UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter ended March 31, 2000
Commission File Number 0-19943
PROTOCOL SYSTEMS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oregon 93-0913130
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8500 SW Creekside Place, Beaverton, OR 97008
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 526-8500
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding as of
May 1, 2000:
8,188,237 shares, $.01 par value per share
------------------------------------------
<PAGE>2
PROTOCOL SYSTEMS, INC.
Index to Form 10-Q
PART I FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations and Comprehensive Income for
the three months ended March
31, 2000 and 1999 3
Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31,
2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
PART II OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
- ----------
<PAGE3>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PROTOCOL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Sales $17,667 $14,299
Cost of sales 8,965 7,344
------- -------
Gross profit 8,702 6,955
Operating expenses:
Research and development 1,860 1,505
Selling, general and administrative 5,358 4,745
------- -------
Total operating expenses 7,218 6,250
------- -------
Income from operations 1,484 705
Other income 489 262
------- -------
Income before income taxes 1,973 967
Provision for income taxes 592 242
------- -------
Net income $ 1,381 $ 725
======= =======
Comprehensive income $ 1,373 $ 499
======= =======
Basic earnings per share $ 0.17 $ 0.09
======= =======
Diluted earnings per share $ 0.16 $ 0.09
======= =======
Weighted average number of shares
used in the computation of:
Basic earnings per share 8,128 8,241
Diluted earnings per share 8,541 8,385
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE4>
<TABLE>
PROTOCOL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
March 31, December 31,
2000 1999
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,825 $10,470
Short-term investments 11,099 3,487
Accounts receivable - net 16,507 18,083
Inventories - net 10,720 10,080
Prepaid expenses and other current assets 2,321 2,418
------- -------
Total current assets 50,472 44,538
Long-term investments 5,505 10,032
Property and equipment - net 4,037 3,912
Other assets 1,333 1,356
------- -------
$61,347 $59,838
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,732 $ 2,750
Accrued liabilities 4,259 5,137
------- -------
Total current liabilities 6,991 7,887
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value. Authorized 30,000 shares;
issued and outstanding 8,181 at March 31, 2000 and
8,032 at December 31, 1999 82 80
Additional paid-in capital 27,220 26,216
Unearned compensation -- (26)
Accumulated other comprehensive income (loss) (20) (12)
Retained earnings 27,074 25,693
------- -------
Total shareholders' equity 54,356 51,951
------- -------
$61,347 $59,838
======= =======
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE5>
<TABLE>
PROTOCOL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended March 31,
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,381 $ 725
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 504 560
Amortization of bond premium 45 31
Deferred taxes (32) 144
Other non-cash items 26 71
Changes in operating assets and liabilities:
Accounts receivable 1,564 4,501
Inventories (649) 563
Prepaid expenses and other assets 100 130
Accounts payable and accrued liabilities (816) (1,304)
------- -------
Net cash provided by operating activities 2,123 5,421
Cash flows from investing activities:
Purchase of investments (7,727) (10,030)
Proceeds from maturity of investments 4,600 9,980
Acquisition of property and equipment (580) (357)
Expenditures for other assets -- (250)
------- -------
Net cash used in investing activities (3,707) (657)
Cash flows from financing activities:
Proceeds from exercise of stock options
and stock purchase plan 1,005 506
Repurchase of common stock -- (128)
-------- --------
Net cash provided by financing activities 1,005 378
-------- --------
Effect of exchange rates on cash and cash equivalents (66) (317)
-------- -------
Net increase (decrease) in cash and cash equivalents (645) 4,825
Cash and cash equivalents at beginning of period 10,470 8,023
-------- --------
Cash and cash equivalents at end of period $ 9,825 $12,848
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 345 $ 0
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE6>
PROTOCOL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit and in conformity with generally
accepted accounting principles for interim financial information.
Accordingly, certain financial information and footnotes have been omitted or
condensed. In the opinion of management, the condensed consolidated financial
statements include all necessary adjustments (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year
ended December 31, 1999. The results of operations for the interim period
shown in this report are not necessarily indicative of results for any future
interim period or the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out basis (FIFO). The components of inventories, net of
reserve, are as follows:
March 31, December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------
Raw materials $ 5,027 $ 4,670
Work in process 1,902 1,916
Finished goods 2,287 2,043
Demonstration instruments 1,504 1,451
------- -------
Total inventories $10,720 $10,080
======= =======
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and includes the following:
March 31, December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------
Equipment $14,148 $13,622
Furniture and fixtures 1,817 1,776
Leasehold improvements 543 487
------- -------
16,508 15,885
Less accumulated depreciation and amortization 12,471 11,973
------- -------
Property and equipment - net $ 4,037 $ 3,912
======= =======
<PAGE7>
ACCRUED LIABILITIES
The components of accrued liabilities are as follows:
March 31, December 31,
(in thousands) 2000 1999
- -------------------------------------------------------------------------
Accrued salaries, wages and
related liabilities $2,074 $2,827
Income taxes payable 753 587
Reserve for warranties 974 923
Other liabilities 187 618
Accrual for special charges 160 102
Deferred revenue and customer deposits 111 80
------ ------
$4,259 $5,137
====== ======
During 1998, the Company incurred special charges of $5,434,000 to relocate
its wholly owned subsidiary, Pryon Corporation ("Pryon"), from Menomonee
Falls, Wisconsin to the Company's Beaverton, Oregon facility, and discontinue
the development of its defibrillator project and restructure its worldwide
operations. As of March 31, 2000, special charges of $160,000, related
primarily to certain contract terminations, had not been disbursed. The
Company anticipates that these remaining balances will be expended by the end
of 2000.
INCOME TAXES
The provision for income taxes has been recorded based on the current estimate
of the Company's annual effective tax rate. This rate differs from the
Federal statutory rate primarily because of the provision for state income
taxes, the effect of non-deductible expenditures, research and experimentation
tax credits, the Company's foreign sales corporation and tax-exempt interest
income earned on investments.
BASIC AND DILUTED EARNINGS PER SHARE
In accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share", basic earnings per share is
computed using the weighted average number of common shares outstanding and
diluted earnings per share is computed using the weighted average number of
common shares outstanding and dilutive potential common shares assumed to be
outstanding during the period using the treasury stock method. Dilutive
potential common shares consist of options to purchase common stock.
<PAGE8>
COMPREHENSIVE INCOME
<TABLE>
Three months ended March 31,
(in thousands) 2000 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Net income $ 1,381 $ 725
Other comprehensive
income (loss); net of tax
Foreign currency
translation adjustments (11) (158)
Unrealized holding
gain (loss) 3 (68)
------- --------
Other comprehensive loss (8) (226)
------- --------
Comprehensive income $ 1,373 $ 499
======== ========
</TABLE>
SEGMENT INFORMATION
In accordance with SFAS 131 "Disclosures about Segments of an Enterprise and
Related Information" the Company functions as a single operating segment: the
design, manufacture, sale and servicing of medical instruments and systems.
Sales are made primarily to hospitals and other health-care related customers.
<PAGE9>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales. Sales for the first quarter of 2000 increased 23.6% to $17.7 million
from $14.3 million for the first quarter of 1999.
Domestic sales, excluding Original Equipment Manufacturer sales of Pryon
Medical Device Technology (MDT) products (OEM sales), increased 10.6% to $9.4
million (52.9% of total sales) in the first quarter of 2000 from $8.4 million
(59.1% of total sales) in the first quarter of 1999 primarily as a result of
an increase in the number of Flexible Monitoring systems sold.
International sales, excluding international OEM sales, increased 69.3% to
$6.9 million (39.1% of total sales) in the first quarter of 2000 from $4.1
million (28.5% of total sales) in the first quarter of 1999. This increase
was principally due to increased sales to customers in Europe and to NEC, the
Company's exclusive distributor in Japan. The Company's distribution
agreement with NEC terminated in the first quarter of 2000.
OEM sales decreased 19.8% to $1.4 million (8.0% of total sales) in the first
quarter of 2000 from $1.8 million (12.4% of total sales) in the first quarter
of 1999 due to a decrease in sales of MDT CO2 products.
Gross profit. As a percentage of sales, gross profit increased to 49.3% in
the first quarter of 2000 from 48.6% in the first quarter of 1999. The
increase in gross profit was primarily due to improved margins on Flexible
Monitoring system sales partially offset by increased sales discounts in the
first quarter of 2000.
Research and development. Research and development expenses increased 23.6%
to $1.9 million in the first quarter of 2000 from $1.5 million in the first
quarter of 1999. This increase was primarily due to an increase in employee
headcount and outside consultants related to increased product development
activities. As a percentage of sales, research and development remained
consistent at 10.5% in the first quarter of 2000 compared to the first quarter
of 1999.
Selling, general and administrative. Selling, general and administrative
expenses increased 12.9% to $5.4 million in the first quarter of 2000 from
$4.7 million in the first quarter of 1999. This increase resulted primarily
from increased sales activities in the first quarter of 2000 as well as an
overall increase in compensation. As a percentage of sales, selling, general
and administrative decreased to 30.3% in the first quarter of 2000 from 33.2%
in the first quarter of 1999.
Other income. Other income increased to $489,000 in the first quarter of 2000
from $262,000 in the first quarter of 1999. This was primarily due to the
reversal of a reserve on a note receivable due to continued performance under
the note.
<PAGE10>
Provision for income taxes. The provision for income taxes increased to
$592,000 in the first quarter of 2000 from $242,000 in the first quarter of
1999, representing effective tax rates of 30.0% and 25.0%, respectively. The
effective tax rate, which reflects the estimate of the Company's annual
effective tax rate, was higher in the first quarter of 2000 than in the first
quarter of 1999 primarily due to the effect of non-deductible expenses in the
first quarter of 2000 and the utilization of Pryon Corporation net operating
loss carryovers in the first quarter of 1999.
Net income. Net income in the first quarter of 2000 was $1.4 million or $0.16
per diluted share compared to net income of $725,000 or $0.09 per diluted
share in the first quarter of 1999. The increase in net income was primarily
due to an increase in sales volume in the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company improved its strong financial position as of March 31, 2000 with
its cash and investments, both long and short term, increasing to $26.4
million from $24.0 million at December 31, 1999. Working capital at March 31,
2000 was $43.5 million and the current ratio was 7.2:1, compared to working
capital of $36.7 million and current ratio of 5.6:1 at December 31, 1999.
Cash flows from operating activities for the first three months of 2000 were
$2.1 million as compared to $5.4 million for the first three months of 1999.
Cash of $580,000 was used for the acquisition of property and equipment in the
first three months of 2000. Proceeds and related tax benefits from stock
option and stock purchase plans were $ 1.0 million in the first three months
of 2000.
Management believes that current cash and investment balances and future cash
flows from operations will be sufficient to meet the Company's liquidity and
capital needs for the foreseeable future.
YEAR 2000 ISSUES
Prior to December 31, 1999, the Company initiated and completed a
comprehensive Year 2000 analysis. To date, the Company has not, nor to the
Company's knowledge, have the Company's suppliers and third party vendors,
experienced any material Year 2000-related problems. However, the Company
cannot determine if it will be subject to Year 2000 problems in the future
that have not been identified to date.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation" (FIN No. 44) which
clarifies the application of APB Opinion No. 25 "Accounting for Stock Issued
to Employees" for certain issues. FIN No. 44 is effective July 1, 2000. The
Company does not expect FIN No. 44 to have a material impact on its
Consolidated Financial Statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 "Revenue Recognition" (SAB 101) which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. The Company adopted SAB 101 in the
first quarter of 2000. The impact on the Company's Consolidated Financial
Statements is not material.
<PAGE11>
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of the Quarterly Report contain statements,
that are forward-looking statements within the meaning of the Securities
Litigation Reform Act of 1995 that are based on current expectations,
estimates and projections about the Company's business, management's beliefs
and assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. In
addition, such statements could be affected by other factors discussed
elsewhere in this Quarterly Report and from time to time in the Company's
other Securities and Exchange Commission filings and reports, and by general
industry and market conditions and growth rates, and general domestic and
international economic conditions. Such forward-looking statements speak only
as of the date on which they are made and the Company does not undertake any
obligation to update any forward-looking statement to reflect events or
circumstances after the date of this Report. If the Company does update or
correct one or more forward-looking statements, investors and others should
not conclude that the Company will make additional updates or corrections with
respect thereto or with respect to other forward-looking statements.
The Company's quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future depending on factors such as increased
competition, timing of new product announcements, pricing changes by the
Company or its competitors, length of sales cycles, market acceptance or
delays in the introduction of new products or enhanced versions of existing
products, timing of significant orders, regulatory approval requirements,
difficulties in commercialization or manufacturing processes, supply
constraints of critical components, changes in customer purchasing patterns as
a result of hospital spending for year 2000 preparation and the impact of the
1998 Balanced Budget Amendment on capital spending, the Company's ability to
form business alliances and acquisitions and to successfully integrate future
acquisitions into the Company's operations, product mix and economic factors
and conditions generally and in the market for the Company's products
specifically. In particular, the Company's quarterly operating results have
fluctuated as a result of the unpredictable size and timing of military
patient monitoring equipment procurements, and seasonal or other changes in
customer buying patterns. A substantial portion of the Company's revenue in
each quarter results from orders booked in that quarter. Accordingly, revenue
from quarter to quarter is difficult to forecast. The Company's expense
levels are based, in part, on its expectations as to future revenue. If
revenue levels are below expectations, operating results are likely to be
adversely affected. In particular, net income may be disproportionately
affected by a reduction in revenue because only a small portion of expenses
vary with revenue. Results of operations in any period should not be
considered indicative of the result to be expected for any future period, and
fluctuations in operating results may also result in fluctuations in the price
of the Company's common stock. No assurance can be given that the Company
will be able to grow in future periods or that its operations will remain
profitable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations due to a
small portion of its international sales. The Company minimizes its risk to
foreign currency fluctuations as international sales through independent
distributors are made in U.S. dollars, which has helped reduce any foreign
currency risk.
As of March 31, 2000, the Company had an investment portfolio of fixed income
securities, including those classified as cash and cash equivalents, short-
term investments and long-term investments of $24.4 million. These securities
are subject to interest rate fluctuations. An increase in interest rates could
adversely affect the market value of the Company's fixed income securities.
The Company does not use derivative financial instruments in its investment
portfolio to manage interest rate risk. The Company does, however, limit its
exposure to interest rate and credit risk by establishing and strictly
monitoring clear policies and guidelines for its investment portfolio. The
weighted average maturity of the investment portfolio may not exceed 360 days
and no single investment may have a maturity date of greater than two years.
The guidelines also establish credit quality standards and limit the exposure
to one issue, issuer, or type of instrument. Due to these factors the exposure
to market and credit risk is not expected to be material.
<PAGE12>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2000, the Company sold securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act") upon the exercise of certain stock options granted under the Company's
1987 stock option plan. An aggregate of 48,279 shares of Common Stock were
issued at an exercise prices ranging from $1.95 to $7.00. These transactions
were effected in reliance upon the exemption from registration under the
Securities Act provided by Rule 701 promulgated by the Securities and Exchange
Commission pursuant to authority granted under Section 3 (b) of the Securities
Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Robert F. Adrion dated March 1, 2000
10.2 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Edward M. Kolasinski dated March 1, 2000
10.3 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Allen L. Oyler dated March 1, 2000
10.4 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Carl P. Hollstein dated March 1, 2000
10.5 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and James P. Welch dated March 1, 2000
10.6 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and James P. Fee dated March 1, 2000
10.7 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Richard L. Roa dated March 1, 2000
10.8 Amendment to Executive Employment Agreement between Protocol
Systems, Inc. and Donald M. Abbey dated March 1, 2000
10.9 Executive Employment Agreement between Protocol Systems, Inc.
and Chris Tew dated January 24, 2000
27.1 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
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.
PROTOCOL SYSTEMS, INC.
(Registrant)
Date: May 11, 2000 By /s/Robert F. Adrion
---------------------
Robert F. Adrion Ph.D.
Chief Executive
Officer, President
By /s/Edward M. Kolasinski
---------------------
Edward M. Kolasinski
Vice-President,
Finance/Chief Financial
Officer
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Robert F. Adrion ("Executive")
1239 NW Hillcourt Lane
Portland, OR 97229
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of August 1, 1999 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
3. Section 6.2.2 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) two (2) times
what the Executive would have received in incentive plan bonus for the year
in which termination occurs as if the "target" goals had been achieved for
that fiscal year, or (b) the actual amount of the incentive bonus to which
the Executive would have been entitled had he remained with the Company
based on the Company's actual performance, for the fiscal year in which
termination occurs, whichever is greater. The amount provided by this
Section 6.2.2 shall be earned and payable on the date that is fifteen (15)
days after the date Executive would have been paid an annual incentive
bonus had he remained with the Company for the fiscal year in which
termination occurs.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:_________________________________
Robert F. Adrion Title:______________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Edward Kolasinski ("Executive")
5605 SW Summit Street
West Linn, OR 97068
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of August 21, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain provisions
of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if a
Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 4.3.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
4.3.1 If the notice of termination is given by the Company, in addition to
any other amounts payable to Executive, under this Section 4.3, the Company
shall pay Executive within fifteen (15) days following termination, a lump
sum amount equal to one (1) year's Base Salary.
4. Section 4.4.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to six (6) month's Base Salary to the executor, administrator
or other personal representative of the Executive's estate. The amount
shall be paid as a lump sum as soon as practicable following Company's
receipt of notice of the Executive's death. All such payments shall be in
addition to any payments due pursuant to Section 4.4.3 below.
5. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
6. Section 6.2.2 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the Company
shall pay to the Executive an amount equal to (a) two (2) times what the
Executive would have received in incentive plan bonus for the year in
which termination occurs as if the "target" goals had been achieved for
that fiscal year, or (b) the actual amount of the incentive bonus to which
the Executive would have been entitled had he remained with the Company
based on the Company's actual performance, for the fiscal year in which
termination occurs, whichever is greater. The amount provided by this
Section 6.2.2 shall be earned and payable on the date that is fifteen (15)
days after the date Executive would have been paid an annual incentive
bonus had he remained with the Company for the fiscal year in which
termination occurs.
7. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
8. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:________________________________
Edward Kolasinski Title:_____________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Allen L. Oyler ("Executive")
12288 SW 131st Avenue
Tigard, OR 97223
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of July 1, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if
a Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:__________________________________
Allen L. Oyler Title:_______________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Carl P. Holstein ("Executive")
10880 SW Avocet Court
Beaverton, OR 97007
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of July 1, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of
(i) termination pursuant to Article 4 or Article 6 of this Agreement or
(ii) three (3) years from the date of this Agreement, provided however
that if a Change of Control occurs within three (3) years from the date of
this Agreement, then this Agreement shall remain in effect for two (2)
years from the date of the first Change of Control event described in
Section 6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:___________________________________
Carl P. Holstein Title:________________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
James P. Welch ("Executive")
14340 SW Hazelhill
Tigard, OR 97224
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of July 1, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if
a Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
_____________________________________ By:___________________________________
James P. Welch Title:________________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
James P. Fee ("Executive")
13645 NW Lariat Court
Portland, OR 97229
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of July 1, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if
a Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to two (2) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:_________________________________
James P. Fee Title:______________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Richard Roa ("Executive")
7918 SW 189th Avenue
Beaverton, OR 97007
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of July 13, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 TERM. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if
a Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to one (1) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
_______________________________________ By:___________________________________
Richard Roa Title:________________________________
PROTOCOL SYSTEMS, INC.
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Don Abbey ("Executive")
13975 SW Chinn Lane, No. 236
Tigard, OR 97224
DATE: March 1, 2000
RECITALS:
A. The Company and the Executive have entered into an Executive
Employment Agreement dated as of June 29, 1998 (the "Employment Agreement").
B. The Company and the Executive now desire to modify certain
provisions of the Employment Agreement.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein but not defined herein have their
defined meanings as set forth in the Employment Agreement.
2. Section 2.3 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
2.3 This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii)
three (3) years from the date of this Agreement, provided however that if
a Change of Control occurs within three (3) years from the date of this
Agreement, then this Agreement shall remain in effect for two (2) years
from the date of the first Change of Control event described in Section
6.1.1.
3. Section 6.2.1 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to one (1) years' Base
Salary.
4. Section 6.5 of the Employment Agreement is hereby amended and
restated in its entirety as follows:
6.5 Vesting of Stock Options. All unvested stock options held by
Executive, if any, shall vest immediately upon a Change of Control
Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option
plan and the agreement pursuant to which such options were granted.
5. Except as set forth and amended and restated herein, the Employment
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to Executive
Employment Agreement to be duly executed on the day and year first written
above.
EXECUTIVE PROTOCOL SYSTEMS, INC.
_______________________________________ By:__________________________________
Don Abbey Title:_______________________________
Protocol Systems, Inc.
EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES: Protocol Systems, Inc. ("Company")
8500 SW Creekside Place
Beaverton, OR 97008
Chris E. Tew("Executive")
18075 SW Jeremy St.
Beaverton, OR 97007
DATE: January 24, 2000
RECITALS:
A. The Company wishes to obtain the services of the Executive for at least
the duration of this Agreement, and the Executive wishes to provide his
services for such period, all upon the terms and conditions set out in this
Agreement.
B. It is expressly recognized by the parties that the Executive's
continuance in the Executive's position with the Company and agreement to be
bound by the terms of this Agreement represents a substantial commitment to the
Company in terms of the Executive's personal and professional career and a
foregoing of present and future career options by the Executive, for all of
which the Company receives substantial value.
C. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of the Executive's position and
responsibilities and substantially frustrate the purpose of the Executive's
commitment to the Company and forbearance of career options.
D. The parties recognize that in light of the above-described commitment and
forbearance of career options, it is essential that, for the benefit of the
Company and its stockholders, provision be made for a Change of Control
Termination (as defined below) in order to enable the Executive to accept and
effectively continue in the Executive's position in the face of inherently
disruptive circumstances arising from the possibility of a Change of Control,
although no such change is now contemplated or foreseen.
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Base Salary" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc.
1.3 "Disability" shall mean the inability of the Executive to perform the
essential functions of his position under this Agreement with or without
reasonable accommodation because of physical or mental incapacity for a
continuous period of five (5) months, as reasonably determined by the Company
after consultation with a qualified physician selected by the Company.
1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in
interest by way of consolidation, operation of law, merger or otherwise.
1.5 "Confidentiality Agreement" shall mean that certain Non-competition and
Confidentiality Agreement dated July 10, 1989 by and between the Company and
Executive.
ARTICLE 2
EMPLOYMENT, DUTIES AND TERM
2.1 Employment. Upon the terms and conditions set forth in this Agreement,
the Company hereby employs the Executive in the position of Vice President -
Sales, and the Executive accepts such employment.
2.2 Duties. The Executive shall devote his full-time and best efforts to the
Company and to fulfilling the duties of his position which shall include such
duties as may from time to time be assigned him by the Chief Executive Officer,
provided that such duties are reasonably consistent with the Executive's
position. The Executive shall comply with the Company's policies and
procedures to the extent they are not inconsistent with this Agreement, in
which case the provisions of this Agreement prevail.
2.3 Term. This Agreement shall remain in effect until the earlier of (i)
termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two
(2) years from the date of this Agreement, provided however that if a Change in
Control occurs within two (2) years from the date of this Agreement, then this
Agreement shall remain in effect for two (2) years from the date of the first
Change in Control event described in Section 6.1.1.
ARTICLE 3
COMPENSATION AND EXPENSES
3.1 Base Salary. For all services rendered under this Agreement, the Company
shall pay Executive a Base Salary that is not less than Executive's Base Salary
as of the date of this Agreement. If the Executive's salary is increased from
time to time during the term of this Agreement, the increased amount shall be
the Base Salary for the remainder of the term and any extensions. All amounts
payable to the Executive under this Agreement shall be reduced by such amounts
as are required to be withheld by law.
3.2 Bonus and Incentive. Bonus or incentive compensation shall be in the
sole discretion of the Board. Except as otherwise provided in Article 6, the
Company shall have the right in accordance with the terms of any bonus or
incentive plan to alter, amend or eliminate all or any part of such plan, or
the Executive's participation therein, without compensation to the Executive.
3.3 Business Expenses. The Company shall, in accordance with, and to the
extent of, its policies in effect from time to time, reimburse all ordinary and
necessary business expenses reasonably incurred by the Executive in performing
his duties as an employee of the Company, provided that the Executive accounts
promptly for such expenses to the Company in the manner prescribed from time to
time by the Company.
ARTICLE 4
EARLY TERMINATION
4.1 Early Termination. This Article 4 governs termination of this Agreement
at any time during the term of the Agreement; provided, however, that this
Article shall not govern a "Change of Control Termination" as defined in
Article 6. A Change in Control Termination is governed solely by the provisions
of Article 6.
4.2 Termination for Cause. The Company may terminate this Agreement and
Executive's employment immediately for "Cause" as that term is defined herein,
upon written notice to the Executive.
4.2.1 "Cause" means any one of the following: (a) fraud, (b)
misrepresentation, (c) theft or embezzlement of the Company assets, (d)
intentional violations of law involving moral turpitude, (e) the
continued failure by the Executive to satisfactorily perform his duties
as reasonably assigned to the Executive pursuant to Section 2.2 of this
Agreement for a period of sixty (60) days after a written demand for such
satisfactory performance which specifically and with reasonable detail
identifies the manner in which it is alleged the Executive has not
satisfactorily performed such duties, and (f) any material breach of the
Confidentiality Agreement.
4.2.2 In the event of termination for Cause pursuant to this Section 4.2,
the Executive shall be paid his Base Salary through the date of
termination specified in any notice of termination. The Executive will
not be entitled to any bonuses or incentives which are not earned and
payable at the time of the termination.
4.3 Termination Without Cause. Either the Executive or the Company may
terminate this Agreement and the Executive's employment without Cause by
providing at least seventy-five (75) days' written notice; provided, however,
that the Company shall have the option of making termination of the Agreement
and termination of the Executive's employment effective immediately upon
notice, in which case Executive shall be paid his Base Salary through a notice
period of seventy-five (75) days. This Section 4.3 shall not be applicable
where Cause for termination exists.
4.3.1 If the notice of termination is given by the Company, in addition to
any other amounts payable to Executive, under this Section 4.3, the
Company shall pay Executive within fifteen (15) days following
termination, a lump sum amount equal to six (6) month's Base Salary.
4.3.2 In the event that termination occurs pursuant to Section 4.3.1 then,
in addition to the payments specified in said Section, the Company shall
pay to the Executive bonuses, if any, as follows:
4.3.2.1 Company shall pay Executive an amount equal to the annual
bonus or annual incentive, if any, to which the Executive would
otherwise have become entitled under any Company bonus or incentive
plan in effect at the time of termination of this Agreement had the
Executive remained continuously employed for the full fiscal year
in which termination occurred and continued to perform his duties
in the same manner as they were performed immediately prior to
termination; provided, however, that such bonus or incentive amount
shall be pro-rated to the date of termination. The amount payable
pursuant to this Section 4.3.2.1 shall be earned and payable as of
the date that is fifteen (15) days after the date such bonus would
have been paid had the Executive remained employed for the full
fiscal year.
4.3.2.2 In the event Executive would have been entitled to a
quarterly bonus or quarterly incentive payment had he remained
employed for the entire quarter in which Executive was terminated,
the Company shall pay Executive such quarterly bonus or incentive
amount pro-rated to the date of termination, payable as of the date
that is fifteen (15) days after the date such bonus would have been
paid had the Executive remained employed for the full quarter.
4.4 Termination in the Event of Death or Disability. This Agreement and
Executive's employment shall terminate in the event of death or Disability of
the Executive.
4.4.1 In the event of the Executive's death, the Company shall pay an
amount equal to three (3) month's Base Salary to the executor,
administrator or other personal representative of the Executive's estate.
The amount shall be paid as a lump sum as soon as practicable following
Company's receipt of notice of the Executive's death. All such payments
shall be in addition to any payments due pursuant to Section 4.4.3 below.
4.4.2 In the event of termination due to Executive's Disability, Base
Salary shall be terminated as of the final day of the fifth month
referenced in the definition of "Disability." Unless otherwise
disqualified by the disability benefit program provider, this Section is
not intended to limit the Executive from qualifying for and claiming
disability benefits from any other disability program in which the
Executive may be enrolled or otherwise for which he is qualified at the
time of disability.
4.4.3 In the event of termination by reason of the Executive's death or
Disability, the Company shall pay to the Executive an amount equal to the
amount the Executive would have received in incentive plan bonus for the
year in which termination occurred had "target" goals been achieved,
provided, however, that such amount shall be pro-rated to the date of
termination. This amount shall be earned and payable as of the date that
is fifteen (15) days after the date such bonus would have been paid had
the Executive remained employed for the full fiscal year in which
termination occurred.
4.5 Continuation of Benefits. In the event of termination of Executive's
employment by the Company pursuant to Section 4.3.1 or termination due to
Disability, the Company shall pay the applicable premiums for such group health
plan continuation as Executive is entitled to under the Consolidated Omnibus
Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the
period of time the Executive is entitled to continue such coverage under COBRA.
4.6 Entire Termination Payment. The compensation provided for in this
Article 4 shall constitute the Executive's sole remedy for termination
pursuant to this Article. The Executive shall not be entitled to any other
termination or severance payment which may be payable to the Executive under
any other agreement between the Executive and the Company preceding or
following the date of termination.
ARTICLE 5
CONFIDENTIALITY; CONFLICT OF INTEREST
5.1 Proprietary Information. Executive shall keep confidential, except as
the Company may otherwise consent in writing, and not disclose or make any use
of except for the benefit of the Company, at any time either during or
subsequent to his employment by the Company, any Proprietary Information which
he may produce, obtain or otherwise acquire during the course of his
employment. As used herein, "Proprietary Information" shall include any trade
secrets, confidential information, knowledge, data, or other information of the
Company relating to products, processes, know-how, designs, formulae, test
procedures and results, customer lists, business plans, marketing plans and
strategies, and pricing strategies, or other subject matter pertaining to any
business of the Company for any of its clients, customers, consultants,
licensees of affiliates, which information is not in the public domain at the
time of the alleged breach. In the event of the termination of the Executive's
employment for any reason whatsoever, Executive shall promptly return all
records, materials, equipment, drawings and the like pertaining to any
Proprietary Information.
5.2 Covenant Not to Compete. Executive acknowledges that he will provide
special skills, and acquire special information, regarding the activities of
the Company. Executive agrees, therefore, that he will not, for a period of
twelve (12) months from and after the date he ceases to be employed by the
Company, join, control or participate in the ownership, management, operation
or control of or be connected with, any business located in the United States
of America whose commercial products are in direct competition with the Company
or which is developing products which will be in direct competition with the
Company, in such a manner and position that he would likely use Proprietary
Information, unless released from such obligation by the Board of Directors of
the Company. Executive agrees that he shall be deemed to be connected with a
business if such a business is carried on by a partnership in which he is a
general or limited partner or employee of a corporation or association of which
he is a shareholder, officer, director, employee, member, consultant or agent;
provided, that nothing herein shall prohibit the purchase or ownership by him
of shares of less than five percent (5%) in a publicly or privately held
corporation. Executive agrees to submit a list of such business interests in
Exhibit A attached hereto and incorporated by reference herein.
Notwithstanding the foregoing, this Section 5.2 shall not apply to the
Executive if the Executive's employment was terminated pursuant to Section 4.3
or Section 6.1.2.1 of this agreement.
5.3 Consent to Injunction. Executive agrees that the Company will or would
suffer an irreparable injury if Executive were to compete with the business of
the Company or any of its subsidiaries in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive
relief in a court of appropriate jurisdiction and Executive stipulates to the
entering of such injunctive relief prohibiting him from competing with the
Company or any present affiliate of the Company in connection with the business
of the Company, in violation of this Agreement.
5.4 Severability. The parties intend that the covenants contained in Section
5.2 be deemed to be separate covenants as to each county and state, and that if
in any judicial proceeding a court shall refuse to enforce all of the separate
covenants included herein because, taken together, they cover too extensive a
geographic area or because any one includes too large an area or because they
cover too large a period of time, the parties intend that such covenants shall
be reduced in scope to the extent required by law or, if necessary, eliminated
from the provisions hereof, and that all of the remaining covenants hereof not
so affected shall remain fully effective and enforceable.
5.5 Assignment of Inventions. As used in this Agreement, "inventions" shall
include, but not be limited to, ideas, improvements, designs, and discoveries.
Executive hereby assigns and transfers to the Company entire right, title and
interest in and to all inventions whether or not conceived by Executive
(whether made solely by Executive or jointly with others) during the period of
his employment with the Company which relate in any manner to the actual or
demonstrably anticipated business, work, or research an development of the
Company or its subsidiaries, or result from or are suggested by any tasks
assigned to Executive or any work performed by Executive for or on behalf of
the Company or its subsidiaries. Executive agrees that all such inventions are
sole property of the Company, provided, however, that this Agreement does not
require assignment of any invention if such assignment would contravene
applicable state law.
5.6 Disclosure of Inventions, Patents. Executive agrees that in connection
with any invention as defined in Section 5.5, above:
5.6.1 Executive will disclose such invention promptly in writing to the
Board of Directors of the Company, with a copy to the President,
regardless of whether he believes the invention is protected by
applicable state law, in order to permit the Company to claim rights to
which it may be entitled under this Agreement. Such disclosure shall be
received in confidence by the Company.
5.6.2 Executive will, at the Company's request, promptly execute a
written assignment of title to the Company for any invention required to
be assigned by Section 5.5 ("assignable invention") and Executive will
preserve any such assignable invention as confidential information of the
Company; and
5.6.3 Upon request, Executive agrees to assist the Company or its nominee
(at its expense) during and at any time subsequent to his employment in
every reasonable way to obtain for its own benefit patents and copyrights
for such assignable inventions in any and all countries, which inventions
shall be and remain the sole and exclusive property of the Company or its
nominee, whether or not patented or copyrighted. Executive agrees to
execute such papers and perform such lawful acts as the Company deems to
be necessary to allow it to exercise all right, title, and interest in
such patents and copyrights.
5.6.4 Executive agrees to submit a list of inventions made prior to his
employment by the Company on Exhibit B attached hereto and incorporated
by reference herein.
5.7 Execution of Documentation. In connection with Section 5.5 and Section
5.6, Executive further agrees to execute, acknowledge and deliver to the
Company or its nominee upon request and at its expense all such assignments of
inventions, patents, and copyrights to be issued therefor, as the Company may
determine necessary or desirable for which to apply. Executive agrees to
obtain letters, patents, and copyrights on such assignable inventions in any
and all countries and/or protect the interest of the Company or its nominee in
such inventions, patents and copyrights and to vest title thereto in the
Company or its nominee.
5.8 Other Obligations. Executive acknowledges that the Company from time to
time may have agreements with other persons or with the U.S. Government, or
agencies thereof, which impose obligations or restrictions on the Company
regarding inventions made during the course of work thereunder or regarding the
confidential nature of such work. Executive agrees to be bound by all such
obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
5.9 Trade Secrets of Others. Executive represents that his performance of
all the terms of this Agreement and as an employee of the Company such
employment does not and will not breach any agreement to keep in confidence
proprietary information, knowledge, or data acquired by Executive in confidence
or in trust prior to his employment with the Company. Executive will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. Executive agrees not to enter into any agreement either written or
oral in conflict herewith.
5.10 Conflict of Interest. During Executive's employment with the Company,
Executive will engage in no activity or employment which may conflict with the
interest of the Company and will comply with the Company's policies and
guidelines pertaining to business conduct and ethics.
5.11 Previous Agreements. Executive represents and warrants to the Company
that as of the date of this Agreement, he has fully complied with the terms of
the Confidentiality Agreement. Executive's obligations under this Agreement
are in addition to, do not limit, and are not limited by, Executive's
Confidentiality Agreement. To the extent any provision of the Confidentiality
Agreement conflicts with the provisions of this Agreement, the provisions of
this Agreement control.
5.12 Survival of Obligations. The provisions of this Article 5 shall survive
termination of this Agreement.
ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions. For purposes of this Article 6, the following definitions
shall be applied:
6.1.1 "Change of Control" shall mean any of the following events:
6.1.1.1 a merger or consolidation to which the Company is a party
if the individuals and entities who were stockholders of the
Company immediately prior to the effective date of such merger or
consolidation have beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of less than fifty
percent (50%) of the total combined voting power for election of
directors of the surviving corporation immediately following the
effective date of such merger or consolidation; or
6.1.1.2 the direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), in the
aggregate, of securities of the Company, representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities, by any person or
entity, or group of associated persons or entities acting in
concert; or 6.1.1.3 the sale of all or substantially all of the
assets of the Company to any person or entity which is not a
subsidiary of the Company; or
6.1.1.4 the stockholders of the Company approve any plan or
proposal for the liquidation of the Company; or
6.1.1.5 a change in the composition of the Board at any time
during any consecutive 24-month period such that the Continuity
Directors cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this clause,
"Continuity Directors" means those members of the Board who either:
6.1.1.5.1 were directors at the beginning of such consecutive
24-month period; or
6.1.1.5.2 were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3) majority of
the then-existing Board.
6.1.2 "Change of Control Termination" shall mean, with respect to the
Executive, any of the following events occurring within two (2) years
after a Change of Control:
6.1.2.1 Termination of the Executive's employment by the Company
for any reason other than for Cause, as Cause is defined in Section
4.2 of this Agreement.
6.1.2.2 Termination of employment with the Company by the Executive
pursuant to Section 6.2 of this Article 6. A Change of Control
Termination shall not, however, include termination by reason of
death or Disability.
6.1.3 "Good Reason" shall mean a good faith determination by the
Executive, in the Executive's reasonable judgment, that any one or more
of the following events has occurred without the Executive's express
written consent, after a Change of Control, and the Company's failure to
correct such occurrence for a period of thirty (30) days following
Executive's written notice to Company identifying the event alleged to
provide Good Reason and stating Executive's intent to invoke Section 6.2
of this Article 6.
6.1.3.1 A change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the Change of
Control, or any removal of the Executive from, or any failure to re-
elect the Executive to, any of such positions, which has the effect
of materially diminishing the Executive's responsibility or
authority;
6.1.3.2 A reduction by the Company in the Executive's Base Salary
as in effect immediately prior to the Change of Control;
6.1.3.3 A requirement by the Company that the Executive be based
anywhere other than within twenty-five (25) miles of the
Executive's job location at the time of the Change of Control;
6.1.3.4 A material diminishment of Executive's pension, bonus,
incentive, stock ownership, purchase, option, life insurance,
health, accident, disability, or any other employee compensation or
benefit plan, program or arrangement and/or any membership
(collectively, "Benefit Plans"), in which the Executive is
participating immediately prior to a Change of Control; or the
taking of any action by the Company that would materially adversely
affect the Executive's participation or materially reduce the
Executive's benefits under any Benefit Plans or Benefit Plan;
6.1.3.5 Any material breach of this Agreement by the Company.
6.1.4 "Internal Revenue Code" -- Any references to a section of the
Internal Revenue Code shall mean that section of the Internal Revenue Code
of 1986, or to the corresponding section of such Code, as from time to
time amended.
6.2 Change of Control Termination Right. For a period of two (2) years
following a Change of Control, the Executive shall have the right, at any time,
to terminate employment with the Company for Good Reason. Such termination
shall be accomplished by, and effective upon, the Executive giving written
notice to the Company of the Executive's decision to terminate. Except as
otherwise expressly provided in this Agreement, upon the exercise of said
right, all obligations and duties of the Executive under this Agreement shall
be of no further force and effect.
6.2.1 Change of Control Termination Payment. In the event of a Change of
Control Termination as defined in Section 6.1.2, without further action by
the Board, the Company shall, within thirty (30) days of such termination,
make a lump sum payment to the Executive, equal to one (1) years' Base
Salary.
6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the
Company shall pay to the Executive an amount equal to (a) one (1) time
what the Executive would have received in incentive plan bonus for the
year in which termination occurs as if the "target" goals had been
achieved for that fiscal year, or (b) the actual amount of the incentive
bonus to which the Executive would have been entitled had he remained with
the Company based on the Company's actual performance, for the fiscal year
in which termination occurs, whichever is greater. The amount provided by
this Section 6.2.2 shall be earned and payable on the date that is fifteen
(15) days after the date Executive would have been paid an annual
incentive bonus had he remained with the Company for the fiscal year in
which termination occurs.
6.2.3 Notwithstanding anything in this Agreement to the contrary, in the
event any of the payments to the Executive under this Agreement would
constitute an excess parachute payment pursuant to Section 280 G of the
Internal Revenue Code, the amount payable pursuant to Section 6.2.2 shall
be reduced by the minimum amount necessary such that none of the
compensation payable to Executive as a result of a Change in Control shall
constitute an excess parachute payment.
6.3 Interest. In the event the Company does not make timely payment in full
of the Change of Control Termination payment described in Section 6.2, the
Executive shall be entitled to receive interest on any unpaid amount at the
lower of: (a) prime rate of interest (or such comparable index as may be
adopted) established from time to time by the Company's principal banking
institution or (b) the maximum rate permitted under Section 280G(d)(4) of the
Internal Revenue Code.
6.4 Continuation of Benefits. In the event of termination of Executive's
employment pursuant to Section 6.2 herein, the Company shall pay the applicable
premiums for such group health plan continuation as Executive is entitled to
under COBRA and such payment shall continue for the period of time the
Executive is entitled to continue such coverage under COBRA.
6.5 Vesting of Stock Options. Vesting of Stock Options. All unvested stock
options held by Executive, if any, shall vest immediately upon a Change in
Control Termination as defined in Section 6.1.2. Executive may exercise such
options in accordance with the terms and conditions of the stock option plan
and the agreement pursuant to which such options were granted.
ARTICLE 7
GENERAL PROVISIONS
7.1 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Company and each subsidiary,
whether by way of merger, consolidation, operation of law, assignment, purchase
or other acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and unconditionally
assume all of the Company's obligations hereunder.
7.2 Notices. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address as set forth at the
beginning of this Agreement. Either party may change its address, by notice to
the other party given in the manner set forth in this Section. Any notice, if
mailed properly addressed, postage prepaid, registered or certified mail, shall
be deemed dispatched on the registered date or that stamped on the certified
mail receipt, and shall be deemed received within the third business day
thereafter or when it is actually received, whichever is sooner.
7.3 Caption. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.4 Governing Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon
7.5 Mediation. In case of any dispute arising under this Agreement which
cannot be settled by reasonable discussion, the parties agree that, prior to
commencing any arbitration proceeding as contemplated by Section 7.6 they will
first engage the services of a professional mediator agreed upon by the parties
and attempt in good faith to resolve the dispute through confidential non-
binding mediation. Each party shall bear one-half (1/2) of the mediator's fees
and expenses and shall pay all of its own attorneys' fees and expenses related
to the mediation.
7.6 Arbitration. Any dispute concerning the interpretation, construction,
breach or enforcement of this Agreement or arising in any way from Executive's
employment with Company or termination of employment shall be submitted to
final and binding arbitration. Such arbitration is to be before a single
arbitrator in Portland, Oregon. In the event the parties are unable to agree
upon an arbitrator, an arbitrator shall be appointed by the court pursuant to
ORS 36.320. The arbitration shall be conducted pursuant to the rules of the
American Arbitration Association ("AAA") Employment Dispute Resolution Rules.
Executive and the Company agree that the procedures outlined in Section 7.5 and
7.6 are the exclusive method of dispute resolution.
7.7 Attorney Fees. If any action at law, in equity or by arbitration is taken
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled, including
fees and expenses on appeal.
7.8 Construction. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.9 Waivers. No failure on the part of either party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or by law.
7.10 Assignment. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns, and shall be binding upon the
Executive, his administrators, executors, legatees, and heirs. In that this
Agreement is a personal services contract, it shall not be assigned by the
Executive.
7.11 Modification. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
7.12 Entire Agreement. This Agreement together with the Confidentiality
Agreement constitutes the entire agreement and understanding between the
parties hereto in reference to all the matters herein agreed upon. This
Agreement replaces and supersedes all prior employment agreements or
understandings of the parties hereto; provided, however, that the
Confidentiality Agreement continues in full force and effect according to its
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EXECUTIVE PROTOCOL SYSTEMS, INC.
____________________________________ By:_________________________________
Chris E. Tew Robert F. Adrion, President & CEO
Date:_______________________________ Date________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Protocol
Systems, Inc. Condensed Consolidated Balance Sheet as of March 31, 2000 and
Condensed Consolidated Statement of Operations and Comprehensive Income for the
three months ended March 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,825
<SECURITIES> 16,604
<RECEIVABLES> 16,507<F1>
<ALLOWANCES> 417
<INVENTORY> 10,720
<CURRENT-ASSETS> 50,472
<PP&E> 16,508
<DEPRECIATION> 12,471
<TOTAL-ASSETS> 61,347
<CURRENT-LIABILITIES> 6,991
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 54,274
<TOTAL-LIABILITY-AND-EQUITY> 61,347
<SALES> 17,667
<TOTAL-REVENUES> 17,667
<CGS> 8,965
<TOTAL-COSTS> 8,965
<OTHER-EXPENSES> 6,729
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,973
<INCOME-TAX> 592
<INCOME-CONTINUING> 1,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,381
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
<FN>
<F1>Net of allowance.
<F2>The amount of loss provision is not significant and has been included in other
expenses.
</FN>
</TABLE>
