-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ak3fob7qijJOBK/pK68kZoCvfBOfQEBuUdPfqCJg0FBmoK90vGTRakX0iWteOFFn J8Y+EZ4tS9uSAyILIztQXg== 0000883322-00-000006.txt : 20000515 0000883322-00-000006.hdr.sgml : 20000515 ACCESSION NUMBER: 0000883322-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTOCOL SYSTEMS INC/NEW CENTRAL INDEX KEY: 0000883322 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 930913130 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19943 FILM NUMBER: 628085 BUSINESS ADDRESS: STREET 1: 8500 S W CREEKSIDE PLACE CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 6126862500 MAIL ADDRESS: STREET 1: 8500 SW CREEKSIDE PLACE CITY: BEAVERTON STATE: OR ZIP: 97008 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended March 31, 2000 Commission File Number 0-19943 PROTOCOL SYSTEMS, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Oregon 93-0913130 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8500 SW Creekside Place, Beaverton, OR 97008 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (503) 526-8500 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Number of shares of common stock outstanding as of May 1, 2000: 8,188,237 shares, $.01 par value per share ------------------------------------------ 2 PROTOCOL SYSTEMS, INC. Index to Form 10-Q PART I FINANCIAL INFORMATION Page No. - ----------------------------- -------- Item 1. Financial Statements Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2000 and 1999 3 Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 11 PART II OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 12 - ---------- ITEM 1. FINANCIAL STATEMENTS PROTOCOL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands except per share amounts) (unaudited) Three months ended March 31, 2000 1999 ------- ------- Sales $17,667 $14,299 Cost of sales 8,965 7,344 ------- ------- Gross profit 8,702 6,955 Operating expenses: Research and development 1,860 1,505 Selling, general and administrative 5,358 4,745 ------- ------- Total operating expenses 7,218 6,250 ------- ------- Income from operations 1,484 705 Other income 489 262 ------- ------- Income before income taxes 1,973 967 Provision for income taxes 592 242 ------- ------- Net income $ 1,381 $ 725 ======= ======= Comprehensive income $ 1,373 $ 499 ======= ======= Basic earnings per share $ 0.17 $ 0.09 ======= ======= Diluted earnings per share $ 0.16 $ 0.09 ======= ======= Weighted average number of shares used in the computation of: Basic earnings per share 8,128 8,241 Diluted earnings per share 8,541 8,385 See accompanying notes to condensed consolidated financial statements.
PROTOCOL SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) March 31, December 31, 2000 1999 ------ ------ ASSETS Current assets: Cash and cash equivalents $ 9,825 $10,470 Short-term investments 11,099 3,487 Accounts receivable - net 16,507 18,083 Inventories - net 10,720 10,080 Prepaid expenses and other current assets 2,321 2,418 ------- ------- Total current assets 50,472 44,538 Long-term investments 5,505 10,032 Property and equipment - net 4,037 3,912 Other assets 1,333 1,356 ------- ------- $61,347 $59,838 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,732 $ 2,750 Accrued liabilities 4,259 5,137 ------- ------- Total current liabilities 6,991 7,887 Commitments and contingencies Shareholders' equity: Common stock, $.01 par value. Authorized 30,000 shares; issued and outstanding 8,181 at March 31, 2000 and 8,032 at December 31, 1999 82 80 Additional paid-in capital 27,220 26,216 Unearned compensation -- (26) Accumulated other comprehensive income (loss) (20) (12) Retained earnings 27,074 25,693 ------- ------- Total shareholders' equity 54,356 51,951 ------- ------- $61,347 $59,838 ======= ======= See accompanying notes to condensed consolidated financial statements.
PROTOCOL SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three months ended March 31, 2000 1999 ------- -------- Cash flows from operating activities: Net income $ 1,381 $ 725 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 504 560 Amortization of bond premium 45 31 Deferred taxes (32) 144 Other non-cash items 26 71 Changes in operating assets and liabilities: Accounts receivable 1,564 4,501 Inventories (649) 563 Prepaid expenses and other assets 100 130 Accounts payable and accrued liabilities (816) (1,304) ------- ------- Net cash provided by operating activities 2,123 5,421 Cash flows from investing activities: Purchase of investments (7,727) (10,030) Proceeds from maturity of investments 4,600 9,980 Acquisition of property and equipment (580) (357) Expenditures for other assets -- (250) ------- ------- Net cash used in investing activities (3,707) (657) Cash flows from financing activities: Proceeds from exercise of stock options and stock purchase plan 1,005 506 Repurchase of common stock -- (128) -------- -------- Net cash provided by financing activities 1,005 378 -------- -------- Effect of exchange rates on cash and cash equivalents (66) (317) -------- ------- Net increase (decrease) in cash and cash equivalents (645) 4,825 Cash and cash equivalents at beginning of period 10,470 8,023 -------- -------- Cash and cash equivalents at end of period $ 9,825 $12,848 ======== ======== Supplemental disclosure of cash flow information: Cash paid for income taxes $ 345 $ 0 See accompanying notes to condensed consolidated financial statements.
PROTOCOL SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles for interim financial information. Accordingly, certain financial information and footnotes have been omitted or condensed. In the opinion of management, the condensed consolidated financial statements include all necessary adjustments (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1999. The results of operations for the interim period shown in this report are not necessarily indicative of results for any future interim period or the entire fiscal year. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out basis (FIFO). The components of inventories, net of reserve, are as follows: March 31, December 31, (in thousands) 2000 1999 - ------------------------------------------------------------------------- Raw materials $ 5,027 $ 4,670 Work in process 1,902 1,916 Finished goods 2,287 2,043 Demonstration instruments 1,504 1,451 ------- ------- Total inventories $10,720 $10,080 ======= ======= PROPERTY AND EQUIPMENT Property and equipment is stated at cost and includes the following: March 31, December 31, (in thousands) 2000 1999 - ------------------------------------------------------------------------- Equipment $14,148 $13,622 Furniture and fixtures 1,817 1,776 Leasehold improvements 543 487 ------- ------- 16,508 15,885 Less accumulated depreciation and amortization 12,471 11,973 ------- ------- Property and equipment - net $ 4,037 $ 3,912 ======= ======= ACCRUED LIABILITIES The components of accrued liabilities are as follows: March 31, December 31, (in thousands) 2000 1999 - ------------------------------------------------------------------------- Accrued salaries, wages and related liabilities $2,074 $2,827 Income taxes payable 753 587 Reserve for warranties 974 923 Other liabilities 187 618 Accrual for special charges 160 102 Deferred revenue and customer deposits 111 80 ------ ------ $4,259 $5,137 ====== ====== During 1998, the Company incurred special charges of $5,434,000 to relocate its wholly owned subsidiary, Pryon Corporation ("Pryon"), from Menomonee Falls, Wisconsin to the Company's Beaverton, Oregon facility, and discontinue the development of its defibrillator project and restructure its worldwide operations. As of March 31, 2000, special charges of $160,000, related primarily to certain contract terminations, had not been disbursed. The Company anticipates that these remaining balances will be expended by the end of 2000. INCOME TAXES The provision for income taxes has been recorded based on the current estimate of the Company's annual effective tax rate. This rate differs from the Federal statutory rate primarily because of the provision for state income taxes, the effect of non-deductible expenditures, research and experimentation tax credits, the Company's foreign sales corporation and tax-exempt interest income earned on investments. BASIC AND DILUTED EARNINGS PER SHARE In accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", basic earnings per share is computed using the weighted average number of common shares outstanding and diluted earnings per share is computed using the weighted average number of common shares outstanding and dilutive potential common shares assumed to be outstanding during the period using the treasury stock method. Dilutive potential common shares consist of options to purchase common stock. COMPREHENSIVE INCOME Three months ended March 31, (in thousands) 2000 1999 - -------------------------------------------------------------------------- Net income $ 1,381 $ 725 Other comprehensive income (loss); net of tax Foreign currency translation adjustments (11) (158) Unrealized holding gain (loss) 3 (68) ------- -------- Other comprehensive loss (8) (226) ------- -------- Comprehensive income $ 1,373 $ 499 ======== ========
SEGMENT INFORMATION In accordance with SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" the Company functions as a single operating segment: the design, manufacture, sale and servicing of medical instruments and systems. Sales are made primarily to hospitals and other health-care related customers. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales. Sales for the first quarter of 2000 increased 23.6% to $17.7 million from $14.3 million for the first quarter of 1999. Domestic sales, excluding Original Equipment Manufacturer sales of Pryon Medical Device Technology (MDT) products (OEM sales), increased 10.6% to $9.4 million (52.9% of total sales) in the first quarter of 2000 from $8.4 million (59.1% of total sales) in the first quarter of 1999 primarily as a result of an increase in the number of Flexible Monitoring systems sold. International sales, excluding international OEM sales, increased 69.3% to $6.9 million (39.1% of total sales) in the first quarter of 2000 from $4.1 million (28.5% of total sales) in the first quarter of 1999. This increase was principally due to increased sales to customers in Europe and to NEC, the Company's exclusive distributor in Japan. The Company's distribution agreement with NEC terminated in the first quarter of 2000. OEM sales decreased 19.8% to $1.4 million (8.0% of total sales) in the first quarter of 2000 from $1.8 million (12.4% of total sales) in the first quarter of 1999 due to a decrease in sales of MDT CO2 products. Gross profit. As a percentage of sales, gross profit increased to 49.3% in the first quarter of 2000 from 48.6% in the first quarter of 1999. The increase in gross profit was primarily due to improved margins on Flexible Monitoring system sales partially offset by increased sales discounts in the first quarter of 2000. Research and development. Research and development expenses increased 23.6% to $1.9 million in the first quarter of 2000 from $1.5 million in the first quarter of 1999. This increase was primarily due to an increase in employee headcount and outside consultants related to increased product development activities. As a percentage of sales, research and development remained consistent at 10.5% in the first quarter of 2000 compared to the first quarter of 1999. Selling, general and administrative. Selling, general and administrative expenses increased 12.9% to $5.4 million in the first quarter of 2000 from $4.7 million in the first quarter of 1999. This increase resulted primarily from increased sales activities in the first quarter of 2000 as well as an overall increase in compensation. As a percentage of sales, selling, general and administrative decreased to 30.3% in the first quarter of 2000 from 33.2% in the first quarter of 1999. Other income. Other income increased to $489,000 in the first quarter of 2000 from $262,000 in the first quarter of 1999. This was primarily due to the reversal of a reserve on a note receivable due to continued performance under the note. Provision for income taxes. The provision for income taxes increased to $592,000 in the first quarter of 2000 from $242,000 in the first quarter of 1999, representing effective tax rates of 30.0% and 25.0%, respectively. The effective tax rate, which reflects the estimate of the Company's annual effective tax rate, was higher in the first quarter of 2000 than in the first quarter of 1999 primarily due to the effect of non-deductible expenses in the first quarter of 2000 and the utilization of Pryon Corporation net operating loss carryovers in the first quarter of 1999. Net income. Net income in the first quarter of 2000 was $1.4 million or $0.16 per diluted share compared to net income of $725,000 or $0.09 per diluted share in the first quarter of 1999. The increase in net income was primarily due to an increase in sales volume in the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company improved its strong financial position as of March 31, 2000 with its cash and investments, both long and short term, increasing to $26.4 million from $24.0 million at December 31, 1999. Working capital at March 31, 2000 was $43.5 million and the current ratio was 7.2:1, compared to working capital of $36.7 million and current ratio of 5.6:1 at December 31, 1999. Cash flows from operating activities for the first three months of 2000 were $2.1 million as compared to $5.4 million for the first three months of 1999. Cash of $580,000 was used for the acquisition of property and equipment in the first three months of 2000. Proceeds and related tax benefits from stock option and stock purchase plans were $ 1.0 million in the first three months of 2000. Management believes that current cash and investment balances and future cash flows from operations will be sufficient to meet the Company's liquidity and capital needs for the foreseeable future. YEAR 2000 ISSUES Prior to December 31, 1999, the Company initiated and completed a comprehensive Year 2000 analysis. To date, the Company has not, nor to the Company's knowledge, have the Company's suppliers and third party vendors, experienced any material Year 2000-related problems. However, the Company cannot determine if it will be subject to Year 2000 problems in the future that have not been identified to date. NEW ACCOUNTING PRONOUNCEMENTS In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation" (FIN No. 44) which clarifies the application of APB Opinion No. 25 "Accounting for Stock Issued to Employees" for certain issues. FIN No. 44 is effective July 1, 2000. The Company does not expect FIN No. 44 to have a material impact on its Consolidated Financial Statements. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 "Revenue Recognition" (SAB 101) which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. The Company adopted SAB 101 in the first quarter of 2000. The impact on the Company's Consolidated Financial Statements is not material. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Quarterly Report contain statements, that are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the Company's business, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. In addition, such statements could be affected by other factors discussed elsewhere in this Quarterly Report and from time to time in the Company's other Securities and Exchange Commission filings and reports, and by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report. If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. The Company's quarterly operating results have fluctuated in the past and may continue to fluctuate in the future depending on factors such as increased competition, timing of new product announcements, pricing changes by the Company or its competitors, length of sales cycles, market acceptance or delays in the introduction of new products or enhanced versions of existing products, timing of significant orders, regulatory approval requirements, difficulties in commercialization or manufacturing processes, supply constraints of critical components, changes in customer purchasing patterns as a result of hospital spending for year 2000 preparation and the impact of the 1998 Balanced Budget Amendment on capital spending, the Company's ability to form business alliances and acquisitions and to successfully integrate future acquisitions into the Company's operations, product mix and economic factors and conditions generally and in the market for the Company's products specifically. In particular, the Company's quarterly operating results have fluctuated as a result of the unpredictable size and timing of military patient monitoring equipment procurements, and seasonal or other changes in customer buying patterns. A substantial portion of the Company's revenue in each quarter results from orders booked in that quarter. Accordingly, revenue from quarter to quarter is difficult to forecast. The Company's expense levels are based, in part, on its expectations as to future revenue. If revenue levels are below expectations, operating results are likely to be adversely affected. In particular, net income may be disproportionately affected by a reduction in revenue because only a small portion of expenses vary with revenue. Results of operations in any period should not be considered indicative of the result to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company's common stock. No assurance can be given that the Company will be able to grow in future periods or that its operations will remain profitable. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to the impact of foreign currency fluctuations due to a small portion of its international sales. The Company minimizes its risk to foreign currency fluctuations as international sales through independent distributors are made in U.S. dollars, which has helped reduce any foreign currency risk. As of March 31, 2000, the Company had an investment portfolio of fixed income securities, including those classified as cash and cash equivalents, short- term investments and long-term investments of $24.4 million. These securities are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of the Company's fixed income securities. The Company does not use derivative financial instruments in its investment portfolio to manage interest rate risk. The Company does, however, limit its exposure to interest rate and credit risk by establishing and strictly monitoring clear policies and guidelines for its investment portfolio. The weighted average maturity of the investment portfolio may not exceed 360 days and no single investment may have a maturity date of greater than two years. The guidelines also establish credit quality standards and limit the exposure to one issue, issuer, or type of instrument. Due to these factors the exposure to market and credit risk is not expected to be material. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES During the quarter ended March 31, 2000, the Company sold securities without registration under the Securities Act of 1933, as amended (the "Securities Act") upon the exercise of certain stock options granted under the Company's 1987 stock option plan. An aggregate of 48,279 shares of Common Stock were issued at an exercise prices ranging from $1.95 to $7.00. These transactions were effected in reliance upon the exemption from registration under the Securities Act provided by Rule 701 promulgated by the Securities and Exchange Commission pursuant to authority granted under Section 3 (b) of the Securities Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 10.1 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Robert F. Adrion dated March 1, 2000 10.2 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Edward M. Kolasinski dated March 1, 2000 10.3 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Allen L. Oyler dated March 1, 2000 10.4 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Carl P. Hollstein dated March 1, 2000 10.5 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and James P. Welch dated March 1, 2000 10.6 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and James P. Fee dated March 1, 2000 10.7 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Richard L. Roa dated March 1, 2000 10.8 Amendment to Executive Employment Agreement between Protocol Systems, Inc. and Donald M. Abbey dated March 1, 2000 10.9 Executive Employment Agreement between Protocol Systems, Inc. and Chris Tew dated January 24, 2000 27.1 Financial Data Schedule (b) No reports were filed on Form 8-K during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROTOCOL SYSTEMS, INC. (Registrant) Date: May 11, 2000 By /s/Robert F. Adrion --------------------- Robert F. Adrion Ph.D. Chief Executive Officer, President By /s/Edward M. Kolasinski --------------------- Edward M. Kolasinski Vice-President, Finance/Chief Financial Officer EX-10.1 2 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Robert F. Adrion ("Executive") 1239 NW Hillcourt Lane Portland, OR 97229 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of August 1, 1999 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 3. Section 6.2.2 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the Company shall pay to the Executive an amount equal to (a) two (2) times what the Executive would have received in incentive plan bonus for the year in which termination occurs as if the "target" goals had been achieved for that fiscal year, or (b) the actual amount of the incentive bonus to which the Executive would have been entitled had he remained with the Company based on the Company's actual performance, for the fiscal year in which termination occurs, whichever is greater. The amount provided by this Section 6.2.2 shall be earned and payable on the date that is fifteen (15) days after the date Executive would have been paid an annual incentive bonus had he remained with the Company for the fiscal year in which termination occurs. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:_________________________________ Robert F. Adrion Title:______________________________ EX-10.2 3 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Edward Kolasinski ("Executive") 5605 SW Summit Street West Linn, OR 97068 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of August 21, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 4.3.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 4.3.1 If the notice of termination is given by the Company, in addition to any other amounts payable to Executive, under this Section 4.3, the Company shall pay Executive within fifteen (15) days following termination, a lump sum amount equal to one (1) year's Base Salary. 4. Section 4.4.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 4.4.1 In the event of the Executive's death, the Company shall pay an amount equal to six (6) month's Base Salary to the executor, administrator or other personal representative of the Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Company's receipt of notice of the Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.4.3 below. 5. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 6. Section 6.2.2 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the Company shall pay to the Executive an amount equal to (a) two (2) times what the Executive would have received in incentive plan bonus for the year in which termination occurs as if the "target" goals had been achieved for that fiscal year, or (b) the actual amount of the incentive bonus to which the Executive would have been entitled had he remained with the Company based on the Company's actual performance, for the fiscal year in which termination occurs, whichever is greater. The amount provided by this Section 6.2.2 shall be earned and payable on the date that is fifteen (15) days after the date Executive would have been paid an annual incentive bonus had he remained with the Company for the fiscal year in which termination occurs. 7. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 8. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:________________________________ Edward Kolasinski Title:_____________________________ EX-10.3 4 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Allen L. Oyler ("Executive") 12288 SW 131st Avenue Tigard, OR 97223 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of July 1, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:__________________________________ Allen L. Oyler Title:_______________________________ EX-10.4 5 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Carl P. Holstein ("Executive") 10880 SW Avocet Court Beaverton, OR 97007 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of July 1, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:___________________________________ Carl P. Holstein Title:________________________________ EX-10.5 6 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 James P. Welch ("Executive") 14340 SW Hazelhill Tigard, OR 97224 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of July 1, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. _____________________________________ By:___________________________________ James P. Welch Title:________________________________ EX-10.6 7 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 James P. Fee ("Executive") 13645 NW Lariat Court Portland, OR 97229 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of July 1, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to two (2) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:_________________________________ James P. Fee Title:______________________________ EX-10.7 8 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Richard Roa ("Executive") 7918 SW 189th Avenue Beaverton, OR 97007 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of July 13, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 TERM. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to one (1) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. _______________________________________ By:___________________________________ Richard Roa Title:________________________________ EX-10.8 9 PROTOCOL SYSTEMS, INC. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Don Abbey ("Executive") 13975 SW Chinn Lane, No. 236 Tigard, OR 97224 DATE: March 1, 2000 RECITALS: A. The Company and the Executive have entered into an Executive Employment Agreement dated as of June 29, 1998 (the "Employment Agreement"). B. The Company and the Executive now desire to modify certain provisions of the Employment Agreement. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Capitalized terms used herein but not defined herein have their defined meanings as set forth in the Employment Agreement. 2. Section 2.3 of the Employment Agreement is hereby amended and restated in its entirety as follows: 2.3 This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) three (3) years from the date of this Agreement, provided however that if a Change of Control occurs within three (3) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change of Control event described in Section 6.1.1. 3. Section 6.2.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to one (1) years' Base Salary. 4. Section 6.5 of the Employment Agreement is hereby amended and restated in its entirety as follows: 6.5 Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change of Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. 5. Except as set forth and amended and restated herein, the Employment Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to Executive Employment Agreement to be duly executed on the day and year first written above. EXECUTIVE PROTOCOL SYSTEMS, INC. _______________________________________ By:__________________________________ Don Abbey Title:_______________________________ EX-10.9 10 Protocol Systems, Inc. EXECUTIVE EMPLOYMENT AGREEMENT PARTIES: Protocol Systems, Inc. ("Company") 8500 SW Creekside Place Beaverton, OR 97008 Chris E. Tew("Executive") 18075 SW Jeremy St. Beaverton, OR 97007 DATE: January 24, 2000 RECITALS: A. The Company wishes to obtain the services of the Executive for at least the duration of this Agreement, and the Executive wishes to provide his services for such period, all upon the terms and conditions set out in this Agreement. B. It is expressly recognized by the parties that the Executive's continuance in the Executive's position with the Company and agreement to be bound by the terms of this Agreement represents a substantial commitment to the Company in terms of the Executive's personal and professional career and a foregoing of present and future career options by the Executive, for all of which the Company receives substantial value. C. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of the Executive's position and responsibilities and substantially frustrate the purpose of the Executive's commitment to the Company and forbearance of career options. D. The parties recognize that in light of the above-described commitment and forbearance of career options, it is essential that, for the benefit of the Company and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable the Executive to accept and effectively continue in the Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control, although no such change is now contemplated or foreseen. NOW, THEREFORE, for valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 "Base Salary" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.2 "Board" shall mean the Board of Directors of Protocol Systems, Inc. 1.3 "Disability" shall mean the inability of the Executive to perform the essential functions of his position under this Agreement with or without reasonable accommodation because of physical or mental incapacity for a continuous period of five (5) months, as reasonably determined by the Company after consultation with a qualified physician selected by the Company. 1.4 "Company" shall mean Protocol Systems, Inc. and, any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.5 "Confidentiality Agreement" shall mean that certain Non-competition and Confidentiality Agreement dated July 10, 1989 by and between the Company and Executive. ARTICLE 2 EMPLOYMENT, DUTIES AND TERM 2.1 Employment. Upon the terms and conditions set forth in this Agreement, the Company hereby employs the Executive in the position of Vice President - Sales, and the Executive accepts such employment. 2.2 Duties. The Executive shall devote his full-time and best efforts to the Company and to fulfilling the duties of his position which shall include such duties as may from time to time be assigned him by the Chief Executive Officer, provided that such duties are reasonably consistent with the Executive's position. The Executive shall comply with the Company's policies and procedures to the extent they are not inconsistent with this Agreement, in which case the provisions of this Agreement prevail. 2.3 Term. This Agreement shall remain in effect until the earlier of (i) termination pursuant to Article 4 or Article 6 of this Agreement or (ii) two (2) years from the date of this Agreement, provided however that if a Change in Control occurs within two (2) years from the date of this Agreement, then this Agreement shall remain in effect for two (2) years from the date of the first Change in Control event described in Section 6.1.1. ARTICLE 3 COMPENSATION AND EXPENSES 3.1 Base Salary. For all services rendered under this Agreement, the Company shall pay Executive a Base Salary that is not less than Executive's Base Salary as of the date of this Agreement. If the Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. All amounts payable to the Executive under this Agreement shall be reduced by such amounts as are required to be withheld by law. 3.2 Bonus and Incentive. Bonus or incentive compensation shall be in the sole discretion of the Board. Except as otherwise provided in Article 6, the Company shall have the right in accordance with the terms of any bonus or incentive plan to alter, amend or eliminate all or any part of such plan, or the Executive's participation therein, without compensation to the Executive. 3.3 Business Expenses. The Company shall, in accordance with, and to the extent of, its policies in effect from time to time, reimburse all ordinary and necessary business expenses reasonably incurred by the Executive in performing his duties as an employee of the Company, provided that the Executive accounts promptly for such expenses to the Company in the manner prescribed from time to time by the Company. ARTICLE 4 EARLY TERMINATION 4.1 Early Termination. This Article 4 governs termination of this Agreement at any time during the term of the Agreement; provided, however, that this Article shall not govern a "Change of Control Termination" as defined in Article 6. A Change in Control Termination is governed solely by the provisions of Article 6. 4.2 Termination for Cause. The Company may terminate this Agreement and Executive's employment immediately for "Cause" as that term is defined herein, upon written notice to the Executive. 4.2.1 "Cause" means any one of the following: (a) fraud, (b) misrepresentation, (c) theft or embezzlement of the Company assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by the Executive to satisfactorily perform his duties as reasonably assigned to the Executive pursuant to Section 2.2 of this Agreement for a period of sixty (60) days after a written demand for such satisfactory performance which specifically and with reasonable detail identifies the manner in which it is alleged the Executive has not satisfactorily performed such duties, and (f) any material breach of the Confidentiality Agreement. 4.2.2 In the event of termination for Cause pursuant to this Section 4.2, the Executive shall be paid his Base Salary through the date of termination specified in any notice of termination. The Executive will not be entitled to any bonuses or incentives which are not earned and payable at the time of the termination. 4.3 Termination Without Cause. Either the Executive or the Company may terminate this Agreement and the Executive's employment without Cause by providing at least seventy-five (75) days' written notice; provided, however, that the Company shall have the option of making termination of the Agreement and termination of the Executive's employment effective immediately upon notice, in which case Executive shall be paid his Base Salary through a notice period of seventy-five (75) days. This Section 4.3 shall not be applicable where Cause for termination exists. 4.3.1 If the notice of termination is given by the Company, in addition to any other amounts payable to Executive, under this Section 4.3, the Company shall pay Executive within fifteen (15) days following termination, a lump sum amount equal to six (6) month's Base Salary. 4.3.2 In the event that termination occurs pursuant to Section 4.3.1 then, in addition to the payments specified in said Section, the Company shall pay to the Executive bonuses, if any, as follows: 4.3.2.1 Company shall pay Executive an amount equal to the annual bonus or annual incentive, if any, to which the Executive would otherwise have become entitled under any Company bonus or incentive plan in effect at the time of termination of this Agreement had the Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his duties in the same manner as they were performed immediately prior to termination; provided, however, that such bonus or incentive amount shall be pro-rated to the date of termination. The amount payable pursuant to this Section 4.3.2.1 shall be earned and payable as of the date that is fifteen (15) days after the date such bonus would have been paid had the Executive remained employed for the full fiscal year. 4.3.2.2 In the event Executive would have been entitled to a quarterly bonus or quarterly incentive payment had he remained employed for the entire quarter in which Executive was terminated, the Company shall pay Executive such quarterly bonus or incentive amount pro-rated to the date of termination, payable as of the date that is fifteen (15) days after the date such bonus would have been paid had the Executive remained employed for the full quarter. 4.4 Termination in the Event of Death or Disability. This Agreement and Executive's employment shall terminate in the event of death or Disability of the Executive. 4.4.1 In the event of the Executive's death, the Company shall pay an amount equal to three (3) month's Base Salary to the executor, administrator or other personal representative of the Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Company's receipt of notice of the Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.4.3 below. 4.4.2 In the event of termination due to Executive's Disability, Base Salary shall be terminated as of the final day of the fifth month referenced in the definition of "Disability." Unless otherwise disqualified by the disability benefit program provider, this Section is not intended to limit the Executive from qualifying for and claiming disability benefits from any other disability program in which the Executive may be enrolled or otherwise for which he is qualified at the time of disability. 4.4.3 In the event of termination by reason of the Executive's death or Disability, the Company shall pay to the Executive an amount equal to the amount the Executive would have received in incentive plan bonus for the year in which termination occurred had "target" goals been achieved, provided, however, that such amount shall be pro-rated to the date of termination. This amount shall be earned and payable as of the date that is fifteen (15) days after the date such bonus would have been paid had the Executive remained employed for the full fiscal year in which termination occurred. 4.5 Continuation of Benefits. In the event of termination of Executive's employment by the Company pursuant to Section 4.3.1 or termination due to Disability, the Company shall pay the applicable premiums for such group health plan continuation as Executive is entitled to under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA") and shall continue such payment for the period of time the Executive is entitled to continue such coverage under COBRA. 4.6 Entire Termination Payment. The compensation provided for in this Article 4 shall constitute the Executive's sole remedy for termination pursuant to this Article. The Executive shall not be entitled to any other termination or severance payment which may be payable to the Executive under any other agreement between the Executive and the Company preceding or following the date of termination. ARTICLE 5 CONFIDENTIALITY; CONFLICT OF INTEREST 5.1 Proprietary Information. Executive shall keep confidential, except as the Company may otherwise consent in writing, and not disclose or make any use of except for the benefit of the Company, at any time either during or subsequent to his employment by the Company, any Proprietary Information which he may produce, obtain or otherwise acquire during the course of his employment. As used herein, "Proprietary Information" shall include any trade secrets, confidential information, knowledge, data, or other information of the Company relating to products, processes, know-how, designs, formulae, test procedures and results, customer lists, business plans, marketing plans and strategies, and pricing strategies, or other subject matter pertaining to any business of the Company for any of its clients, customers, consultants, licensees of affiliates, which information is not in the public domain at the time of the alleged breach. In the event of the termination of the Executive's employment for any reason whatsoever, Executive shall promptly return all records, materials, equipment, drawings and the like pertaining to any Proprietary Information. 5.2 Covenant Not to Compete. Executive acknowledges that he will provide special skills, and acquire special information, regarding the activities of the Company. Executive agrees, therefore, that he will not, for a period of twelve (12) months from and after the date he ceases to be employed by the Company, join, control or participate in the ownership, management, operation or control of or be connected with, any business located in the United States of America whose commercial products are in direct competition with the Company or which is developing products which will be in direct competition with the Company, in such a manner and position that he would likely use Proprietary Information, unless released from such obligation by the Board of Directors of the Company. Executive agrees that he shall be deemed to be connected with a business if such a business is carried on by a partnership in which he is a general or limited partner or employee of a corporation or association of which he is a shareholder, officer, director, employee, member, consultant or agent; provided, that nothing herein shall prohibit the purchase or ownership by him of shares of less than five percent (5%) in a publicly or privately held corporation. Executive agrees to submit a list of such business interests in Exhibit A attached hereto and incorporated by reference herein. Notwithstanding the foregoing, this Section 5.2 shall not apply to the Executive if the Executive's employment was terminated pursuant to Section 4.3 or Section 6.1.2.1 of this agreement. 5.3 Consent to Injunction. Executive agrees that the Company will or would suffer an irreparable injury if Executive were to compete with the business of the Company or any of its subsidiaries in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction and Executive stipulates to the entering of such injunctive relief prohibiting him from competing with the Company or any present affiliate of the Company in connection with the business of the Company, in violation of this Agreement. 5.4 Severability. The parties intend that the covenants contained in Section 5.2 be deemed to be separate covenants as to each county and state, and that if in any judicial proceeding a court shall refuse to enforce all of the separate covenants included herein because, taken together, they cover too extensive a geographic area or because any one includes too large an area or because they cover too large a period of time, the parties intend that such covenants shall be reduced in scope to the extent required by law or, if necessary, eliminated from the provisions hereof, and that all of the remaining covenants hereof not so affected shall remain fully effective and enforceable. 5.5 Assignment of Inventions. As used in this Agreement, "inventions" shall include, but not be limited to, ideas, improvements, designs, and discoveries. Executive hereby assigns and transfers to the Company entire right, title and interest in and to all inventions whether or not conceived by Executive (whether made solely by Executive or jointly with others) during the period of his employment with the Company which relate in any manner to the actual or demonstrably anticipated business, work, or research an development of the Company or its subsidiaries, or result from or are suggested by any tasks assigned to Executive or any work performed by Executive for or on behalf of the Company or its subsidiaries. Executive agrees that all such inventions are sole property of the Company, provided, however, that this Agreement does not require assignment of any invention if such assignment would contravene applicable state law. 5.6 Disclosure of Inventions, Patents. Executive agrees that in connection with any invention as defined in Section 5.5, above: 5.6.1 Executive will disclose such invention promptly in writing to the Board of Directors of the Company, with a copy to the President, regardless of whether he believes the invention is protected by applicable state law, in order to permit the Company to claim rights to which it may be entitled under this Agreement. Such disclosure shall be received in confidence by the Company. 5.6.2 Executive will, at the Company's request, promptly execute a written assignment of title to the Company for any invention required to be assigned by Section 5.5 ("assignable invention") and Executive will preserve any such assignable invention as confidential information of the Company; and 5.6.3 Upon request, Executive agrees to assist the Company or its nominee (at its expense) during and at any time subsequent to his employment in every reasonable way to obtain for its own benefit patents and copyrights for such assignable inventions in any and all countries, which inventions shall be and remain the sole and exclusive property of the Company or its nominee, whether or not patented or copyrighted. Executive agrees to execute such papers and perform such lawful acts as the Company deems to be necessary to allow it to exercise all right, title, and interest in such patents and copyrights. 5.6.4 Executive agrees to submit a list of inventions made prior to his employment by the Company on Exhibit B attached hereto and incorporated by reference herein. 5.7 Execution of Documentation. In connection with Section 5.5 and Section 5.6, Executive further agrees to execute, acknowledge and deliver to the Company or its nominee upon request and at its expense all such assignments of inventions, patents, and copyrights to be issued therefor, as the Company may determine necessary or desirable for which to apply. Executive agrees to obtain letters, patents, and copyrights on such assignable inventions in any and all countries and/or protect the interest of the Company or its nominee in such inventions, patents and copyrights and to vest title thereto in the Company or its nominee. 5.8 Other Obligations. Executive acknowledges that the Company from time to time may have agreements with other persons or with the U.S. Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. Executive agrees to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder. 5.9 Trade Secrets of Others. Executive represents that his performance of all the terms of this Agreement and as an employee of the Company such employment does not and will not breach any agreement to keep in confidence proprietary information, knowledge, or data acquired by Executive in confidence or in trust prior to his employment with the Company. Executive will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or others. Executive agrees not to enter into any agreement either written or oral in conflict herewith. 5.10 Conflict of Interest. During Executive's employment with the Company, Executive will engage in no activity or employment which may conflict with the interest of the Company and will comply with the Company's policies and guidelines pertaining to business conduct and ethics. 5.11 Previous Agreements. Executive represents and warrants to the Company that as of the date of this Agreement, he has fully complied with the terms of the Confidentiality Agreement. Executive's obligations under this Agreement are in addition to, do not limit, and are not limited by, Executive's Confidentiality Agreement. To the extent any provision of the Confidentiality Agreement conflicts with the provisions of this Agreement, the provisions of this Agreement control. 5.12 Survival of Obligations. The provisions of this Article 5 shall survive termination of this Agreement. ARTICLE 6 CHANGE OF CONTROL 6.1 Definitions. For purposes of this Article 6, the following definitions shall be applied: 6.1.1 "Change of Control" shall mean any of the following events: 6.1.1.1 a merger or consolidation to which the Company is a party if the individuals and entities who were stockholders of the Company immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or 6.1.1.2 the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), in the aggregate, of securities of the Company, representing twenty percent (20%) or more of the total combined voting power of the Company's then issued and outstanding securities, by any person or entity, or group of associated persons or entities acting in concert; or 6.1.1.3 the sale of all or substantially all of the assets of the Company to any person or entity which is not a subsidiary of the Company; or 6.1.1.4 the stockholders of the Company approve any plan or proposal for the liquidation of the Company; or 6.1.1.5 a change in the composition of the Board at any time during any consecutive 24-month period such that the Continuity Directors cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either: 6.1.1.5.1 were directors at the beginning of such consecutive 24-month period; or 6.1.1.5.2 were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board. 6.1.2 "Change of Control Termination" shall mean, with respect to the Executive, any of the following events occurring within two (2) years after a Change of Control: 6.1.2.1 Termination of the Executive's employment by the Company for any reason other than for Cause, as Cause is defined in Section 4.2 of this Agreement. 6.1.2.2 Termination of employment with the Company by the Executive pursuant to Section 6.2 of this Article 6. A Change of Control Termination shall not, however, include termination by reason of death or Disability. 6.1.3 "Good Reason" shall mean a good faith determination by the Executive, in the Executive's reasonable judgment, that any one or more of the following events has occurred without the Executive's express written consent, after a Change of Control, and the Company's failure to correct such occurrence for a period of thirty (30) days following Executive's written notice to Company identifying the event alleged to provide Good Reason and stating Executive's intent to invoke Section 6.2 of this Article 6. 6.1.3.1 A change in the Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of the Executive from, or any failure to re- elect the Executive to, any of such positions, which has the effect of materially diminishing the Executive's responsibility or authority; 6.1.3.2 A reduction by the Company in the Executive's Base Salary as in effect immediately prior to the Change of Control; 6.1.3.3 A requirement by the Company that the Executive be based anywhere other than within twenty-five (25) miles of the Executive's job location at the time of the Change of Control; 6.1.3.4 A material diminishment of Executive's pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement and/or any membership (collectively, "Benefit Plans"), in which the Executive is participating immediately prior to a Change of Control; or the taking of any action by the Company that would materially adversely affect the Executive's participation or materially reduce the Executive's benefits under any Benefit Plans or Benefit Plan; 6.1.3.5 Any material breach of this Agreement by the Company. 6.1.4 "Internal Revenue Code" -- Any references to a section of the Internal Revenue Code shall mean that section of the Internal Revenue Code of 1986, or to the corresponding section of such Code, as from time to time amended. 6.2 Change of Control Termination Right. For a period of two (2) years following a Change of Control, the Executive shall have the right, at any time, to terminate employment with the Company for Good Reason. Such termination shall be accomplished by, and effective upon, the Executive giving written notice to the Company of the Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of the Executive under this Agreement shall be of no further force and effect. 6.2.1 Change of Control Termination Payment. In the event of a Change of Control Termination as defined in Section 6.1.2, without further action by the Board, the Company shall, within thirty (30) days of such termination, make a lump sum payment to the Executive, equal to one (1) years' Base Salary. 6.2.2 In addition to the amounts paid pursuant to Section 6.2.1 the Company shall pay to the Executive an amount equal to (a) one (1) time what the Executive would have received in incentive plan bonus for the year in which termination occurs as if the "target" goals had been achieved for that fiscal year, or (b) the actual amount of the incentive bonus to which the Executive would have been entitled had he remained with the Company based on the Company's actual performance, for the fiscal year in which termination occurs, whichever is greater. The amount provided by this Section 6.2.2 shall be earned and payable on the date that is fifteen (15) days after the date Executive would have been paid an annual incentive bonus had he remained with the Company for the fiscal year in which termination occurs. 6.2.3 Notwithstanding anything in this Agreement to the contrary, in the event any of the payments to the Executive under this Agreement would constitute an excess parachute payment pursuant to Section 280 G of the Internal Revenue Code, the amount payable pursuant to Section 6.2.2 shall be reduced by the minimum amount necessary such that none of the compensation payable to Executive as a result of a Change in Control shall constitute an excess parachute payment. 6.3 Interest. In the event the Company does not make timely payment in full of the Change of Control Termination payment described in Section 6.2, the Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) prime rate of interest (or such comparable index as may be adopted) established from time to time by the Company's principal banking institution or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code. 6.4 Continuation of Benefits. In the event of termination of Executive's employment pursuant to Section 6.2 herein, the Company shall pay the applicable premiums for such group health plan continuation as Executive is entitled to under COBRA and such payment shall continue for the period of time the Executive is entitled to continue such coverage under COBRA. 6.5 Vesting of Stock Options. Vesting of Stock Options. All unvested stock options held by Executive, if any, shall vest immediately upon a Change in Control Termination as defined in Section 6.1.2. Executive may exercise such options in accordance with the terms and conditions of the stock option plan and the agreement pursuant to which such options were granted. ARTICLE 7 GENERAL PROVISIONS 7.1 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company and each subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of the Company, and any such successor or assign shall absolutely and unconditionally assume all of the Company's obligations hereunder. 7.2 Notices. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address as set forth at the beginning of this Agreement. Either party may change its address, by notice to the other party given in the manner set forth in this Section. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the third business day thereafter or when it is actually received, whichever is sooner. 7.3 Caption. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 7.4 Governing Law. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Oregon 7.5 Mediation. In case of any dispute arising under this Agreement which cannot be settled by reasonable discussion, the parties agree that, prior to commencing any arbitration proceeding as contemplated by Section 7.6 they will first engage the services of a professional mediator agreed upon by the parties and attempt in good faith to resolve the dispute through confidential non- binding mediation. Each party shall bear one-half (1/2) of the mediator's fees and expenses and shall pay all of its own attorneys' fees and expenses related to the mediation. 7.6 Arbitration. Any dispute concerning the interpretation, construction, breach or enforcement of this Agreement or arising in any way from Executive's employment with Company or termination of employment shall be submitted to final and binding arbitration. Such arbitration is to be before a single arbitrator in Portland, Oregon. In the event the parties are unable to agree upon an arbitrator, an arbitrator shall be appointed by the court pursuant to ORS 36.320. The arbitration shall be conducted pursuant to the rules of the American Arbitration Association ("AAA") Employment Dispute Resolution Rules. Executive and the Company agree that the procedures outlined in Section 7.5 and 7.6 are the exclusive method of dispute resolution. 7.7 Attorney Fees. If any action at law, in equity or by arbitration is taken to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled, including fees and expenses on appeal. 7.8 Construction. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 7.9 Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 7.10 Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and shall be binding upon the Executive, his administrators, executors, legatees, and heirs. In that this Agreement is a personal services contract, it shall not be assigned by the Executive. 7.11 Modification. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 7.12 Entire Agreement. This Agreement together with the Confidentiality Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces and supersedes all prior employment agreements or understandings of the parties hereto; provided, however, that the Confidentiality Agreement continues in full force and effect according to its terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE PROTOCOL SYSTEMS, INC. ____________________________________ By:_________________________________ Chris E. Tew Robert F. Adrion, President & CEO Date:_______________________________ Date________________________________ EX-27.1 11
5 This schedule contains summary financial information extracted from Protocol Systems, Inc. Condensed Consolidated Balance Sheet as of March 31, 2000 and Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 9,825 16,604 16,507 417 10,720 50,472 16,508 12,471 61,347 6,991 0 0 0 82 54,274 61,347 17,667 17,667 8,965 8,965 6,729 0 0 1,973 592 1,381 0 0 0 1,381 0.17 0.16 Net of allowance. The amount of loss provision is not significant and has been included in other expenses.
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