE>
3. Exhibits
Exhibit
No.
2.1 Stock Purchase Agreement by and between the Company, AHP
Subsidiary Holding Corporation and American Home Products
Corporation dated April 7, 1994 (filed as Exhibit 2 to Form 8-K
dated May 31, 1994 and incorporated herein by reference). All
schedules to the Agreement have been omitted, the Company hereby
agreeing to furnish supplementary a copy of any omitted schedule
to the Commission upon request.
37
<PAGE>
2.2 Closing Date Agreement between Marquette Electronics, Inc., AHP
Subsidiary Holding Corporation and American Home Products
Corporation dated May 23, 1994 (filed as Exhibit 2 to Form 8-K
dated May 31, 1994 and incorporated herein by reference)
2.3 Offer to Purchase for Cash dated November 10, 1995 made by
Marquette Subcorp (filed as Exhibit (a)(1) to Schedule 14D-1 filed
on November 13, 1995 and incorporated herein by reference)
2.4 Agreement and Plan of Merger dated as of November 5, 1995 between
Registrant, Marquette Subcorp and E For M Corporation (filed as
Exhibit (a)(10) to Schedule 14D-1 filed on November 13, 1995 and
incorporated herein by reference)
3.1 (a) Restated Articles of Incorporation (filed as Exhibit 1.1 to
Form S-1 Registration Statement No. 33-35642, filed June 29, 1990
and incorporated herein by reference)
(b) Articles of Amendment to Amended and Restated Articles of
Incorporation (filed as Exhibit 99.2 to Form 8-K dated August 22,
1996 and incorporated herein by reference)
(c) Articles of Amendment to Amended and Restated Articles of
Incorporation dated December 18, 1996
(d) Articles of Amendment to Amended and Restated Articles of
Incorporation dated August 13, 1997
3.2 (a) Amended and Restated By-Laws of the Registrant adopted as of
January 8, 1996 (filed as Exhibit 3.2(a) to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
(b) Amendment No. 1 to Amended and Restated By-Laws of the
Registrant adopted May 21, 1996 (filed as Exhibit 3.2(b) to Form
10-K for the fiscal year ended April 30, 1996 and incorporated
herein by reference)
(c) Amendment No. 2 to Amended and Restated By-Laws of the
Registrant adopted November 20, 1996
(d) Amendment No. 3 to Amended and Restated By-Laws of the
Registrant adopted June 24, 1997
38
<PAGE>
(e) A complete copy of the By-Laws as amended to date
4.1 Rights Agreement dated as of December 18, 1996 between Registrant
and Firstar Trust Company as Rights Agent (filed as Exhibit 4 to
Form 8-K dated December 18, 1996 and incorporated herein by
reference)
10.1 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Michael J. Cudahy, dated April 6, 1992
(filed as Exhibit 10.67 to Form 10-K for the fiscal year ended
April 30, 1992 and incorporated herein by reference)
10.2 Post-Death Option Agreement, by and between Marquette
Electronics, Inc. and Warren B. Cozzens, dated April 6, 1992
(filed as Exhibit 10.68 to Form 10-K for the fiscal year ended
April 30, 1992 and incorporated herein by reference)
10.3 Amended and Restated Stock Option Plan for Employees of Marquette
Electronics, Inc. (filed as Exhibit 10.70 to Form 10-K for the
fiscal year ended April 30, 1992 and incorporated herein by
reference)
10.4 Amendment No. 1 to Amended and Restated Stock Option Plan for
Employees of Marquette Electronics, Inc. adopted September 10,
1993 (filed as Exhibit 10.15 to Form 10-K for the fiscal year
ended April 30, 1994 and incorporated herein by reference)
10.5 Amendment No. 2 to Amended and Restated Stock Option Plan for
Employees of Marquette Electronics, Inc. adopted June 2, 1994
(filed as Exhibit 10.16 to Form 10-K for the fiscal year ended
April 30, 1994 and incorporated herein by reference)
10.6 Amendment No. 3 to Amended and Restated Stock Option Plan for
Employees of Marquette Electronics, Inc. adopted May 21, 1996
(filed as Exhibit 10.6 to Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference)
10.7 Letter Agreement between the Company and Warren B. Cozzens dated
July 11, 1994 (filed as Exhibit 10.21 to Form 10-K for the fiscal
year ended April 30, 1994 and incorporated herein by reference)
39
<PAGE>
10.8 Marquette Electronics, Inc. Directors (non-employee) Stock Option
Plan adopted August 19, 1993 (filed as Exhibit 10.23 to Form 10-K
for the fiscal year ended April 30, 1994 and incorporated herein
by reference)
10.9 Loan Agreement dated May 31, 1994 between Marquette Electronics,
Inc., M&I Marshall & Ilsley Bank and NBD Bank, N.A. (filed as
Exhibit 10.19 to Form 10-K for the fiscal year ended April 30,
1995 and incorporated herein by reference)
10.10 Marquette Electronics, Inc. Management Deferred Compensation
Plan, as adopted on February 9, 1996 (filed as Exhibit 10.13 to
Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference)
10.11 Stock Purchase Agreement, dated July 1, 1996, between the
Registrant, E For M Corporation and Polar Vision, Inc. (filed as
Exhibit 10.16 to Form 10-K for the fiscal year ended April 30,
1996 and incorporated herein by reference)
10.12 Loan Agreement between Registrant and M & I Marshall and Ilsley
Bank, Wachovia Bank of Georgia N.A. and NBD Bank, N.A. dated
December 12, 1995 (filed as Exhibit 10.17 to Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference)
10.13 Commercial and Industrial Lease Agreement dated March 29, 1995
between Bond Street Building Co. and E For M Corporation (a
wholly-owned subsidiary of Registrant) (filed as Exhibit 10.19 to
Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference)
10.14 Standard Industrial/Commercial Single Tenant-Tenant Lease Net
dated May 24, 1994 between Albor Properties One LP and Enhanced
Imaging Technologies, Inc. (now known as E For M Corporation)
(filed as Exhibit 10.20 to Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference)
10.15 Stock Option dated June 24, 1997 issued by Registrant to Michael
J. Cudahy (filed as Exhibit 1 to Form 8-K dated July 2, 1997 and
incorporated herein by reference)
40
<PAGE>
10.16 Severance Agreement dated February 27, 1998 between the
Registrant and Frederick A. Robertson
10.17 Severance Agreement dated March 11, 1998 between Registrant and
Timothy C. Mickelson
10.18 Marquette Medical Systems, Inc. Global Employee Stock Sharing
Plan
10.19 Indemnity Agreement dated February 27, 1998 between Registrant
and Frederick A. Robertson
10.20 Marquette Medical Systems, Inc. Profit-Sharing and 401(k) Plan
(as amended and restated) effective as of January 1, 1998
10.21 Amendment No. 1 adopted February 20, 1998 to the Marquette
Medical Systems, Inc. Profit-Sharing and 401(k) Plan (as amended
and restated)
13.1 1998 Annual Report to Shareholders
Exhibit
No.
21.1 List of subsidiaries
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July 15, 1998.
MARQUETTE MEDICAL SYSTEMS, INC.
By: /s/ Frederick A. Robertson
---------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
Chief Executive
/s/Frederick A. Robertson Officer,
- ----------------------------- Director July 15, 1998
Frederick A. Robertson
Principal Financial Officer: Senior Vice
Vice President,
/s/ Mary M. Kabacinski Chief Financial
- ----------------------------- Officer,
Mary M. Kabacinski Assistant
Secretary July 15, 1998
Directors:
/s/ John G. Bollinger
- -----------------------------
John G. Bollinger Director July 15, 1998
/s/ Michael J. Cudahy Chairman of the
- ----------------------------- Board, Director July 15, 1998
Michael J. Cudahy
42
<PAGE>
/s/ Frederick G. Luber Director July 15, 1998
----------------------------
Frederick G. Luber
/s/ Melvin S. Newman
----------------------------
Melvin S. Newman Director July 15, 1998
/s/ Walter L. Robb
----------------------------
Walter L. Robb Director July 15, 1998
/s/ Frederick A. Robertson
----------------------------
Frederick A. Robertson Director July 15, 1998
43
<PAGE>
EXHIBIT 10.16
-------------
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement") is entered into as of this
27th day of February, 1998 by and between MARQUETTE MEDICAL SYSTEMS, INC., a
Wisconsin corporation (the "Company"), and FREDERICK A. ROBERTSON, an individual
residing at 108W Ironwood Lane, Mequon, Wisconsin 53092 ("Employee"); and
WHEREAS, Employee is a Director and Chief Executive Officer of the
Company, having been elected to such positions in November, 1997;
WHEREAS, the Employee has been associated with the Company for a
number of years and has extensive knowledge, contacts and experience relating to
the Company's product line, marketing plans, strategies, and financial affairs;
WHEREAS, as an inducement for the Employee to sever certain business
relationships that were of benefit to the Employee incident to his election to
the office of Chief Executive Officer, the Company has agreed to provide to the
Employee certain benefits upon the severance of his employment relationship with
the Company; and
NOW, THEREFORE, in consideration of these premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. In the event that the Company shall terminate the Employee's
employment on or before November 30, 1999, other than for reasons of issues
involving moral turpitude, the commission of a crime, gross dereliction in
his duties or insubordination, the parties agree that the Employee, during
the Consulting Period and subject to the terms of this Agreement, will
provide general consulting and advisory services to the Company with
respect to those Company matters as to which the Employee has knowledge and
which the Company shall, from time to time, request the Employee's
assistance. The services to be rendered by Employee hereunder will be
performed by the Employee at such place as the Employee may determine and
shall be substantially in the form of telephone advice and occasional
meetings.
2. The term of Employee's consultancy hereunder (the "Consulting Period")
shall commence on the effective date of his termination of employment and
shall expire ninety (90) days thereafter.
3. (a) As compensation for the consulting and advisory services to be
rendered by Employee to the Company hereunder, the Company shall pay to the
Employee a fee (the "Consulting Fee") in an amount equal to the base salary
of the Employee in effect as of the date of his termination, such fee to be
paid in twelve (12) equal monthly installments on the first day of each of
the twelve calendar months succeeding the effective date of the Employee's
termination (the "Payment Period") while this Agreement remains in effect.
<PAGE>
(b) The Employee agrees that if, during the Payment Period, he
becomes employed by or associated with as an employee, partner, member or agent
or officer or director of any organization engaged in the manufacture, design or
sale of medical devices or equipment competitive with any medical devices or
equipment sold by the Company, the Company's obligation to continue to make
payments hereunder shall immediately terminate and, to the extent any payments
are thereafter made, the Company shall have the right to recover any such
payments made following such affiliation.
(c) Employee shall not be entitled to any other compensation for
his services or covenants hereunder, provided that the Company will reimburse
Employee for all reasonable out-of-pocket travel or transportation expenses
incurred by him if, at the request of the Company, he agrees to travel incident
to the performance of his services hereunder.
4. Employee shall at all times during the Payment Period act as an
independent contractor of the Company and nothing herein shall be deemed or
construed to create the relationship of partner, employee, agent or joint
venturer between Employee and the Company, or of any other relationship
other than that of independent contractor. Employee shall not transact any
business in the name of the Company, nor obligate the Company in any
manner, character or description, without the express prior written
approval of the Company. Employee shall limit his activities to the
obligations and duties hereinabove specified and shall have no power or
authority to bind or obligate the Company in any respect whatsoever.
5. The payment to Employee specified in Section 3 above shall be made
without deduction for payroll taxes. Employee assumes full responsibility
for payment of payroll taxes applicable to such payment.
6. All written reports, recommendations, advice, records, documents and
other materials prepared or obtained by Employee or coming into his
possession or control during the Consulting Period which relate to the
Company shall be the sole and exclusive property of the Company, and, at
the end of the Consulting Period or, at the request of the Company, during
the Consulting Period, Employee shall promptly deliver all such written
materials to the Company.
7. All notices hereunder shall be given in writing by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the parties at the following respective addresses, or at such
other address as may from time to time be designated by either party to the
other hereunder in accordance with this Section 7:
To Employee:
Frederick A. Robertson
108W Ironwood Lane
Mequon, Wisconsin 53092
2
<PAGE>
To the Company:
Marquette Medical Systems, Inc.
8200 Tower Avenue
Milwaukee, Wisconsin 53203
Attention: Chairman of the Board
All such notices and communications hereunder shall be effective
and deemed given, if mailed, on and as of the date of receipt, as evidenced by
the acknowledgment of receipt issued with respect thereto by the applicable
postal authorities and, if delivered by hand, on and as of the date of receipt,
as evidenced by the signed acknowledgment of receipt of the person to whom such
notice or communication shall have been addressed, as applicable.
8. No failure by either party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder by either party
preclude any other or future exercise of that right or any other right
hereunder by that party .
9. In case any one or more of the provisions of this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not
in any way be affected or impaired thereby.
10. The parties hereby agree that this Agreement, and the respective
rights, duties and obligations of the parties hereunder, shall be governed
by and construed in accordance with the laws of the State of Wisconsin,
without giving effect to principles of conflict of law thereunder.
11. This Agreement shall not be assignable, in whole or in part, by any
party without the prior written consent of the other parties and any
attempted assignment without such prior written consent shall be void.
Notwithstanding the foregoing, the Company may assign this Agreement to,
and it shall inure to the benefit of and be binding upon, any entity
controlled by, controlling, or under common control with the Company.
12. This Agreement may not be amended, terminated or superseded except by
an agreement in writing between the Company and Employee.
13. This Agreement and the provisions thereof shall be binding upon and
inure to the benefit of, in the case of Employee, his heirs, beneficiaries,
personal representatives, executors, successors and permitted assigns, and,
in the case of the Company, its respective successors and permitted
assigns.
14. This Agreement may be executed in any number of duplicate
counterparts, each of which shall be deemed an original hereof but all of
which together shall constitute one and the same document.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
MARQUETTE MEDICAL SYSTEMS, INC.
BY:____________________________
CHAIRMAN OF THE BOARD
____________________________
FREDERICK A. ROBERTSON
4
<PAGE>
EXHIBIT 10.17
-------------
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement") is entered into this 11th
day of March, 1998, effective as of January 1, 1998 by and between MARQUETTE
MEDICAL SYSTEMS, INC., a Wisconsin corporation (the "Company"), and TIMOTHY C.
MICKELSON, an individual residing at 4414 River Willow Court, Mequon, Wisconsin
53092 ("Mickelson"); and
WHEREAS, Mickelson has been a Director and executive officer of the
Company and by virtue of such position has extensive knowledge, contacts and
experience relating to the Company's product line, marketing plans and
strategies, customer base and financial affairs; and
WHEREAS, Mickelson has ended his employment with the Company effective
December 31, 1997 and has submitted his resignation from all offices in the
Company and as a Director thereof and the Company wishes to induce Mickelson to
refrain from competing or aiding others in competing with the Company during
1998;
NOW, THEREFORE, in consideration of these premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
15. In consideration of Mickelson's covenants hereinafter contained, the
Company agrees to pay to Mickelson, severance payments in the amount of
Twenty-Two Thousand Nine Hundred Seventeen ($22,917.00) Dollars per month
payable no less often than monthly during the one-year period ending
December 31, 1998 (the "Payment Period") while this Agreement remains in
effect.
16. Notwithstanding the foregoing, the severance payments otherwise
payable under Section 1 shall be reduced by the amount of any compensation
earned or received by Mickelson as an officer or employee of any other
company during the Payment Period. Mickelson agrees to notify the Company
of all such amounts earned or received during the Payment Period and, at
the request of the Company, to provide the Company with a copy of his
Federal and state income tax returns for 1998, within thirty (30) days
after they are filed.
17. Mickelson agrees that if, during the Payment Period, he becomes
employed by or associated as an employee, partner, consultant, investor,
member or agent or officer or director with any of the following companies,
the Company's obligation to continue to make payments hereunder shall
immediately terminate and, to the extent any payments are thereafter made,
the Company shall have the right to recover any such payments made
following such affiliation, to-wit:
Hewlett Packard Datex
Space Labs Siemens
Nihon Cohden Fukuda
Protocol
<PAGE>
Quinton Instruments Physio Control
18. In addition to the amounts payable pursuant to Section 1, the Company
agrees to pay to Mickelson, within 20 days following the execution of this
Agreement, the sum of Fifty-One Thousand Six Hundred Forty-Five ($51,645)
Dollars, less applicable withholding, representing Mickelson's pro rated
incentive bonus for the year ending April 30, 1998.
19. Mickelson's rights to exercise his stock options under Option
Agreement Nos. 82, 88, 89, 117 and 184, to and only to the extent vested as
of December 31, 1997, anything therein contained to the contrary
notwithstanding, may be exercised by Mickelson (or in the event of
Mickelson's death, by Mickelson's successor in interest) on or before
January 1, 2000.
20. The Company agrees to maintain Mickelson's insurance coverage under
its health and dental insurance plan through December 31, 1998, at no cost
to Mickelson, and to permit Mickelson to exercise his COBRA rights as of
that date.
21. The Company agrees to reimburse Mickelson for out-placement services
incurred by Mickelson during 1998, to a maximum of $23,000.
22. Mickelson shall have the right to exercise his conversion rights under
his group term life insurance policy in accordance with the terms of that
policy.
23. Mickelson hereby confirms his prior resignation from all offices and
directorships held by him in the Company.
24. Except for Mickelson's claims hereunder and his rights to accrued
benefits under the Company's Profit Sharing-401(k) Plan or Deferred
Compensation Plan, Mickelson releases and forever discharges the Company
from and against any and all claims that he now has against the Company by
reason of any cause, matter, thing, occurrence or event whatsoever prior to
the effective date of this Agreement. Mickelson specifically agrees that
any claims of discrimination on the basis of age pursuant to the Age
Discrimination Act of 1967, as amended, which he shall or may have against
the Company or connected in any way with his employment with the Company,
are hereby waived. Mickelson acknowledges that he has been advised to
consult with legal counsel before signing this Agreement and has done so or
has had the opportunity to do so and has had twenty-one (21) days from the
date of this Agreement within which to consider it. Mickelson may, within
seven (7) calendar days following the date of execution of this Agreement,
cancel and terminate this Agreement by giving written notice of
cancellation and termination to the Company and by returning any payments
that have been made to him pursuant to the provisions of Sections 1 or 4
since the date of execution of this Agreement.
25. All notices hereunder shall be given in writing by hand delivery or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the parties at the following respective addresses, or at such
other address as may from time to time be designated by either party to the
other hereunder in accordance with this Section 11:
2
<PAGE>
To Mickelson:
Timothy C. Mickelson
4414 River Willow Court
Mequon, Wisconsin 53092
To the Company:
Marquette Medical Systems, Inc.
8200 Tower Avenue
Milwaukee, Wisconsin 53203
Attention: Chairman of the Board
All such notices and communications hereunder shall be effective
and deemed given, if mailed, on and as of the date of receipt, as evidenced by
the acknowledgment of receipt issued with respect thereto by the applicable
postal authorities and, if delivered by hand, on and as of the date of receipt,
as evidenced by the signed acknowledgment of receipt of the person to whom such
notice or communication shall have been addressed, as applicable.
26. In case any one or more of the provisions of this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not
in any way be affected or impaired thereby.
27. The parties hereby agree that this Agreement, and the respective
rights, duties and obligations of the parties hereunder, shall be governed
by and construed in accordance with the laws of the State of Wisconsin,
without giving effect to principles of conflict of law thereunder.
28. This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party and any
attempted assignment without such prior written consent shall be void.
29. This Agreement may not be amended, terminated or superseded except by
an agreement in writing between the Company and Mickelson.
30. This Agreement and the provisions thereof shall be binding upon and
inure to the benefit of, in the case of Mickelson, his heirs,
beneficiaries, personal representatives, executors, successors and
permitted assigns, and, in the case of the Company, its respective
successors and permitted assigns.
3
<PAGE>
31. This Agreement may be executed in any number of duplicate
counterparts, each of which shall be deemed an original hereof but all of
which together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
MARQUETTE MEDICAL SYSTEMS, INC.
BY:____________________________
CHAIRMAN OF THE BOARD
____________________________
TIMOTHY C. MICKELSON
4
<PAGE>
EXHIBIT 10.18
-------------
MARQUETTE MEDICAL SYSTEMS, INC.
GLOBAL EMPLOYEE STOCK SHARING PLAN
Rev 5/11/98
APRIL 11, 1997
<PAGE>
MARQUETTE MEDICAL SYSTEM, INC.
GLOBAL SUCCESS SHARING PLAN
-------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 TITLE
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
Section 2.1 Definitions
Section 2.2 Construction
ARTICLE 3 PARTICIPATION
Section 3.1 Participation
Section 3.2 Determination of Eligibility
ARTICLE 4 CONTRIBUTIONS
Section 4.1 Calculation of Contribution
Section 4.2 Payment of Contribution
Section 4.3 Stock or Cash Payout
Section 4.4 Discretion of Company
Section 4.5 Purchase of Shares by Custodian
Section 4.6 Limitation on Company Contribution
Section 4.7 Withholding of Taxes
ARTICLE 5 CUSTODIAL ACCOUNT
</TABLE>
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<TABLE>
<S> <C>
Section 5.1 Custodial Account
ARTICLE 6 PARTICIPANT ACCOUNTS
Section 6.1 Individual Account
Section 6.2 Credits of Individual Account
Section 6.3 Plan Year Allocations
Section 6.4 Correction of Error
Section 6.5 Other Allocations
Section 6.6 Participant Statement
ARTICLE 7 VESTING
Section 7.1 Vesting
ARTICLE 8 DISTRIBUTIONS
Section 8.1 Circumstances Entitling Participant to
Distribution
Section 8.2 Method and Manner of Distribution
Section 8.3 Account Participant Election
Section 8.4 Time of Distribution
Section 8.5 Designation of Beneficiary in the Event of
Death
ARTICLE 9 PARTICIPANTS' STOCKHOLDER RIGHTS
Section 9.1 Voting Rights
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 10 PARTICIPATION BY OTHER PARTICIPATING EMPLOYEES
Section 10.1 Continuance by a Successor
ARTICLE 11 MISCELLANEOUS
Section 11.1 Expenses
Section 11.2 Non-transferability and Non-assignability
Section 11.3 Employment Non-contractual
Section 11.4 Limitation of Rights
Section 11.5 Merger or Consolidation with Another Plan
ARTICLE 12 ALTERATION, WITHDRAWAL AND TERMINATION
Section 12.1 Amendment
Section 12.2 Termination
Section 12.3 Effective Date of Termination
Section 12.4 Immunity of Corporation, Subsidiary, or
other Fiduciary
Section 12.5 Governing Law
</TABLE>
iii
<PAGE>
ARTICLE 1
TITLE
The title of this Plan shall be the "Marquette Medical Systems, Inc. Global
Employee Stock Sharing Plan".
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
SECTION 2.1: DEFINITIONS
As used herein, the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
(1) Allocation Date - The date on which the Company will calculate and
---------------
allocate to the account of each of the Participants, the Participant's
share of the Contribution for each Plan Year as determined under Sections
4.2 and 4.3, which date shall not be more than 60 days after the end of
each Plan Year.
(2) Beneficiary/Beneficiaries - The person or persons, who may be so
-------------------------
(3) Board or Board of Directors - The Board of Directors of the Company.
---------------------------
(4) Company - Marquette Medical Systems, Inc., a Wisconsin Corporation.
-------
Wherever reference is made in this Plan to the "Company" in the context of
financial performance, the "Company" shall mean Marquette Medical Systems,
Inc. and all of its Controlled Subsidiaries that are included on its
consolidated financial statements.
1
<PAGE>
(5) Contribution - The contribution determined by the Board of Directors
------------
under Section 4.1 for each Plan Year, on the Determination Date based on
the performance targets or success sharing targets established for each
Plan Year. Such performance targets shall consist of one or any combination
of two or more of revenue; revenue per employee; earnings before income tax
(profit before taxes); earnings before interest and income tax; net
earnings (profits after tax); earnings per employee; tangible, controllable
or total asset turnover; earnings per share; operating income; total
shareholder return; market share; return on equity; before- or after-tax
return on net assets; distribution expense; inventory turnover; or economic
value added; and any such targets may relate to one or any combination of
two or more of corporate, group, unit, division, or affiliate performance.
The Board of Directors may at its discretion determine that the
Contribution for a given year is zero.
(6) Controlled Subsidiary - A corporation or like entity more than one-half
---------------------
(1/2) of whose voting power is held by the Company.
(7) Custodial Account - All money and property of every kind from time to time
-----------------
held by the Custodian pursuant to the Custodial Account Agreement and the
Plan, any accumulations of income pursuant thereto and property from time
to time representing the same.
(8) Custodian - The Original Custodian [Royal Bank of Canada (Jersey), Ltd.] or
---------
Successor Custodian of the Custodian Account.
2
<PAGE>
(9) Determination Date - The date on which the Company shall determine and
------------------
announce the Contribution for each Plan Year under Section 4.1, which date
shall not be more than 60 days after the end of each Plan Year.
(10) Effective Date - The Effective Date of this Plan is May 1, 1997 with the
--------------
first Plan Year beginning on May 1, 1997 and ending on April 30, 1998 and
the first payouts being determined under Sections 4.2 and 4.3 on the
Allocation Date in the calendar year 1998.
(11) Employee - An individual whose relationship with the Company or a
--------
Controlled Subsidiary is, under the laws of the relevant jurisdiction, that
of an employee except for:
(a) employees who have been hired on a temporary contract to meet a
a temporary work need with no expectation that they will become permanent
employees.
(b) employees provided by an employment agency to meet temporary staffing
requirements resulting from temporary peak workloads, sickness or
medical leave.
(12) Participant - An Employee who as of the end of any Plan Year has been
-----------
continually employed by the Company or a Controlled Subsidiary for more
than one year. In no event, however, will an Employee who is a member of a
collective bargaining unit be a Participant unless the collective
bargaining unit agreement so provides.
(13) Permanent Disability - The mental or physical incapacity of a Participant
--------------------
which, in the opinion of a licensed physician approved by the Board of
Directors or its designee as
3
<PAGE>
evidenced by a certificate issued by such physician, is reasonably certain
to continue during the remainder of the Participant's lifetime.
(14) Plan - The Plan herein set forth, as amended from time to time.
----
(15) Plan Year - The Plan Year shall each be the fiscal year, running from
---------
from May 1 through April 30, with respect to which the Contribution is
determined by the Company on the Determination Date. The first Year or Plan
Year will be May 1, 1997 through April 30, 1998.
(16) Profit Sharing Plan - The Marquette Medical Systems, Inc. Profit Sharing
-------------------
and 401(k) Plan.
(17) Retires/Retire/Retirement/Retirement Date - means the date on which the
-----------------------------------------
Participant retires from the employ of the Company or a Controlled
Subsidiary. The date of retirement will be the date in effect for any given
jurisdiction as determined by the employee's employer.
(18) Shares - The common shares, 10c par value, of the Company.
------
4
<PAGE>
SECTION 2.2: CONSTRUCTION
Whenever used in the Plan, words in the masculine gender shall be deemed to
include masculine, feminine and neuter genders, and, unless the context
otherwise requires, words in the singular shall include the plural and words in
the plural shall include the singular.
5
<PAGE>
ARTICLE 3
PARTICIPATION
SECTION 3.1: PARTICIPATION
All Participants, employed by the Company or a Controlled Subsidiary as of the
end of the Plan Year, shall participate under the Plan for such year.
SECTION 3.2: DETERMINATION OF ELIGIBILITY
The Company shall determine the eligibility of each Employee for participation
in the Plan. Such determination shall be conclusive and binding upon all
persons.
6
<PAGE>
ARTICLE 4
CONTRIBUTIONS
SECTION 4.1: CALCULATION OF CONTRIBUTION
Subject to Section 4.4, on each Determination Date the Board of Directors of the
Company shall determine the Contribution for the preceding Plan Year based on
the performance measure for that year. Subject to Section 4.4, the Company will,
as soon as possible thereafter, but in no event later than the Allocation Date,
allocate the Contribution for the Plan Year in respect of each Participant by
dividing such Contribution by the number of Participants.
SECTION 4.2: PAYMENT OF CONTRIBUTION
Subject to Section 4.4, the Company shall pay to the Custodian Account and to
the Profit Sharing Plan, as soon as practicable, but in no event later than the
last business day in July immediately following the close of the Plan Year, the
Contribution determined under Section 4.1. The portion of the Contribution
payable to the Custodian will be a fraction, the numerator of which shall be the
number of Participants who are not eligible to participate in the Profit Sharing
Plan and the denominator of which shall be the total number of Participants. The
remainder of the Contribution shall be paid to the Profit Sharing Plan and shall
be held, maintained, and distributed in accordance with the terms of that plan.
7
<PAGE>
SECTION 4.3: STOCK OR CASH PAYOUT
Subject to Section 4.4, the Company shall as soon as practicable, but in no
event later than the last business day in July of each year following the end of
the Plan Year, cause the Custodian to pay from the Custodial Account to the
Participants or to the Beneficiary or Beneficiaries of the Participants who have
died, retired, or terminated their employment with the Company or a Controlled
Subsidiary, the amount credited to their respective accounts in cash or Shares,
as the Participant may elect in writing and, in the absence of such election, in
cash.
SECTION 4.4: DISCRETION OF COMPANY
Nothing in Sections 4.1, 4.2 or 4.3 shall be deemed to constitute an implied or
express promise or commitment to make any Contribution hereunder in a Plan Year
in which the performance target is not met, or if Board of Directors decides to
refrain from making any Contribution for that Plan Year.
SECTION 4.5: PURCHASE OF SHARES BY CUSTODIAN
To the extent a Contribution is made in cash, the Shares will be purchased by
the Custodian pursuant to the directions of the Company as soon as practicable
but in no event later than one month following the receipt of the Contribution.
SECTION 4.6: LIMITATION ON COMPANY CONTRIBUTION
Any excess Contribution made by the Company by reason of a good faith mistake of
fact, shall, upon the request of the Company, be returned by the Custodian. The
Company's request and the return of any such Contribution must be made within
one year after such Contribution was
8
<PAGE>
mistakenly made. The amount to be returned to the Company pursuant to this
paragraph shall, subject to adjustment for both the movements in the market
value of the Shares and for dividends payable, be the excess of:
(a) the amount contributed, over
(b) the amount that would have been contributed had there not been a mistake of
fact.
SECTION 4.7: WITHHOLDING OF TAXES
The Company may withhold, from any payment which it makes under the Plan, such
sum as the Company may reasonably estimate is necessary to cover any taxes
(whether or not enforceable against the Participant's employer) for which the
Company or a Controlled Subsidiary may be liable, which are, or may be, assessed
with regard to such payment.
9
<PAGE>
ARTICLE 5
CUSTODIAL ACCOUNT
SECTION 5.1: CUSTODIAL ACCOUNT
The Global Employee Stock Sharing Plan Custodial Account is created by an
agreement between the Company and the Original Custodian and to which this Plan
is a schedule. All Contributions under Section 4.2 , other than those to be made
to the Profit Sharing plan, shall be remitted to the Custodial Account. The
Custodian shall hold all monies and other property received by it and at its
discretion invest and reinvest the same, together with the income therefrom, on
behalf of the Participants not eligible to participate in the Profit Sharing
Plan collectively for the purposes of purchasing Shares or paying expenses of
administration of the Plan and the Custodial Account, to the extent not paid by
the Company, in accordance with the provisions of the Custodial Account
Agreement. The Custodian may with the approval of the Company keep such amount
in cash as may be required for the effective administration and recordkeeping
under the Plan.
10
<PAGE>
ARTICLE 6
PARTICIPANT ACCOUNTS
SECTION 6.1: INDIVIDUAL ACCOUNT
The Custodian shall establish and maintain, or cause such agent as the Custodian
may select with the approval of the Company, to establish and maintain, a
separate account for each Participant on whose behalf any portion of a
Contribution is paid to the Custodian, which shall be called an "Individual
Account." Such Individual Account shall be solely for accounting purposes and
there shall be no segregation of assets of the Custodial Account among the
separate Individual Accounts, nor will an Account Participant obtain any
equitable or legal interest in any particular Shares or other property until
those Shares or other property vest in accordance with the provisions of this
Plan.
SECTION 6.2: CREDITS TO INDIVIDUAL ACCOUNT
The Custodian shall direct the recordkeeper for the Plan, appointed by the
Custodian with the approval of the Company, to cause the Individual Account of
each Account Participant to be credited with the amount determined pursuant to
Section 4.1 to be allocated to his Individual Account for each Plan Year for
which a Contribution is made and to record all investments in Shares made from
each Individual Account.
SECTION 6.3: PLAN YEAR ALLOCATIONS
Within each Individual Account maintained for an Account Participant there shall
be recorded separately for each Plan Year the total number of Shares allocated
for that Plan Year, which are
11
<PAGE>
collectively known as "Plan Year Allocations". For purposes of Sections 7 and 8
each Plan Year Allocations shall be treated as if separate accounts are
maintained for each Plan Year.
SECTION 6.4: CORRECTION OF ERROR
If it shall come to the attention of the Custodian that an error has been made
in any of the allocations prescribed by this Article 6, appropriate adjustment
shall be made to the Individual Accounts of all Account Participants which are
affected by such error, except that no adjustment need be made with respect to
any Account Participant (or Beneficiary) whose Individual Account has been
distributed in full prior to the discovery of such error.
SECTION 6.5: OTHER ALLOCATIONS
Any Shares received by the Custodian as a result of a stock dividend, stock
split, recapitalization or other corporate reorganization of the Company shall
be allocated to the Individual Account and the Plan Year Allocation, as of the
day on which such Shares are received by the Custodian in the same manner as the
Shares to which they are attributable were allocated.
SECTION 6.6: PARTICIPANT STATEMENT
Each Account Participant shall be furnished with a statement as soon as
practicable after the end of each Plan Year, setting forth, as of the end of
such Plan Year, the value of and number of Shares credited to each Account
Participant's Individual Account and Plan Year Allocations.
12
<PAGE>
ARTICLE 7
VESTING
SECTION 7.1: VESTING
(a) Each Plan Year Allocation shall vest separately in the Account
Participant absolutely, on the fifth anniversary of the close of the
Plan Year for which the Contribution is made to the Custodian under
Section 4.2.
(b) In the event of the earlier death or termination of employment, of the
Account Participant, the Account Participant's Individual Account
shall then absolutely vest in the Participant.
13
<PAGE>
ARTICLE 8
DISTRIBUTIONS
SECTION 8.1: CIRCUMSTANCES ENTITLING ACCOUNT PARTICIPANT TO DISTRIBUTION
An Account Participant (or his Beneficiary) shall be entitled to receive the
distributions of the Plan Year Allocations or the Individual Account, as the
case may be, upon vesting, within the time prescribed under Section 8.4.
SECTION 8.2: METHOD AND MANNER OF DISTRIBUTION
An Account Participant's Individual Account or the Plan Year Allocations, which
have vested in the Account Participant as provided in Section 7.1, as the case
may be, shall be distributed by the Custodian, in the following manner:
(a) The Account Participant shall have the right to elect within the time
provided in Section 8.3 to receive the distribution in cash, or to receive
Shares.
(b) If the Account Participant fails to communicate his election as provided
in Section 8.3, the Custodian will sell the Shares and distribute cash to
the Account Participant.
(c) If the total value of the Plan Year Allocations, or the Account
Participant's Individual Account, as the case may be, is $500 or less, all
distributions will be made in cash.
The Custodian's obligation to sell and deliver the Shares under the Plan is
subject to the approval of any government authority, required in connection with
the authorization, issuance or sale of such Shares, whether in the United States
of America or in any other country.
14
<PAGE>
SECTION 8.3: ACCOUNT PARTICIPANT ELECTION
Except in the case where the Account Participant's employment with the Company
or Controlled Subsidiary is terminated, the election under Section 8.2 must be
made and communicated to the Custodian within one month prior to the Account
Participant vesting in the Plan Year Allocation. In the event the Account
Participant's employment is terminated, the election must be made and
communicated to the Custodian within 30 days following the date of the
termination of employment.
SECTION 8.4: TIME OF DISTRIBUTION
The Custodian shall commence distribution of an Account Participant's or former
Account Participant's Plan Year Allocation as soon as practicable after the same
are vested.
SECTION 8.5: DESIGNATION OF BENEFICIARY IN THE EVENT OF DEATH
Each Account Participant shall have the right to designate a Beneficiary or
Beneficiaries, to receive any distribution to be made under this Article 8, upon
the death of such Account Participant or, in the case of an Account Participant
who dies subsequent to the date in which he becomes entitled to receive a
distribution but prior to the distribution of the entire amount to which he is
entitled under the Plan, any undistributed balance to which such Account
Participant would have been entitled.
In the event of the death of the Account Participant, the Account Participant's
Individual Account shall be held in the Custodial Account for his Beneficiary or
Beneficiaries absolutely and distributed by the Custodian to such Beneficiary or
Beneficiaries in such portion as the Account
15
<PAGE>
Participant may by notice in writing to the Custodian or his employer designate
from time to time during his lifetime and in default of such designation in
equal portions. If no Beneficiary or Beneficiaries has been named by a deceased
Account Participant, or the designated Beneficiary or Beneficiaries has
predeceased the Account Participant, or if there is for any other reason a
balance of the deceased Account Participant's Individual Account remaining such
balance shall be held by the Custodian absolutely for:
(a) the surviving spouse of such deceased Account Participant, if any,
or
(b) if there shall be no surviving spouse, for the surviving children of such
deceased Account Participant, if any, in equal portions, or
(c) if there shall be no surviving spouse or surviving child, and subject to
(d) below for the estate of such deceased Account Participant, or
(d) if no executor or administrator shall have been appointed for the estate
of such deceased Account Participant within six months following the date
of the Account Participant's death, in equal portions for the person or
persons who would be entitled under the intestate succession laws of the
state or county of the Account Participant's domicile to receive the
Account Participant's personal estate.
16
<PAGE>
ARTICLE 9
ACCOUNT PARTICIPANTS' STOCKHOLDER RIGHTS
SECTION 9.1: VOTING RIGHTS
The Account Participant shall have no right with respect to voting of the Shares
in his Individual Account, except after the Account Participant is vested.
ARTICLE 10
SUCCESSORS
SECTION 10.1: CONTINUANCE BY A SUCCESSOR
In the event that the Company shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that another corporation
other than the Company shall succeed to all or a portion of such Company's
business, such successor may be substituted for such Company under the Plan by
adopting the Plan.
17
<PAGE>
ARTICLE 11
MISCELLANEOUS
SECTION 11.1: EXPENSES
The Custodian is authorized and directed to pay from the Custodial Account, all
costs and expenses incurred in administering the Plan, including the fees of
counsel, fees of any agents for the Custodian, the fees and expenses of the
Custodian, recordkeeper, and other administrative expenses to the extent such
expenses are not paid by the Company and to charge the Individual Accounts of
the Account Participants.
SECTION 11.2: NON-TRANSFERABILITY AND NON-ASSIGNABILITY
It is a condition of the Plan, and all rights of each Account Participant (and
Beneficiary) shall be subject thereto, that no right or interest of any Account
Participant (or Beneficiary) in the Plan shall be assignable or transferable in
whole or in part, either directly, by operation of law or otherwise, including,
but not limited to, execution, levy, garnishment, attachment, pledge or
bankruptcy, but excluding devolution by death or mental incompetency, and no
right or interest of any Account Participant (or Beneficiary) in the Plan shall
be liable for, or subject to, any obligation or liability of such Account
Participant (or Beneficiary), including, without prejudice to the generality of
the foregoing, claims for alimony or the support of any spouse.
SECTION 11.3: EMPLOYMENT NON-CONTRACTUAL
The adoption and maintenance of the Plan shall not be deemed to constitute a
contract between the Company and any Participant to continue the Plan. The Plan
confers no right upon any Employee to continue in the employment with the
Company or the Controlled Subsidiaries.
18
<PAGE>
SECTION 11.4: LIMITATION OF RIGHTS
An Account Participant (or Beneficiary) shall have no right (legal or
equitable), title or claim in or to any specific asset of the Custodial Account,
but shall have the right only to distributions from the Custodial Account on the
terms and conditions herein provided.
SECTION 11.5: MERGER OR CONSOLIDATION WITH ANOTHER PLAN
If the Plan shall merge or consolidate with, or transfer its assets held by the
Custodian to, any other plan, each Account Participant shall be entitled to
participate in the successor plan immediately after such merger, consolidation,
or transfer upon the terms therein set forth provided that each Participant
shall be vested with benefits that are equal to or greater than the benefit
which he would have been entitled to receive immediately before such merger,
consolidation, or transfer (assuming that the Plan had been terminated) and
participation at such level shall extinguish any rights of the Participant to
receive benefits under this Plan.
ARTICLE 12
AMENDMENT AND TERMINATION
SECTION 12.1: AMENDMENT
The Company may at any time and from time to time amend the Plan by written
instrument duly adopted by the Board of Directors or such committee or delegate
that the Board so empowers, provided, however, that no amendment may be made
which will adversely affect the rights and duties of the Custodian without the
consent of the Custodian or the rights of the Account Participants already
acquired under the Plan.
19
<PAGE>
SECTION 12.2: TERMINATION
The Company may terminate the Plan in its entirety. Such termination shall be
made under a written instrument duly adopted by the Board of Directors. Upon
receipt of a copy of written confirmation of termination or withdrawal as the
case may be, the Custodian shall proceed as follows: In the event of
termination, the Individual Accounts of the Account Participants shall become
fully vested. The Custodian shall determine the portion of the Custodial Account
held by the Custodian which is applicable to each Account Participant or the
Beneficiary and distribute such portion in accordance with Article 8.
SECTION 12.3: EFFECTIVE DATE OF TERMINATION
The termination of the Plan by the Company shall be effective as of the date
specified in the resolution providing therefore and shall be binding upon all
Participants (and their Beneficiaries), the Custodian and any other parties in
interest.
SECTION 12.4: IMMUNITY OF CORPORATION, SUBSIDIARY OR OTHER FIDUCIARY
Except as otherwise provided by the law, neither the establishment of the Plan
created hereunder or the Custodial Account nor any modification thereof, nor the
creation of any fund or account or the purchase of distribution of any Shares,
shall be construed as giving to any Participant any legal or equitable right
against the Company, a Controlled Subsidiary or any officer, director, employee
or agent of the Company or a Controlled Subsidiary, or any fiduciary, except as
provided in this Plan.
SECTION 12.5: GOVERNING LAW
20
<PAGE>
The Plan shall be governed by the provisions herein and construed in accordance
with the laws of State of Wisconsin.
21
<PAGE>
IN WITNESS WHEREOF, the Company, to evidence adoption of the Plan, has caused
this instrument to be signed and its corporate seal hereto affixed by its
authorized officers, all on this _______ day of __________________, 1997.
MARQUETTE MEDICAL SYSTEMS, INC.
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
ATTEST:
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
22
<PAGE>
ADDENDUM I
THE TERMS FOR THE OPERATION OF THE PLAN IN RELATION TO THE PARTICIPANTS IN
AUSTRALIA
These terms are made under the Marquette Medical Systems Global Employee
Performance Plan. All the provisions of the Plan apply to the Participants of
the Participating Employer resident in Australia, except to the extent modified
under this Addendum.
The following modifications are made:
1. SECTION 2.1(8) IS MODIFIED TO READ AS FOLLOWS:
"(8)
Effective Date - The Effective Date of this Plan will be May 1, 1998 with the
- --------------
first Plan Year beginning on May 1, 1998 and ending on April 30, 1999 and the
first payout being determined under Sections 4.2 and 4.3 on the Allocation Date
in the calendar year 1998."
23
<PAGE>
EXHIBIT 10.19
-------------
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement made and entered into this 27th day of February,
1998 ("Agreement"), by and between MARQUETTE MEDICAL SYSTEMS, INC., a Wisconsin
corporation (the "Company"), and FREDERICK A. ROBERTSON, Indemnitee
("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance and indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the corporation;
WHEREAS, the difficulties of obtaining adequate insurance and uncertainties
relating to indemnification have increased the difficulty of attracting and
retaining such persons;
WHEREAS, Sections 180.0850 through 180.0859 of the Wisconsin Business
Corporation Law provide mandatory and permissive indemnification to be
afforded by Wisconsin corporations to their directors;
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future by providing, in addition to indemnification provided by law, the
Company's agreement as to additional indemnification rights;
WHEREAS, it is reasonable, prudent, and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve, and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
<PAGE>
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
----------------------
director, officer, employee, or agent of the Company. Indemnitee may at any time
and for any reason resign from such position (subject to any other contractual
obligation or other obligation imposed by operation of law), in which event the
Company shall have no obligation under this Agreement to continue Indemnitee
in any such position.
Section 2. Indemnification. The Company shall indemnify Indemnitee to the
---------------
fullest extent permitted by applicable law in effect on the date hereof or as
such laws may from time to time be amended. Without diminishing the scope of
the indemnification provided by this Section 2, the rights of indemnification of
Indemnitee provided hereunder shall include, but shall not be limited to, those
rights set forth hereinafter, except to the extent expressly prohibited by
applicable law.
Section 3. Action or Proceeding Other than an Action by or in the Right of
---------------------------------------------------------------
the Company. In addition to the indemnification of Indemnitee provided pursuant
- -----------
to the other provisions hereof, Indemnitee shall be entitled to the
indemnification rights provided in this Section 3 if he is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
in nature, other than an action by or in the right of the Company, by reason of
the fact that he is or was a director, officer, employee, agent, or fiduciary of
the Company or is or was serving at the request of the Company as a director,
officer, employee, agent, or fiduciary of any other entity or by reason of
anything done or not done by him in such capacity. Pursuant to this Section 3,
Indemnitee shall be indemnified against all expenses (including attorneys'
fees), costs, judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding (including, but not limited to, the investigation, defense, or appeal
thereof), unless such amounts were incurred because the director breached or
failed to perform a duty owed to the Company and the breach or failure to
perform constitutes:
(a) a willful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director has a
material conflict of interest;
(b) a violation of the criminal law, unless the director had
reasonable cause to believe that his conduct was lawful or no reasonable
cause to believe that his conduct was unlawful;
1
<PAGE>
(c) a transaction from which the director derived an improper
personal profit; or
(d) willful misconduct.
Section 4. Actions by or in the Right of the Company. In addition to the
-----------------------------------------
indemnification of Indemnitee provided pursuant to the other provisions hereof,
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is a person who was or is made a party or is threatened to be
made a party to any threatened, pending, or completed action or suit brought by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, agent, or fiduciary of
the Company or is or was serving at the request of the Company as a director,
officer, employee, agent, or fiduciary of any other entity by reason of anything
done or not done by him in any such capacity. Pursuant to this Section 4,
Indemnitee shall be indemnified against all expenses (including attorneys' fees)
and costs actually and reasonably incurred by him in connection with such action
or suit (including, but not limited to, the investigation, defense, settlement,
or appeal thereof), unless such amounts were incurred because the director
breached or failed to perform a duty owed to the Company and the breach or
failure to perform constitutes:
(a) a willful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director has a
material conflict of interest;
(b) a violation of the criminal law, unless the director had
reasonable cause to believe that his conduct was lawful or no reasonable
cause to believe that his conduct was unlawful;
(c) a transaction from which the director derived an improper
personal profit; or
(d) willful misconduct.
Section 5. Indemnification for Costs, Charges, and Expenses of Successful
--------------------------------------------------------------
Party. Notwithstanding the other provisions of this Agreement and in addition
- -----
to the rights to indemnification set forth elsewhere herein, to the extent that
Indemnitee has served as a witness on behalf of the Company or has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit, or
proceeding referred to in Sections 3 and 4 hereof, or in defense of any claim,
issue, or matter therein, he shall be indemnified against all costs, charges,
and expenses (including attorneys'
2
<PAGE>
fees) actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 6. Partial Indemnification. In addition to the rights to
-----------------------
indemnification set forth elsewhere herein, if Indemnitee is only partially
successful in the defense, investigation, settlement, or appeal of any action,
suit, investigation, or proceeding described in Section 3 or 4 hereof, and as a
result, is not entitled under the other provisions of this Agreement to
indemnification by the Company for the total amount of the expenses (including
attorneys' fees), costs, judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5
hereof, to the extent Indemnitee has been partially successful.
Section 7. Determination of Entitlement to Indemnification. Upon written
-----------------------------------------------
request by Indemnitee for indemnification pursuant to this Agreement, the
entitlement of Indemnitee to indemnification pursuant to the terms of this
Agreement shall be determined by the following person or persons who shall be
empowered to make such determination:
(a) by a majority vote of a quorum of the Board of Directors
consisting of directors who are not at the time parties to the same or
related proceedings; provided, however, that if a quorum of disinterested
directors cannot be obtained, by a majority vote of a committee duly
appointed by the Board of Directors and consisting solely of two or more
directors who are not at the time parties to the same or related
proceedings, directors who are parties to the same or related proceedings
being able to participate in the designation of members of the committee;
(b) by independent legal counsel selected by a quorum of the Board of
Directors or its committee in the manner prescribed in (a) above or, if
unable to obtain such a quorum or committee, by a majority vote of the full
Board of Directors, including directors who are parties to the same or
related proceedings;
(c) by a panel of three arbitrators consisting of one arbitrator
selected by those directors entitled under (b) above to select independent
legal counsel, one arbitrator selected by the director seeking
indemnification, and one arbitrator selected by the two arbitrators
previously selected.
3
<PAGE>
(d) by an affirmative vote of shares determined in accordance with
Section 180.0725 of the Wisconsin Business Corporation Law, shares owned by
or voted under the control of persons who are at the time parties to the
same or related proceedings, whether as plaintiffs or defendants, or in any
other capacity, being ineligible to vote in making the determination;
(e) by a court pursuant to Section 180.0854 of the Wisconsin Business
Corporation Law.
Any costs or expenses (including attorneys' fees) incurred by Indemnitee in
connection with his request for indemnification hereunder shall be borne by the
Company. The Company hereby indemnifies and agrees to hold Indemnitee harmless
therefrom irrespective of the outcome of the determination of Indemnitee's
entitlement to indemnification. If the person making such determination shall
determine that Indemnitee is entitled to indemnification as to part (but not
all) of the application for indemnification, such person shall reasonably
prorate such partial indemnification among such claims, issues, or matters.
Section 8. Presumptions and Effect of Certain Proceedings. The Secretary of
----------------------------------------------
the Company shall, promptly upon receipt of Indemnitee's request for
indemnification, advise in writing the Board of Directors or such other person
or persons empowered to make the determination as provided in Section 7 that
Indemnitee has made such request for indemnification. Upon making such request
for indemnification, Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in the
making of any determination contrary to such presumption. If the person or
persons so empowered to make such determination shall have failed to make the
requested indemnification within sixty (60) days after receipt by the Company of
such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be absolutely entitled to
such indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation, or
proceeding described in Section 3 or 4 hereof by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
---------------
itself: (a) create a presumption that Indemnitee did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful; or (b) otherwise adversely affect the rights of Indemnitee to
indemnification except as may be provided herein.
4
<PAGE>
Section 9. Advance of Expenses and Costs. All reasonable expenses and
-----------------------------
costs incurred by Indemnitee (including attorneys' fees, retainers, and advances
of disbursements required of Indemnitee) shall be paid by the Company in advance
of the final disposition of such action, suit, or proceeding at the request of
Indemnitee within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time. Indemnitee's entitlement to such expenses shall include those
incurred in connection with any proceeding by Indemnitee seeking an adjudication
or award in arbitration pursuant to this Agreement. Such statement or
statements shall reasonably evidence the expenses and costs incurred by him in
connection therewith and shall include or be accompanied by an undertaking by or
on behalf of Indemnitee to repay such amount if it is ultimately determined that
Indemnitee is not entitled to be indemnified against such expenses and costs by
the Company as provided by this Agreement or otherwise.
Section 10. Remedies of Indemnitee in Cases of Determination not to
-------------------------------------------------------
Indemnify or to Advance Expenses. In the event that a determination is made
- --------------------------------
that Indemnitee is not entitled to indemnifi cation hereunder or if payment has
not been timely made following a determination of entitlement to indemnification
pursuant to Sections 7 and 8, or if expenses are not advanced pursuant to
Section 9, Indemnitee shall be entitled to a final adjudication in an
appropriate court of the State of Wisconsin or any other court of competent
jurisdiction of his entitlement to such indemnification or advance.
Alternatively, Indemnitee at his option may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitrator Association, such award to be made within sixty (60) days following
the filing of the demand for arbitration. The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration or any
other claim but may oppose such claim. Such judicial proceeding or arbitrator
shall be made de novo and Indemnitee shall not be prejudiced by reason of a
-------
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or Section 8 hereof that Indemnitee is entitled to indemnification,
the Company shall be bound by such determination and is precluded from asserting
that such determination has not been made or that the procedure by which such
determination was made is not valid, binding, and enforceable. The Company
further agrees to stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court or arbitrator shall
determine that Indemnitee is entitled to any indemnification hereunder, the
Company shall pay all reasonable expenses (including
5
<PAGE>
attorneys' fees) and costs actually incurred by Indemnitee in connection with
such adjudication or award in arbitration (including, but not limited to, any
appellate proceedings).
Section 11. Other Rights to Indemnification. The indemnification and
-------------------------------
advancement of expenses (including attorneys' fees) and costs provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may now or in the future be entitled under any provision of the By-Laws,
agreement, provision of the Articles of Incorporation, vote of stockholders or
disinterested directors, provision of law, or otherwise.
Section 12. Attorneys' Fees and Other Expenses to Enforce Agreement. In
-------------------------------------------------------
the event that Indemnitee is subject to or intervenes in any proceeding in
which the validity or enforceability of this Agreement is at issue or seeks an
adjudication or award in arbitration to enforce his rights under, or to recover
damages for breach of this Agreement, Indemnitee, if he prevails in whole or in
part in such action, shall be entitled to recover form the Company and shall be
indemnified by the Company against, any actual expenses for attorneys' fees and
disbursements reasonably incurred by him.
Section 13. Duration of Agreement. This Agreement shall continue until and
---------------------
terminate upon the later of: (a) ten (10) years after Indemnitee has ceased to
occupy any of the positions or have any of the relationships described in
Sections 3 and 4 of this Agreement; and (b) the final termination of all pending
or threatened actions, suits, proceedings, or investigations with respect to
Indemnitee. This Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of Indemnitee and his spouse,
assigns, heirs, devises, executors, administrators, or other legal
representatives.
Section 14. Severability. If any provision or provisions of this
------------
Agreement shall be held to be invalid, illegal, or unenforceable for any
reason whatsoever: (a) the validity, legality, and enforceability of the
remaining provisions of this Agreement (including without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal, or unenforceable) shall not in any way be affected or
impaired thereby; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal, or
unenforceable, that are not themselves invalid, illegal, or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal, or unenforceable.
6
<PAGE>
Section 15. Identical Counterparts. This Agreement may be executed in one
----------------------
or more counterparts, each of which shall for all purposes be deemed to be an
original, but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
--------
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Modification and Waiver. No supplement, modification, or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify
--------------------
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any matter
which may be subject to indemnification covered hereunder, either civil,
criminal, or investigative.
Section 19. Notices. All notices, requests, demands, and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by and receipted for by the party to whom said
notice or other communication shall have been directed or if (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to: 108W Ironwood Lane
Mequon, Wisconsin 53092
(b) If to the Company, to: Marquette Medical
Systems, Inc.
8200 West Tower Avenue
Milwaukee, Wisconsin 53223
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
7
<PAGE>
Section 20. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Wisconsin, without giving effect to conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MARQUETTE MEDICAL SYSTEMS, INC.
By:_________________________________
Michael J. Cudahy,
Chairman of the Board
____________________________________
Frederick A. Robertson, Indemnitee
8
<PAGE>
EXHIBIT 10.20
MARQUETTE MEDICAL SYSTEMS, INC.
PROFIT SHARING AND 401(K) PLAN
EFFECTIVE AS OF JANUARY 1, 1998
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC.
PROFIT SHARING AND 401(K) PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS AND CONSTRUCTION.................................... 1
Section 1.01. Definitions............................................ 1
Section 1.02. Constructions.......................................... 5
ARTICLE II. ELIGIBILITY AND PARTICIPATION.................................. 6
Section 2.01. Eligibility............................................ 6
Section 2.02. Status of Leased Employees............................. 6
ARTICLE III. CONTRIBUTIONS................................................. 7
Section 3.01. 401(k) Contributions................................... 7
Section 3.02. Employer Matching Contributions........................ 8
Section 3.03. Profit Sharing Contributions........................... 9
Section 3.04. Maximum Annual Additions...............................10
Section 3.05. Rollovers..............................................12
ARTICLE IV. PARTICIPANT ACCOUNTS; INVESTMENT OF ACCOUNTS...................13
Section 4.01. Establishment of Accounts..............................13
Section 4.02. Investment of Accounts.................................13
Section 4.03. Allocations to Matching Contributions
and Profit Sharing Accounts..........................14
Section 4.04. Valuation of Accounts..................................14
ARTICLE V. VESTING AND FORFEITURES.........................................15
Section 5.01. Calculation of Vesting Service.........................15
Section 5.02. Effect of Breaks in Service............................15
Section 5.03. Vesting in 401(k) Contributions, Matching
Contributions and Rollover Accounts..................15
ARTICLE VI. DISTRIBUTION OF BENEFITS.......................................17
Section 6.01. Distribution Upon Termination of Employment............17
</TABLE>
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<TABLE>
<S> <C>
Section 6.02. Death.................................................17
Section 6.03. Time of Distributions.................................17
Section 6.04. Form of Distributions.................................18
Section 6.05. Eligible Rollover Distributions.......................18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII. WITHDRAWALS AND LOANS.......................................20
Section 7.01. In-Service Withdrawals................................20
Section 7.02. Age 60 Withdrawal and Diversification Alternatives....20
Section 7.03 Loans to Participants.................................20
Section 7.04. Time and Manner of Distribution.......................22
ARTICLE VIII. PLAN ADMINISTRATION.........................................23
Section 8.01. Company Authority and Responsibility..................23
Section 8.02. Administration........................................23
Section 8.03. Agent for Service of Process..........................25
Section 8.04. Marquette Stock Fund..................................25
ARTICLE IX. TRUSTEE AND TRUST FUND......................................26
Section 9.01. Trustee Removal and/or Resignation and Successors.....26
Section 9.02. Investment Funds......................................26
Section 9.03. Investment of the Trust Fund..........................26
Section 9.04. Trustees Power and Duties.............................27
Section 9.05. Payments from the Trust Fund..........................27
ARTICLE X AMENDMENT AND TERMINATION...................................28
Section 10.01. Amendment and Termination.............................28
ARTICLE XI. MISCELLANEOUS...............................................29
Section 11.01. Plan is Voluntary.....................................29
Section 11.02. Non-Guarantee of Employment...........................29
Section 11.03. Rights to Trust Assets................................29
Section 11.04. Non-Alienation........................................29
Section 11.05. Indemnification.......................................30
Section 11.06. Facility of Payment...................................30
Section 11.07 Board Action..........................................30
Section 11.08. Mergers, Consolidations and Transfer of Plan Assets...30
Section 11.09. Fiduciaries...........................................30
ARTICLE XII. TOP-HEAVY PLAN PROVISIONS...................................31
Section 12.01. Effect of Top-Heavy Status............................31
Section 12.02. Additional Definitions................................32
Section 12.03. Vesting...............................................32
</TABLE>
iii
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<TABLE>
<S> <C>
Section 12.04 Minimum Benefits......................................33
Section 12.05. Maximum Benefit Limits................................33
APPENDIX A.................................................................34
RESOLUTION AMENDMENT I.....................................................36
</TABLE>
iv
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC.
PROFIT SHARING AND 401(k) PLAN
STATEMENT OF PURPOSE
The purpose of this Plan document is to continue and update the provisions of
the Plan as in effect prior to January 1, 1998. This Plan is the continuation of
the Marquette Electronics, Inc. Profit Sharing and 401(k) Plan, which was
originally effective May 1, 1987 and the Marquette Electronics, Inc. Employee
Stock Ownership Plan, which was merged into the Profit Sharing Plan effective
April 30, 1993.
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
Section 1.01. Definitions.
------------
For purposes of the Plan, unless the context clearly or necessarily indicates
the contrary, the following words and phrases shall have the meanings set forth
in the definitions below:
(a) Accounts shall mean the separate accounts to be maintained under the
Plan for each Participant as provided in Section 4.01.(a) Accounts shall mean
the separate accounts to be maintained under the Plan for each Participant as
provided in Section 4.01.
(b) Affiliate or Affiliates shall mean each Employer and each other
corporation or unincorporated business in a controlled group of corporations, a
group of trades or businesses under common control or an affiliated service
group (within the meaning of Section 414(b), (c) or (m) of the Code) which
includes the Employer.(b) Affiliate or Affiliates shall mean each Employer and
each other corporation or unincorporated business in a controlled group of
corporations, a group of trades or businesses under common control or an
affiliated service group (within the meaning of Section 414(b), (c) or (m) of
the Code) which includes the Employer.
(c) Beneficiary shall mean the person, trust and/or other entity entitled
to receive benefits hereunder in the event of the Participant's death as
provided in Section 6.02.(c)
Beneficiary shall mean the person, trust and/or other entity entitled to
receive benefits hereunder in the event of the Participant's death as provided
in Section 6.02.
(d) Board shall mean the Board of Directors of the Company.(d) Board
shall mean the Board of Directors of the Company.
(e) Break in Service shall mean at least five consecutive Years of Break
in Service.(e) Break in Service shall mean at least five consecutive Years of
Break in Service.
(f) Code shall mean the Internal Revenue Code of 1986, as amended.(f) Code
shall mean the Internal Revenue Code of 1986, as amended.
(g) Company shall mean Marquette Medical Systems, Inc., and any successor
thereto which adopts this Plan.(g) Company shall mean Marquette Medical
Systems, Inc., and any successor thereto which adopts this Plan.
(h) Compensation shall mean salary or wages, reported as taxable on Form
W-2, plus any Participant 401(k) contributions and any salary reduction pursuant
to Code Section 125, but
1
<PAGE>
excluding overtime premiums, reimbursements or other expense allowances,
including fringe benefits, moving expenses and welfare benefits paid with
respect to a Plan Year by the Employer to an Employee for services performed
during such Plan Year; provided, however, that with respect to a Plan Year
during which an Employee first becomes eligible (or, in the event of
reemployment and/or one or more Years of Break in Service, regains his
eligibility) to participate hereunder, Compensation shall be determined from and
after the date as of which such Employee's participation hereunder commences.
The maximum annual compensation taken into account hereunder for purposes of
calculating any Participant's accrued benefit (including the right to any
optional benefit) and for all other purposes under the Plan shall be the amount
permitted pursuant to Code Section 401(a)(17) as adjusted annually for cost-of-
living increases at such time and in such amount as may be determined by the
Secretary of the Treasury. Notwithstanding the foregoing, for purposes of
determining who is a Highly Compensated Employee under Section 1.01(s) and
calculating a Participant's average deferral and contribution ratios under
Article III, Compensation has the meaning set forth in Code Section 415(c)(3),
but prior to reduction on account of a Participant's Deposits to this Plan or
any other contributions not treated as taxable income by reason of Code Section
125 or 402(a)(8).(h) Compensation shall mean salary or wages, reported as
taxable on Form W-2, plus any Participant 401(k) contributions and any salary
reduction pursuant to Code Section 125, but excluding overtime premiums,
reimbursements or other expense allowances, including fringe benefits, moving
expenses and welfare benefits paid with respect to a Plan Year by the Employer
to an Employee for services performed during such Plan Year; provided, however,
that with respect to a Plan Year during which an Employee first becomes eligible
(or, in the event of reemployment and/or one or more Years of Break in Service,
regains his eligibility) to participate hereunder, Compensation shall be
determined from and after the date as of which such Employee's participation
hereunder commences. The maximum annual compensation taken into account
hereunder for purposes of calculating any Participant's accrued benefit
(including the right to any optional benefit) and for all other purposes under
the Plan shall be the amount permitted pursuant to Code Section 401(a)(17) as
adjusted annually for cost-of-living increases at such time and in such amount
as may be determined by the Secretary of the Treasury. Notwithstanding the
foregoing, for purposes of determining who is a Highly Compensated Employee
under Section 1.01(s) and calculating a Participant's average deferral and
contribution ratios under Article III, Compensation has the meaning set forth in
Code Section 415(c)(3), but prior to reduction on account of a Participant's
Deposits to this Plan or any other contributions not treated as taxable income
by reason of Code Section 125 or 402(a)(8).
(i) 401(k) Contributions shall mean amounts contributed under the Plan by
or at the direction of Participants pursuant to Section 3.01.(i) 401(k)
Contributions shall mean amounts contributed under the Plan by or at the
direction of Participants pursuant to Section 3.01.
2
<PAGE>
(j) Disability shall mean permanent and total disability, as a result of
which a Participant is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite
duration.(j) Disability shall mean permanent and total disability, as a result
of which a Participant is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long-continued and indefinite
duration.
(k) Effective Date shall mean January 1, 1998.(k) Effective Date shall
mean January 1, 1998.
(l) Employee shall mean any person who is both a common law employee of
an Employer and who is treated by the Employer as such, except that the term
shall not include any nonresident alien who receives no earned income from the
Employer which constitutes income from sources within the United States. (l)
Employee shall mean any person who is both a common law employee of an Employer
and who is treated by the Employer as such, except that the term shall not
include any nonresident alien who receives no earned income from the Employer
which constitutes income from sources within the United States.
(m) Employer shall mean the Company and any Affiliate of the Company.
which, with Board approval, adopts this Plan.(m) Employer shall mean the
Company and any Affiliate of the Company. which, with Board approval, adopts
this Plan.
(n) Employer Contributions shall mean both Employer Matching Contributions
and Profit Sharing Contributions hereunder.(n) Employer Contributions shall
mean both Employer Matching Contributions and Profit Sharing Contributions
hereunder.
(o) Employer Matching Contributions shall mean amounts contributed by the
Employer pursuant to Section 3.02.(o) Employer Matching Contributions shall
mean amounts contributed by the Employer pursuant to Section 3.02.
(p) Marquette Stock shall mean common stock of the Company, or any
Affiliate of the Company.(p) Marquette Stock shall mean common stock of the
Company, or any Affiliate of the Company.
(q) Marquette Stock Fund shall mean an unsegregated fund to be primarily
invested in Marquette Stock.(q) Marquette Stock Fund shall mean an unsegregated
fund to be primarily invested in Marquette Stock.
3
<PAGE>
(r) ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.(r) ERISA shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time.
(s) Highly Compensated Employee shall mean any highly compensated active
employee and any highly compensated former employee. A highly compensated
active employee includes any individual employed by an Affiliate who during the
immediately preceding Plan Year:(s) Highly Compensated Employee shall mean any
highly compensated active employee and any highly compensated former employee.
A highly compensated active employee includes any individual employed by an
Affiliate who during the immediately preceding Plan Year:
(i) was a 5% owner of an Affiliate; or(i) was a 5% owner of an
Affiliate; or
(ii) received compensation from the Affiliates in excess of $85,000
(or such higher amount permitted pursuant to Code Section 414(q)) and was
among the 20% most Highly Compensated Employees of the Affiliates for the
Plan Year.(ii) received compensation from the Affiliates in excess of
$85,000 (or such higher amount permitted pursuant to Code Section 414(q))
and was among the 20% most Highly Compensated Employees of the Affiliates
for the Plan Year.
A highly compensated former employee includes any individual who
separated from service (or was deemed to have separated) prior to the current
Plan Year, performs no service for the Affiliates during the current Plan Year
and was a highly compensated active employee for either his separation year or
any Plan Year ending on or after the employee's 55th birthday.
(t) Hour of Service shall mean each hour for which an Employee is paid,
or entitled to payment, by the Affiliates for the performance of duties; each
hour for which an Employee is paid, or entitled to payment, by the Affiliates
for periods of time during which no duties are performed, except that no more
than 501 hours shall be credited for any single continuous period during which
no duties are performed; and each hour (if any) for which back pay is awarded or
agreed to by the Affiliates. Hours of Service shall be computed and credited,
and shall not be less than the number of hours required to be credited, pursuant
to U.S. Department of Labor Regulations ' 2530.200b-2(b) and (c).(t) Hour of
Service shall mean each hour for which an Employee is paid, or entitled to
payment, by the Affiliates for the performance of duties; each hour for which an
Employee is paid, or entitled to payment, by the Affiliates for periods of time
during which no duties are performed, except that no more than 501 hours shall
be credited for any single continuous period during which no duties are
performed; and each hour (if any) for
4
<PAGE>
which back pay is awarded or agreed to by the Affiliates. Hours of Service shall
be computed and credited, and shall not be less than the number of hours
required to be credited, pursuant to U.S. Department of Labor Regulations '
2530.200b-2(b) and (c).
In addition to the foregoing provisions, an Employee shall receive Hour of
Service credit for the hours described in paragraphs (i) and (ii) below, if not
credited pursuant to the preceding paragraph of this subsection.
(i) Uncompensated hours, up to a maximum of 40 hours per week (but
not more than the number of hours necessary to avoid a Year of Break in
Service), for applicable holidays, vacations and periods of Approved Leaves
of Absence, including:(i) Uncompensated hours, up to a maximum of 40 hours
per week (but not more than the number of hours necessary to avoid a Year
of Break in Service), for applicable holidays, vacations and periods of
Approved Leaves of Absence, including:
(A) absence for temporary illness or accident,(A) absence for
temporary illness or accident,
(B) during receipt of benefits under the Affiliate's disability
income plan, if any, and(B) during receipt of benefits under the
Affiliate's disability income plan, if any, and
(C) absence for military service, but only to the extent, if
any, required under applicable federal and state statutes and only if
the Employee applies for reemployment within such time as he has
reemployment rights under such statutes.(C) absence for military
service, but only to the extent, if any, required under applicable
federal and state statutes and only if the Employee applies for
reemployment within such time as he has reemployment rights under such
statutes.
5
<PAGE>
(ii) Solely for purposes of determining whether a Year of Break in
Service has occurred for participation and vesting purposes, hours while
the Employee is absent from work for maternity or paternity reasons. For
purposes of this paragraph, an absence from work for maternity or paternity
reasons means an absence:(ii) Solely for purposes of determining whether a
Year of Break in Service has occurred for participation and vesting
purposes, hours while the Employee is absent from work for maternity or
paternity reasons. For purposes of this paragraph, an absence from work
for maternity or paternity reasons means an absence:
(A) by reason of the pregnancy of the Employee,(A) by reason of
the pregnancy of the Employee,
(B) by reason of a birth of a child of the Employee,(B) by
reason of a birth of a child of the Employee,
(C) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or(C) by
reason of the placement of a child with the Employee in connection
with the adoption of such child by such Employee, or
(D) for purposes of caring for such child for a period beginning
immediately following such birth or placement.(D) for purposes of
caring for such child for a period beginning immediately following
such birth or placement.
An Employee shall receive credit under this paragraph for the hours which would
otherwise have been credited to the Employee but for the absence, or in any case
in which these hours cannot be determined, eight Hours of Service per day of the
absence. The Hours of Service credited under this paragraph shall be credited
in the twelve consecutive calendar month computation period in which the absence
begins, if this crediting is necessary to prevent a Year of Break in Service in
that period or, in all other cases, in the following 12 consecutive calendar
month computation period.
In computing an Employee's Hours of Service when a record of the Employee's
actual Hours of Service is not available, an Employee shall be credited with 10
Hours of Service for each day of employment for which the Employee would have
been required to be credited with one Hour of Service.
(u) Investment Funds shall mean one or more unsegregated funds established
pursuant to Section 9.02 and invested in securities, insurance contracts or
other property of such type and general characteristics as the Employer shall
determine. The Marquette Stock Fund is
6
<PAGE>
an Investment Fund. (u) Investment Funds shall mean one or more unsegregated
funds established pursuant to Section 9.02 and invested in securities, insurance
contracts or other property of such type and general characteristics as the
Employer shall determine. The Marquette Stock Fund is an Investment Fund.
(v) Investment Manager shall mean any person, insurance company or
corporation appointed by the Employer to direct the investment and reinvestment
of all or any portion of the assets held by the Trustee under the Trust. (v)
Investment Manager shall mean any person, insurance company or corporation
appointed by the Employer to direct the investment and reinvestment of all or
any portion of the assets held by the Trustee under the Trust.
(w) Normal Retirement Date shall mean the date on which the
Participant attains age 65. (w) Normal Retirement Date shall mean the date on
which the Participant attains age 65.
(x) Participant shall mean an Employee who is eligible to make 401(k)
Contributions hereunder as provided in Sections 2.01 and 3.01. The term shall
include any individual who was a Participant in the Plan immediately prior to
the Effective Date. In no event, however, will an Employee who is a member of a
collective bargaining unit be a Participant unless the collective bargaining
agreement so provides. (x) Participant shall mean an Employee who is eligible to
make 401(k) Contributions hereunder as provided in Sections 2.01 and 3.01. The
term shall include any individual who was a Participant in the Plan immediately
prior to the Effective Date. In no event, however, will an Employee who is a
member of a collective bargaining unit be a Participant unless the collective
bargaining agreement so provides.
(y) Plan shall mean the Marquette Medical Systems, Inc. Profit Sharing and
401(k) Plan as set forth herein and as the same may be amended from time to
time. (y) Plan shall mean the Marquette Medical Systems, Inc. Profit Sharing and
401(k) Plan as set forth herein and as the same may be amended from time to
time.
(z) Plan Year shall mean each 12 month period ending April 30. (z) Plan
Year shall mean each 12 month period ending April 30.
(aa) Profit Sharing Contributions shall mean amounts contributed by
the Employer pursuant to Section 3.03. (aa) Profit Sharing Contributions shall
mean amounts contributed by the Employer pursuant to Section 3.03.
(bb) Severance from Service shall mean the date of an Employee's death
or other termination of employment with the Employers and Affiliates. (bb)
Severance from Service shall mean the date of an Employee's death or other
termination of employment with the Employers and Affiliates.
7
<PAGE>
(cc) Trust Fund shall mean the property which shall be held from time to
time by the Trustee in trust under the terms of this Agreement.(cc) Trust Fund
shall mean the property which shall be held from time to time by the Trustee in
trust under the terms of this Agreement.
(dd) Trustee shall mean Norwest Bank, N.A., or any successor or
successors thereto designated pursuant to Section 9.01.(dd) Trustee shall mean
Norwest Bank, N.A., or any successor or successors thereto designated pursuant
to Section 9.01.
(ee) Valuation Date shall mean each day of the year, or such other
periods, not less frequent than annual, which the Company designates.(ee)
Valuation Date shall mean each day of the year, or such other periods, not less
frequent than annual, which the Company designates.
(ff) Vesting Service shall mean service with an Affiliate that is counted
in determining the Participant's vested and nonforfeitable interest under the
Plan, as determined under Section 5.01.(ff) Vesting Service shall mean service
with an Affiliate that is counted in determining the Participant's vested and
nonforfeitable interest under the Plan, as determined under Section 5.01.
(gg) Year of Break in Service shall mean a Plan Year, during which the
Employee is not employed with the Employer or an Affiliate for at least 501
Hours of Service.(gg) Year of Break in Service shall mean a Plan Year, during
which the Employee is not employed with the Employer or an Affiliate for at
least 501 Hours of Service.
(hh) Years of Service shall mean the total Plan Years during which an
individual completed at least 1,000 Hours of Service for an Employer or
Affiliate.(hh) Years of Service shall mean the total Plan Years during which an
individual completed at least 1,000 Hours of Service for an Employer or
Affiliate.
Section 1.02. Construction.
-------------
(a) Words used herein in the masculine gender shall include the feminine
and words used herein in the singular shall include the plural in all cases
where such would apply. The words hereof, herein, hereunder and other similar
compounds of the word here shall refer to the entire Plan, not to a particular
article or section hereof. Headings of articles, sections and subsections are
for convenience of reference only; they constitute no part of the Plan and are
not to be considered in the construction hereof. All references to statutory
sections shall include the section so identified as amended from time to time or
any other statute of similar import.
(b) The Plan is intended to be a qualified profit-sharing plan with a
qualified cash or deferred arrangement meeting the requirements of Code Sections
401(a) and (k). The Plan shall
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<PAGE>
be interpreted so as to comply with the applicable requirements of ERISA and the
Code, where such requirements are not clearly contrary to the express terms
hereof. In all other respects, the Plan shall be construed and its validity
determined according to the laws of the State of Wisconsin to the extent such
laws are not preempted by applicable requirements of federal law. In case any
provision of this Agreement and/or the Plan shall be held illegal or invalid for
any reason, such illegality or invalidity shall not affect the remaining
provisions of this Agreement and/or the Plan, and this Agreement and/or the Plan
shall be construed and enforced as if said illegal or invalid provisions had
never been included herein. As provided in Section 8.02, the Company shall have
the ultimate discretionary authority to interpret the terms of the Plan.(b) The
Plan is requirements of ERISA and the Code, where such requirements are not
clearly contrary to the express terms hereof. In all other respects, the Plan
shall be construed and its validity determined according to the laws of the
State of Wisconsin to the extent such laws are not preempted by applicable
requirements of federal law. In case any provision of this Agreement and/or the
Plan shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of this Agreement and/or
the Plan, and this Agreement and/or the Plan shall be construed and enforced as
if said illegal or invalid provisions had never been included herein. As
provided in Section 8.02, the Company shall have the ultimate discretionary
authority to interpret the terms of the Plan.
9
<PAGE>
ARTICLE II.ARTICLE II.
ELIGIBILITY AND PARTICIPATION
Section 2.01.Eligibility.
------------
An Employee shall be eligible to participate in the Plan on the May 1, August
1, November 1 or February 1 next following the date he becomes an Employee and
is regularly scheduled to work 20 or more hours per week. Employees who are not
regularly scheduled to work 20 or more hours per week will be eligible to
participate as of the May 1, August 1, November 1 or February 1 following an
eligibility period in which the Employee completes 1,000 or more Hours of
Service. The first eligibility period begins with an individuals date of hire by
an Affiliate. If 1,000 Hours of Service are not completed during that period,
subsequent periods are each Plan Year starting with the Plan Year after hire.
Section 2.02. Status of Leased Employees. A person who is a leased
------------
employee within the meaning of Code Section 414(n) or (o) shall not be eligible
to participate in the Plan, but in the event such a person was participating or
subsequently becomes eligible to participate herein, credit shall be given for
the person's service as a leased employee of any Affiliate toward completion of
the Plan's eligibility and vesting requirements.
10
<PAGE>
ARTICLE III.
CONTRIBUTIONS
Section 3.01. 401(k) Contributions.
------------
(a) Subject to the limitations described in Section 3.05, any Employee
who is eligible to participate in the Plan may elect to have the Employer
contribute any whole percentage of his Compensation, to a maximum of 12%, as
401(k) Contributions, in lieu of paying such amounts as current cash
compensation. Such elections shall be effective as of the first day of the
payroll period following the day such elections are received, subject to any
uniform cut-off date established by the Administrator to permit processing of
the election. The maximum 401(k) Contribution hereunder for any Participant in
any calendar year shall be $10,000 (adjusted for cost-of-living increases
pursuant to Code Section 402(g)(5)). From time to time, but not less frequently
than monthly, the Employer shall remit Participants' 401(k) Contributions to the
Trustee. The Account of each Participant shall be credited with the amounts of
his contributions as such amounts are received by the Trustee.
11
<PAGE>
(b) A Participant may elect to change the rate of his 401(k)
Contributions, including a complete suspension, effective as of the payroll
period following receipt of the election on or before any cut-off date
established by the Company to permit processing of elections.(b) A Participant
may elect to change the rate of his 401(k) Contributions, including a complete
suspension, effective as of the payroll period following receipt of the election
on or before any cut-off date established by the Company to permit processing of
elections.
(c) The Company shall, from time to time, establish a maximum deferred
amount respecting Participant 401(k) Contributions. Such maximum deferred amount
may vary during each payroll period and for each Participant. If a Participant
shall designate any amount or rate of 401(k) Contributions in excess of the
applicable maximum deferred amount established for his 401(k) Contributions,
such designation shall not be invalid, but shall be effective to designate a
rate of 401(k) Contributions equal to the applicable maximum deferred amount.
Without limiting the generality of the foregoing, the average rate, expressed as
a percentage of compensation as defined in Code Section 414(s), by Participants
who are Highly Compensated Employees shall not exceed a rate equal to the
average rate of 401(k) contributions for the preceding Plan Year by all
Participants who were not Highly Compensated Employees in that Plan Year,
multiplied by the greater of:(c) The Company shall, from time to time, establish
a maximum deferred amount respecting Participant 401(k) Contributions. Such
maximum deferred amount may vary during each payroll period and for each
Participant. If a Participant shall designate any amount or rate of 401(k)
Contributions in excess of the applicable maximum deferred amount established
for his 401(k) Contributions, such designation shall not be invalid, but shall
be effective to designate a rate of 401(k) Contributions equal to the applicable
maximum deferred amount. Without limiting the generality of the foregoing, the
average rate, expressed as a percentage of compensation as defined in Code
Section 414(s), by Participants who are Highly Compensated Employees shall not
exceed a rate equal to the average rate of 401(k) contributions for the
preceding Plan Year by all Participants who were not Highly Compensated
Employees in that Plan Year, multiplied by the greater of:
(i) 1.25 times such average rate; or(i) 1.25 times such average rate;
or
(ii) the lesser of (A) 2.0 times such average rate or (B) such average
rate plus 2%, subject to such other applicable limit as may be prescribed by the
Secretary of the Treasury to prevent the multiple use of this alternative
limitation.(ii) the lesser of (A) 2.0 times such average rate or (B) such
average rate plus 2%, subject to such other applicable limit as may be
prescribed by the Secretary of the Treasury to prevent the multiple use of this
alternative limitation.
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<PAGE>
(d) In order to ensure the favorable tax treatment of 401(k)
Contributions hereunder pursuant to Code Section 401(k) or to ensure compliance
with Code Section 402(g) or 415, the Company in its discretion may prospectively
decrease the rate of 401(k) Contributions of any Participant at any time and may
direct the Trustee to refund 401(k) Contributions to any Participant. Any excess
contributions, determined (i) after use of qualified nonelective contributions
as helpful in the actual deferral percentage test, and (ii) by leveling the
highest contribution amounts until the test is satisfied, shall be distributed
with applicable income. In addition, the Employer Matching Contributions shall
be forfeited with applicable income, to the extent such Employer Matching
Contributions are attributable to excess contributions and excess deferrals. For
purposes of this subsection, applicable income means income for the Plan Year to
which the excess contributions and deferrals relate. The amount of a required
distribution of excess contributions shall be reduced in whole or in part by a
prior distribution of excess deferrals for the applicable period and vice versa.
Such distributions shall be no later than the Plan Year following the year the
excess contributions and excess deferrals were made, and the amount of excess
contributions shall be determined based on the respective portions attributable
to each Highly Compensated Employee. Notwithstanding the above, nonelective
contributions may be used in the actual deferral percentage test as qualified
nonelective contributions only if such contributions are fully vested when made
and subject to the distribution restrictions applicable to 401(k) Contributions
under this Plan.(d) In order to ensure the favorable tax treatment of 401(k)
Contributions hereunder pursuant to Code Section 401(k) or to ensure compliance
with Code Section 402(g) or 415, the Company in its discretion may prospectively
decrease the rate of 401(k) Contributions of any Participant at any time and may
direct the Trustee to refund 401(k) Contributions to any Participant. Any excess
contributions, determined (i) after use of qualified nonelective contributions
as helpful in the actual deferral percentage test, and (ii) by leveling the
highest contribution amounts until the test is satisfied, shall be distributed
with applicable income. In addition, the Employer Matching Contributions shall
be forfeited with applicable income, to the extent such Employer Matching
Contributions are attributable to excess contributions and excess deferrals. For
purposes of this subsection, applicable income means income for the Plan Year to
which the excess contributions and deferrals relate. The amount of a required
distribution of excess contributions shall be reduced in whole or in part by a
prior distribution of excess deferrals for the applicable period and vice versa.
Such distributions shall be no later than the Plan Year following the year the
excess contributions and excess deferrals were made, and the amount of excess
contributions shall be determined based on the respective portions attributable
to each Highly Compensated Employee. Notwithstanding the above, nonelective
contributions may be used in the actual deferral percentage test as qualified
nonelective contributions only if such contributions are fully vested when made
and subject to the distribution restrictions applicable to 401(k) Contributions
under this Plan.
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<PAGE>
(e) If a Participant gives timely notice to the Company that the total
of his elective deferrals (within the meaning of Code Section 402(g)(3)) for his
taxable year exceeded the limit described in such Code Section for his taxable
year and of the amount of such excess attributable to the Plan, the Company may
direct that such excess, together with applicable income, shall be distributed
to the Participant on or before the first April 15 following the end of the
Participant's taxable year. In the event that a Participant has excess deferrals
for his taxable year calculated by taking into account only elective deferrals
under this Plan and other plans of the Employer, such Participant will be deemed
to have notified the Company of such excess deferrals and the Company shall
direct that such excess, together with applicable income, shall be distributed
to the Participant on or before the first April 15 following the end of the
Participant's taxable year. In either event, the Employer Matching Contributions
shall be forfeited with applicable income, to the extent such Employer Matching
Contributions are attributable to excess deferrals. For purposes of this
subsection, applicable income shall mean any income for the Plan Year to which
the excess deferrals relate.(e) If a Participant gives timely notice to the
Company that the total of his elective deferrals (within the meaning of Code
Section 402(g)(3)) for his taxable year exceeded the limit described in such
Code Section for his taxable year and of the amount of such excess attributable
to the Plan, the Company may direct that such excess, together with applicable
income, shall be distributed to the Participant on or before the first April 15
following the end of the Participant's taxable year. In the event that a
Participant has excess deferrals for his taxable year calculated by taking into
account only elective deferrals under this Plan and other plans of the Employer,
such Participant will be deemed to have notified the Company of such excess
deferrals and the Company shall direct that such excess, together with
applicable income, shall be distributed to the Participant on or before the
first April 15 following the end of the Participant's taxable year. In either
event, the Employer Matching Contributions shall be forfeited with applicable
income, to the extent such Employer Matching Contributions are attributable to
excess deferrals. For purposes of this subsection, applicable income shall mean
any income for the Plan Year to which the excess deferrals relate.
Section 3.02. Employer Matching Contributions.
------------
(a) For each Plan Year, the Account of each Participant who is eligible
to receive an Employer Matching Contribution shall be credited with Employer
Matching Contributions. The Board may, in its sole discretion, change the rate
of Employer Matching Contributions for any Plan Year. Employer Matching
Contributions shall be made on or before the due date (including extensions) of
the Employer's federal income tax return for the Plan Year.
In the absence of Board action to the contrary, Employer Matching
Contributions will be the percentage of Employee 401(k) Contributions shown
below, but not more than the greater of the dollar amount or percentage of
Compensation indicated:
14
<PAGE>
<TABLE>
<CAPTION>
Plan Year Ending Percentage of Percentage of
401(k) Contributions Compensation Dollar Amount
<S> <C> <C> <C>
April 30, 1998 35% 2.1% $500
April 30, 1999 40% 2.4% $500
April 30, 2000 45% 2.7% $500
April 30, 2001 50% 3.0% $500
and thereafter
</TABLE>
(b) All Participants who elect to make 401(k) Contributions for a Plan
Year shall be eligible to share in Employer Matching Contributions for such Plan
Year.(b) All Participants who elect to make 401(k) Contributions for a Plan
Year shall be eligible to share in Employer Matching Contributions for such Plan
Year.
(c) Notwithstanding subsection 3.02(a) above, the average rate,
expressed as a percentage of Compensation, of the sum of Employer Matching
Contributions and 401(k) Contributions for any Plan Year for Participants who
are Highly Compensated Employees for such Plan Year shall not exceed a rate
equal to the average rate of Employer Matching Contributions for the preceding
Plan Year by all Participants who were not Highly Compensated Employees in that
Plan Year multiplied by the greater of:(c) Notwithstanding subsection 3.02(a)
above, the average rate, expressed as a percentage of Compensation, of the sum
of Employer Matching Contributions and 401(k) Contributions for any Plan Year
for Participants who are Highly Compensated Employees for such Plan Year shall
not exceed a rate equal to the average rate of Employer Matching Contributions
for the preceding Plan Year by all Participants who were not Highly Compensated
Employees in that Plan Year multiplied by the greater of:
(i) 1.25 times such average rate; or(i) 1.25 times such average
rate; or
(ii) the lesser of (A) 2.0 times such average rate or (B) such
average rate plus 2%, subject to such other applicable limit as may be
prescribed by the Secretary of the Treasury to prevent the multiple use of
this alternative limitation.(ii) the lesser of (A) 2.0 times such average
rate or (B) such average rate plus 2%, subject to such other applicable
limit as may be prescribed by the Secretary of the Treasury to prevent the
multiple use of this alternative limitation.
In order to ensure compliance with Code Section 401(m) or 415, any excess
aggregate contributions, determined (i) after use of qualified nonelective
contributions as helpful in the
15
<PAGE>
actual contribution percentage test, and (ii) by leveling the highest
contribution amounts until the test is satisfied, shall be distributed, to the
extent vested, and forfeited, to the extent forfeitable, with applicable income.
For purposes of this subsection, applicable income means income for the Plan
Year to which the excess aggregate contributions relate. Such distributions
shall be made during the Plan Year following the year the excess aggregate
contributions were made, and the amount shall be determined based on the
respective portions attributable to each Highly Compensated Employee.
Notwithstanding the above, nonelective contributions may be used in the actual
contribution percentage test as qualified nonelective contributions only if such
contributions are fully vested when made and subject to the distribution
restrictions applicable to 401(k) Contributions under this Plan.
Section 3.03. Profit Sharing Contributions.
------------
(a) The Employer may also make such Profit Sharing Contributions for
each Plan Year as may be determined by the Board, in its sole discretion,
provided that Profit Sharing Contributions for any Plan Year shall not exceed
(i) the amount that can be allocated to Participants' Accounts hereunder (after
giving effect to the limitations described in Section 3.04), or (ii) the maximum
amount deductible for federal income tax purposes for such Plan Year. The
Employer may contribute in cash or in kind and may designate all or any portion
of the Profit Sharing Contribution for investment in the Marquette Stock
Account. Subject to the limitations described in Section 3.04, Profit Sharing
Contributions and forfeitures for any Plan Year shall be allocated to the Profit
Sharing Accounts of those Participants who, pursuant to subsection 3.03(b), are
eligible to share in such Contributions, in the same proportion that the
Certified Earnings paid by the Employer to such Participant for the Plan Year
bears to the total Certified Earnings paid by the Employer to all such
Participants for such Plan Year.
(b) The Participants eligible to share in Profit Sharing Contributions
for any Plan Year shall be those Participants who (b) The Participants
eligible to share in Profit Sharing Contributions for any Plan Year shall be
those Participants who
(i) were first employed by an Employer or Affiliate at some time
before the February 1 preceding the Plan Year and who are employed by an
Employer on the last day of the Plan Year; and (i) were first employed by
an Employer or Affiliate at some time before the February 1 preceding the
Plan Year and who are employed by an Employer on the last day of the Plan
Year; and
(ii) have completed at least 1,000 Hours of Service during the Plan
Year.(ii)have completed at least 1,000 Hours of Service during the Plan
Year.
16
<PAGE>
Section 3.04. Maximum Annual Additions.
------------
(a) Notwithstanding the other provisions of this Plan, annual additions
to the account of any Participant for a Plan Year (also the limitation year)
shall not exceed the lesser of:
(i) $30,000 as adjusted pursuant to Section 415(c)(1)(A) and
(d)(1); or(i)$30,000 as adjusted pursuant to Section 415(c)(1)(A) and
(d)(1); or
(ii) 25% of the Participant's total compensation (as defined in
subsection (c) of Section 415 of the Code) from the Employer for such Plan
Year.(ii) 25% of the Participant's total compensation (as defined in
subsection (c) of Section 415 of the Code) from the Employer for such Plan
Year.
(b) The term annual additions as used in this Section shall mean the sum
for the Plan Year of (i) Employer Contributions, (ii) forfeitures, (iii) 401(k)
Contributions and (iv) amounts described in Sections 415(c)(2) and 419A(d)(2) of
the Code, credited to the Participant's Account.(b) The term annual additions
as used in this Section shall mean the sum for the Plan Year of (i) Employer
Contributions, (ii) forfeitures, (iii) 401(k) Contributions and (iv) amounts
described in Sections 415(c)(2) and 419A(d)(2) of the Code, credited to the
Participant's Account.
17
<PAGE>
(c) If a Participant also participates in another qualified defined
contribution plan maintained by the Employer, then the sum of his annual
additions under this Plan and under such other plan shall not exceed the
limitations described in subsection (a) of this Section. Further, if a
Participant also participates in a defined benefit pension plan maintained by
the Employer, the sum of (1) and (2) below may not exceed 1.0:(c) If a
Participant also participates in another qualified defined contribution plan
maintained by the Employer, then the sum of his annual additions under this Plan
and under such other plan shall not exceed the limitations described in
subsection (a) of this Section. Further, if a Participant also participates in
a defined benefit pension plan maintained by the Employer, the sum of (1) and
(2) below may not exceed 1.0:
(i) the sum of the projected annual benefit of the Participant
under all defined benefit pension plans of the Employer determined as of
the close of the Plan Year, divided by the lesser of (i) the product of
1.25 multiplied by the dollar limitation in effect under Section
415(b)(1)(A) of the Code for such year, or (ii) the product of 1.4
multiplied by the amount which may be taken into account under Section
415(b)(1)(B) of the Internal Revenue Code with respect to such Participant
for such year; and(i) the sum of the projected annual benefit of the
Participant under all defined benefit pension plans of the Employer
determined as of the close of the Plan Year, divided by the lesser of (i)
the product of 1.25 multiplied by the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for such year, or (ii) the product of 1.4
multiplied by the amount which may be taken into account under Section
415(b)(1)(B) of the Internal Revenue Code with respect to such Participant
for such year; and
(ii) the sum of the annual additions to the Participant's account
under all defined contribution plans of the Employer as of the close of the
Plan Year and for all prior Plan Years, divided by the sum of the lesser of
(i) or (ii) for such year and for each prior year of service with the
Employer (regardless of whether any such defined contribution plan was in
existence during those years), where (i) is the product of 1.25 multiplied
by the dollar limitation in effect under Section 415(c)(1)(A) of the code
for such year, and (ii) is the product of 1.4 multiplied by the amount
which may be taken into account under Section 415(c)(1)(B) of the Code (or
Section 415(c)(7) or (8) of such Code, if applicable) with respect to such
individual under such plan for such year; provided, however, that the
Company may elect that the amount taken into account for each Participant
for all years ending before January 1, 1983, under (i) and (ii) above shall
be determined pursuant to the special transition rule provided in such
Section 415(e)(6) of the Code.(ii) the sum of the annual additions to the
Participant's account under all defined contribution plans of the Employer
as of the close of the Plan Year and for all prior Plan Years, divided by
the sum of the lesser of (i) or (ii) for such year and for each prior year
of service with the Employer (regardless of whether any such defined
18
<PAGE>
contribution plan was in existence during those years), where (i) is the
product of 1.25 multiplied by the dollar limitation in effect under Section
415(c)(1)(A) of the code for such year, and (ii) is the product of 1.4
multiplied by the amount which may be taken into account under Section
415(c)(1)(B) of the Code (or Section 415(c)(7) or (8) of such Code, if
applicable) with respect to such individual under such plan for such year;
provided, however, that the Company may elect that the amount taken into
account for each Participant for all years ending before January 1, 1983,
under (i) and (ii) above shall be determined pursuant to the special
transition rule provided in such Section 415(e)(6) of the Code.
(d) In the event that, after the application of all limitations and
reductions in the Participant's benefits under any defined benefit pension plan
and any limitations imposed by the Company pursuant to Sections 3.01(d), 3.01(e)
and 3.02(c), the rules set forth in subsection (a) or (b) of this Section would
otherwise be violated with respect to any Participant, then such Participant's
annual additions under this Plan for the Plan Year shall be automatically
reduced as follows:(d) In the event that, after the application of all
limitations and reductions in the Participant's benefits under any defined
benefit pension plan and any limitations imposed by the Company pursuant to
Sections 3.01(d), 3.01(e) and 3.02(c), the rules set forth in subsection (a) or
(b) of this Section would otherwise be violated with respect to any Participant,
then such Participant's annual additions under this Plan for the Plan Year shall
be automatically reduced as follows:
(i) The amount of Profit Sharing Contributions allocated to his
Profit Sharing Account pursuant to Section 3.03 shall be reduced and
allocated pursuant to Section 3.03 to the Profit Sharing Accounts of other
Participants eligible to share in Profit Sharing Contributions for the Plan
Year to the extent such additional allocations do not result in violation
of this Section.(i) The amount of Profit Sharing Contributions allocated
to his Profit Sharing Account pursuant to Section 3.03 shall be reduced and
allocated pursuant to Section 3.03 to the Profit Sharing Accounts of other
Participants eligible to share in Profit Sharing Contributions for the Plan
Year to the extent such additional allocations do not result in violation
of this Section.
(ii) In the event that the application of (i) above is not
sufficient to eliminate the violation, there shall be deducted from the
Participant's Accounts such portion of Employer Matching Contributions for
the Plan Year as shall be necessary to eliminate the violation. Employer
Matching Contributions deducted from a Participant's Accounts shall be
forfeited and shall be applied as provided in Section 5.05.(ii) In the
event that the application of (i) above is not sufficient to eliminate the
violation, there shall be deducted from the Participant's Accounts such
portion of Employer Matching
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<PAGE>
Contributions for the Plan Year as shall be necessary to eliminate the
violation. Employer Matching Contributions deducted from a Participant's
Accounts shall be forfeited and shall be applied as provided in Section
5.05.
Notwithstanding the foregoing, if as a result of the allocation of forfeitures,
an error in estimating a Participant's Compensation for the Plan Year, an error
in determining the amount of 401(k) Contributions that may be made with respect
to any Participant under the limits of Code Section 415, or such other facts and
circumstances as may be prescribed by the Commissioner of Internal Revenue, the
Before-Tax Deposits or After-Tax Deposits or Employer Contributions, or both,
actually allocated to a Participant exceed the limits described in this Section,
such excess 401(k) Contributions shall be returned to the Participant and/or
such excess Employer Contributions shall be used to reduce Employer
Contributions under the Plan for the next Plan Year and succeeding Plan Years,
as necessary, for such Participant. To the extent such excess Employer
Contributions are not so reduced, the Participant shall not be entitled to
receive such excess. If a Participant has such an excess annual addition
consisting of Employer Contributions but is not covered by the Plan as of the
end of the Plan Year for which the excess arose or as of any succeeding Plan
Year prior to the Plan Year in which such excess is fully eliminated, then such
excess shall be held in a suspense account for that Plan Year and allocated or
reallocated in the next and succeeding Plan Years to all Participants then
entitled to share in Employer Matching Contributions or Profit Sharing
Contributions, subject, however, to the limitations of this Section. Amounts
allocated to this suspense account shall not be credited with income or loss.
If an amount remains in this suspense account at the time the Plan terminates
and all Plan assets have been distributed to Participants, then such amount
shall be returned to the Employer.
(e) The Company shall have broad authority to coordinate with the plan
administrator of other plans maintained by the Employer in relation to the
limits imposed by this Section, and to implement reductions of allocations and
reallocations necessary to maintain all of such plans in accordance with the
requirements of applicable law.(e) The Company shall have broad authority to
coordinate with the plan administrator of other plans maintained by the Employer
in relation to the limits imposed by this Section, and to implement reductions
of allocations and reallocations necessary to maintain all of such plans in
accordance with the requirements of applicable law.
Section 3.05. Rollovers.
------------
An Employee shall be entitled to rollover to the Plan amounts derived from a
qualifying distribution from another tax-qualified pension, profit sharing or
stock bonus plan. No such rollover shall be accepted unless it is paid over in
cash or check to the Trustee directly from the other plan or within 60 days
after it is received by the Employee. No amount shall be accepted
20
<PAGE>
for rollover unless the Employee certifies in writing that (i) the plan was a
tax-qualified retirement plan at the time of the distribution, and (ii) the
distribution constituted an eligible rollover distribution from such other plan
within the meaning of Code Section 402(c)(4).
21
<PAGE>
ARTICLE IV.
PARTICIPANT ACCOUNTS;PARTICIPANT ACCOUNTS;
INVESTMENT OF ACCOUNTS
Section 4.01. Establishment of Accounts. Each Participant shall have one
-------------
or more Accounts established for him. Such Accounts shall consist of:Section
-------
4.01. Establishment of Accounts. Each Participant shall have one or more
- -----
Accounts established for him. Such Accounts shall consist of:
(a) a 401(k) Contributions Account; (a) a 401(k) Contributions Account;
(b) a Matching Contributions Account; (b) a Matching Contributions Account;
(c) a Profit Sharing Account; (c) a Profit Sharing Account;
(d) an Old ESOT Account; and(d) an Old ESOT Account; and
(e) a Rollover Account.(e) a Rollover Account.
To the extent necessary or appropriate to provide for the proper
administration of the Plan, the Accounts of Participants shall include separate
balances for interests invested in each Investment Fund, for interests derived
from different sources of contributions, and for such other purposes as the
Company shall determine. As soon as practicable after each Valuation Date, each
Participant shall be provided with a statement reflecting the status of his
Accounts.
Section 4.02. Investment of Accounts. Section 4.02. Investment of
------------ ------------
Accounts.
(a) The Company shall permit each Participant to invest his Accounts in
one or more of the Investment Funds available for such purpose. A Participant
who makes an election under this Section 4.02 shall elect to have all or any
portion (expressed as a whole percentage) of his Accounts invested in any one or
more of the Investment Funds then available. Further, any such election may be
changed as of any Valuation Date, but shall remain in effect for successive
periods unless changed by the Participant.(a) The Company shall permit each
Participant to invest his Accounts in one or more of the Investment Funds
available for such purpose. A Participant who makes an election under this
Section 4.02 shall elect to have all or any portion (expressed as a whole
percentage) of his Accounts invested in any one or more of the Investment Funds
then available. Further, any such election may be changed as of any Valuation
Date, but shall remain in effect for successive periods unless changed by the
Participant.
22
<PAGE>
(b) A Participant may elect to reallocate his Accounts among the
Investment Funds as of any Valuation Date, except as limited by paragraph (d).
A Participant who elects to make such a reallocation shall elect to have all or
any portion (expressed as a whole percentage) of his Accounts invested in any
one or more Investment Funds transferred to one or more other Investment Funds
(in any whole percentage of the amounts being transferred).(b) A Participant
may elect to reallocate his Accounts among the Investment Funds as of any
Valuation Date, except as limited by paragraph (d). A Participant who elects to
make such a reallocation shall elect to have all or any portion (expressed as a
whole percentage) of his Accounts invested in any one or more Investment Funds
transferred to one or more other Investment Funds (in any whole percentage of
the amounts being transferred).
(c) In the event that a Participant shall fail to direct the investment of
his Accounts subject to his direction or fail to replace any directions which
may have been suspended or revoked, then such Accounts shall be invested on the
Participant's behalf in an Investment Fund designated by the Company on a
uniform and nondiscriminatory basis for all similarly situated Participants.
(c) In the event that a Participant shall fail to direct the investment of his
Accounts subject to his direction or fail to replace any directions which may
have been suspended or revoked, then such Accounts shall be invested on the
Participant's behalf in an Investment Fund designated by the Company on a
uniform and nondiscriminatory basis for all similarly situated Participants.
(d) A Participant may direct investment out of the Marquette Stock Fund
into other Investment Funds to the extent of up to 7% of the Participants
Account in the Fund (or stock valuing up to $2,500, if greater) within any 90
day period. In addition, the total of Marquette Stock liquidated by the Trust
in any fiscal quarter may not exceed 1% of the total of such stock outstanding
at the time. In the event liquidation requests exceed this limit at any time,
requests then outstanding will be honored, pro rata, until the next fiscal
quarter and will be the first such requests honored in that quarter.(d) A
Participant may direct investment out of the Marquette Stock Fund into other
Investment Funds to the extent of up to 7% of the Participants Account in the
Fund (or stock valuing up to $2,500, if greater) within any 90 day period. In
addition, the total of Marquette Stock liquidated by the Trust in any fiscal
quarter may not exceed 1% of the total of such stock outstanding at the time.
In the event liquidation requests exceed this limit at any time, requests then
outstanding will be honored, pro rata, until the next fiscal quarter and will be
the first such requests honored in that quarter.
23
<PAGE>
Section 4.03. Allocations to Matching Contributions and Profit Sharing
-------------
Accounts.
A Participant's Matching Contributions Account shall be credited with his
allocable share of Matching Contributions promptly after receipt by the Trustee.
The Profit Sharing Accounts maintained for each eligible Participant shall be
credited annually, as of the last day of each Plan Year, with his allocable
share of Employer Contributions and forfeitures for such Plan Year.
Section 4.04. Valuation of Accounts.
------------
As of each Valuation Date, the Accounts of each Participant shall be adjusted to
reflect the effect of income, collected and accrued, realized and unrealized
gains and losses, expenses and all other transactions during the period
preceding the Valuation Date with respect to the applicable Investment Funds.
24
<PAGE>
ARTICLE V.
VESTING AND FORFEITURES
Section 5.01. Calculation of Vesting Service.
-------------
A Participant's eligibility for benefits from his Profit Sharing Accounts shall
be determined by his Vesting Service. Subject to the Break in Service
provisions of Section 5.02, an Employee shall be credited with one year of
Vesting Service for each Plan Year in which he completes 1,000 or more Hours of
Service.
Section 5.02. Effect of Breaks in Service.
-------------
(a) The Vesting Service of a Participant who at the time he incurs a Break
in Service has a vested right to any benefits in his Profit Sharing Accounts
hereunder shall not be subject to cancellation. In any other case, the Vesting
Service of a Participant who incurs a Break in Service shall be canceled and
disregarded for all purposes of the Plan.
(b) In the event that a former Participant is re-employed by the Employer,
such former Participant shall be eligible for reparticipation in the Plan
immediately upon his rehire.(b) In the event that a former Participant is re-
employed by the Employer, such former Participant shall be eligible for
reparticipation in the Plan immediately upon his rehire.
Section 5.03. Vesting in 401(k) Contributions, Matching Contributions and
------------
Rollover Accounts.
A Participant's interests in his old ESOT, 401(k) Contributions, Matching
Contributions and Rollover Accounts shall be fully vested and nonforfeitable at
all times.
Section 5.04. Vesting in Profit Sharing Accounts.
------------
(a) A Participant's interest in his Profit Sharing Accounts shall be fully
vested and nonforfeitable upon the occurrence of any of the following events
prior to his termination of employment:
(i) the Participant's attainment of age 65;(i) the Participant's
attainment of age 65;
(ii) death; or(ii) death; or
25
<PAGE>
(iii) Disability (iii) Disability
26
<PAGE>
(b) Except as provided in subsection (a), a Participant's interest in Profit
Sharing Accounts shall be vested and nonforfeitable to the extent determined
from the following table:
Years of
Vesting Service Vested Percentage
0 0%
1 0%
2 25%
3 50%
4 75%
5 or more 100%
Section 5.05. Forfeitures.
- ------------
(a) Following a Participant's termination of employment, the balances in
the Participant's Accounts which are not vested shall be maintained in the
Participant's Accounts until the earlier of the date on which the Participant
(i) incurs a Break in Service or (ii) receives a distribution of the vested
portion of all of his Accounts. If either of the events described above occurs,
such amounts shall be forfeited and shall be allocated to the Profit Sharing
Accounts of those Participants eligible to share in Profit Sharing Contributions
for the Plan Year in which the forfeiture occurred, as provided in Section 3.03.
A Participant whose entire vested interest in his Accounts has been distributed
or who has no vested interest shall be deemed cashed out of the Plan.
(b) If a Participant whose Accounts have been forfeited in whole or in
part returns to employment before incurring a Break in Service, and pays to the
Plan all amounts previously distributed within the earlier of five years from
the date of rehire or the date a Break in Service occurs then the amounts
forfeited pursuant to this Section shall be reinstated to the Participant's
Accounts, out of forfeitures for the Plan Year in which such reemployment
occurs, or, if such forfeitures are not sufficient, out of additional Employer
Contributions. The reinstated amount shall be the amount forfeited, unadjusted
for any earnings, gains and losses. (b) If a Participant whose Accounts have
been forfeited in whole or in part returns to employment before incurring a
Break in Service, and pays to the Plan all amounts previously distributed within
the earlier of five years from the date of rehire or the date a Break in Service
occurs then the amounts forfeited pursuant to this Section shall be reinstated
to the Participant's Accounts, out of forfeitures for the Plan Year in which
such reemployment occurs, or, if such forfeitures are not sufficient, out of
27
<PAGE>
additional Employer Contributions. The reinstated amount shall be the amount
forfeited, unadjusted for any earnings, gains and losses.
(c) If a Participant whose Accounts have been forfeited in whole or in
part returns to employment after incurring a Break in Service, the forfeited
amounts shall not be reinstated. Such a Participant's Vesting Service shall be
determined pursuant to Section 5.02.(c) If a Participant whose Accounts have
been forfeited in whole or in part returns to employment after incurring a Break
in Service, the forfeited amounts shall not be reinstated. Such a Participant's
Vesting Service shall be determined pursuant to Section 5.02.
28
<PAGE>
ARTICLE VI.ARTICLE VI.
DISTRIBUTION OF BENEFITS
Section 6.01. Distribution Upon Termination of Employment.
-------------
A Participant's vested and nonforfeitable interests in all of his Accounts shall
be distributable to the Participant upon his termination of employment from the
Employer and Affiliates for any reason. Distribution shall be made at the time
and in the manner specified in Sections 6.04 and 6.05.
Section 6.02. Death.
-------------
(a) Upon a Participant's death, whether before or after his termination of
employment and whether before or after commencement of payment of benefits, the
vested portion of the remaining amounts in all of his Accounts shall be payable
to the Participant's Beneficiary at the time and in the manner specified in
Sections 6.04 and 6.05.
(b) A Participant may designate any person, trust and/or other entity as
his Beneficiary. Any such designation shall be in writing and filed with the
Company on the form and in the manner prescribed by the Company, and may be
revoked or changed by the Participant at any time by a written instrument filed
with the Company prior to his death. Notwithstanding the foregoing, in the
event that the Participant has a spouse at the time of his death, such spouse
shall be the Participant's Beneficiary unless (i) such spouse has consented in
writing to the Participant's designation of a different Beneficiary, (ii) such
consent acknowledges the effect of such election and is witnessed by a plan
representative appointed by the Company or by a notary public, and (iii) the
Participant is survived by a Beneficiary designated as such as described above.
In the event the Participant is not married at the time of his death and is not
survived by a properly designated Beneficiary, the Participant's estate shall be
the Beneficiary.(b) A Participant may designate any person, trust and/or other
entity as his Beneficiary. Any such designation shall be in writing and filed
with the Company on the form and in the manner prescribed by the Company, and
may be revoked or changed by the Participant at any time by a written instrument
filed with the Company prior to his death. Notwithstanding the foregoing, in
the event that the Participant has a spouse at the time of his death, such
spouse shall be the Participant's Beneficiary unless (i) such spouse has
consented in writing to the Participant's designation of a different
Beneficiary, (ii) such consent acknowledges the effect of such election and is
witnessed by a plan representative appointed by the Company or by a notary
public, and (iii) the Participant is survived by a Beneficiary designated as
such as described above. In the
29
<PAGE>
event the Participant is not married at the time of his death and is not
survived by a properly designated Beneficiary, the Participant's estate shall be
the Beneficiary.
Section 6.03. Time of Distributions. General.
------------
(a) A Participant's vested interest in his Account shall be distributed to
him after he has terminated employment. If the account is $5,000 or less,
distribution will occur within an administratively reasonable period following
termination of employment. If the value of the Participant's Account exceeds
$5,000, distribution shall be made as soon as practicable following any date
elected by the Participant.
(b) Required Distributions. Distribution of a Participant's Account shall
commence no later than 60 days after the latest of: (i) the close of the Plan
Year in which the Participant attains age 65 or (ii) the date the Participant
actually terminates employment with the Employer and Affiliates. Distribution
shall be completed not later than five years after the date of the Participant's
death, except as provided in Section 6.04. A 5% shareholder of an Employer must
begin to receive distribution no later than the April 1 following attainment of
age 70, even if still employed. (b) Required Distributions. Distribution of a
Participant's Account shall commence no later than 60 days after the latest of:
(i) the close of the Plan Year in which the Participant attains age 65 or (ii)
the date the Participant actually terminates employment with the Employer and
Affiliates. Distribution shall be completed not later than five years after the
date of the Participant's death, except as provided in Section 6.04. A 5%
shareholder of an Employer must begin to receive distribution no later than the
April 1 following attainment of age 70, even if still employed.
30
<PAGE>
Section 6.04. Form of Distributions.
------------
(a) A Participant or Beneficiary will receive distribution of his Accounts
in the form of: (i) a lump sum, (ii) in a series of annual or more frequent
installments over a fixed period not exceeding the joint life expectancy of the
Participant and the Participants Beneficiary, (iii) a nonrefundable period
certain annuity, subject to the period limits of paragraph (ii) above.
In the event that any Participant whose benefits are immediately
distributable without his consent cannot be located upon reasonable attempts
made by the Company, the Company shall direct the Trustee to distribute such
benefits to a federally insured savings account opened in the name of such
Participant. A Participant or beneficiary may elect to take the portion of his
account that is attributable to whole shares of Employer Stock in the form of
Employer Stock.
(b) The provisions of the Plan are intended to comply with Code Section
401(a)(9) which prescribes certain rules regarding minimum distributions and
requires that death benefits be incidental to retirement benefits. All
distributions under the Plan shall be made in conformance with Code Section
401(a)(9) and the regulations thereunder which are incorporated herein by
reference. The provisions of the Plan governing distributions are intended to
apply in lieu of any default provisions prescribed in regulations; provided,
however, that Code Section 401(a)(9) and the regulations thereunder override any
Plan provisions inconsistent with such Code Section and regulations.(b) The
provisions of the Plan are intended to comply with Code Section 401(a)(9) which
prescribes certain rules regarding minimum distributions and requires that death
benefits be incidental to retirement benefits. All distributions under the Plan
shall be made in conformance with Code Section 401(a)(9) and the regulations
thereunder which are incorporated herein by reference. The provisions of the
Plan governing distributions are intended to apply in lieu of any default
provisions prescribed in regulations; provided, however, that Code Section
401(a)(9) and the regulations thereunder override any Plan provisions
inconsistent with such Code Section and regulations.
31
<PAGE>
Section 6.05. Eligible Rollover Distributions.
-------------
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a distributee may elect, at
the time and in the manner prescribed by the Company, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
(a) Eligible rollover distribution means any distribution of all or any
portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).(a) Eligible rollover
distribution means any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
(b) Eligible retirement plan means an individual retirement account
described in Section 408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan described in Section
403(a) of the Code, or a qualified trust described in Section 401(a) of the
Code, that accepts the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or individual
retirement annuity.(b) Eligible retirement plan means an individual retirement
account described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement account or
individual retirement annuity.
32
<PAGE>
(c) Distributee includes an employee or former employee. In addition, the
employee's or former employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.(c)
Distributee includes an employee or former employee. In addition, the
employee's or former employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.
(d) Direct rollover means a payment by the Plan to the eligible
retirement plan specified by the distributee. (d) Direct rollover means a
payment by the Plan to the eligible retirement plan specified by the
distributee.
33
<PAGE>
ARTICLE VII.ARTICLE VII.
WITHDRAWALS AND LOANS WITHDRAWALS AND LOANS
Section 7.01. In-Service Withdrawals.
------------
A Participant shall be permitted to withdraw all or a portion of his vested
balances in his Accounts once in each Plan Year, provided the participant has
been a Participant for three or more years under this Plan or either Prior Plan.
Withdrawals will be subject to all of the following limits:
(a) The withdrawal is limited to 25% of the value of the vested portion of
the Old ESOT and Profit Sharing Accounts. Further, any Employer Contributions
or earnings allocated during the preceding two year period cannot be
withdrawn.(a) The withdrawal is limited to 25% of the value of the vested
portion of the Old ESOT and Profit Sharing Accounts. Further, any Employer
Contributions or earnings allocated during the preceding two year period cannot
be withdrawn.
(b) Any Participant loan balance must be fully satisfied out of the
withdrawal.(b) Any Participant loan balance must be fully satisfied out of the
withdrawal.
(c) Withdrawals will be distributed within an administratively reasonable
period following the request.(c) Withdrawals will be distributed within an
administratively reasonable period following the request.
(d) If aggregate withdrawals, distributions and investment changes for a
month would cause net sales by the Trust of more than 1% of the outstanding
common stock of the Company for the Plan Year quarter, withdrawals will be
prorated to meet the 1% limit. In ensuing months, requests will be honored on a
pro rata basis, consistent with the limit, on a month by month basis, honoring
the oldest months requests first.(d) If aggregate withdrawals, distributions
and investment changes for a month would cause net sales by the Trust of more
than 1% of the outstanding common stock of the Company for the Plan Year
quarter, withdrawals will be prorated to meet the 1% limit. In ensuing months,
requests will be honored on a pro rata basis, consistent with the limit, on a
month by month basis, honoring the oldest months requests first.
Section 7.02. Age 60 Withdrawal and Diversification Alternatives.
------------
A Participant who is both age 60 and has completed 5 or more Years of Service
may withdraw all or any portion of his Account and/or may direct the liquidation
of all or any portion of his Marquette Stock Account and may direct reinvestment
of such amounts in any other investment accounts available under the Plan.
34
<PAGE>
Withdrawals from the Employer Stock Fund may, at the Participants election, be
made in cash or in kind.
Liquidation elections shall be subject to the rules in section 4.02 without
regarding to the 7% Account limitation.
Withdrawals will be distributed once per month. If the withdrawal request is
made by the 20/th/ of the month, distribution will occur shortly after the end
of the month. Withdrawals are, however, expressly subject to the rules of
section 7.01(b) and (d).
Section 7.03. Loans to Participants.Section 7.03. Loans to Participants.
------------- -------------
(a) Upon application, any Participant may elect to borrow from his Account.
The amount of any loan hereunder shall not be less than $2,000, nor more than
$50,000. A Participant may not have more than two loans outstanding at a time.
The aggregate principal amount of a loan, when added to the highest loan balance
in existence during the prior 12 month period, shall not exceed the amount or
portion of the Participant's total vested Account balances determined from the
following table:
<TABLE>
<CAPTION>
Amount of Total Vested
Account Balances Maximum Loan
<S> <C>
At least $4,000 but 50% of such balance
Less than $100,000
$100,000 or more $50,000
</TABLE>
(b) A loan shall be considered an investment of the borrowing Participant's
Account, and, in accordance with Department of Labor Regulation '2550.408b-1,
interest shall be charged thereon at a rate that is commensurate with interest
rates charged on similar commercial loans, as determined by the Administrator
from time to time. Every loan applicant shall receive a clear statement of the
charges involved in each loan transaction. This statement shall include the
dollar amount and annual interest rate of the finance charge. Any such loan
shall be repaid by the Participant by means of payroll deduction. No loan shall
be for a period of more than five years. Except in the case of a Participant who
is a party in interest with respect to the Plan (within the meaning of ERISA
'3(14)), a Participant must be actively employed on the date a loan is made.(b)
A loan shall be considered an investment of the borrowing Participant's Account,
and, in accordance with Department of Labor Regulation '2550.408b-1, interest
shall be charged thereon at a rate that is commensurate with interest rates
charged on similar
35
<PAGE>
commercial loans, as determined by the Administrator from time to time. Every
loan applicant shall receive a clear statement of the charges involved in each
loan transaction. This statement shall include the dollar amount and annual
interest rate of the finance charge. Any such loan shall be repaid by the
Participant by means of payroll deduction. No loan shall be for a period of more
than five years. Except in the case of a Participant who is a party in interest
with respect to the Plan (within the meaning of ERISA '3(14)), a Participant
must be actively employed on A loan shall be considered an investment of the
borrowing Participant's Account, the date a loan is made.
(c) Amounts loaned to a Participant pursuant to this Section shall not
share in allocations of investment fund earnings under Section 4.04, but shall
be treated as a segregated account for the sole benefit of the Participant,
which account shall serve as security for the loan repayment. In the event that
the Participant does not repay the loan in accordance with the terms and
conditions thereof, or fails to cure any default within a reasonable time after
receiving notice thereof, the Administrator may direct that the Participant's
segregated loan account shall be charged for the total amount of the loan or any
part thereof (including accrued interest) with such amount being treated as a
distribution of that portion of the Participant's Accounts; provided that such
direction shall not occur at a time or in a manner when such a distribution
would violate applicable provisions of the Code or ERISA. Loans shall be due in
full upon a Participants Severance from Service.(c) Amounts loaned to a
Participant pursuant to this Section shall not share in allocations of
investment fund earnings under Section 4.04, but shall be treated as a
segregated account for the sole benefit of the Participant, which account shall
serve as security for the loan repayment. In the event that the Participant
does not repay the loan in accordance with the terms and conditions thereof, or
fails to cure any default within a reasonable time after receiving notice
thereof, the Administrator may direct that the Participant's segregated loan
account shall be charged for the total amount of the loan or any part thereof
(including accrued interest) with such amount being treated as a distribution of
that portion of the Participant's Accounts; provided that such direction shall
not occur at a time or in a manner when such a distribution would violate
applicable provisions of the Code or ERISA. Loans shall be due in full upon a
Participants Severance from Service.
(d) Amounts borrowed pursuant to this Section shall be drawn from the
Participant's vested Account balances in the following order of priority:
Rollover Account, 401(k) Contributions Account, Employer Matching Contributions
Account and Profit Sharing Contributions Account. Principal payments shall be
restored to the various Accounts from which the loan was drawn in reverse order.
A Participant shall not be entitled to make any withdrawal hereunder without
first full withdrawal of Account balances then outstanding in the form of loans.
(d) Amounts borrowed pursuant to this Section shall be drawn from the
Participant's vested Account balances in the following order of priority:
Rollover Account, 401(k) Contributions Account, Employer Matching Contributions
Account and Profit Sharing
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Contributions Account. Principal payments shall be restored to the various
Accounts from which the loan was drawn in reverse order. A Participant shall not
be entitled to make any withdrawal hereunder without first full withdrawal of
Account balances then outstanding in the form of loans.
(e) The Administrator may impose such rules, requirements or restrictions
relating to loans under this Section as it shall determine to be necessary or
appropriate, including, without limitation, requirements as to the execution of
loan documents and/or payroll deduction authorizations, and the assessment of
application and processing fees against the borrower's Accounts. The loan
program provided for in this Section shall be administered by the Administrator
in accordance with Section 408(b)(1) of ERISA.(e) The Administrator may impose
such rules, requirements or restrictions relating to loans under this Section as
it shall determine to be necessary or appropriate, including, without
limitation, requirements as to the execution of loan documents and/or payroll
deduction authorizations, and the assessment of application and processing fees
against the borrower's Accounts. The loan program provided for in this Section
shall be administered by the Administrator in accordance with Section 408(b)(1)
of ERISA.
Section 7.04. Time and Manner of Distribution.
------------
Distributions pursuant to this Article VII shall be made in a lump sum as soon
as administratively feasible, subject to Section 6.05, after the Company
approves the withdrawal or loan. If less than all of the balance in a
Participant's Account is to be withdrawn, the Trustee shall make all
distributions from the Investment Funds in which such Accounts are then
invested, in the order specified by the Company. The Marquette Stock Fund will
be the last subject to withdrawal.
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ARTICLE VIII.
PLAN ADMINISTRATION
Section 8.01. Company Authority and Responsibility.
------------
The Company shall be the Administrator and Named Fiduciary of the Plan. The
Company shall be empowered and authorized to:
(i) appoint and contract with the Trustee (or successor Trustee),
insurance company, Investment Manager (as defined in ERISA) or other
investment advisor for the retention, investment, administration and
management of part or all of the Trust Fund;(i) appoint and contract with
the Trustee (or successor Trustee), insurance company, Investment Manager
(as defined in ERISA) or other investment advisor for the retention,
investment, administration and management of part or all of the Trust Fund;
(ii) establish a procedure for establishing and carrying out a
funding policy and method consistent with the objectives of the Plan and
the requirements of ERISA;(ii) establish a procedure for establishing and
carrying out a funding policy and method consistent with the objectives of
the Plan and the requirements of ERISA;
(iii) amend and terminate the Plan.(iii) amend and terminate the
Plan.
These powers may be exercised by the Board, the Executive Committee of the Board
or any individual so authorized by either the Board or the Executive Committee.
These actions must be evidenced by a written instrument.
Section 8.02. Administration.
------------
(a) The Company shall have full authority to control and manage and to
perform, delegate and/or allocate the responsibilities for the operation and
administration of the Plan as well as to perform or allocate the responsibility
for any act necessary to comply with the objectives and requirements of ERISA
and the Code, as the same from time to time may be interpreted and implemented
through regulations or otherwise, excluding the power and authority expressly
reserved to the Board and Executive Committee as set forth in Section 8.01. Any
administrative duty may be carried out by the Board, its Executive Committee,
the Chief
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Executive Officer of Marquette Medical Systems, Inc. (or its successor) and any
individual or individuals designated by any of those in writing. Without
limiting the generality of the foregoing, the Company shall have the following
powers and duties:
(i) to require any person to furnish such information as it may
request for the purpose of the proper administration of the Plan as a
condition to receiving any benefit under the Plan;(i) to require any
person to furnish such information as it may request for the purpose of the
proper administration of the Plan as a condition to receiving any benefit
under the Plan;
(ii) to make and enforce such rules and regulations and prescribe
the use of such forms as it shall deem necessary for the efficient
administration of the Plan;(ii)to make and enforce such rules and
regulations and prescribe the use of such forms as it shall deem necessary
for the efficient administration of the Plan;
(iii) to have discretion to interpret the Plan and to resolve
ambiguities, inconsistencies and omissions in its interpretation, such
resolutions to be final, conclusive and binding on all parties affected
thereby;(iii) to have discretion to interpret the Plan and to resolve
ambiguities, inconsistencies and omissions in its interpretation, such
resolutions to be final, conclusive and binding on all parties affected
thereby;
(iv) to compute the amount and determine the manner of payment of
benefits which shall be payable to any person in accordance with the
provisions of the Plan;(iv)to compute the amount and determine the manner
of payment of benefits which shall be payable to any person in accordance
with the provisions of the Plan;
(v) to determine a person's status as an Employee, his eligibility
for participation, his Vesting Service and the amount and rate of his
Compensation for any Plan Year and, subject to the appeal procedures
provided for in subsection (c) hereof, any such determination shall, for
all purposes under this Plan, be final, conclusive and binding upon all
Employees, Participants, former Participants, Beneficiaries, the Trustee
and the Employer, as well as upon all other persons;(v) to determine a
person's status as an Employee, his eligibility for participation, his
Vesting Service and the amount and rate of his Compensation for any Plan
Year and, subject to the appeal procedures provided for in subsection (c)
hereof, any such determination shall, for all purposes under this Plan, be
final, conclusive and binding upon all Employees, Participants, former
Participants, Beneficiaries, the Trustee and the Employer, as well as upon
all other persons;
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(vi) to employ actuaries, attorneys, accountants and such other
persons as it shall deem necessary or desirable for the administration of
this Plan;(vi) to employ actuaries, attorneys, accountants and such other
persons as it shall deem necessary or desirable for the administration of
this Plan;
(vii) to incur reasonable expenses necessary to the administration
of the Plan, which expenses shall be paid from the Trust Fund unless paid
by the Employer;(vii)to incur reasonable expenses necessary to the
administration of the Plan, which expenses shall be paid from the Trust
Fund unless paid by the Employer;
(viii) to determine eligibility for benefits and to construe the
terms of the Plan; any such determination or construction shall be final
and binding on all parties unless arbitrary and capricious; and(viii) to
determine eligibility for benefits and to construe the terms of the Plan;
any such determination or construction shall be final and binding on all
parties unless arbitrary and capricious; and
(ix) to authorize and direct benefit payments. (ix) to authorize
and direct benefit payments.
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(b) Claims Procedures.(b) Claims Procedures.
(i) Any Participant or Beneficiary under this Plan who believes he
is entitled to benefits under the Plan in an amount greater than he is
receiving may file, or have his duly authorized representative file, a
claim with the Company under this Section. Any such claim shall be filed
in writing stating the nature of the claim, the facts supporting the claim,
the amount claimed and the name and address of the claimant. The Company
shall designate one or more persons (who may or may not be members of the
Company) to consider the claim and answer it in writing stating whether the
claim is granted or denied. If the claim is denied in whole or in part, the
claimant shall be furnished with a written notice of such denial containing
(A) the specific reasons for the denial, (B) a specific reference to the
Plan provisions on which the denial is based, (C) a description of any
additional material or information which it is necessary for the claimant
to submit and an explanation of why such material or information is
necessary, and (D) an explanation of the Plan's appeal procedure.(i) Any
Participant or Beneficiary under this Plan who believes he is entitled to
benefits under the Plan in an amount greater than he is receiving may file,
or have his duly authorized representative file, a claim with the Company
under this Section. Any such claim shall be filed in writing stating the
nature of the claim, the facts supporting the claim, the amount claimed and
the name and address of the claimant. The Company shall designate one or
more persons (who may or may not be members of the Company) to consider the
claim and answer it in writing stating whether the claim is granted or
denied. If the claim is denied in whole or in part, the claimant shall be
furnished with a written notice of such denial containing (A) the specific
reasons for the denial, (B) a specific reference to the Plan provisions on
which the denial is based, (C) a description of any additional material or
information which it is necessary for the claimant to submit and an
explanation of why such material or information is necessary, and (D) an
explanation of the Plan's appeal procedure.
(ii) If a claimant wishes to appeal the denial of his claim, the
claimant or his duly authorized representative shall file a written notice
of appeal with the Company. In order that the Company may expeditiously
decide such appeal, the written notice of appeal should contain (A) a
statement of the ground(s) for the appeal, (B) a specific reference to the
Plan provisions on which the appeal is based, (C) a statement of the
arguments and authority (if any) supporting each ground for appeal, and (D)
any other pertinent documents or comments which the appellant desires to
submit in support of his appeal. The Company shall decide the appellant's
appeal within 60 days of its receipt of the appeal. The Company's written
decision shall contain the reasons for the decision and reference to the
Plan provisions on which the decision is based. A copy of the Company's
decision shall be mailed promptly to the claimant. In addition, the
Company shall afford
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any person whose claim for benefits has been denied a reasonable
opportunity for a review of the Company's decision denying the claim by the
Employer officer or officers designated by the Board pursuant to Section
8.01(v).(ii) If a claimant wishes to appeal the denial of his claim, the
claimant or his duly authorized representative shall file a written notice
of appeal with the Company. In order that the Company may expeditiously
decide such appeal, the written notice of appeal should contain (A) a
statement of the ground(s) for the appeal, (B) a specific reference to the
Plan provisions on which the appeal is based, (C) a statement of the
arguments and authority (if any) supporting each ground for appeal, and (D)
any other pertinent documents or comments which the appellant desires to
submit in support of his appeal. The Company shall decide the appellant's
appeal within 60 days of its receipt of the appeal. The Company's written
decision shall contain the reasons for the decision and reference to the
Plan provisions on which the decision is based. A copy of the Company's
decision shall be mailed promptly to the claimant. In addition, the Company
shall afford any person whose claim for benefits has been denied a
reasonable opportunity for a review of the Company's decision denying the
claim by the Employer officer or officers designated by the Board pursuant
to Section 8.01(v).
(c) Records and Reports. The Company shall exercise such authority and
responsibility as it deems appropriate in order to comply with ERISA and the
Code and any governmental regulations thereunder relating to any records
maintained in connection with the administration of the Plan and to the
reporting and disclosure of information to any governmental agency and to
Participants and their Beneficiaries.(c) Records and Reports. The Company
shall exercise such authority and responsibility as it deems appropriate in
order to comply with ERISA and the Code and any governmental regulations
thereunder relating to any records maintained in connection with the
administration of the Plan and to the reporting and disclosure of information to
any governmental agency and to Participants and their Beneficiaries.
(d) Rules and Decisions. All rules and decisions of the Company shall be
uniformly and consistently applied to all Participants and other persons
claiming or entitled to benefits hereunder in similar circumstances. When
making a determination or calculation, the Company shall be entitled to rely
upon information furnished by a Participant, Beneficiary, or legal counsel, who
may also be legal counsel to the Company or any Affiliate or the Trustee.(d)
Rules and Decisions. All rules and decisions of the Company shall be uniformly
and consistently applied to all Participants and other persons claiming or
entitled to benefits hereunder in similar circumstances. When making a
determination or calculation, the Company shall be entitled to rely upon
information furnished by a Participant, Beneficiary, or legal counsel, who may
also be legal counsel to the Company or any Affiliate or the Trustee.
Section 8.03. Agent for Service of Process.
------------
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The agent for service of legal process in Wisconsin for the Company is hereby
designated as the agent for service of process with respect to all matters
pertaining to the Plan.
Section 8.04. Marquette Stock Fund.
------------
To the extent the Board or its Executive Committee so indicates, Employer
Matching Contributions and Profit Sharing Contributions shall be initially
maintained in the Marquette Stock Fund, which is intended to be primarily
invested in Marquette Stock.
Marquette Stock credited to Participant's Accounts shall be subject to direction
by Participants as to voting rights and as to the disposition of such Marquette
Stock in the event of a tender offer for such Marquette Stock. The Company
shall establish procedures for soliciting instructions for Participants
directions and for collecting their instructions on a basis intended to assure
confidentiality of their instructions. The Company procedures shall provide for
Participant to receive all information made available to other shareholders in
connection with such voting or tender offer instructions. Each Participant
shall be entitled to provide instructions with respect to that number of whole
and fractional shares of Marquette Stock credited to the Participants Account.
To the extent that a Participant fails to provide instructions to the Company,
the shares allocated to such Participant will be voted or tendered by the
Company in accordance with the Company's own independent judgment. In such
circumstances, the Company may, but is not required to, delegate such
responsibility in writing to an independent fiduciary of the Company's choice.
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ARTICLE IX.
TRUSTEE AND TRUST FUND
Section 9.01. Trustee Removal and/or Resignation and Successors.
------------
The Trustee may be removed by the Board at any time, with or without cause, upon
30 days' written notice. The Trustee may resign at any time upon 30 days'
written notice to the Employer and to the Company. Upon such removal or
resignation of the Trustee, the Board shall appoint or designate a successor
trustee or trustees, and the Trustee shall assign and transfer and pay over to
such successor trustee or trustees, all property then constituting the Trust
Fund. The successor trustee or trustees shall be such person or persons, trust
company, bank, or other appropriate financial institution appointed as such from
time to time by the Board and serving at the pleasure of the Board.
Section 9.02. Investment Funds.
-------------
The Trust Fund shall consist of such Investment Funds as shall be established
and maintained hereunder at the direction of the Company. The Company shall
establish one or more Investment Funds and shall advise the Trustee in writing
of the types of investments to be made by such Investment Fund. The Company may
direct that any such Investment Fund will be invested in one or more insurance
contracts or regulated investment companies selected by the Company or may
appoint one or more Investment Managers to direct the investment of any
Investment Fund.
Section 9.03. Investment of the Trust Fund.
------------
(a) Subject to Participants' elections under Section 4.02, the Trust Fund,
including all of the Investment Funds shall be invested and reinvested without
distinction between principal and income in any property, real, personal or
mixed or share or part thereof, or part interest therein, including but not
limited to common stocks, preferred stocks, bonds, notes, debentures, mortgages,
equipment trust certificates, investment trust certificates, mutual funds,
common trust funds, and any form of insurance contract. To the extent and for
the time that any assets of the Trust Fund are invested in a common, pooled or
collective fund maintained by a bank or other financial institution (which may
include any such fund established or maintained by the Trustee or an Investment
Manager), any instrument governing such fund shall be deemed to be incorporated
in and made a part of this Agreement as fully and to all intents and purposes as
if set forth herein at length. Except as required by ERISA, such investments
and reinvestments shall not be restricted to those of the character authorized
for fiduciaries under any present or
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future laws or administrative regulations or pursuant to any rule of court, nor
shall any investments be limited in amount or type in relation to the amount or
type of investments of the Trust Fund as a whole.
(b) Subject to the directions of the Company as provided in Section 9.02,
any investments or reinvestments shall be made by the Trustee in its sole
discretion. For the time, in the manner, and to the extent that control has
been asserted by the Company as so provided, the Trustee shall be charged with
responsibility only to execute with reasonable diligence and care the directions
of the Company or Investment Manager appointed by such Company. In the event
that an Investment Manager shall have been appointed to direct the investments
of any portion of the Trust Fund, custody of all or a part of such portion may,
at such Investment Manager's direction, be transferred to a bank, trust company
or insurance company (which may be the Investment Manager or an affiliate
thereof) in its capacity as trustee of a common or collective trust fund, in
which case such bank or trust company shall have the sole responsibility for the
custody and safekeeping of such portion of the Trust Fund.(b) Subject to the
directions of the Company as provided in Section 9.02, any investments or
reinvestments shall be made by the Trustee in its sole discretion. For the
time, in the manner, and to the extent that control has been asserted by the
Company as so provided, the Trustee shall be charged with responsibility only to
execute with reasonable diligence and care the directions of the Company or
Investment Manager appointed by such Company. In the event that an Investment
Manager shall have been appointed to direct the investments of any portion of
the Trust Fund, custody of all or a part of such portion may, at such Investment
Manager's direction, be transferred to a bank, trust company or insurance
company (which may be the Investment Manager or an affiliate thereof) in its
capacity as trustee of a common or collective trust fund, in which case such
bank or trust company shall have the sole responsibility for the custody and
safekeeping of such portion of the Trust Fund.
Section 9.04. Trustee's Powers and Duties.
------------
The powers and duties of the Trustee shall be set forth in a separate Trust
agreement between the Trustee and the Employer.
Section 9.05. Payments from the Trust Fund.
------------
The Trustee shall make payments from the Trust Fund to such persons, and in such
manner and amounts as may be specified in written directions to the Trustee from
the Company. Should any such payment be unclaimed, the Trustee shall notify the
Company thereof, and shall dispose of same in accordance with the Company's
further directions.
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ARTICLE X.
AMENDMENT AND TERMINATION
Section 10.01. Amendment and Termination.
-------------
While it is intended that the Plan shall continue in effect indefinitely, the
Board, by appropriate corporate resolution, may from time to time modify, alter
or amend the Plan or the Trust; provided, however, that any amendment that
affects the duties and responsibilities of the Trustee may only be made with the
Trustee's written consent. The Board may at any time order the temporary
suspension or complete discontinuance of Employer Contributions or may terminate
the Plan, provided, however, that
(i) no such action shall make it possible for any part of the Trust
assets (except such part as is used for the payment of expenses) to be used
for or diverted to any purpose other than for the exclusive benefit of
Participants or their Beneficiaries and the defraying of the reasonable
expenses of administering and winding up the Plan,(i) no such action shall
make it possible for any part of the Trust assets (except such part as is
used for the payment of expenses) to be used for or diverted to any purpose
other than for the exclusive benefit of Participants or their Beneficiaries
and the defraying of the reasonable expenses of administering and winding
up the Plan,
(ii) no such action shall adversely affect the rights or interests
of Participants theretofore vested under the Plan, and(ii) no such action
shall adversely affect the rights or interests of Participants theretofore
vested under the Plan, and
(iii) in the event of termination of the Plan or complete
discontinuance of Employer Contributions hereunder, all rights and
interests of Participants not theretofore vested shall become vested as of
the date of such termination or complete discontinuance. In the event of a
partial termination of the Plan, the rights and interests of the
Participants affected thereby shall become vested as of the date of such
partial termination.(iii)in the event of termination of the Plan or
complete discontinuance of Employer Contributions hereunder, all rights and
interests of Participants not theretofore vested shall become vested as of
the date of such termination or complete discontinuance. In the event of a
partial termination of the Plan, the rights and interests of the
Participants affected thereby shall become vested as of the date of such
partial termination.
However, nothing herein shall be construed to prevent any modification,
alteration or amendment of the Plan or of the Trust which is required in order
to comply with the provision of any law or
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regulation relating to the establishment or maintenance of this Plan and Trust,
including but not limited to the establishment and maintenance of the Plan or
Trust as a qualified employee plan or trust under the Code, even though such
modification, alteration, or amendment if made retroactively, adversely affects
the rights or interests of a Participant under the Plan.
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ARTICLE XI.
MISCELLANEOUS
Section 11.01. Plan is Voluntary.
-------------
Although it is intended that the Plan and contributions hereunder shall be
continued, the Plan is entirely voluntary on the part of the Employer and its
continuance and payment of contributions hereunder are not assumed as
contractual obligations of the Employer, and the Employer does not guarantee or
promise to pay or to cause to be paid any of the benefits provided by the Plan.
The Employer specifically reserves the right, in its sole discretion, to modify,
reduce, suspend, in whole or in part, at any time or from time to time and for
any period or periods of time, or to discontinue at any time, contributions
under the Plan.
Section 11.02. Non-Guarantee of Employment.
-------------
Nothing contained in this Plan shall be construed as a contract of employment
between the Employer and a Participant, to be consideration or inducement for
the employment of any Participant or Employee, to create a right of any
Participant to be continued in the employment of his Employer, or as a
limitation of the right of the Employer to discharge any Participant with or
without cause.
Section 11.03. Rights to Trust Assets.
-------------
(a) No Participant or any other person shall have any right to, or interest
in, any part of the Trust Fund upon termination of his employment or otherwise,
except as provided from time to time under this Plan, and then only to the
extent of the amounts due and payable to such person out of the assets of the
Trust Fund. All payments as provided for in this Plan shall be made solely out
of the assets of the Trust Fund and neither the Employer, the Trustee, nor any
member of the Company shall be liable therefor in any manner.
(b) Employer Contributions hereunder are conditioned upon their
deductibility under Code Section 404. In the event that the Internal Revenue
Service denies a deduction for the Employer Contribution hereto, or if the
Company determines that a contribution has been made as the result of a good
faith mistake of fact, then the Company may direct that any nondeductible
Employer Contribution or any other contribution made as the result of a mistake
of fact shall be refunded to the Employer or Participant in accordance with
applicable provisions of ERISA.(b) Employer Contributions hereunder are
conditioned upon their deductibility under Code Section 404. In the event that
the Internal Revenue Service denies a deduction for the Employer Contribution
hereto, or if the Company determines that a contribution has been made as the
result of a good faith mistake of fact, then the Company may direct that any
nondeductible Employer Contribution or any other contribution
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made as the result of a mistake of fact shall be refunded to the Employer or
Participant in accordance with applicable provisions of ERISA.
Section 11.04. Non-Alienation.
-------------
Except as may be otherwise provided herein, no right or interest of any
Participant or Beneficiary in the Plan and the Trust Fund shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, attachment, garnishment, execution, levy, bankruptcy, or
any other disposition of any kind, either voluntary or involuntary, prior to
actual receipt of payment by the person entitled to such right or interest under
the provisions hereof, and any such disposition or attempted disposition shall
be void. Notwithstanding the foregoing, the Trustee shall recognize a qualified
domestic relations order with respect to child support, alimony payments or
marital property rights if the Company determines that such order meets the
applicable requirements of Code Section 414(p). If any such order so directs, a
lump sum distribution of benefits to an alternate payee may be made at a time
when such distribution could not be made to the Participant hereunder. The
Company shall establish written procedures concerning notification of interested
parties and the determination of the validity of such orders.
Section 11.05. Indemnification.
-------------
The Employer shall indemnify each member of the Company and the Board and hold
each of them harmless from the consequences of his acts or conduct in his
official capacity, if he acted in good faith and in a manner he reasonably
believed to be solely in the best interests of the Participants and their
beneficiaries, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. Such indemnification
shall cover any and all attorneys' fees and expenses, judgments, fines and
amounts paid in settlement, but only to the extent that such amounts are not
paid to such person(s) under the Employer's fiduciary insurance policy, if any,
and to the extent that such amounts are actually and reasonably incurred by such
person(s).
Section 11.06. Facility of Payment.
-------------
If the Company shall determine that a Participant entitled to a distribution
hereunder, or his Beneficiary, is incapable of caring for his own affairs,
because of illness or otherwise, it may direct that any distribution from such
Participant's Accounts may be made, in such shares as it shall determine, to the
spouse, child, parent or other blood relative of such Participant, or his
Beneficiary, or any of them, or to such other person or persons as the Company
may determine, until such date as it shall determine that such incapacity no
longer exists. The Company shall be under no obligation to see to the proper
application of the distributions so made to such person or
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persons and any such distribution shall be a complete discharge of any liability
under the Plan to such Participant, or his Beneficiary, to the extent of such
distribution.
Section 11.07. Board Action.
-------------
Any action which is required or permitted to be taken by the Board under the
Plan may be taken by the Executive Committee of the Board or any other
authorized Committee of the Board.
Section 11.08. Mergers, Consolidations and Transfer of Plan Assets.
-------------
In the case of any merger or consolidation with, or transfer of assets or
liabilities to or from any other plan, each Participant in the Plan must be
entitled (if the Plan then terminates) to receive a benefit immediately after
the merger, consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated).
Section 11.09. Fiduciaries.
-------------
Any person may serve in more than one fiduciary capacity with respect to the
Plan. Any fiduciary hereunder, as an individual, may employ such legal,
actuarial, accounting or other assistant, he may deem necessary to fulfill his
obligations hereunder, which assistants may be those consulted by the Employer,
the Trustee, the Plan or other fiduciaries.
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ARTICLE XII.
TOP-HEAVY PLAN PROVISIONS
Section 12.01. Effect of Top-Heavy Status.
-------------
The Plan shall be a Top-Heavy Plan for any Plan Year if either of the following
conditions applies:
(i) The Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not
part of any Required Aggregation Group or Permissive Aggregation Group
having a Top-Heavy Ratio of less than 60%.(i) The Top-Heavy Ratio for the
Plan exceeds 60% and the Plan is not part of any Required Aggregation Group
or Permissive Aggregation Group having a Top-Heavy Ratio of less than 60%.
(ii) The Plan is part of a Required Aggregation Group having a Top-
Heavy Ratio which exceeds 60% and is not part of a Permissive Aggregation
Group having a Top-Heavy Ratio of less than 60%.(ii) The Plan is part of a
Required Aggregation Group having a Top-Heavy Ratio which exceeds 60% and
is not part of a Permissive Aggregation Group having a Top-Heavy Ratio of
less than 60%.
If the Plan is a Top-Heavy Plan in any Plan Year, the provisions of Sections
12.03 through 12.05 shall supersede any conflicting provisions of the Plan.
Section 12.02. Additional Definitions.
-------------
Solely for purposes of this Article, the following terms shall have the meanings
set forth below:
(a) Key Employee means any employee or former employee (and the
beneficiary of such employee) whose status as an officer or owner of the Plan
sponsor makes him a key employee as determined in accordance with Code Section
416(i)(1)22 and the regulations thereunder.(a) Key Employee means any employee
or former employee (and the beneficiary of such employee) whose status as an
officer or owner of the Plan sponsor makes him a key employee as determined in
accordance with Code Section 416(i)(1)22 and the regulations thereunder.
(b) Determination Date means the last day of the preceding Plan Year.(b)
Determination Date means the last day of the preceding Plan Year.
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(c) Top-Heavy Ratio means a fraction, the numerator of which is the sum of
account balances under any defined contribution plans for all Key Employees and
the present value of accrued benefits under any defined benefit plans for all
Key Employees, and the denominator of which is the sum of the account balances
under any defined contribution plans for all Participants and the present value
of accrued benefits under any defined benefit plans for all Participants,
excluding the account balances and accrued benefits of all Participants who have
not performed services for the Employer during the preceding 5-year period. Both
the numerator and denominator of the Top-Heavy Ratio shall be adjusted for any
distribution of an account balance or an accrued benefit made in the 5-year
period ending on the Determination Date and any contribution due but unpaid as
of the Determination Date. For purposes of the preceding sentence, (i) the value
of account balances and the present value of accrued benefits shall be
determined as of the most recent Valuation Date that falls within or ends with
the 12-month period ending on the Determination Date, and (ii) the account
balances and accrued benefits of a Participant who is not a Key Employee but who
was a Key Employee in a prior year shall be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers
are taken into account will be made in accordance with Code Section 416 and the
regulations thereunder. Deductible employee contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When aggregating plans,
the value of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same calendar year.
The present value of accrued benefits shall be determined pursuant to Code
Section 416(g) using a 5% interest assumption and the UP-1984 Mortality
Table.(c) Top-Heavy Ratio means a fraction, the numerator of which is the sum of
account balances under any defined contribution plans for all Key Employees and
the present value of accrued benefits under any defined benefit plans for all
Key Employees, and the denominator of which is the sum of the account balances
under any defined contribution plans for all Participants and the present value
of accrued benefits under any defined benefit plans for all Participants,
excluding the account balances and accrued benefits of all Participants who have
not performed services for the Employer during the preceding 5-year period. Both
the numerator and denominator of the Top-Heavy Ratio shall be adjusted for any
distribution of an account balance or an accrued benefit made in the 5-year
period ending on the Determination Date and any contribution due but unpaid as
of the Determination Date. For purposes of the preceding sentence, (i) the value
of account balances and the present value of accrued benefits shall be
determined as of the most recent Valuation Date that falls within or ends with
the 12-month period ending on the Determination Date, and (ii) the account
balances and accrued benefits of a Participant who is not a Key Employee but who
was a Key Employee in a prior year shall be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers
are taken into account will be made in accordance with Code Section 416 and the
regulations thereunder. Deductible employee contributions will not be taken into
account
52
<PAGE>
for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value
of account balances and accrued benefits will be calculated with reference to
the Determination Dates that fall within the same calendar year. The present
value of accrued benefits shall be determined pursuant to Code Section 416(g)
using a 5% interest assumption and the UP-1984 Mortality Table.
(d) Permissive Aggregation Group means the Required Aggregation Group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.(d) Permissive Aggregation Group
means the Required Aggregation Group of plans plus any other plan or plans of
the Employer which, when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and
410.
(e) Required Aggregation Group means (i) each qualified plan of the
Employer in which at least one Key Employee participates, and (ii) any other
qualified plan of the Employer which enables a plan described in (i) to meet the
requirements of Code Sections 401(a)(4) and 410.(e) Required Aggregation Group
means (i) each qualified plan of the Employer in which at least one Key Employee
participates, and (ii) any other qualified plan of the Employer which enables a
plan described in (i) to meet the requirements of Code Sections 401(a)(4) and
410.
(f) Valuation Date means (i) in the case of a defined contribution plan,
the Determination Date, and (ii) in the case of a defined benefit plan, the date
as of which funding calculations are generally made within the 12-month period
ending on the Determination Date.(f) Valuation Date means (i) in the case of a
defined contribution plan, the Determination Date, and (ii) in the case of a
defined benefit plan, the date as of which funding calculations are generally
made within the 12-month period ending on the Determination Date.
(g) Employer means the employer or employers whose employees are covered
by this Plan and any other employer which must be aggregated with any such
employer under Code Section 414(b), (c) and (m).(g) Employer means the employer
or employers whose employees are covered by this Plan and any other employer
which must be aggregated with any such employer under Code Section 414(b), (c)
and (m).
53
<PAGE>
Section 12.03. Vesting.
-------------
If the Plan is a Top-Heavy Plan in any Plan Year, the vesting schedule shall
automatically be amended for any Participant employed on the first day of such
year or thereafter so that the vested percentage for employer-derived benefits
is equal to the greater of the vesting provided under other provisions of the
Plan or the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
1 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
where Years of Service means the years credited for vesting purposes under the
Plan or, if greater, the years required to be counted under Code Section 411 and
applicable regulations thereto. If the Plan thereafter ceases to be a Top-Heavy
Plan for any Plan Year, the vesting schedule above shall be disregarded and the
original schedule applied, except with respect to any Participant with three or
more Years of Service and except that no Participant's vested percentage as of
the end of a prior year shall be decreased. Any non-vested Participant who
acquires a vested interest in the employer-derived benefit by operation of the
amended vesting schedule shall not be subject thereafter to a cancellation of
service. Notwithstanding anything in this Section to the contrary, the amendment
of the vesting schedule pursuant to this subsection shall not affect the
calculation of benefit amounts or the determination of benefit commencement
dates hereunder.
Section 12.04. Minimum Benefits.
-------------
For any year in which the Plan is a Top-Heavy Plan, each Participant who is not
a Key Employee shall receive allocations of Employer contributions and
forfeitures under this Plan and any other defined contribution plan maintained
by the Employer at least equal to 5% of compensation (as defined in Code Section
415) for such year, or, if less, the percentage of compensation allocated on
behalf of the Key Employee for whom such percentage was the highest for the Plan
Year; provided, however, that if the Participant is also covered by a defined
benefit plan, such Employee will only be entitled to the defined benefit plan
minimum.
Section 12.05. Maximum Benefit Limits.
-------------
54
<PAGE>
If the Employer maintains a defined benefit plan and a defined contribution plan
which both cover one or more of the same Key Employees, and if such plans are
Top-Heavy, then the limitation stated in a separate provision of this Plan with
respect to the Code Section 415(e) maximum benefit limitations shall be amended
to refer to a 1.0 adjustment on the dollar limitation rather than a 1.25
adjustment. This provision shall not apply if the Top-Heavy Ratio is less than
90% and if the minimum benefit requirements referred to in Section 12.04 are met
when the defined benefit minimum is changed from 2% to 3% and 20% is changed to
an amount not greater than 30% which equals 20% plus 1% for each year this is a
Top-Heavy Plan.
55
<PAGE>
APPENDIX A
I. E for M
Effective May 1, 1996, the E for M Corporation Employees Profit Sharing
Plan was merged into this Plan, and E for M Corporation and Optical Devices,
Inc. became included subsidiaries. The following provisions apply on and after
May 1, 1996:
1. Employment with E for M Corporation, Optical Devices, Inc. and their
predecessors prior to May 1, 1996 will be treated as employment with an
Affiliate.
2. Accounts transferred from the E for M Plan will be paid to married
Participants in the form of a joint and survivor annuity providing benefits to
the Participant for life and 50% of that amount to the Participants surviving
spouse for life, unless, after at least 30 days prior notice, the Participant
elects a different form of distribution, with notarized written consent of the
Participants spouse. In addition to the forms of distribution otherwise
available under the plan, such Participants will have the following additional
options with respect to such transferred amounts:
Single life annuity, as well as single life with 5, 10, or 15 years
guaranteed.
Joint and survivor annuity with 50%, 66-1/3% or 100% continued to the
survivor.
Minimum distribution beginning at age 70-1/2, determined under rules
permitted by Code Section 401(a)(9).
3. Account balances transferred from E for M will be subject to hardship
withdrawal to the extent of employee deferrals, according to the following
rules:
A withdrawal shall be deemed to be on account of a financial hardship
if the distribution is for:
(i) unreimbursed medical expenses described in Code Section
213(d) previously incurred by the Participant, the
Participants spouse or any dependents of the Participant
(as defined in Code Section 152) or necessary for such
individuals to obtain medical care described in Code
Section 213(d)
56
<PAGE>
(ii) costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant;
(iii) payment of tuition and related educational fees for the
next twelve (12) months or quarter of post-secondary
education for the Participant or the Participants spouse or
dependents; or
(iv) payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on
the mortgage of the Participants principal residence.
The hardship withdrawal (i) shall be limited to the amount of the financial
hardship, including any amounts necessary to pay any income taxes or penalties
reasonably anticipated to result from the withdrawal and (ii) shall be made only
after the Participant takes all permitted loans and distributions hereunder and
pursuant to any other plan maintained by the Employers. Any Participant who
makes a withdrawal under this Section shall have his 401K contributions and any
other elective contributions or employee contributions under this Plan or any
other plan of deferred compensation maintained by the Employer (both qualified
and nonqualified) automatically suspended for a period of twelve (12) months
following such withdrawal. The amount which such a Participant may contribute as
401K contributions for the calendar year following such withdrawal shall not
exceed the amount described in Section 402(g) for such year, reduced by the
amount of such Participants actual Deposits for the calendar year in which the
withdrawal occurred.
II. Corometrics Medical Systems, Inc.II. Corometrics Medical Systems, Inc.
Effective August 1, 1994, Corometrics Medical Systems, Inc. became an
Employer under this Plan, after having participated in the American Home
Products Corporation Savings Plan (AHPC Plan). With respect to accounts
transferred to this Plan from the AHPC Plan:
Participants are fully vested in all account balances so transferred.
A separate account will be set up to record qualified voluntary employee
contributions made prior to January 1, 1987 and earnings thereon.
AHPC common stock transferred from the AHPC Plan will be segregated for
investment purposes. Participants may direct investments out of this Account,
but not into it.
Loans transferred in kind from the AHPC Plan will continue amortization
according to their schedules.
57
<PAGE>
EXHIBIT 10.21
-------------
AMENDMENT NO. 1
TO THE AMENDED AND RESTATED
MARQUETTE MEDICAL SYSTEMS, INC.
PROFIT-SHARING AND 401(K) PLAN
WHEREAS, the Company has heretofore adopted and maintains the Amended and
Restated Marquette Medical Systems, Inc. Profit Sharing and 401(k) Plan; and
WHEREAS, the Directors wish to add a provision to the Plan to permit a
discretionary profit sharing contribution to be made, if the Board so elects, to
be allocated on the basis of an equal amount per Participant;
NOW, THEREFORE, BE IT RESOLVED that effective for the Plan year ending
April 30, 1998, Section 3.03 of the Plan document is amended by adding
paragraph (c) to read as follows:
(c) In lieu of, or in addition to, the contribution under paragraph
(a) above, the Employer may make a Profit Sharing Contribution for a Plan
Year which is allocated to Participants Accounts in the same amount for
each eligible Participant. Paragraph (b) above describes the eligible
Participants. This contribution, together with any other contribution,
shall not exceed the lesser of: (i) the amount that can be allocated to
Participants Accounts hereunder after giving effect to the limitations
described in Section 3.04 or (ii) the maximum amount deductible for federal
income tax purposes for such Plan year. This contribution may be in cash or
in kind and all or any portion may be designated by the Board for
investment in the Marquette Stock Account.
FURTHER RESOLVED, that this Amendment shall be known as Amendment No.
1 to the Amended and Restated Medical Systems, Inc. Profit-Sharing and
401(k) Plan.
Approved February 20, 1998
<PAGE>
EXHIBIT 13.1
[ANNUAL SHAREHOLDER REPORT]
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1998 AND 1997 (Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,063 $ 2,704
Accounts receivable, less allowances of $4,283 and $4,164 159,343 140,136
Inventories 109,003 110,779
Prepaid expenses and other 5,068 4,850
Deferred income tax benefits 11,337 8,304
-------------- --------------
Total current assets 289,814 266,773
-------------- --------------
PROPERTY AND EQUIPMENT:
Land and improvements 19,249 19,757
Buildings 44,656 43,528
Equipment 95,386 85,321
Construction in progress 16,594 7,371
-------------- --------------
175,885 155,977
Less-Accumulated depreciation 62,181 58,985
-------------- --------------
Net property and equipment 113,704 96,992
-------------- --------------
OTHER ASSETS:
Goodwill, less accumulated amortization of $12,773 and $9,828 33,050 39,984
Other intangibles, less accumulated amortization of $4,991 and $2,945 14,146 16,547
Cash surrender value and other 8,646 8,036
-------------- --------------
Total other assets 55,842 64,567
-------------- --------------
Total assets $ 459,360 $ 428,332
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
20
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: 1998 1997
--------- ---------
<S> <C> <C>
Amounts due to bank $ 11,499 $ 11,114
Notes payable to bank 35,378 30,422
Accounts payable 31,122 28,674
Accrued liabilities-
Payroll related expenses 21,293 22,910
Warranty 6,656 6,191
Other 21,639 18,280
--------- ---------
Total current liabilities 127,587 117,591
--------- ---------
LONG-TERM DEBT, less current maturities 37,500 57,000
DEFERRED INCOME TAXES 15,911 16,814
PENSION AND OTHER LONG-TERM LIABILITIES 56,046 45,727
COMMON STOCK UNDER REPURCHASE AGREEMENTS (NOTE 11) 8,000 8,000
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value, 30,000,000
shares authorized, 17,905,343 and 17,602,407
shares issued 1,791 1,760
Additional paid-in capital 58,445 52,890
Retained earnings 173,982 147,343
Treasury Stock, Zero and 18,900 shares
at cost - (312)
Cumulative translation adjustment (11,902) (10,481)
Common Stock under repurchase agreements (8,000) (8,000)
(Note 11)
--------- ---------
Total Shareholders' equity 214,316 183,200
--------- ---------
Total liabilities and shareholders'
equity $ 459,360 $ 428,332
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
21
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1998, 1997, AND 1996 (Dollars in Thousands Except
Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET SALES $578,260 $543,317 $416,293
COST OF SALES 287,641 274,155 214,947
-------- -------- --------
Gross profit 290,619 269,162 201,346
-------- -------- --------
ENGINEERING EXPENSES 52,594 48,106 37,307
SELLING EXPENSES 141,427 138,044 105,259
GENERAL AND ADMINISTRATIVE EXPENSES 46,926 44,088 32,880
RESTRUCTURING EXPENSES - - 3,956
WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH & DEVELOPMENT - - 35,700
-------- -------- --------
Total operating expenses 240,947 230,238 215,102
-------- -------- --------
Operating income (loss) 49,672 38,924 (13,756)
INTEREST EXPENSE 5,982 8,434 4,386
OTHER EXPENSE (INCOME), net (323) (3,604) (1,162)
-------- -------- --------
Income (loss) before provision for income
taxes 44,013 34,094 (16,980)
Provision for income taxes 17,374 12,903 7,888
-------- -------- --------
NET INCOME (LOSS) $ 26,639 $ 21,191 $(24,868)
======== ======== ========
PER CLASS A COMMON SHARE:
Basic net income (loss) $ 1.50 $ 1.29 $ (1.53)
======== ======== ========
Diluted net income (loss) $ 1.46 $ 1.27 $ (1.53)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ 26,639 $ 21,191 $(24,868)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 20,111 22,026 12,042
Write-off of acquired in-process research & development -- -- 35,700
Deferred income taxes 423 (2,540) (634)
Changes in assets and liabilities-
Accounts receivable (21,043) (4,810) 992
Inventories 512 (7,373) 2,379
Prepaid expenses and other assets (1,727) (703) 6,497
Accounts payable and accrues liabilities 12,487 (928) (8,123)
--------- -------- --------
Net cash provided by operating activities 37,402 26,863 23,985
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (25,537) (18,211) (11,399)
Purchase of E for M Corporation,
net of cash acquired -- -- (89,171)
--------- -------- --------
Net cash used in investing activities (25,537) (18,211) (100,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) from notes payable to bank 5,186 (1,124) 3,005
Proceeds from issuance of long-term debt -- -- 90,000
Payments on long-terms debt (19,500) (26,911) (17,000)
Proceeds from issuance of common stock (4,836) 25,484 1,393
Purchase of treasury stock -- (4,643) --
--------- -------- --------
Net cash (used in) provided by financing activities (9,478) (7,194) 77,398
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (28) (1,644) (1,253)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,359 (186) (440)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,704 2,890 3,330
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,063 $ 2,704 $ 2,890
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
23
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands)
<TABLE>
<CAPTION>
Class A Class C
Common Stock Common Stock Treasury Stock Additional
----------------------- ------------------------- ----------------------- Paid-In
Shares Amount Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 30, 1995 15,946,605 $1,594 26,250,000 $ 263 -- $-- $26,870
....................................................................................................................................
Issuance of common stock
under option 113,706 12 -- -- -- -- 1,381
....................................................................................................................................
Cumulative translation
adjustment -- -- -- -- -- -- --
....................................................................................................................................
Conversion of E for M stock
options into Marquette options -- -- -- -- -- -- 3,083
....................................................................................................................................
Tax benefit related to options -- -- -- -- -- -- 235
....................................................................................................................................
Net loss -- -- -- -- -- -- --
.....................................----------...---------......------------...----------.....----------...---------....-----------
BALANCE, APRIL 30, 1996 16,060,311 $1,606 26,250,000 $ 263 -- $-- $31,569
....................................................................................................................................
Issuance of common stock
in offering 1,373,422 137 -- -- -- -- 23,471
....................................................................................................................................
Issuance of common stock
under option 168,674 17 -- -- -- -- 1,859
....................................................................................................................................
Purchase of treasury stock -- -- -- -- (281,400) (4,643) --
....................................................................................................................................
Cumulative translation
adjustment -- -- -- -- -- -- --
....................................................................................................................................
Conversion of Class C stock
into Class A stock -- -- (26,250,000) (263) 262,500 4,331 (4,069)
....................................................................................................................................
Tax benefit related to options -- -- -- -- -- -- 60
....................................................................................................................................
Net income -- -- -- -- -- -- --
.....................................----------...---------......------------...----------.....----------...---------....-----------
BALANCE, APRIL 30,1997 17,602,407 $1,760 -- $-- (18,900) $ (312) $52,890
....................................................................................................................................
Issuance of common stock
under option 302,936 31 -- -- 18,900 312 4,495
....................................................................................................................................
Cummulative translation
adjustment -- -- -- -- -- -- --
....................................................................................................................................
Tax benefit related to options -- -- -- -- -- -- 1,060
....................................................................................................................................
Net income -- -- -- -- -- -- --
.....................................----------...---------......------------...----------.....----------...---------....-----------
BALANCE, APRIL 30, 1998 17,905,343 $1,791 -- $-- -- $-- $58,445
.....................................==========...=========......===========-...==========.....==========...=========....===========
<CAPTION>
Cumulative
Retained Translation
Earnings Adjustment
------------ ----------------
<S> <C> <C>
BALANCE, APRIL 30, 1995 $151,020 $ (854)
...........................................................................
Issuance of common stock
under option -- --
...........................................................................
Cumulative translation
adjustment -- (2,811)
...........................................................................
Conversion of E for M stock
options into Marquette options -- --
...........................................................................
Tax benefit related to options -- --
...........................................................................
Net loss (24,868) --
.......................................------------..........--------------
BALANCE, APRIL 30, 1996 $126,152 $ (3,665)
...........................................................................
Issuance of common stock
in offering -- --
...........................................................................
Issuance of common stock
under option -- --
...........................................................................
Purchase of treasury stock -- --
...........................................................................
Cumulative translation
adjustment -- (6,816)
...........................................................................
Conversion of Class C stock
into Class A stock -- --
...........................................................................
Tax benefit related to options -- --
...........................................................................
Net income 21,191 --
.......................................------------..........--------------
BALANCE, APRIL 30,1997 $147,343 $(10,481)
...........................................................................
Issuance of common stock
under option -- --
...........................................................................
Cummulative translation
adjustment -- (1,421)
...........................................................................
Tax benefit related to options -- --
...........................................................................
Net income 26,639 --
.......................................------------..........--------------
BALANCE, APRIL 30, 1998 $173,982 $(11,902)
.......................................============..........==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
(1) NATURE OF OPERATIONS-
Marquette Medical Systems, Inc. (the "Company," formerly known as
Marquette Electronics, Inc.) is a worldwide leader in the development
and manufacture of medical equipment and integrated systems for
patient monitoring and diagnostic cardiology applications. The Company
also develops clinical information systems, designed to be integrated
with medical equipment, consisting of hardware and software used by
integrated health care delivery networks and individual hospitals to
electronically acquire, record, store, analyze and distribute patient
medical data. The Company's products are used principally in critical
and intensive care units, operating and recovery rooms, step-down
units, labor and delivery units, cardiology departments, cardiac
catheterization laboratories and related areas of acute care
hospitals. In addition, the Company's products are increasingly being
used in smaller hospitals, medical clinics, outpatient surgery
centers, physician offices and homes. The Company covers the United
States market, most of Western Europe and Australia through its own
sales force. The remainder of the international market is served by
dealers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-
(A) BASIS OF CONSOLIDATION-
The consolidated financial statements include the accounts of
Marquette Medical Systems, Inc. and its foreign and domestic
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(B) REVENUE RECOGNITION-
Revenue is recognized on an accrual basis when equipment and supplies
are shipped. Revenue for service contracts is recognized over the term
of the contract, typically twelve months. Costs related to service
contracts are expensed as incurred.
(C) SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION-
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Cash paid during the year for-
Interest $ 5,560 $ 8,059 $ 4,153
Income taxes $ 17,794 $13,409 $ 9,789
</TABLE>
The Company purchased all of the capital stock of E for M Corporation for
$90,333 in fiscal 1996.
In conjunction with the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Fair value of assets
acquired (including
goodwill) $ - $ - $215,524
Cash paid for the capital
stock - - 90,333
Stock options converted - - 3,083
-------- --------- -------
Liabilities assumed $ - $ - $122,108
======== ========= ========
</TABLE>
25
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
(D) INVENTORIES-
Inventories consist of the following:
<TABLE>
<CAPTION>
April, 30
---------------------
1998 1997
-------- --------
<S> <C> <C>
Raw materials and component parts $ 30,350 $ 31,629
Work-in-process and finished goods 54,602 56,434
Inventory on loan or consignment 24,051 22,716
-------- --------
$109,003 $110,779
======== ========
</TABLE>
For its domestic inventories (representing 70% and 72% of total
inventories at April 30, 1998, and 1997, respectively), the Company
employs the last-in, first-out (LIFO) cost method. The first-in,
first-out (FIFO) cost method is used for all remaining inventories. If
the FIFO cost method had been used for domestic inventories instead of
the LIFO costs method, the carrying value assigned to inventories
would have been $2,197 and $2,206 less at April 30, 1998 and 1997,
respectively.
(E) PROPERTY AND EQUIPMENT-
Property and equipment, along with improvements that significantly
extend the useful life of existing assets, are carried at cost.
Depreciation is provided on the straight-line method over the
estimated useful lives of the assets which range from 15-20 years for
land improvements, 40-50 years for buildings and 3-7 years for
equipment.
(F) ENGINEERING EXPENSES-
Engineering expenses represent research and development costs and are
charged to operations as incurred. The Company also charged to
operations $35,700 related to the write-off of acquired in-process
research and development attributable to the E for M acquisition in
fiscal 1996. See Note 4 for further discussion of purchased research
and development costs.
(G) ADVERTISING COSTS-
Advertising costs are charged to operations as incurred. Such charges
were $4,052, $3,541 and $2,260 in fiscal 1998, 1997 and 1996,
respectively.
(H) CASH AND CASH EQUIVALENTS-
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
(I) FOREIGN CURRENCY-
Asset and liability accounts of the Company's foreign operations are
translated at the current exchange rate, and income and expense
accounts are translated at the average of the monthly exchange rates.
Gains and losses resulting from the translation of foreign currency
financial statements are classified as separate component of
shareholders' equity.
Foreign currency transaction gains (losses) totalling $774, $1,811 and
26
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
$744 are included in other income in the consolidated statements of
income for fiscal 1998, 1997, and 1996, respectively.
As a hedge against foreign accounts payable, the Company at times has
entered into various forward exchange contracts to exchange foreign
contracts to exchange foreign currencies for United States dollars at
a fixed rate. Market value gains and losses resulting from these
contracts are recognized in the consolidated statements of income and
offset foreign exchange gains or losses on the foreign payables at
their maturity date. As of April 30,1998 the Company has two such
contracts to exchange various foreign currencies for a total contract
amount of $1,639 and a maturity date of May 29, 1998. The carrying
value of these contracts approximates fair value.
(J) NET INCOME PER COMMON SHARE-
Class C Common Stock participates in income with Class A Common Stock
in the ratio of 1:100. In December, 1996, all 26,250,000 outstanding
shares of the Company's Class C common shares, $0.01 par value, were
exchanged for 262,500 shares of Class A common stock.
In March, 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No.128 "Earnings per Share." The Company has adopted this
statement in fiscal 1998.
The weighted average shares for calculating basic net income per Class
A common share is equal to the sum of the weighted average number of
shares of Class A Common Stock outstanding and 1/100 of the weighted
average number of shares of Class C Common Stock outstanding during
the year.
Basic earnings per common share were computed by dividing net income
by the weighted average number of shares of common stock outstanding
during he year. Diluted earnings per common share were determined on
the assumption that the outstanding stock options issued by the
Company (see Note 10) were exercised with dilution calculated using
the treasury method. The earnings per share calculations are as
follows:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) available
to common stockholders
for basic and diluted $26,639 $21,191 $(24,868)
======= ======= =========
Weighted average shares for
basic EPS 17,726 16,452 16,254
Impact of options issued
to employees 524 273 --
------- ------- --------
Weighted average shares
for diluted EPS 18,250 16,725 16,254
======= ======= ========
Basic EPS $1.50 $1.29 $(1.53)
======= ======= ========
Diluted EPS $1.46 $1.27 $(1.53)
======= ======= ========
</TABLE>
(K) GOODWILL-
The excess of the purchase cost over the
27
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
fair value of net assets acquired is being amortized over a range of 15-20
years on a straight-line basis. The Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate
that goodwill should be evaluated for possible impairment, the Company uses
an estimate of the related business segment's discounted net cash flows
over the remaining life of the goodwill in measuring whether the goodwill
is recoverable. Amortization of goodwill was $2,945 in fiscal 1998, $3,193
in fiscal 1997, and $2,453 in fiscal 1996. The Company continually
evaluates its long-lived assets, including goodwill, and concluded that
there is no impairment of these assets as of April 30, 1998.
(L) USE OF ESTIMATES-
The preparation of 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.
(M) RECLASSIFICATION OF PRIOR YEAR AMOUNTS-
Certain prior year amounts have been reclassified to conform with
current year presentations.
(3) NEW ACCOUNTING PRONOUNCEMENTS-
Statement of Position (SOP) 97-2 "Software Revenue Recognition,"
issued in October, 1997, is effective for transactions entered into
beginning May, 1998. This statement supersedes SOP 91-1 and provides
guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The Company is currently
analyzing the implementation of SOP 97-2 and the impact it will have
on the Company's financial condition and results of operations.
During June, 1997, the Financial Accounting Standards Board released
SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and displaying in the financial statements
total net income and components of all other non-owner changes in
equity, referred to as comprehensive income. The Company will adopt
SFAS No. 130 in fiscal 1999 and is currently analyzing the impact it
will have on the financial statements.
28
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
During June, 1997, the Financial Accounting Standards Board released
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," effective for fiscal years beginning after December 15,
1997. SFAS No. 131 requires disclosures of business and geographic
segments in the consolidated financial statements of the Company. The
Company will adopt SFAS No. 131 in fiscal 1999 and is currently
analyzing the impact it will have on the disclosures in its financial
statements.
(4) ACQUISITION OF E FOR M CORPORATION-
Effective January 1, 1996, the Company acquired 100% of the common
stock of E for M Corporation ("E for M"), an international medical
equipment, software and supplies company serving patient monitoring
and cardiology, which includes cardiac catheterization and
electrophysiology laboratories. The purchase price was approximately
$93,400 and was paid in cash and through the issuance of stock
options. The Company converted outstanding options for E for M stock
into options for Marquette stock as part of the transaction. The fair
value of the converted options was $3,083. Related to this purchase,
the Company borrowed $90,000 under bank loan agreements payable
periodically over the next five years. The acquisition was accounted
for as a purchase, and the excess of the purchase price over the fair
value of the net assets acquired was allocated to goodwill. The value
of such goodwill amounted to $22,649. In addition, the Company
acquired intangible assets related to in-process research and
development (R&D), product technologies and trade names with values of
$35,700, $12,672 and $8,468, respectively. The acquired in-process R&D
was entirely written off during fiscal 1996. The remaining intangibles
have estimated useful lives ranging from 7 to 40 years.
In connection with the acquisition,the Company implemented a
restructing plan for the purpose of integrating the E for M operation
into the Company's existing operations. This restructuring plan
included consolidation of facilities as well as a reduction in the
number of employees required for the combined operations. The costs
expected to be incurred with respect to this restructing plan were
recorded as liabilities of E for M which were assumed in the purchase
transaction. The total restructing charges attributable to E for M
were $10,120, of which $8,447 was estimated at the time of the
acquisition and an additional $1,673 was related to a revision in the
estimate. This total liability included $7,205 of severance costs,
$992 of dealer termination costs and $1,923 of facility closing, legal
and other costs. Restructing
29
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
was completed in fiscal 1998 with no additional significant revision to
the Company's estimate.
Unaudited pro forma results of operations, assuming the acquisition of E
for M as of May 1, 1995, and the $35,700 write-off of acquired
in-process R&D in fiscal 1996, would be as follows:
<TABLE>
<CAPTION>
Year Ended
April 30, 1996
-----------------
<S> <C>
Net Sales $540,936
Net Income (Loss) (27,430)
Net Income (Loss) Per Class
A Common Share (1.69)
</TABLE>
(5) INCOME TAXES-
Deferred income taxes are recorded to reflect the tax consequences on
future years on differences between the tax basis of assets and
liabilities and their financial reporting amounts at fiscal year end.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities.
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States $ 46,500 $ 35,768 $ 25,554
Foreign (2,487) (1,674) (42,534)
-------- -------- --------
Total $ 44,013 $ 34,094 $(16,980)
======== ======== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current-
Federal $13,484 $13,069 $ 7,692
State 2,582 1,990 1,072
Foreign 885 384 (242)
-------- -------- --------
16,951 15,443 8,522
Deferred 423 (2,540) (634)
-------- -------- --------
$17,374 $12,903 $ 7,888
======== ======== ========
</TABLE>
A reconciliation of the statutory Federal income tax rate to the
consolidated effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income
tax rate 35.0% 35.0% (35.0)%
State and local income taxes,
net of Federal income
tax benefit 3.8 3.8 4.1
Tax credits (1.9) (0.9) (0.6)
Foreign tax rate differences and
foreign tax loss utilization 1.4 (1.5) 7.4
FSC benefit (1.6) (1.7) (2.7)
Purchased R&D - - 73.6
Goodwill 0.8 1.3 0.8
Other 2.0 1.8 (1.1)
-------- -------- --------
Effective income tax rate 39.5% 37.8% 46.5%
======== ======== ========
</TABLE>
30
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
Temporary differences which give rise to the deferred tax assets and
liabilities at April 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
April 30
------------------------
1998 1997
-------- --------
<S> <C> <C>
Short-term deferred tax
assets (liabilities):
Net operating loss carryforward $19,297 $16,638
Employee benefits 1,834 3,890
Warranty reserve 1,599 1,448
Inventories 488 284
Bad debt reserve 104 177
Capital loss carryforward 162 167
Deferred revenue -- 427
Other 433 357
Valuation allowance (12,580) (15,084)
------- --------
$11,337 $ 8,304
======== ========
Long-term deferred tax
assets (liabilities):
Tax Basis Difference
of Fixed Assets $ (9,567) $ (6,933)
Tax Basis Difference
of Intangible Assets (9,030) (10,428)
Deferred revenue 2,245 --
Other 441 547
-------- --------
$(15,911) $(16,814)
======= ========
</TABLE>
The Company has tax benefits related to net operating losses of $15,801,
$1,784, $410, $320 and $982 in Germany, France, Austria, Spain and the
United Kingdom, respectively, which are all carried forward. The net
operating losses in Germany and the United Kingdom can be carried
forward, indefinitely. The net operating losses in Austria expire
beginning in fiscal 2004 through fiscal 2005. The net operating losses
in France expire beginning in fiscal 2002 through fiscal 2003. The net
operating loss in Spain expires in fiscal 1999 through fiscal 2001.
(6) NOTES PAYABLE TO BANK-
The Company has an unsecured line of credit with a bank whereby it may
borrow up to $25,000. As of April 30, 1998, the borrowings outstanding
are $7,000. Standby letters of credit of $370 reduce the available
credit to $17,630 as of April 30, 1998.
The Company has loan authorizations and overdraft facilities with
various banks whereby it may borrow up to $49,744 (or Eurocurrency
equivalent) to be used for general purposes. As of April 30, 1998, the
borrowings outstanding are $28,378. Outstanding bank guarantees of
$10,438 reduce the available credit to $10,928 as of April 30, 1998.
The carrying value of notes payable approximates fair market value.
The Company has entered into some of the above foreign currency loans in
an amount and term similar to the expected collection period of foreign
accounts receivable as a natural hedge against these amounts. The amount
outstanding on such loans was $11,217 and $9,754 at April 30, 1998 and
April 30, 1997, respectively.
31
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
The following table summarizes certain information regarding these
short-term borrowings:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
1998 1997 1996
--------- ------- ---------
<S> <C> <C> <C>
Maximum amount
of borrowings $47,570 $52,628 $ 28,742
Average amount
of borrowings 39,380 39,879 21,975
Weighted average interest
rate during year 6.7% 6.7% 6.8%
Weighted average interest
rate at year end 6.8% 6.7% 6.5%
</TABLE>
(7) LONG-TERM-DEBT-
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
Senior notes, due in installments
through August 29, 2008, bearing
interest at 7.46% $30,000 $30,000
Term note, due installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.6563% at April 30, 1998) $ 2,500 $ 9,000
Term note, due installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.6563% at April 30, 1998) $ 2,500 $ 9,000
Term note, due installments through
October 31, 2000, bearing interest at
LIBOR + 1% (6.6563% at April 30, 1998) $ 2,500 $ 9,000
------- -------
$37,500 $57,000
Less- Current maturities - -
------- -------
$37,500 $57,000
======= =======
</TABLE>
Scheduled maturities:
<TABLE>
<CAPTION>
Year Ending
April 30, Amount
----------- ---------
<S> <C>
1999 $ -
2000 7,500
2001 -
2002 -
2003 -
Thereafter 30,000
-------
$37,500
=======
</TABLE>
The carrying value of long-term debt approximates fair value.
The senior notes and term notes contain restrictive covenants which,
among other things, require the Company to maintain a minimum tangible
net worth, a minimum interest coverage ratio and a maximum liabilities
to tangible net worth ratio. The Company was in compliance with all
such covenants as April 30, 1998.
(8) COMMITMENTS AND CONTINGENCIES-
The Company leases plant, office space, and automobiles under various
operating lease agreements. Minimum rental commitments under leases
having initial or remaining terms of greater than one year are, as
follows:
<TABLE>
<CAPTION>
Year Ending
April 30, Amount
------------ ---------
<S> <C>
1999 $5,198
2000 3,034
2001 2,115
Thereafter 4,834
</TABLE>
Rental expense charged to operations was $6,609, $6,076 and $1,585 in
fiscal 1998, 1997 and 1996, respectively.
Various lawsuits and claims are pending against the Company. Although
the outcome of such lawsuits and claims cannot be predicted with
certainty, the resolution of these lawsuits and claims will not, in
the opinion of management, result in a material adverse effect on the
financial position or results of operations of the Company.
32
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
(9) SHAREHOLDERS' EQUITY-
In March, 1997, the Company sold, through an underwritten public
offering 1,373,422 common shares at a net price of $17.37 per share.
The net proceeds of this offering were used to repay existing bank
debt.
In December, 1996, the Company adopted a shareholder rights plan and
declared a dividend of one preferred share purchase right on each
outstanding share of the Company's Common Stock. Under certain
conditions, each right may be exercised to purchase one-hundreth share
of a new series of nonredeemable preferred stock at an exercise price
of $80, subject to adjustment. The rights may be exercised only after
a public announcement that a party acquired or will make a tender to
acquire 20% or more of the Company's Common Stock. The rights, which
do not have voting rights, expire on December 18,2006 and may be
redeemed by the Company at a price of $0.01 per right at any time
prior to their expiration or the acquisition of 20% of the Company's
Common Stock.
In the event that the Company is acquired in a merger or other
business combination transaction, provisions shall be made so that
each holder of a right shall have the right to receive, upon exercise
there of at the then current exercise price, the number of shares of
Common Stock of the surviving company which at the time of such
transaction would have a market value of two times the exercise price
of the right.
(10) STOCK OPTION PLANS-
The Company has reserved 3,500,000 share of Common Stock for issuance
under the Amended and Restated Stock Option Plan for Employees of
Marquette Medical Systems, Inc. (the "Plan"). Under the Plan,
incentive options may be granted to purchase shares at or above fair
market value on the date of grant and expire within ten years, and
non-qualified options may be granted at or above 85% of fair market
value on the date of grant and expire within fifteen years. If stock
options granted under the Plan expire or otherwise terminate without
being exercised, the Common Stock not issued under such stock options
shall again become available for issuance under the Plan.
33
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1997 (Dollars in Thousands Except Per Share Data)
Option activity during fiscal 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Number Weighted
of Shares Average
Under Option Exercise Price
------------ --------------
<S> <C> <C>
Outstanding, April 30, 1995 1,422,366 $15.30
Granted 895,600 17.76
Exercised (96,800) 13.76
Cancelled (407,950) 14.92
------------
Outstanding, April 30, 1996 1,813,216 16.68
Granted 396,000 19.34
Exercised (56,908) 14.57
Cancelled (119,558) 16.80
------------
Outstanding, April 30, 1997 2,032,750 17.25
Granted 586,900 23.49
Exercised (312,910) 15.73
Cancelled (525,390) 18.07
------------
Outstanding, April 30, 1998 1,781,350 19.33
============
</TABLE>
The number of exercisable options as of April 30, 1998, 1997 and 1996 were
296,050, 394,650 and 313,366, respectively. The additional shares available
for grant were 748,407, 809,917 and 86,359 as of April 30, 1998, 1997 and
1996, respectively.
The options outstanding at April 30, 1998, consist of the following:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Price Range Number of Options Exercise Price Years Remaining in
--------------------------- ---------------------------
Per Share Outstanding Exercisable Outstanding Exercisable Contractual Life
------------- --------------------------- --------------------------- ------------------
<S> <C> <C> <C> <C> <C>
$14.00-$17.99 730,300 183,500 $15.75 $14.97 6.7
$18.00-$21.99 475,850 112,550 $19.79 $20.10 8.1
$22.00-$27.00 575,200 -- $23.50 $ -- 9.6
--------- --------- $19.33 $16.92 8.1
1,781,350 296,050
========= =========
</TABLE>
34
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
In addition, in June, 1997, the Company, pursuant to resolutions adopted by
the Board of Directors, granted its chairman options to purchase 250,000
shares of Common Stock at an exercise price of $20.63 per share. The
options vested immediately and expire in June, 2007. All of the options are
outstanding as of April 30, 1998. Such options were not granted under terms
of the Plan.
The Company has reserved 276,042 shares of Common Stock for issuance under
the E for M 1991 Stock Option Plan and E for M 1991 Key Employee Stock
Option Plan. The E for M stock options outstanding on the acquisition date
were converted into stock options of the Company in conjunction with the
acquisition. Each option converted by the Company continues to have, and is
subject to, the same terms and conditions set forth in E for M's stock
option plan prior to the acquisition. The E for M stock options were
converted into 276,042 stock options of the Company pursuant to this plan
based on an exchange ratio of the average price of Marquette stock at the
acquisition date to the tender price of E for M stock.
Option activity related to this plan in fiscal 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Number Weighted
of Shares Average
Under Option Exercise Price
------------ --------------
<S> <C> <C>
Outstanding, April 30, 1995 -- $ --
Granted 276,042 8.58
Exercised (16,906) 3.57
Cancelled -- --
------------
Outstanding, April 30, 1996 259,136 8.91
Granted -- --
Exercised (111,766) 9.36
Cancelled (24,978) 8.21
------------
Outstanding, April 30, 1997 122,392 8.64
Granted -- --
Exercised (17,426) 9.02
Cancelled (14,190) 7.39
------------
Outstanding, April 30, 1998 $ 90,776 8.76
============
</TABLE>
The number of exercisable options as of April 30, 1998, 1997 and 1996 were
66,534, 64,907 and 140,510 respectively.
The options outstanding at April 30, 1998, consist of the following:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Price Range Number of Options Exercise Price Years Remaining in
--------------------------- ---------------------------
Per Share Outstanding Exercisable Outstanding Exercisable Contractual Life
- ------------- --------------------------- --------------------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 6.17-$ 8.99 57,556 44,251 $ 6.52 $ 6.54 6.1
$ 9.00-$12.76 33,220 22,283 $12.65 $12.59 6.8
--------- --------- $ 8.76 $ 8.57 6.3
90,776 66,534
========= =========
</TABLE>
35
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
On August 25, 1994, the Company's shareholders approved the Marquette
Electronics, Inc. Directors' (Non-Employee) Stock Option Plan (the
"Directors' Plan"). The Directors' Plan is designed to compensate non-
employee members of the Board of Directors by an annual grant of non-
qualified options for 4,000 shares of Common Stock at the then fair
market value of the stock. These options become exercisable in four
equal annual installments on each of the first four anniversaries of
the date of grant and expire on the tenth anniversary date. The
aggregate number of shares that may be issued under the Directors'
Plan shall not exceed 250,000. During fiscal 1994, options to purchase
16,000 shares were granted at $14.50 per share. During fiscal 1995,
options to purchase 20,000 shares were granted at $16.00 per share.
During fiscal 1996, options to purchase 20,000 shares were granted at
$16.25 per share. During fiscal 1997, options to purchase 16,000
shares were granted at $18.50 per share. During fiscal 1998, options
to purchase 16,000 shares were granted at $26.75 per share. All
options granted were outstanding at April 30, 1998, 48,000 shares of
which were exercisable.
The Company adopted SFAS No. 123 "Accounting for Stock-Based
Compensation" with footnote disclosure. The Company still accounts for
all of its stock option plans under APB Option No. 25, under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined per SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss):
As Reported $26,639 $21,191 $(24,868)
Pro Forma $25,653 $20,151 $(25,519)
Basic Net Income
(Loss) Per Share:
As Reported $1.50 $1.29 $(1.53)
Pro Forma $1.45 $1.22 $(1.57)
Diluted Net Income
(Loss) Per Share:
As Reported $1.46 $1.27 $(1.53)
Pro Forma $1.41 $1.20 $(1.57)
</TABLE>
Because the SFAS No. 123 method of accounting does not apply to
options granted prior to May 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
36
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
The weighted average fair value of options granted in fiscal 1998,
fiscal 1997 and fiscal 1996 were $8.68, $8.08 and $8.40, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in fiscal 1998, fiscal
1997 and fiscal 1996, respectively: risk-free rates of 6.0%, 5.8% and
6.3%, expected dividend yields of zero, expected lives of 7.0 years,
7.0 years and 8.8 years, and expected volatility of 16%, 25% and 23%.
(11) STOCK REPURCHASE AGREEMENTS-
By agreement, the Company is obligated to repurchase up to $4,000
worth of Common Stock from each of two shareholders, in each case at
the shareholder's death and at a price per share determined in
accordance with the agreements. Life insurance with a face value of
$6,986 has been secured on the lives of the two shareholders to fund
the payments required under the repurchase agreements. As of April 30,
1998, 296,296 shares of Common Stock were subject to these stock
repurchase agreements. The amount of the purchase price is payable
within 210 days of the death of the shareholder.
(12) RESTRUCTURING OF OPERATIONS-
In fiscal 1996, the Company initiated and began to implement a plan to
restructure its worldwide operations, primarily in Europe. The
restructuring plan consisted of a consolidation of European offices as
well as a corresponding reduction in the number of employees. The
restructuring plan was undertaken for purposes of consolidating the
distribution function in Europe in order to address competitive
conditions. In addition, the restructuring plan was necessary as the
existing Marquette operations are integrated with E for M's European
operations. In connection with these actions, the Company recorded
restructuring charges of $3,956 to operating expenses in fiscal 1996.
These charges included $1,267 of severance costs, $1,366 of facility
closing costs including asset write-offs, and $1,323 of other costs
such as dealer termination fees and related legal fees. This
restructuring plan implementation was completed during fiscal 1997.
(13) EMPLOYEE BENEFIT PLANS-
PROFIT SHARING AND 401(K) PLAN - The Company has a Profit Sharing and
401(k) Plan (the "Plan") covering substantially all non-union
employees. The Plan allows participants to make annual contributions
ranging from 1% to 12% of their compensation, subject to certain
limitations imposed by the Internal Revenue Code. The Company matches
35% of the Participants' contributions, subject to maximum annual
matching per participant of five hundred dollars or 1.5% of the
participants qualified
37
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
compensation, whichever is greater. The Company may make annual discretionary
contributions as authorized by the Board of Directors. Total Company
contributions were $4,835, $3,961 and $3,313 in fiscal 1998, 1997 and 1996,
respectively.
DEFINED BENEFIT PLANS - Marquette Hellige GmbH has an unfunded noncontributory
defined pension plan covering substantially all of its German-based employees
over 25 years of age and with at least 10 years of service. The benefits are
based on an employee's final month's salary and the number of years of
continuous service with E for M.
The Plan was amended in September, 1996 by increasing the retirement age for
some employees and reducing the pension benefit rate for both new and active
employees. The impact of the amendment results in an unrecognized gain as of
April 30, 1997 of $2,084. This will be amortized over the remaining service life
of active employees which is 14 years.
In February, 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132 "Employers' Disclosure about Pensions and Other Post-Retirement
Benefits." The Company has adopted this statement in fiscal 1998.
The following is a reconciliation of the change in benefit obligation for the
years ended April 30, 1998 and 1997:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1998 1997
------ ------
<S> <C> <C>
Benefit obligation, beginning of year $39,679 $45,339
Service costs 819 1,122
Interest costs 2,649 3,056
Benefits paid (1,345) (1,396)
Actuarial loss (gain) 170 (3,245)
Foreign currency exchange
rate changes (1,453) (5,196)
-------- --------
Benefit obligation, end of year 40,519 39,679
Unrecognized net
actuarial gain 1,258 2,492
--------- ---------
Accrued benefit cost $41,777 $42,171
========= =========
</TABLE>
Assumptions used in the actuarial calculations are as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1996
------- ------- -------
<S> <C> <C> <C>
Discount Rate 6.5% 7.0% 7.0%
Salary Increases 2.5% 2.75% 2.75%
</TABLE>
38
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
The components of net periodic pension cost for the years ended April
30, 1998 and 1997 and four month period ended April 30, 1996,
respectively, are:
<TABLE>
<CAPTION>
Period ended April 30,
---------------------------------
1998 1997 1996
------- --------- ---------
<S> <C> <C> <C>
Service costs $ 819 $ 1,122 $ 377
Interest costs 2,649 3,056 1,127
Recognized net actuarial gain (145) - (503)
Net periodic ------ -------- -------
benefits cost $3,323 $ 4,178 $ 1,001
====== ======== =======
</TABLE>
(14) SEGMENT AND GEOGRAPHIC INFORMATION-
The Company operates primarily in one business segment, the medical
electronics equipment industry. Financial information by geographic
area is summarized as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales originating from:
United States $ 463,845 $ 426,469 $355,689
Europe 179,864 172,558 98,137
Australia 9,648 6,364 5,479
Corporate and
eliminations (75,097) (62,074) (43,012)
--------- --------- --------
$ 578,260 $ 543,317 $416,293
========= ========= ========
Income (loss) from operations:
United States $ 46,909 $ 41,529 $ 11,307
Europe 2,839 (2,615) (27,481)
Australia 414 250 (157)
Corporate and
eliminations (490) (240) 2,575
--------- --------- --------
$ 49,672 $38,924 $(13,756)
========= ========= ========
Identifiable assets:
United States $ 335,730 $ 314,832 $332,492
Europe 107,982 96,238 98,141
Australia 3,987 2,089 2,680
Corporate and
eliminations 11,661 15,173 (1,595)
--------- --------- --------
$ 459,360 $ 428,332 $431,718
========= ========= ========
</TABLE>
Transfers between geographic areas are recorded at market-based
transfer prices.
39
<PAGE>
MARQUETTE MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997 AND 1996 (Dollars in Thousands Except Per Share Data)
Export sales, excluding sales to affiliates, totalled $36,898, $51,517
and $39,566 in fiscal 1998, 1997 and 1996, respectively.
(15) DERIVATIVE FINANCIAL INSTRUMENTS-
The Company uses foreign currency forward exchange contracts to hedge
specific foreign currency exposures. These derivative financial
instruments are not used for trading purposes.
(16) QUARTERLY DATA (UNAUDITED)-
<TABLE>
<CAPTION>
1998
--------------------------------------------
1st 2nd 3rd 4th
--------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $132,069 $148,568 $143,724 $153,900
Gross Profit 67,808 74,266 69,921 78,625
Net Income 4,301 6,698 7,571 8,068
Per Common
Share
Basic .24 .38 .43 .45
Diluted .24 .36 .41 .44
<CAPTION>
1997
--------------------------------------------
1st 2nd 3rd 4th
--------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $124,794 $136,908 $137,714 $143,901
Gross Profit 60,385 66,310 67,480 74,987
Net Income 3,270 5,216 5,896 6,807
Per Common
Share
Basic .20 .32 .37 .40
Diluted .20 .32 .36 .39
</TABLE>
The following table sets forth the high and low sales prices for the
Common Stock as reported on the Nasdaq National Market System. The
prices reflect inter-dealer prices, without retail mark-up, mark-down
or commission:
<TABLE>
<CAPTION>
Year Ended
April 30, 1998 April 30, 1997
-------------------- --------------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $28 1/2 $19 7/8 $18 3/4 $15 3/4
Second Quarter 31 3/4 23 18 1/2 15 1/2
Third Quarter 28 1/4 22 1/4 22 3/8 14 3/4
Fourth Quarter 29 24 3/4 21 3/4 18 3/8
</TABLE>
40
<PAGE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Shareholders of Marquette Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of MARQUETTE
MEDICAL SYSTEMS, INC. (a Wisconsin corporation) and subsidiaries as of
April 30, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the
period ended April 30, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects , the financial position of Marquette Medical
Systems, Inc. and subsidiaries as of April 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended April 30, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
June 1, 1998
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased by 6.4% to $578.3 million from $543.3
million for fiscal 1997. The sales growth was entirely attributable to the
Monitoring group, consisting of adult, pediatric, neonatal and fetal monitoring,
and the related clinical information systems, which achieved sales growth of
$42.8 million, or 17.0%. The increased sales for the Monitoring group related
mainly to the strong domestic demand, especially for its modular bedside
monitors. Based on the continued strong level of incoming orders, management
believes that this area will continue to provide growth opportunity.
Both the Cardiology group and the Supplies and Service product lines had slight
decreases in net sales for fiscal 1998 as compared to fiscal 1997. For the
Cardiology group, sales decreased by $5.4 million, or 2.9%. The Supplies and
Service product line had a net sales decrease of $2.5 million, or 2.4%. The
decrease is mainly attributable to the negative currency conversions related to
the stronger U.S. dollar. While the Monitoring group's strong U.S. shipments
more than offset its negative currency conversions on its international sales,
the Cardiology group and Supplies and Service product lines did not achieve
sufficient volume growth to offset all of their negative currency conversions.
For the Company, a stable U.S. dollar, as compared with last year, would have
provided additional net sales of $23.8 million, or 4.4% for the year. Since it
is management's belief that the major growth opportunities continue to be in
the international markets, the currency conversion will continue to be a factor
in the total sales growth.
Gross profit for fiscal 1998 increased 7.9% to $290.6 million from $269.2
million in fiscal 1997. Gross margin increased to 50.3% for fiscal 1998 as
compared to 49.5% for fiscal 1997. The increase relates mainly to the product
mix towards higher margin products, especially in the Monitoring group. In
addition, the Company typically realizes higher margins on its domestic sales as
compared to international sales. The Company has experienced continued pricing
pressures in its international markets, especially in the Asian markets impacted
by the currency crisis and in the European market. Therefore, the strong level
of U.S. sales contributed to the increased gross margins for the year. The
currency fluctuations have offset the increased gross margins to some extent.
The Company believes that ongoing efforts to increase manufacturing efficiencies
will enable it to maintain its gross margins even as product mix and geographic
mix may shift towards lower gross margins.
Engineering expenses for fiscal 1998 increased 9.3% to $52.6 million from $48.1
million in fiscal 1997. Engineering expenses as a percentage of sales increased
slightly to 9.1% for fiscal 1998 as compared to 8.9% for fiscal 1997. The
increase relates to the Company's ongoing product development projects. The
medical equipment and systems industry is highly competitive and technological
in nature. As a result, in order to compete effectively, the Company must
continue to make significant investments in both new
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
product development and continued enhancements to current products.
Selling expenses for fiscal 1998 increased 2.5% to $141.4 million as compared
to $138.0 million for fiscal 1997. Selling expenses decreased as a percentage of
sales to 24.5% as compared to 25.4% for fiscal 1997. The increase in selling
expenses is mainly a result of the costs required to support the increased sales
volume in fiscal 1998, such as additional commissions and other sales support
costs. Offsetting the increases to some extent are the efficiencies gained in
the improved distribution channels. One of management's goals for fiscal 1998
was to reduce the Company's selling expenses as a percentage of net sales. A
headcount reduction in the European distribution channel has contributed to the
decrease as a percentage of net sales.
General and administrative expenses for fiscal 1998 increased 6.4% to 46.9
million from $44.1 million in fiscal 1997. The increase is a result of the
ongoing conversion costs attributable to the conversion of a new business system
as well as additional support costs necessary to support the increased sales
volume. The increase was offset to some extent by a European headcount reduction
as part of management's plan to increase operating margins. General and
administrative expenses as a percentage of net sales remained constant at 8.1%
for fiscal 1998 as compared to fiscal 1997.
Operating income for fiscal 1998 increased by 27.6% to $49.7 million as compared
to $38.9 million in fiscal 1997. The increased gross profit for fiscal 1998
relates to the sales growth as well as the increased gross margin realized on
fiscal 1998 net sales. Operating margin for fiscal 1998 was 8.6% as compared to
7.2% in fiscal 1997. The margin increase is mainly attributable to the efforts
of management to reduce the selling expenses in order to achieve more efficiency
in the cost per sales dollar.
Interest expense for fiscal 1998 decreased to $6.0 million from $8.4 million for
fiscal 1997. The decreased interest expense is attributable to the use of
proceeds from a public stock offering completed in March, 1997 for repayment of
a portion of bank term debt. In addition, the Company was unable to use its free
cash flow generated in fiscal 1998 to pay down additional long-term debt.
Average borrowings, both short-term and long-term, decreased to $80.1 million in
fiscal 1998 from $98.7 million in fiscal 1997. The Company intends to continue
to pay down bank term loans and foreign lines of credit with any free cash flow
in subsequent years.
Other income for fiscal 1998 decreased to $0.3 million from $3.6 million in
fiscal 1997. The decrease was primarily related to decreased foreign exchange
gains in the current year as compared to fiscal 1997.
The provision for income taxes for fiscal 1998 was $17.4 million as compared to
$12.9 million for fiscal 1997. The effective tax rate for fiscal 1998 was 39.5%.
For fiscal 1997, the effective tax rate was 37.8%. The increase in the effective
rate was mainly attributable to foreign losses which have not been benefited.
The ability to utilize these unbenefited foreign losses in the future will have
an impact on the effective tax rate.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased by 30.5% to $543.3 million from $416.3
million for fiscal 1996. The Company's patient monitoring, diagnostic cardiology
and supplies and service product lines achieved sales growth of $52.6 million,
$53.9 million and $20.5 million, or 25.3%, 43.3% and 24.5%, respectively. The
fiscal 1997 results include a full year of activity from operations related to E
for M Corporation, which was acquired on January 1, 1996. The increase in net
sales is partly attributable to the E for M acquisition. However, all existing
product lines achieved significant growth over last year.
The introduction of new products in both the patient monitoring and diagnostic
cardiology product lines as well as improved distribution have both contributed
to the sales growth. New product introductions at lower price points have
allowed the Company to increase its potential market by adding depth to its
product lines. These lower price point products are important in terms of
increasing the Company's potential market overseas. The increase in net sales
also reflects the effects of a strengthening market for health care equipment
in the U.S. particularly for the patient monitoring product line. The sales
growth for the fiscal year was negatively affected by a softer market in Western
Europe, particularly Germany, France and the United Kingdom, as well as the
negative currency conversions due to a stronger U.S. dollar.
Gross profit for fiscal 1997 increased 33.7% to $269.2 million from $201.3
million in fiscal 1996. Gross margin increased to 49.5% for fiscal 1997,
compared to 48.4% for fiscal 1996. The increase relates to manufacturing
efficiencies gained as E for M was fully integrated into Marquette as well as
product mix. The gross margins were negatively impacted by continued pricing
pressures, especially in Europe. However, the mix of higher margin products in
addition to the manufacturing efficiencies offset this negative impact. The
Company expects continued currency fluctuations and European pricing pressures
to effect future gross margins.
Engineering expenses for fiscal 1997 increased 28.9% to $48.1 million from $37.3
million in fiscal 1996. The increase is mainly attributable to the incremental
expenses related to the E for M operations. Engineering expenses as a percentage
of sales decreased slightly to 8.9% for fiscal 1997 from 9.0% for fiscal 1996.
The Company will continue to invest significantly in both new product
developments and continued enhancements to current products. Due to the
competitiveness and technological nature of the medical systems and equipment
industry, this investment is necessary in order to maintain the Company's
competitive position in the health care industry.
Selling expenses for fiscal 1997 increased 31.1% to $138.0 million from $105.3
million for fiscal 1996, due primarily to the E for M acquisition. In addition
to the incremental expenses related to the E for M operations, the expenses for
fiscal 1997 include increased sales bonuses as the Company's bookings for the
year exceeded the bonus thresholds. The increased bookings are reflected in an
increased backlog. These increases in selling expenses were partially offset by
the cost reductions gained through the restructuring of European distribution.
For fiscal 1997, selling
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
expenses increased slightly as a percentage of sales to 25.4% from 25.3% of
net sales for fiscal 1996.
General and administrative expenses for fiscal 1997 increased 34.1% to $44.1
million from $32.9 million in fiscal 1996. E for M operations accounted for a
significant portion of the increase. General and administrative expenses as a
percentage of sales were 8.1% for fiscal 1997 as compared to 7.9% for fiscal
1996. A portion of the increase as a percentage of sales relates to the
additional amortization expense for goodwill and other intangibles which were
recorded in connection with the E and M acquisition. During fiscal 1997, $3.5
million of goodwill and intangible amortization were expensed as compared to
$1.2 million of amortization expense related of the E for M acquisition in
fiscal 1996. Exclusive of the increased amortization, general and
administrative expenses as a percentage of sales would have declined from fiscal
1996. The decline reflects the benefits realized from the restructuring of the
European operations and E and M operations.
Operating income for fiscal 1997 was $38.9 million as compared to an operating
loss of $13.8 million for fiscal 1996. The fiscal 1996 operating loss was
attributable to a one-time charge associated with the write-off of purchased
research and development in-process of $35,7 million in connection with the E
for M acquisition and to a $4.0 million restructuring charge mainly related to
the European operations. Operating income for fiscal 1996, exclusive of these
charges, was $25.9 million. The increase for fiscal 1997 relates to the
increased gross profit attributable to sales growth and increased margins as
well as cost savings associated with the restructuring.
Interest expense for fiscal 1997 increased to $8.4 million from $4.4 million for
fiscal 1996. The increased interest expense related to the additional debt
out-standing for the entire fiscal year in connection with the E for M
acquisition. In addition, the proceeds received in the public offering of $24.0
million in March, 1997 were used to repay bank term loans incurred in the E for
M acquisition. The company intends to continue to pay down bank term loans and
foreign lines of credit with any free cash flow in subsequent years. This,
coupled with the reduction in debt associated with the public offering proceeds,
should reduce interest expense in subsequent years.
Other income for fiscal 1997 increased to $3.6 million from $1.2 million in
fiscal 1996. The increase was primarily related to foreign exchange gains of
$1.8 million in fiscal 1997 as compared to $0.6 million in fiscal 1996. The
significant strengthening of the U.S. dollar and the devaluation of the German
mark contributed to the increased exchange gains.
The provision for income taxes for fiscal 1997 was $12.9 million as compared to
$7.9 million in fiscal 1996. The effective tax rate for fiscal 1997 was $37.8%.
In fiscal 1996, the effective tax rate, excluding the impact of the one-time
charge of $35.7 million related to purchased research and development
in-process,was 42.1%. The decrease in the effective rate is attributable to
reduced foreign losses not benefited, the utilization of certain foreign net
operating losses in fiscal 1997, and the reinstatement of the research and
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
development credit for a significant portion of the fiscal year. The decreases
in the effective rate are offset to some extent by the additional goodwill
expense incurred in connection with the E for M acquisition. Due to the
expiration of the research and development credit in fiscal 1998, management
believes the effective tax rate will increase in fiscal 1998 unless the credit
is reinstated. In addition, the ability to continue to utilize foreign net
operating losses will have an impact on future effective tax rates. If the
European market continues to weaken in the health care industry, unbenefited net
operating losses would increase the Company's effective tax rate.
FINANCIAL OUTLOOK
Inasmuch as the Company's principal product lines are all related to the health
care industry, they are subject to the current uncertainty surrounding the
industry including consolidation of hospital groups and a move towards managed
care. While the Company cannot predict the impact, if any, that such
modifications might have on its business, the Company's operating results are
closely linked to the health care economy. If revenue or earnings fail to meet
expectations of the investment community, there could be a significant impact
on the trading price for the Company's stock. Management believes that the
introduction of new products and the partnership relationships being established
with the hospitals will keep the Company in a competitive position as the health
care economy demand for new equipment increases.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $162.2 million at April 30, 1998 as compared to $149.2
million at April 30, 1997. Accounts receivable increased 13.7% to $159.3 million
from $140.1 million, reflecting increased sales levels. Inventory decreased
slightly from $110.8 million to $109.0 million. Management continues to focus on
controlling inventory levels even as net sales are increasing. Inventory turns
increased to 2.6 for fiscal 1998 as compared to 2.5 for fiscal 1997.
As of April 30, 1998, the Company had $7.0 million outstanding on U.S lines of
credit of $25.0 million. In addition, the Company had $28.4 million, U.S. dollar
equivalent, outstanding on foreign lines of credit of $49.7 million. A portion
of the foreign currency denominated borrowings are used to reduce the currency
risks associated with foreign currency receivables. As of April 30, 1997, the
amounts outstanding on the U.S. and foreign lines of credit were $8.0 million
and $22.4 million, respectively.
Net capital expenditures for fiscal 1998 were $25.5 million as compared to $18.2
million for fiscal 1997. The increase was due to the continued capital
expenditures related to the acquisition of a new business system. In addition,
the prior year net capital expenditure amount includes the proceeds from a sale
of German land. The capital purchases were funded by cash flow from operations.
As of April 30, 1998, the Company had $37.5 million of long-term debt compared
with $57.0 million of long-term debt as of April 30, 1997. Of the long-term
debt, $30.0 million is senior long-term fixed rate debt which was incurred
during the year ended April 30, 1997 in order to refinance a portion of bank
long-term debt.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
This senior debt accrues interest at a fixed rate of 7.46% per annum and matures
through August 29, 2008. The remaining long-term debt consists of three variable
rate bank term loans. During fiscal 1998, $19.5 million of bank term debt was
repaid by the Company through both cash flow from operations as well as draws
from its working capital line of credit. The next and final required installment
owed by the Company is $7.5 million on October 31, 2000. The $7.5 million of
remaining bank term debt outstanding on April 30, 1998 accrued interest at a
rate equal to the LIBOR rate plus one percent, reset monthly. At April 30, 1998,
the rate was 6.6563% per annum. The Company intends to pay the interest and
retire the remaining long-term debt through cash flow from operations.
Management believes the Company has the financial resources to meet its
short-term and long-term cash requirements. Management believes its cash flow
from operations will be sufficient to continue to fund its current obligations
as well as fund the internal growth of the Company. The current U.S. inflation
rate has little impact on the COmpany's operations.
The Company is currently in the process of investigating all of its products to
determine if any have a potential incompatibility with the Year 2000. Most
products are currently compatible with the Year 2000. In addition, the Company
has been converting its internal systems to an entirely new business system.
This new business system has addressed the Year 2000 issues regarding all
internal systems. The Company does not believe any further Year 2000 compliance
costs will be material to its financial statements.
The Management Discussion and Analysis of Financial Conditions and Results of
Operations section in this report may contain certain forward-looking statements
regarding the Company and its products. These forward-looking statements are
based on current expectations, and the Company assumes no obligation to update
this information. The Company's actual results could differ materially from
those discussed in this document.
47
<PAGE>
BOARD OF DIRECTORS OFFICERS
MICHAEL J. CUDAHY FREDERICK A. ROBERTSON, M.D.
Chairman Chief Executive Officer and
Marquette Medical Systems, Inc. Monitoring Group President
FREDERICK G. LUBER LOUIS P. SCAFURI
Chairman Chief Operating officer and
Super Steel Products Corp. Cardiology Group President
MELVIN S. NEWMAN MARY M. KABACINSKI
Attorney Senior Vice President and
Schoenberg, Fisher & Newman, Ltd. Chief Financial Officer
STEVEN G. BOOKS
WALTER L. ROBB Senior Vice President,
Manufacturing
Retired
Senior Vice President GERALD J. LENTZ
General Electric Company Senior Vice President,
Service
JOHN G. BOLLINGER, PH.D. MARK R. TAUSCHER
Dean, College of Engineering Senior Vice President, Supplies
University of Wisconsin-Madison
GORDON W. PETERSEN
Secretary
FREDERICK A. ROBERTSON, M.D.
Chief Executive Officer and MELVIN S. NEWMAN
Monitoring Group President Assistant Secretary
Marquette Medical Systems, Inc.
48
<PAGE>
EXHIBIT 21.1
MARQUETTE MEDICAL SYSTEMS, INC.
Subsidiaries:
The Company subsidiaries are listed below:
STATE OR COUNTRY
NAME OF ORGANIZATION
---- ---------------
Marquette Electronics Anesthesia
& Respiratory Care Corp. Missouri
Marquette Leasing, Inc. Wisconsin
Marquette International, Ltd. Virgin Islands
Marquette Hellige UK, Ltd. England
Marquette Hellige Italia, SRL Italy
Marquette Hellige S.A.S. France
Marquette Benelux n.v./s.a. Belgium
Marquette Hellige Espana, S.A. Spain
Marquette Medical Systems
(Australia) PTY, Ltd. Australia
Corometrics Medical Systems, Inc. Delaware
Hellige Ges.m.b.H. Austria
Marquette Hellige GmbH Germany
E For M Corporation Delaware
Vari-X, Inc. California
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements File Nos. 33-46729, 33-98468,
333-1334 and 333-20567.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Milwaukee, Wisconsin,
July 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENT AS OF AND FOR YEAR ENDED APRIL 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 5,063
<SECURITIES> 0
<RECEIVABLES> 163,626
<ALLOWANCES> 4,283
<INVENTORY> 109,003
<CURRENT-ASSETS> 289,814
<PP&E> 175,885
<DEPRECIATION> 62,181
<TOTAL-ASSETS> 459,360
<CURRENT-LIABILITIES> 127,587
<BONDS> 37,500
0
0
<COMMON> 1,791
<OTHER-SE> 212,525
<TOTAL-LIABILITY-AND-EQUITY> 459,360
<SALES> 578,260
<TOTAL-REVENUES> 578,260
<CGS> 287,641
<TOTAL-COSTS> 287,641
<OTHER-EXPENSES> 240,535
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 5,982
<INCOME-PRETAX> 44,013
<INCOME-TAX> 17,374
<INCOME-CONTINUING> 26,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,639
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.46
</TABLE>
