<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended MARCH 31, 2000 or
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 33-26398
-----------------------------------------------------
ALARIS MEDICAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3492624
- ----------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
10221 Wateridge Circle, San Diego, CA 92121
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(858) 458-7000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: /X/ No: / /
On May 3, 2000 58,844,834 shares of Registrant's Common Stock were outstanding.
Page 1 of 21
<PAGE>
ALARIS MEDICAL, INC.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Information:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated balance sheet at
March 31, 2000 and December 31, 1999.................................................................. 3
Condensed consolidated statement of operations for
the three months ended March 31, 2000 and 1999........................................................ 4
Condensed consolidated statement of cash flows for
the three months ended March 31, 2000 and 1999........................................................ 5
Condensed consolidated statement of changes
in stockholders' equity for the period from
December 31, 1999 to March 31, 2000 .................................................................. 6
Notes to the condensed consolidated financial statements.............................................. 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................... 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk...................................... 18
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings............................................................................... 19
Item 6 - Exhibits and Reports on Form 8-K................................................................ 20
</TABLE>
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<PAGE>
FORM 10 - Q
PART 1 - ITEM 1
FINANCIAL INFORMATION
ALARIS MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash................................................................................ $ 22,180 $ 23,559
Receivables, net.................................................................... 76,842 84,889
Inventories......................................................................... 79,736 76,769
Prepaid expenses and other current assets........................................... 26,762 25,086
---------- -----------
Total current assets............................................................ 205,520 210,303
Net investment in sales-type leases, less current portion............................... 24,773 24,407
Property, plant and equipment, net...................................................... 66,610 68,480
Other non-current assets................................................................ 29,714 28,157
Intangible assets, net.................................................................. 272,115 275,443
---------- -----------
$ 598,732 $ 606,790
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 16,169 $ 13,769
Accounts payable.................................................................... 22,252 25,169
Accrued expenses and other current liabilities...................................... 45,769 44,606
---------- -----------
Total current liabilities....................................................... 84,190 83,544
---------- -----------
Long-term debt.......................................................................... 524,922 527,082
Other non-current liabilities........................................................... 17,157 17,115
---------- -----------
Total non-current liabilities................................................... 542,079 544,197
---------- -----------
Contingent liabilities and commitments (Note 5)
Stockholders' equity:
Common stock, authorized 75,000 shares at $.01 par value; issued 59,296
shares and 59,295 shares at March 31, 2000 and December 31, 1999, respectively... 593 593
Capital in excess of par value...................................................... 148,992 148,991
Accumulated deficit................................................................. (169,391) (164,195)
Treasury stock...................................................................... (2,027) (2,027)
Accumulated other comprehensive loss................................................ (5,704) (4,313)
---------- -----------
Total stockholders' equity...................................................... (27,537) (20,951)
---------- -----------
$ 598,732 $ 606,790
========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
<PAGE>
ALARIS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales .............................................................................. $ 91,277 $ 93,436
Cost of sales......................................................................... 48,714 45,634
----------- -----------
Gross margin.......................................................................... 42,563 47,802
----------- -----------
Selling and marketing expenses........................................................ 19,474 19,917
General and administrative expenses................................................... 10,161 11,235
Research and development expenses..................................................... 6,331 6,047
Integration and other non-recurring charges........................................... - 2,099
----------- -----------
Total operating expenses.......................................................... 35,966 39,298
----------- -----------
Lease interest income................................................................. 1,130 1,061
----------- -----------
Income from operations............................................................ 7,727 9,565
----------- -----------
Other income (expenses):
Interest income................................................................... 223 322
Interest expense.................................................................. (14,315) (13,653)
Other, net........................................................................ (1,331) (459)
----------- -----------
Total other expense................................................................... (15,423) (13,790)
------------ -----------
Loss before income taxes.............................................................. (7,696) (4,225)
Benefit from income taxes............................................................. (2,500) (3,500)
----------- -----------
Net loss.............................................................................. $ (5,196) $ (725)
=========== ===========
Net loss per common share assuming no dilution.................................... $ (.09) $ (.01)
=========== ===========
Net loss per common share assuming dilution ...................................... $ (.09) $ (.01)
=========== ===========
Weighted average common shares outstanding assuming no dilution....................... 58,845 58,777
=========== ===========
Weighted average common shares outstanding assuming dilution.......................... 58,845 58,777
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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<PAGE>
ALARIS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
---------- -----------
<S> <C> <C>
Net cash provided by operating activities.............................................. $ 7,778 $ 26,025
---------- -----------
Cash flows from investing activities:
Net capital expenditures........................................................... (3,930) (8,886)
Patents, trademarks and other...................................................... (193) (297)
Payments for product licenses and distribution rights.............................. (1,065) (800)
---------- -----------
Net cash used in investing activities.................................................. (5,188) (9,983)
---------- -----------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease obligations................. (3,287) (5,993)
Proceeds from exercise of stock options............................................ 1 26
Deferred financing costs........................................................... (650) -
---------- -----------
Net cash used in financing activities.................................................. (3,936) (5,967)
---------- -----------
Effect of exchange rate changes on cash................................................ (33) (63)
---------- -----------
Net (decrease) increase in cash........................................................ (1,379) 10,012
Cash at beginning of period............................................................ 23,559 29,500
---------- -----------
Cash at end of period.................................................................. $ 22,180 $ 39,512
========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
-5-
<PAGE>
ALARIS MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER OTHER
CAPITAL IN COMPRE- COMPRE-
COMMON STOCK EXCESS OF ACCUMULATED TREASURY STOCK HENSIVE HENSIVE
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT LOSS TOTAL LOSS
------ ------ --------- ------- ------ ------ -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999....... 59,295 $ 593 $ 148,991 $ (164,195) 453 $(2,027) $(4,313) $(20,951)
Comprehensive loss
Net loss for the period......... (5,196) (5,196) $(5,196)
Equity adjustment from foreign
currency translation........... (1,391) (1,391) (1,391)
-------
Comprehensive loss................. $(6,587)
=======
Exercise of stock options.......... 1 1 1
------ ------ --------- ---------- ----- ------ ------ -------
Balance at March 31, 2000.......... 59,296 $ 593 $ 148,992 $ (169,391) 453 $(2,027) $(5,704) $(27,537)
====== ====== ========= ========== ===== ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
-6-
<PAGE>
ALARIS MEDICAL, INC.
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:
ALARIS Medical, Inc. ("ALARIS Medical") operating through its consolidated
subsidiaries, designs, manufactures, distributes and services intravenous
infusion therapy and patient monitoring instruments and related disposables and
accessories, as well as telemedicine, cardiovascular and pacemaker monitoring
equipment. ALARIS Medical was formed by the merger of two pioneers in infusion
systems, IMED Corporation ("IMED") and IVAC Medical Systems, Inc. ("IVAC"), on
November 26, 1996. ALARIS Medical (formerly Advanced Medical, Inc.) was
incorporated on September 28, 1988 under the laws of the state of Delaware.
ALARIS Medical and its subsidiaries are collectively referred to as 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 March 31, 2000, the results
of its operations for the three months ended March 31, 2000 and 1999, and its
cash flows for the three months ended March 31, 2000 and 1999.
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.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
Inventories comprise the following: MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials................................................................. $ 37,089 $ 34,960
Work-in-process............................................................... 5,626 6,156
Finished goods................................................................ 37,021 35,653
----------- -----------
$ 79,736 $ 76,769
=========== ===========
</TABLE>
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<PAGE>
NOTE 3 -- LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
2000 1999
------------------------ ------------------------
BASIC DILUTED BASIC DILUTED
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net loss as reported................................... $ (5,196) $ (5,196) $ (725) $ (725)
========= ========== ========== =========
Weighted average common shares outstanding
(net of Treasury Shares)............................ 58,845 58,845 58,777 58,777
========= ========== ========== =========
Net loss per common share.............................. $ (.09) $ (.09) $ (.01) $ (.01)
========= ========== ========== ==========
</TABLE>
Net loss per common share assuming no dilution and dilution are the same for the
three months ended March 31, 2000 and March 31, 1999, as the Company experienced
a net loss. Options outstanding at March 31, 2000 and March 31, 1999 were
excluded due to their antidilutive nature. Had such options been included, the
weighted average shares would have increased by 304 and 1,153 for the three
months ended March 31, 2000 and March 31, 1999, respectively.
The Company's 7 1/4% Convertible Debentures (the "Convertible Debentures") were
not included in the calculation of diluted earnings per share in the three
months ended March 31, 2000 and March 31, 1999, as they are antidilutive. For
both the three months ended March 31, 2000 and March 31, 1999, 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 $176, net of
taxes, to net income due to the reduction in interest expense.
NOTE 4 -- SEGMENT INFORMATION
The Company is organized primarily based on geographic location, with the United
States and Canada drug infusion and patient monitoring business representing the
North American Segment. All other international operations including Europe,
Asia, Australia and Latin America represent the International segment. The
acquisition of Instromedix in 1998 resulted in a third separate operating
segment.
The accounting policies of the segments are the same as those described in the
"Statement of Accounting Policy" (Note 1). Segment data does not include
intersegment revenues, or charges allocating corporate headquarters costs to
each of its operating segments. The Company evaluates the performance of its
segments and allocates resources to them based on operating income and adjusted
earnings before interest, taxes, depreciation, and amortization (EBITDA).
The table below presents information about reported segments for the three
months ended March 31:
<TABLE>
<CAPTION>
NORTH SHARED
AMERICA INTERNATIONAL INSTROMEDIX SERVICES(A) TOTAL
------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
2000
Sales ......................... $ 58,170 $ 29,919 $ 3,188 $ - $ 91,277
Operating income (loss)........ 7,270 4,689 (622) (3,610) 7,727
Adjusted EBITDA................ 11,083 6,367 (149) (1,199) 16,102
1999
Sales ......................... $ 57,336 $ 32,062 $ 4,038 $ - $ 93,436
Operating income (loss)........ 9,332 7,520 (2,853) (4,434) 9,565
Adjusted EBITDA................ 12,648 8,970 343 (1,103) 20,858
</TABLE>
(A) Shared services includes amortization of intangibles and certain legal,
business development and executive costs.
-8-
<PAGE>
Reconciliation of total segment adjusted EBITDA to consolidated loss before
taxes:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ADJUSTED EBITDA
Total adjusted EBITDA........................................................... $ 16,102 $ 20,858
Depreciation and amortization................................................... (8,375) (9,194)
Interest (net).................................................................. (14,092) (13,331)
Integration and other non-recurring charges..................................... - (2,099)
Other reconciling items......................................................... (1,331) (459)
----------- -----------
Consolidated loss before income taxes........................................ $ (7,696) $ (4,225)
=========== ===========
</TABLE>
NOTE 5 -- CONTINGENCIES AND LITIGATION
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 cash flows. 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 material 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 and could result in the Company losing its ability to contract
with government agencies. In addition, if the FDA believes any of the Company's
products violate the law and present a potential health hazard, the FDA could
seek to detain and seize products, to require the Company to cease distribution
and to notify users to stop using the product. The FDA could also refuse to
issue or renew certificates to export the Company's products to foreign
countries. Such actions could also result in an inability of the Company to
obtain additional clearances or approvals to market its devices.
In October 1999, the Company received a warning letter from the FDA related to
earlier inspections. These FDA inspections noted several areas of non-compliance
with FDA regulatory requirements. The letter stated that to resolve this matter,
the Company is required until October 2001 to submit to the FDA periodic
certifications as to its state of compliance based on the outcome of inspections
conducted by outside regulatory consultants employed by the Company for this
purpose. In addition, product approvals, clearances and certificates for device
exports, including renewals, will not be provided until the FDA is satisfied
with the Company's corrective action. The FDA has informed the Company that the
corrective action plan it submitted in response to the warning letter is
adequate. The Company estimates that during the first quarter of 2000, Company
personnel devoted over 150,000 hours toward resolving these regulatory
compliance issues. In April 2000, as requested by the FDA, independent
regulatory experts
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<PAGE>
audited the Company's progress to date. Based on the audit, on April 29, 2000
the Company's president and chief executive officer, David L. Schlotterbeck,
certified to the FDA that, to the best of his knowledge, the Company has
initiated or completed all corrections called for in the report issued by the
independent consultant. ALARIS Medical is now awaiting the FDA's review of
its progress. The Company is not able to determine if or when the FDA will be
satisfied with the Company's actions, and the Company will continue to work
with the FDA to ensure resolution of this matter as quickly as possible.
Since 1995, the Company has on fourteen occasions initiated product recalls or
issued safety alerts regarding its products regulated by the FDA. In each case
this was done because the products were found not to meet the Company's
specifications. Of the fourteen recalls, three are closed and notice to that
effect has been received from the FDA. The Company has submitted to the FDA a
request for closure related to four of the recalls but has not received notice
back from the FDA. The remaining seven are still active. Additionally, the
Company has three active recalls related to its products manufactured and sold
outside the United States. None of the recalls materially interfered with the
Company's operations and all such affected product lines continued to be
marketed by the Company, with the exception of the Model 599 Series infusion
pump, for which the Company continues to sell administration sets and
replacement parts only.
The costs incurred related to the Company's recall activities have historically
been significant. These costs include labor and materials, as well as travel and
lodging for repair technicians. Estimates to complete are often quite difficult
to determine due to uncertainty surrounding how many affected units are still in
service and how many units customers will fix without Company assistance. Due to
these difficulties in estimating costs, it is possible that the actual costs to
complete each individual recall could differ significantly from management's
current estimates to complete. Although there can be no assurances, the Company
believes it has adequate reserves to cover the remaining estimated aggregate
costs related to these active recalls.
OTHER
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes the
Company has 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 the business, financial
condition, results of operations or cash flows.
-10-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ------------------------------------------------------------------------------
GENERAL
ALARIS Medical is a holding company for ALARIS Medical Systems, Inc. ("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 operations of ALARIS Medical Systems and external borrowings
to meet its obligations. Capitalized terms used but not defined herein have
the meaning ascribed to them in the Notes to the Condensed Consolidated
Financial Statements.
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 seven Western
European countries, the number three market position in three countries, 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 dedicated and non-dedicated 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.
Through its Instromedix division, the Company also designs, manufactures and
sells cardiology products such as arrhythmia-event recorders and pacemaker
monitors.
The Company sells a full range of products through a worldwide direct sales
force consisting of over 250 sales persons and through more than 150
distributors to over 5,000 hospitals worldwide. Sales by the Company's
International business unit represented 32.8% of the Company's total sales
for the three months ended March 31, 2000. For the three months ended March
31, 2000, the Company had sales of $91.3 million and Adjusted EBITDA of $16.1
million.
In recent years, the Company's results of operations have been affected by
the cost containment pressures applicable to health care providers.
Notwithstanding this, unit sales volume of the Company's disposable
administration sets increased in every year since 1993, primarily as a result
of the growth in its worldwide installed base of infusion pumps. However,
uncertainty remains with regard to future changes within the healthcare
industry. The trend towards managed care and economically motivated buyers in
the U.S. may result in continued pressure on selling prices of products and
compression on gross margins. The U.S. marketplace is increasingly
characterized by consolidation among healthcare providers and purchasers of
medical products. The Company's profitability is affected by the increasing
use of Group Purchasing Organizations ("GPOs") which are better able to
negotiate favorable pricing from providers of infusion systems, such as the
Company, and which insure compliance with exclusive buying arrangements for
their members. These buying arrangements, in certain situations, also may
result in the GPO requiring removal of the Company's existing infusion pumps.
The Company expects that such GPOs will become increasingly more common and
may have an adverse effect on the Company's future profitability. Finally,
the enactment of national health care reform or other legislation affecting
payment mechanisms
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<PAGE>
and health care delivery could affect the Company's future results of
operations. It is impossible to predict the extent to which the Company may
be affected by any such change in legislation.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
information expressed as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales............................................................................. 100.0% 100.0%
Cost of sales..................................................................... 53.4 48.8
----------- -----------
Gross margin...................................................................... 46.6% 51.2%
Selling and marketing expenses.................................................... 21.3 21.3
General and administrative expenses............................................... 11.1 12.0
Research and development expenses................................................. 6.9 6.5
Integration and other non-recurring charges....................................... - 2.2
Lease interest income............................................................. 1.2 1.1
----------- -----------
Income from operations............................................................ 8.5 10.3
Interest expense.................................................................. (15.7) (14.6)
Other, net........................................................................ (1.2) (.2)
----------- -----------
Loss before income taxes.......................................................... (8.4) (4.5)
Benefit from income taxes......................................................... (2.7) (3.7)
----------- -----------
Net loss.......................................................................... (5.7)% (.8)%
=========== ===========
OTHER DATA:
Adjusted EBITDA.............................................................. 17.6% 22.3%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
ADJUSTED EBITDA (1)............................................................... $ 16,102 $ 20,858
Integration and other non-recurring charges....................................... - (2,099)
Depreciation and amortization (2)................................................. (8,375) (9,194)
Interest income................................................................... 223 322
Interest expense.................................................................. (14,315) (13,653)
Other, net........................................................................ (1,331) (459)
Benefit from income taxes......................................................... 2,500 3,500
----------- -----------
Net loss.......................................................................... $ (5,196) $ (725)
=========== ===========
- -------------------------
</TABLE>
(1) 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. ALARIS Medical 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 ALARIS Medical believes that the inclusion of
these items would not be helpful to an investor's understanding of ALARIS
-12-
<PAGE>
Medical's ability to service debt. ALARIS Medical's computation of
Adjusted EBITDA may not be comparable to similar titled measures of other
companies.
(2) Depreciation and amortization excludes amortization of debt discount and
issuance costs included in interest expense.
The Company's sales results are reported consistent with the Company's three
strategic business units: North America, International, and Instromedix. The
following table summarizes sales to customers by each business unit.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
North America sales............................................................. $ 58.2 $ 57.3
International sales............................................................. 29.9 32.1
Instromedix sales............................................................... 3.2 4.0
--------- --------
Total sales................................................................ $ 91.3 $ 93.4
========= ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
SALES
Sales decreased $2.2 million, or 2%, for the three months ended March 31,
2000 compared with the three months ended March 31, 1999. North America sales
increased $0.8 million, or 2%, compared with the first quarter of 1999. North
America drug infusion instrument revenue increased by approximately $2.9
million as instrument placements increased 46% over the unusually low first
quarter of 1999. The increase in North America instrument sales was
significantly offset by a decrease in sales of drug infusion disposable
administration sets. Disposable set revenue was lower than a year ago in
major markets worldwide. The Company estimates that about $3 million of its
dedicated disposable sets were purchased in 1999 as safety stock in
anticipation of possible Y2K problems at year-end. The Company believes that
most of this inventory was worked off in the first quarter of 2000.
The increase in total North America sales in the first quarter was more than
offset by a decrease in International sales of $2.1 million, or 7%, compared
with the first quarter of 1999. Sales decreased approximately $3.3 million in
the United Kingdom, the Company's largest international market. The Company
believes the UK decrease was due in part to the Y2K disposables issue
described above and in part to a limitation in governmental funds available
for healthcare expenditures in this quarter, which was the final quarter of
the UK's fiscal year. Additionally, foreign currency rate changes had an
adverse effect on International sales in the first quarter of 2000. The
majority of the Company's international sales are denominated in foreign
currency. Due to a stronger U.S. dollar in 2000 compared with the actual
foreign currency exchange rates in effect during 1999, translation of 2000
International sales were adversely impacted by $1.6 million, or 5%. Using
constant exchange rates, International sales decreased 2%.
Instromedix sales decreased $0.9 million during the quarter to $3.2 million
compared with a strong first quarter a year ago of $4.1 million.
GROSS MARGIN
Gross margin decreased $5.2 million, or 11%, during the three months ended
March 31, 2000, compared with the three months ended March 31, 1999. The
gross margin percentage decreased to 46.6% in the
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first quarter of 2000, from 51.2% in the first quarter of 1999. The margin
percentage for the first quarter of 1999 was unusually high due to low
instrument placement during that period. Contributing to the margin decrease
in 2000 was the overall worldwide mix of increased instrument sales and lower
disposables sales, lower international sales which typically carry higher
margins than U.S. sales, as well as less favorable production costs in the
first quarter of 2000 compared with the same quarter last year.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses decreased $0.4 million, or 2%, during the
three months ended March 31, 2000 compared with the three months ended March
31, 1999 due to lower sales volume and the effect of spending controls
initiated in the second quarter of last year. As a percentage of sales,
selling and marketing expenses remained constant at 21.3% for the first
quarter of 2000 and 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.1 million, or 10%, during
the three months ended March 31, 2000 compared with the three months ended
March 31, 1999. This decrease is primarily due to lower amortization expense
in the current period as a result of the write-off of certain Instromedix
intangible assets during the fourth quarter of 1999 and from other
intangibles becoming fully amortized during the prior year. These decreases
were partially offset by increased information technology costs for the
Company's new International operating system implemented in late 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased approximately $0.3 million, or
5%, during the three months ended March 31, 2000 compared with the three
months ended March 31, 1999 primarily due to increased activities associated
with the later development stages of various International engineering
projects.
INTEGRATION AND OTHER NON-RECURRING CHARGES
In connection with the Instromedix acquisition, management, with the
assistance of consultants performed a review of the operating activities of
the acquired company in order to assess how best to integrate and leverage
the Instromedix operations with ALARIS Medical Systems. As a result of this
assessment, in June 1999, the Company consolidated the operations of
Instromedix into its San Diego, California facilities, allowing the Company
to leverage its existing infrastructure and manufacturing capacity in San
Diego. In connection with these relocation and integration activities, the
Company incurred $2.1 million in costs in the first quarter of 1999,
including severance and related termination benefits of $1.1 million,
retention bonuses of $0.2 million, asset dispositions of $0.4 million, lease
termination costs of $0.3 million and $0.1 million in other related costs.
INCOME FROM OPERATIONS
Income from operations decreased $1.8 million during the three months ended
March 31, 2000 compared with the three months ended March 31, 1999 primarily
due to lower sales and gross margins in the current year and other activities
discussed above.
ADJUSTED EBITDA
Adjusted EBITDA decreased $4.8 million during the three months ended March
31, 2000 compared with the three months ended March 31, 1999. As a percentage
of sales, Adjusted EBITDA decreased from 22.3%, or $20.9 million, during the
three months ended March 31, 1999 to 17.6%, or $16.1 million, during the
three months ended March 31, 2000 due to the reasons discussed above.
Adjusted EBITDA represents income from operations before restructuring,
integration and other non-recurring, non-cash purchase accounting charges and
depreciation and amortization. Adjusted EBITDA does not
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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 $0.7 million, or 5%, during the three months ended
March 31, 2000 compared with the three months ended March 31, 1999 primarily
due to increased interest accretion on the Company's 11 1/8% senior discount
notes as well as higher interest rates in 2000 on the Company's other
outstanding debt. (See Liquidity and Capital Resources.)
OTHER EXPENSE
Other expense increased approximately $0.9 million during the three months
ended March 31, 2000 compared with the three months ended March 31, 1999
primarily due to an increase in foreign currency transaction losses resulting
from the strengthening of the U.S. dollar in the first quarter of 2000
compared with the actual foreign currency exchange rates in effect during
1999.
LIQUIDITY AND CAPITAL RESOURCES
Management currently believes that sufficient cash will be available through
ALARIS Medical Systems, based upon current operations, to satisfy debt
service and other corporate expenses of ALARIS Medical in the foreseeable
future. In November 1996, ALARIS Medical Systems entered into a bank credit
facility consisting of term loans and a revolving credit facility (the
"Credit Facility"). The Credit Facility permits ALARIS Medical Systems to
transfer to ALARIS Medical up to $1.5 million annually to fund ALARIS
Medical's operating expenses and additional amounts sufficient to meet
interest payment requirements.
The Company expects to continue to meet its short-term and long-term
liquidity needs, including capital expenditure requirements with cash flow
from operations of ALARIS Medical Systems. In addition to operating expenses,
the Company's primary future use of funds, on a short-term and long-term
basis, will continue to be to fund capital expenditures and to pay debt
service on outstanding indebtedness.
At March 31, 2000, the Company's outstanding indebtedness was $541.1 million,
which includes $192.8 million of bank term debt under the Credit Facility,
$200.0 million of Senior Subordinated Notes due 2006 (the "Notes"), which
were issued in connection with the Merger and $131.8 million (including
accretion) of senior discount notes due 2008 ("Senior Discount Notes") which
were issued to fund the Instromedix acquisition in July 1998. The bank debt
bears interest at floating rates based, at the Company's option, on
Eurodollar or prime rates. During the second quarter of 1997, the Company
entered into an interest rate protection agreement through January, 2000,
covering approximately 50% of the Credit Facility term loan borrowings. Under
the interest rate protection agreement, such borrowings' interest rate was
effectively fixed. During the reporting period and prior to expiration of the
interest rate protection agreement, such agreement resulted in a weighted
average interest rate for all Credit Facility borrowings of 9.6%. During the
remainder of the reporting period subsequent to expiration of the interest
rate protection agreement and unless otherwise modified, all Credit Facility
borrowings are subject to
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<PAGE>
interest rate risk. A 10% increase (approximately one percentage point) in
the applicable interest rate would result in a $1.9 million annual increase
in interest expense. Included in total consolidated debt, at March 31, 2000,
ALARIS Medical had outstanding $16.2 million of 7 1/4% Convertible Debentures
(the "Convertible Debentures").
In July 1998, in connection with the Instromedix acquisition, the Company
amended the Credit Facility. The amendment provided for the banks' consent to
the Instromedix acquisition and increased the revolving credit facility to
$60.0 million. The amended Credit Facility also provided the Company an
additional $30.0 million under the Tranche D term debt. The Company used
$30.0 million term debt borrowing, along with approximately $2.0 million from
the revolving credit line, to fund the initial 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. Interest accruing on these notes is added to the outstanding
principal balance through July 31, 2003. Interest accruing subsequent to July
31, 2003 is payable in cash semi-annually in arrears on February 1 and August
1, commencing February 1, 2004. Upon receipt of the net proceeds from the
Senior Discount Notes, ALARIS Medical paid its remaining obligations of
approximately $22.7 million to the Instromedix shareholders and contributed
the remaining net proceeds of approximately $81.7 million to ALARIS Medical
Systems, as required under the amended Credit Facility. ALARIS Medical
Systems then repaid the amount outstanding under its revolving credit line.
As a result of the Company's significant indebtedness, the Company expects to
incur significant interest expense in future periods. The Company believes
that its existing cash and cash provided by operations will be sufficient to
meet its interest expense obligations.
Annual principal amortization of the Company's indebtedness is $10.5 million
for the remaining nine months of 2000 and $22.1 million and $45.1 million for
2001 and 2002, respectively.
The Convertible Debentures provide for semi-annual interest payments of
approximately $0.6 million and mature on January 15, 2002. The 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 Credit Facility requires the Company,
under most circumstances, to obtain consent from its bank group to allow
ALARIS Medical to repay the Convertible Debentures at maturity. The Notes
allow distributions to ALARIS Medical to fund the repayment of the
Convertible Debentures at maturity if certain performance measures are met.
Although there can be no assurances, the Company anticipates that its bank
group will consent to, and its operating performance will meet the
performance measures required to, repay the Convertible Debentures at
maturity.
During the three months ended March 31, 2000, the Company made cash payments
of approximately $0.4 million related to Instromedix integration costs which
were accrued at December 31, 1999. In June 1999, the Company consolidated the
operations of Instromedix into its San Diego, California facilities. In
connection with these relocation and integration activities, the Company
incurred nonrecurring charges of approximately $4.6 million before related
income tax benefits in 1999. Of this charge, approximately $0.2 million is
accrued at March 31, 2000.
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<PAGE>
The Company made capital expenditures of approximately $4 million during the
three months ended March 31, 2000 and anticipates additional capital
expenditures of approximately $26 million during the remainder of 2000.
In addition to routine capital expenditures, and in connection with prior
acquisitions, the Company made significant expenditures for the acquisition
of enterprise-wide information system software and hardware and the related
design, testing and implementation. During the fiscal years 1996 through 1999
the Company made combined capital and operating expenditures of approximately
$19.0 million related to the new enterprise-wide information system, and
expenditures of $0.4 million for the three months ended March 31, 2000. The
remaining significant phases of the project will be completed in 2000 with
anticipated additional expenditures of approximately $0.9 million.
The Company believes that, on both a short-term and long-term basis, based on
current levels of performance, it will generate cash flow from operations,
together with its existing cash, sufficient to fund its operations, make
planned capital expenditures and make principal amortization and interest
payments under the Credit Facility and interest payments on the 9 3/4% Notes.
However, on a long-term basis, the Company may not generate sufficient cash
flow from operations to repay the 9 3/4% Notes at maturity in the amount of
$200.0 million, to make scheduled payments on the Senior Discount Notes or to
repay the Senior Discount Notes in the amount of $189.0 million at maturity.
Accordingly, the Company may have to refinance the 9 3/4% Notes and the
Senior Discount Notes at or prior to maturity or sell assets or raise equity
capital to repay such debt. Based on current interest rates and debt
outstanding as of March 31, 2000, over the next twelve months, the Company is
required to make principal and interest payments under its Credit Facility in
the amount of $34.1 million and interest payments on the 9 3/4% Notes and the
Convertible Debentures in the amount of $19.5 million and $1.2 million,
respectively. 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.
BACKLOG
The backlog of orders, believed to be firm, at March 31, 2000 and 1999 was
$9.7 million and $6.9 million, respectively.
FOREIGN OPERATIONS
The Company has significant foreign operations and, as a result, is subject
to various risks, including without limitation, foreign currency risks. The
Company has not entered into foreign currency contracts for purposes of
hedging or speculation. Due to changes in foreign currency exchange rates
during 2000 and 1999, primarily a strengthening of the U.S. dollar, the
Company's functional currency, against many European currencies, the Company
recognized a foreign currency transaction loss of approximately $1.3 million
and $0.4 million during the three months ended March 31, 2000 and 1999,
respectively. For the three months ended March 31, 2000 and 1999,
approximately 35% and 37% of the Company's sales and 31% and 29% of the
Company's operating expenses were denominated in currencies other than the
Company's functional currency, respectively. These foreign currencies are
primarily those of Western Europe, Canada and Australia. Additionally,
substantially all of the receivables and payables of the Company's foreign
subsidiaries are denominated in currencies other than the Company's
functional currency. As part of a comprehensive approach to risk management,
the Company is presently evaluating alternatives to address this risk.
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<PAGE>
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.
FORWARD-LOOKING STATEMENTS
Forward-Looking Statements in this report are made pursuant to the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Persons reading this report are cautioned that such forward-looking
statements involve risks and uncertainties, including, without limitation,
the effect of legislative and regulatory changes effecting the health care
industry; the potential of increased levels of competition; technological
changes; the dependence of the Company upon the success of new products and
ongoing research and development efforts; restrictions contained in the
instruments governing the Company's indebtedness; the significant leverage to
which the Company is subject; and other matters referred to in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information is set forth under the subcaption "Liquidity and Capital
Resources" contained under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 2.
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<PAGE>
PART II
OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Condensed Consolidated Financial Statements.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.5 -- ALARIS Medical, Inc. By-Laws (as amended through April 17,
2000)
10.17 -- Change in Control Agreement, dated April 20, 2000 between
ALARIS Medical, Inc. and William C. Bopp. The Company has
entered into identical agreements with each of the
following: David L. Schlotterbeck, Sally M. Grigoriev,
Joergen Lyngsgaard, Richard M. Mirando, L. James Runchey,
Anthony B. Semedo and Jake St. Philip.
27 -- Financial Data Schedule
-----------------------------------------
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALARIS MEDICAL, INC.
--------------------
(REGISTRANT)
Date: May 4, 2000 By: /s/ WILLIAM C. BOPP
-------------------------------
William C. Bopp
Senior Vice President and Chief Financial Officer
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EXHIBIT 3.5
ALARIS MEDICAL, INC.
BY-LAWS
(AS AMENDED THROUGH APRIL 17,2000)
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ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
(1) An annual meeting of the stockholders, for the election of directors and for
the transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen (13) months
of the last annual meeting of stockholders.
(2) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of the notice provided for in this By-Law, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this By-Law.
(3) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of Subsection (2) of this
By-Law, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation and any such business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
(30) days or delayed by more than sixty (60) days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. Such stockholder's notice shall set forth
(a) as to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(4) Notwithstanding anything in the second sentence of Subsection (3) of this
By-Law to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Corporation at least seventy (70)
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be
<PAGE>
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(5) Only such persons who are nominated in accordance with the procedures set
forth in this By-Law shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this By-Law and,
if any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposed business or nomination shall be
disregarded.
(6) For purposes of this By-Law, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(7) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
Section 2. Special Meetings: Notice.
Special meetings of the stockholders, other than those required by statute, may
be called at any time by the Chairman of the Board, the Chief Executive Officer,
the President or by the Board of Directors. Notice of every special meeting,
stating the time, place and purpose, shall be given by mailing, postage prepaid,
at least ten (10) but not more than sixty (60) days before each such meeting, a
copy of such notice addressed to each stockholder of the Corporation at his post
office address as recorded on the books of the Corporation. The Chairman of the
Board, the Chief Executive Officer, the President or the Board of Directors may
postpone or reschedule any previously scheduled special meeting.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the stockholders
shall be given, not less than ten (10) nor more than sixty (60) days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice need
not be given of the adjourned meeting if the place, date and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date, and time
of the adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
<PAGE>
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting or the
holders of a majority of the shares of the stock entitled to vote at the meeting
who are present in person by proxy may adjourn the meeting to another place,
date or time.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the absence of
such a person, the Chairman of the Board or, in his or her absence, the Chief
Executive Officer or, in his or her absence, the President or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman of the meeting appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The chairman of the meeting shall have the power to adjourn the meeting to
another place, date and time. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at the meeting
shall be announced at the meeting.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may vote
in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or by his or her proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law, shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability. Every vote taken by ballots shall be counted by a duly
appointed inspector or inspectors.
<PAGE>
All elections of directors shall be determined by a plurality vote in which
stockholders shall have the right to cumulate their votes (meaning that each
stockholder of record shall be entitled to a number of votes in such election
determined by multiplying (a) the number of shares held by such stockholder and
entitled to vote by (b) the number of directors to be elected). Except as
otherwise required by law, provided in the Corporation's Certificate of
Incorporation or as provided in the immediately preceding sentence with respect
to cumulative voting in the election of directors, all other matters shall be
determined by a majority of the votes cast affirmatively or negatively. Except
as otherwise required by law or provided in the Corporation's Certificate of
Incorporation, each stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share standing in his, her or its name on the
stock list of the Corporation.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order for each class of stock and showing the address
of each such stockholder and the number of shares registered in his or her name,
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (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.
The stock list shall also be kept at the place of the meeting during the whole
time thereof and shall be open to the examination of any such stockholder who is
present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Record Date.
The Board of Directors may fix a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of any meeting of stockholders,
nor more than sixty (60) days prior to the time for any other action hereinafter
described, as of which there shall be determined the stockholders who are
entitled: to notice of or to vote at any meeting of stockholders or any
adjournment thereof; to receive payment of any dividend or other distribution or
allotment of any rights; or to exercise any rights with respect to any change,
conversion or exchange of stock or with respect to any other lawful action;
provided, however, that if no record date is fixed by the Board of Directors,
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, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number, Election and Term of Directors.
Subject to the rights of the holders of any series of preferred stock to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the whole Board of Directors. Each director shall hold
office until his or her successor shall have been duly elected and qualified. At
each annual
<PAGE>
meeting of stockholders, if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
Section 2. Newly Created Directorships and Vacancies.
Subject to the rights of the holders of any series of preferred stock with
respect to such series of preferred stock, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall, unless otherwise
provided by law or by resolution of the Board of Directors, be filled only by a
majority vote of the directors then in office, whether or not less than a
quorum. No decrease in the authorized number of directors shall shorten the term
of any incumbent director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the Chief Executive Officer, the President or by two or more directors
then in office and shall be held at such place, on such date, and at such time
as they or he or she shall fix. Notice of the place, date and time of each such
special meeting shall be given each director by whom it is not waived by mailing
written notice not less than five (5) days before the meeting or by telephone or
by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of the
whole Board of Directors shall constitute a quorum for all purposes. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date or time, without further notice or waiver
thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board of Directors or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear one another and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in such
order and manner as the Board of Directors may from time to time determine, and
all matters shall be determined by the vote of a majority of the directors
present, except as otherwise provided herein or required by law. Action may be
taken by the Board of Directors without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
<PAGE>
The Board of Directors may, except as otherwise required by law, exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, including, without limiting the generality of the foregoing, the
unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on such
terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-negotiable,
secured or unsecured, and to do all things necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause, and from
time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other benefit
plans for directors, officers, employees and agents of the Corporation and
its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
By-Laws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Unless otherwise restricted by the Corporation's Certificate of Incorporation,
the Board of Directors shall have the authority to fix the compensation of the
directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or paid a stated salary or
paid other compensation as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. 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 III - COMMITTEES
Section 1. Committees of the Board of Directors.
<PAGE>
The Board of Directors, by a vote of a majority of the whole Board of Directors,
may from time to time designate committees of the Board of Directors, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board of Directors and shall, for those committees and any
others provided for herein, elect a director or directors to serve as the member
or members, designating, if it desires, other directors as alternate members who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of any member of any committee and any
alternate member in his or her place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and conducting its
business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings; one-third (1/3) of the members shall constitute a
quorum unless the committee shall consist of one (1) or two (2) members, in
which event one (1) member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE IV - OFFICERS
Section 1. Generally.
The officers of the Corporation may consist of a Chairman of the Board, a Vice
Chairman of the Board, a Chief Executive Officer, a President, a Chief Operating
Officer, a Chief Financial Officer, one or more Vice Presidents (who may be
designated as Vice Presidents, Senior Vice Presidents or Executive Vice
Presidents), a Secretary, a Treasurer, one or more Assistant Secretaries, one or
more Assistant Treasurers and such other officers with such titles and such
authority, functions or duties as the Board of Directors may from time to time
determine. Officers shall be elected by the Board of Directors, which shall
consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
number of offices may be held by the same person. The salaries of officers
elected by the Board of Directors shall be fixed from time to time by the Board
of Directors, a committee of the Board of Directors or by such officers as may
be designated by resolution of the Board of Directors.
Section 2. Chairman of the Board.
The Chairman of the Board shall, if present, preside at meetings of the Board of
Directors and, if present, preside at meetings of the stockholders. The Chairman
of the Board may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments. The Chairman of the Board
shall, when requested, counsel with and advise the other officers of the
Corporation and shall perform such other duties as he or she may agree with the
Chief Executive Officer or as the Board of Directors may from time to time
determine.
Section 3. Vice Chairman of the Board.
The Vice Chairman of the Board may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The Vice
Chairman of the Board shall, when requested, counsel with and advise the other
officers of the Corporation and shall perform such other duties as he or she may
agree with the Chairman of the Board or the Chief Executive Officer, or as the
Board of Directors may from time to time determine.
<PAGE>
Section 4. Chief Executive Officer.
The Chief Executive Officer shall have general supervision and direction of the
business and affairs of the Corporation, subject to the control of the Board of
Directors. The Chief Executive Officer may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The Chief
Executive Officer shall, when requested, counsel with and advise the other
officers of the Corporation and shall perform such other duties as the Board of
Directors may from time to time determine.
Section 5. President.
The President shall also hold the office of Chief Executive Officer or Chief
Operating Officer and shall perform such senior executive duties as the Board of
Directors or, if the President does not also hold the office of Chief Executive
Officer, the Chief Executive Officer shall from time to time determine. The
President may sign and execute in the name of the Corporation deeds, mortgages,
bonds, contracts or other instruments. In the event that the President does not
also hold the office of Chief Executive Officer, during the absence or
disability of the Chief Executive Officer, the President shall exercise all the
powers and discharge all the duties of the Chief Executive Officer.
Section 6. Chief Operating Officer.
The Chief Operating Officer shall perform such senior duties in connection with
the operations of the Corporation as the Board of Directors or the Chief
Executive Officer shall from time to time determine. The Chief Operating Officer
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts and other instruments.
Section 7. Chief Financial Officer.
The Chief Financial Officer shall have overall supervision of the financial
operations of the Corporation. The Chief Financial Officer may sign and execute
in the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments. The Chief Financial Officer shall perform such other duties as the
Board of Directors or the Chief Executive Officer shall from time to time
determine.
Section 8. Chief Accounting Officer.
The Chief Accounting Officer shall perform such senior duties in connection with
the engagement of the Corporation's independent accountants; conduct of the
Corporation's annual audit and preparation of the Corporation's financial
statements and other financial portions of the Corporation's periodic reports
required under applicable state and federal securities laws. The Chief
Accounting Officer may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments. The Chief Accounting Officer
shall perform such other duties as the Board of Directors, the Chief Executive
Officer, the President or the Chief Financial Officer shall from time to time
determine.
Section 9. Vice President.
Each Vice President shall have such powers and duties as may be prescribed by
his or her superior officers or the Board of Directors.
Section 10. Treasurer.
The Treasurer shall have the responsibility for maintaining the financial
records of the Corporation. He or she shall make such disbursements of the funds
of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The
<PAGE>
Treasurer shall also perform such other duties as the Board of
Directors or the Chief Executive Officer may from time to time prescribe.
Section 11. Secretary.
The Secretary shall issue all authorized notices for, and shall keep minutes of,
all meetings of the stockholders and the Board of Directors. He or she shall
have charge of the corporate books and records, and shall perform such other
duties as the Board of Directors or the Chief Executive Officer may from time to
time prescribe.
Section 12. Assistant Treasurers and Assistant Secretaries.
Any Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Board of Directors, the Chief Executive
Officer, the Secretary (in the case of Assistant Secretaries) or the Treasurer
or the Chief Financial Officer (in the case of Assistant Treasurers).
Section 13. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties of
any officer to any other officer or agent, notwithstanding any provision hereof.
Section 14. Removal.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 15. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board,
the Chief Executive Officer, the President or any officer of the Corporation
authorized by the Chairman of the Board, the Chief Executive Officer or the
President shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of stockholders of or with
respect to any action of stockholders of any other corporation in which this
Corporation may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the name of
the Corporation by, the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President, and by the Secretary, the Treasurer or the
Assistant Secretary, certifying the number of shares owned by him or her. Any or
all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the Corporation
kept at an office of the Corporation or by transfer agents designated to
transfer shares of the stock of the Corporation. Except where a certificate is
issued in accordance with Section 3 of Article V of these By-Laws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
<PAGE>
Section 3. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 4. Regulations.
The issue, transfer, conversion and registration of certificates of stock shall
be governed by such other regulations as the Board of Directors may establish.
ARTICLE VI NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all notices
required to be given to any stockholder, director, officer, employee or agent
shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, recognized overnight delivery service or by sending such notice by
facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by telegram or mailgram, shall be
the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance at any meeting shall constitute waiver of notice except attendance
for the sole purpose of objecting to the timeliness of notice.
ARTICLE VII MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-Laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of the
Corporation, which seal shall be in the charge of the Secretary. If and when so
directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Treasurer and the Assistant Secretary.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member
<PAGE>
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Corporation.
Section 4. Fiscal Year.
Until otherwise determined by the Board of Directors, the fiscal year of the
Corporation shall begin on January 1st of each year and end on December 31st of
such year.
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that an act be done or
not be done a specified number of days prior to an event or that an act be done
during a period of a specified number of days prior to an event, calendar days
shall be used, the day of the doing of the act shall be excluded, and the day of
the event shall be included.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party to or
is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this ARTICLE VIII with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this ARTICLE VIII shall
include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VIII
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a director,
<PAGE>
officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty (20) days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder (but
not in a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this ARTICLE VIII or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses conferred in
this ARTICLE VIII shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Certificate of
Incorporation or By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article VIII with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
ARTICLE IX - AMENDMENTS
<PAGE>
In furtherance and not in limitation of the powers conferred by law, the Board
of Directors is expressly authorized to adopt, amend or repeal these By-Laws.
Any adoption, amendment or repeal of these By-Laws by the Board of Directors
shall require the approval of a majority of the whole Board of Directors. The
stockholders of the Corporation shall also have power to adopt, amend or repeal
these By-Laws; provided, however, that, in addition to any vote of the holders
of any class or series of stock of the Corporation required by law or by the
Corporation's Certificate of Incorporation, the affirmative vote of the holders
of at least a majority of the voting power of all of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provision of these By-Laws.
* * * *
<PAGE>
EXHIBIT 10.17
CHANGE IN CONTROL AGREEMENT
- ------------------------------------------------------------------------------
ALARIS MEDICAL, INC.
10221 Wateridge Circle
San Diego, CA 92121
Dated: April 20, 2000
Mr. William C. Bopp
4295 Hermosa Way
San Diego, CA 92103
Dear William C. Bopp:
ALARIS Medical, Inc. (the "Corporation") considers it essential to the best
interests of its shareholders to foster the continuous employment by the
Corporation of its key management personnel as well as the key management
personnel of the Corporation's direct and indirect subsidiaries, including,
without limitation, ALARIS Medical Systems, Inc. ("AMS"). The Corporation's
Board of Directors (the "Board") recognizes that, as is the case with many
publicly held corporations, the existence of the possibility of a change in
control of the Corporation may promote management uncertainty and could
result in serious management distraction.
Accordingly, the Board has decided to reinforce and encourage the continued
attention and dedication of members of the management of the Corporation and
its direct and indirect subsidiaries to their assigned duties without the
distraction arising from the possibility of a change in control. Accordingly,
the Corporation hereby agrees that after this letter agreement (this
"Agreement") has been fully executed, you shall receive the severance
benefits set forth in this Agreement in the event your employment with the
Corporation and its direct and indirect subsidiaries (as applicable), is
terminated under the circumstances described below subsequent to a Change of
Control (as defined in Section 2). Unless the context indicates otherwise,
references herein to the "Corporation" and its rights and obligations
hereunder (including, without limitation, its payment obligations) shall
refer to the Corporation and its direct and indirect subsidiaries
individually, or collectively, as the context may require.
1. Change of Control. No benefits shall be payable hereunder unless a Change
of Control (as hereinafter defined) shall have occurred on or before the End
Date (as hereinafter defined), regardless of whether or not the End Date
shall have been designated. For purposes of this Agreement the term "End
Date" shall mean that date designated by the Corporation as the End Date in a
written notice to that effect provided to you at least six (6) months prior
to the date so designated. For purposes of this Agreement, a "Change of
Control" will be deemed to have occurred on the date any of the following
events shall have occurred:
(a) any person or persons acting together which would constitute a "group"
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than the Corporation, any Subsidiary (as
defined below) and Jeffry M. Picower (including, any of his Affiliates (as
defined below) and any lineal descendant of Mr. Picower, any widow or then
current spouse of Mr. Picower or of any such lineal descendant, a trust
established principally for the benefit of any of the foregoing, any entity
which is at least 90% beneficially owned by any of the foregoing, and the
executor, administrator or personal representative of the estate of any of
the foregoing (any one or more of the foregoing being sometimes
<PAGE>
hereinafter referred to as the "Picower Group") beneficially own (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, securities of
the Corporation, AMS or any Significant Subsidiary (as defined below)
representing greater than 10% of the total combined voting power of the
Corporation, AMS or the Significant Subsidiary entitled to vote in the
election of the board of directors of the Corporation, AMS or the Significant
Subsidiary; provided, however, that such event shall not constitute a Change
of Control unless and until the combined voting power of such securities
owned beneficially, directly or indirectly, by such person or persons is
greater than the combined voting power of all such securities owned
beneficially, directly or indirectly, by Mr. Picower and the Picower Group.
For purposes of this Agreement, (i) the term "Subsidiary" shall mean any
corporation of which the Corporation, directly or indirectly, is the
beneficial owner of fifty percent (50%) or more of the total combined voting
power of all classes of its stock having voting power and which qualifies as
a subsidiary corporation pursuant to Section 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the term "Affiliate" shall
mean any partnership, corporation, firm, joint venture, association, trust,
unincorporated organization or other entity that, directly or indirectly
through one or more intermediaries, is controlled by Mr. Picower or the
Picower Group, where the term "controlled by" means the possession, direct or
indirect, of the power to cause the direction of the management and policies
of such entity, whether through the ownership of voting interests or voting
securities, as the case may be, by contract or otherwise.
(b) persons other than the Current Directors (as defined below) constitute a
majority of the members of the Board (for these purposes, a "Current
Director" means any member of the Board as of November 27, 1996, and any
successor of any such member whose election, or nomination for election by
the Corporation's shareholders, was approved by at least a majority of the
Current Directors then on the Board or by Mr. Picower or the Picower Group);
(c) the consummation of (i) a plan of liquidation of all or substantially all
of the assets of the Corporation, AMS or any Subsidiary owning directly or
indirectly all or substantially all of the consolidated assets of the
Corporation (a "Significant Subsidiary"), or (ii) an agreement providing for
the merger or consolidation of the Corporation, AMS or a Significant
Subsidiary (A) in which the Corporation, AMS or the Significant Subsidiary is
not the continuing or surviving corporation (other than a consolidation or
merger with a wholly-owned subsidiary of the Corporation in which all shares
of common stock of the Corporation or common stock in AMS or the Significant
Subsidiary outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for all or substantially all of the common stock of
the surviving corporation and (if the Corporation ceases to exist) the
surviving corporation assumes all outstanding options to purchase common
stock of the Corporation) or (B) pursuant to which, even though the
Corporation is the continuing or surviving corporation, the shares of common
stock of the Corporation or common stock in AMS or the Significant Subsidiary
are converted into cash, securities or other property; provided, however,
that no "Change of Control" shall be deemed to occur as the result of a
consolidation or merger of the Corporation, AMS or a Significant Subsidiary
in which the holders of the shares of common stock of the Corporation
immediately prior to the consolidation or merger have, as a result thereof,
directly or indirectly, at least a majority of the combined voting power of
all classes of voting stock of the continuing or surviving corporation or its
parent immediately after such consolidation or merger or in which the Board
immediately prior to the merger or consolidation would, immediately after the
merger or consolidation, constitute a majority of the board of directors of
the continuing or surviving corporation or its parent; or
(d) the consummation of an agreement (or agreements) providing for the sale
or other disposition (in one transaction or a series of transactions) of all
or substantially all of the assets of the Corporation, AMS or a Significant
Subsidiary other than such a sale or disposition immediately after which such
assets will be owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of the
shares of common stock of the Corporation immediately prior to such sale or
disposition.
2. Termination Following Change of Control.
<PAGE>
(i) General. Nothing contained in this Agreement shall (a) confer upon you
any right to continue in the employ of the Corporation, (b) constitute any
contract or agreement of employment, or (c) interfere in any way with the
at-will nature of your employment with the Corporation (it being understood
and agreed that (so long as it is done in accordance with applicable law) the
Corporation may terminate your employment at any time for any reason or for
no reason and that you may terminate your employment with the Corporation at
anytime for any reason or for no reason [except, of course, to the extent
otherwise provided for in a formal written employment agreement between you
and the Corporation]). However, if a Change of Control shall have occurred on
or prior to the End Date, you shall be entitled to the benefits provided in
Section 3(ii) upon a subsequent termination of your employment if that
termination occurs within the two (2) year period immediately following the
date of such Change of Control, but only if that termination was effected (a)
by the Corporation other than for Cause or Disability (each as defined below),
or (b) by you for Good Reason (as defined below) (a termination of your
employment under the circumstances set forth in subparagraph (a) or (b) of
this sentence is sometimes hereinafter referred to as a "Payment Termination").
You shall not be entitled to such benefits: (a) if your employment is
terminated for any reason after a Change of Control which occurs after the End
Date, (b) if your employment is terminated for any reason prior to a Change of
Control, even if that Change of Control occurs on or prior to the End Date or
(c) your employment is terminated after a Change of Control occurring on or
prior to the End Date, if such termination is occasioned: (i) by your death;
(ii) by the Corporation for Cause or Disability; or (iii) by you for other
than Good Reason (a termination of your employment under the circumstances set
forth in subparagraph (a), (b), or (c) of this sentence is sometimes hereafter
referred to as a "Non-Payment Termination"). Notwithstanding any of the
foregoing to the contrary, if your employment is terminated by the
Corporation prior to a Change of Control (under circumstances in which had
your employment terminated after such Change in Control, such termination
would have constituted a Payment Termination), but otherwise in contemplation
of a known specific Change of Control which occurs on or before the End Date,
then for all purposes of this Agreement your employment shall be deemed to
have been terminated immediately after that contemplated Change of Control
actually occurs if it does.
(ii) Death or Disability. Your employment with the Corporation shall
terminate, automatically, upon your death. The Corporation may terminate your
employment for any reason or for no reason, including, without limitation,
for Disability, but only if that Disability continues through the Date of
Termination (as hereinafter defined). For purposes hereof the term
"Disability" shall mean your absence from the full-time performance of your
duties with the Corporation for six (6) consecutive months by reason of
physical or mental illness.
(iii) Cause. The Corporation may terminate your employment for any reason or
for no reason, including, without limitation, for Cause. For purposes of this
Agreement, "Cause" shall mean (a) any breach by you of any of your
obligations under this Agreement of a type and kind which is materially
adverse to the Corporation and which remains uncured by you for five (5)
calendar days following your receipt of Notice of Termination (as hereinafter
defined), (b) any gross misconduct by you of a type and kind which is
materially adverse to the Corporation and which remains uncured by you for
five (5) calendar days following your receipt of Notice of Termination, (c)
any violation by you of a governmental law, rule or regulation applicable to
the business of the Corporation of a type and kind which is materially
adverse to the Corporation and which remains uncured for five (5) calendar
days following your receipt of Notice of Termination, or (d) your conviction
of, or entry by you of a guilty, or no contest, plea to, the commission of a
felony involving moral turpitude.
(iv) Good Reason. You may terminate your employment for any reason or for no
reason, including, without limitation for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean the occurrence after a Change of Control
occurring on or before the End Date of any one or more of the following
events without, in each case, your prior written consent:
(a) the assignment to you of any duties (other than duties constituting
reasonable transition services in connection with a Change of Control
transaction) which are inconsistent with the position in the Corporation
<PAGE>
that you held immediately prior to the Change of Control, an alteration in
the nature or status of your responsibilities or the conditions of your
employment from those in effect immediately prior to such Change of Control,
or any other action by the Corporation that results in a diminution in the
position and authority with the Corporation held by you prior to such Change
of Control, in each case, under circumstances in which such assignment,
alteration or action is materially adverse to you;
(b) the Corporation's reduction of your annual base salary or bonus
opportunity, each as in effect on the date hereof or as the same may be
increased from time to time;
(c) the relocation of the Corporation's offices at which you are principally
employed immediately prior to the date of the Change of Control (your
"Principal Location") to a location more than twenty-five (25) miles from
such location, or the Corporation's requiring you to be based at a location
more than twenty-five (25) miles from your Principal Location, except for
required travel on the Corporation's business to an extent substantially
consistent with your present business travel obligations;
(d) the Corporation's failure to pay to you any portion of your current
compensation or any portion of an installment of deferred compensation under
any deferred compensation program of the Corporation within seven (7) days
following the later of the date such compensation is due or the date of
demand by you for the payment of such compensation;
(e) the Corporation's failure to continue in effect compensation and benefit
plans which provide you with benefits which are substantially similar, on an
aggregate basis, to the benefits provided to you under the Corporation's
regular compensation and benefit plans and practices immediately prior to the
Change of Control, unless an equitable arrangement (embodied in ongoing
substitute or alternative plans) has been made with respect to such plans, or
the Corporation's failure to continue your participation therein (or in such
substitute or alternative plans) on a basis not materially less favorable in
the aggregate, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the time
of the Change of Control;
(f) the Corporation's failure to obtain an agreement from any successor to
assume and agree to perform this Agreement, as contemplated in Section 6
hereof;
(g) any purported termination of your employment by the Corporation which
does not satisfy the requirements of Section 2(v) hereof (such a purported
termination shall not be effective for purposes of this Agreement);
(h) the continuation or repetition, after written notice of objection from
you, of harassing or denigrating treatment of you inconsistent with your
position with the Corporation, which treatment is materially adverse to you;
or
(i) any breach by the Corporation of its obligations under this Agreement
which is materially adverse to you.
Your right to terminate your employment pursuant to this Section 3(iv) shall
not be affected by your short-term incapacity due to physical or mental
illness. Your continued employment shall not constitute consent to, or a
waiver of right with respect to, any circumstance constituting Good Reason
hereunder.
(v) Notice of Termination. Any purported termination of your employment by
the Corporation or by you (other than termination due to your death, since
your death terminates your employment automatically) occurring within two (2)
years following a Change of Control, which itself occurs on or before the End
Date, shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 6. For purposes of this Agreement,
"Notice of Termination" shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so
<PAGE>
indicated and shall set forth a date (the "Date of Termination") which
follows the date of that notice (it being understood and agreed that if your
employment is being terminated by you for Good Reason, the Date of
Termination may not be more than thirty (30) days from the date of that
notice or more than three (3) months from the date of the events giving rise
to that Good Reason, whichever first occurs).
(vi) Date of Termination. If the Corporation seeks to terminate your
employment for Disability, the date of termination of your employment shall
be the Date of Termination, unless prior to that date you have fully
recovered from your illness and have returned to the full-time performance of
your duties, in which case your employment shall not terminate. If the
Corporation seeks to terminate your employment for Cause, the date of
termination of your employment shall be the Date of Termination, except that
if the consequences of the act or omission to act set forth in the pertinent
Notice of Termination is curable (and cure is allowed under such
circumstances) then the date of termination of your employment shall be the
date which is the sixth (6th) day following the Date of Termination, unless
you shall have cured such consequences prior to that date, in which case your
employment shall not terminate. If you seek to terminate your employment with
the Corporation for Good Reason then the date of termination of your
employment shall be the Date of Termination. The date that your employment
actually terminates is sometimes hereafter referred to as the "Final Date".
3. Compensation Upon Termination.
(i) If you suffer a Non-Payment Termination, the Corporation shall pay you
your full base salary, when due, through the Final Date at the rate in effect
immediately prior to the delivery of the pertinent Notice of Termination, if
a Notice of Termination was required to have been given, or if it was not,
then immediately prior to the Final Date, plus all other amounts to which you
are entitled under any compensation plan or practice of the Corporation at
the time such payments are due, and the Corporation shall have no further
obligations to you under this Agreement.
(ii) If you suffer a Payment Termination, then, subject to paragraph (v) of
this Section 3 and in lieu of any severance benefits to which you may
otherwise be entitled under any severance plan or program of the Corporation
or any Subsidiary, you shall be entitled to the benefits provided below:
(a) the Corporation shall pay you your full base salary, when due, through
the Final Date at the rate in effect immediately prior to the delivery of the
pertinent Notice of Termination (or if your termination is for Good Reason by
reason of a reduction in your annual base salary, the rate in effect
immediately prior to such reduction), at the time specified in Section
3(iii), plus all other amounts (other than severance benefits not provided
for in this Agreement) to which you are entitled under any compensation plan
or practice of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for periods subsequent to
the Final Date, the Corporation shall pay as severance pay to you, at the
time specified in Section 3(iii), a lump-sum severance payment equal to the
sum of the following:
(A) two hundred percent (200%) of your annual base salary as in effect
immediately prior to the delivery of the pertinent Notice of Termination (or
if your termination is for Good Reason by reason of a reduction in your
annual base salary, the rate in effect immediately prior to such reduction);
and
(B) two hundred percent (200%) of your targeted annual aggregate bonus
amounts for the year in which this Agreement is executed;
(c) the Corporation shall, at its sole expense as incurred, provide you with
outplacement services for a period not to exceed nine (9) months at an
aggregate cost to the Corporation not to exceed $12,000, the scope of which
shall be selected by you in your sole discretion and the provider of which
shall be selected by you from among the providers offered to you by the
Corporation;
<PAGE>
(d) for the period beginning on the Final Date and ending on the earlier of
(i) the date which is twenty-four (24) full months following the Final Date
or (ii) the first day of your eligibility to participate in another group
health plan, the Corporation shall pay for and provide you and your
dependents with the same medical benefits coverage to which you would have
been entitled had you remained continuously employed by the Corporation
during such period. In the event that you are ineligible under the terms of
the Corporation's benefit plans to continue to be so covered, the Corporation
shall provide you with substantially equivalent coverage through other
sources or will provide you with a lump sum payment (determined on a present
value basis using the interest rate provided in Section 1274(b)(2)(B) of the
Code on the Date of Termination) in such amount that, after all income and
employment taxes on that amount, shall be equal to the cost to you of
providing yourself such benefit coverage. At the termination of the benefits
coverage under the first sentence of this Section 3(ii)(d), you and your
dependents shall be entitled to continuation coverage ("COBRA Coverage")
pursuant to Section 4980B of the Code, Sections 601-608 of the Employee
Retirement Income Security Act of 1974, as amended, and under any other
applicable law, to the extent required by such laws, as if you had terminated
employment with the Corporation on the date such benefits coverage
terminates; provided, however, that the period of your benefits coverage
under the first sentence of this Section 3(ii)(d) shall be offset against the
period during which you would be entitled to such COBRA Coverage; and
(e) you shall be fully vested in your accrued benefits under any qualified or
nonqualified pension, profit sharing, deferred compensation or supplemental
plans maintained by the Corporation for your benefit; provided, however, that
to the extent that the acceleration of vesting of such benefits would violate
any applicable law or require the Corporation to accelerate the vesting of
the accrued benefits of all participants in such plan or plans, then,
assuming that you obtain the appropriate consents, the Corporation shall pay
you a lump-sum payment at the time specified in Section 3(iii) in an amount
equal to the value of such unvested benefits.
(iii) The payments provided for in Sections 3(ii)(a), (b) and (e) (if
applicable) shall be made not later than the fifth business day following the
Final Date; provided, however, that if the amounts of such payments cannot be
finally determined on or before such date, the Corporation shall pay to you
on such day an estimate, as determined in good faith by the Corporation, of
the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Corporation to you, payable on the fifth (5th)
business day after demand by the Corporation (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(iv) You shall not be required to mitigate the amount of any payment provided
for in this Section 3 by seeking other employment or otherwise nor, except as
provided in Section 3(ii)(d), shall the amount of any payment or benefit
provided for in this Section 3 be reduced by any compensation earned by you
as the result of employment by another employer or self-employment, by
retirement benefits, by offset against any amounts (other than loans or
advances to you by the Corporation) claimed to be owed by you to the
Corporation, or otherwise.
(v) (a) Notwithstanding anything contained herein, if any payment or
distribution to you or for your benefit (whether paid or payable or
distributed or distributable) pursuant to the terms of this Agreement or
otherwise (a "Payment") would constitute a "parachute payment" within the
meaning of Section 28OG of the Code, the Payments shall be reduced to the
extent necessary so that no portion of the Payments shall be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise Tax"), but only
if, by reason of such reduction, the net after-tax benefit to you shall
exceed the net after-tax benefit to you if no such reduction was made. For
purposes of this Section 3(v), "net after-tax benefit" shall mean (i) the
Payments which you receive or are then entitled to receive that would
constitute "parachute payments" within the
<PAGE>
meaning of Section 280G of the Code, less (ii) the amount of all federal,
state, local and foreign income and employment taxes payable with respect to
the foregoing calculated at the maximum marginal income tax rate (factoring
in the loss of itemized deductions) for each year in which the foregoing
shall be paid to you (based on the rate in effect for such year as set forth
in the Code as in effect at the time of the first payment of the foregoing),
less (iii) the amount of the Excise Tax imposed with respect to the Payments.
The foregoing determination will be made by the Accountants (as defined
below) in consultation with you and the Corporation and in accordance with
the analysis, valuations and calculations prepared by the Accountants in
connection with this Agreement. If the Accountants determine that such
reduction is required by this Section 3(v)(a), you, in your sole and absolute
discretion, may determine which Payments shall be reduced to the extent
necessary so that no portion thereof shall be subject to the Excise Tax, and
the Corporation shall pay such reduced amount to you. You and the Corporation
will each provide the Accountants access to and copies of any books, records,
and documents in the possession of you or the Corporation, as the case may
be, reasonably requested by the Accountants, and otherwise cooperate with the
Accountants in connection with the preparation and issuance of the
determinations and calculations contemplated by this Section 3(v)(a).
(b) All determinations required to be made under this Section 3(v), including
the assumptions to be utilized in arriving at such determinations, shall be
made by the Accountants which shall provide you and the Corporation with its
determinations and detailed supporting calculations with respect thereto at
least fifteen (15) business days prior to the date on which you would be
entitled to receive a Payment (or as soon as practicable in the event that
the Accountants have less than fifteen (15) business days advance notice that
you may receive a Payment) in order that you may determine whether it is in
your best interest to waive the receipt of any or all amounts which may
constitute "excess parachute payments." For the purposes of this Section
3(v), the "Accountants" shall mean the Corporation's independent certified
public accountants serving immediately prior to the Change of Control. In the
event that the Accountants are also serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, you shall
appoint another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accountants hereunder). All fees and expenses of the
Accountants shall be borne solely by the Corporation. For the purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax, such Payments will be treated as "parachute
payments" within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section 280G(b)(3)
of the Code) shall be treated as subject to the Excise Tax, unless and except
to the extent that in the opinion of the Accountants such Payments (in whole
or in part) either do not constitute "parachute payments" or represent
reasonable compensation for services actually rendered (within the meaning of
Section 280G(b)(4) of the Code) in excess of the "base amount," or such
"parachute payments" are otherwise not subject to such Excise Tax. Any
determination by the Accountants shall be binding upon the Corporation and
you. As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accountants hereunder,
it is possible that the amount of the Payments that the Accountants determine
would constitute a "parachute payment" within the meaning of Section 280G of
the Code will have been less than the amount of the Payments that the
Internal Revenue Service (the "IRS") determines constitutes a "parachute
payment" within the meaning of Section 280G of the Code. In such event, you
shall notify the Corporation in writing of any such claim by the IRS. Such
notification shall be given as soon as practicable after you are informed in
writing of such claim and shall apprize the Corporation of the nature of such
claim and the date on which such claim is requested to be paid. In connection
with any contest or potential contest of such claim, you and the Corporation
will provide each other access to and copies of any books, records, and
documents in the possession of you or the Corporation, as the case may be,
reasonably requested by the other party, and will otherwise cooperate with
each other in connection with any such contest or potential contest. In the
event that you or the Corporation contest such claim, the Corporation shall
bear and pay directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest. If it is finally
determined that the amount of the Payments that the Accountants determined
constituted a "parachute payment" within the meaning of Section 280G of the
Code is less than the amount of the Payments that the IRS determined
constituted a "parachute payment" within the meaning of Section
<PAGE>
280G of the Code, you shall repay to the Corporation (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code) that amount of the
Payments necessary to reduce the Payments such that no portion thereof shall
be subject to the Excise Tax, but only if, by reason of such repayment, the
net after-tax benefit to you shall exceed the net after-tax benefit to you if
no such repayment was made. Nothing contained in this Section 3(v)(b) shall
limit your ability or entitlement to settle or contest, as the case may be,
any claim or issue asserted or raised by the IRS or any other taxing
authority.
4. Stock Options. Notwithstanding anything contained herein, all outstanding
options ("Options"), if any, granted to you under any of the Corporation's
stock option plans, incentive plans or other similar plans (or options
substituted therefor covering the stock of a successor corporation) shall
continue to be subject to the terms of the applicable stock option plan and
option agreement.
5. Successors; Binding Agreement.
(i) The Corporation shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to pay and perform, when due, all of the obligations of the Corporation
to you under this Agreement incurred in connection with the Change of Control
to that successor.
(ii) This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder had you continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified or, registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
7. Confidentiality and Non-Solicitation Covenants.
(i) Confidentiality. You hereby agree to be bound by the terms and conditions
of the Confidentiality and Invention Assignment Agreement attached hereto as
Exhibit A.
(ii) Non-Solicitation. You hereby agree that, for the period commencing on
the Final Date and terminating on the twelve (12) month anniversary thereof,
you shall not, either on your own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation,
directly or indirectly solicit or attempt to solicit away from the
Corporation any of its officers or employees or offer employment to any
person who, on or during the six (6) months immediately preceding the date of
such solicitation or offer, is or was an officer or employee of the
Corporation; provided, however, that a general advertisement to which an
employee of the Corporation responds shall in no event be deemed to result in
a breach of this Section 7(ii). Such agreement by you shall not be deemed to
limit in any way any other non-solicitation or similar agreement between you
and the Corporation.
(iii) The provisions of this Section 7 shall survive the termination or
expiration of this Agreement and your employment with the Corporation and
shall be fully enforceable thereafter. If it is determined by a court of
competent jurisdiction in any state or jurisdiction that any restriction in
this Section 7 is excessive in duration or scope or is unreasonable or
unenforceable under the laws of that state or jurisdiction, it is the
<PAGE>
intention of the parties that such restriction may be modified or amended by
the court to render it enforceable to the maximum extent permitted by the law
of that state or jurisdiction.
(iv) In the event that you shall breach or threaten to breach any of the
provisions of this Section 7, in addition to and without limiting or waiving
any other remedies available to the Corporation in law or in equity, the
Corporation shall be entitled to immediate injunctive relief in any court,
domestic or foreign, having the capacity to grant such relief, to restrain
such breach or threatened breach and to enforce the provisions of this
Section 7. You acknowledge that it is impossible to measure in money the
damages that the Corporation will sustain in the event that you breach or
threaten to breach the provisions of this Section 7 and, in the event that
the Corporation shall institute any action or proceeding to enforce such
provisions seeking injunctive relief, you hereby waive and agree not to
assert and shall not use as a defense thereto the claim or defense that the
Corporation has an adequate remedy at law. The foregoing shall not prejudice
the right of the Corporation to require you to account for and pay over to
the Corporation the amount of any actual damages incurred by the Corporation
as a result of such breach.
8. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by
the other party hereto of or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of California without regard to
its conflicts of law principles. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state, local or foreign law.
The section headings contained in this Agreement are for convenience only,
and shall not affect the interpretation of this Agreement.
9. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument.
11. Arbitration; Dispute Resolution, Etc.
(i) Arbitration Procedure. Any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in
this Agreement or the breach, termination or invalidity thereof shall be
settled by final and binding arbitration administered by JAMS/Endispute in
San Diego, California in accordance with the then existing JAMS/Endispute
Arbitration Rules and Procedures for Employment Disputes. In the event of
such an arbitration proceeding, you and the Corporation shall select a
mutually acceptable neutral arbitrator from among the JAMS/Endispute panel of
arbitrators. In the event you and the Corporation cannot agree on an
arbitrator, the Administrator of JAMS/Endispute will appoint an arbitrator.
Neither you nor the Corporation nor the arbitrator shall disclose the
existence, content, or results of any arbitration hereunder without the prior
written consent of all parties. Except as provided herein, the Federal
Arbitration Act shall govern the interpretation, enforcement and all
proceedings. The arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the state of California, or federal law, or both,
as applicable, and the arbitrator is without jurisdiction to apply any
different substantive law. The arbitrator shall have the authority to
entertain a motion to dismiss and/or a motion for summary judgment by any
party and shall apply the standards governing such motions under the Federal
Rules of Civil Procedure. The arbitrator shall render an
<PAGE>
award and a written, reasoned opinion in support thereof. Judgment upon the
award may be entered in any court having jurisdiction thereof.
(ii) Compensation During Dispute, Etc. Your compensation during any action or
proceeding brought by you pursuant to Section 11(i) involving a termination
of your employment following a Change of Control occurring on or prior to the
End Date (a "Dispute") shall be as follows:
If there is a termination of your employment with the Corporation followed by
a Dispute, then, during the period of that Dispute the Corporation shall pay
you fifty percent (50%) of the amount specified in Section 3(ii)(b) hereof,
and the Corporation shall provide you with the other benefits provided in
Section 3(ii) of this Agreement, if, but only if, you agree in writing that
if the Dispute is resolved against you, you shall promptly refund to the
Corporation all payments you receive under Section 3(ii)(b) of this
Agreement, as well as an amount equal to the value of all other benefits
provided to you under Section 3(ii) of this Agreement, in each case plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly. If the Dispute is resolved in your favor, promptly after
resolution of the Dispute the Corporation shall pay you the sum that was
withheld during the period of the Dispute plus interest at the rate provided
in Section 1274(d) of the Code, compounded quarterly.
(iii) Expenses, Legal Fees. The Corporation shall pay to you all expenses and
reasonable attorneys' fees incurred by you in connection with any Dispute
(including, without limitation, all such fees and expenses, if any, incurred
in contesting or disputing any termination of your employment or in seeking
to obtain or enforce any right or benefit provided by this Agreement, or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder) if you prevail on the principal material issues which are in
dispute with respect to such Dispute.
12. Indemnification; Directors' and Officers' Insurance.
(i) The Corporation shall indemnify you in the manner and to the extent (if
any) that it is obligated to do so under the bylaws of the Corporation or AMS
as of the date hereof. Such agreement by the Corporation shall not be deemed
to impair any other obligation of the Corporation respecting your
indemnification otherwise arising out of this or any other agreement or
promise of the Corporation or under any statute.
(ii) The Corporation shall furnish you with directors' and officers'
liability insurance to the same extent, if any (in terms of policy limits,
terms, conditions and exceptions) as is provided to members of the Board of
Directors, employees, and officers, as the case may be, of comparable rank to
your position (at the time of determination) within the Corporation.
13. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and, except
as otherwise expressly provided herein, supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or
representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein, including, without
limitation, any prior change of control agreements or severance agreements,
is hereby terminated and canceled. Except as otherwise expressly provided for
herein, any of your rights hereunder shall be in addition to any rights you
may otherwise have under benefit plans or agreements of the Corporation to
which you are a party or in which you are a participant and any Corporation
sponsored employee benefit plans and stock options plans and no provisions of
this Agreement shall in any way abrogate your rights under such other plans
and agreements.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Corporation the enclosed copy of this letter, which
shall then constitute our agreement on this subject.
Sincerely,
<PAGE>
ALARIS MEDICAL, INC.
By: /s/ DAVID L. SCHLOTTERBECK
---------------------------------------
President and Chief Executive Officer
Agreed and Accepted,
this 3rd day of May, 2000
/s/ WILLIAM C. BOPP
- ----------------------------------
William C. Bopp
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000817161
<NAME> ALARIS MEDICAL, INC.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
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