-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, g45jWbmFmj7lcehTGcGvhQ6QGXh9JjrbbaVYihqfdkjuPVlt0iKWq5TYIAOuqGnD uAoUAGXpjbHq+K/Tz5GeNQ== 0000950109-94-000357.txt : 19940307 0000950109-94-000357.hdr.sgml : 19940307 ACCESSION NUMBER: 0000950109-94-000357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC/ CENTRAL INDEX KEY: 0000806086 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 911353386 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-15160 FILM NUMBER: 94514536 BUSINESS ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY SE STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 BUSINESS PHONE: 2064877000 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 0-15160 ADVANCED TECHNOLOGY LABORATORIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 91-1353386 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 22100 BOTHELL-EVERETT HIGHWAY P.O. BOX 3003 BOTHELL, WASHINGTON 98041-3003 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 487-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On February 25, 1994, the aggregate market value of the voting stock held by non affiliates of the registrant was $164,814,272 based upon the closing sale price of $16.00 per share on the Nasdaq National Market on such date. Number of shares of Common Stock, $0.01 par value per share, of the registrant outstanding as of February 25, 1994: 10,517,736.
DOCUMENTS INCORPORATED BY REFERENCE PART ----------------------------------- ---- Proxy Statement for the 1994 Annual General Part III (Items 10-13) Meeting of Shareholders
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADVANCED TECHNOLOGY LABORATORIES, INC. TABLE OF CONTENTS
PAGE ---- PART I.................................................................. 1 ITEM 1. Business................................................... 1 ITEM 2. Properties................................................. 12 ITEM 3. Legal Proceedings.......................................... 13 ITEM 4. Submission of Matters to a Vote of Security Holders ....... 14 PART II................................................................. 14 ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 14 ITEM 6. Selected Financial Data.................................... 15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 ITEM 8. Financial Statements and Supplementary Data................ 21 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 39 PART III................................................................ 39 ITEMS 10-13. Directors and Executive Officers of the Registrant......... 39 PART IV................................................................. 39 ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 39
PART I ITEM 1. BUSINESS STRUCTURE OF THE COMPANY Advanced Technology Laboratories, Inc. ("ATL" or the "Company") is engaged in the high-technology electronic medical systems business. ATL develops, manufactures, markets and services diagnostic medical ultrasound systems worldwide. Prior to June 26, 1992, ATL was named Westmark International Incorporated ("Westmark"). In February 1992, Westmark announced that its Board of Directors would recommend to its shareholders that Westmark be divided into two separate, publicly-traded companies, one engaged in the diagnostic ultrasound business ("ATL") and the other, SpaceLabs Medical, Inc. ("SpaceLabs"), engaged in the patient monitoring and clinical information systems business. The recommendation was approved by the shareholders of Westmark at the 1992 Annual General Meeting and the tax-free distribution of SpaceLabs stock to the shareholders was effected on June 26, 1992. Concurrently, Westmark changed its name to Advanced Technology Laboratories, Inc., the same name as that of its major operating subsidiary. COMPANY HISTORY ATL was founded in 1969 and acquired by Squibb Corporation ("Squibb") in 1980. In 1982 Squibb acquired Advanced Diagnostic Research Corporation ("ADR") and A.B. Kranzbuehler ("Kranzbuehler") and integrated these businesses with ATL's operations. ADR, based in Tempe, Arizona, was an established leader in the manufacture of real-time ultrasound systems for obstetrical and abdominal applications. Kranzbuehler, based in Solingen, Germany, manufactured ultrasound products and distributed products of ADR and its own manufacture throughout Europe. Westmark was incorporated in 1983 as a wholly owned subsidiary of Squibb and became the holding company for Squibb's high technology medical equipment businesses, ATL and SpaceLabs, in November 1986. On January 2, 1987, Squibb distributed to Squibb shareholders the shares of Westmark common stock (the "Common Stock") as a dividend. ATL subsequently acquired two ultrasound based businesses; Nova MicroSonics in 1988 (which currently operates as a division of ATL), and Precision Acoustic Devices ("PAD") in 1990. Nova MicroSonics, located in Mahwah, New Jersey, manufactures and markets real time and off-line acquisition and measurement products for use in ultrasound data and image management by hospitals, labs, clinics and physician offices. PAD, located until recently in Fremont, California, develops, manufactures and supplies high-performance ultrasound transducers to industrial and medical imaging markets. In March 1993, the Company decided to relocate PAD's Fremont operations to Bothell, Washington and to sell the OEM transducer business of PAD to Blatek, Inc., a transducer company in State College, Pennsylvania. The relocation of PAD to Bothell was completed in August 1993. On February 10, 1994 the Company announced that it had entered into a Merger Agreement with Interspec, Inc., a manufacturer of medical diagnostic ultrasound systems and transducers. See ITEM 7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION-- Subsequent Event on page 20. THE ULTRASOUND BUSINESS ATL develops, manufactures, markets and services diagnostic medical ultrasound systems that are widely used in a number of medical applications to assist the physician in monitoring and diagnosing a variety of conditions, such as tumors, inflammations, obstructions, cardiovascular diseases and fetal development. Ultrasound systems provide a safe, noninvasive and painless means of observing soft tissues and internal body organs and assessing blood flow through the heart and vessels. ATL is one of the leading suppliers of diagnostic ultrasound systems in the world. Its Ultramark(R) product line serves all major diagnostic ultrasound clinical markets--radiology, cardiology, obstetrics/gynecology ("OB/GYN") and vascular medicine. The Company believes that it has become a worldwide leader in ultrasound technology through its proprietary position in digital, broad bandwidth beamforming and broad bandwidth scanhead technologies. Diagnostic ultrasound systems, which are sold for use in hospitals, clinics and physicians' offices, represented an estimated $1.9 billion worldwide market in 1993. The total medical imaging industry is estimated to be over $8.4 billion worldwide in 1993. ULTRASOUND TECHNOLOGY Medical Applications Medical ultrasound systems obtain images of the interior of the body by focusing high-frequency sound waves at the organs, soft tissues and vasculature being examined. Echoes are created as the sound waves are reflected from internal structures of differing acoustic properties. These echoes are gathered and electronically processed by the transducer (scanhead) of the ultrasound system. Repeated scanning of the interior of the body at very high speeds produces moving, two-dimensional, black and white video images in real time. Ultrasound information can be captured on film or paper or stored on videotape or portable digital media such as floppy or optical discs. In addition to black and white imaging functions (also known as grayscale or two-dimensional imaging), ultrasound systems can analyze blood flow characteristics using the Doppler principle. Doppler technology allows the measurement and display of the velocity and direction of blood flow through vessels or between chambers of the heart. This information is typically displayed in a graphical format. Color Doppler, introduced in the mid-1980s, permits visualization of blood flow by superimposing a color depiction of blood flow on the grayscale image of the tissue or vessel structure. Blood flow toward the scanhead is presented as one color and flow away from the scanhead is presented as a different color, with velocity presented as gradations of these colors or intensities. Ultrasound offers several important advantages compared with other medical imaging modalities. Safety. Physicians can often diagnose disease without using invasive materials, ionizing radiation or exploratory surgery. Cost effectiveness. Ultrasound is generally less expensive to purchase, costs less per patient examination, and requires little or no patient preparation compared to other imaging modalities such as computed tomography ("CT"), magnetic resonance imaging and positron emission tomography ("P.E.T."). Real-time. Ultrasound examinations provide the physician with live, real-time images of anatomy and physiology, which yield more diagnostic information and can facilitate a faster diagnosis than static images of other imaging modalities. In contrast to high-energy modalities such as x-ray and gamma-ray systems, ultrasound has difficulty imaging through air or bone and generally does not image the skeletal structure. Due to acoustic properties such as scattering or attenuation, ultrasound may not provide the clarity of more expensive modalities in certain applications. However, by reason of its clinical efficacy and safety, ultrasound is often the first imaging examination ordered by a diagnosing physician and is typically the preferred imaging method for soft tissues examination. PRINCIPAL COMPONENTS Beamformer. The process leading to the formation of an ultrasound image begins in the beamformer. The beamformer acts as the acoustic "lens" and steers, focuses and processes the ultrasound signals provided by the scanhead. The beamformer's complex electronics can account for a significant portion of the cost of the entire system. Historically, ultrasound systems have been based on analog beamformers which process signals in a continuous, wave-like form. ATL has pioneered the development of digital beamformers, which digitize the signals returning from the body prior to processing. For a discussion of ATL's digital beamformer technology, see "ATL's Products." 2 Scanhead. The scanhead, a hand-held device placed against the patient's skin, transmits the sound wave and receives echoes back from the body. A piezoelectric transducer, a component within the scanhead, converts the electrical signals from the beamformer into transmitted sound waves and the returning sound waves (echoes) back into electrical signals for processing by the beamformer. Scanheads are categorized according to the five major technologies employed: phased array, annular array, linear array, curved array and mechanical scanheads. Images are acquired and displayed in three different image formats: sector (pie-shaped), linear (rectangular) or trapezoidal. Scanheads are also categorized by their ability to process a range, or bandwidth, of frequencies. Scanheads which, in conjunction with the beamformer, are capable of transmitting and receiving a band of frequencies which is at least 65% of a band defined by the scanhead's fundamental frequency are considered by ATL to be broad bandwidth scanheads. Broad bandwidth scanheads capture more acoustic information for processing and display by the ultrasound system. Each of the five scanhead technologies offers certain clinical advantages in specific applications. Phased arrays, linear arrays and curved arrays are electronically controlled, which permit the simultaneous use of Doppler, color Doppler and grayscale imaging. Mechanical scanheads perform mechanical scanning and generally provide a wide range of imaging frequencies at a relative low cost. Mechanical scanheads are increasingly being replaced by high-performance annular arrays and electronic arrays. Annular array, a type of mechanical scanhead, offers the highest resolution of any scanning technology through its ability to image the thinnest cross-sectional slice of anatomy. Thin slice imaging ability may be enhanced for electronic arrays by providing two dimensions of array elements which perform what is known as elevation focusing. A number of specialty scanheads have been developed in recent years which employ one or more of these scanning technologies. These include intravaginal scanheads for imaging general pelvic anatomy, transrectal and prostate scanheads, bi-plane scanheads (a scanhead able to alternate between two different planes or cross-sectional views) and transesophageal echocardiography ("TEE") scanheads for cardiovascular scanning from the esophagus and stomach without interference from ribs, lungs or surrounding cartilage. Scanhead technology is becoming more complex and highly specialized. Consequently, the cost of scanheads represents an increasing proportion of the total cost of an ultrasound system. PRINCIPAL MARKETS The worldwide ultrasound market is typically categorized by clinical application, price range and geographic area. Clinical Applications. Ultrasound products are used in four primary medical applications: radiology, cardiology, OB/GYN (including perinatology), and vascular applications. RADIOLOGY. The radiology application, at approximately 42%, is the largest market for ultrasound equipment. The major radiology markets are in the United States and Europe. Most radiology examinations are conducted in hospitals or large imaging centers. In radiology, ultrasound is used to obtain diagnostic information on organs and soft tissue, particularly in the abdomen. It is also used to ascertain fetal development, to guide tissue biopsies and to visualize blood flow. Color Doppler is a standard feature on most high performance radiology ultrasound systems. A substantial portion of the radiology market also requires systems which include cardiac imaging capabilities. In the United States and Canada this market segment is often referred to as the shared service market. Most community or small hospitals without a dedicated cardiology department fall into this category. In Europe, the internal medicine segment requires systems which include cardiac imaging capability. 3 CARDIOLOGY. The cardiology ultrasound, or echocardiography, application, at approximately 30%, is the second largest market for ultrasound systems. Most dedicated echocardiography system sales occur in the United States, Western Europe, and the more developed Asian and Latin American markets. While most cardiology system sales are to hospitals, the cardiology office practice represents a significant and growing share of the market for echocardiography equipment. Cardiologists use ultrasound as a noninvasive means of capturing real-time images of the heart and its valves. These images, together with various Doppler techniques, help the physician assess heart function as well as congenital and valvular disease. With new advances in scanheads plus acquisition and image display technology, echocardiography is a useful tool for the detection and assessment of coronary artery disease. Ultrasound has also been shown to be valuable in assessing the effectiveness of drug therapy and intervention for the heart attack patient. OB/GYN AND PERINATOLOGY. The third largest market for ultrasound systems is the OB/GYN and perinatology application, at approximately 17%. The majority of OB/GYN ultrasound system sales are to office-based practitioners in the United States, Western Europe, and the more developed Asian markets. Perinatology is a clinical specialty dedicated to high risk obstetrics. Most perinatology ultrasound sales are to hospitals and institutions in the United States. Ultrasound is the preferred imaging technology for the assessment of fetal development since it is noninvasive and involves no ionizing radiation. Ultrasound is also used for general gynecological and infertility examinations. The introduction of the intravaginal scanhead in the 1980s expanded the usefulness of ultrasound for first-trimester obstetrical studies and the diagnosis of ectopic pregnancies. The advent of ATL's broadband digital imaging technology with the ESP option (see "ATL's Products") has enabled physicians to visualize details of fetal development at earlier stages of pregnancy than had previously been possible. VASCULAR. The smallest of the primary clinical markets for ultrasound systems, at approximately 5%, is the vascular ultrasound application, primarily located in the United States and Western Europe. Most vascular ultrasound examinations are performed in hospitals. Vascular ultrasound studies utilize real-time imaging, Doppler and color Doppler information to identify plaque deposits and their characteristics, clots, and valve competence in blood vessels. Most vascular examinations are performed on the body's extremities, cerebrovascular and deep abdominal regions. Price Ranges. The world ultrasound market can be divided into five segments based on broad price ranges. Each market segment is characterized by the level of system performance and the number of scanheads and features. PREMIUM PERFORMANCE. The premium market segment, at 13% of the world market, is characterized by ultrasound systems that typically sell for over $150,000 per unit. These systems provide the physician with superior definition of subtle tissue characteristics and incorporate high resolution gray scale imaging, advanced color and spectral Doppler capability, image acquisition storage, display and review capability, advanced automation capabilities, and other features providing additional clinical utility. Typically, systems sold in the premium market are equipped with a wide variety of specialty scanheads. HIGH PERFORMANCE. The high performance market, at 35% of the world market, is characterized by systems with high resolution gray scale imaging and advanced color and spectral Doppler capabilities. Systems in this market segment sell between $120,000 to $150,000 per unit and generally include advanced measurement and analysis software, image review capabilities, and a variety of scanhead offerings. MID-RANGE COLOR. This mid-range market segment, at 25% of the world market, is characterized by ultrasound systems that sell between $80,000 and $120,000 per unit. These units are basic gray scale imaging, color and spectral Doppler systems used for standard routine examinations and utilize a minimum number of scanheads. Refurbished premium systems and high performance systems with fewer purchased optional features are also sold in this price range. 4 MID-RANGE GRAY SCALE. This mid-range market segment, at 17% of the world market, is characterized by black and white imaging systems with spectral Doppler and some calculation and report features. Many of these systems are sold to small hospitals and clinics and are used in radiology and OB/GYN applications. Systems in this market segment sell at prices ranging from $40,000 to $80,000. LOW-END. The low-end market segment, at 10%, is characterized by basic black and white imaging systems that sell below $40,000 per unit. These systems provide limited diagnostic information and are used primarily for monitoring fetal development and in other radiology and OB/GYN applications. Most of these systems are sold to private office practitioners and small hospitals. Due to the growing acceptance and affordability of color Doppler systems, units with only greyscale capability represent the slowest growing portion of the market. Geographic Areas. The ultrasound market is divided into four major geographic markets. UNITED STATES. The United States, at 38% of the market, accounts for the largest portion of ultrasound sales. This market is characterized by its emphasis on high performance systems driven by competition for patient referrals. These factors encourage the rapid adoption of new technology. EUROPE. The European market, at 29% of the market, is the second largest market for ultrasound systems. European health care systems are more centralized than the United States market and are often subject to more rigid governmental regulation. JAPAN. This market accounts for approximately 16% of worldwide ultrasound sales. Its complex distribution system is highly competitive and Japanese manufacturers account for almost all sales. ASIA PACIFIC, LATIN AMERICA AND CANADA. The remaining geographic areas of the world account for approximately 17% of the market. The Australian and Canadian markets are similar in structure to those of the European countries. Parts of Asia and Latin America represent some of the fastest growing areas for high performance and mid-range ultrasound products. The remainder of this group are mostly developing countries with limited resources to devote to health care. Many ultrasound systems sold in these regions are mid-range systems, refurbished systems or new low-priced Japanese systems. Emerging Opportunities. Growth in the ultrasound industry has depended upon and been fueled by the emergence and adoption of new technologies which increase the diagnostic information available to the clinician, thereby expanding the use of ultrasound for both existing and new clinical applications. Most recently, the adoption of color Doppler technology made a major impact on industry growth during the latter half of the 1980s. ATL believes that numerous emerging ultrasound technologies offer future growth opportunities. For example, broad bandwidth ultrasound imaging, if proven effective for tumor characterization, may spur growth in oncology and radiology applications; three-dimensional ultrasound display may assist the assessment of heart conditions and fetal abnormalities; and miniature ultrasound scanheads coupled with laparoscopic technology may help guide minimally invasive therapy. There can be no assurance that the Company will pursue these opportunities or, if it does so, that its efforts will result in viable products. In 1993 new emerging opportunities began to become apparent. The economic and regulatory environment of healthcare in many of the more highly industrialized countries has created a situation where significant growth opportunities for ultrasound are located in emerging nations and are premised upon increasing demand for mid-range products. Companies positioned to take advantage of these evolving market dynamics will be characterized by a distribution system of considerable scope and an offering of a variety of value oriented products. ATL'S PRODUCTS The Company's focus is on developing new technologies, both to improve the performance of its products and to advance the clinical application of ultrasound. The performance of ultrasound products is determined primarily by the type of beamforming and scanhead technologies utilized. ATL has established an important proprietary position in digital beamforming and broad bandwidth scanhead technologies. ATL believes these technologies enable physicians to diagnose disease and other conditions with significantly greater certainty and offer the potential to extend the use of ultrasound into new clinical applications. 5 The Company has pioneered the development of digital beamforming ultrasound technology since the introduction of its digital Ultramark 9 system in 1988. In November 1993, General Electric joined this exclusive category with the introduction of its own line of digital ultrasound products, the second company to do so. ATL's digital beamformer can process the full bandwidth of frequencies returning through the scanhead while exactly preserving the returning signal information. Other manufacturers utilize analog technology to process signals returning from the body. Analog beamformer technology limits the range or integrity of bandwidth which the beamformer can process at one time. This inherent limitation leads analog beamformer companies toward offerings of multiple frequency scanheads, by which a full signal band can be acquired through serial scans as the frequency band is changed or stepped. Analog beamformers are also subject to variations and tolerances of analog components which can distort and weaken the ultrasound signal. In ATL's digital beamformer the broadband signals returning from the body are converted into a numerical sequence of ones and zeros, or digitized, preserving the quantity and quality of the diagnostic information contained within the signal's broad bandwidth. The principal functions of ATL's digital beamformer are performed by application-specific integrated circuits ("ASICs") designed by ATL. These proprietary custom microchips, each containing approximately 160,000 transistors, replace the traditional wire windings and ferrite cores of analog beamformers with pure digital signal control which preserves signal information with no degradation. ATL is also a leader in scanhead technology that complements the capability of its digital beamforming technology to process broad bandwidth signals. Each tissue within the body reflects ultrasound in a unique way referred to as its "tissue signature." Tissue signature is composed of a broad bandwidth of ultrasound frequencies that differs with tissue condition (healthy versus diseased) and with tissue type (such as muscle, fat or gland). The Company has developed scanheads that utilize proprietary technology to permit finer, more precise tissue structure response and color flow images by allowing the scanhead to receive ultrasound signals over a broad bandwidth of frequencies. ATL's broad bandwidth scanheads, when used in conjunction with its digital beamformer, are able to acquire and process up to twice the bandwidth of conventional scanheads. As a result, physicians can see more of the tissue signature with greater clarity and are therefore better able to detect subtle changes or anomalies. Ultrasound Systems. ULTRAMARK 9 HIGH DEFINITION(TM) IMAGING SYSTEM. The Ultramark 9 system with High Definition Imaging ("HDI") is the Company's premium and high performance product. Introduced in April 1991, the system contains an ASIC-based digital beamformer which allows higher resolution images and captures a broader bandwidth of tissue signature. The Ultramark 9 HDI system also offers a series of new high performance scanheads, including a line of broad bandwidth scanheads which provide a broad range of clinical applications for the system and substantially enhance the system's competitive advantage. In 1993, the Company increased the value of the Ultramark 9 HDI system with the introduction of the following broad bandwidth scanheads: P5-3 Phased Array Scanhead. The P5-3 scanhead extends broad bandwidth capability to pediatric cardiology and small adult applications. C7-4 Curved Array Scanhead. The C7-4 scanhead is a broad bandwidth scanhead for abdominal and obstetrical applications. C4-2 Curved Array Scanhead. The C4-2 scanhead provides the penetration required for deep abdominal and obstetrical applications. L7-4 Linear Array Scanhead. The L7-4 scanhead provides broad bandwidth scanning in vascular applications. 6 These new scanhead offerings complement the other four members of ATL's family of broadband scanheads, including the L10-5 Linear Array Scanhead, the A6-3 Annular Array Scanhead, the P3-2 Cardiovascular Phased Array Scanhead, and the C9-5 Intracavitary Scanhead. The Ultramark 9 HDI system competes in the radiology, perinatology and vascular segments of the ultrasound market. It is priced from $135,000 to $230,000 per unit, depending upon the configuration of the system and the number of scanheads. Since its introduction the Ultramark 9 HDI system has enabled the Company to gain share in the largest premium ultrasound market, radiology. In 1992, the installed base of Ultramark 9 HDI systems received a free software upgrade, providing additional analysis and performance improvements. In 1993 ATL again demonstrated the versatile upgrade capability of the Ultramark 9 system by extending a new diagnostic capability to its customers, Doppler Power Imaging, through a free software upgrade. The capability of HDI technology to capture and display a broad tissue signature has enabled physicians to visualize anatomical detail, subtle tissue characteristics and disease processes that they could not see or confidently identify before with ultrasound. In April 1993, the Company introduced the Ultramark 9 HDI system with the Extended Signal Processing ("ESP") option. This new, premium feature added additional broad bandwidth scanhead capabilities to the HDI system. ESP also provided a new level of performance with the ability to substantially reduce a major ultrasound imaging artifact, speckle, which has been an enduring challenge in ultrasound. In the fall of 1993, the Company introduced the HDIcv model of the HDI system. The HDIcv model is a performance system for the cardiology, shared services and internal medicine markets. During 1993 the Company sold used, refurbished HDI systems at prices ranging from $90,000 to $120,000. ULTRAMARK 9 DP ULTRASOUND SYSTEM. The Ultramark 9 system was introduced in 1988 as a full featured, color Doppler, multipurpose ultrasound system incorporating ATL's proprietary digital beamforming technology. In November 1990 the product was enhanced with a number of features known as the Digital Plus ("DP") package. With the success of the Ultramark 9 system with the HDI option, the company has discontinued the manufacture of new Ultramark 9 DP systems. ATL's entire installed base of Ultramark 9 DP systems can be upgraded with the HDI option, continuing ATL's commitment of upgradeability to its customers. Throughout 1993, refurbished Ultramark 9 DP systems were sold at prices below $100,000. ULTRAMARK 4 ULTRASOUND SYSTEM. This highly portable gray scale and Doppler system is the Company's principal product for private OB/GYN offices and is also used in medical institutions worldwide. This product has various configurations that cover a range of prices from $25,000 to $60,000. Recent major introductions include Cineloop(R) image review, curved-array scanhead technology and a multifrequency intravaginal scanhead. Scanheads. ATL believes that its internal resources devoted to development and manufacturing of scanheads make it one of the largest scanhead manufacturers in the world. The Company's manufacturing capabilities allow it to rapidly commercialize its new scanhead designs. The Company develops and manufactures scanheads of the five major technologies to be sold with ATL's ultrasound systems for a wide variety of clinical applications. Other Products. IMAGE MANAGEMENT PRODUCTS. The Company's Nova MicroSonics division develops, manufactures and markets a complete line of ultrasound image management products for use in the acquisition, storage, display and management of ultrasound information. For cardiac applications, the Nova MicroSonics technology facilitates the review and comparison of images produced at different times during a cardiac study, expanding 7 the diagnostic applications of echocardiography to the detection of coronary artery disease. The ImageVue(R)/DCR Workstation is a state-of-the-art digital and ultrasound image management system. This workstation performs analysis and review of ultrasound exams conducted from a variety of ultrasound systems. The Image LAN Network provides network connection between ultrasound systems, workstations, printers and other medical imaging devices. USED EQUIPMENT. The Company refurbishes and sells used ATL systems received as trade-ins or after use by the Company's sales force as demonstration equipment. The following systems are among the used systems sold by ATL: the Ultramark 7 mid-range cardiology system developed under joint agreement with Fujitsu Limited; the Ultramark 4 system, the Ultramark 9 DP system; and the Ultramark 9 system with the HDI option. Customers who own these systems can upgrade them or trade them in for more advanced ATL systems. A significant portion of the Company's used discontinued equipment is sold in developing countries. ACCESSORIES AND SUPPLIES. The Company sells a variety of ultrasound accessories and supplies, most of which are not manufactured by the Company. These include disposable supplies, such as ultrasound gel and thermal paper, and accessories, such as biopsy guides, printers, cameras and videocassette recorders ("VCRs"). The Company markets these products through direct mail and its customer support organization. RESEARCH AND DEVELOPMENT The Company conducts extensive research and development activities. Its activities include the development of new scanheads, new system features and new ultrasound system designs, as well as the investigation of applications for emerging technologies and clinical procedures. The Company enters into research agreements with the medical community, including leading physicians and teaching institutions. Beginning in late 1989 the Company substantially increased its investment in research and development to accelerate the introduction of several new technologies and in particular to establish its important proprietary position in digital beamforming and broad bandwidth scanhead technologies. In 1991 the Company instituted a multi-center study at a number of institutions in Europe and North America to evaluate the ability of the Ultramark 9 HDI system to distinguish benign and malignant breast disease. These studies were concluded in 1993. Based upon the findings of these studies, in February 1994 the Company submitted a Premarket Approval ("PMA") application to the U.S. Food and Drug Administration ("FDA") for the use of HDI technology in the differentiation of solid breast masses. The Company believes this to be the first PMA application submitted to the FDA for diagnostic ultrasound. While the Company has requested expedited handling of the PMA application by the FDA, there is no assurance that this request will be granted. The time required for the application to be processed by the FDA is unknown, although such applications typically require twelve to twenty-seven months. There can be no assurances that product clearance under the PMA will ultimately be realized. The high technology ultrasound business is characterized by rapidly evolving technology, resulting in relatively short product life cycles and continuing competitive pressure to develop and market new products. Although the Company intends to continue extensive research and development activities, there can be no assurance that it will be able to develop and market new products on a cost- effective and timely basis, that such products will compete favorably with products developed by others, or that the Company's existing technology will not be superseded by new discoveries by competitors. MANUFACTURING The Company manufactures substantially all its products at its facility in Bothell, Washington. The image management systems of Nova MicroSonics are manufactured in Nova's New Jersey facilities. Over the past six years the Company has consolidated its principal manufacturing operations from three plant locations to the Bothell facility while doubling manufacturing output. In 1990, the Company upgraded its manufacturing line with a major investment in state-of-the-art surface mount technology ("SMT") for 8 printed circuit board assembly. Relative to conventional "through hole" assembly, SMT improves the reliability of printed circuit boards used in the Company's Ultramark systems, greatly increases the electronic capacity of the board and allows for more automated production. The SMT processing line has been integrated with the Company's computer-aided design capability, enabling the production of prototype printed circuit boards for potential new products in a quarter of the time previously required. The Company purchases certain specialty scanheads from original equipment manufacturers. The Company also purchases the hard-copy output devices sold with its ultrasound systems, such as VCRs and cameras, and other materials and component parts. The specialty scanheads and many of the materials and components used by ATL in the manufacture of ultrasound equipment are available from more than one source of supply. Certain components, however, are single sourced, such as crystals and hybrid and integrated circuits which are critical to the quality and manufacture of ultrasound equipment. While any of these single-source items could be replaced over time, abrupt disruption in the supply of a single-source part could have a material adverse effect on ATL's manufacturing production of the products relying on such items. In addition, these items generally have long order lead times, restricting the Company's ability to respond quickly to changing market conditions. SALES AND MARKETING The Company's sales and marketing strategy has been to compete in the major clinical, price and geographic segments of the ultrasound market. In the United States, with the exception of the third-party business of Nova MicroSonics, the Company markets its products through its direct sales organization. The United States sales organization is organized into three geographic zones, each staffed with regional management, sales representatives and clinical application specialists knowledgeable in radiology, cardiology, OB/GYN and perinatology, and peripheral vascular applications. The role of the application specialists is to demonstrate the product and train customers in its clinical use. The Company markets its products internationally through its direct sales and service operations in Argentina, Australia, Austria, Belgium, Canada, France, Germany, Italy, the Netherlands and the United Kingdom. In addition, the Company markets its products in Sweden through a joint venture with AxTrade East, an Axel Johnson Trade Company, and in India through a joint venture with Indchem Electronics. Other principal markets are covered through a dealer network. European, Middle Eastern and African dealers are managed through ATL's European headquarters in Munich, Germany. Dealers serving the Pacific Rim countries, Latin America and South America are managed from Bothell, Washington. Foreign customers accounted for approximately 47% of revenues in 1993. See Note 18 on page 36. The Company's marketing efforts emphasize the development of strong relationships with key medical professionals, participation in national and regional meetings and conventions for physicians and hospitals, direct mail advertising, journal advertising and sponsorship of educational programs. CUSTOMER SUPPORT AND WARRANTY The Company warrants its new and used products for all parts and labor generally for one year from the date of original delivery. Under the terms of the warranty, the customer is assured of service and parts so that the equipment will operate in accordance with specifications. The Company offers a variety of post-warranty service agreements permitting customers to contract for the level of equipment maintenance they require. Alternatively, customers can contact ATL as needed and receive service at rates based on labor and cost of parts. The Company's warranty costs are included in cost of product sales in the Consolidated Financial Statements below. The Company maintains its own customer support organization in the United States and other countries where the Company has direct operations. Local dealers and distributors provide service and support in most other countries. The Company provides manuals and expedites delivery of repair parts to all geographic locations from its facility in Bothell, Washington, with the assistance of its direct operations in Europe. 9 The Company's customer service organizations are considered an integral part of its sales effort because a customer's decision to purchase a particular product is based in part on the availability and reputation of the service for that product. In addition, the customer support group provides training for biomedical technicians so that customers can service their own systems. The group also provides customer education programs on clinical applications and the use of the Company products. COMPETITION The ultrasound market is competitive. The Company competes worldwide in each of the four major clinical applications of the ultrasound market, in each price range and in each major geographic market. Four companies, ATL, Toshiba Corporation's Medical Systems Group, Hewlett-Packard Company's Medical Products Group and Acuson Corporation, account for approximately 60% of the worldwide ultrasound market. The Company believes that these four companies have approximately equal market shares. Each of the Company's primary competitors initially participated in only one or two of the clinical ultrasound markets (such as radiology or cardiology), but all are increasingly seeking to sell their ultrasound products in additional markets. In addition to the Company's primary competitors, the global leaders of the medical imaging industry--the Medical Systems Group of General Electric Company, Siemens Medical Systems, Inc. and Philips Medical Systems, Inc.--have signaled their intention to become more competitive in the ultrasound market. General Electric stepped up its participation in ultrasound in November 1993 with the announcement of a new digital ultrasound system. Philips has announced its plans to collaborate in ultrasound with Hewlett-Packard. Siemens recently relocated its central world ultrasound facility to Issaquah, Washington, approximately twelve miles from ATL's headquarters. These companies and several of the Company's other competitors have far greater financial, marketing, servicing, technical and research and development resources than those of the Company. The Company believes that significant competitive factors in the diagnostic ultrasound market include the clinical performance of the systems, depth of product line, reputation for technology leadership, upgradeability to advanced features and reliability and price of products and service. See "Research and Development." The Company believes that it presently competes favorably with respect to each of these competitive factors. Ultrasound is only one of a number of diagnostic imaging technologies currently available, including conventional x-ray, CT, magnetic resonance imaging and P.E.T. A development in another diagnostic technology could adversely affect the ultrasound industry. Nevertheless, the Company believes that ultrasound's inherent advantages of safety, cost-effectiveness and real- time imaging will continue to make ultrasound a primary imaging modality. PATENTS, TRADEMARKS AND LICENSES The Company has obtained patents on certain of its products and has applied for patents which are presently pending. The Company has also sought trademark protection for the brand names of the products it currently markets. There can be no assurance that any additional patents will be issued or that trademark protection will be granted and maintained. Certain critical technology incorporated in the Company's products, including software algorithms, broad bandwidth scanhead technology and ASIC technology, is protected by copyright laws and confidentiality and licensing agreements. The Company's proprietary digital beamformer is protected by confidentiality agreements, copyright and trade secret law. Companies in high technology businesses routinely review the products of others for possible conflict with their own patent rights. The Company has from time to time received notices of claims from others 10 alleging patent infringement. While the Company believes that it does not infringe any valid patent of any third party, there can be no assurance that the Company will not be subject to future claims of patent infringement or that any claim will not require that the Company pay substantial damages or delete certain features from its products or both. While such claims could temporarily interrupt the Company's ability to ship affected products, the Company believes that any such interruption can be overcome by technical changes to product features. See ITEM 3, LEGAL PROCEEDINGS, below. GOVERNMENTAL REGULATION Product Regulation. The Company's products are subject to extensive regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign agencies, and to various domestic and foreign electrical safety and emission standards. The Company's manufacturing facilities and the manufacture of its products are subject to FDA regulations respecting registration of manufacturing facilities and compliance with the FDA's Good Manufacturing Practices regulations. The Company is also subject to periodic on-site inspection for compliance with such regulations. The FDA also has broad regulatory powers with respect to preclinical and clinical testing of new medical products and the manufacturing, marketing and advertising of medical products. The FDA requires that all medical devices introduced to the market be preceded either by a premarket notification clearance order under Section 510(k) of the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"), or an approved premarket approval application. A 510(k) premarket notification clearance order indicates FDA agreement with an applicant's determination that the product for which clearance has been sought is substantially equivalent to medical devices that were on the market prior to 1976 or have subsequently received clearance. An approved premarket approval application indicates that the FDA has determined that the device has been proven, through the submission of clinical trial data and manufacturing quality assurance information, to be safe and effective for its labeled indications. The process of obtaining 510(k) clearance typically takes approximately six to nine months, while the premarket approval application process typically lasts more than a year. All of ATL's current products have required only 510(k) clearance. The Company believes that its products comply generally with applicable electrical safety standards, such as those of Underwriters Laboratories and non-U.S. safety standards authorities. Following a routine inspection by the FDA in 1992, the Company put into place expanded programs of documentation, process control, and continuous quality improvement to enhance regulatory compliance. During the latter half of 1993, the FDA completed a routine follow up of its 1992 inspection. The Company is awaiting the results of this follow up inspection and also the results of a routine FDA inspection of the Mahwah, New Jersey facility of Nova MicroSonics. The Company's ability to obtain timely FDA export and new product approvals is dependent upon the results of such inspections. The Company can also incur substantial expense in responding to process improvements and modification of products previously sold to customers which stem from comments and new requirements of the FDA. The Company's FDA compliance programs have been expanded into programs which will verify the Company's compliance with international standards for medical device design, manufacture, installation and servicing known as the ISO 9001 standards. During 1994, the Company's facilities and products will be audited by a European auditing service to obtain quality systems and product certifications for the Company. This will enable the Company to continue marketing its products in the European Community after these requirements become law in 1995. The FDA is in the process of adopting the ISO 9001 standards as regulatory standards for the United States, and it is anticipated these standards will be phased in for U.S. manufacturers of medical devices over a period of time. Federal, state and foreign regulations are constantly undergoing change. The U.S. government is currently considering healthcare system reform. The national focus on possible healthcare legislation has caused U.S. ultrasound customers to become more cautious in making expenditures and investing in capital 11 equipment. In addition, the U.S. healthcare system has undergone various consolidations in recent years. The Company cannot predict what effect, if any, such change may have on its business, or when the deleterious effect of these conditions on its business will change. Reimbursement. The Company's products are used by healthcare providers for diagnostic testing services and other services for which the providers may seek reimbursement from third-party payors, principally, in the United States, Medicare, Medicaid and private health insurance plans. Such reimbursement is subject to the regulations and policies of governmental agencies and other third-party payors. For example, the Medicare program, which reimburses hospitals and physicians for services provided to a significant percentage of hospital patients, places certain limitations on the methods and levels of reimbursement of hospitals for procedure costs and for capital expenditures made to purchase equipment, such as that sold by the Company. The Medicare program also limits the level of reimbursement to physicians for diagnostic tests. The state-administered Medicaid programs and private payors also place limitations on the reimbursement of both facilities and physicians for services provided in connection with diagnostic and clinical procedures. Reduced governmental expenditures in many countries continue to put pressure on diagnostic procedure reimbursement. The Company cannot predict what changes may be forthcoming in these policies and procedures, nor the effect of such changes on its business. Third-party payors worldwide, including governmental agencies, are under increasing pressure to contain medical costs. Limits on reimbursement or other cost containment measures imposed by third-party payors may adversely affect the financial condition and ability of hospitals and other users to purchase products, such as those of the Company, by reducing funds available for capital expenditures or otherwise. The Company is unable to forecast what additional legislation or regulation, if any, relating to the health care industry or third-party reimbursement may be enacted in the future or what effect such legislation or regulation would have on the Company. Many of ATL's ultrasound systems are used in an outpatient setting, replace higher-cost imaging modalities or enable a hospital or clinic to receive higher payments for services commensurate with the higher level of diagnostic information provided. Environmental. The Company is subject to Federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Although the Company's current operations have not been significantly affected by compliance with environmental laws or regulations, Federal, state and local governments are becoming increasingly sensitive to environmental issues, and the Company cannot predict what impact future environmental regulations may have on its operations. Employees. As of December 31, 1993, the Company had 1,977 employees. None of the Company's United States employees is covered by collective bargaining agreements, and the Company considers its employee relations to be satisfactory. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Refer to information set forth in "Geographic Segment Information" of the Notes to the Consolidated Financial Statements contained in Note 18, included in Item 8 of this Form 10-K. ITEM 2. PROPERTIES The Company owns premises at 22100 Bothell Everett Highway, Bothell, Washington 98041, consisting of 285,000 square feet. These premises include the Company's corporate headquarters and a major manufacturing facility, as well as the Company's research and development, sales, service, marketing and administrative functions. The Company also leases another 41,000 square feet in an adjoining business park. 12 Westmark's former principal executive offices were in 10,424 square feet of leased premises at the Columbia Center, Suite 6800, 701 Fifth Avenue, Seattle, Washington 98104; such offices have been vacated and are fully subleased through the term of the lease. The Company's Nova MicroSonics division has two leased facilities, one in Indianapolis, Indiana, and one in Mahwah, New Jersey, with a total square footage of 26,600. The Company's PAD division has a leased manufacturing facility in Fremont, California, with a total square footage of 18,075. The lease on the Fremont, California facility terminates in August 1994. The Company also rents two regional sales offices for two employees at each location, and one regional customer service facility. The Company's direct business operations in foreign countries lease office and warehouse space in their respective countries. The Company also owns two buildings in Solingen, Germany, a 28,020 square foot building which was used as an ultrasound systems manufacturing facility and is currently a storage facility, and a 32,765 square foot building which is used as the temporary management and operations headquarters for ATL's German subsidiary. In 1990 the Company transferred its manufacturing operations in Solingen to its Bothell, Washington facility and is now offering for sale its Solingen property. The sale of the Solingen property, with an operating lease provision for a certain portion of the space, is expected to be completed in 1994. There are no significant unutilized facilities for ongoing operations which have not yet been disposed of, other than those discussed above, and the Company believes its existing facilities are sufficient to meet its near-term operating requirements. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various product liability claims and other proceedings which arise in the ordinary course of its businesses and believes that such proceedings, individually or in the aggregate, will not have a material adverse effect on the business or financial condition of the Company. Insured claims arising from ATL's businesses subsequent to 1986 are covered by the Company's insurance policies. The Company intends to maintain insurance coverage against business risks at levels that take into account the nature and magnitude of the respective businesses to be conducted by ATL. There can be no assurance that the Company's current insurance coverage will prove adequate or that the amount or type of coverage available to the Company will remain available on a cost-effective basis. In November 1992, a U.S. District Court in California granted a motion by SRI International, Inc. ("SRI") requesting partial summary judgment on a patent infringement claim relating to an electrical circuit alleged to be used in the Company's Ultramark 4 system. In February 1993, the Court entered an order enjoining further use of the circuit until the patent expires in April 1994. This injunction will not pose an obstacle to continued shipment of products by the Company through the expiry of the SRI patent. The Company has appealed the summary judgment decision to the U.S. Federal Circuit Court of Appeals and is awaiting the decision of this Court. Further proceedings to determine a damage award have been stayed pending the outcome of the appeal. SRI stated in a February 1993 press release that it is seeking over $5 million in damages. The Company continues to believe the SRI patent is invalid and not infringed by the Company. At this stage of the litigation, the Company cannot predict the outcome of the suit or estimate the amount of loss, if any, but believes its defenses are meritorious and is vigorously pursuing its rights in the Appellate Court. There can be no assurance the Company will not be subject to claims of patent infringement by other parties or that such claims will not require the Company to pay substantial damages or delete certain features from its products or both. 13 The Company is involved in various other legal actions and claims arising in the ordinary course of business, none of which is expected to have a material effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market and Market Price for Common Stock. The Company Common Stock, $0.01 par value, is traded over the counter under the symbol ATLI and is an authorized security for quotation in National Association of Securities Dealers, Inc. Automated Quotation National Market System ("Nasdaq National Market"). The market prices of a share of Westmark common stock during a six-month period, and of the Company's Common Stock during the eighteen-month period ended December 31, 1993 are set forth below. The prices reflect the high and low trading prices for each quarter as reported by Nasdaq National Market for Westmark or ATL. Stock prices quoted beginning with the quarter ended September 25, 1992 reflects stock price adjustment after the SpaceLabs stock dividend.
ATL COMMON STOCK HIGH LOW ---------------- ------ ------ Quarter ended December 31, 1993............................. 17 1/2 15 3/4 Quarter ended October 1, 1993............................... 17 3/4 15 1/4 Quarter ended July 2, 1993.................................. 18 3/4 15 1/2 Quarter ended April 2, 1993................................. 19 15 3/4 Quarter ended December 31, 1992............................. 24 1/2 16 1/2 Quarter ended September 25, 1992............................ 28 1/4 14 1/2 WESTMARK COMMON STOCK HIGH LOW --------------------- ------ ------ Quarter ended June 26, 1992................................. 59 1/2 46 3/4 Quarter ended March 27, 1992................................ 63 49 1/4
Stockholders. The approximate number of stockholders of record of the Company's Common Stock as recorded on the books of ATL's Registrar and Transfer Agent as of February 25, 1994 was 9,900. Dividends. The Company has not paid cash dividends on its capital stock and does not currently have any plans to pay such dividends in the foreseeable future. The dividend policy of ATL is reviewed from time to time by the Company's Board of Directors. The Company's dividend policy is dependent upon its earnings, the overall financial condition of ATL, and other factors to be considered by the Board of Directors from time to time. 14 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED ---------------------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, DECEMBER 28, DECEMBER 29, 1993 1992 1991 1990 1989 ------------ ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues................ $304,511 $323,711 $279,716 $287,289 $265,480 Gross profit............ 136,742 149,140 123,033 125,781 112,775 Selling, general and administrative expenses............... 91,952 95,343 87,430 85,717 75,421 Research and development expenses............... 43,838 38,313 35,206 34,319 22,134 Income (loss) from oper- ations................. (5,809) 6,071 3,872 2,041 11,917 Income (loss) before in- come taxes............. (3,586) 9,505 7,248 4,817 14,771 Net income (loss)....... (5,106) 7,407 6,371 6,946 12,746 Net income (loss) per share.................. $ (.46) $ .67 $ .62 $ .68 $ 1.23 PERCENT OF TOTAL REVE- NUES: Gross margin............ 44.9 % 46.1% 44.0% 43.8% 42.5% Selling, general and administrative expenses............... 30.2 % 29.5% 31.3% 29.8% 28.4% Research and development expenses............... 14.4 % 11.8% 12.6% 11.9% 8.3% Income (loss) from oper- ations................. (1.9)% 1.9% 1.4% .7% 4.5% Income (loss) before in- come taxes............. (1.2)% 2.9% 2.6% 1.7% 5.6% Net income (loss)....... (1.7)% 2.3% 2.3% 2.4% 4.8% BALANCE SHEET DATA (END OF PERIOD): Cash and short-term in- vestments.............. $ 54,635 $ 77,445 $ 76,533 $ 37,225 $ 50,659 Receivables............. 86,813 90,836 91,576 83,796 73,734 Inventories............. 74,678 69,404 65,011 72,771 74,701 Working capital......... 137,563 160,766 145,285 124,908 131,541 Marketable debt securi- ty..................... 4,988 -- -- -- -- Total assets............ 276,698 295,611 291,608 254,719 253,192 Shareholders' equity.... 186,370 204,136 190,346 169,706 173,549
The loss from operations in 1993 includes a restructuring charge of $4,275. Income from operations in 1992 includes $4,959 of stock distribution expenses and restructuring charges related to the Distribution of SpaceLabs. Income from operations in 1991 includes a $6,338 award as a result of the Company's lawsuit against a competitor. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS ATL (the "Company") develops, manufactures, markets and services medical diagnostic ultrasound systems worldwide. These systems are used in radiology, cardiology, obstetrics and gynecology, and peripheral vascular diagnostic applications. The ultrasound business is competitive and market demand is influenced by a variety of factors. These include the introduction of new technologies which offer improved clinical capabilities and create demand for new products, the relative cost-effectiveness and clinical utility of competing technologies, government policies with respect to reimbursement and containment of medical costs, and changing demographics of the populations in the Company's markets. Ultrasound systems are typically sold based on image quality, Doppler sensitivity, product reliability, upgradeability, clinical versatility, and ease of use. Price competition, however, is an important factor when the growth rate in the market slows below historical norms, when a manufacturer seeks to defend or increase market share, when products are perceived to be equivalent in terms of clinical utility, or when a product line ages. The impact of price deterioration is sometimes offset by changes in product mix, lower service costs, and lower unit manufacturing costs due to declines in component prices, manufacturing efficiencies, design changes to reduce cost, and volume increases. REVENUES AND GROSS PROFIT
1993 1992 1991 ------ ------ ------ (DOLLARS IN MILLIONS) Total Revenues..................................... $304.5 $323.7 $279.7 Percent change..................................... (6)% 16% (3)% Gross Profit....................................... $136.7 $149.1 $123.0 As a % of revenues................................. 44.9 % 46.1% 44.0 %
Revenues in 1993 were $304.5 million, a decrease of 6% from revenues of $323.7 million in 1992. The decrease in revenues primarily reflects changes in the U.S. medical equipment market as well as changes in the Company's product mix. Revenues from U.S. operations decreased 13% from 1992. Uncertainties in the U.S. health care industry regarding potential health care reform legislation and hospital consolidation trends significantly affected the capital equipment purchases by doctors, clinics, and hospitals. The constrained U.S. market also intensified competitive price pressures in the medical equipment industry. International revenues increased 4% to $141.7 million in 1993 or 47% of total revenues. The increase in international revenues was led by increases in the Asia, Pacific, and Latin America regions in 1993. Revenues in Europe decreased slightly in 1993, reflecting the continued weakness of the European economies, as well as the strengthening of the U.S. dollar, which adversely affected the Company's revenues. The Company opened a new sales and customer service subsidiary in Italy in 1993 and announced the opening of an Argentine subsidiary in December 1993. The Company's product mix continues to shift toward the high performance, premium priced systems included in the Ultramark(R) 9 ("UM 9") product family. In 1993, the Company introduced the Extended Signal Processing ("ESP") option or upgrade for its Ultramark 9 High Definition(TM) Imaging ("HDI") systems. Sales of the UM 9 product family now account for three quarters of product sales, up from two thirds in 1992. The Company also sells pre-owned and clinical marketing demonstration equipment to its customers and these sales are becoming an increasing portion of the Company's UM 9 product family sales. Service revenues continued to grow in 1993, up 4% over 1992 mainly due to the growing installed base of the Company's products and the change in product mix. In 1992, revenues increased by 16% to $323.7 million. This increase reflects higher revenues from high performance, premium priced systems, particularly the UM 9 HDI system which was introduced in April 16 1991. International revenues grew 19% to $136.0 million in 1992 or 42% of the total revenues compared to 41% in 1991. Gross profit decreased to $136.7 million in 1993, compared with $149.1 million in 1992. As a percent of revenues, gross margin decreased to 44.9% from 46.1% in 1992. The decline in gross profit primarily represents the impact of competitive price pressures and lower volumes. These factors were partially offset by favorable changes in product mix toward premium priced systems, continued manufacturing efficiencies and reductions in the cost of service. In 1992, gross profit increased to $149.1 million reflecting higher revenues and higher percentage gross margin on both product and service revenues. Product margins increased due to a higher mix of the UM 9 family product sales as a proportion of total product sales and improved manufacturing efficiencies. Improved service margins resulted primarily from cost containment measures and the change in mix of the installed base of ATL products. RESTRUCTURING OF OPERATIONS
1993 1992 1991 ----- ----- ----- Number of Employees, at end of year..................... 1,977 2,136 2,124
In August 1993, the Company restructured its operations which resulted in a reduction in its worldwide workforce of approximately 11%. The restructuring was undertaken in response to the continued uncertainty in the U.S. health care industry and to streamline the Company's operations. As a result of this restructuring, the Company reported a charge of $4.3 million which provided for severance payments and other costs associated with the restructuring. On June 26, 1992, the Company distributed to its shareholders all of the common stock of SpaceLabs Medical, Inc., a wholly owned subsidiary, on a one- for-one basis (the "Distribution"). The Distribution had the effect of dividing the Company into two separate, publicly traded companies: Advanced Technology Laboratories, Inc. (previously named Westmark International Incorporated) and SpaceLabs Medical, Inc. In connection with the Distribution, the Company incurred two non-recurring charges totaling $5.0 million: stock distribution expenses totaling $1.2 million for legal, accounting, investment advisory, printing and other fees and a restructuring charge of $3.8 million primarily related to the closure of the former headquarters office, the severance of certain personnel as a result of the Distribution and the write- down to estimated market value of the Company's former ultrasound manufacturing facilities in Germany. OPERATING EXPENSES
1993 1992 1991 ----- ----- ----- (DOLLARS IN MILLIONS) Selling, General and Administrative.................... $92.0 $95.3 $87.4 As a % of revenues..................................... 30.2% 29.5% 31.3% Research and Development............................... $43.8 $38.3 $35.2 As a % of revenues..................................... 14.4% 11.8% 12.6% Other Expense (Income), net............................ $ 2.5 $ 4.5 $(3.5) As a % of revenues..................................... .8% 1.4% (1.2)%
Selling, general, and administrative ("SG&A") expenses decreased 4% to $92.0 million in 1993 compared to 1992. The decrease reflects the impact of the August 1993 restructuring discussed previously, as well as other cost reduction programs. These savings were partially offset by selling and marketing activities related to the introduction of the Extended Signal Processing option for the UM 9 HDI system and expenses incurred to support the continued growth of international sales activity. In 1992, SG&A expenses increased 9% to 17 $95.3 million, reflecting expenses incurred to support the growth in revenues and the expansion of international sales and marketing activities. Research and development expenses in 1993 increased 14% over 1992 to $43.8 million or 14.4% of revenues. In 1992, R&D expenses were $38.3 million or 11.8% of revenues. In 1993, ATL introduced new product features such as the Extended Signal Processing technology and four new broadband scanheads for the HDI system. Management expects to continue its investment in product development programs to enhance its position in proprietary and other technologies. In 1993, other expense (income), net, includes a $1.1 million gain on the sale of an investment in a third party. The equity investment was sold in the fourth quarter of 1993 generating $3.2 million in cash proceeds. Other expense (income), net, also includes foreign exchange gains or losses, Washington state business and occupation (B&O) tax, and amortization of costs in excess of net assets of businesses acquired. Foreign exchange gains and losses include principally gains and losses on intercompany accounts of ATL's foreign subsidiaries and on forward foreign currency exchange contracts. Net losses on foreign currency transactions were $1.2, $1.8, and $.7 million in 1993, 1992, and 1991, respectively. B&O tax, a gross receipts tax for products manufactured in the state of Washington, amounted to $1.1, $1.1, and $1.0 million in 1993, 1992, and 1991, respectively. In 1991, other expense (income), net, includes a $6.3 million arbitration award received by the Company as a result of its lawsuit against a competitor. INVESTMENT INCOME
1993 1992 1991 ---- ---- ---- (DOLLARS IN MILLIONS) Investment Income, net of interest expense................ $2.2 $3.4 $3.4
Net investment income decreased to $2.2 million in 1993. The decrease reflects lower cash balances available for investment in 1993, as well as lower interest rates on invested cash. Net investment income remained at $3.4 million in 1992, comparable to 1991. TAXES AND NET INCOME (LOSS)
1993 1992 1991 ----- ---- ---- (DOLLARS IN MILLIONS) Income (Loss) Before Income Taxes........................ $(3.6) $9.5 $7.2 Provision for income taxes: Domestic income taxes.................................... $ .6 $1.4 $ .5 Foreign income taxes..................................... .9 .7 .4 ----- ---- ---- $ 1.5 $2.1 $ .9 As a % of income (loss) before income taxes.............. (42.4)% 22.1% 12.1% Net Income (Loss)........................................ $(5.1) $7.4 $6.4
The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the provision for income taxes and the effective tax rate are subject to volatility. Changes in statutory rates and taxable income will affect the amount of net deferred tax assets which can be recognized under FAS 109 and the related provision for income taxes. For the Company to realize its U.S. net deferred tax assets, its U.S. taxable income must be comparable to or higher than recent years. Reductions in taxable income levels will result in increased deferred income tax expense. Likewise, significant increases in taxable income will result in the recognition of deferred tax benefits, providing deferred tax assets have not previously been recognized. 18 Taxable income has differed from pretax earnings for financial reporting purposes in the past due to permanent differences, the timing of recognizing certain income and deductions, and deductions for stock option compensation. Due to the restructuring charge and the slow U.S. ultrasound market in 1993, the Company has not sustained the U.S. taxable income level of recent years. This contributed significantly to the $2.2 million increase in the deferred tax asset valuation allowance which was reported as part of deferred tax expense for 1993. During 1993, the Internal Revenue Service completed an examination of the Company's tax returns for the years 1989 and 1990. The audit resulted in a net refund of $1.1 million and allowed the Company to reduce its liability for income taxes by $2 million in 1993. The Company believes it has made adequate provision for income taxes that may become payable with respect to open tax years. The provision for income taxes includes benefits from the utilization of foreign tax loss carryforwards. Foreign tax loss carryforwards of approximately $6.7 million remain at the end of 1993. No benefit has been recognized for the majority of these remaining benefits due to uncertainty surrounding their realization. CAPITAL RESOURCES AND LIQUIDITY
1993 1992 1991 ------ ------ ------ (DOLLARS IN MILLIONS) Cash and short-term investments..................... $ 54.6 $ 77.4 $ 76.5 Long-term marketable debt security.................. $ 5.0 -- -- Receivables......................................... $ 86.8 $ 90.8 $ 91.6 Inventories......................................... $ 74.7 $ 69.4 $ 65.0 Shareholders' equity................................ $186.4 $204.1 $190.3 Return on shareholders' equity...................... (2.6)% 3.8% 3.5%
The Company has financed operations primarily with internal resources, including its cash and short-term investment balances. Cash and short-term investments totaled $54.6 million at December 31, 1993. The Company also holds $5.0 million in a marketable debt security which matures beyond 1994. Short- term borrowings of $3.7 million at December 31, 1993 represent working capital lines of credit maintained at several of the Company's foreign subsidiaries to facilitate intercompany cash flow. The Company has no long-term debt. Shareholders' equity at December 31, 1993 was $186.4 million, or 67% of total assets. The Company generated positive cash flow of $5.7 million from operating activities. However, the Company's investment in inventories increased to $74.7 million at December 31, 1993, reflecting slower shipment levels and the introduction of new feature upgrades for products during 1993. In the fourth quarter of 1993, the Company implemented an inventory reduction program which resulted in a $9.0 million reduction in the inventory balance during the quarter. During 1993, the Company invested $14.2 million in additions to property, plant and equipment, net of asset retirements. Total depreciation and amortization expense for 1993 was $11.9 million. The Company repurchased 794,000 shares of its own common stock in the open market for $13.4 million under a share repurchase program which began in February 1993. The Company is authorized to purchase up to 1,000,000 shares under this program, subject to certain criteria. Shares purchased are used to service the Company's employee benefit plans. The Company also purchased 12,481 shares of its common stock under a separate, oddlot shareholder program. The oddlot program expired in December 1993. In 1992, the Company made a $36.2 million cash contribution to SpaceLabs Medical, Inc. in connection with the Distribution and received $28.2 million from the exercise of employee stock options. The Company has occasionally utilized its cash resources to make acquisitions of technology or small technology-related businesses. The Company may undertake further acquisitions of technology in the future. 19 In addition to its cash balances, the Company has available unsecured credit facilities of $25 million, including a committed line of credit of $15 million. Management expects that barring any unforeseen circumstances or events, existing cash and short-term investments together with available credit lines and funds generated from operations should be sufficient to meet the Company's operating requirements for 1994. OTHER BUSINESS FACTORS Companies in high technology businesses can from time to time experience difficulty with the availability of technology employed in their products. While the Company strives to develop alternate sources for the components it requires and works closely with vendors of specialty items, the Company's vendors of highly specialized and unique parts such as custom semiconductor devices can occasionally experience difficulty in the manufacture of products. Vendors can also experience difficulty in meeting quality standards the Company requires of its vendors. Such difficulties can lead to long order lead times or delays in the Company's manufacture of products. Manufacturing efforts can also be impeded by third party assertions of patent infringement by the Company's products. See ITEM 3--LEGAL PROCEEDINGS on Page 13. The Company is subject to certain rules and regulations of the U.S. Food and Drug Administration ("FDA") regarding the design, documentation, manufacture, marketing, and reporting of the performance of its products. See ITEM 1-- BUSINESS--Governmental Regulation on Page 11. IMPACT OF NEW ACCOUNTING STANDARD The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which the Company will be required to adopt prospectively on January 1, 1994. Implementation of this accounting standard will not have a material effect on the Company's financial statements. SUBSEQUENT EVENT On February 10, 1994, the Company announced it had entered into a Merger Agreement with Interspec, Inc. ("Interspec"), a manufacturer of medical diagnostic ultrasound systems and transducers, headquartered in Ambler, Pennsylvania. Pursuant to the Merger Agreement, which is subject to approval by shareholders of both companies, Interspec would become a wholly owned subsidiary of the Company through an exchange of 0.413 shares of the Company's common stock for each share of Interspec stock. The proposed merger plan will be submitted to shareholders of Interspec and the Company at their respective shareholder meetings in May 1994. The transaction is expected to be accounted for as a pooling-of-interests. The Company believes the merger will enable the Company and Interspec to combine resources and product lines to expand the Company's market position in the cardiology and mid-priced market segments of the ultrasound market. The Company is filing a proxy statement with the Securities and Exchange Commission relating to the merger proposal which will more fully describe the proposed merger. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements are included herewith:
PAGE ---- Independent Auditors' Report........................................... 22 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 1993 and 1992............ 23 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1993....................... 24 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1993....................... 25 Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1993.................... 26 Notes to Consolidated Financial Statements........................... 27
See Item 14 for the Financial Statement Schedules filed with Form 10-K Report. 21 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS ADVANCED TECHNOLOGY LABORATORIES, INC. We have audited the accompanying consolidated balance sheets of Advanced Technology Laboratories, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the index referred to in Part IV, Item 14(2) of the Form 10-K report. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Advanced Technology Laboratories, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick KPMG Peat Marwick Seattle, Washington February 10, 1994 22 ADVANCED TECHNOLOGY LABORATORIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1993 1992 ------------ ------------ (IN THOUSANDS) ASSETS Current Assets Cash and short-term investments.................... $ 54,635 $ 77,445 Receivables........................................ 86,813 90,836 Inventories........................................ 74,678 69,404 Prepaid expenses................................... 1,305 1,297 Deferred income taxes.............................. 7,403 10,406 -------- -------- Total current assets............................. 224,834 249,388 Marketable Debt Security............................. 4,988 -- Property, Plant and Equipment, Net................... 45,318 41,302 Other Assets, Net.................................... 1,558 4,921 -------- -------- $276,698 $295,611 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings.............................. $ 3,679 $ 4,528 Accounts payable and accrued expenses.............. 49,138 53,698 Deferred revenue................................... 29,691 27,667 Taxes on income.................................... 4,763 2,729 -------- -------- Total current liabilities........................ 87,271 88,622 Deferred Income Taxes................................ 3,057 2,853 Commitments, Contingencies, and Subsequent Event Shareholders' Equity................................. 186,370 204,136 -------- -------- $276,698 $295,611 ======== ======== Common shares outstanding............................ 10,508 11,250
See accompanying notes to Consolidated Financial Statements. 23 ADVANCED TECHNOLOGY LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED -------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, 1993 1992 1991 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues Product sales......................... $244,604 $265,940 $229,988 Service............................... 59,907 57,771 49,728 -------- -------- -------- 304,511 323,711 279,716 Cost of Sales Cost of product sales................. 130,122 137,078 121,666 Cost of service....................... 37,647 37,493 35,017 -------- -------- -------- 167,769 174,571 156,683 -------- -------- -------- Gross Profit............................ 136,742 149,140 123,033 Operating Expenses Selling, general and administrative... 91,952 95,343 87,430 Research and development.............. 43,838 38,313 35,206 Restructuring charges................. 4,275 3,764 -- Stock distribution expenses........... -- 1,195 -- Other expense (income), net........... 2,486 4,454 (3,475) -------- -------- -------- 142,551 143,069 119,161 -------- -------- -------- Income (Loss) From Operations........... (5,809) 6,071 3,872 Investment income....................... 2,912 4,224 4,073 Interest expense........................ (689) (790) (697) -------- -------- -------- Income (Loss) Before Income Taxes....... (3,586) 9,505 7,248 Income tax expense...................... 1,520 2,098 877 -------- -------- -------- Net Income (Loss)....................... $ (5,106) $ 7,407 $ 6,371 ======== ======== ======== Net Income (Loss) Per Share............. $ (.46) $ .67 $ .62 ======== ======== ======== Weighted average common shares and equivalents outstanding................ 10,992 11,086 10,220
See accompanying notes to Consolidated Financial Statements 24 ADVANCED TECHNOLOGY LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED -------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, 1993 1992 1991 ------------ ------------ ------------ (IN THOUSANDS) Operating Activities Net income (loss)....................... $(5,106) $ 7,407 $ 6,371 Non-cash charges (credits) to net income (loss): Depreciation and amortization......... 11,882 10,981 10,248 Deferred income tax expense (benefit). 3,207 (1,361) (44) Gain on sale of investment............ (1,125) -- -- Common shares issued to benefit plan.. 289 -- -- Restructuring charge.................. -- 1,400 -- Changes in: Receivables........................... 1,951 (1,247) (6,800) Inventories........................... (6,652) (5,808) 7,838 Prepaid expenses...................... (49) 276 791 Accounts payable and accrued expenses. (3,408) 4,630 (3,384) Deferred revenue...................... 2,237 3,339 4,397 Taxes on income....................... 2,072 (612) 4,104 Other................................. 368 (177) (529) ------- ------- ------- Cash provided by operations........... 5,666 18,828 22,992 Investing Activities (Increase) decrease in short-term investments.......................... 44,902 (18,338) (755) Investment in marketable debt security............................. (4,988) -- -- Investment in property, plant and equipment, net....................... (14,169) (10,174) (8,245) Proceeds from sale of investment...... 3,235 -- -- Other................................. -- (61) 441 ------- ------- ------- Cash provided (used) by investing activities........................... 28,980 (28,573) (8,559) Financing Activities Increase (decrease) in short-term borrowings........................... (849) (3,457) 1,810 Purchases of common shares............ (13,753) -- -- Exercise of stock options............. 201 28,150 9,492 Tax effect of employee stock transactions......................... (53) 8,107 3,357 Contribution to SpaceLabs............. -- (36,212) -- Cash received from SpaceLabs under Tax Allocation........................... 1,055 -- -- Agreement Increase (decrease) in payable to SpaceLabs............................ -- (4,975) 10,973 ------- ------- ------- Cash provided (used) by financing ac- tivities............................. (13,399) (8,387) 25,632 Effect of exchange rate changes......... 845 706 (1,512) ------- ------- ------- Increase (decrease) in cash and cash equivalents............................ 22,092 (17,426) 38,553 Cash and cash equivalents, beginning of year................................... 30,498 47,924 9,371 ------- ------- ------- Cash and cash equivalents, end of year.. $52,590 $30,498 $47,924 ======= ======= ======= Short-term investments.................. $ 2,045 $46,947 $28,609 Long-term marketable debt security...... $ 4,988 -- --
See accompanying notes to Consolidated Financial Statements 25 ADVANCED TECHNOLOGY LABORATORIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK UNEARNED FOREIGN AND RESTRICTED CURRENCY TOTAL PAID-IN SHARE ACCUMULATED TRANSLATION SHAREHOLDERS' CAPITAL COMPENSATION DEFICIT ADJUSTMENT EQUITY -------- ------------ ----------- ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE, DECEMBER 28, 1990................... $190,553 $(1,595) $(19,355) $ 103 $169,706 Net income.............. -- -- 6,371 -- 6,371 Issuance of restricted shares................. 1,427 (1,427) -- -- -- Amortization of restricted share compensation........... -- 1,744 -- -- 1,744 Exercise of employee stock options.......... 9,492 -- -- -- 9,492 Tax effect of employee stock transactions..... 3,357 -- -- -- 3,357 Foreign currency trans- lation adjustment...... -- -- -- (324) (324) -------- ------- -------- ------- -------- BALANCE, DECEMBER 27, 1991................... 204,829 (1,278) (12,984) (221) 190,346 Net income.............. -- -- 7,407 -- 7,407 Issuance of restricted shares................. 2,364 (2,364) -- -- -- Amortization of restricted share compensation........... -- 1,350 -- -- 1,350 Exercise of employee stock options.......... 28,150 -- -- 28,150 Tax effect of employee stock transactions..... 8,107 -- -- -- 8,107 Foreign currency trans- lation adjustment...... -- -- -- (2,369) (2,369) Distribution of SpaceLabs.............. (29,148) 293 -- -- (28,855) -------- ------- -------- ------- -------- BALANCE, DECEMBER 31, 1992................... 214,302 (1,999) (5,577) (2,590) 204,136 Net loss................ -- -- (5,106) -- (5,106) Issuance of restricted shares................. 584 (584) -- -- -- Amortization of restricted share compensation........... -- 1,241 -- -- 1,241 Exercise of employee stock options.......... 201 -- -- -- 201 Issuance of common stock to benefit plan........ 289 -- -- -- 289 Tax effect of employee stock transactions..... (53) -- -- -- (53) Repurchase of common shares................. (13,753) -- -- -- (13,753) Foreign currency trans- lation adjustment...... -- -- -- (1,640) (1,640) Cash received from SpaceLabs under Tax Allocation Agreement... 1,055 -- -- -- 1,055 -------- ------- -------- ------- -------- BALANCE, DECEMBER 31, 1993................... $202,625 $(1,342) $(10,683) $(4,230) $186,370 ======== ======= ======== ======= ========
PREFERRED COMMON 1993 SHARES SHARES - ---- --------- ------ Par value per share...................................... $25.00 $ .01 Authorized shares........................................ 6,000 50,000 Issued shares............................................ -- 11,252 Outstanding shares....................................... -- 10,508 Common shares held in treasury........................... -- 744
PREFERRED COMMON 1992 SHARES SHARES - ---- --------- ------ Par value per share...................................... $25.00 $ .01 Authorized shares........................................ 6,000 50,000 Issued shares............................................ -- 11,250 Outstanding shares....................................... -- 11,250 Common shares held in treasury........................... -- --
See accompanying notes to Consolidated Financial Statements 26 ADVANCED TECHNOLOGY LABORATORIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Advanced Technology Laboratories, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on December 31. Prior to 1992, the Company's fiscal year was a 52 or 53 week period, ending on the last Friday in December. Fiscal years 1993 and 1991 included 52 weeks; fiscal year 1992 included 53 weeks. Operations The Company develops, manufactures, markets, and services medical diagnostic ultrasound systems worldwide. These systems are used primarily in radiology, cardiology, obstetrics and gynecology, and peripheral vascular applications. Inventories Inventories are valued at the lower of cost, determined by the first-in, first-out method, or market. The Company maintains a uniform policy for its worldwide operations to provide adequate reserves for inventory obsolescence. Property, Plant and Equipment The costs of significant additions and improvements to property, plant and equipment are capitalized. Maintenance and repairs are expensed as incurred. Buildings, machinery and equipment are depreciated primarily on the straight- line method over the following estimated useful lives: Buildings......................... 40 years Machinery and equipment........... 3-10 years
Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. Cost in Excess of Net Assets of Businesses Acquired The cost in excess of net assets of businesses acquired is amortized on the straight-line method over seven years. Foreign Currency Revenues, costs and expenses of the Company's international operations denominated in foreign currencies are translated to U.S. dollars at average rates of exchange prevailing during the year. Assets and liabilities are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are accumulated and reported in shareholders' equity. The Company enters into foreign currency exchange contracts as a hedge against exposure to foreign currency fluctuations associated primarily with intercompany receivables and payables. Foreign exchange contracts generally have maturities of less than one year. Gains and losses resulting from these instruments 27 are recognized in the same period as the underlying hedged transactions. At December 31, 1993, foreign currency exchange contracts hedging anticipated transactions totaled approximately $19,500, primarily denominated in Canadian, Australian, and European currencies. The estimated fair value of these contracts approximates the aggregate contract value, based on quoted forward rates at December 31, 1993. Realized and unrealized gains and losses on foreign currency transactions and forward exchange contracts are included in other expense (income), net. Revenue Revenue is generally recognized upon shipment of products and delivery of services to customers. Deferred revenue consists of deposits received from customers and unrecognized service contract revenue. Service contracts are generally issued for a 12-month period and are carried as unbilled receivables from date of issue until invoiced to the customer in accordance with the terms of the contract. The revenue derived from these contracts is initially deferred and subsequently recognized on the straight-line method over the lives of the contracts. Sales-type Leases In 1993, the Company began a product leasing program for its customers. Under this program, the Company leases its medical ultrasound imaging equipment to customers under sales-type leases with terms ranging from two to five years. The Company currently sells its lease contract receivables to outside parties on a regular basis. At December 31, 1993, the majority of lease contract receivables had been sold, without recourse. The remaining lease contract receivables at December 31, 1993 are not significant. Product Warranty The Company provides at the time of product shipment for the estimated cost to repair or replace products sold under warranties. Such warranties generally cover a 12-month period. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. Pension Plans Pension costs are funded in accordance with requirements set forth by the Employee Retirement Income Security Act of 1974. Diversification of Credit Risk Financial instruments which potentially subject the Company to credit risk consist primarily of cash investments and trade receivables. The Company's investment portfolio is diversified and primarily consists of investment grade securities that approximate fair market value. Concentrations of credit risk with respect to receivables are limited due to the Company's large customer base, generally short payment terms, and the dispersion of customers across geographic areas. The Company performs credit evaluations of its customers' financial condition and requires collateral, such as letters of credit, in certain circumstances. 28 Per Share Data Per share data is based on the weighted average number of common shares and dilutive common share equivalents outstanding. Common share equivalents are calculated under the treasury stock method and consist of unexercised employee stock options. Reclassifications Certain amounts reported in previous years have been reclassified to conform to the 1993 presentation. 2. DISTRIBUTION OF SPACELABS MEDICAL, INC. On June 26, 1992, the Company (previously named Westmark International Incorporated) distributed to its shareholders all of the common stock of SpaceLabs Medical, Inc., a wholly owned subsidiary, on a one-for-one basis (the "Distribution"). The Distribution had the effect of dividing the Company into two separate, publicly traded companies: Advanced Technology Laboratories, Inc. (previously Westmark International Incorporated) and SpaceLabs Medical, Inc. ("SpaceLabs"). The spin-off of a company, such as SpaceLabs, would normally be reported as a discontinued operation. However, the historical consolidated financial statements of the Company were retroactively restated to deconsolidate the financial statements of SpaceLabs to reflect the Distribution. The Company believes this exception to the usual method of reporting a spin-off is appropriate given the highly unique circumstances surrounding the relationship between SpaceLabs and the Company. These circumstances were reviewed with the staff of the Securities and Exchange Commission. Management believes that deconsolidation, which presents the historical financial statements of the Company as if there never had been an affiliation between the Company and SpaceLabs, is the most meaningful financial presentation. Corporate and administrative expenses were allocated to the Company and SpaceLabs based on relative revenues. Management believes this allocation method was reasonable. Further, management believes that reported expenses, including income taxes, would not have been materially different had the Company operated as an unaffiliated entity. In connection with the Distribution, the Company made a net contribution of assets and liabilities to SpaceLabs, which reduced the Company's shareholders' equity by $28,855. The contribution consisted of $36,212 in cash and $550 in other assets, offset by the elimination of a $7,907 payable to SpaceLabs. At June 26, 1992, the payable due to SpaceLabs represented cumulative cash transfers prior to the Distribution between SpaceLabs and the Company arising from SpaceLabs' operating and financing activities. As part of the Distribution, the Company and SpaceLabs entered into an Intercompany Tax Agreement that provides for payment to or reimbursement from SpaceLabs for pre-Distribution tax matters. In 1993, the Company received a net amount of $1,055 from SpaceLabs under this agreement as a result of the conclusion of an Internal Revenue Service examination for the years 1989 and 1990. The amount was reported as an increase to shareholders' equity. Expenses related to the Distribution totaling $1,195 were incurred in 1992 for legal, accounting, investment advisory, printing and other fees and are reported as stock distribution expenses in the consolidated statements of operations. The Company also incurred restructuring charges of $3,764 including expenses related to the closure of the Seattle headquarters' office, severance of certain personnel as a result of the Distribution, and a $1,400 write down to estimated market value of the Company's former ultrasound manufacturing facility in Germany. 3. RESTRUCTURING CHARGE In August 1993, the Company incurred a restructuring charge of $4,275 related to the reduction of its worldwide workforce of approximately 11%. The restructuring was primarily undertaken in response to the 29 uncertainty in the health care industry and to streamline operations. The charge provided for severance payments and other costs associated with the restructuring of the Company's operations. 4. CASH, SHORT-TERM INVESTMENTS AND MARKETABLE DEBT SECURITY Short-term investments and the marketable debt security are stated at cost which approximates fair market value. For purposes of the statement of cash flows, cash equivalents are defined as investments with maturities of three months or less at the date of purchase. The Company holds a marketable debt security issued by the U.S. Government which matures in 1996. The marketable debt security is classified as a non-current asset on the consolidated balance sheet.
1993 1992 ------- ------- Cash and cash equivalents................................ $52,590 $30,498 Short-term investments................................... 2,045 46,947 ------- ------- 54,635 77,445 Long-term marketable debt security....................... 4,988 -- ------- ------- $59,623 $77,445 ======= =======
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which the Company will be required to adopt prospectively on January 1, 1994. Implementation of this accounting standard will not have a material effect on the Company's financial statements. 5. RECEIVABLES
1993 1992 ------- ------- Trade receivables...................................... $83,319 $88,005 Less allowance for doubtful receivables and sales re- turns................................................. (5,864) (5,136) ------- ------- 77,455 82,869 Other, primarily unbilled service contracts............ 9,358 7,967 ------- ------- $86,813 $90,836 ======= =======
6. INVENTORIES
1993 1992 ------- ------- Materials and work in process............................ $19,813 $19,856 Finished products........................................ 14,958 14,360 Demonstrator equipment................................... 20,061 15,543 Customer service......................................... 19,846 19,645 ------- ------- $74,678 $69,404 ======= =======
7. PROPERTY, PLANT AND EQUIPMENT, AT COST
1993 1992 -------- -------- Land and improvements................................. $ 4,948 $ 5,022 Buildings and leasehold improvements.................. 19,070 19,456 Machinery and equipment............................... 60,398 52,198 -------- -------- 84,416 76,676 Less accumulated depreciation and amortization........ (39,098) (35,374) -------- -------- $ 45,318 $ 41,302 ======== ========
30 The Company has accepted an offer to sell property formerly used as a manufacturing facility in Germany. The transaction is expected to close in early 1994 with a small gain on the sale. The property secures a foreign line of credit. A portion of the proceeds from the sale of the property will be used to pay off the outstanding balance on this line of credit. 8. OTHER ASSETS
1993 1992 ------- ------- Costs in excess of net assets of businesses acquired... $ 5,105 $ 5,117 Less accumulated amortization.......................... (4,537) (3,890) ------- ------- 568 1,227 Investments, at cost................................... 47 2,248 Other.................................................. 943 1,446 ------- ------- $ 1,558 $ 4,921 ======= =======
Amortization of costs in excess of net assets of businesses acquired was $659 in 1993, $675 in 1992, and $669 in 1991, and is included in other expense (income), net. During 1993, the Company sold its equity investment in a third party for $3,235. A gain on the sale of the investment of $1,125 is included in other expense (income), net. 9. SHORT-TERM BORROWINGS Short-term borrowings represent foreign currency borrowings carrying interest rates ranging from 8% to 12% under lines of credit maintained by various foreign subsidiaries for working capital purposes. These credit lines are primarily unsecured, except as discussed in note 7. At December 31, 1993, the Company had available unsecured credit facilities totaling $25,000, including a committed line of credit of $15,000. No borrowings were outstanding under these facilities at December 31, 1993. The loan agreement for the committed line of credit includes various covenants relating to financial ratios and restrictions on cash dividends. The Company was in compliance with, or had obtained waivers for, these covenants at December 31, 1993. Interest expense as reported in the consolidated statements of operations approximates amounts paid each year. 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
1993 1992 ------- ------- Accounts payable......................................... $17,155 $19,057 ------- ------- Accrued expenses Salaries and other compensation........................ 14,275 14,581 Warranty reserves...................................... 5,193 5,450 Taxes, other than income............................... 2,440 2,145 Other.................................................. 10,075 12,465 ------- ------- 31,983 34,641 ------- ------- $49,138 $53,698 ======= =======
31 11. EMPLOYEE BENEFIT PLANS Substantially all employees of the Company's U.S. operations are covered under a noncontributory, defined benefit pension plan. The benefits are based on the employee's years of service and highest consecutive five-year average compensation. Net pension cost is comprised of the following:
1993 1992 1991 ------ ------ ------ Service cost for benefits earned during the year........................................... $1,090 $ 912 $ 846 Interest cost on projected benefit obligation... 630 478 389 Income on plan assets........................... (740) (191) (397) Net amortization and deferral................... 490 (7) 364 ------ ------ ------ $1,470 $1,192 $1,202 ====== ====== ======
The funded status of the plans at December 31, 1993 and 1992 follows:
1993 1992 -------- ------- Accumulated benefit obligation, including vested benefits of $5,552 at December 31, 1993 and $3,532 at December 31, 1992............................... $ 6,526 $ 4,136 -------- ------- Projected benefit obligation, including the effect of projected future salary increases............... 11,453 6,992 Plan assets at fair value........................... 6,461 4,290 -------- ------- Excess of projected benefit obligation over plan as- sets............................................... 4,992 2,702 Unrecognized prior service cost..................... (863) (1,032) Unrecognized net experience loss.................... (3,685) (1,064) Unrecognized net asset.............................. -- 31 -------- ------- Accrued pension cost................................ $ 444 $ 637 ======== =======
The projected benefit obligations are based on employee census information as of the beginning of each year. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.75% for 1993, and 8.5% for 1992 and 1991. The assumed annual rate of increase in future compensation levels was 9% for the first five years of service and 5.75% thereafter, for 1993; and 10% and 6.5% in both 1992 and 1991. The expected long-term rate of return on plan assets was 9% in each of 1993, 1992 and 1991. A 401(k) retirement savings plan is maintained for all U.S. employees. The Company's contributions to this plan were $895, $748, and $670 in 1993, 1992 and 1991, respectively. 12. SHAREHOLDERS' EQUITY In 1992, the Company adopted the 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan and the 1992 Non- Officer Employee Stock Option Plan (the "1992 Plans"). Under the 1992 Plans, 1,750,000 common shares are reserved primarily for issuance of stock options at prices equal to the fair market value of the Company's common shares at the date of grant and for issuance of restricted shares at par value. Stock options and restricted stock granted under the 1992 Plans are generally exercisable at 25% each year over a four year vesting period. At December 31, 1993, approximately 359,000 shares were available for grants under the 1992 Plans. 32 In 1993, the Company established the Non-Employee Director Stock Option Plan. Under this plan, 50,000 common shares were reserved for issuance of stock options at prices equal to the fair market value of the common shares at the date of grant. At December 31, 1993, 42,000 shares were available for grants under this plan. The Company also granted stock options and restricted stock under two plans which were in effect prior to the Distribution of SpaceLabs. At the date of the Distribution, the remaining shares available for issuance under these plans were cancelled and the exercise price for remaining stock options outstanding was adjusted in proportion to the relative values of the Company and SpaceLabs stock prices at the time of the Distribution. The following table summarizes option activity (shares in thousands). Option prices prior to June 26, 1992, the date of the Distribution, reflect the fair market value on the date of grant. Option prices on or subsequent to June 26, 1992 represent either the option prices adjusted to reflect the Distribution or the fair market value of the Company's common shares for options granted subsequent to June 26, 1992.
PRICE PER SHARES SHARE ------ -------- Outstanding at December 27, 1991........................ 1,597 $16--$52 Granted............................................... 30 Exercised............................................. (1,201) Cancelled............................................. (51) ------ Outstanding at June 26, 1992............................ 375 $ 9--$30 Granted............................................... 709 Exercised............................................. (2) Cancelled............................................. (1) ------ Outstanding at December 31, 1992........................ 1,081 $ 9--$30 Granted............................................... 547 Exercised............................................. (4) Cancelled............................................. (31) ------ Outstanding at December 31, 1993........................ 1,593 $ 9--$30 ====== Exercisable at December 31, 1993........................ 445 $ 9--$30 ======
In 1993 and 1992, 33,000 and 131,000 shares, respectively, of restricted stock were issued at par value under the 1992 plans. Deferred compensation representing the fair market value of the shares at the date of grant is amortized over the four year vesting period. In February 1993, the Company's Board of Directors authorized a plan to repurchase up to 1,000,000 shares of its own common stock in the open market subject to certain criteria. The Company repurchased 794,000 shares totaling $13,441 under this program in 1993. The shares purchased will be used to service the Company's employee benefit plans. In October 1993, the Board of Directors authorized an oddlot shareholder program for the purpose of repurchasing oddlot share positions or allowing oddlot shareholders to establish a position of 100 shares. Under this program the Company made net purchases of 12,481 shares, totaling $312. The oddlot repurchase program expired in December 1993. 33 13. INCOME TAXES The components of income (loss) before income taxes were:
1993 1992 1991 ------- ------ ------ U.S. operations................................... $(6,401) $5,157 $5,354 International operations.......................... 2,815 4,348 1,894 ------- ------ ------ $(3,586) $9,505 $7,248 ======= ====== ======
Income tax expense consists of the following:
1993 1992 1991 ------- ------- ---- Current: U.S. Federal.................................... $(2,835) $ 2,715 $ 42 U.S. State and Local............................ 275 310 483 International................................... 873 434 396 Deferred: U.S. Federal.................................... 3,207 (1,582) (44) International................................... -- 221 -- ------- ------- ---- $1,520 $ 2,098 $877 ======= ======= ====
The difference between taxes computed by applying the U.S. Federal income tax rate of 34% to income (loss) before income taxes and the actual income tax expense follows:
1993 1992 1991 ------- ------- ------- Expected income taxes at U.S. statutory rate.. $(1,219) $ 3,232 $ 2,464 Increase (reduction) in income taxes resulting from: State and local income taxes................ 181 205 319 Taxes related to foreign operations......... 1,234 505 1,330 Utilization of international operating loss carryforwards/carrybacks................... (1,088) (1,467) (1,484) Foreign Sales Corporation benefit........... -- (536) (550) Research and experimentation tax credits.... -- (84) (1,081) Tax advantaged investment income............ (266) (654) (489) Restructuring costs......................... -- 406 -- Alternative minimum tax..................... 2,510 857 710 Tax accrual adjustment...................... (2,013) -- -- Change in valuation allowance............... 2,181 (1,172) (501) Other, net.................................. -- 806 159 ------- ------- ------- $ 1,520 $ 2,098 $ 877 ======= ======= =======
The Company had net refunds of income taxes of $4,322, $574, and $718 in 1993, 1992, and 1991, respectively. 34 The tax effects of temporary differences and carryforwards which give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 and December 31, 1992 are presented below.
1993 1992 -------- -------- Deferred tax assets Receivables......................................... $ 2,297 $ 1,449 Inventories......................................... 8,333 8,167 International net operating loss carryforwards...... 2,387 3,450 State taxes......................................... 2,087 2,053 Compensation........................................ 1,778 2,484 Research and experimentation credit carryforwards... 4,271 4,539 Other, net.......................................... 2,893 2,726 -------- -------- Gross deferred tax assets......................... 24,046 24,868 Less valuation allowance.......................... (16,643) (14,462) -------- -------- Deferred tax assets, net.......................... 7,403 10,406 Deferred tax liabilities, primarily depreciation...... (3,057) (2,853) -------- -------- Net deferred tax assets............................. $ 4,346 $ 7,553 ======== ========
For the Company to realize its U.S. net deferred tax assets, its taxable income must be comparable to or higher than recent years. Although the Company believes such taxable income levels will be achieved, reductions in taxable income levels can result in an increased deferred income tax expense. Due primarily to the restructuring charge and a slow U.S. ultrasound market, the Company has been unable to sustain the U.S. taxable income level of recent years. This is reflected in the increase in the total valuation allowance of $2,181 during the year. Additional factors considered in determining the realizability of deferred tax assets included a tax planning strategy involving the sale/leaseback of real estate and potential carryback opportunities. At December 31, 1993, the Company had international net operating loss carryforwards for statutory purposes of approximately $6,700, which expire as follows: $850 in 1994, $850 in 1995, $950 in 1996, and $4,050 indefinitely. The Company also has U.S. research and experimentation credit carryforwards of approximately $4,300 with expiration dates through 2008. During 1993, the Internal Revenue Service completed an examination of the Company's tax returns for the years 1989 and 1990. The audit resulted in a net refund of $1,071 which allowed the Company to reduce its liability for income taxes by $2,013. The Company believes it has made adequate provision for income taxes that may become payable with respect to open tax years. Provision has not been made for U.S. or additional foreign taxes on the undistributed earnings of the Company's foreign subsidiaries which total approximately $1,300. These earnings, which are anticipated to be reinvested, could become subject to additional tax if they were remitted as dividends, lent to the Company, or if the Company should sell its stock in these subsidiaries. 14. OTHER EXPENSE (INCOME), NET Other expense (income), net, includes foreign exchange gains and losses consisting of realized gains and losses on cash transactions involving various foreign currencies, unrealized gains and losses resulting from exchange rate fluctuations primarily affecting intercompany accounts and gains and losses on forward exchange contracts. Net losses from foreign currency transactions were $1,234, $1,839, and $712 in 1993, 1992 and 1991, respectively. Other expense (income), net, also includes Washington State Business and Occupation taxes of $1,086, $1,144, and $981 in 1993, 1992 and 1991, respectively. This tax is a gross receipts tax imposed on products manufactured in the state of Washington and is levied in lieu of a state income tax. 35 In 1993, other expense (income), net, includes a $1,125 gain on the sale of an investment and in 1991, includes a $6,338 award received as a result of the Company's lawsuit against a competitor. 15. INVESTMENT INCOME Investment income consists of the following:
1993 1992 1991 ------ ------ ------ Interest income..................................... $1,942 $1,925 $1,921 Preferred share dividend income..................... 970 2,299 2,152 ------ ------ ------ $2,912 $4,224 $4,073 ====== ====== ======
16. LEASES The Company was obligated at December 31, 1993 under long-term operating leases for various types of property and equipment, with minimum aggregate rentals totaling $11,093 as follows: $3,752 in 1994, $2,122 in 1995, $1,659 in 1996, $1,338 in 1997, $1,315 in 1998 and $907 in later years. Many of the Company's leases contain renewal options and clauses for escalations and payment of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Certain leases are expected to be renewed or replaced at expiration. Total rental expense under operating leases was $4,563, $4,599, and $4,675 in 1993, 1992 and 1991, respectively. 17. LEGAL CONTINGENCIES In November 1992, a U.S. District Court in California granted a motion by SRI International, Inc. ("SRI") requesting partial summary judgment on a patent infringement claim relating to an electrical circuit alleged to be used in the Company's Ultramark 4 system. In February 1993, the Court entered an order enjoining further use of the circuit in dispute by the Company until the patent expires in April 1994. This injunction will not pose an obstacle to continued shipment of products by the Company through the expiry of the SRI patent in April 1994. The Company has appealed the summary judgment decision to the U.S. Federal Circuit Court of Appeals, and further proceedings to determine a damage award have been stayed pending the outcome of the Company's appeal. SRI has stated in a February 1993 press release that it is seeking over $5 million in damages. The Company continues to believe the SRI patent is invalid and not infringed by the Company. At this stage of the litigation, the Company cannot predict the outcome of the suit or estimate the amount of loss, if any, but believes its defenses are meritorious and is vigorously pursuing its rights in the Appellate Court. In addition to the foregoing proceedings, the Company is involved in various other legal actions and claims arising in the ordinary course of business. The Company believes the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition. 18. GEOGRAPHIC SEGMENT INFORMATION The Company operates in one industry segment: developing, manufacturing, marketing and servicing medical ultrasound imaging systems. Internationally, the Company's products are marketed through its subsidiaries and independent distributors, with principal subsidiaries located in Europe, Canada and Australia. U.S. revenues in the following table include export sales to customers in foreign countries of $44,996, $41,267, and $30,848 in 1993, 1992 and 1991, respectively. 36 A summary of the Company's operations by geographic area follows:
INTERNATIONAL ------------------------- ADJUSTMENTS/ U.S. EUROPE OTHER TOTAL ELIMINATIONS TOTAL -------- ------- ------- ------- ------------ -------- 1993 Revenues................ $207,851 $77,288 $19,372 $96,660 $ -- $304,511 Intercompany sales...... 63,959 -- -- -- (63,959) -- -------- ------- ------- ------- -------- -------- 271,810 77,288 19,372 96,660 (63,959) 304,511 Income (loss) before in- come taxes............. (4,595) 3,281 (137) 3,144 (2,135) (3,586) Assets.................. 165,612 52,769 11,433 64,202 (4,017) 225,797 1992 Revenues................ $229,028 $75,738 $18,945 $94,683 $ -- $323,711 Intercompany sales...... 52,493 -- -- -- (52,493) -- -------- ------- ------- ------- -------- -------- 281,521 75,738 18,945 94,683 (52,493) 323,711 Income (loss) before in- come taxes............. 5,049 4,732 (397) 4,335 121 9,505 Assets.................. 170,163 50,044 10,104 60,148 (1,041) 229,270 1991 Revenues................ $196,603 $64,286 $18,827 $83,113 $ -- $279,716 Intercompany sales...... 47,922 495 -- 495 (48,417) -- -------- ------- ------- ------- -------- -------- 244,525 64,781 18,827 83,608 (48,417) 279,716 Income (loss) before in- come taxes............. 4,050 (217) 564 347 2,851 7,248 Assets.................. 149,471 50,444 11,228 61,672 423 211,566
International revenues, including both international operations and export sales, were as follows:
1993 1992 1991 -------- -------- -------- European operations........................... $ 77,288 $ 75,738 $ 64,286 Other international operations................ 19,372 18,945 18,827 -------- -------- -------- 96,660 94,683 83,113 Export sales.................................. 44,996 41,267 30,848 -------- -------- -------- Total international revenues................ $141,656 $135,950 $113,961 ======== ======== ========
Geographic assets may be reconciled to consolidated assets as follows:
1993 1992 1991 -------- -------- -------- Geographic assets............................. $225,797 $229,270 $211,566 General corporate assets (principally cash and investments)................................. 50,901 66,341 80,042 -------- -------- -------- Consolidated assets........................... $276,698 $295,611 $291,608 ======== ======== ========
37 19. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ---------------------------------- FIRST SECOND THIRD FOURTH TOTAL ----- ------ ----- ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) 1993 Revenues................................... $81.4 $75.4 $65.7 $82.0 $304.5 Gross profit............................... 35.8 34.3 28.9 37.7 136.7 Income (loss) from operations.............. 1.5 (2.1) (8.6) 3.4 (5.8) Income (loss) before income taxes.......... 2.3 (1.5) (8.2) 3.8 (3.6) Net income (loss).......................... 1.9 (1.8) (8.7) 3.5 (5.1) Net income (loss) per share................ $ .17 $(.16) $(.80) $ .33 $ (.46) 1992 Revenues................................... $75.9 $77.0 $78.2 $92.6 $323.7 Gross profit............................... 35.2 35.8 35.8 42.3 149.1 Income (loss) from operations.............. 2.8 (3.1) 1.0 5.4 6.1 Income (loss) before income taxes.......... 3.9 (2.2) 1.7 6.1 9.5 Net income (loss).......................... 3.1 (2.1) 1.3 5.1 7.4 Net income (loss) per share................ $ .29 $(.19) $ .11 $ .45 $ .67
Quarterly per share data shown do not add to the total due to changes in the number of weighted average shares outstanding during the year. The loss from operations in the third quarter of 1993 includes a restructuring charge of $4.3 million. The loss from operations in the second quarter of 1992 includes $5.0 million of stock distribution expenses and restructuring charges related to the Distribution of SpaceLabs. 20. SUBSEQUENT EVENT In February 1994, the Company entered into a Merger Agreement with Interspec, Inc. ("Interspec"), a manufacturer of medical diagnostic ultrasound systems and transducers, headquartered in Ambler, Pennsylvania. Pursuant to the Merger Agreement, which is subject to approval by shareholders of both companies, Interspec would become a wholly owned subsidiary of the Company through an exchange of 0.413 shares of the Company's common stock for each share of Interspec stock. The proposed merger plan will be submitted to shareholders of Interspec and the Company at their respective shareholder meetings in May 1994. The transaction is expected to be accounted for as a pooling-of-interests. Interspec reported revenues of $61,377, net income of $1,950, and net income per share of $0.31 for its fiscal year ended November 30, 1993. The Company is filing a proxy statement with the Securities and Exchange Commission relating to the merger proposal which will more fully describe the proposed merger. 38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Part III (Items 10-13) is set forth in ATL's definitive proxy statement which will be filed pursuant to Regulation 14A within 120 days of December 31, 1993. Such information is incorporated herein by reference and made a part hereof. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1. FINANCIAL STATEMENTS The following consolidated financial statements of the Company are included in Item 8 of this Form 10-K report: Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 1993 and 1992 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1993 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1993 Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended December 31, 1993 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES An index to the financial statement schedules required to be filed by Part II, Item 8 of this Form is set forth immediately before the attached financial statement schedules on pages 41 through 43 of this filing. 3. EXHIBITS The required exhibits are included at the back of this Form 10-K and are described in the Exhibit Index immediately preceding the first exhibit. 4. REPORTS ON FORM 8-K None. 39 INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE ---- Financial Statement Schedules for each of the years in the three-year period ended December 31, 1993: VIII Valuation and qualifying accounts 41 IX Short-term borrowings 42 X Supplementary income statement information 43
All other schedules are omitted because they are not applicable, the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. 40 SCHEDULE VIII ADVANCED TECHNOLOGY LABORATORIES, INC. VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ------------------- BALANCE BALANCE AT CHARGED TO CHARGED AT END BEGINNING COSTS AND TO OTHER OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- -------- ---------- ------- (IN THOUSANDS) Year ended December 31, 1993: Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns................ $ 5,136 $1,255 $ -- $ 527(1) $ 5,864 ======= ====== ====== ====== ======= Valuation allowance for deferred tax assets.... $14,462 $2,181 $ -- $ -- $16,643 ======= ====== ====== ====== ======= Year ended December 31, 1992: Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns................ $ 5,669 $1,120 $ -- $1,653(1) $ 5,136 ======= ====== ====== ====== ======= Valuation allowance for deferred tax assets.... $11,857 $ -- $3,777 $1,172(2) $14,462 ======= ====== ====== ====== ======= Year ended December 27, 1991: Valuation accounts deducted from assets: Allowance for doubtful receivables and sales returns................ $ 5,087 $1,292 $ -- $ 710(1) $ 5,669 ======= ====== ====== ====== ======= Valuation allowance for deferred tax assets.... $12,358 $ -- $ -- $ 501(2) $11,857 ======= ====== ====== ====== =======
- -------- NOTE: (1) Accounts charged off, net of recoveries. (2) Adjustments to the valuation allowance for deferred tax assets, based on the ability to realize net deferred tax assets in the future, according to the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." 41 SCHEDULE IX ADVANCED TECHNOLOGY LABORATORIES, INC. SHORT-TERM BORROWINGS
BALANCE MAXIMUM AVERAGE AT END AMOUNT AMOUNT CATEGORY OF AGGREGATE SHORT- OF OUTSTANDING OUTSTANDING TERM BORROWINGS PERIOD DURING PERIOD DURING PERIOD ---------------------------- ------- ------------- ------------- (IN THOUSANDS) December 31, 1993: Payable to: Others, primarily banks....... $3,679 $4,219 $3,504 ====== ====== ====== December 31, 1992: Payable to: Others, primarily banks....... $4,528 $5,769 $4,766 ====== ====== ====== December 27, 1991: Payable to: Others, primarily banks....... $7,985 $7,985 $4,211 ====== ====== ======
- -------- NOTES: (1) The weighted average interest rate on short-term borrowings outstanding at fiscal year-end 1993, 1992 and 1991 was approximately 8.0%, 10.3% and 10.8%, respectively. (2) The weighted average interest rate related to the average amount of short- term borrowings outstanding during 1993, 1992 and 1991 was approximately 10.6%, 10.8% and 13.4%, respectively. These rates, as well as the average amounts outstanding during the period, are based upon month-end balances. 42 SCHEDULE X ADVANCED TECHNOLOGY LABORATORIES, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEAR ENDED -------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, ITEM CHARGED TO COSTS AND EXPENSES 1993 1992 1991 ---------------------------------- ------------ ------------ ------------ (IN THOUSANDS) Maintenance and repairs................. $1,447 $1,541 $1,428 ====== ====== ====== Advertising costs....................... $2,996 $2,839 $2,653 ====== ====== ======
As to the items omitted, the answer is none or the required information is disclosed in the notes to the consolidated financial statements or the amounts are not sufficient to require disclosure. 43 CONSENT OF KPMG PEAT MARWICK The Board of Directors Advanced Technology Laboratories, Inc.: We consent to incorporation by reference in the registration statements 33- 38218, 33-38217, 33-28830, 33-28092, 33-22434, 33-10618, 33-47967, and 33-66298 on Form S-8 of Advanced Technology Laboratories, Inc., of our report dated February 10, 1994, relating to the consolidated balance sheets of Advanced Technology Laboratories, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, shareholders' equity and cash flows and related financial statement schedules for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Advanced Technology Laboratories, Inc. /s/ KPMG Peat Marwick KPMG Peat Marwick Seattle, Washington February 25, 1994 44 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints DENNIS C. FILL, HARVEY N. GILLIS, and W. BRINTON YORKS, Jr. and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution, and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Advanced Technology Laboratories, Inc. (Registrant) By /s/ Dennis C. Fill ----------------------------------- Dennis C. Fill Chairman of the Board PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Dennis C. Fill Chairman of the Board, Chief 2/18/94 - ------------------------------------ Executive Officer and Dennis C. Fill Director /s/ Harvey N. Gillis Senior Vice President, Chief 2/18/94 - ------------------------------------ Financial Officer Harvey N. Gillis /s/ David M. Perozek President and Chief 2/18/94 - ------------------------------------ Operating Officer and David M. Perozek Director /s/ Ralph M. Barford Director 2/18/94 - ------------------------------------ Ralph M. Barford /s/ Kirby L. Cramer Director 2/18/94 - ------------------------------------ Kirby L. Cramer /s/ Harvey Feigenbaum, M.D. Director 2/18/94 - ------------------------------------ Harvey Feigenbaum, M.D. /s/ Eugene A. Larson Director 2/18/94 - ------------------------------------ Eugene A. Larson /s/ John R. Miller Director 2/18/94 - ------------------------------------ John R. Miller /s/ Harry Woolf, Ph.D. Director 2/18/94 - ------------------------------------ Harry Woolf, Ph.D. /s/ Richard S. Totorica Corporate Controller (Chief 2/18/94 - ------------------------------------ Accounting Officer) Richard S. Totorica
45 EX-99 2 EXHIBIT 99 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- (A) 3.1 Restated Certificate of Incorporation of Westmark International Incorporated. (B) 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of Advanced Technology Laboratories, Inc. (B) 3.3 Certificate of Designation of Series A. Participating Cumulative Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Such Series of Preferred Stock of Advanced Technology Laboratories, Inc. 3.4 Amended and Restated Bylaws of Advanced Technology Laboratories, Inc. (C) 4.1 Amended and Restated Rights Agreement between Advanced Technology Laboratories, Inc. and First Chicago Trust Company of New York dated as of June 26, 1992. (B) 4.2 Revolving Credit Loan Agreement by and among Advanced Technology Laboratories, Inc. (Washington), Advanced Technology Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 26, 1992 and supplemental letter dated February 4, 1993. (B) 4.3 Uncommitted Line of Credit for $10 million by and among Advanced Technology Laboratories, Inc. (Washington), Advanced Technology Laboratories, Inc. (Delaware) and Seattle-First National Bank dated as of June 18, 1992. (A) 10.1 Tax Allocation Agreement between Squibb Corporation and Westmark International Incorporated. (A) 10.2 Intercompany Agreement between Squibb Corporation and Westmark International Incorporated. (B) 10.3 Distribution Agreement between Westmark International Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992. (B) 10.4 Intercompany Agreement between Westmark International Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992. (B) 10.5 Tax Allocation Agreement between Westmark International Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992. (A) 10.6 Lease between Martin Selig Real Estate and Westmark International Incorporated (former Seattle, Washington headquarters facility). (D) 10.7 Lease Amendment between Seafirst Center Limited Partnership and Westmark International Incorporated dated December 13, 1991 (former Seattle, Washington headquarters facility). (B) 10.8 Sublease Agreement between ATL and Primer Schill & Associates, Inc. (former Seattle, Washington headquarters facility). (B) 10.9 Sublease Agreements between ATL and Mark Alan Johnson and Mark Alan Johnson, Inc. P.S., Gary N. Gosanko and Gary N. Gosanko, Inc. P.S., (former Seattle,Washington headquarters facility). (E) 10.10 Lease between Le Bien and Nova MicroSonics, Inc. dated November 9, 1988 (Indianapolis facility). (E) 10.11 Lease between Eugene T. Ruston and Nova MicroSonics, Inc. dated May 25, 1988 (Mahwah, New Jersey facility). (D) 10.12 Lease between WRC Properties, Inc. and Advanced Technology Laboratories, Inc. dated January 10, 1992. (F) 10.13 1986 Amended and Restated Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan. 10.14 Amended and Restated Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan.
10.15 Advanced Technology Laboratories, Inc. Supplemental Benefit Plan, effective June 26, 1992. 10.16 Trust Agreement for Incentive Savings and Stock Ownership Plan by and between Advanced Technology Laboratories, Inc. and First Interstate Bank of Washington, N.A. effective June 26, 1992. 10.17 Amended and Restated Retirement Plan, effective June 26, 1992. 10.18 Trust Agreement for Retirement Plan by and between Advanced Technology Laboratories, Inc. and Boatman's Trust Company, effective June 26, 1992. (A) 10.19 Management Incentive Compensation Plan. 10.20 Amendment to Management Incentive Compensation Plan, effective May 5, 1993. (B) 10.21 Employee Benefit Allocation Agreement between Westmark International Incorporated and SpaceLabs Medical, Inc. dated as of May 18, 1992. (H) 10.22 Amended 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan. Adopted by Shareholders on May 5, 1993. (B) 10.23 Forms of Option Grant, Restricted Stock Award Agreement and Restricted Stock Award Letter under the 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan. 10.24 Long Term Incentive Plan, effective January 1, 1993. (F) 10.25 Change of Control Employment Agreement with Dennis C. Fill dated January 1, 1991. (B) 10.26 First Amendment to Employment Agreement with Dennis C. Fill dated May 18, 1992. (B) 10.27 Change of Control Employment Agreement with David M. Perozek dated May 18, 1992. (B) 10.28 Mortgage and Promissory Note between ATL and David M. and Elizabeth A. Perozek dated September 9, 1992. (B) 10.29 Change of Control Employment Agreement with Harvey N. Gillis dated September 23, 1992. (G) 10.30 Amended and Restated Nonofficer Employee Option, Restricted Stock and Stock Grant Plan. (B) 10.31 1992 Nonofficer Employee Stock Option Plan. (I) 10.32 Amended and Restated Agreement and Plan of Merger as of February 10, 1994 between ATL and Interspec, Inc. and Press Releases dated February 10, and February 24, 1994. 22 Subsidiaries of ATL as of December 31, 1993. 24 Consent of KPMG Peat Marwick. Reference is made to the Consent on page 44 of this filing in response to this item. (J) 28 Proxy Statement to Stockholders for ATL's 1993 Annual General Meeting of Stockholders.
- -------- (A) Previously filed with, and incorporated herein by reference to, Westmark's Registration Statement on Form 10, File No. 0-15160. (B) Previously filed with, and incorporated herein by reference to, ATL's Annual Report on Form 10-K, File No. 0-15160, filed on March 25, 1993. (C) Previously filed with, and incorporated herein by reference to, Westmark International Incorporated's Amendment to Application Form 8, filed on June 25, 1992. (D) Previously filed with, and incorporated herein by reference to, Westmark's Annual Report on Form 10-K, File No. 015160, filed on March 26, 1992. (E) Previously filed with, and incorporated herein by reference to, Westmark's Annual Report on Form 10-K, File No. 015160, filed on March 21, 1989. (F) Previously filed with, and incorporated herein by reference to, Westmark's Annual Report on Form 10-K, File No. 015160, filed on March 22, 1991. (G) Previously filed with, and incorporated herein by reference to, Westmark International Incorporated's Registration Statement on Form S-8, Registration No. 33-38218, filed on December 14, 1990. (H) Previously filed with, and incorporated herein by reference to, ATL's Registration Statement on Form S-8, Registration No. 33-66298, filed July 22, 1993. (I) Previously filed with, and incorporated herein by reference to, ATL's Current Reports on Form 8-K, File No. 0-15160, filed on February 17, 1994 and [March 3, 1994]. (J) To be filed within 120 days of the 1993 fiscal year end pursuant to General Instruction G to Form 10-K. EX-3.4 3 AMENDED AND RESTATED BYLAW Exhibit 3.4 AMENDED AND RESTATED BY-LAWS OF ADVANCED TECHNOLOGY LABORATORIES, INC. ARTICLE I Offices SECTION 1. Registered office The registered office of the Corporation in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent in charge thereof is The Corporation Trust Company. SECTION 2. Other Offices The Corporation may also have offices at other places either within or without the State of Delaware. ARTICLE II Meetings of Stockholders SECTION 1. Annual Meetings The 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, date and hour as shall be designated in the notice thereof given by or at the direction of the Board of Directors. SECTION 2. Special Meetings Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the stockholders for any purpose or purposes may be called only by, and shall be held at such place, date and hour as shall be designated by (i) holders of two-thirds or more of the voting power of the then-outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of Directors ("Voting Stock"), (ii) the Chairman of the Board, (iii) the President or (iv) a majority of the total number of Directors. SECTION 3. Notice of Meetings Except as otherwise expressly required by law, notice of each meeting of the stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting by mailing such notice, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Every such notice shall state the place, date and hour of the meeting and, in the case of a Special meeting, the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the Stockholders need not be given. Notice of any meeting of stockholder shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice, signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to the notice required by this Section 3. SECTION 4. List of Stockholders It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger to prepare and make, at least 10 days before every meeting of the stockholders, a complete list of the stockholder entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting at the place within the city where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. Quorum At each meeting of the stockholder, except as otherwise expressly required by law or by the Certificate of Incorporation, stockholders holding one-third of the shares of stock of the Corporation issued and outstanding, and entitled to be voted thereat, shall be present in person or by proxy to constitute a quorum for the transaction of business. In the absence of a quorum at any such meeting or any adjournment or adjournments thereof, a majority in voting interest of those present in person or by proxy and entitled to vote thereat, or in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as Secretary of, such meeting may adjourn such meeting from time to time until stockholder holding the amount of stock requisite for a quorum shall be present in person or by proxy. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Organization At each meeting of the stockholders, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence: (a) the Chairman of the Board; (b) the President; (c) any other officer of the Corporation designated by the Board or the Executive Committee to act as chairman of such meeting and to preside thereat if the Chairman of the Board and the President shall be absent from such meeting; or (d) a stockholder of record of the Corporation who shall be chosen chairman of such meeting by a majority in voting interest of the stockholder present in person or by proxy and entitled to vote thereat. The Secretary, or, if he shall be presiding over the meeting in accordance with the provisions of this Section, or, if he shall be absent from such meeting, the person (who shall be an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof. SECTION 7. Order of Business (a) Annual Meetings. At an annual meeting of the stockholders, only such --------------- business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors or (iii) brought before the meeting by a stockholder in accordance with the procedure set forth below. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given written notice thereof, either by personal delivery or by certified or registered United States mail, postage prepaid, to the Secretary of the Corporation, not later than 90 days in advance of the Originally Scheduled Date (as such term is defined below) of such meeting; provided, however, that if such annual meeting of stockholders is held on a date - -------- ------- earlier than the first Tuesday in May, such written notice must be given within 10 days after the first public disclosure (which may be by a public filing by the Corporation with the Securities and Exchange Commission) of the Originally Scheduled Date of the annual meeting. Any such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (A) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and, in the event that such business includes a proposal to amend either the Certificate of Incorporation or By-Laws of the Corporation, the language of the proposed amendment, (B) the name and address of the stockholder proposing such business, (C) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business and (D) any direct or indirect material interest of the stockholder in such business. No business shall be conducted at an annual meeting except in accordance with this paragraph, and the chairman of any annual meeting of stockholders may refuse to permit any business to be brought before such annual meeting without compliance with the foregoing procedure. For purposes of these By-Laws, the "Originally Scheduled Date" of any meeting of stockholders shall be the date such meeting is scheduled to occur in the notice of such meeting first given to stockholders regardless of whether such meeting is continued or adjourned and regardless of whether any subsequent notice is given for such meeting or the record date of such meeting is changed. (b) Special Meetings. At a special meeting of the stockholder, only such ---------------- business as is specified in the notice of such special meeting given by or at the direction of the person or persons calling such meeting in accordance with Section 2 of this Article II shall come before such meeting. SECTION 8. Voting Except as otherwise provided in the Certificate of Incorporation, each stockholder shall, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of stock of the Corporation held by him and registered in his name on the books of the Corporation: (a) on the date fixed pursuant to the provisions of Section 5 of Article VIII of these By-Laws as the record date for the determination of stockholders who shall be entitled to receive notice of and to vote at such meeting, or (b) if no record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice of the meeting shall be given. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall neither be entitled to vote nor considered as issued and outstanding for the purposes of determining whether a quorum exists. Any vote of stock of the Corporation may be given at any meeting of the stockholders by the stockholders entitled thereto in person or by proxy appointed by an instrument in writing delivered to the Secretary or an Assistant Secretary of the Corporation or the secretary of the meeting. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At all meetings of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, these By-Laws or by law, shall be decided by the vote of a majority of the votes cast by stockholders present in person or by proxy and entitled to vote thereat, a quorum being present. Except as otherwise expressly required by law, the vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. ARTICLE III Board of Directors SECTION 1. General Powers The business and affairs of the Corporation shall be managed by the Board. SECTION 2. Number, Term of Office and Election Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation, the number of directors which shall constitute the whole Board shall be eight but by vote of a majority of the entire Board the number thereof may be increased without limit, or decreased to not less than three, by amendment of this section 2. Each of the directors of the Corporation shall hold office until the annual meeting next after his election and until his successor shall be elected and shall qualify or until his earlier death or resignation or removal in the manner hereinafter provided. Directors need not be stockholders of the Corporation. Except as otherwise expressly provided in the Certificate of Incorporation, at each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of directors to be elected, shall be the directors. SECTION 3. Notification of Nominations Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by registered or certified United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of the Originally Scheduled Date (as such term is defined in Section 7 of Article II of these By-Laws) of such meeting (provided that if such annual meeting of stockholder is held on a date earlier than the first Tuesday in May, such written notice must be given within 10 days after the first public disclosure (which may be by a public filing by the Corporation with the Securities and Exchange Commission) of the Originally Scheduled Date of the annual meeting), and (ii) with respect to an election to be held at a special meeting of stockholder for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder, (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors, and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. SECTION 4. Resignation, Removal and Vacancies (a) Resignation. Any director may resign at any time by giving written ----------- notice of his resignation to the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by action of the Board. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. (b) Vacancies. Subject to the rights of the holders of any class or --------- series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation, in case of any vacancy on the Board or in case of any newly created directorship, a director to fill the vacancy or the newly created directorship for the unexpired portion of the term being filed may be elected by a majority of the directors of the Corporation then in office though less than a quorum or by a sole remaining director. SECTION 5. Meetings (a) Annual Meetings. As soon as practicable after each annual election of --------------- directors, the Board shall meet for the purpose of organization and the transaction of other business. (b) Regular Meetings. Regular meetings of the Board shall be held at such ---------------- times and places as the Board shall from time to time determine. Notices of regular meetings need not be given. (C) Special Meetings. Special meetings of the Board shall be held ---------------- whenever called by the Chairman of the Board, the President or three directors. The Secretary shall give notice to each director of each such special meeting, including the time and place of such meeting. Notice of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least five days or, in the case of overnight mail, two days before the day on which such meeting is to be held, or shall be sent to him by telegraph, cable, wireless or other form of recorded communication or be delivered personally or by telephone not later than the day before the day on which such meeting is to be held. Notice of any special meeting shall not be required to be given to any director who shall attend such meeting. A written waiver of notice, signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Any and all business may be transacted at a special meeting which may be transacted at a regular meeting of the Board. (d) Place of Meeting. The Board may hold its meetings at such place or ---------------- places within or without the State of Delaware as the Board may from time to time by resolution determine or, in the absence of such determination, as shall be designated in the respective notices or waivers of notice thereof as directed by the person or persons calling such meeting. (e) Quorum and Manner of Acting. A majority of the directors then in --------------------------- office shall be present in person or by means of conference telephone or similar communications equipment as permitted by the Delaware Corporation Law at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting provided that such majority shall be no less than one-third of the total number of directors. The affirmative vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law, the Certificate of Incorporation or these By-Laws and except that the Board may pass any resolution or take any action by unanimous written consent as permitted by the Delaware Corporation Law. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. (f) Organization. At each meeting of the Board, one of the following ------------ shall act as chairman of the meeting and preside thereat, in the following order of precedence: (i) the Chairman of the Board; (ii) the President; or (iii) any director chosen by a majority of the directors present thereat. The Secretary or, in the case of his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom the chairman of the meeting shall appoint, shall act as Secretary of such meeting and keep the minutes thereof. SECTION 6. Compensation Each director, in consideration of his serving as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at meetings of the Board or of any committee, or both, as the Board shall from time to time determine. The Board may likewise provide that the Corporation shall reimburse each director or member of a committee for any expenses incurred by him on account of his attendance at any such meeting. Nothing contained in this Section shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV Committees SECTION 1. Executive Committee (a) Designation and Membership. The Board may, by resolution passed by a -------------------------- majority of the whole Board, designate an Executive Committee consisting of the Chairman of the Board, the President, a Chairman of the Executive Committee (who may be the Chairman of the Board or President) and such additional number of directors as the Board shall appoint. Vacancies may be filled by the Board at any time and any member of the Executive Committee shall be subject to removal, with or without cause, at any time by the Board. (b) Factions and Powers. The Executive Committee, subject to any ------------------- limitations prescribed by the Board, shall possess and may exercise, during the intervals between meetings of the Board, the powers of the Board in the management of the business and affairs of the Corporation, provided that neither the Executive Committee nor any other committee may exercise the power of the Board to act upon matters requiring a vote thereof greater than a majority of directors present at a meeting at which a quorum is in attendance. At each meeting of the Board, the Executive Committee shall make a report of all action taken by it since its last report to the Board. (c) Meetings. The Executive Committee shall meet as often as may be -------- deemed necessary and expedient at such times and places as shall be determined by the Executive Committee or the Board of Directors. The Secretary shall give notice to each member of the Executive Committee of each meeting, including the time and place of such meeting. Notice of each such meeting shall be mailed to each member of the Executive Committee, addressed to him at his residence or usual place of business, at least five days or, in the case of overnight mail, two days before the day on which such meeting is to be held, or shall be sent to him by telegraph, cable, wireless or other form of recorded communication or be delivered personally or by telephone not later than the day before the day on which such meeting is to be held. Notice of any meeting of the Executive Committee shall not be required to be given to any member of the Executive Committee who shall attend such meeting. A written waiver of notice, signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to the notice required by this paragraph (c). SECTION 2. Quorum and Manner of Acting A majority of the Executive Committee present in person or by means of conference telephone or similar communications equipment as permitted by the Delaware Corporation Law shall constitute a quorum, and the vote of a majority of members of the Executive Committee present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Executive Committee except that the Executive Committee may pass any resolution or take any action by unanimous written consent as permitted by the Delaware Corporation Law. The Chairman of the Executive Committee shall preside at meetings of the Executive Committee and, in his absence, the Executive Committee may appoint any other member of the Executive Committee to preside. SECTION 3. Other Committees The Board may, by resolution passed by a majority of the whole Board, designate other committees, each committee to consist of two or more directors and to have such duties and functions as shall be provided in such resolution. ARTICLE V Officers SECTION 1. Election and Appointment and Term of office (a) Officers. The officers of the Corporation shall be a Chairman of the -------- Board, a President, a Chairman of the Executive Committee, such number of Vice Presidents (including any Executive and/or Senior Vice Presidents) as the Board may determine from time to time, a Treasurer and a Secretary. Each such officer shall be elected by the Board at its annual meeting and shall hold office until the next annual meeting of the Board and until his successor is elected and qualified or until his earlier death or resignation or removal in the manner hereinafter provided. (b) Additional Officers. The Board may elect or appoint such other ------------------- officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as it deems necessary, who shall have such authority and shall perform such duties as the Board may prescribe. If additional officers are elected or appointed during the year, each of them shall hold office until the next annual meeting of the Board at which officers are regularly elected or appointed and until his successor is elected or appointed and qualified or until his earlier death or resignation or removal in the manner hereinafter provided. SECTION 2. Resignation, Removal and Vacancies Any officer may resign at anytime by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation, and such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by action of the Board. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective. All officers and agents elected or appointed by the Board shall be subject to removal at any time by the Board with or without cause. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided for election or appointment to such office. SECTION 3. Duties and Functions (a) Chairman of the Board. The Chairman of the Board shall be the chief --------------------- executive officer of the Corporation and shall have general charge of the business and affairs of the Corporation and shall have the direction of all other officers, agents and employees. He shall preside at all meetings of the Board of Directors and of the stockholders at which he is present. The Chairman may delegate such duties to the other officers of the Corporation as he deems appropriate. (b) President. The President shall be the chief operating officer of the --------- Corporation and shall report to the Chairman of the Board. He shall preside at meetings of the Board of Directors and of the stockholders at which he is present in the absence of the Chairman of the Board. (c) Chairman of the Executive Committee. The Chairman of the Executive ----------------------------------- Committee shall preside at all meetings of the Executive Committee at which he is present. (d) Vice Presidents. Each Vice President shall have such powers and --------------- duties as shall be prescribed by the Chairman of the Board or the Board. (e) Treasurer. The Treasurer shall have charge and custody of and be --------- responsible for all funds and securities of the Corporation. (f) Secretary. The Secretary shall keep the records of all meetings of --------- the stockholders and of the Board and the Executive Committee. He shall affix the seal of the Corporation to all deeds, contracts, bonds or other instruments requiring the corporate seal when the same shall have been signed on behalf of the Corporation by a duly authorized officer. The Secretary shall be the custodian of all contracts, deeds, documents and all other indicia of title to properties owned by the Corporation and of its other corporate records (except accounting records). ARTICLE VI Contracts, Deposits, Proxies, Etc. SECTION 1. Execution of Documents The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. SECTION 2. Deposits All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or the President or any other officer of the Corporation to whom power in that respect shall have been delegated by the Board shall select. SECTION 3. Proxies in Respect of Stock or Other Securities of Other Corporations The Board shall designate the officer of the Corporation who shall have authority to from time to time appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other secrets in any other corporation and to vote or consent in respect of such stock or securities. Such designated officer may instruct the person or persons so appointed as to the manner of exercising such powers and rights and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise such powers and rights. ARTICLE VII Books and Records The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board may from time to time determine. ARTICLE VIII Shares and Their Transfer; Fixing Record Date SECTION 1. Certificates for Stock Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number of shares owned by him in the Corporation and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board shall prescribe. Each such certificate shall be signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the corporation with the same effect as if he were such officer at the date of issue. SECTION 2. Record A record shall be kept of the name of the person, firm or corporation owning the stock represented by each certificate for stock of the Corporation issued, the number of shares represented by each Such certificate, and the date thereof, and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by applicable law, the person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 3. Transfer of Stock Transfers of shares of the stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on the surrender of the certificate or certificates for such shares properly endorsed. SECTION 4. Lost, Stolen, Destroyed or Mutilated Certificates The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft or mutilation of the certificate therefor. The Corporation may issue a new certificate for stock in the place of any certificate theretofore issued by it and alleged to have been lost, stolen, destroyed or mutilated, and the Board may, in its discretion, require the owner of the lost, stolen, mutilated or destroyed certificate or his legal representatives to give the Corporation a bond in such sum, limited or unlimited, in such form and with such surety or sureties as the Board shall in its discretion determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, mutilation or destruction of any such certificate or the issuance of any such new certificate. SECTION 5. Fixing Date for Determination of Stockholders of Record In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. ARTICLE IX Seal The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation and the words and figures "Corporate Seal 1983 Delaware." ARTICLE X Fiscal Year The fiscal year of the Corporation shall end on the 31st of December in each year. ARTICLE XI Indemnification SECTION 1. Right to Indemnification The Corporation shall to the fullest extent permitted by applicable law as then in effect indemnify any person (the "Indemnitee") who was or is involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or wall serving at the request of the Corporation as a director, officer or employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such proceeding. Such indemnification shall be a contract right and shall include the right to receive payment in advance of any expenses incurred by the Indemnitee in connection with such proceeding, consistent with the provisions of applicable law as then in effect. SECTION 2. Insurance, Contracts and Funding The Corporation may purchase and maintain insurance to protect itself and any Indemnitee against any expenses, judgments, fines and amounts paid in settlement as specified in Section I of this Article XI or incurred by any Indemnitee in connection with any proceeding referred to in Section 1 of this Article XI, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any director, officer, employee or agent of the Corporation in furtherance of the provisions of this Article XI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article XI. SECTION 3. Indemnification; Not Exclusive Right The right of indemnification provided in this Article XI shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled, and the provisions of this Article XI shall inure to the benefit of the heirs and legal representatives of any person entitled to indemnity under this Article XI and shall be applicable to Proceedings commenced or continuing after the adoption of this Article XI, whether arising from acts or omissions occurring before or after such adoption. SECTION 4. Advancement of Expenses; Procedures; Presumptions and Effect of Certain Proceedings; Remedies In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article XI: (a) Advancement of Expenses. All reasonable expenses incurred by or on ----------------------- behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article XI. (b) Procedure for Determination of Entitlement to Indemnification. ------------------------------------------------------------- (i) To obtain indemnification under this Article XI, an Indemnitee shall submit to the Secretary of the Corporation a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the "Supporting Documentation"). The determination of the Indemnity's entitlement to indemnification shall be made not later than 60 days after receipt by the Corporation of the written request for indemnification together with the Supporting Documentation. The Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that the Indemnitee has requested indemnification. (ii) The Indemnity's entitlement to indemnification under this Article XI shall be determined in one of the following ways: (A) by a majority vote of the Disinterested Directors (as hereinafter defined), if they constitute a quorum of the Board of Directors; (B) by a written opinion of Independent Counsel (as hereinafter defined) if (x) a Change of Control (as hereinafter defined) shall have occurred and the Indemnitee so requests or (y) a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, a majority of such Disinterested Directors so directs; (C) by the stockholders of the Corporation (but only if a majority of the Disinterested Directors, if they constitute a quorum of the Board of Directors, presents the issue of entitlement to indemnification to the stockholders for their determination); or (D) as provided in Section 4(c). (iii) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4(b)(ii), a majority of the Disinterested Directors shall select the Independent Counsel, but only an Independent Counsel to which the Indemnitee does not reasonably object; provided, however, that if a Change of Control shall have occurred, the Indemnitee shall select such Independent Counsel, but only an Independent Counsel to which the Board of Directors does not reasonably object. (c) Presumptions and Effect of Certain Proceedings. Except as otherwise ---------------------------------------------- expressly provided in this Article XI, if a Change of Control shall have occurred, the Indemnitee shall be presumed to be entitled to indemnification under this Article XI upon submission of a request for indemnification together with the Supporting Documentation in accordance with Section 4(b)(i), and thereafter the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 4(b) to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 60 days after receipt by the Corporation of the request therefor, together with the Supporting Documentation, the Indemnitee shall be deemed to be entitled to indemnification and the Indemnitee shall be entitled to such indemnification unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. The termination of any Proceeding described in Section 1, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the - ---- ---------- right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful. (d) Remedies of Indemnitee. ---------------------- (i) In the event that a determination is made pursuant to Section 4(b) that the Indemnitee is not entitled to indemnification under this Article XI, (A) the Indemnitee shall be entitled to seek an adjudication of his entitlement to such indemnification either, at the Indemnity's sole option, in (x) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (y) an arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association; (B) any such judicial proceeding or arbitration shall be de novo and the ------- Indemnitee shall not be prejudiced by reason of such adverse determination; and (C) if a Change of Control shall have occurred, in any such judicial proceeding or arbitration, the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification under this Article XI. (ii) If a determination shall have been made or deemed to have been made, pursuant to Section 4(b) or 4(c), that the Indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. In the event that (C) advancement of expenses is not timely made pursuant to Section 4(a) or (D) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 4(b) or 4(c), the Indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligation to pay to the Indemnitee such advancement of expenses or indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the Indemnitee to receive indemnification hereunder due to the occurrence of an event described in subclause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided, however, that in any such action the Corporation shall have the burden of proving the occurrence of such Disqualifying Event. (iii) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4(d) that the procedures and presumptions of this Article XI are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Article XI. (iv) In the event that the Indemnitee, pursuant to this Section 4(d), seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article XI, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by him if the Indemnitee prevails in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by the Indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly. (e) Definitions. For purposes of this Section 4: ----------- (i) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall "be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition; (B) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (C) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (ii) "Disinterested Director" means a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee. (iii) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent: (i) the Corporation or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification under this Article XI. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of Delaware, would have a conflict of interest in representing either the Corporation or the Indemnitee in an action to determine the Indemnitee's rights under this Article XI. SECTION 5. Severability If any provision or provisions of this Article XI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article XI (including, without limitation, all portions of any paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article XI (including, without limitation, all portions of any paragraph of this Article XI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE XII Amendments These By-Laws may be altered or repealed only in accordance with Article EIGHTH of the Certificate of Incorporation of the Corporation. 7/16/93 EX-10.14 4 INC. SAV. AND STOCK PLAN Exhibit 10.14 ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN AMENDED AND RESTATED EFFECTIVE JUNE 26, 1992 TABLE OF CONTENTS
Page ---- PREAMBLE................................................................. 1
SECTION 1 DEFINITIONS.................................................. 2 1.1 Account........................................................ 2 1.2 Affiliated Companies........................................... 2 1.3 After-Tax Contribution Account................................. 2 1.4 Before-Tax Contribution Account................................ 2 1.5 Beneficiary.................................................... 3 1.6 Board of Directors............................................. 3 1.7 Code........................................................... 3 1.8 Committee...................................................... 3 1.9 Company........................................................ 3 1.10 Company Matching Contributions................................. 3 1.11 Company Matching Contribution Account.......................... 4 1.12 Company Stock.................................................. 4 1.13 Compensation................................................... 4 1.14 Current Market Value........................................... 4 1.15 Disabled....................................................... 4 1.16 Early Terminee................................................. 4 1.17 Earnings....................................................... 4 1.18 Effective Date................................................. 5 1.19 Eligible Employee.............................................. 5 1.20 Employee....................................................... 5 1.21 Employment Commencement Date................................... 6 1.22 ERISA.......................................................... 6 1.23 Highly Compensated Employee.................................... 6 1.24 Hour of Service................................................. 7 1.25 Normal Retirement Date.......................................... 7 1.26 Participant..................................................... 7 1.27 Participating Company........................................... 7 1.28 Period of Service............................................... 8 1.29 Period of Severance............................................. 8 1.30 Plan............................................................ 8 1.31 Plan Administrator.............................................. 8 1.32 Plan Year....................................................... 9 1.33 Rollover Account................................................ 9 1.34 Service......................................................... 9 1.35 Severance From Service Date..................................... 9 1.36 Supplemental Company Contribution Account....................... 9 1.37 Temporary Termination........................................... 9 1.38 Terminated...................................................... 9 1.39 Trust or Trust Fund............................................. 9 1.40 Trustee......................................................... 10
Table of Contents (continued)
Page ---- 1.41 Valuation Date.................................................. 10 1.42 Additional Definitions in Plan.................................. 10 SECTION 2 PARTICIPATION................................................. 11 2.1 Participation................................................... 11 2.2 Reemployment After Termination.................................. 11 2.3 Employees in a Bargaining Unit.................................. 11 SECTION 3 BEFORE-TAX CONTRIBUTIONS...................................... 12 3.1 Salary Deferral Agreement....................................... 12 3.2 Participant Modification of Salary Deferral Agreement........... 12 3.3 Procedure for Making and Revoking Salary Deferral Agreement..... 13 3.4 Non-Discrimination Test For Deferrals (ADP Test)................ 13 SECTION 4 PLAN CONTRIBUTIONS........................................... 15 4.1 Participant and Company Contributions........................... 15 4.2 Time of Contribution............................................ 18 4.3 Non-Discrimination Test for Company Matching Contributions and After-Tax Contributions (ACP Test).......................... 18 4.4 Multiple Use of Alternative Limitations Under ADP and ACP Tests........................................................... 19 4.5 Corrective Procedures to Satisfy Discrimination Tests........... 19 4.6 Return of Contributions......................................... 20 4.7 Recharacterization of Excess Before-Tax Contributions........... 22 SECTION 5 ACCOUNT ADMINISTRATION....................................... 24 5.1 Types of Accounts............................................... 24 5.2 Investment Options.............................................. 24 5.3 Allocation of Trust Fund Earnings and Losses to Participant Accounts........................................................ 26 5.4 Valuation of the Trust Fund..................................... 27 5.5 Account Statements.............................................. 27 SECTION 6 INVESTMENT OF CONTRIBUTIONS.................................. 28 6.1 Optional Funds.................................................. 28 6.2 Selection of Investment Funds................................... 28 6.3 Change in Investment of Future Contributions.................... 28 6.4 Changes in Investment of Existing Accounts...................... 29 6.5 Investment of Company Contributions............................. 29
Table of Contents (continued)
Page ---- SECTION 7 BENEFITS AND FORMS OF PAYMENT................................ 31 7.1 Eligibility for Benefits........................................ 31 7.2 Time of Benefit Commencement.................................... 31 7.3 Form of Payment................................................. 33 7.4 Distributions of Stock.......................................... 33 7.5 Withdrawals Prior to Termination................................ 34 7.6 Hardship Withdrawal............................................. 36 SECTION 8 VESTING...................................................... 39 8.1 Vesting......................................................... 39 8.2 Forfeitures..................................................... 40 8.3 Reemployment.................................................... 40 8.4 Suspension of Installment Payments.............................. 41 SECTION 9 LIMITATION ON CONTRIBUTIONS ................................. 42 9.1 Maximum Annual Contribution to the Plan......................... 42 9.2 Additional Limitation Relating to Defined Benefit Plans......... 43 SECTION 10 TOP HEAVY PROVISIONS......................................... 45 10.1 Scope........................................................... 45 10.2 Top Heavy Status................................................ 45 10.3 Minimum Contribution............................................ 47 10.4 Limitation to Annual Additions in Top Heavy Plan................ 48 10.5 Vesting......................................................... 48 SECTION 11 ADMINISTRATION OF THE PLAN................................... 49 11.1 Plan Administrator.............................................. 49 11.2 Organization and Procedures..................................... 49 11.3 Duties and Authority of Committee............................... 49 11.4 Expenses........................................................ 50 11.5 Bonding and Insurance........................................... 51 11.6 Commencement of Benefits........................................ 51 11.7 Appeal Procedure................................................ 52 11.8 Plan Administration - Miscellaneous............................. 53 11.9 Domestic Relations Orders....................................... 55 11.10 Plan Qualification............................................ 56 11.11 Deductible Contribution....................................... 56 11.12 Voting of Company Stock and SpaceLabs Medical, Inc. Stock...... 56
Table of Contents (continued)
Page ---- SECTION 12 AMENDMENT AND TERMINATION................................... 58 12.1 Amendment and Termination....................................... 58 12.2 Consolidation or Merger......................................... 58 12.3 Termination of the Plan......................................... 59 12.4 Allocation of the Trust Fund on Termination of Plan............. 59 12.5 Partial Termination............................................. 60 SECTION 13 FUNDING..................................................... 61 13.1 Contributions to the Trust Fund................................. 61 13.2 Trust Fund for Exclusive Benefit of Participants................ 61 13.3 Trustee......................................................... 61 13.4 Investment Manager.............................................. 61 SECTION 14 FIDUCIARIES................................................. 63 14.1 Limitation of Liability of the Company and Others............... 63 14.2 Indemnification of Fiduciaries.................................. 63 14.3 Scope of Indemnification........................................ 63 SIGNATURE PAGE............................................................ 64 APPENDIX 1................................................................ 65
PREAMBLE THIS SAVINGS AND STOCK OWNERSHIP PLAN (hereinafter referred to as the "Plan," formerly known as the Westmark International Incorporated Incentive Savings and Stock Ownership Plan and now known as the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan) is amended and restated effective June 26, 1992 by Advanced Technology Laboratories, Inc., a Delaware corporation (hereinafter "Company"). WHEREAS, the Plan is a profit sharing plan and the purpose of the Plan is to attract and retain Eligible Employees by providing them with an opportunity to save for their retirement; and WHEREAS, the Plan was adopted by Westmark International Incorporated effective January 1, 1987 and was amended and restated effective January 1, 1989; and WHEREAS, effective June 26, 1992, the corporate name of Westmark International Incorporated was changed to Advanced Technology Laboratories, Inc. and the Plan was divided into two plans, with the portion of the Plan attributable to SpaceLabs, Inc. as a Participating Company becoming the SpaceLabs Medical, Inc. Incentive Savings and Stock Ownership Plan; and WHEREAS, the Company desires to amend and restate the Plan to change the name of the Plan and to effect certain other changes; and WHEREAS, the Plan shall be maintained for the exclusive benefit of covered Employees, and is intended to comply with the Internal Revenue Code of 1986, as amended, including without limitation Section 401(k) thereof, the Employee Retirement Income Security Act of 1974, as amended, and other applicable law; NOW, THEREFORE, except as otherwise specified herein, the Company does hereby amend and restate the Plan as set forth in the following pages effective June 26, 1992. 1 SECTION 1 DEFINITIONS The following terms when used herein shall have the following meaning, unless a different meaning is plainly required by the context. Capitalized terms are used throughout the Plan text for terms defined by this and other sections. 1.1 Account ------- "Account" means a Participant's Before-Tax Contribution Account, Company Matching Contribution Account, Supplemental Company Contribution Account, After-Tax Contribution Account and Rollover Account. 1.2 Affiliated Companies -------------------- "Affiliated Companies" means (a) the Company, (b) any other corporation which is a member of a controlled group of corporations which includes the Company (as defined in Section 414(b) of the Code), (c) any other trade or business under common control with the Company (as defined in Section 414(c) of the Code), or (d) an affiliated service group which includes the Company (as defined in Section 414(m) of the Code). For purposes of the limitation on contributions in Section 9, the determination of whether a corporation is an Affiliated Company will be made in accordance with Sections 414(b) and (c) of the Code as modified in Section 415(h). 1.3 After-Tax Contribution Account ------------------------------ "After-Tax Contribution Account" means an account established to hold a Participant's After-Tax Contributions to the Plan. 1.4 Before-Tax Contribution Account ------------------------------- "Before-Tax Contribution Account" means an account established to receive a Participant's Before-Tax Contributions to the Plan. 2 1.5 Beneficiary ----------- "Beneficiary" means the person or persons designated to be the Beneficiary by the Participant in writing to the Committee. In the event a married Participant designates someone other than his or her spouse as Beneficiary, such initial designation or subsequent change shall be invalid unless the spouse consents in a writing, which names the designated Beneficiary and is notarized, or witnessed by a Plan representative. If a Participant fails to designate a Beneficiary or no designated Beneficiary survives the Participant, the Committee may direct that payment of benefits be made in equal shares to the person or persons in the first of the following classes of successive preference Beneficiaries to survive the Participant. The Participant's: (a) spouse, (b) descendants, per stirpes, (c) parents, (d) brothers and sisters, (e) estate. 1.6 Board of Directors ------------------ "Board of Directors" means the Board of Directors of Advanced Technology Laboratories, Inc., a Delaware corporation. 1.7 Code ---- "Code" means the Internal Revenue Code of 1986, as amended and including all regulations promulgated pursuant thereto. 1.8 Committee --------- "Committee" means the Advanced Technology Laboratories, Inc. Benefits Committee as from time to time constituted and appointed by the Compensation Committee of the Board of Directors of the Company to administer the Plan. 1.9 Company ------- "Company" means Advanced Technology Laboratories, Inc., a Delaware corporation. For purposes other than Sections 12, 13 and 14, the term "Company" shall also include other Participating Companies as provided from time to time in Appendix I to this Plan. 1.10 Company Matching Contributions ------------------------------ "Company Matching Contributions" has the meaning set forth in Section 4.1(c). 3 1.11 Company Matching Contribution Account ------------------------------------- "Company Matching Contribution Account" means an account established to receive a Participant's share of Company Matching Contributions to the Plan. 1.12 Company Stock ------------- "Company Stock" means the common stock of the Company. 1.13 Compensation ------------ "Compensation," for any Plan Year, has the meaning set forth in Section 415(c)(3) of the Code, provided, for purposes of determining who is a Highly Compensated Employee, "Compensation" shall also include Participant Before-Tax Contributions to this Plan and elective Employee contributions to a cafeteria plan described in Code Section 125. 1.14 Current Market Value -------------------- "Current Market Value," as applied to the common stock of the Company on any day, means the closing market price of such stock on the NASDAQ National Market on such day, or if the common stock of the Company was not traded on such day, the closing price on the next preceding trading day on which the common stock of the Company is traded. 1.15 Disabled -------- "Disabled" means that a Participant is entitled to benefits under a long term disability plan sponsored by the Participating Company, or a long term disability plan to which the Participating Company contributes on behalf of the Participant. 1.16 Early Terminee -------------- "Early Terminee" means a Participant with a vested Account balance greater than $3,500, whose employment has terminated prior to age 55 by reason other than death but who has elected to defer receipt of payment of his Accounts for a period of more than ninety (90) days after termination. 1.17 Earnings -------- "Earnings" for any Plan Year means basic compensation and commissions paid to an Employee for services rendered to the Participating Company (calculated without regard to any reduction for Before-Tax Contributions or pre-tax contributions to a cafeteria plan pursuant to Section 125 of the Code), excluding amounts deferred pursuant to a non-qualified deferred compensation plan, and also excluding additional compensation such as shift differentials, overtime, severance payments, living and similar allowances, 4 bonuses, and any wages paid by a foreign branch or subsidiary of the Company under a non-U.S. payroll. For purposes of determining the amount of a Supplemental Company Contribution as provided in Section 4.1(d), in the discretion of the Participating Company making the contribution, "Earnings" may exclude commissions. Notwithstanding the foregoing, annual Earnings in excess of $200,000 shall be disregarded; provided, however, that this $200,000 limit shall be automatically adjusted to the maximum permissible dollar limitation permitted by the Commissioner of the Internal Revenue Service. In determining Earnings of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Earnings as determined under this Section 1.17 prior to the application of this limitation. 1.18 Effective Date -------------- "Effective Date" means January 1, 1987, or with respect to any company specified in appendices to this Plan, the date such Company adopted the Plan. 1.19 Eligible Employee ----------------- "Eligible Employee" means any Employee who is on the U.S. payroll of the Company and who is not: (a) a leased employee; or (b) a temporary employee; or (c) covered under a collective bargaining agreement where retirement benefits were the subject of good faith bargaining which does not provide for retirement benefits under this Plan. 1.20 Employee -------- "Employee" means any person (including any officer or director) who is employed by the Company as a common law employee and any leased employee within the meaning of Code Section 414(n)(2); provided, however, if leased employees constitute twenty percent or less of the Company's non-highly compensated work force, the term "Employee" shall not include a leased employee who is covered by a plan maintained by the leasing organization which meets the requirements of Code Section 414(n)(5). 5 1.21 Employment Commencement Date ---------------------------- "Employment Commencement Date" means the later of the Effective Date and the date on which an Employee first completes an Hour of Service for the Participating Company during the current period of employment. 1.22 ERISA ----- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and including all regulations promulgated pursuant thereto. 1.23 Highly Compensated Employee --------------------------- "Highly Compensated Employee" means an Employee who, during the Plan Year or the twelve-month period preceding the Plan Year, is included in one of the following categories within the meaning of Section 414(q) of the Code and regulations thereunder: (a) an Employee who was at any time a 5% owner of a Participating Company; (b) an Employee who received aggregate Compensation from all the Affiliated Companies in excess of the dollar limitation under Section 414(q)(1)(B) of the Code ($93,518 for the Plan Year ending December 31, 1992); (c) an Employee who received aggregate Compensation from all the Affiliated Companies in excess of the dollar limitation contained in Section 414(q)(1)(C) of the Code ($62,345 for the Plan Year ending December 31, 1992) and was in the "top paid group" as defined in Section 414(q)(4) of the Code; or (d) an officer of a Participating Company whose annual Compensation exceeds 50% of the dollar limitation under Section 415(b)(1)(A) of the Code ($56,111 for the Plan Year ending December 31, 1992). An Employee described in subparagraphs (b) through (d) above for the Plan Year in question, who is not one of the 100 highest paid Employees in the current Plan Year, will not be considered a Highly Compensated Employee for the current year unless he or she was a Highly Compensated Employee in the preceding Plan Year (without regard to this sentence). No more than 50 Employees shall be considered officers or if less, no more than the greater of (i) 3 or (ii) 10% of all Employees shall be considered officers. If all officers earn less than the Compensation threshold in subparagraph (d) above, then the highest paid officer shall be considered highly compensated. In determining Highly Compensated Employees, the rules of Section 414(q)(6) of the Code shall apply. The term "family" shall include only the spouse of the employee or former employee and any lineal ascendants and descendants and the spouses of such ascendants and descendants. 6 The Company may elect, by resolution, from year to year, to make the determination of Highly Compensated Employees for the twelve-month period preceding the Plan Year, described above, with respect to the calendar year that coincides with the current plan year rather than with respect to the twelve-month period preceding the current plan year. The Company may elect, by resolution, for any year during which the Company at all times maintained significant business activities and employed employees in at least two significantly separate geographic areas, to modify the above definition by substituting the dollar amount in subparagraph (d) for the dollar amount in subparagraph (b) and by disregarding subparagraph (c). 1.24 Hour of Service --------------- "Hour of Service" means each hour for which an Employee is paid or entitled to payment by the Company or any Affiliated Companies on account of: (a) Performance of duties; (b) A period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to 29 CFR 2530.200b-2(b) and (c), which are incorporated herein by this reference; and (c) An award of back pay, irrespective of mitigation of damages, agreed to by the Participating Company or any Affiliated Company. However, hours credited under (a) or (b) above shall not also be credited under this subsection (c). 1.25 Normal Retirement Date ---------------------- "Normal Retirement Date" means the first day of the month coinciding with or immediately preceding the Participant's sixty-fifth (65th) birthday. 1.26 Participant ----------- "Participant" means any Eligible Employee who qualifies for participation pursuant to Section 2. A vested Participant shall cease to be a Participant when his or her vested Accounts are fully paid. 1.27 Participating Company --------------------- "Participating Company" means the Company or any Affiliated Company that adopts the Plan with the approval of the Board of Directors of the Company, and any successor thereto. A list of all Participating Companies is attached as Appendix I to the Plan. 7 1.28 Period of Service ----------------- "Period of Service" means the period of time commencing with the Employment Commencement Date and ending on the Severance From Service Date. Non- successive periods are aggregated to determine the Employee's total Period of Service. An Employee's Period of Service shall also include the following: (a) Periods not in Service due to Temporary Termination; (b) Periods of Service required to be taken into account by Section 414(a)(1) of the Code or under Treasury Regulations issued pursuant to Section 414(a)(2) of the Code, and Service with Affiliated Companies. Where the Company maintains the plan of a predecessor employer, service for such predecessor employer shall be treated as service for the Company, as may be required by the Code; and (c) For any Participant who became an Employee prior to September 1, 1987, any period of employment with a Participating Company under the Squibb Corporation Incentive Savings and Stock Ownership Plan to the extent such employment was credited as "Service" under that plan. Notwithstanding the above, with respect to an individual who was a Participant in this Plan and whose Account balances were transferred to the SpaceLabs Medical, Inc. Incentive Savings and Stock Ownership Plan between June 25 and December 31, 1992, such Employee's Period of Service under this Plan, for participation and vesting purposes, shall begin on the first Employment Commencement Date after December 31, 1992 that follows such transfer of the Employee's Accounts. 1.29 Period of Severance ------------------- "Period of Severance" means the period of time commencing at the Severance From Service Date and ending on the date the Employee again performs an Hour of Service for the Participating Company; provided, however, such period shall commence one year later if a male or female Employee is absent due to pregnancy, birth or adoption of a child, or caring for a child immediately following birth or adoption. 1.30 Plan ---- "Plan" means the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan either in its previous or present form or as amended from time to time. 1.31 Plan Administrator ------------------ "Plan Administrator" means the person or entity designated in Section 11 to administer the Plan. 8 1.32 Plan Year --------- "Plan Year" means the twelve-month period commencing each January 1 and ending each December 31. 1.33 Rollover Account ---------------- "Rollover Account" means an account established to hold a Participant's rollover contribution to the Plan. 1.34 Service ------- "Service" with a Participating Company means periods for which an Employee is paid or entitled to payment for the performance of duties for the Participating Company. Service shall include a period of employment with a predecessor to the Participating Company to the extent (i) provided by the Board in its discretion on a non-discriminatory basis as to all Employees similarly situated or (ii) required by Section 414(a) of the Code. 1.35 Severance From Service Date --------------------------- "Severance From Service Date" means the earlier of the date on which an Employee quits, retires, is discharged or dies, or the first anniversary of absence from work for any other reason. An individual employed by an Affiliated Company other than the Company shall incur a Severance From Service Date on the date the individual's employer ceases to be an Affiliated Company of the Company. 1.36 Supplemental Company Contribution Account ----------------------------------------- "Supplemental Company Contribution Account" means an account established to receive a Participant's share of Supplemental Company Contributions to the Plan. 1.37 Temporary Termination --------------------- Termination is deemed "Temporary" if the Employee is rehired and in Service within one year of the initial date of absence from work. 1.38 Terminated ---------- "Terminated" means no longer in Service or employed as an Employee with the Company or any Affiliated Company for reasons of resignation, retirement, discharge or death. 1.39 Trust or Trust Fund ------------------- "Trust" or "Trust Fund" means the trust fund into which shall be paid all contributions and from which all benefits shall be paid under this Plan. 9 1.40 Trustee ------- "Trustee" means the trustee or trustees who receive, hold, invest, and disburse the assets of the Trust in accordance with the terms and provisions set forth in a trust agreement. 1.41 Valuation Date -------------- "Valuation Date" means the last business day in each calendar quarter and any other day which the Plan Administrator may designate from time to time. 1.42 Additional Definitions in Plan ------------------------------ The following terms are defined in the following sections of the Plan.
Section ------- ACP Test 4.3 ADP Test 3.4 After-Tax Contributions 4.1(b) Aggregate Account 10.2(e) Aggregation Group 9.2(h) Annual Additions 9.1 Before-Tax Contributions 3.1(a) Company Stock Fund 5.2(a) Company Matching Contributions 4.1(c) Determination Date 10.2(c) Diversified Equity Fund I 5.2(c) Diversified Equity Fund II 5.2(d) Domestic Relations Order 11.9 Fixed Income Fund 5.2(b) Investment Manager 13.4 International Fund 5.2(e) Key Employee 10.2(g) Lump Sum Supplemental Contribution 4.1(e) Part-Time Employee 2.1(b) Present Value of Accrued Benefit 10.2(f) SpaceLabs Stock Fund 5.2(f) Super Top Heavy 10.2(b) Supplemental Company Contributions 4.1(d) Top Heavy 10.2(a) Valuation Date (for Top Heavy) 10.2(d)
10 SECTION 2 PARTICIPATION 2.1 Participation ------------- (a) Each Eligible Employee (other than a Part-Time Employee as described below) who is not already a Participant shall become a Participant in this Plan on the first day of the month coinciding with or following completion of a one-year Period of Service provided he or she is an Eligible Employee on such date. (b) An Eligible Employee who is a Part-Time Employee shall become a Participant on the first day of any subsequent month following a twelve-month period during which he or she is credited with at least 1,000 Hours of Service. Such twelve-month period shall commence on the Employee's Employment Commencement Date and each January 1 thereafter. Part-Time Employee means an Employee who is employed for less than a full-time basis based on uniform rules established by the Committee and consistently applied to all persons similarly situated. 2.2 Reemployment After Termination ------------------------------ Upon the reemployment of a Terminated former Participant as an Eligible Employee, he or she shall immediately become a Participant. An Employee who Terminates prior to becoming a Participant and is later reemployed shall become a Participant upon satisfying the requirements of Section 2.1. A Period of Service earned prior to Termination shall not be forfeited for purposes of this Section 2. 2.3 Employees in a Bargaining Unit ------------------------------ An Employee belonging to a collective bargaining unit, which has entered an agreement with the Participating Company that does not provide for retirement benefits under this Plan, shall not qualify for participation. If such an Employee is a Participant when such an agreement is entered, the Employee shall cease active participation on the effective date of the bargaining agreement. If such an agreement provides for Plan participation, a covered Employee may continue or resume participation. 11 SECTION 3 BEFORE-TAX CONTRIBUTIONS 3.1 Salary Deferral Agreement ------------------------- (a) General ------- A Participant who desires to make salary deferrals pursuant to this Section 3.1 shall enter a salary deferral agreement with the Participating Company at least 15 days prior to the first day of the month on which the salary deferral is to commence. Such agreement shall authorize the Company to make payroll deductions equal to a whole percentage of Earnings between 2% and 16% designated as Before- Tax Contributions. Payroll deductions shall be based on Earnings for each payroll period. To the extent a Participant's salary deferral agreement is based on a percentage of Earnings, the dollar amount of a Participant's salary deferral shall be automatically increased or decreased to reflect changes in the amount of the Participant's Earnings. The salary deferral agreement shall be effective on the first day of the payroll period coinciding with or following the later of: (1) the date participation commences, or (2) the first day of the month which coincides with or next follows completion of the agreement, and shall remain in effect until such agreement is superseded by a subsequent agreement or revoked. Deferrals shall be deducted from Participant Earnings each payroll period, except for those periods in which the deferral amount exceeds the amount remaining after other payroll deductions. In the event a deduction is not taken in a payroll period, the Committee, with sole discretion, shall determine whether there will be a make-up deduction in a subsequent payroll period. (b) Maximum Dollar Contribution --------------------------- Notwithstanding the foregoing, Before-Tax Contributions for any calendar year to this Plan (and any other plans of Affiliated Companies subject to Section 402(g) of the Code) shall not exceed the maximum dollar limitation on elective deferrals under Section 402(g) of the Code ($8,728 for 1992). 3.2 Participant Modification of Salary Deferral Agreement ----------------------------------------------------- The payroll deduction percentages designated in the Participant's salary deferral agreement shall continue in effect regardless of changes in Earnings until the Participant elects in writing to change the percentage. A Participant may change the deferral amount by completing a new salary deferral agreement and submitting it to the Committee. The agreement will become effective on the first day of the month after 15 days from the date 12 such notice is received by the Committee. Completion of a salary deferral agreement shall automatically revoke all prior salary deferral agreements entered into by a Participant. No more than one such change may be made within a six-month period. A Participant may discontinue contributions effective on the first day of any future month by submitting a request form to the Committee at least 15 days prior to the effective date. Contributions may be resumed on the first day of any month after having been suspended for at least four months, upon at least 15 days' notice to the Committee. 3.3 Procedure for Making and Revoking Salary Deferral Agreement ----------------------------------------------------------- The salary deferral agreement and any modification or revocation thereof shall be made by the Participant on such form, within such time and in accordance with such rules and procedures as prescribed by the Committee. 3.4 Non-Discrimination Test For Deferrals (ADP Test) ------------------------------------------------ For each Plan Year, the Plan must meet one of the actual deferral percentage (hereinafter "ADP") tests described below to satisfy the non- discrimination requirement. For purposes of this ADP test, Eligible Employees who do not qualify for participation pursuant to Section 2 shall not be considered. (a) The ADP for the group of Eligible Employees who are Highly Compensated Employees does not exceed the ADP for all other Eligible Employees multiplied by 1.25; or (b) The ADP for the group of Eligible Employees who are Highly Compensated Employees (i) is not more than two percentage points higher than the ADP for all other Eligible Employees and (ii) does not exceed the ADP for all other Eligible Employees multiplied by 2. The ADP for a specified group of Eligible Employees shall be the average of the ratios (calculated separately for each Employee in the group to the nearest one-hundredth of one percent of the Employee's Compensation) of (i) Participant Before-Tax Contributions to (ii) the Employee's Compensation earned while eligible to participate, determined in accordance with Code Section 401(k) and regulations pursuant thereto. For purposes of the ADP tests, the definition of "Compensation" may be modified from year to year to mean any definition of compensation that complies with Section 414(s) of the Code. In applying the foregoing tests, Compensation paid to and Before-Tax Contributions on behalf of family members (as defined in Code Section 414(q)(6)(B)) of a Highly Compensated Employee who is a 5% owner or in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation shall be considered together to determine a combined ADP for the family group (which is treated as one Highly Compensated Employee). 13 If for any Plan Year a Highly Compensated Employee is also eligible to participate in another cash for deferred arrangement maintained by any Affiliated Company, then the ADP of such Highly Compensated Employee shall be determined by treating all the cash or deferred arrangements in which he or she is eligible to participate and this Plan as one arrangement. 14 SECTION 4 PLAN CONTRIBUTIONS 4.1 Participant and Company Contributions ------------------------------------- (a) Participant Payroll Deduction Contributions ------------------------------------------- The Company shall make a Participant Before-Tax Contribution on behalf of each active Participant in an amount equal to 100% of the salary deferral amount pursuant to the Participant's salary deferral agreement, as provided in Section 3, for each payroll period. Participant contributions shall be credited to the Participant's Before-Tax Contribution Account. To the extent a Participant's salary deferral agreement is based on a percentage of Earnings, the dollar amount of a Participant's Before- Tax Contributions shall be automatically increased or decreased to reflect changes in the amount of the Participant's Earnings. The Company shall pay the Participants' Before-Tax Contributions in cash to the Trustee within a reasonable time after each pay-period but not later than a reasonable time after the end of each month. (b) Employee After-Tax Contributions -------------------------------- A Participant may elect to contribute to the Plan, through payroll deductions, an amount equal to a whole percentage of Earnings between 2% and 16%, reduced by the amount (if any) of the Before-Tax Contributions to be made on his behalf. Such amounts are referred to as After-Tax Contributions. A Participant may make such election by filing a written application which authorizes a deduction of contributions from his Earnings at least 15 days prior to the first day of the month on which a deduction is to commence. After-Tax Contributions shall be credited to the Participant's After-Tax Contribution Account. An election to make After-Tax Contributions may be modified or canceled subject to the same provisions that apply to Before-Tax Contributions pursuant to Section 3.2. The dollar amount of a Participant's After-Tax Contributions shall be automatically increased or decreased to reflect changes in the amount of the Participant's Earnings. The Company shall pay the Participants' After-Tax Contributions in cash to the Trustee within a reasonable time after each pay-period but not later than a reasonable time after the end of each month. 15 (c) Company Matching Contributions ------------------------------ Each Company shall make the Company Matching Contribution for any Plan Year in an amount equal to: (i) 50% of the first 3% of each Participant's Before-Tax Contributions and After-Tax Contributions in respect of Earnings paid by the Company during such Plan Year; and (ii) 25% of each Participant's Before-Tax Contributions and After-Tax Contributions over 3% and up to 6% of Earnings paid by the Company during such Plan Year. Provided that, Participant Lump Sum Supplemental Contributions pursuant to Section 4.1(e) will not be matched by a Company Matching Contribution. Such amounts shall be called Company Matching Contributions. The percentage of Company Matching Contributions shall be determined separately for the Company from time to time by the Board, subject to the percentage limitations contained in the preceding sentence. The rate of Company Matching Contributions shall be certified to the Committee and shall remain effective until changed by the Board and certified to the Committee. Company Matching Contributions shall be credited to the Participants' Company Matching Contribution Accounts. The amount of the Company Matching Contributions due under this Section 4.1(c) (reduced by any Company Matching Contributions forfeited during the month, as provided in Section 8.2) shall be remitted to the Trustee within a reasonable time after each pay period but not later than a reasonable time after the end of each month. The Company may, at its option, make its contribution under this Section 4.1(c) by delivering or causing to be delivered to the Trustee shares of Company Stock at the aggregate Current Market Value of the stock so delivered on the date of the delivery. Such shares shall be treasury shares, authorized but unissued shares or shares purchased on the open market. (d) Supplemental Company Contributions ---------------------------------- On the last day of the Plan Year, each Participating Company may contribute a uniform percentage of a Participant's Earnings, on behalf of each Participant who completed 1,000 or more Hours of Service during the Plan Year and (i) who is employed on the first and last days of the Plan Year, (ii) who terminated employment during the Plan Year as a result of retirement, Disability or death, or (iii) who was employed by the Participating Company but who was transferred during the Plan Year to the employ of an Affiliated Company that is not a Participating Company. 16 Amounts contributed by each Participating Company may be different from the amount contributed by another Participating Company. Amounts contributed by each Participating Company will be allocated only to Participants employed by that Participating Company, based on Earnings paid by that Participating Company. Such amounts are referred to as Supplemental Company Contributions and shall be credited to Supplemental Company Contribution Accounts. The percentage of Supplemental Company Contributions shall be determined separately for each Participating Company by the Board. In the discretion of the Participating Company making the contribution, a Supplemental Company Contribution may be based on Earnings as defined in Section 1.17. Supplemental Company Contributions shall be remitted to the Trustee on or before the due date for filing the Company's Federal income tax return for the Plan Year, including extensions. A Participating Company may, at its option, make its contributions under this Section 4.1(d) by delivering or causing to be delivered to the Trustee shares of Company Stock at the aggregate Current Market Value of the stock so delivered on the date of delivery. Such shares shall be treasury shares, authorized but unissued shares or shares purchased on the open market. (e) Lump-Sum Supplemental Contributions ----------------------------------- In addition to any other contributions made by him, a Participant who has completed at least five years of Service with the Participating Company may make a contribution to the Plan, effective as of the last day of any month, by delivering a check to the Participating Company, provided that no more than two Lump-Sum Supplemental Contributions may be made hereunder by a Participant in any calendar year. Lump-Sum Supplemental Contributions shall be treated as After-Tax Contributions and credited to the Participant's After-Tax Contribution Account. The Company shall pay the Lump-Sum Supplemental Contributions in cash to the Trustee within a reasonable time after receipt of a Participant's check. (f) Rollover Contributions ---------------------- An Eligible Employee may request in writing that the Committee permit acceptance of a rollover amount which was distributed from another qualified plan or conduit Individual Retirement Account (IRA). The amount must be rolled over by the Eligible Employee within 60 days of receiving the distribution from the other plan or conduit IRA. The Committee shall have total discretion over acceptance of such amounts into this Plan; provided, rollovers of any type of property other than cash will not be accepted. In the event an Eligible Employee is permitted to contribute a rollover amount, such amount shall be allocated to a 17 separate, fully vested account and subject to the same terms of the Plan as other amounts in a Before-Tax Contribution Account, provided, amounts in a Rollover Account may be withdrawn in Service at any time. If the Eligible Employee never satisfies the participation requirements of Section 2, the Eligible Employee shall be considered a Participant only with respect to the rollover amount. 4.2 Time of Contribution -------------------- In no event shall contributions for any Plan Year be made later than the time prescribed by law (i) for the deduction of such contributions for purposes of Federal income tax, as determined by the applicable provisions of the Code, or (ii) for making such contributions under a cash or deferred arrangement (within the meaning of Section 401(k) of the Code). 4.3 Non-Discrimination Test for Company Matching Contributions and After-Tax ------------------------------------------------------------------------ Contributions (ACP Test) ------------------------ For each Plan Year the Plan must meet one of the average contribution percentage (hereinafter "ACP") tests described below to satisfy this non- discrimination requirement. For purposes of this ACP test, Eligible Employees who do not qualify for participation pursuant to Section 2 shall not be considered. (a) The ACP for the group of Eligible Employees who are Highly Compensated Employees does not exceed the ACP for all other Eligible Employees multiplied by 1.25; or (b) The ACP for the group of Eligible Employees who are Highly Compensated Employees (i) is not more than two percentage points higher than the ACP for all other Eligible Employees and (ii) does not exceed the ACP for all other Eligible Employees multiplied by 2. The ACP for a specified group of Eligible Employees shall be the average of the ratios (calculated separately for each Employee in the group to the nearest one-hundredth of one percent of the Employee's Compensation) of (i) Company Matching Contributions on behalf of each such Employee and the Employee's After-Tax Contributions and Lump-Sum Supplemental Contributions, if any, to (ii) the Employee's Compensation earned while eligible to participate, determined in accordance with Code Section 401(m) and regulations pursuant thereto. For purposes of the ACP tests, the definition of "Compensation" may be modified from year to year to mean any definition of compensation that complies with Section 414(s) of the Code. In applying the foregoing tests, Compensation paid to and contributions on behalf of family members (as defined in Code Section 414(q)(6)(B)) of a Highly Compensated Employee who is a 5% owner or in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation shall be considered together to determine a 18 combined ACP for the family group (which is treated as one Highly Compensated Employee). If for any Plan Year a Highly Compensated Employee is also eligible to participate in another plan offering company matching contributions and/or after-tax contributions maintained by any Affiliated Company, the ACP of such Highly Compensated Employee shall be determined by aggregating all such contributions. 4.4 Multiple Use of Alternative Limitations Under ADP and ACP Tests --------------------------------------------------------------- If the sum of the ADP and ACP for Highly Compensated Employees determined under Section 3.4 and Section 4.3, respectively, after correcting any excess deferrals or contributions pursuant to Section 4.5, exceeds the Aggregate Limit defined below, then Highly Compensated Employee contributions shall be further limited pursuant to this section. This multiple use limitation shall be applied in accordance with the provisions of Treas. Reg. Sections 1.401(m)-1 and 1.401(m)-2. The Aggregate Limit means the greater of (a) or (b) below: (a) the sum of: (i) 1.25 multiplied by the greater of the ADP or the ACP for the group of all Eligible Employees who are not Highly Compensated Employees, and (ii) two plus the lesser of the ADP or the ACP for the group of all Eligible Employees who are not Highly Compensated Employees (in no event shall this amount exceed twice the lesser of such ADP or ACP). (b) the sum of: (i) 1.25 multiplied by the lesser of the ADP or the ACP for the group of all Eligible Employees who are not Highly Compensated Employees, and (ii) two plus the greater of the ADP or the ACP for the group of all Eligible Employees who are not Highly Compensated Employees (in no event shall this amount exceed twice the greater of such ADP or ACP). 4.5 Corrective Procedures to Satisfy Discrimination Tests ----------------------------------------------------- If at any time during a Plan Year the Committee determines on a projected basis that it is necessary to reduce the Participant Before-Tax Contributions, After-Tax Contributions or Company Matching Contributions of any Highly Compensated Employee to satisfy the dollar limit on annual deferrals, the ADP non-discrimination test, the ACP non-discrimination test, or the multiple use of alternative limitations test, it shall have the authority to do so in such amounts and for such periods of time as it shall deem necessary under the circumstances. 19 The Committee may, in its sole discretion, elect to aggregate Company Matching Contributions and/or Supplemental Company Contributions with Participant Before-Tax Contributions to the extent necessary to satisfy the ADP discrimination test provided such aggregation does not itself result in discrimination. Notwithstanding any Plan provisions to the contrary, any Company contributions so aggregated shall be 100% vested as of the date contributed to the Plan and shall be subject to the withdrawal provisions of Section 7.4 as if they are Before-Tax Contributions. The ACP test must be passed without taking such Company contributions into account. The Committee may also, in its sole discretion, elect to aggregate Supplemental Company Contributions with Company Matching Contributions to the extent necessary to satisfy the ACP discrimination test, provided such aggregation does not itself result in discrimination. Notwithstanding any Plan provision to the contrary, any Company contributions so aggregated shall be 100% vested, and shall be subject to the withdrawal provisions of Section 7.4 as if they are Before-Tax Contributions. 4.6 Return of Contributions ----------------------- (a) Mistake of Fact --------------- If the amount of contribution made to the Plan by a Participating Company for any Plan Year is in excess of the amount required under Section 4.1, and such excess payment is due to mistake of fact, the Participating Company shall have the right to recover such excess contribution within one year after the date the contribution is made to the Trustee. The return of a contribution shall be permitted hereunder only if the amount so returned (i) is the excess of the amount actually contributed over the amount which would have otherwise been contributed, (ii) does not include the earnings attributable to such contribution, and (iii) is reduced by any losses attributable to such contribution. (b) Excess Deferrals ---------------- An excess deferral exists for a Participant if Before-Tax Contributions under this Plan together with any other plans subject to the deferral limit in Code Section 402(g) (for 1992 this limit is $8,728) exceed such dollar limitation for any calendar year. In the event an excess deferral exists in plans maintained by the Participating Company (and Affiliated Companies, if applicable), such excess deferral, adjusted for investment gains or losses, less amounts previously returned pursuant to subparagraph (c), shall be distributed no later than April 15 following the calendar year in which the excess deferral occurred. In the event an excess deferral exists in plans maintained by the Company and any unrelated employer(s), and a Participant submits a written request for a return of excess deferrals by March 1 following the calendar year in which an excess deferral occurs (or any other date authorized by the Committee), 20 the Committee shall distribute such excess deferral, adjusted for investment gains or losses, less amounts previously returned pursuant to subparagraph (c), no later than April 15 following the calendar year in which the excess deferral occurred. Such written request shall contain information which the Committee may require. (c) ADP Excess Contribution ----------------------- An ADP excess contribution exists if contributions under this Plan on behalf of Highly Compensated Employees fail to meet the ADP test described in Section 3.4. Within twelve months after the end of the Plan Year for which there is an excess, contributions which exceed the ADP limitation, adjusted for earnings and losses, less amounts previously returned pursuant to subparagraph (b), shall be distributed to Highly Compensated Employees by reducing each Highly Compensated Employee's deferral in the order of deferral percentages beginning with the highest. In the event excess deferrals are returned to a Highly Compensated Employee whose contributions and Compensation were aggregated with other family members for purposes of the ADP test in Section 3.4, such returned amounts shall be returned to each family member in the same proportion that his or her contributions and Compensation bears to total contributions and Compensation of the family member group. (d) ACP Excess Contribution ----------------------- An ACP excess contribution exists if contributions under this Plan on behalf of Highly Compensated Employees fail to meet the ACP test described in Section 4.3. Within twelve months after the end of the Plan Year for which there is an excess, unmatched After-Tax Contributions, and then matched After-Tax Contributions and Company Matching Contributions (in equal amounts) of Highly Compensated Employees which exceed the ACP limitation shall be reduced, beginning with the highest contribution percentage and then continuing with each next lower percentage as the ceiling declines, as follows: (i) Any amount reduced from After-Tax Contributions (including recharacterized contributions) shall be distributed with related earnings to the Employee to whom it applies. (ii) Any amount reduced from Company Matching Contributions shall be distributed, with related earnings, to the extent vested, to the Employee to whom it applies. (iii) Any amount reduced from Company Matching Contributions not distributed under (ii) above shall be forfeited, with related earnings. Amounts so forfeited shall be applied to offset future Company Matching Contributions. 21 In the event excess deferrals are returned to a Highly Compensated Employee whose contributions and Compensation were aggregated with other family members for purposes of the ACP test in Section 4.3, such returned amounts shall be returned to each family member in the same proportion that his or her contributions and Compensation bears to total contributions and Compensation of the family member group. (e) Contributions in Excess of the Aggregate Limit ---------------------------------------------- In the event contributions exceed the Aggregate Limit (as defined in Section 4.4), Participant unmatched After-Tax Contributions, then unmatched Before-Tax Contributions, then matched After-Tax Contributions, then matched Before-Tax Contributions shall be considered excess contributions pursuant to (c) or (d) above, as applicable, and shall be returned to Highly Compensated Employees pursuant thereto. (f) Adjustment for Income --------------------- An Excess Deferral, ADP excess contribution or ACP excess contribution distributed to a Participant shall be adjusted for income or loss for the calendar year using the method described in Section 5.3. (g) Vesting Exception ----------------- Notwithstanding the vesting provisions of Section 8, a Participant shall not have a nonforfeitable right to excess Company contributions which are returned or adjusted pursuant to this Section 4.6. 4.7 Recharacterization of Excess Before-Tax Contributions ----------------------------------------------------- (a) Before-Tax Contributions made to the Plan that exceed the limitations of Section 3.1(b) (dollar limitation) or Section 3.4 (ADP test) in the discretion of the Committee for each Plan Year may be recharacterized as After-Tax Contributions rather than distributed to Participants as provided in Section 4.6(b) and (d) above. (b) Recharacterization may be combined with a distribution to correct the excess. If part of the excess is recharacterized, the distribution necessary for correction shall be reduced by the amount recharacterized and related income. Income related to a recharacterized excess shall not be treated as an amount recharacterized, but shall remain attributed to the applicable Before- Tax Contribution Account. Recharacterized Before-Tax Contributions will be eligible for Company Matching Contributions. (c) An amount recharacterized shall be treated as the Company contribution for purposes of Sections 9 and 10. An amount recharacterized before January 1, 1988 shall be treated as an After-Tax Contribution for purposes of withdrawal under Section 7.5(b). Amounts recharacterized after January 1, 1988 will be 22 treated as Before-Tax Contributions for purposes of hardship withdrawal under Section 7.5(c). Recharacterized amounts shall be treated as Before-Tax Contributions for purposes of determining Compensation. 23 SECTION 5 ACCOUNT ADMINISTRATION 5.1 Types of Accounts ----------------- All contributions shall be made to the Trust Fund which will have the following types of accounts for each Participant: (a) Before-Tax Contribution Account (b) After-Tax Contribution Account (c) Company Matching Contribution Account (d) Supplemental Company Contribution Account (e) Rollover Account 5.2 Investment Options ------------------ The Trust Fund shall be divided into the following investment subfunds: (a) Company Stock Fund ------------------ The Company Stock Fund, including earnings thereon, shall be invested by the Trustee in shares of Company Stock and short-term cash investments. (b) Fixed Income Fund ----------------- The Fixed Income Fund, including earnings thereon, shall be invested by the Trustee in insurance contracts guaranteed as to principal and interest by the insurance company, obligations of the United States Government or agencies thereof, obligations guaranteed as to payment of principal and interest by the United States Government or agencies thereof, corporate or municipal bonds, debentures, notes, certificates or other evidence of indebtedness, deposits in fully insured savings accounts, insurance contracts under which deposits received by the insurance company under the contracts are invested primarily in mortgages and in fixed-income securities or obligations or federal, state or municipal governments or agencies thereof, or of corporations, and commingled trust funds invested primarily in the foregoing types of investments which are managed by the Trustee (or any Investment Manager or Managers appointed by the Board) for the investment of funds of trusts of profit sharing and pension plans which trusts are exempt from tax under Section 501(a) of the Code by reason of qualifying under section 401(a) of the Code. (c) Diversified Equity Fund I ------------------------- The Diversified Equity Fund I, including earnings thereon, shall be invested in common or capital stocks, preferred stock, convertible bonds, convertible notes, debentures which are convertible into 24 common or capital stocks, debentures accompanied by warrants to purchase common or capital stocks and such other types of equity investments, including without limitation, rights and warrants to purchase common or capital stocks and shares of beneficial interest as may be purchased by the Trustee in its discretion including investments in any insurance company contract or any commingled trust fund managed by the Trustee (or any investment manager or managers appointed by the Board) for the investment of funds of trusts of profit sharing and pension plans which trusts are exempt from tax under Section 501(a) of the Code by reason of qualifying under Section 401(a) of the Code, and shall also include short-term obligations of the United States Government and other investments of a short-term nature, including commercial paper, purchased by the Trustee pending the selection and purchase of other investments of the type described in this Section 5.2(c). (d) Diversified Equity Fund II -------------------------- Only account balances invested in the Diversified Equity Fund II under the Predecessor Plan and transferred to this Plan will be invested in this Fund. The Diversified Equity Fund II, including earnings thereon, shall be invested in investments similar to those held in the Diversified Equity Fund I although it is anticipated that this Fund shall be invested more aggressively to achieve long-term capital appreciation. This Fund will be liquidated effective December 31, 1992. Participants may elect prior to December 15, 1992, to transfer account balances in this Fund to another Fund in accordance with the procedure described in Section 6.3. If no election is made, any amount remaining in this Fund on December 31, 1992, will be transferred to the Fixed Income Fund. (e) International Fund ------------------ The International Fund, including earnings thereon, shall be invested in a diversified portfolio of marketable securities of companies domiciled and operating mainly in countries other than the United States. (f) SpaceLabs Stock Fund -------------------- Effective July 1, 1992, the Trust Fund shall contain a SpaceLabs Stock Fund, which will be invested in common stock of SpaceLabs Medical, Inc. and short-term cash investments. Shares of common stock of SpaceLabs Medical, Inc. distributed on June 26, 1992 with respect to shares held in the Company Stock Fund shall be transferred to the SpaceLabs Stock Fund effective July 1, 1992. No additional contributions shall be invested in the SpaceLabs Stock Fund. A Participant may elect to have all or part of his Company Matching Contribution and Supplemental Company Contribution Accounts invested in the SpaceLabs Stock Fund transferred to the Company Stock Fund, and may elect to have all or part of his Before-Tax Contribution, 25 After Tax Contribution and Rollover Accounts transferred to the Diversified Equity Fund I, the Fixed Income Fund, the International Fund, or the Company Stock Fund, in accordance with the procedure described in Section 6.4. Participants may not elect to transfer account balances to this Fund. 5.3 Allocation of Trust Fund Earnings and Losses to Participant Accounts -------------------------------------------------------------------- (a) Diversified Equity Fund I and II, International Fund and Fixed Income --------------------------------------------------------------------- Fund ---- As of each Valuation Date, any increase or decrease in the fair market value (including interest, dividends, realized and unrealized gains and losses) of the Diversified Equity Fund I or II, International Fund or Fixed Income Fund shall be allocated among the Participant Accounts on the basis of the interests in the particular Fund held in the Accounts as of the immediately preceding Valuation Date, adjusted for contributions, distributions and transfers made since that date, in accordance with administrative procedures established by the Committee. Notwithstanding the foregoing, in the event a Terminated Participant has received a distribution of his or her vested Account balances, the nonvested portion of his or her Accounts shall not be credited with Trust Fund earnings and losses pursuant to this section after the Valuation Date which coincides with or next precedes the date of Termination of employment. (b) Company Stock Fund ------------------ Company Matching Contributions and Supplemental Company Contributions shall be invested solely in the Company Stock Fund, and may be made in cash or shares of Company Stock. The Trustee shall apply cash contributions to the purchase of Company Stock over a period of time as directed by the Committee. As of each Valuation Date, each Participant's Company Matching Contribution Account (and Supplemental Company Contribution Account, if applicable) shall be credited with a number of shares of Company Stock that represent the Company Matching Contribution (and Supplemental Company Contribution, if applicable) made on the Participant's behalf, based on the average price of the shares contributed to the Plan and purchased by the Trustee since the Valuation Date. If a Participant elects to transfer amounts in his or her Accounts invested in the SpaceLabs Stock Fund to the Company Stock Fund, the Trustee shall apply the transferred cash amount to the purchase of Company Stock as described in the preceding paragraph. As of the next following Valuation Date, the Participant's Accounts will be credited with a number of shares of Company Stock that represent the amount transferred to the Company Stock Fund, based on the average price of the shares purchased by the Trustee since the effective date of the transfer. 26 As of each Valuation Date, dividends and other distributions received on Company Stock held in the Company Stock Fund may be reinvested in Company Stock or held in short-term cash investments. The Participants' Accounts shall be credited with a proportionate amount of shares and/or cash determined on the basis of the number of shares in each Participant's Accounts on the record date of such distribution. (c) SpaceLabs Stock Fund -------------------- If a Participant elects to transfer amounts in his or her Accounts invested in the SpaceLabs Stock Fund to other funds as provided in Section 5.2(f), the transfer shall be made in cash. The cash value of common stock of SpaceLabs Medical, Inc. that is so transferred shall be based on the actual proceeds from the sale of the stock. As of each Valuation Date, dividends and other distributions received on common stock of SpaceLabs Medical, Inc. held in the SpaceLabs Stock Fund shall be reinvested in common stock of SpaceLabs Medical, Inc. or held in short term cash investments. The Participant's Accounts shall be credited with a proportionate number of shares and/or cash determined on the basis of the number of shares in each Participant's Accounts on the record date of such distribution. 5.4 Valuation of the Trust Fund --------------------------- The fair market value of the Trust Fund shall be determined as of each Valuation Date and at any time specifically requested by the Plan Administrator. Any portion of the Trust Fund held under an insurance contract or bank investment contract in which asset values are only maintained on a book value basis shall have that portion of the Trust Fund valued at book value rather than market value. 5.5 Account Statements ------------------ Each Participant shall be provided with a statement of his or her Accounts under the Plan showing the Account values on dates determined by the Committee, but not more frequently than each calendar quarter. If within thirty (30) days after the statement is mailed the Participant makes no objection to the statement, it shall become binding and conclusive on the Participant and any Beneficiary. 27 SECTION 6 INVESTMENT OF CONTRIBUTIONS 6.1 Optional Funds -------------- Each Participant, at the time he elects to participate in the Plan, shall direct that his After-Tax Contributions to the Plan and the Before-Tax Contributions made on his behalf be invested (in multiples of 10%) in any one of the following four investment funds, or in any combination of the funds: (a) the Diversified Equity Fund I; (b) the Fixed Income Fund; (c) the International Fund; and (d) the Company Stock Fund, not exceeding 30% of a Participant's After-Tax Contributions and Before-Tax Contributions. A single investment election shall be made with respect to Before-Tax Contributions and After-Tax Contributions. 6.2 Selection of Investment Funds ----------------------------- The selection of an investment option pursuant to this Section 6 is the sole responsibility of each Participant. The Trustee, the Committee, any Participating Company, or any of their officers or supervisors are not empowered to advise a Participant as to the manner in which his Account should be invested. The fact that a security is available to Participants for investment under the Plan shall not be construed as a recommendation for the purchase of that security, nor shall designation of any option by the Participant impose any liability on a Participating Company, its directors, officers or employees, the Trustee, the Committee or any Participant in the Plan. Subject to any applicable provision of law, each Participant assumes all risks connected with any decrease in the market value of any securities in the funds and such funds shall be the sole source of payments to be made under the Plan. 6.3 Change in Investment of Future Contributions -------------------------------------------- A Participant may, upon not less than 15 days prior written notice to the Committee, change his election made pursuant to Section 6.1, effective as of the first day of the next calendar quarter (January 1, April 1, July 1 or October 1), with respect to contributions made after the applicable effective date. 28 6.4 Changes in Investment of Existing Accounts ------------------------------------------ A Participant who is not an Early Terminee may, upon not less than 15 days' prior written notice to the Committee, elect, effective as of the first day of the next calendar quarter (January 1, April 1, July 1 or October 1), to have all or part (in 10% increments) of his existing After-Tax Contribution Account, Before-Tax Contribution Account, Rollover Account and earnings thereon transferred from their existing fund or funds to the Diversified Equity Fund I, the Fixed Income Fund, or the International Fund, based upon the values of the Accounts on the last business day of the quarter immediately preceding the date as of which the election is effective. Only four such elections may become effective in any calendar year. The transfer shall be made as soon as administratively feasible after completion of the valuation for the effective date of the transfer. An Early Terminee's Accounts shall be transferred to the Fixed Income Fund on the first day of the calendar quarter following 12 months after the end of the month in which employment terminates. Until such transfer, an Early Terminee may continue to direct the investment of his or her Accounts. Accounts so transferred will remain invested in the Fixed Income Fund until distributed pursuant to the Early Terminee's election under Section 7.2 or following his or her death. 6.5 Investment of Company Contributions ----------------------------------- (a) General Rule ------------ All Company Matching Contributions (other than those transferred from the Predecessor Plan) and Supplemental Company Contributions shall be invested in the Company Stock Fund, except as provided below. (b) Change in Investment -------------------- Any Participant, who is not an Early Terminee, who has reached his 55th birthday may make either (or both) of the following elections: (i) He may, upon not less than 15 days prior written notice to the Committee, elect, effective as of the first day of the next calendar quarter, to have all or part of his Company Matching Contributions Account and/or his Supplemental Company Contributions Account transferred (in multiples of 10%) to one or more of the other funds, (other than the SpaceLabs Stock Fund) based on the values of the Account on the last day of the quarter immediately preceding the date as of which the election is effective. Only four such elections may become effective in any calendar year. (ii) He may, upon not less than 15 days' prior written notice to the Committee, elect, effective as of the first day of the next calendar quarter, to have future Company Matching Contributions and/or Supplemental Company Contributions made on his behalf 29 invested in any one or more of the funds (other than the SpaceLabs Stock Fund) in the manner described in Section 6.1. Any election made hereunder may be changed by similar written notice. 30 SECTION 7 BENEFITS AND FORMS OF PAYMENT 7.1 Eligibility for Benefits ------------------------ A Participant shall be eligible to receive a distribution of his or her Accounts, to the extent vested, upon retirement, becoming Disabled, or upon Termination of employment with the Company and any Affiliated Companies. A Participant's Beneficiary shall be eligible to receive a distribution of the balance of the Participant's accounts upon the death of the Participant. Notwithstanding the foregoing, in the event a Participant again becomes an Employee before benefits commence, he or she shall no longer be eligible to receive a distribution. Also notwithstanding the foregoing, with respect to an individual who was a Participant in this Plan between June 25 and December 31, 1992 and whose Account balances were transferred to the SpaceLabs Medical, Inc. Incentive Savings and Stock Ownership Plan ("SpaceLabs Plan") in connection with the spin-off of that plan from this Plan, such individual's Account balances as of the date of such transfer shall be payable from the SpaceLabs Plan and shall not be payable from this Plan. 7.2 Time of Benefit Commencement ---------------------------- (a) Benefit Commencement -------------------- Benefits shall be paid as soon as practical following a request for benefit commencement and determination of the amount of payment under subparagraph (b) below. Participants and Beneficiaries may request benefit commencement as described below. (i) Participant ----------- A Participant who is eligible for benefits may request benefit commencement by written notice to the Committee. Benefits may commence at any time following Termination and on or before the April 1 following the year in which the Participant attains or would have attained age 70-1/2. If such a Participant fails to request benefit commencement, he or she shall be deemed to have requested that benefits commence on the April 1 following the year in which the Participant attains age 70. (ii) Beneficiary ----------- A Beneficiary who is eligible for benefits may request benefit commencement by written notice to the Committee. Benefits for a 31 spouse Beneficiary may commence at any time after the Participant's death and on or before the Participant's Normal Retirement Date, calculated as if he or she had survived. If a spouse Beneficiary fails to request benefit commencement, benefits shall commence on or immediately preceding the April 1 following the calendar year in which the Participant would have attained age 65 if he or she had survived. Benefits for a non-spouse Beneficiary shall not be contingent on receipt of a written request for benefit commencement, but shall commence as soon as practical following the end of the month which coincides with or next follows the date of the Participant's death. (b) Amount of Payment ----------------- With the exception of amounts invested in the Company Stock Fund or the SpaceLabs Stock Fund, the amount distributed shall be based on the Account balance determined as of the last Valuation Date on which the Accounts were valued, adjusted for earnings and losses since such date. If stock is distributed from the Company Stock Fund or the SpaceLabs Stock Fund, the number of shares distributed shall be the number of whole shares in the Participant's Account as of the date of distribution, with any fractional shares paid in cash based on the average of the high and low selling price on the day preceding the date of distribution. If stock held in the Company Stock Fund or the SpaceLabs Stock Fund is distributed in cash, the amount distributed shall be based on the price at which the stock held in the Participant's Accounts is sold, or, if the stock held in the Participant's Accounts is not sold, the average of the high and low selling price on the day preceding the date of distribution. The value of a distribution of the portion of the Participant's Accounts invested in the Company Stock Fund or SpaceLabs Stock Fund that is invested in cash shall be based on the Account balance invested in cash as of the last Valuation Date on which the Accounts were valued. (c) Small Benefits -------------- Notwithstanding any election to commence benefits or lack thereof, the Committee shall distribute a benefit which is $3,500 or less at the time benefits commence, in a lump sum as soon as practical following Termination of employment, death or becoming Disabled, without Participant or Beneficiary consent. 32 7.3 Form of Payment --------------- (a) Participant ----------- If a Participant terminates Service and the value of his Accounts (to the extent vested) exceeds $3,500, (a) his Accounts shall only be distributed prior to the Participant's attainment of age 65 if the Participant consents to the distribution, and (b) whether or not the Participant has attained age 65, he may irrevocably elect to receive his interest in the Plan in the form of a: (i) lump sum, or (ii) five, ten or fifteen annual installments, to be paid in cash only, on or after attaining age 65. A Participant may not elect a period over which installment payments shall be made which is expected to exceed the joint life expectancy of the Participant and Beneficiary. (b) Beneficiary ----------- If the value of a deceased Participant's Accounts (to the extent vested) exceeds $3,500, the Beneficiary shall receive a lump sum payment unless the Beneficiary irrevocably elects in a written notice filed with the Committee no more than 30 days after the Participant's death to receive payment in the form of five annual installments, to be paid in cash only. A spouse Beneficiary may elect five, ten or fifteen annual installments; provided, however, that such installments may not be paid over a period that extends beyond the life expectancy of the Participant's spouse. 7.4 Distributions of Stock ---------------------- (a) Distribution From Company Stock Fund ------------------------------------ If the vested portion of a Participant's Accounts invested in the Company Stock Fund consists of less than 50 shares, payment shall be made in cash only. If the vested portion of a Participant's Accounts invested in the Company Stock Fund consists of 50 or more shares, disbursements of the shares held in the Accounts shall be made in full shares of Company Stock to the extent possible, with the balance, if any, paid in cash, unless the Participant or Beneficiary directs that all of the vested Account balance in the Company Stock Fund be paid in cash. 33 (b) Distribution from SpaceLabs Stock Fund -------------------------------------- If the vested portion of a Participant's Accounts invested in the SpaceLabs Stock Fund consists of less than 50 shares, distribution shall be made in cash only. If the vested portion of a Participant's Accounts invested in the SpaceLabs Stock Fund consists of 50 or more shares, disbursements from the SpaceLabs Stock Fund shall be made in full shares of common stock of SpaceLabs Medical, Inc. to the extent possible, with the balance, if any, paid in cash, unless the Participant or Beneficiary directs that all of the vested Account balance in the SpaceLabs Stock Fund be paid in cash. 7.5 Withdrawals Prior to Termination -------------------------------- (a) Time of Withdrawal ------------------ A Participant may apply to the Committee for withdrawal of all or a portion of the following Accounts at the following times prior to Termination of employment. The withdrawn amount shall be paid as soon as practical following a request for withdrawal and determination of the amount of payment in accordance with (f) below. (b) Withdrawal of After-Tax Contributions and Investment Earnings ------------------------------------------------------------- A Participant may withdraw 100% of the dollar amount of his or her After-Tax Contribution Account or any portion thereof that is an integral multiple of $100. A Participant may not make more than two withdrawals under this Section 7.5(b) during any calendar year. No Company Matching Contributions will be made for two months following a withdrawal under this Section 7.5(b) unless the Participant has reached age 59-1/2 or has demonstrated a financial hardship (as provided in Section 7.6) in the same or a larger amount than the amount of the withdrawal. (c) Withdrawal of Company Contributions and Related Investment Earnings ------------------------------------------------------------------- A Participant who is 59-1/2 or has participated in the Plan for five years, who has withdrawn (or is simultaneously withdrawing) 100% of his or her After-Tax Contributions Account (if any) and whose interest in his or her Company Matching and Supplemental Contribution Accounts is fully vested, may withdraw 100% of the balance in the Company Contribution Accounts or any portion thereof that is an integral multiple of $100. A Participant may not make more than one withdrawal under this Section 7.5(c) during any calendar year. No Company Matching Contributions will be made for 12 months following a withdrawal under this Section 7.5(c) unless the Participant has reached age 59-1/2 or has demonstrated financial hardship (as provided in Section 7.6) in the same or a larger amount than the amount of the withdrawal. 34 (d) Withdrawal of Before-Tax Contributions -------------------------------------- A Participant may withdraw all or a portion of his or her Before-Tax Contribution Account if he or she has reached age 59-1/2. A Participant may also apply for a hardship withdrawal from his or her Before-Tax Contribution Account as provided in Section 7.6 below. (e) Withdrawal of Rollover Contributions ------------------------------------ A Participant may withdraw all or a portion of his or her Rollover Contribution Account. (f) Withdrawal Procedure -------------------- Withdrawals may be made as of the last day of any month by filing a notice in writing with the Committee at least 15 days prior to such date. Any amount withdrawn hereunder shall be paid in cash only, in a lump sum as promptly as possible after the applicable date. The amount distributed shall be based on the value of the Participant's Accounts on the effective date of the withdrawal, except that the amount of a withdrawal representing shares held in the Company Stock Fund or SpaceLabs Stock Fund shall be based on the price at which the shares are sold, or, if the shares are not sold, the average of the high and low selling price on the date preceding the date of the distribution. (g) Investment Funds and Withdrawals -------------------------------- A Participant who makes a partial withdrawal of any of his or her Accounts may request that the withdrawal be made from a specified fund or funds. Should the Participant's Account in the specified fund or funds prove to be inadequate to provide the amount of the required withdrawal, the remainder of the withdrawal shall be made from the Participant's Accounts in the other funds in an order of preference designated by the Participant. Should the Participant fail to designate a preference, the Trustee shall make the withdrawal from each of the funds on a pro-rata basis. (h) Restrictions on Withdrawals by Early Terminees ---------------------------------------------- In no event shall an Early Terminee be permitted to withdraw his Accounts prior to attaining age 65, unless he elects to withdraw 100% of his or her vested balance in all Accounts. 35 7.6 Hardship Withdrawal ------------------- (a) Amounts ------- A Participant who has withdrawn (or is simultaneously withdrawing) 100% of his After-Tax Contribution Account (if any), his Company Matching and Supplemental Contribution Accounts (if he is fully vested and therefore eligible to do so) and his Rollover Account (if any) may apply to the Committee for a hardship withdrawal prior to Termination of employment and age 59-1/2 of his or her: (i) Before-Tax Contribution Account balance as of December 31, 1988, and (ii) Before-Tax Contributions after December 31, 1988, excluding earnings thereon. (b) Availability ------------ All hardship withdrawals are subject to Committee approval. A hardship withdrawal shall only be approved if it is for a specific type of expense and if it is necessary to satisfy such expense. (c) Hardship Expenses ----------------- Hardship withdrawals are available only to pay for the following expenses (including any penalties and taxes incurred as a result of the hardship distribution): (i) expenses for medical care described in Code Section 213(d) incurred by the Participant or his or her spouse or dependents (as defined in Code Section 152), or amounts necessary for such person to obtain such medical care; (ii) purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) tuition and related educational fees for the next twelve months of post-secondary education for the Participant, his or her spouse, children, or dependents; (iv) preventing eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; (v) repair to the Participant's primary home to prevent decline in value; (vi) repair to the Participant's primary vehicle used for commuting to and from work; 36 (vii) legal expenses incident to the divorce of the Participant and expenses of the Participant's establishing a new home after a divorce; (viii) expenses related to involuntary loss of employment or reduction of work hours by the Participant's spouse; and (ix) expenses of debt consolidation. A hardship withdrawal will be available for an expense listed in (v) through (ix) above only if the expense constitutes an immediate and heavy financial need. (d) Determination of Necessity -------------------------- A distribution shall be deemed to be necessary to satisfy an expense described in 7.6 above if both of the following requirements are satisfied: (i) the distribution is not in excess of the amount of such expense (including any excise tax or income tax liability arising from the distribution); and (ii) the Participant has obtained all distributions (other than hardship distributions), and all nontaxable loans currently available under all plans maintained by the Participating Company. (e) Other Requirements ------------------ A hardship distribution shall be deducted first from the category of available amounts described in (a)(ii) herein and then from the category of available amounts described in (a)(i) herein. The Participant shall enter into a written agreement not to make or elect before-tax or after-tax contributions to this or any other qualified retirement plan or non-qualified deferred compensation plan maintained by the Company for twelve (12) months after a hardship withdrawal. Following a 12-month suspension, the Participant may resume contributions pursuant to Section 3.2. In addition, the Participant may not make a Before-Tax Contribution to the Plan or any other Section 401(k) plan maintained by the Company for the Participant's taxable year immediately following the taxable year of the hardship withdrawal, in excess of Before-Tax Contributions allowable in Section 3.1 for the next taxable year less the amount of such Participant's Before-Tax Contributions for the taxable year of the hardship withdrawal. Notwithstanding the foregoing, a Participant whose contributions have been suspended for twelve months due to a hardship withdrawal shall be deemed to be an Eligible Employee for purposes of the ADP test in Section 3.4, ACP test in Section 4.3, and multiple use test in Section 4.4. 37 7.7 Beneficiary Designation ----------------------- If payments are made to a designated Beneficiary in reasonable reliance on (i) a written statement by the Participant that he or she was not married, or (ii) a spousal consent that appeared to conform to the requirement in Section 1.5, or (iii) evidence that the spouse could not be located at the time of the Beneficiary designation, then, to the extent of such payments, the Plan shall have no liability to a spouse. 38 SECTION 8 VESTING 8.1 Vesting ------- (a) Participant Before-Tax Contribution Account ------------------------------------------- Each Participant shall have a 100% vested, nonforfeitable right to his or her Before-Tax Contribution Account, After-Tax Contribution Account and Rollover Account. (b) Company Matching and Supplemental Contribution Accounts ------------------------------------------------------- Each Participant shall earn a vested, nonforfeitable right to his or her Company Matching Contribution Account and Supplemental Company Contribution Account based on his or her Period of Service multiplied by the appropriate vesting percentage in accordance with the following table: Period of Service Percent Vested ----------------- -------------- Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 years or more 100% In addition, each Participant shall have a 100% vested, nonforfeitable right to his or her Company Matching Contribution Account and Supplemental Company Contribution Account upon death, becoming Disabled, or attainment of his or her Normal Retirement Date, provided he or she is an Employee on such date. In the event the Participant has received a prior distribution from his or her Company Matching or Supplemental Contribution Accounts, the vested portion of the Account balance (including the amount which may yet be restored pursuant to Section 8.2) following the distribution shall be determined by application of the following formula: X = P(AB+D) - D; 39 where X equals the vested amount; P equals the Employee's vested interest in the Company Matching Contribution Account or Supplemental Company Contribution Account at the time of subsequent distribution; AB equals the balance of the Account at the time of subsequent distribution; and D equals the amount previously distributed from the Company Matching or Supplemental Contribution Account. Notwithstanding the foregoing, this formula does not apply if the Participant has repaid the prior distribution pursuant to Section 8.3(b). Also, the formula does not apply if the prior distribution may not be repaid because the Participant has incurred five or more consecutive one year Periods of Severance, or because five years or more have elapsed since the date of reemployment. 8.2 Forfeitures ----------- If a Participant terminates Service and is not fully vested in his Accounts attributable to Company Contributions in accordance with Section 8.1(b) he shall forfeit his unvested interest in such Accounts as of the last day of the month during which his Service terminated. Amounts held in a Participant's Accounts attributable to Company Contributions which are thus forfeited shall be applied first to restore Accounts as provided below, and then to reduce subsequent contributions by the Participant's Participating Company, based on the Current Market Value of such shares as of the date forfeited, where applicable, provided, however, if the Plan should be terminated, or contributions thereunder permanently discontinued, an amount not previously so applied shall be credited on a pro-rata basis to the Accounts of all Participants in the Company Stock Fund. Each year the Committee shall determine in its sole discretion whether forfeitures shall be applied to reduce Company Matching Contributions or Supplemental Contributions or both. If such Participant returns to Service before suffering five consecutive one year Periods of Severance, the amount forfeited shall be restored as of the last day of the Plan Year in which the Participant returns to Service and repays in full any prior distribution, if any, according to Section 8.3. Assets to restore amounts forfeited shall be taken first from current forfeitures. In the event that current year forfeitures are inadequate to fully reinstate the Account, the Participating Company shall make a contribution in addition to the contributions required under Section 4.1 equal to the balance necessary to fully reinstate the Account. 8.3 Reemployment ------------ (a) Periods of Service ------------------ If a Terminated Employee later becomes a Participant again following reemployment, all Periods of Service before and after the Period of Severance shall be taken into account in determining the Participant's vested interest in the Company Matching and Supplemental Contribution Accounts established upon reemployment. 40 (b) Repayment --------- If a Participant forfeited a portion of his or her Company Matching and Supplemental Contribution Accounts upon termination and he or she returns to Service after receiving a distribution and prior to incurring a five-year Period of Severance, the Participant may elect to repay the amount previously distributed from his or her Company Matching and Supplemental Contribution Accounts. Such Participant may elect to repay his or her prior distribution before five years after the date of reemployment. The forfeited amount shall be restored upon such repayment pursuant to Section 8.2. Amounts repaid shall be 100% vested and shall be invested in accordance with Section 6.3. Such amounts shall be held in the Participant's After-Tax Contribution Account if they are repaid with after-tax amounts, and shall be held in the Participant's Pre-Tax Contribution Account if they are repaid with pre-tax amounts transferred or rolled over from another qualified plan or IRA. (c) Restoration of Forfeitures -------------------------- If a Participant forfeited a portion of his or her Company Matching and Supplemental Contribution Accounts but did not receive a distribution of the vested portion of such Accounts prior to reemployment, and he or she returns to Service prior to incurring a five-year Period of Severance, the forfeited amount shall be reinstated as of the last day of the Plan Year in which reemployment occurs. 8.4 Suspension of Installment Payments ---------------------------------- In the event that any person shall resume Service after a previous termination of Service, installment payments being made to him (if any) shall be suspended. In the event of such suspension, the amount held in his Accounts at the time of his resumption of Service shall remain to his credit on a fully vested basis, notwithstanding any other provision in the Plan to the contrary. 41 SECTION 9 LIMITATION ON CONTRIBUTIONS 9.1 Maximum Annual Contribution to the Plan --------------------------------------- For purposes of this Section 8, the Company and any Affiliated Companies shall be considered a single employer, to the extent required by the Code. (a) Primary Rule ------------ Notwithstanding any other Plan provision to the contrary, the Annual Additions to a Participant's Accounts in this Plan and any other defined contribution plan maintained by the Company shall not exceed the lesser of (i) $30,000 (or 25% of the Code Section 415 defined benefit dollar limitation if greater), or (ii) 25% of the Participant's Compensation. (b) Annual Additions Defined ------------------------ For purposes of Section 8, the term "Annual Additions" for any Participant in any Plan Year means the sum of: (i) the amount of Company Contributions and Participant Before-Tax and After-Tax Contributions allocated to a Participant's Accounts; (ii) forfeitures allocated to the Participant's Accounts; and (iii) with respect only to the $30,000 limitation, amounts attributable to retiree medical benefits on behalf of a key Employee in a separate account in a welfare fund subject to Code Section 419A. (c) Cost-of-Living Adjustment ------------------------- The $30,000 (or 25% of the Code Section 415 defined benefit dollar limitation if greater) limit prescribed above shall be automatically adjusted for cost-of-living increases, to the maximum permissible dollar limitation determined by the Commissioner of Internal Revenue. The dollar amount applicable in computing the maximum contribution for any Participant shall be the dollar amount in effect for the calendar year in which the contribution is made. (d) Remedy ------ If for any Plan Year the Annual Additions exceed the foregoing limitations because of a reasonable error in determining the amount of a Participant's Before-Tax Contributions, the Plan Administrator shall distribute the amount of Before-Tax Contributions in excess of the limits. If the Annual Additions exceed the limits for any other 42 reason, the Company shall allocate the excess to a suspense account. The suspense account shall be credited with investment earnings and losses as of each Valuation Date in the same manner as Participant Accounts pursuant to Section 5.3. Such suspense account is for accounting purposes only and shall remain in the Trust Fund to be reallocated as provided below. Contents of the suspense account shall be allocated to the affected Participant's Account in subsequent years when that can be done without exceeding the limitations of this Section 9.1. So long as any amount remains in the suspense account, the Company shall not contribute to the Plan any amount which would cause an additional allocation to the suspense account. In the event the Participant ceases to be a Participant when any amount remains in a suspense account, such amount shall be reallocated to active Participants as of the end of the Plan Year following the calendar year in which he or she ceases to be a Participant. In the event the Plan terminates before any amount remaining in the suspense account has been fully allocated to Participant Accounts, the balance of the suspense account shall be distributed to the Company. If any Participant is also a participant in another employee retirement plan that (a) is a defined contribution plan within the meaning of section 414(i) of the Code and (b) is sponsored by the Company or an Affiliated Company, the foregoing limitations shall be applied on an aggregate basis. Any reduction required to conform to such limitations shall first be made (pro rata) in contributions by the Participant under the plans involved; and a pro-rata reduction shall then be made in the contributions by the Affiliated Companies (including forfeitures) allocable to the Participant under the plans involved. 9.2 Additional Limitation Relating to Defined Benefit Plans ------------------------------------------------------- (a) Primary Rule ------------ For Participants who participate in this Plan and a defined benefit plan maintained by the Company, the sum of (1) and (2) below for any calendar year may not exceed 1.0, as determined by the Committee. (1) The defined benefit plan fraction for any year is equal to the quotient of (i) divided by (ii) below expressed as a fraction: (i) The projected annual benefit, (determined by projecting service, but not earnings, to normal retirement age) of the Participant under the Plan determined as of the close of the year. (ii) The lesser of: (a) 1.25 multiplied by the dollar limitation in effect for defined benefit plans under Section 415 of the Code for such year, or (b) 1.4 multiplied by 100% of the Participant's average annual Compensation from the Company for the consecutive calendar years (not in excess of three such years) during which he was an active Participant in the Plan and for which such average is highest. 43 (2) The defined contribution plan fraction for any year is equal to the quotient of (i) divided by (ii) below expressed as a fraction: (i) The sum of the Annual Additions to the Participant's Accounts for the current year, as of the close of the year, and for all prior years from and after the Employment Commencement Date. (ii) The sum of the lesser of the following amounts for such year and for each prior year of Service with the Company (regardless of whether a plan was in existence during those years): (a) 1.25 multiplied by the dollar limitation in effect for defined contribution plans under Section 415 of the Code for such year, or (b) 1.4 multiplied by 25% of a Participant's Compensation for such year. (b) Remedy ------ If such sum exceeds 1.0, the Annual Additions to this defined contribution Plan shall be reduced to the extent necessary to satisfy the limitations of this section. 44 SECTION 10 TOP HEAVY PROVISIONS 10.1 Scope ----- Notwithstanding any Plan provision to the contrary, for any Plan Year in which the Plan is Top Heavy within the meaning of Section 416(g) of the Code, the provisions of this Section 10 shall govern to the extent they conflict with or specify additional requirements to the Plan provisions governing Plan Years which are not Top Heavy. 10.2 Top Heavy Status ---------------- (a) Top Heavy --------- This Plan shall be "Top Heavy" if, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees, or (2) the sum of the Aggregate Accounts of Key Employees under this Plan and any plan of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits or the Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group, determined in accordance with Code Section 416(g) and regulations thereunder. The Present Value of Accrued Benefits and/or Aggregate Account balance of a Participant who was previously a Key Employee but is no longer a Key Employee (or his or her Beneficiary), shall not be taken into account for purposes of determining Top Heavy status. Further, a Participant's Present Value of Accrued Benefits and/or Aggregate Account balance shall not be taken into account if he or she has not performed services for the Affiliated Companies at any time during the five year period ending on the Determination Date. (b) Super Top Heavy --------------- This Plan shall be "Super Top Heavy" if, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees, or (2) the sum of the Aggregate Accounts of Key Employees under this Plan and any plan of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits or the Aggregate Accounts of all Participants under this Plan and any plan of an Aggregation Group. (c) Determination Date ------------------ Whether the Plan is Top Heavy for any Plan Year shall be determined as of the Determination Date. "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. 45 (d) Valuation Date -------------- "Valuation Date" means, for purposes of determining Top Heaviness, the Determination Date instead of the meaning set forth in Section 1. (e) Aggregate Account ----------------- "Aggregate Account" means, with respect to a Participant, the sum of: (i) his or her account balances as of the Valuation Date; (ii) contributions after the Valuation Date due as of the Determination Date; (iii) distributions prior to the Valuation Date, made during the Plan Year that contains the Determination Date and the four preceding Plan Years. (f) Present Value of Accrued Benefits --------------------------------- The "Present Value of Accrued Benefits" with respect to a defined benefit plan shall be based upon the Participant's accrued benefits and the actuarial assumptions as determined under the provisions of the applicable defined benefit plan. (g) Key Employee ------------ "Key Employee" means an Employee or former Employee (and his or her Beneficiaries) who, at any time during the Plan Year containing the Determination Date or any of the four preceding Plan Years, is included in one of the following categories as within the meaning of Section 416(i)(l) of the Code and regulations thereunder: (i) an officer of the Company whose annual aggregate Compensation from the Affiliated Companies exceeds 50% of the dollar limitation under Code Section 415(b)(1)(A) ($56,111 for the Plan Year ending in 1992), provided that no more than 50 Employees shall be considered officers, or if less, the greater of 10% of the Employees or 3, (ii) one of the ten Employees owning the largest interest in the Company who owns more than a 0.5% interest of the Company, and whose annual aggregate Compensation from the Affiliated Companies exceeds the dollar limitation under Section 415(c)(1)(A) of the Code ($30,000 for the Plan Year ending in 1992). (iii) an Employee who owns more than 5% of the Company, or 46 (iv) an Employee who owns more than 1% of the Company with annual aggregate Compensation from the Affiliated Companies that exceeds $150,000. (h) Aggregation Group ----------------- "Aggregation Group" means the group of plans that must be considered as a single plan for purposes of determining whether the plans within the group are Top Heavy (Required Aggregation Group), or the group of plans that may be aggregated for purposes of Top Heavy testing (Permissive Aggregation Group). The Determination Date for each plan must fall within the same calendar year in order to aggregate the plans. (i) The Required Aggregation Group includes each plan of the Affiliated Companies in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Affiliated Companies which, during this period, enables any plan in which a Key Employee participates to meet the minimum participation standards or non-discriminatory contribution requirements of Code Sections 401(a)(4) and 410. (ii) A Permissive Aggregation Group may include any plan sponsored by an Affiliated Company, provided the group as a whole continues to satisfy the minimum participation standards and non- discriminatory contribution requirements of Code Sections 401(a)(4) and 410. Each plan belonging to a Required Aggregation Group shall be deemed Top Heavy, or non-Top Heavy in accordance with the group's status. In a Permissive Aggregation Group that is determined Top Heavy only those plans that are required to be aggregated shall be Top Heavy. In a Permissive Aggregation Group that is not Top Heavy, no plan in the group shall be Top Heavy. 10.3 Minimum Contribution -------------------- (a) General Rule ------------ For any Plan Year in which the Plan is Top Heavy, the total Company contribution under Section 4.1 and any forfeitures allocated to any non-key Participant's account shall not be less than 3% of such Participant's Compensation. Participant contributions under Section 4.1(a) are not considered when determining whether this 3% requirement is satisfied. However, in the event the Company contributions and forfeitures allocated to each Key Employee's account do not exceed 3% of his or her Compensation, such Company contributions and forfeitures for non-Key Employees are only required to equal the highest percentage of Compensation, including Participant Before-Tax Contributions under Section 4.1(a), allocated to any Key Employee's 47 accounts for that Plan Year under any defined contribution plans sponsored by the Affiliated Companies. The minimum contribution must be made on behalf of all non-Key Participants who are employed on the last day of the Plan Year including non-Key Employees who (1) failed to complete a year of service, or (2) declined to make any mandatory contributions to the Plan or enter a salary deferral agreement. (b) Special Two Plan Rule --------------------- Where this Plan and a defined benefit plan belong to an Aggregation Group that is determined Top Heavy, the minimum contribution required under paragraph (a) above shall be increased to 5%. 10.4 Limitation to Annual Additions in Top Heavy Plan ------------------------------------------------ For any Top Heavy Plan Year in which the Company does not make the extra minimum allocation provided below, 1.0 shall replace the 1.25 factor found in the denominators of the defined benefit and defined contribution plan fractions for purposes of calculating the combined limitation on benefits under a defined benefit and defined contribution plan pursuant to Section 415(e) of the Code (see Section 9.3). If this Plan is Top Heavy, but is not Super Top Heavy, the above referenced fractions shall remain unchanged provided the Company makes an extra minimum allocation for non-Key Participants. The extra allocation (in addition to the minimum contribution set forth in Section 10.3) shall equal at least one percent (1%) of a non-Key Participant's compensation (or 2-1/2% if Section 10.3(b) applies). 10.5 Vesting ------- For any Top Heavy Plan Year, a Participant's Accounts shall remain subject to the vesting provisions in Section 8.1. 48 SECTION 11 ADMINISTRATION OF THE PLAN 11.1 Plan Administrator ------------------ The Plan Administrator shall be the Company. The Compensation Committee of the Board of Directors of the Employer shall appoint a Committee composed of one or more persons which shall carry out the general administration of the Plan. Every member of the Committee shall be deemed a fiduciary. No Committee member who is an Employee shall receive compensation with respect to his or her service on the Committee. Any member of the Committee may resign by delivering written resignation to the Compensation Committee of the Board of Directors of the Employer and to the Committee. The Compensation Committee of the Board of Directors may remove or replace any member of the Committee at any time. 11.2 Organization and Procedures --------------------------- The Compensation Committee of the Board of Directors of the Employer shall designate a chairman from the members of the Committee. The Committee shall appoint a secretary, who may or may not be a member of the Committee. The secretary shall have the primary responsibility for keeping a record of all meetings and acts of the Committee and shall have custody of all documents, the preservation of which shall be necessary or convenient to the efficient functioning of the Committee. The chairman of the Committee shall be the agent of the Plan for service of process. All reports required by law may be signed by the chairman or another member of the Committee designated by the Committee, on behalf of all members of the Committee. The Committee shall act by a majority of its members in office and may adopt such by-laws and regulations as it deems desirable for the conduct of its affairs. 11.3 Duties and Authority of Committee --------------------------------- (a) Administrative Duties --------------------- The Committee shall administer the Plan in a non-discriminatory manner for the exclusive benefit of Participants and their Beneficiaries. The Committee shall perform all such duties as are necessary to supervise the administration of the Plan and to control its operation in accordance with the terms thereof, including, but not limited to, the following: (i) Make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; (ii) Interpret the provisions of the Plan and resolve any question arising under the Plan, or in connection with the administration or operation thereof; 49 (iii) Make all determinations affecting the eligibility of any Employee to be or become a Participant; (iv) Determine eligibility for and amount of retirement benefits for any Participant; (v) Authorize and direct the Trustee with respect to all disbursements of benefits under the Plan; (vi) Employ and engage such persons, counsel and agents and to obtain such administrative, clerical, medical, legal, audit and actuarial services as it may deem necessary in carrying out the provisions of the Plan; (vii) Delegate and allocate specific responsibilities, obligations and duties imposed by the Plan to one or more Employees, officers, or such other persons as the Committee deems appropriate. (b) Investment Authority -------------------- The Committee shall have responsibility and authority with respect to the management, acquisition, disposition or investment of Plan assets to the extent such responsibility and authority is not delegated to an Investment Manager or Trustee. Participants directing investment of their Accounts among the available investment funds shall have responsibility and authority for such investment of their Accounts to the extent provided by law. (c) General Authority ----------------- The Committee shall have all powers necessary or appropriate to carry out its duties, including the discretionary authority to interpret the provisions of the Plan and the facts and circumstances of claims for benefits. Any interpretation or construction of or action by the Committee with respect to the Plan and its administration shall be conclusive and binding upon any and all parties and persons affected hereby, subject to the exclusive appeal procedure set forth in Section 11.7. 11.4 Expenses -------- No member of the Committee shall receive any compensation for his services as such. However, all expenses incurred by the Committee in carrying out its responsibilities hereunder (including any bond or other security required for any member in any jurisdiction) shall be paid by the Plan unless such amounts are paid by the Company. Brokerage commissions, transfer taxes and other charges and expenses in connection with the purchase or sale of securities shall be added to the cost of such securities or deducted from the proceeds thereof, as the case may be. A five dollar administrative charge shall be deducted each month from each 50 Early Terminee's Account. All other costs and expenses incurred in administering the Plan shall be paid by the Plan unless such amounts are paid by the Participating Companies. 11.5 Bonding and Insurance --------------------- To the extent required by law, every Committee member, every fiduciary of the Plan and every person handling Plan funds shall be bonded. The Committee shall take such steps as are necessary to assure compliance with applicable bonding requirements. The Committee may apply for and obtain fiduciary liability insurance insuring the Plan against damages by reason of breach of fiduciary responsibility at the Plan's expense and insuring each fiduciary against liability to the extent permissible by law at the Company's expense. 11.6 Commencement of Benefits ------------------------ (a) Conditions of Payment --------------------- Benefit payments under the Plan shall not be payable prior to the fulfillment of the following conditions: (i) The Committee has been furnished with such applications, consents, proofs of birth, address, form of benefit election, spouse consent if required, and other information the Committee deems necessary; (ii) The Participant is eligible to receive benefits under the Plan as determined by the Committee. The amount of benefit payable to a Participant or Beneficiary shall be determined under the terms of the Plan in effect at the time the Participant Terminates employment. The time benefits commence to a Participant or Beneficiary and the form of payment shall be determined under the terms of the Plan in effect at the time benefits commence. (b) Commencement of Payment ----------------------- Unless a Participant elects otherwise, the payment of benefits shall commence no later than 60 days after the end of the Plan Year in which the latest of the following occurs: (i) the date the Participant attains age 65, (ii) the tenth anniversary of the year in which the Participant commenced participation in the Plan, or 51 (iii) the Participant Terminates employment with the Company, provided that payments shall not commence later than April 1 following the calendar year in which the Participant attains age 70-1/2, regardless of whether he or she remains in Service after that date (unless the Participant attained age 70-1/2 prior to January 1, 1988, and was not a 5% owner at any time after age 66-1/2, in which case payments shall commence no later than upon termination of employment). If the information required in subparagraph (a) above is not available prior to such date, the amount of payment required to commence will not be ascertainable. In such event, the commencement of payments shall be delayed until no more than 60 days after the date the amount of such payment is ascertainable. 11.7 Appeal Procedure ---------------- (a) A claim for benefit payment shall be considered filed when an application form is submitted to the Committee. (b) Notice of Denial ---------------- Any time a claim for benefits is wholly or partially denied, the Participant or Beneficiary (hereinafter "Claimant") shall be given written notice of such action within 90 days after the claim is filed, unless special circumstances require an extension of time for processing. If there is an extension, the Claimant shall be notified of the extension and the reason for the extension within the initial 90 day period. The extension shall not exceed 180 days after the claim is filed. Such notice will indicate the reason for denial, the pertinent provisions of the Plan on which the denial is based, an explanation of the claims appeal procedure set forth herein, and a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary. (c) Right to Request Review ----------------------- Any person who has had a claim for benefits denied by the Committee, or is otherwise adversely affected by action of the Committee, shall have the right to request review by the Committee. Such request must be in writing, and must be made within 60 days after such person is advised of the Committee's action. If written request for review is not made within such 60-day period, the Claimant shall forfeit his or her right to review. The Claimant or a duly authorized representative of the Claimant may review all pertinent documents and submit issues and comments in writing. 52 (d) Review of Claim --------------- The Committee shall then review the claim. It may hold a hearing if it deems it necessary and shall issue a written decision reaffirming, modifying or setting aside its former action within 60 days after receipt of the written request for review, or 120 days if special circumstances, such as a hearing, require an extension. The Claimant shall be notified in writing of any such extension within 60 days following the request for review. A copy of the decision shall be furnished to the Claimant. The decision shall set forth its reasons and pertinent plan provisions on which it is based. The decision shall be final and binding upon the Claimant and the Committee and all other persons involved. 11.8 Plan Administration - Miscellaneous ----------------------------------- (a) Limitations on Assignments -------------------------- Benefits under the Plan may not be assigned, sold, transferred, or encumbered, and any attempt to do so shall be void. The interest of a Participant in benefits under the Plan shall not be subject to debts or liabilities of any kind and shall not be subject to attachment, garnishment or other legal process, except as provided in Section 11.9 relating to Domestic Relations Orders, or otherwise permitted by law. Notwithstanding the above, any Participant or Beneficiary who is to receive a distribution from the Plan in shares of Company Stock may, subject to the provisions or Treasury Regulations 1.401(a)-13(e), make a revocable election that such stock be issued jointly (with the right of survivorship) to him and his spouse; provided, however, that no such election shall be effective until the Participant's or Beneficiary's spouse files a written acknowledgement with the Committee, in accordance with Treasury Regulations 1.401(a)- 13(e)(2), stating that such spouse has no enforceable right in, or to, any Plan benefit (except to the extent of payments actually received). (b) Masculine and Feminine, Singular and Plural ------------------------------------------- Whenever used herein, pronouns shall include the opposite gender, and the singular shall include the plural, and the plural shall include the singular, whenever the context shall plainly so require. (c) No Additional Rights -------------------- No person shall have any rights in or to the Trust Fund, or any part thereof, or under the Plan, except as, and only to the extent, expressly provided for in the Plan. Neither the establishment of the Plan, the establishment of Participant Accounts nor any action of the Company or the Committee shall be held or construed to confer upon any person any right to be continued as an Employee, or, upon dismissal, any right or interest 53 in the Trust Fund other than as herein provided. The Company expressly reserves the right to discharge any Employee at any time. (d) Governing Law ------------- This Plan shall be construed in accordance with applicable federal law and the laws of the State of Washington. (e) Disclosure to Participants -------------------------- Each Participant shall be advised of the general provisions of the Plan and, upon written request addressed to the Committee, shall be furnished any information requested regarding the Participant's status, rights and privileges under the Plan as may be required by law. (f) Income Tax Withholding Requirements ----------------------------------- Any retirement benefit payment made under the Plan will be subject to any applicable income tax withholding requirements. For this purpose, the Committee shall provide the Trustee with any information the Trustee needs to satisfy such withholding obligations and with any other information that may be required by regulations promulgated under the Code. (g) Severability ------------ If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan which shall be construed as if said illegal or invalid provision had never been included. (h) Facility of Payment ------------------- In the event any benefit under this Plan shall be payable to a person who is under legal disability or is in any way incapacitated so as to be unable to manage his or her financial affairs, the Committee may direct payment of such benefit to a duly appointed guardian, committee or other legal representative of such person or in the absence of a guardian or legal representative, to a custodian for such person under a Uniform Gift to Minors Act or to any relative of such person by blood or marriage, for such person's benefit. Any payment made in good faith pursuant to this provision shall fully discharge the Company and the Plan of any liability to the extent of such payment. (i) Correction of Errors -------------------- Any Company contribution to the Trust Fund made under a mistake of fact (or investment proceed of such contribution if a lesser amount) shall be returned to the Company within one year after payment of the contribution. 54 In the event an incorrect amount is paid to a Participant or Beneficiary, any remaining payments may be adjusted to correct the error. The Committee may take such other action it deems necessary and equitable to correct any such error. (j) Missing Persons --------------- In the event a distribution is required to commence under Section 7.2 and the Participant or Beneficiary cannot be located, the Participant's Account shall be forfeited on the last day of the Plan Year following the Plan Year in which distribution was supposed to commence. Such forfeiture shall be used to reduce Company Matching Contributions. If the affected Participant or Beneficiary later contacts the Company, his or her Account shall be reinstated and distributed as soon as practical. The Company shall reinstate the amount forfeited by making a special contribution equal to such amount and allocating it to the affected Participant's or Beneficiary's Account. Such reinstatement shall not be considered an annual addition for purposes of the limitations on contributions on benefits pursuant to Code Section 415. Prior to forfeiting any Account, the Company shall attempt to contact the Participant or Beneficiary by return receipt mail at his or her last known address according to the Company's records, and by the letter forwarding services offered through the Internal Revenue Service, or the Social Security Administration, or such other means as the Committee deems appropriate. 11.9 Domestic Relations Orders ------------------------- Notwithstanding any Plan provisions to the contrary, benefits under the Plan may be paid to someone other than the Participant or Beneficiary pursuant to a Qualified Domestic Relations Order, in accordance with Section 414(p) of the Code. A Qualified Domestic Relations Order is a judgment, decree, or order ("Order") (including approval of a property settlement agreement) that: (a) relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant; (b) is made pursuant to a state domestic relations law (including a community property law); (c) creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable to a Participant under the Plan; (d) specifies the name and last known address of the Participant and each alternate payee; 55 (e) specifies the amount or method of determining the amount of benefit payable to an alternate payee; (f) names each plan to which the order applies; (g) does not require any form, type or amount of benefit not otherwise provided under the Plan; (h) does not conflict with a prior Domestic Relations Order that meets the other requirements of this section. Payments to an alternate payee pursuant to a Qualified Domestic Relations Order shall commence within a reasonable time following qualification of the Order. Such payment shall commence regardless of the Participant's age or whether the Participant Terminates or continues employment. The Committee shall determine whether an order meets the requirements of this section within a reasonable period after receiving an order. The Committee shall notify the Participant and any alternate payee that an order has been received. Any amounts which are to be paid pursuant to the order, during the period while its qualified status is being determined, shall be held in a separate account under the Plan for any alternate payee pending determination that an order meets the requirements of this section. If within eighteen months after such a separate account is established, the order has not been determined to be a qualified Order, the amount in the separate account shall be distributed to the individual who would have been entitled to such amount if there had been no order. 11.10 Plan Qualification ------------------ Any modification or amendment of the Plan may be made retroactive, as necessary or appropriate, to establish and maintain a "qualified plan" pursuant to Section 401 of the Code, and ERISA and regulations thereunder and exempt status of the Trust Fund under Section 501 of the Code. 11.11 Deductible Contribution ----------------------- Notwithstanding anything herein to the contrary, any contribution by the Company to the Trust Fund is conditioned upon the deductibility of the contribution by the Company under the Code and, to the extent any such deduction is disallowed, the Company may within one year following a final determination of the disallowance, demand repayment of such disallowed contribution and the Trustee shall return such contribution less any losses attributable thereto to the Company within one year following the disallowance. 11.12 Voting of Company Stock and SpaceLabs Medical, Inc. Stock --------------------------------------------------------- Before each annual or special meeting of the stockholders of the Company, the Company shall cause to be sent to each Participant having shares in the Company Stock Fund or the SpaceLabs Stock Fund a copy of the proxy solicitation material therefor, together with a form requesting confidential instructions to the Trustee on how to vote the number of 56 shares of common stock in either Fund credited to such Participant. Upon receipt of such instructions the Trustee shall vote the shares of stock as instructed. Instructions received from individual Participants by the Trustee shall be held in the strictest confidence and shall not be divulged or released to any person, including officers or employees of any Company or any Affiliated Company. The Trustee shall vote all shares of Company Stock and SpaceLabs Medical, Inc. stock held by it under the Plan, for which voting instructions shall not have been received for or against proposals submitted, in the same proportions as the shares for which instructions are received by the Trustee from Participants. In the event of a tender or exchange offer for Company Stock or SpaceLabs Medical, Inc. common stock, the response to such offer by the Trustee shall be determined as though the decision constitutes the exercise of voting rights, as described in this Section 11.12, except that any shares with respect to which instructions are not received from Participants or Beneficiaries shall not be tendered by the Trustee. 57 SECTION 12 AMENDMENT AND TERMINATION 12.1 Amendment and Termination ------------------------- It is the Company's intention that the Plan will continue indefinitely; however, the Company shall have the right to amend, terminate, or partially terminate this Plan at any time subject to any advance notice or other requirements of ERISA. Should the Board amend the Plan, such amendment shall apply to all Participating Companies as of the date that the amendment applies to the Company. A participating Company may, however, adopt for its employees a different definition of "Eligible Employee" than is contained in Section 1 or a different standard of participation than is contained in Section 2, by filing with the Committee a certified resolution of its Board of Directors, provided, however, that such resolution shall become effective only if approved by the Committee. No amendment of the Plan shall have the effect of providing that the funds held in trust by the Trustee or the earnings thereon may be used for, or diverted to, purposes other than the Plan. 12.2 Consolidation or Merger ----------------------- In the event the Plan's assets and liabilities are merged into, transferred to or otherwise consolidated with any other retirement plan, then such must be accomplished so as to ensure that each Participant would (if the other retirement plan then terminated) receive a benefit immediately after the merger, transfer or consolidation, which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, transfer or consolidation (as if the Plan had then terminated). This provision shall not be construed as limiting the powers of the Company to appoint a successor Trustee. Subject to the foregoing, if any Affiliated Company becomes a Participating Company, and such Company had a thrift plan or similar plan or participated in a similar plan of another organization, the Board, with the approval of the Affiliated Company, may merge such plan into the Plan and thereupon all employees of the Affiliated Company who were members of such plan shall automatically become Participants hereunder, and all amounts in the accounts of such employees of the Affiliated Company shall become accounts under this Plan, in the manner determined by the Committee; provided, however, that amounts so transferred shall not be subject to the limitations imposed under Sections 3 and 4 on such contributions and no Participating Company shall be required or permitted to make company matching contributions based on any of the amounts transferred to the Plan under this paragraph. If a Participating Company maintains a trust that qualified as an exempt trust under Section 501(a) of the Code as a part of a qualified profit- sharing plan to which contributions have been permanently discontinued and all rights under the trust have vested in employees and former employees of the Participating Company, the board of directors of the 58 Participating Company, with the consent of the Board, may merge such trust into the Trust under the Plan and thereupon all employees of such Participating Company and employees of other Participating Companies who had a vested interest in the merged trust shall automatically become Participants in the Plan but solely for the purposes of investing the amounts so transferred and distributing such amounts to such employees as hereinafter set forth in the Plan. The amounts so transferred on behalf of each such employee shall be invested in such funds as he shall direct, under the provisions of Section 6.1. Any amounts transferred under this paragraph shall constitute "Special Contributions." Under no circumstances will any Participating Company be required or permitted to make company matching contributions to the Plan based on Special Contributions. Special Contributions and any earnings thereon may not be withdrawn by a Participant until such time as the Participant ceases to be an Employee of a Participating Company on account of death, retirement, or other voluntary or involuntary termination of employment; provided, however, that a full withdrawal of such Special Contributions and earnings may be made by a Participant after attainment of age 59-1/2, if he shall at the same time make a full withdrawal of all his interest in this Plan. Subject to the foregoing, all such distributions shall be made in accordance with the provisions of this Plan. 12.3 Termination of the Plan ----------------------- The termination of the Plan shall not cause or permit any part of the Trust Fund to be diverted to purposes other than for the exclusive benefit of the Participants, or cause or permit any portion of the Trust Fund to revert to or become the property of the Company at any time prior to the satisfaction of all liabilities with respect to the Participants. Upon termination of this Plan, the Committee shall continue to act for the purpose of complying with the preceding paragraph and shall have all power necessary or convenient to the winding up and dissolution of the Plan as herein provided. While so acting, the Committee shall be in the same status and position with respect to other persons as if the Plan remained in existence. 12.4 Allocation of the Trust Fund on Termination of Plan --------------------------------------------------- In the event of a complete or partial termination of the Plan, or upon complete discontinuance of contributions under the Plan, with respect to all Participants or a specified group or groups of Participants, the Trustee shall allocate and segregate a proportionate interest in the Trust Fund for the benefit of affected Participants. All Accounts accrued by the affected Participants shall be 100% vested and non-forfeitable. The Committee shall direct the Trustee to allocate the assets of the Trust Fund to those affected Participants. In the event that after the termination of the Plan the Board shall determine that continuance of the investment funds is not in the best interest of the Participants, the Company may liquidate the funds and the Trustee shall apply the proceeds to payment to each Participant and Beneficiary of the value of his or her Accounts. Such payment shall be 59 made, in the discretion of the Committee, either wholly or in part by the purchase of non-transferable annuity contracts or by lump-sum payments. 12.5 Partial Termination ------------------- If at any time the Plan is terminated with respect to any group of Employees under such circumstances as to constitute a partial termination of the Plan within the meaning of Section 411(d)(3) of the Code, the amounts held in the funds that are allocable to such Employees shall be segregated by the Trustee as a separate plan. The funds thus allocated to such separate plan shall be applied for the benefit of such Employees in the manner described in Section 12.4. 60 SECTION 13 FUNDING 13.1 Contributions to the Trust Fund ------------------------------- As a part of this Plan the Company shall maintain a Trust Fund. From time to time, the Company shall make contributions to the Trust Fund in accordance with Section 4. 13.2 Trust Fund for Exclusive Benefit of Participants ------------------------------------------------ The Trust Fund is for the exclusive benefit of Participants. Except as provided in Sections 4.6 (Return of Contributions), 11.9 (Domestic Relations Orders) and 11.11 (Deductible Contribution), no portion of the Trust Fund shall be diverted to purposes other than this or revert to or become the property of the Company at any time prior to the satisfaction of all liabilities with respect to the Participants. 13.3 Trustee ------- As a part of this Plan, the Company has entered into an agreement with a Trustee who is designated by the Board of Directors. The Company has the power and duty to appoint the Trustee and it shall have the power to remove the Trustee and appoint successors at any time. As a condition to exercising its power to remove any Trustee hereunder, the Company must first enter into an agreement with a successor Trustee. The Committee may delegate the authority to direct the investment of all or a portion of the Trust Fund to the Trustee. 13.4 Investment Manager ------------------ The Committee has the power to appoint, remove or change from time to time an Investment Manager to direct the investment of all or a portion of the Trust Fund held by the Trustee. For purposes of this section "Investment Manager" shall mean any fiduciary (other than the Trustee) who: (a) has the power to manage, acquire, or dispose of any asset of the Plan; (b) is either (i) registered as an investment adviser under the Investment Advisers Act of 1940; or (ii) is a bank; or (iii) is an insurance company qualified under the laws of more than one state to perform the services described in subparagraph (a); and 61 (c) has acknowledged in writing that he, she or it is a fiduciary with respect to the Plan. 62 SECTION 14 FIDUCIARIES 14.1 Limitation of Liability of the Company and Others ------------------------------------------------- To the extent permitted by law, no Participant shall have any claim against the Company, or the Committee, or against their directors, officers, members, agents or representatives, for any benefits under the Plan, and such benefits shall be payable solely from the Trust Fund; nor shall the Company, nor the Committee or their directors, officers, members, agents or representatives incur any liability to any person for any action taken or suffered or omitted to be taken by them under the Plan in good faith. 14.2 Indemnification of Fiduciaries ------------------------------ In order to facilitate the recruitment of competent fiduciaries, the Company adopting this Plan agrees to provide the indemnification as described herein. This provision shall apply to Employees who are considered Plan fiduciaries including without limitation, Committee members, any agent of the Committee, or any other officers, directors or Employees. Notwithstanding the preceding, this provision shall not apply and indemnification will not be provided for any Trustee or Investment Manager appointed as provided in this Plan. 14.3 Scope of Indemnification ------------------------ The Company agrees to indemnify an Employee fiduciary as described above for all acts taken in good faith in carrying out his or her responsibilities under the terms of this Plan or other responsibilities imposed upon such fiduciary by ERISA. This indemnification for all acts is intentionally broad but shall not provide indemnification for embezzlement or diversion of Plan assets for the benefit of the Employee fiduciary. The Company agrees to indemnify Employee fiduciaries described herein for all expenses of defending an action by a Participant, Beneficiary or government entity, including all legal fees for counsel selected with the consent of the Company and other costs of such defense. The Company will also reimburse an Employee fiduciary for any monetary recovery in any court or arbitration proceeding. In addition, if the claim is settled out of court with the concurrence of the Company, the Company will indemnify an Employee fiduciary for any monetary liability under said settlement. The Company shall have the right, but not the obligation, to conduct the defense of such persons in any proceeding to which this Section 14.3 applies. The Company may satisfy its obligations under this Section 14.3 in whole or in part through the purchase of a policy or policies of insurance providing equivalent protection. 63 The Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan is adopted by Advanced Technology Laboratories, Inc. IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed on this 31st day of December, 1993. FOR ADVANCED TECHNOLOGY LABORATORIES, INC. /s/ W. Brinton Yorks, Jr. /s/ Harvey N. Gillis - ---------------------------- ---------------------------------------------- Witness Authorized Officer Sr. Vice President and Chief Financial Officer ---------------------------------------------- Title 64 APPENDIX I TO THE ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN "Participating Companies" as defined in Section 1.27 shall also include the following companies during the specified time.
Company Beginning Ending - ------- --------- ------ Advanced Technology Laboratories, Inc. January 1, 1987 (Washington)
ACKNOWLEDGED AND ACCEPTED: By: ------------------------------------------ Title: ------------------------------------------ Date: ------------------------------------------ 65 EX-10.15 5 SUP. BENEFIT PLAN Exhibit 10.15 ADVANCED TECHNOLOGY LABORATORIES, INC. SUPPLEMENTAL BENEFIT PLAN AMENDED AND RESTATED EFFECTIVE JUNE 26, 1992 TABLE OF CONTENTS
Page ---- ARTICLE 1 PURPOSE ..................................................... 1 1.1 Purpose ...................................................... 1 ARTICLE 2 DEFINITIONS ................................................. 2 2.1 "Code" ....................................................... 2 2.2 "Company" .................................................... 2 2.3 "Compensation Committee" ..................................... 2 2.4 "Disability" ................................................. 2 2.5 "Earnings" ................................................... 2 2.6 "Participant" ................................................ 2 2.7 "Plan" ....................................................... 2 2.8 "Retirement," ................................................ 2 2.9 "Retirement Plan" ............................................ 2 2.10 "Subsidiaries" ............................................... 2 2.11 "Surviving Spouse"............................................ 2 2.12 "Years of Service"............................................ 2 ARTICLE 3 ADMINISTRATION .............................................. 3 3.1 Compensation Committee ....................................... 3 3.2 Benefits Committee ........................................... 3 3.3 Expenses ..................................................... 3 ARTICLE 4 PARTICIPATION ............................................... 4 4.1 Retirement Plan Participants ................................. 4 4.2 Retirement Plan Benefit ...................................... 4 4.3 Other Participants ........................................... 4 4.4 Limitation on Participation .................................. 4 ARTICLE 5 BENEFITS .................................................... 5 5.1 Supplemental Pension Benefits ................................ 5 5.2 Other Supplemental Pension Benefits .......................... 5 5.3 Death Benefits................................................ 5 ARTICLE 6 PAYMENT OF BENEFITS ......................................... 6 6.1 Payment of Benefits .......................................... 6
ARTICLE 7 GENERAL PROVISIONS .......................................... 7 7.1 Unfunded Obligation........................................... 7 7.2 Nonassignment ................................................ 7 7.3 No Right to Continued Employment ............................. 7 7.4 Withholding Taxes ............................................ 7 7.5 Termination and Amendment .................................... 7 7.6 ERISA Exemption .............................................. 8 7.7 Applicable Law ............................................... 8 SIGNATURE PAGE ......................................................... 8 APPENDIX A ............................................................. 9 APPENDIX B ............................................................. 10
ARTICLE 1 PURPOSE 1.1 Purpose. ------- The purpose of this Advanced Technology Laboratories, Inc. Supplemental Benefit Plan (the "Plan") is to retain exceptional executives by providing retirement benefits to key executives. 1 ARTICLE 2 DEFINITIONS For purposes of this Plan, the following terms shall have the meanings indicated: 2.1 "Code" means the Internal Revenue Code of 1986 as amended. ------ 2.2 "Company" means Advanced Technology Laboratories, Inc., a Delaware --------- Corporation. 2.3 "Compensation Committee" means the committee defined in Section 3.1 ----------------------- of this Plan. 2.4 "Disability" has the same meaning as provided in the Retirement Plan. ------------ 2.5 "Earnings" has the same meaning as provided in the Retirement Plan. ---------- 2.6 "Participant" means each individual who participates in the Plan in ------------- accordance with Article IV. 2.7 "Plan" means the Advanced Technology Laboratories, Inc. Supplemental ------ Benefit Plan as set forth in this document and in any amendments made from time to time. 2.8 "Retirement", for a Participant who is entitled to a benefit under the ------------ Retirement Plan, means his or her "Retirement Date" or "Vested Termination Date" as defined in the Retirement Plan. In the case of a Participant who is not entitled to a benefit under the Retirement Plan, "Retirement" means the later of the date the Participant attains age 55 or terminates employment with the Company and its Subsidiaries. 2.9 "Retirement Plan" means the Advanced Technology Laboratories, Inc. ----------------- Retirement Plan and Trust. 2.10 "Subsidiaries" means (i) wholly owned subsidiaries of the Company -------------- and (ii) those subsidiaries of which 50% or more is owned by the Company and which are specifically designated by the Compensation Committee as participating employers in this Plan. 2.11 "Surviving Spouse" means the spouse of a Participant, provided ------------------ that the Participant was married to the spouse throughout the one- year period ending on the date of the Participant's death. 2.12 "Years of Service" has the same meaning as provided in the ------------------ Retirement Plan. 2 ARTICLE 3 ADMINISTRATION 3.1 Compensation Committee ---------------------- The Compensation Committee, appointed by the Company's Board of Directors, shall, except as otherwise authorized by the Board of Directors, consist of directors who are not employed by the Company or its Subsidiaries. The Compensation Committee shall have the exclusive authority to: (a) designate individuals to participate in the Plan pursuant to Section 4.3, in addition to those individuals who automatically become Participants pursuant to Section 4.1, (b) designate non-wholly owned Subsidiaries which shall be participating employers in the Plan, which shall be listed in Appendix B to this Plan, and (c) engage such legal, accounting, actuarial and other professional services as it may deem proper. Decisions by the Compensation Committee shall be final and binding upon all parties. 3.2 Benefits Committee ------------------ The Benefits Committee appointed by the Compensation Committee to administer the Retirement Plan shall have the authority and responsibility for the proper operation and administration of the Plan according to its terms. 3.3 Expenses -------- All benefits payable under the Plan and all expenses properly incurred in the administration of the Plan, including all expenses properly incurred by the Compensation Committee in exercising its duties under the Plan, shall be borne by the Company. 3 ARTICLE 4 PARTICIPATION 4.1 Retirement Plan Participants ---------------------------- Each participant in the Retirement Plan whose benefits thereunder are limited by (a) the dollar limitation on compensation that may be taken into account under the plan of Section 401(a)(17) of the Code and/or (b) the benefits limitations of Section 415 of the Code (including, without limitation, the maximum benefit payable under Section 415(b)(1), the actuarial reduction for early retirement of Section 415(b)(2)(C), the reduction for limited service or participation of Section 415(b)(5), and the combined limits of Section 415(e)) shall become a Participant in this Plan. Participation shall begin as of the later of the effective date of the Plan or the last day of the first Plan Year in which the individual's accrued benefit under the Retirement Plan is limited by Sections 401(a)(17) or 415 of the Code. 4.2 Retirement Plan Benefit ----------------------- For purposes of determining participation in and benefits under this Plan, the benefit to which an individual is entitled under the Retirement Plan shall be calculated by including as "Earnings" in the year in which earned any amounts deferred under a nonqualified deferred compensation plan or arrangement, which are not otherwise included in Earnings. 4.3 Other Participants ------------------ The Compensation Committee may determine and designate other select management or highly compensated employees of the Company and its Subsidiaries to receive additional supplemental pension benefits under this Plan, as described in Section 5.2, whose names shall be added to an Appendix A to this Plan. Such individuals shall become Participants as of the date of designation by the Compensation Committee. 4.4 Limitation on Participation --------------------------- Employees designated for benefits under Section 4.3 shall be members of a select group of top management or highly compensated employees. 4 ARTICLE 5 BENEFITS 5.1 Supplemental Pension Benefits ----------------------------- Upon the Retirement or Disability of a Participant, the Company shall pay to such Participant supplemental pension benefits which when combined with the amounts he or she is entitled to receive under the Retirement Plan (if any) shall equal the retirement pension benefits which would have been payable to the Participant had the Retirement Plan's formula been applied without regard to the limitations of Sections 401(a)(17) and 415 of the Code. Notwithstanding the foregoing, the supplemental pension benefits for a Participant who receives salesman commissions or service commissions/incentives shall be determined by disregarding any such commissions and incentives which exceed the dollar limitation of Section 401(a)(17) of the Code. 5.2 Other Supplemental Pension Benefits ----------------------------------- The Compensation Committee in its discretion may establish other supplemental pension benefits and designate the Participants who will be entitled to receive such benefits. Any such additional supplemental pension benefits shall be described in an Appendix to this Plan, and, unless otherwise specified in such Appendix, shall be payable as provided in Article VI. 5.3 Death Benefits -------------- Upon the death of a Participant prior to Retirement, the Company shall pay to the Surviving Spouse (if any) of such Participant a death benefit which when combined with the death benefit which he or she is entitled to receive under the Retirement Plan shall equal the death benefit that would have been payable to the Surviving Spouse had the Retirement Plan's benefit provisions been applied as provided in Section 5.1 or 5.2 above, as applicable. 5 ARTICLE 6 PAYMENT OF BENEFITS 6.1 Payment of Benefits ------------------- Upon the Retirement or Disability of a Participant, the Company shall pay to such Participant the benefit provided in Section 5 in the form of a monthly annuity payable from the commencement date as provided in Section 6.2 to the first of the month preceding death. Upon the death of a Participant prior to commencement of benefits under this Plan, the Company shall pay to the Surviving Spouse of such Participant one half of the benefit provided in Section 5 in the form of a monthly annuity payable from the commencement date as provided in Section 6.2 to the first of the month preceding the death of the Surviving Spouse. Notwithstanding the above, the Compensation Committee in its discretion may direct payment of the benefit for a Participant or Surviving Spouse in the form of a lump sum cash payment if the Compensation Committee determines that such payment is in the best interest of the Company. The amount of any such lump sum payment shall be determined by calculating the benefit according to the terms of the Retirement Plan as a whole life annuity, then calculating the present value of such benefit using the actuarial assumptions specified in the Retirement Plan for determining benefits of equivalent value, without regard to the provision for use of Pension Benefit Guarantee Corporation rates for calculating lump sums. 6.2 Commencement of Payment ----------------------- If a Participant in this Plan is also a participant in the Retirement Plan, benefits for the Participant or Surviving Spouse under this Plan shall commence on the same date that benefits commence under the Retirement Plan. If a Participant in this Plan is not also a participant in the Retirement Plan, benefits to the Participant shall commence as of the first day of the month coincident with or next following the earlier of the date of Retirement or Disability. Benefits to a Surviving Spouse shall commence as of the first of the month following the Participant's death if the Participant was age 55 or older, or as of the first of the month following the date on which the Participant would have reached age 55 if the Participant was younger than age 55 at the time of death. 6 ARTICLE 7 GENERAL PROVISIONS 7.1 Unfunded Obligation ------------------- The supplemental benefits to be paid to Participants or their Surviving Spouses pursuant to this Plan are unfunded obligations of the Company, and shall, until actual payment, continue to be an obligation against the general funds of the Company. The Company is not required to segregate any monies from its general funds, or to create any trusts, or to make any special deposits with respect to these obligations. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. 7.2 Nonassignment ------------- The right of a Participant or his or her Surviving Spouse to the payment of any amounts under the Plan may not be assigned, transferred, pledged or encumbered nor shall such right or other interest be subject to attachment, garnishment, execution or other legal process. 7.3 No Right to Continued Employment -------------------------------- Nothing in the Plan shall be construed to confer upon any Participant any right to continued employment with the Company or a Subsidiary, nor interfere in any way with the right of the Company or a Subsidiary to terminate the employment of such Participant at any time without assigning any reason therefor. 7.4 Withholding Taxes ----------------- Appropriate payroll taxes shall be withheld from cash payments made to Participants pursuant to this Plan. 7.5 Termination and Amendment ------------------------- The Board of Directors of the Company reserves the power at any time to terminate this Plan and delegates to the Compensation Committee the power to otherwise amend any portion of the Plan other than this Section 7.5; provided, however, that no such action shall adversely affect the right of any Participant (or Surviving Spouse) to a benefit to which he or she has become entitled under the Plan. Notice of termination or material amendment of the Plan shall be given in writing to each Participant. If the Plan is terminated, Participants and Surviving Spouses who have accrued benefits under the Plan as of the date of termination will receive payment of such benefits at the times specified in the Plan. 7 7.6 ERISA Exemption --------------- The portion of this Plan providing benefits in excess of the limitations of Section 415 of the Code is intended to qualify for exemption from the Employee Retirement Income Security Act of 1974 ("ERISA") as an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of ERISA. The portion of this Plan providing benefits in excess of the limitation of Section 401(a)(17) of the Code and other supplemental benefits is intended to qualify for exemption from Parts II, III, and IV of ERISA as a plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. 7.7 Applicable Law -------------- The Plan shall be construed and governed in accordance with the laws of the State of Washington. Dated: December 31, 1993 Advanced Technology Laboratories, Inc. By: /s/ Harvey N. Gillis ------------------------------- Title: Senior Vice President and Chief Financial Officer ------------------------------- 8 APPENDIX A Pursuant to Section 4.3 of the Plan, the following select management or highly compensated Participants shall be entitled to receive additional supplemental pension benefits under the Plan, as described below:
Name Benefit Benefit Distribution Date ---- ------- ------------------------- 1. Robert T. deGavre Determined under an employment September, 1992 agreement entered as of January 1, 1987.
Acknowledged and Accepted By: ---------------------- Title: ------------------- Date: -------------------- 9 APPENDIX B TO THE ADVANCED TECHNOLOGY LABORATORIES, INC. SUPPLEMENTAL BENEFIT PLAN Pursuant to Section 3.1(b) of the Plan, the following Subsidiaries shall be participating employers in the Plan:
Company Beginning Ending ------- --------- ------ 1. Advanced Technology Laboratories 1/1/89 Inc. (Washington) 2.
Acknowledged and Accepted By: ---------------------- Title: ------------------- Date: -------------------- 10 EX-10.16 6 ISSOP TRUST AGREEMENT Exhibit 10.16 ADVANCED TECHNOLOGY LABORATORIES, INC. INCENTIVE SAVINGS AND STOCK OWNERSHIP PLAN TRUST AGREEMENT AMENDED AND RESTATED EFFECTIVE JULY 1, 1992 TABLE OF CONTENTS
Page ---- PREAMBLE............................................................ 1 ARTICLE 1........................................................... 2 1.1 Trustee Responsibility................................... 2 1.2 Payments from Trust Fund................................. 2 1.3 Powers of Trustee........................................ 3 1.4 Securities; Property..................................... 5 1.5 Proxies.................................................. 6 1.6 Company Securities....................................... 6 ARTICLE 2........................................................... 8 2.1 Investment Managers...................................... 8 2.2 Investment Funds......................................... 8 2.3 Annuity Contracts........................................ 9 2.4 Securities Lending....................................... 10 2.5 Insurance Valuations and Reports......................... 10 ARTICLE 3........................................................... 11 3.1 Standard of Care......................................... 11 3.2 Trust Fund Assets........................................ 11 3.3 Allocation of Responsibility............................. 11 3.4 Indemnification.......................................... 11 3.5 ERISA Controls........................................... 11 ARTICLE 4........................................................... 12 4.1 Records and Accounts..................................... 12 4.2 Settlement of Accounts................................... 12 ARTICLE 5........................................................... 13 5.1 Trustee Expenses......................................... 13 ARTICLE 6........................................................... 14 6.1 Multiple Companies....................................... 14 6.2 Multiple Plans........................................... 14 6.3 Trustee Reliance......................................... 14 6.4 Directions by Company or Committee....................... 15 6.5 Directions by Investment Manager......................... 15 6.6 Certain Securities Transactions.......................... 15
Table of Contents (continued)
Page ---- ARTICLE 7........................................................... 16 7.1 Amendment and Termination................................ 16 ARTICLE 8........................................................... 17 8.1 Removal and Resignation.................................. 17 ARTICLE 9........................................................... 18 9.1 Governing Law............................................ 18 9.2 Successors and Assigns................................... 18 9.3 Loss of Qualification.................................... 18 9.4 Segregation of Assets.................................... 18 9.5 Exclusive Benefit........................................ 19 9.6 No Certificates of Ownership............................. 19 9.7 Assignability............................................ 20 SIGNATURE PAGE...................................................... 21
PREAMBLE THIS TRUST AGREEMENT ("Trust Agreement") is known as the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan Trust Agree-ment, and was formerly known as the Amended and Restated Trust Agreement for Defined Contribution Plans By and Between Westmark International Incorporated and First Interstate Bank of Washington, N.A. Westmark International Incorporated established the Westmark International Incorpo-rated Incentive Savings and Stock Ownership Plan, and an associated trust fund ("Trust Fund") governed by the Trust Agreement for Defined Contribution Plans, effective January 2, 1987, in connection with the distribution of shares of Westmark International Incorporated to shareholders of Squibb Corporation. The Plan was amended and restated effective January 1, 1989, and the Trust Agreement was amended and restated effective February 1, 1991. The corporate name of Westmark International Incorporated was changed to Advanced Technology Laboratories, Inc. effective June 26, 1992. The Plan was amended and restated, and the name of the Plan was changed to the Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan. The Trust Agreement is hereby renamed and restated effective June 26, 1992. Advanced Technology Laboratories, Inc. ("Company") and the undersigned trustee ("Trustee") intend that the Plan and Trust will comply with the Employee Retirement Income Security Act of 1974, as amended, Section 401(a) of the Internal Revenue Code of 1986, as amended, and related Treasury Regulations and that the Trust qualifies as a tax-exempt trust under Section 501(a) of the Code. The Plan is administered by a committee appointed by the Company (the "Committee"). The Company and the Trustee now enter into this Trust Agreement on the following terms: 1 ARTICLE 1 1.1 Trustee Responsibility ---------------------- The Trustee shall hold the assets of and collect the income and make payments from the Trust Fund, all as hereinafter provided. Subject to the conditions and limitations set forth herein, the Trustee shall be responsible for the property received by it as Trustee, but, except as otherwise specifically agreed to by the Trustee, shall not be responsible for the administration of any Plan (including without limitation the determination of Plan participation rights of employees of any Company and the determination of benefits of members of any Plan) or for those assets of any Plan which have not been delivered to and accepted by the Trustee; provided, however, that the Trustee shall maintain the participant accounting for a plan if so directed by the Company. The Trustee shall not have any authority or obligation to determine the adequacy of or to enforce the collection from the Company or from any Company of any contribution to the Trust Fund. Except to the extent that assets of the Trust Fund have been deposited in a collective investment fund maintained by the Trustee or that the Trustee has been designated as an Investment Manager (as defined in Article II hereof), the Trustee shall not be responsible, directly or indirectly, for the investment or reinvestment of the assets of the Trust Fund, which investment and reinvestment shall be the sole responsibility of the Company unless otherwise delegated by the Company as provided in ARTICLE II hereof. 1.2 Payments from Trust Fund ------------------------ Subject to the provisions of Section 9.5, the Trustee shall make payments from the portion of the Trust Fund attributed to each Plan as directed by the respective Committee which administers such Plan. Such Committee, in directing the Trustee to make payments, shall follow the provisions of the Plan so that it shall be impossible for any part of the Trust Fund to be used for, or diverted to, purposes other than for the exclusive benefit of employees covered under such Plan or their beneficiaries except to the extent permitted by this Agreement or any Plan. Subject to the foregoing, each such Committee may direct such payments to be made to any person, including any member of such Committee, or to the applicable Company, or to any paying agent designated by an Company, in such amounts and in such form (including, without limitation, shares of Company stock and shares of SpaceLabs Medical, Inc. Stock) as the Committee shall direct. The Trustee shall have no responsibility with respect to any payment made, pursuant to such a direction, to any Company, any Committee or any member thereof, to any paying agent, or to any other person, and any payment so made shall be held in trust by the recipient until disbursed in accordance with the Plan. Each direction of each such Committee shall be in writing and shall be deemed to include a certification that any payment directed thereby is one which the Committee is authorized to direct, and the Trustee may conclusively rely on such certification without further investigation. Unless otherwise specified by the Committee, payments by the Trustee may be made by its check to the order of the payee and mailed to the payee at the address last furnished to the Trustee 2 by the Committee or by the payee, or, if no such address has been so furnished, to the payee in care of the Company. The establishment of the Trust Fund created by this Agreement shall not be considered as giving any Plan member or any other person any legal or equitable rights as against the Company, any Company, any Committee, the Trustee or the property, whether corpus or income, of the Trust Fund unless such right is specifically provided for in this Agreement or the applicable Plan, nor shall it be considered as giving any Plan member or other employee the right to continue in the service of a Company in any capacity. 1.3 Powers of Trustee ----------------- Subject to the provisions and limitations contained elsewhere herein, in administering the Trust Fund the Trustee shall be specifically authorized: (a) except as otherwise specified in Section 1.6, to vote in person or by proxy, or to refrain from voting, in respect of any securities held by the Trust Fund, and to give general or special proxies or powers of attorney, with or without power of substitution, and to exercise any conversion privileges, subscription rights or other options; to participate in reorganizations, recapitalizations, consolidations, mergers and similar transactions with respect to such securities; and generally to exercise any of the powers of an owner with respect to securities held by the Trust Fund; (b) with respect to any investment, to consent or object to or otherwise request any action or nonaction on the part of any corporation, association or trust or of the directors, officers, stockholders or trustees of any such corporation, association or trust; (c) to settle, compromise or submit to arbitration any claims, debts or damages due or owing to or from the Trust Fund; (d) to deposit any property in any voting trust, or with any protective, reorganization or similar committee, or with depositories designated thereby; to delegate power thereto; and to pay or agree to pay part of its expenses and compensation and any assessments levied with respect to any property so deposited; (e) to deposit securities with stock clearing corporations or depositories or similar organizations, whether located within the state of Washington or in another state of the United States of America; (f) to commence or defend suits or legal proceedings and to represent the Trust Fund in all suits or legal proceedings in any court or before any other body or tribunal (provided, however, that the Trustee shall have no obligation to take any legal action for the benefit of the Trust Fund unless it shall be first 3 indemnified for all expenses in connection therewith, including without limitation counsel fees); (g) to register or cause to be registered any securities or other property in its name or in the name of any nominee with or without indication of the capacity in which the securities shall be held, or to hold securities in bearer form; (h) to employ suitable agents and legal counsel, who may be counsel for a Company, and, as a part of this reimbursable expenses under this Agreement, to pay their reasonable compensation and expenses; (i) to appoint one or more individuals or corporations as a custodian of any property and, as a part of its reimbursable expenses under this Agreement, to pay the reasonable compensation and expenses of any such custodian; (j) to form any corporation, association, partnership, or joint venture under the laws of any jurisdiction, or to participate in the forming of any such corporation, association, partnership, or joint venture or to acquire an interest in or otherwise make use of any corporation, association, partnership, or joint venture for the purpose of facilitating the Trust Fund's investing in and holding title to any property; (k) for the purpose of facilitating the Trust Fund's investing in and holding title to real or personal property or part interests therein, wherever situate, to appoint one or more individuals or corporations as a subtrustee or subtrustees, or to join with one or more individuals or corporations (including itself) acting as trustees of other pension trusts, profit sharing trusts or employee benefit trusts in the establishment of one or more such subtrusts, and to pay the reasonable compensation and expenses of each such subtrustee. Any such subtrustee, upon being appointed, shall act with such one or more or all of the powers, authorities, discretions, duties and functions of the Trustee under this Article I as shall be designated in the instrument establishing such subtrust including, without limitation, the power to receive and hold property, real or personal, or part interest therein, oil, mineral or gas properties, royalty interests or rights, including equipment pertaining thereto, leaseholds, mortgages and other interests in realty, situated in any state of the United States of America in which the subtrustee is authorized to act as trustee of pension trusts, profit sharing trusts or other employee benefit trusts; (l) to lease any property, to sell or acquire any property (at public or private sale and for cash or on credit), to grant or acquire options for the purchase of property and generally to make, execute, acknowledge and deliver any and all deeds, leases, assignments and instruments whenever such action may be required to perform its obligations hereunder; (m) to write or purchase call or put options; (n) to enter into commodity contracts and to take appropriate actions in connection with such contracts; 4 (o) to lend to the members of a Plan such amount or amounts, and upon such terms and conditions, as the Committee may direct in accordance with the provisions of the Plan; and (p) generally to do all acts, exclusive of acts involving investment management discretion, which the Trustee may deem necessary or desirable for the protection of the Trust Fund; provided, however, that the powers specified in subsections (a) through (d) and (j) through (o) above shall be exercised by the Trustee only upon the specific direction of the Company, the Committee or an Investment Manager (as defined in ARTICLE II hereof) in accordance with the provisions of the Plan and this Agreement. No person dealing with the Trustee shall be required to take any notice of this Agreement, but all persons so dealing shall be protected in treating the Trustee as the absolute owner with full power of disposition of all the moneys, securities and other property of the Trust Fund, and all persons dealing with the Trustee are released from inquiry into the decisions or authority of the Trustee and from seeing to the application of the moneys, securities or other property paid or delivered to the Trustee. 1.4 Securities; Property -------------------- Wherever used in this Agreement the term "securities" shall include bonds, mortgages, notes, obligations, warrants and stocks of any class (including stocks issued by the Company to the extent authorized by the Plan), certificates of participation or shares of any mutual investment company, trust or fund, and such other evidences of indebtedness and certificates of interest as are usually referred to by the term "securities," and the term "property" shall include real, personal and mixed property, tangible or intangible, of any kind and wherever located, including without limitation securities, depository accounts in the banking department of the Trustee, and interests in any fund which has been or may be created and administered by the Trustee, or by an Investment Manager, for the collective investment of the property of employee benefit trusts. The investment of the assets of the Trust Fund in any such depository account or collective investment fund is hereby specifically authorized. To the extent that property of the Trust Fund is so invested in a collective investment fund, the declaration of trust pertaining to such collective investment fund and the trust thereby created shall be a part of this Agreement and of each Plan whose assets are so invested; and for the purposes of any valuation of the Trust Fund or any valuation of the interest or of the account of any employee or beneficiary under a Plan, the interest of the Trust Fund in such collective investment fund shall be valued at the times and in the manner prescribed by the declaration by which such collective investment fund was created. 5 1.5 Proxies ------- Subject to the provisions of Section 1.6, in order to permit the Company or an Investment Manager, as the case may be, to make timely and informed decisions regarding the management of those assets in the Trust Fund subject to its respective control, the Trustee shall forward to the Company or each such Investment Manager, as the case may be, for appropriate action any and all proxies, proxy statements, notices, requests, advice or other communications received by the Trustee (or its nominee) as the record owner of such assets. 1.6 Company Securities ------------------ Notwithstanding anything herein to the contrary, if a Plan provides that the Trustee shall exercise voting rights with respect to shares of the stock of the Company at the direction of the Committee or the members of the Plan, the Trustee shall utilize its best efforts to deliver, or cause to be delivered, to the Committee or the members of the Plan, as the case may be, a copy of all proxies, notices and other information which the Company generally distributes to the shareholders of the Company. The Trustee shall establish such procedures for the collection of the instructions of the Committee or Plan members on the voting of such Company stock as it shall determine to be appropriate. The Trustee shall vote specifically in accordance with the Committee's or each member's instructions, as applicable, to the extent of the number of whole shares designated to be voted by the Committee or allocated to such member's account. Any Company stock designated to be voted by the Committee or allocated to members' account for which no signed voting-direction instrument is timely received from the Committee or any member and any other remaining unallocated shares held in the Trust Fund shall be voted by the Trustee for or against the proposals submitted, in the same proportion as shares of Company stock held in the Trust Fund for which voting directions have been timely received; provided, however, that if the Plan is a tax credit employee stock ownership plan within the meaning of Section 409 of the Code, the Trustee shall not vote any allocated shares with respect to which no signed voting-direction instrument has been timely received. If a Plan provides that, in the event of a tender offer or exchange offer by any person (including the Company) for any or all shares of Company stock held in the Trust Fund, each member under the Plan or the Committee shall have the right to instruct the Trustee as to the manner in which to respond with respect to any or all shares of stock allocated to such member's account or designated to be under the direction of the Committee, the Trustee shall act with respect to such stock specifically in accordance with the written instructions submitted by the Plan members or the Committee, as applicable, to the extent of the number of whole shares allocated to such member's account or designated to be under the direction of the Committee. To the extent such materials are not distributed to the members by the Company, the Trustee shall utilize its best efforts to distribute or cause to be distributed to each member and/or the Committee substantially the same information as may be distributed to the stockholders of the Company in connection with such offer. The Trustee shall establish such procedures for the collection of members' instructions with respect to the disposition of such Company stock as it shall deem appropriate. 6 Any such Company stock with respect to which written instructions have not been timely received by the Trustee and any other remaining unallocated shares held in the Trust Fund shall not be voted by the Trustee. For purposes of this Section 1.6, "shares of Company stock" shall refer to shares of Advanced Technology Laboratories, Inc. stock, and to shares of SpaceLabs Medical, Inc. stock. The Trustee shall not incur any liability on account of actions taken by the Trustee in accordance with directions received pursuant to this Section 1.6. 7 ARTICLE 2 2.1 Investment Managers ------------------- The Company may from time to time appoint one or more Investment Managers, as that term is defined in the Employee Retirement Income Security Act of 1974, as from time to time amended (hereinafter referred to as the "Act"), to manage (including the power to acquire and dispose of) any portion of the Trust Fund and, with respect to such portion, to direct the Trustee with respect to effecting investment transactions on behalf of the Trust Fund and exercising such other powers as may be granted to Investment Managers hereunder. The Company shall give prompt written notice to the Trustee of any such appointment, upon which the Trustee shall rely until it receives from the Company written notice of the termination of such appointment. Any such Investment Manager may direct the Trustee to invest and reinvest through the medium of any collective investment fund maintained by the Investment Manager or by the Trustee which is exempt from tax under the provisions of Section 501(a) of the Code and, during such period of time as an investment through any such medium shall exist, the declaration of trust of such fund shall constitute a part of this Agreement. In each case where such an appointment is made, the Company shall determine the assets of the Trust Fund (which may include all or any portion of one or more of the Investment Funds established pursuant to Section 2.2) to be allocated to the Investment Manager from time to time and shall issue appropriate instructions to the Trustee with respect thereto. The Trustee shall not be liable for the acts or omissions of such Investment Manager, shall be under no duty to question any direction of an Investment Manager with respect to the portion of the Trust Fund managed by such Investment Manager, to review any securities or property held in such portion, to make any suggestions with respect to the investment and reinvestment of such portion, or to evaluate the performance of any Investment Manager, and shall be fully protected in acting in accordance with the directions of an Investment Manager or for failing to act in the absence of such directions. 2.2 Investment Funds ---------------- A Committee, from time to time and in accordance with the provisions of the Plan, may direct the Trustee to establish one or more separate investment accounts (including without limitation insurance company contracts or accounts, mutual funds, or collective investment funds) under the Plan (each such separate account hereinafter referred to as an "Investment Fund"). The Trustee shall transfer to each such Investment Fund such portion of the assets of the Plan held in the Trust Fund as the Committee directs in accordance with the specific provisions of the Plan. The assets which have been allocated to an Investment Fund shall be invested and reinvested in accordance with the provisions of the Plan and with such investment guidelines, objectives and restrictions as may be established by the Committee for that Investment Fund. The Trustee shall be under no duty to question, and shall not incur any liability on account of following any direction of the Committee, nor to review the investment guidelines, objectives and restrictions established, or the specific investment directions given by the Committee for any Investment Fund, nor to make 8 suggestions to the Committee in connection therewith. To the extent that directions from the Committee to the Trustee represent investment elections of the members under the Plan, the Committee and the Trustee shall not have any responsibility for such investment elections and shall incur no liability on account of investing the assets of the Trust Fund in accordance with such directions. Unless the Trustee is otherwise directed by the Committee, all interest, dividends and other income received with respect to, and any proceeds received from the sale or other disposition of securities or other property held in an Investment Fund shall be credited to and reinvested in such Investment Fund, and all expenses of the Trust Fund which are properly allocable to a particular Investment Fund shall be so allocated and charged. Subject to the provisions of the Plan, the Committee may direct the Trustee to eliminate an Investment Fund or Funds, and the Trustee shall thereupon dispose of the assets of such Investment Fund and reinvest the proceeds thereof in accordance with the directions of the Committee. Pending investment of the Investment Funds in accordance with the directions of the Committee, the Trustee may invest assets of the Trust Fund, in whole or in part, at any time or from time to time, in interest- bearing accounts or certificates of deposit (including depository accounts in the banking department of the Trustee which bear a reasonable interest rate), treasury bills, commercial paper, money market funds, collective investment funds (including any such collective investment fund maintained by the Trustee), short-term investment funds or other short-term obligations and the investment return thereon shall be allocated among the Plan members whose assets have been so invested and added to their respective investments in the Investment Funds. If, and to the extent, specifically authorized by the Plan, the Committee may direct the Trustee to establish an Investment Fund all of the assets of which shall be invested in shares of the common stock of the Company, and in the event the Committee directs the establishment of such an Investment Fund, the Trustee shall invest all amounts allocated to such Investment Fund in such shares as promptly as is reasonably practicable. Except as otherwise provided in this Agreement or the Plan, in the event that any such shares which are allocable to the account of a Plan member are sold, the proceeds thereof shall be invested by the Trustee as promptly as is reasonably practicable in the other Investment Funds in accordance with the directions of the Committee. Notwithstanding the foregoing, the Trustee shall be under no duty or obligation to invest any assets of the Trust Fund in shares of common stock of the Company unless such shares constitute "qualifying employer securities" within the meaning of Section 407 of the Act and such investment is not prohibited by Section 406 or 407 of the Act. 2.3 Annuity Contracts ----------------- A Committee may direct the Trustee to receive and hold or apply assets of the Trust Fund attributable to its Plan to the purchase of individual or group insurance or annuity contracts or policies issued by any insurance company and in a form approved by the Committee, including contracts under which the contract holder is granted 9 options to purchase insurance or annuity benefits. The Trustee shall be under no duty to question any direction of the Committee or to review the form of any such policies or contracts or of the selection of the issuer thereof, or to make suggestions to the Committee with respect to the form of such policies or contracts or to the issuer thereof. The Committee may direct the Trustee to exercise or may exercise directly the powers of the contract holder under any such policies or contracts, and the Trustee shall exercise such powers only upon the direction of the Committee. Notwithstanding anything to the contrary contained in the Plan, the Trustee shall be fully protected in acting in accordance with written directions of the Committee, and shall be under no liability for any loss of any kind which may result by reason of any action taken or omitted by it in accordance with any direction of the Committee, or by reason of inaction in the absence of written directions from the Committee. In the event that the Committee directs that any moneys or property be paid or delivered to the contract holder other than for the benefit of specific individual beneficiaries, the Trustee agrees to accept such moneys or property as assets of the Trust Fund subject to all the terms hereof. No insurance carrier shall for any purpose be deemed a party to this Agreement or be responsible for the validity or sufficiency hereof. Notwithstanding the fact that it may have knowledge of the terms of this Trust Fund, the obligations of such insurance carrier shall be measured and determined solely by the terms and conditions of the policies or contracts issued by it, and there shall be no obligations to any person, partnership, corporation, trust or association other than as stated in such policies or contracts. In the event that the Company desires to direct the purchase of individual or group insurance or annuity policies or contracts for the benefit of some or all of the Plans, the foregoing powers and responsibilities of a Committee under this Section 2.3 may be exercised by the Company. 2.4 Securities Lending ------------------ The Company may appoint the Trustee as Securities Lending Fiduciary, if the Trustee consents to such appointment, to establish, manage and administer a securities lending program on behalf of the Trust Fund, pursuant to which the Trustee shall have authority to cause any or all securities held in the Trust Fund (excluding both stock of the Company and securities held in any portion of the Trust Fund allocated to an Investment Manager appointed pursuant to Section 2.1 or to an Investment Fund established under Section 2.2 which the Company identifies in writing to the Trustee as not being eligible to participate in said program) to be lent to such one or more brokers as the Trustee may determine. The Company shall enter into a written agreement with the Trustee setting forth the terms and conditions of this appointment, including without limitation the compensation to be paid to the Trustee for its services with respect to such securities lending program. 2.5 Insurance Valuations and Reports -------------------------------- The Company shall arrange for each insurance company issuing contracts held by the Trustee pursuant to Section 2.3, to furnish the Trustee with such valuations and reports as are necessary to enable the Trustee to fulfill its obligations under ARTICLE IV, and the Trustee shall be fully protected in relying upon such valuations and reports. 10 ARTICLE 3 3.1 Standard of Care ---------------- The Trustee, the members of each Committee, and each Investment Manager appointed pursuant to Section 2.1 shall discharge their respective duties with respect to the Trust Fund solely in the interest of the employees of the Companies which have adopted a Plan and their beneficiaries, and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The duties of the Trustee shall only be those specifically undertaken pursuant to this Agreement or by means of a separate written agreement. 3.2 Trust Fund Assets ----------------- The Company shall determine whether all or any portion of the assets of a Plan shall be deposited in the Trust Fund, and the Trustee shall have no responsibility for any such assets until such time as they are in fact received by the Trustee for deposit. 3.3 Allocation of Responsibility ---------------------------- Except as otherwise provided in the Act, no "fiduciary" (as such term is defined in Section 3(21) of the Act, or any successor statutory provision) under this Agreement shall be liable for an act or omission of another person in carrying out any fiduciary responsibility where such fiduciary responsibility is allocated to such other person by this Agreement or pursuant to a procedure established in this Agreement. 3.4 Indemnification --------------- The Company hereby agrees to indemnify and hold the Trustee harmless from and against any loss, costs, damages or expenses, including without limitation reasonable attorneys' fees, which the Trustee may incur or pay out by reason of any alleged or actual act, or failure to act, on the part of the Company, any Company, Committee, Investment Manager, custodian or trustee other than this Trustee, or any other person. 3.5 ERISA Controls -------------- Anything in this Agreement to the contrary notwithstanding, no provision of this Agreement shall be so construed as to violate the requirements of Part 4 of Title I of the Act. 11 ARTICLE 4 4.1 Records and Accounts -------------------- The Trustees shall keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions hereunder, and all accounts, books and records relating thereto shall be open to inspections and audit at all reasonable times by any persons designated by the Company. Within ninety (90) days following the close of each fiscal year of this Trust Fund, which shall be the twelve-month period ending on December 31 of each year, and within ninety (90) days after the removal or resignation of the Trustee as provided in ARTICLE VIII hereof, the Trustee shall file with the Company a written account setting forth all investments, receipts, disbursements and other transactions effected by the Trustee or reported to it by such Investment Managers as may be appointed hereunder during each fiscal year or during the period from the close of the last such fiscal year to the date of such removal or resignation. Within sixty (60) days from the date of filing such annual or other account, the Trustee, if requested by the Company, shall also serve copies of such account upon any persons designated by the Company as having administrative responsibility with respect to any Plan. Upon the expiration of 150 days from the date of filing such annual or other account, the Trustee shall be forever released and discharged from all liability and accountability to anyone with respect to the propriety of all acts and transactions shown in such account, except with respect to any such acts or transactions as to which the Company, or any person upon whom the account has been served pursuant to provisions of this Section 4.1, shall within such 150 day period file with the Trustee written objections. The Trustee shall from time to time make such other reports and furnish such other information concerning the Trust Fund (including valuations of each Investment Fund established pursuant to Section 2.2) as the Company may reasonably request or as may be required by a Plan. 4.2 Settlement of Accounts ---------------------- Notwithstanding the foregoing Section 4.1, the Trustee, each Committee, and each Company, or any of them, shall have the right to apply at any time to a court of competent jurisdiction for the judicial settlement of the Trustee's account, and in any case it shall be necessary to join as parties thereto only the Trustee, any applicable Committee and any applicable Company; and any judgment or decree which may be entered therein shall, subject to the provisions of the Act, be conclusive upon all persons having or claiming to have any interest in the Trust Fund or under a Plan. 12 ARTICLE 5 5.1 Trustee Expenses ---------------- The expenses incurred by the Trustee in the performance of its duties, or otherwise in its capacity as Trustee of the Trust Fund (including, without limitation, fees for legal services rendered to the Trustee in any context directly or indirectly pertaining to the Trust Fund), such compensation to the Trustee (in its capacity as Trustee of the Trust Fund, for the maintenance of participant accounts if it has been so directed pursuant to Section 2.4) as may be agreed upon in writing from time to time between the Trustee and the Company, and all other proper charges and disbursements of the Trustee shall be paid from the Trust Fund unless paid by the Company in its sole discretion. The Company may direct the Trustee to pay from the Trust Fund the compensation of any Investment Manager appointed pursuant to Section 2.1 and the administrative expenses of any Plan. All taxes of any and all kinds whatsoever that may be levied or assessed under existing or future laws upon the Trust Fund or the income thereof shall be paid from the Trust Fund or the income thereof shall be paid from the Trust Fund. Any amount paid from the Trust Fund (including taxes) which is specifically allocable to a particular Plan shall be charged to such Plan; any amount paid from the Trust Fund which is allocable to all of the Plans shall be charged against the Trust Fund without allocation. If Investment Funds have been established pursuant to Section 2.2, all amounts (including taxes) paid from the Trust Fund which are allocable to an Investment Fund shall be charged to such Investment Fund. All such expenses which are not so allocable shall be charged against each of the Investment Funds in the same proportion as the value of the total assets held in such Investment Fund bears to the value of the total assets in the Trust Fund. In the case of a loan from a Plan to a member under the Plan, all expenses (including taxes) of the Trust Fund, other than those expenses which are paid by the Company or a Company, which are allocable to such loan, shall be charged against the interest of such member under the Plan. 13 ARTICLE 6 6.1 Multiple Companies ------------------ Each Company whose Plan shall be designated by resolution of the Board of Directors of the Company as eligible to participate in the Trust Fund may become a party to this Agreement by delivering to the Trustee (i) a certified copy of such resolution, and (ii) a copy, certified by such Company's secretary or one of its assistant secretaries under its corporate seal, of a resolution adopted by its Board of Directors joining in this Agreement and authorizing the Company to exercise the powers conferred upon it by this Agreement. Upon receipt by the Trustee of both of such certified copies and a copy of such Company's plan, such Company shall be and become a party to this Agreement in all respects as if it had executed this Agreement at the foot hereof. Each Company shall provide the Trustee with a copy of a current determination letter from the United States Internal Revenue Service to the effect that such Plan is qualified under Section 401(a) of the Code and exempt from federal income tax under Section 501(a) of the Code. 6.2 Multiple Plans -------------- The Trustee shall maintain a separate account reflecting the equitable share in the Trust Fund of each Plan. Such equitable share shall be used solely for the payment of benefits under and expenses and other charges properly allocable to each such Plan, and shall not be used for payment of benefits under and expenses and other charges properly allocable to any other Plan. The equitable share of each Plan in the Trust Fund shall be debited or credited (as the case may be) (a) for the entire amount of every contribution received on behalf of such Plan, every benefit payment or other expense allocable to such Plan, and every other transaction relating solely to such Plan, and (b) for its equitable share of every item of collected or accrued income, gain or loss, and general expenses and other transactions allocable to the Trust Fund as a whole. The Trustee shall determine the value of the assets of the Trust Fund as of such dates as the Trustee may deem appropriate or as a Committee with the assent of the Trustee may direct. Assets shall be valued at their market values at the close of business on the date of valuation, or, in the absence of readily ascertainable market values, at such values as the Trustee shall determine, in accordance with methods consistently followed and uniformly applied. In determining market values of assets, the Trustee may rely on values recommended by the Investment Manager or Investment Trustee responsible for the investment of such assets. 6.3 Trustee Reliance ---------------- The Company shall certify to the Trustee the names and specimen signatures of the members of each Committee appointed to administer a Plan. The Company shall promptly give notice to the Trustee of changes in the membership of each such Committee, and, until such notices are received by the Trustee, the Trustee shall be fully protected in assuming that the membership of such Committee is unchanged and in acting accordingly. Each Committee may certify to the Trustee the names of 14 persons authorized to act for it in relation to the Trustee and the Trustee may act upon any certificate, notice or direction purporting to have been signed on behalf of a Committee which the Trustee believes to be genuine and to have been executed by the Committee or by any person whose authority to act for the Committee has been certified to the Trustee by the Committee. The Trustee may rely upon any certificate, notice or direction of the Company which the Trustee believes to be genuine and to have been signed by a duly authorized officer of the Company. Communications from the Company and from each Committee to the Trustee shall be sent to the Trustee's office as stated above or to such other address as the Trustee shall specify, and such communications shall be binding upon the Trust Fund and the Trustee, when received by the Trustee. 6.4 Directions by Company or Committee ---------------------------------- All orders, requests, instructions and objections of any of the persons authorized to act on behalf of a Company or any Committee in accordance with the provisions of Section 6.3, or designated to direct the Trustee under Section 1.2 to make payment for the purpose of distributing benefits, shall be in writing (provided that the Trustee may, in its discretion, accept oral orders, requests, instructions and objections subject to confirmation in writing), and the Trustee shall be fully protected in acting in accordance therewith. 6.5 Directions by Investment Manager -------------------------------- All directions to the Trustee of any Investment Manager appointed pursuant to Section 2.1 shall be in writing (provided that the Trustee may, in its discretion, accept oral direction subject to confirmation in writing) and shall be signed by an officer (or partner) of the Investment Manager or by a person specifically designated to act for the Investment Manager by an officer (or partner) thereof. 6.6 Certain Securities Transactions ------------------------------- Notwithstanding anything herein to the contrary, the Trustee shall be fully protected in acting in accordance with directions with respect to securities transactions (including, without limitation, the affirmation and/or confirmation of such transactions) received by it through a system or arrangement for the coordination of securities transaction settlements operated by Depository Trust Company or by any other central securities depository, securities clearing organization or book entry system which serves to link investment managers, securities brokers and custodian banks, pursuant to an agreement entered into by the Trustee, and an Investment Manager appointed pursuant to Section 2.1 or the Company, as the case may be, to the same extent as if the directions were in writing. 15 ARTICLE 7 7.1 Amendment and Termination ------------------------- The Company may, at any time and from time to time, by instrument in writing executed pursuant to authorization of this Board of Directors, (a) amend in whole or in part any or all of the provisions of this Agreement, or (b) terminate this Agreement and the trust created hereby; provided, however, that no amendment which affects the rights, duties or responsibilities of the Trustee may be made without the Trustee's consent and provided further that no such amendment shall divert any part of the Trust Fund to purposes other than for the exclusive benefit of the employees of an Company or their beneficiaries except to the extent permitted by this Agreement or any Plan. Any such amendment shall become effective upon receipt by the Trustee of the instrument of amendment or, subject to the consent of the Trustee, as of the date specified therein, and endorsement thereon by the Trustee of its consent thereto, if such consent is required. Any such termination shall become effective upon the receipt by the Trustee of the instrument of termination; thereafter the Trustee, upon the direction of the Company, shall liquidate the Trust Fund to the extent required for distribution and, after the final account of the Trustee has been approved and settled, shall distribute the balance of the Trust Fund remaining in its hands as directed by the Company or appropriate Committee, or in the absence of such direction, as may be directed by a judgment or decree of a court of competent jurisdiction. Upon termination of the Trust Fund as provided herein, the Trustee shall not be required to make any payments hereunder in excess of the net realizable value of the assets of the Trust Fund at the time of such payment. The Trustee shall not be required to make any payments in cash unless there shall be in the Trust Fund at the time an amount of cash sufficient for the purpose. In case of a deficiency in cash, the Trustee shall take such action as to the disposition of securities or other property forming a part of the Trust as will provide the amount of cash necessary for such payments. Following any such termination, the powers of the Trustee hereunder shall continue as long as any of the Trust Fund remains in its hands, but only as to those assets which during such time remain in the Trust Fund. 16 ARTICLE 8 8.1 Removal and Resignation ----------------------- The Trustee may be removed by the company at any time upon thirty (30) days' notice in writing to the Trustee. The Trustee may resign at any time upon thirty (30) days' notice in writing to the Company. The parties, however, may by written instrument waive such notice. Upon such removal or resignation of the Trustee, the Company shall appoint a successor trustee who shall have the same powers and duties as those conferred upon the Trustee hereunder subject to such changes as the Company may then determine. If a successor trustee is not appointed within thirty (30) days after the Trustee gives notice of its resignation, the Trustee may apply to any court of competent jurisdiction for appointment of a successor. Upon acceptance of such appointment by the successor trustee, the Trustee shall assign, transfer and pay over to such successor trustee the assets then constituting the Trust Fund. The Trustee is authorized, however, to reserve such sum of money as may be reasonable for payment of its compensation and expenses (including legal expenses) in connection with the settlement of its account or otherwise, and any balance of such reserve remaining after the payment of such compensation and expenses shall be promptly paid over to the successor trustee. 17 ARTICLE 9 9.1 Governing Law ------------- To the extent permitted by applicable law this Agreement shall be administered, construed and enforced according to the laws of the state of Washington. 9.2 Successors and Assigns ---------------------- This Agreement shall be binding upon, and the powers granted to the Company and the Trustee, respectively, shall be exercisable by, the respective successors and assigns of the Company and the Trustee. Any corporation which shall, by merger, consolidation, purchase or otherwise, succeed to substantially all the trust business of the Trustee shall, upon such succession and without any appointment or other action by the Company, be and become successor trustee hereunder, upon notification to the Company. 9.3 Loss of Qualification --------------------- The Company shall immediately notify the Trustee if any Plan ceases to be qualified under Section 401(a) of the Code. That part of the Trust Fund which is attributable to any such Plan shall be immediately segregated and withdrawn from the Trust Fund. The Company may at any time direct the Trustee to segregate and withdraw the part of the Trust Fund which is attributable to any Plan or to any specified group or groups of employees or beneficiaries as certified to the Trustee by the Company. Whenever segregation is to be effected pursuant to this Section, the Trustee shall withdraw from the Trust Fund such assets as the Company shall direct. Such assets shall be equal in value to the part of the Trust Fund to be segregated. Such withdrawal from the Trust Fund shall be in cash or in any property held in the Trust Fund, or in a combination of both, as directed by the Company, and the Trustee's valuation of the assets of the Trust Fund for such purpose shall be conclusive and binding on all persons. The Trustee shall thereafter hold the assets so withdrawn as a separate trust fund in accordance with the provisions either of this Agreement or of a separate trust agreement. Such segregation shall not preclude later readmission to the Trust Fund. 9.4 Segregation of Assets --------------------- The Company may, if it so determines, at any time and from time to time, designate any group or groups of the eligible employees or other beneficiaries covered by a Plan as a separate class and may direct the Trustee to segregate in a separate fund, to be held for the benefit of such class, the part of the Trust Fund allocable to such class as determined by the Company. The Company shall cause the Trustee to effect such segregation by delivering to the Trustee a certified copy of the Company's determination, together with a certified copy of a resolution or resolutions of the Board of Directors of the Company directing such segregation. The Trustee may rely conclusively and without investigation upon any such certified copy of such determination and such resolution and shall segregate such assets as the Company 18 may direct. The Trustee's valuation of such assets for that purpose shall be conclusive. The Trustee shall hold all of the assets so segregated under this provision, together with such payments as shall thereafter be made to the Trust Fund in behalf of such class, and the income therefrom, as a subpart of the Trust Fund and subject to the terms of this Agreement, or shall dispose of the same as directed by the Company. In the event that the Trust or any subpart thereof created by this Agreement shall be terminated as to such class, the Company shall direct the disposition of the assets held by the Trustee for such class through transfer to a successor trust, the purchase of annuities, or other means, as the Company shall determine, and thereafter such employees and other beneficiaries shall not have any rights in the Trust Fund, or against the Trustee. 9.5 Exclusive Benefit ----------------- Except as specifically permitted by this Agreement or any Plan, at no time shall any part of the Trust Fund which is attributable to such Plan ever revert to or be used or enjoyed by the Company or any Company or be used for, or diverted to, any purposes other than for the exclusive purpose of providing benefits to eligible employees and their beneficiaries and the payment of the reasonable expenses of the Plan. Notwithstanding any provision hereof to the contrary, contributions by an Company may be returned to the Company under the following circumstances, but only if requested by the Company by written certification to the Trustee that the return of property to the Company is in compliance with the provisions of this Agreement and the applicable Plan: (a) if a contribution is made by a Company by reason of a mistake of fact, provided that such repayment to the Company is made within one (1) year after the payment by the Company of such contribution to the Trust, or (b) if a contribution, or any portion thereof, was made upon the condition that it be fully deductible for federal tax purposes but in fact it is not deductible to the Company under Section 404 of the Code (or any successor provision thereto), provided that the contribution so made, to the extent so disallowed, is repaid to the Company within one (1) year after the date of disallowance of the deduction. Any contribution returned to a Company pursuant to this Section 9.5 shall be adjusted to reflect its share of the Trust Fund's loss, if any, but not of the Trust Fund's gain. The Trustee shall be entitled to rely completely on such written certification and shall be under no obligation to investigate or otherwise determine its propriety. The Trustee shall not incur any liability or other loss or damage on account of its reliance on such certification. 9.6 No Certificates of Ownership ---------------------------- No document shall be issued evidencing any interest in the Trust Fund and no Plan shall have power to assign all or any part of the Trust Fund attributable to it. 19 9.7 Assignability ------------- To the maximum extent permitted by law, beneficial interests in the Trust Fund of members or former members under a Plan or their beneficiaries shall not be assignable or subject to alienation, sale, transfer, pledge, encumbrance, mortgage, attachment, execution, levy or receivership, nor shall they pass to any trustee in bankruptcy or be reached or applied by any legal process for the payment of any obligations of any such person; provided, however, that nothing herein shall prevent a member from assigning his interest in the Trust Fund as security for the repayment of any loan made to him from the Trust Fund pursuant to a Plan or prevent the payment of amounts pursuant to a qualified domestic relations order. Any attempt at such a prohibited assignment, alienation, sale, transfer, pledge, encumbrance, mortgage, attachment, execution or levy shall be void and unenforceable. 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. ADVANCED TECHNOLOGY LABORATORIES, INC. By: /s/ Harvey N. Gillis ---------------------------------- Its: Senior Vice President and Chief Financial Officer --------------------------------- FIRST INTERSTATE BANK OF WASHINGTON, NA By: ---------------------------------- Its: --------------------------------- 21 EX-10.17 7 RETIREMENT PLAN Exhibit 10.17 ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN AMENDED AND RESTATED EFFECTIVE JUNE 26, 1992 TABLE OF CONTENTS
Page ---- PREAMBLE.................................... 1 SECTION 1 -- DEFINITIONS ................... 2
1.1 Accrued Benefit..................... 2 1.2 Actuarially Equivalent/Actuarially.. 2 1.3 Affiliated Companies................ 2 1.4 Annuity Starting Date............... 2 1.5 Beneficiary 3 1.6 Code 3 1.7 Committee 3 1.8 Compensation........................ 3 1.9 Credited Service 3 1.10 Disabled 3 1.11 Earnings 3 1.12 Effective Date...................... 5 1.13 Eligible Employee 5 1.14 Employee 5 1.15 Employer 6 1.16 Employment Commencement Date........ 6 1.17 ERISA............................... 6 1.18 Final Average Monthly Earnings...... 6 1.19 Foreign Employee.................... 6 1.20 Participant 6 1.21 Period of Service................... 7 1.22 Period of Severance................. 7 1.23 Plan 7 1.24 Plan Administrator 7 1.25 Plan Year 7 1.26 Service 8 1.27 Severance From Service Date......... 8 1.28 Social Security Retirement Age...... 8 1.29 Temporarily Terminated.............. 8 1.30 Terminated 8 1.31 Trust or Trust Fund................. 8 1.32 Trustee 9 1.33 Additional Definitions in Plan...... 9
SECTION 2 -- PARTICIPATION .................. 10
2.1 Eligibility for Participation 10 2.2 Reemployment After a Termination.. 10 2.3 Employees in a Bargaining Unit.... 10 2.4 Waiver of Participation........... 10
SECTION 3 -- RETIREMENT DATES.......................................... 12
3.1 Normal Retirement Date.................................... 12 3.2 Early Retirement Date..................................... 12 3.3 Deferred Retirement Date.................................. 12 3.4 Retirement Date........................................... 12 3.5 Vested Termination Date................................... 12
SECTION 4 -- RETIREMENT BENEFITS....................................... 13
4.1 Accrued Benefit........................................... 13 4.2 Normal Retirement Benefit................................. 14 4.3 Early Retirement Benefit.................................. 14 4.4 Deferred Retirement Benefi................................ 14 4.5 Vested Termination Benefit................................ 15 4.6 Reemployment After Retirement............................. 15 4.7 Benefits For Terminated Participants...................... 15 4.8 Benefits Payable From SpaceLabs Medical, Inc. Retirement Plan..................................................... 15
SECTION 5 -- FORMS OF PAYMENT.......................................... 16
5.1 Forms of Payment.......................................... 16 5.2 Automatic Form of Benefit................................. 16 5.3 Limitation on Forms of Payment............................ 17 5.4 Explanation of Forms of Payment........................... 17
SECTION 6 -- DEATH AND DISABILITY BENEFITS ............................ 18
6.1 Spouse's Death Benefit................................... 18 6.2 Disability Benefits ..................................... 29
SECTION 7 -- VESTING.................................................. 20
7.1 Vesting.................................................. 20 7.2 Termination Prior to Vesting............................. 20 7.3 Forfeitures.............................................. 21
SECTION 8 -- LIMITATIONS ON BENEFITS.................................. 21
8.1 Limitation on Benefits.................................... 21 8.2 Maximum Annual Benefit Payable Under the Plan............. 22 8.3 Additional Limitation Relating to Defined Contribution Plans....................................... 24
SECTION 9 -- TOP HEAVY PROVISIONS.................................... 25 9.1 Scope........................................................ 25 9.2 Top Heavy Status............................................. 25 9.3 Minimum Benefit.............................................. 27 9.4 Benefit Limitation........................................... 28 9.5 Vesting...................................................... 28
SECTION 10 -- ADMINISTRATION OF THE PLAN............................. 30 10.1 Plan Administrator........................................ 30 10.2 Organization and Procedures............................... 30 10.3 Duties and Authority of the Committee..................... 30 10.4 Expenses.................................................. 31 10.5 Bonding and Insurance..................................... 31 10.6 Commencement of Benefits.................................. 32 10.7 Appeal Procedure 32 10.8 Plan Administration - Miscellaneous....................... 33 10.9 Domestic Relations Orders................................. 35 10.10 Plan Qualification 36 10.11 Deductible Contribution 36 10.12 Payment of Benefits Through Purchase of Annuity Contract.. 37
SECTION 11 -- AMENDMENT AND TERMINATION............................. 38 11.1 Amendment General.......................................... 38 11.2 Amendment - Consolidation or Merger........................ 38 11.3 Termination of the Plan.................................... 38 11.4 Allocation of the Trust Fund on Termination of Plan........ 38
SECTION 12 -- FUNDING............................................... 40 12.1 Contributions to the Trust................................. 40 12.2 Trust Fund for Exclusive Benefit of Participants........... 40 12.3 Disposition of Credits and Forfeitures..................... 40 12.4 Trustee.................................................... 40 12.5 Investment Manager......................................... 40
SECTION 13 -- FIDUCIARIES........................................... 42 13.1 Limitation of Liability of the Employer and Others....... 42 13.2 Indemnification of Fiduciaries........................... 42 13.3 Scope of Indemnification................................. 42
SIGNATURE PAGE...................................................... 43 APPENDIX I.......................................................... 44
PREAMBLE THIS RETIREMENT PLAN (hereinafter referred to as the "Plan," formerly known as the Westmark International Incorporated Retirement Plan and now known as the Advanced Technology Laboratories, Inc. Retirement Plan) is amended and restated effective June 26, 1992 by Advanced Technology Laboratories, Inc., a Delaware corporation (hereinafter "Employer"). WHEREAS, the purpose of the Plan is to provide retirement benefits to Employees who become covered under the Plan; and WHEREAS, the Plan was originally known as the Advanced Technology Laboratories Floor Retirement Plan, and was adopted effective January 1, 1981 by Advanced Technology Laboratories, Inc.; and WHEREAS, the Plan was amended and restated effective January 1, 1987, the name was changed to the Westmark International Incorporated Floor Retirement Plan, and Westmark International Incorporated became the plan sponsor, in connection with the distribution of shares of Westmark International Incorporated to the shareholders of Squibb Corporation; and WHEREAS, the Plan was amended and restated effective January 1, 1990 and the name was changed to the Westmark International Incorporated Retirement Plan; and WHEREAS, effective June 26, 1992, the corporate name of Westmark International Incorporated was changed to Advanced Technology Laboratories, Inc., and assets and liabilities of the Plan attributable to SpaceLabs, Inc. as a participating employer in this Plan were spun off to form the SpaceLabs Medical, Inc. Retirement Plan; and WHEREAS, the Employer desires to amend and restate the Plan to change the name to the Advanced Technology Laboratories, Inc. Retirement Plan and to effect certain other changes; and WHEREAS, the Plan shall be maintained for the exclusive benefit of covered Employees, and is intended to comply with the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, and other applicable law; NOW, THEREFORE, effective June 26, 1992 the Employer does hereby amend and restate the Plan as set forth in the following pages. 1 SECTION 1 DEFINITIONS The following terms when used herein shall have the following meaning, unless a different meaning is plainly required by the context. Capitalized terms are used throughout the Plan text for terms defined by this and other sections. 1.1 Accrued Benefit "Accrued Benefit" means, on any date, the benefit determined under the formula specified in Section 4.1 as of such date. 1.2 Actuarially Equivalent/Actuarially "Actuarially Equivalent" and similar terms (for purposes other than determining contributions to the Trust Fund) means that the present value of two payments or series of payments shall be of equal value when computed at an 8% rate of interest and on the basis of the 1984 Unisex Pension Mortality Table; provided, however, that the interest rate for calculating lump sum benefits shall be the Pension Benefit Guaranty Corporation (PBGC) interest rate for immediate or deferred annuities from a single employer plan in effect on the first day of the Plan Year which contains the proposed distribution date. 1.3 Affiliated Companies "Affiliated Companies" means: (a) the Employer, (b) any other corporation which is a member of a controlled group of corporations which includes the Employer (as defined in Section 414(b) of the Code), (c) any other trade or business under common control with the Employer (as defined in Section 414(c) of the Code), or (d) any other member of an affiliated service group which includes the Employer (as defined in Section 414(m) of the Code). For purposes of the limitation on benefits in Sections 8.2 and 8.3, the determination of whether an entity is an Affiliated Company will be made by modifying Sections 414(b) and (c) of the Code as specified in Section 415(h) of the Code. 1.4 Annuity Starting Date "Annuity Starting Date" means the first day of the first period for which a Plan benefit is payable as an annuity, or any other form. 2 1.5 Beneficiary "Beneficiary" means the person or persons designated to be the Beneficiary by the Participant in writing to the Benefits Committee. In the event a married Participant designates someone other than his or her spouse as Beneficiary, such initial designation or subsequent change shall be invalid unless the spouse consents in a writing which names the designated Beneficiary and is notarized or witnessed by a Plan representative. 1.6 Code "Code" means the Internal Revenue Code of 1986, as amended and including all regulations promulgated pursuant thereto. 1.7 Committee "Committee" means the Advanced Technology Laboratories, Inc. Benefits Committee as from time to time constituted and appointed by the Compensation Committee of the Board of Directors of the Employer to administer the Plan. 1.8 Compensation "Compensation" for any tax year has the meaning set forth in Section 415(c)(3) of the Code. 1.9 Credited Service "Credited Service" means all completed years and fractions of years of Service for the Employer during a Period of Service, excluding Periods of Service forfeited due to a Period of Severance. Notwithstanding the foregoing, Service while a Foreign Employee which is completed before January 1, 1987 shall be disregarded for purposes of determining a Participant's Credited Service. 1.10 Disabled "Disabled" means a Participant is entitled to benefits under an Employer- sponsored long term disability plan, or a long term disability plan to which the Employer contributes on behalf of the Participant. 1.11 Earnings "Earnings" for each Plan Year means: (a) for all Participants who are not Foreign Employees, for Credited Service prior to January 1, 1989: the straight-time pay earned by an Employee from the Employer prior to reduction for any contributions determined on a salary 3 reduction basis under a flexible benefit plan established pursuant to Section 125 of the Code or under the Westmark International Incorporated Incentive Savings and Stock Ownership Plan, including shift differentials, special geographical location allowances, holiday pay, sick leave pay (exempt and non-exempt), short-term disability (exempt and non-exempt), retroactive pay as it applies to any of the above, and pay for vacation hours taken. Earnings will not include non-refundable draw, bonuses, commissions, employee referral bonuses, stock option payments, special bonuses, lump-sum payments or cash payoffs for unused vacation, severance pay, hiring bonus, long-term disability payments (exempt and non-exempt), finder's fees, any relocation payments in the form of reimbursement or relocation bonus and overtime. (b) for all Participants who are not Foreign Employees, for Credited Service after December 31, 1988: the straight-time pay earned by an Employee from the Employer prior to reduction for any contributions determined on a salary reduction basis under a flexible benefit plan established pursuant to Section 125 of the Code or under the Westmark International Incorporated Incentive Savings and Stock Ownership Plan or Advanced Technology Laboratories, Inc. Incentive Savings and Stock Ownership Plan, including: (i) special geographical location allowances, holiday pay, sick leave pay (exempt and non-exempt), short-term disability (exempt and non-exempt), retroactive pay as it applies to any of the above, and pay for vacation hours taken; (ii) overtime pay, shift differentials, and bonuses (including MICP and bullet bonuses), not in excess of 50% of annualized straight- time pay prior to reduction as described above; (iii) for Credited Service after December 31, 1988 and before January 1, 1993: salesman commissions and service commissions/incentives to the extent such amounts when added to the amount determined under (ii) above do not exceed 125% of annualized straight-time pay prior to reduction as described above; and (iv) for Credited Service after December 31, 1992, salesman commissions and service commissions/incentives. Earnings will not include non-refundable draw, employee referral bonuses, Performance Unit Plan awards, car allowances, stock option payments, restricted stock awards, lump-sum payments or cash payoffs for unused vacation, severance pay, retention bonus, hiring bonus, long-term disability payments (exempt and non-exempt), and any relocation payments in the form of reimbursement or relocation bonus. (c) For all Foreign Employees, the annual notional salary and the actual bonus, if any, stated in U.S. dollars established in a uniform and nondiscriminatory manner 4 for each Foreign Employee, on or after January 1, 1987. Notional salary shall not include any special relocation or foreign assignment allowances. Notional salary shall include an equitable adjustment to reflect any retirement benefit which is expected to be earned under a foreign retirement plan to the extent attributable to contributions by an Employer or any foreign subsidiary of an Employer. Notional salary for each Foreign Employee shall be approved by the President of the applicable business unit. Notwithstanding the foregoing, annual Earnings in excess of $200,000 shall be disregarded; provided, however, that this $200,000 limit shall be automatically adjusted to the maximum permissible dollar limitation permitted by the Commissioner of the Internal Revenue Service. In determining Earnings of a Participant for purposes of this limitation, the family aggregation rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Earnings as determined under this Section 1.11 prior to the application of this limitation. 1.12 Effective Date "Effective Date" means January 1, 1981, or with respect to any Employer specified in appendices to this Plan, the date such Employer adopted the Plan. 1.13 Eligible Employee "Eligible Employee" means any Employee who is on the active, regular payroll of the Employer, provided, however, the term "Eligible Employee" does not include any temporary, cooperative or leased employee. 1.14 Employee "Employee" means any person (including any officer or director) who is employed by, and as such is enrolled on the active payroll of the Employer and is performing services in the United States, and any person who is a Foreign Employee. "Employee" shall include any leased employee within the meaning of Code Section 414(n)(2); provided, however, if leased employees constitute twenty percent or less of the Employer's non-highly compensated work force, the term "Employee" shall not include a leased employee who is covered by a plan maintained by the leasing organization which meets the requirements of Code Section 414(n)(5). 5 1.15 Employer "Employer" means Advanced Technology Laboratories, Inc., a Delaware corporation. For purposes other than sections 10, 11 and 12, the term "Employer" shall also include other Affiliated Companies that adopt the Plan with the approval of the Board of Directors of Advanced Technology Laboratories, Inc. (Delaware), as provided from time to time in Appendix I to this Plan. 1.16 Employment Commencement Date "Employment Commencement Date" means the later of the Effective Date and the date on which an Employee first completes an Hour of Service for the Employer or an Affiliated Company during the current period of employment. "Hour of Service" for purposes of this definition means each hour for which an Employee is paid or entitled to payment for the performance of duties for the Employer or any Affiliated Companies. 1.17 ERISA "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, including all regulations thereunder. 1.18 Final Average Monthly Earnings "Final Average Earnings" means one twelfth of the highest average Earnings received by the Participant during any 60 consecutive month period. In the event the Participant has less than 60 consecutive months of employment, the computation period shall be based upon (1) the most recent 60 months of employment (whether or not consecutive), or (2) the total Period of Service with the Employer, whichever is less. Earnings for partial years are pro- rated. 1.19 Foreign Employee "Foreign Employee" means any person (including an officer or director) who is employed by, and as such is on the active payroll of the Employer or a foreign subsidiary or branch of an Employer, who relocates to a country outside the United States and outside such individual's country of citizenship to complete a temporary assignment for an Employer or a foreign subsidiary or branch of an Employer which is expected to be completed within five years from the initial date of the assignment. 1.20 Participant "Participant" means any Eligible Employee who qualifies for participation pursuant to Section 2.1 or 2.2. A nonvested Participant shall cease to be a Participant on the date he or she incurs a one-year Period of Severance. A vested Participant shall cease to be a Participant when his or her benefit payments from the Plan are completed. 6 1.21 Period of Service "Period of Service" means the period of time commencing with the Employment Commencement Date and ending on the Severance From Service Date. Non- successive periods are aggregated to determine the Employee's total Period of Service. For vesting and participation purposes, an Employee's Period of Service shall also include the following: (a) Periods not in Service due to Temporary Terminations; and (b) Periods of Service with an Affiliated Company. Notwithstanding the above, for an individual with respect to whom assets and liabilities are transferred to the SpaceLabs Medical, Inc. Retirement Plan between June 26 and December 31, 1992, the individual's Period of Service for all purposes under the Plan shall begin on the individual's first Employment Commencement Date following the date of such transfer. 1.22 Period of Severance "Period of Severance" means the period of time commencing at the Severance From Service Date and ending on the date the Employee again performs an Hour of Service for the Employer; provided however, such period shall commence one year later if a male or female Employee is absent due to pregnancy, birth or adoption of a child, or caring for a child immediately following birth or adoption. 1.23 Plan "Plan" means the Advanced Technology Laboratories, Inc. Retirement Plan either in its previous or present form or as amended from time to time. 1.24 Plan Administrator "Plan Administrator" means the person or entity designated in Section 10 to administer the Plan. 1.25 Plan Year "Plan Year" means the twelve month period commencing each January 1 and ending each December 31. 7 1.26 Service "Service" means periods for which an Employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliated Company. For purposes of Section 2 (Participation) and Section 7(Vesting) only, Service for an Employee who transfers employment from an employing company under the Squibb Corporation Pension Plan to the Employer on or before August 31, 1987, without intervening employment with another employer, shall also include any prior period of employment with an employing company under the Squibb Corporation Pension Plan to the extent such employment was credited as "service" for vesting purposes under the Squibb Corporation Pension Plan. 1.27 Severance From Service Date "Severance From Service Date" means the earlier of the date on which an Employee quits, retires, is discharged or dies, or the first anniversary of absence from work for any other reason. An individual employed by an Affiliated Company other than the Employer shall incur a Severance from Service Date if the individual's employer ceases to be an Affiliated Company of the Employer. 1.28 Social Security Retirement Age "Social Security Retirement Age" means the following ages depending on the Participant's year of birth: age 65 for Participants born prior to 1938, age 66 for Participants born after 1937 but prior to 1959, and age 67 for Participants born after 1959. 1.29 Temporarily Terminated Termination is deemed "Temporary" if the Employee is rehired and in Service within one year of the initial date of absence from work. 1.30 Terminated "Terminated" means no longer in Service or employed as an Employee with the Employer for reasons of quit, retirement, discharge or death. An Employee shall also be deemed Terminated on the first anniversary of the initial date of absence for any other reason, provided such absence lasts at least twelve months. 1.31 Trust or Trust Fund "Trust" or "Trust Fund" means the trust fund into which shall be paid all contributions and from which all benefits shall be paid under this Plan. 8 1.32 Trustee "Trustee" means the trustee or trustees who receive, hold, invest and disburse the assets of the Trust in accordance with the terms and provisions set forth in a trust agreement. 1.33 Additional Definitions in Plan The following terms are defined in the following sections of the Plan:
Section - ------- Aggregate Account 9.2 Aggregation Group 9.2 Deferred Retirement Benefit 4.5 Deferred Retirement Date 3.3 Determination Date 9.2 Early Retirement Benefit 4.4 Early Retirement Date 3.2 Investment Manager 12.5 Joint and Survivor Annuity 5.1(b) Key Employee 9.2 Lump Sum 5.1(d) Normal Retirement Benefit 4.3 Normal Retirement Date 3.1 Present Value of Accrued Benefits 9.2 Qualified Domestic Relations Order 10.9 Retirement Date 3.4 Statutory 50% Joint and Survivor Annuity Option 5.2(a) Super Top Heavy 9.2 Top Heavy 9.2 Valuation Date (for Top Heavy) 9.2 Vested Termination Date 3.5 Vested Termination Benefit 4.6 Whole Life Annuity 5.1(a)
9 SECTION 2 PARTICIPATION 2.1 Eligibility for Participation Each Eligible Employee who is regularly scheduled to work at least 30 hours per week, and who is not already a Participant shall become a Participant under this Plan on the later of the first of the month coinciding with or next following completion of a one-year Period of Service and the date his or her employer becomes an Employer for Plan purposes. Notwithstanding the foregoing, a Foreign Employee must complete an enrollment form prior to the date participation commences. 2.2 Reemployment After a Termination Upon the reemployment of a Terminated former Participant as an Eligible Employee, he or she shall immediately become a Participant. An Employee who Terminates prior to becoming a Participant and is later reemployed shall become a Participant upon satisfying the requirements of Section 2.1. If the Employee's Period of Severance equals or exceeds five years, the Period of Service preceding the Period of Severance shall be disregarded. If the Employee's Period of Severance is less than five years, the Period of Service before the Period of Severance shall be aggregated with the subsequent Period of Service. 2.3 Employees in a Bargaining Unit An Employee belonging to a collective bargaining unit, which has entered an agreement with the Employer which does not provide for retirement benefits under this Plan, shall not qualify for participation and the period of employment shall not be included in determining his or her Credited Service. If such an Employee is a Participant when such an agreement is entered, the Employee shall cease to accrue Credited Service on the effective date of the bargaining agreement. If such an agreement provides for Plan participation, a covered Employee may continue or resume participation and accrual of Credited Service. 2.4 Waiver of Participation A Foreign Employee may elect in writing to waive his or her right to be a Participant in this Plan by submitting a form to the Committee. A waiver of participation shall be effective on the first day of the Plan Year preceding the date of election. A Foreign Employee may prospectively rescind a waiver in writing to the Committee at any time, effective on the date of rescission. During such period of non-participation, the Foreign 10 Employee shall accrue no Periods of Service or Credited Service, nor shall he or she have any other rights inherent with participation in the Plan. 11 SECTION 3 RETIREMENT DATES 3.1 Normal Retirement Date The Normal Retirement Date for a Participant shall be the first day of the month coinciding with or next following the attainment of age 65. 3.2 Early Retirement Date Each Participant who attains age 55 and completes a five year Period of Service may elect, in writing, an Early Retirement Date. Such Early Retirement Date shall be before the Normal Retirement Date and after Termination on the first day of any month coinciding with or following the date the early retirement requirements are met. 3.3 Deferred Retirement Date The Deferred Retirement Date for a Participant who continues working after the Normal Retirement Date shall be the first day of the month coinciding with or next following his or her Termination date; provided, however, the Deferred Retirement Date shall not be later than April 1 following the calendar year in which the Participant attains age 70-1/2. 3.4 Retirement Date The Retirement Date for a Participant shall be one of the dates specified in Sections 3.1, 3.2 or 3.3 above, on which benefits are to commence. The Retirement Date for a Participant who Terminates prior to retirement with a vested Accrued Benefit shall be Normal Retirement Date, unless such Participant qualifies for and elects to receive benefits at an Early Retirement Date. 3.5 Vested Termination Date A vested Participant, whose Accrued Benefit has an Actuarially Equivalent present value not in excess of $10,000, who Terminates employment with the Employer and any Affiliated Companies prior to Early Retirement Date may elect in writing to receive the Vested Termination Benefit either as a lump sum or an annuity on a Vested Termination Date, which is the first day of any month following the date of Termination and prior to his or her earliest Retirement Date. In the event a married Participant elects to receive benefits on a Vested Termination Date and his or her Vested Termination Benefit exceeds $3,500, such election shall be void unless the election is signed by the Participant's spouse, acknowledges the effect of the election, and the spouse's signature is notarized or witnessed by a Plan representative. 12 SECTION 4 RETIREMENT BENEFITS 4.1 Accrued Benefit The Accrued Benefit for any Participant shall be the excess, if any, of the monthly benefit (as described in (a) below) over the frozen monthly amount determined by reference to the former Westmark Discretionary Contribution Retirement Plan offset (as described in (b) below), and then adjusted for any prior distribution (Section 4.6) and/or form of payment (Section 5.1). (a) Monthly Benefit The monthly benefit payable to a Participant at Normal Retirement Date shall equal: (i) 1.0% of Final Average Monthly Earnings, multiplied by (ii) the Participant's Credited Service. (b) Frozen Discretionary Contribution Plan Offset The monthly frozen discretionary contribution plan offset shall equal the amount determined under subparagraph (i) less the amount determined under subparagraph (ii) below, accumulated with 8% interest compounded annually to the later of January 1, 1989 and the Normal Retirement Date and then divided by 100: (i) The Participant's account balance in the Westmark International Incorporated Discretionary Contribution Plan on December 31, 1988. (ii) The greater of (A) or (B) below: (A) the amount determined under subparagraph (1) less the amount determined under subparagraph (2) below, accumulated with 8% interest compounded annually from December 31, 1982 through December 31, 1988. (i) the Participant's account balance in the Westmark International Incorporated Discretionary Contribution Plan as of December 31, 1982. (ii) the maximum amount of the Participant's account balance in the Westmark International Incorporated Discretionary Contribution Plan (exceeding any rollover or transfer 13 amount), as of December 31, 1982, which, when accumulated with 8% interest compounded annually to the later of January 1, 1989 and the Normal Retirement Date and then divided by 100, does not exceed the Participant's floor benefit under the Predecessor Plan as of December 31, 1982. (B) The amount determined under subparagraph (1) less the amount determined under subparagraph (2) below: (1) the Participant's account balance in the Westmark International Incorporated Discretionary Contribution Plan as of December 31, 1988. (2) the maximum amount of the Participant's account balance in the Westmark International Incorporated Discretionary Contribution Plan (excluding any rollover or transfer amount), as of December 31, 1988, which, when accumulated with 8% interest compounded annually to the later of January 1, 1989 and the Normal Retirement Date and then divided by 100, does not exceed the Participant's monthly benefit under this Plan as of December 31, 1988. Notwithstanding the foregoing, a Participant's Accrued Benefit shall not be less than his or her Accrued Benefit on the date immediately preceding the date on which any Plan term that affects the Accrued Benefit is amended. The Accrued Benefit is payable in the form of a Whole Life Annuity commencing at Normal Retirement Date. 4.2 Normal Retirement Benefit A Participant's monthly Normal Retirement Benefit shall equal his or her vested Accrued Benefit as of the date of Termination, and then adjusted for form of payment. 4.3 Early Retirement Benefit A Participant's monthly Early Retirement Benefit shall equal his or her vested Accrued Benefit as of the date of Termination, reduced by 1/2 of 1% for each month that the Early Retirement Date precedes the Normal Retirement Date, and then adjusted for form of payment. 4.4 Deferred Retirement Benefit A Participant's monthly Deferred Retirement Benefit shall equal his or her vested Accrued Benefit as of the date of Termination, and then adjusted for form of payment. Service and Earnings beyond the Normal Retirement Date shall be taken into 14 consideration. In no event shall the benefit provided under this paragraph be less than the retirement benefit to which the Participant would have been entitled if he or she had actually retired on the Normal Retirement Date, Actuarially increased to reflect the deferred commencement of payments. In the event a Participant continues working after the date benefits are required to commence following age 70-1/2 pursuant to Section 10.6, the Deferred Retirement Benefit shall be recalculated and adjusted annually. 4.5 Vested Termination Benefit A Participant's Vested Termination Benefit shall equal his or her Accrued Benefit as of the date of Termination, Actuarially reduced to reflect the early commencement of payment of benefits, and then adjusted for form of payment. 4.6 Reemployment After Retirement Upon reemployment, a retired Participant shall cease receiving retirement benefits under the Plan, until the earlier of subsequent Termination or the date benefits are required to commence following age 70-1/2 pursuant to Section 10.6. At the Participant's subsequent retirement, benefits payable shall be based on his or her total Credited Service and Earnings at the time of subsequent retirement, and shall be reduced by the Actuarially Equivalent value of benefits previously received by the Participant. In no event shall the benefit upon subsequent retirement, after any reduction for previously received benefits, be less than the initial retirement benefit. 4.7 Benefits For Terminated Participants Benefits under the Plan shall be determined and paid in accordance with the provisions of the Plan as in effect on the most recent date of a Termination of employment. 4.8 Benefits Payable From SpaceLabs Medical, Inc. Retirement Plan Notwithstanding anything herein to the contrary, if an individual was a Participant in this Plan and assets and liabilities attributable to the individual's Accrued Benefit under this Plan were transferred from this Plan to the SpaceLabs Medical, Inc. Retirement Plan between June 26 and December 31, 1992, the Accrued Benefit of such individual with respect to Credited Service earned prior to such transfer shall be payable from the SpaceLabs Medical, Inc. Retirement Plan and shall not be payable from this Plan. 15 SECTION 5 FORMS OF PAYMENT 5.1 Forms of Payment The following forms of benefit payments are available under this Plan: (a) Whole Life Annuity: A Whole Life Annuity shall be payable monthly from the Retirement Date to the first of the month preceding death. The amount of the monthly benefit shall equal the monthly Normal, Early or Deferred Retirement Benefit, whichever applies. (b) Joint and Survivor Annuity: A reduced Joint and Survivor Annuity shall be payable monthly to a retired Participant from the Retirement Date or Vested Termination Date to the first of the month preceding death. Following the Participant's death, a retirement benefit equal to 50% or 100% of the reduced amount payable to the retired Participant shall be payable for life to the joint annuitant, if living at the time of the Participant's death. A Participant may elect, before benefits commence, which percentage shall be payable to the joint annuitant. If the joint annuitant dies after the Participant's retirement income begins, the Participant's payments will be in the same reduced amount as is otherwise payable under the Joint and Survivor Annuity. If the joint annuitant dies prior to the date as of which the Participant's retirement income begins, any election of a form of benefit under this Section 5.1(b) shall be automatically canceled. If the Participant dies prior to the date as of which his or her retirement income is to begin, the joint annuitant shall not be entitled to receive any payments under this Section 5.1(b). However, a spouse joint annuitant may be entitled to a benefit under Section 6.1. The Joint and Survivor Annuity shall be Actuarially Equivalent to the Participant's retirement benefit payable in the form of a Whole Life Annuity. (c) Lump Sum: A Lump Sum distribution shall be a single sum payment. The Lump Sum distribution shall be Actuarially Equivalent to the Participant's retirement benefit payable in the form of a Whole Life Annuity, and shall represent the Participant's entire interest in the Plan. Lump sum distributions may not exceed $10,000. 5.2 Automatic Form of Benefit Unless a Participant elects otherwise, benefits shall be paid as provided below: 16 (a) Married Participants Any Participant who is married on his or her Annuity Starting Date or Vested Termination Date shall automatically be deemed to have elected the 50% Joint and Survivor Annuity option, effective as of such date, with his or her spouse on the Annuity Starting Date as the joint annuitant (the "Statutory 50% Joint and Survivor Annuity Option"). A married Participant may reject the Statutory 50% Joint and Survivor Annuity Option, or elect a nonspouse joint annuitant pursuant to Section 5.3, by filing a written notice with the Committee within ninety days prior to his or her Annuity Starting Date. Such notice must specify the form of payment elected, name the non-spouse joint annuitant if any, acknowledge the effect of the election, and must be signed by the Participant's spouse. The spouse's signature must be notarized or witnessed by a Plan representative. A married Participant may file a rejection or joint annuitant election notice or revoke any such notice at any time during the ninety-day election period immediately preceding the Annuity Starting Date. (b) Other Participants An unmarried Participant shall receive his or her retirement benefits in the form of a Whole Life Annuity. An unmarried Participant may reject the Whole Life Annuity option and elect either a Joint and Survivor Annuity or a Lump Sum option by filing a written notice with the Committee within ninety days prior to his or her Annuity Starting Date. An unmarried Participant may file or revoke such a notice at any time during the ninety-day period immediately preceding the Annuity Starting Date. 5.3 Limitation on Forms of Payment A Participant may elect a joint annuitant other than his or her spouse. A Participant must elect a form of payment under which payments will be completed within the Participant's and Beneficiary's life times or within their life expectancies. If a Participant elects a joint annuitant other than his or her spouse, the percentage selected by the Participant to be payable to the joint annuitant cannot exceed the percentage in the table set forth in Q&A A-6 of Section 1.401(a)(9)-2 of the proposed Income Tax Regulations, determined according to the age difference between the Participant and the joint annuitant. 5.4 Explanation of Forms of Payment The Committee shall furnish each Participant with a written explanation of the terms and conditions of the forms of payment within a reasonable period (at least thirty but not more than ninety days) prior to the Participant's Annuity Starting Date. 17 SECTION 6 DEATH AND DISABILITY BENEFITS 6.1 Spouse's Death Benefit In the event a vested Participant dies before commencing to receive retirement benefits or Vested Termination Benefits under the Plan, his or her spouse shall receive a pre-retirement death benefit provided they were married throughout the one year period ending on the date of death. The amount of the spouse's benefit and time of commencement is described below. The spouse of a nonvested Participant, or a Participant who has started to receive benefits, or a spouse who was married to the Participant less than one year, is not entitled to this death benefit. (a) Death Following Early Retirement Date If the Participant dies after he or she becomes eligible to elect an Early Retirement Date, the spouse's benefit shall be paid monthly from the first of the month coinciding with or following the Participant's death through the first of the month preceding the spouse's death. The benefit shall equal the amount payable to the surviving spouse under a 50% Joint and Survivor Annuity form of payment if the Participant had commenced receiving retirement benefit payments as of the date spouse benefits commence, based upon the Participant's vested Accrued Benefit at the date of death. (b) Death Prior to Early Retirement Date If the Participant dies prior to becoming eligible to elect an Early Retirement Date, the spouse's benefit shall be paid monthly from the Participant's earliest Retirement Date (determined as if he or she had survived) through the first of the month preceding the spouse's death. The benefit shall equal the amount payable to the surviving spouse under a 50% Joint and Survivor Annuity form of payment if the Participant had Terminated on the date of death, survived to the date spouse benefits commence and commenced receiving retirement benefit payments on such date. Notwithstanding the foregoing, in the event a Participant dies prior to Normal Retirement Date, a spouse entitled to benefits under (a) or (b) above, may elect prior to the date benefits commence thereunder, to postpone commencement of benefits to the first day of any month on or before the Participant's Normal Retirement Date determined as if he or she had survived. The benefit payable at such delayed commencement date shall be the Actuarial Equivalent of the spouse's death benefit payable at the terms specified under (a) or (b) above. 18 6.2 Disability Benefits A Participant who becomes Disabled shall be deemed to be in Service for purposes of vesting and benefit accrual until the earlier of (i) the date of recovery from Disability, (ii) an Early Retirement Date elected by the Participant, or (iii) Normal Retirement Date. For purposes of determining a Participant's Accrued Benefit, average Earnings for the twelve months preceding the date of Termination are deemed to be in effect during Disability. 19 SECTION 7 VESTING 7.1 Vesting Each Participant shall have a vested, nonforfeitable right to his or her Accrued Benefit multiplied by the appropriate vesting percentage in accordance with the following table: Periods of Service Percent Vested Less than 5 years 0% 5 years or more 100% In addition, each Participant shall have a 100% nonforfeitable right to his or her Accrued Benefit on the first day of the month preceding his or her Normal Retirement Date, provided he or she is an Employee on such date. An Employee who Terminates with 0% vested shall be deemed "nonvested." 7.2 Termination Prior to Vesting (a) Forfeiture of Service In the event a nonvested Participant incurs a Period of Severance, and the number of years in such Period of Severance equals or exceeds five consecutive years, his or her Period of Service and Credited Service preceding the Severance from Service Date shall be disregarded, and any Accrued Benefit earned prior to the Severance from Service Date shall be forfeited. If a vested Participant incurs a Period of Severance, all Periods of Service and Credited Service before and after the Period of Severance shall be aggregated. (b) Deemed Cash-Out of Accrued Benefit If an Employee Terminates at a time when the present value of the Employee's vested Accrued Benefit is zero, the Employee shall be deemed to have received a distribution of such vested Accrued Benefit, and shall no longer be a Participant. If the individual resumes employment with the Employer before incurring a five-consecutive-year Period of Severance, the Accrued Benefit will be restored to the amount of such Accrued Benefit on the date of the deemed distribution. 7.3 Forfeitures Any forfeitures arising under this Plan shall be used only to offset future Employer contributions and shall not affect any Participant's Accrued Benefit. 20 SECTION 8 LIMITATIONS ON BENEFITS 8.1 Limitation on Benefits (a) General Rule In the event the Plan terminates, the benefit of any highly compensated employee (and any highly compensated former employee) shall be limited to a benefit that is nondiscriminatory under Code Section 401(a)(4). (b) Limit on Annual Payments Annual payments to an Employee in the "Restricted Group" (as defined below) are restricted to an amount equal to the payments that would be made on behalf of the Employee under a single life annuity that is Actuarially Equivalent to the sum of the Employee's Accrued Benefit and the Employee's other benefits under the Plan (other than a Social Security supplement), plus the amount of the payments that the Employee is entitled to receive under a Social Security supplement. This restriction will not apply if: (1) After payment to an Employee in the Restricted Group of all "Benefits" (as defined below), the value of Plan assets equals or exceeds 110% of the value of current liabilities, as defined in Code Section 412(l)(7), (2) The value of the Benefits for an Employee in the Restricted Group is less than 1% (one percent) of the value of current liabilities, or (3) The value of the Benefits for an Employee in the Restricted Group does not exceed the amount described in Code Section 411(a)(11)(A). (c) Definitions (1) the Restricted Group consists of the twenty-five highest-paid current and former Highly Compensated Employees (as defined in Code Section 414(q)), or all current and former Highly Compensated Employees if less than twenty-five. (2) Benefit means loans in excess of the amounts set forth in Code Section 72(p)(2)(A), any periodic income, any withdrawal values payable to a living employee, and any death benefits not provided for by insurance on the Employee's life. 21 (d) Regulatory Authority This Section 81 is intended to comply with Treasury regulation (S)1.401(a)(4)-5(b), and shall be superseded to the extent any provision of such regulation in final form conflicts with the limitations stated herein. 8.2 Maximum Annual Benefit Payable Under the Plan For purposes of this Section 8.2, the Employer and any Affiliated Companies shall be considered a single employer, to the extent required by the Code. (a) Primary Rule Notwithstanding any other Plan provision to the contrary, the annual Employer provided benefit payable to or on behalf of a Participant under the Plan (after any adjustments required under the Plan to reflect commencement of benefits other than at Normal Retirement Date, an optional form of payment or death benefit coverage) after 1982 shall not exceed the lesser of: (i) $90,000 (adjusted in accordance with this Section 8.2) or, if greater, the Participant's current Accrued Benefit on December 31, 1982, or (ii) the Participant's average annual Compensation from the Employer for the consecutive calendar years (not in excess of three such years) during which he was an active Participant in the Plan and for which such average is highest. (b) Cost-of-Living Adjustment The $90,000 limit prescribed above shall be automatically adjusted for cost-of-living increases, to the maximum permissible dollar limitation determined by the Commissioner of Internal Revenue. The dollar amount applicable in computing the benefit payable to any Participant shall be the dollar amount in effect for the calendar year in which the benefit commences. For 1992, the limit is $112,221. (c) Adjustment for Early or Late Retirement For purposes of 8.2 and 8.3, if the Participant's benefit commences before Social Security Retirement Age, the limit prescribed in Section 8.2(a)(1) shall be Actuarially reduced to reflect such early commencement. If the Participant's benefit commences after Social Security Retirement Age, the limit prescribed in Section 8.2(a)(1) shall be Actuarially increased for purposes of Section 8.2 and Section 8.3 to reflect such late commencement. 22 (d) Annual Benefit Notwithstanding the foregoing, if the benefit to be paid to a Participant under the Plan is not in the form of an Annual Benefit as described below, the benefit considered to be payable to a Participant under the Plan for purposes of Sections 8.2 and 8.3 shall be Actuarially adjusted to the extent required under Section 415(b)(2) of the Code. For purposes of the foregoing, Annual Benefit means the benefit payable annually in the form of a straight life annuity without ancillary benefits or in the Statutory 50% Joint and Survivor Annuity Option. (e) Interest Rate Any Actuarial adjustments under this Section 8.2 shall be based on the Actuarial factors applicable for comparable purposes under the Plan on the applicable date, except that (i) the interest rate assumption for purposes of adjusting the $90,000 limitation for benefits commencing before Social Security Retirement Age shall be the greater of 5% or the Plan rate; and (ii) the interest rate assumption for purposes of adjusting the $90,000 limitation for benefits commencing after Social Security Retirement Age shall be the lesser of 5% or the Plan rate. (f) Special Provisions Regarding Participants With Fewer Than Ten Years of Participation or Service In the case of any Participant who participated in the Plan for fewer than ten years, the maximum dollar benefit otherwise applicable under Section 8.2(a)(i) shall be multiplied by a fraction whose numerator is the Participant's years of participation in the Plan (including fractions thereof, but not less than one) and whose denominator is ten. In the case of any Participant who was employed by the Employer for fewer than ten years, the maximum benefit otherwise applicable under Sections 8.2(a)(ii) and 8.3 shall be multiplied by a fraction whose numerator is the Participant's years of employment with the Employer (including fractions thereof, but not less than one) and whose denominator is ten. (g) Transition Rule The limitations of this Section 8.2 shall not reduce a Participant's annual benefit to less than his or her Accrued Benefit as of December 31, 1986, disregarding any change in the terms of the Plan and any cost-of-living adjustments after May 5, 1986. 23 (h) Aggregation With Other Defined Benefit Plans If a Participant also participates in any other defined benefit pension plan maintained by the Employer, the provisions of Section 8.2 and 8.3 shall be applied on an aggregate basis to the benefits payable under this Plan and each such other plan. Any reduction in the aggregate benefits payable under this Plan and any such other plan due to the application of this Section shall be made on a pro rata basis. 8.3 Additional Limitation Relating to Defined Contribution Plans (a) Primary Rule For Participants who participate in this Plan and a defined contribution plan maintained by the Employer, the sum of (1) and (2) below for any calendar year may not exceed 1.0. (i) The defined benefit plan fraction for any year is equal to the quotient of (i) divided by (ii) below expressed as a fraction: (i) The projected annual benefit (determined by projecting service, but not Earnings, to normal retirement age) of the Participant under the Plan determined as of the close of the year. (ii) The lesser of: (a) 1.25 multiplied by the limitation determined under Section 8.2(a)(1) in effect for such year, or (b) 1.4 multiplied by the limitation determined under Section 8.2(a)(2) (generally 100% of the Participant's average annual Compensation). (ii) The defined contribution plan fraction for any year is equal to the quotient of (i) divided by (ii) below expressed as a fraction: (i) The sum of the "annual additions" to the Participant's accounts for the current year, as of the close of the year, and for all prior years. (ii) The sum of the lesser of the following amounts for such year and for each prior year of service with the Employer (regardless of whether a plan was in existence during those years): (a) 1.25 multiplied by the dollar limitation in effect for defined contribution plans under Section 415 of the Code for such year, or (b) 1.4 multiplied by 25% of a Participant's Compensation for such year. (b) Remedy If such sum exceeds 1.0, the benefit under this defined benefit Plan shall be reduced to the extent necessary to satisfy the limitations of this section. 24 SECTION 9 TOP HEAVY PROVISIONS 9.1 Scope Notwithstanding any Plan provision to the contrary, for any Plan Year in which the Plan is Top Heavy within the meaning of Section 416(g) of the Code, the provisions of this Section 9 shall govern to the extent they conflict with or specify additional requirements to the Plan provisions governing Plan Years which are not Top Heavy. 9.2 Top Heavy Status (a) Top Heavy This Plan shall be "Top Heavy" if, as of the Determination Date, (1) the sum of the Aggregate Accounts of Key Employees, or (2) the Present Value of Accrued Benefits of Key Employees under this Plan and any plan of an Aggregation Group, exceeds 60% of the Aggregate Accounts or the Present Value of Accrued Benefits of all Participants under this Plan and any plan of an Aggregation Group. The Present Value of Accrued Benefits and/or Aggregate Account balance of a Participant who was previously a Key Employee but is no longer a Key Employee (or his or her Beneficiary), shall not be taken into account for purposes of determining Top Heavy status. Further, a Participant's Present Value of Accrued Benefits and/or Aggregate Account balance shall not be taken into account if he or she has not performed services for the Affiliated Companies during the five year period ending on the Determination Date. (b) Super Top Heavy This Plan shall be "Super Top Heavy" if, as of the Determination Date, (1) the sum of the Aggregate Accounts of Key Employees, or (2) the Present Value of Accrued Benefits of Key Employees under this Plan and any plan of an Aggregation Group, exceeds 90% of the Aggregate Accounts or the Present Value of Accrued Benefits of all Participants under this Plan and any plan of an Aggregation Group. (c) Determination Date Whether the Plan is Top Heavy for any Plan Year shall be determined as of the Determination Date. "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (d) Valuation Date 25 "Valuation Date" means, for purposes of determining Top Heaviness, the Determination Date. (e) Aggregate Account "Aggregate Account" means, with respect to a Participant, his or her adjusted account balance in a defined contribution plan, as determined under the top heavy provisions of such plan. (f) Present Value of Accrued Benefits "Present Value of Accrued Benefits" means the sum of: (i) the Actuarial Equivalent present value of the accrued normal retirement benefit under the Plan as of the Valuation Date, and (ii) distributions prior to the Valuation Date, made during the Plan Year that contains the Determination Date and the four preceding Plan Years. Unrelated rollovers or transfers from this plan shall be considered distributions. A related rollover or transfer from this Plan shall not be considered a distribution. An unrelated rollover or transfer is one which is both initiated by the Employee and made between plans of different employers. A related rollover or transfer is one which is either not initiated by the Employee or made between plans of the same employer. (g) Key Employee "Key Employee" means an Employee or former Employee (and his or her Beneficiaries) who, at any time during the Plan Year containing the Determination Date or any of the four preceding Plan Years, is included in one of the following categories as within the meaning of Section 416(i) of the Code and regulations thereunder. (i) an officer of the Employer whose annual aggregate Compensation from the Affiliated Companies exceeds 50% of the dollar limitation under Section 415(c)(1)(A) of the Code ($56,111 for the Plan Year ending in 1992), provided that no more than 50 Employees shall be considered officers, or if less, the greater of 10% of the Employees or 3, (ii) one of the ten Employees owning the largest interest in the Employer who owns more than a 0.5% interest of the Employer, and whose annual aggregate Compensation from the Affiliated Companies exceeds the dollar limitation under Section 415(c)(1)(A) of the Code ($30,000 for the Plan Year ending in 1992), (iii) an Employee who owns more than 5% of the Employer, or 26 (iv) an Employee who owns more than 1% of the Employer with annual aggregate Compensation from the Affiliated Companies that exceeds $150,000. (h) Aggregation Group "Aggregation Group" means the group of plans that must be considered as a single plan for purposes of determining whether the plans within the group are Top Heavy (Required Aggregation Group), or the group of plans that may be aggregated for purposes of Top Heavy testing (Permissive Aggregation Group). The Determination Date for each plan must fall within the same calendar year in order to aggregate the plans. (i) The Required Aggregation Group includes each plan of the Affiliated Companies in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Affiliated Companies which, during this period, enables any plan in which a Key Employee participates to meet the minimum participation standards or nondiscriminatory contribution requirements of Code Sections 401(a)(4) and 410. (ii) A Permissive Aggregation Group may include any plan sponsored by an Affiliated Company, provided the group as a whole continues to satisfy the minimum participation standards and nondiscriminatory contribution requirements of Code Sections 401(a)(4) and 410. Each plan belonging to a Required Aggregation Group shall be deemed Top Heavy or non-Top Heavy in accordance with the group's status. In a Permissive Aggregation Group that is determined Top Heavy only those plans that are required to be aggregated shall be Top Heavy. In a Permissive Aggregation Group that is not Top Heavy, no plan in the group shall be Top Heavy. 9.3 Minimum Benefit (a) General Rule For any Top Heavy Plan Year, a non-Key Employee who completes a Year of Service shall have an Accrued Benefit at least equal to the minimum benefit described herein. The minimum Accrued Benefit at any point in time equals the lesser of: (i) two percent multiplied by Top Heavy Years of Service, or (ii) twenty percent, multiplied by such Participant's "average Compensation." "Average Compensation" means a Participant's average Compensation for the five consecutive years when such Participant had the highest aggregate Compensation 27 from the Employer. However, Compensation received for non-Top Heavy Plan Years shall be disregarded. The benefit described herein is expressed as an annual benefit in the form of a single life annuity (with no ancillary benefits), commencing at normal retirement age. A non-Key Employee shall not be denied this minimum benefit because he or she was not employed on a specified date, failed to make any mandatory Employee contribution, or failed to earn a specified amount of Compensation. (b) Special Two Plan Rule Where this Plan and a defined contribution plan belong to an Aggregation Group that is determined Top Heavy, the Employer shall not be required to provide the minimum benefit under (a) above on behalf of any non-Key Participant who also participates in the defined contribution plan if the Employer contributions and forfeitures under the defined contribution plan equal 5% of each non-Key Participant's Compensation. 9.4 Benefit Limitation For any Top Heavy Plan Year in which the Employer does not make the extra minimum allocation provided below, 1.0 shall replace the 1.25 factor found in the denominators of the defined benefit and defined contribution plan fractions for purposes of calculating the combined limitation on benefits under a defined benefit and defined contribution plan pursuant to Section 415(e) of the Code (see Section 8.3). If this Plan is Top Heavy, but is not Super Top Heavy, the above referenced fractions shall remain unchanged provided the Employer provides an extra minimum Accrued Benefit for each non-Key Employee. The extra benefit (in addition to the minimum benefit set forth in Section 9.3) shall equal the lesser of: (i) one percent multiplied by Top Heavy years of Service, or (ii) ten percent, multiplied by such Participant's "average Compensation", as defined in Section 9.3. 9.5 Vesting (a) Top Heavy Schedule For any Top Heavy Plan Year, each Participant who completes an Hour of Service in such Year shall become vested and have a nonforfeitable right to retirement benefits he or she has earned under the Plan in accordance with the following table: 28 Periods of Service Vesting Percentage ------------------ ------------------ Less than 2 Years 0% 2 Years 20% 3 Years 40% 4 Years 60% 5 Years 100% Provided, however, that a Participant's vesting percentage shall not be less than the percentage determined under the table in Section 7.1. (b) Return to Non-Top Heavy Status If the Plan becomes Top Heavy and ceases to be Top Heavy in any subsequent Plan Year, the vesting schedule shall automatically revert to the vesting schedule in effect before the Plan became Top Heavy. Such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan, and shall not cause a reduction of any Participant's nonforfeitable interest in the Plan on the date of such amendment. A Participant with three or more Years of Service with the Employer as of the end of the election period, may elect to remain covered by the Top Heavy vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (i) the adoption date of the amendment, (ii) the effective date of the amendment, or (iii) the date the Participant receives written notice of the amendment from the Committee. 29 SECTION 10 ADMINISTRATION OF THE PLAN 10.1 Plan Administrator The Plan Administrator shall be the Employer. The Compensation Committee of the Board of Directors of the Employer shall appoint a Committee composed of one or more persons which shall carry out the general administration of the Plan. Every member of the Committee shall be deemed a fiduciary. No Committee member who is an Employee shall receive compensation with respect to his or her service on the Committee. Any member of the Committee may resign by delivering written resignation to the Compensation Committee of the Board of Directors of the Employer and to the Committee. The Compensation Committee of the Board of Directors of the Employer may remove or replace any member of the Committee at any time. 10.2 Organization and Procedures The Compensation Committee of the Board of Directors of the Employer shall designate a chairman from the members of the Committee. The Committee shall appoint a secretary, who may or may not be a member of the Committee. The secretary shall have the primary responsibility for keeping a record of all meetings and acts of the Committee and shall have custody of all documents, the preservation of which shall be necessary or convenient to the efficient functioning of the Committee. The chairman of the Committee shall be the agent of the Plan for service of legal process. All reports required by law may be signed by the chairman on behalf of all members of the Committee. The Committee shall act by a majority of its members in office and may adopt such by-laws and regulations as it deems desirable for the conduct of its affairs. 10.3 Duties and Authority of the Committee (a) Administrative Duties The Committee shall administer the Plan in a nondiscriminatory manner for the exclusive benefit of Participants and their Beneficiaries. The Committee shall perform all such duties as are necessary to supervise the administration of the Plan and to control its operation in accordance with the terms thereof, including, but not limited to, the following: (i) Make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; (ii) Interpret the provisions of the Plan and determine any question arising under the Plan, or in connection with the administration or operation thereof; 30 (iii) Determine all considerations affecting the eligibility of any Employee to be or become a Participant; (iv) Determine eligibility for and amount of retirement benefits for any Participant; (v) Authorize and direct the Trustee with respect to all disbursements of benefits under the Plan; (vi) Employ and engage such persons, counsel and agents and obtain such administrative, clerical, medical, legal, audit and actuarial services as it may deem necessary in carrying out the provision of the Plan; (vii) Delegate and allocate specific responsibilities and duties imposed by the Plan to one or more Employees, officers or such other persons as the Committee deems appropriate. (b) Investment Authority The Trustee and/or designated Investment Manager shall have responsibility or authority with respect to the management, acquisition, disposition or investment of Plan assets. (c) General Authority The Committee shall have all powers necessary or appropriate to carry out its duties, including the discretionary authority to interpret the provisions of the Plan and the facts and circumstances of claims for benefits. Any interpretation or construction of or action by the Committee with respect to the Plan and its administration shall be conclusive and binding upon any and all parties and persons affected hereby, subject to the exclusive appeal procedure set forth in Section 10.7. 10.4 Expenses All reasonable expenses which are necessary to operate and administer the Plan may be deducted from the Trust Fund or, at the election of the Employer, paid directly by the Employer. 10.5 Bonding and Insurance To the extent required by law, every Committee member, every fiduciary of the Plan and every person handling Plan funds shall be bonded. The Committee shall take such steps as are necessary to assure compliance with applicable bonding requirements. The Committee may apply for and obtain fiduciary liability insurance insuring the Plan against damages by reason of breach of fiduciary responsibility at the Plan's expense and insuring each fiduciary against liability to the extent permissible by law at the Employer's expense. 31 10.6 Commencement of Benefits (a) Conditions of Payment Benefit payments under the Plan shall not be payable prior to the fulfillment of the following conditions: (i) The Committee has been furnished with such applications, proofs of birth or death, address, form of benefit election, spouse consent if required, and other information the Committee deems necessary; (ii) The Participant has Terminated employment with the Employer, reached age 70-1/2 or died; and (iii) The Participant or Beneficiary is eligible to receive benefits under the Plan as determined by the Committee. (b) Commencement of Payment The payment of benefits shall commence no later than 60 days after the retirement date specified herein for commencement of such benefits, provided that payments shall not commence later than the April 1 following the calendar year in which the Participant reaches age 70- 1/2. In no event shall payments commence in a form other than the automatic form described in Section 5.2 prior to the Participant's Normal Retirement Age if the Actuarially Equivalent present value of the Participant's Accrued Benefit at the time benefits commence exceeds $3,500 without the written consent of the Participant and the spouse. Spouse consent must acknowledge the effect of such election and must be notarized or witnessed by a Plan representative. If the information required in Section 10.6(a) above is not available prior to such date, the amount of payment will not be ascertainable. In such event, the commencement of payment shall be delayed until no more than 60 days after the date the amount of such payment is ascertainable, at which time a lump-sum payment retroactive to the applicable date shall be made and monthly payments commenced. 10.7 Appeal Procedure (a) Submission of Claim A claim for benefit payment shall be considered filed when an application form is submitted to the Committee. 32 (b) Notice of Denial Any time a claim for benefits is wholly or partially denied, the Participant or Beneficiary (hereinafter "Claimant") shall be given written notice of such action within 90 days after the claim is filed, unless special circumstances require an extension of time for processing. (If there is an extension, the Claimant shall be notified of the extension and the reason for the extension within the initial 90 day period. The extension shall not exceed 180 days after the claim is filed.) Such notice will indicate the reason for denial, the pertinent provisions of the Plan on which the denial is based, an explanation of the claims appeal procedure set forth herein, and a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary. (c) Right to Request Review Any person who has had a claim for benefits denied by the Committee, who disputes the amount of benefit payment determined by the Committee, or who is otherwise adversely affected by action of the Committee, shall have the right to request review by the Committee. Such request must be in writing, and must be made within 60 days after such person is advised of the Committee's action. If written request for review is not made within such 60-day period, the Claimant shall forfeit his or her right to review. The Claimant or a duly authorized representative of the Claimant may review all pertinent documents and submit issues and comments in writing. (d) Review of Claim The Committee shall then review the claim. It may hold a hearing if it deems it necessary and shall issue a written decision reaffirming, modifying or setting aside its former action within 60 days after receipt of the written request for review, or 120 days if special circumstances, such as a hearing, require an extension. The Claimant shall be notified in writing of any such extension within 60 days following the request for review. A copy of the decision shall be furnished to the Claimant. The decision shall set forth its reasons and pertinent Plan provisions on which it is based. The decision shall be final and binding upon the Claimant and the Committee and all other persons involved. 10.8 Plan Administration - Miscellaneous (a) Limitations on Assignments Benefits under the Plan may not be assigned, sold, transferred, or encumbered, and any attempt to do so shall be void. The interest of a Participant in benefits under the Plan shall not be subject to debts or liabilities of any kind and shall not be subject to attachment, garnishment or other legal process, except as provided in Section 10.8 relating to Domestic Relations Orders, or otherwise permitted by law. 33 (b) Masculine and Feminine, Singular and Plural Whenever used herein, pronouns shall include the opposite gender, and the singular shall include the plural and the plural shall include the singular whenever the context shall plainly so require. (c) Small Benefits In cases where the Actuarially Equivalent present value of a vested or payable benefit is less than or equal to the maximum permissible amount under the Code which may be distributed without the consent of a Participant or his or her spouse (in 1990, this amount was $3,500), the Committee shall direct such present value be paid in a lump sum distribution as soon as practical following termination and prior to the Annuity Starting Date. No payment shall be made pursuant to this Section 10.8(c) after a Participant's Annuity Starting Date unless the Participant and his spouse consent to such payment in a written document filed with the Committee. (d) No Additional Rights No person shall have any rights in or to the Trust Fund, or any part thereof, or under the Plan, except as, and only to the extent, expressly provided for in the Plan. Neither the establishment of the Plan, the accrual of benefits under the Plan nor any action of the Employer or the Committee shall be held or construed to confer upon any person any right to be continued as an Employee, or, upon dismissal, any right or interest in the Trust Fund other than as herein provided. The Employer expressly reserves the right to discharge any Employee at any time. (e) Governing Law This Plan shall be construed in accordance with applicable federal law and the laws of the State of Washington, wherein venue shall lie for any dispute arising hereunder. (f) Disclosure to Participants Each Participant shall be advised of the general provisions of the Plan and, upon written request addressed to the Committee, shall be furnished any information requested regarding the Participant's status, rights and privileges under the Plan as may be required by law. (g) Income Tax Withholding Requirements Any retirement benefit payment made under the Plan shall be subject to any applicable income tax withholding requirements. For this purpose, the Committee shall provide the Trustee with any information the Trustee needs to satisfy such 34 withholding obligations and with any other information that may be required by regulations promulgated under the Code. (h) Severability If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan which shall be construed as if said illegal or invalid provision had never been included. (i) Facility of Payment In the event any benefit under this Plan shall be payable to a person who is under legal disability or is in any way incapacitated so as to be unable to manage his or her financial affairs, the Committee may direct payment of such benefit to a duly appointed guardian, committee or other legal representative of such person, or in the absence of a guardian or legal representative, to a custodian for such person under a Uniform Gifts to Minors Act or to any relative of such person by blood or marriage, for such person's benefit. Any payment made in good faith pursuant to this provision shall fully discharge the Employer and the Plan of any liability to the extent of such payment. (j) Correction of Errors Any Employer contribution to the Trust Fund made under a mistake of fact (or investment proceeds of such contribution if a lesser amount) shall be returned to the Employer within one year after payment of the contribution. In the event an incorrect amount is paid to a Participant or Beneficiary, any remaining payments may be adjusted to correct the error. The Committee may take such other action it deems necessary and equitable to correct any such error. 10.9 Domestic Relations Orders Notwithstanding any Plan provisions to the contrary, benefits under the Plan may be paid to someone other than the Participant, Beneficiary or joint annuitant, pursuant to a Qualified Domestic Relations Order, in accordance with Section 414(p) of the Code. A Qualified Domestic Relations Order is a judgement, decree, or order ("Order") (including approval of a property settlement agreement) that: (a) relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant; (b) is made pursuant to a state domestic relations law (including a community property law); (c) creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable to a Participant under the Plan; 35 (d) specifies the name and last known address of the Participant and each alternate payee; (e) specifies the amount or method of determining the amount of benefit payable to an alternate payee; (f) specifies the number of payments or period during which payments are to be made; (g) names each plan to which the order applies; (h) does not require any form, type or amount of benefit not otherwise provided under the Plan; and (i) does not conflict with a prior Domestic Relations Order that meets the requirements of this section. Payments to an alternate payee pursuant to a Qualified Domestic Relations Order may commence at the earliest date on which a Participant is eligible to elect an Early Retirement Date as if the Participant retired on such earliest date, regardless of whether the Participant continues working after that date. The Committee shall determine whether an order meets the requirements of this section within a reasonable period after receiving an order. The Committee shall notify the Participant and any alternate payee that an order has been received and with respect to benefits which are in pay status shall establish a separate account under the Plan for any alternate payee pending determination that an order meets the requirements of this section. If within eighteen months after such separate account is established the order has not been determined to be a qualified Order, the amount in the separate account shall be distributed to the individual who would have been entitled to such amount if there had been no order. 10.10 Plan Qualification Any modification or amendment of the Plan may be made retroactive, as necessary or appropriate, to establish and maintain a "qualified plan" pursuant to Section 401 of the Code, and ERISA and regulations thereunder and the exempt status of the Trust Fund under Section 501 of the Code. 10.11 Deductible Contribution Notwithstanding anything herein to the contrary, any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may within one year following a final determination of the disallowance, demand repayment of such disallowed contribution and the Trustee shall return such contribution less any losses attributable thereto to the Employer within one year following the disallowance. 36 10.12 Payment of Benefits Through Purchase of Annuity Contract In lieu of paying benefits directly from the Trust Fund to a Participant or his Beneficiary, the Trustee may purchase, with Trust Fund assets, an individual annuity contract from an insurance company rated A+ by A.M. Best Company, Inc. which, as far as possible, provides benefits equal to (or Actuarially Equivalent to) those provided in the Plan for such Participant or Beneficiary, but provides no optional form of retirement income or benefit which would not be permitted under the Plan, whereupon the liability of the Trust Fund and of the Plan will cease and terminate with respect to such benefits that are so purchased and for which the premiums are duly paid. Such an individual annuity contract may be purchased by the Trustee on a single-premium basis or on the basis of annual premiums payable over a period of years and may be purchased at any time on or after the Participant's Vested Termination Date, Retirement Date or death to provide the benefits due under the Plan to the Participant or Beneficiary on or after the date of such purchase. Any annuity contract distributed by the Trustee to a Participant or Beneficiary under the provisions of the Plan shall bear on the face thereof the designation "NOT TRANSFERABLE", and such contract shall contain a provision to the effect that the contract may not be sold, assigned, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than the issuer thereof. 37 SECTION 11 AMENDMENT AND TERMINATION 11.1 Amendment General The Employer shall have the right to amend, terminate, or partially terminate this Plan at any time subject to any advance notice or other requirements of ERISA. 11.2 Amendment - Consolidation or Merger In the event the Plan's assets and liabilities are merged into, transferred to or otherwise consolidated with any other retirement plan, then such must be accomplished so as to ensure that each Participant would (if the other retirement plan then terminated) receive a benefit immediately after the merger, transfer or consolidation, which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, transfer or consolidation (as if the Plan had then terminated). This provision shall not be construed as limiting the powers of the Employer to appoint a successor Trustee. 11.3 Termination of the Plan The termination of the Plan shall not cause or permit any part of the Trust Fund to be diverted to purposes other than for the exclusive benefit of the Participants, or cause or permit any portion of the Trust Fund to revert to or become the property of the Employer at any time prior to the satisfaction of all liabilities with respect to the Participants. Upon termination of this Plan, the Committee shall continue to act for the purpose of complying with the preceding paragraph and shall have all power necessary or convenient to the winding up and dissolution of the Plan as herein provided. While so acting, the Committee shall be in the same status and position with respect to other persons as if the Plan remained in existence. 11.4 Allocation of the Trust Fund on Termination of Plan In the event of a complete Plan termination, the right of each Participant to benefits accrued to the date of such termination that would be vested under the provisions of the Plan in the absence of such termination shall continue to be vested and nonforfeitable; and the right of each Participant to any other benefits accrued to the date of termination shall be fully vested and nonforfeitable to the extent then funded under the priority rules set forth in Section 4044 of ERISA. In any event, a Participant or a Beneficiary shall have recourse only against Plan assets for the payment of benefits thereunder, subject to any applicable guarantee provisions of Title IV of ERISA. The Committee shall direct the Trustee to allocate Trust assets to those affected Participants to the extent and in the order of preference set forth in Section 4044 of ERISA. The assets so allocated shall be distributed, as determined by the Committee, either wholly or in part by purchase of 38 nontransferable annuity contracts or lump-sum payments. If Trust Fund assets as of the date of Plan termination exceed the amounts required under the priority rules set forth in Section 4044 of ERISA, such excess shall, after all liabilities of the Plan have been satisfied, revert to the Employer to the extent permitted by applicable law. If at any time the Plan is terminated with respect to any group of Participants under such circumstances as to constitute a partial Plan termination within the meaning of Section 411(d)(3) of the Code, each affected Participant's right to benefits that have accrued to the date of partial termination that would be vested under the provisions of the Plan in the absence of such termination shall continue to be so vested; and the right of each affected Participant to any other benefits accrued to the date of such termination shall be vested to the extent assets would be allocable to such benefits under the priority rules set forth in Section 4044 of ERISA in the event of a complete Plan termination. In any event, affected Participants shall have recourse only against Plan assets for payment of benefits thereunder, subject to any applicable guarantee provisions of Title IV of ERISA. Subject to the foregoing, the vested benefits of such Participants shall be payable as though such termination had not occurred; provided, however, that the Committee, in its discretion, subject to any necessary governmental approval, may direct that the amounts held in the Trust Fund that are allocable to the Participants as to whom such termination occurred be segregated by the Trustee as a separate plan. The assets thus allocated to such separate plan shall be applied for the benefit of such Participants in the manner described in the preceding paragraph. 39 SECTION 12 FUNDING 12.1 Contributions to the Trust As a part of this Plan the Employer shall maintain a Trust. From time to time, the Employer shall make such contributions to the Trust as the Committee determines, with the advice of its actuary, are required to maintain the Plan on a sound actuarial basis. 12.2 Trust Fund for Exclusive Benefit of Participants The Trust is for the exclusive benefit of Participants. Except as provided in Sections 10.7(j) (Correction of Errors), 10.9 (Domestic Relations Orders) and 10.11 (Deductible Contributions), no portion of the Trust shall be diverted to purposes other than this or revert to or become the property of the Employer at any time prior to the satisfaction of all liabilities with respect to the Participants. 12.3 Disposition of Credits and Forfeitures In no event shall any credits or forfeitures which may arise under the Plan be used to increase benefits under the Plan. 12.4 Trustee As a part of this Plan, the Employer has entered into a trust agreement with a Trustee. The Employer has the power and duty to appoint the Trustee and it shall have the power to remove the Trustee and appoint successors at any time. As a condition to exercising its power to remove any Trustee hereunder, the Employer must first enter into an agreement with a successor Trustee. 12.5 Investment Manager The Employer has the power to appoint, remove or change from time to time an Investment Manager to direct the investment of all or a portion of the Trust Fund held by the Trustee. For purposes of this section "Investment Manager" shall mean any fiduciary (other than the Trustee) who: (a) has the power to manage, acquire, or dispose of any asset of the Plan; (b) is either (i) registered as an investment adviser under the Investment Advisers Act of 1940, or (ii) is a bank, or 40 (iii) is an insurance company qualified under the laws of more than one state to perform the services described in subparagraph (a); and (c) has acknowledged in writing that he, she or it is a fiduciary with respect to the plan. 41 SECTION 13 FIDUCIARIES 13.1 Limitation of Liability of the Employer and Others No Participant shall have any claim against the Employer, or the Committee, or against their directors, officers, members, agents or representatives, for any benefits under the Plan, and such benefits shall be payable solely from the Trust; nor, to the extent permitted by law, shall the Employer, the Committee or their directors, officers, members, agents or representatives incur any liability to any person for any action taken or suffered or omitted to be taken by them under the Plan in good faith. 13.2 Indemnification of Fiduciaries In order to facilitate the recruitment of competent fiduciaries, the Employer adopting this Plan agrees to provide the indemnification as described herein. This provision shall apply to Employees who are considered Plan fiduciaries including without limitation, Committee members, any agent of the Committee, or any other officers, directors or Employees. Notwithstanding the preceding, this provision shall not apply and indemnification will not be provided for any Trustee or Investment Manager appointed as provided in this Plan. 13.3 Scope of Indemnification The Employer agrees to indemnify an Employee fiduciary as described above for all acts taken in good faith in carrying out his or her responsibilities under the terms of this Plan or other responsibilities imposed upon such fiduciary by ERISA. This indemnification for all acts is intentionally broad but shall not provide indemnification for embezzlement or diversion of Plan assets for the benefit of the Employee fiduciary. The Employer agrees to indemnify Employee fiduciaries described herein for all expenses of defending an action by a Participant, Beneficiary or government entity, including all legal fees for counsel selected with the consent of the Employer and other costs of such defense. The Employer will also reimburse an Employee fiduciary for any monetary recovery in any court or arbitration proceeding. In addition, if the claim is settled out of court with the concurrence of the Employer, the Employer will indemnify an Employee fiduciary for any monetary liability under said settlement. The Employer shall have the right, but not the obligation, to conduct the defense of such persons in any proceeding to which this Section 13.3 applies. The Employer may satisfy its obligations under this Section 13.3 in whole or in part through the purchase of a policy or policies of insurance providing equivalent protection. 42 The Advanced Technology Laboratories, Inc. Retirement Plan is adopted by Advanced Technology Laboratories, Inc. IN WITNESS WHEREOF, the Employer has caused this Plan to be duly executed on this 31st day of December, 1993. FOR ADVANCED TECHNOLOGY LABORATORIES, INC. /s/ W. Brinton Yorks, Jr. /s/ Harvey N. Gillis - ------------------------- ---------------------------------------------- Witness Authorized Officer Sr. Vice President and Chief Financial Officer ---------------------------------------------- Title llk\atc\atc.dbe 43 APPENDIX I TO THE ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN "Employer" as defined in Section 1.15 of the Advanced Technology Laboratories, Inc. Retirement Plan shall also include the following companies during the specified period of time.
Company Beginning Ending - ------- --------- ------ 1. Advanced Technology Laboratories, 1/1/81 Inc. (Washington) ACKNOWLEDGED AND ACCEPTED: By: ------------------------------ Title: --------------------------- Date: ---------------------------- 44
EX-10.18 8 RETIREMENT PLAN TRUST AGREEMENT Exhibit 10.18 ADVANCED TECHNOLOGY LABORATORIES, INC. RETIREMENT PLAN TRUST AGREEMENT AMENDED AND RESTATED EFFECTIVE JUNE 26, 1992 TABLE OF CONTENTS
Page ---- PREAMBLE................................................................. 1 ARTICLE 1 - DEFINITIONS.................................................. 2 1.1 Agreement........................................................ 2 1.2 Committee........................................................ 2 1.3 Effective Date................................................... 2 1.4 Employer......................................................... 2 1.5 Participating Employers.......................................... 2 1.6 Plan............................................................. 2 1.7 Trust Year....................................................... 2 ARTICLE 2 - TRUST FUND................................................... 3 2.1 Payments to Trustee.............................................. 3 2.2 Trust............................................................ 3 2.3 Qualification.................................................... 3 ARTICLE 3 - INVESTMENT AND ADMINISTRATION................................ 4 3.1 Administering the Plan........................................... 4 3.2 Managing the Trust............................................... 4 3.3 Instructions to Trustee.......................................... 4 3.4 Permissible Investments.......................................... 4 3.5 Collective Investment Fund....................................... 4 3.6 Deposit With Insurance Company................................... 5 3.7 Investment Managers.............................................. 5 3.8 Duties of the Trustee............................................ 5 3.9 Powers of the Trustee............................................ 7 3.10 Borrow and Settle Claims......................................... 7 3.11 Litigation....................................................... 7 3.12 Distributions.................................................... 7 3.13 Expenses and Fees................................................ 8 ARTICLE 4 - RECORDS; VALUATION; ACCOUNTINGS.............................. 9 4.1 Records.......................................................... 9 4.2 Information...................................................... 9 4.3 Valuation........................................................ 9 4.4 Accountings...................................................... 9 ARTICLE 5 - TRUSTEE LIABILITY............................................ 11 5.1 Indemnity........................................................ 11
Table of Contents (continued)
Page ---- 5.2 Bonding.......................................................... 11 ARTICLE 6 - REPLACING THE TRUSTEE........................................ 12 6.1 Resignation...................................................... 12 6.2 Removal.......................................................... 12 6.3 Appointment of Successor......................................... 12 6.4 Rights and Powers of Successor Trustee........................... 12 6.5 Duties of Outgoing Trustee....................................... 12 6.6 Effect on Plan or Trust.......................................... 13 ARTICLE 7 - AMENDMENT AND TERMINATION.................................... 14 7.1 Amendment...................................................... 14 7.2 Termination.................................................... 14 ARTICLE 8 - GENERAL PROVISIONS........................................... 15 8.1 Applicable Law................................................... 15 8.2 Agreement Binding on All Parties................................. 15 8.3 Notices and Directions........................................... 15 8.4 No Implied Duties................................................ 15 8.5 Reliance on Information.......................................... 15 SIGNATURE PAGE........................................................... 16
PREAMBLE THIS TRUST AGREEMENT is known as the Advanced Technology Laboratories, Inc. Retirement Plan Trust Agreement, and was formerly known as the Westmark International Incorporated Retirement Plan Trust Agreement (the "Trust Agreement"). Advanced Technology Laboratories, Inc. ("Employer") adopted the Advanced Technology Laboratories Floor Retirement Plan (the "Plan") with an associated trust effective January 1, 1981. The Plan was amended and restated effective January 1, 1987, the name was changed to the Westmark International Incorporated Floor Retirement Plan, and Westmark International Incorporated became the plan sponsor, in connection with the distribution of shares of Westmark International Incorporated to the shareholders of Squibb Corporation. The associated trust was amended and restated as of the same date and renamed the Trust Agreement for Westmark International Incorporated Floor Retirement Plan. The Plan was amended and restated effective January 1, 1990 and the name was changed to the Westmark International Incorporated Retirement Plan. The Trust Agreement was not restated at such time. The corporate name of Westmark International Incorporated was changed to Advanced Technology Laboratories, Inc. effective June 26, 1992. The Plan was amended and restated, and the name of the Plan was changed to the Advanced Technology Laboratories, Inc. Retirement Plan. The Trust Agreement is hereby renamed and restated effective June 26, 1992. The Employer and the undersigned trustee or trustees ("Trustee") intend that the Plan and Trust will comply with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), Section 401(a) of the Internal Revenue Code of 1986, as amended, ("Code") and related Treasury Regulations and that the Trust qualifies as a tax exempt trust under Section 501(a) of the Code. The Employer and the Trustee now enter into this Trust Agreement on the following terms: 1 ARTICLE 1 DEFINITIONS 1.1 Agreement --------- "Agreement" means this Advanced Technology Laboratories, Inc. Retirement Plan Trust Agreement, as now or hereafter in effect. 1.2 Committee --------- "Committee" means the Advanced Technology Laboratories, Inc. Benefits Committee as from time to time constituted and appointed by the Compensation Committee of the Board of Directors of the Employer to administer the Plan. 1.3 Effective Date -------------- "Effective Date" means January 1, 1981. 1.4 Employer -------- "Employer" means Advanced Technology Laboratories, Inc. 1.5 Participating Employers ------------- --------- "Participating Employers" means the Employer and any other company designated as an Employer as provided in appendices to the Plan. 1.6 Plan ---- "Plan" shall mean the Advanced Technology Laboratories, Inc. Retirement Plan as now or hereafter in effect, the provisions of which are expressly incorporated herein as if fully set forth. 1.7 Trust Year ---------- The "Trust Year" shall be the 12-month period corresponding with the "plan year" (as now or hereafter defined in the Plan) which shall be January 1 to December 31. 2 ARTICLE 2 TRUST FUND 2.1 Payments to Trustee ------------------- The Participating Employers shall pay to the Trustee from time to time such contribution amounts as are required by the Plan. The Trustee shall accept the sums so paid and shall have no duty to make or inquire as to, and shall not be responsible for, the determination of any such amount nor to collect any contribution not voluntarily paid. 2.2 Trust ----- The Participating Employers shall deliver or cause to be delivered to the Trustee all Participating Employers' contributions to the Plan, and the portion of any existing assets of a predecessor plan and trust that are attributable to benefits payable under the Plan. Assets acquired with such contributions or assets, the income and earnings from the investment and reinvestment of such contributions and assets, and all other property and assets of the Trust delivered to or coming into the hands of the Trustee shall constitute the "trust fund," and shall be held in trust by the Trustee pursuant to the terms of this Agreement. The assets of the Trust shall not be segregated for the accounts of individual Plan participants or their beneficiaries until they become entitled to a distribution under the terms of the Plan but may be commingled, divided or segregated by the Trustee for purposes of this Trust for investment and providing benefits required by the Plan. 2.3 Qualification ------------- If the Commissioner of the Internal Revenue Service initially rules that this Trust is not exempt from tax under Section 501(a) of the Code, the Employer and Trustee may retroactively or prospectively amend this Trust so as to qualify. 3 ARTICLE 3 INVESTMENT AND ADMINISTRATION 3.1 Administering the Plan ---------------------- The Committee has the responsibility for administering the Plan, including the responsibility to authorize and direct the Trustee to make all distributions of benefits under the Plan. 3.2 Managing the Trust ------------------ Except as provided otherwise in this Agreement, the Trustee has the sole responsibility for the management, acquisition, disposition (for purposes of investment and reinvestment) and investment of the assets of the Plan, to the extent such assets are transferred to the Trustee. 3.3 Instructions to Trustee ----------------------- The Employer shall give the Trustee the names and specimen signatures of the chairman and members of the Committee to enable the Trustee to act upon the directions of the Committee. The Trustee shall accept and rely upon the names and signatures so provided until notified in writing of change. Instructions to the Trustee shall be signed for the Committee by the chairman or such other person as the Committee may designate. 3.4 Permissible Investments ----------------------- The Trust shall be held, invested and reinvested by the Trustee without distinction between principal and income, in property, both real and personal (wherever situated), and common or preferred stocks, bonds, mortgages, securities and other evidences of indebtedness or ownership in accordance with applicable law and the provisions of this Agreement. The Trustee, if a bank or similar financial institution, may invest assets of the Trust in deposits with itself. 3.5 Collective Investment Fund -------------------------- All or any portion of the Trust may be invested in a collective investment fund maintained by the Trustee exclusively for investment of funds held in qualified employee benefit trusts. During such period of time as an investment through any such collective investment fund shall exist, the declaration of trust of any such fund shall constitute a part of this Agreement. Assets of this Trust may be commingled with assets of other qualified trusts in any such collective investment fund so long as such investment fund does not violate this Agreement. 4 3.6 Deposit With Insurance Company ------------------------------ The Employer may require the Trustee, upon written notice, to deposit all or part of the Trust for investment with one or more insurance companies under a group annuity, deposit administration or other contract ("Contract"). Any insurance company to which such assets are transferred shall, subject to the Contract, have exclusive responsibility for control over all assets deposited with it. 3.7 Investment Managers ------------------- (a) Appointment and Authority ------------------------- The Employer may appoint one or more investment managers for all or part of the Trust. Subject to subsection 3.7(b), any such investment manager shall have exclusive responsibility for and control over the investment of the Trust assets for which responsibility is allocated to the manager by the Employer. (b) Rights Reserved by Employer --------------------------- The Employer may, as to the Trustee or any investment manager, reserve any or all of the following rights: (1) to specify investment objectives and guidelines; (2) to specify permissible investments; (3) to require consultation by the Trustee or investment manager at regular intervals or with respect to certain kinds of transactions; (4) to receive notification of all transactions before or after consummation; and (5) to have proposed transactions submitted in advance and not consummated if disapproved by notice given within 15 days after submission. (c) Fiduciary Duties ---------------- The investment manager shall be and act as a fiduciary with respect to the Trust assets for which it is responsible. The Trustee shall act upon the investment instructions given to it by the investment manager with respect to those Trust assets for which such manager is responsible, and in so doing the Trustee shall be only an administrative agent in carrying out such directed investment transactions. The Trustee shall have no duty to investigate any transaction directed by such investment manager and shall not be responsible for any such investment decision. If a directed transaction violates any duty to diversify, to maintain liquidity or to meet any other trust standard under this Trust or 5 applicable law, the investment manager shall be solely responsible and liable for any loss, tax or penalty resulting from any such breach. (d) Authority of the Trustee ------------------------ Unless the Employer directs otherwise, the Trustee shall have authority to do the following even though Trust assets are being managed by an investment manager: (1) dispose of fractional shares; (2) roll over treasury obligations, commercial paper and similar investments; and (3) make short-term investments of otherwise uninvested Trust assets in highly liquid interest-bearing deposits or securities. (e) Qualifications -------------- Each investment manager shall be qualified under ERISA. Each investment manager shall verify to the Employer and the Trustee, in writing, that the manager is: (1) a registered investment adviser under the Investment Advisers Act of 1940, a bank as defined in that Act or a qualified insurance company; (2) bonded for the protection of the Trust in conformance with applicable law; and (3) a fiduciary with respect to the Plan and this Trust. (f) Notice to the Trustee --------------------- The Employer shall notify the Trustee of the appointment, removal or resignation of any investment manager and until so notified, the Trustee shall not accept or execute any investment or other directions from any person or entity other than the Employer or the Committee as provided herein. The Trustee may rely upon the continued authority of an appointed investment manager until notified of resignation or removal. Each investment manager shall, on request, give the Trustee, the Committee and the Employer the names and specimen signatures of persons authorized to act for the investment manager. 3.8 Duties of the Trustee --------------------- The Trustee shall have responsibility for and control over the investment of Trust assets not deposited with an insurance company or allocated to an investment manager. The Employer may elect to direct the Trustee as to the investment of some or all of the Trust assets. 6 3.9 Powers of the Trustee --------------------- Subject to the investment authority allocated to any insurance company or investment manager, or reserved to the Employer, the Trustee shall have all necessary powers to discharge its duties under this Trust, including, without limitation, the power to do the following: (a) own and hold all Trust assets and retain and exercise all incidences of such ownership, subject to the terms of this Trust, either directly or through nominees, with or without disclosing the Trust; (b) deal in any way with any Trust assets through a public or private transaction and receive all proceeds from the Trust assets; (c) as the holder of any security in the Trust, exercise any right or power to take any action that could be exercised or taken by the beneficial owner holding the security of record; (d) write covered call options on securities in the Trust and deal in other options directly related to an outstanding covered call option; and (e) employ agents for assistance and consult and rely upon the advice of counsel, who may be counsel for Participating Employers. 3.10 Borrow and Settle Claims ------------------------ If authorized in writing by the Employer, the Trustee may borrow money for Trust purposes on the security of Trust assets. The Trustee may compromise claims on terms approved by the Employer, which shall be binding on all parties. 3.11 Litigation ---------- The Trustee's cost in any litigation arising from the Trustee's act or failure to act and relating to the Trust assets shall not be an expense of the Trust. The Trustee shall indemnify and defend the Employer from any claim, loss, liability or exposure arising by reason of the Trustee's gross negligence or wilful misconduct. 3.12 Distributions ------------- (a) Recipients ---------- The Trustee shall pay benefits for a participant, contingent annuitant or beneficiary in one of the following manners as directed by the Committee or, in the absence of such direction, as considered appropriate under the terms of the Plan by the Trustee: (1) to the participant, annuitant or beneficiary; 7 (2) to a spouse or parent or child of legal age of a person listed in subparagraph (l) if such person is then under a mental or physical disability which renders him incapable of handling his own affairs; (3) to one having actual custody of the person; (4) to a legal guardian; or (5) to one furnishing maintenance, support or hospitalization of a person listed in subparagraph (1). In making distributions, the Trustee may rely wholly on the direction of the Committee. (b) Record of Payment ----------------- A receipt from an authorized recipient or canceled check shall be sufficient voucher for the Trustee. Neither the Trustee, the Committee, nor Participating Employers need obtain from the recipient an accounting for the payment. (c) Conflicting Claims ------------------ If a dispute arises over a distribution, the Trustee may withhold the distribution until the dispute is determined by a court of competent jurisdiction or settled by the parties concerned. 3.13 Expenses and Fees ----------------- The Trustee shall be reimbursed for all reasonable expenses and shall be paid a reasonable fee approved from time to time in writing by the Employer; provided, however, that a Trustee who is an employee of the -------- ------- Participating Employers shall not be eligible for such fees and expenses for serving as a Trustee of this Plan. The Trustee shall notify the Committee periodically of expenses and fees and the Participating Employers may elect to pay them. Otherwise, the expenses and fees shall be charged to the Trust. 8 ARTICLE 4 RECORDS; VALUATION; ACCOUNTINGS 4.1 Records ------- The Trustee shall keep complete records of the Trust open to inspection by the Committee and the Employer at all reasonable times. 4.2 Information ----------- In addition to reports required below, the Trustee shall furnish the Employer or the Committee any information about the Trust that they request. 4.3 Valuation --------- As of each valuation date specified by the Employer, the Trustee shall value the Trust in accordance with applicable law and report the value to the Committee. The value of any Trust assets transferred to or deposited with an insurance company under Section 3.6 shall be the amount withdrawable to pay benefits at any time as determined by the Committee. 4.4 Accountings ----------- (a) Yearly Accounting ----------------- The Trustee shall furnish the Employer and the Committee with a complete accounting within 60 days after the end of each Trust Year showing assets and liabilities and income and expenses of the Trust for the Trust Year. The form and content of the accounting shall be sufficient for the Committee to comply with reporting and disclosure requirements under applicable law. (b) Objection and Audit ------------------- The Employer or the Committee may object to an accounting within 60 days after it is furnished and require that it be settled by audit by a qualified, independent certified public accountant. The auditor shall be chosen by the Trustee from a list of at least five such accountants furnished by the objecting Employer or Committee at the time the audit is requested. Either the Employer, the Committee or the Trustee may require that the account be settled by a court of competent jurisdiction in lieu of or in conjunction with the audit. All expenses of any audit or court proceedings including reasonable attorneys' fees, shall be allowed as administrative expenses of the Trust. (c) Acceptance ---------- 9 If the Employer or the Committee does not object to an accounting within the time provided, the account shall be settled for the period covered by it. (d) Settled Account --------------- To the extent permitted by applicable law, when an account is settled, it shall be final and binding on all parties including the Trustee, Participating Employers and the Committee and all participants and persons claiming through them. 10 ARTICLE 5 TRUSTEE LIABILITY 5.1 Indemnity --------- The Employer shall indemnify and defend the Trustee from any claim, loss, liability or expense arising from any action or inaction in administration of this Trust in reliance on information or in response to direction from the Employer or the Committee in the absence of willful misconduct or bad faith. The undertaking of this Section shall survive the amendment or termination of this Trust agreement or the resignation or removal of the Trustee. 5.2 Bonding ------- The Trustee shall be bonded as required by applicable law. However, the Trustee need not give any bond or other security for performance of its duties under this Trust for all times during which the Trustee is exempt from the bonding requirements of Section 412 of ERISA and the provisions of any other applicable law. 11 ARTICLE 6 REPLACING THE TRUSTEE 6.1 Resignation ----------- A Trustee may resign at any time by giving 60 days' written notice to the Employer, unless the Employer and the Trustee agree in writing that the Trustee may resign earlier. If the resigning Trustee is the sole Trustee, the Employer shall designate a successor Trustee within the 60-day notice period. If the Employer fails to name a successor in that time, such sole Trustee shall petition the Superior Court of the State of Washington to designate a successor. 6.2 Removal ------- The Trustee may be removed by the Employer with or without cause on 60 days' written notice or shorter notice accepted by the Trustee. If the Employer seeks to remove the sole Trustee, the Employer shall designate a successor Trustee within the 60-day notice period. If the Employer fails to name a successor in that time, such sole Trustee shall petition the Superior Court of the State of Washington to designate a successor. 6.3 Appointment of Successor ------------------------ There shall be at least one Trustee at all times and the Employer may appoint more than one Trustee for any given period. The Employer may appoint any qualified person(s), national or state bank or trust company or other qualified entity as a Trustee. The appointment of a Trustee shall be effective when accepted in writing by such Trustee. 6.4 Rights and Powers of Successor Trustee -------------------------------------- A successor Trustee shall have all of the rights and powers of the Trustee, including ownership of the Trust assets. A successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets pursuant to the provisions of this Trust. A successor Trustee shall not be responsible for any claim or liability resulting from any action or inaction of any prior Trustee or any other past event, or any condition of assets existing at the time of appointment of such successor Trustee. 6.5 Duties of Outgoing Trustee -------------------------- (a) Transfer Assets --------------- The outgoing Trustee shall execute any instruments necessary or reasonably requested by the Employer or the successor Trustee to evidence the transfer of Trust assets. 12 (b) Provide Accounting ------------------ The outgoing Trustee shall submit a final Trust accounting to the Employer and the Committee as soon as reasonably practicable. The accounting shall be received and settled as provided in Section 4.4 for regular accountings. 6.6 Effect on Plan or Trust ----------------------- No resignation or removal of the Trustee or change in identity of the Trustee for any reason shall terminate the Plan or this Trust. 13 ARTICLE 7 AMENDMENT AND TERMINATION 7.1 Amendment --------- The Employer may amend this Trust at any time by written instrument signed by an officer of the Employer acting upon authorization of the Employer's Board of Directors and delivered to the Trustee, with the following limitations: (a) amendments shall be effective when signed by the Trustee; and (b) except as permitted under Section 7.2(c) below, no amendment shall revest any of the Trust assets in Participating Employers or otherwise modify the Trust so that it would not be for the exclusive benefit of eligible employees. The provisions of this section are in addition to and shall not limit the Employer's rights otherwise provided in this Agreement and the Plan. 7.2 Termination ----------- (a) Duties of Employer ------------------ The Employer may wholly or partially terminate the Plan at any time. In such event, the Employer shall give the Trustee written notice of the termination and shall promptly notify the Pension Benefit Guaranty Corporation and request a ruling from the Internal Revenue Service concerning the effect of termination on the qualification of the Plan and this Trust. The Trustee may decline to distribute under Section 7.2(b) until such notice has been given and appropriate rulings issued. (b) Continuation or Liquidation of Trust ------------------------------------ Upon termination of the Plan, the Employer may direct that the Trust be continued to pay benefits as they mature or be liquidated and the Trust assets distributed. If the Trust is liquidated, it shall be allocated by the Committee among participants, beneficiaries and, if permissible, to Participating Employers in Accordance with the Plan. (c) Exclusive Benefit of Participants --------------------------------- In no event shall any part of the contributions or the principal or income of this Trust be paid to or revested in Participating Employers or be used other than for the exclusive benefit of the participants and the beneficiaries, except as permitted under Sections 403(c) or 4044(d) of ERISA or Section 7.2(b) of this Agreement or under Section 12.2 of the Advanced Technology Laboratories, Inc. Retirement Plan. 14 ARTICLE 8 GENERAL PROVISIONS 8.1 Applicable Law -------------- This Trust shall be construed according to the laws of Washington and Federal law to the extent Federal law preempts Washington law. Venue for any dispute arising hereunder shall be in the State of Washington. 8.2 Agreement Binding on All Parties -------------------------------- This Agreement shall be binding upon the successors and assigns of any and all present and future parties. 8.3 Notices and Directions ---------------------- Any notice or direction under this Trust shall be in writing and shall be effective when actually delivered or, if mailed, when deposited as registered or certified mail directed to such address as either party may specify by notice to the other party. 8.4 No Implied Duties ----------------- The duties of the Trustee shall be those stated in this Trust, and no other duties shall be implied. 8.5 Reliance on Information ----------------------- The Trustee may accept as correct and rely on any information furnished by the Employer or the Committee. The Trustee may not require an audit or disclosure of the records of Participating Employers. 8.6 Nondiscrimination ----------------- Participating Employers, the Committee and the Trustee shall to the fullest extent possible treat all persons similarly situated alike under this Trust. 15 IN WITNESS WHEREOF, the Employer and Trustee cause this Plan to be duly executed on this 31st day of December, 1993. ADVANCED TECHNOLOGY LABORATORIES, INC. By /s/ Harvey N. Gillis ------------------------------------------------ Its Sr. Vice President and Chief Financial Officer ----------------------------------------------- BOATMEN'S TRUST COMPANY By ------------------------------------------------ Its ----------------------------------------------- 16 EX-10.20 9 MIC PLAN Exhibit 10.20 Advanced Technology Laboratories, Inc. May 5, 1993, Compensation Committee Minutes (Excerpt) Management Incentive Compensation Plan RESOLVED, that the Management Incentive Compensation Plan adopted December 23, 1986 (the "Plan") is hereby amended to provide that paragraph 1 states: "The purpose of this Plan is to provide incentive compensation to officers and key employees of Advanced Technology Laboratories, Inc. and its subsidiaries and affiliates (hereinafter collectively called the Corporation) who contribute to the achievement by the Corporation of its growth and profit objectives." and FURTHER RESOLVED, that paragraphs 4(a) and 4(b) of the Plan are hereby amended to provide: "(a) The Committee shall determine the total amount available for awards, the Employees and the surviving spouses or estates of deceased Employees to receive awards, and the amount, terms, form and time of payment of each award. "(b) Awards may be made in cash or stock of Advanced Technology Laboraotries, Inc. or both. In any case in which payment of an award is to be made in stock, such stock shall be valued for such purpose at the mean of its high and low sales prices quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ) on such date or dates as may be determined by the Committee, but not more than five business days prior to the date of the grant of the award." EX-10.24 10 LONG TERM INCENTIVE PLAN Exhibit 10.24 ADVANCED TECHNOLOGY LABORATORIES, INC. LONG TERM INCENTIVE PLAN 1. Definitions The following terms have the corresponding meanings for purposes of the LTIP: "Award Cycle" means a period in unitary increments of one or more fiscal years over which incentive awards granted during a particular year are to be earned out. "Change of Control" means (a) a "Board Change." For purposes of the LTIP, a Board Change shall have occurred if a majority of the seats (other than vacant seats) on the Corporation's Board of Directors (the "Board") were to be occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (i) nominated by a majority of the directors of the Corporation then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of either (A) the then outstanding shares of common stock (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"), in the case of either (A) or (B) of this clause (i), which acquisition is not approved in advance by a majority of the Incumbent Directors or (ii) 33% or more of either (A) the Outstanding Corporation Common Stock or (B) the Outstanding Corporation Voting Securities, in the case of either (A) or (B) of this clause (ii), which acquisition is approved in advance by a majority of the Incumbent Directors; provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Corporation, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation, or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, -2- merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of the following subsection (c) are satisfied; or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Corporation Common Stock or Outstanding Corporation Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the stockholders of the Corporation of (i) a complete liquidation or dissolution of the Corporation or (ii) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (B) no Person (excluding the Corporation and any employee benefit plan (or related trust) of the Corporation or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Corporation Common -3- Stock or Outstanding Corporation Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. "Committee" means the Committee provided for in Section 3, which shall administer the Plan. "Corporation" means Advanced Technology Laboratories, Inc., a Delaware corporation. "Designated Beneficiary" means any person designated in writing by a Participant as a legal recipient of payments due under an award in the event of the Participant's death, or in the absence of such designation, the Participant's estate. Such designation must be on file with the Corporation in order to be effective but, unless the Participant has made an irrevocable designation, may be changed from time to time by the Participant. "Incentive Award Level" means the numerical measure, expressed in dollars, percentage of salary, or some other parameter designated by the Committee for a particular Participant to govern determination of the payment due the Participant at the end of an Award Cycle in accordance with Section 5. "Participant" means an employee, consultant or independent contractor who is qualified for and has received an incentive award under the LTIP. "Payment Schedule" means the schedule adopted by the Committee in accordance with Section 5 with respect to an Award Cycle to govern determination of the payment due a Participant during or at the end of such Award Cycle in accordance with Section 5. "Payment Value" means the value, expressed in dollars, of an incentive award at the conclusion of an Award Cycle, determined in accordance with Section 5(e). "LTIP" means this Advanced Technology Laboratories, Inc. Long Term Incentive Plan. "Retirement" means the termination of the services of a Participant because of early or normal retirement as defined in the Westmark Retirement Plan or Advanced Technology Laboratories, Inc. Retirement Plan. -4- "Withholding Tax" means any tax, including any federal, state or local income tax, required by any governmental entity to be withheld or otherwise deducted and paid with respect to any payment made to a Participant under this LTIP. 2. Administration The LTIP shall be administered by the Committee. Subject to the express provisions of the LTIP, the Committee shall have plenary authority, in its discretion, to determine the individuals who are to be Participants under this LTIP, any applicable qualifications, the Incentive Award Levels to be designated for such Participants, the commencement and duration of an Award Cycle, Award Schedules, and the performance measures to be used in determining the amounts of any payments to be made under the LTIP. In making such determinations, the Committee may take into account the nature of the services rendered by the respective Participants, their present and potential contributions to the Corporation's success, levels of responsibility, and such other factors as the Committee in its discretion may deem relevant. Subject to the express provisions of the LTIP, the Committee shall have plenary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of participation in the LTIP and to make all other determinations necessary or advisable for the administration of the LTIP. The Committee's determinations of the matters referred to in this Section 2 shall be conclusive. It is the intention of the Corporation that the LTIP and the administration hereof comply in all respects with Section 16(b) of the Exchange Act, and the rules and regulations promulgated thereunder, and if any LTIP provision is later found not to be in compliance with Section 16(b), the provision shall be deemed null and void, and in all events the LTIP shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in the LTIP to the contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the LTIP to persons who are subject to Section 16 of the Exchange Act without so limiting or conditioning the LTIP with respect to other persons. 3. The Committee The Board shall designate a Committee of members of the Board which shall meet the requirements of Section 16(b) of the Exchange Act. Currently, the Committee shall comprise the Compensation Committee of the Board, including two or more members of the Board who are disinterested. If at any time an insufficient number of disinterested directors is available to serve on such Committee, interested directors may serve on the Committee in the positions to be held by the disinterested director or directors; however, during such time, no incentive award shall be made under the LTIP to any person if the inclusion of such person as an LTIP Participant would not meet the requirements of Section 16(b) of the Exchange Act. -5- For purposes of this Section 3, a "disinterested director" is a person who meets the definition of "disinterested person" as set forth in the rules and regulations promulgated under Section 16(b) of the Exchange Act. Currently, a disinterested director is a member of the Board who is not (and, during the 12- month period preceding his appointment as a member of the Committee has not) been granted or awarded stock, stock appreciation rights or other equity securities of the Corporation or any affiliated corporation pursuant to any other plan of the Corporation or any affiliated corporation except for formula plans (as such term is defined in Rule 16b-3(c)(2)(ii) issued under the Exchange Act) or ongoing securities acquisition plans (as described in Rule 16b- 3(d)(2)(i) issued under the Exchange Act). The Committee shall be appointed by the Board, which may from time to time appoint members of the Committee in substitution for members previously appointed and may fill vacancies, however caused, in the Committee. The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary to keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 4. Eligibility The Committee may designate as Participants under the LTIP only employees, consultants or independent contractors (which term as used herein includes officers) of the Corporation and of its present and future subsidiary corporations ("subsidiaries"). The Committee may set other qualifications for eligibility as it deems advisable to be attained or maintained by such individuals as conditions of continued participation under the LTIP. Any person eligible under the LTIP may be Participants in one or more Award Cycles or any combination thereof, as the Committee shall from time to time determine, and such determinations may be different as to different Participants and may vary as to different Award Cycles or Incentive Award Levels. 5. Incentive Awards (a) Incentive awards which are awarded to a Participant shall have an Incentive Award Level determined by the Committee and generally determined to be a percentage of the annual base salary of a Participant. The incentive award will have a Payment Value payable at the end of the applicable Award Cycle or incrementally payable at the end of one or more fiscal year increments of the Award Cycle which is contingent upon the performance of the Corporation and/or of such Participant's subsidiary, division or department during the Award Cycle and the Participant's Incentive Award Level. Measures of performance may include, but shall not be limited to, cumulative or average growth in earnings per share or pretax profits, revenue, net income as a percentage of sales, return on stockholders' equity, sales gross margin, asset management, cash flow or -6- return on capital employed. Such measures may be applied on an absolute basis or relative to industry indices and shall be defined in a manner which the Committee shall deem appropriate. For each incentive award, the Committee shall determine the length of the Award Cycle, which shall be a period of not less than one fiscal year, and shall establish a Payment Schedule based upon the performance measures determined for such incentive award and the length of the Award Cycle, setting forth a range of payment measures corresponding to performance levels targeted for the Corporation or such subsidiary, division or department. If during the course of an Award Cycle there should occur, in the opinion of the Committee, significant changes in economic conditions or in the nature of the operations of the Corporation or a subsidiary, division or department which the Committee did not foresee in establishing the performance measures for such Award Cycle and which, in the Committee's sole judgment have, or are expected to have, a substantial effect on the performance of the Corporation or of a Participant's subsidiary, division or department during such Award Cycle, the Committee may revise the Payment Schedule and performance measures formerly determined by it in such manner as the Committee, in its sole judgment, may deem appropriate except as otherwise provided in Section 5(j). (b) In determining the Incentive Award Level to be designated for a particular Participant, the Committee shall take into account a person's responsibility level, performance, potential, cash compensation level and such other considerations as it deems appropriate. (c) Except as otherwise provided in Section 5(j), an incentive award to a Participant shall terminate for all purposes if the services of the Participant for the Corporation or one of its subsidiaries ceases during the Award Cycle, except in the case of death, disability or Retirement , in which case (and provided that the Participant at the time of death, disability or Retirement as aforesaid shall have maintained his employment or other qualifying relationship with the Corporation or one of its subsidiaries continuously during the period commencing on the date the award was granted and ending on the first anniversary thereof) the Participant will be entitled to payment (such payment to be made in accordance with the provisions of Section 5(d)) of the same portion of the Payment Value of the award the Participant would otherwise have been paid (such Payment Value, if any, to be determined at the conclusion of the applicable Award Cycle in accordance with the provisions of Sections 5(a) and 5(e) unless otherwise provided in Section 5(j)) as the portion of the Award Cycle during which the Participant maintained such relationship with the Corporation bears to the full Award Cycle. A person may receive only a portion of the full Payment Value of an incentive award if that person does not become a Participant in a given Award Cycle until after the commencement of the Award Cycle, or the person fails to attain or maintain a qualification for eligibility set by the Committee, in which event such person will be entitled to payment (such payment to be made in accordance with the provisions of Section 5(d)) of the same portion of the Payment Value of the award the person would otherwise have been paid (such Payment Value, if any, to be determined at the conclusion of the applicable Award Cycle in accordance with the provisions of Sections 5(a) and 5(e) unless otherwise provided in Section 5(j)) as the portion of the Award Cycle during which the person maintained the status of Participant -7- bears to the full Award Cycle. Under particular circumstances, the Committee may make other determinations with respect to Participants whose services do not meet the foregoing requirements, including the waiver of any of the requirements of this subsection 5(c) relating to periods of continuous service. (d) Except as otherwise provided in Section 5(j), unless the Committee otherwise determines, no payment with respect to an incentive award will be made to a Participant prior to the end of such Participant's Award Cycle or, if so determined by the Committee, the end of a fiscal year increment of an Award Cycle; provided, however, that if a Participant should die during an Award Cycle and his award shall not have been terminated hereunder prior to his death, such Participant's Designated Beneficiary, the legatee under the Participant's last will, his personal representative or his distributee may elect instead, subject to the approval of the Committee, to have the pro rata portion of the Participant's Payment Value determined by the Committee as of the end of the year during which such Participant's death occurred, based upon application of the Payment Schedule to the part of the Award Cycle which shall have elapsed (for such purpose, the cumulative growth rate or improvement achieved in the applicable performance measures to the end of the fiscal year in which death occurs will be assumed to continue for the Award Cycle), in which event such pro rata portion shall be paid in cash as soon as practicable following such year (or in such number of installments as shall have been requested by the Participant and approved by the Committee) to such Participant's Designated Beneficiary or legal representative. (e) Except as otherwise provided in Section 5(d) in the case of death, or in Section 5(j) in the case of a Change in Control, a Participant's interest in any incentive award granted to him shall mature on the last day of the Award Cycle for such award or, if the Committee has so provided, shall incrementally mature on the last day of one or more fiscal years of the Award Cycle. The Payment Value of an incentive award shall be the dollar amount calculated on the basis of the Payment Schedule applicable to such Award Cycle and the Incentive Award Level of the Participant. (f) The total amount of the Payment Value due a Participant at the conclusion of an Award Cycle or fiscal year increment shall be paid on such date following the conclusion of such Award Cycle or fiscal year increment as the Committee shall designate, except as specifically otherwise provided in the LTIP; provided, however, that the Committee shall have authority, if it deems appropriate, to defer payment of the Payment Value due a Participant if the Participant shall request the Committee to do so at any time prior to the last year of the Award Cycle for such award. In respect of awards made or to be made in one or more deferred installments in cash, interest shall be credited semiannually on each such award at a rate to be determined semiannually by the Committee, but in no event shall such rate be less than the average rate on 5- year AAA new industrial corporate bonds during each such semiannual period as calculated on the basis of the average of such rates for each calendar week ending during the period January 1 through June 30 and July 1 through December 31; provided that awards made during any such six-month period shall be credited on the basis of the average rate for that period; and provided further that -8- installments paid during any six-month period shall be credited with interest on the basis of the average rate for the next preceding six-month period, in each case adjusted for the number of days such award was to be credited. Unless paid to the recipient of such award at the time credited, interest at the foregoing rate shall be credited on the interest so credited until so paid. The foregoing minimum interest rate for any award that is payable in one or more deferred installments under the LTIP may not be modified without the prior written consent of the Participant. Such interest shall be paid to the recipient of any such award in cash at such time or times during the deferred period of such award or at the same time as the cash to which such interest applies, all as the Committee shall determine. (g) If the payment of any award shall be deferred until after the termination of the services of the recipient by the Corporation or one of its subsidiaries, the Payment Value of such award, together with any deferred interest thereon, shall be delivered in not more than 20 annual installments, commencing not later than the January 31 after such termination of services (or such other date as the Committee from time to time shall determine), all as the Committee may determine. If the payment of an award under this LTIP is deferred, such payment thereafter may be accelerated so that such payment shall be made immediately or at such earlier time or in such less number of installments, in each case as the Committee may from time to time determine, but only with the prior written consent of the Participant. (h) A Participant to whom any award has been made shall not have any interest beyond that of a general creditor of the Corporation in the cash awarded, or in any interest credited to him until the cash has been paid to him in accordance with the provisions of the LTIP. (i) In the case of the death of the recipient of an award, before or after the termination of his services, any unpaid installments of such deferred award shall pass to the Designated Beneficiary, the legatee under the Participant's last will, his personal representative or his distributee. Unpaid installments of a deferred award shall be paid either in the same installments as originally provided or otherwise as the Committee may determine in individual cases. (j) Anything herein to the contrary notwithstanding, in the event of a Change of Control, with respect to any unmatured incentive awards which a Participant held immediately prior to such Change of Control, the Participant will be entitled to immediate payment in cash (unless payment shall be deferred in accordance with Section 5(f), in which event the amount provided to be payable by this Section 5(j) shall also be so deferred) in an amount equal to the value of such units determined in accordance with the Payment Schedule and Incentive Award Level applicable to such awards, based on the cumulative growth rate in the Corporation's reported earnings per share for all previously elapsed fiscal years, if any, included in the Award Cycles for such awards and the actual or presumed cumulative growth rate in the earnings per share for the balance of each Award Cycle, determined as follows: (i) if such Change of Control occurs prior to the completion -9- of the first fiscal year of an Award Cycle, the cumulative growth rate to be utilized for the balance of the Award Cycle shall be the cumulative growth rate in the Corporation's earnings per share in the four fiscal years preceding the first year and (ii) if such Change of Control occurs during any subsequent fiscal year of an Award Cycle, the cumulative growth rate to be utilized for the balance of the Award Cycle shall be the cumulative growth rate of the preceding fiscal year(s) in that Award Cycle prior to the fiscal year in which occurs the Change of Control. In the event that a performance measure other than earnings per share is employed, similar adjustments shall be made for such holders of unmatured incentive awards. The Committee may in its discretion determine that such historical financial data are not appropriate or not available and may use the latest budgets, projections, forecasts or plans for the Corporation or its business units or subsidiaries. Except as expressly set forth in this Section 5(j), upon the occurrence of a Change of Control, no change(s) shall be made in the terms of any incentive award (including, without limitation, its Incentive Award Level, Payment Value, Payment Schedule or performance criteria) or in the underlying accounting assumptions or practices for purposes of determining the amount due thereunder, which change(s) would lessen the value of any incentive award to the holder thereof. 6. Withholding Taxes In connection with any payment pursuant to an incentive award, the Corporation shall have the right to withhold from any cash amounts due the award recipient an amount equal to the Withholding Tax. The Corporation shall make payment (or reimburse itself for payment made) to the appropriate taxing authority of an amount in cash equal to the amount of such Withholding Tax, remitting any balance to the Participant. Notwithstanding the foregoing, the Participant may elect, subject to approval by the Committee, to satisfy the obligation to pay any Withholding Tax, in whole or in part, by providing the Corporation with funds sufficient to enable the Corporation to pay such Withholding Tax. 7. Transferability and Ownership Rights of Incentive Awards No incentive award granted under the LTIP shall be transferable otherwise than pursuant to the designation of a Designated Beneficiary or by will, descent or distribution. 8. Adjustments Upon Changes in Capitalization Except as otherwise provided in Section 5(j), in the event of any changes in the outstanding stock of the Corporation by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to stockholders other than cash dividends, the Committee shall make such adjustments, if any, in light of the change or distribution as the Committee in its sole discretion shall determine to be appropriate in the performance measures and/or the Payment Schedule established by the Committee under Section 5(a). -10- 9. Amendment and Termination Unless the LTIP shall theretofore have been terminated as hereinafter provided, the LTIP shall terminate on, and no awards shall be made after, December 31, 2002; provided, however, that such termination shall have no effect on awards made prior thereto. The Board of Directors of the Corporation may terminate the LTIP, or modify or amend the LTIP in such respects as it shall deem advisable in order to conform to any change in any law or regulation applicable thereto, or in other respects. The amendment or termination of the LTIP shall not, without the consent of the recipient of any award under the LTIP, alter or impair any rights or obligations under any award theretofore granted under the LTIP. 10. Effectiveness of the LTIP The LTIP shall become effective on January 1, 1993. /s/ W. Brinton Yorks, Jr. --------------------------- W. Brinton Yorks, Jr. Secretary Correct: /s/ Dennis C. Fill - ------------------------ Dennis C. Fill Chairman & CEO EX-22 11 PARENTS AND SUBSIDIARIES Exhibit 22 ADVANCED TECHNOLOGY LABORATORIES, INC. (Delaware Corporation) PARENTS & SUBSIDIARIES
Jurisdiction of Percentage of Registrant Incorporation Voting Control - ---------- -------------- -------------- Advanced Technology Laboratories, Inc. Delaware Public Company Advanced Technology Laboratories, Inc. Washington 100 Scientific Medical Systems, Inc. Washington 100 Advanced Technology Laboratories Australia 100 Australia Pty., Ltd. Advanced Technology Laboratories Belgium 99(1) -- Belgium N.V. Scientific Medical Systems Far Japan 100 East,Inc. (Branch: Singapore) Advanced Technology Laboratories Netherlands 100 Nederland B.V. Advanced Technology Laboratories Canada 100 (Canada), Inc. Advanced Technology Laboratories Italy 100 S.p.A. ATL Medizinische Gerate Service und Austria 100 Handelgesellschaft m.b.H. Advanced Technology Laboratories Sweden 100 AB Advanced Technology Laboratories Germany 98(2) (Deutschland) GmbH Advanced Technology Laboratories England 99(1) -- United Kingdom -- Limited Advanced Technology Laboratories France 99.9997(3) S.A.R.L. Atlantis Diagnostics International, Inc. Washington 100 Scientific Medical Systems Delaware 100 International,Inc. WMRK Scientific East, Inc. Delaware 100 WMRK Scientific West, Inc. Washington 100 Indchem ATL Ltd India 40(4) ATL Trading Company Guam 100
(1) 1% held by WMRK Scientific East, Inc. (2) 2% held by Scientific Medical Systems International, Inc. (3) 432,869 parts held by ATL (Washington) and 1 part owned by Scientific Medical Systems, Inc. (4) 60% held by Sanmar Electrotech Holdings Ltd. & five nominees. 12/31/93 -----END PRIVACY-ENHANCED MESSAGE-----