ALARIS MEDICAL INC, S-4, 1998-08-26

ALARIS MEDICAL INC
S-4, 1998-08-26
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 33-26398
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
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ALARIS MEDICAL, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3841 13-3492624
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>

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10221 WATERIDGE CIRCLE
SAN DIEGO, CALIFORNIA 92121
(619) 458-7000

(Address, including ZIP Code, and telephone number, including
area code, of each registrant's principal executive offices)
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DANIEL A. ETNA, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
(212) 626-0872

(Name, address, including ZIP Code and telephone number, including area code, of
agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the effectiveness of this registration statement, ALARIS Medical,
Inc. will promptly offer to exchange its 11 1/8% Senior Discount Notes due 2008,
which will have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding 11 1/8% Senior Discount Notes due 2008.
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If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PROPOSED AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
11 1/8% Senior Discount Notes due
2008................................ $109,892,000 100% $109,892,000 $32,418.14
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f) of the Securities Act of 1933, as amended.

THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8, MAY DETERMINE.

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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998

ALARIS MEDICAL, INC.

OFFER TO EXCHANGE ITS
11 1/8% SENIOR DISCOUNT NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
11 1/8% SENIOR DISCOUNT NOTES DUE 2008
------------------------

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
, 1998, UNLESS EXTENDED.

ALARIS Medical, Inc., a Delaware corporation ("ALARIS Medical"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal"), to exchange $1,000 principal amount of its 11 1/8% Senior
Discount Notes due 2008 ("New Notes"), registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the Registration Statement
(as defined) of which this Prospectus is a part, for each $1,000 principal
amount of its outstanding 11 1/8% Senior Discount Notes due 2008 ("Old Notes,"
and, together with New Notes, "Notes"), of which $189.0 million aggregate
principal amount at maturity is outstanding. The form and terms of the New Notes
are identical in all material respects to the form and terms of the Old Notes
(which they replace), except that the New Notes (i) have been registered under
the Securities Act and, therefore, do not bear legends restricting their
transfer and (ii) do not contain certain provisions providing for the payment of
Liquidated Damages (as defined) under certain circumstances relating to the
Registration Rights Agreement (as defined). The New Notes will evidence the same
debt as the Old Notes (which they replace) and, except as set forth in the
immediately preceding sentence, will be entitled to the benefits of the
Indenture (as defined), under which both the Old Notes were, and the New Notes
will be, issued. See "The Exchange Offer" and "Description of Notes."

The Notes will mature on August 1, 2008. Until August 1, 2003, the Accreted
Value (as defined) of the Notes will increase (representing amortization of
original issue discount) at a rate of 11 1/8% compounded semi-annually to their
aggregate principal amount of maturity between the date of original issuance and
August 1, 2003, the Notes will be redeemable at any time at the option of ALARIS
Medical, in whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon to the redemption date. In
addition, on or prior to August 1, 2001, ALARIS Medical may redeem up to 35% of
the aggregate principal amount at maturity of Notes issued under the Indenture
(as defined) at a redemption price equal to 111.125% of the Accreted Value
thereof to the redemption date, with the net cash proceeds of one or more public
or private offerings of Common Stock (as defined); provided that at least 65% of
the aggregate principal amount at maturity of Notes remain outstanding
immediately after the occurrence of each such redemption.

The Notes will rank senior in right of payment to all subordinated
indebtedness of ALARIS Medical and will rank PARI PASSU in right of payment with
all existing and future senior indebtedness of ALARIS Medical. The Notes will be
effectively subordinated to the Credit Facility Guarantee (as defined), to the
extent such Credit Facility Guarantee is secured, and will be effectively
subordinated to all indebtedness and other liabilities and commitments of ALARIS
Medical's subsidiaries, which, as of June 30, 1998, after giving pro forma
effect to the Offering (as defined) and the use of proceeds therefrom and the
Credit Facility Borrowings (as defined) would have been $521.5 million. See
"Risk Factors--Holding Company Structure; Dependence Upon Operations of
Subsidiaries."

ALARIS Medical will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange offer expires (the "Expiration Date"), which will be
, 1998, unless the Exchange Offer is extended. Tenders of Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. The Exchange Offer,
however, is subject to certain customary conditions which may be waived by
ALARIS Medical. Old Notes may be tendered only in integral multiples of $1,000.
See "The Exchange Offer."

The Old Notes were sold by ALARIS Medical on July 28, 1998 to the Initial
Purchasers (as defined) in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act (the "Offering"). The
Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act ("Rule
144A"). Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
<PAGE>
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in order
to satisfy the obligations of ALARIS Medical under the Registration Rights
Agreement. See "The Exchange Offer--Purpose and Effect of the Exchange Offer."

Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, ALARIS Medical believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of ALARIS Medical within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to, and does not
intend to, participate in the distribution of such New Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "--Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such Participating
Broker-dealer as a result of market-making activities or other trading
activities. ALARIS Medical has agreed that, for a period of 180 days after the
Expiration Date, they will make this Prospectus, as it may be amended or
supplemented from time to time, available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan of Distribution."

Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Old Notes
are designated for trading in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. There is no established trading market for
the New Notes. ALARIS Medical does not currently intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, there can be no assurance as to the development
or liquidity of any market for the New Notes. Moreover, to the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.

The New Notes will be available initially only in book-entry form and the
Registrant expects that the New Notes issued pursuant to the Exchange Offer will
be issued in the form of a Global Note (as defined), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the New Notes will be shown on, and
transfers thereof will be effected through, records maintained by the Depositary
and its participants. After the initial issuance of the Global Note, New Notes
in certificated form will be issued in exchange for beneficial interests in the
Global Note only under the limited circumstances set forth in the Indenture. See
"Description of Notes--Book-Entry; Delivery and Form."

ALARIS Medical will not receive any proceeds from the Exchange Offer. ALARIS
Medical will pay all of the expenses incident to the Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
DATA APPEARING ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS REFERRED TO
HEREIN. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I) REFERENCES HEREIN TO THE
"COMPANY" REFER TO ALARIS MEDICAL, INC. (F/K/A ADVANCED MEDICAL, INC.) AND ITS
SUBSIDIARIES, WITHOUT GIVING EFFECT TO THE ACQUISITION OF INSTROMEDIX, INC., AN
OREGON CORPORATION ("INSTROMEDIX") OR THE RECENT ACQUISITIONS OF THE PSI PUMP
(AS DEFINED) AND THE INTERNATIONAL PUMP (AS DEFINED); (II) REFERENCES TO "ALARIS
MEDICAL" REFER TO ALARIS MEDICAL, INC. WITHOUT ITS SUBSIDIARIES; AND (III)
REFERENCES TO "ALARIS MEDICAL SYSTEMS" REFER TO ALARIS MEDICAL SYSTEMS, INC., A
WHOLLY OWNED SUBSIDIARY OF ALARIS MEDICAL, AND ITS SUBSIDIARIES; WHICH WAS
FORMED ON NOVEMBER 26, 1996 AS A RESULT OF A SERIES OF MERGERS (COLLECTIVELY,
THE "MERGER") PURSUANT TO WHICH THE OPERATIONS OF IMED CORPORATION ("IMED") AND
IVAC MEDICAL SYSTEMS, INC. ("IVAC MEDICAL SYSTEMS"), A SUBSIDIARY OF IVAC
HOLDINGS, INC. ("IVAC HOLDINGS"), WERE TRANSFERRED TO IVAC HOLDINGS, AND IVAC
HOLDINGS BECAME A WHOLLY OWNED SUBSIDIARY OF ALARIS MEDICAL AND SUBSEQUENTLY
CHANGED ITS NAME TO ALARIS MEDICAL SYSTEMS, INC. PORTIONS OF THIS PROSPECTUS MAY
CONSTITUTE FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THE EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SEE "RISK FACTORS."

THE COMPANY

The Company is a leading provider of infusion systems and related
technologies to the United States hospital market, with the largest installed
base of pump delivery lines ("channels"). The Company is also a leader in the
international infusion systems market. Based on installed base of infusion
pumps, the Company has a number one or two market position in eight Western
European countries, the number three market position in Germany, the largest
installed base of infusion pumps in Australia and Canada and a developing
position in Latin America and Asia. The Company's infusion systems, which are
used to deliver one or more fluids, primarily pharmaceuticals or nutritionals to
patients, consist of single and multi-channel infusion pumps and controllers,
and proprietary and non-proprietary disposable administration sets (i.e.,
plastic tubing and pump interfaces). In addition, the Company is a leading
provider of patient monitoring products that measure and monitor temperature,
pulse, pulse oximetry and blood pressure, with the largest installed base of
hospital thermometry systems in the United States.

The Company sells a full range of products through a direct sales force
consisting of over 230 sales persons and through more than 150 distributors to
over 5,000 hospitals worldwide. Sales to customers located in and outside of the
United States accounted for 62.7% and 37.3%, respectively, of the Company's
sales for the twelve months ended June 30, 1998. For the twelve months ended
June 30, 1998, the Company had sales of $366.7 million and Adjusted EBITDA (as
defined) of $93.7 million.

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The Company has registered or applied to register the following trademarks:
ALARIS-TM-, ALARIS Medical Systems-TM-, IMED-Registered Trademark-,
Gemini-Registered Trademark-, Gemini PC-2TX-Registered Trademark-,
PC-1-Registered Trademark-, PC-2-Registered Trademark-,
PC-4-Registered Trademark-, ReadyMED-Registered Trademark-,
VersaSafe-Registered Trademark-, IVAC-Registered Trademark-, IVAC Medical
Systems-TM-, Core-Check-Registered Trademark-, MedSystem
III-Registered Trademark-, PCAM-TM-, Signature Edition-Registered Trademark-,
Temp-Plus-Registered Trademark-, Vital-Check-Registered Trademark- and
SmartSite-Registered Trademark-; King of Hearts Express-Registered Trademark-,
HeartCard-Registered Trademark-, HeartWatch-Registered Trademark-, CarryAll-TM-,
Pacer-Tracer-TM-, Rythm Stripper-TM-, LifeSigns-TM-, LifeSigns Commander-TM-,
LifeSigns Shuttle-TM-, LifeSigns Central Station-TM- and
Instromedix-Registered Trademark- are trademarks of Instromedix; and Rythmic-TM-
is a trademark of Micrel Microelectronics EP.E.

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INFUSION SYSTEMS. At December 31, 1997, the Company had approximately
190,000 single and multi-channel large volume infusion pumps and 273,000
channels installed in the United States, with a market share of approximately
32% and 37% of the installed base of large volume infusion pumps and channels,
respectively. The Company offers a wide variety of infusion pumps designed to
meet the varying price and technological requirements of its diverse customer
base. These infusion pumps include the Gemini series, consisting of single, dual
and four channel infusion pumps designed for use in all hospital settings by
customers with sophisticated technological requirements; the Signature Edition
system, a versatile, user-friendly single and dual channel infusion pump for use
in critical and general medical and surgical settings; the MedSystem III
instrument (the "MS III"), a compact, lightweight, programmable three channel
infusion pump targeted for the hospital critical care setting; and the Model
560/570 Series, consisting of single channel infusion pumps designed for use in
all hospital settings and marketed primarily to the price-conscious customer. In
addition, the Company offers the ReadyMED ambulatory infusion pump, which is
compact, lightweight and disposable for use in the alternate-site market, as
well as a broad range of syringe infusion pumps for use primarily outside the
United States.

The Company also manufactures and sells higher-margin proprietary disposable
administration sets which are required to be used with the Company's large
volume infusion pumps. Since the useful lives of the Company's infusion pumps
typically range between seven to ten years, the Company's industry-leading
installed base allows it to generate predictable and recurring revenues from
sales of disposable administration sets. For the twelve months ended June 30,
1998, the Company sold approximately 64.0 million disposable administration sets
(proprietary and non-proprietary) representing sales of $226.0 million or 61.6%
of sales. Many of the Company's disposable administration sets offer protection
features designed to prevent the unregulated flow of fluids into a patient's
blood stream ("free flow"). In addition, the Company has recently introduced
several enhancements to its disposable administration sets, including
needle-free access systems that are designed to reduce the risk to health care
providers of diseases, such as AIDS and hepatitis, that may be transmitted
through accidental needlesticks, and, in the case of the SmartSite Needle Free
System, to eliminate patient exposure to latex which can cause severe allergic
or anaphylactic shock reactions. These features continue to provide the
Company's customers with the latest cost-effective technology for the Company's
installed base of infusion pumps. For the twelve months ended June 30, 1998, the
Company's infusion system sales (pumps and disposables) were $311.6 million or
85.0% of sales.

PATIENT MONITORING PRODUCTS. The Company's patient monitoring products
compete in discrete market niches, each with different competitive dynamics. The
Company primarily operates in the United States, Canada and Western Europe in
two patient monitoring product markets: (i) hospital thermometry systems and
(ii) stand-alone, non-invasive, multi-parameter instruments used to measure and
monitor a combination of vital signs. For the twelve months ended June 30, 1998,
the Company's patient monitoring product sales were approximately $34.6 million,
representing approximately 9.4% of sales.

At December 31, 1996, the Company's installed base of thermometry
instruments constituted approximately 42% of the United States hospital
electronic and infrared thermometry market, making the Company the largest
provider of hospital thermometry systems in the United States. The Company's
principal thermometry instruments, the Temp-Plus II electronic thermometer and
the Core-Check infrared tympanic thermometer, are both widely used in hospitals
and alternate-site settings. The Company is also the second largest participant
in the United States infrared thermometry market, and, at December 31, 1996, had
approximately 31% of the United States hospital installed base. The Company's
large base of installed hospital thermometry instruments allows it to generate
predictable and recurring revenues from sales of related proprietary disposable
probe covers. In 1997, the Company manufactured and sold over 595 million
proprietary disposable probe covers into its worldwide installed base.

In addition, the Company participates in the hospital market of stand-alone,
non-invasive, multi-parameter instruments through its Vital-Check product line,
which measures and monitors a combination of temperature, pulse, blood pressure
and pulse oximetry.

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OPERATING STRATEGY

The Company's goal is to increase sales and cash flow by leveraging its
competitive strengths in infusion systems and patient monitoring, and fulfilling
its corporate vision of building a world-class medical technology franchise
around the patient bedside and throughout the continuum of care. The essence of
this vision involves the integration of infusion technology, patient monitoring,
advanced data management and specialty medical devices. The Company believes it
is well-positioned to lead this technology convergence and to provide
cost-effective, quality health care. In order to achieve these goals, management
intends to further focus on implementing the following strategies:

EXPANDING INTERNAL GROWTH. The Company believes that it has one of the
largest installed bases of infusion systems and channels worldwide and the
largest installed base of hospital thermometry products in the United States.
The Company seeks to protect and expand its installed base by (i) aggressively
marketing its existing products to hospital users and group purchasing
organizations ("GPOs") and (ii) introducing new technologies that build on or
enhance its existing product portfolio. The Company believes that, to the extent
it can increase its installed base, the Company will benefit from increasing
revenues from infusion pump sales, and increased cash flows attributable to the
recurring sales of related higher-margin proprietary disposable administration
sets.

CAPITALIZING ON STRATEGIC ACQUISITIONS AND ALLIANCES. The Company actively
seeks to supplement internal growth through strategic acquisitions focused
primarily on complementing the Company's existing product lines. The Company
believes that there is the potential to strengthen and diversify its portfolio
of products at the patient bedside through the acquisition of technologies that
extend into products and markets where the Company currently has little or no
presence. The Company assesses acquisition candidates primarily based on such
candidate's ability to: (i) improve the Company's United States and
international market leadership; (ii) increase the Company's revenue per account
and margins; (iii) access new and expanding markets, including the
alternate-site market; (iv) fit strategically within the Company's existing
technological base and manufacturing and distribution capabilities; and (v)
improve the Company's results from operations. The Company is also seeking to
establish strategic alliances with major participants in the pharmaceutical
industry, both domestically and internationally.

INCREASING PRESENCE IN ALTERNATE-SITE SETTINGS. The Company will seek to
increase its presence in the alternate-site market. Industry sources estimate
that the alternate-site market for infusion therapy and patient monitoring has
experienced rapid and substantial growth. The Company currently has in place a
distributor network and a dedicated sales force trained to sell into the
alternate-site market. The Company has also recently acquired, and continues to
develop, the PSI Pump for use in the alternate site. Moreover, the Company
intends to integrate the product lines of Instromedix, including the LifeSigns
System, which is a technologically-advanced, telephonic monitoring system that
allows a caregiver to remotely monitor multiple patient parameters via a
standard telephone line. The Company believes that through these recent
acquisitions, combined with the ongoing development of its existing
alternate-site products (i.e., the ReadyMED product line), it is well-positioned
to leverage its reputation for quality products and service in the hospital
setting to increase its presence in the growing alternate-site market.

STRENGTHENING PRESENCE IN INTERNATIONAL MARKETS. For the twelve months
ended June 30, 1998, 37.3% of the Company's sales were derived from sales to
customers outside the United States and the Company believes that the sales of
products outside the United States represent a significant source of growth. As
part of its business strategy, the Company intends to increase its position in
targeted geographical markets, including emerging international markets by (i)
establishing distribution channels and direct sales forces in countries where
the Company has little or no existing distribution network and (ii) developing
products or modifying existing products to satisfy local market preferences or
requirements.

3
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services such as (i) expertise in engineering and manufacturing high-quality,
reliable and innovative products; (ii) prompt order fulfillment and delivery;
and (iii) after-sale technical and clinical support and emergency service. The
Company believes that its ability to retain existing customers and attract new
customers is attributable to its ongoing commitment to customer service.

REDUCING PRODUCTION AND OPERATING COSTS. The Company will seek to further
reduce production and operating costs by eliminating redundant expenses and by
monitoring and controlling fixed and variable operating expenses. In this
regard, the Company has recently: (i) reduced overall head count through
termination and attrition; (ii) consolidated all of its United States instrument
manufacturing operations into one location near the Company's headquarters;
(iii) transferred substantially all disposable-related assembly operations in
San Diego, California to its lower cost operations in Tijuana, Mexico; and (iv)
consolidated certain of the Company's international sales and distribution
operations.

RECENT DEVELOPMENTS

INSTROMEDIX ACQUISITION

On July 17, 1998, pursuant to an Agreement and Plan of Merger (the
"Instromedix Agreement") among ALARIS Medical, ALARIS Medical Systems,
Instromedix and its shareholders, dated June 24, 1998, ALARIS Medical Systems
acquired (the "Acquisition") all of the outstanding common stock of Instromedix
and subsequently merged Instromedix with and into itself. The total
consideration for the Acquisition included (i) $51.0 million in cash, subject to
certain adjustments, (ii) the assumption of indebtedness of Instromedix of
approximately $5.5 million and (iii) the payment of certain transaction expenses
incurred by Instromedix relating to the Acquisition in the amount of $1.0
million. The Acquisition was funded through a cash payment (the "Acquisition
Payment") of $24.7 million by ALARIS Medical Systems and the issuance of $25.6
million of promissory notes (the "Acquisition Notes") by ALARIS Medical. The
Acquisition Payment was funded with proceeds borrowed under the Credit Facility
(as defined). A portion of the net proceeds of the Offering were used to repay
the Acquisition Notes and certain borrowings under the Credit Facility. See "The
Acquisition."

Instromedix, founded in 1969, produces technologically-advanced products
that primarily address cardiac disease diagnosis, monitoring and management.
Instromedix has developed, among other products, the LifeSigns System, a
telemedicine product which allows clinical professionals to monitor a patient's
cardiac events from a remote location and transmit the recorded event, via a
standard telephone line, to a central location. Virtually all of Instromedix's
revenues are derived from the sale of products that are utilized in the
alternate-site care setting, primarily at the patient's home or at the
physician's office. For the twelve months ended June 30, 1998, Instromedix had
$21.8 million in revenues.

PUMP ACQUISITIONS

In May 1998, the Company (i) acquired from Invacare Corporation
("Invacare"), an ambulatory, electromechanical infusion pump (the "PSI Pump")
for use in the alternate-site market and (ii) licensed technology from Caesarea
Medical Electronics Ltd. for a large volume infusion pump (the "International
Pump") marketed primarily to price-conscious consumers in emerging international
markets. The aggregate consideration to be paid in connection with such
acquisition and such license is dependent upon certain developmental milestones,
and could be up to a maximum of $10.3 million (excluding royalties), of which
$6.3 million has been paid to date through borrowings under the Credit Facility.

The Company believes the addition of the Instromedix product line, the PSI
Pump and the International Pump will expand the scope of the Company's infusion
and patient monitoring systems, thereby enhancing the Company's competitive
position. For example, the Company believes that it can leverage its
distribution capabilities and brand identity to market and sell the LifeSigns
System and other Instromedix products, as well as the PSI Pump to capture market
share in the rapidly growing alternate-site markets.

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CREDIT FACILITY AMENDMENT

The Company amended the Credit Facility (the "Credit Facility Amendment") in
order to, among other things, obtain the consent of the lenders under the Credit
Facility to enter into the Acquisition and the Offering and to finance the
Acquisition Payment and other fees and expenses in connection with the
Acquisition. The Credit Facility Amendment, among other things, (i) increases
the revolving portion of the Credit Facility from $50.0 million to $60.0 million
and (ii) increases the Tranche D Term Loan by $30.0 million to $70.0 million.

Pursuant to the Credit Facility Amendment, the Company (i) must use the
proceeds of the additional Tranche D Term Loan toward financing the Acquisition
Payment and paying certain fees and expenses in connection with the Acquisition
or to pay amounts owed under the revolving portion of the Credit Facility and
(ii) may also use the revolving portion of the Credit Facility toward financing
the Acquisition Payment and paying certain fees and expenses in connection with
the Acquisition (any such borrowings under the Tranche D Term Loans or revolving
portion of the Credit Facility referred to herein as the "Credit Facility
Borrowings").

The Company's principal executive offices are located at 10221 Wateridge
Circle, San Diego, California 92121 and its telephone number is (619) 458-7000.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
NOTES........................................ The Old Notes were sold by ALARIS Medical on
July 28, 1998 to Bear Stearns & Co. Inc., BT
Alex. Brown Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation
(collectively, the "Initial Purchasers")
pursuant to a purchase agreement dated July
28, 1998 (the "Purchase Agreement") by and
among ALARIS Medical, ALARIS Medical Systems,
ALARIS Release Corporation ("ALARIS
Release"), IVAC Overseas Holdings, Inc.
("IVAC Overseas") and the Initial Purchasers.
The Initial Purchasers subsequently resold
the Old Notes to qualified institutional
buyers pursuant to Rule 144A. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer."

REGISTRATION RIGHTS AGREEMENT................ Pursuant to the Purchase Agreement, ALARIS
Medical, ALARIS Medical Systems, ALARIS
Release, IVAC Overseas and the Initial
Purchasers entered into a registration rights
agreement dated as of July 28, 1998 (the
"Registration Rights Agreement"), which
grants the holders of the Old Notes certain
exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange rights which terminate upon the
consummation of the Exchange Offer. See "The
Exchange Offer-- Purpose and Effect of the
Exchange Offer."

THE EXCHANGE OFFER

SECURITIES OFFERED........................... $189.0 million in aggregate principal amount
at maturity of 11 1/8% Senior Discount Notes
due 2008, which have been registered under
the Securities Act.

THE EXCHANGE OFFER........................... $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes that are validly tendered and not
withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. As of the date
hereof, $189.0 million aggregate principal
amount at maturity of the Old Notes are
outstanding. ALARIS Medical will issue the
New Notes to holders as promptly as
practicable following the Expiration Date.

RESALE....................................... Based on no-action letters issued by the
staff of the Commission to third parties,
ALARIS Medical believes the New Notes issued
pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred
by any holder thereof (other than any such
holder that is an "affiliate" of the ALARIS
Medical within the meaning of Rule 405 under
the Securities Act) without compliance
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
with the registration and prospectus delivery
provisions of the Securities Act, provided
that such New Notes are acquired in the
ordinary course of such holder's business and
such holder has no arrangement or
understanding with any person to, and does
not intend to, participate in the
distribution of such New Notes.

Any Participating Broker-Dealer that acquired
Old Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter.
Each Participating Broker-Dealer that
receives New Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as if may be
amended or supplemented from time to time,
may be used by a Participating Broker-Dealer
in connection with resales of New Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of Market-making
activities or other trading activities.

ALARIS Medical has agreed that, for a period
of 180 days after the Expiration Date, they
will make this Prospectus, as it may be
amended or supplemented from time to time,
available to any Participating Broker-Dealer
for use in connection with any such resale.
See "Plan of Distribution."

Any holder who tenders Old Notes in the
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the New
Notes may not rely on the position of the
staff of the Commission enunciated in the
aforesaid no-action letters and, in the
absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any secondary resale
transaction. Failure to comply with such
requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by ALARIS Medical.

EXPIRATION DATE.............................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998,
unless extended, in which case the term
"Expiration Date"
</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
shall mean the latest date and time to which
the Exchange Offer is extended.

CONDITIONS TO THE EXCHANGE OFFER............. The Exchange Offer is subject to certain
customary conditions, which may be waived by
ALARIS Medical. See "The Exchange
Offer--Conditions." The Exchange Offer is not
conditioned upon any minimum principal amount
of Old Notes being tendered.

PROCEDURES FOR TENDERING OLD NOTES........... Each holder of Old Notes wishing to accept
the Exchange Offer must transmit a properly
completed Letter of Transmittal, (or a
facsimile thereof) or an Agent's Message (as
defined), in accordance with the instructions
contained herein and therein, together with
such Old Notes and any other required
documentation to the Exchange Agent (as
defined), at one of the addresses set forth
herein and therein. By executing the Letter
of Transmittal (or a facsimile thereof) or
delivering an Agent's Message, each holder of
Old Notes will represent to ALARIS Medical
that, among other things (i) the New Notes
being acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
holder; and (ii) neither the holder nor any
such other person (A) has any arrangement or
understanding with any person to participate
in the distribution of such New Notes or is
engaging or intends to engage in the
distribution of such New Notes; or (B) is an
"affiliate" of ALARIS Medical within the
meaning of Rule 405 under the Securities Act.
Each Participating Broker-Dealer that
receives New Notes for its own account in
exchange for Old Notes must acknowledge that
it (i) acquired the Old Notes for its own
account as a result of market-making
activities or other trading activities; (ii)
has not entered into any arrangement or
understanding with ALARIS Medical or any
"affiliate" of ALARIS Medical within the
meaning of Rule 405 under the Securities Act
to distribute the New Notes to be received in
the Exchange Offer; and (iii) will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale
of such New Notes. See "Plan of
Distribution," "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and
"--Procedures for Tendering."

SHELF REGISTRATION STATEMENT................. If (i) any holder of Old Notes (A) is
prohibited by law or Commission policy from
participating in the Exchange Offer; (B) may
not resell the New Notes
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
acquired by it in the Exchange Offer to the
public without delivering a prospectus and
this Prospectus, as it may be amended on
supplemented form time to time, is not
appropriate or available for such resales; or
(C) is a Participating Broker-Dealer and owns
Old Notes acquired directly from ALARIS
Medical or an affiliate of ALARIS Medical and
(ii) such holder has satisfied certain
conditions relating to the provision of
information to ALARIS Medical for use
therein, ALARIS Medical has agreed to
register such Old Notes on a shelf
registration statement (the "Shelf
Registration Statement") and use their
respective best efforts to cause it to be
declared effective by the Commission on or
prior to 120 days after the date on which
ALARIS Medical became obligated to file the
Shelf Registration Statement. ALARIS Medical
has agreed to maintain the effectiveness of
the Shelf Registration Statement for, under
certain circumstances, a maximum of three
years, to cover resales of Old Notes held by
any such holders. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer."

SPECIAL PROCEDURES FOR BENEFICIAL OWNERS..... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on his own behalf,
such beneficial owner must, prior to
transmitting a properly completed Letter of
Transmittal (or facsimile thereof) or an
Agent's Message and delivering his Old Notes
to the Exchange Agent, either make
appropriate arrangements to register
ownership of the Old Notes in such beneficial
owner's name or obtain a properly completed
bond power from the registered holder.

The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer--Procedures for
Tendering."

GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal
(or a facsimile thereof) or an Agent's
Message, or any other documents required by
the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry
</TABLE>

9
<PAGE>

<TABLE>
<S> <C>
transfer) prior to the Expiration Date, must
tender their Old Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."

WITHDRAWAL RIGHTS............................ Except as otherwise provided herein, tenders
of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."

ABSENCE OF APPRAISAL OR DISSENTERS' RIGHTS... Holders of Old Notes do not have any
appraisal or dissenters' rights under the
Delaware General Corporation Law or the
Indenture in connection with the Exchange
Offer. See "The Exchange Offer--Terms of the
Exchange Offer--General."

EXCHANGE AGENT............................... United States Trust Company of Texas, N.A.

UNTENDERED OLD NOTES......................... Holders of Old Notes eligible to participate
in the Exchange Offer but who do not tender
their Old Notes will not have any further
exchange rights and such Old Notes will
continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes
could be adversely affected.

FEDERAL INCOME TAX CONSEQUENCES.............. The exchange of Old Notes for New Notes will
not be a taxable exchange for United States
Federal income tax purposes. See "Certain
Federal Income Tax Consequences."

CONSEQUENCES OF FAILURE TO EXCHANGE OLD
NOTES...................................... Holders of Old Notes who do not exchange
their Old Notes for New Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old
Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes
pursuant to exemptions from, or in
transactions not subject to, the registration
requirements of the Securities Act and
applicable state securities laws. In general,
the Old Notes may not be offered or sold,
unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction to subject to, the Securities Act
and applicable state securities laws. ALARIS
Medical does not currently anticipate that it
will register Old Notes under the Securities
Act. See "The Exchange Offer--Consequences of
Failure to Exchange."

USE OF PROCEEDS.............................. There will be no cash proceeds to ALARIS
Medical from the exchange pursuant to the
Exchange Offer. The net proceeds from the
Offering were used to fund the Acquisition
and related transaction expenses, to repay
certain indebtedness and will be used for
general corporate purposes, including
</TABLE>

10
<PAGE>

<TABLE>
<S> <C>
possible future acquisitions. See "The
Acquisition" and "Use of Proceeds."

THE NEW NOTES

GENERAL...................................... The Exchange Offer applies to $189.0 million
aggregate principal amount at maturity of Old
Notes. The form and terms of the New Notes
will be identical in all material respects to
the form and terms of the Old Notes, except
that the New Notes (i) have been registered
under the Securities Act and, therefore, will
not bear legends restricting their transfer
and (ii) do not contain certain provisions
providing for the payment of Liquidated
Damages under certain circumstances relating
to the Registration Rights Agreement. The New
Notes will evidence the same debt as the Old
Notes and, except as set forth in the
immediately preceding sentence, will be
entitled to the benefits of the Indenture,
under which both the Old Notes were, and the
New Notes will be, issued. See "Description
of Notes--General."

SECURITIES OFFERED........................... $189.0 million in aggregate principal amount
at maturity of 11 1/8% Senior Discount Notes
due 2008 which have been registered under the
Securities Act.

MATURITY DATE................................ August 1, 2008

INTEREST PAYMENT DATES....................... February 1 and August 1, commencing February
1, 2004.

MANDATORY REDEMPTION......................... ALARIS Medical will not be required to make
mandatory redemption or sinking fund payments
with respect to the New Notes.

OPTIONAL REDEMPTION.......................... On and after August 1, 2003, the New Notes
will be redeemable at any time at the option
of ALARIS Medical, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon
to the redemption date. In addition, on or
prior to August 1, 2001, ALARIS Medical may
redeem up to 35% of the aggregate principal
amount at maturity of New Notes issued under
the Indenture at a redemption price equal to
111.125% of the Accreted Value thereof to the
redemption date, with the net cash proceeds
of one or more public or private offering of
Common Stock; PROVIDED that at least 65% of
the aggregate principal amount at maturity of
New Notes remain outstanding immediately
after the occurrence of each such redemption.
See "Description of Notes-- Optional
Redemption."
</TABLE>

11
<PAGE>

<TABLE>
<S> <C>
CHANGE OF CONTROL............................ In the event of a Change of Control, ALARIS
Medical will be required to make an offer to
each Holder of New Notes at a repurchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, thereon to the repurchase date (or, in
the case of repurchases of New Notes prior to
August 1, 2003, at a repurchase price equal
to 101% of the Accreted Value thereof, to the
repurchase date). There can be no assurance
that ALARIS Medical will have the financial
resources to repurchase the New Notes upon a
Change of Control. See "Risk
Factors--Repurchase of Notes Upon Change of
Control."

RANKING...................................... The New Notes will rank senior in right of
payment to all subordinated indebtedness of
ALARIS Medical and will rank PARI PASSU in
right of payment with all existing and future
senior indebtedness of ALARIS Medical. The
New Notes will be effectively subordinated to
the Credit Facility Guarantee, to the extent
such Credit Facility Guarantee is secured,
and will be effectively subordinated to all
indebtedness and other liabilities and
commitments of ALARIS Medical's subsidiaries,
which, as of June 30, 1998, after giving pro
forma effect to the Offering and the use of
proceeds therefrom and the Credit Facility
Borrowings would have been approximately
$521.5 million.

CERTAIN COVENANTS............................ The Indenture pursuant to which the Old Notes
were, and the New Notes will, be issued
contains covenants that, among other things,
limit the ability of ALARIS Medical and its
Restricted Subsidiaries (as defined) to incur
additional Indebtedness (as defined), pay
dividends, repurchase Equity Interests (as
defined) or make other Restricted Payments
(as defined), create Liens (as defined),
enter into transactions with Affiliates (as
defined), sell assets or enter into certain
mergers and consolidations. See "Description
of Notes--Certain Covenants."
</TABLE>

RISK FACTORS

Holders of Old Notes should carefully consider the matters set forth under
the caption "Risk Factors" and all other information set forth in the Prospectus
before making a decision to tender their Old Notes in the Exchange Offer.

12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(DOLLARS IN THOUSANDS)

The following summary consolidated financial data of the Company for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from
the Company's audited consolidated financial statements. The summary
consolidated financial data of the Company for the six months ended June 30,
1997 and as of and for the six months ended June 30, 1998 have been derived from
the unaudited consolidated financial statements of the Company which, in the
opinion of management, contain all adjustments (consisting only of normal and
recurring adjustments) necessary to present fairly the Company's financial
position and results of operations at such dates and for such periods. Operating
results for the six months ended June 30, 1998 are not necessarily indicative of
results to be expected for the full year. The information contained in the
following table should also be read in conjunction with "Selected Consolidated
Financial Data of the Company" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, in each case contained elsewhere in
this Prospectus.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA (5)................................. $ 18,420 $ 22,851 $ 24,626 $ 27,775 $ 89,287 37,822 42,224
Cash interest expense (6)........................... 10,148 8,009 7,632 12,061 41,288 20,164 20,316
Depreciation and amortization (7)................... 9,849 7,811 7,575 9,842 34,288 17,323 16,472
Capital expenditures................................ 1,616 4,549 4,803 9,502 19,843 9,726 10,504
Net cash provided by (used in) operating
activities........................................ 531 11,790 18,473 7,715 9,753 (2,776) 25,715
Net cash provided by (used in) investing
activities........................................ 16,009 3,368 (32,815) (214,151) (17,274) (7,237) (16,952)
Net cash (used in) provided by financing
activities........................................ (17,418) (15,892) 15,520 216,953 3,781 2,117 (13,422)
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1998
--------------------
(UNAUDITED)
<S> <C>
PRO FORMA DATA (8):
Adjusted EBITDA (5)......................................................................... $ 93,687
Total interest expense...................................................................... 58,029
Cash interest expense (6)................................................................... 41,863
Ratio of net debt to Adjusted EBITDA (9).................................................... 5.4x
Ratio of Adjusted EBITDA to total interest expense.......................................... 1.6
Ratio of Adjusted EBITDA to cash interest expense........................................... 2.2
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------------
ACTUAL AS ADJUSTED(8)
--------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................................................. $ 2,285 $ 47,574
Working capital...................................................................... 77,580 122,869
Total assets......................................................................... 550,263 600,652
Long-term debt (including current portion)........................................... 432,345 551,987
Stockholders' equity................................................................. 30,002 30,002
</TABLE>

- ------------------------------

(1) Includes the effects of the Merger.

(2) Purchased in-process research and development represents that portion of
purchase accounting adjustments related to the value assigned to the
acquired in-process research and development of projects acquired for which
technological feasibility had not been established and for which there was
no alternative future use.

(3) In 1993 and 1996, the Company restructured its operations. During 1997, the
Company incurred significant non-recurring integration and other
non-recurring charges resulting from the Merger. Restructuring, integration
and other non-recurring charges are included in operating expenses for the
years ended December 31, 1993, 1996 and 1997, and the six months ended June
30, 1997.

(4) Lease interest income consists of interest income associated with contracts
or agreements pursuant to which a third party acquires infusion pumps under
sales-type leases.

(5) Adjusted EBITDA represents income from operations before restructuring,
integration and other non-recurring charges, non-cash purchase accounting
charges and depreciation and amortization. Adjusted EBITDA does not
represent net income or cash flows from operations, as these terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The
Company has included information concerning Adjusted EBITDA herein because
it understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt.

(6) Cash interest expense excludes $732, $681, $521, $1,332, $3,125, $1,531 and
$1,479 of debt discount and issuance cost amortization for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six months ended June
30, 1997, and 1998, respectively. On a pro forma basis, cash interest
expense excludes $3,600 of debt discount and issuance cost amortization for
the twelve months ended June 30, 1998 and does not reflect the accretion on
the Notes.

(7) Depreciation and amortization excludes amortization of debt discount and
issuance costs included in interest expense of $732, $681, $521, $1,332,
$3,125, $1,531 and $1,479 for the years ended December 31, 1993, 1994, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively.

(8) To give effect to the Offering and the use of proceeds therefrom and the
Credit Facility Borrowings.

(9) Net debt represents total indebtedness less cash.

14
<PAGE>
RISK FACTORS

HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE TENDERING
THEIR OLD NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW (OTHER
THAN "FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT
HOLDERS" AND "CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER
OF NEW NOTES") ARE GENERALLY APPLICABLE TO THE OLD NOTES, AS WELL AS THE NEW
NOTES.

THIS PROSPECTUS MAY INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE RESULTS EXPRESSED OR
IMPLIED BY SUCH STATEMENTS, INCLUDING GENERAL ECONOMIC AND BUSINESS CONDITIONS,
CONDITIONS AFFECTING THE INDUSTRIES SERVED BY THE COMPANY, CONDITIONS AFFECTING
THE COMPANY'S CUSTOMERS AND SUPPLIERS, COMPETITOR RESPONSES TO THE COMPANY'S
PRODUCTS AND SERVICES, AND OVERALL MARKET ACCEPTANCE OF SUCH PRODUCTS AND
SERVICES AND OTHER FACTORS DISCLOSED IN THE COMPANY'S PERIODIC REPORTS FILED
WITH THE COMMISSION.

SIGNIFICANT LEVERAGE

The Company is highly leveraged. As of June 30, 1998, on a pro forma basis
after giving effect to the Offering and the use of the proceeds therefrom and
the Credit Facility Borrowings, the Company would have had consolidated
indebtedness of $552.0 million and the Company would have had total
stockholders' equity of $30.0 million. In addition, the Company would have had
$59.5 million available for additional borrowings under the revolving credit
portion of the Credit Facility. Moreover, the Company's indebtedness will
increase as a result of the accretion of original issue discount on the Notes.
See "Capitalization." For the year ended December 31, 1997 and the six months
ended June 30, 1998, on a pro forma basis, after giving effect to the Offering
and the use of proceeds therefrom and the Credit Facility Borrowings, as a
result of losses, earnings were insufficient to cover fixed charges by $26.5
million and $8.9 million, respectively.

The Company believes that, based on current levels of performance, it will
generate cash flow from operations, together with borrowings under the Credit
Facility, sufficient at least through the next twelve months, to fund its
operations, make planned capital expenditures and make required payments of
principal and interest under its Credit Facility and interest on the 9 3/4%
Notes; however, there can be no assurance the Company will generate sufficient
cash flow from operations to repay the 9 3/4% Notes at maturity, to make
scheduled payments on the Notes or to repay the Notes at maturity. The ability
of the Company to repay its existing indebtedness, including the Notes, will
depend upon future operating performance, which is subject to the success of the
Company's business strategy, prevailing economic conditions, regulatory matters,
levels of interest rates and financial, business and other factors, many of
which are beyond the Company's control. There can be no assurance that the
Company's operating strategy will be successful in generating the substantial
increases in cash flow from operations that will be necessary for the Company to
meet its obligations under the Notes. The current and future leverage of the
Company could have important consequences, including the following: (i) the
ability of the Company to obtain additional financing for future working capital
needs or financing for possible future acquisitions or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to payment of the principal and interest on its indebtedness,
including the Notes, thereby reducing funds available for other purposes; and
(iii) the Company may be more vulnerable to adverse economic conditions than
some of its competitors and, thus, may be limited in its ability to withstand
competitive pressures.

HOLDING COMPANY STRUCTURE; DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES

ALARIS Medical is a holding company that conducts all of its operations
through its subsidiaries, and therefore will not have any material cash flow
independent of its subsidiaries. Substantially all of the

15
<PAGE>
tangible assets of ALARIS Medical are held by its subsidiaries. Therefore,
ALARIS Medical's ability to pay interest and principal when due to Holders of
the Notes is dependent upon the receipt of sufficient funds from its direct and
indirect subsidiaries.

The instruments governing the indebtedness of ALARIS Medical's subsidiaries
contain numerous restrictive covenants which restrict their ability to pay
dividends or make other distributions to ALARIS Medical. On a pro forma basis,
as of June 30, 1998, after giving effect to the Offering and the use of proceeds
therefrom and the Credit Facility Borrowings, ALARIS Medical's subsidiaries
would have had the ability to pay dividends or make other restricted payments
under the 9 3/4% Notes Indenture (as defined) of approximately $75.5 million.
The Credit Facility allows the payment of dividends or the making of other
distributions by ALARIS Medical Systems to ALARIS Medical if there has been no
Event of Default and the Company has met its ratio tests thereunder.

The 9 3/4% Senior Subordinated Notes due 2006 of ALARIS Medical Systems (the
"9 3/4% Notes") and the Credit Facility permit ALARIS Medical Systems to fund
interest payments on ALARIS Medical's 7 1/4% Convertible Subordinated Debentures
due 2002 (the "Convertible Debentures") and to make limited distributions to
ALARIS Medical to fund operating expenses and to pay income taxes; PROVIDED,
that, with respect to the Credit Facility, there exists no default or event of
default under the Credit Facility. The 9 3/4% Notes and the Credit Facility,
however, restrict distributions to ALARIS Medical to fund the repayment of the
Convertible Debentures at maturity. However, the 9 3/4% Notes contain no
provisions that specifically provide that ALARIS Medical's subsidiaries may pay
dividends or make other distributions to ALARIS Medical to pay interest on,
redeem or repurchase, the Notes. In addition, the payment of dividends and other
distributions by ALARIS Medical's subsidiaries may be restricted by applicable
law. Therefore in order to generate sufficient cash flows to meet ALARIS
Medical's debt obligations, including the principal amount at maturity on the
Notes, cash interest when due and redeeming or repurchasing the Notes upon the
occurrence of a Change of Control or otherwise, ALARIS Medical will be required
to seek the consent of, among others, the lenders under the Credit Facility and
the holders of the 9 3/4% Notes, to the payment of dividends or the making of
other distributions and/or to refinance the Notes or the instruments governing
such indebtedness. There can be no assurance that ALARIS Medical will be able to
do so or that the assets of the Company would be sufficient to enable ALARIS
Medical to make any payments in respect of the Notes when required. The
Indenture will permit ALARIS Medical's subsidiaries to incur additional
indebtedness which may restrict or prohibit the ability of such subsidiaries to
pay dividends or make other distributions to ALARIS Medical. See "Description of
Certain Indebtedness" and "Description of Notes."

Any right of ALARIS Medical and its creditors, including the Holders of the
Notes, to participate in the assets of ALARIS Medical's subsidiaries upon any
liquidation or reorganization of any such subsidiary will be subject to prior
claims of that subsidiary's creditors, including trade creditors. Accordingly,
the Notes will be effectively subordinated to all liabilities, including trade
payables of the subsidiaries of ALARIS Medical. The Notes will be effectively
subordinated to all indebtedness and other liabilities or commitments of ALARIS
Medical's subsidiaries, which, as of June 30, 1998, after giving pro forma
effect to the Offering and the use of proceeds therefrom and the Credit Facility
Borrowings would have been approximately $521.5 million. ALARIS Medical has
unconditionally guaranteed on a senior secured basis the obligations of ALARIS
Medical Systems under the Credit Facility (the "Credit Facility Guarantee"). The
Notes will also be effectively subordinated to all secured indebtedness of
ALARIS Medical, which as of June 30, 1998, after giving pro forma effect to the
Offering and the use of proceeds therefrom and the Credit Facility Borrowings
would have been approximately $222.9 million.

INDENTURE AND CREDIT FACILITY RESTRICTIONS

The Credit Facility and the indenture (the "9 3/4% Notes Indenture")
governing the 9 3/4% Notes contain and the Indenture will contain, numerous
restrictive covenants including, among other things, limitations on the ability
of ALARIS Medical and its subsidiaries, as the case may be, to incur additional

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indebtedness, to create liens and other encumbrances, to make certain payments
and investments, to sell or otherwise dispose of assets or to merge or
consolidate with another entity. The Credit Facility requires ALARIS Medical and
its subsidiaries, in certain instances, to meet financial tests. The failure by
ALARIS Medical or its subsidiaries to comply with their respective obligations
under the Credit Facility, the indenture governing the Convertible Debentures,
the 9 3/4% Notes Indenture, the Indenture or under agreements relating to
indebtedness incurred in the future, could result in an event of default under
such agreements, which could permit acceleration of the related indebtedness and
acceleration of indebtedness under other financing arrangements that may contain
cross-acceleration or cross-default provisions including the Notes. In addition,
because such documents limit or will limit, as the case may be, the ability of
ALARIS Medical and its subsidiaries to engage in certain transactions, ALARIS
Medical and its subsidiaries may be prohibited from entering into transactions
that could be beneficial. See "Description of Certain Indebtedness" and
"Description of Notes."

REPURCHASE OF NOTES UPON CHANGE OF CONTROL

Upon a Change of Control, ALARIS Medical will be required to offer to
purchase all of the Notes then outstanding at 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, thereon (or, in the
case of repurchases of Notes prior to August 1, 2003, at a purchase price equal
to 101% of the Accreted Value thereof as of the date of repurchase). The
repurchase price is required to be paid in cash. There can be no assurance that,
were a Change of Control to occur, ALARIS Medical would have sufficient funds to
pay the purchase price for all the Notes which ALARIS Medical might be required
to purchase. In addition, there can be no assurance that the subsidiaries of
ALARIS Medical would be permitted by the terms of their outstanding
indebtedness, including under the terms of the 9 3/4% Notes Indenture and the
Credit Facility, to pay dividends or make other distributions to ALARIS Medical
to permit ALARIS Medical to purchase the Notes. See "Description of Certain
Indebtedness." In addition, any such Change of Control transaction may be a
change of control under the Credit Facility, the indenture governing the
Convertible Debentures and the 9 3/4% Notes Indenture, which would require the
Company to prepay all amounts owing under the Credit Facility and to reduce the
commitments thereunder to zero, to offer to purchase all outstanding Convertible
Debentures at a price of 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the date of purchase and to offer to
purchase all outstanding 9 3/4% Notes at a price of 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase. In the event ALARIS Medical does not have sufficient funds to pay
the purchase price of the Notes upon a Change of Control, ALARIS Medical could
be required to seek third-party financing to the extent it did not have
sufficient funds available to meet its purchase obligations, and there can be no
assurance that ALARIS Medical would be able to obtain such financing on
favorable terms, if at all. See "--Holding Company Structure; Dependence Upon
Operations of Subsidiaries," "Description of Certain Indebtedness" and
"Description of Notes--Repurchase at the Option of Holders--Change of Control."

RISKS ATTENDANT TO ACQUISITION STRATEGY

The Company regularly considers the acquisition of other companies and
product lines. Although the Company may be in various stages of discussions in
connection with potential acquisitions, the Company has not entered into any
letters of intent or definitive agreements with respect to any such acquisitions
at this time, except in connection with the Acquisition. There can be no
assurance that the anticipated benefits of the Acquisition or of any future
acquisitions will be realized. The process of integrating acquired operations
into the Company's operations may result in unforeseen operating difficulties,
could absorb significant management attention and may require significant
financial resources that would otherwise be available for the ongoing
development or expansion of the Company's existing operations. This acquisition
strategy may be unsuccessful since the Company may be unable to identify
acquisitions in the future or, if identified, to arrive at satisfactory prices
and terms, especially in light of the competition the Company faces from other
well-financed organizations. This competition has resulted and is expected

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to further result in increased acquisition prices for such acquisitions. The
successful completion of any future acquisition may depend on consents from
third parties, including federal, state and local regulatory authorities or
private parties and, in certain circumstances, lenders under the Credit
Facility, all of whose consents are beyond the Company's control. Possible
future acquisitions by the Company could result in dilutive issuances of equity
securities, the incurrence of additional debt and contingent liabilities, and
additional amortization expenses related to goodwill and other intangible
assets, which could have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company or the Company's
ability to make payments with respect to the Notes when due.

The full benefits of any acquisition, including the Acquisition, will
require the implementation of appropriate operational, financial and management
systems and controls in order to operate effectively and efficiently, and the
integration of any acquired business into the Company's administrative, finance
and marketing organizations. This implementation will require substantial
attention from the Company's management team. The diversion of management
attention, as well as any other difficulties which may be encountered in the
transition and integration process, could have a material adverse effect on the
business, financial condition, results of operations or prospects of the Company
or the Company's ability to make payments with respect to the Notes when due. In
addition, there can be no assurance that the Company will be successful in
integrating the operations of any such acquisition or that the Company's
distribution system can successfully sell any acquired product lines or that any
planned benefits will be realized. For example, although Instromedix operates in
a similar patient monitoring market segment as the Company, Instromedix's
product lines focus on the diagnosis and monitoring of patients with cardiac
disease, a segment to which the Company has not focused its products and
services. There can be no assurance that any new Instromedix products will be
accepted by the market or that the Company will be successful in expanding its
focus into new product segments.

DEPENDENCE ON NEW PRODUCTS AND MARKETS; UNCERTAIN PACE OF TECHNOLOGICAL CHANGE

The primary markets for the Company's products are relatively mature and
highly competitive. The Company's success is therefore dependent on the
development of new technologies, the development of new products, the
implementation of its acquisition strategy and the development of other markets
for its products. See "--Risks Attendant to Acquisition Strategy." The Company's
infusion therapy products have experienced declining market share recently,
primarily due to larger competitors who offer volume discounts based on bundled
purchases of a broader range of medical equipment and supplies, as well as to
the aging of the Company's core products. Moreover, certain of Instromedix's
product lines have experienced a decline in sales in recent years. See
"--Substantial Competition" and "Business--Competition." The Company's
introduction of new products may offset future declines in market share. There
can be no assurance, however, that new products will be successfully completed
or marketed for sale, will not necessitate upgrades or technical adjustments
after market introduction, can be manufactured in sufficient volumes to satisfy
demand, or will offset declines in market share experienced with respect to
existing products. See "Business--Products and Services." Moreover, there can be
no assurance that the Company's efforts to take advantage of opportunities it
perceives in the alternate-site and international markets will be successful. In
addition, although the pace of technological change in the Company's industry
historically has been relatively slow, the Company is unable to predict the pace
of such change in the future. There can be no assurance that technological
change will not place one or more of the Company's existing or proposed products
at a significant competitive disadvantage. Additionally, to the extent the
Company does not successfully reposition existing products for sale to different
markets, the introduction of new products by the Company will reduce sales of
such existing products.

SUBSTANTIAL COMPETITION

The Company faces substantial competition in all of its markets. Many of the
Company's competitors have greater financial, research and development, and
marketing resources than the Company. Some of

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the Company's principal competitors are able to offer volume discounts based on
bundled purchases of a broader range of medical equipment and supplies than the
Company, including infusion systems and intravenous solutions used with such
systems; a strategy that the Company is currently unable to and may continue to
be unable to pursue. There can be no assurance that such competition will not
have a material adverse effect on the business, financial condition, results of
operations or prospects of the Company or the Company's ability to make payments
with respect to the Notes when due. See "--Dependence on New Products and
Markets; Uncertain Pace of Technological Change," "--Concentration of Buying
Power" and "Business--Competition."

CONCENTRATION OF BUYING POWER

Many existing and potential customers for the Company's products have
combined into GPOs which are quite large and which effectively monitor
compliance with exclusive purchase commitments. GPOs often enter into exclusive
purchase commitments with as few as one or two providers of infusion systems
and/or patient monitoring products for a period of several years. If the Company
is not one of the selected providers, it may be precluded from making sales to
members of a GPO for several years and, in certain situations, the GPO may
require removal of the Company's existing installed infusion pumps, which would
result in a loss of the related disposable administration set sales. Even if the
Company is one of the selected providers, the Company may be at a disadvantage
relative to other selected providers which are able to offer volume discounts
based on bundled purchases of a broader range of medical equipment and supplies
than the Company. Further, the Company may be required to commit to pricing
which has a material adverse effect on sales and profit margins, the business,
financial condition, results of operations or prospects of the Company or the
Company's ability to make payments with respect to the Notes when due. See
"--Substantial Competition" and "Business--Competition."

RELIANCE ON PATENTS AND PROPRIETARY RIGHTS; EXPIRATION AND PROTECTION OF
SIGNIFICANT PATENTS

The Company relies heavily on patented and other proprietary technology.
There can be no assurance that patent applications submitted by the Company or
its licensors will result in patents being issued or that, if issued, such
patents and patents already issued will afford protection against competitors
with similar technology. Legal standards relating to the scope of claims are
still evolving in the courts and no assurance can be given as to the degree of
protection that will be accorded the Company's patents in the future. Even
issued patents may later be modified or revoked by the United States Patent and
Trademark Office or in legal proceedings. In addition, foreign patents may be
more difficult to protect and/or the remedies available may be less extensive
than in the U.S. Patent applications in the U.S. are maintained in secrecy until
patents issue and, since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries, the Company cannot be certain
that it was the first creator of the inventions covered by pending patent
applications or the first to file patent applications on such inventions. No
assurance can be given that any of the Company's pending patent applications
will be allowed, or if allowed, whether the scope of the claims allowed will be
sufficient to protect the Company's products.

In addition, there can be no assurance that any patents issued to or
licensed by the Company will not be infringed or designed around by others, that
others will not obtain patents that the Company will need to license or design
around, that the Company's products will not inadvertently infringe the patents
of others, or that others will not manufacture and distribute similar products
upon expiration of such patents. There can also be no assurance that key patents
of the Company will not be invalidated or that the Company or its licensors will
have adequate funds to finance the high cost of prosecuting or defending patent
validity or infringement issues. See "Business--Patents, Trademarks and
Proprietary Rights" and "Business--Legal Proceedings."

The United States patent code was recently amended. As a result, certain
statutory remedies for patent infringement are no longer available for a medical
practitioner's otherwise infringing performance of a medical activity. As
provided in the United States patent code, a patent may not be enforced against
a

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medical practitioner's performance, or the performance of a related health care
entity of a "medical activity" which is defined as the performance of a medical
or surgical procedure on a body. However, a "medical activity" does not include
"the use of a patented machine, manufacture or composition of matter in
violation of such patent." Hence, remedies are still available against
manufacturers and distributors. The aforesaid amendment does not apply to
patents issued before September 30, 1996. Legislation which would have
prohibited the issuance of patents directed to surgical and medical procedures
did not pass Congress and no such legislation presently is pending. However,
there can be no assurance that such legislation will not be reintroduced and
passed. If so passed, such legislation could have a material adverse effect on
the business, financial condition, results of operations or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due.

GOVERNMENT REGULATION

Government regulation is a significant factor in the research, development,
testing, production and marketing of the Company's products. Non-compliance with
applicable requirements may result in recall or seizure of products, total or
partial suspension of production, refusal of the government to allow clinical
testing or commercial distribution of products, refusal of the government to
allow new products to be marketed, civil penalties or fines and criminal
prosecution, and orders for repair and for refund. There can be no assurance
that the Company's existing products will be found to comply with such
regulations or that new products will be approved in a timely manner or at all.
See "Business--Government Regulation."

The United States Food and Drug Administration (the "FDA"), pursuant to the
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), regulates the introduction
of medical devices into commerce, as well as testing manufacturing procedures,
labeling, adverse event reporting and record-keeping with respect to such
products. The process of obtaining market clearances from the FDA for new
products can be time-consuming and expensive and there can be no assurance that
such clearances will be granted or that FDA review will not involve delays
adversely affecting the marketing and sale of products. Enforcement of the FDC
Act depends heavily on administrative interpretation and there can be no
assurance that interpretations made by the FDA or other regulatory bodies will
not have a material adverse effect on the business, financial condition, results
of operations or prospects of the Company or the Company's ability to make
payments with respect to the Notes when due. The FDA and state agencies
routinely inspect the Company to determine whether the Company is in compliance
with various requirements relating to manufacturing practices, testing, quality
control, complaint handling, medical device reporting and product labeling. Such
inspections can result in such agencies requiring the Company to take certain
corrective actions for non-complying conditions observed during the inspections.
A determination that the Company is in violation of the FDC Act could lead to
the imposition of civil sanctions, including fines, recall orders, orders for
repair or refund or product seizures and criminal sanctions. Since 1994, the
Company has on fourteen occasions removed products from the market that were
found not to meet performance standards. None of such recalls materially
interfered with the Company's operations and all such product lines, except the
Model 599 Series infusion pump, were subsequently returned to the market. The
Company continues, however, to sell administration sets and replacement parts
for the Model 599 Series infusion pump. In addition, the Company has initiated a
voluntary safety alert of its Model 597/598 and Model 599 Series infusion pumps.
Moreover, the Company has initiated a voluntary field correction of
approximately 50,000 of its Gemini PC-1 and PC-2 infusion pumps because failure
of specific electrical components on the power regulator printed circuit board
may result in improper regulation of the battery charge voltage, which may cause
the battery to overheat. The Company recorded a charge of $2.5 million to cost
of sales for the quarter ended March 31, 1997 on account of this voluntary field
correction. The Company has initiated a voluntary field correction of its
Signature Edition infusion pumps to correct a malfunction of an electronic line
filter component (which malfunction may occur when a user fails to follow the
Company's written cleaning instructions and can result in an electrical short).
The Company is not aware of the occurrence of any injury incidents relating to a
malfunction of this type. Although there can be no assurance, the Company
believes that this voluntary field correction, along with adjustments and
corrections that may be made to

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various Company products from time to time as an ordinary part of the business
of the Company, will not have a material adverse effect on the business,
financial condition, results of operation or prospects of the Company or the
Company's ability to make payments with respect to the Notes when due. Due to
changes in FDA regulations, which as of May 1998 implement a new performance
standard for electrode lead wires and patient cables, Instromedix's Rythm
Stripper and hand held Pacer-Tracer products no longer comply with the FDA's
requirements and, therefore, may not be distributed into commerce. Instromedix
estimates completing the required product changes so that the products will be
available for sale in August 1998. In a letter dated August 12, 1998, the FDA
advised the Company that the insulated tip dual plug connector used with the
Instromedix King of Hearts Express and other ambulatory ECG monitors was also
noncompliant with the new performance standard. As a result, the Company has
temporarily suspended shipment of these monitors until it can provide an ECG
lead wire which complies with the standard. The Company believes that it will
resume shipment of these products by November 30, 1998. There can be no
assurance that the Company will not remove additional products from the market
in the future or that any such removal would not have a material adverse effect
on the business, financial condition, results of operations or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due. See "Business--Government Regulation."

The Company has received either ISO 9001 or ISO 9002 certification for all
of its manufacturing facilities regarding the quality of its manufacturing
systems, a requirement for doing business in European Community ("EC")
countries. The Company has been granted approval to affix the CE mark, pursuant
to the EC Medical Device Directives on substantially all of its products.
Instromedix has been granted approval to affix the CE mark on certain of its
products. Products not CE marked cannot be distributed in the EC. CE marking
does not necessarily preclude, however, additional restrictions on marketing in
any individual country in the EC.

Certain countries will require the Company to obtain clearances for its
products prior to marketing the products in those countries. In addition,
certain countries impose product specifications, standards or other requirements
which differ from or are in addition to those mandated in the United States. The
EC and certain other countries are in the process of developing new modes of
regulating medical products which may result in lengthening the time required to
obtain permission to market new products. These changes could have a material
adverse effect on the Company's ability to market its devices in such countries
and could hinder or delay the successful implementation of the Company's planned
international expansion. See "Business--Government Regulation."

HEALTH CARE REFORM

Because the cost of health care delivery has been steadily rising and
because the cost of a significant portion of medical care in the United States
and other countries is typically funded by governmental insurance programs,
there have been a number of government initiatives to reduce health care costs.
Congress and various state legislatures currently are proposing changes in law
and regulation that could effect a major restructuring of the health care
industry. Although many of these proposals may seek to maintain or expand access
to health care services, the common objective of the proposed legislation is to
achieve cost containment in the health care sector. Changes in governmental
support of health care services, the methods by which such services are
delivered, the prices for such services, or the regulations governing such
services or mandated benefits, as well as the growth of managed care
organizations may all have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company or the Company's
ability to make payments with respect to the Notes when due. Even if the
ultimate impact of any such changes on sales is positive, no assurance can be
given that the costs of complying with possible new requirements would not have
a negative impact on the Company's future earnings. No assurance can be given
that any such legislation will not have a material adverse effect on the
business, financial condition, results of operations or prospects of the Company
or the Company's ability to make payments with respect to the Notes when due. In
addition, the Company believes that the trend

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toward cost containment in the health care industry resulted in a change of
protocol at certain hospitals whereby the maximum time between changes of
disposable administration sets increased. Unless sales of disposable
administration sets increase because of an increased installed base of infusion
pumps, such changes in protocol may have a material adverse effect on the
business, financial condition, results of operations or prospects of the Company
or the Company's ability to make payments with respect to the Notes when due.
Moreover, any changes in protocol and other changes in the United States health
care market which may occur in the future could force the Company to alter its
approach in selling, marketing, distributing and servicing its customer base.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Government Regulation."

PRODUCT LIABILITY

The Company faces an inherent business risk of exposure to product liability
claims in the event that the use of its products is alleged to have resulted in
injury or other adverse effects. The Company currently maintains product
liability insurance coverage but there can be no assurance that the Company will
be able to obtain such insurance on acceptable terms in the future, if at all,
or that any such insurance will provide adequate coverage against potential
claims. Current product liability insurance for the Company's products provides
for a deductible of $100,000 per occurrence, a deductible cap of $500,000 per
year and a coverage limitation of $5.0 million per occurrence, and, together
with other policies taken out by the Company, coverage of $55.0 million per year
per occurrence and in the aggregate. The Company's insurance excludes coverage
for punitive damages. A successful product liability claim could have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Company or the Company's ability to make payments with respect
to the Notes when due.

CONTROL OF THE COMPANY

The Company is indirectly controlled through Decisions Incorporated
("Decisions"), JD Partnership, L.P. ("JD Partnership") and JA Special Limited
Partnership ("JA Special") by Jeffry M. Picower. Mr. Picower is (i) the sole
stockholder and sole Director of Decisions, which is the sole general partner of
JD Partnership, (ii) the sole general partner of JA Special and (iii) a Director
and executive officer of each of ALARIS Medical and ALARIS Medical Systems. Mr.
Picower beneficially owns, indirectly through Decisions, JD Partnership and JA
Special, approximately 78% of the Common Stock. Accordingly, Mr. Picower has the
power to elect all of ALARIS Medical's Directors, appoint new management,
determine the outcome of any action requiring the approval of the holders of the
Common Stock, including adopting amendments to ALARIS Medical's certificate of
incorporation, and approve mergers or sales of all of ALARIS Medical's assets.
See "Management--Directors and Key Executive Officers" and "Principal
Stockholders."

DEPENDENCE ON KEY PERSONNEL

The Company's business is managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the business, financial condition, results of operations or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due. The Company believes that its future success will depend in large part on
its continued ability to attract and retain highly skilled and qualified
personnel. The Company does not presently maintain "key man" life insurance with
respect to any executive officer or other employee of the Company. See
"Management-- Employment Agreements." Instromedix is managed by a small number
of key executive officers, the loss of certain of whom could have a material
adverse effect on the business, financial condition, results of operations or
prospects of Instromedix. The Company has not entered into employment agreements
with any such officers.

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FOREIGN OPERATIONS

A substantial portion of the Company's sales and earnings are attributable
to international sales and manufacturing operations. See
"Business--International Operations." In addition, the Company's current
operating strategy contemplates expansion of the Company's international
operations. See "Business-- Operating Strategy--Strengthening Presence in
International Markets." During the year ended December 31, 1997, and the six
months ended June 30, 1998, $132.1 million and $68.1 million, respectively, of
the Company's sales were generated outside the United States, representing
approximately 36.8% and 38.3%, respectively, of the Company's total sales during
such periods. The value of the Company's foreign sales and earnings varies with
currency exchange rate fluctuations. Changes in currency exchange rates could
have a material adverse effect on the business, financial condition, results of
operations or prospects of the Company or the Company's ability to make payments
with respect to the Notes when due. Furthermore, international manufacturing and
sales are subject to other inherent risks. Foreign operations are subject to
special risks that can materially affect the sales, profits and cash flows of
the Company, including currency exchange rate devaluations and fluctuations, the
impact of inflation, exchange controls, labor unrest, restrictions on transfer
of funds, contract disputes with critical suppliers, political instability,
export duties and quotas, domestic and international customs and tariffs,
unexpected changes in regulatory environments, potentially adverse tax
consequences and other risks. The Company is currently implementing a new
enterprise-wide information system designed to properly process transactions
denominated in euro currency. The Company, however, has not had the opportunity
to fully assess and test the reliability of such system. Euro currency is a new
monetary unit which certain European countries can begin using in 1999.

MATERIAL LEGAL PROCEEDINGS

The Company is a defendant in a lawsuit filed in June 1996 by Sherwood (as
defined) against IVAC Medical Systems. The lawsuit, which is pending in the
United States District Court for the Southern District of California, alleges
infringement of two Sherwood patents by reason of certain activities including
the sale by IVAC Medical Systems of disposable probe covers for use with
infrared tympanic thermometers. The lawsuit seeks injunctive relief, treble
damages and the recovery of costs and attorney fees. The lawsuit is currently in
the discovery phase. The Company is currently unable to quantify its exposure in
the lawsuit. The Company believes it has sufficient defenses to all claims by
Sherwood, including the defenses of noninfringement and invalidity. However,
there can be no assurance that the Company will successfully defend all claims
made by Sherwood and the failure of the Company to successfully prevail in this
lawsuit could have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company or the Company's
ability to make payments with respect to the Notes when due.

The Company was recently informed that on April 20, 1998, Becton Dickinson
and Company ("Becton") filed a complaint (the "Complaint") in the United States
District Court for the District of Utah (the "Utah Court") alleging that the
Company's SmartSite System infringes certain patents licensed to Becton. The
Complaint has not yet been served on the Company and the Company does not know
whether or not the Complaint will be timely served. The Company has entered into
settlement discussions with Becton regarding the Complaint and in connection
therewith, on August 18, 1998 filed in the Utah Court, with Becton, a
Stipulation and Motion to Extend Time, agreeing that the time for Becton to
serve a summons and complaint be extended to October 19, 1998. If the Complaint
is timely served, the Company intends to vigorously defend any claim brought
against it with respect to this matter. There can be no assurance that the court
would find in the Company's favor if the Complaint were to be pursued or that if
the court were to find that the Company's SmartSite System infringes the patents
licensed to Becton that such finding would not have a material adverse effect on
the business, financial condition, results of operations or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due. See "Business--Operating Strategy--Expanding Internal Growth" and "--Legal
Proceedings."

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ENVIRONMENTAL MATTERS

The Company's operations involve the handling and use of substances that are
subject to federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and water
and establish standards for their discharge and disposal. Although the Company
believes it is in material compliance with these laws, the violation of these
laws could have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company or the Company's ability to
make payments with respect to the Notes when due. There can be no assurance that
additional environmental or remediation obligations will not be incurred in the
future, that existing or future environmental liabilities could not have a
material adverse effect on the business, financial condition, results of
operation or prospects of the Company or the Company's ability to make payments
with respect to the Notes when due, or that currently unknown matters, new laws
and regulations or stricter interpretations of existing laws or regulations will
not have a material adverse effect on the business, financial condition, results
of operation or prospects of the Company or the Company's ability to make
payments with respect to the Notes when due. See "Business--Government
Regulation--Environmental Matters."

YEAR 2000 RISK; NEW INFORMATION SYSTEM

Certain of the Company's infusion pumps contain software in which the
product's record keeping capabilities will be affected beyond the year 2000. The
Company believes that these issues will not interfere with the fluid delivery
functions of the products involved, nor will they affect the safety of patients;
however, there can be no assurance in this regard. The Company will offer for
sale software to correct the Year 2000 issues with these products. The ability
of third parties with whom the Company transacts business to adequately address
their Year 2000 issues is outside the Company's control. There can be no
assurance that the failure of the Company or such third parties to adequately
address their respective Year 2000 issues will not have an adverse effect on the
business, financial condition, results of operations or prospects of the Company
or the Company's ability to make payments with respect to the Notes when due.

In addition to routine capital expenditures, and in connection with the
Merger, the Company has made significant expenditures for the acquisition of
enterprise-wide information system software and hardware and the related design,
testing and implementation. The new system is year 2000 compliant while the
Company's existing information system for its domestic operations does not
properly recognize and process transactions dated in the year 2000.
Additionally, certain aspects of the Company's domestic information system can
not properly associate with transactions and activities dated subsequent to
1998. The Company successfully implemented certain financial applications of the
new system and began utilizing such applications at the beginning of 1998. The
Company is in the final phase of testing its new system for the remainder of it
domestic business processes and expects to complete the conversion to the new
system by the end of the third quarter of 1998. The Company believes the primary
information system for its international operations is not directly affected by
the year 2000. However, due to the increased significance of its international
operations, the Company is also converting the international information systems
to a system common with the domestic operations. The international project is
scheduled for completion in 1999. The international system is also designed to
properly process transactions denominated in euro currency. Euro currency is a
new monetary unit which certain European countries can begin using in 1999.

In order to successfully provide product to its customers, the Company is
dependent upon the timely fulfillment of its supply orders from its chosen
vendors. The Company has identified potentially critical suppliers and attempted
to determine if such suppliers have identified and/or addressed their own year
2000 issues by means of questionnaires. At this time, the Company has not
identified or been informed of any significant suppliers that will not be able
to fulfill the Company's orders. However, many of the Company's key suppliers
have acknowledged that they must make improvements to their systems to properly
deal with year 2000 orders and issues. As a result, there can be no assurances
that key suppliers

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will be able to timely fill the Company's future orders. The Company is in the
process of evaluating what alternatives are available if key suppliers could not
provide required materials and supplies to the Company when ordered. While a
formal contingency plan related to this risk has not yet been completed by the
Company, alternatives would be to increase inventory levels of key supplies and
seek supplies from other vendors.

Due to the inherent complexities in converting enterprise-wide information
systems, there can be no assurance that the Company's domestic information
system conversion will be completed in the planned time frame. If the Company
were not able to successfully implement the new system prior to 1999, the
Company's ability to take orders, ship product, invoice for shipments and
collect cash would be adversely impacted. This could result in a material
adverse impact on the Company's financial condition, results of operations and
cash flows. Additionally, there can be no assurance that all significant primary
and back-up suppliers will be able to fill the Company's orders due to their own
year 2000 issues. Such supplier failures could have a material adverse impact on
the Company's financial condition, results of operations and cash flows.

During fiscal year 1997 and the six months ended June 30, 1998, the Company
made combined capital and operating expenditures of approximately $6.0 million
and $2.3 million, respectively, related to the new enterprise-wide information
system. To complete the identified phases of the project, the Company
anticipates additional expenditures for the remainder of 1998 and for 1999 of
approximately $4.4 million and $3.5 million, respectively.

FRAUDULENT TRANSFER CONSIDERATIONS

The issuance by ALARIS Medical of the Old Notes may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors of the Company.
ALARIS Medical believes that the indebtedness represented by the Old Notes was
incurred for proper purposes and in good faith. Notwithstanding ALARIS Medical's
belief, however, if a court of competent jurisdiction in a suit by an unpaid
creditor or representative of creditors (such as a trustee in bankruptcy or
debtor-in-possession) were to find that, at the time of the issuance of the Old
Notes, the Company was insolvent, was rendered insolvent by reason of such
incurrence, was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, intended to incur, or believed
that it would incur debts beyond its ability to pay such debts as they matured,
or intended to hinder, delay or defraud its creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, then such court could,
among other things: (i) void all or a portion of ALARIS Medical's obligations to
the Holders of the Notes, the effect of which would be that the Holders of the
Notes may not be repaid in full or at all and/or (ii) subordinate ALARIS
Medical's obligations to the Holders of the Notes to other existing and future
indebtedness of the Company, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes.

For purposes of the foregoing, the measure of insolvency varies depending
upon the law of the jurisdiction which is being applied. Generally, however, the
Company would be considered to have been insolvent at the time the Old Notes
were issued if the sum of its debts was, at that time, greater than the sum of
the value of all of its property at a fair valuation, or if the then fair
saleable value of its assets was less than the amount that was then required to
pay its probable liability on its existing debts as they become absolute and
matured. There can be no assurance as to what standard a court would apply in
order to determine whether the Company was insolvent as of the date the Old
Notes were issued, or that, regardless of the method of valuation, a court would
not determine that the Company was insolvent on that date, or that regardless of
whether the Company was insolvent on the date the Old Notes were issued, that
the issuances constituted fraudulent transfers on another of the grounds
summarized above.

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<PAGE>
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS

To participate in the Exchange Offer, holders of Old Notes must transmit a
properly completed Letter of Transmittal (or a facsimile thereof) or an Agent's
Message and all other documents required by such Letter of Transmittal to the
Exchange Agent at one of the addresses set forth below under "The Exchange
Offer--Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. In addition (i) certificates for Old Notes tendered must be received by
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date; (ii) a Book-Entry Confirmation (as defined) of such Old Notes, if such
procedure is available, into the Exchange Agent's account at the Book-Entry
Transfer Facility (as defined) must be received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date; or (iii) the holder of
such Old Notes must comply with the guaranteed delivery procedures described
herein. See "The Exchange Offer--Procedures for Tendering."

CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENT FOR TRANSFERS OF NEW NOTES

Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. ALARIS Medical does not currently anticipate
that it will register Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
See "The Exchange Offer--Consequences of Failure to Exchange."

Any Participating Broker-Dealer that acquired Old Notes for its own account
as a result of market-making activities or other trading activities may be a
statutory underwriter. Each Participating Broker-Dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities.

ALARIS Medical has agreed that, for a period of 180 days after the
Expiration Date, they will make this Prospectus, as it may be amended or
supplemented from time to time, available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan of Distribution."

If (i) any holder of Old Notes (A) is prohibited by law or Commission policy
from participating in the Exchange Offer; (B) may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and this Prospectus, as it may be amended or supplemented from time
to time, is not appropriate or available for such resales; or (C) is a
Participating Broker-Dealer and owns Old Notes acquired directly from ALARIS
Medical or an affiliate of ALARIS Medical and (ii) such holder has

26
<PAGE>
satisfied certain conditions relating to the provision of information to ALARIS
Medical for use therein, ALARIS Medical has agreed to register such Old Notes
pursuant to the Shelf Registration Statement and to use their respective best
efforts to cause it to be declared effective by the Commission on or prior to
120 days after the date on which ALARIS Medical became obligated to file the
Shelf Registration Statement. ALARIS Medical haa agreed to maintain the
effectiveness of the Shelf Registration Statement for, under certain
circumstances, a maximum of three years, to cover resales of Old Notes held by
such holders. See "The Exchange Offer--Purpose and Effect of the Exchange
Offer."

LACK OF PUBLIC MARKET FOR NEW NOTES

The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued in July 1998 to a small number of qualified institutional
buyers, and are eligible for trading in the PORTAL market. There is no existing
market for the New Notes, and ALARIS Medical does not intend to apply for
listing of the New Notes on any securities exchange or the Nasdaq National
Market. There can be no assurance regarding the future development of a market
for the New Notes, the liquidity of any market that may develop for the New
Notes, the ability of holders of the New Notes to sell their New Notes, or the
price at which holders would be able to sell their New Notes. In the event that
a market for the New Notes develops, future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, ALARIS Medical's operating results and the market for similar securities.
As a result, the New Notes could trade at prices above or below either their
purchase price or face value.

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<PAGE>
THE EXCHANGE OFFER

PURPOSE AND EFFECT OF THE EXCHANGE OFFER

The Old Notes were sold by ALARIS Medical on July 28, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes only to "qualified institutional buyers" (as
defined in Rule 144A) in compliance with Rule 144A that, prior to their purchase
of Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements. As a condition to the Purchase Agreement, ALARIS
Medical, ALARIS Medical Systems, ALARIS Release, IVAC Overseas and the Initial
Purchaser entered into the Registration Rights Agreement.

Under existing interpretations of the staff of the Commission contained in
several no-action letters issued to third parties, the New Notes would in
general be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any holder of Old Notes who is
an "affiliate" of ALARIS Medical within the meaning of Rule 405 under the
Securities Act, or who intends to participate in the Exchange Offer for the
purpose of distributing New Notes (i) will not be able to rely on the aforesaid
interpretations of the staff of the Commission; (ii) will not be able to tender
its Old Notes in the Exchange Offer; and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the its Old Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.

As contemplated by the aforesaid no-action letters and the Registration
Rights Agreement, each holder accepting the Exchange Offer is required to
represent to ALARIS Medical pursuant to the Letter of Transmittal that, among
other things (i) the New Notes being acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, and (ii) neither the holder
nor any such other person (A) has any arrangement or understanding with any
person to participate in the distribution of such New Notes or is engaging or
intends to engage in the distribution of such New Notes or (B) is an "affiliate"
of ALARIS Medical within the meaning of Rule 405 under the Securities Act. Each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for
its own account as a result of market-making activities or other trading
activities; (ii) has not entered into any arrangement or understanding with
ALARIS Medical or any "affiliate" of ALARIS Medical within the meaning of Rule
405 under the Securities Act to distribute the New Notes to be received in the
Exchange Offer; and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."

Pursuant to the Registration Rights Agreement, ALARIS Medical agreed to file
with the Commission the Registration Statement, of which this Prospectus is a
part, covering the Exchange Offer. If (i) ALARIS Medical is not permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any holder of Transfer Restricted
Securities (as defined) notifies ALARIS Medical, within the 20 business day time
period specified in the Registration Rights Agreement, that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer; (B) that
it may not resell the New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and this Prospectus, as it may be amended
or supplemented from time to time, is not appropriate or available for such
resales; or (C) that it is a Participating Broker-Dealer and owns Old Notes
acquired directly from ALARIS Medical or an affiliate of ALARIS Medical, ALARIS
Medical will file with the Commission a Shelf Registration Statement to cover
resales of the Old Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. ALARIS Medical will, in the event of the filing of the
Shelf Registration Statement, provide to each applicable holder of Old Notes
copies of the prospectus which is a part of the Shelf Registration Statement;
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Notes

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<PAGE>
covered thereby. A holder of Old Notes that sells such Old Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers; will be subject to certain civil liability provisions under the
Securities Act in connection with such sales and will be bound by the provisions
of the Registration Rights Agreement which are applicable to such a holder
(including certain indemnification obligations). In addition, each holder of Old
Notes will be required to deliver information to be used in connection with the
Shelf Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have its Old Notes included in the Shelf Registration Statement and
to benefit from the provisions contained in the Registration Rights Agreement
regarding Liquidated Damages.

For purposes of the foregoing, "Transfer Restricted Securities" means each
Old Note until the earlier of (i) the date on which such Old Note has been
exchanged by a person other than a Participating Broker-Dealer for a New Note in
the Exchange Offer; (ii) following the exchange by a Participating Broker-Dealer
in the Exchange Offer of an Old Note for a New Note, the date on which such New
Note is sold to a purchaser who receives from such Participating Broker-Dealer
on or prior to the date of such sale a copy of this Prospectus, as it may be
amended or supplemented from time to time; (iii) the date on which such Old Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement; or (iv) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Act.

The Registration Rights Agreement requires, among other things, that (i)
ALARIS Medical use its respective best efforts to have the Registration
Statement, of which this Prospectus is a part, declared effective by the
Commission no later than November 25, 1998; (ii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, ALARIS Medical will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Registration Statement was declared
effective by the Commission, New Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer; (iii) if obligated to file the Shelf
Registration Statement, ALARIS Medical will file the Shelf Registration
Statement with the Commission on or prior to 45 days after such filing
obligation arises and use their respective best efforts to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises; and (iv)(A) in certain circumstances, cause the
Registration Statement to remain effective and usable for a period of 180 days
following the initial effectiveness thereof and (B) cause the Shelf Registration
Statement to remain effective and usable for a period of three years following
the initial effectiveness thereof or such shorter period ending when all the Old
Notes available for sale thereunder have been sold. If (a) ALARIS Medical fails
to file any of the registration statements required by the Registration Rights
Agreement on or before the date specified for such filing; (b) any of such
registration statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness; or (c) ALARIS Medical fails to
consummate the Exchange Offer within 30 business days after the date on which
the Registration Statement is declared effective; or (d) the Shelf Registration
Statement or the Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then ALARIS Medical will pay liquidated damages
("Liquidated Damages") to each holder of Old Notes, with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $.05 per week per $1,000 principal amount of Old Notes
held by such holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid by
ALARIS Medical on each interest payment date to the Global Note Holder (as
defined) by wire transfer of immediately available funds or by federal funds
check and to holders of Certificated Securities (as defined) by wire transfer to
the accounts specified by them or

29
<PAGE>
by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.

The Exchange Offer is not being made to, nor will ALARIS Medical accept
tenders of Old Notes for exchange from, holders of Old Notes in any jurisdiction
in which this Exchange Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.

Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to participate. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.

The Old Notes are designated for trading in the PORTAL market. To the extent
Old Notes are tendered and accepted in the Exchange Offer, the principal amount
of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but did not tender their Old Notes will not be entitled to certain rights
under the Registration Rights Agreement and such Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for Old Notes could be adversely affected.

TERMS OF THE EXCHANGE OFFER

GENERAL. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, ALARIS Medical hereby offers to
exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. ALARIS Medical will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in amounts that are integral multiples of $1,000
principal amount. The date of the exchange of New Notes for Old Notes will be
the next business day following the Expiration Date.

The form and terms of the New Notes are identical in all material respects
to the form and terms of the Old Notes except that the New Notes (i) have been
registered under the Securities Act and, therefore, do not bear legends
restricting their transfer and (ii) do not contain certain provisions providing
for the payment of Liquidated Damages under certain circumstances relating to
the Registration Rights Agreement. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Indenture. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Old Notes being tendered for exchange.

As of the date of this Prospectus, $189.0 million aggregate principal amount
at maturity of the Old Notes is outstanding. ALARIS Medical fixed the close of
business on , 1998 as the record date for the Exchange Offer for the
purpose of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent.

Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. ALARIS Medical intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Exchange Act, and the rules and regulations of
the Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue.

ALARIS Medical shall be deemed to have accepted validly tendered Old Notes
when, as and if ALARIS Medical has given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purposes of receiving the New Notes from
ALARIS Medical. If any tendered Old Notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any

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such unaccepted Old Notes will be returned, without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.

Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. ALARIS Medical will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."

EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1998, unless ALARIS Medical, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although ALARIS Medical has no current intention to extend
the Exchange Offer, ALARIS Medical reserves the right to extend the Exchange
Offer at any time and from time to time. During any extension of the Exchange
Offer, all Old Notes previously tendered pursuant to the Exchange Offer and not
withdrawn will remain subject to the Exchange Offer. In order to extend the
Exchange Offer, ALARIS Medical will notify the Exchange Agent of any extension
by oral notice (confirmed in writing) or written notice and will make a public
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled expiration date.

ALARIS Medical reserves the right, in its sole discretion (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral notice (confirmed in writing) or
written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by public announcement thereof. If the Exchange Offer is amended in
any manner determined by ALARIS Medical to constitute a material change, ALARIS
Medical will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the holders of Old Notes, and ALARIS
Medical will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to such holders, if the Exchange Offer otherwise would expire during
such period.

Without limiting the manner in which ALARIS Medical may choose to make
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, ALARIS Medical shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.

PROCEDURES FOR TENDERING

Only a holder (I.E., any person in whose name Old Notes are registered on
the books of ALARIS Medical or any other person who has obtained a properly
completed bond power from the registered holder) of Old Notes may tender such
Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must
transmit a properly completed Letter of Transmittal (or a facsimile thereof) or
an Agent's Message, have the signature(s) thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal
(or facsimile) or Agent's Message, together with any other required documents,
to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. In addition (i) certificates for Old Notes tendered must be received by
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date; (ii) a confirmation of a book-entry transfer (a "Book-Entry Confirmation")
of such Old Notes, if such procedure is available, into the Exchange Agent's
account at the Book-Entry Transfer Facility (as defined) pursuant to the
procedure for book-entry transfer described below must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date;
or (iii) the holder of such Old Notes must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Old Notes and all
documents required by the

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<PAGE>
Letter of Transmittal must be completed and received by the Exchange Agent at
one of the addresses set forth below under "--Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.

The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are subject to Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that ALARIS Medical may enforce such
agreement against the participant.

By executing the Letter of Transmittal (or a facsimile thereof) or
transmitting an Agent's Message, each holder will make to ALARIS Medical the
representations set forth above in the fourth paragraph under the heading
"--Purpose and Effect of the Exchange Offer."

The tender of Old Notes by a holder and the acceptance thereof by ALARIS
Medical will constitute agreement between such holder and ALARIS Medical in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. This Prospectus, together with the Letter of
Transmittal, will first be sent on or about , 1998 to all holders of
Old Notes known to ALARIS Medical and the Exchange Agent.

THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO ALARIS MEDICAL.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.

Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instructions to
Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal. If such beneficial
owner wishes to tender on his own behalf, such beneficial owner must, prior to
transmitting a properly completed Letter of Transmittal (or a facsimile thereof)
or an Agent's Message and delivering his Old Notes to the Exchange Agent, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.

The signature(s) on a Letter of Transmittal (or facsimile thereof) or a
notice of withdrawal, as the case may be, must be guaranteed by an Eligible
Institution (as defined below) unless the Old Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that the signature(s) on a
Letter of Transmittal (or facsimile thereof) or a notice of withdrawal, as the
case may be, must be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").

If the Letter of Transmittal (or facsimile thereof) is signed by a person
other than the registered holder of any Old Notes listed therein, such Old Notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such Old
Notes with the signature(s) thereon guaranteed by an Eligible Institution.

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If the Letter of Transmittal (or facsimile thereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
evidence satisfactory to ALARIS Medical of their authority to so act must be
submitted with the Letter of Transmittal.

ALARIS Medical understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at the Depositary (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Old Notes by causing
such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, a Letter of Transmittal (or
facsimile thereof) properly completed and duly executed with any required
signature guarantee or an Agent's Message and all other required documents must,
in each case, be transmitted to and received or confirmed by the Exchange Agent
at its address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by ALARIS Medical in its sole discretion, which determination
will be final and binding. ALARIS Medical reserves the absolute right to reject
any and all Old Notes not properly tendered or any Old Notes ALARIS Medical's
acceptance of which would, in the opinion of counsel for ALARIS Medical, be
unlawful. ALARIS Medical also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
ALARIS Medical's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as ALARIS
Medical shall determine. Although ALARIS Medical intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither ALARIS
Medical, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available; (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or facsimile thereof) or an Agent's Message, or any other required
documents to the Exchange Agent prior to the Expiration Date; or (iii) who
cannot complete the procedures for book-entry transfer prior to the Expiration
Date, in each case, may effect a tender if:

(a) the tender is made through an Eligible Institution;

(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the

33
<PAGE>
Expiration Date, the Letter of Transmittal (or facsimile thereof) or an
Agent's Message, together with the certificate(s) representing the Old Notes
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and

(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or an Agent's Message, as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer or a
Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange trading days after the Expiration Date.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.

To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited); (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender; and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by ALARIS Medical, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.

CONDITIONS

Notwithstanding any other term of the Exchange Offer, ALARIS Medical shall
not be required to accept for exchange, or exchange New Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:

(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of ALARIS Medical, might materially impair
the ability of ALARIS Medical to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to ALARIS Medical or any of its subsidiaries; or

(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of ALARIS Medical, might materially impair the ability of ALARIS
Medical to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to ALARIS Medical; or

34
<PAGE>
(c) any governmental approval has not been obtained, which approval
ALARIS Medical shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.

If ALARIS Medical determines in its reasonable discretion that any of the
conditions are not satisfied, ALARIS Medical may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders; (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, SUBJECT, HOWEVER, to the rights of holders to withdraw such
Old Notes (see "--Withdrawal of Tenders"); or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.

EXCHANGE AGENT

United States Trust Company of Texas, N.A. has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus, the Letter of Transmittal or the
Notice of Guaranteed Delivery should be directed to the Exchange Agent as
follows:

<TABLE>
<S> <C>
BY OVERNIGHT COURIER AND BY HAND
AFTER 4:30 P.M., NEW YORK CITY TIME,
BY MAIL: ON THE EXPIRATION DATE:
United States Trust Company of Texas, N.A. United States Trust Company of Texas, N.A.
Attention: Attention:

BY HAND UNTIL 4:30 P.M., NEW YORK BY FACSIMILE TRANSMISSION:
CITY TIME, ON THE EXPIRATION DATE: CONFIRM BY TELEPHONE:
United States Trust Company of Texas, N.A.
Attention:
</TABLE>

DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.

FEES AND EXPENSES

The expenses of soliciting tenders of Old Notes will be borne by ALARIS
Medical. The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telecopy, telephone or in person by
officers and regular employees of ALARIS Medical and its affiliates.

ALARIS Medical has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. ALARIS Medical, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.

The cash expenses to be incurred in connection with the Exchange Offer will
be paid by ALARIS Medical. Such expenses include, among others, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees, and
printing costs.

ACCOUNTING TREATMENT

The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in ALARIS Medical's accounting records on the
date of exchange. Accordingly, no gain or loss

35
<PAGE>
for accounting purposes will be recognized by ALARIS Medical. The expenses of
the Exchange Offer will be expensed over the term of the New Notes.

CONSEQUENCES OF FAILURE TO EXCHANGE

The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to ALARIS Medical (upon redemption thereof or otherwise); (ii)
so long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A; (iii) in accordance with Rule 144 under
the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to ALARIS Medical); (iv) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act; or (v) pursuant to an effective registration statement under the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States.

RESALE OF THE NEW NOTES

Based on no-action letters issued by the staff of the Commission to third
parties, ALARIS Medical believes the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by any holder
thereof (other than any such holder that is an "affiliate" of ALARIS Medical
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery requirements of the Securities Act,
PROVIDED THAT such New Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to, and does not intend to, participate in the distribution of such New
Notes. Any holder who tenders Old Notes in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
New Notes may not rely upon the position of the staff of the Commission
enunciated in such no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Holders of Old Notes wishing to accept the Exchange Offer must
represent to ALARIS Medical pursuant to the Letter of Transmittal that such
conditions have been met. See "The Exchange Offer-Purpose and Effect of the
Exchange Offer" and "Plan of Distribution."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service will not take a contrary view, and no ruling
from the Internal Revenue Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. ALARIS Medical recommends
that each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Old Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.

EXCHANGE OFFER

ALARIS Medical believes that the exchange of Old Notes for New Notes
pursuant to the Exchange Offer should not be a taxable event to a holder for
United States federal income tax purposes. Rather, the

36
<PAGE>
New Notes received by a holder should be treated as a continuation of the Old
Notes in the hands of such holder. As a result, there will be no United States
federal income tax consequences to holders exchanging Old Notes for New Notes
pursuant to the Exchange Offer. Accordingly, the holding period of the New Notes
will include the holding period of the Old Notes and the basis of the New Notes
will be the same as the basis of the Old Notes immediately before the exchange.

THE ACQUISITION

On July 17, 1998, pursuant to the Instromedix Agreement ALARIS Medical
Systems engaged in the Acquisition. The total consideration for the Acquisition
included (i) $51.0 million in cash, subject to certain adjustments, (ii) the
assumption of indebtedness of Instromedix of approximately $5.5 million and
(iii) the payment of certain transaction expenses incurred by Instromedix
relating to the Acquisition in the amount of $1.0 million. The Acquisition was
funded through the Acquisition Payment of $24.7 million by ALARIS Medical
Systems and the issuance of the $25.6 million Acquisition Notes by ALARIS
Medical. The Acquisition Notes contained offset provisions for, among other
things, indebtedness owed by certain Instromedix shareholders to Instromedix,
which offset was approximately $2.3 million. The Acquisition Payment was funded
with the Credit Facility Borrowings. A portion of the net proceeds of the
Offering were used to repay the Acquisition Notes and certain borrowings under
the Credit Facility.

Pursuant to the Instromedix Agreement, certain shareholders of Instromedix
(the "Optionees") exercised their option to acquire, prior to the closing of the
Acquisition, a non-core division (the "CompressAR Division") of Instromedix for
approximately $450,000. The CompressAR Division is engaged in the business of
manufacturing, marketing and distributing adjustable compression instruments and
clamps, and selling sterile disposable compression disks, in each case, in
connection with a system for femoral compression procedures. The consideration
paid in connection with the Acquisition was increased by an amount equal to that
paid by the Optionees for the CompressAR Division and was offset by a payment
from the Optionees in an equal amount.

Instromedix was founded in 1969 and its products primarily address cardiac
disease diagnosis, monitoring and management and focus on the delivery of
patient care in the alternate-site setting (i.e., outside the hospital).
Instromedix arrhythmia-event recorders, pacemaker monitors and the recently
developed LifeSigns System, an interactive, multi-parameter patient monitor and
software system, are designed to provide both health care professionals and
patients with an easy-to-use, cost-effective means of cardiac monitoring in a
convenient care setting, primarily at the patient's home or the physician's
office. Instromedix has developed telemedicine products which allow clinical
professionals to monitor a patient's cardiac events from a remote location and
transmit the recorded event, via a standard telephone line, to a central
location.

Instromedix's products fall into three major categories: (i) Arrhythmia
Event Recorders which
are portable devices used to monitor, record and subsequently transmit cardiac
events (including arrhythmia - the irregular beating of the heart) via a
standard telephone line to a remote location; (ii) Pacemaker Monitors which are
portable devices used to help physicians and patients monitor the performance
and medical compliance of implantable pacemakers as recommended by
manufacturers; and (iii) the LifeSigns System which is a proprietary,
computer-based software and hardware system that allows remote and real-time
monitoring, diagnosis and data capture of selected vital signs.

Sources estimate that the U.S. market for home care telemedicine patient
systems will approach $400.0 million by the year 2002, as health care payors and
providers seek to reduce the cost of patient care associated with extended
hospital stays. Growth in the alternate-site health care market is also expected
to be facilitated by an increased acceptance of such care by physicians and
patients. The Company believes that the LifeSigns System is positioned to
capitalize on this rapid growth by permitting care providers to remotely monitor
and diagnose patient cardiac conditions without the incremental expense
associated with sending a trained specialist to the point of care.

37
<PAGE>
The table below summarizes the key features and market introduction dates
with respect to the Instromedix product lines.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ----------------------------------- ------------------------------------------------- -------------------------
<S> <C> <C>
ARRHYTHMIA EVENT RECORDERS

KING OF HEARTS EXPRESS Pager-sized, patient-activated looping memory Marketed since 1992.
cardiac event and electrocardiograph recorder;
capable of recording up to 60 cardiac events,
which can be subsequently transmitted over a
telephone line.

HEARTCARD Credit card-sized, patient-activated cardiac Marketed since 1995.
event recorder; capable of recording up to three
cardiac events which can be subsequently
transmitted over a telephone line.

HEARTWATCH Wrist-worn, patient-activated cardiac event Marketed since 1993.
recorder; capable of recording up to three
cardiac events which can be subsequently
transmitted over a telephone line.

PACEMAKER MONITORS

CARRYALL TRANSMITTER Portable transmitter for recommended pacemaker Marketed since 1995.
follow-up; used in a patient's home to avoid
unnecessary visits to physician's office.

PACER-TRACER Pager-sized device which records and transmits Marketed since the early
electrocardiograph and pacemaker data over a 1980s.
telephone line.

LIFESIGNS HOME HEALTH CARE SYSTEM

LIFESIGNS SHUTTLE One-pound, portable, patient-worn vital signs Marketed since the fourth
monitor; programmable to record up to 20 vital quarter of 1997.
sign recordings, including blood-oxygen
saturation and up to 12 leads of
electrocardiograph data.

LIFESIGNS COMMANDER Docking station used by patients to allow Marketed since the fourth
simultaneous data transmission from the quarter of 1997.
LifeSigns Shuttle to the LifeSigns Central
Station and voice interaction with the home
health care provider; also provides non-invasive
blood pressure measurements.
</TABLE>

38
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ----------------------------------- ------------------------------------------------- -------------------------
<S> <C> <C>
LIFESIGNS CENTRAL STATION Computerized patient management system operating Marketed since the fourth
in conjunction with the LifeSigns Shuttle and quarter of 1997.
the LifeSigns Commander to allow remote
monitoring of patient vital signs; contains a
patient database and displays medical profiles
on-screen for expedient review and analysis by
the home health care provider.
</TABLE>

In addition, Instromedix has agreements with certain manufacturers of medical
devices whereby Instromedix provides research and development and original
equipment manufacturing ("OEM") services on an ongoing basis.

The Company believes that the Acquisition is consistent with its acquisition
strategy and that it will benefit from the following acquisition
characteristics: (i) certain of Instromedix's product lines have a leading
market position and established reputation for quality in cardiac patient
monitoring; (ii) the Instromedix product line's telemedicine capabilities will
better equip the Company to develop telemedicine-based patient monitoring
instruments capable of interfacing with the Company's existing patient
monitoring and infusion instruments; and (iii) the Company believes it can
leverage its distribution capabilities and brand identity to market and sell the
LifeSigns System and other Instromedix products to capture market share in the
rapidly growing, alternate-site patient monitoring market.

USE OF PROCEEDS

The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes contemplated in
this Prospectus, the Company will receive Old Notes in like principal amount,
the form and terms of which are the same as the form and terms of the New Notes
which replace the Old Notes, except as otherwise described herein. The Old Notes
surrendered in exchange for New Notes will be retired and cancelled and cannot
be reissued. Accordingly, issuance of the New Notes will not result in any
increase or decrease in the indebtedness of the Company. The Company received
net proceeds of approximately $106.3 million from the Offering. A portion of the
proceeds were used to pay the Acquisition Notes of approximately $25.6 million
and pay-off the then outstanding balance of $27.5 million on the revolving
portion of the Credit Facility. The remaining net proceeds will be used to pay
the remaining consideration for the International Pump, to pay integration and
transaction costs related to the acquisition and for general corporate purposes.

39
<PAGE>
CAPITALIZATION

The following table sets forth the cash and capitalization of the Company as
reported at June 30, 1998 and on an as adjusted basis after giving effect to the
Offering and the use of proceeds therefrom and the Credit Facility Borrowings as
if they had occurred at June 30, 1998.

<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
(UNAUDITED)
<S> <C> <C>
Cash...................................................................................... $ 2,285 $ 47,574
---------- ----------
---------- ----------

Long-term debt:
Credit Facility (1)
Term loan facilities.................................................................. $ 192,926 $ 222,926
Revolving credit facilities........................................................... 20,250 --
9 3/4% Senior Subordinated Notes due 2006............................................... 200,000 200,000
11 1/8% Senior Discount Notes due 2008.................................................. -- 109,892
7 1/4% Convertible Subordinated Debentures due 2002..................................... 16,152 16,152
Other (2)............................................................................... 3,017 3,017
---------- ----------
Total long-term debt (including current portion)...................................... 432,345 551,987
---------- ----------
Total stockholders' equity (3)............................................................ 30,002 30,002
---------- ----------
Total capitalization...................................................................... $ 462,347 $ 581,989
---------- ----------
---------- ----------
</TABLE>

- ------------------------

(1) The Credit Facility Amendment, among other things, (i) increased the
revolving portion of the Credit Facility from $50.0 million to $60.0
million, and (ii) increased the Tranche D Term Loan by $30.0 million to
$70.0 million.

(2) Primarily reflects the present value of the Company's minimum royalty
payment to Siemens Infusion Systems, Ltd. in conjunction with the September
1993 purchase of the MiniMed product line (the predecessor product line to
MS III).

(3) Does not give effect to the Acquisition.

40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(DOLLARS AND SHARES IN THOUSANDS)

The following selected consolidated financial data of the Company at
December 31, 1993, 1994, 1995, 1996 and 1997, and for the years then ended, have
been derived from the Company's audited consolidated financial statements. The
selected consolidated financial data of the Company at June 30, 1998 and for the
six months ended June 30, 1997 and 1998 have been derived from the unaudited
consolidated financial statements of the Company which, in the opinion of
management, contain all adjustments (consisting only of normal and recurring
adjustments) necessary to present fairly the Company's financial position and
results of operation at such dates and for such periods. Operating results for
the six months ended June 30, 1998 are not necessarily indicative of results to
be expected for the full year. The information contained in the following table
should also be read in conjunction with "Prospectus Summary--Summary
Consolidated Financial Data of the Company" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, including the notes thereto, in each case contained
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 (1) 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................. $ 119,858 $ 112,122 $ 112,551 $ 136,371 $ 359,077 $ 170,067 $ 177,654
Cost of sales.......................... 72,209 65,590 63,219 78,616 188,340 94,331 91,353
--------- --------- --------- --------- --------- --------- ---------
Gross margin........................... 47,649 46,532 49,332 57,755 170,737 75,736 86,301
Total operating expenses (2)........... (51,057) (33,941) (34,614) (105,614) (142,806) (74,934) (68,305)
Lease interest income (3).............. 2,627 2,449 2,333 2,501 4,559 2,191 2,222
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations.......... (781) 15,040 17,051 (45,358) 32,490 2,993 20,218
Interest income........................ 140 77 192 1,193 532 385 147
Interest expense....................... (10,880) (8,690) (8,153) (13,393) (44,413) (21,695) (21,795)
Debt conversion expense (4)............ -- -- -- (10,000) -- -- --
Other (expense) income, net............ 6,004 1,136 313 1,222 (1,535) (400) (681)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes,
minority interests, extraordinary
item and cumulative effect of change
in accounting principle.............. (5,517) 7,563 9,403 (66,336) (12,926) (18,717) (2,111)
Provision (benefit) for income taxes... 926 1,886 (9,374) (730) (3,300) (7,400) (350)
Minority interests in consolidated
subsidiaries......................... 3,755 -- (6,500) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle................. (2,688) 5,677 12,277 (65,606) (9,626) (11,317) (1,761)
Net income (loss)...................... 1,297 5,677 27,454 (67,236) (9,626) (11,317) (1,761)
(Loss) income per common share before
extraordinary item and cumulative
effect of change in accounting
principle assuming no dilution (6)... $ (.29) $ .34 $ .75 $ (3.27) $ (.16) $ (.19) $ (.03)
(Loss) income per common share before
extraordinary item and cumulative
effect of change in accounting
principle assuming dilution (6)...... $ (.29) $ .23 $ .38 $ (3.27) $ (.16) $ (.19) $ (.03)
Ratio of earnings to fixed charges
(5).................................. -- 1.8x 2.0x -- -- -- --
OTHER DATA:
Adjusted EBITDA (7).................... $ 18,420 $ 22,851 $ 24,626 $ 27,775 $ 89,287 $ 37,822 42,224
Cash interest expense (8).............. 10,148 8,009 7,632 12,061 41,288 20,164 20,316
Depreciation and amortization (9)...... 9,849 7,811 7,575 9,842 34,288 17,323 16,472
Capital expenditures................... 1,616 4,549 4,803 9,502 19,843 9,726 10,504
Net cash provided by (used in)
operating activities 531 11,790 18,473 7,715 9,753 (2,776) 25,715
Net cash provided by (used in)
investing activities 16,009 3,368 (32,815) (214,151) (17,274) (7,237) (16,952)
Net cash (used in) provided by
financing activities (17,418) (15,892) 15,520 216,953 3,781 2,117 (13,422)
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- AT JUNE 30,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 1,762 $ 1,340 $ 1,862 $ 12,084 $ 6,984 $ 2,285
Working capital (deficit)................................ (2,833) 29,576 31,938 87,785 84,047 77,580
Total assets............................................. 142,891 132,124 169,630 593,382 565,297 550,263
Long-term debt (including current portion) (4)........... 106,814 93,017 87,111 440,093 446,130 432,345
Stockholders' (deficit) equity (4)....................... (8,274) (2,238) 31,532 46,053 31,949 30,002
</TABLE>

- ------------------------
(1) Includes the effects of the Merger.

(2) In 1993 and 1996, the Company restructured its operations. During 1997, the
Company incurred significant non-recurring integration and other
non-recurring charges resulting from the Merger. Operating expenses for the
years ended December 31, 1993, 1996 and 1997 and for the six months ended
June 30, 1997 include restructuring, integration and other non-recurring
charges of $9,352, $15,277, $20,902 and $15,899, respectively. Additionally,
in 1996, the Company recorded $44,000 of purchased in-process research and
development in connection with the Merger. In 1998, the Company recorded
$5,534 of purchased in-process research and development charges.

(3) Lease interest income consists of interest income associated with contracts
or agreements pursuant to which a third party acquires infusion pumps under
sales-type leases.

(4) In connection with the Merger, the Company entered into a $250,000 Credit
Facility and also issued $200,000 of 9 3/4% Notes. Additionally, convertible
promissory notes in the aggregate principal amount of $37,500 were exchanged
for 29,416 shares of Common Stock, including 3,333 shares issued as an
inducement to convert, which resulted in $10,000 of debt conversion expense.
ALARIS Medical also redeemed the remaining $21,924 principal amount of its
15% Subordinated Debentures due 1999 and recorded an extraordinary loss on
extinguishment of debt of $1,630 as a result of this transaction.

(5) For purposes of determining the ratio of earnings to fixed charges, earnings
include pre-tax income adjusted for fixed charges. Fixed charges consist of
interest on all indebtedness, estimated interest component of rental expense
and amortization of deferred financing costs. As a result of the losses
incurred during the years ended December 31, 1993, 1996, 1997 and the six
months ended June 30, 1997 and 1998, earnings were inadequate to cover fixed
charges by $5,517, $66,336, $12,926, $18,717 and $2,111, respectively.

(6) In February, 1997 the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") which specifies the computation, presentation,and disclosure
requirements for earnings per share. The statement is effective for all
periods ending after December 15, 1997 and requires all prior-period
earnings per share data to be restated to conform with the provisions of the
Statement. As a result of the application of this statement, prior period
numbers presented may not agree with the earnings per share data previously
reported.

(7) Adjusted EBITDA represents income from operations before restructuring,
integration and other non-recurring charges, non-cash purchase accounting
charges and depreciation and amortization. Adjusted EBITDA does not
represent net income or cash flows from operations, as these terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The
Company has included information concerning Adjusted EBITDA herein because
it understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt. The following
table reconciles Adjusted EBITDA to the Company's net income (loss):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted EBITDA................................ $ 18,420 $ 22,851 $ 24,626 $ 27,775 $ 89,287 $ 37,822 42,224
Inventory purchase price allocation adjustment
(a).......................................... -- -- -- (4,014) (1,607) (1,607) --
Restructuring, integration and other
non-recurring charges........................ (9,352) -- -- (15,277) (20,902) (15,899) --
Purchased in-process research and
development.................................. -- -- -- (44,000) -- -- (5,534)
Depreciation and amortization.................. (9,849) (7,811) (7,575) (9,842) (34,288) (17,323) (16,472)
Interest income................................ 140 77 192 1,193 532 385 147
Interest expense............................... (10,880) (8,690) (8,153) (13,393) (44,413) (21,695) (21,795)
Debt conversion expense........................ -- -- -- (10,000) -- -- --
Other, net..................................... 6,004 1,136 313 1,222 (1,535) (400) (681)
(Provision) benefit for income taxes........... (926) (1,886) 9,374 730 3,300 7,400 350
Minority interests in consolidated
subsidiaries................................. 3,755 -- (6,500) -- -- -- --
Extraordinary gain (loss)...................... -- -- 15,177 (1,630) -- -- --
Cumulative effect of change in accounting
principle.................................... 3,985 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ 1,297 $ 5,677 $ 27,454 $ (67,236) $ (9,626) $ (11,317) $ (1,761)
</TABLE>

- ------------------------------

(a) Amount represents that portion of the purchase accounting
adjustments made to adjust the acquired IVAC inventory to its
estimated fair value on the Merger date which was charged to cost of
sales during the respective period.

(8) Cash interest expense excludes $732, $681, $521, $1,332, $3,125, $1,531 and
$1,479 of debt discount and issuance cost amortization for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the six months ended June
30, 1997 and 1998, respectively.

(9) Depreciation and amortization excludes amortization of debt discount and
issuance costs included in interest expense of $732, $681, $521, $1,332,
$3,125, $1,531 and $1,479 for the years ended December 31, 1993, 1994, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively.

42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

ALARIS Medical is a holding company for ALARIS Medical Systems. ALARIS
Medical also identifies and evaluates potential acquisitions and investments,
and performs various corporate functions. As a holding company, ALARIS Medical
currently has no revenues to fund its operating and interest expense and relies
on its existing cash, cash generated from the operations of ALARIS Medical
Systems and external borrowings to meet its obligations.

OVERVIEW

The Company is a leading provider of infusion systems and related
technologies to the United States hospital market, with the largest installed
base of pump delivery lines ("channels"). The Company is also a leader in the
international infusion systems market. Based on installed base of infusion
pumps, the Company has a number one or two market position in eight Western
European countries, the number three market position in Germany, the largest
installed base of infusion pumps in Australia and Canada and a developing
position in Latin America and Asia. The Company's infusion systems, which are
used to deliver one or more fluids, primarily pharmaceuticals or nutritionals,
to patients, consist of single and multi-channel infusion pumps and controllers,
and proprietary and non-proprietary disposable administration sets (i.e.,
plastic tubing and pump interfaces). In addition, the Company is a leading
provider of patient monitoring products that measure and monitor temperature,
pulse, pulse oximetry and blood pressure, with the largest installed base of
hospital thermometry systems in the United States.

As a result of the Merger on November 26, 1996, the operating results
reported for the year ended December 31, 1997 are not comparable to 1995 or
1996. The 1995 operating results and cash flows represent those of Advanced
Medical, Inc. and IMED. The 1996 operating results and cash flows include those
of IVAC Holdings from November 27, 1996 through December 31, 1996.

The Company has historically taken write-offs in connection with in-process
research and development acquired by the Company and anticipates taking
additional write-offs in connection with the Acquisition and other completed
acquisitions and may take such write-offs in connection with future
acquisitions.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
financial information expressed as a percentage of sales, as well as
Merger-Adjusted (as defined) year 1996 operating results in thousands of
dollars. The data is based on the historical operating results of ALARIS Medical
and IVAC Holdings, adjusted to give effect to the Merger as if it occurred on
January 1, 1996 ("Merger-Adjusted"). The data excludes non-recurring charges
related to the Merger, as well as the operating results of River Medical, Inc.,
a subsidiary of IVAC Medical Systems which was divested prior to the
consummation of the Merger.

The Merger-Adjusted financial data is not necessarily indicative of the
Company's results of operations that might have occurred had such transactions
been completed at the beginning of the period

43
<PAGE>
specified, and do not purport to represent what the Company's consolidated
results of operations might be for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------------------------------------------------------- ENDED JUNE 30,
MERGER --------------
MERGER ADJUSTED ADJUSTED AS REPORTED AS REPORTED
AS REPORTED 1996 1996 1997 1997
1996 --------------- ------------ -------------- --------------
--------------
($ IN
AS REPORTED (% OF SALES) THOUSANDS)
1995
-----------
(% OF
SALES) (% OF SALES) (% OF SALES)
<S> <C> <C> <C> <C> <C> <C>
Sales........................... 100.0% 100.0% $ 346,348 100.0% 100.0% 100.0%
Cost of sales................... 56.2 57.6 184,742 53.3 52.5 55.5
----------- ----- --------------- ----- ----- -----
Gross margin.................... 43.8 42.4 161,606 46.7 47.5 44.5
Selling and marketing
expenses...................... 14.7 16.3 65,385 18.9 18.3 18.8
General and administrative
expenses...................... 9.5 11.2 39,985 11.5 10.9 11.1
Research and development
expenses...................... 6.6 6.5 18,142 5.2 4.7 4.8
Purchased in-process research
and development............... -- 32.3 -- -- -- --
Restructuring, integration and
other non-recurring charges... -- 11.2 -- -- 5.8 9.3
Lease interest income........... 2.1 1.8 4,601 1.2 1.2 1.3
----------- ----- --------------- ----- ----- -----
Income (loss) from operations... 15.1 (33.3) 42,695 12.3 9.0 1.8
Interest income................. 0.2 0.9 363 0.1 0.1 --
Interest expense................ (7.2) (9.8) (41,692) (12.0) (12.4) (12.8)
Debt conversion expense......... -- (7.3) -- -- -- --
Other income (expense), net..... 0.3 0.9 1,009 0.3 (0.3) --
----------- ----- --------------- ----- ----- -----
Income (loss) before income
taxes, minority interests and
extraordinary item............ 8.4 (48.6) 2,375 0.7 (3.6) (11.0)
Provision for (benefit from)
income taxes.................. (8.3) (0.5) 3,250 0.9 (0.9) (4.3)
Income (loss) before minority
interest and extraordinary
item.......................... 16.7 (48.1) (875) (0.2) (2.7) (6.7)
OTHER DATA:
Adjusted EBITDA............... 21.9% 20.4% $ 75,883 21.9% 24.9% 22.2%

AS REPORTED
1998
--------------

<S> <C>
Sales........................... 100.0%
Cost of sales................... 51.4
-----
Gross margin.................... 48.6
Selling and marketing
expenses...................... 19.3
General and administrative
expenses...................... 11.0
Research and development
expenses...................... 5.1
Purchased in-process research
and development............... 3.1
Restructuring, integration and
other non-recurring charges... --
Lease interest income........... 1.3
-----
Income (loss) from operations... 11.4
Interest income................. --
Interest expense................ (12.3)
Debt conversion expense......... --
Other income (expense), net..... (0.3)
-----
Income (loss) before income
taxes, minority interests and
extraordinary item............ (1.2)
Provision for (benefit from)
income taxes.................. (.2)
Income (loss) before minority
interest and extraordinary
item.......................... (1.0)
OTHER DATA:
Adjusted EBITDA............... 23.8%
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

SALES. Sales increased $7.6 million during the six months ended June 30,
1998 as compared to the six months ended June 30, 1997. International sales
increased $4.8 million, or 7.6%, while United States sales increased $2.8
million, or 2.6%. The increase in international sales is primarily due to
increases in drug infusion instrument revenue of $1.8 million and drug infusion
disposable administration set revenue of $2.1 million. The majority of the
Company's international sales are denominated in foreign currency. Due to a
stronger U.S. dollar in 1998, as compared to the actual foreign currency
exchange rates in effect during 1997, translation of international sales for the
six months ended June 30, 1998 were adversely impacted by $2.6 million. The
increase in U.S. sales for the six months ended June 30, 1998, as compared to
the six months ended June 30, 1997 is primarily due to increases in drug
infusion disposable administration set revenue of $3.3 million and patient
monitoring revenue of $1.3 million. These increases were offset by a decrease in
drug infusion instrument revenue of $1.8 million.

GROSS MARGIN. The gross margin percentage increased to 48.6% for the six
months ended June 30, 1998 from 44.5% for the six months ended June 30, 1997
primarily due to $4.1 million of non-recurring costs included in cost of sales
during the first quarter of 1997. Exclusive of $1.6 million of non-recurring
purchase accounting inventory adjustments and $2.5 million related to a
voluntary field correction of certain Gemini PC-1 and PC-2 infusion pumps
charged to cost of sales during 1997, the gross margin

44
<PAGE>
percentage was 46.9%. This improvement is due to increased sales of higher
margin disposable administration sets, as well as the benefits realized from
ongoing cost reduction efforts and purchasing synergies.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$2.3 million, or 7.3%, during the six months ended June 30, 1998 as compared to
the six months ended June 30, 1997. As a percentage of sales, selling and
marketing expenses increased from 18.8% in 1997 to 19.3% in 1998. Domestic
expenses decreased by $0.3 million, or 1.6%, during the six months ended June
30, 1998 as compared to the six months ended June 30, 1997. International
expenses increased $2.6 million, or 20.1%, from 1997. These increases were due
to increases in personnel and investment in international direct operations in
Italy and Norway during the latter part of 1997.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.6 million, or 3.2%, during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997. As a percentage of sales,
general and administrative expenses decreased from 11.1% in 1997 to 11.0% in
1998. Domestic expenses decreased $1.1 million due to decreases in legal and
consulting fees. International expenses increased by $1.7 million, or 54.8%,
primarily as a result of the conversion of certain European dealer operations
into direct operations, expansion of the European headquarters and quality
initiatives to obtain required CE markings on products.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased approximately $0.8 million, or 9.9%, during the six months ended June
30, 1998 as compared to the six months ended June 30, 1997, primarily due to
increased activities associated with the later development stages of various
domestic and international engineering projects for infusion systems and
disposable administration sets.

INTEGRATION AND OTHER NON-RECURRING CHARGES. The Company incurred $15.9
million in costs to integrate IMED and IVAC Medical Systems operations during
the six months ended June 30, 1997. These costs are in addition to restructuring
and integration charges of $15.3 million recorded in the fourth quarter of 1996.
The 1997 expense consists primarily of the write-off of a product distribution
and license agreement with a third party developer of an ambulatory and
alternate site infusion pump of $4.5 million, maquiladora settlement and related
costs of $4.1 million, information systems conversion costs of $1.6 million,
management consulting fees of $1.4 million, severance of $1.3 million and other
integration costs of $3.0 million. The Company reviewed its products and related
research and development activities and market opportunities in order to focus
on projects that will provide greater competititve advantage and shareholder
return. That review resulted in the termination of the aforesaid product
distribution and license agreement. The $4.5 million charge related to such
termination includes a $4.3 million non-cash charge representing the write-off
of the intangible asset associated with such agreement.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the PSI
acquisition and the technology license agreement with Caesarea, the Company
incurred a one-time $5.5 million write-off related to the value assigned to the
acquired in-process research and development of the projects for which
technological feasibility had not been established and for which there was no
alternative future use. The Company has continued to invest in the development
necessary to obtain technological feasibility of these projects.

INCOME FROM OPERATIONS. Income from operations increased $17.2 million
during the six months ended June 30, 1998 as compared to the six months ended
June, 1997 primarily due to improved sales and gross margins and to 1997
operating results including significant integration charges, and expenses
related to the field correction on the Gemini pumps as discussed above which
were not incurred during 1998.

ADJUSTED EBITDA. Adjusted EBITDA increased $4.4 million during the six
months ended June 30, 1998 as compared to the six months ended June 30, 1997. As
a percentage of sales, Adjusted EBITDA increased for the six months ended June
30, 1998 to 23.8%, or $42.2 million, from 22.2%, or $37.8 million, for the six
months ended June 30, 1997 due to the reasons discussed above. Adjusted EBITDA
represents

45
<PAGE>
income from operations before restructuring, integration and other non-recurring
charges, non-cash purchase accounting charges and depreciation and amortization.
Adjusted EBITDA does not represent net income or cash flows from operations, as
these terms are defined under generally accepted accounting principles, and
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity. The
Company has included information concerning Adjusted EBITDA herein because it
understands that such information is used by investors as one measure of an
issuer's historical ability to service debt. Integration and other one-time
non-recurring charges are excluded from Adjusted EBITDA as the Company believes
that the inclusion of these items would not be helpful to an investor's
understanding of the Company's ability to service debt. The Company's
computation of Adjusted EBITDA may not be comparable to similar titled measures
of other companies.

INTEREST EXPENSE. Interest expense increased $0.1 million during the six
months ended June 30, 1998 as compared to the six months ended June 30, 1997
primarily due to a higher average balance on the Company's revolving credit
facility in the first quarter of 1998, partially offset by reduced interest
rates on the Company's bank credit facility resulting from an amendment to such
debt agreement during the Second Quarter of 1998. See "Liquidity and Capital
Resources."

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

SALES. Sales increased $222.7 million during 1997 as compared to 1996 due
to the Merger. On a Merger-Adjusted basis, sales increased $12.7 million, or
3.7%, during 1997 as compared to 1996. United States sales increased $2.4
million, or 1.1%, on a Merger-Adjusted basis to $227.0 million during 1997 from
$224.6 million in 1996. International sales increased $10.4 million, or 8.5%, on
a Merger-Adjusted basis to $132.1 million during 1997 from $121.7 million during
1996. The increase in international sales is primarily due to an increase in
volume of drug infusion instruments and disposable administration sets as well
as the August 1996 repurchase of European distribution rights from Pharmacia &
Upjohn, Inc. for IMED products which has resulted in higher average selling
prices for these products in 1997. The majority of the Company's international
sales are denominated in foreign currency. Due to a stronger U.S. dollar in 1997
as compared to the actual foreign currency exchange rates in effect during 1996,
translation of 1997 international sales were adversely impacted by $7.1 million.
The increase in U.S. sales in 1997 as compared to 1996, on a Merger-Adjusted
basis, is primarily due to an increase in drug infusion disposable
administration set revenue. Such increase is due to an increase in volume of the
Company's SmartSite Needle Free System administration sets.

GROSS MARGIN. The gross margin percentage increased to 47.5% in 1997 from
42.4% in 1996 primarily due to supplier price concessions resulting from the
Merger and favorable international margins due in part to the repurchase of
European distribution rights from Pharmacia & Upjohn, Inc. These were partially
offset by increased amortization expense resulting from the IVAC Holdings
purchase price allocated to certain intangible assets, $1.6 million of
non-recurring purchase accounting inventory adjustments, as well as $2.5 million
related to a voluntary field correction of certain Gemini PC-1 and PC-2 infusion
pumps charged to cost of sales during 1997. The Merger-Adjusted gross margin
percentage for 1996 was 46.7% compared to 48.7% for 1997, exclusive of the
purchase accounting inventory adjustment and product field correction charges.

SELLING AND MARKETING EXPENSE. Selling and marketing expense increased
$43.5 million during 1997 primarily due to the Merger. On a Merger-Adjusted
basis, selling and marketing expense increased approximately $0.4 million, or
0.6%, during 1997. As a percentage of sales, on a Merger-Adjusted basis, selling
and marketing expense decreased to 18.3% in 1997 from 18.9% in 1996. Domestic
expense decreased by $2.3 million, or 5.6%, from 1996 due to Merger-related
synergies. The decrease in domestic selling and marketing expense was more than
offset by increased international expenses of $2.7 million, or 10.9%, due to
increased international sales and associated increase in European direct
operations.

46
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased $24.0 million during 1997 primarily due to the Merger. On a
Merger-Adjusted basis, general and administrative expense decreased by $0.8
million, or 1.9%, during 1997. As a percentage of sales, on a Merger-Adjusted
basis, general and administrative expense decreased to 10.9% for 1997 from 11.5%
for 1996 due to an increase in sales, as well as Merger-related synergies,
including lower labor and facilities expenses. International expenses increased
by $0.6 million, or 9.1% as a result of an increase in the investment in direct
operations in Europe.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased approximately $8.0 million during 1997 primarily due to the Merger. On
a Merger-Adjusted basis, research and development expense decreased to $16.9
million, or 4.7% of sales, for 1997 from $18.1 million, or 5.2% of sales, for
1996, primarily due to synergies realized in the Merger and realignment and
prioritization of research and development projects.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the
Merger, the assets and liabilities of IVAC Holdings were adjusted to their
estimated fair values. As a result of this process, the Company incurred a
one-time $44.0 million write-off during 1996 related to the value assigned to
the acquired in-process research and development of IVAC Holdings projects for
which technological feasibility had not been established and for which there was
no alternative future use. Such amount was determined with the assistance of a
third-party appraiser based upon the present value of estimated future cash flow
contributions from the identified projects. The Company has continued to invest
in the development necessary to obtain technological feasibility of these
projects. The project, which represents the most significant portion of the
acquired in-process research and development charge, is an improved
cost-effective and technologically advanced electronic thermometer.

RESTRUCTURING, INTEGRATION AND OTHER NON-RECURRING CHARGES. The Company
incurred $20.9 million in integration costs and other non-recurring charges
during 1997. These costs are in addition to restructuring and integration
charges of $15.3 million recorded in the fourth quarter of 1996. The 1997
charges consist primarily of information systems conversion costs of $4.8
million, the write-off of a product distribution and license agreement with a
third party developer of an ambulatory and alternate-site infusion pump of $4.5
million, contract dispute settlement and related costs of $4.1 million, the
write-off of drug infusion instrument tooling associated with the redesign
effort on a product in development of $1.7 million, facilities moving expenses
and Company name change costs of $1.6 million, management consulting fees of
$1.4 million, severance of $1.3 million and other integration costs of $1.5
million. The Company has reviewed its products and related research and
development activities and market opportunities in order to focus on projects
that will provide greater competitive advantage and stockholder return. That
review resulted in the termination of the aforesaid product distribution and
license agreement. The $4.5 million charge related to such termination includes
a $4.3 million non-cash charge representing the intangible asset that had been
recorded associated with such agreement.

LEASE INTEREST INCOME. Lease interest income during both periods consists
of interest income associated with contracts or agreements pursuant to which a
third party acquired infusion pumps under sales-type leases. Lease interest
income increased $2.1 million or 82.3% for 1997 as compared to 1996 primarily
due to the Merger. On a Merger-Adjusted basis, lease interest income decreased
approximately 0.9% from 1996 to 1997.

INCOME (LOSS) FROM OPERATIONS. Income from operations increased $77.8
million during 1997 primarily due to the 1996 operating results including
significant non-recurring purchase accounting charges. Additionally, due to the
Merger being completed on November 26, 1996, the 1996 operating results include
only one month of operating profit from the acquired business while 1997
includes a full year of profit contribution. This increase was partially offset
by expenses related to the field correction on the Gemini pumps in the first
quarter and the maquiladora business interruption in the second quarter. On a
Merger-Adjusted basis, operating income decreased $10.2 million to $32.5 million
in 1997 from $42.7 million in

47
<PAGE>
1996 primarily due to the $20.9 million of integration costs discussed above,
offset by a $9.1 million improvement in gross profit.

ADJUSTED EBITDA. Adjusted EBITDA increased $61.5 million during 1997
primarily due to the Merger. On a Merger-Adjusted basis, as a percentage of
sales, Adjusted EBITDA increased to 24.9%, or $89.3 million, for 1997 from
21.9%, or $75.9 million, for 1996, due to the reasons discussed above. Excluding
the $2.5 million charge to cost of sales during the first quarter of 1997,
Adjusted EBITDA would have increased to $91.8 million, an increase of $15.9
million or approximately 21.0%, as compared to Merger-Adjusted 1996.

INTEREST INCOME. Interest income decreased approximately $0.7 million
during 1997 as compared to 1996 due to the liquidation of interest earning
restricted cash balances during 1996.

INTEREST EXPENSE. Interest expense increased $31.0 million during 1997
primarily due to the Merger. In addition to interest on approximately $404.0
million of borrowings to finance the Merger and related debt refinancings,
higher interest expense was incurred in 1997 due to IMED's $11.0 million
purchase of the European distribution rights for IMED products in August 1996.
This increase in interest expense was offset by reductions in interest on $37.5
million of convertible debt which was converted to Common Stock in connection
with the Merger, as well as the redemption of $21.9 million of 15% Subordinated
Debentures in December 1996. On a Merger-Adjusted basis, interest expense
increased $2.7 million due to additional borrowings under the Credit Facility.
The additional borrowings were used to pay for restructuring and integration
costs associated with the Merger.

DEBT CONVERSION EXPENSE. In connection with the Merger, $37.5 million of
convertible notes payable to Decisions, which is wholly-owned by Mr. Picower and
a shareholder of ALARIS Medical, were converted to common stock of ALARIS
Medical, par value $.01 per share ("Common Stock"). In order to induce
conversion, approximately 3.3 million shares of Common Stock were issued to
Decisions. As a result, during 1996, ALARIS Medical recorded a non-cash charge
of $10.0 million based upon the fair value of the shares issued.

OTHER (EXPENSE) INCOME. Other income decreased $2.8 million during 1997 as
compared to 1996, partially due to a foreign exchange loss of approximately $1.0
million during 1997 as compared to foreign exchange gain of approximately $0.5
million during 1996. Also, during 1996, ALARIS Medical sold its investment in
the common stock of Alteon, Inc. for approximately $2.4 million and realized a
gain of approximately $0.7 million.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

SALES. Sales increased approximately $23.8 million or 21.2% due to the
inclusion of IVAC Holdings sales for December 1996. Excluding IVAC Holdings
sales, total IMED only sales increased approximately $0.4 million during 1996 as
compared to 1995. United States sales decreased approximately $4.5 million or
4.9% during 1996 as compared to 1995. Within the United States infusion therapy
business, sales decreased for 1996, as compared to 1995, primarily due to a (i)
decrease in the volume of infusion pump shipments primarily attributable to
several large transactions during 1995 and (ii) decline in the average selling
price of IMED's infusion pumps and disposable administration sets, offset in
part by an increase in unit volume of disposable administration set sales. Sales
to customers located outside of the United States increased $5.0 million, or
24.5%, to $25.4 million for 1996 from $20.4 million for 1995 primarily as a
result of increased unit volume of disposable administration sets resulting from
IMED's growing installed base in Canada, Australia, Latin America and the Far
East. Also contributing to the growth in international sales was the repurchase
of the European distribution rights by IMED for its products in August 1996.
This repurchase resulted in higher end-user sales prices being recognized than
charged to the European distributor in 1995.

48
<PAGE>
GROSS MARGIN. Gross margin increased $8.4 million or 17.1% from 1995 to
1996 primarily due to the Merger. Additionally, 1996 gross margin was reduced by
$4.0 million due to that portion of the purchase accounting adjustments made to
adjust the acquired IVAC Holdings inventory to its estimated fair value on the
Merger date which was charged to cost of sales during December 1996. Excluding
the Merger, IMED only gross margin increased $1.4 million to $50.7 million for
1996 from $49.3 million for 1995 due primarily to the decrease in cost of sales
discussed below. Despite the decline in average selling prices of infusion pumps
and disposable administration sets discussed above, IMED only gross margin, as a
percentage of IMED only sales, increased to 44.8% for 1996 from 43.8% for 1995
primarily as a result of reductions in the manufacturing cost of disposable
administration sets caused by (i) increased outsourcing of molded parts and
components; (ii) negotiated price reductions from suppliers; and (iii) the
favorable effects of increased manufacturing volume. Gross margin also increased
for 1996, compared to 1995, as a result of lower unit cost for inventory at
December 31, 1995 that were sold during 1996 compared to the unit cost for
inventory at December 31, 1994 that were sold during 1995.

SELLING AND MARKETING. Selling and marketing expense increased $5.7 million
or 34.4% during 1996 as compared to 1995 primarily due to the Merger. Exclusive
of the Merger, as a percentage of IMED only sales, selling and marketing expense
increased to 15.9% for 1996 from 14.7% for 1995. IMED only selling and marketing
expense increased from $16.6 million for 1995 to $18.0 million for 1996
primarily due to the recognition of selling and marketing expense by IMED Ltd.
in 1996 as a result of the repurchase by IMED of the European distribution
rights for its products. Also contributing to this increase were compensation
and relocation expenses for selling and marketing management personnel hired
during 1996.

GENERAL AND ADMINISTRATIVE. General and administrative expense increased
$4.5 million or 42.7% during 1996 as compared to 1995 primarily due to the
Merger. Exclusive of the Merger, general and administrative expense increased to
$12.5 million for 1996 from $10.7 million for 1995 as a result of recruitment
and relocation expenses of development personnel and increased management
compensation. General and administrative expense also increased for 1996,
compared to 1995, due to the recognition of general and administrative expenses
by IMED Ltd. in 1996. As a percentage of IMED only sales, IMED only general and
administrative expense increased to 9.5% for 1996 from 7.9% for 1995 primarily
as a result of the increase in general and administrative expenses discussed
above.

RESEARCH AND DEVELOPMENT. Research and development expense increased $1.5
million or 19.9% during 1996 as compared to 1995 primarily due to the Merger.
IMED only research and development expense increased to $7.8 million for 1996
from $7.4 million for 1995 primarily as a result of the timing of certain
expenses associated with the development of a new modular infusion system. Due
to the increase in IMED only research and development costs, research and
development expense, as a percentage of sales, increased to 6.9% for 1996 from
6.6% for 1995.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the
Merger, the assets and liabilities of IVAC Holdings were adjusted to their
estimated fair values. As a result of this process, the Company incurred a
one-time $44.0 million write-off during 1996 related to the value assigned to
the acquired in-process research and development of IVAC Holdings projects for
which technological feasibility had not been established and for which there was
no alternative future use. Such amount was determined with the assistance of a
third party appraiser based upon the present value of estimated future cash flow
contributions from the identified projects. The Company has continued to invest
in the development necessary to obtain technological feasibility of these
projects. The project, which represents the most significant portion of the
acquired in-process research and development charge, is an improved cost
effective and technologically advanced electronic thermometer.

RESTRUCTURING, INTEGRATION AND OTHER NON-RECURRING CHARGES. In connection
with the Merger, management performed an extensive review of the operating
activities of both IMED and IVAC Holdings in order to reduce costs and maximize
synergies. Management identified duplicative costs to eliminate and developed
and implemented plans to consolidate and integrate the companies' operations
including

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product strategies, manufacturing, service centers, research and development,
marketing and other administrative functions. As a result, the Company recorded
a non-recurring charge related to the implementation of these plans in the
amount of $15.3 million in 1996. Estimated dealer termination costs, as well as
severance and benefits costs related to the acquired company's personnel in the
amount of $2.8 million were also accrued at the acquisition date. In accordance
with generally accepted accounting principles, such items effectively increased
the amount of goodwill recorded in connection with the Merger and were not
included in the $15.3 million restructuring and integration expense included in
the Consolidated Statement of Operations for the year ended December 31, 1996.
At December 31, 1996, the Company had approximately $15.1 million accrued
related to restructuring costs, primarily all of which was paid during 1997.

As a result of the Merger, approximately 225 employees from all functional
areas were given notice of termination in December 1996. Approximately 125 of
such terminations were effective December 31, 1996 while the additional 100
employees were phased-out during the first half of 1997.

Due to excess capacity at the manufacturing facilities of both companies,
the Company consolidated IMED's instrument manufacturing operations into the
existing IVAC Holdings facility. This consolidation was completed in December
1996. In addition, as a result of the employee terminations described above,
management decided to consolidate the headquarters of IMED into IVAC Holdings'
existing headquarters. This consolidation was substantially completed during the
first quarter of 1997.

LEASE INTEREST INCOME. Lease interest income during both periods consists
of interest income associated with contracts or agreements pursuant to which a
third party acquired infusion pumps under sales-type leases. Lease interest
income increased $0.2 million or 7.2% for 1996 as compared to 1995 primarily due
to the Merger.

INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from $17.1
million for 1995 to a loss of $45.3 million for 1996 primarily due to the Merger
and resulting purchase accounting adjustments which more than offset the IVAC
Holdings only operating income generated in December 1996. Excluding the impact
of the Merger on the 1996 operating results, consolidated operating income
decreased $2.3 million or 13.5% to $14.8 million in 1996 from $17.1 million in
1995 due to the reasons discussed above.

ADJUSTED EBITDA. For the reasons discussed above excluding the impact of
the Merger, as a percentage of sales, Adjusted EBITDA decreased to 20.3%, or
$22.9 million, for 1996 from 21.9%, or $24.6 million, for 1995.

INTEREST INCOME. Interest income increased approximately $1.0 million
during 1996 as compared to 1995 due to the interest earned on the proceeds of
the $25.0 million borrowed from Decisions in December 1995. Approximately $12.5
million of such proceeds were utilized in June 1996 to fund the purchase of a
warrant which entitled the holder to purchase up to 10% of IMED's common stock.
The remaining proceeds were utilized in November 1996 in connection with the
Merger.

INTEREST EXPENSE. Interest expense increased $5.2 million to $13.4 million
during 1996 from $8.2 million during 1995. The increase in interest expense was
due to the increase in debt obtained to finance the Merger. Also contributing to
the increase was the interest on approximately $11.0 million of borrowings made
by IMED in August 1996 related to the repurchase of the European distribution
rights for IMED products, as well as interest on $25.0 million of convertible
notes payable to Decisions which was borrowed in December 1995 and converted to
Common Stock in November 1996 in connection with the Merger.

DEBT CONVERSION EXPENSE. In connection with the Merger, $37.5 million of
convertible notes payable to Decisions were converted to Common Stock. In order
to induce conversion, approximately 3.3 million shares of Common Stock were
issued to Decisions. As a result, during 1996 ALARIS Medical recorded a non-cash
charge of $10.0 million based upon the fair value of the shares issued.

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OTHER INCOME. During 1996, ALARIS Medical sold its investment in the common
stock of Alteon, Inc. for approximately $2.4 million and realized a gain of
approximately $0.7 million.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have been cash flow from
operations and borrowings under the Credit Facility. The Company expects to
continue to meet its liquidity needs including capital expenditure requirements
with cash flow from the operations of ALARIS Medical Systems and the remaining
cash proceeds form the Notes. In addition to operating expenses, the Company's
primary historical use of funds has been and its future use of funds will
continue to be to fund capital expenditures and strategic acquisitions and to
pay debt service on outstanding indebtedness.

Net cash provided by operating activities for the six months ended June 30,
1998 was $25.7 million compared to $2.8 million used by operating activities in
the same period in 1997. Net cash used in investing activities for the six
months ended June 30, 1997 and 1998 was $7.2 million and $17.0 million,
respectively. Net cash used in investing activities included $9.7 million and
$10.4 million in net capital expenditures for the six months ended June 30, 1997
and 1998, respectively. The net capital expenditures for the six months ended
June 30, 1997 were partially offset by a net decrease in restricted cash and
investments of $2.3 million. Net cash provided by financing activities for the
six months ended June 30, 1997 was $2.1 million which was primarily comprised of
proceeds under the revolving credit facility of $10.3 million offset by $3.0
million in repayments under the revolving credit facility and $3.6 million of
principal payments on long-term debt. Net cash used in financing activities for
the six months ended June 30, 1998 was $13.4 million which included net
repayments under the revolving credit facility of $5.0 million and principal
payments on long-term debt of $8.6 million.

Net cash provided by operating activities for the year ended December 31,
1995, 1996 and 1997 was $18.5 million, $7.7 million and $9.8 million,
respectively. Net cash used in investing activities for the year ended December
31, 1995, 1996 and 1997 was $32.8 million, $214.2 million and $17.3 million,
respectively. Net cash used in investing activities for the year ended December
31, 1996 included acquisition costs, net of cash acquired, related to the Merger
of $219.5 million. Net cash provided by financing activities for the year ended
December 31, 1995, 1996 and 1997 was $15.5 million, $217.0 million and $3.8
million, respectively. Net cash provided by financing activities for the year
ended December 31, 1996 included proceeds from the issuance of notes payable and
long-term debt related to the Merger of $400.0 million offset by debt repaid in
the Merger of $210.7 million. Also included in the cash provided by financing
activities for the year ended December 31, 1996 was $40.0 million of proceeds
from Common Stock issued in connection with the Merger and Merger related debt
issue costs of $16.9 million.

At June 30, 1998, ALARIS Medical's outstanding indebtedness was $432.3
million, which includes $192.9 million of bank term debt under the Credit
Facility and $200.0 million of 9 3/4% Notes. Interest on the 9 3/4% Notes
accrues at the rate of 9 3/4% per annum and is payable semi-annually in arrears
on June 1 and December 1 of each year. The bank debt debt bears interest at
floating rates based, at ALARIS Medical Systems' option, on Eurodollar or prime
rates. During the second quarter of 1997, ALARIS Medical Systems entered into an
interest rate protection agreement covering 50% of its term loan borrowings.
Such agreement fixed the interest rate charged on such borrowings resulting in a
weighted average fixed rate of 9.6% on the principal balance covered. As a
result, a one percent increase in the rate of interest charged on indebtedness
outstanding under the Credit Facility at June 30, 1998 would result in
additional annual interest expense of approximately $1.0 million. During March
1998 the Credit Facility

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was amended and the interest rates on the bank debt reduced. As a result, the
weighted average interest rate, including the effect of the interest rate
protection agreement, was reduced to 8.5% based on the amounts outstanding at
the time of the amendment. ALARIS Medical Systems incurred fees of approximately
$0.4 million related to such interest rate reductions. Included in total
consolidated debt at June 30, 1998, ALARIS Medical had outstanding $16.2 million
of the Convertible Debentures.

In connection with obtaining the Merger financing, the Company also obtained
a $50.0 million revolving credit line as part of the Credit Facility. At June
30, 1998, $20.3 million in borrowings and $0.5 million under letters of credit
were outstanding under this line of credit and $29.2 million was available.

In July 1998, in connection with the Acquisition and the Offering, the
Company entered into the Credit Facility Amendment. The Credit Facility
Amendment, among other things, approved the Acquisition and the Offering,
increased the revolving credit facility to $60.0 million and provided the
Company an additional $30.0 million under the Tranche D term debt. The Company
used the $30.0 million term debt borrowing, along with approximately $3.0
million from the revolving credit line, to fund the payments required upon
closing the Instromedix acquisition. Subsequent to closing the Instromedix
acquisition, ALARIS Medical completed the sale of $109.9 million of 11 1/8%
Senior Discount Notes, due 2008, receiving net proceeds of approximately $106.3
million. Upon receipt of such proceeds, ALARIS Medical paid its remaining
obligations to the Instromedix shareholders and contributed the remaining
proceeds to ALARIS Medical Systems, as required under the Credit Facility
Amendment. ALARIS Medical Systems then repaid the amount outstanding under its
revolving credit line.

In connection with the Merger, the Company assumed IVAC Holdings'
obligations to Siemens Infusion Systems Ltd. ("SIS"). These obligations relate
to the payment of additional purchase consideration related to the acquisition
of the MiniMed product line (the predecessor product line to MS III). The
Company's remaining obligation to SIS is the greater of $3.0 million per year or
8% of the prior year's MS III sales in 1998 and 1999. The Company made the
minimum 1997 payment of $3.0 million during the first quarter of 1998.

As a result of the Company's significant indebtedness, the Company expects
to incur significant interest expense in future periods. The Company believes
that cash provided by operations will be sufficient to meet its interest expense
obligations. See "Risk Factors--Significant Leverage."

Annual amortization of the Company's indebtedness is $6.0 million for the
remaining six months of 1998, $15.8 million and $14.0 million for 1999 and 2000,
respectively.

The Convertible Debentures provide for semi-annual interest payments of
approximately $0.6 million and mature on January 15, 2002. The 9 3/4% Notes and
the Credit Facility permit ALARIS Medical Systems to fund interest payments on
the Convertible Debentures and to make limited distributions to ALARIS Medical
to fund operating expenses and to pay income taxes; provided that, with respect
to the Credit Facility, there exists no default or event of default under the
Credit Facility. The 9 3/4% Notes and the Credit Facility, however, restrict
distributions to ALARIS Medical to fund the repayment of the Convertible
Debentures at maturity.

During the first six months of 1998, the Company made cash payments of
approximately $1.3 million related to merger and integration costs accrued at
December 31, 1997. During 1997, the Company made cash payments of approximately
$12.2 million related to merger and integration costs accrued at December 31,
1996, as well as payments of approximately $15.0 million for integration costs
expensed during 1997.

During the first six months of 1998, the Company made capital expenditures
of approximately $10.5 million and anticipates it will make capital expenditures
of approximately $30.0 million for the full year. The Company made capital
expenditures of approximately $19.8 million during the year ended December 31,
1997, of which approximately $5.7 million was related to the consolidation of
IMED and IVAC Holdings facilities.

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During the first quarter of 1998 the Company created a corporate development
function to assess product and company acquisitions, distribution alliances and
joint ventures which would expand Company technologies into unserved markets.
While there can be no assurances that the Company will complete any additional
acquisitions, depending on the value of potential acquisitions, the Company
might fund such transactions through a variety of sources, including existing or
new debt facilities or securities or through the sale of equity securities.

The Company believes that, based on current levels of performance, it will
generate cash flow from operations, together with the remaining net proceeds
from the Notes, sufficient at least through the next twelve months, to fund its
operations, make planned capital expenditures and make required payments of
principal and interest under its Credit Facility and interest on the 9 3/4%
Notes; however, there can be no assurance the Company will generate sufficient
cash flow from operations to repay the 9 3/4% Notes at maturity, to make
scheduled payments on the Notes or to repay the Notes at maturity. Accordingly,
the Company may have to refinance the 9 3/4% Notes and the Notes at or prior to
maturity or sell assets or raise equity capital to repay the principal amount of
the 9 3/4% Notes and the Notes. In addition, the Company's ability to fund its
operations, to make planned capital expenditures and to make scheduled principal
and interest payments will be dependent on the Company's future operating
performance, which is itself dependent on a number of factors, many of which the
Company cannot control, including conditions affecting the Company's foreign
operations, prevailing economic conditions, availability of other sources of
liquidity, and financial, business, regulatory and other factors affecting the
Company's business and operations. See "Risk Factors."

YEAR 2000 RISK; NEW INFORMATION SYSTEM

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any significant suppliers that will not be able to fulfill the Company's orders.
However, many of the Company's key suppliers have acknowledged that they must
make improvements to their systems to properly deal with year 2000 orders and
issues. As a result, there can be no assurances that key suppliers will be able
to timely fill the Company's future orders. The Company is in the process of
evaluating what alternatives are available if key suppliers could not provide
required materials and supplies to the Company when ordered. While a formal
contingency plan related to this risk has not yet been completed by the Company,
alternatives would be to increase inventory levels of key supplies and seek
supplies from other vendors.

Due to the inherent complexities in converting enterprise-wide information
systems, there can be no assurance that the Company's domestic information
system conversion will be completed in the planned time frame. If the Company
were not able to successfully implement the new system prior to 1999, the
Company's ability to take orders, ship product, invoice for shipments and
collect cash would be adversely impacted. This could result in a material
adverse impact on the Company's financial condition, results of operations and
cash flows. Additionally, there can be no assurance that all significant primary
and backup suppliers will be able to fill the Company's orders due to their own
year 2000 issues. Such supplier failures could have a material adverse impact on
the Company's financial condition, results of operations and cash flows.

SEASONALITY

Infusion instrument sales are typically higher in the fourth quarter due to
sales compensation plans which reward the achievement of annual quotas and the
seasonal characteristics of the industry, including hospital purchasing
patterns. First quarter sales are traditionally not as strong as the fourth
quarter. The Company anticipates that this trend will continue but is unable to
predict the effect, if any, from health care reform and increased competitive
pressures.

BACKLOG

The backlog of orders, believed to be firm, at June 30, 1998 was $5.5
million and at December 31, 1996 and 1997 was $8.5 million and $2.7 million,
respectively.

FOREIGN OPERATIONS

As a result of the Merger, the Company has significant foreign operations.
Accordingly, the Company is subject to various risks, including without
limitation, foreign currency risks. Historically, the Company has not entered
into foreign currency contracts to hedge such exposure and such risk. Due to
changes in foreign currency exchange rates during 1997, primarily as
strengthening of the U.S. dollar against many European currencies, the Company
recognized a foreign currency transaction loss of approximately $1.0 million
during 1997. Due to changes in foreign currency exchange rates during 1998,
primarily a strengthening of the U.S. dollar against many European currencies,
the Company recognized a foreign currency transaction loss of approximately $0.4
million during the six months of 1998. The Company will evaluate hedging
programs during 1998 to limit the exposure to the Company resulting from changes
in foreign currency exchange rates.

HEALTH CARE REFORM

Heightened public awareness and concerns regarding the growth in overall
health care expenditures in the United States may result in the enactment of
legislation affecting payment mechanisms and health care delivery. Legislation
which imposes limits on the number and type of medical procedures which may be
performed or which has the effect of restricting a provider's ability to select
specific devices or products for use in administrating medical care may
adversely impact the demand for the Company's products. In addition, legislation
which imposes restrictions on the price which may be charged for medical
products may adversely affect the Company's results of operations. It is not
possible to predict the extent to which the Company or the health care industry
in general may be adversely affected by the aforementioned in the future.

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BUSINESS

OVERVIEW

INFUSION SYSTEMS. At December 31, 1997, the Company had approximately
190,000 single and multi-channel large volume infusion pumps and 273,000
channels installed in the United States, with a market share of approximately
32% and 37% of the installed base of large volume infusion pumps and channels,
respectively. The Company offers a wide variety of infusion pumps designed to
meet the varying price and technological requirements of its diverse customer
base. These infusion pumps include the Gemini series, consisting of single, dual
and four channel infusion pumps designed for use in all hospital settings by
customers with sophisticated technological requirements; the Signature Edition
system, a versatile, user-friendly single and dual channel infusion pump for use
in critical and general medical and surgical settings; the MS III, a compact,
lightweight, programmable three channel infusion pump targeted for the hospital
critical care setting; and the Model 560/570 Series, consisting of single
channel infusion pumps designed for use in all hospital settings and marketed
primarily to the price-conscious customer. In addition, the Company offers the
ReadyMED ambulatory infusion pump, which is compact, lightweight and disposable
for use in the alternate-site market, as well as a broad range of syringe
infusion pumps for use primarily outside the United States.

The Company also manufactures and sells higher-margin proprietary disposable
administration sets which are required to be used with the Company's large
volume infusion pumps. Since the useful lives of the Company's infusion pumps
typically range between seven to ten years, the Company's industry-leading
installed base allows it to generate predictable and recurring revenues from
sales of disposable administration sets. For the twelve months ended June 30,
1998, the Company sold approximately 64.0 million disposable administration sets
(proprietary and non-proprietary) representing sales of $226.0 million or 61.6%
of sales. Many of the Company's disposable administration sets offer protection
features designed to prevent the unregulated flow of fluids into a patient's
blood stream ("free flow"). In addition, the Company has recently introduced
several enhancements to its disposable administration sets, including
needle-free access systems that are designed to reduce the risk to health care
providers of diseases, such as AIDS and hepatitis, that may be transmitted
through accidental needlesticks, and, in the case of the SmartSite Needle Free
System, to eliminate patient exposure to latex which can cause severe allergic
or anaphylactic shock reactions. These features continue to provide the
Company's customers with the latest cost-effective technology for the Company's
installed base of infusion pumps. For the twelve months ended June 30, 1998, the
Company's infusion system (pumps and disposables) sales were $311.6 million or
85.0% of sales.

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PATIENT MONITORING PRODUCTS. The Company's patient monitoring products
compete in discrete market niches, each with different competitive dynamics. The
Company primarily operates in the United States, Canada and Western Europe in
two patient monitoring product markets: (i) hospital thermometry systems and
(ii) stand-alone, non-invasive, multi-parameter instruments used to measure and
monitor a combination of vital signs. For the twelve months ended June 30, 1998,
the Company's patient monitoring product sales were approximately $34.6 million,
representing approximately 9.4% of sales.

OPERATING STRATEGY

EXPANDING INTERNAL GROWTH. The Company believes that it has one of the
largest installed bases of infusion systems and channels worldwide and the
largest installed base of hospital thermometry products in the United States.
The Company seeks to protect and expand its installed base by (i) aggressively
marketing its existing products to hospital users and GPOs and (ii) introducing
new technologies that build on or enhance its existing product portfolio. The
Company believes that, to the extent it can increase its installed base, the
Company will benefit from increasing revenues from infusion pump sales, and
increased cash flows attributable to the recurring sales of related
higher-margin proprietary disposable administration sets.

The Company has recently entered into sole-source or dual-source supplier
agreements with certain of the country's largest GPOs and intends to continue to
pursue additional GPO agreements through its dedicated national accounts sales
force. Moreover, the Company intends to expand customer demand for its existing
products by introducing certain of its products to geographic and user markets
that have traditionally not used such products as part of their therapeutic
programs.

The Company also expects to achieve internal growth through continued market
acceptance of its latest needle-free technology, the SmartSite Needle Free
System. During the first six months of 1998, SmartSite Needle Free System
disposable sales were approximately 26.5% of the Company's total United States
infusion system disposable sales as compared to 8.5% during the first six months
of 1997. This rapid adoption of SmartSite Needle Free System technology
emphasizes the Company's successful focus on increasing sales through higher
margin disposable products. See "Risk Factors--Material Legal Proceedings."

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In addition, the Company is currently developing several new infusion system
products and product line extensions, including a modular infusion pump that
incorporates innovations in microprocessor and electromechanical technology and
will offer advanced programming features, compact size and a one-to-four channel
capability. The Company also anticipates further advancements to its patient
monitoring product lines in the next twelve months including the development of
a faster electronic thermometer.

Consistent with the approach outlined above, the Company recently acquired
from Invacare the PSI Pump, an ambulatory, electromechanical infusion pump for
use in the alternate-site market. In addition, the Company recently licensed
technology from Caesarea Medical Electronics Ltd. for the International Pump, a
large volume infusion pump marketed primarily to price-conscious consumers in
emerging international markets. The Company also expects to expand its presence
in patient monitoring into the alternate-site setting through the Acquisition.

The Company is also seeking to establish strategic alliances with major
participants in the pharmaceutical industry, both domestically and
internationally. In accordance with this objective, the Company has entered into
a supply agreement with Zeneca Limited to incorporate Zeneca Limited's
Diprifusor-TM- Target Controlled Infusion module in the Company's P6000 syringe
pump.

With respect to establishing distribution channels, the Company currently is
assessing candidates to assume the role of its primary sales/distribution
partner for Japan and has established original equipment manufacturer supply
relationships for certain of its products internationally. The Company also has

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implemented its strategic plan to consolidate its international distributor
network by terminating redundant distributors in a number of countries. In the
case of the Italian and Norwegian markets, terminated distributors have been
replaced by a newly-established direct sales force.

With respect to developing products or modifying existing products to
satisfy local market preferences, the Company is developing several product
modifications in response to customer preferences in the international market,
including the development of enhancements to its syringe pumps, which have
demonstrated growth in markets where this technology is used (primarily outside
the United States). In addition, the Company recently acquired a license to
manufacture, market and sell the International Pump, a cost-effective large
volume pump, in an effort to increase its penetration in emerging international
markets where consumers are more price-conscious but still demand quality
products and service.

EMPHASIZING CUSTOMER SERVICE. The Company seeks to develop and maintain
strong customer relationships by working closely with its customers to fully
understand their needs and by furnishing value-added services such as (i)
expertise in engineering and manufacturing high-quality, reliable and innovative
products; (ii) prompt order fulfillment and delivery; and (iii) after-sale
technical and clinical support and emergency service. The Company believes that
its ability to retain existing customers and attract new customers is
attributable to its ongoing commitment to customer service. For example, the
Company has recently renewed and expanded its agreement with Physio-Control
International, Inc. ("Physio") whereby Physio has agreed to provide on-site
technical support for the Company's domestic installed base of infusion systems
in selected geographic regions. Through this arrangement, the Company is able to
provide its customers reliable, on-site repair without the need for shipment of
the infusion system to a remote location.

INDUSTRY

GENERAL. In the United States, the Company sells its products primarily in
two markets: the hospital market and the alternate-site market. The United
States hospital market consists of approximately 5,300 hospitals with a total of
approximately 900,000 licensed beds. Within this market, cost containment
measures both imposed and proposed by federal and state regulators and private
payors, combined with increased utilization review and case management, have led
to greater financial pressure on hospitals. In response to these
cost-containment pressures, hospitals and other potential customers for the
Company's products are increasingly combining into group purchasing
organizations which may be large and which monitor compliance with exclusive
purchase commitments. GPOs may enter into exclusive purchase commitments with as
few as one or two providers of infusion systems and/or patient monitoring
products, for a period of several years. These trends have, in turn, led to
downward pricing pressure on manufacturers of medical products, including the
Company, and greater use of care settings outside the hospital (i.e., the
alternate-site setting) for treatment. See "--Marketing and Sales."

The alternate-site market encompasses all health care provided outside the
hospital and is comprised primarily of home health care, freestanding clinics,
skilled nursing facilities and long-term care facilities. The market for
infusion systems used in the alternate site has recently experienced a
substantially greater growth rate than that of the hospital market. This growth
is primarily attributable to advances in technology that have facilitated the
provision of care outside of the hospital, an increased number of illnesses and
diseases considered to be treatable with home infusion therapy and increased
acceptance by

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the medical community of, and patient preference for, non-hospital treatment. In
the patient monitoring markets, similar trends of cost reduction of health care
delivery and technological innovation have resulted in the creation of a number
of new products and product areas, such as infrared thermometry products, pulse
oximetry and multi-parameter patient monitoring products.

The Company also sells its products to the international market. The Western
European infusion therapy market, which includes infusion pumps, controllers and
disposable intravenous sets, had sales of approximately $397.0 million in 1997.
Unlike the U.S. market, syringe pumps represent a significant share of total
infusion pump placements in the international market. The Company expects the
trend toward utilization of syringe pumps to continue as hospitals favor the
lower cost associated with syringe pumps and focus on administering
pharmaceuticals and nutritionals to patients in higher concentrations. The
majority of revenues in the international market are derived from hospitals
since the alternate-site market is in its infancy.

The Company believes that as the worldwide infusion system and patient
monitoring markets continue to mature, providers of goods and services in these
markets will need to increase the scale of their operations and broaden the
scope of their product lines in order to leverage worldwide sales, service and
research and development infrastructures. These trends are driving industry
consolidation both in the United States and internationally which, in turn,
provides opportunities for leading suppliers to increase market share and
participate in strategic alliances, joint ventures and acquisitions.

INFUSION SYSTEMS. Intravenous infusion therapy generally involves the
delivery of one or more fluids, primarily pharmaceuticals or nutritionals, to a
patient through an infusion line inserted into the circulatory system. Over the
past 20 years, as both the reliance on intravenous drug therapy and the potency
of the drugs administered have increased, the need for extremely precise
administration and monitoring of intravenous fluids has risen significantly.

Infusion systems are differentiated on a number of characteristics including
size, weight, number of channels, programmability, mechanism of infusion, cost
and service. One of the key differences among infusion systems is the level of
control that such systems afford to both medical staffs and patients. Infusion
systems are generally designed for either critical care or general care use,
with the latter group being used both in hospitals and at alternate-site
facilities.

The United States infusion therapy market is estimated to have had sales of
approximately $3.0 billion in 1997 and is estimated to grow at a compound annual
growth rate of approximately 5.2% from 1997 to 2000. The hospital market and the
alternate-site market for infusion systems is estimated to have had sales in the
United States of approximately $2.1 billion and $850.0 million, respectively, in
1997, and estimated annual compound growth rates of approximately 3.2% and
10.0%, respectively, from 1997 to 2000. Infusion systems include three major
delivery technologies: pumps/controllers, disposable ambulatory pumps and
gravity delivery products. While the Company competes in the pumps/controllers
and disposable ambulatory pumps segments, it has never competed in gravity
delivery products because of the commodity nature of this market. The
introduction, however, of the SmartSite Needle Free System has provided the
Company with an opportunity to aggressively compete in this market with
innovative, cost-effective needleless gravity sets. See "Risk Factors--Material
Legal Proceedings."

Infusion pumps are volumetric devices that regulate flow by electronically
measuring a specific volume of a fluid. Infusion pumps administer precise,
volumetrically measured quantities of fluids over a wide range of infusion rates
by using positive pressure to overcome the resistance of the infusion tubing and
the back pressure generated by the patient's circulatory system. Syringe pumps
operate by gradually depressing the plunger on a standard disposable syringe,
thereby delivering a more concentrated dose of medication at a very precise rate
of accuracy. Disposable pumps are single use products designed for use primarily
in alternate-site settings.

59
<PAGE>
By contrast, controllers typically are nonvolumetric devices that regulate
flow by electronically counting drops rather than by measuring a specific volume
of fluid. Because infusion pumps can measure volume and can more accurately
administer fluids, they are used more frequently than controllers to administer
expensive, critical or potent therapeutics. The Company does not currently
market controllers, but some of its infusion pumps can be used in a controller
mode.

Historically, controllers have held a major share of the installed base of
infusion instruments, principally because they were significantly less expensive
than infusion pumps. As infusion pump prices declined and their technological
capabilities increased, the purchasing trend has been toward infusion pumps. As
of the end of 1996, infusion pumps represented approximately 98%, and
controllers represented approximately 2%, of the installed base of infusion
instruments in the United States hospital market.

The infusion systems sold in the markets in which the Company competes
consist of single and multi-channel infusion pumps and disposable administration
sets. As treatment regimens have become more complex and as the critically ill
constitute an increasing percentage of hospital patients, the average hospital
patient now requires a greater number of intravenous lines and more potent
therapeutics, thereby creating a greater need for technologically-advanced
infusion systems. As a result, United States sales of channels relating to
multi-channel infusion pumps have increased from approximately 28% of total
United States channels sold in 1991 to approximately 39% of total United States
channels sold in 1996.

All infusion pumps and controllers require the use of disposable
administration sets. A set consists of a plastic interface and tubing and may
have a variety of features such as volume control, pumping segments or cassette
pumping systems for more accurate delivery, clamps for flow regulation and
multiple ports for injecting medication and the delivery of more than one
solution. Almost all of these sets, including those manufactured by the Company,
are compatible only with their particular manufacturer's line of infusion
systems. Since these disposable administration sets tend to have significantly
higher margins than infusion pumps, the establishment of an extensive installed
base, such as the Company's, is important for generating ongoing disposable
administration set sales and enhancing overall margins.

The three major instrument types in the hospital thermometry market are
glass, electronic and infrared devices, which in 1996 accounted for
approximately 5%, 65% and 30%, respectively, of the United States hospital
market installed base. The Company offers electronic and infrared instruments
but does not compete in the glass thermometry market. As with the infusion
therapy market, the hospital thermometry market has higher margin disposable
products that are used in concert with instruments and, consequently, the
existence of an installed base is important for generating ongoing disposable
product sales and enhancing overall margins.

PRODUCTS AND SERVICES

The Company manufactures and markets both single and multi-channel infusion
pumps and disposable administration sets. The Company's infusion pumps include
large volume infusion pumps such as its Gemini series, the Signature Edition
system, MS III and Model 560/570 Series pumps, syringe infusion pumps such as
P1000, P3000, PCAM, P6000 and P7000, which are sold primarily in Western Europe,
and disposable pumps such as ReadyMED for use in the alternate-site setting. The
Company's large volume infusion pumps require the use of higher margin
proprietary disposable administration sets. The Company also sells
non-proprietary disposable administration sets for use with syringe infusion
pumps manufactured by the Company and others. In addition to infusion systems,
the Company manufactures and markets

60
<PAGE>
hospital thermometry instruments and related disposable probe covers, and
stand-alone, non-invasive, multi-parameter instruments which measure and monitor
a combination of temperature, pulse and blood pressure and other vital signs.
The table below summarizes the key features and actual or estimated market
introduction dates with respect to the Company's product lines.

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ------------------------------------- ------------------------------------------------ ------------------------
<S> <C> <C>
INFUSION SYSTEMS

LARGE VOLUME INFUSION PUMPS

SIGNATURE EDITION Single and dual channel pumps; incorporates Marketed since 1995.
intuitive user interface; for critical and
general care and alternate-site use.

GEMINI Single, dual and four channel instruments with Marketed since 1987.
pump and controller capability; programmable
drug delivery/dose calculations and pressure
history; for use in all hospital and general
medical surgical settings.

560/570 SERIES Single channel pump with largest installed base Marketed since 1983 and
worldwide; for general care use in the United 1990, respectively.
States, and general and critical care use in
Europe.

597/598 SERIES Single channel, multi-pump configuration of Marketed in Europe since
reduced size and weight; used frequently for 1993.
delivery of nutritional products; sold in
Europe; for general care and alternate-site
use.

MS III Three channel pump; smallest and lightest Originally introduced in
multi-channel pump available; for critical care late 1980s by Siemens
and emergency transport use. Infusion Systems, Ltd as
MiniMed; acquired by the
Company in 1993.
Introduced in Europe in
1998.

INTERNATIONAL PUMP Large volume infusion pump for price-conscious Recently licensed from
consumers primarily in emerging international Caesarea Medical
markets. Electronics Ltd.;
introduction planned for
late 1999.

ORION Modular infusion pump which can operate in a Under development;
one-to-four channel mode resulting in lower market introduction
operating cost and better asset utilization; planned for late 1999.
for use in all hospital and critical care
settings.
</TABLE>

61
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ------------------------------------- ------------------------------------------------ ------------------------
<S> <C> <C>
SYRINGE INFUSION PUMPS

P1000, P2000, P3000, P4000 Syringe pump for critical and non-critical care Various models
use outside the United States. introduced between late
1980s and early 1990s.

P7000 Syringe pump with advanced features for Marketed in Europe since
critical, non-critical and neonatal care use in 1996.
markets outside the United States.

P6000 Syringe pump using the P7000 technology platform Marketed in Europe since
designed for the price-conscious consumer in 1997.
markets outside the United States; for critical
and non-critical care use.

PCAM PUMP Syringe pump used in markets outside the United Marketed internationally
(PATIENT CONTROLLED ANALGESIA) States that allows patients to control the since 1995.
delivery of pain medication.

AMBULATORY PUMPS

READYMED Compact, lightweight and disposable ambulatory 100 mL marketed in U.S.
infusion pump designed for alternate-site use. since July 1992 and 50
mL and 250 mL marketed
in U.S. since 1993.

RYTHMIC Family of lightweight, self-contained portable Agreement with Micrel
pumps for PCA, intermittent and continuous use Electronic Applications
at home in markets outside the United States. Centre EP.E signed in
second half of 1997;
market introduction
planned for late 1998.

PSI PUMP Ambulatory, electromechanical infusion pump for Acquired from Invacare
use in the alternate-site market. in May 1998; U.S. market
introduction planned for
1999.

DISPOSABLE ADMINISTRATION SETS Proprietary and non-proprietary administration Marketed worldwide and
sets for use with each of the Company's under development.
existing and proposed infusion pumps.

NEEDLE-FREE ACCESS PRODUCTS

SMARTSITE Needle-free, capless, latex-free infusion system Marketed since 1996.
component intended to increase safety of
patients and health care workers.

VERSASAFE Needle-free infusion system component utilizing Marketed since 1994
a blunt, plastic cannula combined with a through a non- exclusive
split-septum "Y" site. license.
</TABLE>

62
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION STATUS
- ------------------------------------- ------------------------------------------------ ------------------------
<S> <C> <C>
PATIENT MONITORING

THERMOMETRY SYSTEMS

TEMP-PLUS II Electronic thermometer; for general hospital and Marketed since
alternate-site use. mid-1980s.

CORE-CHECK Infrared tympanic thermometer; for general Marketed since 1991.
hospital use.

DISPOSABLE PROBE COVERS Proprietary covers for use with each of the Marketed since late
Company's existing and proposed thermometers. 1980s.

OTHER PATIENT MONITORING PRODUCTS

VITAL-CHECK (MODEL 4200) Continuous monitoring model that rapidly Marketed since late
measures pulse, blood pressure and temperature; 1980s.
for general hospital use.

VITAL-CHECK (MODEL 4400) Multi-parameter non-invasive patient monitor Marketed in the United
providing blood pressure, pulse oximetry and States since 1997
temperature monitoring. through an exclusive
license.
</TABLE>

ALARIS INFUSION SYSTEMS

LARGE VOLUME INFUSION PUMPS. The Company's large volume infusion pumps are
either single or multi-channel and are used in both the general care and
critical care settings. The large volume infusion pumps consist of volumetric
piston cassette pumps, which regulate the flow of fluid through a syringe-like
mechanism, and peristaltic pumps, which regulate fluid flow by means of a
multi-finger-like mechanism that alternately compresses sections of the tubing
contained in the pumping chamber. Peristaltic pumps represent the largest
portion of the Company's installed base of infusion pumps. The Company
discontinued manufacturing piston cassette pumps in the first quarter of 1995.

The Signature Edition line of peristaltic infusion pumps includes a single
channel and dual channel pump and is designed for use primarily in hospitals.
The Signature Edition line of infusion pumps feature cost-effectiveness, ease of
use, reliability and innovative features, such as new safety features designed
to minimize the chance of free flow.

The Gemini peristaltic infusion pump series, which consists of single, dual
and four channel pumps, is based on a flexible hardware and software technology
platform. This technology platform has enabled the Company over time to offer
incremental feature enhancements based on evolving customer needs. The Gemini
series currently offers the following features: free flow protection (which the
Company pioneered); independent channel operation; ability to switch from pump
to controller mode without changing the disposable administration set;
programmable to automatically taper-up and taper-down infusion rates to
facilitate delivery of complex drug-dosing regimens; capability to operate in
either micro mode (0.1 to 99.9 mL/hr) for use with neonatal patients, among
others, or macro mode (1 to 999 mL/hr) for use with adult patients; drug dose
calculation; pressure monitoring; pressure history and volume/time dosing; and
nuisance alarm (alarms with no clinical significance) reduction. The Gemini PC-1
and PC-2 infusion pumps are currently subject to a voluntary recall initiated by
the Company. See "--Government Regulation--Product Regulation." The Company has
discovered certain electro-mechanical problems with its Gemini PC-4 infusion
pumps and is evaluating ways to correct these problems. In each reported
instance of this problem, the user has been alerted to the problem by audio and
visual alarms.

The MS III instrument is a compact, lightweight, programmable, three
channel, peristaltic infusion pump used primarily in the critical care market.
The MS III predecessor product line was acquired from Siemens Infusion Systems,
Ltd. in September 1993. Since that time, significant resources have been

63
<PAGE>
invested in the MS III pump. The Company believes that as a result of such
investment, the MS III is one of the smallest, most versatile and most
technologically advanced multi-channel pumps currently on the market.

The Model 560/570 Series and the Model 597/598 Series are single channel
peristaltic infusion pumps that offer cost effective solutions for drug delivery
in all settings. The Company believes that the Model 560/570 Series has the
largest installed base of any individual infusion pump worldwide.

In addition, in May 1998 the Company acquired a license to manufacture,
market and sell the International Pump, a large volume infusion pump marketed
primarily for price-conscious consumers in emerging international markets. The
Company will market and sell the International Pump through existing
distribution channels.

The Company is also in the process of designing the Orion product, a modular
infusion pump which can operate in a one-to-four channel mode, and is the basis
for its next generation of infusion pumps. In addition to all of the features
available on the Gemini series, the Orion is being designed to incorporate
advanced programming capabilities in a smaller infusion pump that is simpler to
operate. A modular, building-block design is intended to allow the user to
configure the various features of the modular infusion pump to specific
situations resulting in lower cost operation and better asset utilization.

SYRINGE PUMPS. The Company offers syringe pumps, which are small-volume
fluid delivery systems used in neonatal care, oncology, anesthesia, critical
care and labor and delivery. While these infusion pumps represent a relatively
small portion of the industry installed base in the United States, such pumps
are widely used in Europe, where they constitute approximately 60% of the
infusion pump market. Syringe pumps are more widely used in Europe because of
the general practice of European doctors to administer medications in smaller
volumes of fluid. The Company believes that it is one of the two largest
suppliers of syringe pumps in Western Europe, with a number one or number two
installed base market share in eight countries and the number three market
position in Germany.

The Company's PCAM patient controlled analgesia syringe infusion pump allows
patients to control the delivery of pain medication. Designed for general care
settings, the PCAM syringe infusion pump is one of the most advanced patient
controlled analgesia infusion pumps on the European market today, with
pre-programmed and user programmable drug delivery protocols, comprehensive
patient history logging and an ergonomically designed handset with status
indicator.

The Company's syringe pump product line also includes the P7000 syringe pump
which has been available internationally since 1996 and the P6000 syringe pump
which was introduced to the European market during the second quarter of 1997.
The Company recently filed for 510(k) clearance of the P7000 syringe pump with
the FDA. Designed for critical, non-critical and neonatal care settings, the
P7000 offers several advanced features, including an automatic dose rate
calculator; a pre-programmable drug menu; a range of pre-programmed infusion
administration protocols; and an automatic pressure reduction capability in
response to administration set occlusions. The P6000 syringe pump, which is
based on the P7000 syringe pump technology platform, is designed for use in
critical and non-critical care settings by the price-conscious consumer.

AMBULATORY PUMPS. The ReadyMED pump is a compact, lightweight and
disposable ambulatory pump for the intravenous administration of antibiotics in
the alternate-site market. The ReadyMED pump is designed to offer a number of
advantages over systems currently in use for this purpose. Traditional systems
require the patient to attach a small bag and tubing set, through which
antibiotics are administered, to a catheter placed in the patient's circulatory
system. The patient must eliminate all air from the system and set a manual rate
adjustment clamp, a process that generally must be repeated every four to six
hours. Since traditional systems are gravity driven, the bag must remain on an
intravenous solution pole during infusion, thereby restricting the patient's
movement. The ReadyMED pump is available in 50 mL, 100 mL and 250 mL sizes,
allowing infusion to be initiated when the patient simply opens a clamp. In
addition, since the ReadyMED pump is small and uses positive pressure, the
patient is able to carry the

64
<PAGE>
device in a pocket or wear it on a belt. The Company sells the ReadyMED pump
through its alternate-site sales force and distribution network.

In May 1998, the Company acquired from Invacare the PSI Pump, a
multi-therapy, electromechanical infusion pump along with a broad range of
accessories and intravenous disposables for use in the ambulatory infusion
market. These products have been developed specifically for home care
applications and will be distributed by the Company's alternate-site sales
force.

DISPOSABLE ADMINISTRATION SETS. The Company estimates that it has
approximately 190,000 single and multi-channel large volume infusion pumps
installed in the United States, each of which uses proprietary disposable
administration sets designed and manufactured only by the Company. Disposable
administration sets consist of a plastic pump interface and tubing and have a
variety of features, such as volume control, pumping segments or cassette
pumping systems for more accurate delivery, clamps for flow regulation and
multiple entry ports for injecting medication and the delivery of more than one
solution. Components such as burettes and filters may also be added for critical
drugs or specific infusion. In addition, many of the Company's disposable
administration sets offer protection features designed to prevent free flow.
Each of the Company's current and proposed large volume infusion pumps uses only
disposable administration sets designed by the Company for that particular pump.

NEEDLE-FREE ACCESS PRODUCTS. There is increasing pressure by regulatory
agencies, such as the Occupational Safety and Health Administration ("OSHA") and
the FDA, for more stringent control of needles in hospitals. OSHA requires that
hospitals must put in place systems to reduce the potential for accidental
needlesticks. The FDA recommends using needle-free systems or protected needle
systems to replace hypodermic needles for accessing intravenous lines. The
Company's needle-free access products are designed to permit access to the
Company's disposable administration sets without the use of needles, thus
reducing the potential for accidental needlesticks. The VersaSafe system
utilizes a blunt, plastic cannula combined with a split-septum "Y" site. The
Company has a non-exclusive license, which expires in April 2000, to the
VersaSafe system which was a cooperative development effort of IMED, Elcam
Plastic of Israel and Medical Associates Network. The Company's latest
needle-free access product, the SmartSite Needle Free System, offers a fully
integrated design and eliminates the need for separate caps to maintain an
infection control barrier. The SmartSite Needle Free System is latex-free and
therefore reduces the risk of exposure of patients and health care workers to
latex which can cause severe allergic or anaphylactic shock reactions. The
Company's needle-free access products have received strong interest from
customers and provide the Company with an opportunity to increase revenues in
what has previously been a commodity market. See "Risk Factors--Material Legal
Proceedings."

ALARIS PATIENT MONITORING PRODUCTS

Patient monitoring products are used to measure temperature, pulse, blood
pressure and other vital signs. Instruments sold in this market have varying
levels of technological sophistication and are used in a variety of diagnostic
and health care settings. The Company competes in two key market niches:
hospital thermometry systems and stand-alone, non-invasive, multi-parameter
patient monitoring products. In the United States hospital electronic and
infrared thermometry market, the Company had an installed base market share of
approximately 42% in 1996 and was the second largest supplier of hospital
thermometry products in the infrared market. In its niche of stand-alone,
non-invasive, multi-parameter instruments, the Company had an installed base
market share of approximately 14% in the United States in 1996.

THERMOMETRY. The Company is a leader in hospital thermometry systems, which
consist of thermometers and proprietary disposable probe covers, and maintains a
strong position in both the United States and Western Europe. The Company's
primary product is an electronic thermometer which is widely used in hospitals
and alternate-site settings. The Company is currently developing the Temp-Plus
III instrument, an improved cost-effective and technologically-advanced
electronic thermometer designed to provide a faster temperature reading. The
Company also manufactures and markets the Core-Check system, a thermometer that
measures temperature by detecting the emission of infrared energy in the ear. In
the

65
<PAGE>
infrared market, the Company is currently the second largest participant, with a
United States hospital installed base market share of approximately 31% at
December 31, 1996. The only disposable probe covers which can be used with the
Company's thermometry instruments are those manufactured by the Company.

OTHER PATIENT MONITORING PRODUCTS. The Company also produces stand-alone,
non-invasive, multi-parameter patient monitoring products which measure a
combination of pulse, pulse oximetry, temperature and blood pressure.

In January 1997, the Company entered into two agreements with Criticare
Systems, Inc. ("Criticare"), a manufacturer of patient monitoring systems and
non-invasive sensors for use in the hospital and alternate-site markets. Under
these agreements, Criticare obtained the right to use the Company's electronic
thermometry technology in certain monitoring systems to be manufactured and
distributed by both Criticare and the Company. The Company also obtained
exclusive distribution rights to certain of these monitoring systems in the
United States hospital market and in all Canadian markets. The first of these
exclusive systems is the Vital-Check 4400, which provides non-invasive blood
pressure, pulse oximetry and temperature monitoring.

CUSTOMER SERVICE

The Company provides repair service for its products at its facilities in
San Diego or on-site at the customer's facilities through third-party
contractors. Customers may elect to enter into service agreements to receive
service on a time and materials basis. The Company also trains customers as to
the use of its products and maintains a technical support help-line to answer
customers' questions. In addition, the Company maintains its parts inventory at
levels which enable it to deliver critical supplies immediately and minimize
back-ordered products. The Company believes that the availability of such
services is important for maintaining strong customer relations.

MARKETING AND SALES

The Company has historically focused its sales efforts on the hospital
market. In response to the industry shift toward health care delivery outside of
the hospital, the Company has recently begun to expand its selling efforts and
products to the alternate-site market. The Company's sales strategy emphasizes
increasing instrument placements and the number of units installed in order to
increase sales

of its proprietary disposable administration sets and probe covers. Sales
representatives work closely with on-site primary decision makers, which include
physicians, pharmacists, nurses, materials managers, biomedical staff and
administrators. The Company has over 5,000 hospital customers worldwide and
sells its products through a combined direct sales force consisting of over 230
salespersons and through more than 150 distributors.

In January 1997, the Company entered into a five-year sole-source supply
contract with Premier Purchasing Partners, L.P. ("Premier"), an affiliate of
Premier, Inc., the nation's largest health care alliance GPO, for tympanic and
electronic thermometry instruments and related proprietary disposable probe
covers. Under this agreement, Premier agreed to purchase 80% of its needs for
such products from the Company. In addition, in March 1997, the Company entered
into a five-year dual source supply agreement with Premier for the purchase of
large volume infusion pumps and associated disposable administration sets.

In December 1997, the Company and Tenet HealthCare Corporation ("Tenet")
entered into a ten-year, sole-source agreement for intravenous infusion pumps
and associated IV disposables. In addition, the Company is named as one of two
approved sources by Tenet for needle-free IV tubing sets and components. The
Company also has supply agreements with other leading GPOs, including Novation,
Inc., AmeriNet Inc. and Medecon Services, Inc.

The Company's domestic marketing efforts are supported by a staff of nurses
and pharmacists who consult with customers providing ongoing clinical support in
the evaluation, installation and use of the Company's products. The Company
believes its sales force in the United States and internationally plays a key
role in the effective introduction of new products.

No single account is material to the business or operations of the Company.

66
<PAGE>
INTERNATIONAL OPERATIONS

The Company markets products in approximately 120 countries through its
direct sales force, affiliates and distributors. The primary markets for the
Company's products outside the United States are Western Europe, Canada and
Australia. The Company also has a developing position in Asia and Latin America.
The principal products sold by the Company outside the United States are large
volume and syringe infusion pumps and related disposable administration sets.
The Company has manufacturing operations in England and Mexico. The Company has
also contracted with a number of foreign manufacturers to provide certain of its
sourcing needs. The following table sets forth for each period presented, the
sales made to customers in each of the geographic locations described below:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
----------------------------------- --------------------
1995 (1) 1996 (1) 1997 1997 1998
----------- ----------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States................................................... $ 238.3 $ 224.6 $ 227.0 $ 106.8 $ 109.6
International................................................... 114.4 121.7 132.1 63.3 68.1
----------- ----------- --------- --------- ---------
Total Sales................................................... $ 352.7 $ 346.3 $ 359.1 $ 170.1 $ 177.7
</TABLE>

- ------------------------

(1) Presented on a Merger-Adjusted basis.

The Company believes that sales of products to customers outside of the
United States represents a significant potential source of growth.

Foreign operations are subject to special risks that can materially affect
the sales, profits and cash flows of the Company, including currency exchange
rate devaluations and fluctuations, the impact of inflation, exchange controls,
labor unrest, political instability, export duties and quotas, domestic and
international customs and tariffs, unexpected changes in regulatory
environments, potentially adverse tax consequences and other risks. Changes in
certain rates could have an adverse effect on the Company's ability to meet
interest and principal obligations with respect to its United States
dollar-denominated debt and could also have a material adverse effect on the
business, financial condition, results of operations or prospects of the Company
or the Company's ability to make payments with respect to the Notes when due.

MANUFACTURING

The Company is focusing on low-cost manufacturing and manufactures its
products at plants in San Diego, California; Creedmoor, North Carolina; Tijuana,
Mexico; and Hampshire, England. The San Diego facility is the primary
manufacturing facility for infusion pumps and patient monitoring instruments and
also houses a service operation for installed infusion pumps and patient
monitoring instruments. The Creedmoor facility houses a portion of the current
disposables operations and is a distribution center for North American
disposable finished products. Product release from sterilization is done in San
Diego and Creedmoor. The Tijuana facilities primarily focus on the manual
assembly of disposables, and the Hampshire facility focuses on the manufacturing
of syringe pumps which are sold primarily to the international markets.
Disposable products for international markets are currently supported through a
number of foreign manufacturers.

The Company has designed and implemented an integrated network of quality
systems, including control procedures that are planned and executed by
technically-trained professionals. Through these systems, the Company has
established written specifications for raw materials, packaging, labels,
sterilization and overall manufacturing process control. A substantial number of
raw materials require certificates of analysis to help ensure that finished
products conform to specifications. In addition, the Company regularly tests
components and products at various stages of the manufacturing process to ensure
compliance with applicable specifications.

67
<PAGE>
The Company purchases raw materials worldwide in the ordinary course of
business from numerous suppliers. The vast majority of these materials are
generally available and the Company has not experienced any serious shortages or
material delays in obtaining these materials. In some situations, the Company
has long-term supply contracts, although the Company purchases a significant
amount of its requirements of certain raw materials by purchase order. Although
the Company is generally not dependent upon any single source of supply, it
relies upon a limited number of suppliers for circuit boards and other parts
which are used in certain of its infusion systems. The loss of any such supplier
would result in a temporary interruption in the manufacturing of the Company's
products. The Company believes, however, that these materials are available as
needed from alternative sources.

RESEARCH AND DEVELOPMENT

The Company believes that a well-targeted research and development program
constitutes an essential part of the Company's activities and is an integral
part of its future success. The Company is actively engaged in research and
development programs to develop and improve products. These activities are
performed in the United States and, to a lesser extent, in the United Kingdom.
For the twelve months ended June 30, 1998, the Company expended approximately
$17.7 million on in-house research and development. Substantially all of this
amount was dedicated to the development of new products.

The Company intends to focus a significant portions of its research and
development efforts on the development of new products. The Company is currently
developing several new products and product line extensions.

PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS

The Company relies heavily on patented and other proprietary technology. The
Company believes its issued and pending patents are important to its competitive
position. There can be no assurance that patent applications submitted by the
Company or its licensors will result in patents being issued or that, if issued,
such patents and patents already issued will afford protection against
competitors with similar technology. In addition, there can be no assurance that
any patents issued to or licensed by the Company will not be infringed or
designed around by others, that others will not obtain patents that the Company
will need to license or design around, that the Company's products will not
inadvertently infringe the patents of others, or that others will not
manufacture and distribute similar products upon expiration of such patents.
There can also be no assurance that key patents of the Company will not be
invalidated or that the Company or its licensors will have adequate funds to
finance the high costs of prosecuting or defending patent validity or
infringement issues.

The Company's policy is to secure patent protection for significant
inventions. The Company holds approximately 220 unexpired patents in the United
States and approximately 400 unexpired patents in foreign countries, principally
in Europe, Canada, Japan and Australia. Additional applications are pending or
in preparation. Within the next ten years, approximately 130 of the Company's
United States patents and approximately 165 of the Company's foreign patents
will expire. The Company does not believe that the expiration of any such
patents will, individually or in the aggregate, have a material adverse effect
on the business, financial condition, results of operations or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due.

The patent positions of medical device firms, including the Company, are
uncertain and involve complex legal and factual questions for which certain
legal principals are unresolved. The coverage claimed in a patent application
can be significantly reduced before a patent is issued. In addition, patent law
has recently been revised to give effect to international accords to which the
United States has become a party. Pursuant to such accords, the patent term has
been changed from 17 years from date of grant to 20 years from date of filing
and certain provisions favoring United States inventors over foreign inventors
have been eliminated.

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<PAGE>
The United States patent code was recently amended. As a result, certain
statutory remedies for patent infringement are no longer available for a medical
practitioner's otherwise infringing performance of a medical activity. As
provided in the United States patent code, a patent may not be enforced against
a medical practitioner's performance, or the performance of a related health
care entity of a "medical activity" which is defined as the performance of a
medical or surgical procedure on a body. However, a "medical activity" does not
include "the use of a patented machine, manufacture or composition of matter in
violation of such patent." Hence, remedies are still available against
manufacturers and distributors. The aforesaid amendment does not apply to
patents issued before September 30, 1996.

The Company sells its products under a variety of trademarks, some of which
are considered by the Company to be of importance to warrant registration in the
United States and various foreign countries in which the Company does business.
The Company also relies on trade secrets, unpatented know-how and continuing
technological advancement to maintain its competitive position. It is the
Company's practice to enter into confidentiality agreements with key technical
employees and consultants. There can be no assurance that these measures will
prevent the unauthorized disclosure or use of the Company's trade secrets and
know-how or that others may not independently develop similar trade secrets or
know-how or obtain access to the Company's trade secrets, know-how or
proprietary technology. In addition, the Company from time to time seeks
copyright protection for the software used in certain of its products.

LEGAL PROCEEDINGS

The Company is a defendant in a lawsuit filed in June 1996 by Sherwood
Medical Company (d/b/a Sherwood, Davis & Geck) ("Sherwood") against IVAC Medical
Systems. The lawsuit, which is pending in the United States District Court for
the Southern District of California, alleges infringement of two Sherwood
patents by reason of certain activities including the sale by IVAC Medical
Systems of disposable probe covers for use with infrared tympanic thermometers.
The lawsuit seeks injunctive relief, treble damages and the recovery of costs
and attorneys fees. The lawsuit is currently in the discovery phase. The Company
is currently unable to quantify its exposure in the lawsuit. The Company
believes it has sufficient defenses to all claims by Sherwood, including the
defenses of noninfringement and invalidity. However, there can be no assurance
that the Company will successfully defend all claims made by Sherwood and the
failure of the Company to successfully prevail in this lawsuit could have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Company or the Company's ability to make payments
with respect to the Notes when due.

The Company is a defendant in a QUI TAM lawsuit filed by a former IMED
employee in the United States District Court for the Northern District of
Illinois. On November 15, 1996, an amended complaint was filed which alleges
fraud in the inducement, breach of employment contract, common law fraud and
violations of the Federal False Claims Act and Medicare Fraud and Abuse Act. To
date, the United States has declined to intervene in this action. The Company
believes it has sufficient defenses to all claims by the plaintiff. However,
there can be no assurance that the Company will successfully defend all claims
made in this lawsuit and the failure of the Company to prevail in this lawsuit
could have a material adverse effect on the Company's operations, financial
condition and cash flows.

During the years 1988 through 1995, Cal Pacifico of California and
affiliated entities ("Cal Pacifico") acted as the Company's United States
customs broker and importer of record with respect to the importation into the
United States of finished products ("Finished Products") assembled at the
Company's two assembly plants in Tijuana, Mexico. In May 1995, Cal Pacifico
received a pre-penalty notice from the United States Customs Service ("Customs")
to the effect that Customs intended to assess additional duties and substantial
penalties against Cal Pacifico for its alleged failure, during the years 1988
through 1992, to comply with certain documentary requirements regarding the
importation of goods on behalf of its clients, including the Company. Customs
assessed additional duties with respect to Cal Pacifico's importation of goods
on behalf of its clients, including the importation of the Company's Finished
Products, for the years 1993 and 1994, and it is anticipated that Customs will
issue a pre-penalty notice to Cal Pacifico in respect

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of these years as well (collectively with the amounts referred to in the
immediately preceding sentence, the "Disputed Amounts"). The Company has been
advised by its special customs counsel that, under applicable law, no person, by
fraud, gross negligence or negligence, may (i) import merchandise into the
commerce of the United States by means of any material and false document,
statement or act, or any material omission, or (ii) aid or abet any other person
to import merchandise in such manner. No proceeding has been initiated by
Customs against the Company in respect of the matters which are the subject of
the proceeding against Cal Pacifico. Since Cal Pacifico was the Company's United
States customs broker and importer of record during each of the foregoing years,
the Company believes that it is unlikely that Customs will assess against the
Company any portion of the Disputed Amounts.

Cal Pacifico is contesting Customs' assessment of the Disputed Amounts. Cal
Pacifico's challenge to the assessment of the Disputed Amounts is in its
preliminary stages. Given the present posture of Cal Pacifico's challenge, and
the inherent uncertainty of contested matters such as this, it is not possible
for the Company to express an opinion as to the likelihood that Cal Pacifico
will prevail on its challenge. The Company has not been informed by Cal Pacifico
or Customs as to the specific amount of the Disputed Amounts.

Cal Pacifico has advised the Company that, should Cal Pacifico's challenge
to the assessment of the Disputed Amounts prove to be unsuccessful, it will seek
recovery from the Company, through arbitration, for any portion of the Disputed
Amounts which it is required to pay to Customs. As part of the settlement
agreement which resolved the Company's contract dispute with Cal Pacifico, the
Company made a non-refundable payment of $550,000 to Cal Pacifico. The $550,000
payment is to be credited toward any portion of the Disputed Amounts which the
arbitrator determines the Company owes to Cal Pacifico, which may be less or
greater than $550,000. Although the ultimate outcome of such an arbitration
proceeding cannot be guaranteed, the Company believes that it has meritorious
defenses to claims with respect to Disputed Amounts which Cal Pacifico might
raise against the Company. These defenses would be based, among other factors,
on the contractual relationship between the Company and Cal Pacifico (including
a defense with respect to the availability of indemnification under the
agreements between Cal Pacifico and the Company), the conduct of Cal Pacifico
with respect to both the Company and Customs, and the compliance obligations of
Cal Pacifico under applicable customs laws. Inasmuch as Cal Pacifico's challenge
before Customs is still pending and any claim against the Company for
indemnification would be based on Cal Pacifico's ultimate lack of success in
that challenge, and inasmuch as (i) any arbitration proceeding by which Cal
Pacifico might seek indemnification has not been filed and (ii) Cal Pacifico has
not committed itself to the theories under which it might seek indemnification
or the recovery of damages from the Company, it is not possible for the Company
to express an opinion at this time as to the likelihood of an unfavorable
outcome in such a proceeding.

The Company was recently informed that on April 20, 1998, Becton filed the
Complaint in the Utah Court alleging that the Company's SmartSite Needle Free
System infringes certain patents licensed to Becton. The Complaint has not yet
been served on the Company and the Company does not know whether or not the
Complaint will be timely served. The Company has entered into settlement
discussions with Becton regarding the Complaint and in connection therewith, on
August 18, 1998, filed in the Utah Court, with Becton, a Stipulation and Motion
to Extend Time, agreeing that the time for Becton to serve a summons and
complaint be extended to October 19, 1998. If the Complaint is timely served,
the Company intends to vigorously defend any claim brought against it with
respect to this matter. There can be no assurance that the court would find in
the Company's favor if the Complaint were to be pursued or that if the court
were to find that the Company's SmartSite Needle Free System infringes the
patents licensed to Becton that such finding would not have a material adverse
effect on the business, financial condition, results of operations or prospects
of the Company or the Company's ability to make payments with respect to the
Notes when due. See "--Operating Strategy--Expanding Internal Growth."

The Company is also involved in a number of legal proceedings arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the business, financial condition,

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results of operations or prospects of the Company or the Company's ability to
make payments with respect to the Notes when due. The Company maintains
insurance coverage against claims in an amount which it believes to be adequate.

COMPETITION

The Company faces substantial competition in all of its markets. Many of the
Company's competitors have greater financial, research and development and
marketing resources than the Company. Some of the Company's principal
competitors are able to offer volume discounts based on bundled purchases of a
broad range of their medical equipment and supplies. The Company intends to
improve its competitive position in this area by seeking acquisitions that will
allow or enhance its own bundles of devices and instruments. The Company expects
the trends toward volume discounts to continue in the future. The Company
believes that the competitive factors most important in its markets are quality
of products and services, technological innovation and price.

The primary markets for the Company's products are relatively mature and
highly competitive. The Company's success is therefore dependent on the
development and acquisition of infusion technologies and products, the
implementation of its acquisition strategy and the development of other markets
for its products. The Company's older infusion therapy product lines have
experienced declining sales and market share recently, primarily due to
competitors who offer volume discounts based on bundled purchases of a broader
range of medical equipment and supplies, as well as the aging of the Company's
core products. The Company's introduction of new products may offset future
declines in sales and market share. There can be no assurance, however, that new
products will be successfully completed or marketed for sale, will not
necessitate upgrades or technical adjustments after market introduction, can be
manufactured in sufficient volumes to satisfy demand, or will offset declines in
sales and market share experienced with respect to existing products. See
"--Products and Services."

At December 31, 1997, the Company had a market share of approximately 37% of
the installed base of infusion pump channels in the United States. Major
competitors in this market include Baxter International, Inc., Abbott
Laboratories, Inc. and McGaw, Inc., which in the aggregate had a market share of
approximately 59% of the installed base of infusion pump channels in the United
States at December 31, 1997.

The European infusion systems market is much more regionalized and
fragmented, with a few strong competitors in each regional market. Major
competitors encountered in several markets include Graseby, Fresenius and B.
Braun Melsungen AG. The Company is among the leaders in a number of Western
European markets, with a number one or number two installed base market share in
eight countries and the number three installed base market share in Germany. The
Western European countries in which the Company has a number one or number two
installed base market share are France, Norway, Sweden, the United Kingdom,
Belgium, the Netherlands, Spain and Italy.

The patient monitoring products market is fragmented by product type. The
Company's key competitor in the United States electronic thermometer market is
Welch Allyn, Inc. (f/k/a Diatek, Inc.) and its key competitor in the infrared
thermometer market is Sherwood.

GOVERNMENT REGULATION

PRODUCT REGULATION. The research, development, testing, production and
marketing of the Company's products are subject to extensive governmental
regulation in the United States at the federal, state and local levels, and in
certain other countries. Non-compliance with applicable requirements may result
in recall or seizure of products, total or partial suspension of production,
refusal of the government to allow clinical testing or commercial distribution
of products, civil penalties or fines and criminal prosecution and orders for
repair and/or refund.

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The FDA regulates the development, production, distribution and promotion of
medical devices in the United States. Virtually all of the products being
developed, manufactured and sold by the Company in the United States (and
products likely to be developed, manufactured or sold in the foreseeable future)
are subject to regulation as medical devices by the FDA. Pursuant to the FDC
Act, a medical device is classified as a Class I, Class II or Class III device.
Class I devices are subject to general controls, including registration, device
listing, record keeping requirements, labeling requirements, "Quality Systems
Regulation" ("QSR" as defined in FDA Quality System regulations), prohibitions
on adulteration and misbranding, and reporting of certain adverse events
("MDR"). In addition to general controls, Class II devices may be subject to
special controls that include notification and could include performance
standards, postmarket surveillance, patient registries, guidelines,
recommendations and other actions as the FDA deems necessary to provide
reasonable assurance of safety and effectiveness. New Class III devices must
meet the most stringent regulatory requirements and must be approved by the FDA
before they can be marketed. Such premarket approval can involve extensive
preclinical and clinical testing to prove safety and effectiveness of the
devices.

Virtually all of the Company's products are Class II devices. The Company is
not currently developing, manufacturing or distributing any Class III devices,
although it may do so in the future. Unless otherwise exempt, all Class II and
Class III medical devices introduced to the market since 1976 are required by
the FDA, as a condition of marketing, to secure a 510(k) premarket notification
clearance ("510(k)") or a Premarket Approval Application ("PMA"). A product will
be cleared by the FDA under a 510(k) if it is found to be substantially
equivalent because it has the same intended use and the same technological
characteristics as another legally marketed medical device that was on the
market prior to May 28, 1976 or to a product that has previously received a
510(k) and is lawfully on the market ("predicate device"), or if it has
different technological characteristics if it is demonstrated that the device is
as safe and effective as the predicate device and raises no new safety or
efficacy questions. In general, if a product is not substantially equivalent to
a predicate device, and not otherwise exempt, the FDA must first reclassify the
device or approve a PMA before it can be marketed. An approved PMA indicates
that the FDA has determined the product has been demonstrated, through the
submission of clinical data and manufacturing and other information, to be safe
and effective for its labeled indications. The PMA process typically takes more
than a year from submission and requires the submission of significant
quantities of clinical data and supporting information. The process of obtaining
a 510(k) currently takes, on average, approximately six months from the date of
submission. However, the review process for a particular product may be shorter
or substantially longer depending upon the circumstances. Moreover, there can be
no assurance that a 510(k) will be cleared. The 510(k) must include submission
of supporting information, including design details and labeling, and may be
required to contain safety and efficacy data. Product modifications intended to
be made to a cleared device or new product claims also may require submission
and clearance of a new 510(k) application or submission and approval of a PMA,
during which time the modified product cannot be distributed in interstate
commerce. Although there can be no assurance, the Company believes that its
proposed products under development will qualify for the 510(k) procedure.

As part of its normal course of business, the FDA conducts investigations
for cause regarding the safety or efficacy of medical products, including those
manufactured by the Company, which may result in the Company's inability to
market a particular device or cause the Company to need to generate additional
data to support submissions for market clearance. Future products developed by
the Company may require FDA clearance through either the 510(k), PMA, new drug
approval application procedures or abbreviated new drug approval application
procedures. There can be no assurance that marketing clearances or approvals
will be obtained on a timely basis or at all. Delays in receiving such
clearances or approvals could have a material adverse effect on the Company.

The FDA also regulates the commencement and conduct of clinical
investigations to determine the safety and effectiveness of devices, including
investigations of devices not cleared or approved for marketing, and
investigations involving new intended uses of previously cleared or approved
devices.

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Clinical investigations are regulated by the FDA under the investigational
device exemption ("IDE") regulations. The IDE regulations include significant
requirements that must be met, including informed patient consent, criteria for
selection of study investigators and monitors, review and approval of research
protocols, reporting obligations to the FDA, record keeping and prohibitions
against commercialization of investigational devices. A sponsor must obtain FDA
approval of an IDE before starting the investigation, unless the device is found
to be a non-significant risk device by the sponsor and each institutional review
board ("IRB") that reviews the study. The FDA, however, has the authority to
determine that a study designated as involving a non-significant risk device by
the sponsor and IRBs involves a significant risk device and an IDE application
must be submitted and approved before the study can resume. In addition, a study
of a non-significant risk device must still comply with certain provisions of
the IDE regulations, and meet other regulatory requirements. The violation of
the IDE regulations can result in a variety of sanctions, such as warning
letters, prohibition against additional clinical research, the refusal to accept
data and criminal prosecution.

Devices manufactured by the Company in the United States are exported by the
Company to other countries. Such devices, if not approved for sale in the United
States, are subject to the FDA export requirements, including restriction on
distribution in the United States.

The Company has received either ISO 9001 or ISO 9002 certification for all
of its manufacturing facilities regarding the quality of its manufacturing
systems, a requirement for doing business in EC countries. The Company has been
granted approval to affix the CE mark, pursuant to the EC Medical Device
Directives, on substantially all of its products. Instromedix has been granted
approval to affix the CE mark on certain of its products. Products not CE marked
cannot be distributed in the EC after June 16, 1998. CE marking does not
necessarily preclude, however, additional restrictions on marketing in any
individual country in the EC.

Certain countries require the Company to obtain clearances for its products
prior to marketing the products in those countries. In addition, certain
countries impose product specifications, standards or other requirements which
differ from or are in addition to those mandated in the United States. The EC
and certain countries are in the process of developing new modes of regulating
medical products which may result in lengthening the time required to obtain
permission to market new products. These changes could have a material adverse
effect on the Company's ability to market its products in such countries and
would hinder or delay the successful implementation of the Company's planned
international expansion.

The Company is registered as a medical device manufacturer with the FDA and
certain state agencies. These agencies inspect the Company periodically to
determine whether the Company is in compliance with the FDC Act and regulations,
including regulations relating to MDR reporting, product labeling and promotion,
and medical device QSRs governing design, manufacturing, testing, quality
control, product packaging and storage practices. An inspection may result in a
determination that the Company is not in compliance with certain FDA or state
requirements, may require the Company to undertake corrective action, and could
result in legal action against the Company and its products, including actions
such as those described herein. The FDA has recently revised the QSR
regulations. These revised regulations include new requirements such as design
control, which may increase the cost of regulatory compliance for the Company.
The MDR regulations promulgated by the FDA require the Company to provide
information to FDA on certain malfunctions, as well as serious injuries or
deaths which may have been associated with the use of a product. The EC Medical
Device Directives also require reporting of serious injuries or deaths which may
be associated with the use of a medical device to the competent authority in the
country where the incident occurred.

A determination that the Company is in violation of the FDC Act or such FDA
regulations could lead to the issuance of warning letters, imposition of civil
or criminal sanctions against the Company, its officers and employees, including
fines, recalls, repair, replacement or refund to the user of the cost of such
products. In addition, if the FDA believes any of the Company's products violate
the law and present a

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potential health hazard, the FDA could seek to detain and seize such products,
to require the Company to cease distribution and to notify users to stop using
the product. The FDA could also seek criminal sanctions or seek to close some or
all of the Company's manufacturing facilities. Such actions could also result in
an inability of the Company to obtain additional market clearances. Since 1994,
the Company has on fourteen occasions removed products from the market that were
found not to meet performance standards. None of such recalls materially
interfered with the Company's operations and all such affected product lines,
except the Model 599 Series infusion pump (as noted below), were subsequently
returned to the market. One such product recall, a voluntary recall related to
the Company's Signature Edition infusion pumps, was recently closed by the FDA,
however, the FDA could take further regulatory action against the Company,
including actions such as those described above. The Signature Edition infusion
pumps were recalled because of an unacceptable level of malfunction alarms due
to less than expected reliability of their pressure monitoring systems. The user
of these pumps is notified of such malfunction alarms by both a continuous
audible signal and a visual message. Without charge to its customers, the
Company has completed the upgrade and replacement of the current pressure
monitoring system contained in certain of the infusion pumps included within the
Signature Edition product line. The recall was completed at the end of the
second quarter of 1997. In addition, a voluntary recall of approximately 645
Gemini PC-1 infusion pumps (limited to distribution outside The United States)
was initiated by the Company in June 1996. The Company has completed required
modifications and was recently notified that this recall has been closed with
the FDA.

In the first quarter of 1997, the Company identified and subsequently
initiated a voluntary field correction of approximately 50,000 of its Gemini
model PC-1 and PC-2 infusion pumps because failure of specific electrical
components on the power regulator printed circuit board may result in improper
regulation of the battery charge voltage, which can cause the battery to
overheat. Such overheating could result in product failure and discharge of
hydrogen gas which may accumulate within the instrument's case. As an interim
measure, the Company has advised its customers of simple precautions that can be
taken to minimize the potential for an adverse incident pending completion of
the field correction. The Company is not aware of any injuries sustained in
battery overcharging incidents. The Company recorded a charge of $2.5 million to
cost of sales during the first quarter of 1997 for this field correction and
believes it has adequately accrued for this matter. However, there can be no
assurance that this field correction can be implemented for an amount consistent
with management's estimate.

The Company has initiated a voluntary safety alert of its Model 597/598 and
Model 599 Series infusion pumps. The Company discontinued selling the Model 599
Series infusion pumps in March 1997. The safety alert advises customers to
inspect and, if necessary, make an adjustment to the infusion pump in order to
prevent misloading of disposable administration sets.

The Company initiated a product recall of certain MS III disposable
administration sets affecting 44,000 units. This recall advised the user to
return the affected product for replacement. The sets were recalled due to a low
level assembly defect which could result in reverse flow. The Company was
recently notified that this recall has been closed.

The Company has initiated a voluntary field correction of its Signature
Edition infusion pumps to correct a malfunction of an electronic line filter
component (which malfunction may occur when a user fails to follow the Company's
written cleaning instructions and can result in an electrical short). The
Company is not aware of the occurrence of any injury incidents relating to a
malfunction of this type. During the third quarter of 1998, the Company will
also initiate a product Safety Alert regarding its Signature Edition infusion
pump instructing users to confirm the proper placement of a mechanism spring
which, if not properly positioned, could cause a free flow condition. In the
third quarter of 1998, the Company will initiate a recall of its Gemini PC-4
infusion pumps to correct certain electro-mechanical problems which may cause
one or more channels of the device to audibly and visibly alarm and temporarily
cease operation. The Company has also initiated a mandatory field upgrade of its
P-1000, P-2000, P-3000 and P-4000 syringe pumps because under certain
circumstances a rate change can occur. Although there

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can be no assurance, the Company believes that the voluntary field correction,
Safety Alert, recall and field upgrade, along with adjustments and corrections
that may be made to various Company products from time to time as an ordinary
part of the business of the Company, will not have a material adverse effect on
the business, financial condition, results of operation or prospects of the
Company or the Company's ability to make payments with respect to the Notes when
due.

Due to changes in FDA regulations, which as of May 1998 implement a new
performance standard for electrode lead wires and patient cables, Instromedix's
Rythm Stripper and hand held Pacer-Tracer products no longer comply with the
FDA's requirements and, therefore, may not be distributed into commerce by the
Company at this time. Instromedix estimates completing the required product
changes so that the products will be available for sale in August 1998. In a
letter dated August 12, 1998, the FDA advised the Company that the insulated tip
duel plug connector used with the Instromedix King of Hearts Express and other
ambulatory ECG monitors was also noncompliant with the new performance standard.
As a result, the Company has temporarily suspended shipment of these monitors
until it can provide an ECG lead wire which complies with the standard. The
Company believes that it will resume shipment of these products by November 30,
1998.

The Company's manufacturing facilities in San Diego have been licensed by
the State of California Department of Health Services, Food and Drug Branch,
under the applicable GMP and other regulations.

ANTI-REMUNERATION LAWS. The sale of the Company's products is subject to the
illegal remuneration/ "anti-kickback" provisions of the Social Security Act of
1935, as amended (the "Social Security Act"), which prohibits knowingly and
willfully offering, receiving or paying of any remuneration, whether directly or
indirectly, in return for inducing the purchase of items or services, or patient
referrals to providers of services, for which payment may be made in whole or in
part by Medicare, Medicaid or other federally funded health care programs.
Violations of the statute are punishable by civil and criminal penalties and the
exclusion of the provider from future participation in other federally funded
health care programs. The Social Security Act contains exceptions to these
prohibitions for, among other things, properly reported discounts, rebates and
payments of certain administrative fees to GPOs. Because of the breadth of the
statutory prohibitions, the lack of court decisions or other authority
addressing the types of arrangements that are permissible under the law and the
narrowness of statutory exceptions, the Secretary of Health and Human Services
published regulations creating "safe harbors" identifying certain practices that
will not be treated as violating the "anti-kickback" provisions of the Social
Security Act. While failure to satisfy all of the criteria for a safe harbor
does not necessarily mean that an arrangement is unlawful, engaging in a
business practice for which there is a safe harbor may be regarded as suspect if
the practice fails to meet each of the prescribed criteria of the appropriate
safe harbor. The enumerated safe harbors include safe harbors which implement,
and further refine, the statutory exceptions for discounts and payments to GPOs.
Because the Company sells some of its products to customers at prices below list
price and in various combinations, the Company is engaged in giving discounts
within the meaning of the Social Security Act. The regulations require sellers
to fully and accurately report all discounts and inform buyers of their
obligations to report such discount. The Company also pays administrative fees
to certain purchasing agents within the meaning of the Social Security Act. In
order to qualify for the GPO safe harbor, certain requirements must be met
including disclosure of the existence of the GPO fee arrangement to GPO members
and that members are neither wholly owned by the GPO nor subsidiaries of a
parent corporation that wholly owns the GPO. Certain of the Company's discounts
and arrangements with purchasing agents may not meet all the requirements of the
appropriate safe harbors.

Several states also have statutes or regulations prohibiting financial
relationships with referral sources that are not limited to services for which
Medicare, Medicaid or other state or federal health care program payment may be
made. A finding of non-compliance with these anti-remuneration laws by federal
or state regulatory officials, including non-compliance with appropriate safe
harbors, could have a material adverse effect on the Company.

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COVERAGE AND REIMBURSEMENT. The Company's products are purchased or leased
by health care providers or suppliers which submit claims for reimbursement for
such products to third-party payors such as Medicare, Medicaid and private
health insurers. Although the Company has no knowledge that third-party payors
will adopt measures that would limit coverage of, or reimbursement for, its
products, any such measures that were applied to the Company's products could
have a material adverse effect on the Company.

ENVIRONMENTAL MATTERS. The Company is subject to regulation by OSHA, the
Environmental Protection Agency ("EPA") and their respective state and local
counterparts, and under extensive and changing foreign, federal, state and local
environmental standards, including those governing the handling and disposal of
solid and hazardous wastes, discharges to the air and water, and the remediation
of contamination associated with releases of hazardous substances. Such
standards are imposed by, among other statutes, the Toxic Substances Control
Act, the Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). Although there can be no assurances,
the Company believes that it is currently in material compliance with current
environmental standards. Nevertheless, the Company uses hazardous substances in
its day-to-day operations and, as is the case with manufacturers in general, if
a release of hazardous substances occurs on or from the Company's properties,
the Company may be held liable and may be required to pay the cost of remedying
the condition. The amount of any such liability could be material.

The Company has made, and will continue to make, expenditures to comply with
current and future environmental standards. Although no material capital or
operating expenditures relating to environmental controls are anticipated, there
can be no assurance that changes in, additions to or differing interpretations
of, statutory and regulatory requirements will not require material expenditures
in the future.

The Company is subject to liability under CERCLA and analogous state laws
for the investigation and remediation of environmental contamination at
properties owned and/or operated by it and at off-site locations where it has
arranged for the disposal of hazardous substances. Courts have determined that
liability under CERCLA is, in most cases, joint and several, meaning that any
responsible party could be held liable for all costs necessary for investigating
and remediating a release or threatened release of hazardous substances. As a
practical matter, liability at most CERCLA (and similar) sites is shared among
all the solvent "potentially responsible parties" ("PRPs"). The most relevant
factors in determining the probable liability of a party at a CERCLA site
usually are the cost of the investigation and remediation, the relative amount
of hazardous substances contributed by the party to the site and the number of
solvent PRPs.

The Company is currently involved in two such matters: one, at the Seaboard
Chemical site in Jamestown, North Carolina, and another at the Caldwell Systems,
Inc., site in Lenoir, North Carolina. In relation to Seaboard Chemical site, the
Company has entered into a DE MICROMIS administrative order on consent with the
North Carolina Department of Environment, Health and Natural Resources and a
group of PRPs, settling its liability for past and future response costs
associated with the site. Under the consent order, the Company receives a
release from further liability associated with the site, a covenant not to sue
by the other PRPs entering into the consent order, and protection under CERCLA
against contribution actions for matters addressed by the consent order.
Protection from further liability is conditioned on the absence of information
indicating that the Company disposed of a greater quantity of hazardous
substances at the site than currently known. Although there can be no assurance
that such further information does not exist, the Company believes that the
amount of its liability at this site will be de minimis.

In relation to the Caldwell Systems, Inc. site, the Company has agreed to
enter into a DE MICROMIS administrative order on consent with the EPA and a
group of PRPs, settling its potential liability for past and future response
costs associated with the site. Under the consent order, the Company will
receive a

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covenant not to sue by the EPA and by other PRPs entering into the consent
order, and protection under CERCLA against contribution actions for matters
addressed by the consent order.

In 1997, the Company received a Notice of Intent to Sue from a citizen's
group which claimed that the Company had violated California's Safe Drinking
Water and Toxic Enforcement Act of 1986 ("Proposition 65") in the warning it
provided with respect to DEHP, a plasticizer used in certain of the Company's IV
sets. Proposition 65 requires, among other things, that warnings be given in
connection with the exposure of consumers to products containing certain listed
substances. The Company entered into a settlement agreement, pursuant to which
the Company received a release and covenant not to sue from the group.

FACILITIES

The Company owns or leases the following material properties:

<TABLE>
<CAPTION>
APPROXIMATE LEASE
SQUARE LEASED OR EXPIRATION
LOCATION FOOTAGE PURPOSE OWNED DATE
- ------------------------------------ ------------ ------------------------------------ ----------- -----------
<S> <C> <C> <C> <C>
San Diego, CA....................... 133,000 Executive Offices Leased 2006
San Diego, CA....................... 25,000 Executive Offices Subleased 2002
San Diego, CA....................... 34,000 Warehouse Leased 2005
San Diego, CA (1)................... 83,000 Manufacturing of Instruments Leased 2005
Creedmoor, NC....................... 120,000 Manufacturing of Disposable Sets Owned N/A
Tijuana, Mexico..................... 41,000 Contract Manufacturing of Disposable
Products Leased 1999(3)
Tijuana, Mexico..................... 38,000 Contract Manufacturing of Disposable
Products Leased 1999(3)
Hampshire, England (2).............. 43,000 International and United Kingdom
Manufacturing Leased 2012
</TABLE>

- ------------------------

(1) Primary instrument manufacturing facility.

(2) Lease contains a break clause that gives the Company the option to terminate
the lease in 2007.

(3) Cancellable upon 180 days notice.

EMPLOYEES

At June 30, 1998, the Company had a total of 2,874 full-time employees. The
Company has not experienced any work stoppages related to employment matters
other than in connection with a contract dispute with Cal Pacifico.

Cal Pacifico was the operator of the Company's two maquiladora assembly
plants in Tijuana, Mexico. For over eight years, the Company has assembled
disposable administration sets at these two plants, which utilize more than
1,200 workers employed by Cal Pacifico, under a contract with Cal Pacifico. The
dispute originated in April 1997 when the Company, in accordance with the terms
of such contract, informed Cal Pacifico that it would be terminating its
contractual arrangements effective August 1, 1997. Cal Pacifico objected to such
notification and proposed the systematic termination of the workforce. In
response to such objection, the Company on June 6, 1997 hired substantially all
of the workers at the plants directly. On June 11, 1997, Cal Pacifico locked the
Company's administrative personnel and production employees out of the plants
and would not allow the Company access to its production equipment or inventory.
On June 26, 1997, the Company entered into a settlement agreement with Cal
Pacifico. As a result of the settlement agreement, the assembly plants resumed
full operations on June 27, 1997. The Company now directly operates these plants
with no assistance from or interaction with Cal Pacifico.

77
<PAGE>
MANAGEMENT

DIRECTORS AND KEY EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
Directors and certain key executive officers of ALARIS Medical and/or ALARIS
Medical Systems.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
ALARIS MEDICAL AND ALARIS MEDICAL SYSTEMS
Jeffry M. Picower............................ 56 Director, Chairman of the Board
William J. Mercer............................ 50 Director, President and Chief Executive Officer
Douglas C. Jeffries.......................... 42 Vice President and Chief Financial Officer
Norman M. Dean (1)........................... 78 Director
Henry Green.................................. 55 Director
Richard B. Kelsky (1)........................ 43 Director
ALARIS MEDICAL SYSTEMS
John A. de Groot............................. 42 Vice President, Secretary and General Counsel
Jake St. Philip.............................. 45 Vice President and General Manager, North America
Anthony B. Semedo............................ 46 Vice President of Corporate Development
Richard M. Mirando........................... 55 Vice President of Operations
Henk van Rossem.............................. 55 Vice President and General Manager, International
</TABLE>

- ------------------------

(1) Member of Audit, Compensation and Stock Option Committees.

JEFFRY M. PICOWER. Mr. Picower was a Director, Vice President and the
Assistant Treasurer of ALARIS Medical from September 1988 to March 1989 and Vice
Chairman from December 1988 to June 1989. Mr. Picower was re-elected as a
Director and Co-Chairman of the Board of ALARIS Medical in March 1993 and became
Chairman of the Board in May 1993. Mr. Picower served as Chief Executive Officer
of ALARIS Medical from September 1993 to November 1996. Mr. Picower has served
as Chairman of the Board of ALARIS Medical Systems since the effective date of
the Merger. He has, since 1984, been Chairman of the Board and Chief Executive
Officer of Monroe Systems for Business, Inc. ("Monroe"), a worldwide office
equipment, distribution and service organization of which Mr. Picower is the
sole shareholder. Mr. Picower has been a Director of Physician Computer Network,
Inc. ("PCN") since January 1994 and Chairman of the Board of PCN since June
1994. PCN, a corporation whose principal shareholder is Mr. Picower, operates a
computer network linking its office-based physician members to health care
organizations. See "--Board of Directors."

WILLIAM J. MERCER. Mr. Mercer became a Director, the President and the
Chief Executive Officer of each of ALARIS Medical and ALARIS Medical Systems on
the effective date of the Merger. Mr. Mercer served as the Chief Financial
Officer of each of ALARIS Medical and ALARIS Medical Systems from March 1997
until August 1997. Prior to the effective date of the Merger, Mr. Mercer served
as President, Chief Executive Officer and a Director of IVAC Medical Systems and
President and a Director of IVAC Holdings since May 1995, and as Chief Executive
Officer of IVAC Holdings since January 1996. Prior to joining IVAC Medical
Systems, Mr. Mercer held various positions at Mallinckrodt Group, Inc. for 17
years, most recently as Senior Vice President. Mallinckrodt Group, Inc. is an
international company serving specialty markets in human health care and
pharmaceutical chemicals.

DOUGLAS C. JEFFRIES. Mr. Jeffries became a Vice President and the Chief
Financial Officer of each of ALARIS Medical and ALARIS Medical Systems in August
1997. Prior thereto, Mr. Jeffries served as Vice President of Finance and Chief
Financial Officer of Pyxis Corporation, a manufacturer of point-of-use
dispensing systems for pharmaceuticals and medical supplies, since August 1996.
From February 1994 through July 1996, Mr. Jeffries was Vice President,
Management Information Systems, at Cardinal

78
<PAGE>
Health Inc., a national health care service provider. From June 1992 through
January 1994, Mr. Jeffries served as Corporate Controller of Whitmire
Distribution, Inc., a wholesale pharmaceutical distributor.

NORMAN M. DEAN. Mr. Dean has been a Director of ALARIS Medical since March
1989. Mr. Dean has been a Director and President of Foothills Financial
Corporation, a venture capital company, since January 1985 and Chairman of the
Board of Miller Diversified Corp., a commercial cattle feeder, since May 1990.

HENRY GREEN. Mr. Green was President and Chief Operating Officer of ALARIS
Medical from September 1990 to March 1993 and has been a Director of ALARIS
Medical since 1991. Mr. Green was employed by PCN in March 1993 and elected as
President of PCN in May 1993, Chief Executive Officer of PCN in June 1994 and a
Director of PCN in July 1993. Mr. Green served as President and Chief Executive
Officer of PCN until his retirement in December 1997. See "--Board of
Directors."

RICHARD B. KELSKY. Mr. Kelsky has served as a Director of ALARIS Medical
since June 1989. Mr. Kelsky is a Director of Monroe and served as Vice President
and General Counsel of Monroe from 1984 to 1996. Mr. Kelsky has served as Vice
Chairman of Monroe since 1996. Mr. Kelsky has served as a Director of PCN since
January 1992. See "--Board of Directors."

JOHN A. DE GROOT. Mr. de Groot became the Secretary of each of ALARIS
Medical and ALARIS Medical Systems in March 1997. Mr. de Groot became a Vice
President and General Counsel of ALARIS Medical Systems as of November 1996.
Prior thereto, Mr. de Groot served as a Vice President and General Counsel of
IVAC Holdings, Inc. and IVAC Medical Systems since April 1995. From January 1991
to December 1996, Mr. de Groot was a partner in the law firm of Brobeck, Phleger
& Harrison LLP, a firm he had been associated with since March 1987.

JAKE ST. PHILIP. Mr. St. Philip became Vice President of Sales, North
America of ALARIS Medical Systems as of November 1996. Prior thereto, Mr. St.
Philip served as Vice President of Sales, North America of IVAC Medical Systems
since June 1994. From 1981 to June 1994, Mr. St. Philip held various sales and
marketing positions with IVAC Medical Systems.

ANTHONY B. SEMEDO. Mr. Semedo became Vice President of Corporate
Development in January 1998. From November 1996 until February 1998, Mr. Semedo
served as Vice President of Research, Development and Engineering of ALARIS
Medical Systems. Prior thereto, Mr. Semedo served as Vice President of Research
and Development of IVAC Medical Systems since February 1995. From September 1994
to February 1995, Mr. Semedo served as Vice President of Quality of IVAC Medical
Systems. From August 1992 to September 1994, Mr. Semedo served as the Business
Development Manager of the cardiovascular business and the Quality Assurance
Manager of the medical devices and diagnostics division of Eli Lilly and
Company. Eli Lilly and Company is engaged in the discovery, development,
manufacture and sale of products, and the provision of services in the life
sciences industry.

RICHARD M. MIRANDO. Mr. Mirando became Vice President of Operations of
ALARIS Medical Systems as of November 1996. Prior thereto, Mr. Mirando served as
Vice President and General Manager of International Business of IVAC Medical
Systems since January 1995. From 1978 to January 1995, Mr. Mirando held various
positions, including Marketing Manager, Director of Market Planning and
Research, Director of Sales, Executive Director of International Operations,
Vice President Sales and Marketing--Fluid Delivery Division, Vice
President--Corporate Accounts and Pricing, and Vice President--Corporate
Quality/Service Business Unit, with IVAC Medical Systems.

HENK VAN ROSSEM. Mr. van Rossem became Vice President and General Manager,
International of ALARIS Medical Systems in January 1997. Prior thereto, Mr. van
Rossem held various international marketing and sales positions with
Mallinckrodt Group, Inc. since 1984. Mr. van Rossem's last position with
Mallinckrodt Group, Inc. was Vice President and General Manager of the European
nuclear medicine division.

79
<PAGE>
BOARD OF DIRECTORS

The Board of Directors of ALARIS Medical consists of five members. Directors
serve for terms of one year and until their successors are duly elected and have
qualified. The members of the Board of Directors of ALARIS Medical also serve as
and constitute all of the members of the Board of Directors of ALARIS Medical
Systems.

Mr. Picower is the principal shareholder, and Messrs. Picower, Green and
Kelsky are directors of PCN. In early March 1998 PCN announced the discovery of
instances of improper income and expense recognition in the first three quarters
of its fiscal year ended December 31, 1997, as well as delay in the completion
of its financial statements for that year. In addition, in May 1998, PCN
announced that its auditors had informed it that they were reviewing certain
matters with respect to PCN's financial statements for the year ended December
31, 1996 and that they had determined to withdraw their previously issued report
on those financial statements. In connection with the foregoing, numerous class
action lawsuits have been filed against PCN, as well as certain of its officers
and directors, including Mr. Green and, in certain instances, Mr. Picower. The
lawsuits allege, among other things, that PCN issued false and misleading
financial statements.

COMPENSATION OF DIRECTORS

Members of the Board of Directors who are not employees of the Company are
paid $25,000 per annum and in addition receive $1,000 per board and/or committee
meeting attended. In addition, such Directors are entitled to receive options to
purchase shares of Common Stock pursuant to the Directors Plan. See
"--Stock-Based Benefit Plans--Directors Plan." Travel and accommodation expenses
of Directors incurred in connection with meetings are reimbursed by ALARIS
Medical. All of the Directors are covered by ALARIS Medical's directors'
liability insurance policy.

80
<PAGE>
EXECUTIVE COMPENSATION

The following table summarizes certain information regarding compensation
paid or accrued by ALARIS Medical, its subsidiaries or IVAC Medical Systems to
or on behalf of ALARIS Medical's Chief Executive Officer, each of the four most
highly compensated executive officers of ALARIS Medical Systems, other than the
Chief Executive Officer, whose total annual salary and bonus for the year ended
December 31, 1997 exceeded $100,000 (collectively, the "Named Executive
Officers") and Joseph W. Kuhn:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------- --------------------------
OTHER ANNUAL SECURITIES
YEAR SALARY BONUS COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) (2) (3) (4) OPTIONS COMPENSATION
- ------------------------------------------- --------- --------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM J. MERCER ......................... 1997 $ 400,008 $ 360,000 $ -- -- $ 6,366
President and Chief Executive Officer 1996 319,334 312,965 -- 600,000 2,998,298

JOHN A. DE GROOT .......................... 1997 200,004 87,395 -- -- 3,559
Vice President, Secretary and General 1996 131,254 125,232 -- 180,000 384,108
Counsel

RICHARD M. MIRANDO ........................ 1997 197,316 71,047 -- -- 4,750
Vice President of Operations 1996 181,319 92,401 13,216 180,000 625,939

HENK VAN ROSSEM ........................... 1997 200,823 75,594 17,923 180,000 44,078
Vice President and General Manager, 1996 -- -- -- -- --
International

JAKE ST. PHILLIP .......................... 1997 167,127 71,358 -- -- 20,484
Vice President of Sales, North America 1996 144,894 111,425 -- 180,000 607,734

JOSEPH W. KUHN (5) ........................ 1997 41,668 -- 2,227 -- 1,118,878
1996 226,348 139,236 12,519 175,000 3,413
1995 175,000 60,000 9,250 125,000 2,053
</TABLE>

- ------------------------------

(1) Compensation data is not presented for the Named Executive Officers for 1995
as none were employed by ALARIS Medical and/or ALARIS Medical Systems prior
to November 26, 1996.

(2) 1996 "Salary" amounts for the Named Executive Officers consist of salaries
paid by IVAC Medical Systems through November 1996 and salaries paid by
ALARIS Medical Systems for December 1996. 1997 salaries were paid by ALARIS
Medical Systems or its subsidiaries.

(3) 1996 "Bonus" amounts for the Named Executive Officers represent amounts
earned in their respective positions with IVAC Medical Systems prior to the
Merger but paid by ALARIS Medical Systems.

(4) Amounts represent automobile allowances paid by ALARIS Medical Systems. With
respect to Mr. Mirando, automobile allowances through November 1996 were
paid by IVAC Medical Systems.

(5) Mr. Kuhn resigned from his positions as the Executive Vice President and
Chief Financial Officer of each of ALARIS Medical and ALARIS Medical Systems
in March of 1997. Prior to the Merger, Mr. Kuhn served as President,
Treasurer and Secretary of IMED and President, Chief Financial Officer,
Treasurer and Secretary of ALARIS Medical.

81
<PAGE>

<TABLE>
<CAPTION>
COMPANY STOCK OPTION
RETIREMENT RELOCATION CANCELLATION TOTAL OTHER
NAME YEAR CONTRIBUTIONS (1) PAYMENTS (2) PAYMENT (3) OTHER COMPENSATION
- ------------------------------ ---- ----------------- ------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William J. Mercer............. 1997 $ 4,750 $ -- $ -- $ (1,6164) $ 6,366
1996 4,120 271,980 2,722,198 -- 2,998,298

John A. de Groot.............. 1997 3,559 -- -- -- 3,559
1996 3,000 -- 381,108 -- 384,108

Richard M. Mirando............ 1997 4,750 -- -- -- 4,750
1996 5,440 23,202 597,297 -- 625,939

Henk van Rossem............... 1997 17,568 26,510 -- -- 44,078
1996 -- -- -- -- --

Jake St. Phillip.............. 1997 4,750 -- -- 15,733(5) 20,483
1996 4,346 4,504 598,884 -- 607,734

Joseph W. Kuhn................ 1997 878 -- -- 1,118,000(6) 1,118,878
1996 3,413 -- -- -- 3,413
1995 2,053 -- -- -- 2,053
</TABLE>

- ------------------------------

(1) Represents contributions made by ALARIS Medical Systems (and by IMED and
IVAC Medical Systems prior to the Merger) to match pre-tax elective deferral
contributions made by the Named Executive Officers and Mr. Kuhn to
retirement plans.

(2) Represents relocation and temporary living expenses paid by IVAC Medical
Systems prior to the Merger and by the Company after the Merger.

(3) Represents stock option cancellation payments paid by ALARIS Medical Systems
in connection with the Merger for unexercised stock options previously
granted under the IVAC Holdings 1995 stock option plan.

(4) Represents life insurance premium paid by ALARIS Medical Systems.

(5) Represents the fair value of noncash awards grossed-up to cover applicable
state and federal income taxes.

(6) Represents separation amount paid to Mr. Kuhn in connection with his
resignation in March 1997 for various matters, including amount paid for
cancellation of then outstanding stock options.

EMPLOYMENT AGREEMENTS

In August 1996, Mr. Mercer entered into an employment agreement whereby he
became employed full time by the Company upon consummation of the Merger. The
agreement is for a term of five years, subject to automatic renewal for
successive one-year periods and to earlier termination as provided therein. The
agreement provides for, among other things, a base salary of $400,000, certain
annual and additional bonuses in an aggregate amount up to 100% of Mr. Mercer's
base annual salary in each such year, options to purchase an aggregate of
600,000 shares of Common Stock, and, in the event Mr. Mercer's employment is
terminated by the Company without cause or due to a disability (as defined
therein), or by Mr. Mercer for good reason (as defined therein), severance
payments in an amount equal to Mr. Mercer's base salary annually until the end
of the employment term. The agreement also contains certain confidentiality,
non-solicitation and non-competition provisions.

In January 1998, Mr. Mercer's employment agreement was amended whereby the
base salary was increased to $432,000, effective as of January 1, 1998.

SEVERANCE PLAN

The Company has in place a severance plan which provides officers of the
Company with a lump sum payment equal to one year's base salary in the event of
termination prior to November 26, 1998, if for other than cause.

STOCK-BASED BENEFIT PLANS

1988 STOCK OPTION PLAN. Under the Third Amended and Restated 1988 Stock
Option Plan of ALARIS Medical (the "1988 Option Plan"), incentive stock options
with respect to shares of Common Stock

82
<PAGE>
("ISOs"), as provided in Section 422 of the Internal Revenue Code, may be
granted to key employees of the Company, and non-qualified stock options with
respect to shares of Common Stock ("NQSOs") may be granted to key employees,
Directors (except Directors eligible to participate in the Directors Plan (as
defined)), and officers of the Company and affiliates, as well as independent
contractors and consultants performing services for such entities. The maximum
aggregate number of shares of Common Stock that may be issued under the 1988
Option Plan is 1,700,200. The number of shares of Common Stock which remain
available for issuance under the 1988 Option Plan is 1,462,007, of which 587,993
are subject to currently outstanding options.

The 1988 Option Plan is administered by a committee appointed by the Board
of Directors of ALARIS Medical (the "1988 Committee"). No member of the 1988
Committee is eligible to receive options under the 1988 Option Plan.

Pursuant to the 1988 Option Plan, the purchase price of shares of Common
Stock subject to ISOs must be not less than the fair market value of the Common
Stock at the date of the grant; provided that the purchase price of shares
subject to ISOs granted to any optionee who owns shares possessing more than 10%
of the combined voting power of ALARIS Medical or any parent or subsidiary of
ALARIS Medical ("Ten Percent Shareholder") must be not less than 110% of the
fair market value of the Common Stock at the date of the grant. With respect to
NQSOs, the purchase price of shares will be determined by the 1988 Committee at
the time of the grant, but will not be less than the par value of a share of
Common Stock. The maximum term of an option may not exceed 10 years from the
date of grant, except with respect to ISOs granted to Ten Percent Shareholders
which must expire within five years of the date of grant. Options granted vest
and become exercisable as determined by the 1988 Committee. The 1988 Committee
will limit the grant so that no more than 250,000 shares of Common Stock
(subject to certain adjustments) may be awarded to any one employee in any
calendar year. During the lifetime of an optionee, his or her options may be
exercised only by such optionee. Options are not transferable other than by will
or by the laws of descent and distribution.

Options granted to participants under the 1988 Option Plan are subject to
forfeiture under certain circumstances in the event an optionee is no longer
employed by or performing services for the Company.

In the event of a Change of Control, as defined in the 1988 Option Plan,
unless otherwise determined by the 1988 Committee at the time of grant or by
amendment (with the holder's consent) of such grant, all options not vested on
or prior to the effective time of any such Change of Control shall immediately
vest as of such effective time.

1996 STOCK OPTION PLAN. Under the 1996 Stock Option Plan of ALARIS Medical
(the "1996 Option Plan"), ISOs with respect to shares of Common Stock may be
granted to key employees of the Company and NQSOs with respect to shares of
Common Stock may be granted to key employees, Directors (except Directors
eligible to participate in the Directors Plan), and officers of the Company and
its affiliates, as well as independent contractors and consultants performing
services for such entities. The maximum aggregate number of shares of Common
Stock that may be issued under the 1996 Option Plan is 5,500,000. The number of
shares of Common Stock which remain available for issuance under the 1996 Option
Plan is 5,485,125, of which 3,196,330 are subject to currently outstanding
options.

The 1996 Option Plan is administered by the Board of Directors of ALARIS
Medical or a committee appointed by the Board of Directors of ALARIS Medical
(the "1996 Committee"). No member of the 1996 Committee is eligible to receive
options under the 1996 Option Plan.

Pursuant to the 1996 Option Plan, the purchase price of shares of Common
Stock subject to ISOs must be not less than the fair market value of the Common
Stock at the date of the grant; provided that the purchase price of shares
subject to ISOs granted to any Ten Percent Shareholder must be not less than
110% of the fair market value of the Common Stock at the date of the grant. With
respect to NQSOs, the purchase price of shares will be determined by the 1996
Committee at the time of the grant, but will not be

83
<PAGE>
less than the par value of a share of Common Stock. The maximum term of an
option may not exceed 10 years from the date of grant, except with respect to
ISOs granted to Ten Percent Shareholders which must expire within five years of
the date of grant. Options granted vest and become exercisable as determined by
the 1996 Committee. Under the 1996 Option Plan, no more than 600,000 shares of
Common Stock (subject to certain adjustments) may be awarded to any officer or
employee in any calendar year. During the lifetime of an optionee, his or her
options may be exercised only by such optionee or by his or her guardian or
legal representative, except that the 1996 Committee may permit a NQSO to be
transferred to and exercised by one or more transferees of an optionee. Options
are not transferable other than (i) as provided in the immediately preceding
sentence; (ii) by will; (iii) by the laws of descent and distribution; or (iv)
to a beneficiary upon the death of the optionee.

Options granted to participants under the 1996 Option Plan are subject to
forfeiture under certain circumstances in the event an optionee is no longer
employed by or performing services for the Company.

In the event of a Change of Control, as defined in the 1996 Option Plan,
unless otherwise determined by the 1996 Committee at the time of grant or by
amendment (with the holder's consent) of such grant, all options not vested on
or prior to the effective time of any such Change of Control shall immediately
vest prior to such effective time. Unless otherwise determined by the 1996
Committee in an optionee's stock option agreement or at the time of the Change
of Control, in the event of a Change of Control, all unexercised options held by
such optionee shall terminate and cease to be outstanding immediately following
such Change of Control.

The following table sets forth certain information with respect to stock
options granted during 1997 to the Named Executive Officers pursuant to the 1988
Option Plan and the 1996 Option Plan.

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATE OF STOCK
SECURITIES TOTAL OPTIONS APPRECIATION FOR THE
UNDERLYING GRANTED TO EXERCISE OF OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
GRANTED 1997 (PER SHARE) DATE 5% 10%
----------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Henk van Rossem........................ 36,001 3.8% $ 3.19 7-24-06 $ 54,832 $ 131,333

Henk van Rossem........................ 143,999 15.4 3.19 7-24-10 365,582 982,302
</TABLE>

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND OPTION VALUES AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT 12/31/97
SHARES OPTIONS AT 12/31/98 (1)
ACQUIRED ON VALUE -------------------------- --------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Mercer.................... -- $ -- 200,000 400,000 $ 375,000 $ 750,000

John A. de Groot..................... -- -- 63,667 116,333 119,376 218,124

Richard M. Mirando................... -- -- 63,667 116,333 119,376 218,124

Henk van Rossem...................... -- -- 45,001 134,999 75,962 227,878

Jake St. Philip...................... -- -- 63,667 116,333 119,376 218,124
</TABLE>

- ------------------------

(1) Calculated based on the excess of the closing price of ALARIS Medical's
common stock on December 31, 1997 ($4.875) as reported in the NASDAQ
National Market Issues published in THE WALL STREET JOURNAL over the option
exercise price.

84
<PAGE>
DIRECTORS PLAN. The Third Amended and Restated 1990 Non-Qualified Stock
Option Plan for Non-Employee Directors of ALARIS Medical (the "Directors Plan")
was most recently amended (the "Amendment") by the Board of Directors of ALARIS
Medical in May 1998. The Amendment was approved by ALARIS Medical's stockholders
in June 1998. Under the Directors Plan, each Director of ALARIS Medical
("Eligible Director") who (i) is neither an employee nor officer (other than an
officer who does not receive a salary as an officer of ALARIS Medical) of ALARIS
Medical or any of its subsidiaries and (ii) has not elected to decline to
participate in the Directors Plan pursuant to an irrevocable one-time election
made within 30 days after first becoming a Director of ALARIS Medical is
eligible to participate in the Directors Plan. An aggregate of 250,000 shares of
Common Stock may be issued under the Directors Plan. The number of shares of
Common Stock which remain available for issuance under the Directors Plan is
238,800, of which 103,000 are subject to currently outstanding options.

The Directors Plan is administered by a committee (the "Plan Committee")
appointed by the Board of Directors of ALARIS Medical consisting of at least two
individuals who are not eligible to participate in the Directors Plan. The Plan
Committee has the authority to administer all aspects of the Directors Plan
other than (i) the grant of NQSOs; (ii) the number of shares of Common Stock
subject to NQSOs; and (iii) the price at which each share of Common Stock
covered by a NQSO may be purchased, all of which are determined automatically
under the Directors Plan.

As a result of the Amendment, NQSOs to purchase 10,000 shares of Common
Stock will be granted automatically to any Eligible Director who first becomes
an Eligible Director after May 28, 1998 on the next succeeding business day
following his or her becoming an Eligible Director. In addition, NQSOs to
purchase 10,000 shares of Common Stock are granted automatically to each
Eligible Director on the anniversary date of his or her preceding NQSO grant
under the Directors Plan and every year thereafter during the term of the
Directors Plan, PROVIDED that such Eligible Director continues to be an Eligible
Director on the date of each such additional NQSO grant. Moreover, the Chairman
of the Board of ALARIS Medical was granted a NQSO to purchase 16,000 shares of
Common Stock on May 28, 1998, which NQSO is fully vested and presently
exercisable. Other than the aforesaid NQSO grant to the Chairman of the Board of
ALARIS Medical, NQSOs granted under the Directors Plan vest and become
exercisable in one-third increments for each year of an Eligible Director's
service on the Board of Directors of ALARIS Medical from the date of the grant
of the NQSO. Immediately prior to the Amendment, NQSOs to purchase 15,000 shares
of Common Stock, which vest at the rate of 5,000 shares of Common Stock per
year, were granted to Eligible Directors every three years.

Pursuant to the Directors Plan, the purchase price of shares of Common Stock
subject to NQSOs must be equal to the fair market value of a share of Common
Stock on the date of the grant of the NQSO. The maximum term of each NQSO may
not exceed five years from the date of grant. During the lifetime of an Eligible
Director, his or her NQSOs may be exercised only by such Eligible Director or by
his or her legal guardian or legal representative, except that the Plan
Committee may permit a NQSO to be transferred to and exercised by one or more
transferees of such Eligible Director. NQSOs are not transferable other than (i)
as provided in the immediately preceding sentence; (ii) by will; (iii) by the
laws of descent and distribution; or (iv) to a beneficiary upon the death of the
Eligible Director.

NQSOs granted under the Directors Plan are subject to termination under
certain circumstances in the event the Eligible Director ceases to be an
Eligible Director or becomes an employee of the Company.

In the event of a Change of Control, as defined in the Directors Plan, all
NQSOs not vested on or prior to the effective time of any such Change of Control
shall vest immediately prior to such effective time. Unless otherwise determined
by the Plan Committee at the time of a Change of Control, in the event of a
Change of Control all outstanding NQSOs shall terminate and cease to be
outstanding immediately following the Change of Control.

85
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no reportable compensation committee interlocks or insider
participation transactions.

In connection with the Merger, Mr. Mercer entered into an employment
agreement with ALARIS Medical and ALARIS Medical Systems. See "--Employment
Agreements."

For further information regarding certain relationships and related
transactions, see "Certain Relationships and Related Transactions."

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, at June 30, 1998, information regarding the
beneficial ownership of Common Stock by (i) all persons known by ALARIS Medical
who own beneficially more than 5% of the outstanding Common Stock; (ii) each
Director of ALARIS Medical; (iii) each of the Named Executive Officers; and (iv)
all Directors and the Named Executive Officers as a group. Unless otherwise
stated, ALARIS Medical believes that the beneficial owners of the shares listed
below have sole investment and voting power with respect to such shares. In
addition, unless otherwise indicated, each such person's business address is
10221 Wateridge Circle, San Diego, California 92121.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
OWNED TOTAL (1)
-------------- -------------
<S> <C> <C>
Jeffry M. Picower .......................................... 46,664,209(2) 78.1%
South Ocean Blvd.
Palm Beach, FL 33480
William J. Mercer........................................... 356,200(3) *
Norman M. Dean.............................................. 26,000(4) *
Henry Green................................................. 13,000(5) *
Richard B. Kelsky........................................... 98,100(6) *
Jake St. Philip............................................. 82,334(7) *
Richard M. Mirando.......................................... 92,334(8) *
John A. de Groot............................................ 87,334(9) *
Henk van Rossem............................................. 72,001(10) *
All Directors and Named Executive Officers
as a group (9 individuals)................................ 47,491,512(11) 79.5%
</TABLE>

- ------------------------

* Less than 1%

(1) Calculated in accordance with Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934, as amended. At June 30, 1998, ALARIS Medical had
59,159,839 shares of Common Stock outstanding.

(2) Includes: (i) 20,079,477 shares of Common Stock owned by Decisions; (ii)
2,489,463 shares of Common Stock owned by JA Special; (iii) 24,074,269
shares of Common Stock owned by JD Partnership and (iv) currently
exercisable option on 21,000 shares of Common Stock granted under the
Directors Plan. Does not include an option to purchase 10,000 shares of
Common Stock granted under the Directors Plan that vests over time. Mr.
Picower is the sole stockholder and sole Director of Decisions, which is
the sole general partner of JD Partnership, and the sole general partner of
JA Special. As a result, Mr. Picower shares or has the sole power to vote
or direct the vote of and to dispose or direct the disposition of such
shares of Common Stock and may be deemed to be the beneficial owner of such
shares.

(3) Includes: (i) 156,200 shares of Common Stock owned by the William J. Mercer
Trust, of which Mr. Mercer is the trustee and a beneficiary; and (ii)
currently exercisable option on 200,000 shares of Common Stock granted upon
consummation of the Merger under the 1996 Option Plan. In addition,
pursuant to an employment agreement with the Company, Mr. Mercer has been
granted under the 1996 Option Plan an additional option on 400,000 shares
of Common Stock that vests over time. See "Management--Employment
Agreements."

(4) Includes: (i) 4,000 shares of Common Stock owned by Norman Dean; (ii)
currently exercisable option on 16,000 shares of Common Stock under the
Directors Plan, and currently exercisable option on 5,500 shares of Common
Stock granted in consideration for service on a special committee of the
Board of Directors and (iii) an option on 500 shares of Common Stock which
will become exercisable within 60 days. Does not include: (i) option on an
additional 8,000 shares of Common Stock granted under the Directors Plan
that vests over time; and (ii) option on 4,000 shares of Common Stock
granted in consideration for service on a special committee of the Board of
Directors of ALARIS Medical that vests over time.

(5) Does not include an option to purchase 4,000 of Common Stock granted under
the Directors Plan that vests over time.

(6) Includes currently exercisable option on 16,000 shares of Common Stock
granted under the Directors Plan. Does not include option on an additional
8,000 shares of Common Stock granted under the Directors Plan that vests
over time.

(7) Represents currently exercisable option on 81,667 shares of Common Stock
granted under the 1996 Option Plan and an option on 667 shares of Common
Stock which will become exercisable within 60 days. Does not include option
of 97,666 shares of Common Stock granted under the 1996 Option Plan that
vests over time.

(8) Includes: (i) 10,000 shares of Common Stock owned by Richard M. Mirando;
(ii) a currently exercisable option on 81,667 shares of Common Stock
granted under the 1996 Option Plan; and (iii) an option on 667 shares of
Common Stock which will become exercisable within 60 days. Does not include
option of 97,666 shares of Common Stock granted under the 1996 Option Plan
that vests over time.

(9) Includes: (i) 5,000 shares of Common Stock owned by John A. de Groot; (ii)
a currently exercisable option on 81,667 shares of Common Stock granted
under the 1996 Option Plan; and (iii) and an option on 667 shares of Common
Stock which will become exercisable within 60 days. Does not include option
of 97,666 shares of Common Stock granted under the 1996 Option Plan that
vests over time.

(10) Includes currently exercisable option on 63,001 shares of Common Stock
granted under the 1996 Option Plan and an option on 9,000 shares of Common
Stock which will become exercisable within 60 days. Does not include
option on an additional 107,999 shares of Common Stock granted under the
1996 Option Plan that vests over time.

(11) Includes currently exercisable options on 530,003 shares of Common Stock
granted under the 1996 Option Plan and 56,000 shares of Common Stock
granted under the Directors Plan.

87
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

DECISIONS CONTRIBUTION

In connection with the Merger, ALARIS Medical made a capital contribution
(the "Capital Contribution") of approximately $20.0 million to IMED. The Capital
Contribution was funded in part through the sale to Decisions, a corporation
wholly owned by ALARIS Medical's principal stockholder, by ALARIS Medical of
approximately 13.3 million shares of Common Stock for aggregate proceeds of
$40.0 million (the "Decisions Contribution"). The balance of the Capital
Contribution was funded with existing cash balances of ALARIS Medical. The
portion of the net proceeds of the Decisions Contribution not applied to make
the Capital Contribution was used by ALARIS Medical to redeem approximately
$22.0 million principal amount of its 15% Subordinated Debentures due 1999 and
fund the redemption of ALARIS Medical's outstanding preferred stock. In
connection with the Decisions Contribution, Decisions exchanged an aggregate of
$37.5 million in principal amount of convertible promissory notes issued by
ALARIS Medical for approximately 29.4 million shares of Common Stock. See "Risk
Factors--Control of the Company," "Management--Directors and Key Executive
Officers" and "Principal Stockholders."

NON-CASH CONTRIBUTIONS

Effective June 30, 1996, ALARIS Medical made non-cash contributions totaling
$41.2 million to IMED. Included in this capital contribution was $2.9 million
representing ALARIS Medical's net carrying value of certain patents which up to
June 30, 1996 had been licensed to IMED for $1.1 million per year. Amounts
accrued to ALARIS Medical under this license, as well as other intercompany
charges due to ALARIS Medical totaling $9.4 million were contributed to IMED.
Additionally, ALARIS Medical contributed $8.8 million representing the
outstanding par value and accrued dividends on all outstanding shares of IMED
12% preferred stock. These preferred shares were then cancelled.

Pursuant to IMED's tax sharing agreement with ALARIS Medical, for Federal
and California income tax purposes, IMED was required to calculate its income
tax liability on a stand-alone basis as if it were not included in the ALARIS
Medical consolidated income tax return. The resulting tax liability was payable
to ALARIS Medical. Due to restrictions on payments from IMED to ALARIS Medical
contained in IMED's credit facility (the "IMED Credit Facility"), income tax
payments to ALARIS Medical were limited to actual tax liabilities of ALARIS
Medical. Due to losses incurred at the ALARIS Medical level which reduced the
consolidated taxable income, the income tax liabilities recorded by IMED on a
stand-alone basis were significantly greater than the amounts actually paid to
ALARIS Medical. As of June 30, 1996 ALARIS Medical agreed to contribute to IMED
stockholder's equity income tax payments due from IMED but which could not be
paid pursuant to the IMED Credit Facility. As a result of this agreement by
ALARIS Medical, approximately $20.1 million was credited to IMED's capital in
excess of par and the corresponding income tax liabilities were eliminated from
IMED's consolidated balance sheet. Such liabilities amounted to approximately
$18.9 million at December 31, 1995.

TRANSACTIONS WITH MANAGEMENT

In connection with the Merger, Mr. Mercer entered into an employment
agreement with ALARIS Medical and ALARIS Medical Systems. See
"Management--Employment Agreements."

88
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS

The existing indebtedness of the Company summarized below will remain
outstanding subsequent to the Acquisition. The summaries of such indebtedness
contained herein do not purport to be complete and are qualified in their
entirety by reference to the provisions of the various agreements and indenture
related thereto, copies of which are available from ALARIS Medical upon request.

THE 9 3/4% NOTES

On November 26, 1996, ALARIS Medical Systems issued and sold $200 million
principal amount of 9 3/4% Notes pursuant to an indenture (the "9 3/4% Notes
Indenture"). The 9 3/4% Notes were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In September 1997, ALARIS Medical Systems
and certain of its subsidiaries completed an exchange offer whereby the 9 3/4%
Notes were exchanged into new 9 3/4% Notes, which are registered under
Securities Act with terms substantially identical to the 9 3/4% Notes.

The 9 3/4% Notes will mature on December 1, 2006. Interest accrues at the
rate of 9 3/4% per annum and is payable semi-annually in arrears on each June 1
and December 1. Payments of principal, premium and interest on the 9 3/4% Notes
are subordinated, as set forth in the 9 3/4% Notes Indenture, to the prior
payment in full of the Senior Debt (as defined in the 9 3/4% Notes Indenture).

At any time prior to December 1, 1999, ALARIS Medical Systems may, on one or
more occasions, redeem up to $70.0 million in aggregate principal amount of the
9 3/4% Notes with any of the net proceeds of one or more public or private
offerings of common stock of (i) ALARIS Medical or any other corporate parent of
ALARIS Medical Systems to the extent the net proceeds thereof are contributed to
ALARIS Medical Systems as a capital contribution to common equity or (ii) ALARIS
Medical Systems in each case, at a redemption price of 109.75% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any. At any time on
or after December 1, 2001, the 9 3/4% Notes may be redeemed at the option of
ALARIS Medical Systems, in whole or in part, at a premium that declines each
year until December 1, 2004 when the 9 3/4% Notes may be redeemed at 100% of
their principal amount. In the event of a Change of Control (as defined in
9 3/4% Notes Indenture), the holders of the 9 3/4% Notes have the right to
require ALARIS Medical Systems to purchase the 9 3/4% Notes, in whole or in
part, at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.

The 9 3/4% Notes Indenture contains various restrictive covenants that limit
the ability of ALARIS Medical Systems and its subsidiaries to, among other
things, incur additional indebtedness, consummate certain asset sales, enter
into certain transactions with affiliates, pay dividends or make certain other
restricted payments, issue preferred stock, incur liens, enter in sale and
leaseback transactions, incur indebtedness that is subordinate in right of
payment of any Senior Debt pursuant to the 9 3/4% Notes Indenture and senior in
right of payment to the 9 3/4% Notes, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to ALARIS Medical Systems
and its subsidiaries, merge or consolidate or sell, assign, transfer, lease
convey or otherwise dispose of all or substantially all of the assets of ALARIS
Medical Systems, engage in sales of their respective accounts receivable and
engage in any line of business other than (i) the same or a similar line of
business as ALARIS Medical Systems and its subsidiaries were engaged in on
November 26, 1996 and (ii) such business activities as are complementary to or
are incidents, ancillary or related to the foregoing.

CREDIT FACILITY

GENERAL. In connection with the Merger, ALARIS Medical Systems entered into
a credit facility (as amended to date, the "Credit Facility") which is comprised
of a Term Loan Facility and a Revolving Credit Facility. Capitalized terms that
are used but not otherwise defined herein shall have the meanings assigned to
them in the Credit Facility and those definitions are incorporated herein by
reference.

89
<PAGE>
The Credit Facility consists of a $230.0 million Term Loan Facility and a
$60.0 million 68-month Revolving Credit Facility. The Term Loan Facility is
comprised of $75.0 million of Tranche A Term Loans amortizing over 68 months,
$42.5 million of Tranche B Term Loans amortizing over 83 months, $42.5 million
of Tranche C Term Loans amortizing over 95 months and $70.0 million of Tranche D
Term Loans amortizing over 101 months.

The proceeds of the Term Loan Facility were used by the Company to fund
certain amounts payable in connection with the Merger. The Revolving Credit
Facility, is available for general corporate purposes.

CREDIT FACILITY AMENDMENT. The Company entered into the Credit Facility
Amendment to, among other things, obtain the consent of the lenders under the
Credit Facility to enter into the Acquisition and the Offering and to finance
the Acquisition Payment and other fees and expenses in connection with the
Acquisition.

The Credit Facility Amendment, among other things, (i) increases the
revolving portion of the Credit Facility from $50.0 million to $60.0 million and
(ii) increases the Tranche D Term Loan by $30.0 million to $70.0 million.

INTEREST RATE; FEES. Borrowings made as: (i) Revolving Credit Loans and
Tranche A Term Loans bear interest at a rate equal to the Eurodollar Rate (as
adjusted) plus 2.25% or the Base Rate plus 1.00% (in each case, less 0.25% if
the Leverage Ratio on the Test Date is less than 3.0:1.0 and less 0.50% if the
Leverage Ratio on such Test Date is less than 2.5:1.0); (ii) Tranche B, C and D
Term Loans bear interest at a rate equal to the Eurodollar Rate (as adjusted)
plus 2.5% or the Base Rate plus 1.25%. The "Base Rate" is a rate equal to the
higher of 0.50% in excess of the Federal Reserve reported certificate of deposit
rate and (ii) the prime rate, as in effect from time to time, of Bankers Trust
Company. Overdue principal and interest will bear interest at a rate per annum
equal to the greater of (i) the rate which is 2.0% in excess of the rate
otherwise applicable to Base Rate Loans from time to time and (ii) the rate
which is 2.0% in excess of the rate then borne by such borrowings.

The commitment fee payable by ALARIS Medical Systems is calculated at a rate
equal to 0.50% of 1.0% per annum of the Aggregate Unutilized Commitment (less
0.125% if the Leverage Ratio on the Test Date is less than 2.5:1.0). Such a fee
was paid on the closing of the Merger ("Merger Closing"), and is payable
quarterly in arrears after such date and upon the termination of the Credit
Facility.

The letter of credit fee payable by ALARIS Medical Systems is calculated at
a rate equal to the applicable margin for Eurodollar Loans under the Revolving
Credit Facility plus an additional 0.25% per annum of the face amount of each
letter of credit.

AMORTIZATION; PREPAYMENTS. The final scheduled maturity of the: (i) Tranche
A Term Loans is the date that is approximately five years and eight months after
the Merger Closing, (ii) Tranche B Term Loans is the date that is approximately
seven years after the Merger Closing, (iii) Tranche C Term Loans is the date
that is approximately eight years after the Merger Closing, and (iv) Tranche D
Term Loans is the date that is approximately eight years and six months after
the Merger Closing. All such loans are subject to interim scheduled
amortization.

In certain instances, ALARIS Medical Systems is required to make certain
mandatory prepayments under the Credit Facility.

90
<PAGE>
GUARANTEES; SECURITY. All obligations of ALARIS Medical Systems under the
Credit Facility are guaranteed by the Credit Facility Guarantee and each
existing and subsequently formed or acquired domestic subsidiary of ALARIS
Medical (other than ALARIS Medical Systems, ALARIS Release Corporation, ALARIS
Consent Corporation, IVAC Overseas Holdings Inc., Fidata and River).

The Credit Facility and the related guarantees (a) are secured by (i) a
perfected first priority pledge of the security interest in all of the common
stock owned by ALARIS Medical in each existing and subsequently formed or
acquired direct or indirect domestic subsidiary of ALARIS Medical (other than
Fidata, River and IVAC Overseas Holdings, Inc. but including ALARIS Medical
Systems) and (ii) all assets of ALARIS Medical and each of its direct and
indirect domestic subsidiaries (other than Fidata and River but including ALARIS
Medical Systems) and (b) are secured by a perfected first priority pledge of and
security interest in 65% of the common stock owned by ALARIS Medical in each
existing and subsequently formed or acquired direct or indirect first-tier
foreign subsidiary of ALARIS Medical.

CERTAIN COVENANTS. The Credit Facility contains numerous operating and
financial covenants, including, without limitation, requirements relating to (i)
maintenance of minimum Consolidated EBITDA, Consolidated Net Worth, and interest
coverage and fixed charge coverage ratios and (ii) maximum Leverage Ratio and
amounts of Capital Expenditures.

The Credit Facility also includes customary covenants relating to the
delivery of financial statements, reports, notices, and other information,
access to information and properties, maintenance of insurance, payment of
taxes, maintenance of assets, nature of business, corporate existence and
rights, compliance with applicable laws, transactions with affiliates, use of
proceeds, limitations on indebtedness, limitations on liens, limitations on
certain mergers and sales of assets, limitations on investments, limitations on
dividends and other distributions and limitations on debt payments, including
prepayment or redemption of the 9 3/4% Notes.

EVENTS OF DEFAULT. The Credit Facility contains certain events of default,
including failure to make payments under the Credit Facility; breach of
representations and warranties; breach of covenants; default under other
agreements or conditions relating to indebtedness; certain events of insolvency
or bankruptcy with respect to ALARIS Medical Systems or certain subsidiaries;
certain ERISA violations; invalidity or disaffirmance of any guarantee or pledge
agreement; certain judgments and certain events relating to changes in control
of ALARIS Medical Systems or ALARIS Medical.

CONVERTIBLE DEBENTURES

In January 1992, ALARIS Medical issued and sold the Convertible Debentures,
of which approximately $16.2 million in aggregate principal amount are
outstanding. The Convertible Debentures will mature on January 15, 2002.
Interest accrues at the rate of 7 1/4% per annum and is payable semi-annually in
arrears on each January 15 and July 15. Payments of principal, premium and
interest on the Convertible Debentures are subordinated, as set forth in the
indenture governing the Convertible Debentures, to the prior payment in full of
the Senior Indebtedness (as defined in the indenture governing the Convertible
Debentures).

The Convertible Debentures may be redeemed at the option of ALARIS Medical,
in whole or in part, at a premium that declines on January 15 of each year until
the maturity date of the Convertible Debentures. The Convertible Debentures are
convertible at the option of the holders thereof into shares of Common Stock at
the conversion price provided for in the indenture governing the Convertible
Debentures. In the event of a Change in Control (as defined in the indenture
governing the Convertible Debentures), the holders of the Convertible Debentures
have the right to require ALARIS Medical to purchase the Convertible Debentures,
in whole or in part, at a price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase.

91
<PAGE>
DESCRIPTION OF NOTES

GENERAL

The Old Notes were, and the New Notes will be, issued pursuant to the
Indenture (the "Indenture") between the Company and U.S. Trust Company of Texas,
N.A., as trustee (the "Trustee"), dated as of July 28, 1998. The form and terms
of the New Notes are identical in all material respects to the form and terms of
the Old Notes, except that the New Notes (i) have been registered under the
Securities Act and therefore, will not bear legends restricting their transfer
and (ii) do not contain certain provisions providing for the payment of
Liquidated Damages under certain circumstances relating to the Registration
Rights Agreement.

The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and the Holders of the Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture and
Registration Rights Agreement are available as set forth below under
"--Available Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Company" refers only to ALARIS Medical, Inc.
and not to any of its Subsidiaries.

The Notes will be general obligations of the Company and will rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company, and will rank PARI PASSU in right of payment to all existing and future
senior indebtedness of the Company, including indebtedness incurred under the
Credit Facility.

All of the operations of the Company are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its Subsidiaries
to meet its obligations, including its obligations under the Credit Facility,
the Notes and the Convertible Debentures. The Company's Subsidiaries will not be
guarantors of the Notes. Under the Credit Facility, any new domestic Subsidiary
of the Company will be required to become a guarantor thereunder. As a result,
the Notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any of
its Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of such Subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. As of June 30, 1998, after giving
pro forma effect to the Offering and the use of proceeds therefrom and the
Credit Facility Borrowings, the Company's Subsidiaries would have had
approximately $521.5 million of Indebtedness and other liabilities outstanding
and the Company would have had $552.0 million of Indebtedness, including $222.9
million of secured Indebtedness under the Credit Facility. See "Risk
Factors--Holding Company Structure; Dependence Upon Operations of Subsidiaries."

Restrictions in the Indenture on the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of the Notes protection
in all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.

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As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries; PROVIDED that in no event shall ALARIS Medical Systems be
designated by the Company as an Unrestricted Subsidiary. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set forth
in the Indenture.

PRINCIPAL, MATURITY AND INTEREST

The Notes will be limited in aggregate principal amount at maturity to
$275.0 million, of which $189.0 million was issued in the Offering, and will
mature on August 1, 2008. The Notes were issued at a substantial discount from
their principal amount at maturity to generate gross proceeds to the Company of
approximately $109.9 million. Until August 1, 2003, the Accreted Value will
increase (representing amortization of original issue discount) between the date
of original issuance and August 1, 2003, at a rate of 11 1/8% on a semi-annual
bond equivalent basis using a 360-day year comprised of twelve 30-day months,
such that the Accreted Value on August 1, 2003 will be equal to the full
principal amount at maturity of the Notes. Beginning on August 1, 2003, interest
on the Notes will accrue at the rate of 11 1/8% per annum and will be payable in
cash semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 2004 to the Holders of the Notes of record on the
immediately preceding January 15 and July 15. Additional Notes may be issued
from time to time after the Offering, subject to the provisions of the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock." The Notes offered hereby and any additional Notes
subsequently issued under the Indenture would be treated as a single class for
all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 1, 2003. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest, if any, on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders of the Notes at their respective addresses set forth
in the register of Holders of Notes; PROVIDED that all payments of principal,
premium, interest, if any, with respect to Notes the Holders of which have given
wire transfer instructions to the Company or the Paying Agent will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.

OPTIONAL REDEMPTION

Except as provided in the next paragraph, the Notes will not be redeemable
at the Company's option prior to August 1, 2003. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, together with
accrued and unpaid interest, if any, thereon to the applicable redemption date,
if redeemed during the twelve-month period beginning on August 1 of the years
indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 105.563%
2004.............................................................................. 103.708%
2005.............................................................................. 101.854%
2006 and thereafter............................................................... 100.000%
</TABLE>

Notwithstanding the foregoing, on or prior to August 1, 2001, the Company on
one or more occasions may redeem up to 35% in aggregate principal amount at
maturity of Notes issued under the Indenture at a

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redemption price equal to 111.125% of the Accreted Value thereof to the
redemption date, with the net cash proceeds of one or more public or private
offerings of common stock of the Company; PROVIDED that at least 65% in
aggregate principal amount at maturity of Notes remain outstanding immediately
after the occurrence of each such redemption; and PROVIDED, FURTHER; that any
such redemption must occur within 90 days of the date of the closing of any such
public or private offering.

MANDATORY REDEMPTION

Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes.

REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase (or, in the case of
repurchases of Notes prior to August 1, 2003, at a purchase price equal to 101%
of the Accreted Value thereof, as of the date of repurchase) (in either case,
the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder of Notes describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice.

On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount at maturity of Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder of Notes a new Note equal in principal amount at maturity to any
unpurchased portion of the Notes surrendered, if any; PROVIDED that each such
new Note will be in a principal amount at maturity of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.

The Indenture will provide that the Company will fix the Change of Control
Payment Date no earlier than 30 days and no later than 60 days after the Change
of Control Offer is mailed as set forth above. Prior to complying with the
provisions of the preceding sentence, but in any event within 90 days following
a Change of Control, the Company will either repay or cause its Subsidiaries to
repay all outstanding Indebtedness of its Subsidiaries or obtain the requisite
consents, if any, under all agreements governing all such outstanding
Indebtedness of its Subsidiaries to permit the repurchase of the Notes required
by this covenant. Under the terms of the indenture governing the 9 3/4% Notes
and the Credit Facility, the payment of dividends by ALARIS Medical Systems is
subject to certain specified tests or restrictions which will significantly
restrict its ability to pay dividends or make other distributions. In addition,
the terms of the Notes and the Indenture will permit the Company's Subsidiaries
to incur additional Indebtedness, the terms of which could limit or prohibit the
payment of dividends or the making of other distributions by such Subsidiaries.
If the Company does not obtain the consent of the lenders or holders of
Indebtedness under agreements governing outstanding Indebtedness of its
Subsidiaries, including under the Credit Facility and the indenture governing
the 9 3/4% Notes, to permit the repurchase of the Notes or does not

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refinance any such Indebtedness, the Company will likely not have the financial
resources to repurchase the Notes and the Company's Subsidiaries will be
restricted by the terms of such Indebtedness from paying dividends to the
Company or otherwise lending funds to the Company for the purpose of such
repurchase. In any event, there can be no assurance that the Company's
Subsidiaries will have the ability to access the financial resources to pay any
such dividend or make any such distribution. The Company's failure to make a
Change of Control Offer when required or to repurchase tendered Notes when
tendered would constitute an Event of Default under the Indenture. See "Risk
Factors--Holding Company Structure; Dependence Upon Operations of Subsidiaries"
and "--Repurchase of Notes Upon Change of Control."

The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar restructuring.

The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.

The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precisely established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with provisions of
this covenant, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof.

ASSET SALES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash and/or Marketable Securities; PROVIDED that the amount of
(x) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), will be deemed to be cash for purposes of this provision; PROVIDED
FURTHER, that the 75% limitation referred to

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above shall not apply to any sale, transfer or other disposition of assets in
which the cash portion of the consideration received therefor is equal to or
greater than the after-tax net cash proceeds that would have been received by
the Company had a transaction involving the same assets complied with the
aforementioned 75% limitation but was not structured with the same tax benefits
as the actual transaction.

Within 367 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any Restricted Subsidiary may apply such Net Proceeds (a) to
permanently reduce long-term Indebtedness of a Restricted Subsidiary, (b) to
permanently reduce Indebtedness (and, in the case of revolving Indebtedness, to
permanently reduce commitments thereunder) of the Company, (c) to cash
collateralize letters of credit under the Credit Facility and concurrently
therewith permanently reduce commitments under the Credit Facility by an amount
equal to the Net Proceeds applied to such cash collateralization (PROVIDED that
any such cash collateral released to the Company and/or its Restricted
Subsidiaries upon the expiration of such letters of credit is applied in
accordance with clause (a), (b) or (d) of this sentence not later than the
latter to occur of (i) 367 days after the original receipt of such Net Proceeds
and (ii) 90 days after such release), or (d) to an investment in another
business, the making of a capital expenditure or the acquisition of other
tangible assets, product distribution rights or intellectual property or rights
thereto, in each case, in a line of business permitted by the covenant described
under the caption "--Certain Covenants--Line of Business." Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will
be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount at maturity of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount at maturity thereof plus accrued and unpaid interest, if
any, thereon to the date of purchase (or, in the case of purchases of Notes
prior to August 1, 2003, at a purchase price equal to 100% of the Accreted Value
thereof, as of the date of repurchase), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate principal amount at
maturity or Accreted Value (as applicable) of Notes (including any Additional
Notes) tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or any Restricted Subsidiary may use any remaining Excess
Proceeds for any purpose not prohibited under the Indenture. If the aggregate
principal amount at maturity or Accreted Value (as applicable) of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a PRO RATA basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.

Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration received in connection with such Asset Sale constitutes
Replacement Assets or a combination of Replacement Assets and cash and (ii) such
Asset Sale is for fair market value (which, in the case of any Replacement
Assets the fair market value of which exceeds $5.0 million, will be evidenced by
the opinion of an accounting, appraisal or investment banking firm of national
standing delivered to the Trustee); PROVIDED that any Net Proceeds in the form
of cash received by the Company or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated pursuant to this
paragraph shall be subject to the provisions of the immediately preceding
paragraph.

The Credit Facility prohibits the Company from purchasing any Notes and also
provides that certain asset sales will constitute a default thereunder. Any
future credit agreements or other agreements relating to Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof.

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SELECTION AND NOTICE

If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee deems fair and appropriate, PROVIDED that
no Notes with a principal amount at maturity of $1,000 or less shall be redeemed
in part. Notice of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount at maturity thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption.

CERTAIN COVENANTS

RESTRICTED PAYMENTS

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any distribution (including in connection with any
merger or consolidation) on account of any Equity Interests of the Company or
any of its Restricted Subsidiaries (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company, any of its Restricted
Subsidiaries or any other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated in
right of payment to the Notes, except at the original final maturity thereof or
in accordance with the scheduled mandatory redemption or repayment provisions
set forth in the original documentation governing such Indebtedness (but not
pursuant to any mandatory offer to repurchase upon the occurrence of any event);
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of such Restricted Payment:

(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof, and

(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (v) and (vi) of the next succeeding paragraph), is less
than the sum of (1) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, minus 100% of such
deficit), PLUS (2) 100% of the aggregate net cash proceeds received by the
Company after the date of the Indenture from the issuance and sale of its
Qualified Capital Stock to the extent such net cash proceeds have been, and
continue to be, designated as Designated Equity Proceeds to be added to the
cumulative amount calculated pursuant to this clause (b) as provided in the
definition thereof, PLUS (3) 100% of the aggregate net cash proceeds
received by the Company from contributions of capital or the issue or sale
since the date of the Indenture of debt securities of the Company that have
been converted into Equity Interests of the Company (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have been
converted into

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Disqualified Stock), PLUS (4) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any); PROVIDED
that no cash proceeds received by the Company from the issue or sale of any
Equity Interests issued by the Company will be counted in determining the
amount available for Restricted Payments under this clause (b) to the extent
such proceeds were used to redeem, repurchase, retire or acquire any Equity
Interests of the Company pursuant to clause (ii) of the next succeeding
paragraph, to defease, redeem or repurchase any subordinated Indebtedness
pursuant to clause (iii) of the next succeeding paragraph or to repurchase,
redeem or acquire any Equity Interests of the Company pursuant to clause
(iv) of the next succeeding paragraph, and

(c) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."

The foregoing provisions will not prohibit any or all of the following (each
and all of which: (1) constitutes an independent exception to the foregoing
provisions and (2) may occur in addition to any action permitted to occur under
any other exception):

(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture;

(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (b)(2) of the preceding paragraph;

(iii) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than to
a Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); PROVIDED that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (b)(2) of the preceding paragraph;

(iv) a Restricted Payment to fund the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company
held by any member of the Company's or any of its Restricted Subsidiaries'
management pursuant to any management equity subscription agreement or stock
option agreement; PROVIDED that (A) the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$2.0 million in any twelve-month period (or $5.0 million in any single
twelve-month period during the term of the Notes) PLUS the aggregate cash
proceeds received by the Company during such twelve-month period from any
reissuance of Equity Interests by the Company to members of management of
the Company and its Restricted Subsidiaries and (B) no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction; PROVIDED that the amount in excess of $2.0 million (or $5.0
million, as the case may be) expended for all such repurchases, redemptions
and other acquisitions and retirements of Equity Interests pursuant to this
clause (iv) in any twelve-month period shall be excluded from clause (b)(2)
of the preceding paragraph;

(v) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if such dividend is paid PRO RATA
to all holders of such class of common stock;

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(vi) the repurchase of any class of common stock of a Restricted
Subsidiary if such repurchase is made PRO RATA with respect to such class of
common stock;

(vii) any other Restricted Payment (other than (A) a dividend or other
distribution on account of any Equity Interests of the Company or any of its
Restricted Subsidiaries and (B) a purchase, redemption or other acquisition
of any Equity Interests of the Company, any of its Restricted Subsidiaries
or any Affiliate of the Company) if the amount thereof, together with all
other Restricted Payments made pursuant to this clause (vii) since the date
of the Indenture does not exceed $15.0 million; and

(viii) the issuance of cash in lieu of fractional shares of common stock
upon the conversion of the Convertible Debentures into common stock of the
Company.

The Board of Directors may designate any Restricted Subsidiary (other than
ALARIS Medical Systems) to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such designation, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.

Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described under the caption "--Restricted Payments"
were computed, which calculations shall be based upon the Company's latest
available financial statements.

INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK

The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, incur any Indebtedness
(including Acquired Debt) and the Company will not issue any Disqualified Stock
and will not permit any of its Subsidiaries to issue any shares of preferred
stock; PROVIDED, HOWEVER; that the Company may incur Indebtedness or issue
shares of Disqualified Stock and the Company's Restricted Subsidiaries may incur
Indebtedness or issue shares of preferred stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
such preferred stock is issued would have been at least 2.0 to 1, determined on
a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or the preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period.

The Indenture will also provide that the Company will not incur Indebtedness
that is contractually subordinated in right of payment to any other Indebtedness
of the Company unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; PROVIDED,
HOWEVER, that no Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.

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The foregoing provisions will not apply to any of the following (each and
all of which may be issued or incurred):

(i) the incurrence by the Company and/or its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to Credit Agreements (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company) in an aggregate principal amount
outstanding at any one time not to exceed $325.0 million (A) LESS the
aggregate amount of all mandatory repayments (a "Mandatory Repayment") of
the principal of any term Indebtedness under any such Credit Agreement that
have been made since the date of the Indenture pursuant to the amortization
schedule of such Credit Agreement (other than any Mandatory Repayment made
concurrently with refinancing or refunding of any such Credit Agreement) (B)
PLUS the Excess Amount and (C) LESS the aggregate amount of all Net Proceeds
of Asset Sales applied pursuant to clause (b) or (c) of the first sentence
of the second paragraph of the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales" to permanently reduce
Indebtedness (and, in the case of revolving Indebtedness, commitments
thereunder) under any Credit Agreement or to cash collateralize letters of
credit and permanently reduce commitments with respect to revolving
Indebtedness under any Credit Agreement; PROVIDED that the amount of
Indebtedness permitted to be incurred pursuant to Credit Agreements in
accordance with this clause (i) shall be in addition to any Indebtedness
permitted to be incurred pursuant to Credit Agreements or otherwise in
reliance on, and in accordance with, clause (x) below;

(ii) the incurrence by the Company of Indebtedness represented by the
Notes originally issued and the Exchange Notes issued in exchange thereof;

(iii) the incurrence by the Company or a Restricted Subsidiary of the
Company of Indebtedness in connection with the acquisition of a Person (if
as a result of such acquisition, such Person becomes a Wholly Owned
Restricted Subsidiary of the Company that is engaged in a Permitted Business
or is merged into the Company or a Wholly Owned Restricted Subsidiary), in
an amount not to exceed two times the net cash proceeds received by the
Company from the issuance and sale, substantially concurrently with the
incurrence of such Indebtedness, of its Qualified Capital Stock to the
extent that such net cash proceeds have been and continue to be Designated
Equity Proceeds to be used for the purpose of incurring additional
Indebtedness pursuant to this clause (iii) as provided in the definition
thereof; PROVIDED that, to the extent that any such Qualified Capital Stock
ceases to be outstanding for any reason, any Indebtedness that was incurred
as a result of the receipt of net cash proceeds from the issuance of such
Qualified Capital Stock shall cease (as of the date on which such Qualified
Capital Stock ceases to be outstanding) to be permitted by virtue of this
clause (iii); and PROVIDED FURTHER that the principal amount (or accreted
value, as applicable) of such Indebtedness, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (iii) does not exceed $50.0
million at any time outstanding;

(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (A) represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company
or such Restricted Subsidiary, or (B) in connection with sale and leaseback
transactions, in an aggregate principal amount with respect to clause (iv)
not to exceed $20.0 million at any time outstanding; PROVIDED THAT in no
event shall the aggregate principal amount of Indebtedness incurred pursuant
to clause (iv)(B) exceed $5.0 million at any time outstanding;

(v) Existing Indebtedness;

(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture;

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(vii) the incurrence by Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER; that (a) any subsequent issuance
or transfer (other than for security purposes) of Equity Interests and (b)
any subsequent sale or other transfer (including for security purposes other
than to secure Indebtedness permitted to be incurred pursuant to clause (i)
of this paragraph) of such Indebtedness, in each case, that results in any
such Indebtedness being held by a Person other than the Company or any of
its Restricted Subsidiaries shall be deemed to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be, not permitted pursuant to this clause (vii);

(viii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging (a) interest rate risk with respect to any floating rate
Indebtedness of such Person so long as such floating rate Indebtedness is
permitted by the terms of the Indenture to be outstanding or (b) exchange
rate risk with respect to agreements or Indebtedness of such Person payable
or denominated in a currency other than U.S. dollars;

(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; PROVIDED, HOWEVER; that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;

(x) the incurrence or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness or preferred stock (in addition to Indebtedness
and preferred stock that may be incurred or issued pursuant to any other
clause of this paragraph) in an aggregate principal amount at any one time
outstanding not to exceed $30.0 million;

(xi) the incurrence by any Foreign Subsidiary of Indebtedness and
letters of credit to fund working capital and capital expenditure
requirements (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of such Foreign Subsidiary
thereunder) in an aggregate maximum principal amount at any one time
outstanding not to exceed $15.0 million;

(xii) Obligations in respect of performance and surety bonds provided by
the Company in the ordinary course of business; and

(xiii) the guarantee by the Company or any Restricted Subsidiary of
Indebtedness of the Company or any Restricted Subsidiary that was permitted
to be incurred by another provision of this covenant.

For purposes of determining compliance with this covenant, in the event that
an item of proposed Indebtedness meets the criteria of more than one of the
categories described in clauses (i) through (xiii) above as of the date of
incurrence thereof, or is entitled to be incurred pursuant to the first
paragraph of this covenant as of the date of incurrence thereof, the Company
shall, in its sole discretion, classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; PROVIDED, in each such case, that the amount thereof
is included in Fixed Charges of the Company as accrued.

SALE AND LEASEBACK TRANSACTIONS

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; PROVIDED that the Company may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to (A) the Fixed Charge

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Coverage Ratio test set forth in the first paragraph of the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"
and/or (B) clause (iv)(B) of the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" (as limited by
the proviso to such clause), (ii) the Lien to secure such Indebtedness does not
extend to or cover any assets of the Company other than the assets which are the
subject of the sale leaseback transaction, (iii) the gross cash proceeds of such
sale and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors of the Company and set forth
in an Officers' Certificate delivered to the Trustee) of the property that is
the subject of such sale and leaseback transaction and (iv) the transfer of
assets in such sale and leaseback transaction is permitted by, and the proceeds
of such transaction are applied in compliance with, the covenant described under
the caption "--Repurchase at the Option of Holders--Asset Sales."

LIENS

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the Indenture and the Notes are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.

LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
RESTRICTED SUBSIDIARIES

The Indenture will provide that the Company (i) will not, and will not
permit any Restricted Subsidiary of the Company to, transfer, convey, sell,
lease or otherwise dispose of any Equity Interests in any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interests in
such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.

DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
consensual restriction on the ability of any Restricted Subsidiary to: (i)(a)
pay dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries on its Capital Stock or (b) pay any Indebtedness owed to
the Company or any of its Restricted Subsidiaries; (ii) make loans or advances
to the Company or any of its Restricted Subsidiaries; or (iii) transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reasons of (a)
Existing Indebtedness, as in effect on the date of the Indenture; (b) the Credit
Facility as in effect on the date of the Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive in the aggregate than those
contained in the Credit Facility as in effect on the date of the Indenture; (c)
any Indebtedness permitted by the terms of the Indenture to be incurred by a
Restricted Subsidiary of the Company; (d) the Indenture, the Notes and the
Exchange Notes; (e) applicable law; (f) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of, such
acquisition), which

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encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; PROVIDED that in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred; (g)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices; (h)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired; (i) an agreement that has been entered into for the
sale or disposition of all or substantially all of the Equity Interests or
property or assets of a Restricted Subsidiary; PROVIDED that such restrictions
are limited to the Restricted Subsidiary that is the subject of such agreement;
(j) any agreement for the sale or other disposition of a Restricted Subsidiary
that restricts distributions by that Restricted Subsidiary pending its sale or
other disposition; (k) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to the covenant described above under the caption "--Liens"
that limit the right of the Company or any of its Subsidiaries to dispose of the
assets subject to such Lien; (l) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business; or (m) restrictions
on cash or other deposits or net worth imposed by customers under contracts
entered into in the ordinary course of business.

MERGER, CONSOLIDATION, OR SALE OF ASSETS

The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving entity), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions to, another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, conveyance or
other disposition will have been made assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) the Company or the
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, conveyance or other disposition will have been made
will, at the time of such transaction after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock." The Indenture will also provide that the Company may not,
directly or indirectly, lease all or substantially all of its properties or
assets in one or more related transactions to any Person. The foregoing will not
prohibit a consolidation or merger between the Company and a Wholly Owned
Restricted Subsidiary, the transfer of all or substantially all of the
properties or assets of the Company to a Wholly Owned Restricted Subsidiary or
the transfer of all or substantially all of the properties or assets of a Wholly
Owned Restricted Subsidiary to the Company; PROVIDED that if the Company is not
the surviving entity of such transaction or the Person to which such transfer is
made, the surviving entity or the Person to which such transfer is made shall
comply with clause (ii) of this paragraph.

TRANSACTIONS WITH AFFILIATES

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or such

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Restricted Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above and (iii) such
Affiliate Transaction is approved by a majority of the disinterested members of
the Board of Directors of the Company; PROVIDED that (a) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary,
(b) transactions between or among the Company and/or its Restricted
Subsidiaries, (c) payment of employee benefits, including bonuses, retirement
plans and stock options, and director fees in the ordinary course of business,
(d) Restricted Payments permitted by clauses (i), (iv), (v) and (vi) of the
second paragraph of the covenant described under the caption "--Restricted
Payments," and (e) transactions permitted by the provisions of the covenant
described under the caption "--Sales of Accounts Receivable," in each case,
shall not be deemed Affiliate Transactions.

LINE OF BUSINESS

The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.

SALES OF ACCOUNTS RECEIVABLE

The Company may, and any of its Restricted Subsidiaries may, sell, at any
time and from time to time, all of their respective accounts receivable to an
Accounts Receivable Subsidiary; PROVIDED that (i) the cash received in each such
sale is not less than 90% of the aggregate face value of the receivables sold
and the remainder of the consideration received in each such sale is a
promissory note (a "Promissory Note") which is subordinated to no Indebtedness
or obligation other than the financial institution or other entity providing the
financing to the Accounts Receivable Subsidiary with respect to such accounts
receivable (a "Financier"); PROVIDED FURTHER that the Initial Sale will include
all eligible accounts receivable of the Company and/or its Restricted
Subsidiaries that will be party to such arrangements in existence on the date of
the Initial Sale, (ii) the cash proceeds received from the Initial Sale less
reasonable and customary transaction costs will be deemed to be Net Proceeds and
will be applied in accordance with the second paragraph of the covenant
described under the caption "--Repurchase at the Option of Holders--Asset
Sales," and (iii) the Company and its Restricted Subsidiaries will sell their
accounts receivable to the Accounts Receivable Subsidiary no less frequently
than on a weekly basis.

The Company (i) will not permit any Accounts Receivable Subsidiary to sell
any accounts receivable purchased from the Company or any of its Restricted
Subsidiaries to any other Person except on an arms-length basis and solely for
consideration in the form of cash or Marketable Securities, (ii) will not permit
the Accounts Receivable Subsidiary to engage in any business or transaction
other than the purchase, financing and sale of accounts receivable of the
Company and its Restricted Subsidiaries and activities incidental thereto, (iii)
will not permit any Accounts Receivable Subsidiary to incur Indebtedness in an
amount in excess of the book value of such Accounts Receivable Subsidiary's
total assets, as determined in accordance with GAAP, (iv) will, at least as
frequently as monthly, cause the Accounts Receivable Subsidiary to remit to the
Company as payment on the Promissory Notes, all available cash or Marketable
Securities not held in a collection account pledged to a Financier, to the
extent not applied to pay or maintain reserves for reasonable operating expenses
of the Account Receivable Subsidiary or to satisfy reasonable minimum operating
capital requirements and (v) will not, and will not permit any of its
Subsidiaries to, sell accounts receivable to any Accounts Receivable Subsidiary
upon (1) the occurrence of a Default with respect to the Company and its
Restricted Subsidiaries and (2) the occurrence of certain events of bankruptcy
or insolvency with respect to such Accounts Receivable Subsidiary.

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REPORTS

The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
the Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its Restricted Subsidiaries and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case, within the
time periods specified in the Commission's rules and regulations. In addition
following the consummation of the Exchange Offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Notes remain outstanding, it will
furnish to the Holders of the Notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will provide that each of the following constitutes an Event
of Default:

(i) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise;

(ii) failure by the Company for 30 days after receipt of notice from the
Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described under the covenants
described under the captions "--Repurchase at the Option of Holders--Change
of Control," "--Repurchase at the Option of Holders--Asset Sales,"
"--Certain Covenants--Restricted Payments," "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock," "--Certain Covenants--Sale
and Leaseback Transactions," "--Certain Covenants--Merger, Consolidation, or
Sale of Assets" or "--Certain Covenants--Sales of Accounts Receivable;"

(iii) failure by the Company for 60 days after notice from the Trustee or
the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with its other agreements in the Indenture and the
Notes;

(iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay when due at final stated maturity (giving effect
to any grace period related thereto) principal of (a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more;

(v) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments (to the extent not covered by insurance and as to which the
insurer has not acknowledged coverage in writing)

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aggregating in excess of $15.0 million, which judgments are not paid, fully
bonded, discharged or stayed within 60 days after their entry; and

(vi) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary of the Company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that,
together, would constitute a Significant Subsidiary.

To the extent that the last day of the period referred to in clauses (i),
(iii), (iv) or (vi) of the immediately preceding paragraph is not a Business
Day, then the first Business Day following such day shall be deemed to be the
last day of the period referred to in such clauses. Any "day" will be deemed to
end as of 11:59 p.m., New York City time.

If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
due and payable. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
the Company, all outstanding Notes will become due and payable without further
action or notice. Upon any acceleration of maturity of the Notes, all principal
of and accrued interest on, if any (if on or after August 1, 2003) or Accreted
Value (if prior to August 1, 2003), of the Notes shall be due and payable
immediately. The Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, the Holders
of a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power.

In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
August 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to August 1, 2003, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.

The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from the Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal, interest, if any) if it determines that withholding notice is in such
Holders' interest.

The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

No director, officer, employee, incorporator or stockholder of ALARIS
Medical, ALARIS Medical Systems, ALARIS Release and IVAC Overseas, as such,
shall have any liability for any obligations of ALARIS Medical, ALARIS Medical
Systems, ALARIS Release and IVAC Overseas under the Notes, the Indenture and the
Registration Rights Agreement or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such

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liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of the Holders of the outstanding Notes
to receive payments in respect of the principal amount at maturity or Accreted
Value (as applicable) of, premium, if any, interest, if any, on such Notes when
such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under the caption "--Events of Default and Remedies" will no
longer constitute Events of Default with respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal amount at maturity or Accreted Value (as applicable) of,
premium, if any, interest, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made

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by the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.

TRANSFER AND EXCHANGE

A Holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder of Notes, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder of Notes to pay any taxes and fees required by law
or permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required to
transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.

The registered Holder of a Note will be treated as the owner of it for all
purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the then outstanding Notes (including
Additional Notes, if any) voting as a single class (including, without
limitation, consents obtained in connection with a purchase of, tender offer or
exchange offer for Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including Additional Notes, if any) voting as a single class (including,
without limitation, consents obtained in connection with a purchase of, tender
offer or exchange offer for Notes).

Without the consent of each Holder of Notes affected, however, an amendment
or waiver may not (with respect to any Note held by a non-consenting Holder of
Notes): (i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver; (ii) reduce the principal amount at maturity
of or change the fixed maturity of any Note, alter the provisions with respect
to the redemption of the Notes (other than the provisions described under the
caption "--Repurchase at the Option of Holders") or amend or modify the
calculation of Accreted Value so as to reduce the amount of the Accreted Value
of the Notes; (iii) reduce the rate of or change the time for payment of
interest on any Notes; (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest or, if any, on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration); (v) make any Note payable in money other
than that stated in the Notes; (vi) waive a redemption or repurchase payment
with respect to any Note or (vii) make any change to the provisions of the
Indenture relating to waiver of past Defaults or the rights of Holders of the
Notes to receive payments of principal of or interest on the Notes or in the
foregoing amendment and waiver provisions. Notwithstanding the foregoing,
without the consent of the Holders of at least two-thirds in principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, tender offer or exchange offer for the Notes), no
waiver or amendment to the Indenture may make any change in the provisions of
the covenants described under the captions "--Repurchase at the Option of
Holders--Change of Control" and "--Repurchase at the Option of Holders--Asset
Sales" that adversely affect the rights of any Holder of Notes.

Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of Certificated Notes, to provide for the
assumption of the Company's obligations to the Holders of the Notes in the case
of a merger or consolidation or sale of all or substantially all of the
Company's assets, to make any change that would

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provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
provide for the issuance of additional Notes in accordance with the provisions
set forth in the Indenture as in effect on the date of the issuance of the
Notes.

CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions with the Company; however, if the Trustee acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee or resign.

The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.

ADDITIONAL INFORMATION

Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to ALARIS Medical, Inc., 10221 Wateridge Circle, San
Diego, California 92121, Attention: Corporate Secretary.

BOOK-ENTRY, DELIVERY AND FORM

Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one or more Global Notes
(the "Global Notes"). The Global Notes will be deposited on the date of the
closing of the sale of the Notes offered hereby (the "Closing Date") with, or on
behalf of the Depositary and registered in the name of Cede & Co., as nominee of
the Depositary (such nominee being referred to herein as the "Global Note
Holder").

Notes that are issued as described below under "--Certificated Notes" will
be issued in the form of registered definitive certificates (the "Certificated
Notes"). Upon the transfer of Certificated Notes, such Certificated Notes may,
unless all Global Notes have previously been exchanged for Certificated Notes,
be exchanged for an interest in the Global Note representing the principal
amount of Notes being transferred, subject to the transfer restrictions set
forth in the Indenture.

The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.

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The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."

So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.

Payments in respect of the principal of, premium, if any, interest, if any,
on any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.

CERTIFICATED NOTES

Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Notes in the form of Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any thereof).
All such Certificated Notes would be subject to the legend requirements
described herein under "Notice to Investors." In addition, if (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in the form of
Certificated Notes under the Indenture, then, upon surrender by the Global Note
Holder of its Global Note, Notes in such form will be issued to each person that
the Global Note Holder and the Depositary identify as being the beneficial owner
of the related Notes.

Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.

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SAME DAY SETTLEMENT AND PAYMENT

The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest, if any) be
made by wire transfer of immediately available next day funds to the accounts
specified by the Global Note Holder. With respect to Certificated Notes, the
Company will make all payments of principal, premium, if any, interest, if any,
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Company expects that secondary trading in
the Certificated Notes will also be settled in immediately available funds.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as,
any other capitalized terms used herein for which no definition is provided. For
purposes of making any determination of any amount under any single definition
set forth below, such determination shall be made without double counting of any
item; PROVIDED that with respect to the definition of "Fixed Charge Coverage
Ratio" it shall not be deemed to be double counting if an item is included in
the calculation of each of "Consolidated EBITDA" and "Fixed Charges."

"9 3/4% NOTES" means the 9 3/4% Senior Subordinated Notes due 2006 of ALARIS
Medical Systems issued pursuant to an indenture dated November 26, 1996 among
ALARIS Medical Systems, IMED International Trading Corp., IVAC Overseas Holdings
Inc. and United States Trust Company of New York, as trustee.

"ACCOUNTS RECEIVABLE SUBSIDIARY" means a newly created, Wholly Owned
Subsidiary of the Company (i) which is formed solely for the purpose of, and
which engages in no activities other than activities in connection with,
financing accounts receivable of the Company and/or its Restricted Subsidiaries,
(ii) which is designated by the Board of Directors of the Company as an Accounts
Receivables Subsidiary pursuant to a Board of Directors' resolution set forth in
an Officers' Certificate and delivered to the Trustee, (iii) that has total
assets at the time of such creation and designation with a book value of $10,000
or less, (iv) no portion of the Indebtedness or any other obligation (contingent
or otherwise) of which (a) is at any time guaranteed by the Company or any
Restricted Subsidiary of the Company, (b) is at any time recourse to or
obligates the Company or any other Restricted Subsidiary of the Company in any
way, other than pursuant to representations and covenants entered into in the
ordinary course of business in connection with the sale of accounts receivable
to such Accounts Receivable Subsidiary or (c) subjects any property or asset of
the Company or any other Restricted Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations and covenants entered into in the ordinary course of
business in connection with sales of accounts receivable, (v) with which neither
the Company nor any Restricted Subsidiary of the Company has any contract,
agreement, arrangement or understanding other than contracts, agreements,
arrangements and understandings entered into in the ordinary course of business
in connection with sales of accounts receivable in accordance with the covenant
described under the caption "--Certain Covenants--Sale of Accounts Receivables"
and fees payable in the ordinary course of business in connection with servicing
accounts receivable and (vi) with respect to which neither the Company nor any
Restricted Subsidiary of the Company has any obligation (a) to subscribe for
additional shares of Capital Stock or other Equity Interests therein or make any
additional capital contribution or similar payment or transfer thereto or (b) to
maintain or preserve the solvency or any balance sheet term, financial
condition, level of income or results of operations thereof.

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annually on each February 1 and August 1 from August 1, 2003 to the date of
issuance) which shall have been accreted thereon through such date, such amount
to be so accreted on a daily basis at a rate of 11 1/8% per annum of the initial
offering price of such Note, compounded semi-annually on each February 1 and
August 1 from the date of issuance of the Notes through the date of
determination, computed on the basis of a 360-day year of twelve 30-day months.

"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or, indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.

"ALARIS MEDICAL SYSTEMS" means ALARIS Medical Systems, Inc., a Wholly Owned
Subsidiary of the Company.

"ASSET SALE" means (i) the sale, lease, conveyance, or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than (A) sales of inventory in the ordinary course of business consistent with
past practice or (B) sales of accounts receivables to the Accounts Receivable
Subsidiary in accordance with the covenant described under the caption
"--Certain Covenants--Sales of Accounts Receivable" (PROVIDED that the sale,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
covenant described under the caption "--Certain Covenants--Merger,
Consolidation, or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $5.0 million or (b) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by the covenant described above under the
covenant described under the caption "--Certain Covenants--Restricted Payments"
and (iv) the sale and leaseback of any assets within 90 days of the acquisition
of such assets will not be deemed to be Asset Sales.

"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).

"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.

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"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.

"CHANGE OF CONTROL" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13 (d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than the Principal and his Related Parties; (ii) the adoption of a plan for the
liquidation or dissolution of the Company; (iii) the Company consolidates with,
or merges with or into, another "person" (as defined above) or "group" (as
defined above) in a transaction or series of related transactions in which the
Voting Stock of the Company is converted into or exchanged for cash, securities
or other property, other than any transaction where (A) the outstanding Voting
Stock of the Company is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and (B) either
(1) the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of
the outstanding Voting Stock of the Company immediately prior to such
transaction own beneficially, directly or indirectly through one or more
Subsidiaries, not less than a majority of the total outstanding Voting Stock of
the surviving or transferee corporation immediately after such transaction or
(2) if, immediately prior to such transaction the Company is a direct or
indirect Subsidiary of any other Person (each such other Person, the "Holding
Company"), the "beneficial owners" (as defined above) of the outstanding Voting
Stock of such Holding Company immediately prior to such transaction own
beneficially, directly or indirectly through one or more Subsidiaries, not less
than a majority of the outstanding Voting Stock of the surviving or transferee
corporation immediately after such transaction; (iv) the consummation of any
transaction or series of related transactions (including, without limitation, by
way of merger or consolidation) the result of which is that any "person" (as
defined above) or "group" (as defined above) other than the Principal and his
Related Parties becomes the "beneficial owner" (as defined above) of more than
40% of the voting power of the Voting Stock of the Company, or (v) during any
consecutive two-year period, the first day on which a majority of the members of
the Board of Directors of Parent who were members of the Board of Directors at
the beginning of such period are not Continuing Directors.

"CONSOLIDATED EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, PLUS, to the extent deducted in computing Consolidated Net Income, (i)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, (ii) Consolidated Interest Expense of such Person
for such period, (iii) depreciation and amortization (including amortization of
goodwill and other intangibles) and all other non-cash charges (excluding any
such non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted Subsidiaries
for such period and (iv) any extraordinary or non-recurring loss and any net
loss realized in connection with either an Asset Sale or the extinguishment of
Indebtedness, in each case, on a consolidated basis determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to Consolidated
Net Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.

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accordance with GAAP (including amortization of original issue discount and
deferred financing costs, except as set forth in the proviso to this definition,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, net payments, if any, pursuant to Hedging
Obligations and imputed interest with respect to Attributable Debt; PROVIDED,
HOWEVER; that in no event shall any amortization of deferred financing cost
incurred on or prior to the date of the Indenture in connection with the Credit
Facility or any amortization of deferred financing costs incurred in connection
with the issuance of the Notes be included in Consolidated Interest Expense).

"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, HOWEVER; that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Restricted Subsidiary thereof in
cash, (ii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) the cumulative effect of a change in accounting principles shall
be excluded and (iv) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not, at the
date of determination, permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders.

"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the relevant Person who (i) was a member of such Board
of Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) became a member of the Board of Directors as a
result of the actions of the Principal; PROVIDED that at the time the Principal
took any such action, the Principal was the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) in excess of 50% of the Voting Stock of the
Company.

"CONVERTIBLE DEBENTURES" means the 7 1/4% Convertible Subordinated
Debentures due 2002 of the Company issued pursuant to the Indenture, dated as of
January 15, 1992, between the Company and U.S. Trust Company of California, N.A.
as in effect on the date of the Indenture.

"CREDIT AGREEMENTS" means, with respect to the Company and its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
Credit Facility) or commercial paper facilities, in each case with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.

"CREDIT FACILITY" means that certain credit agreement, dated as of November
26, 1996, by and among the Company, ALARIS Medical Systems, Bankers Trust
Company, as administration agent and syndication agent, Banque Paribas, as
documentation agent and syndication agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and the lenders party thereto,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time (together
with any amendment, modification, renewal, refunding, replacement or refinancing
to or of any of the foregoing (collectively, a "Modification") or to any
Modification, ad infinitum), including, without limitation, any agreement
modifying the maturity or amortization schedule of or refinancing or refunding
all or any portion of the Indebtedness thereunder or increasing the amount that
may be borrowed under such agreement or any successor agreement, whether or not
among the same parties.

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"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.

"DESIGNATED EQUITY PROCEEDS" means any net cash proceeds received by the
Company after the date of this Indenture from the issuance and sale of its
Qualified Capital Stock (other than Qualified Capital Stock sold to a Subsidiary
of the Company) providing the basis for (i) a redemption of Notes in a
transaction consummated in compliance with the second paragraph of the section
captioned "--Optional Redemption," (ii) an addition to the cumulative amount
calculated pursuant to clause (b) of the first paragraph of the covenant
described under the caption "--Certain Covenants--Restricted Payments," or (iii)
the incurrence of additional Indebtedness pursuant to clause (iii) of the
covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," in each case, as designated by a
written resolution of the Board of Directors of the Company filed with the
Trustee on or prior to the earlier to occur of (i) the use of such net cash
proceeds and (ii) 180 days from the date such net cash proceeds are received by
the Company. In no event shall the same net cash proceeds be treated as
Designated Equity Proceeds for more than one purpose under the Indenture. Once
designated for a particular purpose, such net cash proceeds may not be
redesignated for an alternative purpose. In addition, to the extent that any
such Qualified Capital Stock ceases to be outstanding for any reason, any
Restricted Payment or Indebtedness that was made or incurred as a result of the
receipt of net cash proceeds from the issuance of such Qualified Capital Stock
shall cease (as of the date on which such Qualified Capital Stock ceases to be
outstanding) to be permitted by virtue of the issuance of such Qualified Capital
Stock.

"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, except to the extent such capital stock is exchangeable into
Indebtedness at the option of the issuer thereof and only subject to the terms
of any debt instrument to which such issuer is a party), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, or convertible or exchangeable into Indebtedness on or prior
to date on which the Notes mature; PROVIDED, HOWEVER, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof have
the right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described under
the caption "--Certain Covenants--Restricted Payments."

"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $100.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-3" (or higher) according
to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to
Moody's Investor Services, Inc. ("Moody's") or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.

"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"EXCESS AMOUNT" means, with respect to any Credit Agreement, the amount by
which aggregate payments of principal thereunder exceed the aggregate payments
of principal required to be made through the date of determination, in respect
of any term Indebtedness, under the amortization schedule of such Credit
Agreement.

"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the Credit Facility) in existence on
the date of the Indenture until such amounts are repaid, including, without
limitation, the 9 3/4% Notes.

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"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(i) the Consolidated Interest Expense of such Person for such period and (ii)
any interest expense on Indebtedness of another Person that is (A) guaranteed by
the referent Person or one of its Restricted Subsidiaries (whether or not such
guarantee is called upon) or (B) secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries (whether or not such Lien is called upon);
PROVIDED THAT with respect to clause (ii)(B), the amount of Indebtedness (and
attributable interest expense) shall be equal to the lesser of (I) the principal
amount of the Indebtedness secured by the assets of such Person or one of its
Restricted Subsidiaries and (II) the fair market value (as determined by the
Board of Directors of such Person and set forth in an Officers' Certificate
delivered to the Trustee) of the assets securing such Indebtedness and (iii) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, TIMES (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.

"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and shall give pro forma effect to the Indebtedness and the Consolidated
EBITDA of the Person which is the subject of any such acquisition, (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.

"FOREIGN SUBSIDIARY" means any Restricted Subsidiary of the Company
organized and existing under the laws of any jurisdiction outside of the United
States.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Securities and Exchange Commission
or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, which are
in effect from time to time; PROVIDED, HOWEVER, that all reports and other
financial information provided by the Company to the Holders of the Notes, the
Trustee and/or the Commission shall be prepared in accordance with GAAP, as in
effect on the date of such report or other financial information.

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"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.

"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.

"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).

"INCUR" means, with respect to any Indebtedness (including Acquired Debt),
to create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable for or with respect to, or become responsible for, the payment
of such Indebtedness (including Acquired Debt); PROVIDED that (i) neither the
accrual of interest nor the accretion of original issue discount shall be
considered an incurrence of Indebtedness and (ii) the assumption of Indebtedness
by the surviving entity of a transaction permitted by the last sentence of the
covenant described under the caption "--Certain Covenants--Merger,
Consolidation, or Sale of Assets" in existence at the time of such transaction
shall not be deemed to be an incurrence of Indebtedness. The term "incurrence"
has corresponding meaning.

"INDEBTEDNESS" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing
Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, or representing any Hedging Obligations if and to the
extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person), the maximum fixed repurchase price of Disqualified
Stock issued by such Person and the liquidation preference of preferred stock
issued by such Person, in each case if held by any Person other than the Company
or a Wholly Owned Restricted Subsidiary of the Company, and, to the extent not
otherwise included, the Guarantee by such Person of any such indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.

"INITIAL SALE" means the first transaction in which accounts receivable are
sold by the Company and/or its Restricted Subsidiaries to an Accounts Receivable
Subsidiary.

"INSTRUMENT CONTRACT" means any contract or agreement to which the Company
or any of its Restricted Subsidiaries is a party pursuant to which the other
party to any such contract or agreement acquires on behalf of itself or another
party instruments from the Company or such Restricted Subsidiary at no or
reduced initial cost by paying a premium (a portion of which is recorded by the
Company in accordance with GAAP as interest income) for subsequent purchases of
disposable administration sets.

"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for

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consideration of Indebtedness, Equity Interests or other securities, together
with all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; PROVIDED that an acquisition of assets,
Equity Interests or other securities by the Company for consideration consisting
of common equity securities of the Company shall not be deemed to be an
Investment. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company, or any Restricted Subsidiary of the Company issues
Equity Interests, such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale, disposition or issuance equal to the fair market value of the Equity
Interests of such Person held by the Company or such Restricted Subsidiary
immediately following any such sale, disposition or issuance.

"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).

"MARKETABLE SECURITIES" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any lender
under the Credit Facility, (iii) commercial paper maturing not more than 270
days after the date of acquisition of an issuer (other than an Affiliate of the
Company) with a rating, at the time as of which any investment therein is made,
of "A-3" (or higher) according to S&P or "P-2" (or higher) according to Moody's
or carrying an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease publishing ratings of investments,
(iv) any bankers acceptances or money market deposit accounts issued by an
Eligible Institution and (v) any fund investing exclusively in investments of
the types described in clauses (i) through (iv) above.

"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).

"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, amounts
required to be applied to the repayment of Indebtedness (other than long-term
Indebtedness of a Restricted Subsidiary of such Person and Indebtedness under
any Credit Agreement) secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.

"NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (ii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that in no event shall Indebtedness
of any Unrestricted Subsidiary fail to be

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Non-Recourse Debt solely as a result of any default provisions contained in a
guarantee thereof by the Company or any of its Restricted Subsidiaries if the
Company or such Restricted Subsidiary was otherwise permitted to incur such
guarantee pursuant to the Indenture.

"OBLIGATIONS" means any principal, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.

"PERMITTED BUSINESS" means (i) the same or a similar line of business as the
Company and its Restricted Subsidiaries are engaged in on the date of the
Indenture and (ii) such business activities as are complementary to or are
incidental, ancillary or related to the foregoing.

"PERMITTED INVESTMENTS" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation, guarantees
of the Indebtedness and/or other Obligations of the Company and/or any
Restricted Subsidiary of the Company, so long as such Indebtedness and/or other
Obligations are permitted under the Indenture), (ii) Investments in Marketable
Securities, (iii) Investments by the Company or any Restricted Subsidiary of the
Company in, or the purchase of the securities of, a Person if, as a result of
such Investment, (a) such person becomes a Restricted Subsidiary of the Company
or (b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company, (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business, (v)
Investments in connection with the sale of medical instruments pursuant to
Instrument Contracts or any leasing of medical instruments in the ordinary
course of business, (vi) any non-cash consideration received in connection with
an Asset Sale that complies with the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales," (vi) Investments in
connection with Hedging Obligations permitted to be incurred under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," (vii) loans to employees not to exceed $1,000,000
at any time outstanding and (viii) Investments in an Accounts Receivable
Subsidiary received in consideration of sales of accounts receivable in
accordance with the covenant described under the caption "--Certain
Covenants--Sales of Accounts Receivable."

"PERMITTED LIENS" means (i) Liens on property of the Company and its
Subsidiaries securing (a) any Credit Agreement, (b) Indebtedness of any
Restricted Subsidiary permitted to be incurred pursuant to the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," or (c) Hedging Obligations permitted to be
incurred under the Indenture; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; PROVIDED, that such Liens were not
incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iv) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; PROVIDED that such Liens
were not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and do not extend to any assets of the Company
or any other Restricted Subsidiary of the Company; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; PROVIDED that such Liens were not incurred in
connection with, or in contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as is
required by GAAP shall have been

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made therefor; (vii) Liens existing on the date of the Indenture; (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded; PROVIDED that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iii) of the second paragraph of the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness or the assets which are the subject of the sale leaseback
transaction, as the case may be; (x) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations not constituting Indebtedness for borrowed money that do not
exceed $15.0 million in the aggregate at any one time outstanding; (xi) Liens
securing Indebtedness incurred to refinance Indebtedness that has been secured
by a Lien permitted under the Indenture; PROVIDED that (a) any such Lien shall
not extend to or cover any assets or property not securing the Indebtedness so
refinanced and (b) the refinancing Indebtedness secured by such Lien shall have
been permitted to be incurred under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock;" (xii) Liens in favor of the lessee on instruments which are the subject
of leases entered into in the ordinary course of business; PROVIDED that any
such Lien shall not extend to or cover any assets or property of the Company and
its Restricted Subsidiaries that is not the subject of any such lease; (xiii)
Liens in favor of the contracting party in instruments which are the subject of
Instrument Contracts entered into in the ordinary course of business; PROVIDED
that any such Lien shall not extend to or cover any assets or property of the
Company and its Restricted Subsidiaries that is not the subject of any such
Instrument Contract; (xiv) Liens to secure Attributable Debt that is permitted
to be incurred pursuant to the covenant described under the caption "--Certain
Covenants--Sale and Leaseback Transactions;" PROVIDED that any such Lien shall
not extend to or cover any assets of the Company other than the assets which are
the subject of the sale leaseback transaction in which the Attributable Debt is
incurred; and (xv) Liens to secure the performance of the Company under the
Indenture and the Notes.

"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
PROVIDED that: (i) the principal amount (or Accreted Value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
Accreted Value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date at least as late as the final maturity date of, and
has a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Notes, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Notes on terms at least as favorable to the Holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is incurred by the Company or by the Restricted Subsidiary who
is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.

"PRINCIPAL" means Jeffry M. Picower.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Stock.

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more controlling interest of which consist of the Principal and/or such other
Persons referred to in the immediately preceding clause (i).

"REPLACEMENT ASSETS" means (i) a business permitted by the covenant
described under the caption "--Certain Covenants--Line of Business," (ii) a
controlling equity interest in any Person engaged in a line of business
permitted by the covenant described under the caption "--Certain Covenants--Line
of Business" or (iii) tangible assets, product distribution rights or
intellectual property or rights thereto used in a line of business permitted by
the covenant described under the caption "--Certain Covenants--Line of
Business."

"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.

"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof); PROVIDED,
HOWEVER; that the Accounts Receivable Subsidiary and its Subsidiaries shall not
be deemed Subsidiaries of the Company or any of its other Subsidiaries.

"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (iii) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the covenant described under the caption
"--Certain Covenants-- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Certain Covenants-- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant from the date of such incurrence). The Board of Directors of
the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such

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Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants-- Incurrence of Indebtedness and Issuance of Preferred
Stock" and (ii) no Default or Event of Default would be in existence following
such designation.

"VOTING STOCK" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).

"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.

"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.

"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.

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PLAN OF DISTRIBUTION

Each Participating Broker-Dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. ALARIS Medical
has agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as it may be amended or supplemented from time to time,
available to any Participating Broker-Dealer for use in connection with any such
resale. In addition, until , 1998, all dealers effecting transactions
in the Exchange Notes may be required to deliver a prospectus.

ALARIS Medical will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-Dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such Participating Broker-Dealer and/or the purchasers of any such New Notes.
Any Participating Broker-Dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of the New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

For a period of 180 days after the Expiration Date, ALARIS Medical promptly
will send additional copies of this Prospectus, as it may be amended or
supplemented from time to time, to any Participating Broker-Dealer upon request.
ALARIS Medical has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for all of the holders of Old Notes)
other than commissions or concessions of any brokers or dealers and transfer
taxes and will indemnify the holders of the Old Notes against certain
liabilities, including liabilities under the Securities Act.

AVAILABLE INFORMATION

ALARIS Medical has filed with the Commission a registration statement on
Form S-4 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement") under the Securities Act covering the New
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement. For further information with respect to
ALARIS Medical and the Exchange Offer, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.

The Registration Statement, including the exhibits thereto, can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional
Offices of the Commission at Seven World Trade Center, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission

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maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. The address of such site is
http://www.sec.gov.

As a result of the filing of the Registration Statement with the Commission,
ALARIS Medical will become subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of ALARIS Medical to file
periodic reports and other information with the Commission will be suspended if
the Notes are held of record by fewer than 300 holders as of the beginning of
any fiscal year of ALARIS Medical other than the fiscal year in which the
Registration Statement is declared effective. ALARIS Medical will nevertheless
be required to continue to file reports with the Commission if the New Notes are
listed on a national securities exchange. ALARIS Medical has agreed pursuant to
the Indenture that, whether or not required by the rules and regulations of the
Commission, for so long as any Notes are outstanding, ALARIS Medical shall
furnish to the holders of the Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
commission on Form 10-Q and 10-K if ALARIS Medical were required to file such
form, including a "Management's Discussion and Analysis of Financial condition
and Results of Operations" that describes the financial condition and results of
operations of ALARIS Medical and its Restricted Subsidiaries (as defined) and,
with respect to the annual information only, a report thereon by the ALARIS
Medical's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if ALARIS Medical
was required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, ALARIS Medical shall file a copy of all
such information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
Moreover, ALARIS Medical has agreed that, for so long as any Notes remain
outstanding, they will furnish to holders of the Notes and to securities
analysts and prospective investors, upon their request, the information required
to be delivered by Rule 144A(d)(4) under the Securities Act.

LEGAL MATTERS

Certain legal matters with respect to the validity of the New Notes will be
passed upon for the Company by Gordon Altman Butowsky Weitzen Shalov & Wein, New
York, New York.

EXPERTS

The financial statements of ALARIS Medical, Inc. and its subsidiaries as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 and the financial statements of IVAC Holdings, Inc. and its
subsidiaries as of December 31, 1995 and for the year then ended included in
this Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALARIS Medical, Inc. (unaudited)

Condensed Consolidated Balance Sheet at December 31, 1997 and June 30,
1998.................................................................... F-2
Condensed Consolidated Statement of Operations for the six months ended
June 30, 1997 and 1998.................................................. F-3
Condensed Consolidated Statement of Cash Flows for the six months ended
June 30, 1997 and 1998.................................................. F-4
Condensed Consolidated Statement of Changes in Stockholders' Equity for
the six months ended June 30, 1998...................................... F-5
Notes to the Condensed Consolidated Financial Statements.................. F-6

ALARIS Medical, Inc. (audited)

Report of Independent Accountants......................................... F-13
Consolidated Balance Sheet at December 31, 1996 and 1997.................. F-14
Consolidated Statement of Operations for the years ended December 31,
1995, 1996 and 1997..................................................... F-15
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-16
Consolidated Statement of Stockholder's Equity for the years ended
December 31, 1995, 1996 and 1997........................................ F-17
Notes to the Consolidated Financial Statements............................ F-18

IVAC Holdings, Inc. (audited)

Report of Independent Accountants......................................... F-47
Consolidated Balance Sheet at December 31, 1995........................... F-48
Consolidated Statement of Operations for the year ended December 31,
1995.................................................................... F-49
Consolidated Statement of Cash Flows for the year ended December 31,
1995.................................................................... F-50
Consolidated Statement of Shareholders' Equity (Deficit) for the year
ended December 31, 1995................................................. F-51
Notes to the Consolidated Financial Statements............................ F-52
</TABLE>

F-1
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 6,984 $ 2,285
Receivables, net........................................................................ 83,406 82,274
Inventories............................................................................. 61,666 65,619
Prepaid expenses and other current assets............................................... 23,260 22,352
------------ -----------
Total current assets.................................................................. 175,316 172,530

Net investment in sales-type leases, less current portion................................. 30,404 23,473
Property, plant and equipment, net........................................................ 55,365 56,693
Other non-current assets.................................................................. 16,279 17,295
Intangible assets, net.................................................................... 287,933 280,272
------------ -----------
$ 565,297 $ 550,263
------------ -----------
------------ -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt....................................................... $ 14,559 $ 15,068
Accounts payable........................................................................ 24,042 23,669
Accrued expenses and other current liabilities.......................................... 52,668 56,213
------------ -----------
Total current liabilities............................................................. 91,269 94,950
------------ -----------
Long-term debt............................................................................ 431,571 417,277
Other non-current liabilities............................................................. 10,508 8,034
------------ -----------
Total non-current liabilities......................................................... 442,079 425,311
------------ -----------

Contingent liabilities and commitments (Note 7)

Stockholders' equity:
Common stock, authorized 75,000 shares at $.01 par value; issued and outstanding--59,102
shares and 59,160 shares at December 31, 1997 and June 30, 1998, respectively......... 591 591
Capital in excess of par value.......................................................... 148,341 148,523
Accumulated deficit..................................................................... (111,330) (113,091)
Treasury stock.......................................................................... (2,027) (2,027)
Equity adjustment for foreign currency translation...................................... (3,626) (3,994)
------------ -----------
Total stockholders' equity............................................................ 31,949 30,002
------------ -----------
$ 565,297 $ 550,263
------------ -----------
------------ -----------
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-2
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Sales..................................................................................... $ 170,067 $ 177,654
Cost of sales............................................................................. 94,331 91,353
---------- ----------
Gross margin.............................................................................. 75,736 86,301
---------- ----------
Selling and marketing expenses............................................................ 31,909 34,230
General and administrative expenses....................................................... 18,935 19,541
Research and development expenses......................................................... 8,191 9,000
Purchased in-process research and development............................................. -- 5,534
Integration and other non-recurring charges............................................... 15,899 --
---------- ----------
Total operating expenses................................................................ 74,934 68,305
---------- ----------
Lease interest income..................................................................... 2,191 2,222
---------- ----------
Income from operations.................................................................. 2,993 20,218
---------- ----------
Other income (expenses):
Interest income......................................................................... 385 147
Interest expense........................................................................ (21,695) (21,795)
Other, net.............................................................................. (400) (681)
---------- ----------
Total other expense....................................................................... (21,710) (22,329)
---------- ----------
Loss before income taxes.................................................................. (18,717) (2,111)
Benefit from income taxes................................................................. (7,400) (350)
---------- ----------
Net loss.................................................................................. $ (11,317) $ (1,761)
---------- ----------
---------- ----------
Net loss per common share assuming no dilution.......................................... $ (.19) $ (.03)
---------- ----------
---------- ----------
Net loss per common share assuming dilution............................................. $ (.19) $ (.03)
---------- ----------
---------- ----------
Weighted average common shares outstanding assuming no dilution........................... 58,788 58,669
---------- ----------
---------- ----------
Weighted average common shares outstanding assuming dilution.............................. 58,788 58,669
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-3
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Net cash (used) provided by operating activities........................................... $ (2,776) $ 25,715
--------- ----------
Cash flows from investing activities:
Net decrease in restricted cash and investments.......................................... 2,332 --
Return of capital by investee............................................................ 148 --
Net capital expenditures................................................................. (9,717) (10,405)
Acquisition and license of technology.................................................... -- (6,547)
--------- ----------
Net cash used in investing activities...................................................... (7,237) (16,952)
--------- ----------

Cash flows from financing activities:
Principal payments on long-term debt..................................................... (3,622) (8,579)
Proceeds under revolving credit facility................................................. 10,300 27,300
Repayments under revolving credit facility............................................... (3,000) (32,250)
Debt issue costs......................................................................... (429) --
Purchase of treasury stock............................................................... (1,293) --
Proceeds from exercise of stock options.................................................. 161 107
--------- ----------
Net cash provided by (used in) financing activities........................................ 2,117 (13,422)
--------- ----------
Effect of exchange rate changes on cash.................................................... (176) (40)
--------- ----------
Net decrease in cash....................................................................... (8,072) (4,699)
Cash at beginning of period................................................................ 12,084 6,984
--------- ----------
Cash at end of period...................................................................... $ 4,012 $ 2,285
--------- ----------
--------- ----------
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-4
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)

(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
COMMON STOCK CAPITAL IN TREASURY STOCK FOR FOREIGN
------------------------ EXCESS OF ACCUMULATED ------------------------ CURRENCY
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT TRANSLATION
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997............ 59,102 $ 591 $ 148,341 $ (111,330) 453 $ (2,027) $ (3,626)

Exercise of stock options............... 58 107

Equity adjustment for foreign currency
translation........................... (368)

Other equity............................ 75

Net income for the period............... (1,761)
----------- ----- ----------- ------------ --- ----------- -----------
Balance at June 30, 1998................ 59,160 $ 591 $ 148,523 $ (113,091) 453 $ (2,027) $ (3,994)
----------- ----- ----------- ------------ --- ----------- -----------
----------- ----- ----------- ------------ --- ----------- -----------

TOTAL
---------
<S> <C>
Balance at December 31, 1997............ $ 31,949
Exercise of stock options............... 107
Equity adjustment for foreign currency
translation........................... (368)
Other equity............................ 75
Net income for the period............... (1,761)
---------
Balance at June 30, 1998................ $ 30,002
---------
---------
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-5
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BUSINESS AND STATEMENT OF ACCOUNTING POLICY

THE COMPANY:

STATEMENT OF ACCOUNTING POLICY:

The accompanying financial statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures herein are
adequate to make the information not misleading.

In the opinion of the Company, the accompanying financial statements contain
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the Company's financial position as of June 30, 1998, and the
results of its operations and its cash flows for the six months ended June 30,
1997 and 1998.

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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.

NET INCOME (LOSS) PER COMMON SHARE:

The Company's net income (loss) per common share assuming no dilution is
computed using the weighted average number of common shares outstanding. The
Company's net income (loss) per common share assuming dilution is computed using
the weighted average number of common shares outstanding plus dilutive potential
common shares using the treasury stock method at the average market price during
the reporting period (Note 6).

NOTE 2--THE MERGER

On November 26, 1996, IMED acquired all of the outstanding stock of IVAC
Holdings and its subsidiaries including IVAC Medical Systems, Inc., in exchange
for $390,000 plus acquired cash of $7,225 less total debt assumed aggregating
$173,314 plus related expenses. The Merger was financed with $204,200 in bank
debt and $200,000 in senior subordinated notes. Subsequent to the acquisition,
IVAC Medical Systems, Inc. and IMED were merged into IVAC Holdings, which
subsequently changed its name to ALARIS Medical Systems, Inc.

F-6
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2--THE MERGER (CONTINUED)
In connection with the Merger, ALARIS Medical contributed $19,588 to IMED
(the "Capital Contribution"). The Capital Contribution was funded in part
through the sale to Decisions Incorporated ("Decisions"), a corporation wholly
owned by ALARIS Medical's principal stockholder, of 13,333 shares of its common
stock for aggregate proceeds of $40,000 (the "Decisions Contribution"). The
balance of the Capital Contribution was funded with existing cash balances of
ALARIS Medical. The portion of the net proceeds of the Decisions Contribution
not applied to make the Capital Contribution was used by ALARIS Medical to
redeem $21,924 principal amount of its 15% subordinated debentures due 1999 and
fund the redemption of ALARIS Medical's outstanding preferred stock. In
connection with the Decisions Contribution, Decisions exchanged an aggregate of
$37,500 in principal amount of convertible promissory notes previously issued by
ALARIS Medical for 29,416 shares of ALARIS Medical common stock, including 3,333
shares issued as an inducement to convert.

The acquisition was accounted for as a purchase, whereby the purchase price,
including related expenses, was allocated to identified assets, including
intangible assets, purchased research and development and liabilities based upon
their respective fair values. The excess of the purchase price over the value of
identified assets and liabilities, in the amount of $132,482, was recorded as
goodwill and is being amortized over its estimated life of thirty years.

NOTE 3--ACQUISITIONS AND LICENSES

During the second quarter of 1998, the Company acquired the net assets of
Patient Solutions, Inc. ("PSI") for $5,250. PSI was a wholly-owned subsidiary of
Invacare Corporation and was focused on the development of an ambulatory pump
for use in the alternate site market. The transaction was accounted for as a
purchase with the net assets acquired recorded at their estimated fair values.
The rights to the pump under development were valued at $4,421 and were recorded
as a non-recurring charge included in purchased in-process research and
development. The underlying technology had not reached technological feasibility
and no alternative use has been identified. The Company estimates completing
such development by the fourth quarter of 1998.

Also during the second quarter, the Company licensed technology from
Caesarea Medical Electronics Limited ("Caesarea") for a pole mounted volumetric
infusion pump being designed for developing international markets. At the time
of license, the development of the applications and functionality required by
the Company had not reached technological feasibility and no alternative uses
were identified. As a result, the initial license payment and related expenses
of approximately $1,200 were recorded as purchased in-process research and
development during the second quarter. Under the terms of the license agreement,
the Company is obligated to pay additional consideration to Caesarea upon timely
completion of certain development milestones and delivery of specified numbers
of assembly kits. The milestones require completion by various dates through the
first half of 1999 with the first significant milestones expected to be met
during the third quarter of 1998. If all such milestones are reached, the
additional consideration will total approximately $4,000.

On June 24, 1998, the Company entered into an agreement to acquire
Instromedix, Inc. ("Instromedix") for approximately $51,000 in cash, assumption
of approximately $5,100 of debt and the payment of approximately $1,000 of
seller transaction expenses. This acquisition was completed on July 17, 1998 and
was financed with $30,000 of ALARIS Medical Systems bank term debt and proceeds
from an ALARIS Medical debt offering. On July 28, 1998, ALARIS Medical completed
the sale of $109,892 of 11 1/8% Senior Discount Notes (the "Senior Discount
Notes"), due 2008, receiving net proceeds of $106,321. Interest accruing on
these notes is added to the outstanding principal balance through July 31,

F-7
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 3--ACQUISITIONS AND LICENSES (CONTINUED)
2003. Interest accruing subsequent to July 31, 2003 is payable in cash
semi-annually in arrears on February 1 and August 1.

NOTE 4--INVENTORIES

Inventories comprise the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
<S> <C> <C>
Raw materials....................................................... $ 24,144 $ 26,570
Work-in-process..................................................... 8,363 7,843
Finished goods...................................................... 29,159 31,206
------------ -----------
$ 61,666 $ 65,619
------------ -----------
------------ -----------
</TABLE>

NOTE 5--COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. ALARIS Medical's
total comprehensive earnings were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1997 1998
---------- ---------
<S> <C> <C>
Net loss.............................................................. $ (11,317) $ (1,761)
Other comprehensive loss:
Foreign currency translation adjustments............................ (2,534) (368)
---------- ---------
Comprehensive loss.................................................... $ (13,851) $ (2,129)
---------- ---------
---------- ---------
</TABLE>

NOTE 6--EARNINGS PER SHARE

In February, 1997 the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") which specifies the computation, presentation, and disclosure requirements
for earnings per share. The earnings per share information

F-8
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6--EARNINGS PER SHARE (CONTINUED)
contained in these financial statements, including those presented for prior
periods, conform with SFAS 128.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
1997 1998
---------------------- --------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net loss as reported............................ $ (11,317) $ (11,317) $ (1,761) $ (1,761)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Weighted average common shares outstanding...... 58,788 58,788 58,669 58,669
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Net loss per common share....................... $ (.19) $ (.19) $ (.03) $ (.03)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>

Potential common shares are not included in the diluted computation when the
Company reports a net loss, as they are antidilutive. As a result, net loss per
common share assuming no dilution and dilution are the same when the Company
experiences a net loss.

The Company's 7.25% Debentures were not included in the calculation of
diluted earnings per share in the six months ended June 30, 1998 as they are
antidilutive. For the six month periods ended June 30, the $16,152 of
convertible debentures, if converted at an exercise price of $18.14 per share,
would result in an increase of 890 common shares and an increase of $352 net of
taxes, to net income, due to the reduction in interest expense. Options
outstanding at June 30, 1997 and 1998 were excluded due to their antidilutive
nature. Had such options been included, the weighted average shares would have
increased by 1,204 and 1,687 for the six month periods ended June 30, 1997, and
1998, respectively.

NOTE 7--CONTINGENCIES AND LITIGATION

GOVERNMENT REGULATION AND FIELD CORRECTION

F-9
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--CONTINGENCIES AND LITIGATION (CONTINUED)
the Model 599 Series infusion pump, were subsequently returned to the market.
The Company continues, however, to sell administration sets and replacement
parts for the Model 599 Series infusion pump. In addition, the Company has
initiated a voluntary safety alert of its Model 597/598 and Model 599 Series
infusion pumps. Moreover, the Company has initiated a voluntary field correction
of approximately 50,000 of its Gemini PC-1 and PC-2 infusion pumps because
failure of specific electrical components on the power regulator printed circuit
board may result in improper regulation of the battery charge voltage, which may
cause the battery to overheat. The Company recorded a charge of $2,500 to cost
of sales for the quarter ended March 31, 1997 on account of this voluntary field
correction. The Company initiated a voluntary field correction of its Signature
Edition infusion pumps to correct a malfunction of an electronic line filter
component (which malfunction may occur when a user fails to follow the Company's
written cleaning instructions and can result in an electrical short). The
Company is not aware of the occurrence of any injury incidents relating to a
malfunction of this type. In the third quarter of 1998, the Company will
initiate a recall of its Gemini PC-4 infusion pumps to correct certain
electro-mechanical problems which may cause one or more channels of the device
to audibly and visibly alarm and temporarily cease operation. Although there can
be no assurance, the Company believes that these voluntary field corrections,
along with adjustments and corrections that may be made to various Company
products from time to time as an ordinary part of the business of the Company,
will not have a material adverse effect on the business, financial condition,
results of operations or cash flows.

LITIGATION

The Company is a defendant in a lawsuit filed in June 1996 by Sherwood
Medical, Inc. against IVAC which alleges infringement of two patents by reason
of certain activities including the sale by IVAC of disposable probe covers for
use with the Company's infrared tympanic thermometer. The lawsuit seeks
injunctive relief, treble damages and the recovery of costs and attorney fees.
The Company believes it has sufficient defenses to all claims, including the
defenses of noninfringement and invalidity and intends to vigorously defend this
action. However, there can be no assurance that the Company will successfully
defend all claims made by Sherwood and the failure of the Company to
successfully prevail in this lawsuit could have a material adverse effect on the
Company's operations, financial condition and cash flows.

F-10
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--CONTINGENCIES AND LITIGATION (CONTINUED)
the court would find in the Company's favor if the Complaint were to be pursued
or that if the court were to find that the Company's SmartSite Needle Free
System infringes the patents licensed to Becton that such finding would not have
a material adverse effect on the business, financial condition, results of
operations or cash flows of the Company.

UNITED STATES CUSTOMS SERVICE MATTER

During the years 1988 through 1995, Cal Pacifico acted as the Company's
United States customs broker and importer of record with respect to the
importation into the United States of finished products ("Finished Products")
assembled at the Company's two maquiladora assembly plants in Tijuana, Mexico.
In May 1995, Cal Pacifico received a pre-penalty notice from the United States
Customs Service ("Customs") to the effect that Customs intended to assess
additional duties and substantial penalties against Cal Pacifico for its alleged
failure, during the years 1988 through 1992, to comply with certain documentary
requirements regarding the importation of goods on behalf of its clients,
including the Company. Customs recently assessed additional duties with respect
to Cal Pacifico's importation of goods on behalf of its clients, including the
importation of the Company's Finished Products, for the years 1993 and 1994, and
it is anticipated that Customs will issue a pre-penalty notice to Cal Pacifico
in respect of these years as well (collectively with the amounts referred to in
the immediately preceding sentence, the "Disputed Amounts"). The Company has
been advised by its special Customs counsel that, under applicable law, no
person, by fraud, gross negligence or negligence, may (i) import merchandise
into the commerce of the United States by means of any material and false
document, statement or act, or any material omission, or (ii) aid or abet any
other person to import merchandise in such manner. No proceeding has been
initiated by Customs against the Company in respect of the matters which are the
subject of the proceeding against Cal Pacifico. Since Cal Pacifico was the
Company's United States customs broker and importer of record during each of the
foregoing years, the Company believes that it is unlikely that Customs will
assess against the Company any portion of the Disputed Amounts.

F-11
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--CONTINGENCIES AND LITIGATION (CONTINUED)
Cal Pacifico (including a defense with respect to the availability of
indemnification under the agreements between Cal Pacifico and the Company), the
conduct of Cal Pacifico with respect to both the Company and Customs, and the
compliance obligations of Cal Pacifico under applicable customs laws. Inasmuch
as Cal Pacifico's challenge before Customs is still pending and any claim
against the Company for indemnification would be based on Cal Pacifico's
ultimate lack of success in that challenge, and inasmuch as any arbitration
proceeding by which Cal Pacifico might seek indemnification has not been filed
nor has Cal Pacifico committed itself to the theories under which it might seek
indemnification or the recovery of damages from the Company, it is not possible
for the Company to express an opinion at this time as to the likelihood of an
unfavorable outcome in such a proceeding.

OTHER

The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
they have meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion, based
on discussions with legal counsel, liabilities arising from such matters, if
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.

F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
ALARIS Medical, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders' equity
(deficit) present fairly, in all material respects, the financial position of
ALARIS Medical, Inc. and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Diego, California
March 2, 1998

F-13
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................. $ 12,084 $ 6,984
Restricted cash and investment securities............................................. 2,332 --
Receivables, net...................................................................... 87,880 83,406
Inventories........................................................................... 58,976 61,666
Prepaid expenses and other current assets............................................. 21,582 23,260
----------- -----------
Total current assets.............................................................. 182,854 175,316
----------- -----------
Net investment in sales-type leases, less current portion............................... 27,276 30,404
Property, plant and equipment, net...................................................... 56,628 55,365
Other non-current assets................................................................ 18,107 16,279
Intangible assets, net.................................................................. 308,517 287,933
----------- -----------
$ 593,382 $ 565,297
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Crrent liabilities:
Current portion of long-term debt..................................................... $ 3,963 $ 14,559
Accounts payable...................................................................... 25,812 24,042
Accrued expenses and other current liabilities........................................ 50,196 50,988
Accrued restructuring and integration costs........................................... 15,098 1,680
----------- -----------
Total current liabilities......................................................... 95,069 91,269
----------- -----------
Long-term debt.......................................................................... 436,130 431,571
Other non-current liabilities........................................................... 16,130 10,508
----------- -----------
Total non-current liabilities..................................................... 452,260 442,079
----------- -----------
Contingent liabilities and commitments (Notes 8 and 15) Stockholders' equity:
Preferred stock, authorized 6,000 shares at $.001 par value, issued and
outstanding--none...................................................................
Common stock, authorized 75,000 shares at $.01 par value; issued and
outstanding--58,977 and 59,102 shares at December 31, 1996 and 1997, respectively... 589 591
Capital in excess of par value........................................................ 147,840 148,341
Accumulated deficit................................................................... (101,704) (111,330)
Treasury stock........................................................................ (734) (2,027)
Equity adjustment for foreign currency translation.................................... 62 (3,626)
----------- -----------
Total stockholders' equity........................................................ 46,053 31,949
----------- -----------
$ 593,382 $ 565,297
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-14
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales............................................................................. $ 112,551 $ 136,371 $ 359,077
Cost of sales..................................................................... 63,219 78,616 188,340
--------- --------- ---------
Gross margin.................................................................. 49,332 57,755 170,737
--------- --------- ---------
Selling and marketing expenses.................................................... 16,567 22,273 65,797
General and administrative expenses............................................... 10,661 15,210 39,231
Research and development expenses................................................. 7,386 8,854 16,876
Purchased in-process research and development..................................... -- 44,000 --
Restructuring, integration and other non-recurring charges........................ -- 15,277 20,902
--------- --------- ---------
Total operating expenses...................................................... 34,614 105,614 142,806
--------- --------- ---------
Lease interest income............................................................. 2,333 2,501 4,559
--------- --------- ---------
Income (loss) from operations................................................. 17,051 (45,358) 32,490

Other income (expenses):
Interest income................................................................. 192 1,193 532
Interest expense................................................................ (8,153) (13,393) (44,413)
Debt conversion expense......................................................... -- (10,000) --
Other, net...................................................................... 313 1,222 (1,535)
--------- --------- ---------
Total other expense........................................................... (7,648) (20,978) (45,416)
--------- --------- ---------
Income (loss) before income taxes, minority interests and extraordinary item...... 9,403 (66,336) (12,926)
Benefit from income taxes......................................................... (9,374) (730) (3,300)
--------- --------- ---------
Income (loss) before minority interests and extraordinary item.................... 18,777 (65,606) (9,626)
Minority interests in consolidated subsidiaries................................... (6,500) -- --
--------- --------- ---------
Income (loss) before extraordinary item........................................... 12,277 (65,606) (9,626)
Extraordinary item--gain (loss) on early retirement of debt, net of taxes......... 15,177 (1,630) --
--------- --------- ---------
Net income (loss)................................................................. 27,454 (67,236) (9,626)
Dividends on mandatorily redeemable preferred stock............................... 650 962 --
--------- --------- ---------
Net income (loss) attributable to common stock.................................... $ 26,804 $ (68,198) $ (9,626)
--------- --------- ---------
--------- --------- ---------
Income (loss) per common share assuming no dilution:
Income (loss) before extraordinary item......................................... $ .75 $ (3.27) $ (.16)
Extraordinary item.............................................................. .98 (.08) --
--------- --------- ---------
Net income (loss) per common share assuming no dilution....................... $ 1.73 $ (3.35) $ (.16)
--------- --------- ---------
--------- --------- ---------
Income (loss) per common share assuming dilution:
Income (loss) before extraordinary item......................................... $ .38 $ (3.27) $ (.16)
Extraordinary item.............................................................. .46 (.08) --
--------- --------- ---------
Net income (loss) per common share assuming dilution.......................... $ .84 $ (3.35) $ (.16)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding assuming no dilution................... 15,506 20,343 58,644
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding assuming dilution...................... 33,236 20,343 58,644
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-15
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ 27,454 $ (67,236) $ (9,626)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 7,575 10,499 34,288
Net (gain) loss on disposal/write-off of property, plant and equipment and
intangible assets............................................................. (176) (452) 6,735
Minority interests in consolidated subsidiaries................................ 6,500 -- --
Extraordinary (gain) loss - early retirement of debt, net of taxes............. (15,177) 1,630 --
Debt conversion expense........................................................ -- 10,000 --
Debt discount and issue costs amortization..................................... 521 1,332 3,125
Purchased in-process research and development.................................. -- 44,000 --
Inventory purchase price allocation adjustment................................. -- 4,014 1,607
Non-cash restructuring charges................................................. -- 1,616 --
(Increase) decrease in assets, net of effects of the Merger:
Receivables.................................................................. (2,096) (2,932) 1,509
Inventories.................................................................. 4,518 (1,223) (4,681)
Prepaid expenses and other current assets.................................... (1,511) 578 (1,773)
Net investment in sales-type leases.......................................... (458) 1,830 (3,128)
Other non-current assets..................................................... (10,718) 7,872 172
Increase (decrease) in liabilities, net of effects of the Merger:
Accounts payable............................................................. (546) 2,975 (1,548)
Accrued expenses, restructuring and integration costs and other current
liabilities................................................................. 2,900 1,536 (11,305)
Other non-current liabilities................................................ (313) (8,324) (5,622)
--------- --------- ---------
Net cash provided by operating activities.......................................... 18,473 7,715 9,753
--------- --------- ---------
Cash flows from investing activities:
Net (increase) decrease in restricted cash and investments....................... (25,486) 24,886 2,332
Capital expenditures............................................................. (4,803) (9,502) (19,843)
Payments for product distribution rights......................................... (3,402) (12,556) --
Proceeds from disposal of property, plant and equipment.......................... 17 106 89
Proceeds from sale of investments................................................ 859 2,374 --
Acquisition of business, net of cash acquired (Note 2)........................... -- (219,459) --
Return of capital investment..................................................... -- -- 148
--------- --------- ---------
Net cash used in investing activities.............................................. (32,815) (214,151) (17,274)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term debt............................................. (1,218) (322) (4,248)
Proceeds from issuance of notes payable and long-term debt....................... 25,000 400,000 --
Net (repayments) proceeds under former revolving credit facilities............... (7,764) 10,006 --
Proceeds from revolving credit facility.......................................... -- 15,200 34,300
Repayments of revolving credit facility.......................................... -- -- (24,300)
Proceeds from issuance of common stock........................................... -- 40,024 --
Proceeds from exercise of stock options.......................................... -- -- 241
Debt issuance costs.............................................................. (498) (16,888) (919)
Debt repaid in Merger............................................................ -- (210,723) --
Redemption of preferred stock including related dividends........................ -- (7,844) --
Purchase of common stock warrant................................................. -- (12,500) --
Repurchase of common stock....................................................... -- -- (1,293)
--------- --------- ---------
Net cash provided by financing activities.......................................... 15,520 216,953 3,781
--------- --------- ---------
Effect of exchange rate changes on cash............................................ (656) (295) (1,360)
--------- --------- ---------
Net increase (decrease) in cash.................................................... 522 10,222 (5,100)
Cash at beginning of year.......................................................... 1,340 1,862 12,084
--------- --------- ---------
Cash at end of year................................................................ $ 1,862 $ 12,084 $ 6,984
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-16
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS FROM
COMMON STOCK CAPITAL IN TREASURY STOCK SECURITIES
------------------------ EXCESS OF ACCUMULATED ------------------------ AVAILABLE
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT FOR SALE
----------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994... 14,152 $ 142 $ 58,703 $ (61,922) 83 $ (734) $ 883

Issuance of common stock....... 2,062 20 4,912
Dividends on mandatorily
redeemable preferred stock... (650)
Increase in unrealized gains
from securities available for
sale, net of tax............. 2,694
Equity adjustment from foreign
currency translation.........
Net income for the year........ 27,454
----------- ----- ----------- ------------ --- ----------- -----------
Balance at December 31, 1995... 16,214 162 62,965 (34,468) 83 (734) 3,577

Issuance of common stock upon
conversion of notes
payable...................... 29,416 294 47,206
Issuance of common stock....... 13,333 133 39,867
Dividends on mandatorily
redeemable preferred stock... (962)
Decrease in unrealized gain on
securities available for
sale, net of tax............. (3,577)
Purchase of common stock
warrant...................... (1,000)
Exercise of stock options...... 14 24
Equity adjustment from foreign
currency translation......... (260)
Net loss for the year.......... (67,236)
----------- ----- ----------- ------------ --- ----------- -----------
Balance at December 31, 1996... 58,977 589 147,840 (101,704) 83 (734) --

Exercise of stock options...... 125 2 239
Tax benefit from exercise of
options...................... 262
Purchase of treasury stock..... 370 (1,293)
Equity adjustment from foreign
currency translation.........
Net loss for the year.......... (9,626)
----------- ----- ----------- ------------ --- ----------- -----------
Balance at December 31, 1997... 59,102 $ 591 $ 148,341 $ (111,330) 453 $ (2,027) $ --
----------- ----- ----------- ------------ --- ----------- -----------
----------- ----- ----------- ------------ --- ----------- -----------

<CAPTION>
EQUITY
ADJUSTMENT
FROM
FOREIGN
CURRENCY
TRANSLATION TOTAL
----------- ---------
<S> <C> <C>
Balance at December 31, 1994... $ 690 $ (2,238)
Issuance of common stock....... 4,932
Dividends on mandatorily
redeemable preferred stock... (650)
Increase in unrealized gains
from securities available for
sale, net of tax............. 2,694
Equity adjustment from foreign
currency translation......... (660) (660)
Net income for the year........ 27,454
----------- ---------
Balance at December 31, 1995... 30 31,532
Issuance of common stock upon
conversion of notes
payable...................... 47,500
Issuance of common stock....... 40,000
Dividends on mandatorily
redeemable preferred stock... (962)
Decrease in unrealized gain on
securities available for
sale, net of tax............. (3,577)
Purchase of common stock
warrant...................... (1,000)
Exercise of stock options...... 24
Equity adjustment from foreign
currency translation......... 32 (228)
Net loss for the year.......... (67,236)
----------- ---------
Balance at December 31, 1996... 62 46,053
Exercise of stock options...... 241
Tax benefit from exercise of
options...................... 262
Purchase of treasury stock..... (1,293)
Equity adjustment from foreign
currency translation......... (3,688) (3,688)
Net loss for the year.......... (9,626)
----------- ---------
Balance at December 31, 1997... $ (3,626) $ 31,949
----------- ---------
----------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-17
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY:

ALARIS Medical, Inc. ("ALARIS Medical"), formerly Advanced Medical, Inc.,
operating through its consolidated subsidiaries, designs, manufactures,
distributes and services intravenous infusion therapy and patient monitoring
instruments and related disposables and accessories. On November 26, 1996, IMED
Corporation ("IMED"), then a wholly-owned subsidiary of Advanced Medical, Inc.,
("Advanced Medical") acquired all of the outstanding stock of IVAC Holdings,
Inc. ("IVAC Holdings") and its subsidiaries including IVAC Medical Systems, Inc.
(Note 2). In connection with the acquisition, IMED and IVAC Medical Systems,
Inc. were merged into IVAC Holdings (the "Merger"), which then changed its name
to ALARIS Medical Systems, Inc. ("ALARIS Medical Systems"). The acquisition was
accounted for as a purchase. The accompanying balance sheet as of December 31,
1996 reflects the assets, liabilities and stockholders' equity of ALARIS Medical
and its subsidiaries, including the merged entity. The accompanying statements
of operations, of cash flows and of stockholders' equity for the year ended
December 31, 1996 include the operations and cash flows of IVAC Holdings
subsequent to the acquisition date. ALARIS Medical and its subsidiaries are
collectively referred to as the "Company."

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION:

The financial statements include the accounts of ALARIS Medical and its
greater than 50 percent-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

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.

REVENUE RECOGNITION:

Revenue is recorded upon product shipment, net of an allowance for estimated
returns, or service delivery. Additionally, the Company leases instruments to
customers under non-cancelable sales-type capital leases and operating lease
contracts with terms ranging generally from 1 to 6 years. The Company sells
instruments via long-term financing arrangements to a number of customers under
agreements which allow customers to acquire instruments with no initial payment.
The sales price for the instruments is recovered via surcharges applied to
minimum purchase commitments of related disposables. The term of the financing
is generally three to five years, with interest at rates of 9% to 15%. Unearned
finance revenue is calculated using the inherent rate of interest on each
agreement, the expected disposable shipment period and the principal balance
financed and is recognized as disposables are shipped using a reducing principal
balance method which approximates the interest method. Contract provisions
include liquidated damage clauses which are sufficient to recover the sales
price of the instruments in the event of customer cancelation.

F-18
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CONCENTRATIONS OF CREDIT RISK:

The Company provides a variety of financing arrangements for its customers.
The majority of the Company's accounts receivable are from hospitals throughout
the United States and Europe with credit terms of generally 30 days. The Company
maintains adequate reserves for potential credit losses and such losses have
been within management's estimates.

INVENTORIES:

Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. Cost of inventory acquired in the Merger was
determined based on an allocation of the purchase price to all assets and
liabilities including inventory, as determined by an independent appraisal, at
the date of acquisition (Note 2).

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method based upon the following
estimated useful lives of the assets or lease terms, if shorter, for leasehold
improvements and instrument operating leases:

<TABLE>
<S> <C>
Building and leasehold improvements.................... 3 to 10 years
Machinery and equipment................................ 3 to 10 years
Furniture and fixtures................................. 4 to 8 years
Instruments on operating lease contracts............... 1 to 6 years
</TABLE>

INTANGIBLE ASSETS:

The Company has recorded goodwill for the excess purchase price over the
estimated fair values of tangible and intangible assets acquired and liabilities
assumed resulting from acquisitions. In connection with the Merger, a portion of
the purchase price was allocated to various identifiable intangible assets,
including patents, trademarks, workforce and supply agreements, based on their
fair values at the date of acquisition. The excess purchase price over the
estimated fair value of the net assets acquired has been assigned to goodwill.
Additionally, the Company has recorded intangible assets related to purchases of
patents and product distribution rights.

Intangible assets are amortized as follows:

<TABLE>
<S> <C> <C>
Supply agreements................................. Straight-line 3 years
Patents........................................... Straight-line 13 years (weighted average)
Workforce......................................... Straight-line 14 years
Product distribution license fee.................. Straight-line 15 years
Trademarks........................................ Straight-line 30 years
Goodwill.......................................... Straight-line 30 to 35 years
</TABLE>

F-19
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS:

The Company investigates potential impairments of long-lived assets and
certain identifiable intangibles including goodwill, on an exception basis, when
there is evidence that events or changes in circumstances may have made recovery
of an asset's carrying value unlikely. An impairment loss is recognized when the
sum of the expected, undiscounted future net cash flows is less than the
carrying amount of the asset. The Company has not identified any such losses.

DEBT ISSUE COSTS:

Debt issue costs aggregating $17,504 and $15,734 at December 31, 1996 and
1997, respectively, are amortized using the interest method over the respective
terms of the debt agreements and are included in other non-current assets.

FOREIGN CURRENCY TRANSLATION:

The accounts of foreign subsidiaries which use local currencies as
functional currencies are translated into U.S. dollars using year-end exchange
rates for assets and liabilities, historical exchange rates for equity and
weighted average exchange rates during the period for revenues and expenses. The
gains or losses resulting from translations are excluded from results of
operations and accumulated as a separate component of stockholders' equity.

RESEARCH AND DEVELOPMENT COSTS:

Research and development costs are expensed as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amount of the Company's financial instruments, including cash,
trade receivables and payables, approximates their fair value due to their
short-term maturities. The fair values of the Company's long-term lease
receivables are estimated by discounting future cash flows using discount rates
that reflect the risk associated with similar types of loans. The fair value of
the Company's long-term debt is estimated based on comparison with similar
issues or current rates offered to the Company for debt of the same remaining
maturities and the quoted market price for the debentures. The estimated fair
values of both the Company's long-term lease receivables and long-term debt,
with the exception of the debentures, approximate their carrying values. The
carrying value of the debentures was $16,152 at December 31, 1996 and 1997 and
the fair value was approximately $12,800 and $14,900 at December 31, 1996 and
1997, respectively.

INCOME TAXES:

The Company and its domestic subsidiaries file a consolidated Federal income
tax return. Domestic subsidiaries file income tax returns in multiple states on
either a stand-alone or combined basis. Foreign subsidiaries file income tax
returns in their respective local jurisdictions.

F-20
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company recognizes deferred tax assets and liabilities based on the
expected future tax consequences of events that have been included in the
financial statements and tax returns in different periods. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company provides a reserve against its net deferred assets when,
in the opinion of management, it is more likely than not that such assets will
not be realized.

STOCK-BASED COMPENSATION:

During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). The Company has continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and has included disclosure of the pro forma effects of SFAS 123 in Note 7 to
these Consolidated Financial Statements.

NET INCOME (LOSS) PER COMMON SHARE:

RECLASSIFICATIONS:

Certain prior year amounts have been reclassified to conform to the
classifications used in 1997.

COMPREHENSIVE INCOME:

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130"), "Reporting
Comprehensive Income," which the Company is required to adopt for 1998. This
statement will require the Company to report in the financial statements, in
addition to net income, comprehensive income and its components including
foreign currency translation items currently recorded to stockholders' equity.
Upon adoption of FAS 130, the Company is also required to reclassify financial
statements for earlier periods provided for comparative purposes. The adoption
of FAS 130 will not have an impact on the Company's consolidated financial
statements but will require display of comprehensive income including items not
currently included.

NOTE 2--THE MERGER

F-21
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2--THE MERGER (CONTINUED)
Medical Systems, Inc. and IMED were merged into IVAC Holdings, which
subsequently changed its name to ALARIS Medical Systems, Inc.

In connection with the Merger, ALARIS Medical contributed $19,588 to IMED
(the "Capital Contribution"). The Capital Contribution was funded in part
through the sale to Decisions Incorporated ("Decisions"), a corporation wholly
owned by ALARIS Medical's principal stockholder, of 13,333 shares of its common
stock for aggregate proceeds of $40,000 (the "Decisions Contribution"). The
balance of the Capital Contribution was funded with existing cash balances of
ALARIS Medical. The portion of the net proceeds of the Decisions Contribution
not applied to make the Capital Contribution was used by ALARIS Medical to
redeem $21,924 principal amount of its 15% subordinated debentures due 1999
(Note 4) and fund the redemption of ALARIS Medical's outstanding preferred
stock. In connection with the Decisions Contribution, Decisions exchanged an
aggregate of $37,500 in principal amount of convertible promissory notes
previously issued by ALARIS Medical for 29,416 shares of ALARIS Medical common
stock, including 3,333 shares of ALARIS Medical common stock issued as an
inducement to convert (Note 4).

The following unaudited pro forma financial information presents the
operations of the Company, as if the Merger had been consummated on January 1,
of the respective year, excluding certain one time non-recurring charges related
to the Merger.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Sales:
As reported......................................................... $ 112,551 $ 136,371
Pro forma........................................................... $ 352,728 $ 346,348
Income (loss) before extraordinary item:
As reported......................................................... $ 12,277 $ (65,606)
Pro forma........................................................... $ (38,372) $ (1,364)
</TABLE>

F-22
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
RECEIVABLES:
Trade receivables................................................... $ 75,170 $ 73,282
Allowance for doubtful accounts..................................... (4,085) (3,259)
---------- ----------
71,085 70,023
Current portion of net investment in sales-type leases (Note 8)..... 16,795 13,383
---------- ----------
$ 87,880 $ 83,406
---------- ----------
---------- ----------
INVENTORIES:
Raw materials....................................................... $ 24,711 $ 24,144
Work-in-process..................................................... 9,622 8,363
Finished goods...................................................... 24,643 29,159
---------- ----------
$ 58,976 $ 61,666
---------- ----------
---------- ----------
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Deferred income tax asset........................................... $ 16,201 $ 19,135
Other............................................................... 5,381 4,125
---------- ----------
$ 21,582 $ 23,260
---------- ----------
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ $ 640 $ 640
Building and leasehold improvements................................. 10,073 14,000
Machinery and equipment............................................. 32,230 39,987
Furniture and fixtures.............................................. 5,215 5,401
Instruments under operating lease contracts......................... 17,245 20,338
Construction-in-process............................................. 8,102 9,138
---------- ----------
73,505 89,504
Accumulated depreciation and amortization........................... (16,877) (34,139)
---------- ----------
$ 56,628 $ 55,365
---------- ----------
---------- ----------
</TABLE>

F-23
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)
Depreciation expense was $4,211, $5,827 and $17,417 for 1995, 1996 and 1997,
respectively.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
OTHER NON-CURRENT ASSETS:
Debt issue costs.................................................... $ 17,504 $ 15,734
Other............................................................... 603 545
---------- ----------
$ 18,107 $ 16,279
---------- ----------
---------- ----------
INTANGIBLE ASSETS:
Goodwill............................................................ $ 179,879 $ 180,381
Patents............................................................. 28,661 28,661
Product distribution license fee.................................... 8,742 3,837
Supply agreements................................................... 10,758 10,758
Trademarks.......................................................... 90,000 90,000
Workforce........................................................... 7,100 7,100
---------- ----------
325,140 320,737
Accumulated amortization............................................ (16,623) (32,804)
---------- ----------
$ 308,517 $ 287,933
---------- ----------
---------- ----------
</TABLE>

Supply agreements represent non-cancelable customer commitments to purchase
specified quantities of disposable administration sets and probe covers at
contracted prices.

Amortization expense was $3,364, $4,672 and $16,871 during 1995, 1996 and
1997, respectively.

<TABLE>
<S> <C> <C>
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Income taxes payable.................................... $ 2,647 $ 2,721
Compensation............................................ 8,096 13,556
Warranty................................................ 16,676 12,855
Interest................................................ 3,907 4,000
Other................................................... 18,870 17,856
--------- ---------
$ 50,196 $ 50,988
--------- ---------
--------- ---------
OTHER NON-CURRENT LIABILITIES:
Deferred income tax liability........................... $ 8,943 $ 4,283
Warranty................................................ 3,039 6,225
Other................................................... 4,148 --
--------- ---------
$ 16,130 $ 10,508
--------- ---------
--------- ---------
</TABLE>

F-24
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4--NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Bank credit facility
Term loan facilities................................................ $ 200,000 $ 198,750
Revolving credit facilities......................................... 15,200 25,200
9.75% Senior Subordinated Notes due 2006.............................. 200,000 200,000
7.25% Convertible Subordinated Debentures due 2002.................... 16,152 16,152
Other................................................................. 8,741 6,028
---------- ----------
440,093 446,130
Current portion..................................................... (3,963) (14,559)
---------- ----------
Long-term debt........................................................ $ 436,130 $ 431,571
---------- ----------
---------- ----------
</TABLE>

BANK CREDIT FACILITY:

In connection with the Merger, the Company entered into a $250,000 bank
credit facility (the "Facility") with a syndicate of financial institutions
which consists of $200,000 of term loans ($75,000 Tranche A Term Loans maturing
in 2002, $42,500 Tranche B Term Loans maturing in 2003, $42,500 Tranche C Term
Loans maturing in 2004 and $40,000 Tranche D Term Loans maturing in 2005) and a
$50,000 revolving credit facility maturing in 2002 of which $25,200 in principal
was outstanding at December 31, 1997. Available funds under the revolving credit
facility ($24,300 at December 31, 1997) are based on the difference between
$50,000 and the amounts of outstanding letters of credit ($500 at December 31,
1997) and borrowings issued under the revolving credit facility.

During 1997, Tranche A, B, C and D term loans bore interest at a Eurodollar
rate plus 2.5%, 3.0%, 3.5% and 3.75%, respectively. Such total rates were 8.4%,
8.9%, 9.4% and 9.7%, respectively, at December 31, 1997. Borrowings under the
revolving credit facility bear interest at the same rate as Tranche A. The
Company has an interest rate protection agreement to reduce the impact of
changes in interest rates on its floating rate long-term debt. At December 31,
1997, the Company had outstanding an interest rate protection agreement with
commercial banks, having a total notional principal amount of $98,075. That
agreement effectively changed the Company's interest rate exposure on its
floating rate debt and resulted in a weighted average interest rate of 9.6% on
the principal balance covered.

Effective March 1998, the Facility was amended and interest rates decreased
to a Eurodollar rate plus 2.25% for the revolving credit facility and Tranche A
loans and a Eurodollar rate plus 2.5% for Tranches B, C and D.

The Facility contains various operating and financial covenants, as well as
certain covenants relating to reporting requirements. As of December 31, 1996
and December 31, 1997 the Company was in compliance with all such covenants.

F-25
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES:

In connection with the Merger, on November 19, 1996, the Company issued
$200,000 of senior subordinated notes due 2006 (the "Notes"). The Notes bear
interest at a rate of 9.75% per annum, which is payable semi-annually on June 1
and December 1 of each year, commencing June 1, 1997. The Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Notes prior to maturity. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after December 1, 2001 at the
redemption prices set forth in the indenture plus accrued and unpaid interest to
the date of redemption. In the event of a change of control, as defined in the
indenture, holders of the Notes will have the right to require the Company to
purchase their Notes in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.

DEBENTURES:

At December 31, 1994, the Company had outstanding 7.25% convertible
subordinated debentures due 2002 ("7.25% Debentures") in the principal amount of
$60,000. The 7.25% Debentures are convertible at the option of the holder into
common stock of the Company at any time prior to maturity, unless previously
redeemed or repurchased, at a conversion price of $18.14 per share, subject to
adjustment in certain events. The 7.25% Debentures mature on January 15, 2002,
with interest payable semi-annually on each January 15 and July 15. The 7.25%
Debentures are redeemable in whole or in part at the option of the Company at
any time on or after January 15, 1993, at the redemption prices set forth in the
indenture, together with accrued and unpaid interest. Holders may require the
Company to repurchase the 7.25% Debentures, in whole or in part, in certain
circumstances involving a change in control of the Company. The 7.25% Debentures
are subordinate to all existing or future senior indebtedness of the Company,
and are also effectively subordinated to liabilities of the Company's
subsidiaries. The indenture does not restrict the incurrence of senior
indebtedness or other indebtedness by the Company or any subsidiary.

On March 31, 1995, the Company completed an exchange (the "Exchange")
wherein $28,245, or approximately 47%, in principal amount of the 7.25%
Debentures ("Old Debentures") were exchanged for an aggregate of $14,123 in
principal amount of newly created subordinated debentures ("First Debentures")
and 1,340 shares of the Company's common stock ("Common Stock"). As a result of
this transaction, the Company recognized an extraordinary gain on the
extinguishment of debt of $8,807 (net of the write-off of unamortized debt issue
costs of $1,343 related to the Old Debentures and net of $705, the taxes
applicable to the Exchange).

On May 19, 1995, the Company completed a second exchange ("Second Exchange")
wherein $15,603 of Old Debentures were exchanged for an aggregate of $7,801 of
newly created 15% Subordinated Debentures due 1999 ("New Debentures") and 733
shares of Common Stock. In addition, the Company accepted for exchange all of
the First Debentures and Common Stock from the Exchange for an aggregate of
$14,123 of New Debentures and 1,328 shares of Common Stock. As a result of these
transactions, the Company recognized an extraordinary gain on the extinguishment
of debt of $6,370 (net of the write-off of unamortized debt issue costs of $727
related to the Old Debentures and net of $362, the taxes applicable to the
Second Exchange).

F-26
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4--NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
In connection with the Merger, the Company redeemed the remaining $21,924
principal amount of New Debentures plus a 10% premium. As a result of this
transaction, the Company recognized an extraordinary loss for the year ended
December 31, 1996, on the extinguishment of debt of $1,630, net of income tax
benefit of $878.

REFINANCINGS:

During 1994 and 1995, the Company borrowed an aggregate of $37,500 from
Decisions (the "Decisions Notes"). The Decisions Notes bore interest at 7% to
9%, were due January 4, 2001 and were used for various corporate purposes
including the repayment of other debt and acquisition of the remaining minority
interest in IMED. The Decisions Notes were convertible, at the option of the
holder, into an aggregate of up to 26,083 shares of Common Stock, at prices
ranging from $0.62 to $2.625 per share, subject to certain anti-dilution
protection. Proceeds from $25,000 of the Decisions Notes were restricted in
their use.

In connection with the Merger, the Decisions Notes in the aggregate
principal amount of $37,500 were exchanged for 29,416 shares of ALARIS Medical
common stock, including 3,333 shares issued as an inducement to convert. The
Company recognized $10,000 of debt conversion expense during the year ended
December 31, 1996 in connection with the shares issued as an inducement to
convert.

OTHER DEBT:

Other debt primarily consists of consideration owed to Siemens Infusion
Systems, Ltd. ("SIS") resulting from IVAC Medical Systems, Inc.'s acquisition of
the MiniMed product line from SIS in 1993. In accordance with the acquisition
agreement, the Company's remaining obligation to SIS is $3,000 per year or 8% of
the prior year's product sales in 1998 and 1999. The original liability was
discounted at an imputed interest rate of 7% and recorded as debt. The
unamortized discount, which is amortized using the interest method over the term
of the payments, is $303 at December 31, 1997.

Maturities of long-term debt during the years subsequent to December 31,
1997 are as follows:

<TABLE>
<S> <C>
1998.............................................................. $ 14,559
1999.............................................................. 15,569
2000.............................................................. 13,650
2001.............................................................. 21,650
2002.............................................................. 70,377
Thereafter........................................................ 310,325
---------
$ 446,130
---------
---------
</TABLE>

F-27
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5--INCOME TAXES

The provision for income taxes comprises the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 221 $ -- $ --
State...................................................... 1,524 609 94
Foreign.................................................... 157 1,000 4,511
---------- --------- ---------
Total Current............................................ 1,902 1,609 4,605
---------- --------- ---------
Deferred:
Federal.................................................... (9,132) (1,964) (6,984)
State...................................................... (2,613) (307) (745)
Foreign.................................................... 469 (68) (176)
---------- --------- ---------
Total Deferred........................................... (11,276) (2,339) (7,905)
---------- --------- ---------
Provision (benefit) for income taxes..................... $ (9,374) $ (730) $ (3,300)
---------- --------- ---------
---------- --------- ---------
</TABLE>

The principal items accounting for the differences in income taxes computed
at the U.S. statutory rate (34%) and the effective income tax rate comprise the
following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Taxes computed at statutory rate.......................... $ 3,197 $ (22,554) $ (4,395)
State income taxes, net of federal benefit................ 1,018 199 (492)
Effect of foreign operations.............................. 105 3,516 649
Amortization of non-deductible intangible assets.......... 442 574 1,944
Federal tax credits....................................... -- (2,343) (513)
Debt conversion expense................................... -- 3,400 --
Acquired in-process research and development.............. -- 14,960 --
Items affected by valuation allowance..................... (14,136) 1,243 --
Other, net................................................ -- 275 (493)
---------- ---------- ---------
Provision for income taxes before extraordinary item...... (9,374) (730) (3,300)
---------- ---------- ---------
Extraordinary item:
Taxes computed at statutory rate.......................... 5,523 (853) --
State income taxes, net of federal benefit................ 488 (25) --
Items affected by valuation allowance..................... (4,944) -- --
---------- ---------- ---------
1,067 (878) --
---------- ---------- ---------
Total....................................................... $ (8,307) $ (1,608) $ (3,300)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

F-28
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5--INCOME TAXES (CONTINUED)
The components of the net deferred tax assets included in other assets as of
December 31, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 17,431 $ 20,074
Accrued liabilities and reserves...................................... 20,783 19,019
Unearned income....................................................... 1,979 2,126
Credit carryforwards.................................................. 4,699 5,156
Inventory............................................................. 1,713 2,771
Property, plant and equipment......................................... -- 926
Miscellaneous......................................................... 850 1,157
--------- ---------
47,455 51,229
Valuation allowance................................................... (1,673) (1,427)
--------- ---------
Total deferred tax assets........................................... 45,782 49,802

Deferred tax liabilities:
Property, plant and equipment......................................... 86 --
Intangible assets..................................................... 36,979 33,973
Miscellaneous......................................................... 1,459 977
--------- ---------
Net deferred tax assets................................................. $ 7,258 $ 14,852
--------- ---------
--------- ---------
</TABLE>

As of December 31, 1997, the Company had federal and state net operating
loss carryforwards of approximately $56,284 and $20,291, respectively.
Additionally, as of December 31, 1997, the Company had a foreign tax credit
carryforward and an alternative minimum tax credit carryforward of approximately
$2,595 and $552, respectively, for federal tax purposes and research and
development tax credits of approximately $1,814 and $294 for federal and state
purposes, respectively. The federal and state net operating loss carryforwards
expire from 1998 to 2012. The foreign tax credit expires from 2001 to 2002 and
the research and development tax credits expire from 2005 to 2011.

As a result of certain changes in the Company's stock ownership which
occurred during 1996, portions of the above described carryforwards are subject
to annual income offset limitations on a prospective basis. Accordingly,
approximately $28,689 and $4,985 of the respective federal and state net
operating loss carryforwards, approximately $552 of the federal alternative
minimum tax credit carryforward and approximately $1,659 and $294 of the
respective federal and state research and development credits are subject to a
general annual income offset limitation of approximately $4,000. Additionally,
certain built-in gains recognized by the Company will increase the annual
utilization rate of the net operating losses. The Company also possesses certain
unrealized built-in losses which will be subject to the annual utilization
limitation when recognized.

F-29
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6--STOCK OPTION PLANS

The Company maintains several stock option plans under which incentive stock
options may be granted to key employees of the Company and nonqualified stock
options may be granted to key employees, directors, officers, independent
contractors and consultants.

The exercise price for incentive stock options generally may not be less
than the underlying stock's fair market value at the grant date. The exercise
price for non-qualified stock options granted to non-directors will not be less
than the par value of a share of common stock, as determined by a committee
appointed by the Board of Directors ("the Committee"). The exercise price for
non-qualified stock options granted to directors may not be less than the
underlying stock's fair market value at the grant date.

Options granted to non-directors generally vest and become exercisable as
determined by the Committee. Options granted to directors generally vest and
become exercisable over a three-year period. Options granted to non-directors
generally expire upon the earlier of the termination of the optionee's
employment, with vested options expiring one year after termination of
employment, or ten years from the grant date. Options granted to directors
generally expire upon the earlier of the date the optionee is no longer a
director or five years from the grant date.

STOCK OPTION ACTIVITY:

Activity for 1995, 1996 and 1997 with respect to these plans is as follows:

<TABLE>
<CAPTION>
SHARES OPTION
UNDERLYING PRICE PER
OPTIONS SHARE
---------- --------------
<S> <C> <C>
Outstanding at December 31, 1994.......................................................... 328 $4.47 - $16.94
Granted................................................................................. 1,270 $1.81 - $ 3.03
Canceled................................................................................ (505) $1.81 - $16.94
-----
Outstanding at December 31, 1995.......................................................... 1,093 $1.81 - $ 6.93
Granted................................................................................. 2,861 $2.28 - $ 3.78
Exercised............................................................................... (14) $1.81 - $ 1.81
Canceled................................................................................ (312) $1.81 - $ 3.47
-----
Outstanding at December 31, 1996.......................................................... 3,628 $1.81 - $ 6.93
Granted................................................................................. 936 $3.19 - $ 6.22
Exercised............................................................................... (125) $1.81 - $ 3.69
Canceled................................................................................ (479) $1.81 - $ 4.16
-----
Outstanding at December 31, 1997.......................................................... 3,960
-----
-----
</TABLE>

At December 31, 1997, options for 1,244 shares were exercisable at
$1.81-$6.93 under the plans and 731 shares were available for future grant.
Additionally, as of December 31, 1997, 4,691 shares of common stock were
reserved for issuance pursuant to the Company's stock option plans.

The Company adopted Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) during the year ended December 31, 1996. In
accordance with the provisions of SFAS 123, the Company applied APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans and does not recognize compensation expense for its

F-30
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6--STOCK OPTION PLANS (CONTINUED)
stock-based compensation plans other than for options granted to non-employees.
If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed by SFAS 123, the Company's net income or loss would be
reduced/increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported.............................................. $ 27,454 $ (67,236) $ (9,626)
Pro forma................................................ $ 26,975 $ (68,235) $ (11,836)
</TABLE>

These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions for
the years ended December 31, 1995, 1996 and 1997, respectively; dividend yields
of 0%, expected volatility of 183%, 180% and 164%, risk free interest rates of
6.5%, 6.2% and 5.8%, and expected lives ranging from 2 to 7 years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because ALARIS Medical's employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock based compensation plans.

The following table summarizes information about employee stock-based
compensation plans outstanding at December 31, 1997:

OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE-YEARS PRICE EXERCISABLE PRICE
- -------------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$1.81 - $2.94.. 752 7.16 $ 2.12 293 $ 2.05
$3.00 - $3.09.. 2,288 10.63 $ 3.02 845 $ 3.02
$3.19 - $3.69.. 812 9.64 $ 3.52 216 $ 3.56
$3.75 - $6.09.. 102 3.76 $ 4.03 10 $ 3.87
$6.13 - $6.93.. 6 3.78 $ 6.26 -- $ 6.93
- -------------- ----- ----- ----- ----- -----
$1.81 - $6.93.. 3,960 9.58 $ 2.98 1,364 $ 2.90
- -------------- ----- ----- ----- ----- -----
- -------------- ----- ----- ----- ----- -----
</TABLE>

F-31
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--BENEFIT PLANS

PENSION PLANS:

The Company had a defined benefit pension plan (the "Plan") which covered
substantially all of its U.S. employees as of December 31, 1993. On December 1,
1993, the Company's Board of Directors approved amendments to the Plan
provisions which include, among other matters, cessation of benefit accruals
after December 1, 1993. All earned benefits as of that date were preserved and
the Company will continue to contribute to the Plan as necessary to fund earned
benefits. No contributions to the Plan were required during 1995, 1996 or 1997
due to the prepaid position of the Plan during those years.

The following table sets forth the Plan's estimated funded status and
amounts recognized in the Company's balance sheet:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation............................................. $ 9,733 $ 11,425
--------- ---------
--------- ---------
Accumulated benefit obligation........................................ $ 9,822 $ 11,442
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date............... $ 9,822 $ 11,442
Plan assets at fair value, consisting of equity and fixed income mutual
funds................................................................. 13,053 15,838
--------- ---------
Plan assets greater than projected benefit obligation................... 3,231 4,396
Unrecognized net gain................................................... (2,940) (3,761)
--------- ---------
Prepaid pension cost.................................................... $ 291 $ 635
--------- ---------
--------- ---------
</TABLE>

The components of net periodic pension cost (benefit) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost during the period................................ $ 146 $ 181 $ 210
Interest cost on projected benefit obligation................. 608 706 725
Actual return on Plan assets.................................. (2,494) (1,896) (2,970)
Amortization and deferred amounts............................. 1,666 886 1,691
--------- --------- ---------
Net periodic pension cost (benefit)........................... $ (74) $ (123) $ (344)
--------- --------- ---------
--------- --------- ---------
Assumptions used in the accounting are as follows:
Discount rates.............................................. 6.82% 7.45% 6.64%
Rates of increase in compensation levels.................... N/A N/A N/A
Expected long-term rates of return on assets................ 9.00% 9.00% 9.00%
</TABLE>

F-32
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 8--LEASES

LEASE RECEIVABLES:

The Company leases instruments to customers under capital and operating
lease contracts with terms ranging generally from 1 to 6 years. Certain capital
lease agreements obligate the lessee to purchase a specified annual minimum of
disposable sets and payment of liquidating damages if the agreement is
terminated by the lessee. Anticipated future minimum amounts due under operating
leases and capital lease receivables as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31,: LEASES LEASES
- ------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
1998.................................................................... $ 1,785 $ 22,549
1999.................................................................... 837 14,829
2000.................................................................... 369 9,553
2001.................................................................... 37 5,946
2002.................................................................... 28 3,776
Thereafter.............................................................. -- 2,398
----------- ---------
Total minimum lease receivables..................................... $ 3,056 $ 59,051
----------- ---------
----------- ---------
</TABLE>

The net investment in sales-type leases consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Minimum lease payments................................................ $ 56,534 $ 59,051
Unguaranteed residual value of leased equipment....................... 789 753
Unearned interest income.............................................. (10,750) (14,136)
Allowance for uncollectible lease receivables......................... (2,502) (1,881)
---------- ----------
Net investment in sales-type leases................................... 44,071 43,787
Current portion....................................................... (16,795) (13,383)
---------- ----------
Net investment in sales-type leases, less current portion............. $ 27,276 $ 30,404
---------- ----------
---------- ----------
</TABLE>

F-33
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 8--LEASES (CONTINUED)
LEASE COMMITMENTS:

The Company leases buildings and equipment under non-cancelable operating
leases with terms ranging from 2 to 10 years. Scheduled future minimum lease
commitments as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,:
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 3,769
1999............................................................................... 4,230
2000............................................................................... 4,250
2001............................................................................... 4,300
2002............................................................................... 4,263
Thereafter......................................................................... 15,343
---------
$ 36,155
---------
---------
</TABLE>

Rental expense was $3,149, $3,474 and $4,722 during 1995, 1996 and 1997,
respectively.

NOTE 9--RESTRUCTURING, INTEGRATION AND OTHER NON-RECURRING CHARGES

In connection with the Merger, management performed a review of the
operating activities of both IMED and IVAC Medical Systems, Inc. in order to
reduce costs and maximize synergies. Management identified duplicative costs to
eliminate and developed and implemented plans to consolidate and integrate the
companies' operations including product strategies, manufacturing, service
centers, research and development, marketing and other administrative functions.
As a result, the Company has recorded non-recurring charges related to the
implementation of these plans in the amount of approximately $15,300 and $20,900
in 1996 and 1997, respectively.

F-34
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 9--RESTRUCTURING, INTEGRATION AND OTHER NON-RECURRING CHARGES (CONTINUED)
The following summarizes the significant components of the Company's 1996
and 1997 restructuring, integration and other non-recurring charges included in
the Consolidated Statement of Operations:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
RESTRUCTURING
Severance and related benefits........................................... $ 4.4 $ 1.3
Cost to vacate facilities................................................ 3.4 --
Write-off unused furniture, fixtures and equipment....................... 1.5 --
Distributor terminations................................................. .8 --
Other.................................................................... .5 --
--------- ---------
Total restructuring.................................................... 10.6 1.3

INTEGRATION AND OTHER NON-RECURRING CHARGES
Information systems conversion costs..................................... -- 4.8
Write-off of product distribution license................................ -- 4.5
Maquiladora settlement and related costs................................. -- 4.1
Write-off of instrument tooling.......................................... -- 1.7
Facilities moving expenses and Company name change....................... -- 1.6
Consulting and bonuses................................................... 4.7 1.4
Other.................................................................... -- 1.5
--------- ---------
Total restructuring, integration and other non-recurring
charges.............................................................. $ 15.3 $ 20.9
--------- ---------
--------- ---------
</TABLE>

The Company has reviewed its products and related research and development
activities and market opportunities in order to focus on projects that will
provide greater competitive advantage and stockholder return. That review
resulted in the termination and write-off of a product distribution and license
agreement with a third party developer of an ambulatory and alternate site
infusion pump. The $4,500 charge related to such termination is included in the
1997 integration cost and includes a $4,300 non-cash charge representing the
intangible asset that had been recorded associated with such agreement.

On June 26, 1997, the Company entered into a settlement agreement which
resolved its contract dispute with Cal Pacifico of California and affiliated
entities (collectively, "Cal Pacifico"), the operator of the Company's two
maquiladora assembly plants in Tijuana, Mexico. For over eight years, the
Company has assembled disposable administration sets at these two plants, which
utilized more than 1,200 workers employed by Cal Pacifico, under a contract with
Cal Pacifico. The dispute originated in April 1997 when the Company, in
accordance with the terms of such contract, informed Cal Pacifico that it would
be terminating its contractual arrangements effective August 1, 1997. Cal
Pacifico objected to such notification and proposed the systematic termination
of the work force. In response to such objection, the Company on June 6, 1997
hired substantially all of the workers at the plants directly. On June 11, 1997,
Cal Pacifico locked the Company's administrative personnel and production
employees out of the plants and

F-35
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 9--RESTRUCTURING, INTEGRATION AND OTHER NON-RECURRING CHARGES (CONTINUED)
would not allow the Company access to its production equipment or inventory. As
a result of the settlement agreement, the assembly plants resumed full
operations on June 27, 1997 and Cal Pacifico provided the Company with
assistance as it transitioned into the direct operation of such plants. The
Company began operating these plants directly during the third quarter of 1997.

The Company recorded a non-recurring charge of $4,100 during the quarter
ended June 30, 1997 relating to this settlement and the legal fees and other
costs associated therewith. The individual costs included within such
non-recurring charge consist of approximately $2,700 of settlement and legal
fees and approximately $1,400 of idle labor costs and start-up costs incurred in
connection with the implementation of the interim assembly plans discussed
below.

In addition to restructuring and integration costs included in the
Consolidated Statement of Operations, estimated dealer termination costs as well
as severance and benefits costs related to the acquired company's personnel in
the amount of approximately $2,800 were also accrued at the acquisition date. In
accordance with generally accepted accounting principles, such items effectively
increased the amount of goodwill recorded in connection with the Merger and were
not included in the approximately $15,300 restructuring and integration expense
included in the consolidated statement of operations for the year ended December
31, 1996.

In connection with the Company's restructuring plans, in December 1996
management provided termination notifications to 225 employees from all
functional areas of the Company. Accrued restructuring costs at December 31,
1996 includes approximately $4,400 of employee termination costs which were
charged to the 1996 consolidated operating results and approximately $1,800 of
employee termination costs which were recorded in purchase accounting.

The Company paid approximately $260 and $27,000 during 1996 and 1997,
respectively, for restructuring and integration activites. The Company has
approximately $15,100 and $1,700 accrued related to restructuring and
integration costs at December 31, 1996 and 1997, respectively. The Company
anticipates that the remaining accrued restructuring and integration costs will
be paid during 1998.

F-36
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10--EARNINGS PER SHARE

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- ---------- ---------
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary item................... $ 12,277 $ (65,606) $ (9,626)
Less: dividends and accretion on mandatorily redeemable
preferred stock......................................... (650) (962) --
--------- ---------- ---------
Income available to common stockholders before
extraordinary item...................................... 11,627 (66,568) (9,626)
Extraordinary item........................................ 15,177 (1,630) --
--------- ---------- ---------
Net income (loss) available to common stockholder......... $ 26,804 $ (68,198) $ (9,626)
--------- ---------- ---------
--------- ---------- ---------
Weighted average common shares outstanding during the
period.................................................. 15,506 20,343 58,644

Basic earnings per share before extraordinary item........ $ 0.75 $ (3.27) $ (0.16)
Extraordinary item........................................ 0.98 (0.08) --
--------- ---------- ---------
Basic earnings per share.................................. $ 1.73 $ (3.35) $ (0.16)
--------- ---------- ---------
--------- ---------- ---------
DILUTED EARNINGS PER SHARE
Income available to common stockholders before
extraordinary item...................................... $ 11,627
Plus convertible preferred dividends...................... 320
Plus the after-tax interest associated with convertible
debt.................................................... 684
---------
Income available to common stockholders plus assumed
conversions before extraordinary item................... 12,631
Extraordinary item........................................ 15,177
---------
Net income available to common stockholder assuming
dilution................................................ $ 27,808
---------
---------
</TABLE>

F-37
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10--EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- ---------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding during the
period.................................................. 15,506
Common stock options...................................... 249
Convertible preferred stock............................... 205
Convertible securities.................................... 17,276
---------
Weighted average common shares outstanding during the
period, including dilutive potential common shares...... 33,236
---------
---------
Earnings per share before extraordinary items, assuming
dilution................................................ $ 0.38
Extraordinary item........................................ 0.46
---------
Earnings per share assuming dilution...................... $ 0.84
---------
---------
</TABLE>

1995

The Company's convertible securities in 1995 consist of convertible
promissory notes issued to Decisions. Since conversion was assumed from the
beginning of the period or date of issuance, if later, net income attributable
to common stock for the year ended December 31, 1995 has been increased by $684
for the interest expense (net of tax) on the convertible promissory notes.

Convertible preferred stock in 1995 consists of 333 shares of mandatorily
redeemable convertible preferred stock issued to a stockholder or entities
controlled by the stockholder. The conversion was assumed as of the beginning of
the period at a conversion rate of 0.617, resulting in an increase of 205 common
shares.

The Company's 7.25% Debentures were not included in the calculation of
diluted earnings per share in 1995 as they are antidilutive. The $16,152 of
convertible debentures, if converted at an exercise price of $18.14 per share,
would result in an increase of 890 common shares and an increase of $703, net of
taxes, to net income, due to the reduction in interest expense.

1996

Net loss per common share assuming no dilution and dilution are the same for
1996, as the Company experienced a net loss for the year ended December 31,
1996. Potential common shares for 1996, if converted, would include the
convertible preferred stock and convertible debentures described in 1995 EPS.
Options outstanding at December 31, 1996 were not included in the computation of
diluted EPS because income before extraordinary item was a loss and the effect
would be antidilutive. Had such options been included, the weighted average
shares would have increased by 370.

F-38
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10--EARNINGS PER SHARE (CONTINUED)
1997

Net loss per common share assuming no dilution and dilution are the same for
1997, as the Company experienced a net loss for the year ended December 31,
1997. The 7.25% convertible debentures were excluded due to their antidilutive
nature. Options outstanding at December 31, 1997 were not included in the
computation of diluted EPS because income before extraordinary item was a loss
and the effect would be antidilutive. Had such options been included, the
weighted average shares would have increased by 1,361.

NOTE 11--RELATED PARTY ARRANGEMENTS

In October 1991, the Company entered into a marketing, distribution and
development arrangement with Pharmacia and Upjohn, Inc. ("Pharmacia") (the
"Pharmacia Transaction"), pursuant to which Pharmacia obtained the exclusive
right to market and distribute IMED's infusion products in a territory that
included most of Europe. During 1996, the Company entered into an agreement with
Pharmacia to reacquire for approximately $11,000 the European distribution
rights to IMED's intravenous infusion pumps and related disposable
administration sets and certain related assets. The purchase price was allocated
between the tangible assets and the distribution fee based upon their estimated
fair values. The amount allocated to the distribution fee has been capitalized
net of the unamortized deferred revenue resulting from the 1991 sale of the
aforesaid European distribution rights to Pharmacia which was being amortized
over the 15-year term of the original distribution agreement. The net
distribution fee is being amortized over approximately 10 years, which
represents the remaining term of the original distribution agreement.

In June 1996, ALARIS Medical purchased GECC's warrant to acquire common
shares equal to 10% of IMED's common stock, on a fully diluted basis, for
$12,500. The warrant acquired by ALARIS Medical was then canceled.

Effective June 30, 1996, ALARIS Medical made non-cash contributions totaling
$41,160 to IMED. Included in this capital contribution was $2,885, representing
ALARIS Medical's net carrying value of certain patents which up to June 30, 1996
had been licensed to IMED for $1,100 per year. Amounts accrued to ALARIS Medical
under this license, as well as other intercompany charges due to ALARIS Medical
totaling $9,399 were contributed to IMED. Additionally, ALARIS Medical
contributed $8,776 representing the outstanding par value and accrued dividends
on all outstanding shares of IMED's 12% preferred stock, all of which were owned
by ALARIS Medical. The preferred shares were then canceled.

Included in the $41,160 non-cash contribution are tax payments due from IMED
to ALARIS Medical. Pursuant to IMED's tax sharing agreement with ALARIS Medical,
for Federal and California income tax purposes, IMED was required to calculate
its current income tax liability on a stand-alone basis as if it were not
included in the ALARIS Medical consolidated income tax return. The resulting tax
liability was payable to ALARIS Medical. Due to restrictions on payments from
IMED to ALARIS Medical contained in the GECC revolving credit facility
agreement, income tax payments to ALARIS Medical were limited to actual tax
liabilities of the ALARIS Medical consolidated group. Due to losses incurred at
the ALARIS Medical level which have served to reduce the consolidated taxable
income, the income tax liabilities recorded by IMED on a stand-alone basis have
been significantly greater than the amounts actually paid to ALARIS Medical. As
of June 30, 1996 ALARIS Medical agreed to contribute to IMED's stockholder's

F-39
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 11--RELATED PARTY ARRANGEMENTS (CONTINUED)
equity, income tax payments due from IMED but which could not be paid pursuant
to the GECC revolving credit facility. As a result of this agreement,
approximately $20,100 was credited to IMED's capital in excess of par and the
corresponding income tax liabilities were eliminated from the IMED consolidated
balance sheet. Such liabilities amounted to approximately $18,900 at December
31, 1995 and were included in non-current liabilities as amounts due to related
parties at December 31, 1995.

During November 1996, in connection with the Merger, ALARIS Medical
contributed $19,588 to IMED.

During 1994 and 1995, the Company issued the Decisions Notes. During
November 1996, in connection with the Merger, the Decisions Notes in the
aggregate principal amount of $37,500 were exchanged for 29,416 shares of ALARIS
Medical common stock, including 3,333 shares issued as an inducement to convert.
Additionally, Decisions was issued 13,333 shares of ALARIS Medical common stock
for aggregate proceeds of $40,000.

During June 1997, ALARIS Medical made a cash contribution of $3,052 to
ALARIS Medical Systems, of which $1,457 paid off intercompany charges due to
ALARIS Medical Systems and $1,595 was contributed to capital.

NOTE 12--PARENT GUARANTOR OF SUBSIDIARY DEBT

All obligations of ALARIS Medical Systems under the Facility (Note 4) are
guaranteed by ALARIS Medical and each existing and subsequently formed or
acquired domestic subsidiary of ALARIS Medical. Summarized financial information
of ALARIS Medical Systems, the issuer of the Facility, at December 31, 1996 and
1997 and for the years ended December 31, 1995, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
CONDENSED BALANCE SHEET
Current assets...................................................... $ 178,124 $ 175,309
Non-current assets.................................................. 408,017 387,797
---------- ----------
$ 586,141 $ 563,106
---------- ----------
---------- ----------
Current liabilities................................................. $ 93,655 $ 90,225
Long-term debt and other non-current liabilities.................... 442,465 433,934
---------- ----------
536,120 524,159
---------- ----------
Total common stock and other stockholder's equity................... 50,021 38,947
---------- ----------
$ 586,141 $ 563,106
---------- ----------
---------- ----------
</TABLE>

F-40
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12--PARENT GUARANTOR OF SUBSIDIARY DEBT (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
CONDENSED STATEMENT OF OPERATIONS
Sales................................................ $ 112,551 $ 136,371 $ 359,077
Cost of sales........................................ 63,270 78,642 188,340
---------- ----------- -----------
Gross margin......................................... 49,281 57,729 170,737

Total operating expense.............................. (32,846) (103,838) (139,950)
Lease interest income................................ 2,333 2,501 4,559
---------- ----------- -----------
Income (loss) from operations........................ 18,768 (43,608) 35,346
Total other expense.................................. 2,403 5,796 44,274
Provision for (benefit from) income taxes............ 8,099 1,270 (1,900)
---------- ----------- -----------
Net income (loss).................................... $ 8,266 $ (50,674) $ (7,028)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

NOTE 13--GEOGRAPHIC INFORMATION

The Company operates primarily in four geographic locations: United States,
Europe, Canada and Australia. United States sales to unaffiliated customers
include export sales to customers located outside of the United States of
$10,643, $11,677 and $25,197 for the years ended December 31, 1995, 1996 and
1997, respectively.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS:
United States.......................................... $ 102,830 $ 111,877 $ 252,199
Europe................................................. -- 11,394 82,259
Canada................................................. 3,880 5,377 13,512
Australia.............................................. 5,841 7,723 11,107
---------- ---------- ----------
Sales as reported in the accompanying statement of
operations......................................... $ 112,551 $ 136,371 $ 359,077
---------- ---------- ----------
---------- ---------- ----------
INTERGEOGRAPHIC SALES:
United States.......................................... $ 6,973 $ 17,133 $ 64,404
Europe................................................. -- 2,891 12,924
---------- ---------- ----------
Total intergeographic sales.......................... $ 6,973 $ 20,024 $ 77,328
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-41
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 13--GEOGRAPHIC INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
United States.......................................... $ 16,143 $ (44,740) $ 6,611
Europe................................................. -- (1,686) 19,994
Canada................................................. (194) (248) 841
Australia.............................................. 1,123 1,253 5,006
Eliminations and adjustments........................... (21) 63 38
---------- ---------- ----------
Income (loss) from operations.......................... 17,051 (45,358) 32,490
Interest expense....................................... (8,153) (13,393) (44,413)
Interest income........................................ 192 1,193 532
Debt conversion expense................................ -- (10,000) --
Other, net............................................. 313 1,222 (1,535)
---------- ---------- ----------
Income (loss) before income taxes.................... $ 9,403 $ (66,336) $ (12,926)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
IDENTIFIABLE ASSETS:
United States....................................................... $ 552,168 $ 619,903
Europe.............................................................. 52,826 34,539
Canada.............................................................. 5,855 1,644
Australia........................................................... 6,405 6,475
Eliminations and adjustments........................................ (23,872) (97,264)
---------- ----------
Total assets as reported in the accompanying balance sheet........ $ 593,382 $ 565,297
---------- ----------
---------- ----------
</TABLE>

NOTE 14--CASH FLOW INFORMATION

Federal, state and foreign income taxes paid during 1995, 1996 and 1997
totaled $1,726, $3,592 and $3,884, respectively. Interest paid during 1995, 1996
and 1997 totaled $6,097, $8,960 and $40,576, respectively.

The Company sold 80,000 shares for $859 and 433 shares for $2,374 of its
Alteon common stock during 1995 and 1996, respectively. These sales resulted in
realized gains of $546 and $686 for the years ended December 31, 1995 and 1996,
respectively.

In connection with the Merger, the Company redeemed all outstanding shares
of its 10% Preferred Stock and Convertible Preferred Stock, plus accrued and
unpaid dividends for $7,844.

F-42
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 15--CONTINGENCIES AND LITIGATION

FIELD CORRECTION

The Company has initiated a voluntary field correction of approximately
50,000 of its Gemini model PC-1 and PC-2 infusion pumps because failure of
specific electrical components on the power regulator printed circuit board may
result in improper regulation of the battery charge voltage, which can cause the
battery to overheat. Such overheating could result in product failure and
discharge of hydrogen gas which may accumulate within the instrument's case. As
an interim measure, the Company has advised its customers of simple precautions
that can be taken to minimize the potential for an adverse incident pending
completion of the field correction. The Company is not aware of any injuries
sustained in known battery overcharging incidents.

As a result of this decision, the Company recorded a charge of $2,500 to
cost of sales during the first quarter of 1997. Based on management's current
understanding of these incidents, the Company believes it has adequately accrued
for this matter. However, since the Company's analysis of this matter is
preliminary, there can be no assurances that it can be resolved for an amount
consistent with management's estimated cost.

LITIGATION

UNITED STATES CUSTOMS SERVICE MATTER

F-43
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 15--CONTINGENCIES AND LITIGATION (CONTINUED)
Company. Customs recently assessed additional duties with respect to Cal
Pacifico's importation of goods on behalf of its clients, including the
importation of the Company's Finished Products, for the years 1993 and 1994, and
it is anticipated that Customs will issue a pre-penalty notice to Cal Pacifico
in respect of these years as well (collectively with the amounts referred to in
the immediately preceding sentence, the "Disputed Amounts"). The Company has
been advised by its special Customs counsel that, under applicable law, no
person, by fraud, gross negligence or negligence, may (i) import merchandise
into the commerce of the United States by means of any material and false
document, statement or act, or any material omission, or (ii) aid or abet any
other person to import merchandise in such manner. No proceeding has been
initiated by Customs against the Company in respect of the matters which are the
subject of the proceeding against Cal Pacifico. Since Cal Pacifico was the
Company's United States customs broker and importer of record during each of the
foregoing years, the Company believes that it is unlikely that Customs will
assess against the Company any portion of the Disputed Amounts.

Cal Pacifico has advised the Company that, should Cal Pacifico's challenge
to the assessment of the Disputed Amounts prove to be unsuccessful, it will seek
recovery from the Company, through arbitration, for any portion of the Disputed
Amounts which it is required to pay to Customs. As part of the settlement
agreement which resolved the Company's contract dispute with Cal Pacifico, the
Company paid Cal Pacifico $550, which is to be applied toward Cal Pacifico's
payment of Disputed Amounts. The $550 payment by the Company is to be credited
toward any portion of the Disputed Amounts which the arbitrator determines the
Company owes to Cal Pacifico. The actual amount so determined by the arbitrator
may be less or greater than $550. Although the ultimate outcome of such an
arbitration proceeding cannot be guaranteed, the Company believes that it has
meritorious defenses to claims with respect to Disputed Amounts which Cal
Pacifico might raise against the Company. These defenses would be based, among
other factors, on the contractual relationship between the Company and Cal
Pacifico (including a defense with respect to the availability of
indemnification under the agreements between Cal Pacifico and the Company), the
conduct of Cal Pacifico with respect to both the Company and Customs, and the
compliance obligations of Cal Pacifico under applicable customs laws. Inasmuch
as Cal Pacifico's challenge before Customs is still pending and any claim
against the Company for indemnification would be based on Cal Pacifico's
ultimate lack of success in that challenge, and inasmuch as any arbitration
proceeding by which Cal Pacifico might seek indemnification has not been filed
nor has Cal Pacifico committed itself to the theories under which it might seek
indemnification or the recovery of damages from the Company, it is not possible
for the Company to express an opinion at this time as to the likelihood of an
unfavorable outcome in such a proceeding.

F-44
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 15--CONTINGENCIES AND LITIGATION (CONTINUED)
OTHER

F-45
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 16--SUMMARIZED QUARTERLY DATA (UNAUDITED)

The following financial information reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods. Summarized quarterly data for
fiscal 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
1997
Sales..................................................... $ 81,995 $ 88,072 $ 86,830 $ 102,180
Gross margin.............................................. 35,025 40,711 44,430 50,571
Income (loss) from operations............................. 3,718 (725) 14,260 15,237
Net (loss) income......................................... (4,315) (7,002) 1,094 597
(Loss) income per common share assuming no dilution (1)... $ (.07) $ (.12) $ .02 $ .01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(Loss) income per common share assuming dilution (1)...... $ (.07) $ (.12) $ .02 $ .01
----------- ----------- ----------- -----------
1996
Sales..................................................... $ 25,875 $ 28,216 $ 27,679 $ 54,601
Gross margin.............................................. 11,980 12,460 12,599 20,716
Income (loss) from operations............................. 3,595 3,849 4,002 (56,804)
Income (loss) before extraordinary item................... 859 1,150 779 (68,394)
Extraordinary item--loss on early retirement of debt, net
of taxes................................................ -- -- -- (1,630)
----------- ----------- ----------- -----------
Net income (loss)......................................... 859 1,150 779 (70,024)
Income (loss) per common share assuming no dilution (1):
Income (loss) before extraordinary item................. $ .04 $ .06 $ .04 $ (2.09)
Extraordinary item...................................... -- -- -- (.05)
----------- ----------- ----------- -----------
Net income (loss)................................... $ .04 $ .06 $ .04 $ (2.14)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) per common share assuming dilution (1):
Income (loss) before extraordinary item................. $ .03 $ .03 $ .03 $ (2.09)
Extraordinary item...................................... -- -- -- (.05)
----------- ----------- ----------- -----------
Net income (loss)................................... $ .03 $ .03 $ .03 $ (2.14)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

- ------------------------

(1) Income (loss) per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net income (loss) per share
will not necessarily equal the total for the year.

F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
IVAC Holdings, Inc.

In our opinion, the, accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
(deficit) present fairly, in all material respects, the financial position of
IVAC Holdings, Inc. and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Diego, California
March 29, 1996

F-47
<PAGE>
IVAC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................................... $ 18,308
Accounts receivable, net.......................................................................... 54,133
Current portion of contract receivables, net...................................................... 5,414
Inventories....................................................................................... 34,625
Prepaid expenses and other assets................................................................. 3,143
-------------
Total current assets.......................................................................... 115,623

Long-term contract receivables, net................................................................. 19,957
Property, plant and equipment, net.................................................................. 48,277
Intangible assets, net.............................................................................. 30,893
Other long-term assets.............................................................................. 1,245
-------------
$ 215,995
-------------
-------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable.................................................................................. $ 14,407
Accrued warranty.................................................................................. 6,948
Accrued employee liabilities...................................................................... 9,528
Current portion of long-term debt................................................................. 8,091
Other current liabilities......................................................................... 34,799
-------------
Total current liabilities..................................................................... 73,773

Long-term debt...................................................................................... 157,694
Other non-current liabilities....................................................................... 5,043

Commitments and contingencies (Note 11)

Shareholders' equity (deficit):
Common stock:
Class A, $.01 par value; 60,000,000 shares authorized;
20,000,938 issued and outstanding............................................................... 200
Class B, $.01 par value; 20,000,000 shares authorized;
19,532,630 issued and outstanding............................................................... 195
Additional paid-in capital.......................................................................... 33,308
Note receivable from shareholder.................................................................... (8)
Accumulated deficit................................................................................. (56,057)
Foreign currency translation adjustment............................................................. 1,847
-------------
Total shareholders' equity (deficit).......................................................... (20,515)
-------------
$ 215,995
-------------
-------------
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-48
<PAGE>
IVAC HOLDINGS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales........................................................................................... $ 240,971
Cost of sales............................................................................... 157,869
------------
Gross profit........................................................................................ 83,102

Sales and marketing................................................................................. 43,994
General and administrative.......................................................................... 28,381
Research and development............................................................................ 12,083
Purchased research and development.................................................................. 22,883
Restructuring and special items..................................................................... 5,944
Other expense, net.................................................................................. 1,497
------------

Total operating expense..................................................................... 114,782

Contract interest income............................................................................ 3,013
------------
Loss from operations........................................................................ (28,667)
Interest expense, net............................................................................... (27,476)
------------
Loss before income taxes............................................................................ (56,143)
Benefit from income taxes........................................................................... 378
------------
Net loss............................................................................................ $ (55,765)
------------
------------
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-49
<PAGE>
IVAC HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................... $ (55,765)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................................ 23,736
Debt issuance cost amortization.............................................................. 5,902
Purchased research and development........................................................... 22,883
Deferred income taxes........................................................................ (1,898)
Gain on disposal of property, plant and equipment............................................ (55)
Accretion of discount on Junior Subordinated Notes and Siemens Infusion System Debt.......... 4,664
Changes in assets and liabilities:
Receivables................................................................................ (11,837)
Inventories................................................................................ 23,176
Prepaid expenses and other assets.......................................................... 223
Accounts payable........................................................................... 4,975
Accrued warranty........................................................................... (557)
Accrued employee liabilities............................................................... (900)
Other current liabilities.................................................................. 9,265
Other non-current liabilities.............................................................. (829)
Payables to and receivables from Lilly, net................................................ 15,160
-----------------
Net cash provided by operating activities.............................................. 38,143
-----------------
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents acquired...................................... (190,793)
Capital expenditures, net.................................................................... (13,752)
Proceeds from sale of facility, net.......................................................... 25,258
-----------------
Net cash used by investing activities.................................................. (179,287)
-----------------
Cash flows from financing activities:
Capital contributions........................................................................ 20,000
Exercise of stock options.................................................................... 70
Borrowings under term loan and revolving credit arrangements................................. 68,500
Proceeds from bridge notes................................................................... 80,000
Proceeds from senior notes................................................................... 100,000
Proceeds from junior subordinated notes...................................................... 30,000
Repayment of term loan and revolving debt.................................................... (49,000)
Repayment of bridge notes.................................................................... (80,000)
Debt issue costs............................................................................. (11,486)
Capital lease payments....................................................................... (479)
-----------------
Net cash provided by financing activities.............................................. 157,605
-----------------
Effect of exchange rate changes on cash........................................................ 1,847
-----------------
Net increase in cash and cash equivalents...................................................... 18,308
Cash and cash equivalents at the beginning of the year......................................... 0
-----------------
Cash and cash equivalents at the end of the year............................................... $ 18,308
-----------------
-----------------
Supplemental disclosure of cash flow information:
Cash paid for interest....................................................................... $ 15,380
Cash paid for income taxes................................................................... $ 12
Supplemental disclosure of non-cash financing activities:
Contribution of River capital stock.......................................................... $ 13,333
Stock dividend (3 for 1)..................................................................... $ 292
Capital lease financing...................................................................... $ 1,200
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-50
<PAGE>
IVAC HOLDINGS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------------------------------
CLASS A CLASS B FOREIGN TOTAL
COMMON STOCK COMMON STOCK ADDITIONAL SHAREHOLDER CURRENCY SHAREHOLDERS'
------------------ ------------------ PAID-IN NOTE ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT ADJUSTMENT (DEFICIT)
---------- ------ ---------- ------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contribution of capital:
Cash.................... $ 20,000 $ 20,000
River capital stock..... 5,000,000 $ 50 4,740,388 $ 47 13,236 13,333
Foreign currency
translation
adjustment.............. $ 1,847 1,847
Stock dividend (3 for
1)...................... 15,000,000 150 14,221,164 142 $ (292)
Exercise of stock
options................. 938 571,078 6 72 $ (8) 70
Net loss.................. (55,765) (55,765)
--
---------- ------ ---------- ------ ----------- ----------- ----------- -----------
Balance at December 31,
1995.................... 20,000,938 $ 200 19,532,630 $ 195 $ 33,308 $ (8) $ (56,057) $ 1,847 $ (20,515)
--
--
---------- ------ ---------- ------ ----------- ----------- ----------- -----------
---------- ------ ---------- ------ ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-51
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

IVAC Holdings, Inc. ("Holdings" or the "Company"), through its wholly owned
subsidiaries, designs, manufactures, distributes and services intravenous
infusion therapy and vital signs measurement instruments and related disposables
and accessories. The Company sells a full range of products to hospitals and
alternate site facilities in the United States, Canada and Europe.

All outstanding common stock of IVAC Medical Systems, Inc. is owned by
Holdings. On December 30, 1994, DLJ Merchant Banking Partners, L.P. and the
related investors (collectively, "DLJMB") and River Medical, Inc. ("River") and
related investors ("the River Group") formed Holdings to acquire all of the
outstanding stock of IVAC Corporation ("IVAC") from Eli Lilly and Company
("Lilly"). Holdings was formed through the contribution of $20,000 cash from an
DLJMB in exchange for 5,000,000 shares (20,000,000 shares after giving effect to
3 for 1 stock split effected in the form of a dividend) of Class A Common Stock
and the issuance of 4,740,388 shares (18,961,552 shares after giving effect to 3
for 1 stock split offered in the form of a dividend) of Class B Common Stock in
exchange for 100% of the outstanding capital stock of River.

In connection with the formation of Holdings, after the close of business on
December 31, 1994, the Company acquired the outstanding capital stock of IVAC
from Lilly for approximately $195,000 in cash, including transaction costs ("the
Acquisition"). Concurrently with the closing of the Acquisition, Holdings
contributed all of the outstanding capital stock of River to IVAC and, as a
result, River became a wholly owned subsidiary of IVAC, renamed as IVAC Medical
Systems, Inc. The proceeds received from the investor group were contributed as
capital to IVAC Medical Systems, Inc. and recorded as Additional Paid-in Capital
in IVAC's financial statements.

In connection with the Acquisition, Holdings issued Junior Subordinated
Notes due 2006 (the "Subordinated Notes") to DLJMB, the River Group and others
for an aggregate of $30,000. Interest accrues to principal annually at an
effective fixed rate of 13.2%. IVAC does not guarantee repayment of the notes on
behalf of Holdings nor are these notes secured by IVAC's assets. The proceeds
from the Subordinated Notes were contributed as capital to IVAC Medical Systems,
Inc.

The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with maturities of 90
days or less at date purchased.

REVENUE RECOGNITION

Revenue is recorded upon product shipment, net of an allowance for estimated
returns, or service delivery. The Company also sells instruments via long-term
financing arrangements to a number of hospitals under No Capital Agreements
("NCAs"). These agreements allow hospitals to acquire instruments with no
initial payment. The sales price for the instruments is recovered via surcharges
applied to minimum purchase commitments of related disposables. The transactions
are akin to sales-type leases as provided for in SFAS 13, with the Company
recording revenue and profit upon shipment of the

F-52
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
instruments. The Company records a receivable equal to the present value of the
sales price of the instrument based upon the ratio of the overall gross margin
on the commitment compared to margins on direct sales of instruments and
disposables. Title to the instrument passes to the customer upon shipment. The
term of the financing is generally three to five years, with interest at rates
of 9% to 15%. The related contract receivables at December 31, 1995 are
presented net of unearned finance revenue of $6,813 which reflects the remaining
interest to be earned on unshipped disposables. Unearned finance revenue is
calculated using the inherent rate of interest on each NCA, the expected
disposable shipment period and the principal balance financed. Finance revenue
is recognized as disposables are shipped using a reducing principal balance
method which approximates the interest method. Contract provisions include
liquidated damage clauses which are sufficient to recover the sales price of the
instruments in the event of customer cancellation.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Credit
risk associated with this concentration is limited due to the large number and
geographic dispersion of the accounts and the overall stability of the hospital
industry. Management believes that adequate provision has been made for such
credit risk.

INVENTORIES

Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market. Cost of inventories at the beginning of the
year was determined based on an allocation of the purchase price to all assets
and liabilities including inventory, as determined by an independent appraisal,
at the date of acquisition.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated on the basis of cost. Cost of
acquired assets (see Note 3) was determined based on an allocation of the
purchase price to all assets and liabilities, as determined by an independent
appraisal, at the date of acquisition. Additions to property, plant and
equipment, including significant betterments and renewals, are capitalized.
Maintenance and repair costs are charged to expense as incurred. Depreciation is
computed using the straight-line method over estimated useful lives of 3 to 20
years. Depreciation expense amounted to $15,076 for the year ended December 31,
1995.

INCOME TAXES

Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset or liability is computed for
the expected future impact of differences between the financial reporting and
tax basis of assets and liabilities as well as the expected future tax benefit
to be derived from tax loss and tax credit carryforwards. Deferred income tax
expense (benefit) is determined as the net change during the year in the
deferred income tax asset or liability. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount "more likely than
not" to be realized in future tax returns. Tax rate changes are reflected in
income during the period such changes are enacted.

F-53
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and weighted average exchange rates during the period for revenues
and expenses. Gains and losses from translation are excluded from results of
operations and accumulated as a separate component of shareholders' equity.

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's financial instruments, including cash
and cash equivalents, trade receivables and payables, approximates their fair
value due to their short term maturities. The fair values of the Company's
long-term contract receivables are estimated by discounting future cash flows
using discount rates that reflect the risk associated with similar types of
loans. The fair value of the Company's long-term debt is estimated based on
comparison with similar issues or current rates offered to the Company for debt
of the same remaining maturities. The estimated fair values of both the
Company's long-term contract receivables and long-term debt approximate their
carrying values.

STOCK OPTIONS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which establishes a fair value based method of
accounting for compensation costs related to stock option plans and other forms
of stock based compensation plans as an alternative to the intrinsic value based
method of accounting defined under Accounting Principles Board Opinion No. 25.
Companies that do not elect the new method of accounting beginning in 1996 will
be required to provide pro forma disclosures as if the fair value based method
had been applied. The Company anticipates that it will not elect the fair value
based method of accounting and will provide pro forma disclosure as required.

INTANGIBLE ASSETS

Intangible assets are amortized as follows:

<TABLE>
<S> <C> <C>
Supply agreements............................. Straight-line 3 years
Trademarks.................................... Straight-line 10 years
Patents....................................... Straight-line 10 years
Debt acquisition costs........................ Interest method Terms of related debt
Excess purchase price......................... Straight-line 10 years
</TABLE>

F-54
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles are presented net of accumulated amortization of $11,776. In
connection with the acquisition of IVAC, Lilly agreed to continue providing
certain administrative services on behalf of IVAC for a period of six months.
The amount capitalized as service support agreement ($2,786) has been fully
amortized as of December 31, 1995.

IMPAIRMENT OF LONG-LIVED ASSETS

During 1995, the FASB issued Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which establishes accounting standards for
measuring the impairment of long-lived assets, certain identifiable intangibles
and excess purchase price related to those assets to be held and used and for
long-lived assets and certain intangible assets to be disposed of. In the fourth
quarter of 1995, the Company elected to early adopt the new accounting
pronouncement. Based upon an analysis performed in accordance with SFAS 121, the
Company believes that no material impairments exist at December 31, 1995. Prior
to the adoption of SFAS 121, management reviewed long-lived assets for
impairment on an annual basis based on undiscounted future cash flows.

PRODUCT WARRANTY

The Company provides warranties for up to one year on all products and for
up to two years on certain products. A provision for the estimated future costs
of warranty repair or replacement is provided at the time of sale based upon the
Company's historical warranty experience.

REBATES

The Company provides rebates to customers under certain programs. The
estimated costs of these rebates are accrued at the time revenue is recognized.

NOTE 3--THE ACQUISITION AND THE RIVER TRANSACTION

The Acquisition and the River Transaction have been accounted for under the
purchase method as the voting common stock issued was not identical;
accordingly, the purchased assets and liabilities have been recorded at their
estimated fair value, as determined by independent appraisal, at the date of
acquisition. The purchase price of River of $13,333 was determined based on the
fair value of the River assets contributed to Holdings relative to the purchase
price paid by the DLJMB led investor group for their initial equity in Holdings.
The application of the purchase method to the Acquisition and the River
Transaction resulted in an excess of cost over net assets acquired of
approximately $90,804. The excess purchase price has been allocated to property,
plant and equipment ($20,315), inventory ($14,774), intangibles ($23,356) and
in-process research and development ($22,883) with a remaining excess purchase
price over net assets acquired of $9,476. The allocation of the purchase price
to inventory, and subsequent sales of such inventory, resulted in a reduction of
$14,744 in 1995 gross profit. The in-process research and development of River
and IVAC were charged to earnings in 1995 as the associated products had not
reached technological feasibility and had no alternative use. The purchase price
allocations reflect the resolution of certain purchase contingencies including
the arbitration settlement of a dispute with Lilly over the final IVAC purchase
price subsequent to December 31, 1995, the resolution of certain contingent
liabilities, and the ultimate realization of certain acquired receivables and
property, plant and equipment.

F-55
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--THE ACQUISITION AND THE RIVER TRANSACTION (CONTINUED)
Additionally, the Company and Lilly jointly elected to make an Internal Revenue
Code Section 338(h)(10) election for Federal and state tax purposes in the third
quarter of 1995. This election resulted in treatment of the acquisition as if
Lilly sold assets in a taxable transaction and resulted in adjustments to
reflect the fair value of the acquired tax assets and liabilities as of the date
of purchase.

In conjunction with purchase accounting, the Company recorded a severance
liability in the amount of $5,659 pursuant to a plan in place as of the purchase
date to subsequently terminate employees. The liability was determined based on
the expected employee resources to be terminated at an estimated cost of
severance benefits as provided for in the purchase agreement at the time of the
Acquisition to include separation payments based on years of service, continued
medical benefits and outplacement assistance for a specified time. These costs
were paid to employees terminated during the six month period following the
Acquisition and did not materially differ from the amount initially accrued.

In connection with the Acquisition and the River Transaction, certain
stockholders of Holdings received approximately $3,650 in connection with the
exchange of their capital stock or services rendered. These amounts have been
capitalized as a component of the purchase price.

F-56
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accounts receivable:
Trade......................................................................... $ 58,677
Less allowance for doubtful accounts.......................................... (4,544)
------------
$ 54,133
------------
------------
Inventories:
Finished products............................................................. $ 14,998
Work-in-process............................................................... 3,472
Raw materials................................................................. 17,867
------------
36,337
Less reserves................................................................. (1,712)
------------
$ 34,625
------------
------------
Property, plant and equipment:
Land.......................................................................... $ 640
Buildings..................................................................... 4,554
Equipment..................................................................... 50,179
Construction in process....................................................... 6,341
------------
61,714
Less accumulated depreciation................................................. (13,437)
------------
$ 48,277
------------
------------
Intangibles:
Excess purchase price......................................................... $ 9,476
Supply agreements............................................................. 10,296
Trademarks.................................................................... 5,140
Patents....................................................................... 5,186
Debt acquisition costs........................................................ 11,486
Other......................................................................... 1,085
------------
42,669
Less accumulated amortization................................................. (11,776)
------------
$ 30,893
------------
------------
Supply agreements represent noncancellable customer commitments to purchase specified
quantities of disposable administration sets and probe covers at contractual prices.

Other current liabilities:
Accrued expense reimbursement to former parent................................ $ 12,212
Other......................................................................... 22,587
------------
$ 34,799
------------
------------
</TABLE>

F-57
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 5--LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Senior notes.................................................................... $ 100,000
Term loan borrowings under the Bank Credit Facility............................. 19,500
Junior subordinated notes....................................................... 33,961
Other........................................................................... 12,324
------------
165,785
Less current portion............................................................ (8,091)
------------
Long-term debt.................................................................. $ 157,694
------------
------------
</TABLE>

In connection with the acquisition of IVAC, the Company entered into an
$80,000 credit facility (the "Bank Credit Facility") with a syndicate of
financial institutions which consists of $60,000 of term loans and a $20,000
revolving credit facility, each of which matures on December 30, 1999. Available
funds under the revolving credit facility are limited to the difference between
$20,000 and the amount of letters of credit issued under the Bank Credit
Facility, which cannot exceed $15,000. Borrowings under the Bank Credit Facility
bear interest at a rate equal to the Alternate Base Rate plus 1.75% or Adjusted
LIBOR plus 3.00%, at the option of the Company, payable quarterly (10.25% and
8.69%, respectively, at December 31, 1995). The Bank Credit Facility is secured
by the stock of IVAC and all of its subsidiaries and substantially all of the
assets of Holdings, IVAC and IVAC's domestic subsidiaries. The Bank Credit
Facility is guaranteed by Holdings and substantially all of the Company's
subsidiaries. As more fully discussed in Note 13, subsequent to December 31,
1995, the Company amended and restated certain terms of the Bank Credit
Facility.

Immediately following the Acquisition, the Company entered into an interest
rate swap agreement to fix the rate of interest payable on a portion of the term
loan principal borrowed under the Bank Credit Facility. The swap has a three
year term and an initial notional amount of $30,000, which amortizes at a rate
equal to 50% of the original term loan principal paydown schedule, with
quarterly payments at a fixed rate of 11.05% of the outstanding notional amount
and quarterly receipts at a LIBOR-based floating rate plus 3.00%. Interest
expense related to the swap was $565 for the year ended December 31, 1995.

The Bank Credit Facility contains covenants which, among other matters,
restrict or limit the ability of the Company to pay dividends, incur
indebtedness, and make capital expenditures. The Company must also maintain
certain ratios regarding interest coverage and leverage, among other
restrictions.

On November 8, 1995, the Company issued $100,000 of senior unsecured public
notes (the "Notes") due December 1, 2002. The Notes bear interest at the rate of
9.25% annually, which is payable semi-annually in arrears on June 1 and December
1 of each year, commencing June 1, 1996. The Company is not required to make any
mandatory redemption or sinking fund payments with respect to the Notes prior to
maturity. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 1998 at the redemption prices set
forth in the indenture plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to December 1, 1998, the Company may
redeem the Notes with the proceeds of one or more public offerings of common
stock at a redemption price equal to 108.25% of the principal amount plus
accrued and unpaid interest; provided that at least

F-58
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 5--LONG-TERM DEBT (CONTINUED)
$65,000 in aggregate principal amount of the Notes remain outstanding
immediately after the occurrence of each such redemption. In the event of a
Change of Control (as defined in the indenture), holders of the Notes will have
the right to require the Company to purchase their Notes, in whole or in part,
at a price equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest to the date of purchase. The Notes are senior unsecured
obligations of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company.

The indenture contains covenants which, among other matters, restrict or
limit the ability of the Company to pay dividends, incur indebtedness, make
asset sales, create liens and restrict the ability of the Company to enter into
mergers, consolidations or sales of all or substantially all of its assets.

The Company also issued $30,000 of Junior Subordinated Notes due 2006. The
notes accrue interest at 13.2% per annum, compounded annually.

The net proceeds from the bridge notes, Junior Subordinated Notes, and term
loan were used to pay the cash purchase price in connection with the Acquisition
and to pay fees and expenses related to the Acquisition. The proceeds of the
revolving loan will be used for general corporate purposes in the ordinary
course of the business.

Other debt consists of consideration owed to Siemens Infusion Systems, Ltd.
("SIS") resulting from IVAC's acquisition of the MiniMed product line from SIS
in 1993. In accordance with the acquisition agreement, IVAC is obligated to pay
SIS $1,571 in 1996 based on 1994 product sales and the greater of $3,000 per
year or 8% of the prior year's product sales in 1996 through 1999. The minimum
$12,000 liability was discounted at an imputed interest rate of 7% and recorded
as debt. The unamortized discount, which is amortized using the interest method
over the term of the payments, is $1,247 at December 31, 1995.

The aggregate minimum annual maturities on long-term debt are as follows:

<TABLE>
<S> <C>
1996.............................................................. $ 8,091
1997.............................................................. 7,375
1998.............................................................. 7,901
1999.............................................................. 8,457
2000.............................................................. --
Thereafter........................................................ 133,961
---------
$ 165,785
---------
---------
</TABLE>

NOTE 6--LEASES

Leases are generally for buildings, computers and office equipment. The
leases for the Company's San Diego corporate headquarters and manufacturing
facilities provide for scheduled rent increases. Total rent expense amounted to
approximately $2,035 for the year ended December 31, 1995.

The Company maintains a lease line of credit with a leasing company for
acquisitions of equipment under capital lease arrangements.

F-59
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 6--LEASES (CONTINUED)
Future minimum payments are as follows:

<TABLE>
<CAPTION>
NONCANCELLABLE
CAPITAL OPERATING
LEASES LEASES
--------- --------------
<S> <C> <C>
1996........................................................................ $ 770 $ 3,413
1997........................................................................ 722 2,931
1998........................................................................ 425 2,990
1999........................................................................ 241 2,916
2000........................................................................ -- 2,803
Thereafter.................................................................. -- 11,298
--------- -------
2,158 $ 26,351
-------
-------
Less amounts representing interest.......................................... (304)
---------
Capital lease obligations................................................... 1,854
Less current portion........................................................ (595)
---------
$ 1,259
---------
---------
</TABLE>

NOTE 7--INCOME TAXES

The benefit from income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Current:
Federal....................................................................... $ --
Foreign....................................................................... 3,307
State......................................................................... 5
------------
3,312
------------
Deferred:
Federal....................................................................... (3,192)
Foreign....................................................................... 142
State......................................................................... (640)
------------
(3,690)
------------
Total........................................................................... $ (378)
------------
------------
</TABLE>

F-60
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 7--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets:
Net operating loss and research and development credit carryforwards.......... $ 5,742
Intangibles................................................................... 3,666
State income taxes............................................................ 2,987
Product return/warranty reserves.............................................. 1,895
Rebate reserve................................................................ 1,479
Other......................................................................... 5,430
------------
Total deferred tax assets....................................................... 21,199
Valuation allowance........................................................... (21,199)
------------
Net deferred tax assets......................................................... 0
------------

Deferred tax liabilities:
Foreign taxes................................................................. (142)
------------
Total deferred tax liabilities.................................................. (142)
------------
Net deferred taxes.............................................................. $ (142)
------------
------------
</TABLE>

The Company has recorded a valuation allowance against deferred tax assets
since it is more likely than not that the deferred tax assets will not be
realized.

As of December 31, 1994, River net operating loss carryforwards for Federal
and state tax purposes totaled approximately $4,156 and $1,513, respectively. As
specified in the Internal Revenue Code, a more than 50% ownership change by a
combination of significant shareholders during any three year period would
result in certain limitations on the Company's ability to utilize net operating
loss carryforwards and research and development credit carryforwards. Such a
change is likely to have occurred in connection with the acquisition transaction
discussed in Note 3. These net operating loss and research and development
credit carryforwards expire from 2008 to 2009 for Federal tax purposes and from
1998 and 1999 for state tax purposes.

During 1995, net operating loss carryforwards for Federal and state tax
purposes totaling approximately $4,245 and $236, respectively, were generated by
the consolidated group. These net operating loss carryforwards expire in 2010
for Federal tax purposes and in 2000 for state tax purposes.

F-61
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 7--INCOME TAXES (CONTINUED)
Following is a reconciliation of the effective income tax rate:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
---------------
<S> <C>
Tax benefit at statutory rate................................................... (35.0)%
Add (deduct):
Foreign taxes................................................................. 6.2
State taxes................................................................... (5.8)
Other......................................................................... (.2)
-----
(34.8)
Valuation allowance........................................................... 34.1
-----
(.7)%
-----
-----
</TABLE>

NOTE 8--BENEFITS

Effective December 30, 1994, in connection with the purchase of IVAC
discussed in Note 1, the Company's U.S. noncontributory defined benefit plan was
terminated and the assets and liabilities of the IVAC Retirement Plan were
merged into The Lilly Retirement Plan. All eligible participants in the IVAC
Retirement Plan became participants in The Lilly Retirement Plan, and all
benefits previously earned will be paid by The Lilly Retirement Plan.

In connection with the River Transaction, all outstanding stock options
issued under the River Medical Stock Option Plan were assumed by Holdings
subject to the same terms, vesting, duration and cancellation existing prior to
the acquisition. On a converted basis, there were 467,370 options exercisable
into Holdings Class B common stock outstanding at December 31, 1995 at exercise
prices ranging from $.13 to $.52. The options expire not more than ten years
from the date of grant and were fully vested at December 31, 1995.

A summary of Class B stock option transactions follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
OPTIONS OUTSTANDING
---------------------------------
NUMBER OF NUMBER OF
SHARES SHARES
AT $.52 AT $.13
PER SHARE PER SHARE TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Converted from River Plan.................................... 24,611 1,013,837 1,038,448
Options exercised............................................ (8,204) (562,874) (571,078)
----------- --------- ---------
Balance at December 31, 1995................................. 16,407 450,963 467,370
----------- --------- ---------
----------- --------- ---------
</TABLE>

The 1995 Stock Option/Stock Issuance Plan (the "Plan") of Holdings
authorizes up to 4,000,000 shares of Holdings Class A common stock to be granted
no later than February 2005. Under the Plan, the Board of Directors of Holdings
may grant options to selected key employees, directors and consultants to the
Company to purchase shares of Holdings common stock, at a price not less than
85% of the fair market

F-62
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--BENEFITS (CONTINUED)
value of the stock at the date of grant, as determined by the Board of Directors
of Holdings. The Plan provides for the grant of both incentive stock options and
non-qualified stock options. Generally, options outstanding vest over a four to
eight year period and are exercisable for up to ten years from the grant date.
At December 31, 1995, 633,343 options were exercisable at $1.00 for an aggregate
exercise price of $633.

A summary of Class A stock option transactions follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
OPTIONS OUTSTANDING
OPTIONS -----------------------
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
----------- ---------- -----------
<S> <C> <C> <C>
Options authorized.......................................................... 4,000,000 -- --
Options granted............................................................. (3,668,656) 3,668,656 $ 1.00
Options exercised........................................................... -- (938) --
Options forfeited on termination of employment.............................. 360,516 (360,516) --
----------- ---------- -----
Balance at December 31, 1995................................................ 691,860 3,307,202 $ 1.00
----------- ---------- -----
----------- ---------- -----
</TABLE>

During 1995, the Company consummated a 3 for 1 stock split effected in the
form of a dividend to all holders of record of Class A and Class B common stock
held at the close of business on February 1, 1995. All share amounts presented
herein reflect the 3 for 1 split.

The Company maintains a defined contribution savings plan which covers
substantially all of its U.S. employees. Contributions under the plan amounted
to $757 for the year ended December 31, 1995.

The Company was self-insured for medical benefits through June 30, 1995.
Effective July 1, 1995, the Company transitioned its medical and dental
insurance to coverage under a health maintenance organization.

F-63
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--GEOGRAPHIC INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales to unaffiliated customers:
United States................................................................. $ 163,323
United Kingdom................................................................ 18,217
Germany....................................................................... 18,516
Spain......................................................................... 10,248
Other......................................................................... 30,667
------------
$ 240,971
------------
------------
Income (loss) before income taxes:
United States................................................................. $ (61,462)
United Kingdom................................................................ 3,869
Germany....................................................................... 127
Spain......................................................................... 587
Other......................................................................... 1,398
Eliminations and adjustments.................................................. (662)
------------
$ (56,143)
------------
------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Total assets:
United States................................................................. $ 190,640
United Kingdom................................................................ 17,384
Germany....................................................................... 7,230
Spain......................................................................... 11,860
Other......................................................................... 17,216
Eliminations and adjustments.................................................. (28,335)
------------
$ 215,995
------------
------------
</TABLE>

Transfers between geographic areas are made at prices calculated to reflect
a profit attributable to manufacturing operations.

Remittances to the United States are subject to various regulations of the
respective governments as well as to fluctuations in exchange rates.

NOTE 10--LITIGATION

River is a defendant in an action alleging misappropriation of trade secrets
and other proprietary information of the plaintiff. The Company believes the
allegations to be without merit and has filed a countersuit with respect to this
matter. In addition, the Company is a party to various other legal actions which
have occurred in the normal course of business. Management believes the Company
has meritorious

F-64
<PAGE>
IVAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--LITIGATION (CONTINUED)
defenses and intends to defend vigorously against these allegations and claims.
In management's opinion, liabilities arising from the above matters, if any,
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.

NOTE 11--COMMITMENTS AND CONTINGENCIES

In connection with the Acquisition, Lilly agreed to perform certain
administrative functions for the Company's foreign subsidiaries including the
collection of receivables and the payment of certain direct expenses incurred by
Lilly on behalf of the Company. The Company agreed to reimburse Lilly for such
direct expenses and anticipates that a payment of less than $8,000 will be made
to Lilly in 1996. The Company is currently waiting for notification from Lilly
of the amount owed under this arrangement. Management does not believe that this
amount will be materially different from the amount accrued at December 31,
1995.

The Company is obligated to pay additional purchase consideration related to
previous acquisitions. As discussed in Note 5, the Company is obligated to pay
additional consideration to SIS. In connection with another acquisition, the
Company is contingently liable to certain prior shareholders of the acquiree for
up to approximately $1,850 for additional purchase consideration through 1996,
based upon the acquired entity achieving certain sales and pre-tax performance
in each year subsequent to such acquisition. Any additional consideration paid
will be treated as additional cost of the acquired entity.

NOTE 12--RESTRUCTURING

In 1995, management approved and committed the Company to a non-voluntary
termination plan in compliance with the terms of the Acquisition purchase
agreement in an effort to reduce operating expenses. The terminations were not
concentrated in one particular area of the Company's operations and the plan
does not contemplate any significant changes to the operations or product lines
that the Company offers. In connection with these terminations the Company
charged severance and related costs of $5,319 to earnings. As of December 31,
1995, the remaining accrual related to these terminations totaled $1,510.

NOTE 13--SUBSEQUENT EVENT

On March 29, 1996, the Company amended and restated its Bank Credit
Facility. The amended and restated senior credit facility (the "Facility")
matures on March 29, 1999 and provides for borrowings of up to $40,000, secured
by substantially all U.S. domestic assets. Borrowings under the Facility bear
interest at a rate equal to the Alternate Base Rate ("ABR") plus 0.25% or
Adjusted LIBOR plus 1.50%, at the option of the Company. The ABR is equal to the
greatest of the (i) prime rate in effect on such day; (ii) base certificate of
deposit rate in effect on such day plus 1%; and (iii) federal funds effective
rate in effect on such day plus 1/2 of 1%. The pricing is subject to change
quarterly based upon certain debt and interest coverage ratios.

F-65
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
AND, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS AND THE ACCOMPANYING LETTER
OF TRANSMITTAL DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING THE OFFER OF SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR
ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION CONTAINED HEREIN OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

--------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 1
Risk Factors............................................................ 15
The Exchange Offer...................................................... 28
Certain Federal Income Tax Consequences................................. 36
The Acquisition......................................................... 37
Use of Proceeds......................................................... 39
Capitalization.......................................................... 40
Selected Consolidated Financial Data of the Company..................... 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 43
Business................................................................ 55
Management.............................................................. 78
Principal Stockholders.................................................. 87
Certain Relationships and Related Transactions.......................... 88
Description of Certain Indebtedness..................................... 89
Description of Notes.................................................... 92
Plan of Distribution.................................................... 123
Available Information................................................... 123
Legal Matters........................................................... 124
Independent Accountants................................................. 124
Index to Financial Statements........................................... F-1
</TABLE>

UNTIL , 1998 ( DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THE UNSOLD ALLOTMENTS AND SUBSCRIPTIONS.

$189,000,000

[LOGO]

OFFER TO EXCHANGE ITS
11 1/8% SENIOR DISCOUNT NOTES
DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, FOR ANY AND
ALL OF ITS OUTSTANDING
11 1/8% SENIOR DISCOUNT NOTES
DUE 2008

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

ALARIS Medical, Inc. is incorporated under the laws of the State of
Delaware. Each of (i) Section 145 of the Delaware General Corporate Law, as
amended, (ii) Article Eleven of the Company's Restated Certificate of
Incorporation, and (iii) Article Four of the Company's Amended By-Laws contain
indemnification provisions.

Set forth below is the text of Article ELEVENTH of the Company's Restated
Certificate of Incorporation:

ELEVENTH: No Director of the Corporation shall be liable for monetary
damages resulting from a breach of his or her fiduciary duty as a director,
except to the extent required by law as in effect at the time the claim of
liability is asserted.

Set forth below is the text of ARTICLE Four of the Company's Amended
By-Laws:

ARTICLE FOUR
INDEMNIFICATION OF OFFICERS AND DIRECTORS

SECTION 4.1. INDEMNIFICATION. (a) The Corporation shall indemnify, subject
to the requirements of subsection (d) of this Section, any person who was or 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 (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person 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 Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) The Corporation shall indemnify, subject to the requirements of
subsection (d) of this Section, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, Partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.

II-1
<PAGE>
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the Corporation
shall indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this Section
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Section. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.

(e) Expenses incurred by a director, officer, employee or agent in defending
a civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.

(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this Section shall not limit the
Corporation from providing any other indemnification or advancement of expenses
permitted by law nor shall they be deemed exclusive of any other rights to which
a person seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Section.

(h) For the purposes of this Section, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

(i) For purposes of this Section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Section.

II-2
<PAGE>
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section shall, unless otherwise provided when authorized or
ratified by the Board of Directors, continue as to a person who has ceased to be
a director, officer, employee or agent of the Corporation and shall incur to the
benefit of the heirs, executors and administrators of such a person.

The Company has entered into indemnification agreements with certain of its
directors, officers and employees providing each such person with
indemnification (and advancement of expenses) to the fullest extent permitted by
Delaware law.

The Company maintains officers' and directors' liability insurance which
insures against liabilities that officers and directors of the Company may incur
in such capacities.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement July 28, 1998 among ALARIS Medical, Inc., ALARIS
Medical Systems, Inc., IVAC Overseas Holdings, Inc., ALARIS Release
Corporation, Bear, Stearns & Co., Inc., BT Alex. Brown Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation.
2.1 Agreement and Plan of Merger dated June 24, 1998 by and among ALARIS
Medical, Inc., ALARIS Medical Systems, Inc., Herbert J. and Shirley L.
Semler, Instromedix, Inc. and the shareholders of Instromedix, Inc.
(Incorporated by reference to Exhibit 2(a) to ALARIS Medical, Inc.'s
report on Form 8-K dated July 30, 1998).
2.2 Agreement to Purchase Selected Assets dated May 18, 1998 among ALARIS
Medical Systems, Inc., Invacare Corporation and Patient Solutions, Inc.
(Incorporated by reference to Exhibit 2.1(a) to ALARIS Medical's Form
10-Q for the quarterly period ended June 30, 1998 (the "AM June 10-Q")).
2.3 Agreement and Plan of Merger dated August 23, 1996 among the Participating
Stockholders, IMED Corporation, IMED Merger Sub, Inc., IVAC Holdings,
Inc. and IVAC Medical Systems, Inc. (Incorporated by reference to
Exhibit 2 to Advanced Medical, Inc.'s report on Form 8-K dated August
23, 1996 (the "AM August 8-K")).
3.1 Certificate of Incorporation of Advanced Medical, Inc. and form of
Certificate of Incorporation of Advanced Medical, Inc., as amended.
(Incorporated by reference to Exhibit 3.1(a) to the Prospectus/Joint
Proxy Statement, dated March 3, 1989, of Fidata Corporation, Advanced
Medial, Inc. and Controlled Therapeutics Corporation included and
forming part of the Registration Statement on Form S-4 of Advanced
Medical, Inc. (the "Prospectus/Joint Proxy Statement")).
3.2 By-Laws of Advanced Medical, Inc., as amended.
3.3 Amendments to Articles First and Fourth of the Restated Certificate of
Incorporation of Advanced Medical, Inc. (Incorporated by reference to
Exhibit A and B to Advanced Medical Inc.'s Proxy Statement, dated August
15, 1990, for its Special Meeting of Stockholders held on September 7,
1990).
3.4 Amendment to Article Fourth of the Restated Certificate of Incorporation
of Advanced Medical, Inc. (Incorporated by reference to Annex III to
Advanced Medical Inc.'s Proxy Statement, dated July 25, 1994, for its
Special Meeting of Stockholders held on August 11, 1994).
4.1 Indenture dated as of July 28, 1998 among ALARIS Medical, Inc., ALARIS
Medical Systems, Inc. and United States Trust Company of Texas, N.A., as
trustee (including form of Notes).
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
4.2 Registration Rights Agreement dated as of July 28, 1998 among ALARIS
Medical, Inc., ALARIS Medical Systems, Inc., IVAC Overseas Holdings,
Inc., ALARIS Release Corporation, Bear, Stearns & Co., Inc., BT Alex.
Brown Incorporated and Donaldson, Lufkin and Jenrette Securities
Corporation.
4.3 Indenture dated as of November 26, 1996 among IMED Corporation, IMED
International Trading Corp. and United States Trust Company of New York,
as trustee (including form of Notes) (Incorporated by reference to
Exhibit 10.2 to Advanced Medical, Inc.'s report on Form 8-K dated
December 11, 1996 (the "AM December 8-K").
4.4 Indenture Assumption Agreement dated as of November 26, 1996 between IVAC
Holdings, Inc. and United States Trust Company of New York, as trustee
(Incorporated by reference to Exhibit 4.2 to the Registration Statement
on Form S-4 of ALARIS Medical Systems, Inc., IVAC Overseas Holdings,
Inc. and IMED International Trading corp. (the "AMS S-4") dated December
24, 1996).
4.5 Supplemental Indenture dated as of November 26, 1996 between IVAC Overseas
Holdings, Inc. and United States Trust Company of New York, as trustee
(Incorporated by reference to Exhibit 4.3 to the AMS S-4).
5 Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein.*
10.1 Credit Agreement dated as of November 26, 1996 ("Credit Agreement") among
Advanced Medical, Inc., IMED Corporation, Various Lending Institutions,
Bankers Trust Company, Banque Paribas and Donaldson, Lufkin & Jenrette
Securities Corporation (Incorporated by reference to Exhibit 10.1 to the
AM December 8-K).
10.2 Employment Agreement dated as of August 23, 1996 among William J. Mercer,
IMED Corporation and Advanced Medical, Inc. (Incorporated by reference
to Exhibit 10.4 to the AM December 8-K).
10.3 Employment Agreement dated as of August 23, 1996 among Joseph W. Kuhn,
IMED Corporation and Advanced Medical, Inc. (Incorporated by reference
to Exhibit 10.5 to the AM December 8-K).
10.4 Advanced Medical, Inc.'s Third Amended and Restated 1988 Stock Option Plan
(Incorporated by reference to Annex IV to Advanced Medical, Inc.'s Proxy
Statement dated July 25, 1994 for its Special Meeting of Stockholders
held on August 11, 1994 (the "AM August 1994 Proxy Statement")).
10.5 Advanced Medical, Inc.'s Second Amended and Restated 1990 Non-Qualified
Stock Option Plan for Non-Employee Directors (Incorporated by reference
to Annex V to the AM August 1994 Proxy Statement).
10.6 Form of Indemnification Agreements between the Company and certain of its
directors and officers (Incorporated by reference to Exhibit 10.2 to
IVAC Medical System, Inc.'s Report on Form 10-Q for the quarter ended
June 30, 1996).
10.7 Wateridge Plaza Office Building Lease Agreement dated as of December 1,
1995 between California Public Employees' Retirement System and IVAC
Corporation (Incorporated by reference to Exhibit 10.12 to IVAC Medical
Systems, Inc.'s Report on Form 10-K for the year ended December 31, 1995
(the "IVAC 1995 Form 10-K")).
10.8 Activity Road Lease Agreement dated as of October 25, 1995 between Rancho
Bernardo Corporate Center Ltd. and IVAC Corporation (Incorporated by
reference to Exhibit 10.13 to the IVAC 1995 Form 10-K).
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
10.9 Asset Transfer Agreement dated June 26, 1996 among IMED Ltd., IMED
Corporation, Pharmacia AB and Pharmacia & Upjohn Limited with respect to
the acquisition of certain European assets (Incorporated by reference to
Exhibit 10.28 to Advanced Medical, Inc.'s Report on Form 10-Q for the
quarter ended June 30, 1996 (the "AM June 1996 Form 10-Q")).
10.10 Assignment Agreement dated June 26, 1996 among IMED Corporation, IMED
Trading, Advanced Medical, Inc. and Pharmacia, AB with respect to the
acquisition of European distribution rights (Incorporated by reference
to Exhibit 10.29 to the AM June 1996 Form 10-Q).
10.11 Amendment and Waiver No. 1 to Credit Agreement dated as of March 28, 1997
(Incorporated by reference to Exhibit 10.13 to Amendment No. 2 to the
AMS S-4 dated May 28, 1997)
10.12 ALARIS Medical, Inc. 1996 Stock Option Plan (Incorporated by reference to
Exhibit A to ALARIS Medical, Inc.'s Proxy Statement dated May 5, 1997
for its Annual Meeting of Stockholders (the "ALARIS Proxy Statement")).
10.13 ALARIS Medical, Inc. Third Amended and Restated 1990 Non-Qualified Stock
Option Plan for Non-Employee Directors (Incorporated by reference to
Exhibit B to the ALARIS Proxy Statement).
10.14 Amendment No. 2 to Credit Agreement dated as of August 12, 1997
(Incorporated by reference to Exhibit 10.16 to Amendment No. 6 to the
AMS S-4 dated August 19, 1997).
10.15 Amendment No. 3 and Consent to Credit Agreement dated as of March 4, 1998.
10.16 Amendment No. 4 and Consent to Credit Agreement dated as of July 7, 1998.
10.17 Agreement dated May 7, 1998 among ALARIS Medical Systems, Inc. and
Caesarea Medical Electronics Limited (Incorporated by reference to
Exhibit 10.1(a) to the AM June 10-Q.)
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of the ALARIS Medical.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Gordon Altman Butowsky Weitzen Shalov & Wein (included in
Exhibit 5).*
25 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of United States Trust Company of Texas, N.A., as
trustee.
</TABLE>

- ------------------------

* To be filed by amendment

(b) Financial Statement Schedule

Report of Independent Accountants on Financial Statement Schedule.

Schedule II-Valuation and Qualifying Accounts and Reserves.

All other schedules are omitted because they are not applicable or not
required, or because the information required therein is included in the
financial statements or the notes thereto.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

II-5
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.434(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on August 26, 1998.

<TABLE>
<S> <C> <C>
ALARIS MEDICAL, INC.
By:

/s/ WILLIAM J. MERCER
-----------------------------------------
Name: William J. Mercer
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffry M. Picower and William J. Mercer, or
either of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign the registration Statement filed herewith and any and all
amendments to said Registration Statement (including post-effective amendments
and registration statements filed pursuant to Rule 462 and otherwise), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE(S) DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ JEFFRY M. PICOWER
- ------------------------------ Director and Chairman of August 26, 1998
Jeffry M. Picower the Board

/s/ WILLIAM J. MERCER
- ------------------------------ Director, President and August 26, 1998
William J. Mercer Chief Executive Officer

- ------------------------------ Director
Norman M. Dean

/s/ HENRY GREEN
- ------------------------------ Director August 26, 1998
Henry Green

/s/ RICHARD B. KELSKY
- ------------------------------ Director August 26, 1998
Richard B. Kelsky
</TABLE>

II-7
<PAGE>
ALARIS MEDICAL, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Deducted from receivables
Allowance for doubtful accounts:
Year ended December 31, 1995...................... $ 855 $ 100 -- $ (80) $ 875
Year ended December 31, 1996...................... 875 100 $ 3,320 (210) 4,085
Year ended December 31, 1997...................... 4,085 810 -- (1,636) 3,259
</TABLE>

- ------------------------

(1) Represents amount of allowance for doubtful accounts assigned to accounts
receivables acquired in the Merger.

(2) Represents accounts written-off as uncollectible, net of collections on
accounts previously written-off.

S-II-1
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement July 28, 1998 among ALARIS Medical, Inc., ALARIS Medical Systems, Inc., IVAC
Overseas Holdings, Inc., ALARIS Release Corporation, Bear, Stearns & Co., Inc., BT Alex. Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation.

2.1 Agreement and Plan of Merger dated June 24, 1998 by and among ALARIS Medical, Inc., ALARIS Medical
Systems, Inc., Herbert J. and Shirley L. Semler, Instromedix, Inc. and the shareholders of
Instromedix, Inc. (Incorporated by reference to Exhibit 2(a) to ALARIS Medical, Inc.'s report on
Form 8-K dated July 30, 1998).

2.2 Agreement to Purchase Selected Assets dated May 18, 1998 among ALARIS Medical Systems, Inc., Invacare
Corporation and Patient Solutions, Inc. (Incorporated by reference to Exhibit 2.1(a) to ALARIS
Medical's Form 10-Q for the quarterly period ended June 30, 1998 (the "AM June 10-Q")).

2.3 Agreement and Plan of Merger dated August 23, 1996 among the Participating Stockholders, IMED
Corporation, IMED Merger Sub, Inc., IVAC Holdings, Inc. and IVAC Medical Systems, Inc.
(Incorporated by reference to Exhibit 2 to Advanced Medical, Inc.'s report on Form 8-K dated August
23, 1996 (the "AM August 8-K")).

3.1 Certificate of Incorporation of Advanced Medical, Inc. and form of Certificate of Incorporation of
Advanced Medical, Inc., as amended. (Incorporated by reference to Exhibit 3.1(a) to the
Prospectus/Joint Proxy Statement, dated March 3, 1989, of Fidata Corporation, Advanced Medial, Inc.
and Controlled Therapeutics Corporation included and forming part of the Registration Statement on
Form S-4 of Advanced Medical, Inc. (the "Prospectus/Joint Proxy Statement")).

3.2 By-Laws of Advanced Medical, Inc., as amended.

3.3 Amendments to Articles First and Fourth of the Restated Certificate of Incorporation of Advanced
Medical, Inc. (Incorporated by reference to Exhibit A and B to Advanced Medical Inc.'s Proxy
Statement, dated August 15, 1990, for its Special Meeting of Stockholders held on September 7,
1990).

3.4 Amendment to Article Fourth of the Restated Certificate of Incorporation of Advanced Medical, Inc.
(Incorporated by reference to Annex III to Advanced Medical Inc.'s Proxy Statement, dated July 25,
1994, for its Special Meeting of Stockholders held on August 11, 1994).

4.1 Indenture dated as of July 28, 1998 among ALARIS Medical, Inc., ALARIS Medical Systems, Inc., and
United States Trust Company of Texas, N.A., as trustee (including form of Notes).

4.2 Registration Rights Agreement dated as of July 28, 1998 among ALARIS Medical, Inc., ALARIS Medical
Systems, Inc., IVAC Overseas Holdings, Inc., ALARIS Release Corporation, Bear, Stearns & Co., Inc.,
BT Alex. Brown Incorporated and Donaldson, Lufkin and Jenrette Securities Corporation.

4.3 Indenture dated as of November 26, 1996 among IMED Corporation, IMED International Trading Corp. and
United States Trust Company of New York, as trustee (including form of Notes) (Incorporated by
reference to Exhibit 10.2 to Advanced Medical, Inc.'s report on Form 8-K dated December 11, 1996
(the "AM December 8-K").

4.4 Indenture Assumption Agreement dated as of November 26, 1996 between IVAC Holdings, Inc. and United
States Trust Company of New York, as trustee (Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4 of ALARIS Medical Systems, Inc., IVAC Overseas Holdings, Inc.
and IMED International Trading corp. (the "AMS S-4") dated December 24, 1996).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.5 Supplemental Indenture dated as of November 26, 1996 between IVAC Overseas Holdings, Inc. and United
States Trust Company of New York, as trustee (Incorporated by reference to Exhibit 4.3 to the AMS
S-4).

5 Opinion of Gordon Altman Butowsky Weitzen Shalov & Wein.*

10.1 Credit Agreement dated as of November 26, 1996 ("Credit Agreement") among Advanced Medical, Inc.,
IMED Corporation, Various Lending Institutions, Bankers Trust Company, Banque Paribas and
Donaldson, Lufkin & Jenrette Securities Corporation (Incorporated by reference to Exhibit 10.1 to
the AM December 8-K).

10.2 Employment Agreement dated as of August 23, 1996 among William J. Mercer, IMED Corporation and
Advanced Medical, Inc. (Incorporated by reference to Exhibit 10.4 to the AM December 8-K).

10.3 Employment Agreement dated as of August 23, 1996 among Joseph W. Kuhn, IMED Corporation and Advanced
Medical, Inc. (Incorporated by reference to Exhibit 10.5 to the AM December 8-K).

10.4 Advanced Medical, Inc.'s Third Amended and Restated 1988 Stock Option Plan (Incorporated by reference
to Annex IV to Advanced Medical, Inc.'s Proxy Statement dated July 25, 1994 for its Special Meeting
of Stockholders held on August 11, 1994 (the "AM August 1994 Proxy Statement")).

10.5 Advanced Medical, Inc.'s Second Amended and Restated 1990 Non-Qualified Stock Option Plan for
Non-Employee Directors (Incorporated by reference to Annex V to the AM August 1994 Proxy
Statement).

10.6 Form of Indemnification Agreements between the Company and certain of its directors and officers
(Incorporated by reference to Exhibit 10.2 to IVAC Medical System, Inc.'s Report on Form 10-Q for
the quarter ended June 30, 1996).

10.7 Wateridge Plaza Office Building Lease Agreement dated as of December 1, 1995 between California
Public Employees' Retirement System and IVAC Corporation (Incorporated by reference to Exhibit
10.12 to IVAC Medical Systems, Inc.'s Report on Form 10-K for the year ended December 31, 1995 (the
"IVAC 1995 Form 10-K")).

10.8 Activity Road Lease Agreement dated as of October 25, 1995 between Rancho Bernardo Corporate Center
Ltd. and IVAC Corporation (Incorporated by reference to Exhibit 10.13 to the IVAC 1995 Form 10-K).

10.9 Asset Transfer Agreement dated June 26, 1996 among IMED Ltd., IMED Corporation, Pharmacia AB and
Pharmacia & Upjohn Limited with respect to the acquisition of certain European assets (Incorporated
by reference to Exhibit 10.28 to Advanced Medical, Inc.'s Report on Form 10-Q for the quarter ended
June 30, 1996 (the "AM June 1996 Form 10-Q")).

10.10 Assignment Agreement dated June 26, 1996 among IMED Corporation, IMED Trading, Advanced Medical, Inc.
and Pharmacia, AB with respect to the acquisition of European distribution rights (Incorporated by
reference to Exhibit 10.29 to the AM June 1996 Form 10-Q).

10.11 Amendment and Waiver No. 1 to Credit Agreement dated as of March 28, 1997 (Incorporated by reference
to Exhibit 10.13 to Amendment No. 2 to the AMS S-4 dated May 28, 1997)

10.12 ALARIS Medical, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit A to ALARIS
Medical, Inc.'s Proxy Statement dated May 5, 1997 for its Annual Meeting of Stockholders (the
"ALARIS Proxy Statement")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.13 ALARIS Medical, Inc. Third Amended and Restated 1990 Non-Qualified Stock Option Plan for Non-Employee
Directors (Incorporated by reference to Exhibit B to the ALARIS Proxy Statement).

10.14 Amendment No. 2 to Credit Agreement dated as of August 12, 1997 (Incorporated by reference to Exhibit
10.16 to Amendment No. 6 to the AMS S-4 dated August 19, 1997).

10.15 Amendment No. 3 and Consent to Credit Agreement dated as of March 4, 1998.

10.16 Amendment No. 4 and Consent to Credit Agreement dated as of July 7, 1998.

10.17 Agreement dated May 7, 1998 among ALARIS Medical Systems, Inc. and Caesarea Medical Electronics
Limited (Incorporated by reference to Exhibit 10.1(a) to the AM June 10-Q.)

12 Computation of Ratio of Earnings to Fixed Charges.

21 List of Subsidiaries of the ALARIS Medical.

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of Gordon Altman Butowsky Weitzen Shalov & Wein (included in Exhibit 5).*

25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of United
States Trust Company of Texas, N.A., as trustee.
</TABLE>

- ------------------------

* To be filed by amendment.

<PAGE>

- --------------------------------------------------------------------------------

ALARIS MEDICAL, INC.

ALARIS MEDICAL SYSTEMS, INC.

ALARIS RELEASE CORPORATION

IVAC OVERSEAS HOLDINGS, INC.

$189,000,000 PRINCIPAL AMOUNT AT MATURITY OF

11 1/8% SENIOR DISCOUNT NOTES DUE 2008

PURCHASE AGREEMENT

July 23, 1998

BEAR, STEARNS & CO. INC.

BT ALEX.BROWN INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

- --------------------------------------------------------------------------------
<PAGE>

ALARIS Medical, Inc.

$189,000,000 Principal Amount at Maturity of

11 1/8% Senior Discount Notes due 2008

PURCHASE AGREEMENT

July 23, 1998

BEAR, STEARNS & CO. INC.
BT ALEX.BROWN INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10067

Ladies and Gentlemen:

ALARIS Medical, Inc., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to Bear, Stearns & Co. Inc. ("BEAR STEARNS"), BT Alex.Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (each, an
"INITIAL PURCHASER" and collectively the "INITIAL PURCHASERS") an aggregate of
$189,000,000 in aggregate principal amount at maturity of its 11 1/8% Senior
Discount Notes due 2008 (the "SENIOR DISCOUNT NOTES"), subject to the terms and
conditions set forth herein. The Senior Discount Notes are to be issued
pursuant to the provisions of an indenture (the "INDENTURE") to be dated as of
the Closing Date (as defined below) between the Company and U.S. Trust Company
of Texas, N.A., as trustee (the "TRUSTEE"). The Senior Discount Notes are more
fully described in the Offering Memorandum referred to below. Capitalized terms
used but not defined herein shall have the meanings given to such terms in the
Indenture.

The Senior Discount Notes are being issued and sold in connection with
an Agreement and Plan of Merger (the "INSTROMEDIX AGREEMENT") dated June 24,
1998, by and among the Company, ALARIS Medical Systems, Inc. ("ALARIS MEDICAL
SYSTEMS"), Instromedix, Inc. ("INSTROMEDIX") and the shareholders of Instromedix
pursuant to which ALARIS Medical Systems will acquire all of the outstanding
capital stock of Instromedix (the "INSTROMEDIX ACQUISITION"). Pursuant to the
terms of the Instromedix Agreement, the

<PAGE>

Instromedix Acquisition was consummated on July 17, 1998 and Instromedix was
subsequently merged with and into ALARIS Medical Systems.

1. ISSUANCE OF SECURITIES. The Company proposes to, upon the terms
and subject to the conditions set forth herein, issue and sell to the Initial
Purchasers the Senior Discount Notes. The Senior Discount Notes and the
Exchange Notes (as defined below) issuable in exchange therefore are hereinafter
collectively referred to herein as the "NOTES."

Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933,
as amended (the "ACT"), the Notes shall bear the legends as required and set
forth in the Indenture.

2. OFFERING. The Senior Discount Notes will be offered and sold to
the Initial Purchasers pursuant to an exemption from the registration
requirements under the Act. The Company has prepared a preliminary offering
memorandum, dated July 8, 1998 (the "PRELIMINARY OFFERING MEMORANDUM"), and a
final offering memorandum, dated July 23, 1998 (the "OFFERING MEMORANDUM"),
relating to the Senior Discount Notes.

The Initial Purchasers have advised the Company that the Initial
Purchasers will make offers to resell (the "EXEMPT RESALES") the Senior Discount
Notes on the terms set forth in the Offering Memorandum, as amended or
supplemented, solely to persons whom the Initial Purchasers reasonably believe
to be "qualified institutional buyers" as defined in Rule 144A under the Act
("QIBS") (such persons being referred to herein as the "ELIGIBLE PURCHASERS").
The Initial Purchasers will offer the Senior Discount Notes to Eligible
Purchasers initially at a price equal to 58.144% of the principal amount
thereof. Such price may be changed at any time without notice.

Holders (including subsequent transferees) of the Notes will have the
registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Senior Discount Notes
constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") with
respect to an offer to exchange (the "EXCHANGE OFFER") the Senior Discount Notes
for a new issue of debt securities of the Company (the "EXCHANGE NOTES") to be
offered in exchange for the Senior Discount Notes and (ii) if applicable, under
certain circumstances, a shelf registration statement pursuant to Rule 415 under
the Act (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange
Offer Registration Statement, the "REGISTRATION STATEMENTS") relating to the
resale by certain holders of the Senior Discount Notes and to use its best
efforts to cause such

2
<PAGE>

Registration Statements to be declared effective and to consummate the
Exchange Offer. This Agreement, the Indenture, the Notes and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "OPERATIVE DOCUMENTS."

3. PURCHASE, SALE AND DELIVERY. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to each Initial Purchaser, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, the principal
amounts at maturity of Senior Discount Notes set forth opposite the name of
such Initial Purchaser on Schedule A hereto. The purchase price (the
"PURCHASE PRICE") for the Senior Discount Notes shall be $562.54 per $1,000
principal amount at maturity of Senior Discount Notes.

(b) Delivery of, and payment of the Purchase Price for, the Senior
Discount Notes shall be made at the offices of Gordon Altman Butowsky Weitzen
Shalov & Wein, 114 West 47th Street, New York, New York 10036, or such other
location as may be mutually acceptable. Such delivery and payment shall be
made at 9:00 a.m. New York City time, on July 28, 1998 or at such other time
as shall be agreed upon by the Initial Purchasers and the Company. The time
and date of such delivery and the payment are herein called the "CLOSING
DATE."

One or more of the Senior Discount Notes in definitive global form,
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), having an aggregate amount corresponding to the aggregate amount of the
Senior Discount Notes sold pursuant to Exempt Resales to QIBs (the "144A GLOBAL
NOTES") shall be delivered by the Company to the Initial Purchasers (or as the
Initial Purchasers may direct) against payment by the Initial Purchasers of the
Purchase Price thereof by wire transfer in same-day funds to an account
specified by the Company or as the Company may direct in writing, PROVIDED that
the Company shall give at least two business days' prior written notice to the
Initial Purchasers of the information required to effect such wire transfers.
The 144A Global Notes shall be made available to the Initial Purchasers for
inspection not later than 10:00 a.m. New York City time, on the business day
immediately preceding the Closing Date.

4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with
each of the Initial Purchasers as follows:

(a) To advise the Initial Purchasers promptly and, if requested by
the Initial Purchasers, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the qualification
or exemption from qualification of any Senior Discount Notes for offering or
sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 4(e) hereof, or the initiation of any proceeding by any state securities
commission or any other regulatory authority and (ii) of the happening of any
event that makes

3
<PAGE>

any statement of a material fact made in the Preliminary Offering Memorandum
or the Offering Memorandum untrue or that requires the making of any
additions to or changes in the Preliminary Offering Memorandum or the
Offering Memorandum in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading. The Company
shall use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of any Senior Discount Notes under
any state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of any Senior Discount Notes under
any state securities or Blue Sky laws, the Company shall use its best efforts
to obtain the withdrawal or lifting of such order at the earliest possible
time.

(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchasers may reasonably request.
Subject to the Initial Purchasers' compliance with applicable state and federal
securities laws, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments and supplements
thereto required pursuant hereto, by the Initial Purchasers in connection with
Exempt Resales.

(c) Not to amend or supplement the Preliminary Offering Memorandum or
the Offering Memorandum during the period set forth in Section 4(j), unless the
Initial Purchasers shall previously have been advised thereof and shall not have
objected thereto within seven business days of being furnished a copy thereof
(or such shorter period as is reasonably required to comply with Section 4(d)).
The Company shall promptly prepare, upon the Initial Purchasers' request, any
amendment or supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that the Initial Purchasers believe necessary or advisable in
connection with Exempt Resales.

(d) If, after the date hereof and during the period set forth in
Section 4(j), any event shall occur as a result of which, in the judgment of the
Company or in the reasonable judgment of the Initial Purchasers or counsel to
the Initial Purchasers, it becomes necessary to amend or supplement the
Preliminary Offering Memorandum or Offering Memorandum in order to make the
statements therein, in the light of the circumstances when such Preliminary
Offering Memorandum or Offering Memorandum is delivered to an Eligible
Purchaser, not misleading, or if it is necessary to amend or supplement the
Preliminary Offering Memorandum or Offering Memorandum to comply with any law,
statute, rule or regulation, to forthwith prepare an appropriate amendment or
supplement to such Preliminary Offering Memorandum or Offering Memorandum so
that the statements therein, as so amended or supplemented, will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
such Preliminary Offering Memorandum or Offering Memorandum will comply with
applicable law.

4
<PAGE>

(e) To cooperate with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Senior Discount Notes under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers may reasonably request in writing at
least five business days prior to any proposed transfer and to continue such
qualification in effect so long as required for the Exempt Resales; PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith to
register or qualify as a foreign corporation in any jurisdiction in which it is
not now so qualified or to take any action that would subject it to general
consent to service of process or taxation other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.

(f) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement becomes effective or is terminated, to pay and
be responsible for all costs, expenses, fees and taxes in connection with or
incident to (i) the preparation, printing, processing, duplicating, filing and
distribution of the Preliminary Offering Memorandum and the Offering Memorandum
(including, without limitation, financial statements included therein), and all
amendments or supplements thereto, (ii) the preparation, printing, processing,
execution, distribution and delivery of this Agreement, the other Operative
Documents, all preliminary and final Blue Sky memoranda printed, distributed and
delivered in connection herewith and with the Exempt Resales, (iii) the
issuance, transfer and delivery of the Notes to the Initial Purchasers, (iv) the
registration or qualification of the Notes for offer and sale under the
securities or Blue Sky laws of the jurisdictions referred to in Section 4(e)
(including, in each case, the fees and disbursements of counsel to the Initial
Purchasers relating to such registration or qualification and memoranda relating
thereto), (v) furnishing such copies of the Preliminary Offering Memorandum and
the Offering Memorandum, and all amendments and supplements thereto, as may be
requested for use in connection with Exempt Resales, (vi) the preparation of
certificates for the Notes (including, without limitation, printing and
engraving thereof), (vii) the fees, disbursements and expenses of the Company's
counsel and accountants, (viii) all expenses and listing fees in connection with
the application for quotation of the Senior Discount Notes in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System -
PORTAL ("PORTAL"), (ix) all fees and expenses (including fees and expenses of
counsel to the Company) of the Company in connection with the approval of the
Notes by DTC for "book-entry" transfer, (x) the rating of the Notes by
investment rating agencies, (xi) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture and the Notes, (xii) the
performance by the Company of its other obligations under this Agreement and the
other Operative Documents and (xiii) all "roadshow" travel and other expenses
incurred by the Company in connection with the marketing and sale of the Senior
Discount Notes, including, without limitation, airfare and private jet rentals.

5
<PAGE>

(g) To use the proceeds from the sale of the Senior Discount Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds."

(h) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes.

(i) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Senior Discount Notes in a manner that would
require the registration under the Act of the sale to the Initial Purchasers or
the Eligible Purchasers of the Senior Discount Notes or to take any other action
that would result in the Exempt Resales not being exempt from registration under
the Act.

(j) For so long as any of the Notes remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to make
available to any holder of Senior Discount Notes in connection with any sale
thereof and any prospective purchaser of such Senior Discount Notes from such
holder, the information (the "RULE 144A INFORMATION") required by Rule
144A(d)(4) under the Act.

(k) To cause the Exchange Offer to be made in the appropriate form to
permit registered Exchange Notes to be offered in exchange for the Senior
Discount Notes and to comply with all applicable federal and state securities
laws in connection with the Exchange Offer.

(l) To comply with all of its agreements set forth in the
Registration Rights Agreement and all agreements set forth in the representation
letters of the Company to DTC relating to the approval of the Notes by DTC for
"book-entry" transfer.

(m) To use its best efforts to effect the inclusion of the Senior
Discount Notes in PORTAL and to obtain approval of the Notes by DTC for
"book-entry" transfer.

(n) During a period of five years following the Closing Date, to
deliver without charge to the Initial Purchasers promptly upon their becoming
available (i) all reports or other publicly available information that the
Company shall mail or otherwise make available to its securityholders and (ii)
all reports, financial statements and proxy or information statements filed by
the Company or any of its subsidiaries with the Commission or any national
securities exchange and such other publicly available information concerning the
Company or any of its subsidiaries, including without limitation, press
releases, as such Initial Purchaser may reasonably request.

6
<PAGE>

(o) Neither the Company nor any of its subsidiaries will take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the Notes.
Except as permitted by the Act, the Company will not distribute any Preliminary
Offering Memorandum, Offering Memorandum or any offering material in connection
with the offering and sale of the Notes.

(p) For a period of 120 days after the Closing Date, not to, and to
cause its affiliates not to, offer, sell, contract to sell or grant any option
to purchase or otherwise transfer or dispose of any Notes or any other debt
security issued by the Company or any of its subsidiaries (other than a private
loan, credit or financing agreement with a bank or similar financing
institution) or any security convertible into or exchangeable or exercisable for
any such debt security without the Initial Purchasers' prior written consent,
except for (i) sales or transfers between affiliates of the Company and the
Company or any of its subsidiaries and (ii) the issue and exchange of Exchange
Notes for Senior Discount Notes in the Exchange Offer.

(q) During the period set forth in Section 4(j), to furnish to the
Initial Purchasers, as soon as they have been prepared by the Company a copy of
any interim consolidated financial statements of the Company for any period
subsequent to the period covered by the financial statements appearing in the
Offering Memorandum.

(r) To comply with the agreements in the Indenture and any other
Operative Document.

(s) To do and perform all things required to be done and performed
under this Agreement by it that are within its control prior to the Closing Date
and to use its best efforts to satisfy all conditions precedent on its part to
the delivery of the Senior Discount Notes that are within its control.

5. REPRESENTATIONS AND WARRANTIES.

(a) The Company represents and warrants to each of the Initial
Purchasers that:

(i) The Preliminary Offering Memorandum and the
Offering Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum do not, and
any supplement or amendment to them will not, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (i) shall not
apply to statements in or omissions from the Preliminary Offering Memorandum
or the Offering Memorandum (or any supplement or

7
<PAGE>

amendment thereto) made in reliance upon and in conformity with information
relating to the Initial Purchasers furnished to the Company in writing by the
Initial Purchasers expressly for use therein. No stop order preventing the
use of the Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued.

(ii) When the Senior Discount Notes are issued and delivered
pursuant to this Agreement, no Senior Discount Note will be of the same class
(within the meaning of Rule 144A under the Act) as securities of the Company
that are listed on a national securities exchange registered under Section 6
of the Exchange Act or that are quoted in a United States automated
inter-dealer quotation system.

(iii) All of the issued and outstanding shares of capital
stock of, or other ownership interests in, the Company and each of its
subsidiaries has been duly and validly authorized and issued, and all of the
shares of capital stock of, or other ownership interests in, each of the
Company's subsidiaries are owned, directly or indirectly, by the Company.
All such shares of capital stock are fully paid and non-assessable and have
not been issued in violation of any preemptive or similar rights and are
owned free and clear of any security interest, mortgage, pledge, claim, lien,
limitation on voting rights or encumbrance (each, a "LIEN"), except for Liens
granted pursuant to or permitted under the Credit Facility that are in effect
on the date hereof. Other than the 7 1/4% Convertible Subordinated Debentures
due 2002 of the Company, options granted under the Company's option plans and
options granted for service on a special committee of the Company's Board of
Directors, there are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or Liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any of its
subsidiaries.

(iv) The Company and each of its subsidiaries (1) is duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, (2) has the requisite corporate
power and authority to own, lease and operate its respective properties and
to conduct its business as it is currently being conducted and as described
in the Offering Memorandum, and (3) is duly qualified as a foreign
corporation and is in good standing in each jurisdiction where the ownership,
leasing or operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not, singly
or in the aggregate, have a Material Adverse Effect (as defined below). As
used herein, "MATERIAL ADVERSE EFFECT" shall mean, with respect to the
Company, any effect or group of related or unrelated effects that (i) would
be reasonably expected, individually or in the aggregate, to result in a
material adverse effect on the assets, properties, business, results of
operations, condition (financial or otherwise) or prospects of the Company
and its subsidiaries,

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<PAGE>

taken as a whole, or (ii) would interfere with, adversely affect or question
the validity of (A) the execution, delivery and performance of any of the
Operative Documents, the issuance of the Notes or the consummation of this
Agreement (B) the performance by each of ALARIS Medical Systems, ALARIS
Release Corporation, IVAC Overseas Holdings, Inc. (collectively, the
"Significant Subsidiaries") and the Company of its respective agreements and
obligations under this Agreement or the consummation of the transaction
contemplated hereby or (C) the consummation of the Instromedix Acquisition.

(v) The Company has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
other Operative Documents to which it is a party and to consummate the
transactions contemplated by this Agreement and the other Operative Documents
to which it is a party, and to issue, sell and deliver the Senior Discount
Notes pursuant to this Agreement. Each of the Significant Subsidiaries has
full corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the other Operative Documents to which
it is a party and to consummate the transactions contemplated by this
Agreement and the other Operative Documents to which it is a party. Each of
the Company and ALARIS Medical Systems had and continues to have, as the case
may be, all necessary corporate power and authority to execute, deliver and
perform its obligations under the Instromedix Agreement and to consummate the
transactions contemplated thereby.

(vi) The Company has no direct or indirect subsidiaries,
other than those listed on Schedule B hereto.

(vii) The Company has no subsidiaries that are "Significant
Subsidiaries" as defined in Article I, Rule 1-02 of Regulation S-X
promulgated pursuant to the Act other than those listed on Schedule C hereto.

(viii) This Agreement has been duly authorized and validly
executed and delivered by the Company and each of the Significant
Subsidiaries and constitutes a valid and legally binding agreement of the
Company and each of the Significant Subsidiaries, enforceable against the
Company and each of the Significant Subsidiaries in accordance with its terms
(assuming the due execution and delivery hereof by the Initial Purchasers),
except as (i) rights to indemnity and contribution hereunder may be limited
by applicable law, (ii) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (iii) rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability.

(ix) The Indenture has been duly authorized by the Company
and, on the Closing Date, will have been validly executed and delivered by
the Company and will

9
<PAGE>

conform to the description thereof in the Offering Memorandum. When the
Indenture has been duly executed and delivered by the Company, the Indenture
will be a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (assuming the due execution
and delivery of the Indenture by the Trustee), except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability. The Offering Memorandum contains an
accurate summary, in all material respects, of the terms of the Indenture.

(x) The Senior Discount Notes have been duly authorized by
the Company and, on the Closing Date, will have been validly executed and
delivered by the Company and will conform to the description thereof in the
Offering Memorandum. When the Senior Discount Notes are issued,
authenticated and delivered in accordance with the Indenture and paid for by
the Initial Purchasers in accordance with the terms of this Agreement, the
Senior Discount Notes will constitute valid and legally binding obligations
of the Company, enforceable against the Company in accordance with their
terms, and will be entitled to the benefits of the Indenture (assuming the
due execution and delivery of the Indenture by the Trustee), except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. The Offering Memorandum
contains an accurate summary, in all material respects, of the terms of the
Senior Discount Notes.

(xi) The Exchange Notes have been duly authorized by the
Company and, when issued and authenticated in accordance with the Exchange
Offer and the Indenture will conform to the description thereof in the
Offering Memorandum. When the Exchange Notes are issued, authenticated and
delivered in accordance with the Exchange Offer and the Indenture, the
Exchange Notes will be the valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms and
will be entitled to the benefits of the Indenture (assuming the due execution
and delivery of the Indenture by the Trustee), except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability. The Offering Memorandum contains an
accurate summary, in all material respects, of the terms of the Exchange
Notes.

(xii) The Registration Rights Agreement has been duly
authorized by the Company and each of the Significant Subsidiaries and, on
the Closing Date, will have been duly executed and delivered by the Company
and each of the Significant Subsidiaries and will conform to the description
thereof in the Offering Memorandum. When the Registration Rights Agreement
has been duly executed and delivered, the Registration Rights Agreement will
be a valid and legally binding agreement of the Company and each of the
Significant Subsidiaries,

10
<PAGE>

enforceable against the Company and each of the Significant Subsidiaries in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
The Offering Memorandum contains an accurate summary, in all material
respects, of the terms of the Registration Rights Agreement.

(xiii) The Instromedix Agreement has been duly authorized,
executed and delivered by the Company and ALARIS Medical Systems and is a
valid and legally binding obligation of each of the Company and ALARIS
Medical Systems, enforceable against each of the Company and ALARIS Medical
Systems in accordance with its terms (assuming the due execution and delivery
thereof by Instromedix and each selling shareholder), except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration
and the availability of equitable remedies may be limited by equitable
principles of general applicability. The Instromedix Agreement is in full
force and effect and to the Company's knowledge, except as otherwise
contemplated by paragraph 21 of Section 8(g), there has not occurred any
default or breach by any party thereto. Pursuant to the terms of the
Instromedix Agreement, the Instromedix Acquisition was consummated on July
17, 1998 and Instromedix was subsequently merged with and into ALARIS Medical
Systems. The Offering Memorandum contains an accurate summary, in all
material respects, of the terms of the Instromedix Acquisition.

(xiv) The Company has delivered to the Initial Purchasers
true and correct executed copies of (i) the Instromedix Agreement and (ii)
all documents and agreements related thereto and there have been no
amendments, alterations, modifications or waivers thereto or in the exhibits
or schedules thereto, except as have been delivered to the Initial Purchasers.

(xv) Neither the Company nor any of its subsidiaries is in
violation of its charter or bylaws.

(xvi) Neither the Company nor any of its subsidiaries is in
default in the performance of any term, provision, obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or other contract,
lease or other instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound, or to which any of the property or
assets of the Company or any of its subsidiaries is subject, except for such
defaults as would not, individually or in the aggregate, have a Material
Adverse Effect. Except as otherwise contemplated by paragraph 21 of Section
8(g), there exists no condition that, with notice, the passage of time or
otherwise, would constitute a default under any such document or instrument.

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<PAGE>

(xvii) The execution, delivery and performance of this
Agreement and the other Operative Documents and compliance by the Company and
the Significant Subsidiaries with the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby (including,
without limitation, the Instromedix Acquisition) will not (i) require any
consent, approval, authorization or order of, or filing or registration with,
any regulatory body, administrative agency or other governmental agency,
other than (1) as may be required under state securities or "Blue Sky" laws
and (2) those that have been obtained or made, (ii) conflict with any of the
respective charters or bylaws of the Company or any of its subsidiaries,
(iii) conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default or cause an acceleration of any
obligation under, or result in the imposition or creation of (or the
obligation to create or impose) a Lien with respect to, any agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them is bound, or to which any properties of the Company
or any of its subsidiaries is or may be subject, except, with respect to this
clause (iii) only, for (A) Liens granted pursuant to or permitted under the
Credit Facility that are in effect on the date hereof and (B) such conflicts,
breaches, violations, defaults, accelerations, impositions and creations as
would not, individually or in the aggregate, have a Material Adverse Effect,
(iv) contravene any order of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties, (v) violate or conflict with any law, statute, rule or
regulation or administrative or court decree applicable to the Company or any
of its subsidiaries, or any of their respective properties or (vi) result in
the termination or revocation of any Authorization (as defined below) of the
Company or any of its subsidiaries or result in any other impairment of the
rights of the holder of any such Authorization.

(xviii) Except to the extent described in the Offering
Memorandum, there is no action, suit, proceeding or investigation before or
by any court or governmental agency or body, domestic or foreign, pending
against or affecting the Company or any of its subsidiaries or any of their
respective properties which might result, singly or in the aggregate, in a
Material Adverse Effect and, to the best knowledge of the Company, no such
proceedings are contemplated or threatened.

(xix) No action has been taken and no law, statute, rule or
regulation or order has been enacted, adopted or issued by any governmental
agency or body which prevents the execution, delivery and performance of any
of the Operative Documents, the issuance of the Senior Discount Notes, or
suspends the sale of the Senior Discount Notes in any jurisdiction referred
to in Section 4(e); and no injunction, restraining order or other order or
relief of any nature by a federal or state court or other tribunal of
competent jurisdiction has been issued with respect to the Company or any of
its subsidiaries which would prevent or suspend the issuance or sale of the
Senior Discount Notes in any jurisdiction referred to in Section 4(e).

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<PAGE>

(xx) The Company and its subsidiaries have not violated
any applicable existing federal, state, local or foreign laws or regulations
("LAWS") including, but not limited to (i) Laws relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) Laws relating
to discrimination in the hiring, promotion or pay of employees, (iii) wage
and hour Laws and (iv) provisions of the Employee Retirement Income Security
Act of 1974, which in each case would have a Material Adverse Effect.

(xxi) Except as set forth in the Offering Memorandum and
except as would not result, singly or in the aggregate, in a Material Adverse
Effect, the Company and each of its subsidiaries has good and marketable
title, free and clear of all Liens (except (i) Liens for taxes not yet due
and payable and (ii) Liens granted pursuant to or permitted under the Credit
Facility that are in effect on the date hereof, to all property and assets
described in the Offering Memorandum as being owned by it. All leases to
which any of the Company or any of its subsidiaries is a party are valid and
binding and no default has occurred or is continuing, thereunder which would
have a Material Adverse Effect, and the Company and its subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any of the
Company and its subsidiaries is a party as lessee with such exceptions as do
not materially interfere with the use currently made by the Company or such
subsidiary, as the case may be.

(xxii) The accountants, PricewaterhouseCoopers LLP, that
have certified the financial statements and supporting schedules included in
the Offering Memorandum are independent accountants, as required by the Act
and the Exchange Act. The historical financial statements of the Company,
together with related schedules and notes, set forth in the Offering
Memorandum comply as to form in all material respects with the requirements
applicable to registration statements on Form S-1 under the Act.

(xxiii) The historical financial statements of the Company
and its subsidiaries set forth in the Offering Memorandum fairly present the
combined financial position at the respective dates indicated and the results
of operations and cash flows for the respective periods indicated, in
accordance with generally accepted accounting principles in the United States
("GAAP") consistently applied throughout such periods. The other historical
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of the Company.

(xxiv) The historical summary financial and statistical
information and data of Instromedix set forth in the Offering Memorandum
fairly present the financial position at the respective dates indicated and
the results of operations for the respective periods indicated, in accordance
with GAAP consistently applied throughout such periods and was prepared on a

13
<PAGE>

basis consistent with the historical financial statements and the books and
records of Instromedix.

(xxv) All tax returns required to be filed by the Company
or any of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including, without limitation, withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such
entities have been paid, other than those being contested in good faith and
for which adequate reserves have been provided.

(xxvi) The Company and its subsidiaries have complied with
all of the provisions of Florida H.B. 1771, codified as Section 517.075 of
the Florida statutes, and all regulations promulgated thereunder relating to
issuers doing business with the Government of Cuba or with any person or any
affiliate located in Cuba.

(xxvii) The Company and its subsidiaries have all
certificates, consents, exemptions, orders, permits, franchises, licenses,
authorizations, or other approvals (each, an "AUTHORIZATION") of and from,
and have made all declarations and filings with and notices to, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, necessary or required to
own, lease, license, operate and use its properties and assets and to conduct
their business in the manner described in the Offering Memorandum except for
such Authorizations the absence of which would not have a Material Adverse
Effect; all such Authorizations are valid and in full force and effect; the
Company and its subsidiaries are in compliance with the terms and conditions
of all such Authorizations and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with respect
thereto; and neither the Company nor any subsidiary has received any notice,
or has any knowledge or belief (or any basis therefor), that any governmental
body or agency is considering limiting, suspending or revoking any such
Authorization.

(xxviii) The Company has reviewed the effect of Environmental
Laws and the disposal of hazardous or toxic substances or wastes, pollutants
or contaminants on (i) the business, assets, operation and properties of the
Company and its subsidiaries and (ii) the business, assets, operations and
properties of Instromedix prior to its acquisition by ALARIS Medical Systems,
and has identified and evaluated associated costs and liabilities (including,
without limitation, all material capital and operating expenditures required
for clean-up, closure of properties and compliance with Environmental Laws,
all permits, licenses and approvals, all related constraints on operating
activities and all potential liabilities to third parties). On the basis of
such reviews, the Company has reasonably concluded that such associated costs
and liabilities would not have a Material Adverse Effect.

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<PAGE>

(xxix) Neither the Company nor any of its subsidiaries is
(a) an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended,
or (b) a "holding company" or a "subsidiary company" of a holding company or
an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (c) subject to regulation under the
Federal Power Act or any federal or state statute or regulation limiting its
respective ability to incur indebtedness for borrowed money.

(xxx) There are no holders of securities of the Company or
any of its subsidiaries who, by reason of the execution by the Company and
the Significant Subsidiaries of this Agreement, the Instromedix Agreement or
any other Operative Documents or the consummation by the Company and the
Significant Subsidiaries of the transactions contemplated hereby and thereby,
have the right to request or demand that the Company or any of its
subsidiaries register under the Act or analogous foreign laws and regulations
securities held by them.

(xxxi) There are no contracts, agreements or understandings
between the Company or any of its subsidiaries and any person that would give
rise to a valid claim against the Company, its subsidiaries or any Initial
Purchaser for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Notes.

(xxxii) The Company and its subsidiaries own free and clear
of all Liens or have the right to use free and clear of any rights of third
parties that adversely affect such use by the Company and its subsidiaries,
all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service
marks and trade names (collectively, "INTELLECTUAL PROPERTY") material to the
business of the Company and its subsidiaries, taken as a whole. The use of
such Intellectual Property in connection with the business and operations of
the Company and its subsidiaries do not, to the Company's knowledge, infringe
on the rights or claimed rights of any person. No other person is, to the
Company's knowledge, infringing upon any of the Intellectual Property or has
notified the Company or any of its subsidiaries that it is claiming ownership
of, or the right to use any Intellectual Property owned by the Company or its
subsidiaries. The Company and its subsidiaries have taken all reasonable
steps to protect the Intellectual Property from infringement by any other
person, except where the failure to take such steps would not, individually
or in the aggregate, have a Material Adverse Effect. Other than in
connection with the use of so-called "off-the-shelf" software, the License
Agreement between Ralin Medical, Inc. and Instromedix and except as otherwise
disclosed in the Offering Memorandum, the Company and its subsidiaries are
not obligated or under any liability whatsoever to make any payment in excess
of $500,000 per fiscal year, in the aggregate, by way of royalties, fees or
otherwise to any persons

15
<PAGE>

with respect to the use of the Intellectual Property, except that
subsidiaries of the Company may be so obligated to the Company. Except as
otherwise disclosed in the Offering Memorandum, neither the Company nor any
of its subsidiaries has received (i) any notice of infringement of or
conflict with assessed rights of others with respect to any Intellectual
Property or (ii) any notice of an action or proceeding seeking to limit,
cancel or question the validity of any Intellectual Property, which singly or
in the aggregate, if the subject of any unfavorable decision, ruling or
finding, might have a Material Adverse Effect.

(xxxiii) Immediately prior to and upon issuance of the Senior
Discount Notes, (i) the present fair saleable value of the assets of the
Company and it subsidiaries will exceed the amount that will be required to
be paid on or in respect of the existing debts and other liabilities
(including, without limitation, contingent liabilities) of the Company and
its subsidiaries as they become absolute and matured, (ii) the assets of the
Company and its subsidiaries will not constitute unreasonably small capital
to carry out its businesses as conducted or as proposed to be conducted and
(iii) the Company and its subsidiaries do not intend to, nor do they believe
that they will, incur debts beyond its ability to pay such debts as they
mature. The debt incurred in connection with the Instromedix Acquisition,
and the debt represented by the Senior Discount Notes is being incurred, for
proper purposes and in good faith. The Company does not intend to permit any
of its subsidiaries to incur debts or other liabilities beyond their
respective ability to pay such debts and liabilities as they mature.

(xxxiv) Neither the Company nor any of its subsidiaries nor
any agent thereof acting on the behalf of them has taken, and none of them
will take, any action that might cause this Agreement or the issuance or sale
of the Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve System.

(xxxv) Except as would not otherwise be unlawful, the
Company has not (i) taken, directly or indirectly, any action designed to
cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Notes or (ii)
since the date of the Preliminary Offering Memorandum (A) sold, bid for,
purchased, or paid anyone other than the Initial Purchasers any compensation
for soliciting purchases of, the Senior Discount Notes or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.

(xxxvi) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified
in, and meeting the requirements of, Rule 144A(d)(4) under the Act.

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<PAGE>

(xxxvii) No registration under the Act of the Senior Discount
Notes are required for the sale of the Senior Discount Notes to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming (i) that
the purchasers who buy the Senior Discount Notes in the Exempt Resales are
Eligible Purchasers and (ii) the accuracy of the Initial Purchasers'
representations regarding the absence of general solicitation in connection
with the sale of the Senior Discount Notes to the Initial Purchasers and the
Exempt Resales contained herein. No form of general solicitation or general
advertising was used by the Company, its subsidiaries or any of their
respective representatives in connection with the offer and sale of any of
the Senior Discount Notes or in connection with the Exempt Resales,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. No securities of
the same class as the Senior Discount Notes have been issued and sold by the
Company within the six-month period immediately prior to the date hereof.

(xxxviii) Prior to the commencement of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, the Indenture is not
required to be qualified under the Trust Indenture Act of 1939, as amended
(the "TIA").

(xxxix) Each certificate signed by any officer of the
Company and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company
to the Initial Purchasers as to the matters covered thereby.

The Company acknowledges that each of the Initial Purchasers and,
for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 8 hereof, counsel to the Company and the Significant
Subsidiaries, and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations and hereby consents to
such reliance.

(b) Each of the Initial Purchasers, severally and not jointly,
represents and warrants to the Company and agrees that:

(i) Such Initial Purchaser is a QIB with such knowledge
and experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Senior Discount Notes.

(ii) Such Initial Purchaser (i) is not acquiring the
Senior Discount Notes with a view to any distribution thereof that would
violate the Act or the securities laws of any state of the United States or
any other applicable jurisdiction and (ii) will be reoffering and

17
<PAGE>

reselling the Senior Discount Notes only to QIBs in reliance on the exemption
from the registration requirements of the Act.

(iii) No form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) has been or
will be used by any of the Initial Purchasers or any of their respective
representatives in connection with the offer and sale of any of the Senior
Discount Notes, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.

(iv) Each of the Initial Purchasers agrees that, in
connection with the Exempt Resales, it will solicit offers to buy the Senior
Discount Notes only from, and will offer to sell the Senior Discount Notes
only to, Eligible Purchasers. The Initial Purchasers further agree (A) that
they will offer to sell the Senior Discount Notes only to, and will solicit
offers to buy the Senior Discount Notes only from QIBs who in purchasing such
Senior Discount Notes will be deemed to have represented and agreed that they
are purchasing the Senior Discount Notes for their own accounts or accounts
with respect to which they exercise sole investment discretion and that they
or such accounts are QIBs and (B) that such Eligible Purchasers shall
acknowledge and agree that such Senior Discount Notes will not have been
registered under the Act and may be resold, pledged or otherwise transferred
only (i) to the Company, (ii) pursuant to a registration statement which has
been declared effective under the Act, (iii) to a person it reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A
under the Act, (iv) pursuant to offers and sales to non-U.S. persons that
occur outside the United States in a transaction meeting the requirements of
Rule 904 of Regulation S under the Act, (v) to an institutional "accredited
investor" (as defined in Rule 501(a) (1), (2), (3) or (7) of Regulation D
under the Act (an "IAI") that, prior to such transfer, furnishes to the
Trustee a signed letter containing certain representations and agreements
relating to the transfer of the Senior Discount Notes (the form of such
letter is attached to the Indenture) and, if such transfer is in respect of
an aggregate principal amount of Senior Discount Notes less than $250,000, an
opinion of counsel acceptable to the Company that such transfer is in
compliance with the Act or (vi) pursuant to any other available exemption
from the registration requirements of the Act (and based on an opinion of
counsel if the Company so requests) subject in each of the foregoing cases to
the applicable state securities laws of any State of the United States or any
other applicable jurisdiction and (C) that the holder will, and each
subsequent holder is required to, notify any purchaser of the security
evidenced thereby of the resale restrictions set forth in (B) above.

(v) Each Initial Purchaser understands that the Company
and, for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 8 hereof, counsel to the Company and counsel to the
Initial Purchasers will rely upon the accuracy and

18
<PAGE>

truth of the foregoing representations and such Initial Purchaser hereby
consents to such reliance.

6. INDEMNIFICATION.

(a) The Company and each of the Significant Subsidiaries agree,
jointly and severally, to indemnify and hold harmless (i) each of the Initial
Purchasers, (ii) each person, if any, who controls any of the Initial
Purchasers within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and (iii) the respective officers, directors, partners,
employees, representatives and agents of any of the Initial Purchasers or any
controlling person to the fullest extent lawful, from and against any and all
losses, liabilities, claims, damages and expenses whatsoever (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred
in investigating, preparing or defending against any investigation or
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Preliminary Offering Memorandum or the Offering Memorandum, or in any
supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company and its subsidiaries will not be liable in any such
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Initial Purchasers expressly for use
therein. This indemnity agreement will be in addition to any liability which
the Company and the Significant Subsidiaries may otherwise have, including
under this Agreement.

(b) Each Initial Purchaser, severally and not jointly, agrees to
indemnify and hold harmless (i) the Company, (ii) each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, and (iii) the respective officers, directors,
partners, employees, representatives and agents of the Company or any
controlling person, against any losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue

19
<PAGE>

statement or alleged untrue statement of a material fact contained in the
Preliminary Offering Memorandum or the Offering Memorandum, or in any
amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Initial Purchaser expressly for use therein;
PROVIDED, HOWEVER, that in no case shall any Initial Purchaser be liable or
responsible for any amount in excess of the discounts and commissions
received by such Initial Purchaser, as set forth on the cover page of the
Offering Memorandum. This indemnity will be in addition to any liability
which such Initial Purchaser may otherwise have, including under this
Agreement.

(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case (and where the Initial Purchasers are the
indemnified parties, Bear Stearns shall have the right to select such counsel
for the Initial Purchasers), but the fees and expenses of such counsel shall
be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party or parties in connection with the defense of such action,
(ii) the indemnifying party or parties shall not have employed counsel to
take charge of the defense of such action within a reasonable time after
notice of commencement of the action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available
to it or them which are different from or additional to those available to
one or all of the indemnifying parties (in hich case the indemnifying party
or parties shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events such fees
and expenses of counsel shall be borne by the indemnifying party or parties;
PROVIDED, HOWEVER, that the indemnifying party or parties under subsection
(a) or (b) above, shall only be liable for the legal

20
<PAGE>

expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its prior written consent; PROVIDED, HOWEVER, that
such consent was not unreasonably withheld or delayed.

7. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 6 is for
any reason held to be unavailable from the Company and the Significant
Subsidiaries or is insufficient to hold harmless a party indemnified
thereunder, the Company and the Significant Subsidiaries, on the one hand,
and the Initial Purchasers, on the other hand, shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but
after deducting in the case of losses, liabilities, claims, damages and
expenses suffered by the Company and its subsidiaries, any contribution
received by the Company and its subsidiaries from persons, other than the
Initial Purchasers, who may also be liable for contribution, including
persons who control the Company and its subsidiaries within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) to which the
Company, the Significant Subsidiaries and one or all of the Initial
Purchasers may be subject, in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Significant
Subsidiaries, on the one hand, and the Initial Purchasers, on the other hand,
from the offering of the Senior Discount Notes or, if such allocation is not
permitted by applicable law or indemnification is not available as a result
of the indemnifying party not having received notice as provided in Section
6, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Significant Subsidiaries, on the one hand, and the Initial Purchasers, on the
other hand, in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevat equitable considerations. The relative benefits received by the
Company and the Significant Subsidiaries, on the one hand, and the Initial
Purchasers, on the other hand, shall be deemed to be in the same proportion
as (x) the total proceeds from the offering of Senior Discount Notes (net of
discounts but before deducting expenses) received by the Company and (y) the
discounts received by the Initial Purchasers, respectively, in each case as
set forth in the table on the cover page of the Offering Memorandum. The
relative fault of the Company and the Significant Subsidiaries, on the one
hand, and of the Initial Purchasers, on the other hand, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and its
subsidiaries, on the one hand, or the Initial Purchasers, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company,
the Significant Subsidiaries and the Initial Purchasers agree that it

21
<PAGE>

would not be just and equitable if contribution pursuant to this Section 7
were determined by PRO RATA allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
above. Notwithstanding the provisions of this Section 7, (i) in no case
shall any of the Initial Purchasers be required to contribute any amount in
excess of the amount by which the discount applicable to the Senior Discount
Notes purchased by such Initial Purchaser pursuant to this Agreement exceeds
the amount of any damages which such Initial Purchaser has otherwise been
required to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, (A) each
person, if any, who controls any of the Initial Purchasers within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and (B) the
respective officers, directors, partners, employees, representatives and
agents of any of the Initial Purchasers or any controlling person shall have
the same rights to contribution as such Initial Purchaser, and each person,
if any, who controls the Company and its subsidiaries within the meaning of
Section 15 of the Act or Section 20(a) of the Act shall have the same rights
to contribution as the Company and the Significant Subsidiaries, subject in
each case to clauses (i) and (ii) of this Section 7. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
7, notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they
may have under this Section 7 or otherwise. No pary shall be liable for
contribution with respect to any action or claim settled without its prior
written consent; PROVIDED, HOWEVER, that such written consent was not
unreasonably withheld or delayed.

8. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The several
obligations of the Initial Purchasers to purchase and pay for the Senior
Discount Notes, as provided herein, shall be subject to the satisfaction of
each of the following conditions:

(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the date hereof and the Closing
Date, respectively. All of the representations and warranties of the
Company, ALARIS Medical Systems and Instromedix contained in the Instromedix
Agreement shall be true and correct, in all material respects, on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
The Company and the Significant Subsidiaries shall have performed or complied
in all material respects with all of their obligations and agreements herein
contained and required to be performed or complied with by them at or prior
to the Closing Date.

22
<PAGE>

(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers not later than 5:00 p.m., New York City
time, on the day following the date of this Agreement or at such later date
and time as to which the Initial Purchasers may agree in writing and no stop
order suspending the qualification or exemption from qualification of the
Senior Discount Notes in any jurisdiction referred to in Section 4(e) shall
have been issued and no proceeding for that purpose shall have been commenced
or shall be pending, threatened or, to the Company's knowledge, contemplated.

(c) (i) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would as of the Closing Date, prevent the issuance
of the Senior Discount Notes; (ii) no injunction, restraining order or order
of any nature by a federal or state court of competent jurisdiction shall
have been issued as of the Closing Date that would prevent the issuance of
the Senior Discount Notes; and (iii) on the Closing Date, no action, suit or
proceeding shall be pending against or affecting or threatened against the
Company or any of its subsidiaries before any court or arbitrator or any
governmental body, agency or official that, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect.

(d) (i) Since the date of the latest balance sheet in the Offering
Memorandum, there shall not have been any material adverse change, or any
development involving a prospective material adverse change, in the assets,
properties, business, results of operations, condition (financial or
otherwise) or prospects (a "MATERIAL ADVERSE CHANGE") whether or not arising
in the ordinary course of business, of the Company and its subsidiaries,
taken as a whole; (ii) since the date of the latest balance sheet included in
the Offering Memorandum, there shall not have been any material change, or
any development that is reasonably likely to result in a material change, in
the capital stock or in the long-term debt, or material increase in
short-term debt, of the Company and its subsidiaries, taken as a whole, from
that set forth in the Offering Memorandum; and (iii) neither the Company nor
any of its subsidiaries shall have any liability or obligation, direct or
contingent, which is material to the Company, other than (a) the issuance of
$26.0 million of promissory notes by the Company in connection with the
consummation of the Instromedix Acquisition, (b) the assumption by the
Company of indebtedness of Instromedix estimated to be approximately $5.1
million in connection with the consummation of the Instromedix Acquisition or
(c) as otherwise described in the Offering Memorandum.

(e) Since the date of the Offering Memorandum, there shall not
have been any Material Adverse Change in the business and assets acquired in
the Instromedix Acquisition.

(f) The Initial Purchasers shall have received a certificate,
dated the Closing Date, signed by (i) the President and (ii) the principal
financial or accounting officer of the

23
<PAGE>

Company confirming, as of the Closing Date, the matters set forth in
paragraphs (a), (b), (c), (d) and (e) of this Section 8.

(g) On the Closing Date, the Initial Purchasers shall have
received an opinion (satisfactory to the Initial Purchasers and the Initial
Purchasers' counsel), dated the Closing Date, of Gordon Altman Butowsky
Weitzen Shalov & Wein, counsel for the Company and its subsidiaries,
substantially to the effect that:

1. The Company and each of its subsidiaries listed on Schedule D
hereto (the "DOMESTIC SUBSIDIARIES") is a duly organized and validly
existing corporation in good standing under the laws of its jurisdiction
of incorporation, has the requisite corporate power and authority to
own, lease and operate its properties and to conduct its business as it
is currently being conducted and as described in the Offering
Memorandum, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction where the ownership, leasing or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
singly or in the aggregate, have a Material Adverse Effect.

2. The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company. All of the issued and
outstanding shares of capital stock of, or other ownership interests in,
each Domestic Subsidiary are owned of record, directly or indirectly, by
the Company; all such capital stock or other ownership interests have
been duly and validly authorized and issued and are fully paid and
non-assessable and, to the knowledge of such counsel, have not been
issued in violation of any preemptive rights arising as a matter of law.

3. When the Senior Discount Notes are issued and delivered
pursuant to this Agreement, no Senior Discount Note will be of the same
class (within the meaning of Rule 144A under the Act) as securities of
the Company that are listed on a national securities exchange registered
under Section 6 of the Exchange Act or that are quoted in a United
States automated inter-dealer quotation system.

4. Each of the Company and ALARIS Medical Systems had full
corporate power and authority to execute, deliver and perform its
obligations under the Instromedix Agreement and to consummate the
transactions contemplated thereby.

5. Each of the Company and the Significant Subsidiaries has full
corporate power and authority to execute, deliver and perform its
obligations under this Agreement, the Indenture, the Registration Rights
Agreement and the other Operative Documents to which it is a party and
to consummate the transactions contemplated by this Agreement

24
<PAGE>

and the other Operative Documents to which it is a party, and to issue,
sell and deliver the Senior Discount Notes pursuant to this Agreement.

6. This Agreement has been duly authorized and validly executed
and delivered by the Company and the Significant Subsidiaries.

7. The Indenture has been duly authorized and validly executed
and delivered by the Company and assuming due authorization, execution
and delivery thereof by the Trustee, the Indenture constitutes the valid
and legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights generally and to general
principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought
at law or in equity).

8. The Registration Rights Agreement has been duly authorized and
validly executed and delivered by the Company and the Significant
Subsidiaries and, assuming the due execution and delivery thereof by the
Initial Purchasers, the Registration Rights Agreement constitutes the
valid and legally binding agreement of the Company and the Significant
Subsidiaries enforceable against the Company and the Significant
Subsidiaries in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights generally and to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought at law or in equity).

9. The Senior Discount Notes have been duly authorized and
validly executed by the Company and, when issued and authenticated in
accordance with the terms of the Indenture and delivered to and paid for
by the Initial Purchasers in accordance with the terms of this
Agreement, the Senior Discount Notes will be valid and legally binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights generally and to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought at law or in
equity).

10. The Exchange Notes have been duly authorized by the Company
and, when duly executed, issued and authenticated in accordance with the
terms of the Indenture and the Exchange Offer, the Exchange Notes will
be valid and legally binding

25
<PAGE>

obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights generally and to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought at law or in
equity).

11. The Instromedix Agreement has been duly authorized and validly
executed and delivered by the Company and ALARIS Medical Systems and
constitutes a valid and legally binding agreement of the Company and
ALARIS Medical Systems, enforceable against the Company and ALARIS
Medical Systems in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights generally and to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought at law or in equity).

12. No registration under the Act of the Senior Discount Notes is
required for the sale of the Senior Discount Notes to the Initial
Purchasers as contemplated by this Agreement or for the Exempt Resales
assuming (i) each Initial Purchaser is a QIB; (ii) the purchasers who
buy the Senior Discount Notes in the Exempt Resales are Eligible
Purchasers; (iii) the accuracy of the Initial Purchasers'
representations regarding the absence of general solicitation in
connection with the sale of Senior Discount Notes to the Initial
Purchasers and the Exempt Resales contained in this Agreement; and (iv)
the accuracy of the representations in the second sentence of Section
5(a)(xxxvii) of this Agreement.

13. The Senior Discount Notes, the Exchange Notes, the Indenture
and the Registration Rights Agreement conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.

14. Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date and as of the date hereof, and each amendment
or supplement thereto, as of its date and as of the date hereof,
complied with the requirements of Rule 144A(d)(4) of the Act.

15. Neither the Company nor any of its subsidiaries is (a) an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended,
(b) a "holding company" or a "subsidiary company" of a holding company
or an "affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or (c) subject to

26
<PAGE>

regulation under the Federal Power Act or any federal or state statute
or regulation limiting its respective ability to incur indebtedness for
borrowed money.

16. The execution, delivery and performance of this Agreement and
the other Operative Documents and compliance by the Company and the
Significant Subsidiaries with the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will
not (i) require any consent, approval, authorization or order of, or
filing or registration with, any regulatory body, administrative agency
or other governmental agency, other than (1) as may be required under
state securities or "Blue Sky" laws and (2) those that have been
obtained or made; (ii) conflict with any of the respective charters or
bylaws of the Company or any of its Domestic Subsidiaries; (iii)
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default or cause an acceleration of any
obligation under, or result in the imposition or creation of (or the
obligation to create or impose) a Lien with respect to, any agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which it or any of them is bound, or to
which any properties of the Company or any of its subsidiaries is or may
be subject, except for, in the case of this clause (iii), (A) Liens
granted pursuant to or permitted under the Credit Facility that are in
effect on the date hereof and (B) such conflicts, breaches, violations,
defaults, accelerations, impositions and creations as would not,
individually or in the aggregate, have a Material Adverse Effect; (iv)
contravene any order known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; (v) violate or conflict with
any law, statute, published rule or regulation, or administrative or
court decree known to such counsel applicable to the Company or any of
its subsidiaries, or any of their respective properties, or result in
termination or revocation of any material permits or licenses of which
such counsel is aware owned by the Company or any of its subsidiaries;
or (vi) result in the termination or revocation of any material
Authorization of the Company or any of its subsidiaries known to counsel
or result in any other material impairment of the rights of the holder
of any such Authorization.

17. To the knowledge of such counsel, (i) no action has been taken
and no law, statute, rule, regulation or order has been enacted, adopted
or issued by any governmental agency or body that prevents the issuance
of the Senior Discount Notes or suspends the sale of the Senior Discount
Notes in any jurisdiction referred to in Section 4(e) of this Agreement
and (ii) no injunction, restraining order or order of any nature by a
federal or state court or other tribunal of competent jurisdiction has
been issued with respect to the Company or any of its subsidiaries that
would prevent or suspend the issuance or sale of the Senior Discount
Notes in any jurisdiction referred to in Section 4(e) of this Agreement.

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<PAGE>

18. The Indenture conforms as to form in all material respects
with the requirements of the TIA, and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder. It
is not necessary in connection with the offer, sale and delivery of the
Senior Discount Notes to the Initial Purchasers in the manner
contemplated by this Agreement or in connection with the Exempt Resales
to qualify the Indenture under the TIA.

19. The statements in the Offering Memorandum under the captions
"Risk Factors--Significant Leverage;" "Risk Factors--Holding Company
Structure; Dependence Upon Operations of Subsidiaries;" "Risk
Factors--Indenture and Credit Facility Restrictions;" "Risk
Factors--Original Issue Discount; Limitations on Holders' Claims;" "Risk
Factors--Fraudulent Transfer Considerations;" "The Acquisition;"
"Description of Certain Indebtedness;" "Description of Notes;" "Certain
United States Federal Income Tax Consequences;" "Notice to Investors;"
and "Plan of Distribution" insofar as such statements constitute a
summary of the legal matters, documents or proceedings referenced
therein, fairly and accurately present in all material respects the
information set forth therein with respect to such legal matters,
documents and proceedings.

20. To the knowledge of such counsel, except to the extent
described in the Offering Memorandum, there is no action, suit,
proceeding or investigation before or by any court or governmental
agency or body, domestic or foreign, pending against or affecting the
Company or any of its subsidiaries or any of their respective properties
which might result, singly or in the aggregate, in a Material Adverse
Effect.

21. To the knowledge of such counsel, (i) neither the Company nor
any of its Domestic Subsidiaries is in violation of its charter or
bylaws and (ii) except as set forth on Schedule E hereto, neither the
Company nor any of its subsidiaries is in default in the performance of
any term, provision, obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or any
indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of its subsidiaries is a party or
by which any of them is bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject, except for such
defaults as would not, individually or in the aggregate, have a Material
Adverse Effect. However, such counsel calls to your attention that in
connection with the Instromedix Acquisition, Instromedix did not obtain
the consent of Cygnus, Inc., a Delaware corporation, under a certain
Supply Agreement dated September 6, 1996 between Instromedix and Cygnus,
Inc. and a certain Control Module Development Agreement dated May 26,
1995 between Instromedix and Cygnus Therapeutic Systems, Inc., a

28
<PAGE>

California corporation, and such counsel expresses no opinion as to the
effect of the absence of such consent.

In giving their opinion required by this subsection 8(g), Gordon
Altman Butowsky Weitzen Shalov & Wein shall also state that such counsel has
participated in conferences with directors, officers and other
representatives of the Company and its subsidiaries, representatives of the
independent public accountants of the Company and its subsidiaries, the
Initial Purchasers' representatives and counsel for the Initial Purchasers,
in connection with the preparation of the Offering Memorandum and has
considered the matters required to be stated therein and the statements
contained therein and, although such counsel has not independently verified
the accuracy, completeness or fairness of the statements contained in the
Offering Memorandum (other than those that such counsel must opine on
pursuant to paragraph (19) of this subsection 8(g)), such counsel advises you
that, on the basis of the foregoing, no facts have come to such counsel's
attention which led it to believe that the Offering Memorandum (as amended or
supplemented), as of its date or the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements contained therein not
misleading.

The opinion of Gordon Altman Butowsky Weitzen Shalov & Wein shall
be rendered to you at the request of the Company and shall so state therein.

For purposes of the opinion of Gordon Altman Butowsky Weitzen
Shalov & Wein, "Material Adverse Effect" shall mean a material adverse effect
on the assets, liabilities, results of operations, management, condition
(financial or other), properties or business of the relevant person.

(h) On the Closing Date, you shall have received an opinion
(satisfactory to the Initial Purchasers and the Initial Purchasers' counsel),
dated the Closing Date, of McDermott Will & Emery, regulatory counsel for the
Company, substantially to the effect set forth in Exhibit B hereto.

The opinion of McDermott Will & Emery shall be rendered to you at
the request of the Company and shall so state therein.

(i) On the Closing Date, you shall have received an opinion
(satisfactory to the Initial Purchasers and the Initial Purchasers' counsel),
dated the Closing Date, of Fulwider Patton Lee & Utecht, LLP, patent and
trademark counsel for the Company, to the effect set forth in Exhibit C
hereto.

The opinion of Fulwider Patton Lee & Utecht, LLP shall be rendered
to you at the request of the Company and shall so state therein.

29
<PAGE>

(j) You shall have received on the Closing Date the opinion of
Gordon Altman Butowsky Weitzen Shalov & Wein delivered in connection with the
Instromedix Agreement which shall contain a statement or be accompanied by a
letter addressed to you and dated the Closing Date to the effect that you may
rely on such opinion to the same extent as if it were originally addressed to
you.

(k) You shall have received an opinion, dated the Closing Date, of
Latham & Watkins, counsel to the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers.

(l) At the time this Agreement is executed and at the Closing Date
the Initial Purchasers shall have received from PricewaterhouseCoopers, LLP,
independent accountants, dated as of the date of this Agreement and as of the
Closing Date, a customary comfort letter relating to the Company's and
Instromedix's financial statements addressed to the Initial Purchasers and in
form and substance satisfactory to the Initial Purchasers and counsel to the
Initial Purchasers, with respect to such financial statements and certain
financial information contained in the Offering Memorandum.

(m) The Company and the Trustee shall have entered into the
Indenture and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.

(n) The Company, the Significant Subsidiaries and the Initial
Purchasers shall have entered into the Registration Rights Agreement and each
of the Initial Purchasers shall have received an original, duly executed by
each of the Company and the Significant Subsidiaries.

(o) There shall exist at and as of the Closing Date (immediately
after giving effect to the transactions contemplated by this Agreement and
the Instromedix Acquisition) no conditions that would constitute a default
(or an event that with notice or the lapse of time, or both, would constitute
a default) under the Credit Facility or the 9 3/4% Notes. To the extent any
consents or waivers are required from the lenders under the Credit Facility
or pursuant to the 9 3/4% Notes in connection with the transactions
contemplated by this Agreement, any other Operative Document or the
Instromedix Agreement, the Initial Purchasers shall have received copies of
all such consents and waivers in form reasonably satisfactory to the Initial
Purchasers and counsel to the Initial Purchasers.

(p) There shall exist at and as of the Closing Date (immediately
after giving effect to the transactions contemplated by this Agreement) no
conditions that would constitute a default (or an event that with notice or
the lapse of time, or both, would constitute a default) under the Instromedix
Agreement. On or prior to the Closing Date, the Instromedix Acquisition
shall have been consummated on terms that conform in all material respects to
the description

30
<PAGE>

thereof in the Offering Memorandum and the Initial Purchasers shall have
received evidence satisfactory to the Initial Purchasers of the consummation
thereof. The Company shall deliver to the Initial Purchasers copies of all
of filings made with any governmental entity (including, without limitation,
the United States Patent and Trademark Office and the United States Copyright
Office) in order to effect the Instromedix Acquisition, as certified by an
appropriate official thereof, within a reasonable period of time following
the Closing Date.

(q) The Initial Purchasers shall have received copies of all of
the documents and certificates executed or issued in connection with the
consummation of the Instromedix Acquisition and all such documents and
certificates shall be in form reasonably satisfactory to the Initial
Purchasers and counsel to the Initial Purchasers.

(r) On the Closing Date, the Initial Purchasers shall have
received a solvency certificate signed by the Chief Financial Officer
addressed to the Trustee among others and reasonably satisfactory to you as
to the solvency of the Company and its subsidiaries following the
consummation of the transactions contemplated herein and by the Instromedix
Agreement.

(s) On the Closing Date, the Company shall use the proceeds from
the sale of the Senior Discount Notes in the manner described in the Offering
Memorandum under the caption "Use of Proceeds."

(t) The Senior Discount Notes shall have been approved for trading
on PORTAL.

(u) To the extent any consents or waivers are required in
connection with the transactions contemplated by this Agreement, any other
Operative Document or the Instromedix Agreement, the Initial Purchasers shall
have received copies of all such consents and waivers (other than the
consents contemplated by paragraph 21 of Section 8(g)) in form reasonably
satisfactory to the Initial Purchasers and counsel to the Initial Purchasers.

(v) Latham & Watkins shall have been furnished with such documents
and opinions, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 8 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.

(w) Prior to the Closing Date, the Company shall have furnished to
the Initial Purchasers such further information, certificates and documents
as the Initial Purchasers may reasonably request.

31
<PAGE>

(x) The Company shall use a portion of the net proceeds from the
Offering to satisfy all outstanding obligations under the Key Agreement
described on Schedule E hereto.

All opinions, certificates, letters and other documents required by
this Section 8 to be delivered by the Company will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and
substance to the Initial Purchasers. The Company will furnish the Initial
Purchasers with such conformed copies of such opinions, certificates, letters
and other documents as the Initial Purchasers shall reasonably request.

9. INITIAL PURCHASERS' INFORMATION. The Company and the Initial
Purchasers severally acknowledge for all purposes under this Agreement that
the statements with respect to the offering of the Senior Discount Notes set
forth in the last paragraph of the outside of the front cover page; the
stabilization language in the third paragraph on page v; and the third
paragraph, the fifth sentence of the fourth paragraph and the fifth paragraph
under the caption "Plan of Distribution" in such Offering Memorandum
constitute the only information furnished in writing by the Initial
Purchasers expressly for use in the Offering Memorandum.

10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All
representations and warranties, covenants and agreements of the Initial
Purchasers and the Company contained in this Agreement, including the
agreements contained in Sections 4(f) and 12(d), the indemnity agreements
contained in Section 6 and the contribution agreements contained in Section
7, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Initial Purchasers or any
controlling person thereof or by or on behalf of the Company, its
subsidiaries or any controlling person thereof, and shall survive delivery of
and payment for the Senior Discount Notes to and by the Initial Purchasers.
The representations contained in Section 5 and the agreements contained in
Sections 4(f), 6, 7 and 12(d) shall survive the termination of this
Agreement, including any termination pursuant to Section 12.

11. DEFAULTS. If on the Closing Date, any Initial Purchaser shall
fail or refuse to purchase the Senior Discount Notes that it has agreed to
purchase hereunder on such date, and the aggregate principal amount at
maturity of such Senior Discount Notes that such defaulting Initial Purchaser
agreed but failed or refused to purchase does not exceed 10% of the total
aggregate principal amount at maturity of such Senior Discount Notes that all
of the Initial Purchasers are obligated to purchase on such Closing Date, the
non-defaulting Initial Purchaser(s) shall be obligated to purchase the amount
of the Senior Discount Notes that such defaulting Initial Purchaser agreed
but failed or refused to purchase on such date in proportion to the
respective proportions that the aggregate principal amount at maturity of
Senior Discount Notes set forth opposite their respective name(s) in Schedule
A hereto bear to the aggregate principal amount at maturity of Senior
Discount Notes set forth opposite the names of the non-defaulting Initial
Purchaser(s). If, on the Closing Date, any of the Initial Purchasers shall
fail or

<PAGE>

refuse to purchase Senior Discount Notes in an aggregate principal amount at
maturity that exceeds 10% of such total aggregate principal amount at
maturity of the Senior Discount Notes and arrangements satisfactory to the
other Initial Purchaser(s) and the Company for the purchase of such Senior
Discount Notes are not made within 48 hours after such default, this
Agreement shall terminate without liability on the part of the non-defaulting
Initial Purchaser(s) or the Company, except as otherwise provided in Section
12 hereof. In any such case that does not result in termination of this
Agreement, the Initial Purchasers or the Company may postpone the Closing
Date for not longer than seven days, in order that the required changes, if
any, in any documents or arrangements may be effected. Any action taken
under this paragraph shall not relieve a defaulting Initial Purchaser from
liability in respect of any default by any such Initial Purchaser under this
Agreement.

12. EFFECTIVE DATE OF AGREEMENT AND TERMINATION.

(a) This Agreement shall become effective upon the execution and
delivery of this Agreement by the parties hereto.

(b) This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by notice to the Company if any of
the following has occurred: (i) subsequent to the date of this Agreement,
there has been any material adverse change, or any development involving a
prospective material adverse change, in the assets, properties, business,
results of operations, condition (financial or otherwise) or prospects,
whether or not arising in the ordinary course of business, of the Company and
its subsidiaries, taken as a whole that, in the judgment of any Initial
Purchaser, materially impairs the investment quality of the Senior Discount
Notes; (ii) any outbreak or escalation of hostilities or other national or
international calamity or crisis or material adverse change in the financial
markets of the United States or elsewhere, or any other substantial national
or international calamity or emergency, if the effect of such outbreak,
escalation, calamity, crisis or emergency would, in the judgment of any
Initial Purchaser, make it impracticable or inadvisable to market the Senior
Discount Notes or to enforce contracts for the sale of the Senior Discount
Notes; (iii) any suspension or limitation of trading generally in securities
on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter markets or any setting of minimum prices for trading on such
exchange or markets; (iv) any declaration of a general banking moratorium by
either federal or New York authorities; (v) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs that, in the judgment of any Initial Purchaser, has a material
adverse effect on the financial markets in the United States and would, in
the judgment of any Initial Purchaser, make it impracticable or inadvisable
to market the Senior Discount Notes or to enforce contracts for the sale of
the Senior Discount Notes; (vi) the enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority that, in the judgment of any
Initial

33
<PAGE>

Purchaser materially and adversely affects the business or operations of the
Company, or any of its subsidiaries; or (vii) any securities of the Company,
or any of its subsidiaries shall have been downgraded or placed on any "watch
list" for possible downgrading by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the Act);
PROVIDED, HOWEVER, that in the case of such "watch list" placement,
termination shall be permitted only if such placement would, in the judgment
of Bear Stearns, make it impracticable or inadvisable to market the Senior
Discount Notes or to enforce contracts for the sale of the Senior Discount
Notes or materially impair the investment quality of the Senior Discount
Notes.

(c) Any notice of termination pursuant to this Section 12 shall be
by telephone or telephonic facsimile and confirmed in writing by letter.

(d) If this Agreement shall be terminated by the Initial
Purchasers pursuant to paragraph (b) of this Section 12 or because of the
failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Initial Purchasers for all out-of-pocket expenses (including,
without limitation, the fees and disbursements of counsel) incurred by the
Initial Purchasers. Notwithstanding any termination of this Agreement, the
Company shall be liable for all expenses which it has agreed to pay pursuant
to Section 4(f) hereof.

13. NOTICE. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to
the Initial Purchasers shall be mailed, delivered or telecopied and confirmed
in writing to Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation, c/o Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: Corporate
Finance Department, telecopy number: (212) 272-3092, with a copy, which shall
not constitute notice, to Latham & Watkins, Attn: Marc D. Jaffe, 885 Third
Avenue, New York, NY 10022; telecopy number: (212) 751-4864; and if sent to
the Company, shall be mailed, delivered or telecopied and confirmed in
writing to ALARIS Medical, Inc., 10221 Wateridge Circle, San Diego, CA
92121, Attention: Chief Financial Officer; telecopy number: (619) 458-6073,
with a copy, which shall not constitute notice, to Gordon Altman Butowsky
Weitzen Shalov & Wein, Attn: Daniel A. Etna, 114 West 47th Street, New York,
NY 10036-1510; telecopy number: (212) 626-0799.

14. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Initial Purchasers, the Company, the Company's
subsidiaries and the controlling persons and agents referred to in Sections 6
and 7, and their respective successors and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. The term "successors and assigns" shall not include a purchaser,
in its capacity as such, of Senior Discount Notes from the Initial Purchasers.

34
<PAGE>

15. CONSTRUCTION. This Agreement shall be construed in accordance
with the internal laws of the State of New York without giving any effect to
any provisions thereof relating to conflicts of law. TIME IS OF THE ESSENCE
IN THIS AGREEMENT.

16. CAPTIONS. The captions included in this Agreement are
included solely for convenience of reference and are not to be considered a
part of this Agreement.

17. COUNTERPARTS. This Agreement may be executed in various
counterparts which together shall constitute one and the same instrument.

[Signature pages follows]

35
<PAGE>

If the foregoing correctly sets forth the understanding among the
Initial Purchasers, the Company and the Significant Subsidiaries, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among us.

Very truly yours,

ALARIS MEDICAL, INC.

By: /s/ William J. Mercer
--------------------------------
Name: William J. Mercer
Title: President

ALARIS MEDICAL SYSTEMS, INC.

By: /s/ William J. Mercer
--------------------------------
Name: William J. Mercer
Title: President

ALARIS RELEASE CORPORATION

By: /s/ William J. Mercer
--------------------------------
Name: William J. Mercer
Title: President

IVAC OVERSEAS HOLDINGS, INC.

By: /s/ William J. Mercer
--------------------------------
Name: William J. Mercer
Title: President

<PAGE>

Accepted and agreed to
as of the date first above written.

BEAR, STEARNS & CO. INC.

By: /s/ James C. Diao
----------------------------------
Name: James C. Diao
Title: Senior Managing Director
Bear, Stearns & Co. Inc.

BT ALEX. BROWN INCORPORATED

By: /s/ M K Lynch
----------------------------------
Name: M K Lynch
Title: Vice President

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

By: /s/ Laurence E. Paul
----------------------------------
Name: Laurence E. Paul
Title: Senior Vice President

<PAGE>

SCHEDULE A

<TABLE>
<CAPTION>
Initial Purchaser Principal Amount
----------------- ----------------
at Maturity
-----------
<S> <C>
Bear, Stearns & Co. Inc. $103,950,000
BT Alex. Brown Incorporated 42,525,000
Donaldson, Lufkin & Jenrette Securities
Corporation 42,525,000
------------
Total $189,000,000
</TABLE>

S-1
<PAGE>

SCHEDULE B

DIRECT & INDIRECT SUBSIDIARIES OF ALARIS MEDICAL, INC.

1. ALARIS Medical Systems, Inc.
2. ALARIS Medical Australia Pty. Ltd.
3. ALARIS Medical Canada Ltd.
4. Sistemas Medicos ALARIS, S.A. de C.V.
5. ALARIS Consent Corporation
6. ALARIS Foreign Sales Corp.
7. ALARIS Release Corporation
8. IVAC Overseas Holdings, Inc.
9. ALARIS Medical Espana, S.L.
10. ALARIS Medical Holland, B.V.
11. ALARIS Medical France, S.A.
12. ALARIS Medical Belgium B.V.
13. ALARIS Medical Norway A/S
14. ALARIS Medical Italia, S.P.A.
15. ALARIS Medical UK, Ltd.
16. IMED UK, Ltd.
17. IVAC Industries, Ltd.
18. ALARIS Medical Nordic, AB
19. ALARIS Medical Deutschland GmbH

S-2
<PAGE>

SCHEDULE C

SIGNIFICANT SUBSIDIARIES

1. ALARIS Medical Systems, Inc.
2. ALARIS Release Corporation
3. IVAC Overseas Holdings, Inc.

S-3
<PAGE>

SCHEDULE D

DOMESTIC SUBSIDIARIES

1. ALARIS Medical Systems, Inc.
2. ALARIS Release Corporation
3. ALARIS Consent Corporation
4. IVAC Overseas Holdings, Inc.

S-4
<PAGE>

SCHEDULE E

In connection with the Instromedix Acquisition, Instromedix did not
obtain the consent of KeyCorp Leasing, a division of Key Corporate Capital,
Inc. ("Key"), under a Master Equipment Lease Agreement (the "Key Agreement")
between Instromedix and Key dated as of December 12, 1997. Due to the change
of control of Instromedix as a result of the Instromedix Acquisition, an
event of default occurred under the Key Agreement, and Key has given notice
to ALARIS Medical Systems of such default and has requested that ALARIS
Medical Systems immediately satisfy its remaining rental obligations
thereunder of approximately $300,000. Upon receipt of such payment, Key is
required to release its interest in the equipment underlying the Key
Agreement.

S-1
<PAGE>

EXHIBIT A

FORM OF REGISTRATION RIGHTS AGREEMENT

A-1
<PAGE>

EXHIBIT B

REGULATORY COUNSEL OPINION

1. The statements in the Offering Memorandum under the
caption "Business--Government Regulation" and "Business--Government
Regulation--Environmental Matters," insofar as such statements constitute a
summary of portions of (a) the FDCA and regulations of the United States Food
& Drug Administration (the "FDA"), or (b) United States Federal or State of
California laws regarding the protection of the environment and regulations
promulgated thereunder, or of legal documents or proceedings referred to in
such sections involving the foregoing laws and regulations, fairly and
accurately present in all material respects the information set forth therein
with respect to such portions of such laws and regulation and such legal
documents and proceedings.

B-1
<PAGE>

EXHIBIT C

PATENT COUNSEL OPINION

1. In our opinion, the statements in the Offering Memorandum
under the caption "Business--Patents, Trademarks and Proprietary Rights,"
insofar as such statements constitute a summary of legal matters, documents
or proceedings referred to therein, fairly and accurately present in summary
form the information set forth therein with respect to such legal matters,
documents and proceedings.

2. Based upon a review of 35 U.S.C. Section 261 assignments
of the patents acquired from Instromedix are not required to be recorded in
the United States Patent and Trademark Office. However, any such assignment
will be considered void as against a subsequent purchaser or mortgagee for a
valuable consideration without notice unless the assignments are recorded in
the U.S. Patent and Trademark Office within three months of the assignment or
prior to the date of the subsequent purchase or mortgage. We are unaware of
the provisions of the New York Uniform Commercial Code.

3. To the best of our knowledge, the statements in the
Offering Memorandum under the caption "Business--Patents, Trademarks and
Proprietary Rights," as such statements pertain to the number of unexpired
United States patents, both utility and design, which ALARIS will own
(without giving effect to the Instromedix Acquisition), are accurate.

4. Immediately after giving effect to the acquisition of
Instromedix, ALARIS, in our opinion, will own all patents, trademarks,
trademark applications and registrations, service marks, service mark
applications and registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Offering Memorandum as
being owned by Instromedix and ALARIS. We are not aware of any claims to the
contrary or any challenge by any other person to the rights of Instromedix or
ALARIS with respect to the foregoing.

5. To the best of our knowledge and after giving effect to
the acquisition of Instromedix, no security interest or contingent assignment
has been filed or recorded with the United States Patent and Trademark Office
which will remain in effect that pertain to patents and patent applications
of ALARIS or Instromedix (other than those provided pursuant to the Credit
Facility (as defined in the Offering Memorandum)).

6. To the best of our knowledge and after giving effect to
the acquisition of Instromedix, no maintenance fee or annuity due in
connection with any patent or patent applications of Instromedix or ALARIS
has not been paid.

C-1
<PAGE>

7. To the best of our knowledge and after giving effect to
the acquisition of Instromedix, no request for reexamination has been filed
nor has any interference been declared in connection with any of the United
States patent applications of Instromedix or ALARIS.

C-2

<PAGE>

ADVANCED MEDICAL TECHNOLOGIES, INC.

AMENDED BY-LAWS

ARTICLE ONE

STOCKHOLDERS

SECTION 1.1. ANNUAL MEETING. The annual meeting of stockholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly be presented at the meeting shall be held at such
place within or without the State of Delaware as the Board of Directors, the
Chairman of the Board, the Executive Committee, if any, or the President may
fix, at 10 A.M. on the first Tuesday of April in each year, beginning with the
year 1989, or, if that day is a legal holiday in the jurisdiction in which the
meeting is to be held, then on the next following day that is not a legal
holiday.

SECTION 1.2. SPECIAL MEETING. A special meeting of stockholders
may be called for any proper purpose, notice of which was given in the notice
of meeting, at any time by the Board of Directors, the Chairman of the Board,
the Executive Committee, if any, or the President and shall be called by any
of them or by the Secretary upon receipt of a written request to do so
specifying the matter or matters, appropriate for action at such a meeting,
that are proposed to be presented at the meeting, signed by holders of record
of a majority of the shares of stock that would be entitled to be voted on
such matter or matters if the meeting were held on the day such request is
received and the record date for such meeting were the close of business on
the preceding day. Any such meeting shall be held on such date, at such time
and at such place, within or without the State of Delaware, as shall be
determined by the body or person calling such meeting and as shall be stated
in the notice of such meeting.

SECTION 1.3. NOTICE OF MEETING. For each meeting of stockholders
written notice shall be given stating the place, date and hour and the
purpose or purposes for which the meeting is called and, if other than the
place where the meeting is to be held, the place within the city in which the
meeting is to be held where the list of stockholders required by Section 1.9
is to be open for examination at least 10 days prior to the meeting. Except
as otherwise required by Delaware law, the written notice of any meeting
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid,

<PAGE>

directed to the stockholder at his address as it appears on the records of
the Corporation.

SECTION 1.4. QUORUM. Except as otherwise required by law or in
the Certificate of Incorporation, the holders of record of a majority of the
shares of stock entitled to be voted present in person or represented by
proxy at a meeting shall constitute a quorum for the transaction of business
at the meeting, but, in the absence of a quorum, the holders of record
present in person or represented by proxy at such meeting may vote to adjourn
the meeting from time to time until a quorum is obtained.

SECTION 1.5. PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each
meeting of stockholders shall be presided over by the Chairman of the Board
or, in his absence, by the President or, if neither is present, by the person
designated in writing by the Chairman of the Board or, if no such person is
present, then by a person designated by the Board of Directors; if no such
person is present, then the stockholders at the meeting present in person or
represented by proxy shall by plurality vote elect a person to act as
chairman of the meeting. The Secretary, or in his absence an Assistant
Secretary, shall act as secretary of the meeting, or, if no such officer is
present, a secretary of the meeting shall be designated by the chairman of
the meeting.

SECTION 1.6. VOTING. Except as otherwise provided by law or in
the Certificate of Incorporation, and subject to the provisions of Section
1.10:

(a) each stockholder of record shall be entitled at every
meeting of stockholders to one vote for each share standing in his name on
the books of the Corporation;

(b) directors shall be elected by a cumulative vote;

(c) each matter, other than election of directors, properly
presented to any meeting, shall be decided by a majority of the votes cast on
the matter; and

(d) election of directors and the vote on any other matter
presented to a meeting shall be by written ballot only if so ordered by the
chairman of the meeting or if so requested by any stockholder at the meeting
present in person or represented by proxy entitled to vote in such election
or on such matter, as the case may be.

SECTION 1.7. PROXIES. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action
in writing without a meeting may authorize another person or persons to act
for him by proxy,

2
<PAGE>

but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.

SECTION 1.8. ADJOURNED MEETINGS. A meeting of stockholders may
be adjourned to another time or place as provided in Sections 1.4 or 1.6(c).
Unless the Board of Directors fixes a new record date, stockholders of record
for an adjourned meeting shall be as originally determined for the meeting
from which the adjournment was taken. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At the adjourned
meeting, provided a quorum is present, any business may be transacted that
might have been transacted at the meeting as originally called.

SECTION 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. A complete
list of the stockholders entitled to vote at every meeting of stockholders,
arranged in alphabetical order and showing the address of each stockholder
and the number of shares registered in the name of each stockholder, shall be
prepared and shall be open to the examination of any stockholder for any
purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting is to
be held. Such list shall be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present.

SECTION 1.10. FIXING OF RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action. If no record date
is fixed, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held; the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no

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prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; and the record date for any
other purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.

ARTICLE TWO

DIRECTORS

SECTION 2.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.

SECTION 2.2. NUMBER; TERM OF OFFICE. The number of directors
that shall constitute the whole Board of Directors shall be determined by
action of the Board of Directors taken by the affirmative vote of a majority
of the whole Board of Directors or, if the Board of Directors shall not have
taken such action, it shall be the number of directors elected by the sole
incorporator. Directors shall be elected at the annual meeting of
stockholders to hold office, subject to Sections 2.3 and 2.4, until the next
annual meeting of stockholders and until their respective successors are
elected and qualified.

SECTION 2.3. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, the Chairman of the Board, the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time
specified therein or, if no time is specified, upon receipt thereof by the
Board of Directors or one of the above-named officers. Unless specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. When one or more directors shall resign from the Board of
Directors effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall
hold office as provided in these By-Laws in the filling of other vacancies.

SECTION 2.4. REMOVAL. Any one or more directors may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors.

SECTION 2.5. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a vote of a majority of the

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directors then in office, although less than a quorum, or by the sole
remaining director, and the directors so chosen shall hold office, subject to
Sections 2.3 and 2.4, until the next annual meeting of stockholders and until
their respective successors are elected and qualified.

SECTION 2.6. REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such time and at such
place within or without the State of Delaware as the Board of Directors may
from time to time prescribe. No notice need be given of any regular meeting,
and a notice, if given, need not specify the purposes thereof. A meeting of
the Board of Directors may be held without notice immediately after an annual
meeting of stockholders at the same place as that at which such meeting was
held.

SECTION 2.7. SPECIAL MEETINGS; NOTICE. A special meeting of the
Board of Directors may be called at any time by the Board of Directors, the
Chairman of the Board, the Executive Committee, if any, the President or any
person acting in the place of the President and shall be called by any one of
them or by the Secretary upon receipt of a written request to do so
specifying the matter or matters, appropriate for action at such a meeting,
proposed to be presented at the meeting and signed by at least two directors.
Any such meeting shall be held at such time and at such place within or
without the State of Delaware as shall be determined by the body or person
calling such meeting. Notice of such meeting stating the time and place
thereof shall be given (a) by deposit of the notice in the United States
mail, first class, postage prepaid, at least seven days before the day fixed
for the meeting, addressed to each director at his address as it appears on
the Corporation's records or at such other address as the director may have
furnished the Corporation for that purpose, or (b) by delivery of the notice
similarly addressed for dispatch by telegraph, cable or radio or by delivery
of the notice by telephone or in person, in each case at least 24 hours
before the time fixed for the meeting.

SECTION 2.8. PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each
meeting of the Board of Directors shall be presided over by the Chairman of
the Board, or in his absence by the President, if a director, or if neither
is present, by such member of the Board of Directors as shall be chosen by a
majority of the directors present. The Secretary, or in his absence an
Assistant Secretary, shall act as secretary of the meeting, or if no such
officer is present, a secretary of the meeting shall be designated by the
person presiding over the meeting.

SECTION 2.9. QUORUM; VOTING. A majority of the whole Board of
Directors shall constitute a quorum for the

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transaction of business, but in the absence of a quorum a majority of those
present (or if only one by present, then that one) may adjourn the meeting,
without notice other than announcement at the meeting, until such time as a
quorum is present. Except as otherwise required by law, the Certificate of
Incorporation or the By-Laws, the vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.

SECTION 2.10. MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of the
Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participating shall constitute
presence in person at such meeting.

SECTION 2.11. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
of Directors or of such committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or of such committee.

SECTION 2.12. EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate an Executive Committee or one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, including the power to authorize the
seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have such power or authority in reference to amending
the Certificate of Incorporation (except for such amendments as by law are
expressly permitted to be made by committees of the Board of Directors),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the By-Laws; and unless the resolution shall expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. The Board of Directors may designate who, in the absence of
disqualification of a member of members of a committee at a meeting, may
replace such absent or disqualified member or members at such meeting. In
the

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absence of such a designation, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. Each such committee other than the Executive Committee
shall have such name as may be determined from time to time by the Board of
Directors.

SECTION 2.13. COMPENSATION. A director shall receive such
compensation, if any, for his services as a director as may from time to time
be fixed by the Board of Directors, which compensation may be based, in whole
or in part, upon his attendance at meetings of the Board of Directors or of
its committees. He may also be reimbursed for his expenses in attending any
meeting.

SECTION 2.14. APPROVAL OF MATERIAL TRANSACTIONS. The Corporation
shall not enter into any Material Transaction (as hereinafter defined) with
any person ("Control Person") controlling the Corporation or any entity
controlled by such Control Person without the approval of a special committee
of not less than two directors of the Corporation, deemed to be independent
pursuant to or in satisfaction of the rules or policy of the exchange on
which the Corporation's Common Stock is then currently listed (or otherwise
satisfactory to such exchange), appointed to review, negotiate and make
recommendations to the Board of Directors concerning the proposed Material
Transaction, which special committee, in connection with the foregoing,
shall: (i) retain independent legal counsel, at the Corporation's expense, to
advise it with respect to such transaction; and (ii) retain an independent
financial advisor, at the Corporation's expense, to advise it with respect to
such transaction, if such action is determined by the special committee to be
advisable upon consultation with its independent counsel. A "Material
Transaction" shall mean any transaction which has a material effect on the
business, operations, financial condition or prospects of the Corporation.
For this purpose, any transaction involving total payments in excess of $1
million shall be deemed to be material. For purposes of this Section,
"control", as used with respect to any person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management of another person whether through the ownership of voting
securities, by agreement or otherwise.

ARTICLE THREE

OFFICERS

SECTION 3.1. ELECTION; QUALIFICATION. The officers of the
Corporation shall have such titles and duties

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as are set forth in a resolution adopted by the Board of Directors. The
Board of Directors may elect such officers as it may from time to time
determine. Two or more offices may be held by the same person.

SECTION 3.2. TERM OF OFFICE. Each officer shall hold office from
the time of his election and qualification until the expiration of the term
for which he is elected and until the time his successor is elected and
qualified, unless sooner he shall die or resign or shall be removed pursuant
to Section 3.4.

SECTION 3.3. RESIGNATION. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, the Chairman of the Board, the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof by the
Board of Directors or one of the above-named officers. Unless specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.

SECTION 3.4. REMOVAL. Any officer of the Corporation may be
removed at any time, with or without cause, by the vote of a majority of the
whole Board of Directors.

SECTION 3.5. VACANCIES. Any vacancy, however caused, in any
office of the Corporation may be filled by the Board of Directors.

SECTION 3.6. COMPENSATION. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.

SECTION 3.7. THE CHAIRMAN OF THE BOARD. The Chairman of the
Board shall be a member of the Board and shall preside at its meetings and at
all meetings of stockholders. He shall keep in close touch with the
administration of the affairs of the Corporation and supervise its general
policies. He shall see that the acts of the executive officers conform to
the policies of the Corporation as determined by the Board and shall perform
such other duties as may from time to time be assigned to him by the Board.

SECTION 3.8. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of
the Board shall be a member of the Board. In the absence or inability to act
of the Chairman of the Board, the Vice Chairman of the Board shall perform
all the duties and may exercise any of the powers of the Chairman of the
Board. He shall perform such other duties as may from time to time be
assigned to him by the Board.

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SECTION 3.9. THE PRESIDENT. The President shall, subject to the
direction and under the supervision of the Board, be the principal executive
officer of the Corporation and shall have general charge of the business and
affairs of the Corporation and shall keep the Board fully advised. If the
office of Chairman of the Board be vacant or if the Chairman of the Board be
absent, he shall preside at meetings of the stockholders and of the Board.
At the direction of the Board, he shall have power in the name of the
Corporation and on its behalf to execute any and all deeds, mortgages,
contracts, agreements and other instruments in writing. He shall employ and
discharge employees and agents of the Corporation, except such as shall hold
their offices by appointment of the Board, but he may delegate these powers
to other officers as to employees under their immediate supervision. He
shall have such powers and perform such duties as generally pertain to the
office of President, as well as such further powers and duties as may be
prescribed by the Board.

SECTION 3.10. VICE-PRESIDENTS. Each Vice-President shall have
such powers and perform such duties as the Board or the President may from
time to time prescribe, and shall perform such other duties as may be
prescribed in these By-Laws. In the absence or inability to act of the
President, the Vice-President next in order as designated by the Board or, in
the absence of such designation, senior in length of service in such
capacity, who shall be present and able to act, shall perform all the duties
and may exercise any of the powers of the President, subject to the control
of the Board. The performance of any duty by a Vice-President shall be
conclusive evidence of his power to act.

SECTION 3.11. THE TREASURER. The Treasurer shall have the care
and custody of all funds and securities of the Corporation which may come
into his hands and shall deposit the same to the credit of the Corporation in
such bank or banks or other depositary or depositaries as the Board may
designate. He may endorse all commercial documents requiring endorsements
for or on behalf of the Corporation and may sign all receipts and vouchers
for payments made to the Corporation. He shall render an account of his
transactions to the Board as often as it shall require the same and shall at
all reasonable times exhibit his books and accounts to any director; shall
cause to be entered regularly in books kept for that purpose full and
accurate account of all moneys received and disbursed by him on account of
the Corporation. He shall, if required by the Board, give the Corporation a
bond in such sums and with such sureties as shall be satisfactory to the
Board, conditioned upon the faithful performance of his duties and for the
restoration to the Corporation in case of his death, resignation, retirement
or

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removal from office of all books, papers, vouchers, money and other property
of whatever kind in his possession, or under his control, belonging to the
Corporation. He shall have such further powers and duties as are incident to
the position of Treasurer, subject to the control of the Board.

SECTION 3.12. THE SECRETARY. The Secretary shall record the
proceedings of meetings of the Board and of the stockholders in a book kept
for that purpose and shall attend to the giving and serving of all notices of
the Corporation. He shall have custody of the seal of the Corporation and
shall affix the seal to all certificates of shares of stock of the
Corporation (if required by the form of such certificates) and to such other
papers or documents as may be proper and, when the seal is so affixed, he
shall attest the same by his signature wherever required. He shall have
charge of the stock certificate book, transfer book and stock ledger, and
such other books and papers as the Board may direct. He shall, in general,
perform all duties of Secretary, subject to the control of the Board.

SECTION 3.13. ASSISTANT TREASURERS. In the absence or inability
of the Treasurer to act, any Assistant Treasurer may perform all the duties
and exercise all of the powers of the Treasurer, subject to the control of
the Board. The performance of any such duty shall be conclusive evidence of
his power to act. An Assistant Treasurer shall also perform such other
duties as the Treasurer of the Board may from time to time assign to him.

SECTION 3.14. ASSISTANT SECRETARIES. In the absence or inability
of the Secretary to act, any Assistant Secretary may perform all the duties
and exercise all the powers of the Secretary, subject to the control of the
Board. The performance of any such duty shall be conclusive evidence of his
power to act. An Assistant Secretary shall also perform such other duties as
the Secretary of the Board may from time to time assign to him.

SECTION 3.15. OTHER OFFICERS. Other officers shall perform such
duties and have such powers as may from time to time be assigned to them by
the Board.

SECTION 3.16. DELEGATION OF DUTIES. In case of the absence of any
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer, for the time being, the powers or duties,
or any of them, of such officer upon any other officer, or upon any director.

SECTION 3.17. PROXIES IN RESPECT OF SECURITIES OF OTHER
CORPORATIONS. Unless otherwise provided by resolution adopted by the Board,
the President or any Vice-President may from time to time appoint an attorney
or attorneys or an agent or agents to exercise in the name and on behalf of
the

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Corporation the powers and rights which the Corporation may have as the
holder of stock or other securities in any other corporation to vote or to
consent in respect of such stock or other securities, and the President or
any Vice-President may instruct the person or persons so appointed as to the
manner or exercising such powers and rights, and the President or any
Vice-President may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such
written proxies, powers of attorney or other written instruments as he may
deem necessary in order that the Corporation may exercise such powers and
rights.

ARTICLE FOUR

INDEMNIFICATION OF OFFICERS AND DIRECTORS

SECTION 4.1. INDEMNIFICATION. (a) The Corporation shall
indemnify, subject to the requirements of subsection (d) of this Section, any
person who was or 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 (other than an action by or in the
right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person 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 Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

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<PAGE>

director, officer, employee or agent of another corporation, Partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.

(c) To the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b) of
this Section, or in defense of any claim, issue or matter therein, the
Corporation shall indemnify him against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this
Section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this Section. Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.

(e) Expenses incurred by a director, officer, employee or
agent in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation as authorized in this
Section. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate.

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(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Section shall not
limit the Corporation from providing any other indemnification or advancement
of expenses permitted by law nor shall they be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.

(g) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section.

(h) For the purposes of this Section, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.

(i) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to any employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this

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Section.

(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section shall, unless otherwise provided
when authorized or ratified by the Board of Directors, continue as to a
person who has ceased to be a director, officer, employee or agent of the
Corporation and shall incur to the benefit of the heirs, executors and
administrators of such a person.

ARTICLE FIVE

CAPITAL STOCK

SECTION 5.1. STOCK CERTIFICATES. The interest of each holder of
stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe,
provided the Board of Directors may by resolution provide that some or all of
any or all classes or series of its stock shall be uncertificated shares.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of uncertificated shares, upon request, shall be entitled to
receive from the Corporation a certificate representing the number of shares
registered in such stockholder's name on the books of the Corporation. Each
stock certificate and certificate representing previously uncertificated
shares shall be signed by or in the name of the Corporation by the Chairman
of the Board or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all
of the signatures appearing on any such certificate or certificates may be a
facsimile. If any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon any such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.

SECTION 5.2. TRANSFER OF STOCK. Shares of stock of the
Corporation shall be transferable on the books of the Corporation by the
holder of record thereof or by his attorney, pursuant to applicable law and
such rules and regulations as the Board of Directors shall from time to time
prescribe. Any shares represented by a certificate shall be transferable
only upon surrender of the certificate with an assignment endorsed thereon or
attached thereto duly executed and with such proof of authenticity of
signatures as the Corporation may reasonably require.

SECTION 5.3. HOLDERS OF RECORD. Prior to due presentment for
registration of transfer, the Corporation may

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treat the holder of record of a share of its stock as the complete owner
thereof exclusively entitled to vote, to receive notifications and otherwise
entitled to all the rights and powers of a complete owner thereof,
notwithstanding notice to the contrary.

SECTION 5.4. LOST, DESTROYED, MUTILATED OR STOLEN CERTIFICATES.
The Corporation shall issue a new certificate of stock or uncertificated
shares to replace a certificate theretofore issued by it alleged to have been
lost, destroyed, mutilated or stolen, if the owner or his legal
representative (i) submits a written request for the replacement of the
certificate, together with the mutilated certificate or such evidence as the
Board of Directors may deem satisfactory of the loss, destruction or theft of
the certificate, and such request is received by the Corporation before the
Corporation has notice that the certificate has been acquired by a bona fide
purchaser, (ii) files with the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, destruction, mutilation or theft of any such certificate or the
issuance of any such new certificate and (iii) satisfies such other terms and
conditions as the Board of Directors may from time to time prescribe.

ARTICLE SIX

MISCELLANEOUS

SECTION 6.1. ACQUISITIONS. Any acquisition contemplated to be
made by the Corporation, which is not otherwise subject to the vote or
consent of the stockholders of the Corporation, shall be approved by a
majority of the Corporation's directors not having an interest in such
acquisition. This Section 6.1 shall not be further amended or repealed
without appropriate action by the stockholders of the Corporation.

SECTION 6.2. WAIVER OF NOTICE. Whenever notice is required to be
given by the Certificate of Incorporation, the By-Laws or any provision of
the General Corporation Law of the State of Delaware, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time required for such notice, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.

Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of

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directors need be specified in any written waiver of notice.

SECTION 6.3. FISCAL YEAR. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.

SECTION 6.4. CORPORATE SEAL. The corporate seal shall be in such
form as the Board of Directors may from time to time prescribe, and the same
may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.

ARTICLE SEVEN

AMENDMENT OF BY-LAWS

SECTION 7.1. AMENDMENT. The By-Laws may be adopted, amended or
repealed by the stockholders of the Corporation or by the Board of Directors
by a majority vote of the whole Board of Directors.

<PAGE>

ALARIS Medical, Inc.

SERIES A AND SERIES B

11 1/8% SENIOR DISCOUNT NOTES DUE 2008
INDENTURE

----------------------------------

Dated as of July 28, 1998

----------------------------------

U.S. Trust Company of Texas, N.A.

Trustee

---------------

<PAGE>

CROSS-REFERENCE TABLE*

TRUST INDENTURE ACT SECTION INDENTURE SECTION
<S> <C>
310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(i)(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(ii)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(iii(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.03
(iv)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.03
313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.06
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.07
(v)(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.06; 10.02
(vi)(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.06
314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.03; 10.02
(A)(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(vii)(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .NA
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.05, 10.02
(A)(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.11
316 (a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . . .2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.07
(B)(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.12
317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.

</TABLE>

<PAGE>

TABLE OF CONTENTS

PAGE
<S> <C>
`ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . . . 1

SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. . . . . . . . .19
SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . .19

ARTICLE 2. THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 2.03. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . . . . . .21
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . . . . .21
SECTION 2.05. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 2.06. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 2.07. REPLACEMENT NOTES . . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 2.08. OUTSTANDING NOTES . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 2.09. TREASURY NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 2.10. TEMPORARY NOTES . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 2.11. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 2.12. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . . . . .35

ARTICLE 3. REDEMPTION AND PREPAYMENT. . . . . . . . . . . . . . . . . . . . . . .35

SECTION 3.01. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED . . . . . . . . . . . . . . . . .35
SECTION 3.03. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . .36
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . .36
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . . . .37
SECTION 3.06. NOTES REDEEMED IN PART. . . . . . . . . . . . . . . . . . . . . . .37
SECTION 3.07. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 3.08. MANDATORY REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . .38
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS . . . . . . . .38

ARTICLE 4. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

SECTION 4.01. PAYMENT OF NOTES. . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . . . .40
SECTION 4.03. REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
SECTION 4.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . .41
SECTION 4.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
SECTION 4.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . . . . .42
SECTION 4.07. RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . .42
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . .45

i
<PAGE>

SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. . . . .46
SECTION 4.10. ASSET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 4.11. TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . . . . . .50
SECTION 4.12. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 4.13. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 4.14. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . .51
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. . . . . . . . . . . . .51
SECTION 4.16. SALES OF ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . .52
SECTION 4.17. SALE AND LEASEBACK TRANSACTIONS . . . . . . . . . . . . . . . . . .53
SECTION 4.18. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS OF
WHOLLY OWNED RESTRICTED SUBSIDIARIES. . . . . . . . . . . . . . . .53

ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. . . . . . . . . . . . . .54
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . . . . .54

ARTICLE 6. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . .55

SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .56
SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . .57
SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . . . .57
SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . . . . .58
SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . . . .58
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT . . . . . . . . . . .58
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . . . . . . .59
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . . . . .59
SECTION 6.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . . . .60

ARTICLE 7. TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . .60
SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . .62
SECTION 7.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 7.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. . . . . . . . . . . . .62
SECTION 7.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . . . . . . .62
SECTION 7.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . .63
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. . . . . . . . . . . . . . . . . .64
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . . . . .64
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . . . . .65

ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . .65

SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. . . . . .65
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . . . . . .65

ii
<PAGE>

SECTION 8.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . .65
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . . . . .66
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . .67
SECTION 8.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . . . . . . .68
SECTION 8.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .68

ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . .68

SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES . . . . . . . . . . . . . . . .68
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. . . . . . . . . . . . . . . . . .69
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . . . . . . . .70
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . . . . .71
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. . . . . . . . . . . . . . . . . .71
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC . . . . . . . . . . . . . . . . . .71

ARTICLE 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

SECTION 10.01. TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . . . . . .71
SECTION 10.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . .73
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . . . . . .73
SECTION 10.06. RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . . . . . .73
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 10.08. HOLDING COMPANY INDEBTEDNESS . . . . . . . . . . . . . . . . . . .74
SECTION 10.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 10.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . . . . . .74
SECTION 10.11. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 10.12. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 10.13. COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . . . . . .74
SECTION 10.14. TABLE OF CONTENTS, HEADINGS, ETC . . . . . . . . . . . . . . . . .75

</TABLE>
iii
<PAGE>

EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

<PAGE>

INDENTURE dated as of July 28, 1998, between ALARIS Medical, Inc., a
Delaware corporation (the "COMPANY"), and U.S. Trust Company of Texas, N.A. as
trustee (the "TRUSTEE").

The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 11 1/8% Series
A Senior Discount Notes due 2008 (the "SERIES A NOTES") and the 11 1/8% Series B
Senior Discount Notes due 2008 (the "SERIES B NOTES" and, together with the
Series A Notes, the "NOTES"):

ARTICLE 1.

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01. DEFINITIONS.

For purposes of making any determination of any amount under any
single definition set forth in this Section 1.01, such determination shall be
made without double counting of any item; PROVIDED that with respect to the
definition of "Fixed Charge Coverage Ratio" it shall not be deemed to be double
counting if an item is included in the calculation of each of "Consolidated
EBITDA" and "Fixed Charges."

"144A GLOBAL NOTE" means a global note in the form of Exhibit A hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of, and registered in the name of, the Depositary or its
nominee that will be issued in a denomination equal to the outstanding aggregate
principal amount at maturity of the Notes sold in reliance on Rule 144A.

"9 3/4% NOTES" means the 9 3/4% Senior Subordinated Notes due 2006 of
ALARIS Medical Systems issued pursuant to an indenture dated November 26, 1996,
as supplemented, among ALARIS Medical Systems, IMED International Trading Corp.,
IVAC Overseas Holdings Inc. and United States Trust Company of New York, as
trustee.

<PAGE>

in the ordinary course of business in connection with servicing accounts
receivable and (vi) with respect to which neither the Company nor any
Restricted Subsidiary of the Company has any obligation (a) to subscribe for
additional shares of Capital Stock or other Equity Interests therein or make
any additional capital contribution or similar payment or transfer thereto or
(b) to maintain or preserve the solvency or any balance sheet term, financial
condition, level of income or results of operations thereof.

"ACCRETED VALUE" means, as of any date of determination prior to
August 1, 2003, with respect to any Note, the sum of (a) the initial offering
price to investors of such Note and (b) the portion of the excess of the
principal amount of such Note over such initial offering price (which shall be
calculated by discounting the aggregate principal amount at maturity of such
Note at a rate of 11 1/8% per annum, compounded semi-annually on each February 1
and August 1 from August 1, 2003 to the date of issuance) which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at a rate of 11 1/8% per annum of the initial offering price of such Note,
compounded semi-annually on each February 1 and August 1 from the date of
issuance of the Notes through the date of determination, computed on the basis
of a 360-day year of twelve 30-day months.

"ADDITIONAL NOTES" means up to $86.0 million in aggregate principal
amount at maturity of Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof.

"AGENT" means any Registrar, Paying Agent or co-registrar.

"ALARIS MEDICAL SYSTEMS" means ALARIS Medical Systems, Inc., a Wholly
Owned Subsidiary of the Company.

"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.

2
<PAGE>

conveyance or other disposition of all or substantially all of the assets of
the Company and its Subsidiaries taken as a whole will be governed by Section
4.09 hereof and/or the provisions described under Section 5.01 hereof and not
by the provisions of Section 4.10 hereof), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of clauses (i) and (ii), whether
in a single transaction or a series of related transactions (a) that have a
fair market value in excess of $5.0 million or (b) for net proceeds in excess
of $5.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii)
a Restricted Payment that is permitted by Section 4.07 hereof and (iv) the sale
and leaseback of any assets within 90 days of the acquisition of such assets
will not be deemed to be Asset Sales.

"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).

"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

"BOARD OF DIRECTORS" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.

"BUSINESS DAY" means any day other than a Legal Holiday.

"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.

"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the full faith and credit
of the United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of
$500,000,000 and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into

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with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having the highest rating obtainable from
either Moody's Investors Service, Inc. or Standard & Poor's Corporation and, in
each case, maturing within six months after the date of acquisition.

"CEDEL" means Cedel Bank, S.A.

"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
any sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other
than the Principal and his Related Parties; (ii) the adoption of a plan for the
liquidation or dissolution of the Company; (iii) the Company consolidates with,
or merges with or into, another "person" (as defined above) or "group" (as
defined above) in a transaction or series of related transactions in which the
Voting Stock of the Company is converted into or exchanged for cash, securities
or other property, other than any transaction where (A) the outstanding Voting
Stock of the Company is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and (B) either
(1) the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of
the outstanding Voting Stock of the Company immediately prior to such
transaction own beneficially, directly or indirectly through one or more
Subsidiaries, not less than a majority of the total outstanding Voting Stock of
the surviving or transferee corporation immediately after such transaction or
(2) if, immediately prior to such transaction the Company is a direct or
indirect Subsidiary of any other Person (each such other Person, the "Holding
Company"), the "beneficial owners" (as defined above) of the outstanding Voting
Stock of such Holding Company immediately prior to such transaction own
beneficially, directly or indirectly through one or more Subsidiaries, not less
than a majority of the outstanding Voting Stock of the surviving or transferee
corporation immediately after such transaction; (iv) the consummation of any
transaction or series of related transactions (including, without limitation, by
way of merger or consolidation) the result of which is that any "person" (as
defined above) or "group" (as defined above) other than the Principal and his
Related Parties becomes the "beneficial owner" (as defined above) of more than
40% of the voting power of the Voting Stock of the Company, or (v) during any
consecutive two-year period, the first day on which a majority of the members of
the Board of Directors of Parent who were members of the Board of Directors at
the beginning of such period are not Continuing Directors.

"COMPANY" means ALARIS Medical, Inc., and any and all successors
thereto.

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<PAGE>

determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA only
to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income
of such Person.

"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for
any period, the interest expense of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs,
except as set forth in the proviso to this definition, non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, net payments, if any, pursuant to Hedging Obligations and imputed
interest with respect to Attributable Debt; PROVIDED, HOWEVER; that in no event
shall any amortization of deferred financing cost incurred on or prior to the
date of this Indenture in connection with the Credit Facility or any
amortization of deferred financing costs incurred in connection with the
issuance of the Notes be included in Consolidated Interest Expense).

"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED, HOWEVER; that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary thereof in cash, (ii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iii) the cumulative effect of a change in
accounting principles shall be excluded and (iv) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not, at the date of determination, permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders.

"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the relevant Person who (i) was a member of
such Board of Directors on the date of this Indenture, (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) became a member of the Board of Directors as a
result of the actions of the Principal; PROVIDED that at the time the Principal
took any such action, the Principal was the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) in excess of 50% of the Voting Stock of the
Company.

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<PAGE>

"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Company.

"CREDIT AGREEMENTS" means, with respect to the Company and its
Restricted Subsidiaries, one or more debt facilities (including, without
limitation, the Credit Facility) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.

"CREDIT FACILITY" means that certain credit agreement, dated as of
November 26, 1996, by and among the Company, ALARIS Medical Systems, Bankers
Trust Company, as administration agent and syndication agent, Banque Paribas, as
documentation agent and syndication agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and the lenders party thereto,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time (together
with any amendment, modification, renewal, refunding, replacement or refinancing
to or of any of the foregoing (collectively, a "Modification") or to any
Modification, ad infinitum), including, without limitation, any agreement
modifying the maturity or amortization schedule of or refinancing or refunding
all or any portion of the Indebtedness thereunder or increasing the amount that
may be borrowed under such agreement or any successor agreement, whether or not
among the same parties.

"CUSTODIAN" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.

"DEFINITIVE NOTE" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.

"DEPOSITARY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

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<PAGE>

hereof in each case, as designated by a written resolution of the Board of
Directors of the Company filed with the Trustee on or prior to the earlier to
occur of (i) the use of such net cash proceeds and (ii) 180 days from the date
such net cash proceeds are received by the Company. In no event shall the same
net cash proceeds be treated as Designated Equity Proceeds for more than one
purpose under this Indenture. Once designated for a particular purpose, such
net cash proceeds may not be redesignated for an alternative purpose. In
addition, to the extent that any such Qualified Capital Stock ceases to be
outstanding for any reason, any Restricted Payment or Indebtedness that was
made or incurred as a result of the receipt of net cash proceeds from the
issuance of such Qualified Capital Stock shall cease (as of the date on which
such Qualified Capital Stock ceases to be outstanding) to be permitted by
virtue of the issuance of such Qualified Capital Stock.

"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, except to the extent such capital stock is exchangeable into
Indebtedness at the option of the issuer thereof and only subject to the terms
of any debt instrument to which such issuer is a party), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, or convertible or exchangeable into Indebtedness on or prior
to the date on which the Notes mature; PROVIDED, HOWEVER, that any Capital Stock
that would constitute Disqualified Stock solely because the holders thereof have
the right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.

"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $100.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-3" (or higher) according
to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to
Moody's Investor Services, Inc. ("MOODY'S") or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.

"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.

"EXCESS AMOUNT" means, with respect to any Credit Agreement, the
amount by which aggregate payments of principal thereunder exceed the aggregate
payments of principal required to be made through the date of determination, in
respect of any term Indebtedness, under the amortization schedule of such Credit
Agreement.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

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<PAGE>

"EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.

"EXCHANGE OFFER" has the meaning set forth in the Registration Rights
Agreement.

"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set forth in
the Registration Rights Agreement.

"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Credit Facility) in
existence on the date of this Indenture until such amounts are repaid,
including, without limitation, the 9 3/4% Notes.

"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the Consolidated Interest Expense of such Person for such period and
(ii) any interest expense on Indebtedness of another Person that is (A)
guaranteed by the referent Person or one of its Restricted Subsidiaries (whether
or not such guarantee is called upon) or (B) secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Lien is called
upon); PROVIDED THAT with respect to clause (ii)(B), the amount of Indebtedness
(and attributable interest expense) shall be equal to the lesser of (I) the
principal amount of the Indebtedness secured by the assets of such Person or one
of its Restricted Subsidiaries and (II) the fair market value (as determined by
the Board of Directors of such Person and set forth in an Officers' Certificate
delivered to the Trustee) of the assets securing such Indebtedness and (iii) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, TIMES (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.

"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for
any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
or redeems preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but on or prior to
the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) acquisitions that have been
made by the Company or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and shall give
pro forma effect to the Indebtedness and the Consolidated EBITDA of the
Person which is the subject of any such acquisition, (ii) the Consolidated
EBITDA attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP,

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<PAGE>

and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.

"FOREIGN SUBSIDIARY" means any Restricted Subsidiary of the Company
organized and existing under the laws of any jurisdiction outside of the United
States.

"GLOBAL NOTES" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.

"GLOBAL NOTE LEGEND" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.

"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.

"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) other agreements
or arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).

"HOLDER" means a Person in whose name a Note is registered.

"IAI GLOBAL NOTE" means the global Note in the form of Exhibit A
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount at maturity of the Notes sold to Institutional Accredited
Investors.

"INCUR" means, with respect to any Indebtedness (including Acquired
Debt), to create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable for or with respect to, or

9
<PAGE>

become responsible for, the payment of such Indebtedness (including Acquired
Debt); PROVIDED that (i) neither the accrual of interest nor the accretion of
original issue discount shall be considered an incurrence of Indebtedness and
(ii) the assumption of Indebtedness by the surviving entity of a transaction
permitted by the last sentence of Section 5.01 hereof in existence at the time
of such transaction shall not be deemed to be an incurrence of Indebtedness.
The term "incurrence" has a corresponding meaning.

"INDEBTEDNESS" means, with respect to any Person without duplication,
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, or representing any Hedging Obligations if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), the maximum fixed repurchase price of
Disqualified Stock issued by such Person and the liquidation preference of
preferred stock issued by such Person, in each case if held by any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company, and, to
the extent not otherwise included, the Guarantee by such Person of any such
indebtedness of any other Person. The amount of any Indebtedness outstanding as
of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.

"INDENTURE" means this Indenture, as amended or supplemented from time
to time.

"INDIRECT PARTICIPANT" means a Person who holds a beneficial interest
in a Global Note through a Participant.

"INITIAL NOTES" means $189.0 million in aggregate principal amount at
maturity of Notes issued under this Indenture on the date hereof.

"INITIAL SALE" means the first transaction in which accounts
receivable are sold by the Company and/or its Restricted Subsidiaries to an
Accounts Receivable Subsidiary.

"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

"INSTRUMENT CONTRACT" means any contract or agreement to which the
Company or any of its Restricted Subsidiaries is a party pursuant to which the
other party to any such contract or agreement acquires on behalf of itself or
another party instruments from the Company or such Restricted Subsidiary at no
or reduced initial cost by paying a premium (a portion of which is recorded by
the Company in accordance with GAAP as interest income) for subsequent purchases
of disposable administration sets.

"INVESTMENTS" means, with respect to any Person, all investments by
such Person in

10
<PAGE>

other Persons (including Affiliates) in the forms of direct or indirect loans
(including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; PROVIDED that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment. If the Company or any Restricted Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any
direct or indirect Restricted Subsidiary of the Company, or any Restricted
Subsidiary of the Company issues Equity Interests, such that, after giving
effect to any such sale or disposition, such Person is no longer a Restricted
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale, disposition or issuance equal to the
fair market value of the Equity Interests of such Person held by the Company or
such Restricted Subsidiary immediately following any such sale, disposition or
issuance.

"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

"LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.

"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.

"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any

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<PAGE>

related provision for taxes on such gain (but not loss), realized in connection
with (a) any Asset Sale (including, without limitation, dispositions pursuant
to sale and leaseback transactions) or (b) the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries, and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).

"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, amounts required to be applied to the repayment of Indebtedness
(other than long-term Indebtedness of a Restricted Subsidiary of such Person and
Indebtedness under any Credit Agreement) secured by a Lien on the asset or
assets that are the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

"NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that in no
event shall Indebtedness of any Unrestricted Subsidiary fail to be Non-Recourse
Debt solely as a result of any default provisions contained in a guarantee
thereof by the Company or any of its Restricted Subsidiaries if the Company or
such Restricted Subsidiary was otherwise permitted to incur such guarantee
pursuant to this Indenture.

"NON-U.S. PERSON" means a Person who is not a U.S. Person.

"NOTES" has the meaning assigned to it in the preamble to this
Indenture.

"OBLIGATIONS" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.

"OFFERING" means the offering of the Notes by the Company.

"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.

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<PAGE>

"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 10.05 hereof.

"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.

"PARTICIPANT" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).

"PARTICIPATING BROKER-DEALER" has the meaning set forth in the
Registration Rights Agreement.

"PERMITTED BUSINESS" means (i) the same or a similar line of business
as the Company and its Restricted Subsidiaries are engaged in on the date of
this Indenture and (ii) such business activities as are complementary to or are
incidental, ancillary or related to the foregoing.

"PERMITTED INVESTMENTS" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company (including, without limitation, guarantees
of the Indebtedness and/or other Obligations of the Company and/or any
Restricted Subsidiary of the Company, so long as such Indebtedness and/or other
Obligations are permitted under this Indenture), (ii) Investments in Marketable
Securities, (iii) Investments by the Company or any Restricted Subsidiary of the
Company in, or the purchase of the securities of, a Person if, as a result of
such Investment, (a) such person becomes a Restricted Subsidiary of the Company
or (b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company, (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business, (v)
Investments in connection with the sale of medical instruments pursuant to
Instrument Contracts or any leasing of medical instruments in the ordinary
course of business, (vi) any non-cash consideration received in connection with
an Asset Sale that complies with Section 4.10 hereof, (vi) Investments in
connection with Hedging Obligations permitted to be incurred under Section 4.09
hereof, (vii) loans to employees not to exceed $1,000,000 at any time
outstanding and (viii) Investments in an Accounts Receivable Subsidiary received
in consideration of sales of accounts receivable in accordance with Section 4.16
hereof.

"PERMITTED LIENS" means (i) Liens on property of the Company and any
Subsidiary of the Company securing (a) any Credit Agreement, (b) Indebtedness of
any Restricted Subsidiary permitted to be incurred pursuant to Section 4.09
hereof or (c) Hedging Obligations permitted to be incurred under this Indenture;
(ii) Liens in favor of the Company or any of its Restricted Subsidiaries; (iii)
Liens on property of a Person existing at the time such Person is merged with or
into or consolidated with the Company or any Restricted Subsidiary of the
Company; PROVIDED, that such Liens were not incurred in connection with, or in
contemplation of, such merger or consolidation and do not extend to any assets
of the Company or any Restricted Subsidiary of the Company other than the assets
acquired in such merger or consolidation; (iv) Liens on property of a Person
existing at the time such Person

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<PAGE>

becomes a Restricted Subsidiary of the Company; PROVIDED that such Liens were
not incurred in connection with, or in contemplation of, such Person becoming
a Restricted Subsidiary and do not extend to any assets of the Company or any
other Restricted Subsidiary of the Company; (v) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary
of the Company; PROVIDED that such Liens were not incurred in connection
with, or in contemplation of, such acquisition and do not extend to any
assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (vi) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's or other
like Liens, in any case incurred in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate process of law, if a reserve or other appropriate provision, if
any, as is required by GAAP shall have been made therefor; (vii) Liens
existing on the date of this Indenture; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently concluded; PROVIDED that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (ix) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iii) of the second paragraph of Section
4.09 hereof covering only the assets acquired with such Indebtedness or the
assets which are the subject of the sale leaseback transaction, as the case
may be; (x) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations not
constituting Indebtedness for borrowed money that do not exceed $15.0 million
in the aggregate at any one time outstanding; (xi) Liens securing
Indebtedness incurred to refinance Indebtedness that has been secured by a
Lien permitted under this Indenture; PROVIDED that (a) any such Lien shall
not extend to or cover any assets or property not securing the Indebtedness
so refinanced and (b) the refinancing Indebtedness secured by such Lien shall
have been permitted to be incurred under Section 4.09 hereof; (xii) Liens in
favor of the lessee on instruments which are the subject of leases entered
into in the ordinary course of business; PROVIDED that any such Lien shall
not extend to or cover any assets or property of the Company and its
Restricted Subsidiaries that is not the subject of any such lease; (xiii)
Liens in favor of the contracting party in instruments which are the subject
of Instrument Contracts entered into in the ordinary course of business;
PROVIDED that any such Lien shall not extend to or cover any assets or
property of the Company and its Restricted Subsidiaries that is not the
subject of any such Instrument Contract; (xiv) Liens to secure Attributable
Debt that is permitted to be incurred pursuant to Section 4.17 hereof;
PROVIDED that any such Lien shall not extend to or cover any assets of the
Company other than the assets which are the subject of the sale leaseback
transaction in which the Attributable Debt is incurred; and (xv) Liens to
secure the performance of the Company under this Indenture and the Notes.

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<PAGE>

refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is incurred by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.

"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).

"PRINCIPAL" means Jeffry M. Picower.

"PRIVATE PLACEMENT LEGEND" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

"QIB" means a "qualified institutional buyer" as defined in Rule 144A.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Stock.

"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of July 28, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.

"REGULATION S" means Regulation S promulgated under the Securities
Act.

"REGULATION S GLOBAL NOTE" means a global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount at maturity of the Notes
sold in reliance on Rule 904 of Regulation S.

"RELATED PARTY" means, with respect to the Principal, (i) any spouse
or immediate family member of the Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding (directly or through one or more Subsidiaries)
an 80% or more controlling interest of which consist of the Principal and/or
such other Persons referred to in the immediately preceding clause (i).

"REPLACEMENT ASSETS" means (i) a business permitted by Section 4.13
hereof, (ii) a controlling equity interest in any Person engaged in a line of
business permitted by Section 4.13 hereof or (iii) tangible assets, product
distribution rights or intellectual property or rights thereto used in a line of
business permitted by Section 4.13 hereof.

"RESPONSIBLE OFFICER," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other

15
<PAGE>

officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.

"RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the
Private Placement Legend.

"RESTRICTED GLOBAL NOTE" means a Global Note bearing the Private
Placement Legend.

"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.

"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.

"RULE 144" means Rule 144 promulgated under the Securities Act.

"RULE 144A" means Rule 144A promulgated under the Securities Act.

"RULE 903" means Rule 903 promulgated under the Securities Act.

"RULE 904" means Rule 904 promulgated the Securities Act.

"SEC" means the Securities and Exchange Commission.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.

"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.

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<PAGE>

"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

"UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.

"UNRESTRICTED GLOBAL NOTE" means a permanent global Note in the form
of Exhibit A attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.

"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (iii) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 hereof, the Company
shall be in default of such Section 4.09 hereof from the date of such
incurrence). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.09 hereof and (ii) no Default or Event of Default
would be in existence following such designation.

"U.S. PERSON" means a U.S. person as defined in Rule 902(o) under the
Securities Act.

"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).

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<PAGE>

"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.

"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

SECTION 1.02. OTHER DEFINITIONS.

<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Acceleration Notice" . . . . . . . . . . . . . . . . 6.02
"Affiliate Transaction" . . . . . . . . . . . . . . . 4.11
"Asset Sale Offer". . . . . . . . . . . . . . . . . . 3.09
"Authentication Order". . . . . . . . . . . . . . . . 2.02
"Change of Control Offer" . . . . . . . . . . . . . . 4.15
"Change of Control Payment" . . . . . . . . . . . . . 4.15
"Change of Control Payment Date" . . . . . . . . . . 4.15
"Covenant Defeasance" . . . . . . . . . . . . . . . . 8.03
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Financier" . . . . . . . . . . . . . . . . . . . . . 4.16
"Event of Default". . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . 4.10
"Legal Defeasance" . . . . . . . . . . . . . . . . . 8.02
"Mandatory Repayment" . . . . . . . . . . . . . . . . 4.09
"Offer Amount". . . . . . . . . . . . . . . . . . . . 3.09
"Offer Period". . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent". . . . . . . . . . . . . . . . . . . . 2.03
"Payment Default" . . . . . . . . . . . . . . . . . . 6.01
"Promissory Note" . . . . . . . . . . . . . . . . . . 4.16
"Purchase Date" . . . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . 4.07
</TABLE>

18
<PAGE>

SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following
meanings:

"INDENTURE SECURITIES" means the Notes;

"INDENTURE SECURITY HOLDER" means a Holder of a Note;

"INDENTURE TO BE QUALIFIED" means this Indenture;

"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; and

"OBLIGOR" on the Notes means the Company and any successor obligor
upon the Notes.

All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

SECTION 1.04. RULES OF CONSTRUCTION.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;

(3) "or" is not exclusive;

(4) words in the singular include the plural, and in the
plural include the singular;

(5) provisions apply to successive events and transactions;
and

(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the SEC from time to time.

ARTICLE 2.

THE NOTES

SECTION 2.01. FORM AND DATING.

(a) GENERAL. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements

19
<PAGE>

required by law, stock exchange rule or usage. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of $1,000
and integral multiples thereof.

The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.

(b) GLOBAL NOTES. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be
substantially in the form of Exhibit A attached hereto (but without the
Global Note Legend thereon and without the "Schedule of Exchanges of
Interests in the Global Note" attached thereto). Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and
each shall provide that it shall represent the aggregate principal amount at
maturity of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount at maturity of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to
reflect the amount of any increase or decrease in the aggregate principal
amount at maturity of outstanding Notes represented thereby shall be made by
the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.

(c) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of
the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel
Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers
of beneficial interests in the Regulation S Global Notes that are held by
Participants through Euroclear or Cedel Bank.

Section 2.02. Execution and Authentication. IF an Officer whose
signature is on a Note no longer holds that office at the time a Note is
authenticated, the Note shall nevertheless be valid.

A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

The Trustee shall, upon a written order of the Company signed by two
Officers (an "AUTHENTICATION ORDER"), authenticate Notes for issuance up to the
aggregate principal amount at maturity of $275.0 million of which $189.0 million
in aggregate principal amount at maturity will be originally issued as Initial
Notes and up to $86.0 million in aggregate principal amount at maturity may be
issued as Additional Notes. The aggregate principal amount at maturity of Notes
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.

The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.

20
<PAGE>

An authenticating agent has the same rights as an Agent to deal with Holders
or an Affiliate of the Company.

SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange ("REGISTRAR") and an office or agency where Notes may be
presented for payment ("PAYING AGENT"). The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may appoint one
or more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional paying agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee
in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.

The Company initially appoints The Depository Trust Company ("DTC")
to act as Depositary with respect to the Global Notes.

The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global
Notes.

SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.

The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all money held by the Paying Agent for the payment
of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and shall notify the Trustee of any default by the Company in making
any such payment. While any such default continues, the Trustee may require
a Paying Agent to pay all money held by it to the Trustee. The Company at
any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
the Company or a Subsidiary) shall have no further liability for the money.
If the Company or a Subsidiary acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent. Upon any bankruptcy or reorganization proceedings
relating to the Company, the Trustee shall serve as Paying Agent for the
Notes.

SECTION 2.05. HOLDER LISTS.

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
the Holders of Notes and the Company shall otherwise comply with TIA Section
312(a).

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<PAGE>

SECTION 2.06. TRANSFER AND EXCHANGE.

(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act
as Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by
the Company within 120 days after the date of such notice from the Depositary
or (ii) the Company in its sole discretion determines that the Global Notes
(in whole but not in part) should be exchanged for Definitive Notes and
delivers a written notice to such effect to the Trustee. Upon the occurrence
of either of the preceding events in (i) or (ii) above, Definitive Notes
shall be issued in such names as the Depositary shall instruct the Trustee.
Global Notes also may be exchanged or replaced, in whole or in part, as
provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion
thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall
be authenticated and delivered in the form of, and shall be, a Global Note.
A Global Note may not be exchanged for another Note other than as provided in
this Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.

(b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL
NOTES. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions
of this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well
as one or more of the other following subparagraphs, as applicable:

(i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME GLOBAL NOTE.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers described
in this Section 2.06(b)(i).

(ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN
GLOBAL NOTES. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to cause
to be issued a Definitive Note in an amount

22
<PAGE>

equal to the beneficial interest to be transferred or exchanged and (2)
instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Note
shall be registered to effect the transfer or exchange referred to in
(1) above. Upon consummation of an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this Section
2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the
Registrar of the instructions contained in the Letter of Transmittal
delivered by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for transfer
or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities
Act, the Trustee shall adjust the principal amount of the relevant
Global Note(s) pursuant to Section 2.06(h) hereof.

(iii) TRANSFER OF BENEFICIAL INTERESTS TO ANOTHER RESTRICTED GLOBAL
NOTE. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:

(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;

(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and

(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications and certificates and Opinion of
Counsel required by item (3) thereof, if applicable.

(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;

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<PAGE>

(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or

(D) the Registrar receives the following:

(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such
beneficial interest for a beneficial interest in an
Unrestricted Global Note, a certificate from such holder
in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or

(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery
thereof in the form of a beneficial interest in an
Unrestricted Global Note, a certificate from such holder
in the form of Exhibit B hereto, including the
certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.

If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.

Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Note.

(i) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO RESTRICTED
DEFINITIVE NOTES. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:

(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;

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<PAGE>

(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;

(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;

(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;

(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable;

(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or

(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in
the instructions a Definitive Note in the appropriate principal
amount. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall
bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.

(ii) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO UNRESTRICTED
DEFINITIVE NOTES. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:

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<PAGE>

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the
case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating
in the distribution of the Exchange Notes or (3) a Person who
is an affiliate (as defined in rule 144) of the Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;

(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or

(D) the Registrar receives the following:

(1) if the holder of such beneficial interest in a
estricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(b) thereof; or

(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of
a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.

(iii) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO
UNRESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such

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<PAGE>

Notes are so registered. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear
the Private Placement Legend.

(d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL
INTERESTS.

(i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted Definitive Notes to a Person who
takes delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following
documentation:

(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;

(B) if such Restricted Definitive Note is being transferred
to a QIB in accordance with Rule 144A under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;

(C) if such Restricted Definitive Note is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;

(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;

(E) if such Restricted Definitive Note is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3) thereof, if applicable;

(F) if such Restricted Definitive Note is being transferred
to the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or

(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,

the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global

27
<PAGE>

Note, in the case of clause (B) above, the 144A Global Note, in the
case of clause (c) above, the Regulation S Global Note, and in all
other cases, the IAI Global Note.

(ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Restricted Definitive Note to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note
only if:

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;

(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or

(D) the Registrar receives the following:

(1) if the Holder of such Definitive Notes proposes
to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(1)(c) thereof; or

(2) if the Holder of such Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.

Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.

(iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a

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<PAGE>

request for such an exchange or transfer, the Trustee shall cancel the
applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted
Global Notes.

If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.

(e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR
DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such
Holder's compliance with the provisions of this Section 2.06(e), the
Registrar shall register the transfer or exchange of Definitive Notes. Prior
to such registration of transfer or exchange, the requesting Holder shall
present or surrender to the Registrar the Definitive Notes duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his attorney, duly authorized in
writing. In addition, the requesting Holder shall provide any additional
certifications, documents and information, as applicable, required pursuant
to the following provisions of this Section 2.06(e).

(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:

(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;

(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item
(2) thereof; and

(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications, certificates
and Opinion of Counsel required by item (3) thereof, if
applicable.

(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:

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<PAGE>

(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;

(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
or

(D) the Registrar receives the following:

(1) if the Holder of such Restricted Definitive
Notes proposes to exchange such Notes for an Unrestricted
Definitive Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(d)
thereof; or

(2) if the Holder of such Restricted Definitive
Notes proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.

(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note. Upon receipt of a request to register such a transfer, the Registrar
shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.

(f) EXCHANGE OFFER. Upon the occurrence of the Exchange
Offer in accordance with the Registration Rights Agreement, the Company shall
issue and, upon receipt of an Authentication Order in accordance with Section
2.02, the Trustee shall authenticate (i) one or more Unrestricted Global
Notes in an aggregate principal amount equal to the principal amount of the
beneficial interests in the Restricted Global Notes tendered for acceptance
by Persons that certify in the applicable Letters of Transmittal that (x)
they are not broker-dealers, (y) they are not participating in a distribution
of the Exchange Notes and (z) they are not affiliates (as defined in Rule
144) of the Company, and accepted for exchange in the Exchange Offer and (ii)
Definitive Notes in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. Concurrently with the issuance of such Notes, the Trustee
shall cause the aggregate principal amount of the applicable Restricted
Global Notes to be reduced accordingly, and the Company shall execute and the
Trustee shall authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.

(g) LEGENDS. The following legends shall appear on the
face of all Global Notes and Definitive Notes issued under this Indenture
unless specifically stated otherwise in the applicable provisions of this
Indenture.

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<PAGE>

(i) Private Placement Legend.

(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:

"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION."

"THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
(A) OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY
(1) TO THE COMPANY, (2) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (3) TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (5) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a)(1), (2), (3), OR (7) OF RULE 501 UNDER THE
SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT; OR (6) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT (AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THAT IT WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER
OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS."

(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f)
to this Section 2.06 (and all Notes issued in exchange therefor
or substitution thereof) shall not bear the Private Placement
Legend.

(ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in
substantially the following form:

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<PAGE>

"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION
2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN
WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV)
THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE COMPANY."

(iii) ORIGINAL ISSUE DISCOUNT LEGEND. Each Note shall bear a legend
in substantially the following form:

"FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED
WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 AGGREGATE PRINCIPAL
AMOUNT AT MATURITY OF THIS SECURITY, THE ISSUE PRICE IS $581.44,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $418.56, THE ISSUE DATE IS
JULY 28, 1998 AND THE YIELD TO MATURITY IS 11 1/8% PER ANNUM."

(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At
such time as all beneficial interests in a particular Global Note have been
exchanged for Definitive Notes or a particular Global Note has been redeemed,
repurchased or canceled in whole and not in part, each such Global Note shall be
returned to or retained and canceled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note or
for Definitive Notes, the principal amount of Notes represented by such Global
Note shall be reduced accordingly and an endorsement shall be made on such
Global Note by the Trustee or by the Depositary at the direction of the Trustee
to reflect such reduction; and if the beneficial interest is being exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note by
the Trustee or by the Depositary at the direction of the Trustee to reflect such
increase.

(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.

(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.

(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable

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<PAGE>

in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.

(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global Notes
or Definitive Notes surrendered upon such registration of transfer or
exchange.

(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (c) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.

(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.

(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.

(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.

SECTION 2.07. REPLACEMENT NOTES.

If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.

Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

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<PAGE>

SECTION 2.08. OUTSTANDING NOTES.

The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.

If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.

If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

SECTION 2.09. TREASURY NOTES.

In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.

SECTION 2.10. TEMPORARY NOTES.

Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.

Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

SECTION 2.11. CANCELLATION.

The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all

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<PAGE>

canceled Notes shall be delivered to the Company. The Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

SECTION 2.12. DEFAULTED INTEREST.

If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, PROVIDED that no such
special record date shall be less than 10 days prior to the related payment date
for such defaulted interest. At least 15 days before the special record date,
the Company (or, upon the written request of the Company, the Trustee in the
name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.

ARTICLE 3.

REDEMPTION AND PREPAYMENT

SECTION 3.01. NOTICES TO TRUSTEE.

If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.

SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.

If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a PRO RATA basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.

The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in principal amounts at maturity of $1,000 or whole
multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.

35
<PAGE>

SECTION 3.03. NOTICE OF REDEMPTION.

Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.

The notice shall identify the Notes to be redeemed and shall state:

(a) the redemption date;

(b) the redemption price and accrued interest and Liquidated
Damages, if any;

(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount at maturity equal to the unredeemed portion shall be
issued upon cancellation of the original Note;

(d) the name and address of the Paying Agent;

(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;

(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption cease to accrete or
accrue on and after the redemption date;

(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed;
and

(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Notes.

At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (or such shorter period as shall be acceptable to the Trustee),
an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Note shall not affect the validity of the
proceeding for the redemption of any other Note.

SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.

Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption

<PAGE>

price plus accured and unpaid interest and Liquidate Damages, if any, to such
date. A notice of redemption may not be conditional.

SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.

One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company upon
its written request any money deposited with the Trustee or the Paying Agent by
the Company in excess of the amounts necessary to pay the redemption price of
(including any applicable premium), accrued interest on and Liquidated Damages,
if any, all Notes to be redeemed.

If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest and Liquidated Damages, if
any, shall cease to accrue on the Notes or the portions of Notes called for
redemption. If a Note is redeemed on or after an interest record date but on or
prior to the related interest payment date, then any accrued and unpaid interest
and Liquidated Damages, if any, shall be paid to the Person in whose name such
Note was registered at the close of business on such record date. If any Note
called for redemption shall not be so paid upon surrender for redemption because
of the failure of the Company to comply with the preceding paragraph, interest
shall be paid on the unpaid principal, from the redemption date until such
principal is paid, and to the extent lawful on any interest not paid on such
unpaid principal, in each case at the rate provided in the Notes and in Section
4.01 hereof.

SECTION 3.06. NOTES REDEEMED IN PART.

Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.

SECTION 3.07. OPTIONAL REDEMPTION.

(a) Except as provided in clause (b) of this Section 4.07, the Notes
shall not be redeemable at the Company's option prior to August 1, 2003.
Thereafter, the Notes shall be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on August 1 of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . 105.563%
2004 . . . . . . . . . . . . . . . . . . . . . 103.708%
2005 . . . . . . . . . . . . . . . . . . . . . 101.854%
2006 and thereafter. . . . . . . . . . . . . . 100.000%
</TABLE>

(b) Notwithstanding the foregoing, on or prior to August 1, 2001,
the Company on

37
<PAGE>

one or more occasions may redeem up to 35% in aggregate principal amount at
maturity of Notes issued under this Indenture at a redemption price equal to
111.125% of the Accreted Value thereof plus Liquidated Damages, if any,
thereon to the redemption date, with the net cash proceeds of one or more
public or private offerings of common stock of the Company; PROVIDED that at
least 65% in aggregate principal amount at maturity of Notes remain
outstanding immediately after the occurrence of each such redemption; and
PROVIDED, FURTHER; that any such redemption must occur within 90 days of the
date of the closing of any such public or private offering.

(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.

SECTION 3.08. MANDATORY REDEMPTION.

Except as set forth under Sections 3.09, 4.10 and 4.15 hereof, the
Company shall not be required to make any mandatory redemption or sinking fund
payments with respect to the Notes.

SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.

In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "ASSET
SALE OFFER"), it shall follow the procedures specified below.

The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "OFFER PERIOD"). No later than
five Business Days after the termination of the Offer Period (the "PURCHASE
DATE"), the Company shall purchase the principal amount at maturity of Notes
required to be purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.

If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Asset Sale Offer.

Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:

(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;

(b) the Offer Amount, the purchase price and the Purchase Date;

38
<PAGE>

(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrete or accrue interest after the Purchase Date;

(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;

(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, or transfer by book-entry transfer, to the
Company, a Depositary, if appointed by the Company, or a Paying Agent
at the address specified in the notice at least three days before the
Purchase Date;

(g) that Holders shall be entitled to withdraw their election
if the Company, the Depositary or the Paying Agent, as the case may
be, receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;

(h) that, if the aggregate principal amount of Notes at
maturity or Accreted Value (as applicable) surrendered by Holders
exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a PRO RATA basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of
$1,000, or integral multiples thereof, shall be purchased); and

(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).

On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a PRO RATA basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly

39
<PAGE>

mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.

Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

ARTICLE 4.
COVENANTS

SECTION 4.01. PAYMENT OF NOTES.

The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.

The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at the rate equal to 1% per annum in excess of
the then applicable interest rate on the Notes to the extent lawful; it shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful.

SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.

The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.

The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED,
HOWEVER, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.

The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.

40
<PAGE>

SECTION 4.03. REPORTS.

(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to the Holders
of the Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its Restricted Subsidiaries and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case, within the
time periods specified in the Commission's rules and regulations. In addition
following the consummation of the Exchange Offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company shall file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission shall not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. The Company
shall at all times comply with TIA Section 314(a).

(b) For so long as any Notes remain outstanding, it shall furnish to
the Holders of the Notes and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.

(c) The financial information to be distributed to Holders of Notes
shall be filed with the Trustee and mailed to the Holders at their addresses
appearing in the register of Notes maintained by the Registrar, within 120 days
after the end of the Company's fiscal years and within 60 days after the end of
each of the first three quarters of each such fiscal year. The Company shall
provide the Trustee with a sufficient number of copies of all reports and other
documents and information and if requested by the Company the Trustee will
deliver such reports to the Holders under this Section 4.03.

SECTION 4.04. COMPLIANCE CERTIFICATE.

(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture (including with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.07 hereof were computed, which calculations may be based on the
Company's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge each entity has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, interest,
or Liquidated

41
<PAGE>

Damages, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.

(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation, reasonably satisfactory to the
Trustee) that in making the examination necessary for certification of such
financial statements, nothing has come to their attention that would lead them
to believe that the Company has violated any provisions of Article 4 or
Article 5 hereof or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation. In the event that such written statement of
the Company's independent public accountants cannot be obtained, the Company
shall deliver an Officers' Certificate certifying that it has used its best
efforts to obtain such statements and was unable to do so.

(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

SECTION 4.05. TAXES.

The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.

SECTION 4.06. STAY, EXTENSION AND USURY LAWS.

The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

SECTION 4.07. RESTRICTED PAYMENTS.

The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution (including in connection with any merger or consolidation) on
account of any Equity Interests of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for

42
<PAGE>

value any Equity Interests of the Company, any of its Restricted Subsidiaries
or any other Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated in right of payment to the Notes, except at the original final
maturity thereof or in accordance with the scheduled mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of
such Restricted Payment:

(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and

(b) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (v) and (vi) of the next succeeding paragraph), is less
than the sum of (1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture to the end of the Company's
most recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, minus 100% of such deficit), PLUS (2) 100%
of the aggregate net cash proceeds received by the Company after the date of
this Indenture from the issuance and sale of its Qualified Capital Stock to the
extent such net cash proceeds have been, and continue to be, designated as
Designated Equity Proceeds to be added to the cumulative amount calculated
pursuant to this clause (b) as provided in the definition thereof, PLUS (3) 100%
of the aggregate net cash proceeds received by the Company from contributions of
capital or the issue or sale since the date of this Indenture of debt securities
of the Company that have been converted into Equity Interests of the Company
(other than Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt securities
that have been converted into Disqualified Stock), PLUS (4) to the extent that
any Restricted Investment that was made after the date of this Indenture is sold
for cash or otherwise liquidated or repaid for cash, the cash return of capital
with respect to such Restricted Investment (less the cost of disposition, if
any); PROVIDED that no cash proceeds received by the Company from the issue or
sale of any Equity Interests issued by the Company shall be counted in
determining the amount available for Restricted Payments under this clause (b)
to the extent such proceeds were used to redeem, repurchase, retire or acquire
any Equity Interests of the Company pursuant to clause (ii) of the next
succeeding paragraph, to defease, redeem or repurchase any subordinated
Indebtedness pursuant to clause (iii) of the next succeeding paragraph or to
repurchase, redeem or acquire any Equity Interests of the Company pursuant to
clause (iv) of the next succeeding paragraph, and

(c) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof.

The foregoing provisions shall not prohibit any or all of the
following (each and all of which: (1) constitutes an independent exception to
the foregoing provisions and (2) may occur in

43
<PAGE>

addition to any action permitted to occur under any other exception):

(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of this Indenture;

(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net
proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than
Disqualified Stock); PROVIDED that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (b)(2) of the preceding
paragraph;

(iii) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); PROVIDED that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (b)(2) of the preceding
paragraph;

(iv) a Restricted Payment to fund the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company
held by any member of the Company's or any of its Restricted Subsidiaries'
management pursuant to any management equity subscription agreement or
stock option agreement; PROVIDED that (A) the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in any twelve-month period (or $5.0 million in any
single twelve-month period during the term of the Notes) PLUS the aggregate
cash proceeds received by the Company during such twelve-month period from
any reissuance of Equity Interests by the Company to members of management
of the Company and its Restricted Subsidiaries and (B) no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction; PROVIDED that the amount in excess of $2.0 million (or $5.0
million, as the case may be) expended for all such repurchases, redemptions
and other acquisitions and retirements of Equity Interests pursuant to this
clause (iv) in any twelve-month period shall be excluded from clause (b)(2)
of the preceding paragraph;

(v) the payment of dividends by a Restricted Subsidiary on any class
of common stock of such Restricted Subsidiary if such dividend is paid PRO
RATA to all holders of such class of common stock;

(vi) the repurchase of any class of common stock of a Restricted
Subsidiary if such repurchase is made PRO RATA with respect to such class
of common stock;

(vii) any other Restricted Payment (other than (A) a dividend or other
distribution on account of any Equity Interests of the Company or any of
its Restricted Subsidiaries and (B) a purchase, redemption or other
acquisition of any Equity Interests of the Company, any of its Restricted
Subsidiaries or any Affiliate of the Company) if the amount thereof,
together with all other Restricted Payments made pursuant to this clause
(vii) since the date of this Indenture does not exceed $15.0 million; and

44
<PAGE>

(viii) the issuance of cash in lieu of fractional shares of common
stock upon the conversion of the Convertible Debentures into common stock
of the Company.

The Board of Directors may designate any Restricted Subsidiary (other
than ALARIS Medical Systems) to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such designation,
all outstanding Investments by the Company and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated shall be
deemed to be Restricted Payments at the time of such designation and shall
reduce the amount available for Restricted Payments under the first paragraph of
this Section 4.07. All such outstanding Investments shall be deemed to
constitute Restricted Investments in an amount equal to the greater of (i) the
net book value of such Investments at the time of such designation and (ii) the
fair market value of such Investments at the time of such designation. Such
designation shall only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.

Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations
shall be based upon the Company's latest available financial statements.

SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.

The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to: (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries; (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries; or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (a) Existing
Indebtedness, as in effect on the date of this Indenture; (b) the Credit
Facility as in effect on the date of this Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive in the aggregate than those
contained in the Credit Facility as in effect on the date of this Indenture; (c)
any Indebtedness permitted by the terms of this Indenture to be incurred by a
Restricted Subsidiary of the Company; (d) this Indenture, the Notes and the
Exchange Notes; (e) applicable law; (f) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of, such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; PROVIDED that in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred; (g) customary non-assignment provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices; (h) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired; (i) an agreement that has been
entered into for the sale or disposition

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of all or substantially all of the Equity Interests or property or assets of
a Restricted Subsidiary; PROVIDED that such restrictions are limited to the
Restricted Subsidiary that is the subject of such agreement; (j) any
agreement for the sale or other disposition of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale or
other disposition; (k) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to Section 4.12 hereof that limit the right of the Company
or any of its Subsidiaries to dispose of the assets subject to such Lien; (l)
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business; or (m) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.

SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.

The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, incur any Indebtedness (including Acquired Debt) and
the Company shall not issue any Disqualified Stock and shall not permit any of
its Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER; that
the Company may incur Indebtedness or issue shares of Disqualified Stock and the
Company's Restricted Subsidiaries may incur Indebtedness or issue shares of
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or such preferred stock is
issued would have been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock or the
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.

The Company shall not incur Indebtedness that is contractually
subordinated in right of payment to any other Indebtedness of the Company unless
such Indebtedness is also contractually subordinated in right of payment to the
Notes on substantially identical terms; PROVIDED, HOWEVER, that no Indebtedness
of the Company shall be deemed to be contractually subordinated in right of
payment to any other Indebtedness of the Company solely by virtue of being
unsecured.

The foregoing provisions shall not apply to any of the following (each
and all of which may be issued or incurred):

(i) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness and letters of credit pursuant to Credit
Agreements (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company) in an aggregate
principal amount outstanding at any one time not to exceed $325.0 million
(A) LESS the aggregate amount of all mandatory repayments (a "MANDATORY
REPAYMENT") of the principal of any term Indebtedness under any such Credit
Agreement that have been made since the date of this Indenture pursuant to
the amortization schedule of such Credit Agreement (other than any
Mandatory Repayment made concurrently with refinancing or refunding of any
such Credit Agreement) (B) PLUS the Excess Amount and (C) LESS the
aggregate amount of all Net Proceeds of Asset Sales applied pursuant to
clause (b) or (c) of the first sentence of the second paragraph of Section
4.10 hereof to permanently reduce Indebtedness (and, in the case of
revolving Indebtedness, commitments thereunder) under any Credit Agreement
or to cash collateralize letters of credit and permanently reduce
commitments with respect to revolving Indebtedness

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under any Credit Agreement; PROVIDED that the amount of Indebtedness
permitted to be incurred pursuant to Credit Agreements in accordance
with this clause (i) shall be in addition to any Indebtedness permitted
to be incurred pursuant to Credit Agreements or otherwise in reliance
on, and in accordance with, clause (x) below;

(ii) the incurrence by the Company of Indebtedness represented by the
Notes originally issued and the Exchange Notes issued in exchange thereof;

(iii) the incurrence by the Company or a Restricted Subsidiary of the
Company of Indebtedness in connection with the acquisition of a Person (if
as a result of such acquisition, such Person becomes a Wholly Owned
Restricted Subsidiary of the Company that is engaged in a Permitted
Business or is merged into the Company or a Wholly Owned Restricted
Subsidiary), in an amount not to exceed two times the net cash proceeds
received by the Company from the issuance and sale, substantially
concurrently with the incurrence of such Indebtedness, of its Qualified
Capital Stock to the extent that such net cash proceeds have been and
continue to be Designated Equity Proceeds to be used for the purpose of
incurring additional Indebtedness pursuant to this clause (iii) as provided
in the definition thereof; PROVIDED that, to the extent that any such
Qualified Capital Stock ceases to be outstanding for any reason, any
Indebtedness that was incurred as a result of the receipt of net cash
proceeds from the issuance of such Qualified Capital Stock shall cease (as
of the date on which such Qualified Capital Stock ceases to be outstanding)
to be permitted by virtue of this clause (iii); and PROVIDED FURTHER that
the principal amount (or accreted value, as applicable) of such
Indebtedness, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (iii) does not exceed $50.0 million at any time outstanding;

(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (A) represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property used in the business of the
Company or such Restricted Subsidiary, or (B) in connection with sale and
leaseback transactions, in an aggregate principal amount with respect to
clause (iv) not to exceed $20.0 million at any time outstanding; PROVIDED
THAT in no event shall the aggregate principal amount of Indebtedness
incurred pursuant to clause (iv)(B) exceed $5.0 million at any time
outstanding;

(v) Existing Indebtedness;

(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by this Indenture;

(vii) the incurrence by Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER; that (a) any subsequent
issuance or transfer (other than for security purposes) of Equity Interests
and (b) any subsequent sale or other transfer (including for security
purposes other than to secure Indebtedness permitted to be incurred
pursuant to clause (i) of this paragraph) of such Indebtedness, in each
case, that results in any such Indebtedness being held by a Person other
than the Company or any of its Restricted Subsidiaries shall be deemed to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, not permitted pursuant to this
clause (vii);

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(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (a) interest rate risk with respect to any floating rate
Indebtedness of such Person so long as such floating rate Indebtedness is
permitted by the terms of this Indenture to be outstanding or (b) exchange
rate risk with respect to agreements or Indebtedness of such Person payable
or denominated in a currency other than U.S. dollars;

(x) the incurrence or issuance by the Company or any of its Restricted
Subsidiaries of Indebtedness or preferred stock (in addition to
Indebtedness and preferred stock that may be incurred or issued pursuant to
any other clause of this paragraph) in an aggregate principal amount at any
one time outstanding not to exceed $30.0 million;

(xi) the incurrence by any Foreign Subsidiary of Indebtedness and
letters of credit to fund working capital and capital expenditure
requirements (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of such Foreign Subsidiary
thereunder) in an aggregate maximum principal amount at any one time
outstanding not to exceed $15.0 million;

(xii) Obligations in respect of performance and surety bonds provided
by the Company in the ordinary course of business; and

(xiii) the guarantee by the Company or any Restricted Subsidiary of
Indebtedness of the Company or any Restricted Subsidiary that was permitted
to be incurred by another provision of this covenant.

For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories described in clauses (i) through (xiii) above as of the date
of incurrence thereof, or is entitled to be incurred pursuant to the first
paragraph of this Section 4.09 as of the date of incurrence thereof, the Company
shall, in its sole discretion, classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this Section 4.09. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock shall not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this Section 4.09; PROVIDED, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued.

SECTION 4.10. ASSET SALES.

The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the

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consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash and/or Marketable Securities; PROVIDED that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash
for purposes of this provision; PROVIDED FURTHER, that the 75% limitation
referred to above shall not apply to any sale, transfer or other disposition
of assets in which the cash portion of the consideration received therefor is
equal to or greater than the after-tax net cash proceeds that would have been
received by the Company had a transaction involving the same assets complied
with the aforementioned 75% limitation but was not structured with the same
tax benefits as the actual transaction.

Within 367 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or any Restricted Subsidiary may apply such Net Proceeds
(a) to permanently reduce long-term Indebtedness of a Restricted Subsidiary,
(b) to permanently reduce Indebtedness (and, in the case of revolving
Indebtedness, to permanently reduce commitments thereunder) of the Company,
(c) to cash collateralize letters of credit under the Credit Facility and
concurrently therewith permanently reduce commitments under the Credit
Facility by an amount equal to the Net Proceeds applied to such cash
collateralization (PROVIDED that any such cash collateral released to the
Company and/or its Restricted Subsidiaries upon the expiration of such
letters of credit is applied in accordance with clause (a), (b) or (d) of
this sentence not later than the latter to occur of (i) 367 days after the
original receipt of such Net Proceeds and (ii) 90 days after such release),
or (d) to an investment in another business, the making of a capital
expenditure or the acquisition of other tangible assets, product distribution
rights or intellectual property or rights thereto, in each case, in a line of
business permitted Section 4.13 hereof. Any Net Proceeds from Asset Sales
that are not applied or invested as provided in the preceding sentence of
this paragraph shall be deemed to constitute "EXCESS PROCEEDS." When the
aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
be required to make an Asset Sale Offer in compliance with Section 3.09
hereof to purchase the maximum principal amount at maturity of Notes
(including any Additional Notes) that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount at maturity thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (or, in the case
of purchases of Notes prior to August 1, 2003, at a purchase price equal to
100% of the Accreted Value thereof, plus Liquidated Damages thereon, if any,
as of the date of repurchase), in accordance with the procedures set forth in
this Indenture. To the extent that the aggregate principal amount at maturity
or Accreted Value (as applicable) of Notes (including any Additional Notes)
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company or any Restricted Subsidiary may use any remaining Excess
Proceeds for any purpose not prohibited under this Indenture. If the
aggregate principal amount at maturity or Accreted Value (as applicable) of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a PRO RATA basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.

Notwithstanding the two immediately preceding paragraphs, the Company
and the

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Restricted Subsidiaries shall be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration received in connection with such Asset Sale constitutes
Replacement Assets or a combination of Replacement Assets and cash and (ii)
such Asset Sale is for fair market value (which, in the case of any
Replacement Assets the fair market value of which exceeds $5.0 million, shall
be evidenced by the opinion of an accounting, appraisal or investment banking
firm of national standing delivered to the Trustee); PROVIDED that any Net
Proceeds in the form of cash received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
pursuant to this paragraph shall be subject to the provisions of the
immediately preceding paragraph.

The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with provisions
of this Section 4.10, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under this paragraph by virtue thereof.

SECTION 4.11. TRANSACTIONS WITH AFFILIATES.

The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, sell, lease, transfer or othterwise dispose of
any of its properties or assets to, or purchase any property or assets from,
or enter into any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction is on
terms that are no less favorable to the Company or such Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and (iii) such Affiliate
Transaction is approved by a majority of the disinterested members of the
Board of Directors of the Company; PROVIDED that (a) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business of the Company or such Restricted Subsidiary, (b)
transactions between or among the Company and/or its Restricted Subsidiaries,
(c) payment of employee benefits, including bonuses, retirement plans and
stock options, and director fees in the ordinary course of business, (d)
Restricted Payments permitted by clauses (i), (iv), (v) and (vi) of the
second paragraph of Section 4.07 hereof and (e) transactions permitted by
Section 4.16 hereof, in each case, shall not be deemed Affiliate Transactions.

SECTION 4.12. LIENS.

The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under this Indenture and the Notes are
secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.

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SECTION 4.13. LINE OF BUSINESS.

The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to the Company and
its Restricted Subsidiaries taken as a whole.

SECTION 4.14. CORPORATE EXISTENCE.

Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect
(i) its corporate existence, and the corporate, partnership or other
existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of
the Company or any such Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Subsidiaries;
PROVIDED, HOWEVER, that the Company shall not be required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any of its Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its Subsidiaries, taken as a whole, and
that the loss thereof is not adverse in any material respect to the Holders
of the Notes.

SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.

(a) Upon the occurrence of a Change of Control, the Company
shall make an offer (the "CHANGE OF CONTROL OFFER") to each Holder to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (or, in the case
of repurchases of Notes prior to August 1, 2003, at a purchase price equal to
101% of the Accreted Value thereof, plus Liquidated Damages thereon, if any,
as of the date of repurchase) (in either case, the "CHANGE OF CONTROL
PAYMENT"). Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder of Notes stating: (1) that the Change of Control
Offer is being made pursuant to this Section 4.15 and that all Notes tendered
will be accepted for payment; (2) the purchase price and the purchase date,
which shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "CHANGE OF CONTROL PAYMENT DATE"); (3) that
any Note not tendered will continue to accrue or accrete interest, as the
case may be; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue or accrete interest, as the
case may be after the Change of Control Payment Date; (5) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer
will be required to surrender the Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date; (6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and (7) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an

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integral multiple thereof. The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.15, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this paragraph by virtue
thereof.

(b) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with
the Paying Agent an amount equal to the Change of Control Payment in respect
of all Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount at maturity of Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder of Notes a new Note
equal in principal amount at maturity to any unpurchased portion of the Notes
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.

(c) Notwithstanding anything to the contrary in this Section
4.15, the Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in this Section 4.15 and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.

SECTION 4.16. SALES OF ACCOUNTS RECEIVABLE.

The Company may, and any of its Restricted Subsidiaries may,
sell, at any time and from time to time, all of their respective accounts
receivable to an Accounts Receivable Subsidiary; PROVIDED that (i) the cash
received in each such sale is not less than 90% of the aggregate face value
of the receivables sold and the remainder of the consideration received in
each such sale is a promissory note (a "PROMISSORY NOTE") which is
subordinated to no Indebtedness or obligation other than the financial
institution or other entity providing the financing to the Accounts
Receivable Subsidiary with respect to such accounts receivable (a
"FINANCIER"); PROVIDED FURTHER that the Initial Sale will include all
eligible accounts receivable of the Company and/or its Restricted
Subsidiaries that will be party to such arrangements in existence on the date
of the Initial Sale, (ii) the cash proceeds received from the Initial Sale
less reasonable and customary transaction costs will be deemed to be Net
Proceeds and will be applied in accordance with the second paragraph of
Section 4.10 hereof and (iii) the Company and its Restricted Subsidiaries
shall sell their accounts receivable to the Accounts Receivable Subsidiary no
less frequently than on a weekly basis.

The Company (i) shall not permit any Accounts Receivable Subsidiary to
sell any accounts receivable purchased from the Company or any of its Restricted
Subsidiaries to any other Person except on an arms-length basis and solely for
consideration in the form of cash or Marketable Securities, (ii) shall not
permit the Accounts Receivable Subsidiary to engage in any business or

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transaction other than the purchase, financing and sale of accounts
receivable of the Company and its Restricted Subsidiaries and activities
incidental thereto, (iii) shall not permit any Accounts Receivable Subsidiary
to incur Indebtedness in an amount in excess of the book value of such
Accounts Receivable Subsidiary's total assets, as determined in accordance
with GAAP, (iv) shall, at least as frequently as monthly, cause the Accounts
Receivable Subsidiary to remit to the Company as payment on the Promissory
Notes, all available cash or Marketable Securities not held in a collection
account pledged to a Financier, to the extent not applied to pay or maintain
reserves for reasonable operating expenses of the Account Receivable
Subsidiary or to satisfy reasonable minimum operating capital requirements
and (v) shall not, and shall not permit any of its Subsidiaries to, sell
accounts receivable to any Accounts Receivable Subsidiary upon (1) the
occurrence of a Default with respect to the Company and its Restricted
Subsidiaries and (2) the occurrence of certain events of bankruptcy or
insolvency with respect to such Accounts Receivable Subsidiary.

SECTION 4.17. SALE AND LEASEBACK TRANSACTIONS.

The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
PROVIDED that the Company may enter into a sale and leaseback transaction if
(i) the Company could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
(A) the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof and/or (B) clause (iv)(B) of Section 4.09 hereof (as
limited by the proviso to such clause), (ii) the Lien to secure such
Indebtedness does not extend to or cover any assets of the Company other than
the assets which are the subject of the sale leaseback transaction, (iii) the
gross cash proceeds of such sale and leaseback transaction are at least equal
to the fair market value (as determined in good faith by the Board of
Directors of the Company and set forth in an Officers' Certificate delivered
to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iv) the transfer of assets in such sale and
leaseback transaction is permitted by, and the proceeds of such transaction
are applied in compliance with, Section 4.10 hereof.

SECTION 4.18. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS OF WHOLLY
OWNED RESTRICTED SUBSIDIARIES.

The Company (i) shall not, and shall not permit any Restricted
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise
dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of
the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Equity Interests in such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof and (ii) shall not permit any Wholly
Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company.

53
<PAGE>

ARTICLE 5.
SUCCESSORS

SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.

The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving entity), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions to, another Person
unless (i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer,
conveyance or other disposition will have been made assumes all the
obligations of the Company under (1) the Notes and this Indenture pursuant to
a supplemental indenture in form reasonably satisfactory to the Trustee and
(2) the Registration Rights Agreement pursuant to a registration rights
assumption agreement in form reasonably satisfactory to the Initial
Purchasers; (iii) immediately after such transaction, no Default or Event of
Default exists; and (iv) the Company or the Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
conveyance or other disposition will have been made will, at the time of such
transaction after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.09
hereof. This Indenture will also provide that the Company may not, directly
or indirectly, lease all or substantially all of its properties or assets in
one or more related transactions to any Person. The foregoing will not
prohibit a consolidation or merger between the Company and a Wholly Owned
Restricted Subsidiary, the transfer of all or substantially all of the
properties or assets of the Company to a Wholly Owned Restricted Subsidiary
or the transfer of all or substantially all of the properties or assets of a
Wholly Owned Restricted Subsidiary to the Company; PROVIDED that if the
Company is not the surviving entity of such transaction or the Person to
which such transfer is made, the surviving entity or the Person to which such
transfer is made shall comply with clause (ii) of this paragraph.

SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.

Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all
of the assets of the Company in accordance with Section 5.01 hereof, the
successor corporation formed by such consolidation or into or with which the
Company is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted
for (so that from and after the date of such consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation
and not to the Company), and may exercise every right and power of the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; PROVIDED, HOWEVER, that the predecessor
Company shall not be relieved from the obligation to pay the principal of and
interest on the Notes except in the case of a sale of all of the Company's
assets that meets the requirements of Section 5.01 hereof.

54
<PAGE>

ARTICLE 6.
DEFAULTS AND REMEDIES

SECTION 6.01. EVENTS OF DEFAULT.

An "EVENT OF DEFAULT" occurs if:

(a) the Company defaults for 30 days in the payment when due
of interest or Liquidated Damages, if any, with respect to the Notes;

(b) the Company defaults in payment when due of principal or
premium, if any, on the Notes at maturity, upon redemption or otherwise;

(c) the Company fails for 30 days after receipt of notice
from the Trustee or the Holders of at least 25% in principal amount of the
Notes then outstanding to comply with the provisions described under Sections
4.07, 4.09, 4.10, 4.15, 4.16, 4.17 or 5.01 hereof;

(d) the Company fails for 60 days after notice from the
Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with its other agreements in this Indenture and the
Notes;

(e) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of this Indenture, which default (a)
is caused by a failure to pay when due at final stated maturity (giving
effect to any grace period related thereto) principal of (a "PAYMENT
DEFAULT") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any such Indebtedness
under which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $15.0 million or more;

(f) the Company or any of its Restricted Subsidiaries fails
to pay final judgments (to the extent not covered by insurance and as to
which the insurer has not acknowledged coverage in writing) aggregating in
excess of $15.0 million, which judgments are not paid, fully bonded,
discharged or stayed within 60 days after their entry;

(g) the Company or any Restricted Subsidiary of the Company
that is a Significant Subsidiary or group of Restricted Subsidiaries of the
Company that, together, would constitute a Significant Subsidiary pursuant to
or within the meaning of Bankruptcy Law:

(i) commences a voluntary case,

(ii) consents to the entry of an order for relief
against it in an involuntary case,

(iii) consents to the appointment of a Custodian
of it or for all or

55
<PAGE>

substantially all of its property,

(iv) makes a general assignment for the benefit
of its creditors, or

(v) generally is not paying its debts as they
become due; or

(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:

(i) is for relief against the Company or any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
group of Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary in an involuntary case;

(ii) appoints a Custodian of the Company or any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
group of Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary or for all or substantially all of
the property of the Company or any Restricted Subsidiary of the Company
that is a Significant Subsidiary or group of Restricted Subsidiaries of
the Company that, together, would constitute a Significant Subsidiary; or

(iii) orders the liquidation of the Company or any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
group of Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary;

and the order or decree remains unstayed and in effect for 60 consecutive
days.

To the extent that the last day of the period referred to in clauses
(a), (c), (d) or (f) of the immediately preceding paragraph is not a
Business Day, then the first Business Day following such day shall be
deemed to be the last day of the period referred to in such clauses. Any
"day" shall be deemed to end as of 11:59 p.m., New York City time.

SECTION 6.02. ACCELERATION.

If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof with respect to the
Company, any Restricted Subsidiary of the Company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that, together,
would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable by notice
in writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "ACCELERATION
NOTICE"), and the same shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default specified
in clause (g) or (h) of Section 6.01 occurs with respect to the Company, any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
group of Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary, all outstanding Notes will become due
and payable without further action or notice. Upon any acceleration of
maturity of the Notes, all principal of and accrued interest on and
Liquidated Damages, if any (if on or after August 1, 2003) or Accreted Value
and Liquidated

56
<PAGE>

Damages, if any (if prior to August 1, 2003), of the Notes shall be due and
payable immediately. The Holders of a majority in aggregate principal amount
of the then outstanding Notes by written notice to the Trustee may on behalf
of all of the Holders rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal, interest or premium that
has become due solely because of the acceleration) have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of interest or premium on, or principal of, the Notes.

If an Event of Default occurs on or after August 1, 2003 by
reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding payment of the premium
that the Company would have had to pay if the Company then had elected to
redeem the Notes pursuant to Section 4.07 hereof, then upon acceleration of
the Notes, an equivalent premium shall also become and be immediately due and
payable, to the extent permitted by law, anything in this Indenture or in the
Notes to the contrary nothwithstanding. If an Event of Default occurs prior
to August 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to August 1, 2003, then, upon
acceleration of the notes, an additional premium shall also become and be
immediately due and payable in an amount, for each of the years beginning on
August 1 of the years set forth below, as set forth below (expressed as a
percentage of the Accreted Value to the date of payment that would otherwise
be due but for the provisions of this sentence):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . 114.838%
1999 . . . . . . . . . . . . . . . . . . . . . 112.983%
2000 . . . . . . . . . . . . . . . . . . . . . 111.128%
2001 . . . . . . . . . . . . . . . . . . . . . 109.273%
2002 . . . . . . . . . . . . . . . . . . . . . 107.418%
</TABLE>
SECTION 6.03. OTHER REMEDIES.

If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium,
if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.

SECTION 6.04. WAIVER OF PAST DEFAULTS.

Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf
of the Holders of all of the Notes waive an existing Default

57
<PAGE>

or Event of Default and its consequences hereunder, except a continuing
Default or Event of Default in the payment of the principal of, premium and
Liquidated Damages, if any, or interest on, the Notes (including in
connection with an offer to purchase) (PROVIDED, HOWEVER, that the Holders of
a majority in aggregate principal amount of the then outstanding Notes may
rescind an acceleration and its consequences, including any related payment
default that resulted from such acceleration). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but
no such waiver shall extend to any subsequent or other Default or impair any
right consequent thereon.

SECTION 6.05. CONTROL BY MAJORITY.

Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of other Holders
of Notes or that may involve the Trustee in personal liability.

SECTION 6.06. LIMITATION ON SUITS.

A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:

(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;

(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;

(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;

(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and

(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.

A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.

SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.

Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the
respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected without
the consent of such Holder.

58
<PAGE>

SECTION 6.08. COLLECTION SUIT BY TRUSTEE.

If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in
its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and,
to the extent lawful, interest and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.

SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.

The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the Notes allowed in any judicial proceedings
relative to the Company (or any other obligor upon the Notes), its creditors
or its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.

SECTION 6.10. PRIORITIES.

If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:

FIRST: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;

SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages,
if any and interest, respectively; and

59
<PAGE>

THIRD: to the Company or to such party as a court of
competent jurisdiction shall direct.

The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.

SECTION 6.11. UNDERTAKING FOR COSTS.

In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders
of more than 10% in principal amount of the then outstanding Notes.

ARTICLE 7.
TRUSTEE

SECTION 7.01. DUTIES OF TRUSTEE.

(a) If an Event of Default has occurred and is continuing of
which it has knowledgte, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.

(b) Except during the continuance of an Event of Default:

(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture or the TIA and the Trustee need
perform only those duties that are specifically set forth in this
Indenture or the TIA and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.

(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;

(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and

<PAGE>

(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.

(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.

(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

SECTION 7.02. RIGHTS OF TRUSTEE.

(a) The Trustee may conclusively rely on the truth of the statements
and correctness of the opinions contained in and shall be protected from acting
or refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel. Prior to taking, suffering
or admitting any action the Trustee may consult with counsel of the Trustee's
own choosing and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.

(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.

<PAGE>

SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.

The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.

SECTION 7.04. TRUSTEE'S DISCLAIMER.

The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

SECTION 7.05. NOTICE OF DEFAULTS.

If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Note pursuant to Section
6.01(a) or (b) hereof, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.

SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.

Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).

A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Company has informed the Trustee in writing the Notes are
listed in accordance with TIA Section 313(d). The Company shall promptly notify
the Trustee when the Notes are listed on any stock exchange and of any delisting
thereof.

SECTION 7.07. COMPENSATION AND INDEMNITY.

The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. To
the extent lawful, the Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall

<PAGE>

reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation
for its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.

The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.

The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.

To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, interest
and Liquidated Damages, if any, on particular Notes. Such Lien shall survive
the satisfaction and discharge of this Indenture and the resignation or removal
of the Trustee. The Trustee's right to receive payment of any amounts due under
this Section 7.07 shall not be subordinate to any other Company Indebtedness.

When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.

SECTION 7.08. REPLACEMENT OF TRUSTEE.

A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.

The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:

(a) the Trustee fails to comply with Section 7.10 hereof;

<PAGE>

(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;

(d) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, PROVIDED
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.

SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.

If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.

There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).

<PAGE>

SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

ARTICLE 8.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.

The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.

SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.

Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders
of outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal amount at maturity or Accreted Value (as applicable) of, premium,
if any, and interest on such Notes when such payments are due, (b) the Company's
obligations with respect to such Notes under Article 2 and Section 4.02 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article
Eight. Subject to compliance with this Article Eight, the Company may exercise
its option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.

SECTION 8.03. COVENANT DEFEASANCE.

Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant

<PAGE>

Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision
herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04
hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events
of Default.

SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.

The following shall be the conditions to the application of either

Section 8.02 or 8.03 hereof to the outstanding Notes:

In order to exercise either Legal Defeasance or Covenant Defeasance:

(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal amount at maturity or Accreted Value (as
applicable) of, premium and Liquidated Damages, if any, and interest on the
outstanding Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be and the Company must specify whether the
Notes are being defeased to maturity or a particular redemption date;

(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes shall not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same time as would
have been the case if such Legal Defeasance had not occurred;

(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes shall not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and shall be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred;

(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article Eight

<PAGE>

concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;

(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;

(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;

(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and

(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.

SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.

Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"TRUSTEE") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the written
request of the Company and be relieved of all liability with respect to any
money or non-callable Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the

<PAGE>

opinion delivered under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.

SECTION 8.06. REPAYMENT TO COMPANY.

Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, and premium, if any, interest or Liquidated
Damages, if any, has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Note shall thereafter, as a secured creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in the New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining shall be repaid to the Company.

SECTION 8.07. REINSTATEMENT.

If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any
payment of principal of, premium, if any, interest or Liquidated Damages, if
any, on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.

ARTICLE 9.

AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.

Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Notes without the consent of any
Holder of a Note:

(a) to cure any ambiguity, defect or inconsistency;

(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;

<PAGE>

(c) to provide for the assumption of the Company's obligations to
the Holders of the Notes by a successor to the Company pursuant to Article 5
hereof;

(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;

(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or

(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof;

Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution of
any amended or supplemental Indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental Indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.

SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.

Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture and the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes (including Additional Notes, if any) voting
as a single class (including, without limitation, consents obtained in
connection with a purchase of, tender offer or exchange offer for the Notes),
and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes
(including Additional Notes, if any) voting as a single class (including,
without limitation, consents obtained in connection with a purchase of, tender
offer or exchange offer for the Notes).

Without the consent of the Holders of at least two-thirds in principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, tender offer or exchange offer for
the Notes), no waiver or amendment to this Indenture may make any change in the
provisions of Sections 3.09, 4.10 or 4.15 hereof that adversely affect the
rights of any Holder of Notes. Section 2.08 hereof shall determine which Notes
are considered to be "outstanding" for purposes of this Section 9.02.

Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with

<PAGE>

the Company in the execution of such amended or supplemental Indenture unless
such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.

It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.

After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes (including Additional Notes,
if any) then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):

(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;

(b) reduce the principal amount at maturity of or change the fixed
maturity of any Note, alter the provisions with respect to the redemption of the
Notes (except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof) or amend or modify the calculation of Accreted Value so as to reduce the
amount of the Accreted Value of the Notes;

(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes including
Additional Notes, if any, and a waiver of the payment default that resulted from
such acceleration);

(e) make any Note payable in money other than that stated in the
Notes;

(f) waive a redemption or repurchase payment with respect to any
Note; or

(g) make any change in Section 6.04 or 6.07 or in the foregoing
amendment and waiver provisions of this Article 9.

SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.

Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.

<PAGE>

SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.

Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.

The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.

The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 11.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.

ARTICLE 10.

MISCELLANEOUS

SECTION 10.01. TRUST INDENTURE ACT CONTROLS.

If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.

SECTION 10.02. NOTICES.

Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address

<PAGE>

If to the Company:

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, California 92121-1579
Telecopier No.: 619-458-6073
Attention: Chief Financial Officer

With a copy to:

Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
21st Floor
New York, New York 10036-1510
Telecopier No. 212-626-0799
Attention: Daniel A. Etna

If to the Trustee:

U.S. Trust Company of Texas, N.A.
c/o United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036
Telecopier No.: 212-852-1625
Attention: Corporate Trust Administration

The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.

All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.

Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.

If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

<PAGE>

If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.

Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).

SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the
Trustee:

(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and

(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.

SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the
provisions of TIA Section 314(e) and shall include:

(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;

(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and

(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.

SECTION 10.06. RULES BY TRUSTEE AND AGENTS.

The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

<PAGE>

SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.

No past, present or future director, officer, employee,
incorporator or stockholder of the Company, ALARIS Medical Systems, ALARIS
Release Corporation and IVAC Overseas Holdings, Inc. as such, shall have any
liability for any obligations of the Company, ALARIS Medical Systems, ALARIS
Release Corporation and IVAC Overseas Holdings, Inc. under the Notes, this
Indenture or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.

SECTION 10.08. HOLDING COMPANY INDEBTEDNESS.

Each Holder acknowledges that the Company is the sole obligor of
the Notes and no Subsidiary of the Company is a co-obligor or a guarantor of
the Notes.

SECTION 10.09. GOVERNING LAW.

THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE, THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

SECTION 10.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.

SECTION 10.11. SUCCESSORS.

All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.

SECTION 10.12. SEVERABILITY.

In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

SECTION 10.13. COUNTERPART ORIGINALS.

The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

<PAGE>

SECTION 10.14. TABLE OF CONTENTS, HEADINGS, ETC.

The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.

[Signatures on following page]

<PAGE>

SIGNATURES

Dated as of July 28, 1998

ALARIS MEDICAL, INC.

By: /s/ William J. Mercer
------------------------------
Name: William J. Mercer
Title: President

Dated as of July 28, 1998

U.S. TRUST COMPANY OF TEXAS, N.A.

By: /s/ James E. Logan
-------------------------------
Name: JAMES E. LOGAN
Title: VICE PRESIDENT

<PAGE>

EXHIBIT A
(Face of Note)
11 1/8% [Series A] [Series B] Senior Discount Notes due 2008

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THIS
SECURITY, THE ISSUE PRICE IS $581.44, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
IS $418.56, THE ISSUE DATE IS JULY 28, 1998 AND THE YIELD TO MATURITY IS
11 1/8% PER ANNUM.

No.1 $
-----------------
CUSIP No. 011637 AA 3 (1)

ALARIS Medical, Inc.

promises to pay to Cede & C0. or registered assigns, the principal sum of
_____ Dollars on August 1, 2008.

Interest Payment Dates: February 1 and August 1

Record Dates: January 15 and July 15

DATED: July 28, 1998

ALARIS MEDICAL, INC.

- ---------------
(1) REPRESENTS THE CUSIP NO. FOR THE 144A GLOBAL NOTE. THE CUSIP NO. FOR THE
IAI GLOBAL NOTE IS 011637 AB 1. THE CUSIP NO. FOR THE REGULATION S GLOBAL
NOTE IS 001143 AA 1 AND THE ISIN NO. IS USU 01143 AA 15.

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<PAGE>

By:
----------------------------------
Name:
Title:

This is one of the Global
Notes referred to in the
within-mentioned Indenture:

Dated: July 28, 1998

U.S. Trust Company of Texas, N.A.
as Trustee

By:
---------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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<PAGE>

(Back of Note)

11 1/8% [Series A] [Series B] Senior Discount Notes due 2008

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY.

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO (A) OFFER,
SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY ONLY (1) TO THE COMPANY, (2)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (3) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (4) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (5) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3), OR
(7) OF RULE 501 UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT; OR (6) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT (AND BASED ON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT IN EACH OF THE FOREGOING CASES TO APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THAT IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE.

Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.

1. INTEREST. ALARIS Medical, Inc., a Delaware corporation (the
"Company") promises to pay interest on the Notes as described below and shall
pay Liquidated Damages payable

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pursuant to Section 5 of the Registration Rights Agreement referred to below.
Until August 1, 2003 the Accreted Value will increase (representing
amortization of original issue discount) between the date of original
issuance and August 1, 2003, at a rate of 11 1/8% on a semi-annual bond
equivalent basis using a 360-day year comprised of twelve 30-day months, such
that the Accreted Value on August 1, 2003 will be equal to the full principal
amount at maturity of the Notes. Beginning on August 1, 2003, interest on
the Notes will accrue at the rate of 11 1/8% per annum. The Company will pay
interest and Liquidated Damages semi-annually in arrears on February 1 and
August 1 of each year (each an "Interest Payment Date"), commencing on August
1, 2003. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from August 1,
2003; PROVIDED that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date; PROVIDED,
FURTHER, that the first Interest Payment Date shall be February 1, 2004. The
Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at the rate equal to 1% per annum in excess
of the then applicable interest rate on the Notes to the extent lawful; it
shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest and Liquidated
Damages (without regard to any applicable grace periods) from time to time on
demand at the same rate to the extent lawful. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.

2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the January 15 or
July 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages may be made
by check mailed to the Holders at their respective addresses set forth in the
register of Holders of Notes; PROVIDED that all payments of principal,
premium, interest and Liquidated Damages, if any, with respect to Notes the
Holders of which have given wire transfer instructions to the Company or the
Paying Agent will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Such
payment shall be in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts.

3. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of
Texas, N.A., the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity.

4. INDENTURE. The Company issued the Notes under an Indenture
dated as of July 28, 1998 ("Indenture") between the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all
such terms, and Holders are referred to the Indenture and such Trust
Indenture Act for a statement of such terms. To the extent any provision of
this Note conflicts with the express provisions of the Indenture, the
provisions of the

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Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $100.0 million in aggregate principal amount at maturity.

5. REDEMPTION.

(a) Except as provided in clause (b) of this Paragraph 5, the
Notes shall not be redeemable at the Company's option prior to August 1,
2003. Thereafter, the Notes shall be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 1 of the years
indicated below:

(b) Notwithstanding the foregoing, on or prior to August 1,
2001, the Company on one or more occasions may redeem up to 35% in aggregate
principal amount at maturity of Notes issued under the Indenture at a
redemption price equal to 111.125% of the Accreted Value thereof plus
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more public or private offerings of common stock of the
Company; PROVIDED that at least 65% in aggregate principal amount at maturity
of Notes remain outstanding immediately after the occurrence of each such
redemption; and PROVIDED, FURTHER; that any such redemption must occur within
90 days of the date of the closing of any such public or private offering.

6. MANDATORY REDEMPTION.

Except as set forth in Paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the
Notes.

7. REPURCHASE AT OPTION OF HOLDER.

(a) If there is a Change of Control, the Company shall be
required to make an offer (a "Change of Control Offer") to each Holder to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (or, in the case
of repurchases of Notes prior to August 1, 2003, at a purchase price equal to
101% of the Accreted Value thereof, plus Liquidated Damages thereon, if any,
as of the date of repurchase) (in either case, the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder of Notes setting forth the procedures governing
the Change of Control Offer as required by the Indenture.

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<PAGE>

(b) If the Company consummates any Asset Sales, when the
aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to
Section 3.09 of the Indenture to purchase the maximum principal amount at
maturity of Notes (including any Additional Notes) that may be purchased out
of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the principal amount at maturity thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase (or, in the
case of purchases of Notes prior to August 1, 2003, at a purchase price equal
to 100% of the Accreted Value thereof, plus Liquidated Damages thereon, if
any, as of the date of repurchase), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate principal amount at
maturity or Accreted Value (as applicable) of Notes (including any Additional
Notes) tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or any Restricted Subsidiary may use any remaining
Excess Proceeds for any purpose not prohibited under the Indenture. If the
aggregate principal amount at maturity or Accreted Value (as applicable) of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on a PRO RATA basis.
Holders of Notes that are the subject of an offer to purchase will receive an
Asset Sale Offer from the Company prior to any related purchase date and may
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes.

8. NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date
to each Holder whose Notes are to be redeemed at its registered address.
Notes in denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.

9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected
for redemption, except for the unredeemed portion of any Note being redeemed
in part. Also, the Company need not exchange or register the transfer of any
Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding Interest
Payment Date.

10. PERSONS DEEMED OWNERS. The registered Holder of a Note
may be treated as its owner for all purposes.

11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Notes (including Additional Notes, if any), voting as a
single class (including, without limitation, consents obtained in connection
with a purchase of, tender offer or exchange offer for the Notes), and,
subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of
the principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of the Indenture or the Notes may

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<PAGE>

be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including Additional Notes, if any), voting as
a single class (including, without limitation, consents obtained in
connection with a purchase of, tender offer or exchange offer for the Notes).
Without the consent of any Holder of a Note, the Indenture or the Notes may
be amended or supplemented to cure any ambiguity, defect or inconsistency; to
provide for uncertificated Notes in addition to or in place of certificated
Notes or to alter the provisions of Article 2 of the Indenture (including the
related definitions) in a manner that does not materially adversely affect
any Holder; to provide for the assumption of the Company's obligations to
the Holders of the Notes by a successor to the Company pursuant to Article 5
of the Indenture; to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note; to comply with requirements
of the SEC in order to effect or maintain the qualification of this Indenture
under the TIA; or to provide for the issuance of Additional Notes in
accordance with the limitations set forth in this Indenture as of the date
hereof.

12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest or Liquidated
Damages, if any, with respect to the Notes; (ii) default in payment when due
of principal or premium, if any, on the Notes at maturity, upon redemption or
otherwise; (iii) failure for 30 days after receipt of notice from the Trustee
or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described under Sections 4.07,
4.09, 4.10, 4.15, 4.16, 4.17 or 5.01 of the Indenture; (iv) failure for 60
days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with its other
agreements in the Indenture and the Notes; (v) a default occurs under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay when due at final
stated maturity (giving effect to any grace period related thereto) principal
of (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $15.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments (to the extent not covered by insurance and as to which the
insurer has not acknowledged coverage in writing) aggregating in excess of
$15.0 million, which judgments are not paid, fully bonded, discharged or
stayed within 60 days after their entry; and (vii) certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary of the Company that is a Significant Subsidiary or group of
Restricted Subsidiaries of the Company that, together, would constitute a
Significant Subsidiary. If any Event of Default (other than an Event of
Default arising from certain events of bankruptcy or insolvency with respect
to the Company, any Restricted Subsidiary of the Company that is a
Significant Subsidiary or group of Restricted Subsidiaries of the Company
that, together, would constitute a Significant Subsidiary) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the respective
Event of Default and that it is a "notice of acceleration" (the "ACCELERATION
NOTICE"), and the same shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, with respect to the Company,
any Restricted Subsidiary of the Company that is a Significant Subsidiary or
group of

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Restricted Subsidiaries of the Company that, together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Upon any acceleration of maturity of the
Notes, all principal of and accrued interest on and Liquidated Damages, if
any (if on or after August 1, 2003) or Accreted Value and Liquidated Damages,
if any (if prior to August 1, 2003), of the Notes shall be due and payable
immediately. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest or premium on, or principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee
a statement specifying such Default or Event of Default.

13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not the Trustee.

14. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator or stockholder, of the Company,
ALARIS Medical Systems, Inc., ALARIS Release Corporation and IVAC Overseas
Holdings, Inc., as such, shall not have any liability for any obligations of
the Company, ALARIS Medical Systems, Inc., ALARIS Release Corporation and
IVAC Overseas Holdings, Inc., under the Notes, the Indenture or the
Registration Rights Agreement or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes.

15. HOLDING COMPANY INDEBTEDNESS. Each Holder acknowledges
that the Company is the sole obligor of the Notes and no Subsidiary of the
Company is a co-obligor or a guarantor of the Notes.

16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

17. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).

18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to
Holders of Notes under the Indenture, Holders of Restricted Global Notes and
Restricted Definitive Notes shall have all the rights set forth in the A/B
Exchange Registration Rights Agreement dated as of July 28, 1998, between the

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Company, ALARIS Medical Systems, ALARIS Release Corporation, IVAC Overseas
Holdings, Inc. and the parties named on the signature pages thereof (the
"Registration Rights Agreement").

19. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company
has caused CUSIP numbers to be printed on the Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed
on the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.

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The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture or the Registration Rights Agreement.
Requests may be made to:

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, California 92121-1579
Attention: Chief Financial Officer

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<PAGE>

ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to

- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

- --------------------------------------------------------------------------------

Date:
-----------------
Your Signature:_________________________
(Sign exactly as your name appears on the
face of this Note)

SIGNATURE GUARANTEE.

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<PAGE>

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:

/ /Section 4.10 / /Section 4.15

If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture,
state the amount you elect to have purchased: $________

Date:_________ Your Signature:__________________________
(Sign exactly as your name appears
on the Note)

Tax Identification No:___________________________

SIGNATURE GUARANTEE.

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<PAGE>

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(2)

The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a
part of another Global Note or Definitive Note for an interest in this Global
Note, have been made:

<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of increase at maturity of
decrease in in Principal this Global Note Signature of
Principal Amount Amount following such authorized officer
at maturity of at maturity of decrease (or of Trustee or
Date of Exchange this Global Note this Global Note increase) Note Custodian
- ---------------- ---------------- ---------------- --------- --------------
<S> <C> <C> <C> <C>

</TABLE>
- -----------------------

(2) This should be included only if the Note is issued in global form.

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<PAGE>

EXHIBIT B

FORM OF CERTIFICATE OF TRANSFER

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, California 92121-1579

U.S. Trust Company of Texas, N.A.
c/o United States Trust Company of New York
114 West 47th Street
25th Floor
New York, NY 10036

Re: 11 1/8% SENIOR DISCOUNT NOTES DUE 2008

Reference is hereby made to the Indenture, dated as of July
28, 1998 (the "INDENTURE"), between ALARIS Medical, Inc., as issuer (the
"COMPANY"), and U.S. Trust Company of Texas, N.A., as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in
the Indenture.

______________, (the "TRANSFEROR") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto,
in the principal amount of $___________ in such Note[s] or interests (the
"TRANSFER"), to __________ (the "TRANSFEREE"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies
that:

[CHECK ALL THAT APPLY]

1. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "SECURITIES ACT"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction meeting the requirements of Rule
144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed
on the 144A Global Note and/or the Definitive Note and in the Indenture and
the Securities Act.

2. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S.
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the Transferor hereby
further certifies that (i) the Transfer is not being made to a person in the
United States and (x) at the time

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<PAGE>

the buy order was originated, the Transferee was outside the United States or
such Transferor and any Person acting on its behalf reasonably believed and
believes that the Transferee was outside the United States or (y) the
transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting
on its behalf knows that the transaction was prearranged with a buyer in the
United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S under the Securities Act, (iii) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act and (iv)
if the proposed transfer is being made prior to the expiration of the
Restricted Period, the transfer is not being made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser). Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.

3. / / CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO
ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S.
The Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act
and any applicable blue sky securities laws of any state of the United
States, and accordingly the Transferor hereby further certifies that (check
one):

(a) / / such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;

(b) / / such Transfer is being effected to the Company or a
subsidiary thereof;

(c) / / such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance
with the prospectus delivery requirements of the Securities Act;

(d) / / such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule
904, and the Transferor hereby further certifies that it has not engaged in
any general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the Transferee in
the form of Exhibit D to the Indenture and (2) if such Transfer is in respect
of a principal amount of Notes at the time of transfer of less than $250,000,
an Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon

B-2
<PAGE>

consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the IAI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.

4. / / Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Definitive Note.

(a) / / CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under
the Securities Act and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any state of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the Restricted Global Notes, on Restricted Definitive Notes and in
the Indenture.

(b) / / CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i)
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the restrictions
on transfer contained in the Indenture and the Private Placement Legend are
not required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will no
longer be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.

(c) / / CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION.
(i) The Transfer is being effected pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act other than
Rule 144, Rule 903 or Rule 904 and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any State of the United States and (ii) the restrictions
on transfer contained in the Indenture and the Private Placement Legend are
not required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will not be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Notes or Restricted Definitive Notes
and in the Indenture.

This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.

--------------------------------
[Insert Name of Transferor]

By:
-----------------------------

B-3
<PAGE>

Name:
Title:
Dated:________, ____

B-4
<PAGE>

ANNEX A TO CERTIFICATE OF TRANSFER

1. The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) / / a beneficial interest in the:

(i) / / 144A Global Note (CUSIP 011637 AA 3), or

(ii) / / Regulation S Global Note (CUSIP 001143 AA 1; ISIN No.
USU 01143 AA 15), or

(iii) / / IAI Global Note (CUSIP 011637 AB 1); or

(b) / / a Restricted Definitive Note.

2. After the Transfer the Transferee will hold:

[CHECK ONE]

(a) / / a beneficial interest in the:

(i) / / 144A Global Note (CUSIP 011637 AA 3), or

(ii) / / Regulation S Global Note (CUSIP 001143 AA 1; ISIN
No. USU 01143 AA 15),

(iii) / / IAI Global Note (CUSIP 011637 AB 1); or

(iv) / / Unrestricted Global Note (CUSIP _____); or

(b) / / a Restricted Definitive Note; or

in accordance with the terms of the Indenture.

B-5
<PAGE>

EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, California 92121-1579

U.S. Trust Company of Texas, N.A.
c/o United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036

Re: 11 1/8% SENIOR DISCOUNT NOTES DUE 2008

(CUSIP______________)

____________, (the "OWNER") owns and proposes to exchange the
Note[s]or interest in such Note[s] specified herein, in the principal amount
of $____________ in such Note[s] or interests (the "EXCHANGE"). In
connection with the Exchange, the Owner hereby certifies that:

1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE

(a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global
Note in an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Global Notes and pursuant to and in
accordance with the United States Securities Act of 1933, as amended (the
"SECURITIES ACT"), (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest
in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.

(b) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with
the Exchange of the Owner's beneficial interest in a Restricted Global Note
for an Unrestricted Definitive Note, the Owner hereby certifies (i) the
Definitive Note is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes

C-1
<PAGE>

and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities
Act and (iv) the Definitive Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.

(c) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Owner's Exchange of a Restricted Definitive Note for a beneficial
interest in an Unrestricted Global Note, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to Restricted Definitive Notes and pursuant
to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest is being acquired in compliance with any applicable blue
sky securities laws of any state of the United States.

(d) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's
Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note,
the Owner hereby certifies (i) the Unrestricted Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Unrestricted Definitive Note
is being acquired in compliance with any applicable blue sky securities laws
of any state of the United States.

2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

(a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the
Owner's own account without transfer. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the Restricted
Definitive Note issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Definitive Note and in the Indenture and the Securities Act.

(b) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE
NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with
the Exchange of the Owner's Restricted Definitive Note for a beneficial
interest in the [CHECK ONE] / / 144A Global Note, / / Regulation S Global
Note, / / Global Note with an equal principal amount, the Owner hereby
certifies (i) the beneficial interest is being acquired for the Owner's own
account without transfer and (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, and in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the beneficial interest issued will be subject to
the

C-2
<PAGE>

restrictions on transfer enumerated in the Private Placement Legend printed
on the relevant Restricted Global Note and in the Indenture and the
Securities Act.

This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.

___________________________________
[Insert Name of Owner]

By: _______________________________
Name:
Title:

Dated: ________________, ____

C-3
<PAGE>

EXHIBIT D

FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, California 92121-1579

U.S. Trust Company of Texas, N.A.
c/o United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036

Re: 11 1/8% SENIOR DISCOUNT NOTES DUE 2008

Reference is hereby made to the Indenture, dated as of July 28, 1998 (the
"INDENTURE"), between ALARIS Medical, Inc., as issuer (the "COMPANY"), and
U.S. Trust Company of Texas, N.A., as trustee. Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture.

In connection with our proposed purchase of $____________
aggregate principal amount of:

(a) / / a beneficial interest in a Global Note, or

(b) / / a Definitive Note,

we confirm that:

1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions and
conditions set forth in the Indenture and the undersigned agrees to be bound
by, and not to resell, pledge or otherwise transfer the Notes or any interest
therein except in compliance with, such restrictions and conditions and the
United States Securities Act of 1933, as amended (the "SECURITIES ACT").

2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, that if we should
sell the Notes or any interest therein, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (c)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has

D-1
<PAGE>

furnished on its behalf by a U.S. broker-dealer) to you and to the Company a
signed letter substantially in the form of this letter and, if such transfer
is in respect of a principal amount of Notes, at the time of transfer of less
than $250,000, an Opinion of Counsel in form reasonably acceptable to the
Company to the effect that such transfer is in compliance with the Securities
Act, (D) outside the United States in accordance with Rule 904 of Regulation
S under the Securities Act, (E) pursuant to the provisions of Rule 144(k)
under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E)
of this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.

3. We understand that, on any proposed resale of the
Notes or beneficial interest therein, 0 we will be required to furnish to you
and the Company such certifications, legal opinions and other information as
you and the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that the
Notes purchased by us will bear a legend to the foregoing effect. We further
understand that any subsequent transfer by us of the Notes or beneficial
interest therein acquired by us must be effected through one of the Placement
Agents.

4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) and have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment.

5. We are acquiring the Notes or beneficial interest
therein purchased by us for our own account or for one or more accounts (each
of which is an institutional "accredited investor") as to each of which we
exercise sole investment discretion.

You and the Company are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.

__________________________________________
[Insert Name of Accredited Investor]

By:_______________________________
Name:
Title:

Dated: __________________, ____

D-2

<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

REGISTRATION RIGHTS AGREEMENT

Dated as of July 28, 1998

by and among

ALARIS Medical, Inc.

ALARIS Medical Systems, Inc.

ALARIS Release Corporation

IVAC Overseas Holdings, Inc.

and

Bear, Stearns & Co. Inc.

BT Alex. Brown Incorporated

Donaldson, Lufkin & Jenrette Securities Corporation

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of July 28, 1998, by and among ALARIS Medical, Inc., a Delaware
corporation (the "COMPANY"), the subsidiaries of the Company listed on Exhibit A
hereto (each a "SUBSIDIARY" and, collectively, the "SUBSIDIARIES"), and Bear,
Stearns & Co. Inc., BT Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation (each an "INITIAL PURCHASER" and, collectively, the
"INITIAL PURCHASERS"), each of whom has agreed to purchase (the "INITIAL
PLACEMENT") the Company's 11 1/8% Senior Discount Notes due 2008 (the "SENIOR
DISCOUNT NOTES") pursuant to the Purchase Agreement (as defined below).

This Agreement is made pursuant to the Purchase Agreement, dated July 22,
1998, (the "PURCHASE AGREEMENT"), by and among the Company, the Subsidiaries and
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Senior Discount Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Initial Purchasers set forth
in Section 2 of the Purchase Agreement.

The parties hereby agree as follows:

SECTION 1. DEFINITIONS

As used in this Agreement, the following capitalized terms shall have the
following meanings:

ACT: The Securities Act of 1933, as amended.

AFFILIATE: As defined in Rule 144A of the Act.

BUSINESS DAY: Any day except a Saturday, Sunday or other day in the City
of New York, or in the city of the corporate trust office of the Trustee, on
which banks are authorized to close.

BROKER-DEALER: Any broker or dealer registered under the Exchange Act.

CERTIFICATED SECURITIES: As defined in the Indenture.

CLOSING DATE: The date hereof.

COMMISSION: The Securities and Exchange Commission.

CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Exchange
Notes to be issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Senior Discount Notes tendered by Holders thereof
pursuant to the Exchange Offer.

1
<PAGE>

EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.

EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Exchange Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Senior Discount Notes that are tendered by such Holders in connection with such
exchange and issuance.

EXCHANGE NOTES: The Company's 11 1/8% Senior Discount Notes due 2008 to be
issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the
request of any Holder of Senior Discount Notes covered by a Shelf Registration
Statement, in exchange for such Senior Discount Notes.

EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.

EXEMPT RESALES: The transactions in which the Initial Purchasers propose
to sell the Senior Discount Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act.

HOLDERS: As defined in Section 2 hereof.

INDENTURE: The Indenture, dated the Closing Date, between the Company and
U.S. Trust Company of Texas, N.A., as trustee (the "TRUSTEE"), pursuant to which
the Notes are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.

INTEREST PAYMENT DATE: As defined in the Indenture and the Notes.

NASD: National Association of Securities Dealers, Inc.

NOTES: The Senior Discount Notes and the Exchange Notes.

PERSON: Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).

PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

REGISTRATION DEFAULT: As defined in Section 5 hereof.

REGISTRATION STATEMENT: Any registration statement of the Company relating
to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i)

2
<PAGE>

which is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.

RULE 144: Rule 144 promulgated under the Act.

SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.

TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.

TRANSFER RESTRICTED SECURITIES: Each (A) Senior Discount Note, until the
earliest to occur of (i) the date on which such Senior Discount Note is
exchanged in the Exchange Offer for an Exchange Note which is entitled to be
resold to the public by the Holder thereof without complying with the prospectus
delivery requirements of the Act, (ii) the date on which such Senior Discount
Note has been disposed of in accordance with a Shelf Registration Statement (and
the purchasers thereof have been issued Exchange Notes) and (iii) the date on
which such Senior Discount Note is distributed to the public pursuant to Rule
144 under the Act and each (B) Exchange Note held by a Broker-Dealer until the
date on which such Exchange Note is disposed of by a Broker-Dealer pursuant to
the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including the delivery of the Prospectus contained therein).

UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.

SECTION 2. HOLDERS

A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause the Exchange Offer Registration Statement to
be filed with the Commission as soon as practicable after the Closing Date, but
in no event later than 45 days after the Closing Date (such 45th day being the
"FILING DEADLINE"), (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but in
no event later than 120 days after the Closing Date (such 120th day being the
"EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer and
(iv) upon the effectiveness of such Exchange Offer

3
<PAGE>

Registration Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting (i) registration
of the Exchange Notes to be offered in exchange for the Senior Discount Notes
that are Transfer Restricted Securities and (ii) resales of Exchange Notes by
Broker-Dealers that tendered into the Exchange Offer Senior Discount Notes
that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Senior
Discount Notes acquired directly from the Company or any of its Affiliates)
as contemplated by Section 3(c) below.

(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
PROVIDED, HOWEVER, that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Exchange Notes
shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 30 Business Days thereafter (such
30th day being the "CONSUMMATION DEADLINE").

(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Senior Discount Notes that are Transfer
Restricted Securities that were acquired for the account of such Broker-Dealer
as a result of market-making activities or other trading activities (other than
Senior Discount Notes acquired directly from the Company or any Affiliate of the
Company), may exchange such Transfer Restricted Securities pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of each Exchange
Note received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales by such Broker-Dealers that the Commission may require in
order to permit such sales pursuant thereto, but such "Plan of Distribution"
shall not name any such Broker-Dealer or disclose the amount of Transfer
Restricted Securities held by any such Broker-Dealer, except to the extent
required by the Commission as a result of a change in policy after the date of
this Agreement.

The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(a) and (c) hereof to the extent
necessary to ensure that the prospectus contained in the Exchange Offer
Registration Statement is available for sales of Exchange Notes by
Broker-Dealers, and to ensure that such Registration Statement conforms with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
180 days from the Consummation Deadline.

4
<PAGE>

The Company shall promptly provide sufficient copies of the latest version
of such Prospectus to such Broker-Dealers promptly upon request, and in no event
later than one Business Day after such request, at any time during such 180-day
period in order to facilitate such sales.

SECTION 4. SHELF REGISTRATION

(a) SHELF REGISTRATION. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Exchange Notes because
the Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation Deadline that (A) such Holder was prohibited by law
or Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Senior
Discount Notes acquired directly from the Company or one of its Affiliates, then
the Company shall (x) cause to be filed, on or prior to 45 days after the
earlier of (i) the date on which the Company determines that it is not required
to file the Exchange Offer Registration Statement pursuant to clause (a)(i)
above and (ii) 45 days after the date on which the Company receives the notice
specified in clause (a)(ii) above (such earlier date, the "Filing Deadline"), a
shelf registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 120 days after the
Filing Deadline for the Shelf Registration Statement (such 120th day the
"EFFECTIVENESS DEADLINE"). If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
Company shall use its best efforts to keep the Shelf Registration Statement
discussed in this Section 4(a) continuously effective, supplemented and amended
as required by and subject to the provisions of Sections 6(b) and (c) hereof to
the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i)) following
the date on which such Shelf Registration Statement first becomes effective
under the Act or such shorter period ending when all of the Transfer Restricted
Securities available for sale thereunder have been sold.

5
<PAGE>

(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in Item 507 or 508 of Regulation S-K, as applicable, under
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading.

SECTION 5. LIQUIDATED DAMAGES

If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv), a "REGISTRATION DEFAULT"), then the Company hereby agrees to
pay liquidated damages to each Holder of Transfer Restricted Securities affected
thereby with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues. The
amount of the liquidated damages shall increase by an additional $.05 per week
per $1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $.50 per week per $1,000 in
principal amount of Transfer Restricted Securities; provided that the Company
shall in no event be required to pay liquidated damages for more than one
Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.

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<PAGE>

All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company set forth in the preceding paragraph that
are outstanding with respect to any Transfer Restricted Security at the time
such security ceases to be a Transfer Restricted Security shall survive until
such time as all such obligations with respect to such security shall have been
satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its best efforts to effect such exchange and to
permit the resale of Exchange Notes by Broker-Dealers that tendered in the
Exchange Offer Senior Discount Notes that such Broker-Dealer acquired for its
own account as a result of market-making activities or other trading activities
(other than Senior Discount Notes acquired directly from the Company or any of
its Affiliates) (which shall be in a manner consistent with the terms of this
Agreement), and (z) comply with all of the following provisions:

(i) If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission allowing
the Company to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level. In connection with the foregoing,
the Company hereby agrees to take all such other actions as are requested
by the Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff of such submission.

(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
Affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any Person to
participate in, a distribution of the Exchange Notes to be issued in the
Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the

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<PAGE>

Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement, rely on the position of the Commission enunciated
in MORGAN STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Exchange Notes obtained
by such Holder in exchange for Senior Discount Notes acquired by such
Holder directly from the Company or an affiliate thereof.

(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Stearling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes received in the Exchange Offer and (C)
any other undertaking or representation required by the Commission as set
forth in any no-action letter obtained pursuant to clause (i) above.

(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company shall (i) comply with all the provisions of
Section 6(c) below and use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof, and

(ii) issue, upon the request of any Holder or purchaser of Senior
Discount Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Senior Discount Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Exchange Notes on the Shelf Registration

8
<PAGE>

Statement for this purpose and issue the Exchange Notes to the purchaser(s)
of securities subject to the Shelf Registration Statement in the names as
such purchaser(s) shall designate.

(c) GENERAL PROVISIONS. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company shall:

(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, (1) in the case of clause (A), correcting any such
misstatement or omission, and (2) in the case of clauses (A) and (B), use
its best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter.

(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, or such shorter
period as will terminate when all Transfer Restricted Securities covered by
such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the selling Holders thereof set forth in such Registration
Statement or supplement to the Prospectus;

(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable Registration
Statement or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any

9
<PAGE>

additions to or changes in the Registration Statement in order to make the
statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws,
the Company shall use its best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;

(iv) furnish to the Initial Purchaser(s), each selling Holder and
each of the underwriter(s) in connection with such exchange or sale, if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such Holders and underwriter(s) in connection with such exchange
or sale, if any, for a period of at least five Business Days, and the
Company will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) if such Holders or
the underwriter(s) in connection with such sale shall provide notice to the
Company within five Business Days after the receipt thereof to the effect
that (A) such Registration Statement, amendment, Prospectus or supplement,
as applicable, as proposed to be filed, contains a material misstatement or
omission or fails to comply with the applicable requirements of the Act or
(B) that any of the information furnished to the Company by such selling
Holder or underwriter, if any, and included in such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be filed
is incorrect in any respect;

(v) at reasonable times requested by the selling Holders and/or
the underwriters upon reasonable notice, prior to the filing of any
document that is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to the selling
Holders and to the underwriter(s) in connection with such exchange or sale,
if any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such selling
Holders or underwriter(s), if any, reasonably may request;

(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Company and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such Registration
Statement or any post-effective

10
<PAGE>

amendment thereto subsequent to the filing thereof and prior to its
effectiveness; PROVIDED, HOWEVER, that any information that is designated
in writing by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Holders or
any such underwriter, attorney or accountant, unless such disclosure is
sought in connection with a court proceeding (in which case, any such
Person shall, upon learning that such disclosure is sought in connection
with a court proceeding, deliver a notice to the Company in order to allow
the Company to undertake appropriate action at the Company's sole expense
to prevent disclosure of such information deemed confidential) or required
by law, or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality;

(vii) if requested by any selling Holders or the underwriter(s) in
connection with such exchange or sale, if any, promptly include in any
Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and any
other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;

(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such exchange or sale, if any, without
charge, at least one copy of the Registration Statement, as first filed
with the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);

(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby consents
to the use (in accordance with law) of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment
or supplement thereto;

(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of the Transfer Restricted Securities pursuant to any
applicable Registration Statement contemplated by

11
<PAGE>

this Agreement as may be reasonably requested by any Holder or underwriter
in connection with any sale or resale pursuant to any applicable
Registration Statement contemplated by this Agreement, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the
Company shall:

(A) furnish to each selling Holder and each underwriter, if any,
upon Consummation of the Exchange Offer or upon the effectiveness of the
Shelf Registration Statement, as the case may be:

(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed on behalf of the Company by (x) the
President or any Vice President and (y) a principal financial or accounting
officer of the Company, confirming, as of the date thereof, the matters set
forth in Exhibit B hereto and such other similar matters as such Holders
and underwriter(s) may reasonably request;

(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration Statement, as
the case may be, of counsel for the Company covering matters similar to
those set forth in clauses (1), (4) through (13) and (18) of paragraph (g)
of Section 8 of the Purchase Agreement and such other matter as the Holders
and underwriters may reasonably request, and in any event including a
statement to the effect that such counsel has participated in conferences
with officers and other representatives of the Company, representatives of
the independent public accountants for the Company and have considered the
matters required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by officers and other
representatives of the Company and without independent check or
verification), no facts came to such counsel's attention that caused such
counsel to believe that the applicable Registration Statement, at the time
such Registration Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration Statement, as
of the date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such Registration Statement
as of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of Consummation,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently verified,
the accuracy, completeness or fairness of the financial statements, notes
and schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus; and

<PAGE>

(3) a customary comfort letter, dated the date of Consummation
of the Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the Company's independent
accountants, in the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in connection with
primary underwritten offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 8(m) of the Purchase
Agreement, without exception;

(B) set forth in full or incorporated by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification provisions
and procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and

(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders and the underwriter(s), if any,
to evidence compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company pursuant to this clause (x).

If at any time the representations and warranties of the Company
contained in the certificate described in (A)(1) above cease to be true and
correct, the Company shall so advise the selling Holders promptly and if
requested by such Holder, shall confirm such advice in writing;

(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if any,
and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the applicable Registration
Statement; PROVIDED, HOWEVER, that the Company shall not be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;

(xii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the Holders
or the underwriter(s), if any, may request at least two Business Days prior
to such sale of Transfer Restricted Securities;

(xiii) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller

13
<PAGE>

or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (xi) above;

(xiv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;

(xvi) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;

(xvii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);

(xviii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and

(xix) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.

14
<PAGE>

(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C), or any notice from the Company of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(xiv) hereof, or until it is
advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus (in each case, the
"RECOMMENCEMENT DATE"). If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of the Suspension Notice. In the event the Company shall give any
Suspension Notice, the time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable,
shall be extended by the number of days during the period from and including
the date of the giving of such Suspension Notice to and including the
Recommencement Date.

SECTION 7. REGISTRATION EXPENSES

(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i)
all registration and filing fees and expenses (including filings made by any
Holder with the NASD (and, if applicable, the fees and expenses of any
"qualified independent underwriter") and its counsel that may be required by
the rules and regulations of the NASD); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws;
(iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses); (iv) all messenger and delivery services and telephone
expenses of the Company; (v) all fees and disbursements of counsel for the
Company and the Holders of Transfer Restricted Securities (subject, in the
case of counsel for the Holders of Transfer Restricted Securities, to Section
7(b) below); (vi) all application and filing fees in connection with listing
the Exchange Notes on a national securities exchange or automated quotation
system pursuant to the requirements hereof; and (vii) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by
or incident to such performance).

The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and
the fees and expenses of any Person, including special experts, retained by
the Company.

(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse
the Initial Purchasers and the Holders of Transfer Restricted Securities who
are tendering Senior Discount Notes in the Exchange Offer

15
<PAGE>

and/or selling or reselling the Senior Discount Notes or Exchange Notes
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not
more than one counsel, who shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.

SECTION 8. INDEMNIFICATION

(a) The Company and its Subsidiaries, jointly and severally, agree to
indemnify and hold harmless (i) each Holder, (ii) each Person, if any, who
controls any Holder within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and (iii) the respective officers, directors,
partners, employees, representatives and agents of each Holder or any
controlling Person to the fullest extent lawful, from and against any and all
losses, liabilities, claims, damages and expenses whatsoever (including but
not limited to reasonable attorneys' fees and any and all expenses whatsoever
incurred in investigating, preparing or defending against any investigation
or litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), joint or several,
to which they or any of them may become subject under the Act, the Exchange
Act or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, preliminary prospectus or Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company and its Subsidiaries will not be liable in any such
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with information relating to any
Holder furnished to the Company in writing by or on behalf of such Holder
expressly for use therein. This indemnity agreement will be in addition to
any liability which the Company and its Subsidiaries may otherwise have,
including under this Agreement.

(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless (i) the Company and its Subsidiaries, (ii) each Person, if any,
who controls the Company and its Subsidiaries within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (iii) the respective
officers, directors, partners, employees, representatives and agents of the
Company and its Subsidiaries, against any losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any investigation or litigation, commenced or threatened,
or any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary

16
<PAGE>

prospectus or Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of
or is in reliance upon and in conformity with information relating to any
Holder furnished to the Company in writing by or on behalf of such Holder
expressly for use therein; PROVIDED, HOWEVER, that in no case shall any
Holder, its directors, officers or any Person who controls such Holder be
liable or responsible for any amount in excess of the amount by which the
total amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
This indemnity will be in addition to any liability which any Holder may
otherwise have, including under this Agreement.

(c) Promptly after receipt by any Person in respect of which indemnity
may be sought pursuant to Section 8(a) or (b) (the "indemnified party") of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any Person against whom such
indemnity may be sought (the "indemnifying party") notify such indemnifying
party in writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 8 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may otherwise
have). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent
it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party or parties in connection with
the defense of such action, (ii) the indemnifying party or parties shall not
have employed counsel to take charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense
of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of counsel shall be borne by the
indemnifying party or parties; PROVIDED, HOWEVER, that the indemnifying party
or parties under subsection (a) or (b) above shall only be liable for the
legal expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or

17
<PAGE>

action effected without its prior written consent; PROVIDED, HOWEVER, that
such consent was not unreasonably withheld or delayed.

(d) In order to provide for contribution in circumstances in which the
indemnification provided for in this Section 8 is for any reason held to be
unavailable from the Company and its Subsidiaries or is insufficient to hold
harmless a party indemnified hereunder, the Company and its Subsidiaries, on
the one hand, and each Holder on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses reasonably incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company and its Subsidiaries, any
contribution received by the Company and its Subsidiaries from Persons, other
than the Holders, who may also be liable for contribution, including Persons
who control the Company and its Subsidiaries within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act) to which the Company and its
Subsidiaries, and such Holder may be subject, in such proportion as is
appropriate to reflect the relative benefits received by the Company and its
Subsidiaries, on the one hand, and such Holder, on the other hand, or if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in this Section 8, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault
of the Company and its Subsidiaries, on the one hand, and such Holder, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and its Subsidiaries, on the one hand, and each Holder, on the other
hand, shall e deemed to be in the same proportion as (i) the total proceeds
from the offering of the Senior Discount Notes (net of discounts but before
deducting expenses) received by the Company and (ii) the proceeds received by
such Holder upon the sale of the Transfer Restricted Securities giving rise
to such indemnification obligation less the amount paid by such Holder for
such Transfer Restricted Securities. The relative fault of the Company and
its Subsidiaries, on the one hand, and of each Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company and its Subsidiaries, or such Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and its Subsidiaries and the
Holders agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by PRO RATA allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8(d), (i) in no case shall any Holder, its directors, officers or any
Person who controls such Holder be liable or responsible for any amount in
excess of the amount by which the total amount received by such Holder with
respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Holder, its directors, officers or any Person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and (ii) no Person guilty of

18
<PAGE>

fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section (8)(d), (A) each
Person, if any, who controls any Holder within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of each Holder or
any controlling Person shall have the same rights to contribution as such
Holder, and each Person, if any, who controls the Company and its
Subsidiaries within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as the Company
and its Subsidiaries, subject in each case to clauses (i) and (ii) of this
Section 8(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against
such party in respect of which a claim for contribution may be made against
another party or parties under this Section 8(d), notify such party or
parties from whom contribution may be sought, but the failure to so notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 8(d) or otherwise. No party shall be liable for contribution with
respect to any action or claim settled without its prior written consent;
PROVIDED, HOWEVER, that such written consent was not unreasonably withheld or
delayed.

SECTION 9. RULE 144A AND RULE 144

The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to
make available, upon request of any Holder of Transfer Restricted Securities,
to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such
Transfer Restricted Securities designated by such Holder or beneficial owner,
the information required by Rule 144A(d)(4) under the Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all
filings required thereby in a timely manner in order to permit resales of
such Transfer Restricted Securities pursuant to Rule 144.

SECTION 10. UNDERWRITTEN REGISTRATIONS

No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements
entered into in connection therewith and (b) completes and executes all
reasonable questionnaires, powers of attorney, and other documents required
under the terms of such underwriting arrangements.

SECTION 11. SELECTION OF UNDERWRITERS

For any Underwritten Offering of Notes, the investment banker or
investment bankers and manager or managers for any Underwritten Offering of
Notes, that will administer such offering will be selected by the Holders of
a majority in aggregate principal amount of the Transfer Restricted
Securities included in such offering. Such investment bankers and managers
are referred to herein as the "underwriters."

19
<PAGE>

SECTION 12. MISCELLANEOUS

(a) REMEDIES. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase Agreement or
granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by them of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.

(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. The
Company has not previously entered into any agreement granting any
registration rights with respect to its securities to any Person except that
Jeffry M. Picower and his Affiliates have been granted registration rights
covering certain shares of common stock of the Company pursuant to a
Registration Rights Agreement dated as of August 12, 1994 (the "August
Registration Rights Agreement") by and between the Company and Decisions
Incorporated. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders
of the Company's securities under any agreement in effect on the date hereof
other than the August Registration Rights Agreement and the Company has
received a consent letter from the parties thereto waiving such conflict.

(c) ADJUSTMENTS AFFECTING THE NOTES. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Notes
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.

(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to departure from the provisions hereof that relates
exclusively to the rights of Holders whose Transfer Restricted Securities are
being tendered pursuant to the Exchange Offer and that does not affect
directly or indirectly the rights of other Holders whose Transfer Restricted
Securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.

(e) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right
to enforce such agreements directly to the extent they may deem such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.

20
<PAGE>

(f) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telecopier, or air
courier guaranteeing overnight delivery:

(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and

(ii) if to the Company:

ALARIS Medical, Inc.
10221 Wateridge Circle
San Diego, CA 92121-1579
Telecopier No.: (619) 458-6073
Attention: Jay de Groot, Esq.

With a copy to:

Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street, 21st Floor
New York, New York 10036-1510
Telecopier No.: (212) 626-0799
Attention: Daniel A. Etna, Esq.

All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
receipt acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.

Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; PROVIDED, HOWEVER, that
this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Transfer Restricted Securities directly from such Holder.
Each Holder by accepting Transfer Restricted Securities agrees to be bound by
and comply with the terms and provisions of this Agreement.

(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

21
<PAGE>

(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

(k) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability
of any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the registration rights granted
with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.

22
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

ALARIS MEDICAL, INC.

By: /s/ William J. Mercer
----------------------------------
Name: William J. Mercer
Title: President

ALARIS MEDICAL SYSTEMS, INC.

By: /s/ William J. Mercer
----------------------------------
Name: William J. Mercer
Title: President

ALARIS RELEASE CORPORATION

By: /s/ William J. Mercer
----------------------------------
Name: William J. Mercer
Title: President

IVAC OVERSEAS HOLDINGS, INC.

By: /s/ William J. Mercer
----------------------------------
Name: William J. Mercer
Title: President

<PAGE>

BEAR, STEARNS & CO. INC.

By: /s/ James C. Diao
--------------------------------
Name: James C. Diao
Title: Senior Managing Director
Bear, Stearns & Co. Inc.
BT ALEX. BROWN INCORPORATED

By: /s/ M K Lynch
--------------------------------
Name: M K Lynch
Title: Vice President

DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION

By: /s/ Laurence E. Paul
--------------------------------
Name:
Title:

<PAGE>

EXHIBIT A

SIGNIFICANT SUBSIDIARIES OF ALARIS MEDICAL, INC.

1. ALARIS Medical Systems, Inc.
2. ALARIS Release Corporation
3. IVAC Overseas Holdings, Inc.

A-1
<PAGE>

EXHIBIT B

(a) No stop order suspending the qualification or exemption from
qualification of the Notes in any jurisdiction referred to in Section
6(c)(xi) of the Registration Rights Agreement shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending,
threatened or, to the Company's knowledge, contemplated.

(b) (i) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would as of the date of Consummation of the Exchange
Offer or the date of the effectiveness of the Shelf Registration Statement,
prevent the issuance or sale of the Notes; (ii) no injunction, restraining
order or order of any nature by a federal or state court of competent
jurisdiction shall have been issued as of the date of the Consummation of the
Exchange Offer or the date of the effectiveness of the Shelf Registration
Statement, as the case may be, that would prevent the issuance or sale of the
Notes; and (iii) on the date of the Consummation of the Exchange Offer or the
date of the effectiveness of the Shelf Registration Statement, as the case
may be, no action, suit or proceeding shall be pending against or affecting
or threatened against the Company or any of its respective subsidiaries
before any court or arbitrator or any governmental body, agency or official
that, if adversely determined, would, individually or in the aggregate, have
a Material Adverse Effect on the Company.

(c) (i) Since the date of the latest balance sheet in the Exchange
Offer Registration Statement or Shelf Registration Statement, as applicable,
there shall not have been any material adverse change, or any development
involving a prospective material adverse change, in the assets, properties,
business, results of operations, condition (financial or otherwise) or
prospects, whether or not arising in the ordinary course of business, of the
Company and its subsidiaries, taken as a whole, (ii) since the date of the
latest balance sheet included in the Exchange Offer Registration Statement or
Shelf Registration Statement, as applicable, there shall not have been any
material change, or any development that is reasonably likely to result in a
material change, in the capital stock or in the long-term debt, or material
increase in short-term debt, of the Company and its subsidiaries, taken as a
whole, from that set forth in the Exchange Offer Registration Statement or
Shelf Registration Statement, as applicable, and (iii) neither the Company
nor any of its subsidiaries shall have any liability or obligation, direct or
contingent, which is material to the Company.

B-1

<PAGE>

AMENDMENT NO. 3 AND CONSENT TO CREDIT AGREEMENT

AMENDMENT NO. 3 AND CONSENT (this "Amendment"), dated as of March 4,
1998, among ALARIS MEDICAL, INC. (formerly named Advanced Medical, Inc.), a
Delaware corporation ("ALARIS Medical"), ALARIS MEDICAL SYSTEMS, INC. (formerly
named IVAC Holdings, Inc.), a Delaware corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Banks"), BANKERS TRUST COMPANY, as Administrative Agent and as a Syndication
Agent and BANQUE PARIBAS, as Documentation Agent (together with Bankers Trust
Company in its capacity as Administrative Agent, the "Agents") and as a
Syndication Agent. All capitalized terms used herein and not otherwise defined
shall have the respective meanings provided such terms in the Credit Agreement
referred to below.

W I T N E S S E T H:

WHEREAS, ALARIS Medical, the Borrower, the Banks and the Agents are
parties to a Credit Agreement, dated as of November 26, 1996 (as modified,
supplemented and amended to, but not including, the date hereof, the "Credit
Agreement");

WHEREAS, ALARIS Medical and the Borrower have requested certain
amendments, modifications and consents to the Credit Documents; and

WHEREAS, subject to the terms and conditions of this Amendment, the
Banks are willing to grant such amendments, modifications and consents.

NOW THEREFORE, it is agreed:

1. The Banks hereby agree to release IVAC Overseas Holdings, Inc.
("IVAC Overseas") as a Guarantor under the Subsidiary Guaranty, a Pledgor under
the Pledge Agreement and an Assignor under the Security Agreement.

2. The Banks hereby agree to release all of the capital stock of
IVAC Overseas previously pledged by the Borrower pursuant to the Pledge
Agreement and currently held by the Collateral Agent.

3. Notwithstanding anything to the contrary contained in Section
8.17 of the Credit Agreement, the Banks hereby agree that the Borrower may
create a new, direct Wholly-Owned Subsidiary (the "New Subsidiary") and the New
Subsidiary shall not be required to execute the Subsidiary Guaranty, the Pledge
Agreement and the Security Agreement, provided that the New Subsidiary shall at
no time own any significant assets other than its ownership of the capital stock
of IVAC Overseas.

<PAGE>

4. Section 8.02(t) of the Credit Agreement is amended by (i)
replacing the first and second references to "$6,500,000" appearing therein with
the amount "$15,000,000" and (ii) replacing the last two provisos appearing
therein with the following proviso:

"PROVIDED that in no event shall the aggregate amount of Permitted
Acquisitions made after the First Effective Date exceed $25,000,000;".

5. Section 8.02 of the Credit Agreement is hereby further amended by
(i) deleting the word "and" appearing at the end of clause 8.02(y), (ii)
replacing the period appearing at the end of clause 8.02(z) with the text ";
and" and (iii) inserting the following clause immediately following clause
8.02(z) therein:

"(aa) sales of Receivables Payments made in connection with the
Equipment Sales Program, provided that such sales shall not exceed
$20,000,000 in the aggregate in any fiscal year of the Borrower.".

6. Section 8.03 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause 8.03(p), (ii) replacing
the period appearing at the end of clause 8.03(q) with the text "; and" and
(iii) inserting the following clause immediately following clause 8.03(q)
therein:

"(r) Liens arising from the sale or assignment of Receivables
Payments made pursuant to the Equipment Sales Program.".

7. Section 10 of the Credit Agreement is hereby amended by deleting
the definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar
Margin" appearing therein in their entirety and inserting the following new
definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Margin"
in lieu thereof:

"Applicable Base Rate Margin" shall mean (i) in the case of A
Term Loans and Revolving Loans, 1.00%, less the Applicable Performance
Discount, if any, and (ii) in the case of B Term Loans, C Term Loans
and D Term Loans, 1.25%.

"Applicable Eurodollar Margin" shall mean (i) in the case of A
Term Loans and Revolving Loans, 2.25%, less the Applicable Performance
Discount, if any, and (ii) in the case of B Term Loans, C Term Loans
and D Term Loans, 2.50%.

8. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new sentence at the end of the definition of
"Consolidated Net Income" appearing therein:

"Notwithstanding anything to the contrary contained in the definition
of Consolidated Net Income, for purposes of determining compliance
with Section 8.11, there shall be included (to the extent not already
included) in determining

-2-

<PAGE>

Consolidated Net Income for any period the net income (or loss) of
any Persons, business, property or asset acquired during such
period pursuant to Section 8.02(t) and not subsequently sold or
otherwise disposed of by the Borrower or one of its Subsidiaries
during such period (each such Person, business, property or asset
acquired and not subsequently disposed of during such period, an
"Acquired Entity or Business"), in each case based on the actual
net income (or loss) of such Acquired Entity or Business for the
entire period (including the portion thereof occurring prior to
such acquisition).".

9. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new definitions in appropriate alphabetical order:

"Equipment Sales Program" shall mean any transaction or series of
transactions whereby the Borrower or any of its Subsidiaries (i)
provides medical equipment ("Medical Equipment") and disposable
consumable medical devices ("Consumables") used with such Medical
Equipment to third party customers ("Customers") who in exchange make
payments ("Receivables Payments") to the Borrower or its Subsidiaries,
as the case may be, in connection therewith over a period of time,
(ii) sells or otherwise transfers its title in such Medical
Instruments to third party financing parties ("Third Party Lessors")
which shall simultaneously lease the Medical Equipment to such
Customers and (iii) sells or assigns to such Third Party Lessors the
Receivables Payments attributable to such Medical Equipment with no
recourse against the Borrower or its Subsidiaries; it being understood
and agreed that any such transaction or series of transactions are
sales of inventory in the ordinary course of business of the Borrower
or such Subsidiary.

"Receivables Payments" shall have the meaning provided in the
definition of "Equipment Sales Program" herein.

10. In order to induce the Agents and the Banks to enter into this
Amendment, ALARIS Medical and the Borrower hereby represent and warrant that (x)
no Default or Event of Default exists (i) on the First Effective Date (as
defined below) both before and after giving effect to Sections 1, 2, 3, 4, 5, 6,
8 and 9 of this Amendment or (ii) on the Second Effective Date (as defined
below) both before and after giving effect to Section 7 of this Amendment and
(y) all of the representations and warranties contained in the Credit Agreement
or the other Credit Documents shall be true and correct in all material respects
on the date hereof, on the First Effective Date and on the Second Effective Date
with the same effect as though such representations and warranties had been made
on and as of such date (it being understood that any representation or warranty
made as of a specific date shall be true and correct in all material respects as
of such specific date).

-3-

<PAGE>

11. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.

12. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with ALARIS Medical, the Borrower and the Agents.

13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

14. This Amendment shall become effective (x) in the case of Sections
1, 2, 3, 4, 5, 6, 8 and 9 of this Amendment, on the date (the "First Effective
Date") when each of ALARIS Medical, the Borrower, the Agents and the Required
Banks shall have signed a copy hereof (whether the same or different copies) and
(y) in the case of Section 7 of this Amendment, on the date (the "Second
Effective Date") when each of ALARIS Medical, the Borrower, the Agents and each
Bank shall have signed a copy hereof (whether the same or different copies) and,
in each case, shall have delivered (including by way of telecopier) the same to
the Administrative Agent at the Notice Office.

* * *

-4-

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.

ALARIS MEDICAL, INC.
(formerly named Advanced Medical, Inc.)

By
-------------------------------------
Name:
Title:

ALARIS MEDICAL SYSTEMS, INC.
(formerly named IVAC Holdings, Inc.)

By
-------------------------------------
Name:
Title:

BANKERS TRUST COMPANY,
Individually and as Administrative Agent

By
-------------------------------------
Name:
Title:

BANQUE PARIBAS,
Individually and as Documentation Agent

By
-------------------------------------
Name:
Title:

<PAGE>

PARIBAS CAPITAL FUNDING

By
-------------------------------------
Name:
Title:

GENERAL ELECTRIC CAPITAL CORPORATION

By
-------------------------------------
Name:
Title:

UNION BANK OF CALIFORNIA, N.A.

By
-------------------------------------
Name:
Title:

UNITED STATES NATIONAL BANK OF OREGON

By
-------------------------------------
Name:
Title:

IBJ SCHRODER BANK & TRUST COMPANY

By
-------------------------------------
Name:
Title:

<PAGE>

PILGRIM AMERICA PRIME RATE TRUST

By
-------------------------------------
Name:
Title:

MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.

By
-------------------------------------
Name:
Title:

MERRILL LYNCH DEBT STRATEGIES PORTFOLIO

By: Merrill Lynch Asset Management, L.P.,
as Investment Adviser

By
-------------------------------------
Name:
Title:

SENIOR HIGH INCOME PORTFOLIO, INC.

By
-------------------------------------
Name:
Title:

<PAGE>

ML CBO IV (CAYMAN) LTD.

By: Protective Asset Management Company,
as Collateral Manager

By
-------------------------------------
Name:
Title:

VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST

By
-------------------------------------
Name:
Title:

JACKSON NATIONAL LIFE INSURANCE COMPANY

By: PPM America, Inc., as attorney in
fact, on behalf of Jackson National
Life Insurance Company

By
-------------------------------------
Name:
Title:

CRESCENT/MACH I PARTNERS, L.P.

By: TCW Asset Management Company, its
Investment Manager

By
-------------------------------------
Name:
<PAGE>
Title:

<PAGE>

ALLSTATE LIFE INSURANCE COMPANY

By
-------------------------------------
Name:
Title:

METROPOLITAN LIFE INSURANCE COMPANY

By
-------------------------------------
Name:
Title:

OCTAGON CREDIT INVESTORS LOAN PORTFOLIO
(a unit of The Chase Manhattan Bank)

By
-------------------------------------
Name:
Title:

INDOSUEZ CAPITAL FUNDING III, LIMITED

By: Indosuez Capital, as Portfolio
Advisor

By
-------------------------------------
Name:
Title:

<PAGE>

AMARA-1 FINANCE LTD.

By
-------------------------------------
Name:
Title:

AMARA-2 FINANCE LTD.

By
-------------------------------------
Name:
Title:

PRIME INCOME TRUST

By
-------------------------------------
Name:
Title:

SENIOR DEBT PORTFOLIO

By: Boston Management and Research, as
Investment Advisor

By
-------------------------------------
Name:
Title:

COMMERCIAL LOAN FUNDING TRUST I

By
-------------------------------------
Name:
Title:

<PAGE>

PAMCO CAYMAN LTD.

By: Protective Asset Management Company,
as Collateral Agent

By
-------------------------------------
Name:
Title:

<PAGE>

AMENDMENT NO. 4 AND CONSENT

AMENDMENT NO. 4 AND CONSENT (this "Consent"), dated as of July 7,
1998, among ALARIS MEDICAL, INC. (formerly named Advanced Medical, Inc.), a
Delaware corporation ("Holdings"), ALARIS MEDICAL SYSTEMS, INC. (formerly
named IVAC Holdings, Inc.), a Delaware corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Banks"), BANKERS TRUST COMPANY, as Administrative Agent and as a Syndication
Agent and BANQUE PARIBAS, as Documentation Agent (together with Bankers Trust
Company in its capacity as Administrative Agent, the "Agents") and as a
Syndication Agent. All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement referred to below.

W I T N E S S E T H :

WHEREAS, Holdings, the Borrower, the Banks and the Agents are
parties to a Credit Agreement, dated as of November 26, 1996 (as modified,
supplemented and amended to, but not including, the date hereof, the "Credit
Agreement");

WHEREAS, The Borrower wishes to consummate a transaction whereby it
will (i) acquire (the "Instromedix Acquisition") 100% of the outstanding
capital stock of Instromedix, Inc. ("Instromedix") through a newly-formed
Wholly-Owned Domestic Subsidiary of the Borrower (the "Acquisition
Subsidiary") for a total consideration of approximately $55,000,000 and (ii)
repay approximately $5,000,000 of existing indebtedness of Instromedix and
its Subsidiaries;

WHEREAS, in connection with the Instromedix Acquisition, Holdings
(i) may issue junior subordinated paid-in-kind preferred stock (the "Picower
PIK Preferred Stock"), the net cash proceeds of which would be used to repay
outstanding amounts under certain unsecured promissory notes issued by
Holdings in accordance with the terms of this Consent (the "Instromedix
Seller Note") and (ii) intends to issue unsecured senior discount notes (the
"Discount Notes"), the net cash proceeds of which shall be contributed (the
"Contribution") to the Borrower and, in turn, used by the Borrower (A) to
repay outstanding Revolving Loans, (B) to repay any outstanding Indebtedness
under the Instromedix Seller Note or repurchase any outstanding Picower PIK
Preferred Stock and (C) to pay for the general corporate and working capital
purposes of the Borrower and its Subsidiaries;

WHEREAS, the consent of the Required Banks is required (i) to
permit Borrower to consummate the Instromedix Acquisition, (ii) to permit
Holdings to issue the Discount Notes and the Picower PIK Preferred Stock and
(iii) for the other amendments set forth in this Consent; and

<PAGE>

WHEREAS, Holdings and the Borrower have requested that the Banks
grant, and the Banks are willing to grant (subject to the terms and
conditions hereof), a consent to permit the Instromedix Acquisition, the
issuance of the Discount Notes, the Picower PIK Preferred Stock and the other
transactions contemplated below, and the parties hereto have further agreed
to amend the Credit Agreement as set forth herein;

NOW THEREFORE, it is agreed:

1. The Banks hereby agree that the previously consummated
acquisitions by the Borrower of each of (i) the assets of Patient Solutions,
Inc. (the "Genie Acquisition") and (ii) the assets of Caesarea Medical
Electronics, Ltd. representing the "Niki" infusion pump (the "Niki
Acquisition") are Permitted Acquisitions under the Credit Agreement,
PROVIDED, HOWEVER, no part of the consideration therefore shall be applied
against the Dollar limitations applicable to Permitted Acquisitions set forth
in Section 8.02(t) of the Credit Agreement, it being acknowledged that the
aggregate amount of the Genie Acquisition was $5,250,000 and the aggregate
amount of the Niki Acquisition (including any consideration therefor which
has been previously paid) shall not exceed $5,000,000.

2. Section 1.01(A)(d) of the Credit Agreement is hereby deleted
in its entirety and the following new Section 1.01(A)(d) is inserted in lieu
thereof:

"(d)(1) Each loan made by a Bank with a D Term Loan Commitment
under the D Term Loan Facility (such term loan, together with any term
loans made pursuant to clause (2) of this Section 1.01(A)(d),
collectively, the "D Term Loans," and each, a "D Term Loan"), (i) shall
be incurred by the Borrower pursuant to a single drawing, which shall be
on the Initial Borrowing Date, (ii) shall be denominated in U.S.
Dollars, (iii) shall be made as Base Rate Loans and, except as
hereinafter provided, may, at the option of the Borrower, be maintained
as and/or converted into Base Rate Loans or Eurodollar Loans, PROVIDED,
that all D Term Loans made by all Banks pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, consist entirely
of D Term Loans of the same Type and (iv) shall not exceed for any Bank
at the time of incurrence thereof on the Initial Borrowing Date that
aggregate principal amount which equals the D Term Loan Commitment, if
any, of such Bank at such time.

(2) Each D Term Loan made by a Bank with an Additional D Term Loan
Commitment under the D Term Loan Facility, (i) shall be incurred by the
Borrower pursuant to a single drawing, which shall be on the Additional
D Term Loan Borrowing Date, (ii) shall be denominated in U.S. Dollars,
(iii) shall be made as Base Rate Loans and, except as hereinafter
provided, may, at the option of the Borrower, be maintained as and/or
converted into Base Rate Loans or Eurodollar Loans, PROVIDED, that all
such additional D Term Loans made by all Banks pursuant to the same
Borrowing shall, unless otherwise specifically provided herein, consist
entirely of D Term Loans of the same Type and (iv) shall not exceed for
any Bank at the time of incurrence thereof on the Additional D Term Loan
Borrowing Date that aggregate principal amount which equals the
Additional D Term Loan Commitment, if any, of such Bank at such time.

-2-
<PAGE>

Once repaid, D Term Loans may not be reborrowed."

3. Section 1.01(A)(e) of the Credit Agreement is hereby amended
by deleting the last sentence appearing in said Section and inserting the
following new sentence in lieu thereof:

"Notwithstanding anything to the contrary contained in this
Agreement, but only to the extent that the Borrower has utilized
proceeds of Revolving Loans to pay a portion of the purchase price for
the Instromedix Acquisition, until such time as the Borrower shall have
(i) received gross cash proceeds of at least $50,000,000, from the
issuance of the Discount Notes and (ii) applied such proceeds as a
repayment of then outstanding Revolving Loans in an amount equal to the
greater of (A) $20,000,000 and (B) an amount equal to the remainder of
(A) the net cash proceeds generated from the issuance of the Discount
Notes LESS (B) the amount of such proceeds applied to repurchase any
outstanding Picower PIK Preferred Stock or repay any outstanding
indebtedness under the Instromedix Seller Note, the Borrower shall
ensure that the Total Unutilized Revolving Loan Commitment is at least
$20,000,000."

4. Section 1.05(e) of the Credit Agreement is hereby deleted in its
entirety and the following new Section 1.05(e) is inserted in lieu thereof:

"(e) The D Term Note issued to each Bank with a D Term Loan
Commitment or an Additional D Term Loan Commitment shall (i) be executed
by the Borrower, (ii) be payable to the order of such Bank or its
registered assigns and be dated the Initial Borrowing Date, (or if
issued thereafter, the date of issuance thereof), (iii) be in a stated
principal amount equal to the D Term Loans made by such Bank pursuant to
Section 1.01(A)(d)(1) or 1.01(A)(d)(2), as the case may be, (iv) mature
on the D Term Loan Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject
to voluntary prepayment as provided in Section 4.01 and mandatory
repayment as provided in Section 4.02, and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents."

5. Section 1.07 of the Credit Agreement is hereby amended by
inserting the phrase ", Additional D Term Loan Commitments (in the case of D
Term Loans incurred on the Additional D Term Loan Borrowing Date)"
immediately after the phrase "D Term Loan Commitments" appearing therein.

6. Section 3.03 of the Credit Agreement is hereby amended by (i)
inserting the text "(i)" immediately after the text "(b)" appearing at the
beginning of clause (b) thereof and (ii) inserting the following new
sub-clause (ii) immediately following existing clause (b) thereof:

"(ii) The Total Additional D Term Loan Commitment shall terminate
on the Additional D Term Loan Borrowing Date, after giving effect to the
making of the D Term Loans on such date."

-3-
<PAGE>

7. Section 3.03(e) of the Credit Agreement is hereby amended by
inserting the phrase ", the Total Additional D Term Loan Commitment"
immediately following the phrase "Total D Term Loan Commitment" appearing
therein.

8. Section 4.02(A)(b)(iv) of the Credit Agreement is hereby
amended by deleting the table therein in its entirety and inserting the
following new table in lieu thereof:

<TABLE>
<CAPTION>
"SCHEDULED D REPAYMENT DATE AMOUNT"
-------------------------- ------
<S> <C>
the first Business Day in February, 1997 $100,000
the first Business Day in May, 1997 $100,000
the first Business Day in August, 1997 $100,000
the first Business Day in November, 1997 $100,000

the first Business Day in February, 1998 $100,000
the first Business Day in May, 1998 $100,000
the first Business Day in August, 1998 $175,000
the first Business Day in November, 1998 $175,000

the first Business Day in February, 1999 $175,000
the first Business Day in May, 1999 $175,000
the first Business Day in August, 1999 $175,000
the first Business Day in November, 1999 $175,000

the first Business Day in February, 2000 $175,000
the first Business Day in May, 2000 $175,000
the first Business Day in August, 2000 $175,000
the first Business Day in November, 2000 $175,000

the first Business Day in February, 2001 $175,000
the first Business Day in May, 2001 $175,000
the first Business Day in August, 2001 $175,000
the first Business Day in November, 2001 $175,000

the first Business Day in February, 2002 $175,000
the first Business Day in May, 2002 $175,000
the first Business Day in August, 2002 $175,000
the first Business Day in November, 2002 $175,000

the first Business Day in February, 2003 $175,000
the first Business Day in May, 2003 $175,000
the first Business Day in August, 2003 $175,000
the first Business Day in November, 2003 $175,000

-4-
<PAGE>

the first Business Day in February, 2004 $175,000
the first Business Day in May, 2004 $175,000
the first Business Day in August, 2004 $175,000
the first Business Day in November, 2004 $175,000

the first Business Day in February, 2005 $32,425,000
D Term Loan Maturity Date $32,425,000
</TABLE>

9. Notwithstanding anything to the contrary contained in Section
4.02(A)(d) of the Credit Agreement, the Banks hereby agree that in the event
Holdings issues the Picower PIK Preferred Stock, the net cash proceeds
received by Holdings therefrom shall not be required to be applied as a
mandatory repayment of outstanding Term Loans so long as 100% of such
proceeds (or such lesser amount necessary to make the repayment described
below) are used by Holdings to repay all then outstanding Indebtedness under
the Instromedix Seller Note.

10. Notwithstanding anything to the contrary contained in Section
4.02(A)(e) of the Credit Agreement, the Banks hereby agree that the net cash
proceeds received by Holdings from the issuance of the Discount Notes shall
not be required to be applied as a mandatory repayment of outstanding Term
Loans.

11. Sections 6.05(a) and 6.05(b) of the Credit Agreement are
hereby deleted in their entirety and the following new Sections 6.05(a) and
6.05(b) are inserted in lieu thereof:

"(a) The proceeds of the Term Loans incurred (x) pursuant to
Section 1.01(A)(d)(1) on the Initial Borrowing Date shall be utilized
(i) to finance the Transaction and (ii) to pay fees and expenses
incurred in connection therewith and (y) pursuant to Section
1.01(A)(d)(2) on the Additional D Term Loan Borrowing Date shall be
utilized (i) to repay outstanding Revolving Loans, (ii) to finance, in
part, the Instromedix Acquisition and/or (iii) to pay fees and expenses
incurred in connection therewith.

(b) The proceeds of Revolving Loans may be utilized (i) in amounts
of up to $10,000,000 on the Initial Borrowing Date (x) to finance the
Transaction and (y) to pay fees and expenses incurred in connection
therewith, (ii) after the Initial Borrowing Date, for the general
corporate and working capital purposes of the Borrower and its
Subsidiaries and (iii) on and after Additional D Term Loan Borrowing
Date, to finance, in part, the Instromedix Acquisition.

12. Section 8.01(b) of the Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (iii) appearing
therein and inserting a comma in lieu thereof and (ii) inserting the text ",
(v) the issuance of the Instromedix Seller Note to the extent permitted by
8.04(r) and (vi) the issuance of the Discount Notes to the extent permitted
by Amendment No. 4 and Consent" immediately following existing clause (iv)
thereof.

13. Notwithstanding anything to the contrary contained in Section
8.02 or 8.05 of the Credit Agreement, the Banks hereby agree that the
Borrower may consummate the Instromedix Acquisition as contemplated above so
long as immediately, and in no event later than two Business Days following
the Instromedix Acquisition the Acquisition Subsidiary (and

-5-
<PAGE>

each of its Domestic Subsidiaries) is merged with and into the Borrower with
the Borrower being the survivor of such merger.

14. Section 8.03 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (p) thereof and
inserting a semicolon in lieu thereof, (ii) deleting the period appearing at
the end of clause (q) thereof and inserting the text "; and" in lieu thereof
and (iii) inserting the following new clause (r) immediately following
existing clause (q) thereof:

"(r) in the event the Discount Notes are issued prior to the
consummation of the Instromedix Acquisition, Liens on the cash proceeds
yielded from the issuance of the Discount Notes in favor of the trustee
in respect of the Discount Notes, PROVIDED that such Liens shall be
terminated upon the earlier of (x) the date on which the Instromedix
Acquisition is consummated and (y) the Discount Notes Escrow End Date."

15. Notwithstanding anything to the contrary contained in Section
8.04 of the Credit Agreement, the Banks hereby agree that Holdings may issue
the Discount Notes, PROVIDED, that (A) the Discount Notes (i) shall yield
gross cash proceeds of at least $50,000,000 but no more than $110,000,000,
(ii) shall not be secured or guaranteed or otherwise supported in any way by
the Borrower or any of its Subsidiaries, (iii) shall not mature or be subject
to any mandatory amortization or sinking fund requirement earlier than August
1, 2006, (iv) shall not require cash payments of interest earlier than August
1, 2003 and (v) shall have terms and conditions otherwise reasonably
satisfactory to the Agents and (B) in the event that the Borrower has
utilized proceeds of Revolving Loans to pay a portion of the purchase price
for the Instromedix Acquisition, an amount equal to the greater of (I)
$20,000,000 and (II) an amount equal to the remainder of (x) the net cash
proceeds generated from the issuance of the Discount Notes LESS (y) the
amount of such proceeds applied to repay outstanding Indebtedness under the
Instromedix Seller Note or repurchase any outstanding Picower PIK Preferred
Stock shall, on the date such cash proceeds are generated, be contributed to
the Borrower and, in turn, applied by the Borrower as a repayment of then
outstanding Revolving Loans incurred under the Credit Agreement.

16. Section 8.04 of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (p) thereof, (ii)
deleting the period at the end of clause (q) thereof and inserting the text
"; and" in lieu thereof and (iii) inserting the following new clause (r)
immediately following existing clause (q) thereof:

"(r) Indebtedness of Holdings under the Instromedix Seller Note in
an aggregate principal amount not to exceed $26,000,000, PROVIDED that
Holdings shall repay all outstanding amounts under such Instromedix
Seller Note on or prior to the Final Payment Date under, and as defined
in, the Instromedix Acquisition Agreement and only with the cash
proceeds received by Holdings from the issuance of (x) the Discount
Notes or (y) the Picower PIK Preferred Stock".

-6-
<PAGE>

17. Notwithstanding anything to the contrary contained in Section
8.05 of the Credit Agreement, the Banks hereby agree that Holdings and the
Borrower may effect the Contribution.

18. Section 8.06 of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (vii) thereof, (ii)
deleting the period appearing at the end of clause (viii) thereof and
inserting a semicolon in lieu thereof and (iii) inserting the following new
clauses (ix) through (xii) immediately following existing clause (viii)
thereof:

(ix) in the event Holdings issues the Picower PIK Preferred Stock,
Holdings may repurchase same so long as any such repurchases are made
with the cash proceeds received by Holdings from the issuance of the
Discount Notes;

(x) in the event Holdings issues the Picower PIK Preferred Stock,
Holdings may pay regularly scheduled Dividends on such Picower PIK
Preferred Stock pursuant to the terms thereof solely through the
issuance of additional shares of Picower PIK Preferred Stock;

(xi) so long as no Default or Event of Default then exists, after
August 1, 2003, the Borrower may pay cash Dividends to Holdings, so long
as the proceeds thereof are promptly used by Holdings to pay regularly
scheduled interest (when and as due and payable) on the Discount Notes;
and

(xii) so long as no Default or Event of Default then exists, in
the event that the Discount Notes are issued prior to the Instromedix
Acquisition and the Instromedix Acquisition shall not have been
consummated prior to the Discount Notes Escrow End Date, the Borrower
may pay cash Dividends to Holdings in an amount equal to the aggregate
amount of cash required to be paid in order to redeem the Discount Notes
pursuant to the Discount Notes Escrow Arrangements less the aggregate
amount of the proceeds yielded from the issuance of the Discount Notes
held in escrow pursuant to the Discount Notes Escrow Arrangements."

19. Section 8.08(a) of the Credit Agreement is hereby amended by
deleting the table appearing therein in its entirety and inserting the
following table in lieu thereof:

<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1998 $33,000,000

December 31, 1999 $35,000,000

December 31, 2000 and thereafter $30,000,000
</TABLE>

20. Section 8.15 of the Credit Agreement is hereby amended by (i)
deleting the word "or" appearing at the end of clause (iv) thereof, (ii)
deleting the period appearing at the

-7-
<PAGE>

end of clause (v) thereof and inserting a semicolon in lieu thereof and (iii)
inserting the following new clauses (vi) and (vii) immediately following
existing clause (v) thereof:

"(vi) after the issuance of the Discount Notes, make (or give
any notice in respect of) any voluntary or optional payment or
prepayment on or redemption or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect
thereto or any other Person money or securities before due for the
purpose of paying when due) any Discount Notes, PROVIDED that (i) the
Series B Discount Notes may be issued in exchange for the Series A
Discount Notes in accordance with the terms of the Discount Note
Indenture and (ii) in the event that the Discount Notes are issued prior
to the Instromedix Acquisition and the Instromedix Acquisition shall not
have been consummated on or prior to Discount Notes Escrow End Date,
Holdings may redeem the Discount Notes with the cash proceeds held in
escrow pursuant to the Discount Notes Escrow Arrangements and the
Dividends paid by the Borrower pursuant to Section 8.06(xii); or

(vii) amend or modify, or permit the amendment or modification
of, any provision of any Discount Note Document".

21. Notwithstanding anything to the contrary contained in Section
8.17 of the Credit Agreement, the Banks hereby agree that the Borrower may
create the Acquisition Subsidiary in order to consummate the Instromedix
Acquisition, and the Acquisition Subsidiary shall not be required to execute
the Pledge Agreement, the Security Agreement and the Subsidiary Guaranty,
PROVIDED that immediately, and in no event no later than two Business Days,
following the consummation of the Instromedix Acquisition, the Acquisition
Subsidiary (and each of its Domestic Subsidiaries) shall be merged with and
into the Borrower with the Borrower being the survivor of each such merger.

22. The definition of "Commitment" appearing in Section 10 of the
Credit Agreement is hereby amended by inserting the text ", Additional D Term
Loan Commitment" immediately following the text "D Term Loan Commitment".

23. The definition of "Consolidated EBITDA" appearing in Section
10 of the Credit Agreement is hereby amended by deleting said definition in
its entirety and inserting the new definition of "Consolidated EBITDA" in
lieu thereof:

"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT
adjusted by adding thereto (i) the amount of all depreciation expense
and amortization expense and other non-cash charges that were deducted
in determining Consolidated EBIT for such period and (ii) the amount of
all integration costs incurred by the Borrower in connection with the
Instromedix Acquisition, the Genie Acquisition and the Niki Acquisition,
in each case to the extent same were deducted in determining
Consolidated EBIT, PROVIDED that in no event shall the amount of such
integration costs added to Consolidated EBITDA pursuant to this
definition exceed $7,200,000.

-8-
<PAGE>

24. The definition of "Consolidated Net Income" appearing in
Section 10 of the Credit Agreement is hereby amended by (i) inserting the
text "(x)" immediately following the clause "Consolidated Net Income for any
period" appearing in the last sentence thereof and (ii) inserting the
following text immediately prior to the period appearing at the end of the
last sentence thereof:

"and (y) for purposes of calculating Consolidated Net Income for
any period, Consolidated Net Income shall be adjusted for factually
supportable and identifiable pro forma cost savings for such period
determined in accordance with GAAP and concurred in by the Borrower's
independent accountants that are directly attributable to the
acquisition of an Acquired Entity or Business pursuant to a Permitted
Acquisition".

25. The definition of "D Term Loan" appearing in Section 10 of the
Credit Agreement is hereby amended by deleting the reference to "Section
1.01(A)(d)" appearing therein and inserting in lieu thereof the reference to
"Section 1.01(A)(d)(1).".

26. The definition of "Facility" appearing in Section 10 of the
Credit Agreement is hereby amended by inserting the following text at the end
thereof:

", it being understood that all D Term Loans made pursuant to the
Total Additional D Term Loan Commitment, as well as D Term Loans
originally made pursuant to the Total D Term Loan Commitment, shall be
part of the same Facility."

27. Section 10 of the Credit Agreement is hereby amended by
inserting the following new definitions in alphabetical order:

"Additional D Term Loan Borrowing Date" shall mean the date on
which the Acquisition is consummated and additional D Term Loans are
incurred pursuant to Section 1.01(A)(d)(2) to finance, in part, the
Instromedix Acquisition.

"Additional D Term Loan Commitment" shall mean, with respect to
each Bank, the amount set forth opposite such Bank's name in Annex I
directly below the column entitled "Additional D Term Loan Commitment,"
as the same may be terminated pursuant to Sections 3.03 and/or 9.

"Amendment No. 4 and Consent" shall mean Amendment No. 4 and
Consent to this Agreement, dated as of July 2, 1998.

"Discount Note Documents" shall mean and include each of the
documents and other agreements to be entered into (including, without
limitation, the Discount Note Indenture) relating to the issuance by
Holdings of the Discount Notes, as the same may be modified,
supplemented or amended from time to time pursuant to the terms hereof
and thereof.

"Discount Note Indenture" shall mean the indenture to be entered
into by and between Holdings and the trustee with respect to the
Discount Notes, as the same may be

-9-
<PAGE>

modified, supplemented or amended from time to time in accordance with
the terms hereof and thereof.

"Discount Notes" shall mean the Series A Discount Notes and any
Series B Discount Notes issued in exchange therefor in accordance with
the terms of the Discount Note Indenture.

"Discount Notes Escrow Arrangements" shall mean the escrow
arrangements, in form and substance satisfactory to the Agents, in
respect of the cash proceeds yielded from the issuance of the Discount
Notes to be made with the trustee in respect of the Discount Notes.

"Discount Notes Escrow End Date" shall mean the date on which
Holdings may be required to redeem all then outstanding Discount Notes
in accordance with the terms of the Discount Notes Escrow Arrangements.

"Genie Acquisition" shall mean the previously consummated
acquisition by the Borrower of all or substantially all of the assets of
Patient Solutions, Inc.

"Instromedix" shall mean Instromedix, Inc., an Oregon corporation.

"Instromedix Acquisition" shall mean the acquisition by the
Borrower of all of the issued and outstanding shares of capital stock of
Instromedix in accordance with the terms of Amendment No. 4 and Consent.

"Instromedix Acquisition Agreement" shall mean that certain
Agreement and Plan of Merger, dated as of June 24, 1998, among Holdings,
the Borrower, Herbert J. and Shirley L. Semler, Instromedix and the
shareholders of Instromedix.

"Instromedix Seller Note" shall mean one or more unsecured
promissory notes in an aggregate principal amount not to exceed
$26,000,000 issued by Holdings in connection with the Instromedix
Acquisition and on terms and conditions satisfactory to the Agents.

"Niki Acquisition" shall mean the previously consummated
acquisition by the Borrower of the assets of Caesarea Medical
Electronics, Ltd. representing the "Niki" infusion pump.

"Picower PIK Preferred Stock" shall mean pay-in-kind preferred
stock issued by Holdings to Picower which shall (i) generate an amount
of net cash proceeds equal to an amount sufficient to satisfy the
Instromedix Seller Note, (ii) have an aggregate liquidation preference
of no greater than an amount equal to the sum of (x) the gross cash
proceeds generated from the issuance thereof and (y) the Dollar value of
any Dividends accrued in respect thereof and (iii) have such other terms
and conditions satisfactory to the Agents.

-10-
<PAGE>

"Series A Discount Notes" shall mean the Discount Notes initially
issued (i) to repay any outstanding Indebtedness under the Instromedix
Seller Note or repurchase any outstanding Picower PIK Preferred Stock, (ii)
to the extent that the Borrower has utilized proceeds of Revolving Loans to
pay a portion of the purchase price for the Instromedix Acquisition, to
repay then outstanding Revolving Loans incurred hereunder in an amount
equal to the greater of (A) $20,000,000 and (B) an amount equal to the
remainder of (A) the net cash proceeds generated from the issuance of the
Discount Notes LESS (B) the amount of such proceeds applied to repay
outstanding Indebtedness under the Instromedix Seller Note or repurchase
any outstanding Picower PIK Preferred Stock and (iii) for the general
corporate and working capital purposes of the Borrower and its
Subsidiaries, as the same may be modified, supplemented or amended from
time to time pursuant to the terms hereof and thereof.

"Series B Discount Notes" shall mean any Discount Notes issued in
exchange for Series A Discount Notes, in the form to be set forth in the
Discount Note Indenture, as such Series B Discount Notes may be modified,
supplemented or amended from time to time, pursuant to the terms hereof and
thereof.

"Total Additional D Term Loan Commitment" shall mean the sum of the
Additional D Term Loan Commitments of each of the Banks.

28. Section 12.07(a) of the Credit Agreement is hereby deleted in its
entirety and the following new Section 12.07(a) is inserted in lieu thereof:

"(a) The financial statements to be furnished to the Banks pursuant
hereto shall be made and prepared in accordance with GAAP consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by Holdings or the Borrower to
the Banks); PROVIDED, that except as otherwise specifically provided
therein, all computations determining compliance with Sections 4.02 and 8,
including definitions used herein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity
with those used to prepare, the December 31, 1995 financial statements
delivered to the Banks pursuant to Section 6.10(b) and (c), but shall not
give effect to purchase accounting adjustments (i) required or permitted by
APB 16 and its interpretations (including non-cash write-ups and non-cash
charges relating to inventory, fixed assets and in-process research and
development, in each case arising in connection with the Instromedix
Acquisition, the Genie Acquisition, the Niki Acquisition and any Permitted
Acquisitions consummated after the Consent Effective Date) and APB 17 and
its interpretations (including non-cash charges relating to intangibles and
goodwill arising in connection with the Instromedix Acquisition, the Genie
Acquisition, the Niki Acquisition and any Permitted Acquisitions
consummated after the Consent Effective Date) or (ii) otherwise required or
permitted under GAAP.

29. The Banks hereby agree that in the event the Discount Notes
are issued prior to the consummation of the Instromedix Acquisition, the net
cash proceeds yielded from the

-11-
<PAGE>

issuance thereof may be held in escrow by the trustee in respect of such
Discount Notes pursuant to, and in accordance with, documentation
satisfactory to the Agents until such time as the Instromedix Acquisition is
consummated or the Discount Notes are redeemed in accordance with Section
8.15 of the Credit Agreement.

30. The Banks hereby agree that on the Additional D Term Loan
Borrowing Date, the Total Revolving Loan Commitment shall be increased by
$10,000,000. In connection with such increase, the Banks hereby agree that,
notwithstanding anything to the contrary contained in the Credit Agreement,
the Borrower and the Administrative Agent may take all such actions as may be
necessary to ensure that all Banks with Revolving Loan Commitments
participate in each Borrowing of outstanding Revolving Loans (after giving
effect to the increase in the Revolving Loan Commitment on the Consent
Effective Date) on a PRO RATA basis (including by having any Revolving Loans
incurred on the Additional D Term Loan Borrowing Date spread out over the
then outstanding Borrowings of Revolving Loans on a PRO RATA basis even
though as a result thereof such new Revolving Loans may effectively have a
shorter Interest Period than the existing Revolving Loans), and it is hereby
agreed that (x) to the extent any existing Borrowings of Revolving Loans that
are maintained as Eurodollar Loans are broken as a result thereof, any
breakage costs of the type described in Section 1.11 of the Credit Agreement
incurred by such Banks in connection therewith shall be for the account of
the Borrower and (y) to the extent the Revolving Loans that are incurred on
the Additional D Term Loan Borrowing Date are spread out over the then
outstanding Borrowings of Revolving Loans, the Banks that have made such
additional Revolving Loans shall be entitled to receive an effective interest
rate on such additional Revolving Loans as is equal to the Eurodollar Rate as
in effect two Business Days prior to the incurrence of such additional
Revolving Loans plus the then Applicable Eurodollar Margin.

31. In connection with the incurrence of D Term Loans pursuant to
Section 1.01(A)(d)(2) of the Credit Agreement, the Banks hereby agree that,
notwithstanding anything to the contrary contained in the Credit Agreement,
the Borrower and the Administrative Agent may take all such actions as may be
necessary to ensure that all Banks with outstanding D Term Loans participate
in each Borrowing of outstanding D Term Loans (after giving effect to the
incurrence of D Term Loans pursuant to such Section 1.01(A)(d)(2)) on a PRO
RATA basis (including by having the D Term Loans incurred pursuant to such
Section 1.01(A)(d)(2) spread out over the then outstanding Borrowings of D
Term Loans on a PRO RATA basis even though as a result thereof such new D
Term Loans may effectively have a shorter Interest Period than the existing D
Term Loans), and it is hereby agreed that (x) to the extent any existing
Borrowings of D Term Loans that are maintained as Eurodollar Loans are broken
as a result thereof, any breakage costs of the type described in Section 1.11
of the Credit Agreement incurred by such Banks in connection therewith shall
be for the account of the Borrower or (y) to the extent the D Term Loans that
are incurred pursuant to Section 1.01(A)(d)(2) of the Credit Agreement are
spread out over the then outstanding Borrowings of D Term Loans, the Banks
that have made such additional D Term Loans shall be entitled to receive an
effective interest rate on such additional D Term Loans as is equal to the
Eurodollar Rate as in effect two Business Days prior to the incurrence of
such additional D Term Loans plus the then Applicable Eurodollar Margin.

-12-
<PAGE>

32. Annex I of the Credit Agreement is hereby amended by (i)
inserting therein the new column entitled "Additional D Term Loan Commitment"
as set forth on Annex I attached hereto and (ii) deleting the information set
forth below the column entitled "Revolving Loan Commitment" appearing therein
and inserting in lieu thereof the information set forth below the column
entitled "Revolving Loan Commitment" appearing in Annex I attached hereto.

33. The Borrower hereby agrees that, on or after the Consent
Effective Date and upon the reasonable request of the Collateral Agent, such
Credit Party will execute such amendments to the Mortgages as the Collateral
Agent shall reasonably require in connection with the transactions
contemplated by this Amendment.

34. The Borrower agrees that on or promptly after the Consent
Effective Date, and at its own expense, it will issue (x) new D Term Notes to
those Banks listed on Annex I hereto with Additional D Term Loan Commitments,
which D Term Notes shall be in conformity with the requirements of Section
1.05(e) of the Credit Agreement as amended hereby and (y) new Revolving Notes
to those Banks listed on Annex I hereto with increased Revolving Loan
Commitments, which Revolving Notes shall be in conformity with the
requirements of Section 1.05(f) of the Credit Agreement.

35. In order to induce the Agents and the Banks to enter into this
Consent, the Borrower hereby represents and warrants that (i) no Default or
Event of Default exists on the Consent Effective Date both before and after
giving effect to this Consent and (ii) all of the representations and
warranties contained in the Credit Agreement and the other Credit Documents
shall be true and correct in all material respects on the date hereof and on
the Consent Effective Date with the same effect as though such
representations and warranties had been made on and as of such date (it being
understood that any representation or warranty made as of a specific date
shall be true and correct in all material respects as of such specific date).

36. This Consent is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.

37. This Consent may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with Holdings, the Borrower and the Agents.

38. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.

-13-
<PAGE>

39. This Consent shall become effective on the date hereof on the
date ("Consent Effective Date") when each of the following conditions have
been met:

a. Each of Holdings, the Borrower, the Agents, the Required Banks,
each Bank with an Additional D Term Loan Commitment and each Bank whose
Revolving Loan Commitment is being increased pursuant to this Consent shall
have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of telecopier) the
same to the Administrative Agent at the Notice Office;

b. The Administrative Agent shall have received from Gordon Altman
Butowsky Weitzen Shalov & Wein, counsel to the Borrower, an opinion
addressed to the Agents and each of the Banks and dated the Consent
Effective Date in form and substance satisfactory to the Agents, and
covering such matters incident to this Consent and the transactions
contemplated herein (including the matters set forth in clause (d) below
and matters relating to the Instromedix Acquisition) as the Agents may
reasonably request;

c. The Administrative Agent shall have received resolutions of the
Board of Directors of each of Holdings and the Borrower, which resolutions
shall be certified by the Secretary or any Assistant Secretary of such
Credit Party and shall authorize the execution, delivery and performance by
such Credit Party of this Consent and the consummation of the transactions
contemplated hereby, and the foregoing shall be acceptable to the
Administrative Agent in its reasonable discretion; and

d. The Administrative Agent shall have received a certificate, dated
the Consent Effective Date, signed by the chief financial officer of the
Borrower, in form and substance satisfactory to the Administrative Agent,
demonstrating in reasonable detail that an aggregate amount of (x) an
additional $30,000,000 of D Term Loans and (y) an additional $10,000,000 of
Revolving Loans may be incurred by the Borrower under the Credit Agreement
in compliance with the provisions of the Senior Subordinated Note
Indenture.

* * *

-14-
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Consent to be duly executed and delivered as of the date
first above written.

ALARIS MEDICAL, INC.
(formerly named Advanced Medical, Inc.)

By
---------------------------------------------
Name:
Title:

ALARIS MEDICAL SYSTEMS, INC.
(formerly named IVAC Holdings, Inc.)

By
---------------------------------------------
Name:
Title:

BANKERS TRUST COMPANY,
Individually and as Administrative Agent

By
---------------------------------------------
Name:
Title:

BANQUE PARIBAS,
Individually and as Documentation Agent

By
---------------------------------------------
Name:
Title:

PARIBAS CAPITAL FUNDING

By
---------------------------------------------
Name:
Title:

<PAGE>

GENERAL ELECTRIC CAPITAL
CORPORATION

By
---------------------------------------------
Name:
Title:

UNION BANK OF CALIFORNIA, N.A.

By
---------------------------------------------
Name:
Title:

U.S. BANK NATIONAL ASSOCIATION

By
---------------------------------------------
Name:
Title:

IBJ SCHRODER BANK & TRUST COMPANY

By
---------------------------------------------
Name:
Title:

PILGRIM AMERICA PRIME RATE TRUST

By
---------------------------------------------
Name:
Title:

MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.

By
---------------------------------------------
Name:
Title:

<PAGE>

SENIOR HIGH INCOME PORTFOLIO, INC.

By
---------------------------------------------
Name:
Title:

ML CBO IV (Cayman) Ltd.

By: Highland Capital Management L.P.
as Collateral Manager

By
---------------------------------------------
Name:
Title:

JACKSON NATIONAL LIFE INSURANCE COMPANY

By: PPM America, Inc., as attorney in fact, on
behalf of Jackson National Life Insurance
Company

By
---------------------------------------------
Name:
Title:

CRESCENT/MACH I PARTNERS, L.P.

By: TCW Asset Management Company, its Investment
Manager

By
---------------------------------------------
Name:
Title:

<PAGE>

ALLSTATE LIFE INSURANCE COMPANY

By
---------------------------------------------
Name:
Title:

METROPOLITAN LIFE INSURANCE COMPANY

By
---------------------------------------------
Name:
Title:

OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (a unit of The Chase Manhattan Bank)

By
---------------------------------------------
Name:
Title:

INDOSUEZ CAPITAL FUNDING III, LIMITED

By: Indosuez Capital, as Portfolio Advisor

By
---------------------------------------------
Name:
Title:

AMARA-1 FINANCE LTD.

By
---------------------------------------------
Name:
Title:

<PAGE>

AMARA-2 FINANCE LTD.

By
---------------------------------------------
Name:
Title:

PRIME INCOME TRUST

By
---------------------------------------------
Name:
Title:

SENIOR DEBT PORTFOLIO

By: Boston Management and Research, as
Investment Advisor

By
---------------------------------------------
Name:
Title:

COMMERCIAL LOAN FUNDING TRUST I

By
---------------------------------------------
Name:
Title:

PamCo Cayman Ltd.

By: Highland Capital Management L.P.
as Collateral Manager

By
---------------------------------------------
Name:
Title:

<PAGE>

ANNEX I
-------
COMMITMENTS
-----------

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Additional D Term Revolving Loan
Bank Loan Commitment Commitment
- ---------------------------------------------------------------------------------
<S> <C> <C>
Bankers Trust Company $30,000,000 $25,800,000
- ---------------------------------------------------------------------------------
Banque Paribas $9,000,000
- ---------------------------------------------------------------------------------
General Electrical Capital Corporation $7,200,000
- ---------------------------------------------------------------------------------
IBJ Schroder Bank & Trust Company $4,000,000
- ---------------------------------------------------------------------------------
Pilgrim American Prime Rate Trust
- ---------------------------------------------------------------------------------
Merrill Lynch Senior Floating Rate Fund,
Inc.
- ---------------------------------------------------------------------------------
Jackson National Life Insurance Company
(By PPM America, Inc., as attorney in
fact)
- ---------------------------------------------------------------------------------
Crescent/Mach I Partners, L.P. (By TCW
Asset Management Company its Investment
Manager)
- ---------------------------------------------------------------------------------
AllState Life Insurance Company
- ---------------------------------------------------------------------------------
Octogon Credit Investors Loan Portfolio
(a unit of The Chase Manhattan Bank)
- ---------------------------------------------------------------------------------
Commercial Loan Funding Trust I
- ---------------------------------------------------------------------------------
Prime Income Trust
- ---------------------------------------------------------------------------------
Senior Debt Portfolio (By Boston
Management and Research, as Investment
Advisor)
- ---------------------------------------------------------------------------------
Metropolitan Life Insurance Company
- ---------------------------------------------------------------------------------
ML CBO IV (Cayman) Ltd. (By Protective
Asset Management Company, as Collateral
Manager)
- ---------------------------------------------------------------------------------
Indosuez Capital Funding III, Limited (By
Indosuez Capital, as Portfolio Advisor)
- ---------------------------------------------------------------------------------
PAMCO Cayman Ltd. (By Protective Asset $2,000,000
Management Company, as Collateral Agent)
- ---------------------------------------------------------------------------------
Paribas Capital Funding
- ---------------------------------------------------------------------------------
Union Bank of California, N.A. $4,000,000
- ---------------------------------------------------------------------------------
U.S. Bank National Association $4,000,000
- ---------------------------------------------------------------------------------
AMARA-1
- ---------------------------------------------------------------------------------
AMARA-2
- ---------------------------------------------------------------------------------
Total: $30,000,000 $60,000,000
- ---------------------------------------------------------------------------------

</TABLE>

<PAGE>

ALARIS MEDICAL, INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from continuing
operations $ (5,517) $ 7,563 $ 9,403 $(66,336) $(12,926) $(18,717) $(2,111)
-------- ------- ------- -------- ------- ------- -------
Fixed charges:
Interest expense and amortization
of debt discount and premium
on all indebtedness 10,880 8,690 8,153 13,393 44,413 21,695 21,795
Interest portion of rentals (33%
of rent expense) 1,282 1,247 1,050 1,158 1,574 787 867
-------- ------- ------- -------- ------- ------- -------
Total fixed charges 12,162 9,937 9,203 14,551 45,987 22,482 22,662
-------- ------- ------- -------- ------- ------- -------
Income before income taxes
and fixed charges $ 6,645 $17,500 $18,606 $(51,785) $ 33,061 $ 3,765 $20,551
-------- ------- ------- -------- ------- ------- -------
-------- ------- ------- -------- ------- ------- -------
Ratio of earnings to fixed charges n/a 1.8 2.0 n/a n/a n/a n/a
-------- ------- ------- -------- ------- ------- -------
-------- ------- ------- -------- ------- ------- -------
Earnings insufficient
to cover fixed charges by 5,517 n/a n/a 66,336 12,926 18,717 2,111
-------- ------- ------- -------- ------- ------- -------
-------- ------- ------- -------- ------- ------- -------

</TABLE>

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF ALARIS MEDICAL, INC.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Jurisdiction of Incorporation
- --------------------------------------------------------------------------------
<S> <C>
ALARIS Medical Systems, Inc. Delaware
IVAC Overseas Holding, Inc. Delaware
IMED Nominee, Inc. Delaware
ALARIS Foreign Sales Corp. Barbados
ALARIS Medical Canada Ltd. Canada
ALARIS Medical Nordic, AB Sweden
IVAC Industries Limited United Kingdom
ALARIS Medical UK Limited United Kingdom
ALARIS Medical France, S.A. France
ALARIS Medical Deutschland, GmbH Germany
ALARIS Medical Espana, S.L. Spain
IMED Ltd. United Kingdom
ALARIS Medical Australia Pty Ltd. Australia
IMED Holding Co. Ltd. British Virgin Islands
ALARIS Consent Corporation Delaware
ALARIS Release Corporation Delaware
Sistemas Medicos ALARIS, S.A., de CV Mexico
ALARIS Medical Norway A/S Norway
ALARIS Medical Italia, S.P.A. Italy
ALARIS Medical Holland, BV Netherlands
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of ALARIS Medical, Inc. of our reports
dated March 2, 1998 relating to the financial statements of ALARIS Medical,
Inc. and March 29, 1996 relating to the financial statements of IVAC Holding,
Inc., which appear in such Prospectus. We also consent to the application of
our report dated March 2, 1998 to the Financial Statement Schedule for the
three years ended December 31, 1997 appearing on page S-II-1 of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our March 2, 1998 report. The audits
referred to in such report also included this schedule. We also consent to
the reference to us under the heading "Experts" in such Prospectus.

PricewaterhouseCoopers LLP

San Diego, California
August 25, 1998

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________

FORM T-1

STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
_______________

U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)

75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)

2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)

Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
_______________
Alaris Medical, Inc.
(Exact name of obligor as specified in its charter)

Deleware 13-3492624
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)

10221 Wateridge Circle 92121
San Diego, California (Zip Code)
(Address of principal executive offices)
_______________
11 1/8% Senior Discount Notes due 2008
(Title of the indenture securities)

<PAGE>

GENERAL

1. GENERAL INFORMATION.
-------------------

Furnish the following information as to the Trustee:

(a) Name and address of each examining or supervising authority to which
it is subject.

Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas

(b) Whether it is authorized to exercise corporate trust powers.

The Trustee is authorized to exercise corporate trust powers.

2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.

If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.

None.

3. VOTING SECURITIES OF THE TRUSTEE.

Furnish the following information as to each class of voting securities of
the Trustee:

As of August 25, 1998
- -------------------------------------------------------------------------------

Col A. Col B.
- -------------------------------------------------------------------------------

Title of Class Amount Outstanding
- -------------------------------------------------------------------------------

Capital Stock - par value $100 per share 5,000 shares

4. TRUSTEESHIPS UNDER OTHER INDENTURES.

Not Applicable

5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.

Not Applicable

<PAGE>

6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.

Not Applicable

7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.

Not Applicable

8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.

Not Applicable

9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.

Not Applicable

10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.

Not Applicable

11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.

Not Applicable

12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.

Not Applicable

13. DEFAULTS BY THE OBLIGOR.

Not Applicable

14. AFFILIATIONS WITH THE UNDERWRITERS.

Not Applicable

15. FOREIGN TRUSTEE.

Not Applicable

16. LIST OF EXHIBITS.

T-1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 22-21897.

<PAGE>

16. (con't.)

T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to
Exhibit T-1.2 filed with Form T-1 Statement, Registration
No. 22-21897.

T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.

T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date; incorporated herein by reference to
Exhibit T-1.4 filed with Form T-1 Statement, Registration
No. 22-21897.

T-1.6 - The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.

T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its supervising
or examining authority.

NOTE

As of August 25, 1998 the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of August 25,
1998, U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 18,723,200.00 shares of $5 par value Common Stock as of August
24, 1998.

The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.

In as much as this Form T-1 is filed prior to the ascertainment by the
Trustee of all the facts on which to base responsive answers to Items 2, 5,
6, 7, 9, 10 and 11, the answers to said Items are based upon incomplete
information. Items 2, 5, 6, 7, 9, 10 and 11 may, however, be considered
correct unless amended by an amendment to this Form T-1.

In answering any items in this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligors or
their directors or officers, or an underwriter for the obligors, the Trustee
has relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.

_______________

<PAGE>

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Dallas, and State
of Texas on the 25th day of August, 1998.

U.S. Trust Company
of Texas, N.A., Trustee

By: /s/ Bill Barber
---------------------------
Bill Barber
Vice President

<PAGE>

Exhibit T-1.6

CONSENT OF TRUSTEE

Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Alaris Medical, Inc.
11 1/8% Senior Discount Notes due 2008, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefore.

U.S. Trust Company of Texas, N.A.

By: /s/ Bill Barber
---------------------------------
Bill Barber
Vice President

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-005
Office of the Comptroller of the Currency
Federal Financial Institutions Examination Council OMB Number: 1557-008
Expires March 31, 2001
- ----------------------------------------------------------------------------------------------------------------------------------

(1)
Please Refer to Page I,
(LOGO) Table of Contents, for
the required disclosure
of estimated burden.

CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN $100
MILLION - - FFIEC 033

REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1998
(19980630)
This report is required by law: 12 U.S.C. Section ss. 324 (RCRI 9999)
(State member banks); 12 U.S.C. Section ss. 1817
(State nonmemberbanks); and 12 U.S.C. Sectionss.161 This report form is to be filed by banks with domestic
(National banks). offices only. Banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or
Agreement subsidiaries, foreign branches, consolidated
foreign subsidiaries, or International Banking Facilities
must file FFIEC 031.
- ----------------------------------------------------------------------------------------------------------------------------------

NOTE: The Reports of Condition and Income must be signed by an The Reports of Condition and Income are to be prepared in
authorized officer and the Report of Condition must be attested accordance with Federal regulatory authority instructions.
to by not less than two directors (trustees) for State NOTE: these instructions may in some cases differ from
nonmember banks and three directors for State member and generally accepted accounting principles.
National Banks.
We, the undersigned directors (trustees), attest to the
I, Alfred B. Childs, SVP & Cashier correctness of this Report of Condition (including the
---------------------------------------------------- supporting schedules) and declare that it has been examined
Name and Title of Officer Authorized to Sign Report by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the
of the named bank do hereby declare that these Reports of appropriate Federal regulatory authority and is true and
Condition and Income (including the supporting schedules) have correct.
been prepared in conformance with the instructions issued by
the appropriate Federal regulatory authority and are true to
the best of my knowledge and belief. /s/ William Goodwin
-----------------------
Director (Trustee)
/s/ Alfred B. Childs
- -----------------------------------------------
Signature of Officer Authorized to Sign Report /s/. Arthur White
--------------------
Director (Trustee)

7/15/98
- ----------------------------------
Date of Signature /s/. Peter Denker
--------------------
Director (Trustee)

- ----------------------------------------------------------------------------------------------------------------------------------

SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another party
to convert the paper report to electronic form. That
Each bank must prepare its Reports of Condition and Income party (if other than EDS) must transmit the bank's
either: computer data file to EDS.
(a) in electronic form and then file the computer data file To fulfill the signature and attestation requirement for the
directly with the banking agencies' collection agent, Reports of Condition and Income for this report date, attach
Electronic Data Systems Corporation (EDS), by modem or on this signature page to the hard-copy record of the completed
computer diskette; or report that the bank places in its files.

- ----------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number 33217 US TRUST COMPANY OF TEXAS, NATIONAL ASSOCIATION
----------- -----------------------------------------------
(RCRI 9050) Legal Title of Bank (TEXT 9010)

DALLAS
------------------------------------------------
City (TEXT 9130)

TX 75201
-------------------------------------------------
State Abbrev. (TEXT 9200) Zip Code. (TEXT 9220)

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation,
Office of the Comptroller of the Currency

<PAGE>

U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 06/30/98 State #: 48-6797 FFIEC 033
2001 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 RC-1
DALLAS, TX 75201 Transit #: 11101765
---------
9
---------

CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998

All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.

SCHEDULE RC - BALANCE SHEET
C200
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions: RCON
---- ---------
a. Noninterest-bearing balances and currency and coin ______ _______ 0081 1,900 1.a
(1,2)__________________ ---------

---------
b. Interest bearing balances ______ _______ 0071 241 1.b
(3)____________________________________________ ---------
---------
2. Securities:
---------
---------
a. Held-to-maturity securities (from Schedule RC-B, column ______ _______ 1754 0 2.a
A)_______________ ---------

---------
b. Available-for-sale securities (from Schedule RC-B, column ______ _______ 1773 127,638 2.b
D)______________ ---------
---------
3. Federal funds sold (4) and securities purchased under agreements to 1350 2,000 3
resell:
---------
4. Loans and lease financing receivables: RCON
---------
a. Loans and leases, net of unearned income (from Schedule 2122 20,749 4.a
RC-C)____________
---------
---------
b. LESS: Allowance for loan and lease 3123 230 4.b
losses_______________________________
---------
---------
c. LESS: Allocated transfer risk 3128 0 4.c
reserve___________________________________
---------
---------
d. Loans and leases, net of unearned income, allowance, and reserve RCON
----
(item 4.a minus 4.b and ______ _______ 2125 20,519 4.d
4.c)_____________________________________________
---------
---------
5. Trading ______ _______ 3545 0 5.
assets____________________________________________________________
---------
---------
6. Premises and fixed assets (including capitalized ______ _______ 2145 705 6.
leases)______________________
---------
---------
7. Other real estate owned (from Schedule ______ _______ 2150 0 7.
RC-M)______________________________
---------
---------
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)_____________________________________________________ ______ _______ 2130 0 8.
---------
---------
9. Customers' liability to this bank on acceptances ______ _______ 2155 0 9.
outstanding__________________
---------
---------
10. Intangible assets (from Schedule ______ _______ 2143 0 10.
RC-M)____________________________________
---------
---------
11. Other assets (from Schedule ______ _______ 2160 1,859 11.
RC-F)_________________________________________
---------
---------
12. Total assets (sum of items 1 through ______ _______ 2170 154,862 12.
11)____________________________________
---------

(1) Includes cash items in process of collection and unposted debits.
(2) Included time certificates of deposit not held for trading.

<PAGE>

U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 06/30/98 State #: 48-6797 FFIEC 033
2001 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 RC-2
DALLAS, TX 75201 Transit #: 11101765

---------------
10
---------------

SCHEDULE RC - CONTINUED

Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
----
---------
columns A and C from Schedule RCON 2200 128,302 13.a
----
RC-E)___________________________________
---------
---------
(1) Noninterest-bearing 6631 18,826 13.a.1
(1)_____________________________________________
---------
---------
(2) Interest-bearing 6636 109,476 13.a.2
---------------------------------------------------
---------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1)
Noninterest-bearing________________________________________________
(2)
Interest-bearing___________________________________________________
---------
14. Federal funds purchased(2) and securities sold under agreements to RCON 0 14
----
repurchase: 2800
---------
15. a. Demand notes issued to the U.S. ______ _______ 2840 0 15.a
Treasury_________________________________________________________________
---------
---------
b. Trading ______ _______ 3548 0 15.b
liabilities______________________________________________________
---------
16. Other borrowed money:
---------
A. WITH A REMAINING MATURITY OF ONE YEAR OR ______ _______ 2332 1,000 16.a
LESS_____________________________________________________________________
---------
---------
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE ______ _______ A547 2,000 16.b
YEARS____________________________________________________________________
---------
C. WITH A REMAINING MATURITY OF MORE THAN THREE ______ _______ A548 1,000 16.c
YEARS____________________________________________________________________
---------
17. Not applicable
---------
18. Bank's liability on acceptances executed and ______ _______ 2920 0 18.
outstanding______________________________________________________________
---------
---------
19. Subordinated notes and ______ _______ 3200 0 19.
debentures_______________________________________________________________
---------
---------
20. Other liabilities (from Schedule ______ _______ 2930 2,006 20.
RC-G)______________________________________
---------
21. Total liabilities (sum of items 13 through ______ _______ 2948 134,308 21.
20)______________________________________________________________________
---------
22. Not applicable
EQUITY CAPITAL
---------
RCON 7,000 23.
----
23. Perpetual preferred stock and related ______ ______ 3838
surplus__________________________________________________________________
---------
---------
24. Common stock___________________________________________________________ ______ ______ 3230 500 24.
---------
---------
25. Surplus (exclude all surplus related to preferred ______ ______ 3839 8,384 25.
stock)____________________________________________________________________
---------
---------
26. a. Undivided profits and capital ______ ______ 3632 4,252 26.a
reserves__________________________________________________________________
---------
b. Net unrealized holding gains (losses) on available-for-sale ______ ______ 8434 418 26.b
securities________________________________________________________________
---------
27. Cumulative foreign currency translation
adjustments______________________________________________________________
---------
28. Total equity capital (sum of items 23 through ______ ______ 3210 20,554 28.
27)____________________________
---------
---------
29. Total liabilities and equity capital (sum of items 21 and ______ ______ 2257 154,862 29.
28)___________________
---------

MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION. NUMBER
---------
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent
external auditors as of any date during 1997___________________________________________________ 6724 N/A M.1
---------

1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)

(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.

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