-----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, BzMsH+02sNVj2E4Fm72iSQdcMfQdWjwqDrnvL0W/MYRtlAkqTfPE1ljb4K9H5qlO pjCslC+vY9i5XEPdSvfNMA== 0000950148-99-002493.txt : 19991117 0000950148-99-002493.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950148-99-002493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MINIMED INC CENTRAL INDEX KEY: 0000945801 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 954408171 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26268 FILM NUMBER: 99754786 BUSINESS ADDRESS: STREET 1: 12744 SAN FERNANDO RD CITY: SYLMAR STATE: CA ZIP: 91342 BUSINESS PHONE: 8183625958 MAIL ADDRESS: STREET 1: 12744 SAN FERNANDO RD CITY: SYLMAR STATE: CA ZIP: 91342 10-Q 1 FORM 10-Q (9/30/99) 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q --------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 1, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to______ Commission file number 0-26268 MINIMED INC. (Exact Name of Registrant as Specified in its Charter) --------------- Delaware 95-4408171 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 12744 SAN FERNANDO ROAD, SYLMAR, CA 91342 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (818) 362-5958 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: TITLE OF EACH CLASS OUTSTANDING AT NOVEMBER 10, 1999 ---------------------------- -------------------------------- Common Stock, $.01 par value 31,105,235 ================================================================================ 2 INDEX MINIMED INC.
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 3 Consolidated Balance Sheets - January 1, 1999 and October 1, 1999 (Unaudited) 3 Consolidated Statements of Income (Unaudited) -- Three months and nine months ended October 2, 1998 and October 1, 1999 4 Consolidated Statements of Cash Flows (Unaudited) - Nine months ended October 2, 1998 and October 1, 1999 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION 19 Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURE 20 INDEX TO EXHIBITS 21
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES MINIMED INC. CONSOLIDATED BALANCE SHEETS JANUARY 1, 1999 AND OCTOBER 1, 1999
ASSETS 1998 1999 ------------ ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents ....................................................... $ 27,303,000 $ 99,044,000 Short-term investments .......................................................... 13,476,000 69,400,000 Accounts receivable, net of allowance for doubtful accounts of $8,844,000 and $9,467,000 at January 1, 1999 and October 1, 1999, respectively ............... 38,788,000 47,689,000 Inventories ..................................................................... 16,860,000 26,607,000 Deferred income taxes ........................................................... 6,404,000 7,576,000 Income taxes receivable ......................................................... -- 10,975,000 Prepaid expenses and other current assets ....................................... 3,835,000 6,702,000 ------------ ------------ Total current assets ................................................ 106,666,000 267,993,000 LONG-TERM INVESTMENTS ............................................................. 4,826,000 6,669,000 NOTE RECEIVABLE FROM AFFILIATE .................................................... 3,600,000 3,600,000 OTHER ASSETS ...................................................................... 11,522,000 18,080,000 LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ..................................... 31,038,000 41,303,000 ------------ ------------ TOTAL ............................................................................. $157,652,000 $337,645,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of notes payable ................................................ $ 1,101,000 $ 882,000 Accounts payable ................................................................ 5,447,000 6,158,000 Accrued salaries and related benefits ........................................... 5,231,000 5,827,000 Accrued sales commissions ....................................................... 2,260,000 805,000 Accrued warranties .............................................................. 2,828,000 3,461,000 Income taxes payable ............................................................ 1,155,000 -- Other accrued expenses .......................................................... 3,873,000 2,766,000 ------------ ------------ Total current liabilities ............................................ 21,895,000 19,899,000 ------------ ------------ Deferred income taxes ........................................................... 865,000 1,857,000 Notes payable ................................................................... 1,059,000 1,000,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01; 40,000,000 shares authorized as of January 1, 1999 and 100,000,000 shares authorized as of October 1, 1999; 28,095,274 and 31,065,765 shares issued and outstanding as of January 1, 1999 and October 1, 1999, respectively ............................................ 286,000 323,000 Additional capital ............................................................. 111,683,000 277,162,000 Accumulated other comprehensive income ......................................... 738,000 1,807,000 Retained earnings .............................................................. 21,126,000 35,597,000 ------------ ------------ Total stockholders' equity .......................................... 133,833,000 314,889,000 ------------ ------------ TOTAL ............................................................................. $157,652,000 $337,645,000 ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 MINIMED INC. CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------ -------------------------------- OCTOBER 2, OCTOBER 1, OCTOBER 2, OCTOBER 1, 1998 1999 1998 1999 ------------------------------------------------------------------- ----- (Unaudited) NET SALES ................................... $ 34,897,000 $ 51,400,000 $ 92,979,000 $ 141,394,000 COST OF SALES ............................... 13,071,000 16,502,000 36,511,000 46,620,000 ------------- ------------- ------------- ------------- GROSS PROFIT ................................ 21,826,000 34,898,000 56,468,000 94,774,000 OPERATING EXPENSES: Selling, general and administrative ....... 14,643,000 22,809,000 37,963,000 60,344,000 Research and development .................. 3,892,000 6,394,000 10,946,000 18,262,000 Research and development contract ......... (1,500,000) (1,500,000) (4,500,000) (4,500,000) ------------- ------------- ------------- ------------- Total operating expenses ........ 17,035,000 27,703,000 44,409,000 74,106,000 ------------- ------------- ------------- ------------- OPERATING INCOME ............................ 4,791,000 7,195,000 12,059,000 20,668,000 OTHER INCOME, Including interest income ..... 446,000 2,110,000 1,172,000 2,847,000 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES ................. 5,237,000 9,305,000 13,231,000 23,515,000 PROVISION FOR INCOME TAXES .................. 2,020,000 3,489,000 4,961,000 9,044,000 ------------- ------------- ------------- ------------- NET INCOME .................................. $ 3,217,000 $ 5,816,000 $ 8,270,000 $ 14,471,000 ============= ============= ============= ============= BASIC EARNINGS PER SHARE .................... $ 0.12 $ 0.19 $ 0.31 $ 0.50 ============= ============= ============= ============= BASIC WEIGHTED AVERAGE SHARES OUTSTANDING ... 26,832,000 30,894,000 26,674,000 29,166,000 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE .................. $ 0.11 $ 0.18 $ 0.29 $ 0.47 ============= ============= ============= ============= DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING . 28,316,000 32,758,000 28,092,000 31,028,000 ============= ============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 MINIMED INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED OCTOBER 2, 1998 AND NINE MONTHS ENDED OCTOBER 1, 1999
1998 1999 ------------- ------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................. $ 8,270,000 $ 14,471,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ......................................................... 2,723,000 5,097,000 Directors' fees paid in common stock ................................. -- 71,000 Deferred income taxes ................................................ (1,564,000) (880,000) Tax benefit from exercise of non-qualified stock options ............. 3,497,000 18,943,000 Changes in operating assets and liabilities: Accounts receivable, net ........................................... (4,152,000) (8,901,000) Inventories ........................................................ (7,407,000) (9,747,000) Prepaid expenses and other current assets .......................... (2,100,000) (2,867,000) Other assets ....................................................... 902,000 64,000 Accounts payable ................................................... (1,010,000) 711,000 Income taxes receivable/payable .................................... (88,000) (12,130,000) Other accrued expenses.............................................. (3,651,000) (1,333,000) ------------- ------------- Net cash provided by (used in) operating activities ................ $ (4,580,000) $ 3,499,000 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES - Short-term investments ............................................. 16,473,000 (55,924,000) Long-term investments .............................................. (1,140,000) Acquisition of Dartec A.B .......................................... (2,625,000) Purchase of technology license ..................................... -- (7,000,000) Purchase of land, buildings, property and equipment ................ (14,899,000) (14,905,000) ------------- ------------- Net cash used in investing activities .............................. $ (2,191,000) $ (77,829,000) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES - Repayment of notes payable ......................................... (2,905,000) (278,000) Proceeds from public offering, net of expenses ..................... -- 140,588,000 Proceeds from stock option exercises ............................... 1,226,000 5,011,000 Proceeds from issuance of common stock under employee stock purchase plan ............................................. 467,000 825,000 ------------- ------------- Net cash provided by (used in) financing activities .............. $ (1,212,000) $ 146,146,000 ------------- ------------- Effect of cumulative foreign currency translation adjustment on cash and equivalents ............................... 37,000 (75,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................................ (7,946,000) 71,741,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................................................. 22,282,000 27,303,000 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................................. $ 14,336,000 $ 99,044,000 ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest ............................................................. $ 49,000 $ 2,000 Income taxes ......................................................... $ 5,421,000 $ 3,624,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - MiniMed Inc. ("MiniMed" or "the Company") recorded an unrealized holding gain of $1,143,000 during the nine months ended October 1, 1999 and an unrealized holding loss of $1,580,000 during the nine months ended October 2, 1998, net of estimated deferred income taxes on marketable securities classified as long-term investments available for sale. On September 1, 1998, we accepted a $3.6 million note receivable from Medical Research Group, Inc., which we call MRG, in conjunction with the sale of $3.0 million of net implantable pump inventory components and $600,000 of net implantable pump fixed assets. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 2, 1998 AND NINE MONTHS ENDED OCTOBER 1, 1999 The fiscal years referenced herein are as follows:
FISCAL YEAR YEAR ENDED ----------- ---------- 1999 December 31, 1999 1998 January 1, 1999
NOTE 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of MiniMed Inc. ("MiniMed") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements included in the Annual Report of MiniMed Inc. filed on Form 10-K with the Securities and Exchange Commission for the year ended January 1, 1999. The results of operations for the nine months ended October 1, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. NOTE 2. INCOME TAXES Net income and earnings per share reflect income taxes which have been recorded at our estimated effective tax rate for the year. This estimated income tax rate has been determined by giving consideration to the pretax earnings and losses applicable to foreign and domestic tax jurisdictions. NOTE 3. WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING In accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), basic earnings per share for the three and nine months ended October 2, 1998 and October 1, 1999, were computed by dividing net income by weighted average common shares outstanding during the periods presented. Diluted earnings per share for the periods presented were computed by dividing net income by weighted average common and common equivalent shares outstanding, computed in accordance with the treasury stock method. The computation of basic and diluted EPS is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED -------------------------------- -------------------------------- OCTOBER 2, OCTOBER 1, OCTOBER 2, OCTOBER 1, 1998 1999 1998 1999 ----------- ----------- ----------- ----------- (Unaudited) BASIC EPS COMPUTATION Numerator: Net income applicable to common stock $ 3,217,000 $ 5,816,000 $ 8,270,000 $14,471,000 ----------- ----------- ----------- ----------- Denominator: Weighted average common shares outstanding 26,832,000 30,894,000 26,674,000 29,166,000 ----------- ----------- ----------- ----------- Basic earnings per share $ 0.12 $ 0.19 $ 0.31 $ 0.50 =========== =========== =========== =========== DILUTED EPS COMPUTATION Numerator: Net income applicable to common stock $ 3,217,000 $ 5,816,000 $ 8,270,000 $14,471,000 ----------- ----------- ----------- ----------- Denominator: Weighted average common shares outstanding 26,832,000 30,894,000 26,674,000 29,166,000 Effect of dilutive securities Stock options 1,484,000 1,864,000 1,418,000 1,862,000 ----------- ----------- ----------- ----------- Diluted weighted average shares outstanding 28,316,000 32,758,000 28,092,000 31,028,000 ----------- ----------- ----------- ----------- Diluted earnings per share $ 0.11 $ 0.18 $ 0.29 $ 0.47 =========== =========== =========== ===========
6 7 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 2, 1998 AND NINE MONTHS ENDED OCTOBER 1, 1999 NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS Certain balance sheet components are as follows:
JANUARY 1, OCTOBER 1, 1999 1999 ------------ ------------ (Unaudited) Inventories: Raw materials ............... $ 7,064,000 $ 11,334,000 Work-in-progress ............ 3,040,000 1,715,000 Finished goods .............. 6,756,000 13,558,000 ------------ ------------ Total ....................... $ 16,860,000 $ 26,607,000 ============ ============ Property, plant and equipment: Land, buildings and improvements .............. $ 13,244,000 $ 14,967,000 Machinery and equipment ..... 17,332,000 23,048,000 Tooling and molds ........... 2,352,000 2,988,000 Computer software ........... 1,989,000 6,536,000 Furniture and fixtures ...... 5,301,000 7,577,000 ------------ ------------ 40,218,000 55,116,000 Less accumulated depreciation (9,180,000) (13,813,000) ------------ ------------ Total ....................... $ 31,038,000 $ 41,303,000 ============ ============ Other assets: Technology license .......... $ 145,000 $ 7,107,000 Goodwill in connection with Dartec acquisition ....... 2,670,000 2,546,000 Goodwill in connection with DSS acquisition .......... 8,444,000 8,189,000 Other ....................... 263,000 238,000 ------------ ------------ Total ....................... $ 11,522,000 $ 18,080,000 ============ ============
7 8 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 2, 1998 AND NINE MONTHS ENDED OCTOBER 1, 1999 NOTE 5. COMPREHENSIVE INCOME The Company's total comprehensive income is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------------- ----------------------------------- OCTOBER 2, OCTOBER 1, OCTOBER 2, OCTOBER 1, 1998 1999 1998 1999 ------------ ------------ ------------ ------------ (Unaudited) Net income .............................. $ 3,217,000 $ 5,816,000 $ 8,270,000 $ 14,471,000 Other comprehensive income (loss): Foreign currency translation adjustments ....................... 35,000 42,000 37,000 (74,000) Unrealized gain (loss) on securities . (676,000) 745,000 (2,549,000) 1,843,000 ------------ ------------ ------------ ------------ Other comprehensive income (loss), before tax ........................ (641,000) 787,000 (2,512,000) 1,769,000 Income tax expense related to items of other comprehensive income ........ (258,000) 283,000 (969,000) 700,000 ------------ ------------ ------------ ------------ Other comprehensive income (loss) .... (383,000) 504,000 (1,543,000) 1,069,000 ------------ ------------ ------------ ------------ Total comprehensive income .............. $ 2,834,000 $ 6,320,000 $ 6,727,000 $ 15,540,000 ============ ============ ============ ============
NOTE 6. CONTINGENCIES In October 1998, we filed a complaint against Robert Kusher and Craig Lowy, the former owners of Home Medical Supply, Inc. and related companies, in the United States District Court for the Southern District of Florida, Ft. Lauderdale Division. The complaint alleges that Mr. Kusher and Mr. Lowy engaged in fraudulent misrepresentation, negligent misrepresentation and breach of contract relating to the sale of HMS to us and specific billing practices carried on prior to the sale. We are seeking several remedies including declaratory relief as to our rights under the acquisition and/or indemnification for any liability arising out of these billing practices. The allegations regarding billing practices could give rise to claims against us by the State of Florida. On February 9, 1999, we were served with a complaint filed in the Civil District Court For the Parish of Orleans, State of Louisiana, by Diabetes Resources, Inc., which is also known as Insulin Infusion Specialties, and which we will refer to as IIS. IIS entered into an Educational Dealer Agreement with us in July, 1997, relating to the distribution of some of our products by IIS. We declined to renew that agreement, pursuant to its 8 9 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 2, 1998 AND NINE MONTHS ENDED OCTOBER 1, 1999 terms as of December 31, 1998. IIS is alleging that we are engaged in unfair competition and monopolization, price discrimination, breached the agreement, violated applicable trade secret laws and defamed IIS. IIS did not specify the amount of damages it is seeking in its complaint. We believe that we have meritorious defenses to IIS's claims. We removed the action to Federal Court, and filed an answer denying the material allegations, and filed a counterclaim seeking damages for unfair trade practices and damages based on IIS's failure to pay amounts due and owing to MiniMed under the Educational Dealer Agreement. Trial in the matter has been set for an undetermined date not prior to March 24, 2000. Discovery in this litigation is in its preliminary stages. During the normal course of business, the Company may be subject to litigation involving various business matters. Management believes that an adverse outcome of any such known matters would not have a material adverse impact on the Company. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this quarterly report. Some of the information in this quarterly report contains forward-looking statements, including statements relating to anticipated operating results, margins, growth, financial resources, capital requirements, adequacy of the Company's capital resources, trends in spending on research and development, the development of new markets, the development, regulatory approval, manufacture, distribution, and commercial acceptance of new products, future product development efforts, our manufacture and distribution of a new disposable pump, the exercise of an option to purchase certain technologies or paid-up licenses, new applications for our existing product lines and our readiness for the Year 2000 are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements involve risks and uncertainties which may affect our business and prospects, including changes in economic and market conditions, acceptance of our products by the health care and reimbursement communities, health care legislation and regulation, new developments in diabetes therapy, administrative and regulatory approval and related considerations, competitive developments, maintenance of strategic alliances, the Year 2000 readiness of third parties we do business with and other factors discussed in our filings with the Securities and Exchange Commission. GENERAL Our sales and profits have been generated primarily through the sale of external pumps and related disposable products used to deliver insulin in the intensive management of diabetes. Additionally, through our acquisitions of Home Medical Supply, Inc., which we call HMS, Dartec AB, a Swedish distributor which we call Dartec, and Diabetes Support Systems, Inc., which we call DSS, we also have broadened our product offerings to include other diabetes supplies and pharmacy products generally used in the treatment of this disease. We distribute these products nationally and in some foreign countries. Current product development and manufacturing operations are focused on two product lines: external insulin pumps and related disposables and continuous glucose monitoring systems. Future development of the external pump and disposable product line will focus upon improving the existing technology for its current use in diabetes treatment and the utilization of this technology for the treatment of other medical conditions. On June 15, 1999, we received FDA approval of the first generation of our continuous glucose monitoring system. We recently initiated commercial distribution for this product line in a limited manner, and commercial success will be subject to our ability to implement successfully manufacturing, sales, marketing and reimbursement plans. Sales of the implantable pump product line have been and will continue to be limited until full regulatory approval is obtained. During 1999, we entered into two strategic relationships which will affect future product development efforts. In February 1999, we entered into an agreement with Eli Lilly and Company giving us a worldwide license to package and sell a new formulation of Lilly's insulin lyspro for use with our programmable insulin infusion pumps. In June 1999, we entered into agreements with a division of Elan Corporation, PLC to manufacture and market exclusively under our name a disposable, constant-flow infusion system developed by Elan to deliver insulin. We will also manufacture this infusion system for Elan and its other licensees for use with a variety of other pharmaceutical compounds. Products related to these agreements are subject to regulatory approval. 10 11 RESULTS OF OPERATIONS The following table sets forth, for the three and nine month periods ended October 1, 1999, and October 2, 1998, the percentage relationship to net sales of some items in our consolidated statements of income and the percentage change in the dollar amount of these items on a comparative basis.
PERCENTAGE OF NET SALES ------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------- --------------------------------------- OCTOBER 1, OCTOBER 2, % INCREASE OCTOBER 1, OCTOBER 2, % INCREASE 1999 1998 (DECREASE) 1999 1998 (DECREASE) ---------- ---------- ---------- ---------- ---------- ---------- (Unaudited) Net sales 100.0% 100.0% 47.3% 100.0% 100.0% 52.1% Cost of sales 32.1 37.5 26.2 33.0 39.3 27.7 ---------- ---------- ---------- ---------- ---------- ---------- Gross profit 67.9 62.5 59.9 67.0 60.7 72.8 Operating expenses: Selling, general and administrative 44.4 41.9 55.8 42.7 40.8 59.0 Research and development 12.4 11.2 64.3 12.9 11.8 66.8 Research and development contract (2.9) (4.3) -- (3.2) (4.8) -- ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses 53.9 48.8 62.6 52.4 47.8 66.9 ---------- ---------- ---------- ---------- ---------- ---------- Operating income 14.0% 13.7% 50.2% 14.6% 12.9% 71.4% ========== ========== ========== ========== ========== ==========
The following table sets forth domestic and international net sales and gross profits for our significant business activities for the three and nine month periods ended October 1, 1999 and October 2, 1998.
DOLLARS IN THOUSANDS % OF NET SALES THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED ----------------------- ----------------------- ------------------- ------------------- OCT. 1, OCT. 2, OCT. 1, OCT. 2, OCT. 1, OCT. 2, OCT 1, OCT 2, 1999 1998 1999 1998 1999 1998 1999 1998 --------- --------- --------- --------- ------- ------- ------- -------- (Unaudited) NET SALES: Diabetes products: External pumps and related disposables Domestic $ 43,935 $ 28,637 $ 119,634 $ 72,965 85.5% 82.1% 84.6% 78.5% International 3,614 2,688 11,157 7,644 7.0 7.7 7.9 8.2 --------- --------- --------- --------- ------- ------- ------- ------- Subtotal 47,549 31,325 130,791 80,609 92.5 89.8 92.5 86.7 Implantable insulin pumps 393 143 945 482 0.8 0.4 0.7 0.5 Other diabetes supplies 2,510 1,364 6,405 4,334 4.9 3.9 4.5 4.7 --------- --------- --------- --------- ------- ------- ------- ------- Total diabetes products 50,452 32,832 138,141 85,425 98.2 94.1 97.7 91.9 Pharmacy products 948 2,065 3,253 7,554 1.8 5.9 2.3 8.1 --------- --------- --------- --------- ------- ------- ------- ------- Total net sales $ 51,400 $ 34,897 $ 141,394 $ 92,979 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= ======= ======= ======= ======= GROSS PROFIT: External pumps and related disposables $ 33,978 $ 21,577 $ 92,303 $ 55,544 66.1% 61.8% 65.3% 59.7% Implantable insulin pumps (357) (294) (717) (1,656) (0.7) (0.8) (0.5) (1.8) Other diabetes supplies 1,267 481 2,513 1,655 2.5 1.4 1.7 1.8 --------- --------- --------- --------- ------- ------- ------- ------- Total diabetes products 34,888 21,764 94,099 55,543 67.9 62.4 66.5 59.7 Pharmacy products 10 62 675 925 0.0 0.2 0.5 1.0 --------- --------- --------- --------- ----- ----- ----- ----- Total gross profit $ 34,898 $ 21,826 $ 94,774 $ 56,468 67.9% 62.6% 67.0% 60.7% ========= ========= ========= ========= ======= ======= ======= =======
NET SALES Net sales increased 47.3% during the three months ended October 1, 1999 over the three months ended October 2, 1998 to $51,400,000 from $34,897,000, and increased 52.1% to $141,394,000 in the first nine months of 1999 from $92,979,000 for the first nine months of 1998. This sales growth is principally the result of an increase in the sales of external pumps and related disposables. In the third quarter of 1999 sales of these products increased 51.8%, or $16,224,000 over the third quarter of 1998, and $50,182,000 or 62.3% for the first nine months of 1999 over the corresponding period of 1998. Domestic sales of these products grew 53.4% or $15,298,000 in the third quarter of 1999 compared to the third quarter of 1998, while international sales increased 34.4% or $926,000 during the same period. For the first nine months of 1999, domestic sales of external pumps and related disposable products increased by 64.0% while foreign sales of these products increased by 46.0% over the comparable period of 1998. The domestic net sales growth was derived primarily from increased volume of external pumps and related disposables combined with an increase in average prices realized on external pump sales. The higher domestic external pump price resulted from the continued shift of sales through our direct sales 11 12 organization rather than through independent dealers, which receive discounts on these products. We have recently launched our next generation external pump which has a higher list price. However, due to certain contractual obligations with managed care entities, we do not believe that this price increase will result in improved margins or sales in the immediate future. International sales of external pumps and related disposable products grew primarily due to greater sales volumes of external pumps, while pricing of external pumps in the international market in the third quarter of 1999 remained consistent with the comparable periods of 1998. Domestic and international pricing for disposable products did not change materially from the first nine months of 1998 to the first nine months of 1999. Sales of implantable pumps increased 174.8% or $250,000 from the third quarter of 1998 to the third quarter of 1999, while sales of these products for the first nine months of 1999 increased 96.1% or $463,000 over the first nine months of 1998. While we have obtained regulatory approval for the implantable pump in Europe, the special insulin utilized by the pump has not been approved in Europe. No approvals have been obtained in the United States. Sales of implantable pumps to date have been generated mainly in connection with clinical trials and compassionate use of the pumps. No assurance can be given as to when these approvals will be received, if at all. Sales of other diabetes supplies increased by 84.0% or $1,146,000 from the third quarter of 1998 to the third quarter of 1999, while sales of these products for the first nine months of 1999 increased by 47.8% or $2,071,000 over the first nine months of 1998. This increase is volume based as we have added new customers and expanded our 1999 diabetes customer base through our acquisition of DSS. Average sales prices, however, have decreased for these products due to reimbursement trends. Pharmacy products sales decreased by 54.1% or $1,117,000 from the third quarter of 1998 to the third quarter of 1999, while sales of these products for the first nine months of 1999 decreased by 56.9% or $4,301,000 compared to the first nine months of 1998. The pharmacy operation historically distributed products to treat a number of medical conditions, including diabetes, HIV/AIDS and renal failure. The 1999 sales decrease resulted primarily from our continued narrowing and restructuring of the pharmacy operations. OPERATING RESULTS Cost of Sales and Gross Profit--Cost of sales increased 26.2% during the three months ended October 1, 1999 over the three months ended October 2, 1998 to $16,502,000 from $13,071,000, and increased 27.7% to $46,620,000 from $36,511,000 for the nine months ended October 1, 1999 as compared to the nine months ended October 2, 1998. As a percentage of net sales, cost of sales in the 1999 third quarter decreased to 32.1% from 37.5% in the comparable period of 1998, while cost of sales as a percentage of net sales for the first nine months of 1999 decreased to 33.0% from 39.3% for the comparable period of 1998. Gross margins on external pumps and disposables increased to 71.5% of pump and disposable sales during the 1999 third quarter compared to 68.9% for this product line during the 1998 third quarter. For the first nine months of 1999 gross margins on external pumps and disposables increased to 70.6% compared to 68.9% for the comparable period in 1998. The improvement in year-to-date and quarterly gross margins on these products was primarily the result of the increase in average prices on external pump sales, a reduction in the cost of certain disposable products that we purchase from contract manufacturers due to rebates and volume discounts, and manufacturing efficiencies due to increased volumes. Our overall gross profits continue to be adversely impacted by the implantable pump product line due to continued limited sales prior to full commercial release. We sold assets and transferred technology related to this product line on September 1, 1998 to Medical Research Group, Inc., an affiliate which we call MRG. MRG has assumed all manufacturing and product development activities relating to the implantable pump. Implantable pump gross margins as a percent of implantable pump sales improved during both the 1999 third quarter and the first nine months of 1999 compared to the comparable periods in 1998 due to this transaction. We expect this improvement in margins to continue in the short-term as a result of the MRG transaction, however, in the long-term, margins may be reduced due to the transfer of the manufacturing operation to MRG and as our role has been converted to an exclusive distributor of this product. We are required to purchase minimum quantities of implantable pump units from MRG at negotiated prices. MiniMed must also purchase minimum quantities beyond 2001 in order to preserve our exclusive distribution rights. The date by which these purchase commitments must be satisfied may be extended if and to the extent MRG fails to complete specific technology improvements to the implantable pump. Current minimum purchase commitments for implantable pumps based upon current prices are: 12 13 Through December 31, 2000......... $10,354,000 In 2001 .......................... 8,935,000 ----------- Total ....................... $19,289,000 ===========
Gross margins for other diabetes supplies increased to 50.5% of diabetes supplies sales during the 1999 third quarter compared to 35.3% of diabetes supplies sales during the comparable period in 1998. Gross margins for this product line increased to 39.2% of diabetes supplies sales during the first nine months of 1999 compared to 38.2% of diabetes supplies sales during the comparable period in 1998. The improvement in the 1999 gross margins for other diabetes supplies resulted from lower costs on several of these products due to volume rebates earned. Average sales prices of these products continue to decline due to current reimbursement trends. Gross profits on pharmacy products decreased 83.9% to $10,000 during the third quarter of 1999, compared to $62,000 during the third quarter of 1998. Pharmacy products gross margins also decreased 27.0% to $675,000 for the first nine months of 1999, compared to $925,000 for the first nine months of 1998. These fluctuations in pharmacy products gross margins were primarily due to our restructuring of the pharmacy operations as described above. Operating Expenses--Selling, general and administrative expenses increased 55.8% during the three months ended October 1, 1999 as compared to the three months ended October 2, 1998 to $22,809,000 from $14,643,000. For the nine months ended October 1, 1999, selling, general and administrative expenses grew 59.0% to $60,344,000 from $37,963,000 for the nine months ended October 2, 1998. As a percentage of net sales, these expenses increased to 44.4% during the third quarter of 1999 and to 42.7% during the first nine months of 1999 compared to 42.0% during the third quarter of 1998 and to 40.8% for the first nine months of 1998. These expenses have increased on an overall basis and as a percentage of sales primarily due to our continued spending to support our worldwide sales growth. These increases include variable costs related to field sales expenses, significant increases in marketing and customer support, European expansion through our subsidiaries and general and administrative staffing increases to support these activities. Research and development expenses grew 64.3% during the third quarter of 1999 over the third quarter of 1998 to $6,394,000 from $3,892,000, with research and development expenses increasing 66.8% to $18,262,000 for the first nine months of 1999 compared to $10,946,000 for the first nine months of 1998. As a percentage of sales, research and development expenses increased to 12.4% during the third quarter of 1999 from 11.2% during the comparable period in 1998, and increased to 12.9% of net sales for the first nine months of 1999 compared to 11.8% during the first nine months of 1998. The 1999 increase in research and development costs resulted from greater resources directed to the development of continuous glucose monitoring systems, start-up manufacturing operations of the continuous glucose monitoring systems, development of future generation external insulin pumps and related disposable products and data communication capabilities for external pumps and continuous glucose monitoring systems. We anticipate that research and development expenditures for future periods will continue to increase as we commercialize new products and develop manufacturing operations for our constant-flow infusion system and the Lilly insulin lyspro. During the 1998 first quarter, we signed a research and development contract with American Medical Instruments, Inc., which we call AMI, a member of The Marmon Group of companies. Under terms of the agreement, and subject to the achievement of quarterly performance milestones, we can receive up to $12.0 million in funding, payable in quarterly installments of $1.5 million, for two research and development projects. Subject to payment of royalties to AMI, we will have the right to sell products utilizing the technology pursuant to the agreement on a worldwide basis, with the exception of Japan. We also have the right to either purchase the technologies developed or acquire a fully paid-up exclusive worldwide license for these technologies, in either case at prices ranging from an aggregate of $13.5 million to $19.0 million subject to downward adjustment during specific periods through April 30, 2002. During the third quarter of both 1998 and 1999, we recorded $1.5 million from this research and development contract as a reduction of operating expenses as costs related to completion of the contractual obligations will be included in research and development expense. 13 14 From time to time, we invest in new and developing technologies that may provide improvements to our core technology or that may provide additional applications for our existing technologies and products. These investments may be in the form of equity investments, loans, research and development agreements, and strategic alliance or cooperation agreements. No assurance can be given as to when these investments will provide useful new technologies or applications, if at all. Such investments may result in losses that could adversely affect our future earnings and results of operations. Other--During the three and nine months ended October 1, 1999 and during the three and nine months ended October 2, 1998, other income consisted primarily of interest income generated from our cash, cash equivalents, and short-term investment balances. LIQUIDITY AND CAPITAL RESOURCES We generated cash from operations of $3,499,000 during the nine months ended October 1, 1999, whereas we used cash in operations of $4,580,000 during the nine months ended October 2, 1998. Cash flow from operations during the first nine months of 1999 improved over 1998 due to the effect of the tax benefit realized from non-qualified stock option exercises. This improvement in 1999 cash flow from operations was partially offset by increases in inventory and accounts receivable balances during the period. We continued to increase finished goods inventory levels during the third quarter of 1999 to support the historically higher sales volumes we have experienced in the fourth quarter and to support our launch of a new model external insulin pump. Capital expenditures during the first nine months of 1999 were $14,905,000 compared to $14,899,000 during the first nine months of 1998. Our 1998 and 1999 capital expenditures related primarily to building manufacturing capacity for the continuous glucose monitoring systems, as well as other building improvements, manufacturing expansion, research and development engineering equipment and information systems upgrades to support growth. We anticipate that future capital expenditures will continue to increase in support of our new product activities, including expenditures for start-up manufacturing operations for our new disposable continuous drug delivery system that we will exclusively manufacture on a worldwide basis, and to build the infrastructure necessary to accommodate our anticipated growth. During the third quarter of 1999, we paid $7.0 million to Elan for license fees related to the disposable continuous drug delivery system. Additional license fees ranging between $8.0 million and $13.0 million will be due in future periods subject to certain conditions and attainment of certain milestones. We received $140,588,000 during the first nine months of 1999 in connection with our recent public offering of 2,172,500 shares of our common stock net of expenses. There were no significant equity transactions during the first nine months of 1998. In May 1999, we entered into a financing transaction pursuant to which we will construct a corporate headquarters, research and development and manufacturing facility on the campus of California State University, Northridge, the first phase of which will be financed with a $65.0 million credit transaction. The transaction was structured as a synthetic lease financing for this facility and, in a related transaction, we obtained a revolving line of credit to borrow up to $15 million. Under the terms of the financing, a special purpose trust subleases the land to us and leases the improvements to us. In connection with these financing transactions, we pledged substantially all of our assets as collateral security, and are subject to various affirmative and negative covenants regarding the conduct of our business. These arrangements could adversely affect our ability to obtain additional capital or acquire additional capital resources. The synthetic lease has a term of five years, with two one-year renewal options. The underlying ground lease has a term of 40 years with renewal options for up to an additional 40 years. Under these arrangements, we are committed to annual payments ranging from $4.5 million to $5.0 million commencing sometime during the second half of 2000. Additionally, we are committed to payments of $400,000 during 1999 and to average annual payments in future periods of approximately $450,000, plus periodic cost of living adjustments, per the terms of the ground lease for the Northridge property. These lease payments will be recorded as rent expense in future periods after construction of our new corporate headquarters is completed. When the synthetic lease terminates, we will be able to assume the obligations of the special purpose trust as the lessee under the ground lease if we exercise our option to purchase. 14 15 In the process of integrating some HMS operations, we discovered specific business practices relating to charges billed to the State of Florida which were implemented by prior ownership and that may result in liability. These billing activities were related to business activities of an affiliated pharmacy. We have received no notice of any action which is pending or threatened against HMS in connection with the billing activities. We have corrected the practices, notified the State of Florida of our findings and have initiated legal action against the prior owners to seek indemnification for any related liability that we may incur. The amount of liability, if any, cannot be determined at this time, although we believe that indemnification for liability would be available from the prior owners. We also are involved in other litigation, the financial impact of which is uncertain (see notes to consolidated financial statements.) We received $4.5 million during the first nine months of 1998 and 1999 under terms of our research and development contract with AMI. As indicated above, we have the right to purchase the technologies developed or acquire a fully paid-up, exclusive worldwide license for these technologies, in either case at prices ranging from an aggregate of $13.5 million to $19.0 million, subject to downward adjustment, during specific periods through April 30, 2002, or may alternatively elect to pay royalties on sales of products utilizing the technology developed pursuant to the contract. We have also entered into an agreement by which, among other transactions, we have acquired an option to purchase the exclusive worldwide marketing rights to a long-term glucose sensor and related products being developed by MRG for $30.0 million within 90 days of MRG's first successful human implant in a clinical trial performed in accordance with applicable regulatory requirements. To retain our exclusive marketing rights, we are required to purchase minimum quantities of some products from MRG. We do not anticipate exercising this option prior to 2000. In the event that we pursue either of these opportunities, additional capital resources may be required. Management believes that our current level of our cash and cash equivalent and short term investments will be sufficient to meet our needs for working capital and capital expenditures for the next twenty-four months. The requirements for additional capital and working capital, however, are subject to change and will depend upon numerous factors, including: - the level of capital expenditures, especially relating to new corporate headquarters; - research and development activities and results; - competitive and technological developments; - health care reimbursement trends; and - the availability for our acquisition of complementary additional distribution channels, products, and technologies. During future periods, we may require significant amounts of cash to pursue opportunities and promote continued growth and expansion. 15 16 YEAR 2000 COMPLIANCE The Year 2000 problem, or Y2K, refers to the potential of all electronic devices to improperly calculate dates in and beyond the year 2000. In the second quarter of 1998, we formed a Year 2000 Oversight Committee to evaluate our position regarding Y2K. The committee consists of members representing all of the major operating and administrative departments within MiniMed including information technology, facilities, manufacturing, research and development, regulatory, quality assurance, materials, finance and accounting and legal. The committee established an Action Plan Program to facilitate our Y2K compliance and minimize the potential effects of Y2K on our operations. The components of the plan include the following steps: - assess Y2K compliance of our products; - inventory our equipment and software, including non-information systems equipment and software and prioritize according to critical business functions; - implement Y2K compliance testing and remediation according to priorities developed; - assess vendor and health care payor compliance; - develop and implement policies to maintain Y2K compliance going forward; and - establish contingency plans. A timetable for the completion of each of these action steps contained in the plan has been developed by the committee. The committee meets regularly to assess our efforts to comply with the plan and to address any outstanding Y2K issues. The committee is also responsible for coordinating all communications and responding to all inquiries relating to Y2K. Products We have completed our evaluation of the Y2K readiness and impact on our current and impending product offerings. Such evaluation has shown that Y2K will not pose operating problems for these products. Products that were manufactured and distributed prior to the Company's Y2K preparedness efforts (all model external insulin pumps prior to the model 507C) do not utilize or maintain month-day-year data. Only day of the week data is utilized for recording event history and programming for insulin delivery. Current and impending products that do maintain month-day-year data have been designed and programmed to ensure year 2000 compatibility. Specifically, the Company has confirmed that such products will not function abnormally or provide invalid or incorrect results caused by processing date data up to the year 2000 and beyond. Inventory As of the end of the second quarter of 1999, we had completed the process of creating a master inventory of all equipment and software vulnerable to Y2K. Additionally, the Company has prioritized the impact of all such equipment and software on our critical business processes. This process was coordinated by personnel in the Company's Information Technology Group that are dedicated to preparing the Company for Y2K. When appropriate, we have engaged the services of independent consultants to support our internal personnel working on this project to analyze and develop testing standards and approaches. Remediation To date, remediation programs to address problems that had been identified are substantially complete. We have remediated approximately eleven hundred (1,100) personal computers, fifty-six (56) servers, manufacturing systems utilizing embedded chips to process information, as well as the Company's 16 17 communication systems, security systems, environmental control systems and various other pieces of equipment and machinery. We have also substantially completed our remediation efforts relating to our internal software systems and applications. These include all material software systems utilized on a Company wide basis, all of our enterprise network applications (including accounting, control and sales management systems) and material internally developed software applications. We are currently in the final stages of testing these systems to insure Y2K functionality. Vendor Compliance We have initiated formal communication with our vendors to assess their compliance with and readiness for Y2K. Questionnaires have been developed and distributed to vendors. These questionnaires, when returned by a vendor, have been evaluated to assess the Y2K risk presented by that vendor. A subset of the Company's vendors have been identified as critical to the Company's continuing operations. On site evaluations at several of these critical vendors' sites of operations have been conducted. To date, approximately 98% of the Company's vendors have returned completed Y2K readiness questionnaires. Included in these responses are all of the completed Y2K readiness questionnaires relating to the Company's critical vendors. The Company's focus has been on analyzing the responses of these critical vendors. Risks The Company expects that it has, or will, implement the modifications necessary to address any Y2K issues that the Company may have. We currently believe that, with the modifications made to existing software, conversion to new software and appropriate remediation of effected hardware (including equipment and machinery), Y2K is not reasonably likely to pose significant operational problems for the Company. However, if unforeseen difficulties arise or such modifications, conversions or remediation prove ineffective, Y2K may have a material adverse impact on the results of operations and financial condition of the Company. We suspect that our greatest Y2K risk will be that of vendor compliance. We rely on our vendors to supply us with critical components necessary for the manufacture and distribution of our products. The Y2K compliance of insurance companies, management service organizations, and other third-party payors who provide revenue to the Company, over which we have no control, also presents a risk to the operations of the Company. While the Company has taken steps in evaluating and minimizing these risks, we cannot assure that there will not be significant operational Y2K issues caused by unresolved Y2K problems with the systems of third parties over which we have no control. We believe that the plan, implemented by the committee, has significantly reduced both our level of uncertainty about the Y2K problem and the possibility of significant interruptions to normal operations. Although the Company has not been put on notice of, or discovered any, third party problem that will not be timely resolved, the Company has limited information and assurances concerning the Y2K readiness of third parties. The resulting risks to the Company's business are very difficult to assess due to the large number of variables involved. If third parties fail to achieve Y2K compliance, Y2K problems could have a material adverse impact on the Company's operations. Contingency Plans The Company believes that our most reasonably likely worst case scenario would relate to the failure of third party systems over which the Company has no control and for which the Company has no ready substitute, such as, but not limited to, systems of critical vendors, utilities and communications. A failure of such systems may result in an interruption in, or failure of, normal business activities and could materially impact our results of operations and financial position. Due to the general uncertainty inherent in the Y2K problem, resulting primarily from the uncertainty of the Y2K readiness of our vendors and suppliers, we are unable to determine at this time whether the consequences of Y2K failures will have a material adverse impact on us. The Company has, however, instituted a Y2K contingency plan which is designed to ameliorate the effect of any Y2K problems actually encountered. The contingency plan contemplates a potential problem with the Company's internal systems, a problem with continuing availability of certain component parts provided by 17 18 vendors and possible loss of utility services such as power and communications. Specifically, inventory policies have been reevaluated to mute the impact of a loss of a critical vendor, alternative power sources have been dedicated to critical areas, and contingency communication procedures have been implemented. The Company has also implemented plans to limit the amount of data that may be lost in case of a major internal system problem and procedures in all functional areas have been changed to reflect such plans. While the Company believes that these plans will lessen the impact of any unforeseen Y2K problem, the Company cannot assure that such a problem will not have a material adverse impact on our results of operations and financial position of the Company. Cost In the performance of our previously described Y2K compliance activities we expect to spend less than $1,000,000. Management currently believes that we have adequate working capital to fund these activities. Readers are cautioned that forward looking statements contained in this Year 2000 Compliance section should be read in conjunction with our cautionary language in the first paragraph of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 10. 18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 31, 1999, we entered into a settlement agreement and mutual release with Fimed, Inc. relating to the litigation then pending in Los Angeles County Superior Court. Neither Fimed nor MiniMed acknowledged or admitted any liability as part of the settlement. As stipulated in the agreement, terms of the settlement will be kept confidential. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Exhibit - ----------- ---------------------------------------------------------------------- 3(ii).1 Amendment to Bylaws of MiniMed Inc. 10.1 First Amendment to Stock Pledge Agreement made by MiniMed in favor of ING (U.S.) Capital LLC dated as of June 24, 1999. 10.2 Change of Control Agreement dated August 12, 1999 between MiniMed Inc. and Stephen Bowman. 10.3 Third Amended and Restated 1994 Stock Incentive Plan (Incorporated by reference from Exhibit 4.1 to Post Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 filed by the Company on September 16, 1999, registration no. 33-95630). 27.1 Financial Data Schedule.
(b) Reports on Form 8-K Current Report on Form 8-K filed August 31, 1999, announcing the execution of a settlement agreement and mutual release with Fimed, Inc. relating to the litigation then pending in Los Angeles County Superior Court. 19 20 SIGNATURE 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. MiniMed Inc. Date: November 15, 1999 /s/ KEVIN R. SAYER ------------------------------------- Kevin R. Sayer Senior Vice President, Finance & Chief Financial Officer 20 21 INDEX TO EXHIBITS
Exhibit No. Exhibit - ----------- ---------------------------------------------------------------------- 3(ii).1 Amendment to Bylaws of MiniMed Inc. 10.1 First Amendment to Stock Pledge Agreement made by MiniMed in favor of ING (U.S.) Capital LLC dated as of June 24, 1999. 10.2 Change of Control Agreement dated August 12, 1999 between MiniMed Inc. and Stephen Bowman. 10.3 Third Amended and Restated 1994 Stock Incentive Plan (Incorporated by reference from Exhibit 4.1 to Post Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 filed by the Company on September 16, 1999, registration no. 33-95630). 27.1 Financial Data Schedule.
21 EX-3.(II).1 2 EXHIBIT 3(II).1 1 EXHIBIT 3(ii).1 MINIMED INC. AMENDMENT TO BYLAWS ADOPTED OCTOBER 13, 1999 The Bylaws of the Company hereby are amended as follows: 1. Section 2.02 of Article II hereby is restated in its entirety as follows: "Section 2.02. Special Meetings. A special meeting of the stockholders for the transaction of any proper business may be called at any time by the Board." 2. The first clause of the fourth sentence of Section 2.09 is hereby amended and restated as follows: "To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days nor more than 120 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made." 3. The first clause of the fourth sentence of Section 2.10 regarding notice of stockholder nominees for Director hereby is amended and restated to read as follows: "To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 day prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made." /s/ Eric S. Kentor --------------------------- Eric S. Kentor Secretary EX-10.1 3 EXHIBIT 10.1 1 EXHIBIT 10.1 FIRST AMENDMENT TO STOCK PLEDGE AGREEMENT THIS FIRST AMENDMENT TO PARENT STOCK PLEDGE AGREEMENT (the "First Amendment"), dated as of June 24, 1999, made by MINIMED INC., a Delaware corporation (the "Pledgor"), in favor of ING (U.S.) CAPITAL LLC, a Delaware limited liability company ("ING"), as Collateral Agent (in such capacity, the "Collateral Agent") for the Secured Parties referenced herein.. W I T N E S S E T H: A. The Pledgor and the Collateral Agent, for the benefit of the Secured Parties referenced therein entered into that certain Parent Stock Pledge Agreement dated as of May 18, 1999 (as amended, restated, modified or otherwise supplemented, the "Pledge Agreement"; capitalized terms used herein, unless otherwise defined herein shall have the meanings assigned to them in the Pledge Agreement); and B. The Pledgor and the Collateral Agent agree to amend the terms and provisions of Pledge Agreement as more particularly described herein on the terms and conditions described herein; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged by it, and in order to induce the Secured Parties, in their various agent and individual capacities, to continue to make certain financial accommodations to the Pledgor and certain of its Subsidiaries pursuant to the Related Documents, the Pledgor agrees with the Collateral Agent, for the benefit of the Secured Parties, as follows: : 1. Amendment to Section 2.3 of the Pledge Agreement. Section 2.3 of the Pledge Agreement is hereby amended by deleting Section 2.3 in its entirety and substituting in lieu thereof the following Section 2.3: "SECTION 2.3. Delivery of Pledged Property; Registration of Pledge, Transfer, Etc. All certificates and instruments representing or evidencing any Collateral, if any, including all Pledged Shares other than Pledged Shares of Dartec AB, a Swedish company and MiniMed International Inc., a Barbados company, shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank and, if such certificates and instruments are traded on a registered national security exchange and the Collateral Agent shall so request, with signatures guaranteed by a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. or by a commercial bank or trust company 2 having an office or correspondent in the United States. The Collateral Agent shall have the right, at any time without notice to the Pledgor after (i) the Collateral Agent reasonably determines in good faith that such action is required to protect or perfect the interest of the Secured Parties in the Pledged Collateral or (ii) upon the occurrence and during the continuation of an Event of Default, to transfer to, or to register in the name of the Collateral Agent or any of its nominees, any or all of the Pledged Shares, subject only to the revocable rights of the Pledgor specified in Section 4.6. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments in its possession representing or evidencing any Pledged Shares for certificates or instruments of smaller or larger denominations." 2. Amendment to Schedule I of the Pledge Agreement. Subject to the terms and conditions of this First Amendment, the Pledge Agreement shall be modified and amended by deleting Attachment I attached to the Pledge Agreement in its entirety and by substituting in lieu thereof Attachment I attached hereto. 3. No Other Amendments. Except for the amendments expressly set forth and referred to above, the Pledge Agreement shall remain unchanged and in full force and effect. Nothing in this First Amendment is intended, or shall be construed, to constitute a novation or an accord and satisfaction of any of the Secured Obligations or to modify, affect or impair the perfection or continuity of the Collateral Agent's security interests in, security titles to or other liens on any Pledged Property for the Secured Parties. The Pledgor hereby confirms and reaffirms its pledge of the Pledged Property to the Collateral Agent. 4. Representations and Warranties. To induce Collateral Agent, to enter into this First Amendment on behalf of the Secured Parties, the Pledgor does hereby warrant, represent and covenant to the Collateral Agent that: (a) each representation or warranty of the Pledgor set forth in the Related Documents, is hereby restated and reaffirmed as true and correct in all material respects on and as of the date hereof (except to the extent that any such representation or warranty expressly relates to a prior specific date or period), and no Default or Event of Default has occurred and is continuing as of this date as defined under the Related Documents; and (b) the Pledgor has the power and is duly authorized to enter into, deliver and perform this First Amendment, and this First Amendment is the legal, valid and binding obligation of the Pledgor enforceable against it in accordance with its terms. 5. Miscellaneous. (a) Binding Effect. This First Amendment shall become effective when it shall have been executed by Pledgor and thereafter shall be binding upon Pledgor and shall inure to the benefit of the Collateral Agent and the Secured Parties. Upon the effectiveness of this First Amendment, this First Amendment shall be deemed to be a part of and shall be subject to all the terms and conditions of the Pledge Agreement. 3 (b) Governing Law. THIS FIRST AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (c) Execution in Counterparts. This First Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 4 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed as of the date first above written. MINIMED INC., as Pledgor By: /s/ TERRANCE H. GREGG ----------------------------------- Name: Terrance H. Gregg Title: President ING (U.S.) CAPITAL LLC, as Collateral Agent By: /s/ DARREN WELLS ----------------------------------- Name: Darren Wells Title: Managing Director 5 ATTACHMENT 1 (to the Parent Stock Pledge Agreement) INITIAL PLEDGED SHARES ---------------------- PART A - DOMESTIC SUBSIDIARIES ------------------------------
Class of Number of Certificate Issuer Capital Stock Shares Number(s) ------ ------------- --------- ----------- MiniMed Development Corp., Common 10,000 1 a Delaware corporation MiniMed Distribution Corp., Common 500 1 a Delaware corporation
PART B - FOREIGN SUBSIDIARIES -----------------------------
Class of Number of Certificate Issuer Capital Stock Shares Number(s) ------ ------------- --------- ----------- MiniMed Gmbh, Germany N/A 0.65 N/A MiniMed SA, France N/A 8 N/A Dartec AB, Sweden Common 1,400 1-1,400 MiniMed International Inc., Barbados Common 650 1
[Note: the Pledged Shares of MiniMed Gmbh, MiniMed SA, Dartec AB, and MiniMed International Inc. constitute approximately sixty five percent (65%) of each class of the issued and outstanding stock of each such company.] EX-10.2 4 EXHIBIT 10.2 1 EXHIBIT 10.2 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement is entered into this 12th day of August, 1999 between MiniMed Inc., a Delaware corporation (the "Company") and Stephen Bowman (the "Executive"). R E C I T A L S The Company considers it essential and in the best interest of its stockholders to foster the continuous employment of key management personnel. The Company further recognizes that, as in the case of many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may create concerns for, and the distraction of, management personnel and may even result in departures which might have otherwise not have taken place, all to the detriment of the Company and its stockholders. The Company now desires to take steps to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change of control of the Company. A G R E E M E N T 1. Payment of Severance Benefits Upon Change of Control. In the event of a Change of Control of the Company (as defined in Section 3) during the two-year period from the date of this Agreement, the Executive shall be entitled to the benefits set forth in Section 2 (the "Severance Benefits"), but only if: (a) the Executive's employment by the Company or the successor owner of its business is terminated by the Company or such successor without Cause (as defined in Section 4) during the two years after the occurrence of the Change of Control; (b) the Executive terminates his or her employment with the Company or its successor (i) for Good Reason (as defined in Section 5) during the two years after the occurrence of the Change of Control or (ii) with or without Good Reason during the thirty day period after the first anniversary of the Change of Control provided that the Executive gives the Company at least sixty (60) days prior written notice of any such termination pursuant to this clause (ii); (c) the Executive's employment by the Company is terminated by the Company within three months prior to the Change of Control and such termination (i) was at the request of a third party who had taken steps to effect the Change of Control at the time of the request or (ii) otherwise arose in connection with or in anticipation of the Change of Control; or (d) the Executive terminates his or her employment with the Company for Good Reason within three months prior to the Change of Control and the event referred to in Section 5 (a), (b) or (c) constituting Good Reason (i) occurs at the request of a third party who had taken steps to effect the Change of Control at the time of the request or (ii) otherwise arose in connection with or in anticipation of the Change of Control. A termination of the Executive's employment coupled with an offer of employment by an Affiliate of the Company will not constitute a termination of employment for purposes of this Agreement unless the terms of employment offered would constitute Good Reason for the Executive to terminate his or her employment if they were imposed by the Company and then only if the Executive does not accept the offer. Any resignation by the Executive at the request of the Board of Directors shall be treated as a termination by the Company pursuant to (a) or (c) above (whichever is applicable) but shall not necessarily mean that the requirements of (c)(i) or (ii) have been 2 satisfied. An "Affiliate" of the Company is an entity controlling, controlled by or under common control with the Company as defined in Rule 405 of the Securities and Exchange Commission under the Securities Act of 1933. The effective date of any termination of employment referred to in (a) or (c) above shall be the date specified by the Company or the successor owner of its business, and the effective date of any termination of employment referred to in (b) or (d) above shall be the date specified in the notice of termination delivered pursuant to Section 5 or, if no date is specified in the notice, the date specified by the Executive orally or, if no such date is specified orally, the date the Executive ceases working for the Company or the successor owner of its business on a full time basis. 2. Definition of Severance Benefits. 2.1 Amount of Benefits. Except as provided in Section 2.2, the Severance Benefits referred to in Section 1 shall include and be limited to the following: (a) a lump sum payment equal to two times (2X) the Executive's annual base salary (at the greater of the rate in effect immediately prior to the Change of Control or the rate in effect immediately prior to the termination of his or her employment); (b) a lump sum payment equal to two times (2X) the Executive's Three-Year Average Bonus (as defined and calculated in accordance with Section 6); (c) a lump sum payment with respect to the Executive's bonus for the year of termination of employment as follows: (i) if the performance and other criteria for earning the Executive's bonus for the year of termination of employment have been established for the quarterly periods of that year and the criteria through the end of the last full quarter prior to the effective date of termination have been been satisfied (excluding any criterion that the Executive continued to be employed through the end of the year), then the pro rata portion of the full bonus that would have been earned for that year if the performance criteria for the full year were satisfied to the same extent as they have been satisfied for such interim period (such pro rata portion to be determined on the basis of the number of days in the year prior to the termination of employment as compared to the full year); (ii) if the performance and other criteria for earning the Executive's bonus for the year of termination of employment have been established as provided in (i) above and the criteria for earning any bonus through the end of the last full quarter prior to the effective date of termination have not been satisfied (and the Executive would be deemed to not be eligible for any portion of any bonus in connection therewith), then no payment pursuant to this Section 2.1 (c); (iii) if the performance and other criteria for earning the Executive's bonus are not established on a quarterly basis as provided in (i) and (ii) above and all performance and other criterial for earning the bonus for the full year have been satisfied as of the date of termination (other than the criterion that Executive continue to be employed through the end of the year), then a pro rata portion of the full bonus for that year determined as provided in (i) above; and (iv) if none of (i) through (iii) apply, then a prorated portion of the Executive's Three-Year Average Bonus (such prorata portion to be determined as provided in (i) above. (d) continuation of the Company's contribution to any health, disability and life insurance benefits being offered at the time of termination of his or her employment for the period from the 2 3 effective date of termination of employment until the earlier of the date two (2) years thereafter or the date the Executive becomes employed on a full-time basis by another employer and is covered by a medical plan provided by such employer with no applicable exclusions for pre-existing conditions; (e) if the Executive has the right to use of a Company car or is granted a car allowance, continuation of such use or allowance for a period of one year after the effective date of termination of the Executive's employment or until such earlier date as the Executive becomes employed on a full time basis by another employer; and (f) acceleration of the exercise dates of all outstanding options to purchase shares of capital stock of the Company (or any other security or property as to which any such option may have become exercisable pursuant to its terms) held by the Executive and granted under stock option plans adopted by the Company for employees and others so that such options become fully exercisable on the date of the termination of the Executive's employment to the extent they were not otherwise exercisable. The payments in (a), (b) and (c) above shall be made within thirty (30) days after the effective date of the termination of the Executive's employment. Notwithstanding (a) through (e) above, in the case of a termination of employment prior to the occurrence of a Change of Control, the Company shall have no obligation to pay or provide any Severance Benefits with respect to the period prior to the occurrence of the Change of Control. In such event, and to the extent Section 1 (c) or (d) applies, the amount of Severance Benefits shall be determined as if the Executive's employment terminated effective upon the occurrence of the Change of Control, except that, if any of the benefits referred to in (a) through (e) above have been paid or provided for all or any portion of the period between the termination of employment and the Change of Control, the amount of the Severance Benefits which would otherwise be paid shall be reduced by the amount of the benefits paid or provided for the period prior to the Change of Control. With respect to acceleration of the exercise dates of stock options pursuant to (f) above for an Executive whose termination of employment occurred prior to the occurrence of the Change of Control, such acceleration shall not occur until the Change of Control and any such stock option which shall have expired without being fully exercised during the period from the termination of employment to the date of the Change of Control shall be deemed to have been reinstated and extended to permit acceleration as contemplated by (f) above and exercise of the option concurrently with the consummation of any transaction constituting a Change of Control or, in the event of such a change referred to in Section 3.1 (a) or (d), within thirty days thereafter. Notwithstanding (b) and (c) above, the benefits set forth in those subparagraphs shall not be payable if the Executive had been advised, prior to the Change of Control, that he or she would not be eligible to earn a bonus for the year in which the termination of employment becomes effective unless (i) such advice was at the request of a third party who had taken steps to effect the Change of Control or (ii) otherwise arose in connection with the Change of Control. 2.2 Reduction of Amount of Severance Benefits. In the event the Company determines that payment of any of the Severance Benefits would result in the imposition of any tax imposed by Section 4999 of the Internal Revenue Code of 1986 and the regulations thereunder (or any successor provisions), the Severance Benefits referred to in Section 2.1 (a) through (e) shall be reduced to such extent as the Company determines is necessary to avoid the imposition of any such tax. Such determination shall be made taking into account all other "parachute payments" (as defined in Section 280G of the Internal Revenue Code and the regulations thereunder or any successor provisions), to which the Executive would be entitled, including without limitation the acceleration of the exercise date of stock options. Such reductions shall first be made in the bonus payments referred to in Section 2.1(b) and thereafter, if necessary, to the bonus payments referred to in Section 2.1(c), the salary payments referred to in Section 2.1(a) and the other benefits referred to in Section 2.1(e) and (d), all in that order of priority. In no event shall any reductions in Severance Benefits pursuant to this Section 2.2 affect the Executive's rights under 2.1(f) or under any then existing stock option agreement or plan. If the Company determines that, after the reduction of the other Severance Benefits referred to above, the acceleration of the exercise dates of stock 3 4 options pursuant to 2.1(f) above or pursuant to the terms of the option agreements or plans themselves would still result in the imposition of a tax imposed by Section 4999 of the Internal Revenue Code, then all of the reductions in Severance Benefits referred to in Section 2.1 (a) through (e) shall be made and there shall be no further reduction in Severance Benefits except to the extent that the Executive elects in writing, prior to the delivery of any notice of termination of his or her employment, to not have any stock options so accelerate. 2.3 Resolution of Disagreements. The Company shall make its determination as to whether any reduction in Severance Benefits is required pursuant to Section 2.2 within 15 days after the termination of the employment of the Executive and again promptly after the Executive exercises any stock options and shall deliver to the Executive written notice of the determination together with the Company's detailed calculations supporting its conclusion. If the Executive does not agree with the Company's determination, he or she shall notify the Company in writing of that disagreement within 30 days after receipt of the Company's notice and detailed calculations. Failure to give such notice of disagreement shall be deemed to constitute acceptance of the determination by the Company, and such determination shall become final and binding on the parties. The notice by the Executive shall set forth in reasonable detail why the Executive disagrees with the determination made by the Company and shall be accompanied by the Executive's detailed calculations supporting his or her conclusion. If the Company and the Executive have not resolved their disagreement within ten days after the Company receives the Executive's notice and detailed calculations, the Company and the Executive will each have the right, acting without the other, to refer the matter to the firm then serving as the independent certified public accountants of the Company, whose determination shall be final and binding on both parties. The Company will endeavor to cause the accounting firm to give both the Executive and the Company written notice of its determination accompanied by its detailed calculations. If (i) neither party refers the dispute to the independent accounting firm within thirty days after the Company receives the Executive's notice, (ii) the Company does not then have a firm serving as its independent certified public accountants or (iii) the firm then serving in that capacity refuses to resolve the matter or fails to provide written notice of its determination accompanied by its detailed calculations within 30 days after the matter is referred to it, then either party will have the right to commence an arbitration pursuant to Section 13 to resolve the matter. The fees and expenses of the accounting firm will be paid by the Company. If the Company determines that payment of the full Severance Benefits will result in the imposition of a tax as provided above, the Company will have the right to withhold from the payment of Severance Benefits the amount of any reduction determined by it in accordance with Section 2.2. If the Executive disagrees with the determination by the Company, the Company shall have the right to continue to withhold the payments of such amounts until the matter is finally resolved. If such resolution indicates that the Company's determination was incorrect, the Company shall promptly pay to the Executive any amount of Severance Benefits which should not have been withheld, with interest for the period that the payment was withheld at the reference rate then in effect of the Bank of America National Trust and Savings Association. 4 5 3. Definition of Change of Control. 3.1 Events Constituting Change of Control. For purposes of this Agreement, a "Change of Control" of the Company shall be deemed to have occurred if any one of the following events occurs: (a) except as provided in Section 3.3, the acquisition by any person or group of beneficial ownership (as defined in Section 3.5) of more than 30% of the outstanding shares of Common Stock of the Company or, if there are then outstanding any other voting securities of the Company, such acquisition of 30% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (b) the Company sells all or substantially all of its assets (or consummates any transaction having a similar effect) or the Company merges or consolidates with another entity or completes a reorganization except as provided in Section 3.4; (c) the Company is liquidated; or (d) The Board of Directors of the Company (if the Company continues to own its business) or the board of directors or comparable governing body of any successor owner of its business (as a result of a transaction which is not itself a Change of Control) consists of a majority of directors or members who are not Incumbent Directors (as defined in Section 3.2). Any purchase or redemption of outstanding shares of Common Stock or other voting securities by the Company resulting in an increase in the percentage of outstanding shares or other voting securities beneficially owned by any person or group shall be deemed to constitute a reorganization pursuant to (b) above except as provided in Section 3.4. 3.2 Definition of Incumbent Directors. For purposes of Section 3.1 and subject to the last sentence of this Section 3.2, "Incumbent Directors" includes only those persons who are: (i) serving as directors of the Company on the date of this Agreement or, (ii) elected by a majority of the directors who then constitute Incumbent Directors or selected by a majority of such directors to be nominated for election by the stockholders and are elected. In no event, however, shall any director whose election to office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by on behalf of a person or entity other than the Board of Directors of the Company be an Incumbent Director. 3.3 Exception for Certain Acquisitions of Stock. Section 3.1(a) shall not include the acquisition of beneficial ownership of Common Stock or other voting securities of the Company: (a) by the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company; (b) by Alfred E. Mann; (c) by any person or entity as a result of the death of Mr. Mann if the shares acquired were beneficially owned by Mr. Mann immediately before his death; or (d) by any person or entity during Mr. Mann's lifetime if the shares acquired were beneficially owned by Mr. Mann immediately prior to their acquisition and the acquisition is a 5 6 charitable contribution or a transfer to a trust, partnership, corporation or other entity in which Mr. Mann's family and/or any charity or charities own a majority of the beneficial interests. 3.4 Exceptions for Certain Reorganizations. Section 3.1(b) shall not apply to any transaction described therein if the holders of the voting securities of the Company outstanding immediately prior to the transaction own immediately after the transaction in approximately the same proportions 70% or more of the combined voting power of the voting securities of the entity purchasing the assets or surviving the merger or consolidation or, in the case of a reorganization, 70% or more of the combined voting power of the voting securities of the Company. No increase in the percentage of outstanding shares or other voting securities beneficially owned by Alfred E. Mann resulting from any redemption of shares or other voting securities by the Company shall result in a Change of Control pursuant to Section 3.1. 3.5 Definition of Person, Acquisition, Group and Beneficial Ownership. For purposes of this Agreement the term "person" shall have the meaning set forth in the Securities Exchange Act of 1934 and the terms "acquisition," "group, " and "beneficial ownership" shall have the meanings set forth in Rules 13d-3 and 13d-5 of the Rules of the Security and Exchange Commission adopted under the Securities Exchange Act of 1934 except that shares which a person or group has the right to acquire shall be deemed beneficially owned whether or not that right is presently exercisable and regardless of when it becomes exercisable. 4. Definition of Termination for Cause. The Executive's employment shall be deemed to have been terminated for "Cause" if such employment terminates as a result of: (a) the death of the Executive; (b) the Executive becoming unable to perform the essential duties of his or her position, even with reasonable accommodation, as a result of any physical or mental condition for a period of more than ninety (90) consecutive days or for ninety (90) nonconsecutive days in any three hundred sixty five (365) day period; (c) the Executive reaching a mandatory retirement age established by the Company before the Change of Control and not in anticipation thereof; or (d) the Executive's gross negligence; willful misconduct; breach of fiduciary duty to the Company involving self-dealing or personal profits or conviction, entry of a plea of guilty or nolo contendre to a charge of a felony or other crime involving moral turpitude. 5. Definition of "Good Reason." For purposes of this Agreement the Executive shall be deemed to have terminated his or her employment for "Good Reason" if such a termination results from: (a) the Company substantially reducing or increasing the duties, responsibilities or volume of work of the Executive compared to those he or she had in the position he or she held immediately prior to the Change of Control except in connection with a promotion accepted by the Executive; (b) the Company requiring the Executive to have as his or her principal location of work any location which is not within 35 miles of either the Executive's principal location of work or the Executive's residence immediately prior to the Change of Control; (c) the Company (i) reducing the base salary of the Executive, (iiiii) reducing the employee benefits available to the Executive (not including bonuses or stock options) to an extent which is material to all such benefits taken as a whole, or (iii) changing any objective criteria for calculating the annual bonus that can be earned by the Executive or, if no such objective criteria exist, changing the amount of the annual bonus such that the Executive cannot reasonably be expected to earn in salary and bonus combined at least 90% of the average amount he or she had earned in salary and bonus combined for the last three full fiscal years preceding the year for which the 6 7 bonus is changed or such lesser number of full fiscal years during which the Executive has been employed by the Company; (d) the Company reducing the employee benefits available to the Executive (not including bonuses or stock options) to an extent which is material to all such benefits taken as a whole; or (e) the Company failing to require a successor to expressly assume this Agreement as required in Section 9 below unless such assumption occurs and is effective by operation of law. Notwithstanding the foregoing, none of the events referred to in (a) through (c) above shall constitute Good Reason unless the Executive gives written notice to the Company of his or her election to terminate his or her employment for such reason within 90 days after he or she becomes aware of the existence of facts or circumstances constituting Good Reason. Such notice shall set forth in reasonable detail the facts and circumstances constituting the Good Reason and, if the Good Reason is a curable condition, shall provide the Company with 30 days to cure such condition. The notice shall also specify the date when the termination of employment is to become effective (if the Good Reason is not curable or is curable but not cured within the 30 days), which date shall be not less than 60 days and not more than 180 days from the date the notice is given. 6. Definition of "Three-Year Average Bonus." For purposes of determining the amount of the Severance Benefit referred to in Section 2.1 (b) and (c) (subject to the last paragraph of Section 2.1), an Executive's "Three-Year Average Bonus" shall be deemed to be the average of the bonuses paid for the three most recent full fiscal years preceding the date of termination of the Executive's employment, or, if the Executive was not an executive officer of the Company during such three year period or could not have earned a bonus during such three year period, then (subject to the last paragraph of Section 2.1) the average annual bonus for such shorter time that he or she was an executive officer of the Company and could have earned a bonus. Notwithstanding the foregoing, if all performance and other criteria for earning the bonus for the year in which termination of the Executive's employment occurs have been satisfied as of the effective date of such termination (other than the criterion that the Executive continued to be employed), then the full bonus for that year and the two most recent full fiscal years shall be averaged to determine the Three-Year Average Bonus. If the two year period referred to in Section 2.1(b) includes any partial fiscal year of the Company, the bonus for such partial fiscal year shall be calculated by prorating the Three Year Average Bonus based on the number of says in the partial fiscal year. 7. Employment At Will. The employment relationship contemplated by this Agreement is an at will relationship under which either the Executive or the Company has the right at any time to terminate the employment relationship with or without Cause or Good Reason and without notice, subject only to the payment of the Severance Benefits set forth in Section 2 to the extent that they become payable under the terms of this Agreement. Nothing in this Agreement is intended to create a term of employment for a period of years or otherwise. 8. Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any Severance Benefit provided for in this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer, except as provided in Section 2.1(d) and (e). Notwithstanding the foregoing, in the event that the Executive is entitled, by operation of any applicable law, to unemployment compensation benefits or benefits under the Worker Adjustment and Retraining Act of 1988 (known as the "WARN" Act) in connection with the termination of his or her employment in addition to those required to be paid to him or her under this Agreement, then to the extent permitted by applicable law governing severance payments or notice of termination of employment, the Company shall be entitled to offset against the amounts payable hereunder the amounts of any such mandated payments. 9. Assumption of Agreement. The Company will require any successor (whether by purchase of assets, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform all of the obligations of the Company under this Agreement (including the 7 8 obligation to cause any subsequent successor to also assume the obligations of this Agreement) unless such assumption occurs by operation of law. Nothing in this Section 9 is intended, however, to require that a person or group referred to in Section 3.1(a) as being the beneficial owner of shares of stock of the Company assume the obligations under this Agreement as a result of such stock ownership. 10. Assignment and Successors in Interest. This Agreement is personal to the Executive and is not assignable by him or her. This Agreement shall inure to the benefit of and be enforceable by the Executive and his or her personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees, and is binding upon the successors and assigns of the Company. 11. Withholding Taxes. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. 12. Covenants of Executive. During the period that Executive is receiving payments described in Section 1(a) above, he or she will not actively solicit any employees of the Company or its Affiliates to accept employment for any other person or entity and, during that period and thereafter, will not disclose to any person or entity any information concerning the Company or its business that the Executive knows to be of a confidential or non-public nature except as necessary to enforce this Agreement or as required by law. "Affiliate" is defined as any entity controlling, controlled by or under common control with, the Company within the meaning of Rule 405 of the Securities and Exchange Commission under the Securities Act of 1933. 13. Notice. All notices, requests, demands and other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, in the case of the Company to an executive officer other than the Executive, or when mailed by United States mail, postage prepaid, return receipt requested, addressed, in the case of the Company to 12744 San Fernando Road, Sylmar, California 91342 or, in the case of the Executive to the address set forth beneath his or her signature hereto, or such other address as may be provided by either party as to himself, herself or itself in the manner set forth above. 14. Arbitration. Except as provided in Section 2.3, all disputes or controversies arising under or in connection with this Agreement shall be settled exclusively by arbitration conducted in Los Angeles County, California in accordance with the rules of the American Arbitration Association then in effect, provided that the arbitrator or arbitrators shall decide the dispute or controversy in accordance with California law as applied to this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 15. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California applicable to the agreements between residents of California to be performed entirely within California. 16. Attorneys' Fees. In the event of any litigation or arbitration arising out of or relating to this Agreement, the prevailing party shall be entitled to recover his, her or its reasonable attorneys' fees incurred in connection therewith. 17. Entire Agreement. This Agreement sets forth the entire agreement of the parties with respect to the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, commitments, communications, representations, or warranties, whether oral or written except that nothing in this Agreement shall amend or supersede any employment or stock option agreement in effect on the date hereof. 18. Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by parties hereto. No waiver by either party hereto at any time of any breach by the other party or of any right or remedy under this Agreement shall constitute a waiver of any other breach, right or remedy, whether or not similar in nature. 19. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original but both of which together shall constitute one and the same instrument. 8 9 MINIMED INC. By: /s/ TERRANCE H. GREGG /s/ STEPHEN BOWMAN --------------------------------- ------------------------------------- Terrance H. Gregg Stephen Bowman ------------------------------------- ------------------------------------- (Address) 9 EX-27.1 5 EXHIBIT 27.1
5 1,000 9-MOS DEC-31-1999 JAN-02-1999 OCT-01-1999 99,044 69,400 57,156 9,467 26,607 267,993 55,116 13,813 337,645 19,899 1,000 0 0 323 314,566 337,645 141,394 144,241 46,620 120,726 389 623 99 23,515 9,044 14,471 0 0 0 14,471 0.50 0.47
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